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Management
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PART ONE An overview of management
Chapter 1 An overview of management
Chapter 2 Managerial competencies
Chapter 3 Evolution of managerial thought

PART TWO Planning

Chapter 4 Ethics and corporate social responsibility
Chapter 5 Strategic analysis
Chapter 6 Strategic planning and strategy formulation
Chapter 7 Fundamentals of decision-making

PART THREE Organising

Chapter 8 Organisational structure and design
Chapter 9 Groups and teams in organisations
Chapter 10 Culture and diversity

PART FOUR Leading

Chapter 11 Leadership
Chapter 12 Motivation
Chapter 13 Organisational communication
Chapter 14 Change management

PART FIVE Controlling

Chapter 15 Control
Chapter 16 Risk management
PART ONE An overview of management
Chapter 1 An overview of management
Gavin Staude
1.1 Managers and their place in an organisation
1.1.1 Organisations as systems
1.1.2 Managers versus operational employees
1.1.3 Management levels
1.2 Management and the tasks and roles of managers
1.2.1 Defining management
1.2.2 The tasks of managers
1.2.3 The roles of managers
1.3 Is a manager’s job universal?
1.3.1 Size of the organisation
1.3.2 Level of management in the organisation
1.3.3 Profit versus not-for-profit organisations
1.3.4 Organisational location
1.4 Decision-making, managing change and ensuring that organisations behave responsibly
1.4.1 Making decisions
1.4.2 Managing change
1.4.3 Behaving responsibly
1.5 The functional areas of a business organisation
1.6 The importance of management
1.6.1 Innovation
1.6.2 Quality
1.6.3 Speed
1.6.4 Cost competitiveness
1.7 Competencies of successful managers
1.8 Management: A dynamic process
Chapter summary
Questions for discussion
Endnotes

Chapter 2 Managerial competencies

Lynette Louw
2.1 Managerial competencies
2.1.1 Communication competency
2.1.2 Planning and financial management competency
 2.1.3 Teamwork competency
2.1.4 Strategic action competency
2.1.5 Global awareness competency
2.1.6 Emotional intelligence and self-management competency
2.2 Developing your managerial competencies
Chapter summary
Questions for discussion
Endnotes

Chapter 3 Evolution of managerial thought

Lynette Louw
3.1 Management: An introduction
3.2 Management as a phenomenon
3.2.1 Management as a science
3.2.2 Management as an art
3.2.3 Management as science and an art
3.2.4 Management as a discipline
3.2.5 Management as a profession
3.3 The development of managerial thought
3.3.1 The traditional viewpoint of management
3.3.2 The behavioural viewpoint of management
3.3.3 The systems viewpoint of management
3.3.4 The contingency viewpoint of management
3.3.5 The quality viewpoint of management
3.3.6 The flexible viewpoint of management
3.3.7 The principle-led viewpoint of management
3.4 The integration of managerial viewpoints and competencies
Chapter summary
Questions for discussion
Endnotes

PART TWO Planning

Chapter 4 Ethics and corporate social responsibility
Sandra Perks
4.1 Corporate citizenship
4.2 Importance of ethics and corporate social responsibility
4.3 Forces that shape ethical conduct
4.3.1 Societal norms and culture
4.3.2 Laws and regulations
4.3.3 Organisational practices and culture
4.3.4 Individual perspectives
4.4 Approaches to making ethical judgements
4.4.1 The utilitarian model
4.4.2 The moral rights model
4.4.3 The justice model
4.4.4 Combining ethical approaches
4.5 Managing corporate social responsibility
4.5.1 Stakeholders
4.5.2 Stakeholder concerns
4.5.3 Managing sustainability
4.6 Management tools for encouraging ethical conduct
4.6.1 Code of ethics / Code of conduct
4.6.2 Ethics committee
4.6.3 Ethics training
4.6.4 Whistle-blowing
Chapter summary
Questions for discussion
Endnotes

Chapter 5 Strategic analysis

Gavin Staude
5.1 The interrelationship between an organisation and its external environment
5.2 The strategic importance of the external environment
5.2.1 Scanning
5.2.2 Monitoring
5.2.3 Forecasting
5.2.4 Assessing
5.3 Elements of the macro-environment
5.3.1 Political-legal environment
5.3.2 Economic factors
5.3.3 Socio-cultural and demographic environment
5.3.4 Technological environment
5.3.5 Natural environment
5.4 Elements of the industry environment
5.4.1 Competitors
5.4.2 New entrants
5.4.3 Substitute products and services
5.4.4 Power of customers
5.4.5 Power of suppliers
5.5 Assessing the turbulence in the external environment
5.6 Identifying and evaluating opportunities and threats
5.7 The internal environment
5.7.1 Identifying resources and capabilities
5.7.2 Assessing the strengths and weaknesses in an organisation’s resources and
capabilities using the Relative Strength/Strategic Importance Matrix
Chapter summary
Questions for discussion
Endnotes

Chapter 6 Strategic planning and strategy formulation

Gavin Staude
6.1 The managerial task of planning
6.2 The strategic planning process
6.2.1 Task 1: Clarify the organisation’s strategic intent: vision and mission
6.2.2 Task 2: Assess threats and opportunities
6.2.3 Task 3: Assess strengths and weaknesses
6.2.4 Task 4: Set strategic objectives
6.2.5 Task 5: Undertake a gap analysis
6.2.6 Task 6: Develop strategies to fill the profit gap
6.2.7 Task 7: Implement the strategies identified to best fill the profit gap
6.2.8 Task 8: Control and diagnose results
6.2.9 Task 9: Repeat the planning process
Chapter summary
Questions for discussion
Endnotes

Chapter 7 Fundamentals of decision-making

Stanislous Zindiye
7.1 Introducing the decision-making process
7.2 Decision-making conditions
7.2.1 Certainty
7.2.2 Risk
7.2.3 Uncertainty
7.3 Types of decisions
7.3.1 Types of problems and solutions
7.4 Goals and decision-making
7.4.1 The nature of goals
7.4.2 Benefits of setting goals
7.4.3 General and operational goals
7.4.4 Role of stakeholders
7.5 Decision-making models
7.5.1 Rational decision-making model
7.5.2 Bounded rationality model
7.5.3 Political model
7.6 Knowledge management
7.6.1 Knowledge management drivers
7.6.2 Knowledge management targets
7.6.3 Enabling technology
7.6.4 Enabling culture
7.7 Tools to assist in forecasting
7.7.1 Scenarios
7.7.2 The Delphi technique
7.7.3 Simulation
7.7.4 Virtual reality
7.8 A tool to assist in promoting creativity
 7.8.1 The creative process
7.8.2 Osborn’s creativity model
7.9 Tools to assist in promoting quality
7.9.1 Benchmarking
7.9.2 The Deming cycle
7.9.3 Pareto Analysis
7.9.4 The Fishbone (Ishikawa) Diagram
Chapter summary
Questions for discussion
Endnotes

PART THREE Organising

Chapter 8 Organisational structure and design
HB Klopper
8.1 Organisational structure
8.2 Elements of organisational structure
8.2.1 Specialisation
8.2.2 Standardisation
8.2.3 Co-ordination
8.2.4 Authority
8.3 Organisational design
8.4 The organisation chart
8.5 Departmentalisation
8.5.1 Functional departmentalisation
8.5.2 Product or service departmentalisation
8.5.3 Geographic departmentalisation
8.5.4 Customer departmentalisation
8.5.5 Network departmentalisation
8.5.6 Matrix departmentalisation
8.5.7 Which type of departmentalisation is the best?
8.6 Organisational integration
8.6.1 Job design
8.6.2 Integration through systems
8.6.3 Integration through technology
Chapter summary
Questions for discussion
Endnotes

Chapter 9 Groups and teams in organisations

Sandra Perks
9.1 The differences between a group and a team
9.2 The importance of groups and teams
9.3 Types of groups and teams
9.3.1 Functional work teams
9.3.2 Problem-solving work teams
9.3.3 Multidisciplinary work teams
 9.3.4 Self-managing work teams
9.3.5 Virtual work teams
9.4 A model of work team functioning
9.4.1 External system
9.4.2 Team design
9.4.3 Internal processes
9.4.4 Effectiveness criteria
9.5 Work team leadership
9.5.1 Empowerment
9.5.2 Managing the external boundary
9.5.3 Disbanding an ineffective work team
9.6 Support for work teams
9.6.1 Team training
9.6.2 Team rewards
Chapter summary
Questions for discussion
Endnotes

Chapter 10 Culture and diversity

Theus Louw
10.1 The elements of culture
10.2 Non-observable elements of culture
10.2.1 Shared assumptions
10.2.2 Values and norms
10.3 Observable elements of culture
10.3.1 Socialisation
10.3.2 Symbols
10.3.3 Language
10.3.4 Narratives
10.3.5 Practices
10.4 Levels of culture
10.4.1 Societal cultures and subcultures
10.4.2 Industry cultures and subcultures
10.4.3 Organisational cultures and subcultures
10.5 Types of organisational culture
10.5.1 Bureaucratic culture
10.5.2 Clan culture
10.5.3 Entrepreneurial culture
10.5.4 Market culture
10.5.5 Organisational implications
10.6 Managing workforce diversity
10.6.1 Demographic and cultural diversity
10.6.2 Organisational goals for managing workforce diversity
Chapter summary
Questions for discussion
Endnotes
PART FOUR Leading
Chapter 11 Leadership
Trevor Amos
11.1 Introduction to leadership in business
11.2 Understanding leadership
11.2.1 Leadership as a function of power
11.2.2 Using power effectively
11.3 Traits models
11.3.1 Emotional intelligence
11.3.2 Ethical leadership
11.4 Behavioural models
11.4.1 Theory X and Theory Y
11.4.2 Ohio State University and University of Michigan models
11.4.3 Managerial grid model
11.4.4 Summary
11.5 Contingency models
11.5.1 Fiedler’s contingency model
11.5.2 Hersey and Blanchard’s situational leadership model
11.5.3 House’s path–goal model
11.5.4 Leader-participation model
11.5.5 Comparing contingency models
11.6 Transformational and charismatic leadership
11.6.1 Vision
11.6.2 Framing
11.6.3 Impression management
11.7 Leadership development
11.7.1 Learning on the job
11.7.2 Formal assessment and training
11.7.3 Coaching and mentoring
11.7.4 Developing leaders for global organisations
Chapter summary
Questions for discussion
Endnotes

Chapter 12 Motivation
Trevor Amos
12.1 Introduction to motivation
12.2 Overview of motivation theories
12.2.1 Individual differences
12.2.2 The job and organisational contexts
12.2.3 Behaviours of managers
12.2.4 An integrative approach to motivation
12.3 Theories about individual differences
12.3.1 Maslow’s hierarchy of needs
12.3.2 Alderfer’s ERG theory
12.3.3 McClelland’s theory of learnt needs
12.4 Job and organisational contexts as motivators
12.4.1 Herzberg’s two-factor theory
12.4.2 Job enrichment
12.4.3 Equity theory
12.5 How the behaviour of managers affects motivation
12.5.1 Reinforcement theory
12.5.2 Goal-setting
12.6 Motivation: An integrated view
12.6.1 Basic expectancy theory
12.6.2 The integrated expectancy model
12.7 Guidelines for performance management
12.7.1 Enhancing employees’ performance
12.7.2 Diagnosing performance deficiencies
Chapter summary
Questions for discussion
Endnotes

Chapter 13 Organisational communication

Theus Louw
13.1 Introduction to communication
13.2 The communication process
13.2.1 Sender (encoder)
13.2.2 Receiver (decoder)
13.2.3 Message
13.2.4 Channels
13.2.5 Feedback
13.3 The impact of modern business communication tools on organisational communication
13.3.1 Information technology
13.3.2 Internet
13.3.3 Electronic commerce
13.3.4 Information and communication technology laws
13.3.5 Ethical and privacy issues in communication
13.4 Barriers to effective communication
13.4.1 Organisational barriers
13.4.2 Individual barriers
13.4.3 Overcoming barriers
13.5 Using persuasion for effective communication
13.5.1 Steps in persuasive communication
13.5.2 Principles of persuasion
Chapter summary
Questions for discussion
Endnotes
Chapter 14 Change management
HB Klopper
14.1 Organisational change
14.1.1 Types of organisational change
14.2 Planning for organisational change
14.2.1 Assess the environment
14.2.2 Determine the performance gap
14.2.3 Diagnose organisational problems
14.2.4 Identify sources of resistance
14.2.5 Reduce resistance to change
14.3 A model: The change management process
14.3.1 Recognise the need for change
14.3.2 Set goals
14.3.3 Diagnosis of relevant variables
14.3.4 Selection of appropriate change techniques
14.3.5 Develop and implement an action plan
14.3.6 Evaluation and follow-up
14.4 Implementing change in the organisation
14.4.1 Technology-based approach
14.4.2 Organisational redesign approach
14.4.3 Task-based approach
14.4.4 People-orientated approach
14.5 The role of innovation in organisational change
14.5.1 Types of innovation
14.6 Learning organisations
14.6.1 Shared leadership
14.6.2 Organisational culture
14.6.3 Strategy
14.6.4 Organic organisational design
14.6.5 Use of information
Chapter summary
Questions for discussion
Endnotes

PART FIVE Controlling

Chapter 15 Control
Theuns Oosthuizen
15.1 Understanding and defining control
15.1.1 Types of control
15.1.2 Sources of control
15.2 The control process
15.2.1 Step 1: Define the subsystem
15.2.2 Step 2: Set standards (for control)
15.2.3 Step 3: Collect information (on the actual performance)
15.2.4 Step 4: Make comparisons
15.2.5 Step 5: Diagnose and correct problems if required
15.3 Creating effective controls
15.3.1 Cost–benefit model
15.3.2 Criteria for effective controls
15.4 Performance management
15.4.1 Market controls
15.4.2 Financial controls
15.4.3 Activity-based costing (accounting)
15.4.4 Integrated strategic controls: The balanced scorecard
15.4.5 Automation-based controls
15.4.6 Quality control approaches
15.5 Corporate governance
Chapter summary
Questions for discussion
Endnotes

Chapter 16 Risk management

Theuns Oosthuizen
16.1 Risk in organisational context
16.2 Defining risk and risk management
16.2.1 ISO 31000:2009 risk management
16.2.2 Risk management advantages
16.3 Risk management process
16.3.1 Stage 1: Establishing and analysing the context
16.3.2 Stage 2: Risk assessment
16.3.3 Stage 3: Risk treatment
16.3.4 Stage 4: Monitor and review
16.3.5 Stage 5: Communication and consultation
16.4 Internal sources of risk
16.4.1 Financial risk
16.4.2 Ethical risk
16.4.3 Operational risk
16.4.4 Project risk
16.4.5 Technological risk
16.4.6 Health and safety risk
16.5 External sources of risk
16.5.1 Environmental risk
16.5.2 Economic risk
16.5.3 Legal risk
16.5.4 Market risk
16.5.5 Social risk
16.5.6 Political risk
Chapter summary
Questions for discussion
Endnotes

Glossary
Welcome to the fifth South African edition of the landmark book Management by Don Hellriegel,
John Slocum and Susan Jackson. The co-authors were delighted with the success of the fourth
edition which is reflected in the invitation by Oxford University Press to produce an updated, fifth
edition. The author team for this edition is exactly the same as for the fourth edition which ensures
continuity.
While the fifth edition remains essentially loyal to the platform originally used by Don
Hellriegel, various changes have been introduced to better suit it for South African students of
management, as well as to streamlining
| it. The co-authors are more convinced than ever that a
competency-based approach to the study of management, is the way to go. No matter how well
one understands the traditional managerial tasks of planning, organising, leading and controlling,
and no matter how well one understands the various managerial roles, if one does not possess the
managerial competencies to execute the managerial tasks and perform the managerial roles, one is
unlikely to be an effective manager. To reinforce the importance of managerial competencies, this
fifth edition identifies and explains the managerial competencies relevant to each managerial
activity at the start of each chapter. In addition, an appropriate icon is used to draw attention to the
applicability of a relevant managerial competency throughout each chapter. In terms of
streamlining the book, the number of chapters has been reduced to 16 without compromising on
the breadth of coverage of the essentials of management as a profession.
While we recognise that other books are available for use in introductory management
courses, there are four compelling reasons for using Management (the South African edition):

Compelling research
The first compelling reason to use the book is that it is based on research of the South African
context. South African students will really enjoy this book. It is current and up-to-date, and, of
course the South African examples and emphasis will make it very accessible to them. Each
chapter begins with a statement of learning objectives and chapters are organised to deliver
content relevant to those learning objectives. In addition, at the beginning of each chapter is a
South African Insight designed to give a practical illustration of the subject matter of each chapter.

Compelling fundamentals
The second compelling reason to use the book is that it emphasises the fundamentals of
management. The content of the book merges the responsibilities of managers with the managerial
competencies required to deliver excellence. What are these managerial competencies?
• Communication competency
• Planning and financial management competency
• Teamwork competency
• Global awareness competency
• Emotional intelligence and self-management competency.

Compelling features
Every chapter of this new edition is structured in such a way as to make it very teachable, readable
and manageable. The following are the key features of each chapter:
• Learning objectives
• Relevance of various competencies to the topic covered in the chapter
• South African Insight
• Diagrams, figures and tables
• Key terms and concepts, collated in a glossary at the end of the book
• Questions for discussion
• Exercise for competency development
• Contemporary management in practice.

Compellingly comprehensive
The book covers a comprehensive range of management tools, as well as the managerial
competencies that students are to develop if they are to be effective in helping to create the types
of organisation that will be needed in the years to come.
The book is divided into the following parts, corresponding with the major managerial tasks:
• Part One: An overview of management
• Part Two: Planning
• Part Three: Organising
• Part Four: Leading
• Part Five: Controlling.

We trust that as teachers and learners, you will enjoy the fifth South African edition of
Management, and that it will contribute in no small way to the development of world-class South
African managers and leaders who will develop world-class South African organisations.

The co-author team

June 2017
LEARNING OUTCOMES
After studying this chapter, you should be able to:
• Identify who managers are in an organisation
• Explain what managers do
• Understand the management process and the tasks of management
• Understand and classify the roles of managers according to Mintzberg
• Debate the question as to whether the manager’s job is universal or not
• Understand that managers make decisions, manage change and ensure that their organisations behave
responsibly
• Understand the importance of management
• Identify the six key managerial competencies that managers need to master.

CHAPTER OUTLINE
• South African Insight: Edward Kieswetter: Group Chief Executive of Alexander Forbes 2010–2016
• Managers and their place in the organisation
» Organisations as systems
» Management vs. operational employees
• Management and the tasks and roles of managers
» Defining management
» The tasks of managers
» The roles of managers
• Is a manager’s job universal?
» Size of the organisation
» Level of management in the organisation
» Profit versus not-for-profit organisations
» Organisational location
» Decision-making, managing change and ensuring that organisations behave responsibly
• The functional areas of a business organisation
• The importance of management: Key factors for a sustainable competitive advantage
» Innovation
» Quality
» Speed
» Cost competitiveness
• Competencies of successful managers
• Management: a dynamic process

Key terms and concepts

• Organisation
• Open system
• Manager
• Operative / Operational employee
• First line managers
• Middle managers
• Top managers |
• Effectiveness
• Efficiency
• Management tasks:
» Planning
» Organising
» Leading
» Controlling
• Management roles:
1 Entrepreneur
2 Disturbance handler
3 Resource allocator
4 Negotiator
5 Figurehead
6 Leader
7 Liaison
8 Monitor
9 Disseminator
10 Spokesperson
• Universality of the role of manager
• Making decisions
• Managing change
• Making sure that organisations behave responsibly
• Business functions

Edward Kieswetter, Group Chief Executive of Alexander

Forbes (2010–2016)

When Edward Kieswetter was appointed Group Chief Executive of Alexander Forbes in January 2010, he
took over an organisation receiving negative media coverage about its involvement in potential litigation
arising from historical issues.
Kieswetter explains: “I was coming in at a time when the organisation’s performance was down, when
there was disenchantment between the shareholders and the management, we had… erosion of profits for
three years, and we were in the media for all the wrong reasons”.
During his tenure as CEO, this picture changed on at least three levels: (a) leadership alignment, (b)
employee culture and (c) financial results:
(a) About leadership alignment he says: “To engage leaders is hard work because if you think about it,
generally strong people become leaders. They are strong-willed, strong-minded and clear about their
leadership philosophy”.
Once a year he gathered together the top 120 leaders in the company to review the strategic plan. In
2013, after reviewing the strategic plan with these top leaders, three questions were confidentially posed to
each of the leaders: First, is the strategic intent that they have clarified and communicated, appropriate at
this time for the organisation, given its circumstances and challenges? There was 96% agreement. Second,
do they believe they have made progress against this intent? There was 95% agreement. Third, do they
believe the challenge set for the next 12 to 24 months is achievable? There was 88% agreement.
Kieswetter says: “So that’s a very high level of alignment in the strategic choices we’ve made, in the
progress we’ve made against that, and in the journey ahead”.
 (b) On employee culture they decided to build a more engaging workforce and focused on five areas.
First, they negotiated with every individual to find work that they enjoy doing. It is not a one-way street, it
is a negotiation. Kieswetter believes that “enjoyment comes from two things; being competent to do it and
being interested in doing it”. So they attempt to put people in the right seats, where they are happier,
leverage their talents and are more motivated. Second, make sure people understand the meaning of their
work, the higher purpose of it, the impact that their work has. This emphasises the motive behind actions
and increases motivation of people. Third, they defined success: what does winning mean? He believes
“too few people know specifically what winning means. Knowing what winning means highlights clear
direction. There must be a mutually desired destiny, a better future.” Fourth, give people regular
performance feedback. In other words, are you on course with regard to the direction where winning is?
Fifth, reward and sanction the right behaviour. This of course helps change behaviour towards the desired
culture and environment. Kieswetter says: “So if you didn’t do well and I don’t tell you, I’m not being fair
to you. If you didn’t do well and I’m treating you the same way as someone else that did do well, I’m also
confusing the issue. So, I don’t believe in equal treatment. I believe in fair treatment and fair treatment
differs according to contribution”.
(c) In order to bring home the importance of financial results, growing the revenue, improving the
profitability, improving the efficiency, the margins, managing cash well, and so on, they introduced the
notion of the goose and the eggs. Kieswetter says: “We will measure the leader on two things: the goose is
the organisation, and our eggs are revenue growth, profitability, cash management, cost management, the
hardcore numbers. Our goose is also the quality of our people engagement, the quality of our customer
retention service, the quality of our risk management and the quality of our investment projects”. The
company has a vigorous process of performance engagement, performance management, performance
evaluation, and performance reward in place.
“My contribution was to share the universal law of movement, because ultimately leaders are in the
business of movement. The law states: ‘All movement is governed by the integration of motivation
(motive, reason, purpose, desire and aspirations), direction (plans, vision, destiny and goals) and structure
(resources, systems and procedures).’ Nothing moves without the effective blending of these three
components. Successful leaders find a way to activate this universal law.” Kieswetter is one such leader.
Source: GROENWALD, A. 27 June 2013. Evangelising the hearts and minds. Business Report, 18.

1.1 Managers and their place in an organization

Why study management? In answering this question, we need to start by identifying who
managers are and discovering what they do and why they do it. Managers work in organisations.
So, before we discuss who managers are and what they do, it is necessary to clarify what an
organisation is. ‘An organisation is a collection of people working together to achieve a common
purpose. In so doing, the members are able to accomplish tasks that are far beyond the reach of
anyone acting alone.’1 Listed below are a number of entities that meet our definition of an
organisation. You will note that they vary from companies listed on a stock exchange such as the
Johannesburg Securities Exchange, to small businesses, to a small township spaza shop, to
charitable organisations, to a law firm and to a municipality.
• Unilever, a global company whose products are sold in 180 countries around the world
(www.unilever.com and www.unilever.co.za)
• Altech Ltd, a large South African company listed on the Johannesburg Securities Exchange
since 1967 (www.altech.com)
• Coca-Cola Sabco (Pty) Ltd, a large South African company that is not listed on the
Johannesburg Securities Exchange (www.cocacolasabco.com)
• Prag Shoes, a small family business in Somerset West (www.pragshoes.co.za)
• Qete Restaurant, a spaza shop in the Grahamstown township
• Shepstone and Wylie, a large legal practice in Durban, South Africa (www.wylie.co.za)
• All Saints Anglican Church in Somerset West
• Literacy for All, a non-governmental organisation based in Muizenberg
(www.literacyforall.co.za)
• The municipality of the City of Cape Town (www.capetown.gov.za).

As an organisation, each of these entities has three characteristics in common:

• They each have a purpose. The purpose of an organisation is expressed in terms of goals. The
broadest statement of an organisation’s goal is its vision. The vision of Coca-Cola Sabco, for
example, is “to be the best Coca-Cola bottler in the world”, while the vision of Literacy for All
is “to put accessible and attractive books into children’s hands and provide teachers with
training and support in their use. We believe that this will play a major role in turning the poor
literacy and numeracy levels around”.2
• The ‘higher purpose’ of Alexander Forbes is: “Helping people attain peace of mind through
securing their financial well-being, now and in the future”.3 In the South African Insight at the
beginning of the chapter, you can see that Edward Kieswetter took careful steps to ensure that
his leadership team agreed with the company’s strategic intent or purpose and also that it was
appropriate in the light of current and future challenges.
• They are each made up of people (employees). No purpose or goal can be achieved without
people making decisions and performing a variety of goal-driven activities. During his time as
CEO, Edward Kieswetter recognised this and took careful steps to develop the best employee
culture possible, and to build a more engaging workforce.
• They each group people together in some way or other. When more than one person is
involved in helping to achieve a goal, they need to be grouped together in some structure or
other that defines and limits their behaviour. This may include such things as writing rules and
policies, putting some people into supervisory positions over other people, writing job
descriptions or forming work teams. In the South African Insight at the beginning of the
chapter, you will note that Edward Kieswetter implemented the ‘law of movement’, an
essential element of which is ‘structure’. In Chapter 8, you will see how ‘structure’ is an
important tool for ensuring that people are grouped together, allocated tasks and
responsibilities, and relate to one another in the best possible way.

1.1.1 Organisations as systems

When studying the field of management and developing an understanding of what managers do
and why they do it, it is important to recognise that an organisation is a system. “A system is a
collection of interrelated parts that function together to achieve a common purpose.”4 Not only is
an organisation a system, but it is also an open system. This means that it does not exist in a
vacuum, but within a broader environment with which it interacts in the process of converting
inputs into product or service outputs. The organisation functioning as an open system, is
illustrated in Figure 1.1.
Figure 1.1 Basic systems view of an organisation

Source: HELLRIEGEL, D. et al. 2005. Management: A competency-based approach. Thomson South

Western, Ohio, p. 52.

In Figure 1.1 there are four key elements:

(a) Inputs: These typically include the human, physical, material, financial, information as well as
entrepreneurial resources that enter a transformation process. At a university, for example,
inputs include students, academic staff, research knowledge, money, books and buildings,
amongst others. In a manufacturing organisation, inputs may include raw materials, factory
workers, machinery and money.
(b) Transformation processes: These comprise the technologies and methods used to convert
inputs into outputs. At a university the transformation processes include lectures, tutorial
sessions, research programmes, examinations and experiments in a laboratory. In a
manufacturing organisation, transformation processes might involve a production line in a
factory.
(c) Outputs: These are the result of the original inputs (for example, human, physical, material,
financial, information and entrepreneurial resources) as changed by a transformation process.
At a university, outputs include such elements as students who graduate, and research
findings. In a manufacturing organisation, outputs will include finished products.
(d) Feedback: Feedback is information about how the system has performed. If it has not
performed as expected, managers will then take steps to change the inputs or the
transformation processes, or both, to get a better result in future. At a university a form of
feedback is the ability of its graduates to get jobs and the level of their performance in those
jobs. In a manufacturing organisation, feedback may take the form of marketing surveys,
financial reports, production records, and performance appraisals. Customer feedback in
particular is important to a business organisation in measuring the extent to which consumers
are satisfied. If the level of consumer satisfaction is not very high, they may well stop buying
from that organisation. In the context of Figure 1.1, a manager’s role is to guide the
conversion of inputs into outputs in the best possible way, by planning, organising, leading
and controlling.

The systems theory also emphasises that an organisation is one system in a series of subsystems.
For example, Kulula.com, as an organisation, is a subsystem of the airline industry, and the flight
crews who work for Kulula.com are in turn a subsystem of Kulula.com. The systems theory points
out that each subsystem is a component of the whole and is interdependent with other subsystems.
The systems viewpoint is further discussed in Chapter 4.
 It is because organisations are open systems that it is also vitally important for managers to
monitor the external environment regularly and closely in order to identify threats and
opportunities that it might present for the organisation. This is explored further in Chapter 5 and in
Chapter 6.

1.1.2 Managers versus operational employees

While managers are a key part of organisations, not everyone working in an organisation is a
manager. In general, people working in organisations may be broadly divided into two categories:
managers and operational employees. Operational employees, also referred to as operatives, are
normally those people who work on a particular task, but who do not have any supervisory role or
authority over other people within the organisation. The employee who rings up your sale at the
check-out till in Pick n Pay, for example, is an operative, as is the messenger in a small legal
practice and as is the assistant hair stylist cutting your hair in a salon. Managers, on the other
hand, who are typically categorised as either top, middle or first-line managers, are responsible for
supervising both operational employees and lower-level managers (see Figure 1.2). What sets
managers apart from operational employees is the fact that managers are evaluated on how well
the people they supervise, do their jobs. This applies, for example, to both Edward Kieswetter,
during his tenure as Group CEO of Alexander Forbes (discussed in the South African Insight
feature at the beginning of this chapter), as well as to Steve Binnie who was appointed CEO of
Sappi Limited in July 2014. Sappi Limited is a South African global forest products group and the
world’s largest producer of coated wood-free paper, with processing facilities on three continents
and an international marketing network that sells the group’s products in more than 100 countries.
In addition to being quoted on the JSE, its shares are traded on the London and New York stock
exchanges. Steve Binnie’s job is to oversee the efforts of everyone working in all the
manufacturing operations in southern Africa, Europe and the USA. This top management position
involves a significant level of responsibility; the company is huge. Of course, he does not do this
entirely on his own; he will have many managers helping him – but he is ultimately responsible
and accountable for the performance of the company.5
An important responsibility of managers such as Kieswetter and Binnie is to ensure that their
employees understand their own individual work goals and also how the achievement of these
goals is related to the success of their overall organisations. Because managers achieve
organisational goals by enabling people to do their jobs effectively and efficiently – not by
performing all the tasks themselves – they must find ways to keep employees motivated. Refer to
Chapter 12 for a more in-depth discussion on how managers should motivate employees.
The fact that managers are mainly responsible for supervising the work of those under them
does not mean, of course, that managers never work directly on particular tasks. Many managers
have operational responsibilities as well as managerial responsibilities. For example, the Dealer
Principal of PhilWest Motors, a Volkswagen dealership in Somerset West, is directly responsible
for servicing certain clients, in addition to his oversight responsibility for the various managers
and operative employees working for him. Chapters 2 and 3 investigate additional key
competencies and skills of effective managers, as well as management as an art and science.

1.1.3 Management levels

While it would not be difficult to establish who the managers in any particular organisation are,
they can have a variety of titles, which may also differ between organisations. In a business
organisation, for example, first-line managers are usually called supervisors, although they can
also go by the title of team leader. In a university, however, academic first-line managers are
usually referred to as heads of department. Thus the Head of the Department of Business
Management, for example, is a first-line manager. First-line managers are responsible for
supervising the day-to-day activities of operational employees. The Head of the Department of
Business Management is thus responsible for directing the day-to-day activities of the senior
lecturers, lecturers, junior lecturers and administrative support staff under them.
Middle management refers to that level of management between top management and first-
line management. Middle managers are mainly responsible for managing first-line managers and
for translating the goals set by top management into goals and activities for these lower-level
managers to perform. In a business organisation, the marketing manager, for example, would be a
middle manager responsible for managing the various brand managers (first-line managers) under
them. In a university, the Dean of Commerce would be a middle manager responsible for
managing the heads of the departments of Accounting, Business Management and Economics.
The most senior management level of an organisation consists of top managers. These
people, for example, Edward Kieswetter, former CEO of Alexander Forbes (see the South African
Insight at the beginning of this chapter), Richard Brasher (CEO of Pick n Pay) and Patrice
Motsepe (Executive Chairman of African Rainbow Minerals), are primarily responsible for
making decisions with regard to the strategic direction in which their organisations should go in
the longer term. In business organisations, titles such as managing director or chief executive
officer are typical of the top manager. In universities, the title of vice-chancellor or rector is used
for the institution’s top managers. While the top manager is ultimately responsible for the overall
performance of the organisation, there may be various other managers who participate in setting
the direction for the organisation and who might also, therefore, be deemed to be part of the top
management group, sometimes referred to as the Board of Directors.

1.2 Management and the tasks and roles of managers

Just as organisations have characteristics in common, so too do managers, regardless of whether
they are the head nurse of the cardiac surgery unit at Greenacres Hospital in Port Elizabeth or
Peter Cowan, Chairman of Unilever (South Africa), which employs over 3 000 full-time
employees.6
In this section, we look at these common characteristics as we (a) define management, (b)
outline the classical tasks of management, (c) review research on managerial roles and (d)
consider whether management principles are universal or not.

1.2.1 Defining management

The term management refers to the process of getting things done, effectively and efficiently,
through and with other people.7 When analysing this definition, three components need to be
focused upon:
• The term process refers to the main tasks and activities that managers perform: planning,
organising, leading and controlling. These activities, referred to as managerial tasks, are
discussed in the next section.
• The term effectiveness refers to identifying and performing those activities that are going to
ensure that the organisation attains its goals and fulfils the purpose for which it exists. Another
way of putting it is that effectiveness is concerned with the organisation ‘doing the right
things’.
• The term efficiency refers to how well tasks are done. Another way of putting it is that
efficiency is concerned with the organisation ‘doing things right’. The measurement of
 efficiency is the ratio of inputs to outputs. Thus, if you get more output for a given input or if
you get the same output for fewer inputs, then efficiency has increased. Where resources, like
people, equipment, materials and money, are scarce, a focus on efficiency is essential. Two of
the major priorities of managers are the reduction of resource costs and the increase in
productivity.

It stands to reason that good management is concerned with both improving effectiveness (doing
the right things in the first place) and increasing efficiency (doing the right things well). The
question arises as to whether it is possible for an organisation to be efficient and yet not be
effective. In other words, can it do the ‘wrong things’ well? The answer, of course, is, ‘Yes.’ Pick
n Pay could be considered as a case in point. One of the causes of the company’s relatively
unsatisfactory financial performance in 2011 which contributed to the retrenchment of some 3 000
employees, was its delayed implementation of a central distribution system. The company was
essentially using an outdated method of distribution (in other words, doing the wrong thing) very
efficiently. This same management behaviour, where efficiency and effectiveness are not aligned,
are noticeable in international companies such as Nokia and Blackberry, resulting in substantial
losses in market share and profitability.
Figure 1.2 indicates that managers should strive at all times to operate in the top right-hand
quadrant or the zone of high productivity (in other words, doing the right things very well).

1.2.2 The tasks of managers

The successful manager performs four basic management tasks that make up the management
process: planning, organising, leading and controlling. This description of the tasks of
management is attributed to Henri Fayol8, the French industrialist, in the early part of the twentieth
century. Regardless of their level within the organisation, most managers perform the four
management tasks more or less simultaneously – rather than in a rigid, pre-set order – to achieve
various organisational goals. Figure 1.3 illustrates this point and also reinforces the open systems
view of the organisation with the inclusion of ‘resources’ as inputs and ‘performance’ as outputs.

Figure 1.2 Productivity and organisational performance

Source: SCHERMERHORN, J.R. 2001. Management. (6th ed.) New York: John Wiley, p. 6. Republished
with permission of John Wiley and Sons Inc, from Management, J.R. Schermerhorn, 11th edition, 2010;
permission conveyed through Copyright Clearance Center, Inc.

Let’s briefly examine the four management tasks without looking at their interrelationships.
Throughout this book, however, we do refer to the interrelationships among the four management
tasks to help explain exactly how managers do their jobs.

1.2.2.1 Planning
In general, planning involves two key aspects. First, deciding on the organisational objectives,
‘the what?’, and then deciding on the best way to achieve them, ‘the how?’. Planning activities
generally include the following:
• Analysing the current situation
• Anticipating the future
• Determining objectives
• Choosing appropriate corporate and business strategies to achieve the objectives
• Determining the resources needed to achieve the organisation’s goals.
Historically, planning was a top-down process in which top managers worked out business
plans for the organisation, and then told other employees to carry them out. This approach,
however, no longer works in the current business environment which is increasingly competitive,
hostile and turbulent. Currently, planning is a continuous process in which people throughout the
organisation use their knowledge and experience and relationships with stakeholders, to identify
opportunities in order to create, capture, strengthen and sustain competitive advantage as a means
of delivering value to customers. Aspects of planning are discussed in greater detail in Chapters 5
and 6.

1.2.2.2 Organising
After managers have prepared plans, they must translate those relatively abstract ideas into reality.
Sound organising is essential to achieve this. The organising function takes the tasks identified
during planning and assigns them to individuals and groups within the organisation so that
objectives set by planning can be achieved. “Organising is the process by which managers
establish the structure of working relationships among employees to allow them to achieve
organisational goals efficiently and effectively.”9
Figure 1.3 Basic managerial tasks

More specifically, organising activities include the following:

• Attracting the right people to the right jobs within the organisation
• Specifying job responsibilities
• Grouping jobs into work units
• Getting and allocating resources
• Creating conditions so that people and things work together to achieve the greatest level of
success.

Aspects of organising are covered in further detail in Chapters 8 and 9.

1.2.2.3 Leading
After management has made plans, created a structure and hired the right personnel, someone
must lead the organisation. Leadership is discussed in greater detail in Chapter 11. Leading
involves motivating and inspiring others to perform the tasks necessary to achieve the
organisation’s goals within the context of a supportive organisational culture. Motivation is
discussed in greater detail in Chapter 12. Leaders also have to effectively manage change, as
further discussed in Chapter 14. Leading is not done only after planning and organising ends; it is,
in fact, an integral element of those managerial tasks.

1.2.2.4 Controlling
The process by which a person, group or organisation consciously monitors performance and
takes corrective action, if needed, is known as controlling. Just as a thermostat sends signals to a
heating system that the room temperature is too high or too low, similarly a management control
system sends signals to managers that things are not working out as planned and that corrective
action is needed. In the control process, managers do the following:
• Establish performance standards
• Measure actual performance and compare results against those set performance standards
• Take action to correct any deviations, if necessary
• Adjust performance standards when necessary.

In Chapter 15 we present and discuss control as an important managerial task used for managing
performance and taking corrective action. Closely associated with controlling is the management
of risks in an organisation. As such, in Chapter 16, risk management is discussed in detail.
Breaking down the management process into four managerial tasks is appealing because of its
clarity and simplicity. But is it an accurate description of what managers do? Do managers only
plan, organise, lead and control? Fayol’s original analysis was not based on empirical research,
but on his observations of what went on in the French mining industry. In the 1960s, Henry
Mintzberg, on the other hand, undertook empirical research to identify the various roles that
managers perform in the process of carrying out the tasks of planning, organising, leading and
controlling. Mintzberg’s findings are outlined in the following section.

1.2.3 The roles of managers

A role is a behaviour pattern expected of an individual within a unit or position. Managers
probably fulfill many different roles every day. For instance, as well as leading their teams, they
might find themselves resolving conflicts, negotiating new contracts, representing their
departments at board meetings, or approving requests for new computer systems. Put simply,
managers are constantly switching roles as tasks, situations, and expectations change.
Management expert and professor, Henry Mintzberg,10 recognised this, and he argued that there
are ten primary roles or behaviours that can be used to categorise a manager’s different functions.
The ten roles are: Figurehead, Leader, Liaison, Monitor, Disseminator, Spokesperson,
Entrepreneur, Disturbance handler, Resource allocator and Negotiator. Mintzberg then divided the
ten roles into three categories: Interpersonal, Informational and Decisional. Although Mintzberg
did his work in 1989, his findings still apply today. Let’s look at each of the ten managerial roles
in more detail:
• Interpersonal category: Managerial roles in this category involve providing information and
ideas.
» Figurehead: A manager has social, ceremonial and legal responsibilities. A manager is
expected to be a source of inspiration. People look up to their manager as a person with
authority and as a figurehead.
» Leader: Managers provide leadership for their teams, their departments or perhaps the
entire organisation. Managers also manage the performance and responsibilities of
everyone in the group.
» Liaison: Managers must communicate with internal and external contacts. Managers need
to be able to network effectively on behalf of their organisations.
• Informational category: The managerial roles in this category involve processing
information.
» Monitor: In this role, managers regularly seek out information related to their
organisations and industry, looking for relevant changes in the environment. Managers
also monitor their teams, in terms of both their productivity and their well-being.
» Disseminator: This is where managers communicate potentially useful information to
their colleagues and their teams.
» Spokesperson: Mangers represent and speak for their organisations. In this role, they are
responsible for transmitting information about their organisations and their goals to the
people outside it.
• Decisional category: The managerial roles in this category involve using information.
» Entrepreneur: Managers create and control change within their organisations. This means
solving problems, generating new ideas and implementing them.
» Disturbance handler: When an organisation or team hits an unexpected roadblock, it is
the manager who must take charge. Managers also need to help mediate disputes within it.
» Resource allocator: Managers need to determine where organisational resources are best
applied. This involves allocating funding, as well as assigning staff and other
organisational resources.
» Negotiator: Managers may be needed to take part in, and direct, important negotiations
within their teams, departments or organisations.11

1.3 Is a manager’s job universal?

Up until now, we have implied that managers are managers regardless of where they manage.
They are all concerned with planning, organising, leading and controlling, as well as with
performing Mintzberg’s managerial roles. Is this true? The answer is ‘Yes’, but only in broad or
general terms. Because organisations are different in terms of characteristics such as size,
geographical location, type of industry (for example retailing, manufacturing or services) and type
of organisation (for example, ‘for-profit’ or ‘not-for-profit’ organisations), it would be surprising
if the managerial tasks were carried out in exactly the same way in all organisational situations.
We need to take a closer look at this by considering the impact that the following characteristics
have on the actual activities undertaken by managers: (a) the size of organisations, (b) whether the
manager is a top-level executive or a first-line supervisor, (c) whether the organisation is a ‘for-
profit’ or a ‘not-for-profit’ organisation and (d) the geographic location of organisations.

1.3.1 Size of the organisation

The question arises whether the job of managing a small business is the same as that of managing
a big business. While the tasks of planning, organising, leading and controlling have to be
performed in both small and big businesses, there are differences in priority, as well as in the
proportions of a managers’ time that are spent on various managerial tasks and roles. Figure 1.4
indicates that managers in small organisations tend to spend most of their time performing the role
of spokesman. They spend a large proportion of their time in such activities as negotiating with
banks, meeting with customers and searching for new opportunities. In large organisations,
however, managers’ concerns are more internally focused. Managers in large organisations tend to
spend a large proportion of their time performing the role of resource allocator, deciding which
organisational units are going to get what resources in what proportions. Furthermore, it is clear in
Figure 1.4 that the second-most important role of managers in small organisations is the role of
entrepreneur, searching for new business opportunities and assessing risk. Apart from perhaps top
management, the role of entrepreneur is, quite understandably, of lesser importance for managers
in large organisations.
Another difference between small and large organisations is the level of formality in the
execution of managerial tasks. Not unexpectedly, the managerial systems in small businesses tend
to be less formal than in big business. Organisational designs are less complex, planning systems
are less sophisticated and the controlling tasks are usually carried out by observation rather than
by computerised monitoring systems. When considering the managerial tasks of a CEO such as
Edward Kieswetter in our South African Insight at the beginning of the chapter, activities
associated with financial performance, for example, include a complex integration of tasks related
to things such as performance management, performance evaluation, and performance reward.

Figure 1.4 Importance of managerial roles in small and large businesses

Source: ROBBINS, S.P. & DeCENZO, D.A. 2008. Fundamentals of Management: Essential Concepts and
Applications. Upper Saddle River, New Jersey: Pearson Education, p. 11.

1.3.2 Level of management in the organisation

While all managers carry out the management tasks of planning, organising, leading and
controlling, the proportion of their time spent on planning and organising increases as they move
up the organisation, and the proportion of their time spent on directly leading the employees under
them decreases. First-line managers spend most of their time on ‘leading’, middle managers spend
most of their time on ‘leading’ and ‘organising’, and top managers spend most of their time on
‘organising’ and ‘planning’.12
Top managers develop goals, policies and strategies for the entire organisation. They set the
goals that are handed down through the hierarchy, eventually reaching each worker. Phil Gutsche
started as a trainee at the Coca-Cola Company after graduating from the University of Cape Town
in 1961. He moved up through the ranks at SA Bottling Company in Port Elizabeth to become the
managing director at the head office in 1975. He knows what first-line and middle managers have
to go through because he has been there himself. He has spent many hours communicating with
staff, focusing especially on fostering good relationships with trade union leaders and members.
Since he has taken up the position of chairman, he does not communicate as frequently with staff
at all levels. His time is largely spent meeting with people who report directly to him, visiting
bottling plants, and attending budget feedback meetings, country board meetings and industry
meetings.
Pressures and demands on top managers can be intense. Tightly scheduled workdays, heavy
travel requirements and workweeks of 60 or more hours are common. Top managers such as Phil
Gutsche often represent their organisa-tions in community affairs. Phil, who is also known as ‘the
businessman with a big heart’, uses his financial success as a platform for community, cultural
and sporting development. For example, he assisted St Francis Hospice by setting up a financially
viable trust, lifting the hospice into financial stability. He was also the chairman of Round Table
No. 8, before moving on to Rotary. The Eastern Cape African Chamber of Commerce was
assisted by him in the 1980s to train emergent business people in a project that paid university
fees for several students.
Top managers also face expanding public-relations duties. They must be able to respond
quickly to crises that may create image problems for their organisations. A development that
required crisis management and involved man-agement in public-relations duties was the flooding
and havoc caused at Coca-Cola Sabco’s Mozambique branch, and two depots in Chokwe and Xai
Xai.13

1.3.3 Profit versus not-for-profit organisations

Does a manager who works for an organisation such as the Department of Health, the South
African Red Cross or Literacy for All, do the same things as a manager who works for
Volkswagen (South Africa) or Johnson & Johnson, for example? The answer is generally, ‘Yes’.
While managers in any organisation, whether it be a for-profit or a not-for-profit organisation,
have to plan, organise, lead and control, clearly there are some differences. The most obvious
difference is about the measurement of performance, or in a sense, ‘controlling’. For a business
organisation, the most obvious measure of performance is profit. While the measurement of
performance in schools, museums and charitable organisations is more difficult, it still needs to be
done to determine whether they are fulfilling their purposes or not. While not-for-profit
organisations also need to worry about money, the difference is that the making of profit for
distribution to the owners of the organisation is not their main focus.

1.3.4 Organisational location

If the managerial tasks were completely generic, we would expect them to be applicable in any
country in the world regardless of economic, social, cultural and political differences. However,
studies that have compared managerial practices between countries have not generally supported
the universality of management concepts. The principles of management discussed in this book
tend to be generally applicable in western democracies and/or developed economies. Whether the
organisation is classified as a multi-national, global corporation or transnational organisation,
managers need to be sensitive when managing in a different national culture. Every country and
region has a specific set of values, customs, as well as economic, social and political systems,
driven by legislation, which will affect how the business should be managed14.

1.4 Decision-making, managing change and ensuring

that organisations behave responsibly
We have considered the primary managerial tasks, as well as the various managerial roles
essential for managerial success. There are however, three additional factors that we need to
consider to fully understand what managers do in practice. These are:
• Managers make decisions
• Managers have to manage change
• Managers must ensure that their organisations behave responsibly.
Each of these additional factors will be briefly discussed in the sub-sections below.

1.4.1 Making decisions

In carrying out the managerial tasks of planning, organising, leading and controlling, managers
have to make decisions continuously. The best managers then are those who are able to diagnose
problems, set goals, identify alternative solutions, compare solutions, choose solutions, implement
solutions, and follow up and control. Decision-making is a critical support activity that ensures
effective planning. When planning, various decisions have to be made: what are the goals and
objectives, which strategies are most suitable, is the vision a true reflection of the organisation’s
dream, and does the mission statement reflect the true reason why the business exists?15 Decision-
making is discussed in greater detail in Chapter 7.

1.4.2 Managing change

All organisations operate in an environment where change is a given, whether it be political,
economic, social, technological, environmental or global. To survive and thrive in this
increasingly turbulent environment, organisations have to manage change and adapt, preferably
proactively. This is the responsibility of managers in general. They are responsible for making the
changes that will ensure that their organisations exploit emerging opportunities and minimise the
effects of impending threats. Resistance to change amongst employees is a reality, and so
managers have to be able to convince their employees of the necessity of the change in order to
earn their co-operation. Managing change and the resistance to change, is covered in more detail
in Chapter 14.
Fast-moving changes in the external environment are creating the need for fundamental
organisational changes that, in turn, are having a huge impact on the manager’s job. These
organisational changes are seen in the transition to a new kind of workplace as reflected in Table
1.1.

Table 1.1 The transition to a New Workplace

Source: Adapted from DAFT, R.L. 2005. Management 7e. Thomson, South Western, Ohio, p. 26.

It is suggested in Table 1.1 that there are three key attributes of the workplace in which changes
have occurred, namely characteristics, forces impacting on organisations and managerial
responses.

1.4.2.1 Characteristics
The primary characteristic of the new workplace is that the emphasis tends to be placed on
information and ideas, rather than on physical assets and machines. Low-cost computing power
means that information, ideas and all sorts of other data, can be moved around the world instantly.
The digitisation of business has greatly altered the nature of work, the types of employee required,
and the workplace itself. The old workplace tends to be characterised by routine, specialised tasks
and standardised control procedures. The organisation tends to be co-ordinated and controlled
through the vertical hierarchy, with all authority held by, and key decisions being taken by, higher
level managers.
In the new workplace, on the other hand, work is more flexible. This is particularly seen in the
context of e-commerce and hi-tech organisations that must respond to changing markets and
competition at a moment’s notice. Empowered employees are expected to exploit opportunities
and solve problems as they emerge, rather than to refer them upwards to more senior managers.
Organisational structures are flatter and decision-making authority is pushed down to lower levels.
Work is often virtual and managers have to supervise people who work remotely at home or at
locations other than the organisation’s buildings.

1.4.2.2 Forces impacting organisations

The most notable force impacting organisations is probably technology. Information technology
has revolutionised the way business is now done; e-commerce is a reality, social media have
demanded that organisations pay closer attention to what consumers think and do; amongst other
things, the internet has ensured that consumers are in a position to compare what one organisation
is offering with what every competitive organisation is offering. In addition, the internet and other
new technologies are tied closely to globalisation. For example, an organisation in one country is
now able to outsource activities to low-cost providers in other countries. Workforces are
becoming far more diverse in terms of ethnicity, culture and values, thus making managerial tasks
far more complex. In the face of these transformations, organisations are coming to value change
and speed far more than stability and efficiency. In general, events in the external environment are
becoming far more turbulent and unpredictable; just witness the cabinet reshuffle by President
Jacob Zuma in April 2017, being the last straw leading to the downgrading of South Africa to junk
status by the Standard and Poor rating agency.

1.4.2.3 Managerial responses

In the face of the transition from the old workplace to the new workplace, managers need to
rethink the way in which they carry out their managerial tasks of planning, leading and
motivating, organising, and controlling. The command-and-control mindset has become obsolete
and managers need to embrace ambiguity and establish organisations that are fast, flexible,
adaptable and relationship-orientated. Leadership styles need to move in the direction of servant
leadership in which managers create organisations where employees are empowered to unleash
their creativity in order to identify and solve problems. Increasing collaboration by employees
across functions, as well as the role of the internet in increasing the knowledge of consumers,
demand a switch in focus from profits only, to staying connected with employees and consumers,
as well. As more and more work is carried out by teams, the managerial competency of teamwork
also becomes more important. An important managerial challenge in the new workplace is to
build a learning organisation that creates an organisational climate that values experimentation
and risk-taking, tolerates mistakes and rewards the sharing of knowledge. The learning
organisation is discussed further in Chapter 14.

1.4.3 Behaving responsibly

Individually and collectively, managers are required to ensure that their organisations behave
responsibly and are good corporate citizens. Total corporate responsibility is the sum of various
types of responsibility as outlined in Figure 1.5.
In Figure 1.5, the combination of economic responsibility, social responsibility and
environmental responsibility, is also referred to as the ‘triple bottom line’. The implication of the
triple bottom line is that profit maximisation at any cost is no longer an acceptable organisational
objective. In the making of profit, organisations are required, at the same time, to exercise their
social and environmental responsibilities. This may well mean that they do not maximise profits
in the short-term. While they are discharging their economic, social and environmental
responsibilities, organisation are also required to obey the law and behave ethically. Ethics and
social responsibility are covered in more detail in Chapter 4.

Figure 1.5 Total corporate responsibility

Source: Adapted from DAFT, R.L. 2005. Management 7e. Thomson, South Western, Ohio, p. 172.

1.5 The functional areas of a business organisation

At this stage it needs to be pointed out that there are various functional areas within a business
organisation. The activities of these business functions are indispensable in the process of
converting inputs (raw materials and other resources) into outputs (finished products and services)
and in delivering those outputs to consumers. Because the activities of the different functional
areas differ significantly, they are grouped together into homogeneous units or departments. Most
organisations probably have seven main functional areas, namely, operations, purchasing,
marketing, logistics, finance, human resources and public relations.
Operations include manufacturing which is concerned with producing products and/or
rendering services that meet the needs and wants of consumers. The manufacturing function
depends on thepurchasing function for raw materials and resources of the right quality, at the right
price, at the right time.
The marketing function is responsible for two broad activities, namely, identifying the needs
and wants of consumers via marketing research, and then developing a marketing mix of product,
price, promotion and distribution to ensure that the consumers are made aware of the product and
that the right product is made available to consumers at the right price, at the right place and at the
right time.
The logistics function is responsible for ensuring the most efficient and cost-effective means
of physically distributing products from the factory or business into the hands of either distributors
(wholesalers and retailers) or consumers.
The finance function is responsible for managing the finances of the organisation which
includes managing debtors and creditors, managing working capital, setting budgets, managing
cash flow and managing investments.
The human resources function is responsible for ensuring that the right people with the right
skills are sourced and employed, that they are rewarded appropriately,and that they are trained and
developed suitably to optimise their performance in the workplace.
The public relations function is responsible for keeping the organisation in the public eye and
also for external communication with all stakeholders, as well as with the outside world, on all
noteworthy organisational events and developments.
In all these functional areas, often referred to as Departments (i.e. the Operations Department,
the Marketing Department, the Finance Department etc.), all four management tasks have to be
performed. Thus the Marketing Manager, for example, will have to plan, set sales targets for the
various sales regions, and work out what needs to be done in order to ensure that the sales targets
are achieved. The Marketing Manager will also have to organise to ensure that the Marketing
Department has the optimum structure in terms of the number of Brand Managers, Sales
Managers and Sales Personnel, and that they interact and interrelate appropriately. The Marketing
Manager will also have to lead in terms of ensuring that all his staff are motivated and inspired to
work hard and creatively towards achieving the overall goals and objectives of the Marketing
Department. Finally, the Marketing Manager will also have to control in terms of continuously
comparing actual sales performance with planned and budgeted sales performance as a basis for
introducing corrective measures when things are not going according to plan or reinforcing tactics
and strategies when things are going according to plan.

1.6 The importance of management

Against the background of the discussion of the management tasks of planning, organising,
leading and controlling, as well as of what managers do and the roles they perform, it goes
without saying that in the absence of good management practice, most organisations would
flounder and be hard-pressed to survive. They will lack direction, they will be disorganised, they
will lack motivated employees and they will never know whether they are performing as well as
expected. In other words, there is a very high probability that good management practice leads to
successful business performance. So, the reason why we study management is to avoid having to
reinvent the wheel. We know that sticking to proven management principles and practice
increases the probability that we are going to be successful managers and work for and run
successful organisations.
Most South African organisations operate in an environment which is hostile, turbulent and
very competitive. See Chapter 5 for a further discussion of the nature of the external environment
facing South African organisations. In this kind of environment there is little room for error. In
today’s global context, where everyone is competing with everyone for everything, everywhere, if
an organisation makes a mistake, a competitor, existing or potential, will most likely grab the
opportunity to seize its market share. In addition, if the management tasks are not performed well,
organisations run the risk of missing profitable opportunities, particularly in market creation, as
well as becoming vulnerable to threats. A key to success for an organisation in a hyper-
competitive environment is to achieve a sustainable competitive advantage. Good managers know
that they are in a competitive struggle to survive and win. The fundamental success drivers that
underpin a sustainable competitive advantage are innovation, quality, speed and cost
competitiveness.16 Each of these will be briefly outlined in the following section.

1.6.1 Innovation
Innovation in a business context is seen through the introduction of new goods and services or
new business models (new ways of doing things). A business must adapt to both changes in
consumer demands and to new competitors. Outsurance, for example, known by their marketing
slogan “You always get something out”, responded to consumers’ perceptions that both short term
insurance and life insurance are grudge purchases. They did this by offering consumers money
back if they did not claim for losses of household and personal items for a period of three years,
and they offer consumers back all the premiums they paid on their life insurance after a period of
15 years. Suddenly, consumers began to see insurance more from an investment point of view
than only from a cost point of view. Compared with the practices of traditional insurance
companies, this was innovation indeed. Similarly, Capitec Bank introduced innovation around the
banking business model. Their way of doing banking is quite different from the way that the big
four banks – Absa, First National Bank, Standard Bank and Nedbank – do banking.

1.6.2 Quality
Quality refers to the excellence of a product or service. Providing world-class quality requires a
thorough understanding of the various elements that make up quality. For example, quality can be
measured in terms of product performance, customer service (making things easy and pleasant for
customers), reliability (no failure or breakdown), conformance to standards, durability and
aesthetics. Quality is something of a hygiene factor in the sense that while good quality may not
guarantee competitive success, poor quality will certainly guarantee a competitive crisis. The
quality viewpoint will be discussed in detail in Chapter 3.

1.6.3 Speed
Speed often separates the winners from the losers in a competitive business arena. How fast can
you develop and get a new product to market? Once your product is available for the market, how
fast can you achieve market penetration and a profit-making level of market share? How quickly
can you respond to customers’ requests? You are far better off if you can respond to market
opportunities and threats in the business environment more quickly than your competitors (first-
mover advantage) – and if you can respond quickly to your competitors’ actions as well. Samsung
Electronics South Africa recognises the importance of both quality and speed with its repair
function, for example. “Reducing the length of time for repairs from a few days to just a few hours
is a philosophy that’s driven by key service elements, including repairs, speed, quality and
empathy. Samsung users with mobile devices (phones, tablets and notebooks) can expect a same-
day express repair service, while white goods (fridges and washing machines) will be up and
running within 48 hours of logging a call with Samsung call centre”17. Speed of repair creates a
competitive advantage for Samsung.

1.6.4 Cost competitiveness

Cost competitiveness means that your costs are kept low enough that you can realise profits and
price your products at levels that are attractive to consumers. Raw materials, equipment, capital,
manufacturing, marketing, delivery, and labour are just some of the costs that need to be managed
carefully. Another reason every business must worry about cost is that consumers can now easily
compare prices of thousands of competitors on the internet. If you cannot cut costs and offer
attractive prices, you cannot compete.
When considering the four factors discussed, do not assume that you can settle for delivering
just one or two of the four competitive advantages outlined above. The best managers and
organisations deliver them all.

1.7 Competencies of successful managers

It is important to recognise that in order to carry out the various managerial tasks efficiently and
effectively, a number of managerial competencies are required. A managerial competency is a
combination of knowledge, skill, personal characteristics, attitudes and values that contribute to
high performance in a management job. Developing these competencies through education and
training has become a major priority for aspirant and existing managers. There are six key
managerial competencies that managers need to master in order to be effective:
• Communication competency
• Planning and financial management competency
• Teamwork competency
• Strategic action competency
• Global awareness competency
• Emotional intelligence and self-management competency.

The focus of this book is on managerial competencies which are explored in more detail in
Chapter 2. In Chapter 2 each of the six competencies will be explained, and then throughout the
rest of the book they will be identified in context and illustrated with examples.

1.8 Management: A dynamic process

The process of obtaining and organising resources and achieving goals through other people – that
is, managing – is dynamic rather than static. Struggling to manage the new realities of business
competition is not easy. People change, conditions change, technologies change and the rules
change. Managerial thought changes too. It evolves whenever new theories are presented or new
practices are tried. If the theories seem to have merit or the practices appear to succeed, their use
spreads to more and more organisations until, over a period of time, they become accepted ways
of managing. This development in management thought is discussed further in Chapter 3.
As you launch your career, your challenge will be to succeed in a new era that will feature
change. New forms of organisation will emerge because of mergers, acquisitions and strategic
alliances, which will result in corporate restructuring, downsizing and the emergence of self-
managed work teams. New structures, such as the modular corporation and network forms of
organising, will emerge. The workforce will be very different and diverse, and managers may not
even see their employees on a daily basis. Technologies that are just being invented will become
commonplace and global competition will intensify.

Chapter summary
An organisation is a collection of people working together to achieve a common purpose. The key
characteristics of an organisation are that it has a purpose and that it is made up of people who are
grouped together in some way or other. An organisation is also an open system in that it interacts
with and is influenced by its external environment, which presents it with various threats and
opportunities.
A collection of people is unlikely to work harmoniously together towards a common purpose
and/or be productive by accident. Someone or some people must take responsibility for making
this happen. These people are called managers.
While managers work in organisations, not everyone who works in an organisation is a
manager. People working in organisations are broadly categorised as either operative employees
or managers. Operative employees are usually those people who work on particular tasks, but who
do not have a supervisory role of authority over other people. Managers, on the other hand, are
responsible for directing and supervising both operative employees and lower-level managers.
In any organisation, there are typically at least three levels of management: first-line
managers, middle managers and top managers. First-line managers are directly responsible for the
production and/or the sale of goods or services. Middle managers carry out top management’s
instructions, primarily by delegating authority and responsibility to their subordinates, and by co-
ordinating schedules and resources with other managers. Top managers are responsible for the
overall direction and performance of an organisation. Strategy implementation is another of the
responsibilities of top managers.
Regardless of their level, most managers perform four basic managerial tasks which make up
the management process:
• Planning, which involves defining organisational goals and proposing ways to reach them
• Organising, which involves assigning the tasks identified during planning to individuals and
groups within the organisation so that objectives set by planning can be achieved
• Leading, which involves communicating with and motivating others to perform the tasks
necessary to achieve the organisation’s goals within the context of a supporting organisational
culture
• Controlling, which involves consciously monitoring the performance of a person, group or
organisation and taking corrective action when actual performance differs from planned
performance.

Henry Mintzberg reduced the thousands of things that managers do in the course of planning,
organising, leading and controlling to ten roles. He grouped these roles into three broad
categories: decisional roles, interpersonal roles and informational roles.
A key question is whether the manager’s job is universal. In general terms, the answer is,
‘Yes’, although the actual way in which the management tasks are carried out will be influenced
by such things as the size of the organisation, the level of management, whether the organisation
is ‘for profit’ or ‘not for profit’, as well as the geographic location of the organisation.
In the process of carrying out the various management tasks, managers are required to make
decisions, manage change and to make sure that their organisations behave responsibly. In
managing change, managers must be alert to changes taking place in the external environment and
the implications of those changes for the management of the organisation. In ensuring that their
organisations behave responsibly, managers need to be sensitive to issues involving economic,
social, environmental, legal and ethical responsibilities.
There are various functional areas within a business organisation whose activities are
indispensable in the process of converting inputs (raw materials and other resources) into outputs
(finished products) and in delivering those outputs to consumers. Because the activities of the
different functional areas differ significantly, they are grouped together into homogeneous units
called departments. Most organisations probably have seven main functional areas: operations,
purchasing, marketing, logistics, finance, human resources and public relations. In all these
functional areas, often referred to as Departments, all four management tasks – planning,
organising, leading and controlling – must be performed.
In reflection, it is true to say that in the absence of good management practice, most
organisations would flounder and be hard-pressed to survive. They will lack direction, they will be
disorganised, they will lack motivated employees and they will never know whether or not they
are performing satisfactorily. In a competitive, turbulent and hostile environment, good managers
know that they are in a competitive struggle to survive and win. They know that the fundamental
success drivers that underpin a sustainable competitive advantage are innovation, quality, speed
and cost competitiveness.
It is also important to recognise that in order to carry out the various managerial tasks
efficiently and effectively, a number of managerial competencies are required.

Questions for discussion

1. To what extent do you think that the managerial tasks of planning, organising, leading and
controlling are related? If a manager performs well in one task, is he or she likely to perform
well in the other tasks?
2. With reference to the work of Henry Mintzberg, distinguish between managerial tasks and
managerial roles.
3. Is a manager likely to be able to carry out the managerial tasks in exactly the same way in any
organisation?
4. Outline the key areas which managers must pay attention to in the course of making sure that
their organisations behave responsibly.
5. Identify some of the current changes in the external environment to which managers must
respond and adapt as part of their responsibility for managing change.

Exercise for competency development

Study the South African Insight at the beginning of the chapter. Under each of the managerial task
headings of Planning, Organising, Leading and Controlling, identify and explain fully what a person such
as Edward Kieswetter, previously Group Chief Executive Officer of Alexander Forbes, does on a regular
basis in his role as a top manager.

Contemporary management in practice

Particularly since the global financial crisis of 2008/2009, more and more organisations are recognising
the importance of managing and running their organisations in a sustainable way. In essence, this means
doing things so as to balance the potentially conflicting interests of shareholders (profits), employees
and the community (people) and the environment (planet). In other words, managers are responsible for
 making sure that their organisations act responsibly. As a result, as they carry out the managerial tasks
of planning, organising, leading and controlling, sustainability issues and priorities are at the forefront of
their attention.
Visit the following websites. In a logical and well-structured way, fully describe and explain
Barloworld’s Value-Based Management approach as an illustration of a company that is fully committed
to behaving responsibly:
• www.barloworld.com/sustainability/value-based-management/
• www.barloworld.com/sustainability/responsible-value-chain/
• www.barloworld.com/our-business/group-strategy
• www.barloworld-reports.co.za/integrated-reports/ir-2013/integrated_report/str-managing.php

Endnotes
1 SCHERMERHORN, J.R. 2001. Management. 6th ed. New York: John Wiley, p. 5.
2 LITERACY FOR ALL. 2015. Vision [Online]. Available: http://www.literacyforall.co.za/our-vision/
[Accessed 26 August 2015].
3 ALEXANDER FORBES. 2015. Alexander Forbes Integrated Annual Report. [Online]. Available:
http://financialresults.co.za/2015/alexanderforbes_ir2015/boh-our-strat-intent.php. [Accessed 26 August
2015].
4 SCHERMERHORN, J.R. 2001. Op cit., p. 5.
5 SAPPI LIMITED 2015. Sappi. [Online]. Available:
http://www.sappi.com/regions/sa/group/Leadership/Pages/Management%20Committee. [Accessed 9
October 2015].
6 UNILEVER. 2015. [Online]. Available: http://www.unilever.co.za. [Accessed 9 October 2015].
7 ROBBINS, S.P., DeCENZO, D.A. & COULTER, M. 2013. Fundamentals of Management: Essential
Concepts and Applications. 8th ed. Upper Saddle River, New Jersey: Pearson, p. 6.
8 FAYOL, H. 1949. General and Industrial Management. (Constance Storrs, Trans.). London: Pitman
and Sons.
9 JONES, G.R. & GEORGE, J.M. 2014. Contemporary Management. 8th ed. McGraw-Hill Irwin, New
York, p. 297.
10 IVANCEVICH, J.M., LORENZI, P., SKINNER, S.J. & CROSBY, P.B. 1997. Management: Quality
and competitiveness. 2nd ed. Chicago: Irwin, p. 20.
11 MINTZBERG’S MANAGEMENT ROLES: Identifying the Roles Managers Play. [Online]. Available:
https://www.mindtools.com/pages/article/management-roles.htm [Accessed 6 May 2017].
12 ROBBINS, S.P., DeCENZO, D.A. & COULTER, M. Op cit., p. 14.
13 GUTSCHE, P. 2000. Chairman Coca-Cola Sabco (Pty) Limited. Interview in Port Elizabeth, 27 March;
MCAINISH, G. 2000. Things go better with Phil. Eastern Province Herald, Port Elizabeth, 8, 23
February.
14 ROBBINS, S.P., DeCENZO, D.A. & COULTER, M. Op cit., pp. 14 & 49.
15 NIEUWENHUIZEN, C & OOSTHUIZEN, T.F.J. 2014. Business Management: a contemporary
compilation. Johannesburg: FVBC.
16 BATEMAN, T.S. and SNELL, S.A. 2007. Management: Leading and Collaborating in a Competitive
World. New York: McGraw-Hill, p. 11.
17 SAMSUNG. 2015. The number 1 consumer electronics company in South Arica. A Corporate
Brochure, p. 2.
LEARNING OUTCOMES
After studying this chapter, you should be able to:
• Identify and define the key competencies that successful managers should have
• Explain the value of each managerial competency
• Analyse your own managerial competencies
• Analyse your own emotional-intelligence competencies.

CHAPTER OUTLINE
• South African Insight – Attuned South African leader: Dr Reuel Jethro Khoza
• Managerial competencies:
» Communication competency
» Planning and financial management competency
» Teamwork competency
» Strategic action competency
» Global awareness competency
» Emotional intelligence and self-management competency
• Developing your managerial competencies

Key terms and concepts

• Competency
• Managerial competencies
• Communication competency
• Planning and financial management
• Teamwork competency
• Strategic action competency|
• Global awareness competency
• Emotional intelligence (EI)
• Self-management competency
• Spiritual intelligence (SI)
• Conceptual skill
• Interpersonal skill
• Technical skills

COMPETENCY WHY IS THIS EXAMPLE

COMPETENCY
IMPORTANT?
Communication Managerial performance is Sizwe Nxasana, former CEO of Telkom, had the
dependent on effective following to say about the role of communication
communication. Managers get in the evolution of Telkom: “It is vitally important
things done through people, for leaders to communicate important
using verbal, written and non- information, be it good or bad. Leaving sensitive
verbal communication through issues to your marketing or PR department is a
formal and informal channels, no-no. One of the key things that happened at
as well as networking, Telkom, for example, is that many businesses in
negotiating and the use of the organisation were not core and had to be hived
technology. off. Also, the organisation invested heavily in new
technology and had to retrench certain employees
as a result. These are events that impact people’s
lives significantly and must be communicated
directly by the CEO. Leaders sometimes tend to
shy away from these difficult tasks, but openness
is the bedrock upon which success is built.”1

Planning and This competency requires the Edward Kieswetter, former CEO of Alexander
financial ability to establish what and Forbes confirmed that two of the three critical
management how it needs to be done, what elements for him as a top manager are to ensure
resources are required, and the that agreement exists on the ‘strategic
monitoring of its intent’ (planning competency) of the organisation,
implementation. In doing so, among all members, and that ‘financial
information-gathering, analysis results’ (financial competency) are obtained
and problem solving, planning through a substantial performance driven process.2
and organising projects, as well
as time management is of the
essence.

Teamwork Teamwork in organisational At Liberty Life, service levels have been

settings allows for getting tasks improved by dismantling the traditional divisions
and projects done collectively and introducing a multi-functional team concept.
through the effort of a group of “This entailed taking staff from various
employees. Benefits associated backgrounds and levels of experience, and
with teamwork in an establishing them in teams. The rationale was to
organisation are improved provide a one-stop service to customers.” The
motivation, as well as result: increased job satisfaction and lower staff
increased morale, innovation turnover.3
and product or service quality.

Strategic action It is important that managers For the Standard Bank Group, the key
understand the overall mission differentiator in realising its strategy, which is to
and values of their organisation deliver superior sustainable shareholder value by
and ensuring that their actions serving the needs of its customers, is its people. In
and those of the people they its international operations, it has learnt many
manage are aligned. This lessons on understanding the culture of each
involves understanding the country where the Group does business and how
business environment, to integrate this into their bank and align it with
industry, organisation and their strategy.4
being able to take strategic
actions.

Global awareness The source of strength in this Colours, for example, invoke different meanings,
competency is to do based on cultural reference. In most Western
 managerial work drawing on countries, the colour black is associated with
resources from multiple death. However, in parts of Asia, the colour white
countries and serving markets is associated with death, while the colour purple is
that span multiple cultures and associated with death in Latin America. Managers
regions. This competency need to be aware of such diversity issues, to
requires diversity and cultural ensure that their communication, for example, in
knowledge and understanding, advertisements, matches the frame of reference of
as well as being open and their customer base.5
sensitive to this.

Emotional Emotional intelligence (EI) Research indicates that emotional intelligence is

intelligence and enables managers to process required in order to learn and behave well. It is
self-management emotional information also a strong predictor of achievement and
accurately and efficiently. This success in life.6 The four main dimensions of
competency enables a manager emotional intelligence are: self-awareness, self-
to perceive, assimilate, management, social awareness and relationship
understand and manage management. A responsible manager at work
emotions. As self-awareness is illustrates self-management competencies which
central to EI, it allows for a includes:
manager to avoid distracting • Integrity and ethical conduct
emotions from influencing • Personal drive and resilience
thoughts and actions. • Balancing work/life issues
• Self-awareness and development
• Spiritual intelligence.

Attuned South African leader: Dr Reuel Jethro Khoza

Dr Reuel Khoza is a proponent of Afrocentricity and Ubuntu based philosophy, as a new inclusive
management and leadership style. He is also an advocate of African-led, globally competitive economics
and is a renowned businessman, consultant and lecturer on various business related subjects and issues. Dr
Khoza has held leadership positions in a number of business and allied organisations including Nedbank,
Eskom, Corobrik, Aka Capital (Pty) and the Institute of Directors.
Dr Khoza advocates an inclusive management and leadership philosophy based on Afrocentricity and
Ubuntu. Ubuntu is a quality that includes the essential human virtues of compassion and humanity. In
transforming the contemporary multicultural organisation, he has illustrated how Ubuntu supports the
harmonising of relationships, enhances the competitive strategy and promotes technological innovation.
His books Let Africa Lead, Attuned Leadership and The Power of Governance expand further on his
management philosophy. He further believes in promoting values that underpin behaviour that is beyond
reproach; values that extol men and women of integrity who are as impartial as they are passionate.
Dr Khoza is certainly leaving a proud African leadership legacy with many of his personal and
business principles highlighted in the following quotes from him:
• A leader is not above, or below the followers, but is one with the them and leads from within,
occasionally boldly stepping ahead in response to a beckoning compelling vision, a sense of destiny.
• Humanness is the quality of being human considering the whole of humankind as a group. Within
Ubuntu, it sums up the comprehensive relationships captured in the phrase ‘a person is a person
through other people’.
• In the spirit of Ubuntu, we do not seek to overthrow the structures that employ and feed us, but to find
consensus about what is fair and right. I believe that stakeholder capitalism, if properly implemented,
goes a long way towards giving people rights of participation in the structures that generate wealth.
• Compassion is as important in corporate governance as profitability. The African humanist worldview
impels us to regard community involvement as a central pillar of the well-led organisation.
•
 The well-motivated leader who makes mistakes may learn from them and bounce back if the followers
allow a second chance; whereas in mis-leadership, bad motivation – such as racism or greed – is
premeditated and deliberate.
• Leadership has an in-built moral challenge: there is good and bad leadership. Bad leadership depends
on coercion and is devoid of moral authority. Good leadership is that where influence is not demanded,
but earned.
Central to his philosophy of African humanism are leadership values of integrity and enthusiasm that also
support and reinforce behaviour that is beyond criticism. Furthermore, the importance of realising the
value of a relationship and the connectedness between organisational vision and purpose and the spirit of
its community, is also encouraged by him. The value of this connectedness should be shared and learnt. He
believes that leaders and their supporters are unified by their mutual sense of humanity. As such, leaders
are required to be compassionate, accountable, and introspective – qualities that underpin a shared vision
in an organisation. The values espoused by Dr Khoza can be summarised as:
• Valuing cultural interaction
• Having respect for people
• Developing leadership in Africa centred on Afrocentric philosophy
• Valuing involvement
• Humanism, morality and Christian values.

For further insights on Dr Khoza’s perspectives on leadership and on being self-aware, view the video clip
at:
https://www.youtube.com/watch?v=ZjwUpJjuFJc
Source: KHOZA, R. 2015. [Online]. Profile: Reuel Jethro Khoza. Available: http://www.reuelkhoza.co.za/index.html
Accessed 2 August 2016; [KHOZA, R.J. 2013. Reuel J Khoza website. [Online]. Available:
http://www.reuelkhoza.co.za/. Page 1. [Accessed 27 February 2017]; LEADER 2011. Tomorrow’s Leaders
Convention. 2011 [Online]. Available: https://http://www.leader.co.za/event.aspx?
s=3&f=1&rcbID=ctl00_ctl00_cphBody_cphColumnMiddle_userSortArticles_ddlSort&rcbServerID=ddlSort&rcbID=ctl00_ctl00_cphBod
Page 1. [Accessed 27 February 2017]; KHOZA, R.J. 2014. Business is not a democracy, or is it? [Online]. Available:
http://www.reuelkhoza.co.za/pdfs/Nedbank%20Group%20Chairman’s%20speech%20-%20Chairman’s%20dinner%
206%20November%202014.pdf p. 3. [Accessed 27 February 2017]; KHOZA, R.J. 2014. Nelson Mandela: Champion
within. A brief reflection. [Online]. Available: http://www.reuelkhoza.co.za/pdfs/Nelson%20Mandela%20Champion%
20within%20-%2011%20March%202014.pdf. Page 1. [Accessed 27 February 2017].

2.1 Managerial competencies

Effective managers, as illustrated by Dr Reuel Khoza in the South African Insight, are essential to
any organisation’s overall success, regardless of whether the organisation is a global corporation
or a small start-up business. Indeed, having talented people is so important to the success of a
business that Business Week includes “the ability to attract, develop and keep talented people” as
one of the key factors used to establish its list of the most innovative organisations.7 Management
need to develop several competencies that enable them to perform effectively.
In Chapter 1 we discussed who managers are and what managers do. We also considered
various management tasks and roles. At this stage, however, you may be wondering about what it
takes to be an effective, or even a great, manager. So, let us look more closely at the competencies
that managers need in order to be effective and successful.
The term competency refers to combinations of knowledge, skills and types of behaviour and
attitudes that contribute to personal effectiveness in a variety of areas. For example, people use
many types of competencies in their everyday lives such as those competencies needed to be
effective in leisure activities, in personal relationships, and at school or university. Managerial
competenciesare sets of knowledge, skills, behaviours and attitudes that a person needs to be
effective in a wide range of managerial jobs and various types of organisations.8 Often
competency and skill are used interchangeably. However, there is a difference. A competency is
more encompassing than a skill as it explains the behaviour that is required to perform a job
competently.9 Competencies specify the ‘how’ (as opposed to the ‘what’) of performing job tasks,
or what the person needs to do the job successfully. Competencies, therefore, may incorporate a
skill, but are more than the skill: they include abilities and behaviours, as well as knowledge, that
is fundamental to the use of a skill. On the other hand, a skill refers to what is needed to perform a
job successfully - “the types of abilities a person needs to perform a specific activity or job”
effectively.10 A skill can be learned through training or experience. Furthermore, the knowledge of
a particular activity or job forms the basis of using a skill to do something well.11 A skill is thus
“an ability to translate knowledge into action”.12 For example, while an Information Technology
programmer needs the skills to write a programme based on what they have learnt and their
experience, they also need to have competencies such as analytical and interpretative abilities to
be able to use the programme effectively.13 Knowledge and skill are visible and can be more easily
developed than an attitude or behaviour.14 An attitude is more closely aligned with personality and
open to being influenced.
In this book, we focus on the six managerial competencies essential to managerial
effectiveness in an organisational context, as shown in Figure 2.1.15 However, before we discuss
the six managerial competencies in detail, an outline of the three managerial skills, identified by
Robert L. Katz,16 will be drawn. The three managerial skills include conceptual, interpersonal, and
technical skills. While every manager requires each of these categories of skills, the extent to
which the skills are required will differ according to their managerial level and vary in each of the
managerial competencies.
A conceptual skill is the ability to think analytically and to solve complex problems. This
involves an ability to break down problems into their constituent parts, to see the relationship
between the parts and to recognise the implications of one problem for other problems. It involves
the ability to see the big picture, to take a systems perspective, and to recognise that an
organisation influences and is influenced by the external environment. As managers move up the
managerial hierarchy from first-line to middle to top manager, the number of ambiguous problems
with longer-term consequences they have to deal with increases. Thus conceptual skills are clearly
a crucial requirement for top managers and for the strategic action, planning and financial
management competencies.
An interpersonal (human) skill is the ability to work well in co-operation with other people.
In the workplace, interpersonal skills manifest themselves as enthusiasm, trust and genuine
involvement in interpersonal relationships. As the major role of managers at any level is to get
work done through other people, interpersonal skills are vitally important for all managers at all
levels and relevant to all the managerial competencies, particularly for communication, teamwork,
emotional intelligence and self-management competencies.
Technical skills are the ability to use specific knowledge, techniques and resources to perform
work. Accountants, computer scientists and engineers, for example, possess substantial technical
skills. Technical skills are especially important at lower levels of management. Aspects of
technical skills are required in all the competencies and require having knowledge about the
particular activity or job to perform tasks proficiently. A sales manager, for example, will need to
develop technical skills associated with finding new sales opportunities, and establish precise
sales strategies considering changing customer needs. These skills also need to empower
managers in identifying and solving problems relating to the techniques, procedures and context
of the work they are doing.17
Now that we better understand that a competency is made up of knowledge, skills, types of
behaviour and attitudes, we focus on the six managerial competencies that are essential for
managerial effectiveness in an organisation. These are shown in Figure 2.1 and summarised in
Table 2.1. These competencies are transferable from one organisation to the next.18 Whether you
supervise the work of a small team on the shop floor at BMW’s assembly plant in Rosslyn or
serve as managing director of a global company such as H&M, honing the managerial
competencies that we have identified can enhance your managerial performance. It should be
noted that technical skills are required in all the competencies because there are technical aspects
in each competency that requires having knowledge about the particular activity or job to perform
tasks proficiently. For example, being able to use the functions in an MS Word program to
enhance formal communication.

Figure 2.1 A model of managerial competencies

Table 2.1 identifies several important aspects of each of these six managerial competencies. In
practice, these competencies are integrated. You would seldom rely on one at a time, so drawing
sharp distinctions between them is valuable only for purposes of identification and description.
Regardless of when, where or how you develop these competencies, you should be able to use
them in the future in jobs that you cannot yet even imagine holding, or that may not even exist
today. One way to enhance your managerial competencies is by studying this book and
completing the activities presented at the end of each chapter. Competencies are also developed
by participating in extracurricular activities, such as taking appropriate courses and participating
in local and international clubs and associations, holding an office or taking responsibility for
organising a community event. Because managerial competencies can be learnt through such
activities, in addition to on the job, campus recruiters pay a great deal of attention to students’
involvement in them, instead of just looking at academic achievements.
Table 2.1 Six key managerial competencies

Communication competency

• Informal communication
• Formal communication
• Negotiation

Planning and financial management competency

• Information-gathering, analysis and problem-solving

• Planning and organising projects
• Time management
• Budgeting and financial management
• Investment and financial decisions
• Managing dividend policies

Teamwork competency

• Designing teams
• Creating a supportive environment
• Managing team dynamics

Strategic action competency

• Understanding the industry

• Understanding the organisation
• Taking strategic actions

Global awareness competency

• Cultural knowledge and understanding

• Cultural openness and sensitivity

Emotional intelligence and self-management competency

• Emotional intelligence
• Self-management
• Integrity and ethical conduct
• Personal drive and resilience
• Balancing work and life issues
• Self-awareness and development
• Spiritual intelligence

2.1.1 Communication competency

The term communication competency refers to the effective transfer and exchange of
information that leads to understanding between yourself and others. Managing involves getting
work done through people by making use of verbal and non-verbal communication, networking
and technology. As such the communication competency is essential to effective managerial
performance. Communicative competence includes the following components:
• Informal communication
• Formal communication
• Negotiation.

Communication competency transcends the use of a particular communication medium. That is,
good communication may involve:
• Having a face-to-face conversation
• Non-verbal communication
• Preparing a formal written document
• Participating in an international meeting via teleconferencing such as Skype
• Giving a speech to an audience of 400 people
• Using e-mail to co-ordinate a project team whose members work in different regions of the
country
• Conducting business with other organisations with complex e-commerce networking systems
to process orders, manage inventories and handle payments.

Other forms of communication include networking, smartphones and web logs (or blogs), which
are web-based applications. Networking is a successful method of sourcing partnerships, building
valuable relationships and connecting with others.19
Of the six managerial competencies that we have identified, communication is perhaps the
most fundamental, applicable to all levels of management and heavily reliant on interpersonal
skills, supported by technical knowledge and skill. Unless you can express yourself and
understand others in written, verbal and non-verbal (facial expression, gestures and body posture,
for example) communication, you cannot use the other competencies effectively to accomplish
tasks through other people, nor can you effectively manage the vast network of relationships that
link you to other people inside and outside your organisation.20
Communication is a dynamic, give-and-take process that involves receiving messages from
others as well as sending messages to them. Besides speaking and writing, non-verbal
communication allows for the exchange of messages, observing body language, listening and
picking up on the subtle cues that people sometimes use to modify the meaning of their words.
Non-verbal communication influences the first impression in common situations, for example, in a
business interview, impressions are established in the form of gestures and body movement. First
encounters or interactions with another person strongly affect a person’s perception. Managers
should be aware of both the way they are perceived in the workplace and how they perceive their
subordinates, and the effect of those perceptions on effective communication.21

Marjorie Scardino, former CEO of media group Pearson, is acknowledged in her industry for
getting internal communication right. She believes that good communication involves a dialogue
between senior managers and employees. As far as Scardino is concerned, good communication is
not simply a case of disseminating information; it’s about listening and a willingness to act upon
feedback and suggestions.22 When Brand Pretorius (Retired CEO of McCarthy Limited and
leadership expert) was asked how he was able to mobilise his team members the way he did in his
turnaround strategy, one of his responses was, “Whatever you do should come from the heart and
there is no substitute for doing by example…. People at all levels of the organisation observe and
pick up on non-verbal communication, the tone of your voice and nuances. You need to walk the
talk.”23
The productive employment of workers of all ages, with varying types of work experience and
expertise, of both genders and varied cultural and ethnic backgrounds, in an intensely competitive
global market, requires plenty of spontaneous, informal communication that is sensitive to the
different backgrounds and perspectives of the people involved. Moreover, to be sure that you are
understood, you need to become comfortable soliciting and accepting feedback.

As indicated in the communication competency example, through effective informal

communication managers can build a social network of contacts. Whatever language you say it in,
maintaining social networks is especially important to managerial work, but in a Confucian
society, the web of social contacts maintained through informal communications is central to
success. In fact, when business leaders in China were asked to identify the factors most important
to long-term business success, ‘guanxi’ (networking, connectedness and exchanges of favours)
was the only factor chosen consistently – ahead of choosing the right business location, selecting
the right business strategy, and competitive pricing.24 Through frequent informal communication,
managers in all countries lay the groundwork for collaboration within and outside their
organisation.
Being able to communicate in more formal situations is also important to managerial
effectiveness. Formal communication requires that managers inform and keep people up to date,
are able to make public presentations that have a real impact on the audience, and write clearly
and concisely using traditional and electronic media. Formal communications such as newsletters
are often used to inform people of relevant events and activities, and to keep them up to date on
the status of ongoing projects. ITWeb is a media organisation with online origins and a number of
diverse online and traditional content-delivery platforms. Developments in the organisation,
including business performance and financial issues, are communicated to staff during
departmental meetings and through ‘Business Update’, their monthly newsletter. The managing
director maintains an open-door policy and is always available for staff suggestions, business
initiatives, comments and criticism.25
Formal communication can also take place via other media such as weekly store visits,
meetings, road-shows, an in-house radio station, e-mail, intranet and blogs.26 The management of
Nestlé South Africa encourage an open communication culture by inviting staff to raise issues
through various formal communication means such as bi-weekly messages, breakfast sessions and
an open e-mail line with direct access to the CEO. The Internal Communication unit works very
closely with all internal stakeholders and is key in helping build loyalty of all employees through
transparent, open and consistent communication. It also includes Public Affairs comprising
Stakeholder Relations, Issue and Crisis Management, Partnerships and Creating Shared Value
(Corporate Social Responsibility).27
Public speech is another example of formal communication. Whether the audience consists of
executives, professional peers, shareholders or members of the community, high-impact public
presentations can be used to address stakeholder concerns and enhance the enterprise’s reputation.
Formal communication can also occur at a more personal level during conversations with
suppliers and clients or by means of business or social networking. Among financial institutions,
for example, formal communication is essential to managing client relationships. Private banking
is one example of a business environment which demands effective communication on a one-on-
one basis between the private banker and his or her client. Eric Enslin, Head of private Banking at
RMB states that “private banking is about building lasting relationships”. Heidie Ziervogel, Head
of Banking at Nedbank Private Wealth confirms that “through our close relationships we can
better understand our clients and their wealth management needs, both in South Africa and
internationally. This is an ongoing process that includes advice on the structures and insurance
required to protect our clients’ wealth and their dependants.”28 Although it is expected of certain
relationship managers to travel to many countries, they are not expected to be fluent in the
language of every country they visit, but they must be able to communicate, often through an
interpreter, in all of these cultures. In other words, effective communication goes hand-in-hand
with a global perspective.29
A manager’s job also involves negotiating. Negotiating requires that a manager performs the
following tasks skilfully:
• Negotiates on behalf of the team over roles and resources
• Develops relationships and exercises influence with superiors, subordinates and with external
stakeholders
• Takes decisive and fair actions when handling difficult situations.

To build consensus on goals and commitment to achieve them, good negotiators learn to seek
contrary opinions and find ways to respond to the divergent views they uncover. Building
consensus and commitment is useful for negotiations with bosses, peers and subordinates as well
as with clients. Managers must also be able to negotiate to obtain resources for their subordinates
and to settle disputes that arise among various stakeholders.30 In South African the platinum
industry was exposed to a major five-month strike which commenced on 23 January 2014.
Extended negotiations and mediation were required with the involvement of several parties, but
specifically between the management negotiating team of Lonmin Platinum and mine workers, in
order to settle the dispute over wages and other terms and conditions of employment for the period
1 October 2013 to 30 June 2016. Lonmin’s managerial negotiations included four key priorities:
assessing and improving the health and wellbeing of employees, including operational and safety
training; ensuring mining areas are safe; re-build relationships and trust between workers and
management; and assist employees in stabilising their wellness and financial wellbeing.31
Because managers spend so much of their time communicating, management recruiters look
for people who can communicate effectively. Thus the importance of good communication cannot
be stressed enough. For a summary of the communication competency, refer to Table 2.2.

Table 2.2 Dimensions of communication competency

Informal communication

• Promotes two-way communication by soliciting feedback, listening, seeking contrary opinions and
creating a give-and-take conversation
• Is flexible, and varies approach in different situations and with others from diverse backgrounds
• Builds strong interpersonal relationships with a diverse range of people; shows genuine sensitivity to
the diverse needs, opinions and feelings of others, and is tolerant of their shortcomings and unique
characteristics
• Makes effective use of personal networking

Formal communication

• Informs people of relevant events and activities, and keeps them up to date
• Makes persuasive, high-impact public presentations and handles questions well
• Writes clearly, concisely and effectively, using traditional as well as electronic media

Negotiation

• Negotiates effectively on behalf of the team over roles and resources

• Is comfortable with the power of the managerial role
• Is skilled at developing relationships and exercising influence upward with superiors, laterally with
peers and downward with subordinates as well as externally with customers, suppliers and other
stakeholders
 • Takes decisive and fair actions when handling problem subordinates
• Influences and motivates for effectiveness

2.1.2 Planning and financial management competency

Planning and financial management as a competency involves deciding what tasks need to be
done, determining how they can be done, allocating resources to enable them to be done, and then
monitoring progress to ensure that they are done. In doing so time management is of the essence
as well as having the necessary financial knowledge. For many people, the planning and financial
management competency comes to mind first when they think about managers and managing.
This competency is heavily reliant on conceptual skills, supported by knowledge of technical
skills. Included in this category are:
• Information-gathering, analysis and problem-solving
• Planning and organising projects
• Time management
• Budgeting
• Investment and financial decisions
• Managing dividend policies.

Planning and financial management is one of the key elements not only illustrating
organisational performance through profitability, but also illustrating the organisation’s ability to
cover costs and be effective in its managerial practices over time - in other words to be
sustainable. In 2015, South African Airways (SAA) had its hope set on its ninth turnaround plan
in fifteen years, the so-called long-term turnaround strategy (LTTS). This in itself does not paint a
positive picture, reflecting negatively on the planning and financial competencies within
management during this period. A competitive airline industry demands a managerial approach
aligned with ethical and sound financial planning practices.32
Planning and organising projects usually means working with employees to clarify broad
objectives, discuss resource allocations and agree on completion dates. A manager such as
Kieswetter, former CEO at Alexander Forbes and discussed in the South African Insight in
Chapter 1, used to spend for example 35% of his day with employees, 10% on the telephone and
5% on paperwork. Because there are more problems and opportunities than he can possibly attend
to, Kieswetter needed to be ruthless about time management in order to optimise his daily
performance.
Managers are accountable for managing their time, especially given the multiple demands in a
globalised village as well as taking on responsibilities in terms of budgeting and the managing of
financial resources. In addition to the budgeting, daily reporting and controlling of the finance
function in an organisation, financial management involves three key decisions namely the
investment, the financing and the ‘distribution of profits’ decisions. The investment decision refers
to the identification of potential investments or projects, the financial analysis of these and the
acceptance or rejection of these potential investments. Secondly, the financing decision refers to
the decisions around the raising and allocation of capital to fund the investments or projects.
Finally, decisions around profit distribution or retention in the organisation need to be made in the
form of dividend policies.33 In non-profit and government organisations, trustees, various
regulatory bodies and elected officials oversee fiscal management and thus need to have effective
planning and financial management competencies. For more details about planning and financial
management competency, refer to Table 2.3.
Table 2.3 Dimensions of the planning and financial management competency

Information-gathering, analysis and problem-solving

• Monitors information and uses it to identify symptoms, underlying problems and alternative solutions
• Makes timely decisions
• Takes calculated risks and anticipates the consequences

Planning and organising projects

• Develops plans and schedules to achieve specific goals efficiently

• Assigns priorities to tasks
• Determines, obtains and organises necessary resources, such as materials, people and funds
• Delegates responsibility for task completion

Time management

• Handles several issues and projects at one time, but does not spread self too thin
• Monitors and keeps to a schedule or negotiates changes in the schedule if needed
• Works effectively under time pressure
• Knows when to permit interruptions and when to screen them

Budgeting and financial management

• Understands budgets, cash flows, financial reports and annual reports, and regularly uses such
information

• Keeps accurate and complete financial records

• Creates budgetary guidelines for others and works within the guidelines given by others

Investment and financial decisions

• Identification of potential investments or projects

• Financial analysis of the identified investments or projects
• Acceptance or rejection of these potential investments or projects
• Raising and allocation of capital to fund the investments or projects

Managing dividend policies

• Decisions on profit distribution or retention in the organisation needs to be made in consultation with
dividend policies

2.1.3 Teamwork competency

Accomplishing tasks through small groups of people who are collectively responsible and whose
work is interdependent, is the result of an optimum teamwork competency. As shown in Table
2.4, managers in organisations that utilise teams can become more effective by:
• Designing teams properly
• Creating a supportive team environment
• Managing team dynamics appropriately.
 Teamwork in organisational settings is an important aspect of creating a well-oiled machine
to get tasks and projects done. A single team often has a team leader who guides all members to
reach the company’s expectations. The team leader’s effectiveness is reliant on their knowledge of
designing a team and managing team dynamics as well as their interpersonal skills. In addition,
each team leader must include all workers to boost motivation and workplace morale.34 In our
South African Insight Dr Reuel Khoza of Nedbank emphasises the importance of connectedness,
interaction and compassion – all critical elements for optimum team performance. Peter Loscher
of Siemens AG, believes that “the difference between a good and a great team is usually the mind-
set”. He states further that in order to ensure the correct mind-set, the management team must take
the leadership and create a state of ‘blind trust’ – as trust forms the underlining principle driving
team performance.35
Designing the team is the first step for any team project. This is usually the responsibility of a
manager or team leader. But in self-managed teams, the entire team participates in the design.
Team design involves formulating goals to be achieved, defining tasks to be done and identifying
the staffing needed to accomplish those tasks. Team members should identify with the team’s
goals and feel committed to accomplishing them. Members of a well-designed team understand its
tasks and how its performance will be measured. They are not confused about which tasks are
theirs and which tasks belong to some other team.
A well-designed team is capable of high performance, but it needs a supportive environment
to achieve its full potential. All members of a team should have the competencies needed to create
a supportive environment. In a supportive environment, team members are empowered to take
actions based on their best judgement, without always seeking approval first from the team leader
or project manager. Support also involves eliciting contributions from members whose unique
competencies are important for the team, and recognising, praising and rewarding both minor
victories and major successes. A manager who has developed good teamwork competency,
respects other people and is respected in return. This teamwork philosophy is a philosophy and
characteristic of McDonalds South Africa. McDonalds SA based their actions on five people
principles. One of these principles is respect and recognition. This principle requires that
managers at McDonalds “treat employees as they want to be treated, to ensure that employees are
respected and valued and that employees are recognised formally for good performance at work,
extra effort, teamwork and excellent customer service”.36
In general managers who lack teamwork competency are often viewed as being rude, abrupt
and unsympathetic, making others feel inadequate and resentful. In a supportive environment the
leader is also involved in identifying and acquiring resources required by the team to accomplish
its goals. Fundamentally, creating a supportive environment involves coaching, counselling and
mentoring team members to improve their performance in the short term and prepare them for
future challenges.
Conflicts and disagreements among team members are natural, which means that managing
team dynamics is necessary for effective teamwork. Building the Mall of Africa, which opened its
doors in the second quarter of 2016, is an example of a project which demanded, of various
managers, the ability to manage the dynamics of multiple teams working on the project. Building
a 131 000 m² shopping centre demands team dynamics competencies. The scale of the Mall of
Africa meant that the project team, which included the professional team and the main contractor,
had to overcome specific challenges relating to logistics and programming of construction
sequences, as well as hiring and managing a broad spectrum of subcontractors. Gerhard Saayman,
Engineer at Aurecon responsible for managing their design and construction supervision teams on
this project, confirms that a highly unified team was needed to fast-track the construction of such
a large project.37 While a summary of the teamwork competency is shown in Table 2.4 below, this
competency is further investigated in Chapter 9.

Table 2.4 Dimensions of teamwork competency

Designing teams

• Formulates clear objectives that inspire team members and engender commitment
• Appropriately staffs the team, taking into account the value of diverse perspectives, technical skills
needed and development goals
• Defines responsibilities for the team as a whole, and facilitates the allocation of tasks and
responsibilities to individual team members as appropriate
• Creates systems for monitoring team performance

Creating a supportive environment

• Creates an environment characterised by empowerment, in which effective teamwork is expected,

recognised, praised and rewarded
• Assists the team in identifying and acquiring the resources it needs to accomplish its goals
• Acts as a coach, counsellor and mentor, being patient with team members as they learn

Managing team dynamics

• Understands the strengths and weaknesses of team members, and uses their strengths to accomplish
tasks as a team
• Brings conflict and dissent into the open, and uses it to enhance the quality of decisions, while at the
same time facilitating co-operative behaviour and keeping the group moving toward its goals

2.1.4 Strategic action competency

Understanding the overall mission and values of the organisation and ensuring that your actions
and those of the people you manage are aligned with them involves strategic action competency.
Strategic action competency includes:
• Understanding the industry
• Understanding the organisation
• Taking strategic actions.

Today, employees at all levels and in all functional areas are being challenged to think
strategically in order to perform their jobs better. They are expected to recognise that shifts in an
organisation’s strategic direction are to be expected and even anticipated by being able apply their
conceptual skills. Managers and other employees who understand the industry, and who can
accurately anticipate strategic trends and prepare for the future needs of the organisation, are less
likely to find themselves looking for new jobs when the organisation changes direction.
Hennes & Mauritz, better known to fashion conscious South Africans as H&M, entered the
South African clothing and retail market for the first time in October 2015, opening its first 4
700m² flagship store in the country, at the Victoria & Alfred Waterfront in Cape Town. This was
followed by stores opening in Gauteng in shopping centres such as Sandton City, Mall of the
South and the Mall of Africa. With 3 500 stores in 57 countries worldwide, this Swedish company
aims to follow in the footprint of other global organisations such as Gap (USA), Topshop (United
Kingdom) and Cotton On (Australia), to use their South African entry as a means to access and
grow further in other Sub-Saharan African markets. Their global growth (expansion) strategy is
driven by their target which is to increase their total number of stores by 10–15 percent annually,
and to also enter four to five new markets in the medium term.38

The strategic action competency also involves understanding the organisation, not just the
particular unit in which a manager works, but the organisation as a system of interrelated parts. It
includes comprehending how departments, functions and divisions relate to one another, and how
a change in one can affect others. In addition, it includes understanding the concerns of
stakeholders and the competencies of the organisation, as well as the strategic intent and vision of
the organisation. The PwC report: ‘Retail Banking 2020: Evolution or revolution’ is based on a
survey of 560 financial services executives from leading institutions in 17 countries, of which 19
were representatives from a range of South African banks. Based on the experience of these
executives and their understanding of their banks (organisations), a number of key dynamics and
developments were identified that are likely to substantially alter the global operating landscape
for retail banks by 2020. Just over half of global bank executives (55%) surveyed indicated that
non-traditional players, for example a retailer such as Pick n Pay or a private business such as
Mercedes Benz Financial Services, pose a threat to the traditional retail banking industry. On the
other hand, 31% believe that this exact ‘problem’ presents innovative partnership opportunities.
The study predicts that retail banking is expected to look very different in the near future and that
banks will have to adapt their business models to ensure success and sustainability.39
A manager with a well-developed strategic action competency can diagnose and assess
different types of managerial problems and issues that might arise. Such a manager thinks in terms
of relative priorities rather than ironclad goals and criteria. All managers, but especially top
managers, need strategic action competency. Top managers must perceive changes in the
organisation’s environment and be prepared to take strategic actions such as executing specific
plans, assigning priorities to decision-making that is aligned with the organisation’s strategic goals
and mission, and considering the long-term implications of decisions. For more details about
strategic action competency, refer to Table 2.5. Strategic planning, analysis and formulation will
be discussed further in Chapters 5 and 6 respectively.

Table 2.5 Dimensions of strategic action competency

Understanding the industry

• Understands the history of the industry

• Stays informed of the actions of competitors and strategic partners
• Can analyse general trends in the industry and their implications for the future
• Quickly recognises when changes in the industry create significant threats and opportunities

Understanding the organisation

• Understands and is able to balance the concerns of stakeholders

• Understands the strengths and limitations of various business strategies
• Understands the distinctive competencies of the organisation
• Understands various organisational structures, and the advantages and disadvantages of each
• Understands and is able to fit into the unique corporate culture of the organisation
• Understands the organisation’s strategic intent and vision

Taking strategic actions

 • Executes specific plans that reflect cross-functional and cross-divisional knowledge
• Assigns priorities and makes decisions that are consistent with the firm’s mission and strategic goals
• Recognises the managerial challenges of alternative strategies and addresses them systematically
• Considers the long-term implications of actions in order to sustain and further develop the organisation
• Establishes tactical and operational goals that facilitate strategy implementation

2.1.5 Global awareness competency

Global awareness competency is about carrying out an organisation’s managerial work by
drawing on the human, financial, information and material resources from multiple countries and
serving markets that span multiple cultures. Not all organisations have global markets for their
products and services, nor do they all need to set up operations in other countries to take
advantage of labour that is cheaper or better trained. Nevertheless, over the course of your career,
you will probably work for an organisation that has an international component. To be prepared
for such opportunities, you should begin to develop your global awareness competency, which is
reflected in cultural knowledge and understanding as well as cultural openness and sensitivity40,
as well as having an ability to use interpersonal skills effectively in a multicultural context.
In the course of growing up and being educated in a particular country or region, people
naturally develop cultural knowledge and understanding of forces that shape their lives and the
way in which business is conducted. These forces include geography and climate, political
processes and orientations, economic systems and trends, history, religion, values, beliefs and
local customs. As a manager you need to understand how these forces impact on your
organisation. By the time you become a manager in your home country, your own culture has
become second nature to you, so you do not need to devote much time to developing a general
knowledge and awareness of it. However, unless you have travelled extensively or specifically
studied other cultures as part of your education, you probably have much less general knowledge
and understanding of other countries, except perhaps those that share a border with your own. Yet
because business is becoming global, many managers are now expected to develop knowledge and
an understanding of at least a few other cultures. Typical examples to illustrate mistakes resulting
from language and cultural diversity are those seen in advertising. For example, KFC’s well-
known slogan ‘finger lickin’ good’ did not turn out that well in China because in Chinese, the
Kentucky Fried Chicken slogan came out as ‘Eat your fingers off’! In Italy, a campaign for
Schweppes Tonic Water translated the name into ‘Schweppes Toilet Water’.41 Even though
English is a universal language, it is not always understood in the same manner by people of
different cultures.

Managers also need to develop a cultural understanding of the foreign country in which they
are to do business, such as countries where suppliers are located or countries with newly emerging
markets that can help sustain the enterprise’s future growth. The global brand, Starbucks, entered
the South African market for the first time in 2015. Being a global success does not guarantee that
entering the South African market will be an easy opportunity. The South African market is highly
diverse and cultural diversity furthermore impacts customer behaviour. Most South Africans still
drink instant, caffeine-infused coffee and quality is not a key differentiator when they purchase
coffee. However, over the last couple of years, there has been a new developing market for
improved quality, pure ground and premium coffees. This has resulted in a rejuvenation of the
coffee shop industry in the country. When investigating the fast food and coffee sectors in South
Africa, similarities are noticeable. South Africans are inclined to have a high degree of brand
consciousness and loyalty towards local brands, including local coffee brewers and coffee shops.
This poses a challenge to new market entrant Starbucks. Implementing a suitably adapted strategy
and acknowledging diversity will ensure their future success and growth in the region.42
Simply knowing about other cultures is not sufficient. Appropriate attitudes and skills are
needed to translate this knowledge into effective performance. An open attitude about cultural
differences and a sensitivity to them are especially important for anyone who must operate across
cultural boundaries. Openness and sensitivity involve, first and foremost, recognising that culture
makes a difference in how people think and act. You cannot assume that everyone will think and
act as you do, nor that everyone will automatically understand your point of view. Secondly,
openness and sensitivity mean actively considering how another culture might differ from your
own and examining how your own culture affects your behaviour. Among South African multi-
nationals such as Alan Gray, Sasol, Engen, Discovery, Sun International, SABMiller, and Sappi,
there is an urgent need to develop multi-functional, multi-skilled pools of true international
managers. These managers need to be open and sensitive to multicultural differences as they
operate across cultural boundaries.43 As highlighted in the South African Insight, Dr Reuel Khoza
has taken the lead in enhancing mullticutural sensitivity by acknowledging a managerial culture
based on inclusivity, Afrocentricity and Ubuntu. Ubuntu is a quality that includes the essential
human virtues of compassion and humanity within community.44

Globalisation brings about the need for managers and employees to develop an understanding
of cultural diversity as well as ensuring that they are open and sensitive to it. Mentorship, training
and development programmes are important tools in ensuring sustainable development of
employees exposed to the implications of cultural diversity in a global business environment.
Specific areas that require attention if a business wants to handle cultural diversity in a global or
international context are: business ethics and the culture of the specific country or region,
developing adequate cross-cultural literacy, understanding the specific culture’s entrepreneurial
orientation, and to have clarity regarding the connection between culture and the establishment of
a competitive advantage for the business.45

Knowledge about other cultures as well as an open attitude and sensitivity about cultural
differences set the stage for working with people from other backgrounds. In any culture,
appropriate language, social etiquette and negotiation skills help in developing effective work
relationships. Likewise, SAP South Africa has taken the time to truly understand the nature of
business in Africa. It has done this by trying to understand and be open, honest and empathetic to
different cultures while accomplishing its vision. SAP states that “creating a diverse and inclusive
culture makes us a better company, fuelling our innovation, enhancing our experience of work,
and enabling us to succeed in a rapidly changing world. We see and value every individual for
what they have to contribute. And we are committed not just to the principles underlying this
philosophy, but the day-to-day practices that bring it to life.” (Watch the video on what diversity
means to their employees at http://www.sap.com/corporate-
en/about/careers/diversity/index.html).46 The dimensions of global awareness competency are
summarised in Table 2.6.

Table 2.6 Dimensions of global awareness competency

Cultural knowledge and understanding

• Stays informed of political, social and economic trends and events around the world
• Recognises the impact of global events on the organisation
 • Travels regularly to gain first-hand knowledge of countries in which the organisation has or is
expected to have an interest
• Understands, reads and speaks more than one language fluently
• Has a basic business vocabulary in each language relevant to own job

Cultural openness and sensitivity

• Understands the nature of national, ethnic and cultural differences, and is open to examining these
differences honestly and objectively
• Is sensitive to cultural cues and is able to adapt quickly in novel situations
• Recognises that there is great variation within any culture and avoids stereotyping
• Adjusts own behaviour appropriately when interacting with people from various national, ethnic and
cultural backgrounds
• Understands how own cultural background affects own attitudes and behaviours
• Can empathise and see from different perspectives, while still being secure in self and able to act with
confidence

2.1.6 Emotional intelligence and self-management competency

Emotional intelligence (EI) is a form of personal and social intelligence that enables
a person to perceive, understand and manage their own emotions and the emotions of others,
express and control emotions appropriately, and listen to others with empathy.47 Being able to
recognise one’s own and other’s feelings provides the basis for managing emotions well, having
sound relationships and for self-motivation. It has been established that emotional intelligence is
required in order to learn and behave well, and that it is a strong predictor of achievement and
success in life.48 Being emotionally intelligent and managing one’s self requires sound
interpersonal skills. The key emotional intelligence dimensions are briefly explained in Table 2.7.
They include self-awareness, self-management, social awareness and social skills, also referred to
as relationship management.49 Self-awareness is central to EI. Research has found that if a person
lacks self-awareness, their chances of having self-management and social awareness are reduced.50
Taking responsibility for your life at work and beyond involves self-management
competency. Often, when things do not go well, people tend to blame their difficulties on the
situations in which they find themselves or on others. Effective managers do not fall into this trap.
Self-management competency includes:
• Integrity and ethical conduct
• Personal drive and resilience
• Balancing work/life issues
• Self-awareness and development
• Spiritual intelligence.

Daniel Goleman introduced the Emotional Intelligence (EI) theory. With EI in mind, the best
business leaders can be described as those almost-superhumans, who have developed the four
capacities that Goleman outlined for EI: self-awareness, self-management, social awareness and
relationship management. Examples of Top 500 American CEOs being rated as part of the top 10
Emotionally Intelligent CEOs of Fortune 500 companies, include people such as Jeff Bezos
(Amazon.com) – his passion with the hearts and minds of his customers and his long-term
perspective on relationships (and business strategy) are renowned; Warren Buffett (Berkshire
Hathaway) – he is intensely loyal and relationship-driven, and for example, asks his CEOs to run
their companies as if they were to own them 100 years from now; and Ursula Burns (Xerox) – her
assertiveness is matched by a sense of mission that inspires her employees even though she is
known to be direct, yet respectful in her approach.51
You may be thinking that self-management really does not require much time and effort. Self-
management in an organisational context, comprises what a person knows about their emotions,
and the ability a person has to manage those emotions in such a way as to establish positive
relations and exchanges with other employees, customers, and suppliers. This must also allow for
a person to be able to motivate themselves in different situations. Recognising the fact that he/she
is feeling a negative emotion, for example, empowers a manager. This could prevent such a
person from losing control or behaving out of the norm. EI self-management is critical for a
manager because no one wants to work for someone who is not in control of their emotions and
whose actions and responses depend on their mood.52
Just as customers expect enterprises to behave ethically, organisations expect their employees
to show integrity and act ethically. These qualities may be the most important ones that employers
look for when recruiting entry-level employees who do not yet have a long record of employment
or much technical expertise. The statement ‘You are who you hire’ is very true in this respect.
When a manager considers potential candidates for the businesses, hiring decisions should also be
based on character and not only on skills. The National Business Ethics Survey stated that the
percentage of organisations that provide ethics training rose from 74% in 2011 to 81% in 2013. In
2013, 67% of the participating organisations included ethical conduct as a performance measure in
employee evaluations, a 7% increase from 2011.53 Former CEO of Massmart and subsequent CEO
of Imperial Holdings, Mark Lamberti is a major advocate of ethical management conduct. During
his tenure as CEO at Massmart he confirmed that “the ethics of Massmart are determined by who
we are, not who we deal with.” Lamberti further confirms that “the fine line between the use and
abuse of power is dictated only by our ethics.”54
Renowned African author Muna wa Wanjiru stated that “leadership is the ability to influence
and motivate humans to achieve the desired objectives”. A good leader is one who leads by
example, a person who ‘walks the talk’. Brand Pretorius was such a leader. As he puts it, “When
your people look at you, they must sense passion, enthusiasm and sincerity. Leadership has to be
genuine and you need to walk the talk.”55 As mentioned in the South African Insight, Dr Khoza
supports this notion: “promoting leadership values that underpin behaviour that is beyond
reproach; values that extol men and women of integrity who are as impartial as they are
passionate.” As such, Khoza believes the values encompassed in African humanism, or Ubuntu,
contribute towards connecting corporate vision and community spirit. These values can be shared
and learnt. In the traditional sense, he suggests that leaders and those who are led are connected by
their common humanity.
Personal drive and resilience are especially important when a person sets out to do something
that no one else has done, and when that person faces setbacks and failures. Generally, it is a
lonely place at the top. Today CEOs are under increased public scrutiny. They must handle the
future direction and prosperity of the business, inspire confidence among employees and lead by
example. Yet they are inhibited by short-term pressures. Only 30% of CEOs believe that enough
time is allocated to long-term strategy. Therefore, they need to be resilient and have personal drive
to ensure they ensure sustainable performance, considering that most FTSE-100 company CEOs
only have a 5 to 6-year tenure.56
Knowing how to balance work/life issues is another factor that contributes towards managerial
success. In South Africa, the Basic Conditions of Employment Act (Act No. 75 of 1997) makes
provision for balancing work demands and other family concerns. For example, it provides for
employees’ family responsibility leave, which includes leave when a child is born, when a child is
ill and in the event of the death of a family member.57 However, self-management competency is
needed to decide when and how best to take advantage of such policies. Knowing your own work
and life priorities, and finding a way to juggle them all, may be the most difficult management
challenge you will face. The importance of a balanced work/life perspective is confirmed with the
work-life philosophy communicated by Dr Reuel Khoza in the South African Insight.
The dynamic work environment calls for self-awareness and development (as well as the
ability to unlearn and relearn continually!). That includes both task-related learning and learning
about yourself. On the one hand, task-related learning can directly improve your performance in
your current job and prepare you to take on new jobs. Learning about yourself, on the other hand,
can help you make wiser choices about which types of jobs you are likely to enjoy. With fewer
opportunities for promotions and upward advancement, finding work that you enjoy doing is even
more important today than it was in the past.58 Taking responsibility for your own career
development – by understanding the type of work you find satisfying and developing the
competencies you will need – may be the best route to long-term success.
Research shows that people who take advantage of the development and training opportunities
that employers offer learn much from them and advance more quickly than those who do not.
Derailment awaits managers who fail to develop their competencies. A derailed manager is one
who has moved into a position of managerial responsibility, but has little chance of future
advancement or of gaining new responsibilities. The most common reasons for derailment are:
• Problems with interpersonal relationships and the inability to lead a team (weak in teamwork
competency)
• Inability to learn, develop and adapt (weak in self-management competency)
• Performance problems (weak planning and administration competency)
• Having a narrow functional perspective (lacking strong strategic action and global awareness
competencies).59

Self-management also calls for spiritual intelligence. So far, we have suggested that EI gives us
an awareness of our own and other people’s emotions. It helps us to understand ourselves better,
be more socially aware, and foster good relationships as we manage with compassion.60 On the
other hand, the concept of spiritual intelligence (SI) helps us to “assess our deepest meanings,
values, purposes and highest motivations”. These guide us in our thinking processes and the
decisions we make. It serves as a compass where we need to distinguish between right and wrong
and what is worthwhile doing. As such SI can be likened to a person’s soul where the “deeper and
richer dimensions of imagination and spirit” are included in our daily lives and activities.61
The difference between EI and SI is determined by the specific situation in which they are
used. EI “allows us to judge what situation we are in and then to behave appropriately within it.
This is working within the boundaries of the situation, allowing the situation to guide us” by what
we feel. “Spiritual intelligence allows us to ask if we want to be in this particular situation in the
first place. Would we rather change the situation and create a better one? This is working with the
boundaries of our situation and allowing us to guide it”, according to what we are.62

Table 2.7 provides more details about emotional intelligence and self-management competency.

Table 2.7 Dimensions of emotional intelligence and self-management competency

Emotional Intelligence

• Shows self-awareness, which is the ability to recognise one’s own emotions and their effects on others
(emotional self-awareness) as well as the ability to assess one’s strengths and limitations accurately
(self-assessment), and has a strong sense of his or her self-worth and capabilities (self-confidence)
•
 Uses self-management, which means understanding oneself and how to motivate oneself as well as
understanding how to control disruptive emotions and drives (self-control); maintains standards of
integrity and honesty (trustworthiness); accepts responsibility for own actions (conscientiousness);
open to new ideas and able to adapt behaviour to changing circumstances (innovation and
adaptability); is guided by a drive to meet internal standards of excellence (achievement orientation);
able to align with organisational goals (commitment) and has the ability to act (initiative)
• Shows social awareness, in other words, is good at understanding others and situations and takes an
active interest in their concerns at a personal level (empathy), being sensitive to the developmental
needs of others (developing others), and at an organisational level in terms of leveraging diversity and
being politically aware (organisational awareness); and recognises the needs of customers (service
orientation)
• Has good relationship-management or social skills, which means the ability to lead others and work
with others, including inspiring and leading groups (leadership), using interpersonal influence tactics
(influence), sending clear and persuasive messages (communication), and instigating and managing
change (change catalyst); works with others to build effective interpersonal relationships (building
bonds), achieve shared goals (teamwork and collaboration) and resolve disagreements (conflict
management)63

Integrity and ethical conduct

• Has clear personal standards that serve as a foundation for maintaining a sense of integrity and ethical
conduct, even in the face of strong pressure to the contrary
• Is honourable and steadfast, projects self-assurance and does not just tell people what they want to
hear
• Is willing to admit mistakes
• Accepts responsibility for own actions

Personal drive and resilience

• Seeks responsibility, and is willing to innovate and take risks

• Is ambitious and motivated to achieve objectives, but does not put personal ambition ahead of the
organisation’s goals
• Works hard to get things done
• Shows perseverance in the face of obstacles and bounces back from failure

Balancing work and life issues

• Strikes a reasonable balance between work and other life activities so that neither aspect of living is
neglected
• Takes good care of self, mentally and physically, and uses constructive outlets to vent frustration and
reduce tension

Self-awareness and development

• Has clear personal and career goals, and knows own values, feelings, and areas of strengths and
weaknesses
• Uses strengths to advantage while seeking to improve or compensate for weaknesses
• Accepts responsibility for continuous self-development and learning, and develops plans and seeks
opportunities for personal long-term growth
• Analyses and learns from work and life experiences
• Is willing to unlearn and relearn continually as changed situations call for new skills and perspectives
• Is spiritually intelligent
2.2 Developing your managerial competencies
Throughout this book each of the relevant competencies will be highlighted in the text of each
chapter. The relevant competency will be identified and briefly indicated why it is of relevance in
that particular managerial context. This brief explanation is furthermore enhanced by means of an
example. The information is provided to help you develop the six managerial competencies that
we have described in Chapter 2. It will help you cultivate an understanding of how all six
competencies contribute to performance in jobs that involve managerial work. The managerial
competencies are indicated in each chapter by means of icons as shown in Table 2.8. To assist you
in gaining an overview of these managerial competency features, an outline of which managerial
competencies are discussed in the different chapters is provided in Table 2.8.

Table 2.8 Developing managerial competencies for managerial effectiveness

Icon Managerial competency Chapters

Communication 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 16

Planning and financial management 3, 4, 5, 6, 7, 8, 11, 12, 14

Teamwork 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 16

Strategic action 3, 4, 5, 6, 7, 8, 11, 12, 13, 14, 15

Global awareness 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15

Emotional intelligence and self-management 3, 4, 6, 7, 9, 11, 12, 14

Chapter summary
In this chapter we defined managerial competencies as sets of knowledge, skills, types of
behaviour and attitudes that a manager needs in order to be effective in a wide range of
managerial jobs and various organisational settings. A distinction was drawn between managerial
competencies and skills (conceptual, interpersonal and technical). The extent to which the skills
are required would differ according to their managerial level and vary in each of the managerial
competencies. There are six managerial competencies that are particularly important:
communication, planning and financial management, teamwork, strategic action, global
awareness, and emotional intelligence (EI) and self-management, which includes spiritual
intelligence (SI). EI is the capacity to process emotional information accurately and efficiently,
including the capacity to perceive, assimilate, understand and manage emotion, whereas SI helps
us to assess the most meaningful course of action.
The process of obtaining and organising resources and achieving goals through other people
by managing them is dynamic rather than static. Change is a continual reality in today’s business
environment, and for managers to be effective and successful in this context, they will need to
develop these managerial competencies and skills, to deal effectively with these complexities.
Questions for discussion
1. Explain how you could use the six managerial competencies, presented in this chapter, in your
life currently (for example, at university, at work or at home) and how you foresee using them
in a managerial or leadership capacity?
2. Outline the key dimensions of the strategic action competency. Identify any South African
organisation and debate further why this competency is so important for managers steering
that organisation’s direction.
3. Assess your own emotional intelligence profile by using the MEIT – Free online EI Test at
http://www.maetrix.com.au/meit/eitest.xhtml#End. Interpret the implications of your own
emotional intelligence based on the discussion and interpretation provided at the end of the
test.

Exercise for competency development

Based on the results of your assessment of your own emotional intelligence (see Question 3 above), write
a short self-assessment report on your emotional intelligence competencies. In what ways do you agree
and disagree with your personal assessment? Explain your reasons for agreeing or disagreeing. Finally,
write down at least three things that you can start doing now to improve one or more of your emotional
competencies. Pay particular attention to your self-awareness competency, as this influences your self-
management and social competencies.

View a discussion on social intelligence by Daniel Goleman on:

http://www.youtube.com/watch?v=nZskNGdP_zM&feature=related and a discussion on emotional
intelligence at work on:
http://www.youtube.com/watch?v=AYiEm_ZKu_c&feature=related
https://www.youtube.com/watch?v=OoLVo3snNA0

Contemporary management in practice

In balancing work and life challenges, Stephen Covey, a management consultant and author of ‘The
Seven Habits of Highly Effective People’, has developed an assessment exercise on how to manage your
stress and a scoring profile on the seven habits of successful people. Visit the Franklin Covey website at
http://www.franklincovey.com/tc/resources and click on the Self-Scoring 7 Habits Profile. Complete the
brief online survey, which should take about ten minutes. Thereafter, analyse your results and determine
how to manage your stress more effectively or learn more about your rating in terms of the seven habits
of successful people. Relevant videos are also available on this website.

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factors perceived to contribute to success. Personnel Psychology, 48, 99–114; BRAKE, T. &
WALKER. D. 1997. Doing business internationally. Princeton, N.J.: Princeton Training Press;
SPREITZER, G.M., MCCALL, M.W. JR & MAHONEY, J.D. 1997. Early identification of
international executive potential. Journal of Applied Psychology, 82, 5–29.
41 FOROWITZ, M. 7 October 2013. Campaign. Cultural blunders: Brands gone wrong. [Online].
Available: http://www.campaignasia.com/article/cultural-blunders-brands-gone-wrong/426043
[Accessed 9 August 2016].
42 SIBINDANA, D. 31 August 2015. Business Day Live. Starbucks not guaranteed instant success in SA.
[Online]. Available: http://www.bdlive.co.za/opinion/2015/08/31/starbucks-not-guaranteed-instant-
success-in-sa [Accessed 7 August 2016].
43 AREGBESHOLA, A., LUIZ, J., OJAH, K., OOSTHUIZEN, T.F.J., PALMER, P. & VENTER, P. 2011.
Global business environments and strategies: Cape Town: Oxford University Press, pp. 157–159.
44 HUMANITY’S TEAM SOUTH AFTRICA. 2016. What is Ubuntu. [Online]. Available:
http://humanitysteamsa.org/ubuntu/ [Accessed 5 August 2016].
45 AREGBESHOLA, A., LUIZ, J., OJAH, K., OOSTHUIZEN, T.F.J., PALMER, P. & VENTER, P. 2011.
Op cit., p. 157.
46 SAPPI. 2015. Diversity. [Online]. Available:
http://www.sappi.com/regions/sa/people/sappiculture/Pages/Diversity.aspx [Accessed 8 October 2015];
DICEY, L. Op cit., pp. 66–73. SAP. Diversity and Inclusion: Embracing differences to drive our
innovation and future success. [Online]. Available: http://www.sap.com/corporate-
en/about/careers/diversity/index.html [Accessed 8 October 2015]; SAPPI. 2016. Diversity and
Inclusion. [Online]. Available: http://go.sap.com/corporate/en/company/diversity.html [Accessed 3
August 2016].
47 LE ROUX, R. & DE KLERK, R. 2004. Emotional intelligence workbook. Cape Town: Human &
Rousseau, p. 10.
48 GOLEMAN, D. March – April 2000. Leadership that gets results. Harvard Business Review, 78–90;
GRIFFIN, R.W. 2014. Fundamentals of Management. International Edition. Australia: South-Western
Cengage Learning, p. 256.
49 CHERNISS, C. & ADLER, M. 2003. Promoting emotional intelligence in organisations. United States
of America: ASSTD Press, pp. 10–11.
50 GOLEMAN, D. Op cit., pp. 78–90; DAFT, R.L. & MARCIC, D. 2014. Building Management Skills: an
action-first approach. International Edition. Australia: South-Western Cengage Learning, p. 57.
51 CHIP, C. 2 October 2011. The Huffington Post. The Top 10 Emotionally-Intelligent Fortune 500 CEOs.
[Online]. Available: http://www.huffingtonpost.com/chip-conley/the-top-10-
emotionallyint_b_911576.html [Accessed 2 August 2016].
52 FREE MANAGEMENT EBOOKS. 2016. Emotional Intelligence & Self-management. [Online].
Available: http://www.free-management-ebooks.com/faqpp/developing-03.htm [Accessed 8 August
2016].
53 VITTEE, C. 20 April 2015. SME South Africa. How ethical is your business? [Online]. Available:
http://www.smesouthafrica.co.za/15508/How-ethical-is-your-business/ [Accessed 9 August 2016].
54 LAMBERTI, M. 2006. Ethical challenges for South African business. The Ethics Institute. November.
[Online]. Available: https://www.tei.org.za/index.php/resources/articles/business-ethics/2209-ethical-
challenges-for-south-african-business-mark-lamberti [Accessed 17 January 2017].
55 DICEY, L. Op cit., p. 80; RHODES BUSINESS SCHOOL. 2011. Conversation in leadership: Q&A
with Brand Pretorius. [Online]. Available: http://criticalthought.co.za/conversations-in-leadership/
[Accessed 9 August 2016].
56
 HOWARD, S. 2 October 2014. The Guardian. CEOs: the challenge of creating a lasting legacy of
sustainability. [Online]. Available: https://www.theguardian.com/sustainable-
business/2014/oct/02/ceos-challenge-creating-lasting-legacy-sustainability-short-term [Accessed 3
August 2016].
57 SOUTH AFRICA. 1997. The Basic Conditions of Employment Act, No. 75 of 1997. Government
Gazette, 382 (17945), 18, April. Pretoria: Government Printer. [Laws]
58 HALL, D.T. & ASSOCIATES. 1996. The career is dead – long live the career: A relational approach.
San Francisco: Jossey-Bass.
59 JONES, R.G. & WHITMORE, M.D. 1995. Evaluating developmental assessment centers as
interventions. Personnel Psychology, 48, 377–388; WARR, P. & BUNCE, D. 1995. Trainee
characteristics and the outcomes of open learning. Personnel Psychology, 48, 347–375. Also see
DAUDELIN, M. 1997. Learning from experience through reflection. Organisation Dynamic, 24, 36–48;
VAN VELSOR, E. & LESLIE, J.B. 1995. Why executives derail: Perspectives across time and cultures.
Academy of Management Executive, 9, 62–72.
60 GOLEMAN, D. 1995. Emotional intelligence: Why it can matter more than IQ. London: Bloomsbury
Publishing.
61 ZOHAR, D. & MARSHALL, I. 2004. Spiritual capital: Wealth we can live by. San Francisco: Berrett-
Koehler, Inc, p. 3.
62 TIRRI, K., NOKELAINEN, P. & UBANI, M. 2006. Conceptual definition and empirical validation of
the spiritual sensitivity scale. Journal of Empirical Theology, 19(1), 37–62, 40.
63 GOLEMAN, D. 1998. Working with emotional intelligence. London: Bloomsbury, pp. 54, 61, 68, 82,
89, 95, 113, 118, 122, 138, 146, 151, 154, 168, 206, 211.
LEARNING OUTCOMES
After studying this chapter, you should be able to:
• Explain the difference between the phenomenon of management as a science and as an art
• Comment on whether management can be regarded as a discipline and as a profession
• Explain why it is important to consider the development of managerial thought when learning about
management
• Compare the three branches of the traditional viewpoint of management
• Explain the behavioural viewpoint’s contribution to management
• Describe how managers can use the systems viewpoint and quantitative techniques to improve
employees’ performance
• Explain the contingency viewpoint in modern management
• Discuss the important benefits of quality for an organisation
• Highlight the characteristics of the flexible viewpoint of management
• Explain the main concepts associated with the principle-led viewpoint of management as they relate to
contemporary management challenges.

CHAPTER OUTLINE
• South African Insight: Standard Bank – Reflecting on the science and art of management in going global
• Management: an introduction
• Management as a phenomenon
» Management as a science
» Management as an art
» Management as a science and an art
» Management as a discipline
» Management as a profession
• The development of managerial thought
• The traditional viewpoint of management
» Bureaucratic management
» Scientific management
» Administrative management
» Assessing the traditional viewpoint
• The behavioural viewpoint of management
» Mary Parker Follett
» Chester Barnard
» The Hawthorne studies
» Assessing the behavioural viewpoint
• The systems viewpoint of management
» Systems concepts
» Quantitative techniques
 » Assessing the systems viewpoint
• The contingency viewpoint of management
» Assessing the contingency viewpoint
• The quality viewpoint of management
» The importance of quality
• The flexible viewpoint of management
• The principle-led viewpoint of management
» Knowledge management
» Sustainable organisations
» Careers in the future and talent management
» Principle- and value-based organisational identity
» Principle-led management framework
• The integration of managerial viewpoints and competencies

Key terms and concepts

• Science
• Art
• Management as an art
• Discipline
• Management as a discipline
• Profession
• Bureaucratic management
• Rules
• Impersonality
• Division of labour
• Hierarchical structure
• Authority structure
• Traditional authority
• Charismatic authority
• Rational–legal authority
• Rationality
• Inputs
• Outputs
• Feedback
• Total Quality Management
• Talent management
• Scientific management
• Administrative management
• Behavioural (human-relations) viewpoint of management
• Hawthorne effect
• Systems viewpoint of management
• System
• Inputs
• Transformation processes
• Outputs
• Feedback
• Closed system
• Open system
• Sub-system
• Contingency viewpoint of management
• Technology
• Quality
• Total Quality Management
• Knowledge management
• Sustainability
• Environmental sustainability
• Social sustainability
• Economic sustainability
• Millennials
• Organisational identity
• Principle-led management framework
• Levels of organisational development
• Level-five manager
• Servant-leader

COMPETENCY WHY IS THIS COMPETENCY EXAMPLE

IMPORTANT TO THE
EVOLUTION OF MANAGERIAL
THOUGHT?

Planning and One of the goals of the time-and- Through time-and-motion studies, the
financial motion study which relates to the KFC team found that employees took
management scientific management viewpoint, is almost two minutes to complete a
to make a job highly routine and customer’s order. To improve
efficient. Therefore, eliminating performance, the team designed
wasted physical effort and specifying employees’ workstations so that they
an exact sequence of activities would not need to take more than two
reduces the amount of time, money steps to get what they needed, would not
and effort needed to make a product. lift anything, and could get serviettes,
straws and other items needed to complete
the order from handy shelves.1

Teamwork To remain competitive in a globalised Takeo Fukui, President and CEO (2003
world, understanding the industry in –2009) of Honda Motor Company
order to add value to a product or Limited, understood the importance of
service is essential for customer quality and customer satisfaction in
satisfaction. One way to be relation to market share as a growth
competitive is to encourage a culture strategy. He realised that to give Honda a
of teamwork in the organisation in competitive advantage required a culture
which teams make innovative of innovation. Employees were
decisions. encouraged to value teamwork and he
created an environment where employees
could advance their talents and be
innovative.2

Strategic action Strategic action includes, amongst In the South African Insight, how
others, understanding the Standard Bank facilitates their long-term
organisation’s strategic intent and sustainability is illustrated by ensuring
vision. that their strategic direction is aligned
with the Group’s strategy and values. In
turn, the strategic direction provides
guidance to each business unit that
implements the strategy.

Emotional In the principle-led viewpoint of According to Brand Pretorius, former

intelligence and management it is imperative for CEO of the McCarthy Motor Group, one
self-management managers to act with integrity, be of the challenges in a knowledge economy
 ethical and self-aware as they define is the retention of talent. Unless
values for their organisation. management is flexible enough to engage
with staff emotionally and intellectually,
and to lead them with integrity and
humility, retaining quality staff will
always be a challenge.3

Standard Bank: Reflecting on the science and art of

management in going global

Standard Bank, established in the Eastern Cape in 1862, is celebrating more than 150 years of
repositioning South Africa in the international arena. It is one of South Africa’s oldest companies and
plays a leading role on the African continent, offering financial services. It is also the largest African bank
by assets and earnings worth R1 859 billion as at 30 June 2015, and employs over 48 000 people. Now the
Standard Bank Group (SBG) Limited have an “on-the-ground presence in 20 countries in sub-Saharan
Africa, fit-for-purpose representation outside Africa and a strategic partnership with the Industrial and
Commercial Bank of China (ICBC)”.
While Standard Bank pride themselves in being a global bank with African roots, they have done so by
evolving and adapting their products and services to their customers, while nurturing and protecting their
reputation. Reputation is largely influenced by their guiding principles and values. As such they follow
sound business principles in meeting their customers’ needs by providing them with high quality products,
services and solutions. In ensuring their quality and governance standards, they subscribe to the Code of
Banking Practice – “a set of principles governing banking in South Africa and ensuring the highest
standards of professionalism, integrity and fairness”.
They further “uphold high standards of corporate governance and are committed to advancing the
principles and practice of sustainable development”. Making a difference in the communities in which
they operate is thus central to their sustainability. It is interesting to note that their social compact holds
them to “contributing to the socioeconomic development of the countries in which we operate in a way
that is consistent with the nature and size of our operations. We will provide financial services and
products responsibly, bearing in mind the needs of society, our customers, our staff, our shareholders, the
environment and future generations”. Their sustainable development initiatives can be viewed at
http://sustainability.standardbank.com/
The Group’s purpose, legitimacy, guiding principles and vision, in turn, influences their strategy and
how it is implemented in each country in which they operate. The ultimate test of the Group’s strategy is
whether it enables superior return on investment (ROE), sustainable growth in earnings and whether
“superior performance will be sustained over the long term”.
To facilitate long-term sustainability, strategic direction that is aligned with the Group’s strategy and
values, is provided to each business unit to guide strategy implementation. For instance, in one of the
Group’s strategic business units, known as PBB, Kruger highlighted that besides having to be integrated
into the “local society and fibre of any country you’re operating in”, PBB requires “greater on-the-ground-
infrastructure. It requires branch buildings, complex computer networks, cash-management handling
facilities to ensure that the bank is providing relevant offerings in each market at the right price”. In a
particular country in Africa, the market adoption of the technology and the brand in achieving the strategy
of PBB was well done and received. However, the Group encountered problems with their own internal
bureaucracy which impeded the achievement of their strategy. In involving the local community the bank
required “formal invoices and tender bids, which were not part of the daily business dealings of a largely
unemployed community”. However, the teams working on this project were able to overcome this
bureaucracy. PBB was successfully led by Sim Tshabalala who is currently the Co-CEO of SBG together
with Ben Kruger.
Well-executed strategy cannot be achieved unless many of the principles of the traditional,
behavioural, contingency and quality viewpoints of management are adhered to. The principles of the
‘science of management’ in knowing ‘what and why’ in understanding the theoretical knowledge of
 management is also evident in their case due to their successful performance, adhering to the Code of
Banking practice values, good governance and a sustainable business model.
Besides knowing about the theoretical knowledge of management, in a competitive business
environment learning from past experiences in different countries and caring about their stakeholders is
critical to successful strategy implementation. It is thus imperative to also understand the ‘art of
management’, namely learning from past experiences and working with people in getting strategy
executed, with a focus on being able to apply the theoretical knowledge by focusing on how to do it in
practice. Furthermore, as outlined in the behavioural and principle-led viewpoints and the art of
management, people and organisational culture will also influence successful strategy execution. The
challenges in working with and through people, as highlighted in the art of management and in the
principle-led viewpoint of management, is becoming even more critical in a globalised context. In keeping
with the SBG’s strategy to deliver “superior sustainable shareholder value by serving the needs of its
customers”, the key differentiator in achieving this strategy is its people. They have thus learnt to
encourage and provide the opportunity for their people to develop to their full capability, and assess their
leaders on how well they develop and challenge the people they lead. In all their markets they have also
learnt many lessons regarding the “types of people and skills required, how to integrate into the culture of
a country and its society, and how to motivate people who work for an international bank that is
committed to being relevant to the domestic market”. Co-CEO Ben Kruger also indicated that their
commitment to ensuring they have the best people on board is manifested by, for example, encouraging an
innovative “blue-sky thinking” organisational culture. Besides executing strategy there should be time for
thinking and reflecting so learning can take place within the context of an innovative organisational
culture. To view one of the bank’s innovations, watch the recording of how Standard Bank of South Africa
is bringing banking to the unbanked at https://www.youtube.com/watch?v=DN3I6SwELNE
A teamwork organisational culture is also fostered. Teamwork is valued as all aspects of the work done
in a unit and in the Group is interdependent. Working in teams also requires the “highest regard for the
dignity of all people and respect of each other”, especially in a cross-cultural working environment. As
such they try to integrate people in other countries into their organisational culture and they are expected
to adopt the values espoused by the bank. For further insights on their business model which is based on
trust and integrity, refer to http://www.standardbank.com/pages/StandardBankGroup/web/Values.html
Besides working with people, innovative and teamwork organisational cultures, the Group’s values
reinforce their authenticity which is intended to strengthen “trust with their stakeholders.” Their guiding
principles enable them to keep their promises made to their clients by rendering services with speed,
efficiency and thoughtfulness; cultivating a “culture of accountability, effective decision-making and
social relevance”; and executing strategy effectively while respecting local cultures.
Source: PAUL, D. 2012. Banking’s standard bearer. In CRICKMORE-THOMPSON, J. (ed.). Going global: Insights
from South Africa’s top companies. Pretoria: Gordon Institute of Business Science, MME Media, pp. 191–213;
STANDARD BANK. 2016. History. Our history. [Online]. Available:
http://www.standardbank.com/pages/StandardBankGroup/web/History.html [Accessed 13 August 2016];
STANDARD BANK. 2016. The group at a glance. [Online]. Available:
http://www.standardbank.com/pages/StandardBankGroup/web/at-a-glance.html [Accessed 13 August 2016];
STANDARD BANK. 2016. Overview. [Online]. Available:
http://www.standardbank.co.za/standardbank/Personal/Investing/Overview [Accessed 13 August 2016].

3.1 Management: An introduction

Chapter 1 highlighted that management is a universal phenomenon that can be found in any type
of organisation with the purposeof directing efforts towards achieving the organisation’s purpose.
In directing efforts towards achieving a specific purpose, management can be seen as a dynamic
process and purposive activity of getting things done, effectively and efficiently through and with
other people and resources. Management as a process is concerned with three processes, namely
social, integrating and continuous.4 As a process the tasks of planning, organising, leading and
controlling, briefly explained in Chapter 1, are used to create an internal environment, where the
working conditions enable an environment in which employees can perform their tasks effectively
and efficiently to achieve the organisation’s goals. In the social process the focus is on developing
relationships amongst employees – this refers to the human factor influencing the advancement of
productivity. In doing so, management integrates all the resources (human, physical and financial)
to achieve the organisation’s purpose in an ongoing and continuous dynamic environment.
Management as a purposive activity was also highlighted in Chapter 1 through the roles of
management, as identified by Mintzberg5 – in other words, ‘what a manager does’. In Chapter 1
the three main roles of managers were explained as decisional, interpersonal and informational.
Further to this discussion, the contemporary understanding of management as a science, art,
discipline and profession will be explained in this chapter.
As highlighted in the South African insight on Standard Bank, leading and managing a large
global organisation such as Standard Bank requires managerial adeptness in having the required
knowledge (science), and being able to apply the knowledge appropriately by interacting with the
human element (art) in order to ensure its sustainability.
In this chapter, we will therefore firstly explain the phenomenon of management
(contemporary understanding of management) in terms of management as a science, art, discipline
and profession. Secondly, a summarised review of how managerial viewpoints have evolved since
1886 to meet contemporary needs (past understanding of management), will be presented.

3.2 Management as a phenomenon

In this section the phenomenon of management (contemporary understanding of management) is
further explained in terms of management as a science, art, discipline and profession. We then go
on to consider the evolution of managerial thought.

3.2.1 Management as a science

Science is a systematic body of knowledge pertaining to a specific field of study that contains
general facts which explains a phenomenon.6 In explaining a phenomenon we need to consider
what is meant by a universal principle. A universal principle would be applicable in all situations
such as applying the law of gravity in any country or the principle of the Unity of Command in
management (one employee reporting to one manager) in any type of organisation.7 In the
universal principled approach, the body of knowledge is created using ascientific method of
observation and verification through testing. For example, the principle that the earth goes around
the sun has been scientifically proven.8 Likewise, in an organisation there is often a positive
relationship between job satisfaction and employee retention. The scientific method further
facilitates knowing more about and explaining the phenomenon as well as gaining insights into the
cause and effect relationship between two or more variables and the principles governing their
relationship.9 For example, when metals are heated they expand. Heating thus causes expansion.
Likewise, in management there is a cause and effect relationship between reward, fair treatment
and productivity in an organisation. In addition, it is also possible to assess the validity and
predictability, delivering the same result in any number of tests in each relationship. For example,
H2 and O2 will always give you H2O. Likewise, it is possible to test the principles of management
such as the Unity of Command principle.10
Science helps us in our daily lives as we learn the basic principles that guide us in making
decisions in dealing with events and people. Likewise, management has the characteristics of a
science, often referred to as a discipline. As such it is important not only to know but also to
explain and to understand a phenomenon in management.11 It provides managers with a
vocabulary of concepts that allow work experiences to be clearly analysed, discussed, explained
and understood. It also provides a framework of systematically thinking about behaviour at work
and the development of techniques for dealing with challenges in the workplace.12 Managers
understand what to do and the reason for doing it. For example, Standard Bank developed a clear
strategic framework for going international, as illustrated in the South African Insight.
As we have explained, while management has a systematic body of knowledge and is regarded
as a discipline, it is not as exact as other sciences, such as Physics. Further explanations of
management as a discipline are provided in Section 3.2.4. The inexactness of management as a
science is largely attributed to management being a social science. As a social science
management deals with working through and with people in an organisation where it is difficult to
predict behaviour accurately. Consequently, theories and principles may produce slightly different
results because behaviour is not always consistent.13 As a social science management is also an art.

3.2.2 Management as an art

An art is something a person practices based on skills applied to achieve a desired result.14 For
example, think about your favourite painter, actor or writer who applies their knowledge and skill
to achieve a desired result, namely producing a painting, film or novel. However, not all painters,
for example, use the same techniques and all are influenced by their own practical knowledge,
personal skills, creativity, practice and goal orientation in completing a painting.
While management as a science required knowledge about the theoretical principles,
management as an art requires practical application of these scientific theoretical principles.
Both the painter and the manager need to know how to use techniques and apply principles
appropriately in real situations. As such the art of management is individualised. Like the
successful completion of a painting, the role played by a manager and the quality of individual
performance is also influenced by their personal skill based on their knowledge, experience,
judgement, intuition and personality.15Management is also creative like painting. For managers,
producing something unique requires a combination of intelligence and imagination. It also takes
time through practice to become a more effective manager. This is achieved through trying new
things and learning from mistakes. Finally, both the painter and the manager need to use various
methods, techniques and ways of working to achieve a concrete goal. For the painter this means
successfully completing the painting and for the manager to increase market share for an
organisation through involving people, for example.16
We can thus say that management is an art because it deals with applying scientific principles
(knowledge) to influence thinking and behaviour at work to accomplish desired organisational
goals. Influencing people at work implies that the attitudes and behaviour need to be changed. As
an art, the focus is on the practical or technical know-how of ‘how to do it’. The competencies of
managers, discussed in Chapter 2, and the roles of managers, discussed in Chapter 1, are
particularly important in practising management as an art. In this chapter the flexible and
principle-led viewpoints of management relate largely to management as an art in dealing with
challenges such as sustainability and environmental management, talent management, values-
based organisational identity and principle-led management. In the South African Insight, it is
how Standard Bank had to dealt with all these challenges in pursuing the art of management.
Other management challenges that would require a response of management as an art would
include green management, risk management, South Africa’s involvement in the global economy
and BRICS (Brazil, Russia, India, China and South Africa), the new South-South dynamics, the
impact of HIV/ Aids on organisations, and understanding transformation in South Africa.
3.2.3 Management as science and an art
The answer to the question as to whether management is a science or an art, is that it is both.
Management, as a science, has a systematic body of knowledge based on universal principles of
truth. It is thus regarded as a discipline based on management-related knowledge. As mentioned
previously, science provides managers with a vocabulary of concepts and a framework for
systematically analysing and understanding behaviour at work. On the other hand, management is
an art because it is concerned with applying scientific principles (knowledge) to influence
thinking and behaviour at work to accomplish desired organisational goals. In doing so it deals
with influencing the attitudes and behaviour of people. As Peter Drucker contends, management is
neither an art nor a science, but a practice with aspects of each. Its role is both to explain and to
make meaning.17 Finally we conclude that science teaches managers the theoretical ‘know
why’ (what to do and the reason for doing it) while art teaches them the technical or practical
‘know how’ (how to do it).

3.2.4 Management as a discipline

A discipline is a branch of knowledge and should fulfil the following two requirements:18
• Relevant knowledge by scholars should be communicated via publications
• Relevant knowledge should be included in formal education and training programmes.

Based on the above-mentioned requirements, we suggest that management meets these

requirements when practising as a discipline. This said, management is still a relatively new
discipline and growing at a fast pace. It can thus be regarded as an emerging discipline.
Management as a discipline is characterised by the complex interplay of functions,
contingencies and processes19 to accomplish the goals of an organisation in an efficient and
effective manner. It is this interplay that distinguishes management from other sciences and
professional disciplines. While management draws on professional disciplines such as Accounting
and Engineering, it largely relies on the social sciences. The professional disciplines provide
management with a basis for professional decision-making, judgement and patterns of training.20
Management is thus best described as an interdisciplinary field of knowledge because of the
complex interplay between the professional disciplines and social sciences.

3.2.5 Management as a profession

There are debates about whether management is a profession or not. Before considering whether
management could be regarded as a profession, it is appropriate to outline the characteristics of a
profession. A profession may be defined as an occupation that requires specialised knowledge
and intensive academic preparations to which entry is regulated by a representative body.21 Some
scholars believe that professions in Law, Medicine and Accounting, for example, share
characteristics of a profession. These characteristics include, amongst others, a professional
knowledge-base, a professional ethos, a representative association22 and formal educational
requirements.
In terms of being knowledge-based, evidence-based knowledge and practice are important in
establishing a systematic body of knowledge for developing professionals.23 As such managers
need to obtain knowledge and develop their proficiency in the science of management, as
highlighted previously. On the other hand, a professional ethos is concerned with rules of conduct
as essential to the integrity of practice.24 Examples of rules of behaviour include membership,
accreditation, codes of conduct, professional values and responsibility, amongst others. In
establishing a professional ethos, values-based ethics is an important component of professional
training and education.
Furthermore, a representative body normally regulates a profession. For example, the South
African Institute of Chartered Accountants (SAICA) establishes guideline principles of practice
and competence for chartered accountants. In terms of formal educational requirements,
practitioners receive their education (Chartered Accountant) at professional schools. No
professional can practice as a CA without passing a course prescribed by SAICA.25
Considering the above characteristics of being a profession, the question can be posed as to
whether management is a profession? In resolving this question, we refer to the discussion on
management as a science and an art, to substantiate our response.
As the science of management develops, the knowledge base is becoming better defined and it
calls for more evidence-based research to guide practitioners.26 As such the viewpoint of
management being a profession is supported. For instance, Alfred P. Sloan, former GM
Chairperson in his book, My years at General Motors, supports this viewpoint.27 Management
guru, Peter Drucker also supports the professional character of management by highlighting that
managers should be professionals and identifying the enterprise as the client of the professional
manager.28 Aligned with this viewpoint is Aristotle’s first intellectual virtue of episteme. Episteme
refers to universal scientific and context-independent knowledge, which is very appropriate for
professionalisation and focuses on the theoretical knowledge – ‘theoretical know-why’.29
Management as science, discussed in Section 3.2.1, supports this viewpoint because the well
documented universal principles can be applied in different contexts and yield similar results. In
addition to the knowledge base, more attention is being given to professional ethos, ethics, codes
of conduct, formal educational and practice requirements, as highlighted in the section on
management as a discipline.
Other scholars, who view management as an art, do not agree that management should be
considered as a profession. Aligned with this viewpoint is Aristotle’s second intellectual virtue of
techne, meaning art, craft or skills and represents pragmatic context-dependent knowledge with a
focus is on technical know-how.30 The person who lives by techne does not come to each new
experience without foresight or resource. He possesses some sort of systematic grasp, some way
of ordering the subject matter, that will take him to the new situation well prepared, removed from
blind dependence on what happens.31 Aligned with techne, the art of management is a combination
of experience, practice, judgement and intuition, as highlighted in section 3.2.2.
Techne, supported by the art of management, suggests three basic characteristics of
professional disciplines, namely instrumental, contingent and procedural and/or processual.32
Firstly, professional disciplines are instrumental as they exist to have some influence on the
world. For example, a chartered accountant performs an audit for an organisation. Secondly,
professional work iscontingent on the context or irreversible sequence of occurrences, making
timely decisions important. It should be highlighted that it is complex making timely decisions
because of complex and dynamic behaviours, circumstances and events. Hence professional
decisions move beyond the application of rules. Rather it is also judgemental in nature. Thirdly,
professional disciplines involve some means of doing something which could be procedural
and/or processual in nature. Procedural professions are largely rule-governed while processual
professions rely more on a mastery of processes. It is thus not always easy to distinguish between
the two and many professions involve a mixture of both.
Aristotle’s third intellectual virtue, known as phronesis, implies practical wisdom or
prudence.33 Phronesis refers to the pragmatic, context-dependent and ethics-orientated knowledge
focused on value-based judgements.34 As such it focuses on practical knowledge and ethics,
balancing the instrumental rationality (scientific aspect) with the value rationality, implying that
management behaviour is both effective and ethical. The focus on practical wisdom assists us in
going beyond classifying management as a science or art. For the purpose of this chapter, this
viewpoint will not be further developed.
So, is management a profession? Based on the viewpoints discussed above, it is evident that
management is not a profession in terms of the traditional notion of a profession. However, we
can infer that management is an occupation with a professional character.35 Over the
decades,globalisation and the drive for a competitive advantage that is sustainable, has led to an
increased demand for professionally qualified managers who are able to manage in a professional
manner, as highlighted in our South African Insight, considering CEOs Sim Tshabalala and Ben
Kruger of Standard Bank.

3.3 The development of managerial thought

Modern businesses are global with employees working for global organisations at offices,
retail outlets, service centres or manufacturing plants scattered throughout the world.
Organisations such as BMW, Apple, Microsoft, Standard Bank and many more, with complex
systems, are challenging their employees to manage on a global scale. Managers now lead
employees whom they seldom, if ever, see and who may know more about solving a problem than
they do. Although new methods of managing employees are needed to keep pace as organisations,
business environments and technology change, we should not forget the way in which
management was practised over the decades. This is so because management as we know it today,
is built on managerial practices of the past.
The year 1886 marked several important turning points in business and management history,
including the following:
• The establishment of several well-known, large-scale organisations
• The need for formal management practices
• The emergence of major labour unions.

Managerial thought and practice was influenced by, among others, Henry R. Towne (1844–1924),
an engineer and co-founder of the Yale Lock Company, who proposed that the American Society
of Mechanical Engineers create an economic section to act as a clearing house and forum for
‘shop management’ and ‘shop accounting’. Shop management would deal with the subjects of
organisation, responsibility and reports as well as the ‘executive management’ of industrial works,
mills and factories. Shop accounting would treat the nuts-and-bolts of time and wage systems, cost
determination and allocation, bookkeeping methods and manufacturing accounting. The society
would develop a body of literature, record members’ experiences and provide a forum for
exchanging managers’ ideas.
The emergence of labour unions in 1886 also influenced the development of managerial
thought and practice. In his pioneering study of labour history in 1886, The labour movement in
America, Richard T. Ely advocated a less radical approach to labour-management relations and
advised labour to work within the existing economic and political system. The main purpose of
the American Federation of Labour (AFL) was to protect its members from unfair management
practices. In South Africa, the first Industrial Conciliation Act was passed only in 1924 and
amended in 1979. The Wiehahn Commission and subsequent Industrial Conciliation Amendment
Act of 1979 granted all South African employees equal rights in the sphere of industrial relations.
On 11 November 1996, the Labour Relations Act (Act No. 66 of 1995) became law. For the first
time in South Africa’s history, employees, the labour movement and government sat down as joint
social partners to negotiate this Act.36
 Why are we recounting century-old events in a book that claims to teach management for the
twenty-first century? One reason is that many of the principles established in the early days of
management are still used today. The rules and regulations found in all organisations were
originally created to protect managers from undue pressures to favour certain groups of people.
Today, the South African Revenue Service (SARS), amongst other organisations, uses rules and
regulations for the same reason. Similarly, in our South African Insight, Standard Bank subscribes
to the Code of Banking Practice – a set of principles governing banking in South Africa and
ensuring the highest standards of professionalism, integrity and fairness.
Another reason is that the past is a good teacher, allowing us to identify practices that have
been successful as well as practices that have failed. A third reason is that history gives us a feel
for the types of problems for which managers have long struggled to find solutions. Many of these
problems, such as low morale, high absenteeism and poor workmanship, still exist in some
organisations and continue to worry managers.
To better understand contemporary management, past theorists have developed numerous
responses to the same basic management question: What is the best way to manage an
organisation? We continue to study those responses because they still apply to the manager’s job.
In the sections that follow, we will consider seven accepted viewpoints of management that have
evolved since about 1886:
• The traditional (or classical) viewpoint of management
• The behavioural viewpoint of management
• The systems viewpoint of management
• The contingency viewpoint of management
• The quality viewpoint of management
• The flexible viewpoint of management
• The principle-led viewpoint of management.

These viewpoints of management are based on different assumptions about the behaviour of
people in organisations, the key goals of an organisation, the types of problems faced and the
methods that should be used to solve those problems. Figure 3.1 shows when each viewpoint
emerged and began to gain popularity. As you can see, all seven viewpoints still influence
managers’ thinking today. In fact, one important source of disagreement among today’s managers
is the emphasis that should be given to each of them. Thus, a major purpose of this chapter is to
show you not only how each viewpoint has contributed to the development of modern managerial
thought, but also how each can be used effectively in different circumstances now and in the
future.
Figure 3.1 History of managerialthought

Source: Amended from HELLRIEGEL et al. Management. 2nd ed. Cape Town: Oxford University Press.

We will explain each of the historical viewpoints illustrated in Figure 3.1 in further detail.

3.3.1 The traditional viewpoint of management

The oldest view of management is the traditional (or classical) viewpoint. It is split into three
main branches: bureaucratic management, scientific management and administrative management.
All three branches emerged during roughly the same period, the late 1890s through to the early
1900s, when engineers were trying to make organisations run like well-oiled machines.

3.3.1.1 Bureaucratic management

Bureaucratic management relies on rules, a set hierarchy, a clear division of labour and detailed
procedures. Max Weber (1864–1920), a German social historian, is most closely associated with
bureaucratic management (so named because he based his work on studies of Germany’s
governmental bureaucracy). He was concerned mainly with the broad social and economic issues
facing society.37
Bureaucratic management provides a plan for how an entire organisation should operate. It
lays down seven characteristics, as summarised in Table 3.1. Together these characteristics
represent a formal, rigid method of managing. Setting aside for the moment all the negative
connotations that the term bureaucracy has today, the focus in Table 3.1 is on the system’s
strengths, consistency and predictability.
Not all bureaucratic organisations are inefficient and unprofitable. In fact, bureaucratic
management is still widely and successfully used because it promotes efficiency and consistency.
A bureaucracy functions best when many routine tasks need to be done. Then lower-level
employees can handle the bulk of the work by simply following rules and procedures. The fruits
of their labour should be of high standard and quality and produced at the rate necessary to meet
organisational goals. This approach is most effective in the following situations or conditions:
•
 Where large amounts of standard information have to be processed and an efficient processing
method has been found. (In our South African Insight Standard Bank has efficient processes in
dealing with credit card applications)
• Where the needs of the customer are known and are not likely to change (in our South African
Insight Standard Bank customise services according to corporate clients’ preferences)
• Where the technology is routine and stable, so employees can be taught quickly and easily
how to operate machines (in our South African Insight Standard Bank employees are trained
on how to use the technology to ensure efficient and effective customer service)
• Where the organisation has to co-ordinate the activities of numerous employees in order to
deliver a standardised service or product to the customer (in our South African Insight,
Standard Bank’s different branches need to provide standardised banking services and
products).

However, it should also be highlighted that the same aspects of bureaucratic management that can
increase efficiency in one organisation, can lead to great inefficiency in another. The following
five drawbacks of bureaucracy can be presented: 38
1 Rigid rules and red tape leave little room for individual freedom and creativity.
2 Managers in a bureaucratic organisation may ignore issues of employee productivity while
protecting and expanding their own authority.
3 The hierarchical structure and the authority structure dictate who in the organisation can make
various types of decisions which could lead to slow decision-making.

Table 3.1 Characteristics of bureaucratic management

Characteristic Description

Rules It provides formal guidelines for the behaviour of employees while they are on the
job. Rules can help provide the discipline an organisation needs if it is to reach its
goals. Sticking to the rules ensures that the same procedures are used throughout the
organisation, regardless of manager or employee. For example, to ensure that the
financial statements are honest, complete and accurate.

Impersonality Employees are evaluated according to rules and objective data, such as sales or units
produced. According to Weber, fairness is attained in the objective evaluation of
employees by managers, without subjective or emotional influences.

Division of Duties are divided into simpler, more specialised tasks. The employee becomesan
labour expert in task and increases efficiency.

Hierarchical Most organisations have a pyramid-shaped structure that ranks jobs according to the
structure amount of authority (the right to decide) given to each. Authority increases at each
higher level to the top of the hierarchy. According to Weber, a well-defined hierarchy
helps control employees’ behaviour by making clear exactly where each employee
stands in relation to everyone else in the organisation.

Authority An authority structure determines who has the right to make decisions, different
structure degrees of importance and different levels within the organisation. Weber identified
three types of authority structures: traditional, charismatic and rational-legal.
• Traditional authority is based on custom, ancestry, gender, birth order and the
like. The divine right of kings and the influence of African tribal chiefs are
examples of traditional authority.
 • Charismatic authority is evident when subordinates suspend their own
judgement and comply voluntarily with a leader because of special personal
qualities or abilities they perceive in that individual. Charismatic leaders for
example, Martin Luther King, Nelson Mandela, Richard Branson and Steve Jobs
have used their charisma to motivate and influence subordinates and supporters.
• Rational–legal authority is based on established laws and rules that are applied
uniformly. A superior is obeyed because of the position that he orshe occupies
within the organisation’s hierarchy.

Lifelong career Both the employee and the organisation are committed to each other throughout the
commitment working life of the employee. In general, lifelong career commitment means that job
security is guaranteed as long as the employee is technically qualified and performs
satisfactorily. The organisation uses job security, tenure, step-by-step salary increases
and pensions to ensure that employees perform assigned duties satisfactorily.

Rationality The most efficient methods are used to achieve the set goals. Managers in a
bureaucratic management system operate logically and ‘scientifically’, with all
decisions leading directly to achieving the organisation’s goals. Goal-directed
activities then allow the organisation to use its financial and human
resourcesefficiently. In addition, rationality allows general organisational goals to
bebroken into more specific goals for each part of the organisation.

4 The division of labour principle really only applies when technology is simple and
unchanging. This could result in incompatibility with changing technology as employees, who
are trained to use a specific programme, will have difficulty in adjusting to using a different
programme without further training.
5 Doing work according to the rules and in a rigid way tends to go against the use of discretion
and the application of professional values in complex, ambiguous situations.

3.3.1.2 Scientific management

As manufacturing firms became larger and more complex in the late 1800s, not all
managers could continue to be directly involved with production. Many began to spend more of
their time administratively in planning, scheduling and staffing activities. Also, managers were
hard pressed to keep up with advances in the new, machine-orientated production technology. The
distancing of management from the physical production of goods created a need for operations
specialists who could solve the personnel and productivity problems that accompanied rapid
industrialisation and threatened operating efficiency. We briefly outline the particular
contributions to scientific management made by the works of Frederick W. Taylor, the Gilbreths
and Henry Gantt.

Frederick W. Taylor
The stage was set for Frederick Winslow Taylor (1856–1915) to do his pioneering work in
scientific management. Whereas bureaucratic management looks at broad organisational
structures and work systems, scientific management focuses on individuals and their machines or
tools. Its philosophy is that management practices should be based on proven facts and
observation, not on hearsay or guesswork.39
Taylor, an American mechanical engineer, believed that increased productivity ultimately
depended on finding ways to make workers more efficient by using objective, scientific
techniques. Taylor used time-and-motion studies to analyse work flows, supervisory techniques
and worker fatigue. A time-and-motion study involves identifying and measuring a worker’s
physical movements when performing a task, and then analysing the results. Movements that slow
production are dropped. One goal of a time-and-motion study is to make a job highly routine and
efficient. Eliminating wasted physical effort and specifying an exact sequence of activities reduces
the amount of time, money and effort needed to make a product.
Taylor was convinced that having workers perform routine tasks that did not require them to
make decisions could increase efficiency. Performance goals expressed quantitatively (for
example, the number of units produced per shift) addressed a problem that had begun to trouble
managers: how to judge whether an employee had put in a fair day’s work. Advocates of scientific
management stress specialisation. They believe that expertise is the only source of authority and
that a single foreman could not be an expert at all the tasks supervised. Each foreman’s particular
area of specialisation, therefore, should become an area of authority.
What motivates employees to work to their capacity? Taylor believed that money was the
answer. He supported the individual piecework system as the basis for pay. If workers met a
certain production standard, they were to be paid at a standard wage rate. Workers who produced
more than the standard were to be paid at a higher rate for all the pieces they produced, not just for
those exceeding the standard. Taylor assumed that workers would be economically rational; that
is, they would follow management’s orders to produce more in response to financial incentives
that allowed them to earn more money. Taylor argued that managers should use financial
incentives if they were convinced that increases in productivity would more than offset higher
employee earnings.
View the video clip found at http://www.youtube.com/watch?v=8PdmNbqtDdI if you wish to
learn more about Ford and Taylor’s scientific management.

The Gilbreths
Frank (1868–1924) and Lillian (1878–1972) Gilbreth formed an unusual husband-and-wife
engineering team that made significant contributions to scientific management. Frank used a
revolutionary new tool – motion pictures – to study workers’ motions. For instance, he identified
eighteen individual motions that a bricklayer uses to lay bricks. By changing the bricklaying
process, he reduced the eighteen motions to five, increasing a worker’s overall productivity by
more than 200%. Many contemporary industrial engineers have combined Frank Gilbreth’s
methods with those of Taylor to redesign jobs for greater efficiency.40

Henry Gantt
Taylor’s associate, Henry Gantt (1861–1919), focused on control systems for production
scheduling. His Gantt charts are still widely used to plan project timelines and have been adapted
for computer-scheduling applications. The Gantt chart is a visual plan and progress report. It
identifies various stages of work that must be carried out to complete a project, sets a deadline for
each stage and documents accomplishments. Gantt also established quota systems and bonuses for
workers who exceeded their quotas.41

Assessing scientific management

Taylor and other early proponents of scientific management would applaud the efforts of KFC,
Honda, Canon and other organisations that have successfully applied their concepts. These
organisations make finished products faster and more cheaply than Taylor could ever have dreamt
possible. KFC increased its quality and speed of service through the application of scientific
management ideas. In South Africa, KFC was established in 1971. Since then KFC has grown and
is still the largest fast food brand in South Africa with 828 stores in 2016. KFC is proud to be
voted “South Africa’s most loved fast food brand in the Sunday Times Top Brands awards.”42
 The competitive pressures on all fast-food restaurants mean that quick service and high
quality are needed to attract and retain customers. Through time-and-motion studies, the KFC
team realised it needed to reduce the time to complete a customer’s order. To improve
performance, the team made several recommendations:
• All customers should be acknowledged within three seconds of arriving at the speaker
• Customer orders should be filled within 60 seconds of their arrival at the drive-through
window
• The total service time should average less than 90 seconds.43

Taylor’s work has led contemporary managers to improve their employee selection and
training processes, and to seek the one best way to perform each task. Unfortunately, most
proponents of scientific management misread the human side of work. When Frederick Taylor and
Frank Gilbreth formulated their principles and methods, they thought that workers were motivated
primarily by a desire to earn money to satisfy their economic and physical needs. They failed to
recognise that workers also have social needs, and that working conditions and job satisfaction are
often more important than money. Contemporary managers cannot assume that workers are
interested only in higher wages. Dividing jobs into their simplest tasks and then setting clear rules
for accomplishing them will not always lead to a quality product, high morale and an effective
organisation. Contemporary employees often want to participate in decisions that affect their
performance. Many employees want to be independent and hold jobs that give them self-
fulfilment.

3.3.1.3 Administrative management

Administrative management focuses on the manager and basic managerial tasks. It evolved
early in the twentieth century and is most closely identified with Henri Fayol (1841–1925), a
French industrialist. However, his most important writings on management were not translated
into English until 1930. Fayol credited his success as a manager to the methods he used, rather
than to his personal qualities. He felt strongly that, to be successful, managers had only to
understand the basic managerial tasks – planning, organising, leading and controlling – and apply
certain management principles to them. He was the first person to group managers’ functions in
this way.44
Like the other traditionalists, Fayol emphasised formal structure and processes, believing that
they are necessary for the adequate performance of all important tasks. In other words, if people
are to work well together, they need a clear definition of what they are trying to accomplish and
how their tasks help meet organisational goals.
Managers still use many of Fayol’s principles of administrative management, but different
managers seldom apply them in exactly the same way. The Fayol’s principles associated with
administrative management such as equity, initiative, stability, and tenure of staff are also highly
valued at Standard Bank, as discussed in our South African Insight at the beginning of this
chapter.

3.3.1.4 Assessing the traditional viewpoint

Traditional management’s three branches – bureaucratic, scientific and administrative
management – still have their proponents, are often written about and continue to be applied
effectively. Let us summarise what they have in common and what some of their drawbacks are.
Table 3.2 highlights the points discussed.
 All three branches of traditional management emphasise the formal aspects of an organisation.
Because the traditionalist’s focus is on efficient and effective job performance, the concern is with
the formal relations among an organisation’s departments, tasks and processes rather than on the
informal or social relationships amongst employees at work. Weber, Taylor, the Gilbreths, Gantt
and Fayol incorporated sound theoretical and scientific management principles.

3.3.2 The behavioural viewpoint of management

During the 1920s and 1930s, industrialised nations experienced radical social and cultural
changes. Mass production triggered a second industrial revolution. Assembly lines released a
flood of inexpensive goods – cars, appliances and clothing – into an increasingly consumer-
orientated society. The overall standard of living rose and working conditions in many industries
improved.
In one of the era’s most dramatic changes, unskilled workers increased their ability to
influence management decisions by forming powerful labour unions all over the world. The rise
of unionism in South Africa was the direct result of the many foreign workers who came to work
on the gold and diamond mines from all over the world and brought these concepts with them.
Because of the rise of unionism in South Africa, as well as strikes on the mines, the first Industrial
Conciliation Act was passed in 1924. This Act gave workers the legal right to bargain collectively
with employers in disputes about wages, job security and benefits, and many other work
conditions. Although the Act did not legislate good human relations, it did compel many
employers to improve their personnel programmes (in other words, employee relations) in an
effort to keep unions out. With unionisation came formal grievance procedures, which provided
employees with a measure of protection against arbitrary or despotic supervision. Although
unionisation led to the deterioration of labour-management relations in some organisations, it
resulted in greater acceptance of the principles of the behavioural viewpoint of management in
many other enterprises in South Africa.45

Table 3.2 Characteristics of traditional management

Administrative characteristics

Rules Training in routines and Defining of management functions

rules

Impersonality ‘One best way’ Division of labour

Division of labour Financial motivation Hierarchy

Hierarchy Authority

Authority structure Equity

Lifelong career
commitment

Rationality

Focus
 Whole organisation Employee Manager

Benefits

Consistency Productivity Clear structure

Efficiency Efficiency Professionalisation of managerial roles

Drawbacks

Rigidity Overlooks social needs Internal focus

Slowness Overemphasises rational behaviour of

managers

Against this backdrop of change and reform, managers were forced to recognise diversity. The
behavioural (human-relations) viewpoint focuses on dealing effectively with the human aspects
of organisations. Its proponents look at how managers do what they do, how they lead
subordinates and communicate with them, and why they need to change their assumptions about
people if they want to lead high-performance teams and organisations.

3.3.2.1 Mary Parker Follett

In the early decades of this century, Mary Parker Follett (1868–1933) made important
contributions to the behavioural viewpoint of management. She believed that management is a
flowing, continuous process, not a static one, and that if a problem has been solved, the method
used to solve it probably generates new problems. She stressed the following ideas:
• The involvement of workers in solving problems
• The dynamics of management, rather than static principles.

Both ideas contrasted sharply with the views of Weber, Taylor and Fayol.46
Follett studied how managers did their jobs by observing them at work. Based on these
observations, she concluded that co-ordination is vital to effective management. Follett believed
that the people closest to the action could make the best decisions, for example first-line managers
are in the best position to co-ordinate production tasks. Furthermore, by increasing
communication among themselves and with workers, these managers can make better decisions
about such tasks than managers higher up the hierarchy can. She also believed that first-line
managers should not only plan and co-ordinate workers’ activities, but should also involve
workers in the decision-making whenever they will be affected by the decision. Drawing on
psychology and sociology, Follett urged managers to recognise that each person is a collection of
beliefs, emotions and feelings.

3.3.2.2 Chester Barnard

Chester Barnard (1886–1961) made two significant contributions to managerial thought and
practice. These are detailed in his book The functions of the executive.47
Firstly, Barnard viewed organisations as social systems that require employees’ co-operation
if they are to be effective. In other words, people should continually communicate with one
another and the main role of a manager is to communicate with employees and motivate them to
work hard to help achieve the organisation’s goals, as illustrated at Standard Bank in the South
African Insight. In Barnard’s view, successful management also depends on maintaining good
relations with people outside the organisation with whom managers deal regularly. He stressed the
dependence of the organisation on investors, suppliers, customers and other outside interests.
Barnard emphasised the idea that managers have to examine the organisation’s external
environment and adjust its internal structure to balance the two.
Secondly, Barnard proposed the acceptance theory of authority. This theory holds that
employees have free will, and thus they choose whether or not to follow management’s orders.
In other words, employees will follow orders if the following conditions are met:
• They understand what is required
• They believe that the orders are consistent with organisational goals
• They see positive benefits to themselves in carrying out the orders.

3.3.2.3 The Hawthorne studies

The strongest support for the behavioural viewpoint emerged from studies carried out between
1924 and 1933 at Western Electric Company’s Hawthorne plant in Chicago. The Hawthorne
Illumination Tests, begun in November 1924 and conducted in three departments of the plant,
were initially developed and directed by Hawthorne’s engineers. They divided employees into two
groups: a test group, which they subjected to deliberate changes in lighting, and a control group,
for which lighting remained constant throughout the experiment. When lighting conditions for the
test group were improved, the group’s productivity increased, as expected. The engineers were
mystified, though, by a similar jump in productivity when the test group’s lighting was reduced to
the point of twilight. To compound the mystery, the control group’s output kept rising, even
though its lighting condition did not change. Western Electric called in Harvard professor Elton
Mayo to investigate these peculiar and puzzling results.
The researchers concluded that the increases in productivity were not caused by a physical
event, but by a complex emotional chain reaction. Because employees in both groups had been
singled out for special attention, they had developed a group pride that motivated them to improve
their performance. The sympathetic supervision they received further reinforced that motivation.
These experimental results led to Mayo’s first important discovery: when employees are given
special attention, productivity is likely to change regardless of whether working conditions
change. This phenomenon became known as the Hawthorne effect.48
However, an important question remained unanswered: Why should a little special attention
and the formation of group bonds produce such strong reactions? To find the answer, Mayo
interviewed employees. These interviews yielded a highly significant discovery: informal work
groups and the social environment of employees greatly influence productivity. Many Western
Electric employees found their lives inside and outside the factory dull and meaningless. Their
workplace friends, chosen in part because of mutual antagonism towards ‘the bosses’, gave
meaning to their working lives. Thus peer pressure, rather than management demands, had a
significant influence on employees’ productivity.

3.3.2.4 Assessing the behavioural viewpoint

The behavioural viewpoint of management goes beyond the traditionalists’ mechanical view of
work by stressing the importance of group dynamics, complex human motivations and the
manager’s leadership style. It emphasises the employee’s social and economic needs as well as the
influence of the organisation’s social setting on the quality and quantity of work produced.
The characteristics and proponents of the behavioural viewpoint are summarised in Table 3.3.
 The assumptions highlighted in Table 3.3 do not always hold in practice, of course. Improving
working conditions and managers’ human-relations skills will not always increase productivity.
Economic aspects of work are still important to the employee, as Taylor believed. The major trade
union contracts negotiated in recent years, for instance, focus on job security, wage incentives and
employment equity. And, although employees enjoy working with co-workers who are friendly,
low salaries tend to lead to absenteeism and high staff turnover. The negative effects of clumsy
organisational structures, poor communication and routine or boring tasks will not be overcome
by the presence of pleasant co-workers. The human aspect of the job in this new century will be
vastly more complex than could ever have been imagined by those advocating the behavioural
viewpoint in the 1930s.49

3.3.3 The systems viewpoint of management

During World War II, the British assembled a team of mathematicians, physicists and
others to solve various wartime problems. These professionals formed the first operations-research
(OR) group. The British and Americans further developed this approach (called systems analysis)
throughout the war, and applied it to many problems of war production and military logistics.
Later, systems analysis became an accepted tool in the Department of Defence and in the space
programme in the USA, as well as throughout private industry worldwide.50 The main
characteristics of the systems viewpoint are given in Table 3.4.

Table 3.3 Characteristics and proponents of the behavioural (human-relations) viewpoint

Characteristics and Description of contribution

proponents

Focus Dealing effectively with the human aspects of organisations. The proponents of
the behavioural view of management look at how managers do what they do, how
managers lead subordinates and communicate with them, and why managers need
to change their assumptions about people if they want to lead high-performance
teams and organisations

Assumptions 1 Employees are motivated by social needs and get a sense of identity through
their associations with one another
2 Employees are more responsive to the social forces exerted by their peers than
to management’s financial incentives and rules
3 Employees are most likely to respond to managers who can help them satisfy
their needs
4 Managers need to co-ordinate work with the participation of their subordinates
to improve efficiency

Follett’s 1 Involvement of workers in solving problems

contributions (1868 2 Dynamics of management rather than static principles
–1933) 3 Principles of co-ordination

Barnard’s 1 Organisations are social systems that require employees’ co-operation if they
contributions (1886 are to be effective
–1961) 2 Successful management also depends on maintaining good relations with
people outside the organisation with whom managers deal regularly
3 Examine the organisation’s external environment and adjust its internal
structure
 4 Acceptance theory of authority. This theory holds that employees have free
will and thus will choose whether to follow management’s orders if they:
» Understand what is required
» Believe that the orders are consistent with organisational goals
» See positive benefits to themselves in carrying out the orders

The Hawthorne 1 Hawthorne effect. When employees are given special attention, productivity is
contributions (1924 likely to change regardless of whether working conditions change
–1933) 2 Informal work groups and the social environment of employees greatly
influence productivity
3 Awareness of employees’ feelings and involvement in decision-making
reduces resistance to change

Table 3.4 Main characteristics of the systems viewpoint

Characteristics Description

Focus This is an approach to solving problems by diagnosing them within a framework of

inputs, transformation processes, outputs and feedback, as shown in Figure 3.2

Closed system An organisation has limited interaction with its external environment

Open system An organisation interacts with its external environment

Quantitative 1 The primary focus is on decision making

techniques 2 Alternatives are based on economic criteria
3 Mathematical models are used
4 Computers are essential

3.3.3.1 Systems concepts

A system is an association of interrelated and interdependent parts.51 The human body is a system
with organs, muscles, bones and nerves, and a consciousness that links all its parts. An
organisation is an internal system with many employees, teams, departments and levels that are
linked to achieve its goals. An organisation is also linked externally to suppliers, customers,
shareholders and regulatory agencies. A competent systems-orientated manager makes decisions
only after identifying and analysing how other managers, departments, customers or others might
be affected by the decisions.
The systems viewpoint of management represents an approach to solving problems by
diagnosing them within a framework of inputs, transformation processes, outputs and feedback, as
shown in Figure 3.2. The system involved may be an individual, a work group, a department or an
entire organisation.
Inputs are the physical, human, material, financial and information resources that enter a
transformation process. At our South African Insight Standard Bank, for example, inputs include
employees, money and buildings. Transformation processes comprise the technologies used to
convert inputs into outputs such as online banking, e-platforms for applications, cellphone
banking, etc. Outputs are the original inputs (human, physical, material, information and financial
resources) changed by means of a transformation process. Outputs at a bank such as Standard
Bank include home loans, vehicle financing, online banking, investment banking, savings and
many other banking products and services. For a system to operate effectively, it must also
provide for feedback.Feedback is information about a system’s status and performance. One form
of feedback at a bank is the ability of investors to obtain interest on their investment or interest on
their savings. In an organisation, feedback may take the form of marketing surveys, financial
reports, production records, performance appraisals and the like. In the systems viewpoint,
management’s role is to facilitate transformation processes by planning, organising, leading and
controlling.

3.3.3.2 Quantitative techniques

While some advocates of systems analysis were suggesting that managers look at inputs,
transformation processes and outputs before making a decision, other systems advocates were
developing quantitative techniques to aid in managerial decision-making. Quantitative techniques
have four basic characteristics:

Figure 3.2 Basic systems view of organisation

1. The primary focus is on decision-making. The solution identifies direct actions that managers
can take, such as just-in-time (JIT) systems to reduce inventory costs.
2. Alternatives are based on economic criteria. Alternative actions are presented in terms of
measurable criteria such as costs, revenues and dealer returns.
3. Mathematical models are used. Situations are simulated and problems are analysed by means
of mathematical models.
4. Computers are essential. Computers are used to solve complex mathematical models, such as
statistical process controls, that would be too costly and time-consuming to process manually.

The range of quantitative decision-making tools available to management has expanded greatly
during the past two decades. Contemporary managers have inventory-decision models, statistical-
decision theory, linear programming and many other aids for solving complex problems. Many of
these tools are literally at their fingertips in the form of software that can be run on desktop
computers. Likewise, our South African Insight Standard Bank have successfully used technology
such as SAP (systems enterprise application software) to render their high quality services to the
traditionally ‘unbanked’ communities in South Africa. Ready-to-use software packages, such as
Microsoft Windows® and Excel®, enable small-business owners and managers to utilise
programs for accounts payable, accounts receivable and inventory control.

3.3.3.3 Assessing the systems viewpoint

Systems analysis and quantitative techniques have been used primarily to manage transformation
processes, and in the technical planning and decision-making aspects of management. These
techniques have not yet reached the stage where they can be used effectively to deal with the
human aspects of management. Variables representing behavioural considerations and human
values are difficult, if not impossible, to build into a mathematical model. Because these
subjective variables must still be taken into account, judgements about people will continue to be
a vital part of managerial decision-making.
Organisations will no doubt continue to develop more sophisticated systems to increase
productivity. Such systems will require changes in many aspects of day-to-day operations. These
changes will not come without struggle and pain. Yet if organisations are to survive, they must
install and utilise increasingly sophisticated systems to help managers make decisions.52

3.3.4 The contingency viewpoint of management

The essence of the contingency (also known as the situational) viewpoint is that management
practices should be consistent with the requirements of the external environment, the technology
used to make a product or deliver a service, and the people who work for the organisation. The
relative importance of each contingency variable depends on the type of managerial problem
being considered. For example, in designing an organisation’s structure, a manager should
consider the nature of the organisation’s external environment and the corresponding information-
processing requirements. Hence the structure of the South African Revenue Service (SARS) is
different from that of our South African Insight, Standard Bank. SARS has a fairly stable set of
customers, most of whom must file their tax returns by the deadline each year. It hires many part-
time people, for a limited period, during the peak tax season to process returns and answer
questions. In contrast, Standard Bank has many competitors in the banking and financial services
industry such as Absa, FNB and Nedbank. Standard Bank’s customers change, and their needs
and demands for credit, financial advice and other banking services must be processed
continuously as quickly as possible. Its continuous information-processing requirements call for
more reliance on full-time personnel than is necessary at SARS.
Technology is the method used to transform organisational inputs into outputs. It is more than
machinery; it is also the knowledge, tools, techniques and actions applied to change raw materials
into finished goods and services. The technologies that employees use range from simple to highly
complex. For example, Standard Bank employees in our South African Insight develop multiple
updates for cellphone apps allowing customers to transact from basic banking purposes to more
complex applications and online liaison facilities with banking staff, requiring a more complex
decision-making.
The relationships between the various viewpoints and their association with the contingency
viewpoint is illustrated in Figure 3.3.
The contingency viewpoint was developed in the mid-1960s by managers and others who had
tried unsuccessfully to apply traditional and systems concepts to actual managerial problems.
Proponents of the contingency viewpoint contend that different situations require different
practices. This means that the other three management viewpoints should be used independently
or in combination, as necessary, to deal with various situations.53 Applying the contingency
viewpoint requires the development and use of all six managerial competencies introduced in
Chapter 2. Managers must be able to diagnose and understand a situation thoroughly – to
determine which approach is most likely to succeed – before making a decision.

3.3.4.1 Assessing the contingency viewpoint

The contingency viewpoint of management is useful because of its diagnostic approach, which
clearly departs from the one-best-way approach of the traditionalists. The contingency viewpoint
encourages managers to analyse and understand situational differences, and then to choose the
solution best suited to the organisation, the process and the people involved in each situation.
Critics argue that the contingency viewpoint really is nothing new. They say that it is merely a
meshing of techniques from the other viewpoints of management. It holds that a manager should
rely on absolute principles from the traditional, behavioural and systems viewpoints only after
properly diagnosing the realities of the situation. Such a diagnosis looks at the nature of a situation
and the means by which the manager can influence it.

Figure 3.3 Contingency viewpoint

3.3.5 The quality viewpoint of management

Are new management viewpoints – beyond the contingency viewpoint – likely to emerge in the
future? The answer is yes. Contemporary organisations are dynamic and, whether large or small,
local or global, they face formidable new management challenges. Organisations feel pressure
from customers and competitors to deliver high-quality products and/or services on time, to
reward ethical behaviour of employees and to develop plans to manage highly diverse workforces
effectively. Customer demand for high-quality products and services may be the dominant theme
for the foreseeable future. Quality is defined as how well a product or service does what it is
supposed to do, in other words, how closely and reliably it satisfies the specifications to which it
is built or addresses the need it is servicing. Managers in successful organisations are quality
conscious. These managers understand the critical link between achieving superior quality goods
and/or services and establishing a competitive advantage.54
The godfather of the quality movement was W. Edwards Deming (1900–1993).55 Deming
introduced the concept of a quality award and certification. Initially, US managers rejected his
ideas. They were not accepted in the US and elsewhere until they had helped rebuild Japan’s
industrial might after World War II. The US’s equivalent of the Deming Prize is the coveted
Malcolm Baldrige Quality Award. Similarly in Europe, the International Organisation for
Standardization (ISO) issues certification standards for excellence in quality. The primary
difference is that all organisations in the European Union (EU) can receive ISO certification if
their products meet the specified high standards. They can then display the EC (European
Community) mark as a seal of approval, which can give them a competitive advantage in the
marketplace.
In South Africa, quality is ensured by adherence to the requirements of the ISO 9000 series.
The ISO certification is done by the South African Bureau of Standards (SABS). Most managers
are familiar with the ISO 9000 series, which includes the “ISO 9001–2000 (Quality Management),
ISO 14001 (Environmental Management), OHSAS 18001 (Occupational Health and Safety), ISO
22000 (Food safety management), ISO 26000 (Social Responsibility) systems, ISO 27001
(Information security management), ISO 31000 (Risk management), ISO 45001 (Occupational
health and safety) and ISO 50001 (Energy management).”56
You will recall from Chapter 1 that, for an organisation to be successful, it must satisfy
customers’ wants and needs. The quality viewpoint emphasises achieving customer satisfaction
through the provision of high-quality goods and services. Thus the focus of the quality viewpoint
of management is the customer, who ultimately defines quality in the marketplace.57 Consistently
high-quality standards are not negotiable, especially on international markets. Total quality
management (TQM) is the continuous process of ensuring that quality is built in at every stage of
production.58 Quality must be stressed repeatedly so that it becomes second nature to everyone in
an organisation as well as its suppliers. Moreover, training, strategic planning, product design,
management-information systems, marketing and other key activities all play a role in meeting
quality goals.

In Chapter 7, we will discuss in greater detail how planning and decision-making tools can assist
an organisation in fostering quality.

3.3.5.1 The importance of quality

Producing high-quality products is not an end in itself. Successfully offering high-quality goods
and services to the customer, as illustrated in the South African Insight on Standard Bank,
typically results in three important benefits for the organisation: positive organisational image,
lower costs and higher market share, and decreased product liability.59 A positive image helps
organisations such as SABMiller and Toyota South Africa to recruit new employees, increase
sales of new products and obtain funds from various lending agencies. Likewise improved
performance increases productivity and lowers rework time (when work that has not been done to
standard is redone), scrap costs and warranty costs, leading to higher market shares and increased
profits. Product manufacturers are also increasingly being faced with costly legal suits over
damages caused by faulty and/or dangerous products, ranging from asbestos to silicone breast
implants to cigarettes. More and more frequently, organisations that design and produce faulty
products are being held liable in the courts for damages resulting from the use of such products.
Successful TQM (Total Quality Management) efforts typically result in improved products and
product performance, and lower product-liability costs.

Decisions about quality should be an integral part of an organisation’s strategy, that is, how it
competes in the marketplace. A core strategy of quality is to consistently provide the best possible
products in their price ranges in the marketplace. Quality therefore must be a basic component of
the structure and culture of the organisation. Quality is not simply a programme that can be
imposed on employees by top management. It is a way of operating that permeates an organisation
and the thinking of everyone in it. For example, everyone employed at Toyota South Africa
knows that the company’s greatest strength is its unwavering commitment to research analysis,
enabling it to deliver on its core value promises of quality, reliability, value for money and overall
customer satisfaction. Its vision is to remain number one forever.60
In addition to the five viewpoints of management previously discussed in this chapter, new
management paradigms have emerged to cope with the challenges posed in the current globalised,
turbulent business environment. Two emerging directions in management thinking include the
flexible viewpoint of management and the principle-led viewpoint of management.

3.3.6 The flexible viewpoint of management

The flexible viewpoint of management emerged in the mid-1980s as a result of the
economic turbulence experienced by many organisations. This turbulence was driven by
accelerated globalisation as well as the developments in information technology and
communication.61 It was during this time that the focus shifted even more towards quality,
customisation, innovative design, delivery time, service and value.62 Because of this shift in focus,
quality came to mean more than simply producing a product without defects. Instead,
organisations had to come up with innovative product designs. Production and operating systems
had to be changed to manufacture these new products, and an increased variety of products and
methods of service had to be put in place to meet customers’ needs and add a perceived value. In
addition, it became critical for organisations to respond quickly to changing customer needs. In
this context, the structural configurations of many organisations changed to that of loosely
coupled networks and alliances with different partners in the world. This required a new approach
to management and a new kind of organisation.
In this new kind of organisation managers are expected to fulfil the role of conductor, similar
to the role played by the conductor of an orchestra. In fulfilling this role, a manager needs to be
proactive and holistic. Managers are expected to integrate strategic planning and implementation,
handle both incremental change (in other words, daily situations close to certainty) and
transformational change (in other words, extraordinary situations far from certainty), and have to
be skilled in interpersonal, networking and negotiation competencies.63 To be successful in these
competencies and to meet the increasing emotional and social needs of employees, a manager
needs to be able to communicate in an inspirational manner and cultivate a learning organisational
culture. A learning organisational culture is one in which everyone is engaged in identifying and
solving problems, enabling the organisation to experiment and increase its capacity.64 In essence,
the thinking is that all employees should be involved in identifying problems and understanding
customer needs, and together they should make innovative decisions. The concept of the learning
organisation which resulted based on the research done by Peter Senge, is also addressed in
Chapter 14, which considers organisational innovation and change. It is also referred to briefly in
Chapter 10.
 A further requirement in fulfilling the role of being a conductor, is that managers have the
ability to know which leadership style to use in different circumstances (see Chapter 11 for more
information on the topic of leadership). For instance, when employees are self-motivated and
highly competent, the pacesetting leadership style would be appropriate. As such, the leader
establishes high performance standards and sets the example.65

3.3.7 The principle-led viewpoint of management

The principle-led viewpoint of management is still emerging and is not yet clearly demarcated in
management literature. In a management era in which the management of knowledge within
organisations is of great importance and during which the ethics of business are being questioned
in the light of the recent global financial crisis, what might be termed principle-led management
(or even values-led management) is coming to the fore. The importance of knowledge
management requires organisations to pay even greater respect to people in order to tap into the
tacit knowledge that is owned by individual employees. In addition, a realisation has emerged
from the global financial crisis that organisations must behave according to an established set of
values or principles. Organisations should also achieve a balance concerning the needs and
interests of people (both in and outside the organisation), the planet and profit, better known as the
triple bottom-line, as was realised by Standard Bank in our South African Insight.
The following main concepts, associated with this viewpoint, will be further discussed:
• Knowledge management
• Sustainable organisations
• Career in the future and talent management
• A principles- and values-based organisational identity
• A principle-led management framework.

3.3.7.1 Knowledge management

Extremely competitive business environments compel managers to examine how knowledge flows
in their organisation and how it is transferred to subsidiaries or partners across the world.
Managers need the competencies to manage their organisation’s knowledge-based resources,
which include human, relational and structural capital, allowing the organisation to gain a
competitive advantage.66Knowledge management refers to the efforts made to find, organise and
make available an organisation’s intellectual capital. Its aim is to foster a culture of continuous
learning and knowledge-sharing, risk-taking, learning and collaboration.67 We further discuss
knowledge management as a philosophy about information-sharing and an aid to planning and
decision-making in Chapter 7.
In today’s working environment, it is critical that managers value people for their ability to
think, create, share knowledge and build relationships, rather than merely viewing them as factors
involved in production. In the knowledge-based economy, emotional intelligence (EI) will
become more important than the price, speed or quality of service. Organisations are going to
have to take customer service and the way in which they deal with information a step further if
they want to coax clients and potential employees away from competitors. Let us take an example:
which agent, cosmetic item, supermarket, bank or television will you choose? The answer will be
based on the relationship, connection and trust that you have built up with a specific organisation
or employer and the organisation’s orientation to sustainability. Organisations that are trustworthy
and honest make their customers and staff feel special and appreciated. They provide a service
tailored to customers’ needs, take the trouble to interact and communicate with their customers,
and regard issues surrounding environmental, social and economic sustainability as serious and
deserving of their attention.68

3.3.7.2 Sustainable organisations

Given the importance of society and the emotional relationships with stakeholders,
managers are required to be concerned about the long-term sustainability of their organisations.
Sustainability refers to an organisation’s ability to address current business needs strategically
and to develop a successful long-term strategy that embraces the opportunities and risks
associated with the environment, society and the economic viability of the organisation. We
further discuss sustainability in Chapter 4. Environmental sustainability is an organisation’s
commitment to the long-term quality of our environment. Social sustainability is an
organisation’s commitment to improving the quality of life of its communities and society.
Economic sustainability is an organisation’s commitment to addressing current business needs
and economic viability so as to prepare strategically for long-term business success in the future.69
As highlighted in the South African Insight, Standard Bank subscribes to high standards of
corporate governance and is dedicated to sustainable development by making a difference in the
communities in which they operate. While advancing their sustainable initiatives they do so in a
responsible manner, balancing the needs of society, stakeholders and future generations. Their
sustainable development initiatives can be viewed at
http://www.sustainability.standardbank.com/sustainability/introduction/

3.3.7.3 Careers in the future and talent management

Besides having to cope with uncertainty, building relationships, maintaining quality standards
and considering the issue of sustainability, managers are challenged by other concerns such as
talent retention, the development of the service economy and the generational gap. In the future,
constant career-related change will be the order of the day, with telecommuting and flexible
working hours becoming the norm.70 Ricardo Semler’s management philosophy, sometimes
referred to as corporate democracy, in which he experimented with flexible working hours and
building emotional relationships with employees, will be the norm. For more information
regarding Ricardo Semler’s management philosophy of corporate democracy and participative
management, watch the following video:
https://www.ted.com/talks/ricardo_semler_how_to_run_a_company_with_almost_no_rules
In a South African context, we can learn from past business leaders such as Brand Pretorius,
former CEO of McCarthy Motor Group. To read more about Brand Pretorius’s perspective on
engaging quality people and his viewpoint on principle-led leadership, read the in-depth
discussion with him on http://www.criticalthought.co.za/conversations-in-leadership/ as well as
talent management development offered by Pick n Pay, ‘CEO for a day’ finalist programme at
https://www.youtube.com/watch?v=kep4696qaaE
Most managers and employees in South Africa today belong to either the Baby Boomer
Generation (in other words, they were born in the years between 1946 and 1964), Generation X
(they were born in the period between 1965 and the early 1976) and Millennials (born in the
period between 1977 and 1995 and also known as Generation Y). The generation known as
Generation Z (born 1996 onwards) is starting to enter the workforce.71 Millennials are comfortable
with diversity and using technology. In addition, they demand an appropriate balance between
work and life, and aspire to a portfolio of jobs with flexible working hours. From a management
perspective, it is important to make Millennials feel at home in an organisation as quickly as
possible by letting them sense the organisational culture and values as they interact with existing
employees. Generation Z employees on the other hand are comfortable to work from a remote
location, no matter what the time of the day or night. They view the workplace as an anytime-
anywhere proposition. They utilise technology to access and communicate with fellow
employees.72

3.3.7.4 Principle- and value-based organisational identity

In the principle-led viewpoint of management, managers must:
• Embrace uncertainty
• Know how to manage in a knowledge-based economy and apply processes through which
organisations generate value from their intellectual and knowledge-based assets
• Be concerned with sustainable management practices
• Be ethically and socially responsible, and adhere to corporate governance guidelines
• Manage the intense focus on quality
• Embrace the shift to the service economy
• Manage talent retention and deal with the impact of the generational gap
• Build relationships, connections and trust with stakeholders
• Embrace the principles and values of principle-led management.

But what does this mean for principle-led managers? How should they lead their organisations in
a knowledge-based, emotional and relationship-based economy to ensure quality performance and
sustainability? Besides cultivating a culture thatvalues quality and having the correct materials,
systems and processes in place, Covey and Gulledge from the Covey Leadership Centre state that
it is critical to have a supporting organisational culture that represents the collective behaviour of
its people. At the heart of such a culture would be the organisation’s purpose, its desired future
and its core beliefs, including the understanding that the identity of an organisation should be
clearly stated and implemented.73 The responsibility of the leadership is twofold. Firstly, it must
establish or affirm the organisational identity by having a clear picture of the organisational
intent (vision and mission), which is based on principles and values such as Standard Bank’s
values (highlighted in the South African Insight at the beginning of this chapter) as well as its
management and leadership philosophies. Secondly, organisations have to create an enabling
environment in which the values can be internalised into the organisational culture and be applied
by its people.74

Establishing and maintaining core values provides a principled guideline to how business
should be done in an organisation. View the conversation with South African media guru Terry
Volkwyn, CEO of Primedia Broadcasting, sharing her leadership insight based on purpose and
values at https://www.youtube.com/watch?v=siKqGo9LQzw

3.3.7.5 Principle-led management framework

The principle-led management framework integrates the foundational components and
principles essential for organisational, association or institutional effectiveness. It represents a
practical framework of how the manager or leader sees an organisation. In such a framework, the
manager has to understand and integrate the four levels of organisational development with four
leadership principles.
 The four levels of organisational development include the organisational, managerial,
interpersonal and personal levels.Emotional intelligence, which is one of the management
competencies discussed in Chapter 2, plays a pivotal role at the personal level. Pulling together
these four levels requires the ability to see the big picture, including all systems found within the
organisation. It also requires the understanding that the organisation is a delicate, interdependent
‘ecosystem’ as well as the realisation that development and growth in an organisation are natural,
and that people are more important than assets or things.75 The four leadership principles include:
alignment, empowerment, trust relationships and trustworthiness. We explore the alignment of the
four leadership principles with the four levels of organisational development in the next
paragraph.
At the organisational level, the leadership principle of alignment is required. Here, the
manager is responsible for establishing a shared vision and principles. In doing so, the manager
must align strategy by linking the organisation’s identity, structure and systems with the external
environment. The ultimate purpose of alignment is to support empowerment, a key to leveraged
effectiveness at management level.76 An empowering culture requires management to create
nurturing conditions so that each person can contribute his or her maximum potential, talent,
creativity and commitment. In terms of managerial styles and skills, this means that a manager
should be self-confident and emotionally intelligent. A manager should be a strong team leader
and must communicate effectively. At the interpersonal level, trust relationships have to be
established, while at the personal level, personal trustworthiness has to be attained.
Trustworthiness consists of two characteristics: character and competence. Character is a
commitment to one’s personal values and principles as well as the strength to live them, while
competence is a person’s integrated level of knowledge, skill and attitude (as explained in Chapter
2).77
Being able to pull together these leadership principles at each organisational level would
provide a holistic picture of the ideal management paradigm, creating an organisation-wide
culture of integrity. However, the question can be posed, ‘What else is required from
management?’

We believe that the answer is to be found in the emotional intelligence and humility of future
managers and leaders. Jim Collins, author of From Good to Great: Why Some Companies Make
the Leap … and Others Don’t, has developed the concept of level-five leadership, which
represents the highest level of managerial competencies and capabilities. The five levels of
leadership include being: a highly capable individual, a team member who contributes, a
competent manager, an effective leader and a great leader. Level five managers or leaders can be
described as leaders who portray the ability to integrate the characteristics of all these leadership
levels in practice while being able to handle the following behaviours, namely to: show humility,
ask for help, take responsibility, develop discipline, hire the right people and lead with passion.78
These behaviours are illustrated at https://www.youtube.com/watch?v=zG9WXA9-tCs
We, therefore, suggest that a level-five manager or leader exhibits the characteristics of a
servant-leader. A servant-leader can be described as a manager or leader who is community
centred, altruistic and empathetic rather than being ego driven. Servant-leader attributes include
humility, service, emotional intelligence and self-management, which are critical leadership
requirements for managers and leaders in the twenty-first century.79 To learn more about servant
leadership, view the clip presented by leadership expert Ken Blanchard at
https://www.youtube.com/watch?v=QTiUy8uSWtE
Other leadership theories are discussed in Chapter 11.
3.4 The integration of managerial viewpoints and
competencies
In Chapter 2, we identified six managerial competencies that are essential to your future success
as a manager. Table 3.5 shows the relationship between the various managerial viewpoints and
these competencies.
The traditional viewpoint of management sought to identify management competencies that
organised the work of employees efficiently. Each level of management was assigned specific
goals and tasks to accomplish in an allotted time period and therefore planning and administration
competencies were emphasised.
The behavioural viewpoint of management focused on developing two competencies:
communication and teamwork. It was the manager’s job to acknowledge the social and emotional
needs of employees, and to develop harmonious relationships in the workplace.
The systems viewpoint of management stressed that managers should focus on how various
inputs, transformation processes and outputs are related to the organisation’s goals. The
organisation was viewed as a whole, rather than simply as the sum of its various departments or
divisions. This requires managers to develop their communication competency, strategic action
competency and global awareness competency.
The contingency viewpoint of management draws from each of the other viewpoints and
involves a different set of competencies. The manager’s job is to decide whether to draw on one
set of skills in a competency or on several skills across competencies. In making this decision, the
emotional intelligence competency is important. The use of teams, for example, tests the
manager’s communication and teamwork competencies.
The quality viewpoint of management stresses meeting customers’ expectations in terms of the
value (in other words, performance and quality) of goods and services. The strategic action and
global awareness competencies are thus important in strategically ensuring that value is added in a
globalised context. Top management can drive this, for example implementing TQM (Total
Quality Management). The flexible viewpoint of management, which draws on the contingency
and quality viewpoints, focuses on customisation and design as well as delivering innovative
product designs. As such inspirational communication and working within a learning
organisational culture is important for these individuals. A learning organisational culture will
give everyone the opportunity to engage in identifying and solving problems, and will enable the
organisation to experiment and increase its capacity. All the management competencies are thus
more important than previously thought with some being very important, as shown in Table 3.5.

Table 3.5 Integration of managerial viewpoints and competencies

 In the principle-led viewpoint, it is critical that managers value the Millennial generation for
their ability to create and share knowledge, and build relationships, rather than viewing them
simply as factors of production. In terms of managerial competencies, this means that managers
should be self-confident, emotionally intelligent and able to manage themselves and work even
more effectively in teams. While being self-confident, managers should be community centred,
altruistic and empathetic, not ego driven. They should have the capacity for reciprocity and
relationship-building. In addition, given the challenges facing organisations in a competitive
globalised world, the strategic action competency becomes very important to the sustainability of
the organisations.

Chapter summary
The phenomenon of management is explained in terms of management being a science, an art, a
discipline and a profession. The scientific method facilitates knowing more about and explaining a
phenomenon as well as gaining insights into the cause and effect relationship between two or
more variables and the principles governing their relationship.
We concluded that management is not an exact science because it is largely a social science.
Management as an art requires practical application of scientific theoretical principles. We can
thus say that management is an art because it deals with the application of principles in order to
mould the attitudes and behaviour of people at work towards desired goals.
A discipline implies that relevant knowledge that has been researched and published is
communicated by scholars, and the knowledge is formally imparted by education and training
programmes. While management meets these requirements of being a discipline, we regard it as
an emerging discipline. A profession is explained in terms of being an occupation that requires
specialised knowledge and intensive academic preparations to which entry is regulated by a
representative body. We concluded that management is not a profession in terms of the traditional
notion of a profession. However, we can infer that management is an occupation with a
professional character.
 The oldest and perhaps most widely accepted view of management is the traditional (or
classical) viewpoint. It is split into three main branches: bureaucratic management, scientific
management and administrative management. Bureaucratic management relies on rules, a set
hierarchy, a clear division of labour and detailed procedures. The behavioural (human relations)
viewpoint of management focuses on dealing effectively with the human aspects of organisations.
The systems viewpoint of management represents an approach to solving problems by
diagnosing them within a framework of inputs, transformation processes, outputs and feedback.
There are two types of system: closed and open. The contingency viewpoint of management is
useful because of its diagnostic approach, which clearly departs from the one-best-way approach
of traditionalists. The contingency viewpoint encourages managers to choose the situation best
suited to the organisation, the process and the people involved in each situation.
Quality is defined as how well a product does what it is supposed to do, in other words, how
closely and reliably it meets the specifications to which it is built. Total quality management
(TQM) is the continuous process of ensuring that every aspect of production builds in product
quality.
The flexible viewpoint of management emerged in the mid-1980s as a result of the economic
turbulence experienced by many organisations. This turbulence was driven by accelerated
globalisation as well as the developments in information technology and communication.
In the principle-led viewpoint of management emotional relationships of connection and trust
as well as environmental, social and economic sustainability are becoming more important than
price, speed or quality of service. The management values of personal humility, professional
resolve, trustworthiness and integrity are important. The principle-led management framework
enables the manager to understand and integrate the four levels of organisational development at
the organisational, managerial, interpersonal and personal levels with the following four
leadership principles, namely alignment, empowerment, trust relationships and trustworthiness.

Questions for discussion

1. Differentiate between the phenomenon of management as a science and as an art, and indicate
with reasons, whether management can be regarded as a discipline and as a profession.
2. Explain why it is necessary to obtain knowledge about the development of managerial
thought.
3. Identify and discuss some of the problems that global organisations face when they use
bureaucratic principles to manage their employees.
4. Highlight the contributions from the behavioural viewpoint of management.
5. You have been asked to address a local business group on the subject of the principle-led
viewpoint of management. How would you address this subject? Prepare an outline of your
talk.

Exercise for competency development

Identify the fundamental differences in management practices according to at least three of the
viewpoints of managerial thought and propose examples of how managers at Standard Bank can apply
these viewpoints of management in their management practice. Which of the viewpoints do you think
would be most appropriate in today’s context at a bank such as Standard Bank?Provide a comprehensive
explanation.
 Contemporary management in practice
View the following video clips by:
Gary Hamel: http://www.youtube.com/watch?v=K3-_IY66tpI
(The future of management by Gary Hamel)
and Brand Pretorius: http://www.youtube.com/watch?v=nZiKzqZnehc
(Leadership choices by Brand Pretorius).

Read about Brand Pretorius’ viewpoint on leadership in general at

http://criticalthought.co.za/conversations-in-leadership/

Take note of Gary Hamel’s overview of management since the 1900s and his perspective on
organisational innovation strategies as well as the advice presented by Brand Pretorius about choices
that leaders can make. Use Standard Bank as your example to prepare a presentation on management as
a science which evolved as an art and how this relates to the different viewpoints in the development of
managerial thought over time at Standard Bank. Also highlight the competencies required by managers
at Standard Bank to address the issues in each of the different viewpoints.

Endnotes
1 APTE, U.M. & REYNOLDS. C.C. 1995. Quality management at Kentucky Fried Chicken. Interfaces,
25 (3), 6–21; KFC. 2016. About us/KFC.com [Online]. Available: http://www.kfc.com/about/
[Accessed 9 August 2016].
2 DAVIDSON, A. (Ed.). 2009. 1 000 CEOs: Proven Strategies for Success from The World’s Smartest
Executives. London: Dorling Kindersley Limited, pp. 111, 129, 157.
3 RHODES BUSINESS SCHOOL. 2011. Conversation in leadership: Q&A with Brand Pretorius.
[Online]. Available: http://criticalthought.co.za/conversations-in-leadership/ [Accessed 29 December
2011].
4 MSG MANAGEMENT STUDY GUIDE. 2016. Management as a science. [Online]. Available:
http://www.managementstudyguide.com/what_is_management.htm [Accessed 8 October 2016].
5 MINTZBERG, H. 1990. The manager’s job: folklore and fact. Harvard Business Review, 68 (2), 163
–176.
6 MSG MANAGEMENT STUDY GUIDE. 2016. Op cit.
7 Ibid.
8 Ibid.
9 Ibid.
10 Ibid.
11 DU TOIT, C.M. (Ed.). 1981. Fundamental business economics. Durban: Butterworths, p. 10.
12 SCHERMERHORN, Jr., J.R. 1993. Management for productivity. New York: John Wiley & Sons, p.
119.
13 MSG MANAGEMENT STUDY GUIDE.2016. Op cit.
14 SCHERMERHORN, Jr., J.R. Op cit., p. 119.
15 MSG MANAGEMENT STUDY GUIDE.2016. Op cit.
16 SCHERMERHORN, Jr., J.R. Op cit., p. 119.
17 MSG MANAGEMENT STUDY GUIDE. 2016. Op cit.
18 HURST, D.K. 2013. The mongrel discipline of management. Harvard Business Review, May 15.
[Online]. Available https://hbr.org/2013/05/the-mongrel-discipline-of-mana [Accessed 6 November
2015].
19 MSG MANAGEMENT STUDY GUIDE. 2016. Op cit.
20 SQUIRES, G. 2001. Management as a professional discipline. Journal of Management Studies, 38 (4),
473–487. 0022–2380. p. 484.
21 Ibid., p. 484.
22 MSG MANAGEMENT STUDY GUIDE. 2016. Op cit.
23 BILLSBERRY, J. & BIRNIK, A. 2010. Management as a contextual practice: the need to blend science,
skills and practical wisdom. Organizational Management Journal, 7, 171–178. 1541–6518. p. 172.
24 SQUIRES, G. 2001. Op cit., p. 484.
25 SAICA. 2016. SAICA Accredited Programmes – 2016. [Online]. Available:
https://www.saica.co.za/LearnersStudents/InformationonEducationProviders/InformationonAccreditedProgrammes/tabid
ZA/Default.aspx [Accessed 11 October 2016].
26 SQUIRES, G. Op cit., p. 484.
27 BILLSBERRY, J. & BIRNIK, A. 2010. Op cit., p. 172.
28 SCHERMERHORN, Jr., J.R. 1993. Op cit., p. 117.
29 STANFORD ENCYCLOPEDIA OF PHYLOSOPHY. 22 June 2014. Episteme and Techne. [Online].
Available: http://plato.stanford.edu/entries/episteme-techne/ [Accessed 12 October 2016].
30 BILLSBERRY, J. & BIRNIK, A. 2010. Op cit., pp. 172-173; STANFORD ENCYCLOPEDIA OF
PHYLOSOPHY. 22 June 2014. Episteme and Techne. [Online]. Available:
http://plato.stanford.edu/entries/episteme-techne/ [Accessed 12 October 2016].
31 Ibid., p. 173; STANFORD ENCYCLOPEDIA OF PHYLOSOPHY. 22 June 2014. Episteme and
Techne. [Online]. Available: http://plato.stanford.edu/entries/episteme-techne/ [Accessed 12 October
2016].
32 Ibid., pp. 172-173; STANFORD ENCYCLOPEDIA OF PHYLOSOPHY. 22 June 2014. Episteme and
Techne. [Online]. Available: http://plato.stanford.edu/entries/episteme-techne/ [Accessed 12 October
2016].
33 NUSSBAUM, M.C. 1986. The fragility of goodness. Cambridge: Cambridge University Press. In
SQUIRES, G. 2001. Management as a professional discipline. Journal of Management Studies, 38 (4),
473–487. 0022–2380.pp. 474–475.
34 BILLSBERRY, J. & BIRNIK, A. Op cit., p. 173.
35 SQUIRES, G. 2001. Op cit., p. 477.
36 SOUTH AFRICA. 1995. Labour Relations Act (Act 66 of 1995). Government Gazette, 366 (16861), 13
December 1995, 25. [Laws].
37 WEBER, M. 1947. The theory of social and economic organisation. (Henderson, M.A. & Parsons, T.,
Trans.). New York: Free Press; WREN, D.A. 1987. Management history: Issues and ideas for teaching
and research. Journal of Management, 13, 239–250.
38 HUMMEL, R.P. 1987. The bureaucratic experience. New York: St Martins.
39 TAYLOR, F.W. 1947. Scientific management. New York: Harper & Row, pp. 66–71.
40 KOONTZ, H. 1980. The management theory jungle revisited. Academy of Management Review, 5, 175
–188.
41 KRAJEWSKI, L.J. & RITZMAN, L.P. 1997. Operations management: Strategy and analysis. 5th ed.
Reading, Mass.: Addison-Wesley.
42 ICONIC GLOBAL BRAND (PDF). 2014. Louisville: Yum! Brands. p. 98; BUSINESSTECH. 2016.
South Africa’s biggest fast food chains. [Online]. Available:
http://businesstech.co.za/news/business/122333/south-africas-biggest-fast-food-chains/ [Accessed 14
October 2016]; SUNDAY TIMES. 2016. SA’s favourite brands named in the 18th Sunday Times Top
Brands Awards [Online]. Available:
http://www.timeslive.co.za/sundaytimes/stmarketing/2016/08/24/SAs-favourite-brands-named-in-the-
18th-Sunday-Times-Top-Brands-Awards [Accessed 15 October 2016].
43 APTE, U.M. & REYNOLDS. C.C. 1995. Quality management at Kentucky Fried Chicken. Interfaces,
25 (3), 6–21; KFC. 2011. About us. [Online]. Available: http://www.kfc.com/about/ [Accessed 30
September 2016].
44 FAYOL, H. 1949. General and industrial management. London: Pitman & Sons.
45 CARRELL, M.R., ELBERT, N.F., HATFIELD, R.D., GROBLER, P.A., MARX, M. & VAN DER
SCHYF, S. 1997. Human resource management in South Africa. New Jersey: Prentice Hall, p. 9.
46 FOLLETT, M.P. 1995. Prophet of management. Boston: Harvard Business School Press.
47 BARNARD, C. 1938. The functions of the executive. Cambridge, Mass.: Harvard University Press.
48 MAYO, E. 1945. The social problems of an industrial civilization. Boston: Harvard Business School;
O’CONNOR, E.S. 1999. The politics of management thought: A case study of the Harvard Business
School and the human relations school. Academy of Management Review, 24, 117–131.
49 ROBINSON, S.L. 1996. Trust and breach of the psychological contract. Administrative Science
Quarterly, 41, 574–599; MORRISON, E.W. & ROBINSON, S.L. 1997. When employees feel betrayed:
A model of how psychological contract violation develops. Academy of Management Review, 22, 226
–259.
50 MARKLAND, R.E., VICKERY, S.K. & DAVIS, R.A. 1998. Operations management concepts in
manufacturing and service. 2nd ed. Cincinnati: South-Western; GRIFFIN, R.W. 2014. Fundamentals of
Management. 7th ed. Australia: South Western Cengage Learning, pp. 18–19.
51 BUSINESS DICTIONARY. 2016. System. [Online]. Available:
http://www.businessdictionary.com/definition/system.html [Accessed 12 October 2016].
52 HILMER, F.G. & DONALDSON, L. 1996. Management redeemed. New York: Free Press; GRIFFIN,
R.W. 2014. Op cit., pp. 18–19.
53 TOSI, H. JR. 1992. The environment/organisation person contingency model: A meso approach to the
study of organisations. Greenwich, Conn.: JAI Press; CROWSTON, K. 1997. A coordination theory
approach to organisational process design. Organisation Science, 8(2), 157–175; HUBER, G.P. &
GLICK, W.H. 1993. Organisational change and redesign. New York: Oxford University Press; JONES,
G. R. & GEORGE, J. M. 2014. Contemporary Management. 8th ed. New York: Mc Graw Hill
Education, pp. 57–58.
54 JONES, G. R. & GEORGE, J. M. 2014. Op cit., p. 266.
55 WALTON, M. 1986. The Deming method. New York: Dodd Mead; BYRNE. J.A. 1994. Remembering
Deming, the godfather of quality. Business Week, 45, 10 January; SPENCER, B.A. 1994. Models of
organisation and total quality management: A comparison and critical evaluation. Academy of
Management Review, 19, 446–471.
56 ISO. 2016. Standards. [Online]. Available: http://www.iso.org/iso/home.html [Accessed 9 October
2016].
57 MANZ, C.C. & STEWART, G.L. 1997. Attaining flexible stability by integrating total quality
management and sociotechnical systems theory. Organisation Science, 8(1), 59–70; JONES, G. R. &
GEORGE, J. M. 2014. Op cit., pp. 272–277.
58 JONES, G. R. & GEORGE, J. M. Op cit., p. 274.
59 HESKETT, J.L., SASSER, W.E. JR & SCHLESINGER, L.A. 1997. The service profit chain. New
York: Free Press; JONES, G. R. & GEORGE, J. M. 2014. Op cit., pp. 272–277.
60 DALGLISH, C. 2000. Striving to be number one. Professional Management Review, 122, January.
61 LOUW, L. 1999. The status and nature of the MBA programme in South Africa. Unpublished DCom
thesis. Port Elizabeth: University of Port Elizabeth.
62 COLLIER, D.A. & EVANS, J.R. 2011-2012. OM3. Instructor edition. Mason, OH: South-Western
Cengage Learning, p. 15.
63 LOUW, L. Op cit.
64 SENGE, P. 2006. The fifth discipline: The art and practice of learning organisations. New York:
Doubleday/Currency.
65 GOLEMAN, D. 2000. Leadership that gets results. The idea in Brief and in Practice. [Online].
Available: http://hbr.org/product/leadership-that-gets-results/an/R00204-PDF-ENG [Accessed 14
October 2016].
66 ORDONEZ DE PABLOS, P. 2006. Transnational corporations and strategic alliances: An analysis of
knowledge flows and competitive advantage. The Learning Organisation, 13(6), 544–559.
67 DAFT, R.L. 2006. The new era of management. International edition. Mason, Ohio: Thomson South-
Western.
68 CODRINGTON, G. & GRANT-MARSHALL, S. 2004. Mind the gap! Johannesburg: Penguin Books,
pp. 137–138.
69 COLLIER, D.A. et al., Op cit., p. 18.
70 CODRINGTON, G. et al., Op cit., p. 136.
71 CODRINGTON, G. et al., Op cit., p. 19; The Centre for Generational Kinetics. 2015. Five Generations
of Employees in Today’s Workforce. 27 April. [Online]. Available: http://genhq.com/five-generations-
of-employees-in-todays-workforce/ [Accessed 16 January 2016].
72 CODRINGTON, G. et al., op cit., p. 218, 47. EXPRESS EMPLOYMENT PROFESSIONALS. 2016.
Engaging the Five Generations in Your Workplace. 2 March. [Online]. Available:
http://www.expresspros.co.za/engaging-the-five-generations-in-your-workplace/ [Accessed 17 January
2017].
73 COVEY, S.R. & GULLEDGE, K.A. 1992. Principle-centred leadership. Journal for Quality and
Participation, July/August, 70.
74 Ibid., p. 70.
75 CODRINGTON, G. et al., Op cit., p. 73.
76 Ibid., p. 73.
77 Ibid., p. 74.
78 COLLINS, J. 2001. The misguided Mix-up of Celebrity and Leadership. Conference Board Annual
Report. Annual Feature Essay, September/October 2001 [Online].
Available:http://www.jimcollins.com/article_topics/articles/the-misguided-mixup.html [Accessed 21
October 2015].; COLLINS, J. 2001. Level 5 Leadership: The triumph of humility and fierce resolve.
Harvard Business Review, 70(1), 66–76.
79 BLOCK, P. (Ed.). 1993. Stewardship: Choosing service over self-interest. San Francisco: Berrett-
Koehler; GREENLEAF.ORG. 2016. [Online]. Available: https://www.greenleaf.org/ [Accessed 16
October 2016].
LEARNING OUTCOMES
After studying this chapter, you should be able to:
• Explain the four principles of corporate citizenship
• State the importance of ethics for organisations and their employees
• Describe four forces that influence the ethical behaviour of individuals and corporate social responsibility
• Describe three approaches that people use when making ethical judgments
• Explain the role of stakeholders in managing corporate social responsibility
• Explain how an organisation, by being socially responsible, can increase their sustainability
• Explain how the concerns of stakeholders influence managers’ ethical decisions
• Describe how individuals can contribute to improving ethical conduct in the work setting
• Describe how organisations can contribute to improving ethical conduct in the work setting.

CHAPTER OUTLINE
• South African Insight: Ethics and sustainability at Woolworths
• Corporate citizenship
• Importance of ethics and corporate social responsibility
• Forces that shape ethical conduct
» Societal norms and culture
» Laws and regulations
» Organisational practices and culture
» Individual perspectives
• Approaches to making ethical judgments
» The utilitarian model
» The moral-rights model
» The justice model
» Combining ethical approaches
• Managing corporate social responsibility
» Stakeholders
» Stakeholder concerns
» Managing sustainability
• Management tools for encouraging ethical conduct
» Code of ethics / Code of conduct
» Ethics committee
» Ethics training
» Whistle-blowing

Key terms and concepts

• Corporate citizenship
• Stakeholders
• Ethics
• Moral principles
• Corporate social responsibility
• Sustainable development
• Triple bottom line
• Utilitarian model
• Efficiency
• Moral rights model
• Justice model
• Distributive justice principle
• Fairness principle
• Natural duty principle
• Code of ethics
• Ethics committee
• Whistle-blower

COMPETENCY WHY IS THIS EXAMPLE

COMPETENCY
IMPORTANT TO ETHICS
AND CORPORATE
SOCIAL
RESPONSIBILITY?

Communication To create awareness among At L’Oréal, a global leader in make-up, cosmetics,

all employees of what is haircare and perfume, ethics has been included in
regarded as acceptable ethical 11 training courses for managers to ensure they are
behaviour. aware of what is regarded as ethical behaviour and
to guide them in acting as ethical role models in
the organisation.1

Planning and To provide direction to the Listed companies on the JSE in South Africa must,
financial organisation on the intended according to the requirements of the King III
management outcome. report, set financial, social responsibility and
environmental preservation goals and report their
progress in meeting these goals.2

Teamwork To deliver focused, Doctors working as a team during an operation in a

collaborative and sustainable hospital can motivate all team members to achieve
results. their intended goal as effectively as possible.

Strategic action To put plans in action to Implement social responsibility community

ensure sustainable business projects and/or environmental preservation
growth. projects as done by Nedbank and Woolworths.

Global awareness To be knowledgeable on how When a South African organisation wishes to do

to conduct business within a business with a German organisation, the business
diverse context. etiquette required to conduct business requires
 punctuality, being well-dressed and taking
environmental issues into consideration.3

Emotional To be in touch with one’s Enron, an energy and utilities company, was by
intelligence and own emotions as a leader and 2001 the eighth largest company in the USA. In
self-managing those of employees to make spite of having a detailed and well-written ethics
the best ethical business policy, the lack of emotional intelligence of Jeffrey
decision. Skilling, the former CEO of Enron in 2001, led to
the collapse of the company. He and other senior
executives worked together to inflate the company
revenues to avoid bankruptcy and retain their good
credit rating. Their malpractice was brought to
light and led to the collapse of the company.4

Ethics and sustainability at Woolworths

Woolworths serves their customers in a way that is consistent with their values. Their Code of Conduct
outlines their legal, moral and ethical standards which daily guide behaviour and the choices they make
regarding ‘doing the right thing’. Doing the right thing implies acting at all times with integrity, honesty
and trust. Their Code of Conduct is supported by six values which guide decision-making such as: quality
and style, value, service, innovation, integrity and energy. In 2010, Woolworths revised their Code of
Conduct and added a seventh Woolworths value, ‘build for a better future’, which incorporates
sustainability into their value statement. Their corporate values are regarded as the foundation and
cornerstone of their organisation.
The Code of Conduct highlights all stakeholders’ responsibilities with regards to how employees
should serve their customers, how the company engages in community outreach programmes and how
they go about choosing suppliers. Each stakeholder is expected to uphold the Code of Conduct and must
meet the relevant compliance requirements. Woolworths does not tolerate any theft or illegal actions such
as fraud or corruption by employees. Their disciplinary code signifies that if employees engage in any of
these acts, it can result in summary dismissal. Further to this they have a Tip-offs Anonymous line where
misbehaviour can be reported. This whistle-blowing mechanism is independently managed by Deloitte.
They expect their suppliers to support the ethical standards as indicated in their ethical sourcing policy.
These standards include workplace safety, environment practices, fair pay and favourable employment
conditions. The requirements set in the ethical sourcing policy are aligned with the Ethical Trading
Initiative (ETI) and International Labour Organisation (ILO) conventions as defined in the United Nations
Universal Declaration of Human Rights. Adhering to these ethical standards ensures that Woolworths:
• Sources products in a responsible manner
• Assists suppliers to improve their social and environmental practices
• Provides clear guidance to purchasing staff
Protects their corporate reputation and brands.

Woolworths is continuously striving for sustainability and conforms to triple bottom line principles as
required by the King III report. This is evident from the awards they won in 2013. Woolworths was
awarded third place in the Sunday Times Top 100 best performance companies for their last five years’
financial performance in terms of shareholder returns. Only companies listed on the JSE can participate. In
addition, in the South African Brand Finance awards, Woolworths was listed as one of the 10 most
valuable brands in South Africa.
Woolworths’ Good Business Journey is their pledge to make a difference in the environment for
current and future generations. This comprehensive plan provides details on eight key areas where they
wish to make a difference with regards to the environment and in communities: energy usage reduction,
water preservation, waste minimisation, sustainable farming, ethical sourcing, transformation, social
development and health and wellness of communities. This commitment to make a difference has resulted
in saving 27 million litres of water at their head office in Cape Town in 2014. They have saved water by
 tapping into an underground water supply. During the same period, they have also reused 10 million
recycled plastic bottles for product packaging. To involve the community in their recycling efforts, they
have set up recycling depots at selected Engen service stations. Almost all (98%) of their produce
suppliers participate in the Farming for the Future programme, which manages the entire farming process
from producing quality products to using less resources and to work in harmony with nature. They
encourage suppliers to do so without adding extra production costs. They are committed to selling
responsibly sourced seafood and ensure that in South Africa they buy Marine Stewardship Council
certified fish from their suppliers.
With regards to environmental compliance, Woolworths expects suppliers to comply with national and
local environmental laws and regulations. They also require that suppliers adhere to product waste disposal
requirements, that they have identified and documented their key environmental impacts and have controls
in play to minimise their impact on the environment with regards to waste disposal, hazardous chemicals
storage and management, as well as air and water emission.
For three years (2008, 2010 and 2012), Woolworths won an award at the World Retail Award and was
a finalist in 2013 for their MySchool, MyVillage and MyPlanet programmes which focus on social
responsibility. Customers of Woolworths nominate a beneficiary and when swiping their card at
Woolworths or at any of their partners, the nominated school, charity or environmental organisation
receives a donation. With this programme, Woolworths raises over R4 million each month for schools,
charities and animal welfare organisations. Most notable were their contribution of almost R250 million to
more than 10 000 schools, charities and environmental organisations through their My School, My
Village, and My Planet programmes in 2014. In the same year, they also donated surplus clothing to the
value of R10.7 million to the Clothing Bank.
The Clothing Bank was established in 2009 in Cape Town with its head office in Paarl. They have
since also extended their outreach to Gauteng. This organisation recruits unemployed mothers, with the
help of government and partner organisations, such as Woolworths, and enrols them in a 24-month
training programme to teach them money management, business and life skills. The objective of the
programme is that at the conclusion of the programme the women should be empowered enough to start a
business and earn at least R4 000 monthly. Once the women have completed their initial training, they buy
the clothes from The Clothing Bank at significantly discounted prices and sell these clothing in the
informal sector. They also provide ongoing coaching to further support these women in their business
ventures.
Source: Adapted from CHARITY SA. 2015. [Online]. Available: http://www.charitysa.co.za/the-clothing-bank.html
[Accessed: 16 August 2015]; ETHICAL SOURCING POLICY. n.d. [Online]. Available:
http://www.woolworthslimited.com.au/cms_docs/136824_Woolworths.asp [Accessed 12 August 2015]; MY
SCHOOL, MY VILLAGE, MY PLANET. 2015. [Online]. Available:
http://www.myschool.co.za/aboutmyschool/myschool/?utm_source=google& utm_medium=
search&utm_campaign=launch%202015&gclid=CIW819qHrscCFajKtA odBnkJYA [Accessed 16 August 2015];
WOOLWORTHS HOLDINGS LIMITED. 2010. Values and ethics. [Online]. Available:
http://www.woolworthsholdings.co.za/investor/gbj/2010/ governance/ve.asp [Accessed 12 August 2015];
WOOLWORTHS HOLDINGS LIMITED. 2014a. Doing the right thing. [Online]. Available:
http://www.woolworthsholdings.co.au/icms_docs/137932_Code_of_Conduct.pdf [Accessed 12 August 2015];
WOOLWORTHS HOLDINGS LIMITED. 2014b. Good business journey report. [Online]. Available:
http://www.woolworthsholdings.co.za/investor/annual_reports /ar2014/whl_ 2014_gbj.pdf [Accessed 16 August
2015]; WOOLWORTHS LIMITED. 2015. Our good business journey. [Online]. Available:
http://www.woolworths.co.za/store/fragments/ corporate/ corporate-index.jsp?content=../five-
ways/fiveWays&contentId=cmp204377 [Accessed 16 August 2015].

4.1 Corporate citizenship

When one considers issues such as ethics in business and corporate social responsibility, it is
necessary to explain the all-embracing concept of corporate citizenship.
Corporate citizenship is about creating a contract between an organisation and the society in
which it operates, because what happens to societies happens to business. This contract could be
in financial terms by donating to needy communities or non-financial by for example merely
avoiding environmental pollution. In terms of corporate citizenship, organisations need to
consider the interests of society as what they do has an influence on the environment as well as
their stakeholders such as their customers, suppliers, employees, shareholders and communities.
This means not only to simply comply with legislation but to go beyond that by voluntarily
making an effort to make a difference in the lives of their employees and their families, as well as
supporting the development of local communities and society at large.5
Corporate citizenship commands that the organisation takes four main principles into
consideration:
• Minimise harm: To minimise harm requires looking at the consequences of business activities
on ecosystems to prevent environmental harm. It also includes adhering to human rights laws
by treating employees in a fair and just manner and ensuring their safety is protected at all
times. It means organisations expect suppliers to provide them with safe, high-quality products
and not engage in corruption, but to behave in an ethical manner. Organisations should not
engage in any activities that may compromise their shareholders’ contributions. Their
marketing statements must be accurate and organisations must keep to the promises made
therein.
• Maximise benefits: Corporate socially responsible organisations ensure they produce products
with a social value. They may sponsor educational and health activities in disadvantaged
communities, contribute to the social welfare or promote the economic well-being of poor and
low-income communities, by investing resources in activities that benefit them. Voluntary
participation in solving social youth problems and encouraging youth development is another
way to be socially responsible, as it can be beneficial for communities. Organisations can also
assist with economic development by providing stable employment and paying fair wages.
• Be accountable and responsive to key stakeholders: All organisations should operate
according to a written code of conduct. Stakeholders rely on organisations to be transparent
and open about their socially responsible actions. To show stakeholders they are transparent in
their business dealings, they can communicate to stakeholders their corporate governance
efforts by producing business reports regarding the progress made in being socially
responsible. Stakeholders regard their relationship with the organisation as based on trust.
• Support strong financial results: All organisations are expected to return a profit to their
shareholders. Strong financial results also enable an organisation to engage in community
outreach activities and pay their employees market related salaries. The stronger the financial
results of the organisation the less it may be tempted to engage in unethical business
behaviour.

Thus business ethics, sustainable development and corporate social responsibility all fall under the
umbrella of corporate citizenship. The terms ethics and social responsibility are often used
interchangeably, although each has a very distinct meaning.
In the most elementary sense, ethics refers to a set of values and rules that define right and
wrong behaviour. These values and rules indicate when behaviour is acceptable and when it is not.
In a broader sense, ethics includes distinguishing between fact and belief, defining issues in moral
terms and applying moral principles to a situation. Moral principles prescribe general rules of
acceptable behaviour. They are of great importance to a society and cannot be established or
changed by the decisions of powerful individuals alone.6 Ethics SA announced its involvement in
the Anti-Intimidation and Ethical Practices Forum (AEPF), a new anti-corruption initiative which
was launched on 28 January 2015 at the IoDSA in Sandton, Johannesburg. The Forum was
established by eight professional bodies who share a common concern about the rising levels of
corruption in the country. Their aims are to educate members of professional bodies on how to
follow the correct procedures to blow the whistle on corruption, and the remedies available to
them, when they are intimidated for exposing wrongdoing within their organisations.7 Moral
principles and the values they represent are fundamental to ethics. In South Africa, the Ethics
Institute of South Africa promotes ethical behaviour in the country.8 As you will learn in this
chapter, some moral principles concerning managerial and employee behaviour are widely shared,
but others are not.9

Corporate social responsibility on the other hand can be defined as an organisation’s or

manager’s “duty or obligation to make decisions that nurture, protect, enhance and promote the
welfare and well-being of stakeholders and society as a whole.”10 Social responsibility has
signalled serious concerns about the impact of business actions on all stakeholders. It has also
indicated that managers must be committed to look after and develop their communities. What
complicates corporate social responsibility is that every organisation is different and each sector
has different priorities.11 In addition, the same organisation in one region may face different
challenges in different parts of the world.

Sustainable development means that an organisation takes societal and environmental

concerns into consideration by protecting the natural environment, while still progressing
economically, referred to as meeting the requirements of the triple bottom line.12 The 2030
Agenda for sustainable development of the United Nations is a plan of action for people, planet
and prosperity. With this plan they wish to eradicate poverty in all its forms and dimensions. All
countries and stakeholders, acting in collaborative partnership, attend the yearly convention and
pledge that they will implement this plan. In this universal agenda, 17 Sustainable Development
Goals and 169 targets were set. The convention seeks to build on the Millennium Development
Goals and to complete those not yet achieved. These goals are integrated and indivisible and
balance the three dimensions of corporate sustainable development: economic, social and
environmental.13

With a philosophy of sustainability, managers are required to consider environmental and

social concerns when making strategic decisions, and measure their progress toward sustainability
goals. The key focus areas of corporate sustainability are the triple bottom line, stakeholders’
engagement, accountability and sustainable reporting.14 With regards to stakeholders’ engagement,
a multi-stakeholders approach is required to ensure sustainability.
In the next section, we will explore the importance of ethics and social responsibility.

4.2 Importance of ethics and corporate social

responsibility
With reference to the South African Insight, Woolworths’ approach to ethics is to ensure that
not only are they ethical in the way they manage the organisation’s affairs, but that their suppliers
are also ethical and most importantly that they do not mislead their customers. Their approach to
being socially responsible means they engage in community outreach programmes and care for
the environment by advocating environmental preservation for now and future generations to
come. It is thus clear that Woolworths goes well beyond its core business, and exceeds the
standards of integrity imposed by laws and government regulations. Their commitment to ethics
and corporate social responsibility means that the organisation conducts all of its business
activities in a responsible and sustainable way.

Today’s managers are responsible for creating and sustaining conditions in which people are
likely to conduct themselves with integrity. Ethics and corporate responsibility build the
framework for making business decisions in a morally and ethically acceptable manner. For this
reason, ethics and social responsibility have become major concerns in global markets. As a result
of global development, different cultures come into contact with each other. Various cultures
often have different assumptions, norms and values, which may create ethical dilemmas and cause
moral problems in the workplace.15
In a world of increasing local and global competition, being aligned with society’s
expectations can be beneficial to both employees and customers in the long run. Employees
evaluate organisations based on the work they need to perform while employed and the
remuneration they receive. Furthermore, employees evaluate the corporate social performance
(CSP) of organisations in terms of the following criteria:
• Employment selection and promotion based on merit in a non-discriminatory manner
• Extent of workforce diversity
• Payment of market-related wages and salaries based on job level
• Workplace safety and privacy
• The availability of training and development.16

Customers, on the other hand, require organisations to improve the quality of their products while
keeping their costs at a minimum. Some customers also only purchase from organisations that
have a reputation for corporate social performance. Customers tend to evaluate an organisation in
terms of the following criteria:
• Offering of quality products or services on a continuous basis
• Extent of offering innovative products and services fulfilling customer needs
• Not selling faulty or unsafe products or services
• Safe disposal of harmful or sub-standard products or services
• Reasonable pricing policies and practices
• Honest advertising by providing truthful, reliable product or service information.17

There seems little doubt that socially responsible and ethical organisations operate according
to a set of well-developed values and are attractive to high-calibre prospective employees as well
as to customers. Members of Rescue South Africa joined an army of emergency personnel from
around the world when the earthquake, tsunami and nuclear incident hit Japan during March 2011.
South Africa regards it as its social responsibility to assist another country such as Japan, in this
case, when in need. Netcare contributed R1 million to the mission and sent a team of six hospital
group doctors specialising in trauma care to assist. In so doing, Netcare strengthened its long-term
bond with customers as this extension of kindness showed the organisation playing a humanitarian
role and accepting that its social responsibility extended beyond the borders of South Africa.18 On
the other hand, Telkom South Africa announced its planned retrenchment of about 4 400
employees owing to their turnaround strategy in 2015. The Communication Workers Union and
South African Communication Union declared a dispute with Telkom in June 2015 over the
planned retrenchments. Telkom was adamant that while they regretted the retrenchments, they had
no choice. They issued retrenchment notices in terms of section 189 of the Labour Relations Act
to the workers and offered them voluntary severance and early retirement packages.19 However,
the customers of Telkom SA might see these retrenchments as a socially irresponsible act.
 Including social responsibility in the business strategy can bring significant benefits to an
organisation, including improving financial performance, reducing operating costs, enhancing
brand image and reputation, and increasing productivity and quality as well as sales and customer
loyalty.20 With the introduction of the King Reports in South Africa, ethics and social
responsibility have become more important. Business behaviour is more transparent and the
public has its own perceptions about what is ethically acceptable. Furthermore, an organisation
that acts in an ethical manner can gain many advantages, including:21
• Obtaining a competitive advantage (customers increasingly favour ethical organisations)
• Attracting investors (they regard the organisation as having integrity and a sense of
responsibility)
• Attracting potential employees and retaining employees (people want to work for an ethical
organisation)
• Improving staff morale and culture (employees tend to be happier and less stressed)
• Building up a good reputation of being socially responsible.

A study conducted in 2012 found that about 88 percent of graduate students and younger
employees take an organisation’s CSR actions into consideration when making their job decisions.
While employers’ commitment to CSR is especially important for younger workers, it has
increased in popularity with employees of all ages. In this same study it was confirmed that
engaged employees result in engaged organisations that practice corporate social responsibility.
Those committed socially responsible organisations are more productive and profitable.22 The
market also values ethical and socially responsible organisations since they are less likely to be
involved in legal actions.23
In the next section, we will consider the four forces that influence and define ethical and
unethical decisions and behaviour in the organisation.

4.3 Forces that shape ethical conduct

What is considered ethical may depend on the perspective from which ethical issues are
considered. Figure 4.1 identifies the four basic perspectives from which ethical values and
decisions can be evaluated:
• Societal norms and culture
• Laws and regulations
• Organisational practices and culture
• Individual perspectives.
Figure 4.1 Ethical perspectives for evaluating behaviour

The ethical implications of decisions or types of behaviour are rarely understood by considering
only one of these perspectives. In other words, ethical decisions and behaviour need to be
evaluated from a systems viewpoint.

4.3.1 Societal norms and culture

The first force that shapes ethical conduct is the norms and culture of a society. A large part of any
viewpoint of what is perceived as ethical comes from the society in which the behaviour occurs. It
is suggested that there is a growing disenchantment with the lack of ethical behaviour in general
and with the lack of business ethics in particular. In a study conducted for the European
Commission in 2007, it was found that one manager in about six is likely to view his or her
organisation as a global corporate citizen with a responsibility to help solve social problems.24
There is also a disparity between the values managers and employees advocate and their actual
actions. It was also observed that managers and employees have divergent perceptions of what it
means to be socially responsible, with most managers viewing it from a do-no-harm perspective
and not as a proactive approach. Volkswagen South Africa is an example of a good corporate
citizen. The organisation is committed to promoting the following social-responsibility issues:25
• Employment equity and affirmative action
• Training and skills development
• Job creation and the development of small and medium enterprises
• The appointment of black-franchised dealers
• The development of black-owned suppliers
• Community development and corporate social investment
• Health and wellness, including the fight against HIV/Aids.
Today, managers and employees work in a fishbowl more than ever before. The media expose and
report their decisions and behaviour, which are then judged publicly by many different people and
interest groups. The tobacco industry in South Africa has come under pressure for health-related
reasons. The Tobacco Act No. 63 of 2008 limited advertising, sponsorship, promotion,
distribution and information with regard to the packaging and labelling of tobacco products. It
also prohibited the sale of tobacco products to and by persons under the age of eighteen years. The
Act also prevents the placement of a vending machine selling tobacco products in an area that is
accessible to minors. Organisations must also display warning signs to inform people who enter
their premises of any prohibition on smoking.26

An organisation that operates in many different countries must be aware that local standards
for ethical conduct may differ greatly from one location to the next. Hence developing ethical
guidelines that make sense in various settings can be a complex task.27 Some organisations apply
their domestic-country standards for ethical behaviour wherever they operate in the world, in the
belief that this approach will not violate ethical principles elsewhere. Other organisations adapt to
local practices, arguing that ethical standards make sense only when considered within a particular
societal context.
Consider, for example, the save the rhino campaign. More than 75% of all the rhinos in the
world are found in South Africa. In 2013 alone, over 600 rhinos have been killed by poachers for
their horns. Woolworths started the Save the Rhino campaign in South Africa with the assistance
of the World Wildlife Funding organisation and since the launch of their first rhino bag in 2010,
has managed to raise over R1.7 million for rhino conservation. Customers of Woolworths can
assist in their rhino conservation drive by buying a rhino shopping bag or signing up for a
MyPlanet card and choosing the Rhino fund as a beneficiary. Each time customers swipe this
card, Woolworths donates money to raise funds for local South African rhino conservation.28

As a socially responsible corporate citizen, Woolworths places heavy emphasis on

environmental preservation. The organisation supports this goal in the following ways:
• By sourcing their products in a responsible manner
• By involving customers to support worthy projects like save the rhino and education through
the MySchool card
• By encouraging environmental preservation by placing recycling bins at their entrances
• By selling products made from recycled materials
• By advertising their commitment to the planet and people in the quest for sustainability.

Even in a particular society, the view of what is ethical and legal changes over time.
Changing societal views of ethical behaviour eventually result in new legal requirements.
However, before laws and government regulations are changed, managers and their organisations
may take voluntary actions that reflect their personal and corporate values and beliefs as well as
their assessments of the public’s changing ethical stance.

4.3.2 Laws and regulations

The second force that shapes ethical conduct is the country’s laws and regulations. What a society
interprets as ethical or unethical frequently ends up being expressed in laws, government
regulations and court decisions. Laws are simply society’s values and standards that are
enforceable in the courts. The legality of actions and decisions does not necessarily make them
ethical, however. All organisations should have a code of ethics outlining their ethical standards.
If organisations do not follow a code of ethics and break the laws of the country, they should be
punished. Selling alcohol and tobacco products may not be illegal, but doing so may go against
the beliefs of a particular community. Adults may choose for themselves whether to smoke or
drink, but it is not ethical for organisations to sell these products to children under the age of
eighteen years.
 After the democratic elections held in April 1994, and the drafting of a new Constitution,
previous discriminatory practices were outlawed. The government has passed a number of
policies, laws and regulations pertaining to social responsibility issues, as outlined in Table 4.1.

Table 4.1 Laws pertaining to social responsibility issues

Legislation Social-responsibility issues

Employment Equity Act • Enshrines the right of all South Africans to equality and provides
for specific measures to be taken to address historical inequalities
through affirmative action

Skills Development Act • Encourages the development of employees’ skills through

education, training and development of career paths

Basic Conditions of Employment • Regulates fair labour practices in terms of work time, payment
Act and leave conditions

Labour Relations Act • Regulates the fundamental rights of workers and employers, for
example, the right to join a union or to strike
• Regulates the handling of unfair dismissals or labour practices

Occupational Health and Safety • Offers protection to employees’ health and safety from hazardous
Act work activities or conditions

Compensation for Occupational • Provides payment of compensation to employees or their next of

Injuries and Diseases Act kin as a result of occupational accidents, injuries or diseases

National Small Business Act • Provides an enabling framework for small businesses
• Paved the way for the establishment of Khula Enterprise Finance
Limited, which provides financial and non-financial support to
entrepreneurs

Preferential Procurement Policy • Introduces a points system for awarding tenders on the basis of
Framework Act (PPPFA) price and preferences for targeted groups
• Government and state organs can use non-price-specific criteria to
evaluate tenders and award up to twenty points (out of 100) to
companies that meet these goals

Competition Act • Addresses disproportionate ownership and control in the

economy, which results in unjust restrictions on the full
participation of blacks in the economy
• Allows for exemptions from the provision on anti-competitive
behaviour where such practices promote BEE

Skills Development Act • Provides an institutional framework to implement national,

sectoral and workplace skills development strategies
• Paved the way for the establishment of 25 Sector Education and
Training Authorities (Setas)

Mineral Resources Act • Aims to promote equitable access to the nation’s mineral
resources and expand opportunities for historically disadvantaged
people
 • The Minister can refuse to grant an exploration or production
license if the applicant does not advance BEE

Consumer Protection Act • Protects consumers by insisting that prices of items be displayed,
certain contracts be done in writing and asserts the right of
consumers to cancel a fixed contract after the expiry date
• Allows a consumer cooling-off period
• Promotes the supply of safe products and services
• Regulates franchise agreements
• Protects consumers against unwanted direct marketing

Black Economic Empowerment • The government measures all tenders against a balanced BEE
Act scorecard
• The indicators in the scorecard consider the following criteria:
» Ownership
» Management
» Employment equity
» Skills development
» Preferential procurement
» Enterprise development
» A residual that is sector specific

South African Statement of • Promotes accuracy of financial reporting and accounting reports
Generally Accepted Accounting that are not deceptive
Practice (GAAP) • Discourages payment of bribes to customs or other government
officials and insider trading

Source: THE SOUTH AFRICAN INSTITUTE OF CHARTERED ACCOUNTS. 2011.

Consumer Protection Act, No. 68 of 2008. [Online]. Available:
https://www.saica.co.za/TechnicalInformation/LegalandGovernance/Legal/ConsumerProtectionActNo68of2008/t
ZA/Default.aspx [Accessed 9 August 2016]; GQUBULE, D. 2003. Capitalising capitalists without
capital. Leadership Magazine. Black Economic Empowerment Charters Supplement. September,
8:14–16.

These laws are amended from time to time, as the need arises. An example is the National
Environmental Management Act (NEMA) in South Africa, which includes the Protected Areas
Act and the Biodiversity Act which regulates the protection of endangered animals threatened by
extinction.29 In 2013, the National Environmental Management Laws First Amendment Act
(NEMLA) was promulgated to strengthen the National Environmental Act (NEMA) as too many
subjects were covered in the act and as there was a need for more specific legislation with regard
to rhino hunting permits.30 However, while South Africa’s legislation is sound, the ineffective
implementation thereof often fails to successfully prosecute and convict poachers and impose an
adequate sentence.

On some issues, both societal opinions and legal precedents clearly define whether behaviour
is ethical. When behaviour is clearly unethical and illegal, taking a stand that satisfies both the
courts and the public is relatively easy for organisations. In that case, individual employees also
have clear knowledge of what is right and what is wrong. In such situations, societal values and
standards of behaviour are clearly understood and are reinforced by the law. But in many areas of
business practices, judgements about right and wrong fall within a grey area of ambiguity. How
should employees behave when the laws are unclear or conflicting, or when societal opinions have
shifted and old laws are being questioned as unethical? Under these circumstances, employees
must look to their personal values and beliefs, and the standards, policies and practices of their
organisations.

4.3.3 Organisational practices and culture

The third force that shapes ethical conduct is the organisation’s practices and culture. Employees
need direction on what an organisation regards as ethical or unethical behaviours.31 These
directions can be issued in a formal or informal manner. Codes of conduct and ethics policies can
guide employee behaviour. Organisations that are serious about ethics in the workplace can screen
potential employees and only select those who share the ethical values of the organisation. The
most fundamental informal source of guidance is top management’s behaviour, which
demonstrates the ethical principles that are important to the organisation. Effective ethical
leadership demands the following:32
• Being focused on a purpose and consistent in action
• Having knowledge about how to judge and act prudently
• Possessing power or authority to make decisions and act
• Inspiring the trust of employees.

Ethical leaders have a considerable influence on how employees behave and how they achieve.
Even within the same organisation, however, different departments may have different ethical
subcultures.33 In other words, the behaviour of their managers can also send signals about what is
considered to be ethical conduct. More formal sources of guidance include policy statements,
codes of ethics, speeches, publications, the content of training programmes and disciplinary
actions taken against employees who act unethically.
The nature of an organisation’s culture, leadership, reward systems and practices can work for or
against ethical conduct.34 An organisation is not likely to design reward systems that will
encourage unethical behaviour, but often that is just what happens. The insurance industry is a
good example, where sales consultants need to sell insurance products such as life cover, short
term insurance and medical aid. It is very easy to generate high volume sales, selling to less
committed clientele, as many of those same customers who initially accepted the purchase offer
can cancel the insurance product within the next couple of months to come. The commission
earned by the sales representative must therefore be linked to sustainable sales – meaning
customers who bought the insurance product should keep it for a minimum period for the
organisation to cover costs (such as sales commission and administration fees) and generate
adequate profit for the given sales effort.

Medical ethics, from an organisational point of view, have also received attention. In South
Africa, there are no legal requirement for companies to reveal the benefits they give to medical
practitioners. The Business Day was mostly unsuccessfully in obtaining information from
pharmaceutical companies regarding paying speaker fees, providing free meals to doctors and
research grants to doctors and research institutions to promote their products. Aspen admits to
paying R8 883 000 in 2015 while the Southern African HIV Clinicians Society president
Francesca Conradie admits to receiving between R5 000 and R15 000 per session for participating
in panel discussions about the pros and cons of the different HIV/Aids medications. As pointed
out by Marc Blockman, the head of the University of Cape Town’s ethics committee, it is not
unethical for the pharmaceutical industry to support doctors, although lack of transparency about
it, is.35
4.3.4 Individual perspectives
The fourth force that shapes ethical conduct is individual perspectives. Each individual has his/her
own value system about what is right or wrong. Sometimes an individual’s view of what is ethical
converges with the views of their organisation and the larger society, but not always.

The personal moral philosophy of the individual and his or her stage of moral development
may impact on ethics in the organisation. Psychological studies of ethical behaviour indicate that
individuals develop both physically and morally from an early age. As they mature, their ethical
and moral criteria and reasoning change. For children, the meaning of right and wrong is
determined mostly by behaviour that is punished and behaviour that is rewarded. That is, only
what can happen at a specific moment as a result of their action determines whether it is good or
bad. For example, an employee would not steal money from an employer if they think there is
little chance of not being caught and that it would result in being fired or jailed. Most
organisations do not want employees who use such simple reasoning to guide their behaviours
when faced with ethical dilemmas.
Adults usually have more complex rules for judging what is right and wrong. They may take
into account what pleases or helps friends or family, and strive to be seen as a ‘good person’ who
is not motivated simply by self-interest. Doing one’s duty, showing respect for authority and
maintaining the social order for its own sake may also be considered important when a person is
deciding how to behave. Suppose, for example, that you work in an organisation where employees
commonly take paid sick days even when they are not sick. The employees view these leave days
as something the organisation owes them. However, the relevant policy states that sick days are
allowed only for legitimate illnesses. If you worked in this organisation, you would have to rely
on your own individual perspective to decide how to behave. Would you stick to the
organisation’s formal rules and take time off only when you were really sick? Would you tell the
manager that you knew that some employees were abusing the sick-leave policy? Would you be
more interested in getting along with your fellow workers and helping everyone get as much time
off as possible? Or would you work to change the rule in a way that did no harm to either your
colleagues or to the organisation? For example, you could encourage your employer to specify the
number of days allowed off per year and allow employees to take these days for whatever reasons
they choose. How you would approach this hypothetical example reflects your individual values
and may reflect your general approach to resolving ethical dilemmas.
It must be noted that standards of ethical behaviour change over time as people become more
aware, and develop more confidence in their own safety and survival. We have shown that an
individual’s ethical judgements can be shaped by many forces, including the norms of society,
laws and an organisation’s culture. Values and beliefs are learnt in the culture of the country you
grew up in. You may not be aware how people from other countries’ culture differ until you get a
colleague that is from another country. The country where this colleague comes from will
determine her/his behaviour regarding sharing of information, how quickly a trusting relationship
can develop, how formal dress code will be and how conversations will take place in the
workplace.
Having explored an individual’s ethical judgements, let us now look at what is regarded as
ethical behaviour in organisations.

4.4 Approaches to making ethical judgements

Three models have been identified to address the dilemma in making ethical judgements and to
describe the ethical frameworks used in organisations.36 Each of the models discussed provides a
different but somewhat related set of principles or standards for judging whether managerial and
employee decisions and behaviour are right or wrong.

4.4.1 The utilitarian model

The utilitarian model focuses on actions (behaviour) and not on the motives for such actions.37
According to this model, when choosing between two courses of action, the chosen course should
be the one that benefits the greatest number of people, although this benefit may come at the
expense of a few people or those with little power. In other words, this alternative may help some
individuals, but harm others. As long as potentially positive results outweigh potentially negative
ones, the decision maker considers the decision to be both good and ethical.
In the South African economic system, the principles of capitalism have generally defined the
social contract that governs business decisions. In a capitalistic system, organisations’ main
purpose is shareholders’ profit maximisation and protecting their long-term interests. The well-
known Nobel Prize-winning economist Milton Friedman is probably the best supporter of this
approach.38Friedman advocates that if organisations do not utilise their resources optimally to
maximise shareholder interests, it is the same as stealing money from them. According to
Friedman, a manager should contemplate the after-effects of his/her actions and let this guide
them to whether a managerial decision is right or wrong. The utilitarian model drives
organisations to assess constantly how activities – even so-called charitable contributions – are
related to business performance.
According to the utilitarian model, all employees should strive to use the organisation’s
resources to increase its profits and engage in activities designed to do so, while performing
within the ‘rules of the game’.39 The utilitarian model specifies ethical norms for both managers
and employees in terms of organisational goals, efficiency and conflicts of interest.40 These three
areas will be elaborated on below.

4.4.1.1 Achieving organisational goals

Employing the utilitarian approach in a competitive market system entails maximising profits or
surpluses for the greatest good for the greatest number of people. High profits are associated with
providing high-quality products at the lowest prices for consumers. Profits are regarded as the
compensation for satisfying consumers. If profits get too high, new competitors will enter the
market, thereby increasing the supply of high-quality goods and pushing prices down. According
to Friedman, no organisation should unilaterally go beyond what the law requires, for the sake of
helping preserve the environment, for example. Doing so would only reduce that organisation’s
profits and would do nothing to eliminate the pollution caused by its competitors. They would
obtain a greater share of the market and profits because of lower costs and thus lower prices.
Friedman contends that the government is responsible for protecting the environment, and should
pass environmental laws and regulations that apply to business.

4.4.1.2 Efficiency
It is the duty of both managers and employees to attain organisational goals, as efficiently as
possible. Efficiency is accomplished by simultaneously minimising inputs (for example, labour,
land and capital) and maximising quantity of products produced and sold or quality of service
rendered. For example, if technologies are available that allow an organisation to produce goods
or deliver services at a lower cost, the organisation should use them. It should do so regardless of
the consequences in terms of layoffs, retraining costs or redeploying production facilities abroad
to use cheaper labour and lower labour costs or having less business regulations to adhere to.

4.4.1.3 Conflicts of interest

Managers and employees should both align their personal interests with the organisation’s
goals, to eliminate any possible conflict of interest. For example, if an employed estate agent is
approached by a seller to sell their property but the estate agent is also in the market to buy a
property, the agent may face a potential conflict of interest and be tempted to not put the property
on the books but rather try to negotiate a good price for his/her own gain. In this case, the estate
agency might lose profits if the agent does not buy the property via the agency.
It is not always easy to determine conflicts of interest. Managers may claim that they are able
to exercise their professional judgement objectively and resist any temptation arising from a
personal interest in an issue.
The utilitarian model is consistent with strong values of individualism, acceptance of
uncertainty and masculinity that will be further explained in Chapter 5. These values support
profit maximisation, self-interest, rewards based on abilities and achievements, sacrifice and hard
work, and competition.41 Many economists espouse the utilitarian model, but it receives less
support from the general public. Over the years, utilitarian ethics have been increasingly
challenged by the moral rights and justice models.

4.4.2 The moral rights model

The moral rights model holds that decisions should be consistent with fundamental rights and
privileges (for example, life, freedom, health, privacy and property), as set forth in documents
such as the South African Constitution and the United Nations’ Declaration of Human Rights.42
The basis of the moral rights model is respect for other people. Morality is supported by
logical, factual and consistent reasoning. The moral rights and privileges as indicated in the South
African Constitution are discussed in more detail.

4.4.2.1 Life and safety

Employees, customers and the general public have the right not to have their lives and safety
jeopardised. In South Africa, many laws require organisations to comply with society’s view of
appropriate standards for quality of life and safety. In South Africa, this moral right in large part
justifies the Occupational Health and Safety Act, which contains many requirements designed to
increase the safety of work environments. Apart from legal requirements, there is also a voluntary
dimension. A moral rights perspective would suggest, for example, that very successful, profitable
organisations should distribute their wealth more evenly to ensure that all employees involved in
their organisation can afford decent housing.

4.4.2.2 Truthfulness
Employees, customers and the general public have the right to be informed about important
product or service matters that could influence their safety. Products and services offered by
organisations should indicate potential harm or influence to the user or consumer thereof. Various
medical legislation requires pharmaceutical organisations to clearly state the impact and influence
of using particular medication.

4.4.2.3 Privacy
The general public has the right to protection of their personal information and to not have it
distributed to government agencies, employers and others. With the availability of an array of new
information technologies, enormous concern has been expressed about invasions of privacy at the
societal, legal, organisational and individual levels. Social networking sites are problematic as
security and privacy issues result from the vast amount of information these sites process daily.
Often sites that invite users to participate via open platforms or to share photos can gain access to
the user’s private information. Facebook was criticised due to the perceived lack of attention to
privacy in the default setting for users.43 A few of these privacy issues include drug testing,
honesty testing, confidentiality of medical and psychological counselling records, managerial
monitoring of e-mail and work performed on computers, and access to credit records. An example
of South African legislation dealing with the matter of privacy is the Protection of Personal
Information (POPI) Act No. 4 of 2013 that will be further explained in Chapter 13.

4.4.2.4 Freedom of conscience and speech

Often, speech is a vehicle for expressing matters of conscience, so freedom of speech is
closely related to freedom of conscience. Thus, employed individuals have the right to refuse to
carry out orders that violate their moral or religious beliefs. They also have the right to criticise
the ethics or legality of their employers’ actions, so long as the criticisms are truthful and do not
violate the rights of others within or outside the organisation.
The freedom of both speech and conscience has become the focus of further attention since the
emergence of the internet. Should executives at Yahoo! accept advertisements from organisations
engaged in pornographic activity, for example? Advertisements for pornographic products and
services have long been banned from broadcasts of the SABC, but the culture of the internet
supports free speech. While allowing such advertising may be consistent with the principles of
free speech for advertisers, parents whose children are exposed to pornography on the Web
express other concerns. Knowing of these concerns, a manufacturer of snacks, for example, who
knows its logo might appear next to a pornography advertisement, needs to think carefully about
whether to advertise on that internet site.
As a guide to ethical decision making in organisations, the moral rights approach serves as an
effective counterweight that protects the non-business sectors of society from overenthusiastic
capitalists strictly following the utilitarian approach. However, as a guide to ethical behaviour in
organisations, the moral rights approach says more about what organisations should not do – to
include infringing the moral rights of employees, customers and the general public – than about
what it should do. The justice approach provides more guidance in this regard.

4.4.3 The justice model

The justice model assesses decisions and behaviour with regard to how equitably they share
benefits and costs among individuals and groups.44 Basically this model suggests that people
should appreciate the viewpoints of other people. The supporters of this model suggest that when
designing management systems and making organisational decisions that are just and fair, it must
be based on the following three principles, namely distributive justice, fairness and natural duty.
4.4.3.1 Distributive justice principle
The distributive justice principle requires that individuals be treated on the same basis and not
be discriminated against in any way. This principle holds that:
• Individuals who are similar in relevant respects should be treated similarly
• Individuals who differ in relevant respects should be treated differently in proportion to the
differences between them.

The South African Employment Equity Act of 1998 forbids employers to discriminate between
employees on the basis of race, gender, sex, pregnancy, marital status, family responsibility,
ethnic or social origin, sexual orientation, age, disability, HIV status, religion, conscious belief,
political opinion, culture, language or birth.
Perceptions about what constitutes distributive justice also influence concerns about the
difference between the salaries and benefits of senior staff such as CEOs and other employees in
the organisation. For example, should the average daily salary and benefits for the CEOs be more
than most workers make in an entire year? Is it fair for the average CEO’s pay to be rising at a rate
that is six or seven times the rate of increase for other workers? According to the distributive
justice principle, these rates of increase are ethical only if the contributions of a CEO are
proportionately greater and if the value of the contributions has been increasing at a much faster
rate than those of the average worker.45

4.4.3.2 Fairness principle

The fairness principle requires employees to obey the organisational directives when two
conditions are met:
• The organisation is just (or fair)
• Employees have chosen to accept benefits provided by the organisation or have utilised
opportunities offered in order to further their own interests.46

Employees are then expected to follow the organisation’s rules, even though those rules might
restrict their individual choices. If a job applicant was informed that accepting a job offer would
later involve being subjected to random drug testing and continuous video monitoring, the
organisation could expect the employee to accept these conditions of employment. Under the
fairness principle, both the organisation and its employees have obligations, and both should
accept their responsibilities. Their mutual obligations can be considered fair if they satisfy the
following criteria:
• They result from voluntary acts whereby employees are not compelled to work for a particular
organisation and employers cannot be obliged to employ a specific individual
• They are spelt out in clearly stated rules which specify the expectations of both employees and
the organisation
• They are owed between individuals who are co-operating for mutual benefit such as when
employees and managers share a common interest in the survival of the organisation.47

Perceptions of fairness often reflect people’s reactions to the procedures used to resolve problems.
Acceptable processes lead to perceived procedural justice. However, formal grievance procedures
may not be effective mechanisms for resolving workplace disputes when the outcome is
unsuccessful as the employee may become more committed to the course and even invest
additional resources in it to take the matter further.48
4.4.3.3 Natural duty principle
The natural duty principles necessitate that decisions and behaviour are associated with the
following universal principles related to being a responsible person:
• To help those in need or in trouble provided that the assistance provided is without undue
personal risk or loss
• Not to cause harm or hurt another person
• Not to cause undeserved distress
• To support ethical institutions.

One way to think of a natural duty is as a responsibility that is accepted in exchange for certain
rights. If you have a right to safety, as suggested by the moral-rights model, this right can best be
assured if members of society also agree that they have a duty not to harm others. Thus the natural
duty principle complements the moral rights model.

4.4.4 Combining ethical approaches

Each of the three ethical models discussed – the utilitarian approach, the moral rights approach
and the justice approach – has strengths and weaknesses. Utilitarian views are most consistent
with the goals of efficiency, productivity and profit maximisation, which are all strong managerial
values in South Africa. Managers in many South African organisations value the utilitarian ethical
model highly. In contrast, the moral rights and justice models emphasise individual rights and
obligations, and the need to distribute benefits and burdens fairly among individuals. These
models give greater weight to the long-term welfare of employees than to short-term
organisational efficiency.
Using these three models in combination increases the probability that decisions and
behaviour will be judged as ethical by others. Many changes in organisational practices reflect
solutions that were developed by managers who accepted the utilitarian model, but also believed
that doing what was right was one way for the organisation to do well. An organisation that adopts
pollution-prevention technologies that exceed government requirements is an example of this
approach. Such an organisation, while recognising the importance of profit maximisation, realises
that protecting the environment is vitally important for profitability in the long term.

4.5 Managing corporate social responsibility

Some organisations focus on maximising profit and return on investment, without worrying about
how the profit is made. They are not concerned about the social effects of their business activities.
Ethical organisations, on the other hand, focus on maximising profit and return on investment
while minimising or avoiding negative social effects. An example of a business activity that is
concerned only with maximising profits is the recent attempt by companies such as Royal Dutch
Shell and Falcon Oil & Gas to begin extracting natural gas from the Karoo using a mining process
called fracking. The groundwater in areas where this process is used becomes contaminated with
toxic chemicals that poison people and animals. This has a devastating effect on the well-being
and livelihoods of local communities. These concerns have been raised by stakeholders, but the
companies involved refuted their claims.

Today, people are much more informed about issues that may have an impact on them and
their lives than they were some years ago. This is largely as a result of the internet, which permits
easy dissemination of information. Public opinion is greatly affected by the internet, causing
changes in public expectations and standards. Business leaders have acknowledged that
organisations with a social responsibility should pay attention to public opinion. As such, leaders
and managers should make decisions by considering the interests of their stakeholders who are
affected by their decisions when organising their activities. Activities that may prompt stakeholder
concerns include business closures, employee relations, human rights, community relations and
environmental concerns.
In the next section, we will consider who can be regarded as a stakeholder and look at some of
the kinds of concerns that stakeholders have.

4.5.1 Stakeholders
Specific stakeholder groups such as customers, suppliers, employees and strategic partners share
the same interests and entitlements. The actions or activities of organisations determine what each
stakeholder group can lose or gain. For this reason, the general well-being and effectiveness of
these stakeholder groups must be maintained. The organisation will be negatively influenced if
one or more of the stakeholder groups discontinue their relationship with the organisation.
For any particular organisation, some stakeholder groups may be relatively more important
than others. The primary stakeholders are the most important group as their concerns influence the
survival of the organisation. In general, the primary stakeholders for most South African
organisations include: employees, customers, government regulators and society or the local
community. Secondary stakeholders such as public opinion leaders, political action groups and the
media are also important but not to the same extent as primary stakeholders. Their actions can
harm but not lead to the closure of the organisation.49
Figure 4.2 identifies the many stakeholders that may have an interest in a particular
organisation but no distinction is made between primary and secondary stakeholders. The reason
is that the importance of each stakeholder group varies from one organisation to the next. Using a
stakeholder approach to organisational decision-making helps to link individual, organisational
and societal interests.

Figure 4.2 Stakeholders of an organisation

4.5.2 Stakeholder concerns
Each group of stakeholders has somewhat different concerns. That is, each has specific issues or
organisational activities they care more about or are less concerned about.

4.5.2.1 Customers
Many organisations advocate that they regard the concerns of their customers or clients as the
most important. For South African organisations, customer related concerns are often associated
with cost savings or product or service quality improvements. Managers have introduced total
quality management (TQM) systems, as discussed in Chapters 3 and 15, for both external
customers who purchase the product or service and internal customers in other departments. These
programmes extend to the entire organisation, and frequently involve both suppliers and
customers.

Although most organisations want to please their customers, pressure to improve profits,
surpluses and service delivery and be responsive to shareholders and stakeholders may mean that
customers’ concerns are temporarily forgotten. Understandably, consumers in general expect
organisations to maintain high standards of conduct, and may use boycotts to punish those that fail
to do so. Some consumers make a concerted effort to buy products and services only from
organisations that have an excellent ethical reputation and behave in a socially responsible
manner. Many consumers of Johnson & Johnson’s health and beauty products, for example, feel
more comfortable in using their products as this organisation claims they believe they are
responsible to the doctors, nurses and patients, mothers and fathers, and all other people that use
their products and services.50 If Johnson & Johnson ever acted contrary to its socially responsible
approach to business, the organisation might lose many of its socially aware customers.

4.5.2.2 Employees
Many of the concerns that employees have today reflect changes in the structure of
organisations and the fact that work is a major activity in their lives. Nedbank believe in
committed empowered employees by offering them development, support, mentoring, coaching,
by valuing diversity, recognising achievements and rewarding them accordingly. Pick n Pay foster
employee personal growth and provide them with opportunities, nurture leadership, and reward
innovation.51
Remuneration is another area of concern to employees. The most important work issue concerns
for employees are to receive equal pay for equal work and other workplace benefits such as an
affordable medical aid, paid sick leave, guaranteed pension and retirement benefits. However they
go about it, progressive organisations understand that meeting such concerns is a responsibility
they should take seriously.

Paying attention to the concerns of employees is good for business as well. Pick n Pay was
among the pioneers of the now widely held view that shared ownership by all staff members
engenders a mutually beneficial loyalty between employees and the organisation. The Pick n Pay
Employee Share Incentive Scheme makes it possible for employees to buy shares in the
organisation and to share in the wealth it creates, a true win–win situation.52
It is now readily accepted that satisfied customers are loyal customers, and that loyal
customers are usually more profitable customers. It is also readily accepted that having satisfied
customers depends on an organisation having satisfied employees. Conversely, when customers
are happy, employees feel a sense of pride and satisfaction at being part of the organisation. Thus
it is not surprising that, increasingly, investors want to know that an organisation treats its
employees well!
Employee-friendly organisations also have a competitive advantage in attracting the highly
skilled workers they need. After being on the job for a while, employees who are satisfied with
how they are treated are willing to do a little extra for the organisation. Managing employees well
can also benefit shareholders and stakeholders in other ways. Research suggests that good
economic performance goes hand in hand with being environmentally responsible. Studies such as
these support the idea that economic concerns need not be divorced from ethical concerns.
Behaving ethically can be profitable.53

4.5.2.3 Society
As part of their corporate social investment programmes, many South African organisations
have taken it upon themselves to invest in areas that could rightfully be said to be the
responsibility of government. The private sector recognises, however, that the government has
such a backlog to make up that it is not always able to do everything. Investment in education
seems to be the priority for many South African organisations, but not exclusively so. The South
African mining industry is much in the news and more so for cutting jobs. Anglo American
Platinum, Harmony Gold and Lonmin Mines were amongst those in the news with proposed
restructuring. The mine companies blamed falling metal prices and increases in power and labour
costs as the most important reasons together with loss of business confidence in South Africa with
decreasing product demand from India and China. The employees were shocked as unemployment
figures in South Africa are high and it is already difficult to find a job. The National Union of
Mineworkers are trying to intervene and convince the mines to rethink their proposed
restructuring and save some jobs. However, in 2016, it was predicted that a further 30 000 to 50
000 workers in the mining industry could lose their jobs.54
Conversely, the Anglo American Corporation has, since the earliest days, recognised that
community development is part of its responsibility as an employer and good corporate citizen.
The Anglo American Chairman’s Fund, which dates back to the early 1970s, exists to help secure
real and lasting improvement in the well-being of the wider community, addressing poverty and
promoting opportunities. Successful projects need to be rooted in the communities they serve,
providing practical interventions of a scale and at a pace that the beneficiaries can absorb and
utilise. According to the 2014 Anglo American Chairman’s Fund Report, the organisation
dedicates 60% of their Corporate Social Investment (CSI) budget to charitable educational
community projects such as the Rural School Programme in Limpopo, Ratanang special school
hostel at Senwarvwana in Blouberg for children with special needs, Grootpan community créche
fitted with a borehole, septic tank, furniture and playground facilities, and infrastructure to 11
schools in Musina and Blouberg areas. 55

4.5.2.4 Owners and shareholders

In the case of organisations such as public schools, not-for-profit and government organisations,
the concerns of owners are often in essence those of society at large. On the other hand, the
concerns of shareholders (owners of privately owned companies and publicly owned companies
who trade with shares on the JSE), may be very different from those of society in general.
 Most shareholders invest their money in organisations to preserve it for later use or for
financial reasons such as to receive dividends as financial benefits. During the past decade, the
majority of publicly traded shares has moved from the hands of individual investors to
institutional investors such as unit trust organisations who trade on behalf of individuals.56
Because the job of institutional investors is to make money by choosing which organisations to
invest in, their perspective on corporate issues is to make profit generation the organisation’s top
priority. As professional investors, these shareholders have considerable power to influence
management’s decisions.
Clearly, the primary concerns of the stakeholder groups differ somewhat. So too do their
views about the appropriate role of business in society. Some managers are of the opinion that it
does not make sense for organisations to engage in social responsibility projects because it put
strain on the organisation and its competitiveness. Other managers differ from this viewpoint that
making money is the only role of organisations, as socially responsible companies are perceived
as very attractive to many prospective employees.57 Such differences in perspectives make
managing organisations a challenge.

Conflict and shared interests are common amongst stakeholders. Effective managers determine the
interests of key stakeholders, and use their competencies to find feasible solutions that address
each stakeholder’s specific concerns.

When making decisions and implementing organisational changes to improve sales or profits,
managers must take into account the effects of the changes on employees, customers, the
community, shareholders and other relevant stakeholders. Paying attention exclusively to
profitability is a mistake that only the inexperienced are likely to make. Shareholders’ and
employees’ interests often seem to conflict, especially over restructuring and downsizing.
Decisions to reduce management levels or sell a poorly performing organisational division are
usually aimed at improving efficiency and profitability so to satisfy shareholders. The reason why
employees are made redundant is often because of organisational survival. However, when
employees are owners themselves, they may put more effort into finding a solution to retain
employees while also meeting the organisation’s financial goals. Employees, on the other hand,
may have to recognise the importance of improving productivity in order to retain their
employment. Employees also need to recognise that their own long-term employment depends on
the ability of their organisation – and even an entire industry – to satisfy the concerns of the
communities, especially customers, affected by their business.

4.5.3 Managing sustainability

As mentioned at the beginning of this chapter, conducting business in a way that protects the
natural and considers the social environment while making economic progress is referred to
assustainable development.58 According to Alan Chapman, the four cornerstones of sustainable
development in any modern business venture are Purpose, People, Planet and Probity (having
strong moral principles). An organisation should try to reconcile its organisational purpose (profit
for shareholders or cost-effective service delivery) with the needs and feelings of people
(employees, customers, suppliers and local communities) with consideration for our planet
(wildlife, natural resources or heritage) by acting with probity (integrity, compassion, honesty and
truth) at all times.59
It is all well and good for some organisations to have noble strategies relating to social investment
and environmental responsibility that they can publicise selectively for public-relations purposes.
However, if a dent is going to be made in the increasing levels of poverty and environmental
degradation that are observable globally, all organisations must be obliged to be accountable for
the social and environmental impact of their business activities. One of the focal points of the
King IV Report in South Africa is the move away from single accountability to triple bottom line
accountability. The King IV report requires all listed companies, public-sector enterprises and
financial institutions to conform to the concept of the triple bottom line, which involves disclosing
their social and environmental performance alongside their financial results. “The approach aims
at achieving a balance between the needs of organisational prosperity, the human needs associated
with the organisation’s purpose and the needs of the environment – the people, planet and profit
triad.”60 This aligns with the South African Insight example Woolworths’ approach of taking the
Three Ps (People, Planet and Prosperity) into consideration. It implies responsible development
that meets the needs of the present without compromising the ability of future generations to meet
their own needs, engenders good corporate citizenship and improves an organisation’s risk-
management practices, thus improving the organisation’s chances of sustainable development.61

While financial reports, by their nature, are primarily historical and focus on a particular point
in time to comply with the requirements of triple bottom line reporting, organisations are obliged
to take both a current snapshot and a forward-thinking view of the organisation’s safety, health,
environmental (SHE) and ethical practices. Threats to the longevity of the organisation can thus
be more easily identified and factored into the organisation’s planning. The statistics on the
prevalence of HIV/Aids in southern Africa, for instance, show that, with the current infection rate,
the size and nature of regional markets are about to undergo significant change.62 A
comprehensive SHE reporting strategy will enable an organisation to evaluate and plan
appropriately for this eventuality.
In addition to the governance guidelines outlined in the King III Report, the King IV Report
introduces the following concepts or topics:
• Outcomes based governance by placing accountability on the governing body
• Apply and explain approach to disclosure of publically available information
• 16 principles applicable to all organisations in 208 recommended practices and a 17th principle
applicable to institutional investors, as well as provision of a sectors supplement to guide
different types of organisations.63
For many industries, being profitable while addressing society’s need for a healthy environment
has been a difficult challenge. For those that depend on the environment to sustain their
organisations, meeting this challenge is a strategic imperative. Forestry in South Africa is labour
intensive, with an estimated 62 700 people employed directly in the industry and a further 103 200
people employed indirectly. More importantly, this economic activity takes place in impoverished
rural areas where it plays a crucial role in economic upliftment and acts as a catalyst for rural
development. The industry also contributes significantly to the country’s foreign exchange
earnings. In 2012, it had a net positive trade balance of R2.2 billion, with R13.8-billion worth of
forestry products exported as opposed to R11.6-billion worth imported.64 Notwithstanding this
significant contribution to the South African economy, the forestry industry has long been an
obvious target for attack by environmental pressure groups protesting against regimented rows of
trees, the fact that forests are exotic rather than indigenous, and the chimneys of the wood mills
belching noxious smoke. The solution to this dilemma has been to create a vibrant forestry
industry while managing its environmental impact.
 There are international standards for environment management in addition to local laws and
regulations that govern business actions related to pollution and the use of natural resources.
These include amongst others the European Union’s Eco-Management and Audit Scheme
(EMAS) and the International Organisation for Standardisation’s ISO 14000 standards which are
designed to provide environmental management guidance to multi-national businesses. By
meeting the ISO 14000 standards, organisations can certify that they have developed responsible
environmental policies.65 Such certification may, in turn, be used by local community decision
makers when deciding whether to permit a business to operate in the area. With reference to the
forestry example given above, 70% of South Africa’s total forest landholding has been
environmentally certified (ISO 14001) to the standard of the International Forest Stewardship
Council.
Increasingly, environmental issues affect managerial decisions and behaviour. La Motte was
one of the first wine estates to be awarded the coveted ISO 14001 Environmental Management
Certification. The estate also complies with ISO 9000:2000 Certification, is a member of the
Green Mountain Eco Route in the Groenlandberg area, and has received Champion status of the
Biodiversity & Wine Initiative. La Motte is committed to the principles and practices of
excellence in wine production and environmental sustainability, and has received the Woolworths
Eco-Efficiency Award in recognition of its commitment towards environmental sustainability, as
well as certification in respect of the Woolworths Farming for the Future initiative, which
addresses sustainable practices on Woolworths-supplier farms and at wineries.66
Ab-InBev, a multi-national beverage and brewing company, highlights five shared imperatives
to tackle the five most material issues that their business shares with society:67

• “We will accelerate growth and social development through our value chains
• We will endeavour to make beer the natural choice for the moderate and responsible drinker
• We will secure shared water resources for our business and local communities
• We will create value through reducing waste
• We will support responsible, sustainable use of land for brewing crops.”

An interesting example is research conducted for Woolworths in 2013 on the lifecycle of a

t-shirt by the Wildlife World Fund-SA and The Greenhouse. The main purpose of the research
was to determine how the lifecycle of a t-shirt is influenced by using different raw materials to
reduce their environmental impact of textiles. All stages in the lifecycle of a Woolworths fashion
t-shirt were considered from extraction of raw materials to discarding the t-shirt. The
environmental impact from the extraction of three different types of material, cotton, polyester
and cellulosic fibres (viscose) were researched and no best overall solution addressing all
environmental concerns could be identified. Although the polyester t-shirt had a higher carbon
footprint than cotton and the highest consumption of non-renewable resources, it was made of
recyclable materials which are regarded as more durable, and guarantees a longer garment
lifespan. With regards to the washing, drying and ironing of the t-shirt, the study found that it
contributes between 18 to 23% of the overall carbon footprint of the t-shirt. However, if customers
use lower washing temperatures, the overall lower carbon footprint of the t-shirt can be reduced.
Woolworths is dedicated to using these findings to source an environmentally friendly textile for
the t-shirt. They do so, not to only avoid an environmental problem, but to not cause another
unanticipated environmental problem.68
The environment is only one of several issues that concern communities. Many also expect
organisations to contribute to a community’s quality of life in other ways. Charitable contributions
are one way that corporations can respond to this concern. One school of thought maintains that
being able to give back to the community is one of the few reasons to bother making a profit.
Woolworths South Africa is an employer to many people. They employ more than 25 500 people
directly. Their supply chain supports more than double that many people and they have a Level 3
Broad-Based Black Economic Empowerment (BBBEE) status. In 2014, they donated through
their EduPlant, Making the Difference and MySchool almost R518 million to multiple charity
organisations to show their commitment to food security and education programmes. They also
engage in cause-related marketing initiatives by donating excess clothing to organisations such as
the Clothing Bank, and so improve their communities’ quality of life. Their actions cause a chain
reaction as it enables the Clothing Bank to also improve their communities’ quality of life as
unemployed community members receive business skills training and assistance to start a clothing
business.69

Table 4.2 provides some examples of stakeholders’ concerns when evaluating corporate
performance. The 2013 Global Reporting Initiative report indicates that the leading countries in
integrated triple bottom line reporting is South Africa, the Netherlands, Brazil, Australia and
Finland.70 King IV recommended that affected organisations report annually on the nature and
extent of their social transformation as well as on their ethics, safety, health and environmental
practices.

Table 4.2 Stakeholders’ concerns when evaluating corporate performance

Group Examples of concerns

Owners and investors Financial soundness

• Consistency in meeting shareholders’ expectations
• Sustained profitability
• Average return on assets over five-year period
• Timely and accurate disclosure of financial information

Customers Product or service quality, innovativeness and availability

Responsible management of defective or harmful products or services
• Safety records for products or services
• Pricing policies and practices
• Honest, accurate and responsible advertising

Employees Non-discriminatory, merit-based hiring and promotion

• Diversity of the workforce
• Wage and salary levels, and equitable distribution
• Availability of training and development
• Workplace safety and privacy

Community Environmental issues

• Environmental sensitivity in packaging and product design
• Recycling efforts and use of recycled materials
• Pollution prevention
• Global application of environmental standards
• Community involvement
 Percentage of profits designated for charitable contributions
• Innovation and creativity in philanthropic efforts
• Product donations
Availability of facilities and other assets for community use
• Support for employee volunteer efforts

4.6 Management tools for encouraging ethical conduct

Unethical conduct will never be eliminated, but there are ways to reduce it. At the personal level,
employees who find themselves in a position of knowing about unethical behaviour must decide
what to do about it. At the organisational level, managers can implement a variety of
organisational practices to support ethical conduct.

4.6.1 Code of ethics / Code of conduct

A code of ethics or a code of conduct is a formal statement of an organisation’s principles
concerning ethics and social values. The code of ethics firstly outlines what the organisation
aspires to. It then indicates the values of the organisation, which in turn are translated into the
expected behaviour of employees and managers in the organisation. Examples of organisational
values can include quality of products, treatment of employees and the responsibility of the
organisation towards stakeholders.71 The motivation for adopting a code of ethics could be to
ensure legal compliance. Involvement of all employees in the drafting of a code of ethics is
desirable. The code of ethics of the SPAR Group Ltd applies to all employees and directors of the
organisation. It states clearly that no director, officer or employee may deal directly or indirectly
in SPAR shares.72

The Retail Motor Industry Organisation (RMI) has members throughout the entire sector and
grades them according to very strict criteria. These members have to adhere to the following code
of conduct73:
• Provide products and services at a fair and reasonable price
• Honour both the letter and the spirit of any guarantee or warranty accompanying the sale of
those products and services.

This means that if you buy a motor car from a Volkswagen dealer who is a member of the RMI,
you can report the dealer to the RMI if management at the dealership does not respond to your
complaints. The RMI has a dispute-resolution procedure in place should you not be happy with
the product or service received and will see to settling the complaint.
As can be seen in the two examples of the SPAR Group Ltd and RMI, a code of ethics makes
employees aware of ethical considerations and minimises the chances of unethical behaviour
occurring in the organisation. Implementing a code of ethics requires open communication and
trust between management and employees. It must be noted that South African organisations
listed on the JSE are required to comply with the Code of Corporate Practices and Conduct. This
code outlines the responsibilities of boards and directors, and moves towards the triple bottom
line, which refers to disclosure about the economic, social and environmental activities of the
organisation.

4.6.2 Ethics committee

An ethics committee consists of a group of employees who oversee all aspects in the organisation
that are related to ethics. It is led by a chief ethics officer.74 The role of the ethics committee is to:75
• Oversee the development and operation of the ethics management programme
• Discipline employees who behave unethically
• Advise management on ethical and legal compliance
• Conduct ethical audits to identify unethical behaviour
• Offer orientation in ethical training to new employees
• Offer refresher ethical training to all employees annually.

If an organisation does not have an ethics committee, it should at least appoint an ethics officer to
oversee ethical practices in the workplace. The ethics officer will assume the same duties as the
ethical committee and must be independent of any department in the organisation.

4.6.3 Ethics training

Organisations must take care that their values and special needs are built into the ethics
training programme. Corporate scandals involving unethical practices in the press have
emphasised the need for ethics training in the workplace. Ethics training is not a once-off exercise.
All employees need to be reminded, on a continuous basis, of what is regarded as acceptable and
unacceptable behaviour in the organisation. The content of ethics training should focus on how to
approach sensitive ethical issues when dealing with different cultures, and engage in ethical
reasoning. In other words, the training programmes must teach the employees how to think
ethically. The purpose of ethics training is not just to develop an awareness and sensitivity to
ethical issues, but also to ensure the alignment of organisational behaviour with ethical decision-
making. Even simply having regular ethics meetings where employees can share ethical problem
areas can contribute towards creating an ethical environment in the workplace. At these meetings,
employees can provide valuable input in reviewing the code of ethics.
The SPAR group is an example of an organisation that takes ethics training seriously. All new
staff members at the SPAR group receive training on the code of conduct during their induction.76
The values of the organisation’s code of ethics are instilled in employees by means of ongoing
communication and training.
In most instances, the human resource function of the organisation is responsible for
monitoring the organisation’s compliance with the code of ethics.

4.6.4 Whistle-blowing
A whistle-blower is an employee who reports unethical or illegal actions by his or her employer
to other people or organisations that are capable of taking corrective action. If you knew that a co-
worker was behaving illegally or unethically, would you report it to someone? If so, to whom
would you report it? Would you go to someone inside the organisation, or a person or organisation
on the outside?

Research has shown that whistle-blowers are not very different from other employees. They do
not seem to be at a higher stage of moral development, nor are they more or less loyal to the
organisation than their peers. Instead, they tend to be people who happen to know about
wrongdoing and believe that they can do something to stop it.77
 Encouraging people to blow the whistle does not always make sense. When you see
wrongdoing, your goal should be to find a way to stop it. Simply confronting the person involved
may be all that you need to do. Whistle-blowing is a step that you should take only after making
other less drastic efforts to change the situation. In other words, only blow the whistle as a last
resort, when you are likely to achieve a useful outcome and with full awareness of the possible
consequences to yourself. Table 4.3 lists some of the questions to ask yourself if you are
considering blowing the whistle.
If your answers to the questions in Table 4.3 indicate that your whistle-blowing is not likely to
stop the wrongdoing, you should consider other courses of action. You might try to persuade other
employees to act with you. It is more difficult to ignore or fire a group of employees who report
wrongdoing than it is to take action against one person. Another alternative is to consider leaving
the organisation. This action may not stop the wrongdoing, but at least it will ensure that you do
not get caught up in the situation and possibly end up being drawn into the wrongdoing yourself.

Table 4.3 Questions to ask yourself if you are thinking about blowing the whistle*

Do the characteristics on the right • Do you have credibility with middle and upper managers in
describe you, the whistle-blower? the organisation?
• Do you have power in the organisation (professional status,
long tenure or control over resources)?
• Are you willing to identify yourself?
• Are you prepared to leave the organisation if that becomes
necessary?

Do the characteristics on the right • Does the person have credibility?

describe the person to whom you • Is the person powerful?
plan to report the wrongdoing? • Is the person supportive of you?

Do the characteristics on the right • Is the person’s credibility questionable?

describe the person being accused of • Does the organisation depend on the wrongdoing to achieve
wrongdoing? its goals? (If yes, then it would be more effective to report the
wrongdoing to an external source instead of an internal
source)

Do the characteristics on the right • Do you have written documents?

describe the evidence you have? • Does your evidence come from more than one source?
• Is the evidence unambiguous?
• Do you have evidence of illegal behaviour?

Do the characteristics on the right • Is reporting the wrongdoing related to doing a normal part of
describe the organisational context? your job?
• Does the organisation have a strong ethical culture and clear
rules for how wrongdoing will be treated?
• Do you feel you can trust your superiors not to retaliate
against you?

* The more times your answer is ‘Yes’, the more likely it is that your whistle-blowing efforts will be
effective.

Source: Adapted from NEAR, J.P. & MICELI, M.P. 1996. Whistle-blowing: Myth and reality. Journal of
Management, 22, 507–526; NEAR, J.P. & MICELI, M.P. 1995. Effective whistle-blowing. Academy of
Management Review, 20, 679–708; and MICELI, M.P. & NEAR, J.P. 1992. Blowing the whistle: The
organisational and legal implications for companies and their employees. New York: Lexington Books, p.
48.

In addition to considering whether they will be effective whistle-blowers, employees often

consider whether they are likely to experience retaliation for blowing the whistle.78 Fear of
retaliation is a reasonable concern.
This indicates that fear of retaliation may be a reason why many employees simply look the
other way when witnessing unethical or illegal actions. In particular, retaliation against whistle-
blowers is likely to occur under the following circumstances:
• The allegation of wrongdoing has little merit. Accusations of wrongdoing can be very harmful
to both the individuals who are accused and the organisation. People who make accusations
without much convincing evidence may be destructive instead of helpful.
• The accusations are made to someone externally not employed by the organisation. If the
whistle-blower does not make accusations to someone within the organisation before making
those accusations public, the organisation has no opportunity to address the problem before it
becomes the object of public scrutiny.
• The whistle-blower has little support from top management or middle management. Having
the support of someone in management often means that the whistle-blower has a powerful
ally who can help protect him or her from retaliation, for example, by offering advice about
how to go about disclosing the wrongdoing in a responsible way.

Globally, a large number of countries have passed legislation to protect whistle-blowers,

including Australia, New Zealand, the United Kingdom, South Africa, Japan, the Netherlands,
Ireland, Canada, India, Germany, Switzerland, and Belgium.79 Despite legislation there is no
guarantee that retaliation will not take place as there are potential gaps in the effectiveness and
implementation of the Protected Disclosure Act (No. 26 of 2000).
As Lala Camerer pointed out: “in South Africa, the Protected Disclosures Act (No. 26 of
2000) makes provision for procedures in terms of which employees in both the public and private
sector who disclose information of unlawful or corrupt conduct by their employers or fellow
employees are protected from occupational detriment. This law is therefore a crucial weapon in
the armour of anti-corruption efforts to encourage honest employees to report wrongdoing. As
such, this law should be welcomed as a crucial corporate governance tool to promote safe,
accountable and responsive work environments in both the public and private sector.”80
The issue of ethics and ethical behaviour in organisations is a complex problem. It is
complicated by individual perceptions and the challenging situations that arise from ethical
dilemmas. Ethics requires sound leadership, a supportive organisational culture and management
tools to encourage ethical behaviour in the workplace.

Chapter summary
Concerns about ethics in business are increasing. Managers and other employees can learn to
recognise ethical issues and deal with them effectively by understanding the forces that affect
ethical conduct and the different perspectives that can be used to make ethical judgements.
The four forces that influence a person’s ethical conduct are societal norms and culture, laws
and regulations, organisational practices and culture, and the individual’s own perspectives. All
four forces act together to influence ethical conduct. Societal norms and culture comprise shared
values that underlie standards for acceptable behaviour. Laws and regulations reflect societal
standards that are enforceable in the courts. Organisational practices and culture include both
formal policies, such as a code of ethics, and informal norms, for example, how managers define
acceptable employee performance. Finally, an individual’s own perspective on what is right and
wrong can influence how that person responds to the other three forces.
Managers and employees commonly rely on one of three ethical approaches and models (or
some combination of them) to guide decision-making and behaviour. The utilitarian model
focuses on decisions or behaviour that are likely to affect an organisation’s profitability. For
instance, profits indicate financial and economic performance for organisations listed on the JSE.
The moral rights model upholds a member of society’s fundamental rights to life and safety,
truthfulness, privacy, freedom of conscience, free speech and private property. The justice model
advocates impartial, equitable distribution of benefits and costs among individuals and groups,
according to the principles of distributive justice, fairness and natural duty.
The diverse values and ethical approaches prevalent in advanced economies introduce a great
deal of complexity for organisations that attempt to act in socially responsible ways. One
approach that an organisation can use to ensure that its activities are socially responsible is to
consider how these actions affect important stakeholders. Each group of stakeholders has different
concerns. Sometimes, these concerns conflict with each other. At other times, they mesh. Thus
finding solutions that address the concerns of multiple stakeholders becomes an important
strategic task.
Although unethical conduct will never be eliminated, at organisational level, managers can
implement a variety of organisational practices to support ethical conduct. They can adopt a code
of ethics to guide employee and organisational behaviour. An ethics committee could assist in
overseeing ethical practices and monitoring adherence to the code of ethics in the workplace. The
ethics committee is managed by the chief ethics officer. Ethical training is beneficial for both new
and existing employees, and should therefore take place on an annual basis. Ethics training could
ensure that organisational behaviour aligns with ethical values and should result in ethical
decision making. Another organisational practice to support ethical conduct in the workplace is
whistle-blowing. The goal of whistle-blowing is to stop illegal or unethical wrongdoing.
Organisations that seek to minimise wrongdoing should have procedures in place to encourage
whistle-blowers to take action and assure them that such action will not result in retaliation against
them.

Questions for discussion

1. Explain the principles of corporate citizenship.
2. Describe four forces that may influence your ethical behaviour.
3. Describe three approaches that people use when making ethical judgments.
4. Explain how an organisation by being socially responsible can increase their sustainability.
5. Explain how the concerns of stakeholders influence managers’ ethical decisions.
6. Describe how organisations can contribute to improving ethical conduct in the work setting.

Exercise for competency development

One way that organisations can contribute to the community is by encouraging employees to participate
in community activities. Pick n Pay is an example of an organisation that takes this approach. Investigate
the specific types of community activities that Pick n Pay supports. Does this organisation’s approach to
corporate responsibility represent a sincere concern about its role in society or are the motives behind the
company’s activities primarily commercial?
 To learn more about Pick n Pay’s involvement in community activities, take a look at its annual
report for 2014 at http://www.picknpayinvestor.co.za/downloads/2014/Pick_n_Pay_IAR_2014.pdf.

Contemporary management in practice

“Some key ethical issues facing contemporary society include how to provide welfare and charity
support to the poor, how to deal with addiction, whether to permit euthanasia, how to treat animals and
the environment and what stance to take on population control.”81 Organisations therefore cannot ignore
these issues as they are through membership (employees, shareholders, management, customers, etc.)
ethically obliged to act and react.
“Furthermore, government corruption and wealth disparity both remain perennial ethical issues.
Investigating the issue of supporting the poor, the debate is complicated by notions of the ‘deserving’
and ‘undeserving’ poor. The following are equally contentious issues with deep ethical implications:
• Abortion
• The intervention of the state in cases of unfit parenting
• Drug prohibition
• Public support (such as ‘bailing out’) of private organisations
• Free healthcare
• Immigration
• Differential treatment of ‘gifted’ children in schools
• Equal rights for homosexuals
• Freedom of speech
• Online privacy.”82

Investigate how South African organisations act or react in terms of the mentioned contemporary ethical
dilemmas impacting their stakeholders. Give real life examples.

Endnotes
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5 HOLME, L. & WATTS, R. 2000. Making good business sense. Geneva: World Business Council for
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6 POSNER, B.Z. & SCHMIDT, W.H. 1987. Ethics in American companies: A managerial perspective.
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8 SCHWARTZ, M.S. & WEBER, J. 2006. A Business Ethics National Index (BENI): Measuring
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9 DAFT, R.L. 2012. The new era of management. 2nd ed. China: Southern Western Publishers, p.150.
10 Ibid., pp. 151–152.
11 LEIPZIGER, D. 2003. The corporate responsibility code book. Ohio: Greenleaf Publishing Limited.
12 UNITED NATIONS DEPARTMENT OF ECONOMIC AND SOCIAL AFFAIRS. 2015. Transforming
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14 SUSTAINABLE DEVELOPMENT KNOWLEDGE PLATFORM. n.d. Transforming our world: the
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37 Ibid.
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225c935766af03e1
82 Ibid.
LEARNING OUTCOMES
After studying this chapter, you should be able to:
• Identify the main elements of the external environment
• Understand the role and impact of the macro-environment on organisational decision-making
• Understand the role and impact of the industry environment on organisational decision-making
• Identify the Five Forces that drive competition in any industry
• Use the Issues Priority Matrix to classify both identified opportunities and threats as either high priority,
medium priority or low priority
• As part of the internal environment, distinguish between resources and capabilities
• Distinguish between threshold, core and distinctive capabilities
• Explain why core capabilities need to be valuable, unique, difficult to copy and non-substitutable in order
to provide an organisation with a sustainable competitive advantage
• Apply the Relative Strength/Strategic Importance Matrix to identify the key strengths and key
weaknesses of an organisation.

CHAPTER OUTLINE
• South African Insight: South Africa’s economy seems to be limping along although not quite falling over
• The interrelationship between an organisation and its external environment
• The strategic importance of the external environment
• Elements of the macro-environment
» Political-legal environment
» Economic environment
» Socio-cultural and demographic environment
» Technological environment
» Natural environment
» Assessing the turbulence in the macro-environment
» The Issues Priority Matrix
• Elements of the industry environment
» Competitors
» New entrants
» Substitute products or services
» Customers
» Suppliers
• The internal environment
» Identifying resources and capabilities
» Assessing the strengths and weaknesses in an organisation’s resources and capabilities

Key terms and concepts

• External environment
• Industry-organisation model
• Resource-based model
• Macro-environment
• Industry / Market environment
• Scanning
• Monitoring
• Forecasting
• Assessing
• Political-legal environment
• Economic environment
• Fiscal policy
• Monetary policy
• Agility
• Absorption
• Global Competitiveness Index
• Social culture and demographic environment
• Culture
• Value
• Value system
• Uncertainty avoidance (Hofstede)
• Individualism (Hofstede)
• Power distance (Hofstede)
• Masculinity (Hofstede)
• Long-term Orientation (Hofstede)
• Indulgence (Hofstede)
• (Hofstede)
• Strategic analysis
• Demography and social structure
• Technological environment
• Natural environment
• Sustainable development
• Triple bottom line
• Issues Priority Matrix
• Competitive forces
• Internal environment
• Tangible resources
• Intangible resources
• Human resources
• Threshold capabilities
• Core capabilities
• Distinctive capabilities

COMPETENCY WHY IS THIS EXAMPLE

COMPETENCE
IMPORTANT IN RELATION
TO STRATEGIC
ANALYSIS?

Communication Managers need to be good Sasol is a leading brand name in South Africa
communicators. To build a and has developed a strong international profile.
coherent picture of the trends Sean McCoy, chairman of the Brand Council of
and changes in the external SA, confirms that Sasol ensures and
environment, managers need to: communicates its presence significantly within
 (a) build strong interpersonal the country, through its retail petroleum efforts
relationships with a diverse and key sports sponsorships. The organisation
range of people; show has also invested in its corporate reputation
genuine sensitivity to the through the arts, strong community programmes
diverse needs, opinions and and clear communication.
feelings of others, and be
tolerant of their foibles and
idiosyncrasies
(b) inform people of relevant
events, activities, and keep
them up to date
(c) develop relationships and
exercise influence upward
with superiors, laterally with
peers and downward with
subordinates, as well as
external stakeholders.

Planning and Because strategic analysis is Management of organisations in the healthcare

financial concerned with scanning the sector, such as Medi-Clinic, require planning
management external environment in order to and financial competencies. “Healthcare
identify opportunities and companies are operating in a high-growth
threats, managers need to environment, with strong fundamentals and
develop a ‘planning and exceptionally high barriers to entry, where the
financial’ competency to listed players dominate their respective
monitor information and use it industries. These factors, coupled with strong
to identify symptoms, operational cash flows and excellent
underlying problems and management across the board, make for a
alternative solutions. compelling investment case.”

Teamwork Because strategic analysis is PwC’s strategy is one example of a strategic

usually undertaken by a team, team consisting of a team of global practical
the teamwork competency is strategists, committed to seize essential
important. This involves advantages, solving complex problems, and
creating an environment capturing the greatest opportunities.
characterised by empowerment,
in which effective teamwork is
expected, recognised, praised
and rewarded.

Strategic action In conducting strategic analysis, Changes are part of society’s and business’s
probably the most important reality. Knowing which trends are current and
competency required is strategic how they will impact is critical for strategic
action. In particular, the ability action. See www.trendwatching.com for current
to quickly recognise when and prominent trends relevant to Africa and
changes in the industry and South Africa.
external environment create
significant threats and
opportunities.

Global awareness A global awareness competency South African media organisations are
is important as a basis for increasingly developing digital strategies to
staying informed about political, sustain their operations. The reason for this
social and economic trends and change is the global trend whereby consumers
 events around the world. These increasingly access information and news online.
are potential sources of threats The internet, lower data prices and capabilities
and opportunities. of smartphones are steadily eroding the
newspaper business.

South Africa’s economy seems to be limping along although not

quite falling over

Gross domestic product (GDP) is widely used to measure the size of an economy and its performance
over time. In 2016, South Africa’s GDP was R3.071 trillion (at 2010 prices, seasonally adjusted and
annualised)1making it Africa’s largest economy2. As outlined in the table below3, South Africa’s economy
has been showing a steady decline in growth since 2011:

South Africa’s GDP Growth

The steady decline in economic growth has serious implications for business organisations in terms of
consumer demand, for example.
In 2014, South Africa narrowly averted a recession which is defined as two consecutive quarters of
negative growth. In the first quarter of 2014, growth contracted by 0.6% – the first time South Africa had
experienced negative growth since 2009 – but in the second quarter it increased by 0.6%4. In the second
quarter of 2015, South Africa’s economy again contracted, this time by 1.3%.5
Two of the main contributors to South Africa’s growth rate, namely (a) consumer spending and (b)
fixed investment, shrank during 2014 to their slowest pace since the global financial crisis, underlining
the fragility of South Africa’s growth outlook.
Household consumption growth dropped from 2.6% in the final quarter of 2013 to just 1.8% in the
first quarter of 2014, its slowest rate of growth since June 2009. In 2012 consumer spending grew by 3.5%
and in 2011 by 4.9%. Consumers’ disposable income is being eroded by high debt levels and rising
inflation. In addition, high unemployment, weak economic growth, tighter lending conditions and the
prospect ofrising interest rates are weighing on spending.
Overall domestic demand is also being dragged down by a fall-off in fixed investment growth, the
second main contributor to South Africa’s growth rate. Fixed investment growth shrank to 2.6% in the first
quarter of 2014 from 3.1% in the fourth quarter of 2013 – its lowest level since the third quarter of 2010.
The reduction in South Africa’s overall rate of fixed investment is being caused by a steep drop in the rate
of private sector investment activity. There were outright declines in investment spending in
manufacturing, mining, transport and the financial sector, reflecting companies’ reluctance to expand
capacity in the face of reduced domestic demand and the devastating platinum strike. In contrast, capital
spending on basic infrastructure by government remained solid in 2014 while that by state-owned
enterprises increased steadily. According to the South African Reserve Bank, this was driven by Eskom’s
purchases of machinery and equipment for coal-fired powered plants, the expansion of freight rail and port
capacity, continued road upgrading and the increased construction of water infrastructure. But overall,
South Africa’s fixed investment activity at 19.7% of GDP remained well below target. “That is far too
little, given the country’s extensive infrastructure backlog. Ideally, South Africa should be spending a
minimum of 25% of GDP on investment activity and maintaining it at that level for more than a decade”,
according to Kevin Lings, Stanlib’s chief economist.6
In mid-June 2014, the South African Reserve Bank said that it would do its best to stave off interest
rate increases. Though in 2014 inflation was pushing the upper end of the 3–6% band, the fear was that
nascent economic growth would be snuffed out by an interest rate hike. In mid-June 2014, the then
 governor warned that export figures would be affected, if the five-month-long platinum strike continued.
He said the strikehad already negatively affected economic growth, but had not yet shown an effect on
export data as mining houses had significant platinum inventories.7
Eskom, the electricity utility, is facing enormous challenges. “The embattled utility is not only facing
a massive cash crunch, it is also grappling with ageing infrastructure and boardroom squabbles. And with
each passing day, Eskom, which generates 95% of South Africa’s electricity, finds itself edging ever closer
to a full-blown catastrophe as apparent institutional failures involving governance and operational issues
appear to be spiralling out of control. ‘Obviously Eskom is damaging South Africa’s national interest’,
said Azar Jammine, Economitrix director and chief economist. ‘The worst sort of damage is being done to
South Africa over the long term …. Eskom’s power cuts are resulting in companies deciding not to invest.
This means that in the long term, less goods and services will be produced and this will reduce (economic)
growth’, he added. In the first quarter of 2015, Eskom’s credit rating was also cut to junk status by
Standard & Poor’s, compounding the outlook for the utility … In addition, the protest by some 7 000
National Union of Metalworkers of South Africa in March 2015, pointed to a fast-running crisis which
threatened a complete shutdown of Eskom’s two new long-delayed power stations, Medupi and Kusile.”8
It is interesting to note that since this was written, the Medupi and Kusile power stations have started
generating electricity and the availability of electricity has remained stable since the start of 2016. The
availability of electricity, however, remains a key item on South Africa’s economic agenda as the country
grapples with identifying the optimum mix of coal, nuclear, renewable energy and gas for power
generation.
“South Africa’s economy could have been 10% larger if power shortages had not stifled growth and
investment and put the nation’s debt at risk of being cut to junk, economists’ estimates show. …. South
Africa’s estimated economic expansion of 2% in 2015 could have been at least 1 percentage point higher
had it not been for the cuts. Rolling blackouts have curbed mining and manufacturing, both knocked by
strikes that limited 2014 growth to the slowest pace since the 2009 recession and prompted rating
downgrades”9. This clearly demonstrates the centrality of power generation to South Africa’s economy and
is an indicator that business organisations need to watch all the time.
Inflation continued between 5–6% by the end of 2015 as the prices of petrol, electricity and water
increased and the relief from a drop in the fuel price receded. … Inflation might even exceed 6% if we see
the Rand going beyond R12.50 to the US $ and the oil price increases at the same time. The hike in
interest rates in the second half of 2015 could add to the distress of the local economy.10
In reflecting on the South African Insight above, the items in bold are examples of the issues that
South African managers need to monitor regularly as a basis for identifying organisational opportunities
and threats.

5.1 The interrelationship between an organisation and

its external environment
Strategic analysis involves two things: (a) evaluating the external environment of an
organisation to identify opportunities and threats for that organisation, and (b) evaluating the
internal environment of an organisation to identify the strengths and weaknesses of that
organisation. As such, strategic analysis is a vitally important part of the overall strategic
management process as outlined in Chapter 6. In fact, the outcome of strategic analysis is
information that will significantly influence decisions relating to strategy formulation (i.e.) the
strategies the organisation is going to implement. Thus, it is very important that Chapters 5 and 6
are read together.
With regard to the possible impacts of the external and internal business environments on an
organisation’s strategic decisions and strategic actions, there are two alternative views we might
take. Firstly, the industry-organisation model holds that the main determinant of an
organisation’s strategies is the external environment. In other words, the organisation has no other
choice than to adapt and react to whatever is happening in the external environment. Secondly, the
resource-based model holds that it is the organisation’s unique internal resources and capabilities
that are the main determinants of an organisation’s strategies. In other words, an organisation can
use its unique strengths to independently and proactively develop strategies regardless of what is
happening in the external environment.
Research shows however, that in practice, both the external environment and the internal
environment have a significant impact on an organisation’s strategies. Both must be taken into
account.11Thus, it is very important that organisations know and fully understand both their
external and internal environments so that they can respond, in the best possible way, to threats
and opportunities presented by the external environment. This will ensure that they respond
proactively to capitalise on opportunities, and reactively to defend against threats.
In this chapter, we combine an analysis of the external environment (looking for opportunities
and threats) with an analysis of an organisation’s internal resources and capabilities (identifying
strengths and weaknesses).
Figure 5.1 illustrates the interrelationships between an organisation and its external
environment.
We can note the following points about Figure 5.1:
• South African business organisations clearly do not operate in isolation. They are exposed to
all the factors and forces outside the organisation’s boundaries. Business organisations thus
operate in an open system, as indicated in Chapter 1 and further discussed in Chapter 3.
• The external environment is made up of two components: the macro-environment, and the
industry environment.
•
An organisation’s macro-environment includes the following sub-components: political-
legal, socio-cultural, demographic, technological, economic and the natural environment, at
both the country (local) level and global level.
• The macro-environment component of the external environment consists of those factors and
forces that impact on all organisations existing in an industry, and over which any one
organisation has little, if any, control or influence. While this is generally true, Clem Sunter12
urged us to draw a distinction between the ‘active future’ and the ‘passive future’. The
‘passive future’ is the future that we let happen to us; the ‘active future’ is the future that we
help make happen. An example of a group of South African manufacturers taking an ‘active
future’ approach is the Manufacturing Circle, which is made up of a number of South Africa’s
leading manufacturing companies from a wide range of industries including organisations
such as Consol Glass, Bell Equipment, Sappi and Pioneer Foods. Some of the members are
leading South African exporters of manufactured goods, others are locally focused companies
competing with imports from around the world. Formed in 2008, the Manufacturing Circle has
been quietly going about its business of interacting with government and other stakeholders to
review, debate and help formulate policies that will have a positive impact on South Africa’s
manufacturing base.13
Figure 5.1 Interrelationships between the organisation and its external environments

Source: Adapted from LOUW, L. & VENTER, P. 2013. Strategic management: Developing Sustainability
in Southern Africa. 3rd ed. Cape Town: Oxford University Press.

• The industry environment component of the external environment is generally made up of

existing competitors, new entrants to the industry, suppliers, customers and providers of
substitute products and services. The government can also influence this part of the external
environment via legislation such as the Competition Act, for example.
• Not unexpectedly, individual organisations tend to have more control and influence over their
industry environment than over the macro-environment.
• The internal environment refers to everything within the organisation over which it has
control, particularly its resources and capabilities.

5.2 The strategic importance of the external

environment
Macro-environmental factors tend to impact all industries and of course all the organisations
making up those industries. However, not all macro-environmental factors impact all industries
equally, nor do they impact equally all organisations making up a particular industry. By ‘impact’,
we mean the ability of macro-environmental forces to affect an organisation’s strategic direction,
its competitiveness, its profitability and ultimately its survival. Thus, it is vitally important for
businesses to undertake a formal and ongoing evaluation of trends and developments in the
macro-environment in order to work out whether these trends and developments represent
possible opportunities or possible threats. Organisations can then decide what actions to take in
response to these trends and developments. The South African Insight at the beginning of this
chapter gives an indication of some of the elements of the external economic environment in
South Africa that South African organisations need to watch and respond to.
We suggest that a formal evaluation of the external environment should involve the following
four steps:14

5.2.1 Scanning
This involves studying all the elements of the external environment in order to identify
early signs of potential change as well as changes that are already taking place. When scanning,
organisations often deal with information that is ambiguous, incomplete and unconnected.
A useful tool in the scanning stage is scenario analysis. This involves building different
scenarios – usually three or four – of what the future might look like in five or more years’ time,
based on certain assumptions and driving forces. Research by Frans Cronje suggests two driving
forces as a basis for building four scenarios of what South Africa might look like in the year
2024.15 The first force is the ‘access to feedback mechanisms’ as seen by ordinary South Africans
having gained access to elections, the media and the freedom of civil society. The second force is
future economic policy. These two driving forces were used as the axes of a scenario matrix as
shown in Figure 5.2. The four quadrants of the matrix represent four different scenarios of what
South Africa could look like in 2024. Cronje named Scenario 1 the ‘Wide Road’, Scenario 2 the
‘Narrow Road’, Scenario 3 the ‘Rocky Road’ and Scenario 4 the ‘Toll Road’. Faced with these
four possible scenarios, business decision-makers must look out for route markers and warning
signs that will point to which of the four highways we are travelling on.
Cronje suggested, not unexpectedly, that the economic route markers and warning signs to
watch out for, include:
• The future of COSATU and the South African Communist Party
• Moving away from inflation targeting
• Changes in ANC leadership
• The state of the economy in terms of GDP growth
• Savings and fixed investment rates
• Unemployment levels
• Rate of inflation
• Budget deficit
• State of public education.

Cronje, in turn, suggested that the political route markers and warning signs to watch out for,
include:
• Democratic rights and freedoms. Should the constitution be respected and political and civil
liberties be entrenched, we are headed for the Wide Road or Toll Road, depending on
economic policy
• Property rights
• Media freedom
• The state of civil society. Should the government attempt to restrict civil society and its ability
to challenge the state, it will divert us to the Narrow Road or Rocky Road.

Having determined on which of the four highways we are travelling, it is vitally important for
business leaders and decision-makers to formulate and implement appropriate strategies to ensure
the survival and prosperity of their organisations. This would amount to a reactive response.
Bearing in mind Clem Sunter’s active future perspective, business and other leaders may be able
to individually or collectively influence government to implement policies and take action to
divert the country on to the Wide Road. Scenarios are also discussed in Chapter 7 on Decision-
making.

Figure 5.2 The scenario matrix

Source: CRONJE, F. 2014. A time traveller’s guide to our next ten years. Cape Town: Tafelberg, p. 148.
5.2.2 Monitoring
Having scanned the external environment, an organisation will then proceed to monitor that
environment and try to see whether an important trend has emerged from among those that were
spotted during the scanning stage. Critically important in the monitoring stage is the
organisation’s ability to attach meaning to particular events or trends. In other words, it should try
to answer this question: ‘What does a particular trend mean for my organisation?’

5.2.3 Forecasting
Having monitored the external environment, an organisation must engage in forecasting, in terms
of which organisational analysts develop estimates of what might happen as a result of events and
trends spotted during the scanning and monitoring stages, as well as of how long it might take. So,
for example, if it is anticipated that taxes are going to be raised, a motor car company may need to
forecast how long it might take for those tax increases to impact on the ability of consumers to
buy motor cars.

5.2.4 Assessing
Having forecasted the external environment, an organisation must assess it. The purpose of this
step is to work out what the implications of the changes and trends in the external environment are
for the organisation’s strategic and tactical decisions. So the response of a motor car company to
an increase in tax rates could be either to reduce prices or to improve the warranty policy, for
example.
Changes in the external environment in general, and in the macro-environment in particular,
can take place either gradually or rapidly, and with or without warning. The degree of change in
the macro-environment and the extent to which these changes can be predicted, reflect the
turbulence of the environment. The more turbulent the environment, the more difficult it is for
managers to identify the best strategies to implement.

5.3 Elements of the macro-environment

In the previous sections, we identified the following five main elements of the macro-
environment:
• Political-legal
• Economic
• Socio-cultural and demographic
• Technological
• Natural environment.

We will now provide a broad overview of each of these elements. After that, the level of
turbulence in the external macro-environment will be addressed, as well as the Issues Priority
Matrix as a means of ranking the relative attractiveness of the identified opportunities, as well as
the relative seriousness of the identified threats.

5.3.1 Political-legal environment

The political-legal environment is that part of the macro-environment that is under the direct or
indirect control of the government or the state. Government can be considered at three levels:
• National, which refers to the government of the country as a whole
• Sub-national, which, in South Africa, includes the provincial level (for example, the Western
Cape Provincial Government) and local government (for example, the Cape Town
Municipality)
• Supranational, which refers to political bodies that exert influence over the national
governments of several countries, for example, the African Union and the United Nations
Organisation.

Governments, at whatever level, tend to have control to a greater or lesser extent over the
following:
• Legislation and regulation. This includes laws that influence employment, consumer
protection, health and safety at work, trade unions, monopolies, mergers, and so on.
• Economic policy. This includes monetary and fiscal policies. Fiscal policy is the means by
which a government adjusts its spending levels and tax rates to influence a nation’s economy.
Its sister strategy, namely, monetary policy, is the means by which a central bank influences a
nation’s money supply. These two policies are used in various combinations to direct a
country’s economic goals.
• State-owned enterprises. The way in which state-owned enterprises (for example, South
African Airways) are controlled can have an impact on the industries concerned. Government
legislation can also be used to promote the privatisation of state-owned enterprises. In South
Africa, the successful privatisation of Telkom and the Airports Company of South Africa
(ACSA) are examples.
• Government international policy. This involves government intervention to influence aspects
such as exchange rates, international trade, and international travel. A good example of the
South African government’s international involvement is with the United States of America’s
African Growth and Opportunity Act (AGOA). AGOA, which was enacted by the USA in
2000, is a “non-reciprocal trade preference programme” that provides eligible sub-Saharan
African countries with duty-free access for certain exports into the US market. South Africa
has been a substantial beneficiary of AGOA. In particular, the country’s automotive export
sector has grown largely in response to the opening offered under AGOA. Overall, South
Africa gained export revenue of more than $1.7 billion in 2014 alone. AGOA has been
extended until 2025 but the South African government has to give careful thought to various
issues such as the importation of US poultry products, to ensure its continued participation in
the programme.16

Most governments seek to influence business activity in a number of areas:17

• Control of inflation (the South African Reserve Bank, for example, seeks to keep inflation
within the range of 3–6% via an inflation targeting policy)
• Promotion of economic growth and investment
• Control of unemployment
• Control of employment (for example, the ANC government’s Broad-Based Black Economic
Empowerment policy)
• Stabilisation of exchange rates
• Control of the balance of payments
• Control of monopoly power. In South Africa, monopoly power is controlled via the
Competition Act (Act No. 89 of 1998)18 with the purpose of promoting and maintaining fair
competition in South Africa.
The watchdog role of the Competition Tribunal is illustrated in various cases such as the Walmart-
Massmart merger, Nationwide Airlines (Pty) Ltd vs South African Airways (Pty) Ltd case with
the subsequent liquidation of Nationwide, and the Anheuser-Busch InBev SA/NV and SABMiller
PLC merger. In terms of the purpose of the Competition Act, an appeal by unions heard in the
Appeal Court in 2012 was overruled and the decision made by the Competition Tribunal to
approve Wal-Mart Stores Inc.’s acquisition of a majority stake in South African retailer, Massmart
Holdings, in a $2.4 billion deal, was upheld. The Anheuser-Busch InBev SA/NV and SABMiller
PLC merger was approved in 2016, but with specific conditions attached. The South Gauteng
High Court ruled that SAA was liable for R104 million in losses suffered by the now non-
operational carrier Nationwide, for SAA’s contraventions of the Competition Act.19
• Provision of public goods such as health, education, defence and electricity. For example, the
South African government controls Eskom, the electricity utility which is facing enormous
challenges as already indicated. Business organisations are, of course, reluctant to invest when
the supply of electricity is uncertain and unreliable. This means that in the long term, fewer
goods and services will be produced and this could reduce economic growth.
• Redistribution of incomes
• Consumer protection
• Regulation of working conditions
• Regulation of trade
• Industry-specific regulations that affect the way in which business is done in affected
industries. In South Africa, the Independent Communications Authority of South Africa
(ICASA) is a good example. ICASA was established in July 2000. It is responsible for
regulating the telecommunications, broadcasting and postal industries in the public interest
and for providing affordable services of a high quality for all South Africans.

Another example of a recent policy in 2015 which had an unexpected industry-specific

consequence, was that related to visas to enter the country. The requirement for unabridged birth
certificates for children entering South Africa had a negative impact on visitors to South Africa
and threatened the R20 billion a year tourism industry. 20
A study of political-legal factors should always include an assessment of the potential for
political risk in a country. The topic of risk and how organisations should manage various types of
risk, are discussed in greater detail in Chapter 16. Examples of political risk that managers should
be aware of include the following:21
• Government’s nationalisation of industries and the expropriation of property as well as
inadequate protection of intellectual property rights. There are still members of the ANC
government who believe that nationalisation is the right way to go.
• Unfair competition from the public sector. For example, kulula.com protested that the launch
of the low-cost Mango airline by South African Airways constituted unfair competition from a
state-subsidised entity.
• Unexpected imposition of discriminatory taxation. Does the government’s proposal to
introduce National Health Insurance, to be funded by an additional tax, constitute a
discriminatory tax for those who already pay for private health care?
• Unexpected imposition or tightening of foreign exchange controls.
• National hostilities and military intervention, more often in a regional or international context.

In the spirit of Clem Sunter’s ‘active future’ approach, it is important that organisations, either
individually or collectively, take active steps to influence political-legal decisions that affect
business organisations, where they can. This may well involve lobbying government, as well as
negotiating with government when the occasion demands.
5.3.2 Economic factors
An analysis of economic factors focuses on changes in the macro-economy that affect business
and its consumers. It is important to note that because governments intervene to a greater or lesser
extent in the operations of their economies, many factors that are classified as political-legal in
this chapter will have implications for the economy as well.
As previously mentioned, the national economy is regulated through two key policy
instruments: fiscal policy and monetary policy. These policy instruments significantly influence
the economic climate of a country in which organisations compete.
Fiscal policy refers to the regulation of the national economy through, on the one hand, the
management of government revenues raised through taxation, and, on the other,
governmentexpenditure on things such as health, education and infrastructure. The government is
able to influence the national economy by changing either of these two elements of the fiscal
equation.
Monetary policy refers to the regulation of the national economy by changing the supply of
money and the ‘price’ of money. The supply of money refers to the volume of money in all its
forms and the ‘price’ of money refers to interest rates.
The effects of fiscal and monetary policy on the national economy are noted in the South
African Insight, and also indicated in the following indicators:22
• Rate of economic growth as reflected in the GDP.
• GDP is widely used to measure the size of an economy and its performance over time. The
South African economy has not performed well of late.23 This makes many organisations very
nervous and causes them to rethink their investment and expansion strategies.
In research conducted by Cannon Asset Managers which covered stock markets across 25
countries, it was found that the most significant factor to impact the growth in the earnings of
business organisations, is GDP growth.24 They further found that in South Africa over a
seventy-year-period to 2013, only a handful of business organisations out of more than 1 000,
generated real earnings growth that was ahead of South Africa’s GDP growth over this time
period. Amongst this handful of firms, Cannon Asset Managers found two key common causal
factors, namely, agility and absorption.
1. Agility refers to the nimbleness of business organisations with regards to operations,
portfolios and strategy.
Operational agility is the ability to take advantage of opportunities to improve operations.
Portfolio agility refers to the ability of organisations to adapt their underlying investment
holdings in line with a changing environment. Strategic agility occurs where leaders have
vision and courage to follow new directions as the environment indicates.
2. Absorption refers to the ability of a company to cushion itself against the ups and downs
of turbulent times. An absorptive organisation will tend to have a sound balance sheet with
modest debt levels, a diversified cash flow, loyal customers, constant innovation and the
practice of listening to what clients want.
This research has clear implications for business organisations. When GDP is growing at a
good rate, it is possible for all business organisations to prosper. When there is a downturn in
the economy, however, it is only those who have implemented strategies of agility and
absorption that will hold their own. This is why it is very important for business organisations
to be very sensitive to the level of turbulence in the environments in which they operate. This
is discussed further in Section 5.5.
It is interesting to note that in the face of slow economic growth, Volkswagen South Africa
(VWSA) announced in August 2015 that it is to invest more than R4.5 billion in South Africa
by 2017 to increase the production capacity of its Uitenhage plant by 50% to 150 000 units a
 year and to prepare for the production of at least two new vehicle models. VWSA is clearly
taking the long view and is not put off by the less than exciting performance of the South
African economy in the short term.25 This is the type of investment approach that South Africa
so desperately needs from multi-national business organisations.
• Levels of income in the economy.
• Exchange rates: The South African exchange rate weakened during the course of 2015/6
reaching lows of R14 and more to the US$. This was due to a number of factors including the
devaluation of the Yuan by China and the slow-down in the Chinese economy. As Azar
Jammine, the Chief Economist at Econometrix pointed out, “the depreciation of the Rand
means without a doubt that South Africa has become a cheaper base for production than it was
a year or two ago… The economy is not collapsing completely. If companies are optimistic
about the African economy, it’s totally worthwhile to produce in South Africa.”26
• Levels of unemployment: The levels of unemployment in South Africa are becoming serious.
The unemployment figures released in 2015 showed an increase in unemployment from 25%
to 26%. Against this background, the economy shudders in the face of news such as the
following: “Platinum producer Lonmin is planning to close or mothball several mine shafts in
2015 in a bid to survive plunging prices, putting 6 000 South African jobs at risk and sending
its shares to an historic low.”27
• Balance of payments.
• Levels of inflation.
• Levels of productivity.
• Wage levels and the rate of increase in wages.

Factors such as economic growth, levels of income, levels of inflation and unemployment affect
the level and patterns of consumer demand. The higher local consumer demand is, the higher the
volume of production will be and the lower, therefore, the cost of production of one unit of output
will be. In addition, factors such as productivity, wage levels, inflation and exchange rates also
affect the cost of production. So, together, consumer demand and the cost of production impact on
the country’s level of international competitiveness.
Considering international competitiveness, how is South Africa doing with regard to the
Global Competitiveness Index (GCI) published annually by the World Economic Forum (WEF)
in Switzerland? The GCI defines competitiveness as “the set of institutions, policies and factors
that determine the level of productivity of a country.” The World Economic Forum’s Global
Competitiveness Report for 2016/17 confirms that South Africa is in 47th position out of the 138
countries included in the survey. The closer the position of the country is to first, the more
competitive it is.28
South Africa (47th) and Mauritius (45th) are the most competitive countries in their region,
sub-Saharan Africa. Within this particular region, South Africa takes the leading position in terms
of financial markets, competition, infrastructure, and education. This is reflective of the overall
general position but the picture looks different when compared with all regions. Education is for
example weak on certain levels when compared to all regions and other weaknesses include the
impact of exchange rate volatility, governance concerns, and policy uncertainty.
The top two strengths on the 2016/7 GCI rating scale for South Africa are financial market
development (11th/138th) and business sophistication (30th/138th). On the other hand, the two
weakest ratings on the 2016/7 GCI rating scale for South Africa are health and primary education
(123rd/138th) and labour market efficiency (97th/138th).28
As an integral part of strategic analysis, business organisations need to watch these sorts of
indicators. Positive trends might indicate opportunities, but negative trends might indicate threats.
5.3.3 Socio-cultural and demographic environment
An analysis of the socio-cultural and demographic environment is concerned with determining
and understanding the impact of a changing society on an organisation, its industry and its
markets. Analysis of the social environment involves a study of the following aspects:
• Social culture: What is important here is the impact of social culture (values, attitudes and
beliefs) on the way consumers behave, on what they buy, on their needs, on their attitudes to
work, savings, investment, ecology, ethics and so on.
• Demography and social structure: This refers to the impact of the size and structure of the
population on patterns of demand and attitudes to work.

These two aspects are discussed in more detail below.

5.3.3.1 Social culture

The culture of a country is made up of its values, attitudes and beliefs. Culture can be defined as
the shared characteristics (for example, language, religion and heritage) and values that
distinguish the members of one group of people from those of another.29 A value is a basic belief
about a condition that has considerable importance and meaning to individuals, and is relatively
stable over time. A value system comprises multiple beliefs that are compatible and supportive of
one another. For example, beliefs in private business and individual rights are mutually
supportive.
These values, attitudes and beliefs clearly have a significant impact on the way in which the
population behaves in general, and in the purchasing process in particular. Culture can affect,
amongst other things, consumers’ tastes and preferences as well as the attitude of the population to
work, to education, to ethics and corruption, and to credit. All of these factors are very relevant to
business organisations in terms of leading and motivating employees.
Professor Geert Hofstede conducted one of the most comprehensive studies of how values in
the workplace are influenced by culture.30 He defines culture as the collective programming of the
mind, distinguishing the members of one group or category of people from others. The model of
culture at a country level, consists of six dimensions. The six dimensions of national culture are
based on extensive research done by Professor Hofstede and his team, and are outlined below.
• Uncertainty avoidance refers to the extent to which people feel threatened by ambiguous
situations and how they try to avoid them. In cultures where uncertainty avoidance is weak,
there is a dislike for rules and so the workplace tends to be less formal. Schedules are flexible,
hard work is undertaken when necessary but not for its own sake, precision and punctuality do
not come naturally. Where there is a high need for uncertainty avoidance, on the other hand,
there is a strong emotional need for rules. As a result, organisations are more formal. There is
much less tolerance of people who are different and who have different ideas.
• Individualism is the tendency to take care of oneself and one’s immediate family, while the
opposite of individualism, collectivism, recognises a broader, tightly knit social network in
which group members (family, clan, organisation and nation) focus on the common welfare
and feel strong loyalty toward one another. In individualistic societies, criticism tends to cause
guilt and a loss of self-esteem; the employer/employee relationship tends to be a contract
based on mutual advantage; hiring and promotional decisions are supposed to be based on
merit only; and management is essentially concerned with the management of individuals.
• Power distance is the degree to which less-powerful members of organisations expect and
accept the unequal distribution of power within those organisations. In the workplace, when
the power distance is small, managers practise participative management and consult with
 their subordinates. On the other hand, when there is a large power distance, managers can
afford to be more dictatorial and autocratic, and tell their subordinates what to do.
• Masculinity. A Masculine society is one that will be driven by competition, achievement and
success. A Feminine society, on the other hand, is one in which the dominant values are caring
for others and quality of life. Quality of life is the sign of success and standing out from the
crowed is not admirable. In Masculine countries, people live in order to work, managers are
expected to be decisive and assertive, the emphasis is on equity, competition and performance,
and conflicts are resolved by fighting them out.
• Long-term orientation. This dimension describes how every society has to maintain some
links with its own past while dealing with the challenges of the present and future. Societies
with a short-term orientation prefer to maintain time-honoured traditions and norms while
viewing societal change with suspicion. Those with a long-term orientation, on the other hand,
take a more pragmatic approach; they encourage thrift and progressive education as a way to
prepare for the future.
• Indulgence. One challenge that confronts humanity, now and in the past, is the degree to
which small children are socialised. This dimension is defined as the extent to which people
try to control their desires and impulses based on the way they were raised. Relatively weak
control is called ‘Indulgence’ and relatively strong control is called ‘Restraint’. Cultures can,
therefore, be described as Indulgent or Restrained.

Where there is a multicultural workforce, managers need to be very sensitive to differences in

values and value systems. For very good reasons, South Africa is known as the Rainbow Nation.
Not only does it have four broad population race groups (Black, White, Coloured and Indian), but
within those groups, there is a variety of different segments. If we further investigate and analyse
the black and white groups, for example, we will identify further sub-segments in each. Within the
black group, for example, there are Xhosas, Zulus and Vendas, amongst others. Within the white
group, there are English speakers, Afrikaans speakers, Jews, people of Italian descent and people
of Portuguese descent, amongst others. Each one of these segments has different cultures, values,
norms and behavioural patterns. When they all come together in the workplace, management
needs to take cognisance of this diversity. These workers bring aspects of their own cultures into
their organisations. Learning how to integrate these workers, their values and their ways of doing
things into the organisation, is essential. Although various cultural behaviours may appear similar
on the surface, their actual meaning in different cultures may be quite different. Realising the
importance of these differences helps managers to manage better. As part of their analysis of
organisational culture, South African managers could do well to start with understanding how
their diverse workforces differ according to Hofstede’s national cultural dimensions. South
African managers should, for example, take note of the cultural value of Ubuntu. Ubuntu means,
“Do as you would be done by” and speaks to human relations that are universally desirable. We
see the reality of reciprocity manifest through Ubuntu: I am because we are. We are all one. What
is done to one is done to the other. This ethic of reciprocity (the two-way relationship between
one-self and others that involves both sides equally and in mutual fashion) is a code that
essentially states: “One should treat others as one would like others to treat oneself”. It is
interesting to note that Ubuntu forms the value base of the Constitution of the Republic of South
Africa.31 Refer to Chapter 10 for a more detailed discussion on culture and diversity in the context
of managing organisations.
By determining a culture’s values, managers and employees can understand and predict
others’ expectations and avoid some cultural pitfalls. Otherwise, they risk inadvertently upsetting
fellow employees, customers or other groups by breaking a sacred taboo (for example, showing
the bottom of a person’s shoe to a Saudi) or ignoring a time-honoured custom (for example,
preventing an employee from attending an important funeral in South Africa).

5.3.3.2 Demography and social structure

Demography and social structure is the social science concerned with measuring the size and
structure of a population. Demographics – and, in particular, changes in demographics – play an
important role in marketing, advertising and human-resources management. The size of the
population obviously affects the size of the workforce as well as the size of consumer markets.
Thestructure of the population is just as important as its size. The age structure of the population
will, for example, affect the size of the working population, the sizes of certain market segments
and the demand for certain types of products. There are several ways of defining social structure
such as by age, gender, geographic location, level of education and so on. The social structure is
likely to affect peoples’ lifestyles and expectations, and will therefore strongly affect their
attitudes to work, as well as their demand for particular goods and services.
The following are a few characteristics of the South African population extracted from the
2011 Census Report:32
• Population. The total population size is 51.8 million (2011), up by 7 million since 2001. A
2016 community survey done by StatsSA indicated that the population has grown even further
and is currently at 55.6 million (2016). The five provinces with the highest population are:
Gauteng (12.2 million), KwaZulu-Natal (10.2 million), Eastern Cape (6.1 million), Western
Cape (5.8 million) and Limpopo (5.4 million). The smallest province in terms of population is
the Northern Cape with 1.1 million.
• Age. While the country still has a relatively young population, with 58% under 34 years of
age, the overall median age of the population is 25 which implies that South Africa has an
intermediate age population, neither young (less than 20) nor old (30 or older).33 The overall
median age of 25, however, hides the fact that for the Black population the median age is 24,
for the Coloured population it is 27, for the Indian population it is 32 and for the White
population it is 39. The largest age group is the under-fives.
• Gender. 51% of the population is female and 49% male.
• Population groups. The distribution of the population in terms of race groups: Black (79,1%);
Coloured (8,9%); Indian (2,4%); White (9,6%).
• Household income. The average annual household income by province is summarised in Table
5.1.

Table 5.1 Average annual household income by province

Province Rands

Gauteng 156 243

Western Cape 143 460

Northern Cape 86 175

KwaZulu-Natal 83 053

Mpumalanga 77 609
 Free State 75 312

North West 69 955

Eastern Cape 64 539

Limpopo 56 844

Source: STATSSA. Census 2011. 2012. Statistical Release - P0301.4

• Education attainment. The highest level of education attained amongst persons aged 20 years
and older, is summarised in Table 5.2 – data obtained from Censuses 1996, 2001 and 2011.

The good news in a sea of despondency is that the percentage with no schooling has dropped, and
the percentages with Grade 12 and Higher Education, have increased.

5.3.3.3 Managerial challenges related to demography and social

structure
These diverse population characteristics provide marketers and advertisers with many challenges
in the areas of market segmentation and the subsequent strategies of product development,
promotion, advertising and distribution. The Foschini Group (TFG), for example, has recognised
the growing importance of the youth segment of the South African population with the launch of
its first Soda Bloc store in Cape Town in August 2015. Its objective is to open 13 such stores by
March 2016, including one in Mitchell’s Plain. Soda Bloc is aimed at 16 to 19-year-olds and is
TFG’s effort at catering for the young adult market in which it has been under-represented.34
In addition, employers are likely to face new pressures from the increasingly diverse
workforce. Employees with different demographic characteristics (age, gender, levels of
education) may well have different values and ways of behaving which will have to be
accommodated.
Another point to take into account is the fact that the South African economy is also beginning
to shift from industrial production to services and information analysis. This shift means that jobs
of all kinds are more likely to require some type of specialised skill. One result is that people with
little education or training will continue to have difficulty in finding meaningful and well-paid
work, and as a result, experience long spells of ‘labour market inactivity’.
Another phenomenon that falls within the socio-cultural and demographic environment in
South Africa is HIV/Aids. This is a trend that no organisation can ignore. For example, Kurt
Bothman, human resources manager at the Ford Engine Plant in Port Elizabeth, regarded
HIV/Aids to be the single greatest threat to the viability and success of the automotive sector in
the Eastern Cape.35 Ford in Port Elizabeth responded to this threat by developing a cluster of
wellness programmes to help fight the pandemic.

Table 5.2 Highest level of education

Source: STATSSA. Census 2011. 2012. Statistical Release - P0301.4

5.3.4 Technological environment

Technology forms a key and integral element of the transformation process that changes
organisational inputs into outputs. Technology refers to the knowledge, tools, techniques and
actions used to transform ideas, information and materials into finished goods and services.
Technology may be as simple as making coffee at a restaurant or as complicated as driving the
Pathfinder on Mars.
Technological advances create, for example, new products, advanced production techniques,
and better ways of managing and communicating. In addition, as technology evolves, new
industries, markets and competitive niches develop. Without the internet, organisations such as
Amazon.com or Takelot.com would never have been possible. Developments in technology also
enable organisations to enter markets that would otherwise be unavailable to them. Small
businesses, for example, can now also use the internet to reach a much wider market, both locally
and overseas. Khanyi Dhlomo, founder and managing director of Ndalo Media, is one such
example. Collaborating with Media24, she is publishing two successful South African magazines,
Destiny and Destiny Man. This has further led to the development of Destiny Connect, an online
media site, resulting in Ndalo Media operating on a global scale. 36
There tend to be two broad categories of technology that organisations need to monitor to
identify opportunities and threats, namely (a) information technology, and (b) manufacturing
technology. Information technology plays an important role in an organisation’s strategy, while
manufacturing technology plays an important role in an organisation’s operational processes.

5.3.4.1 Technology’s role in strategy

Computer-based information technologies are now essential in most organisations. Inadequate
information technologies can severely limit strategic options for both manufacturing and service
organisations. New technologies provide new ways to manage and communicate. Computerised
management information systems (MIS) make information available when needed. Computers can
monitor productivity and note performance deficiencies. Telecommunications allow conferences
to take place without requiring people to travel to the same place.
Information technology creates options that simply were not feasible with older technologies,
including the following:
• Computer-aided design (CAD) permits short production runs of custom designs with
economies of scale approaching those of traditional mass production manufacturing facilities.
• Consumers can shop online on the internet more easily than using the Yellow Pages and
telephones.
• With online, real-time financial management systems, managers can determine profit and loss
positions daily, which was impossible with manual methods and earlier stages of computer
technology.
• Retail banking customers can perform numerous banking functions from remote locations,
including their homes.
• With social media such as Facebook and Twitter, both positive and negative information about
an organisation’s activities can very quickly be communicated amongst millions of consumers
around the world.
• Cloud computing (the provision of everything from software to music, video, photos and
documents over a wireless network or ‘cloud’ rather than physically on the computer) has the
potential to turn the computer industry upside-down. It has the potential to turn the personal
computer into just a device.

5.3.4.2 Technology’s role in manufacturing

New technologies allow for new production techniques. In manufacturing, sophisticated robots
perform jobs without suffering fatigue, requiring vacations or weekends off, or demanding wage
increases. Advances in design and manufacturing technology have also made it possible to reduce
substantially the amount of time required to introduce a new product onto the market. Perhaps the
most significant contribution of advanced manufacturing technologies is that of flexible
manufacturing and mass customisation, that is, the ability to cost-effectively produce a wide
variety of products in short production runs. For example, Airbus and Boeing make use of
computer-aided design (CAD) systems, previously mentioned, to help design aircraft for
aerospace and defence design. One such example of this type of software technology used in the
aerospace industry is IronCAD 3D Design Solutions.37
It is vitally important for organisations to monitor changes in all technologies that affect either
their operations or their markets. Companies need to be flexible in adopting new technologies as
they come along. The extent to which companies adopt, or fail to adopt new technologies, can
impact severely on their competitive advantage.

5.3.5 Natural environment

Environmental concerns have changed the way both producers and consumers think about
products, the raw materials used to make them and the by-products of manufacturing processes.
South African business organisations are increasingly being required to comply with
environmental best practice, rather than simply to address environmental issues on a voluntary
basis. The debate, however, embraces far more than simply protecting the environment itself. The
real concern is sustainable development, about which there is a greater awareness brought about
by the current debate on climate change. “It is more than two decades since the Brundtland
Commission adopted the sustainable development mantra, development that meets the needs of
the present generation without compromising the ability of future generations to meet their own
needs … The crux of the sustainable development dilemma, then, is how to meet the legitimate
expectations of growth, development and a better life for all, on the one hand, without denuding
our planet and destroying the earth’s remaining natural capital, on the other.”38
The King IV Report on Corporate Governance in South Africa was released by the Institute of
Directors in 2016.39 Integral to the King IV report is the concept of ‘sustainability’ which is “the
primary moral and economic imperative of the 21st century. It is one of the most important
sources of both opportunities and risks for businesses. Nature, society, and businesses are
interconnected in complex ways that should be understood by decision-makers”40. Sustainable
development essentially involves balancing financial imperatives (profit), social concerns (people)
and environmental demands (planet) – the so-called ‘triple bottom line’. In pursuit of this, the
King IV Report has recommended that South African organisations engage in Integrated
Reporting and report annually on their triple bottom line. The King IV Report is also referred to in
Chapter 16.
Increasingly, not only are major South African organisations concerned about the potential
damage that their processes might cause to domestic ecosystems, but they also recognise that if
they want to trade globally, they are going to have to meet international standards and regulations
relating to their products and processes. As a result, the major South African business
organisations are making environmental issues part of their strategic actions. They recognise that
they must now think long term, even though profits may suffer in the short term.
Sappi, a South African organisation, is the world’s leading producer of coated fine paper and
dissolving pulp, and its processes, by their very nature, have a direct impact on the natural
environment. Sappi recognises that social responsibility and sound economic performance, linked
with responsible environmental management of natural resources, are the requirements of
sustainable development. The organisation is therefore committed to the responsible management
of its activities and to the continuous improvement of its environmental performance. Sappi
undertakes to develop, throughout its operations, an attitude of responsibility to the natural
environment, as expressed in its Group Sustainability Charter.41
A few of the actions that organisations should take in response to a demand for renewed
environmentalism are:
• Comply with environmental legislation and policy voluntarily and proactively.
• Compensate for environmentally risky endeavours. Sappi Fine Paper (South Africa), for
example produces paper according to the principles of Triple Green. The three pillars on
which Triple Green is based are the following:
» The primary source of pulp used in the production of paper products at Sappi Stanger Mill
is sugar-cane fibre, which is sourced from local suppliers.
» The bleaching process is elemental chlorine-free.
» The wood fibre used in the production process is obtained from sustainable and
internationally certified afforestation using independently audited chains of custody for
incoming fibre.42
• Comply early with government regulations rather than wait to be forced to do so.
» Cut back on environmentally unsafe operations. Organisations must examine their
manufacturing processes and practices carefully to determine where they can make
changes to minimise any possible negative impact on the environment. Coca-Cola
developed an environment-friendly plastic bottle for its Valpré water. The PlantBottle
performs in the same way as the regular bottle with the same shelf life, weight and
chemical composition, but compared to old PET (polyethylene terephthalate) bottles,
PlantBottle has a lighter footprint on the environment owing to its reduced dependence on
non-renewable resources such as petroleum.43
• Promote new manufacturing technologies that are more environmentally friendly.
• Recycle water and waste, rather than filling landfill sites.

We have now come to the end of our discussion on the main elements of the macro-environment.
Having done so, we now need to consider the industry environment. You will recall from Figure
5.1 that the total external environment is made up of a combination of the macro-environment and
the industry environment.

5.4 Elements of the industry environment

 Michael Porter developed a framework for analysing the nature and extent of competition
in any industry.44 He suggested that organisations in any industry are directly affected by at least
fivecompetitive forces: rivals (competitors), new entrants to the market, substitute products and
services, the power of customers and the power of suppliers. The combined strength of these
forces affects long-term profitability. Managers must therefore monitor and diagnose each one of
the five competitive forces, as well as their combined strength, before making decisions about
future strategies and courses of action.
We will now discuss each of these five forces in turn.

5.4.1 Competitors
Except for customers, competitors (or rivals) are the single most important day-to-day force facing
organisations. The rivals of a business organisation are those organisations in the same line of
business, producing similar products and services. Rivalry among competitors produces strategies
such as price-cutting, advertising, promotions, enhanced customer service or warranties, and
improvement in product or service quality. Competitors use these strategies to try to improve their
relative positions in an industry or to respond to actions by others, as well as to increase their
market share.

5.4.2 New entrants

The threat or reality of increased competition in an industry depends on the relative ease with
which new organisations can compete with established ones. In an industry with relatively low
barriers to entry (for example, the photocopy industry or the fast-food industry), competition will
be fierce. Economies of scale (what market share is required to deliver acceptable unit costs?),
product differentiation (how unique is my product or service or is it simply a duplicate of what
already exists?), capital requirements (how much money is needed?), as well as government
regulation, are four common factors that need to be assessed in determining whether barriers to
entry exist.
From time to time, new entrants to an industry come from outside that industry. A current
example of this is the motor car industry. Apple has announced that it aims to begin electric car
production in 2020. Tesla, a start-up business established by Elon Musk, a South African
entrepreneur operating out of the USA, is producing luxury electric vehicles, and for some years,
Google has been building its own electric cars, electric car software and self-driving cars. So, the
traditional motor car manufacturers such as Ford, Volkswagen, GM, Toyota and Honda, had
better watch this space!

5.4.3 Substitute products and services

In the process of scanning the external environment, companies need to be alert to the fact that
various alternative products and services can serve as substitutes for what they are offering. For
example: a smart phone may be a substitute for a digital camera; chicken may be a substitute for
beef; and wine may be a substitute for beer.

5.4.4 Power of customers

Customers naturally try to force down prices, obtain more or higher-quality products (while
holding prices constant) and increase competition among sellers by playing one off against
another. There are various situations in which the bargaining power of customers is likely to be
relatively high such as:
• Where the customer purchases a large volume relative to the supplier’s total sales.
• Where the product or service represents a significant expenditure by the customer.
• Where large customers pose a threat of backward integration. Backward integration is the
purchase of one or more of its suppliers by a larger organisation as a cost-cutting or quality-
enhancement strategy.
• Where customers can choose from a large number of alternatives or substitutes for the same
services or products.

5.4.5 Power of suppliers

The bargaining power of suppliers often controls how much they can raise prices above their costs
or reduce the quality of goods and services they provide, before losing customers. Copyrights and
patents, the uniqueness and quality of their product offerings, as well as a monopoly of supply,
generally increase supplier strength and permit them to increase prices.
Having identified each of the Five Forces facing it, an organisation must draw conclusions
about the state of industry competition by doing the following:
• Assess the strength of each of the five competitive forces in terms of whether they are strong,
moderate or weak.
• Explain how each of the Five Forces acts to create competitive pressure. What are the factors
that cause each force to be strong, moderate or weak?
• Determine the relationship between the organisation’s position with regard to the Five Forces
and its potential profitability. This is summarised in Table 5.3.
• Decide whether overall competition (the combined effect of all five competitive forces) is
brutal, normal/moderate, or weak. This will determine whether a particular industry is
attractive or not, which of course will have a bearing on the organisation’s strategic decision-
making.

Once an organisation has drawn conclusions about the state of industry competition, it must then
develop appropriate strategies to defend itself against each of Porter’s Five Forces. This is
discussed further in Chapter 6.
Having sketched the nature of each of the elements of the total external environment (macro-
environment + industry environment), we need to draw attention to the fact that some elements of
the external environment exhibit different degrees of turbulence (changeability and predictability)
than others. This means that it is easier for managers to address certain elements of the external
environment than others.

Table 5.3 Porter’s Five Forces and profitability

Force Profitability will be higher if there Profitability will be lower if there

is/are: is/are:

Competitive rivalry Little rivalry Intense rivalry

Threat of new entrants High entry barriers Low entry barriers

Threat from substitute Few possible substitutes Many possible substitutes

products
 Bargaining power of Weak buyers Strong buyers
buyers

Bargaining power of Weak suppliers Strong suppliers

suppliers

Source: CAMPBELL, D, STONEHOUSE. G. & HOUSTON, B. 2002. 2nd ed. Business Strategy: An
Introduction. Oxford: Butterworth-Heinemann, p. 141.

5.5 Assessing the turbulence in the external environment

Clearly, certain elements of the external environment are more turbulent than others. The
turbulence of an element of the external environment is influenced by two factors, namely,
changeability (the degree of change), and predictability (the ease with which the changes can be
predicted). While continuous change is a characteristic of each element of the external
environment, the same level of turbulence is not experienced in all situations. Similarly, the extent
to which change can be predicted is not the same in all situations. The level of turbulence stretches
along a continuum from ‘repetitive’ to ‘surprising’. At one end of the scale, low levels of
turbulence are associated with situations that are ‘repetitive’. At the other end of that scale, high
levels of turbulence are associated with situations that are ‘surprising’. As the level of
environmental turbulence increases (becomes more ‘surprising’), the degree of its changeability
and the difficulty of predicting the changes, increases. When the level of turbulence is repetitive,
the change that takes place is familiar (not very changeable, if at all) and it is recurring (easy to
predict). The socio-demographic environment, for example, might fall in to this category. The size
of a country’s population increases slowly and predictably. At the other end of the scale, when the
level of turbulence is ‘surprising’, the nature of the change is ‘discontinuous and novel’,
(extremely changeable) and the changes that take place are of the nature of ‘unpredictable
surprises’ (very difficult to predict). The technological environment (information technology), for
example, might fall into this category, as well as the global financial environment. So, for
managers, certain levels of turbulence are quite predictable and manageable (for example,
population growth), while other levels of turbulence are novel and unpredictable (for example, the
global financial crisis). While all elements of the external environment need to be constantly
monitored and prepared for, it is those elements that have the highest possibility for surprises that
present the greatest challenges for managers. Managers need to practise very hard to ‘listen to the
whispers of the future’ and to ‘read the tea leaves’ in order to identify the first signs of changes as
early as possible.
In the process of scanning the total external environment, managers will have identified
positive trends and developments that constitute potential opportunities for their organisations, as
well as negative trends and developments that constitute possible threats. These potential
opportunities and possible threats now need to be evaluated.

5.6 Identifying and evaluating opportunities and threats

An important part of analysing the external environment, is identifying those trends and
developments in the external environment that constitute opportunities and those that constitute
threats for the organisation. Opportunities are positive trends and developments in the external
environment which, if responded to, will increase a business organisation’s profitability. Threats,
on the other hand, are negative trends and developments in the external environment that if
ignored, will more than likely result in a decrease in the profitability of a business organisation.
So, at the end of the process of analysing the external environment, there will be a long list of
opportunities and threats. A useful way to make sense of these lists of opportunities and threats
and to use them as a basis for formulating strategies (the subject of Chapter 6), is to plot them on
an Issues Priority Matrix as illustrated in Figure 5.3. Quite clearly, the threats and opportunities
are not going to all rank equal in terms of their chances of occurring (the vertical axis in Figure
5.3), or in their potential attractiveness (opportunities) or seriousness (threats) (the horizontal axis
in Figure 5.3). Some of the opportunities will be more attractive than others and some of the
threats will be more serious than others. At the same time, the probabilities of the various
opportunities occurring and the probabilities of the various threats occurring will also differ. Once
this has been done, it will be possible to identify high-priority issues and low-priority issues as
reflected in Figure 5.3. Clearly, it is important for managers to focus initially on the high-priority
issues and to use them as a basis for strategic decision-making and strategic action. This does not
mean, however, that the medium-priority and the low-priority issues are totally ignored; far from
it. It just means that they are kept in the background, and taken into consideration when time and
resources allow. In Chapter 6, the results of the Issues Priority Matrix analysis will feed into the
strategy formulation process.

Figure 5.3 Issues Priority Matrix

Source: Adapted from LEDERMANN, L.L. 1984. Foresight activities in the USA: Time for a reassessment.
Long Range Planning, June, 17(3). © 1984. Pergamon press. Adapted and reprinted with permission from
Elsevier.

Having outlined all the key dimensions of the external environment which, as we have seen,
comprises both the macro-environment and the industry environment, we now need to consider
the organisation’s internal environment. If you review Figure 5.1 again, you will see that the inner
core consists of the organisation itself, together with its resources and capabilities.

5.7 The internal environment

Once an organisation has identified its high priority opportunities and threats (see Section
5.6), it needs to respond to them by using its resources and capabilities (its internal environment)
in such a way as to take advantage of opportunities or defend itself against threats, or both. The
way in which this will be done, will depend on the extent to which its resources and capabilities
constitute strengths or weaknesses. A strength is something an organisation is good at doing
and/or a set of resources that improves its competitiveness in the marketplace. A weakness, of
course, is the opposite of that.

It is important to note that in most situations, strategic analysis cannot be the work of one
person. The best results are achieved when a team works on assessing both the external and
internal environments. Very often trends and developments in the external environment are
ambiguous, vague and indeterminate. This is where the combined insights and interpretations of a
team are indispensable.

5.7.1 Identifying resources and capabilities

An organisation’s resources can be divided into three categories:
• Tangible or physical resources include such things as property, raw materials, equipment
and production facilities
• Intangible resources refer to such things as brand value, reputation, culture and intellectual
capital
• Human resources include the expertise and competencies of its employees.

Resources in and of themselves are not particularly useful. What is important is how they are
used. This is where capabilities come in. “Capabilities represent complex combinations of assets,
people and processes that organisations use to transform inputs into outputs.”45 These capabilities
are based on competencies, expertise and experience, and usually represent:
• An accumulation of learning over time
• A gradual build-up of real proficiency in performing a particular activity
• The categories of organisational capability include: threshold capabilities, core capabilities
and distinctive capabilities.

5.7.1.1 Threshold capabilities

Threshold capabilities represent the minimum capabilities that an organisation needs to
participate in a particular industry. If an organisation does not have them, it will suffer from a
competitive disadvantage. But the fact that an organisation does have them does not give it a
competitive advantage. In other words, threshold capabilities are ‘needed to play’, but are not
‘enough to win’. So, if an organisation wants to compete in the soft-drink industry with a large
workforce, for example, it must be capable of providing efficient canteen facilities for employees.
But clearly being able to provide efficient canteen facilities for a large workforce does not on its
own, give it a competitive advantage.

5.7.1.2 Core capabilities

A threshold capability becomes a core capability when the well-performed activity is central to
what delivers value to the customer and is therefore central to the organisation’s competitiveness
and profitability. Normally, core capabilities result from collaboration among different parts of an
organisation and they typically reside in its people. They are not assets on the balance sheet. A
core capability gives an organisation a potentially valuable competitive capability and represents a
definite competitive asset. Considering the example of a bottler of soft drinks, we will notice that
the canteen facilities of a large soft-drink bottler does not meet this criterion.
 As shown in Table 5.4, a bottler of soft drinks may, for example, have three core capabilities:
‘demand creation’, ‘market execution’ and ‘demand fulfilment’. They are deemed to be core
capabilities for two reasons: firstly, because they are central to delivering value to consumers, and
secondly, because they represent a combination of various threshold capabilities, as further
illustrated in Table 5.4. Table 5.4 clearly illustrates the fact that each core capability is not a single
activity, but a combination of various threshold capabilities.

Table 5.4 Core and threshold capabilities of a hypothetical soft-drink bottler

5.7.1.3 Distinctive capabilities

These are core capabilities that an organisation performs better than its competitors. A distinctive
capability:
• Represents a core capability that competitors do not have
• Has the potential to be a cornerstone of strategy
• Can provide a competitive edge in the marketplace because it represents competitively
superior resource strengths.

To qualify as a distinctive capability – and therefore as a basis for a sustainable competitive

advantage – a core capability must pass four tests:
• Test 1: Is the core capability difficult or very costly to copy?
• Test 2: Is the core capability rare or unique?
• Test 3: Does the core capability create value for customers?
• Test 4: Is the core capability substitutable? Can it be made irrelevant by different core
capabilities that competitors might have?

Consult Table 5.5 to see the relationship between core capabilities meeting the four tests on the
one hand, and sustainable competitive advantage and above-average returns on the other.
As can clearly be seen in Table 5.5, it is only when all four of the tests are passed and the core
capability qualifies as a distinctive capability that the organisation enjoys a sustainable
competitive advantage, which results in it earning above-average returns.
It is important to appreciate that the identification of core and distinctive capabilities does not
happen by accident. Very often, organisations do not know what they know. An organisation
needs to make a conscious effort and adopt a systematic approach to make sure that it does indeed
know what it is good at and what it does better than competitors. Failure to do this may mean that
it misses out on potentially profitable strategic opportunities. On the other hand, if after following
a systematic approach to the identification of resources and capabilities, it discovers that all it has
is a bunch of threshold capabilities that can be easily copied, then it needs to recognise that it is
competitively vulnerable. In other words, it largely exists because its competitors allow it to exist.
This revelation might also have important strategic implications, including the selling of the
business before it is too late.

Table 5.5 Outcomes from combinations of the criteria for sustainable competitive advantage

5.7.2 Assessing the strengths and weaknesses in an organisation’s

resources and capabilities using the Relative
Strength/Strategic Importance Matrix
R.M. Grant has provided a practical framework (the Relative Strength/Strategic Importance
Matrix) for assessing the strengths and weaknesses in an organisation’s resources and capabilities,
and then for using this assessment to guide management in strategy formulation.46 Three steps are
proposed and they include:

Step 1: Identify the key resources and capabilities

Identification of resources and capabilities can be done either from the perspective of the demand
side (external environment) or the supply side (internal environment). From the demand side, it
means asking, ‘What resources and capabilities must a business have in order to compete
successfully in the industry?’ From the supply side, it involves asking, ‘What resources and
capabilities does the organisation currently have and that it can use to take advantage of
opportunities and defend against threats?’
Investigating it from the demand side, we can begin with industry key success factors or key
elements of customer value. These are the handful of things that an organisation has to be good at
in order to thrive in a particular industry and market. This is dictated by factors external to the
organisation. In the fashion retailing industry, for example, two key success factors are purchasing
(the right style of clothing, at the right prices at the right place) and location. Analysing it from the
supply side, we can examine the various components of the organisation’s value chain, including
the stages of product development, inbound logistics, manufacturing and assembly, out-bound
logistics, and marketing and sales in order to determine what the organisation is good at
(strengths) and what it is not so good at (weaknesses) within those various spheres of activity.
 Looking at the Volkswagen organisation from the demand side, we might identify that the key
success factors within the motor industry in South Africa are value for money, attractive designs,
and new models embracing the latest technology. The implications of these success factors for
Volkswagen’s resources and capabilities would be strong new-product development capabilities,
strong manufacturing capabilities, strong supply-chain capabilities, strong brand-development
capabilities, and strong financial resources.

Step 2: Appraising resources and capabilities

An organisation’s resources and capabilities need to be appraised against two key criteria:
strategic importance and relative strength.
It is vitally important that an assessment of relative strengths be done objectively and brutally
honestly. Organisations must not get so carried away with what they think they are good at, that
they lose perspective as to how good they are relative to competitors in areas that are critical to
their sustainable profitability. Benchmarking against best-in-class organisations is a useful way of
ensuring objectivity in this important appraisal exercise. It is important to appreciate that the
appraisal of resources and capabilities is not always about data, but about insight, understanding
and intuitive judgement.
Putting strategic importance and relative strengths together allows us to highlight an
organisation’s key strengths and key weaknesses. Table 5.6 represents a hypothetical and partial
appraisal of Volkswagen’s resources and capabilities.
The two criteria: ‘strategic importance’ and ‘relative strength’ are then combined as illustrated
in Figure 5.4 to present a single, overall picture of Volkswagen’s strengths and weaknesses. This
information can then be used as a basis for making certain strategic decisions.

Table 5.6 Appraising Volkswagen’s resources and capabilities

1
Both scales range from 1 to 10 (1 = very low, 10 = very high).
2
Volkswagen’s resources and capabilities are compared against those of General Motors, Ford, Toyota,
Honda, Chrysler, Nissan, Honda and Fiat, where 5 represents parity. Please note: The ratings are based
upon the author’s subjective judgement and are mostly hypothetical.
Source: GRANT, R.M. 2005. Contemporary strategy analysis. Oxford: Blackwell Publishing, p. 159.
Republished with permission of John Wiley & Sons, from Contemporary strategy analysis. R. M. Grant,
2005. Blackwell publishing; permission conveyed through Copyright Clearance Center, Inc.

Step 3: Developing strategy implications

Armed with this ‘picture’, an organisation is in a position to explore strategies that are going to
capitalise on the key strengths in a creative and imaginative way. Volkswagen’s key strengths lie
in the areas of government relations, engineering, manufacturing, and modern plant and
equipment. This is clearly shown in Table 5.6 where these resources and capabilities scored more
than 5 out of 10 and also shown in the Relative Strength/Strategic Importance Matrix in Figure
5.4. From a strategic decision-making point of view, Volkswagen immediately has to ask itself,
‘Where else can we use these strengths in order to entrench our position in the industry?’ At the
same time, Volkswagen must look at strategies that are going to correct its key weaknesses. What
does it need to do, for example, to correct its key weaknesses in product development, financial
management, research and development, and location? In addition, Volkswagen needs to explore
the possibility of turning weaknesses into strengths.
One important question is – what about superfluous strengths? In just the same way that a
weakness may be converted into a strength, it may be possible to develop innovative strategies to
get consumers to shift their perceptions of what is important with regards to a product or service
in favour of superfluous strengths. In the face of increased trading online and over the internet, a
bank’s branch network might, for example, be identified as a superfluous or unnecessary strength.
By good advertising that lets consumers know of the benefits of personal service, however, the
bank’s branch network might be converted into a key strength.

Figure 5.4 The Relative Strength/Strategic Importance Matrix: Appraising Volkswagen’s resources and
capabilities (hypothetical)

NOTE: The Figure is based upon the ratings of resources and capabilities in Table 5.6.
Source: GRANT, R.M. 2005. Contemporary strategy analysis. Oxford: Blackwell Publishing, p. 159.

The results of the Relative Strength/Strategic Importance matrix will be used in Chapter 6 in
the process of formulating strategies.

Chapter summary
As a basis for making strategic decisions, an organisation needs to assess its external environment
for threats and opportunities, as well as its internal environment for strengths and weaknesses. The
external environment is made up of the macro-environment and the industry environment. A
formal evaluation of the external environment involves the following steps: scanning, monitoring,
forecasting and assessing.
The macro-environment is made up of the following five sub-environments: political-legal,
economic, socio-cultural and demographic, technological and the natural environment.
In terms of assessing the industry environment, organisations can practically use Michael
Porter’s five-forces framework, which is made up of competitors or rivals, new entrants, substitute
products and services, the power of buyers or customers, and the power of suppliers.
In the process of analysing the external environment, a list of opportunities (positive trends
and developments) and threats (negative trends and developments) will have been developed. The
Issues Priority Matrix is a useful tool for identifying the high priority opportunities and threats
that will influence strategic decision-making and action.
The internal environment is made up of an organisation’s resources and capabilities.
Resources can be tangible, intangible or human. Resources on their own are not particularly
useful. What is important is how they are used. This is where capabilities come in. Capabilities
represent complex combinations of assets, people and processes that organisations use to
transform inputs into outputs.
Capabilities can be threshold, core and distinctive. Core and distinctive capabilities give an
organisation a sustainable competitive advantage and the potential for earning above-average
returns.
An organisation’s resources and capabilities need to be appraised against two key criteria:
strategic importance and relative strength. The Relative Strength/Strategic Importance framework
should be used to identify key strengths, key weaknesses, superfluous strengths and superfluous
weaknesses. Once these have been identified, appropriate strategic decisions can be made.

Questions for discussion

1. Identify two recent trends in each of the political-legal, economic, socio-cultural,
technological and ecological segments of the macro-environment that, in your opinion, have
significantly affected South African business organisations. What implications do they have
for these business organisations?
2. Explain why core capabilities need to be valuable, unique, difficult to copy and non-
substitutable to present an organisation with a sustainable competitive advantage and an
opportunity to earn above-average returns.
3. Use the practical framework for assessing strengths and weaknesses outlined in the chapter as
a basis for undertaking an analysis of your university’s strengths and weaknesses. Give
recommendations as to what your university should do in response to your analysis.
4.
 As a relatively new development within the context of information technology, how might a
bank such as First National Bank use Facebook and Twitter as part of its communication
strategy?
5. Explain why it is so important for managers to thoroughly analyse the external environment.

Exercise for competency development

With the advancement of home cinemas and more affordable entertainment systems, the future of cinema
houses such as Ster Kinekor and Nu Metro were jeopardised. The weakening of the Rand against the US
dollar furthermore contributed to increasing costs for obtaining quality movies to draw the crowds in the
evenings and over weekends. As conditions changed they eventually resulted in costs growing
substantially and profits dwindling.
The strategic action management competency is made up of three parts: (a) Understanding the
industry, (b) Understanding the organisation, and (c) Taking strategic actions. As a consultant for Ster
Kinekor, you are requested to do the following:
• Analyse general trends in the industry and consider their possible implications for Ster Kinekor.
• Identify the sustainable competitive advantages that Ster Kinekor should develop to ensure survival.
• Use the five-forces framework as a basis for developing strategic actions that Ster Kinekor should
take to ensure its survival.

Contemporary management in practice

Using the internet as a source of information, compare and contrast what Woolworths, Sappi and
Nedbank are doing to ensure that their strategic actions and day-to-day practices are environmentally
friendly and sustainable. Consider the following links:
• http://www.woolworthsholdings.co.za/corporate/sustainability.asp
• http://www.sappi.com/regions/sa/Sustainability/Pages/Group-sustainability.aspx
• https://www.nedbank.co.za/content/nedbank/desktop/gt/en/corporates/about-us/sustainability.html

Endnotes
1 STATISTICS SOUTH AFRICA. 2016 [Online] Available:
http://www.statssa.gov.za/publications/P0441/P04413rdQuarter2016.pdf [Accessed 6 April 2017].
2 BBC NEWS. 2016 [Online] Available: http://www.bbc.com/news/world-africa-37045276 [Accessed 11
April 2017].
3 FOCUS ECONOMICS. [Online] Available: http://www.focus-economics.com/countries/south-africa.
[Accessed 5 April 2017].
4 MAIL & GUARDIAN. 2014. SA narrowly avoids recession. [Online]. Available:
http://mg.co.za/article/2014-08-26-sa narrowly-avoids-recession [Accessed 26 March 2015].
5 STATISTICS SOUTH AFRICA. 2015. South Africa’s economy contracts in the second quarter of 2015.
[Online]. Available: http://www.statssa.gov.za/?p=5323 [Accessed 11 October 2015].
6 BISSEKER, C. 2014. By the skin of our teeth. Financial Mail, June 27 – July 2, p. 29.
7 WILLIAMS, D. 2014. In need of a confidence boost: As the global economy slowly recovers, SA
moves in the opposite direction. Financial Mail: Top Companies Report, p. 98.
8 KHUZWAYO, W & KA’NKOSI, S. 2015. Eskom derails. www.iol.co.za [Online]. Available:
http://www.iol.co.za/business/companies/eskom-derails-1837077 [Accessed 7 August 2016].
9 VOLLGRAAFF, R. 2015. Eskom woes dim SA’s growth by 10%. Business Report. April 9, p. 13.
10 MAGWAZA, N. 2015. Petrol, water, electricity prices to pressure inflation. Business Report, March 31,
p. 20.
11 HITT, M.A., IRELAND, R.D. & HOSKISSON, R.E. 2013. 10th ed. Strategic Management:
Competitiveness and Globalization: concepts and cases. Ohio: Cengage Learning, pp. 17–22.
12 SUNTER, C. 1987. The World and South Africa in the 1990s. Cape Town: Human and Rousseau, p. 13
13 MANUFACTURING CIRCLE. 2016. www.manufacturingcircle.co.za [Online]. Available:
http://www.manufacturingcircle.co.za/member_companies.html [Accessed 10 August 2016].
14 HITT, M.A., IRELAND, R.D. & HOSKISSON, R.E. Op cit.
15 CRONJE, F. 2014. The Time Traveller’s Guide to our Next Ten Years. Tafelberg, Cape Town.
16 SPECTOR, J.B. 2015. AGOA: South Africa’s Real Chicken and Egg Problem. [Online]. Available:
www.dailymaverick.co.za/article/2015-04-20-agoa-south-africas-real-chicken-and-egg-problem.
[Accessed 31 August 2015].
17 CAMPBELL, D., STONEHOUSE, G. & HOUSTON, B. 2002. 2nd ed. Business Strategy: An
Introduction. Butterworth-Heinemann, p. 121.
18 COMPETITION ACT. [Online]. Available: http://www.comptrib.co.za/the-act/competition-act/
[Accessed 20 March 2015].
19 MAYLIE, D. Wal-Mart, Massmart Merger Approved in South Africa [Online]. Available:
http://www.wsj.com/articles/SB10001424052970204603004577270942176432300 [Accessed 20 March
2015]; COMPETITION TRIBUNAL. 2016. [Online]. Available: http://www.comptrib.co.za/cases/high-
court-judgement/retrieve_case/2104 [Accessed 11 August 2016]; COMPETITION TRIBUNAL. 2016.
[Online]. Available: http://www.comptrib.co.za/cases/large-merger/retrieve_case/2087 [Accessed 11
August 2016].
20 GININDZA, B. 2015. New visa rules hit tourism numbers. Business Report 26 July 2015, p. 1.
21 LOUW, L. & VENTER, P. 2013. 3rd ed. Strategic Management: Developing Sustainability in Southern
Africa. Cape Town. Oxford University Press.
22 CAMPBELL, D. et al. Op cit., p. 123.
23 SOUTH AFRICA GDP GROWTH RATE. 2015. [Online]. Available:
www.tradingeconomics.com/south-africa/gdp-growth. [Accessed 30 August 2015].
24 SAVILLE, A. Two ingredients for long term company survival. [Online]. Available:
www.mba.co.za/printarticle.aspx?s=51&a=5779. [Accessed 4 January 2015].
25 COKAYNE, ROY. 2015. VWSA to invest R4,5bn in its plant. Business Report. 28 August 2015, p. 1.
26 Ibid.
27 STODDARD E. & KUMWENDA-MTAMBO, O. 2015. 6 000 jobs at risk in Lonmin restructuring.
Business Report. 26 July 2015, p. 1.
28 The Global Competitiveness Report 2016-2017. [Online]. Available: http://www.weforum.org/reports
[Accessed 30 December 2016].
29 MOCKLER, R.J. & DOLOGITE, D.G. 1997. Multinational cross-cultural management. Westport,
Conn.: Greenwood, p. 97.
30 HOFSTEDE, G. 1980. Culture’s consequences: International differences in work-related values.
London: Sage; HOFSTEDE, G. & BOND, M.H. 1988. The Confucian connection: From cultural roots
to economic growth.Organisational Dynamics, 4–21, Spring. HOFSTEDE, G. [Online]. Available
https://geert-hofstede.com/national-culture.html [Accessed 6 April 2017].
31 HUMANITY’S TEAM SOUTH AFRICA: WHAT IS UBUNTU? [Online]. Available
http://www.humanitysteamsa.org/about-us/ [Accessed 23 April 2017].
32 STATISTICS SOUTH AFRICA. 2012. Census 2011 Statistical release - P0301.4. [Online]. Available:
http://www.statissa.gov.za/publications/P03014/P030142011.pdf [Accessed 4 January 2012];
STATISTICS SOUTH AFRICA. 2016. Community Survey 2016. [Online]. Available:
http://cs2016.statssa.gov.za/wp-content/uploads/2016/07/NT-30-06-2016-RELEASE-for-CS-
2016-_Statistical-releas_1-July-2016.pdf [Accessed 4 August 2016].
33 BLAINE, S. 2012. Census: SA’s population of 51.8m is still young. [Online]. Available:
http://www.bdlive.co.za/economy/2012/10/30/cenwuw-wqw-populqion-of 51.8m-is-still-young.
[Accessed 7 August 2015].
34 GININDZA, B. 2015. Foschini targets children’s gear. Business Report. 13 August 2015, p. 19.
35 KHANYILE, S. 2011. Business must do more to stop Aids. Business Report. 9 June 2011.
36 SAGE ONE. 2015. Khanyi Dhlomo – Founder and Managing Director of Ndalo Media. [Online].
Available: https://sageone.co.za/top-female-entrepreneurs-in-south-africa-813.html [Accessed 2 August
2016].
37 IRONCAD. 2016. Aerospace and Defense Design. [Online]. Available:
http://www.ironcad.com/index.php/industry/aerospace-a-defense [Accessed 11 August 2016].
38 TRIALOGUE. 2007. The sustainable business handbook: Smart strategies for responsible companies.
4th ed. Cape Town: Trialogue, pp. 3–4.
39 KING IV REPORT. 2016. [Online]. Available: http://c.ymcdn.com/sites/
www.iodsa.co.za/resource/resmgr/king_iv/King_IV_Report/IoDSA_King_IV_Report_-_WebVe.pdf
[Accessed 6 April 2017].
40 INSTITUTE OF DIRECTORS SOUTHERN AFRICA. 2009. King Code of Governance Principles for
South Africa, p. 9.
41 SAPPI. 2015. Group Sustainability charter. [Online]. Available:
http://www.sappi.com/group/Sustainability/Policies/Sappi-Group-Sustainability-Charter.pdf [Accessed
11 August 2016].
42 TRIALOGUE. 2006. The sustainable business handbook: Smart strategies for responsible companies.
3rd ed. Cape Town: Trialogue, p. xviii.
43 FM ESSENTIALS. 2011. Coca-Cola introduces PlantBottle at the Valpré plant opening. [Online].
Available: www.coldpressmedia.co.za/gb2011/august/articles/cocacola.html [Accessed 9 January 2012].
44 PORTER, M.E. 1980. Competitive strategy: Techniques for analyzing industries and competitors. New
York: Free Press.
45 LOUW, L. & VENTER, P. Op cit.
46 GRANT, R.M. 2005. 5th ed. Contemporary Strategy Analysis. Oxford: Blackwell Publishing, p. 153.
LEARNING OUTCOMES
After studying this chapter, you should be able to:
• Explain the importance of planning
• Write a statement of strategic intent for an organisation
• Conduct a SWOT analysis for an organisation
• Set strategic objectives that are SMART
• Undertake a gap analysis for an organisation
• Identify, explain and differentiate between corporate-level, business-level and functional-level strategies
as a means of filling the profit gap
• Apply relevant criteria to choose the most appropriate strategies to fill a given profit gap
• Distinguish between ‘Red Oceans’ and ‘Blue Oceans’ within a strategic planning context
• Understand the basic principles of value innovation
• Draw a value curve for an organisation as a basis for identifying innovative strategies
• Understand what is involved in successfully implementing the strategies that are identified as best to fill
the profit gap
• Write a strategic plan for an organisation, or a business unit of an organisation, using the nine-step
strategic-planning process discussed in this chapter.

CHAPTER OUTLINE
• South African Insight: The strategic profile of Barloworld
• The management task of planning
• The strategic planning process that leads to strategy formulation
» Task 1: Clarify the organisation’s strategic intent: vision and mission
» Task 2: Assess threats and opportunities
» Task 3: Assess strengths and weaknesses
» Task 4: Set strategic objectives
» Task 5: Undertake a gap analysis
» Task 6: Develop strategies to fill the profit gap
» Task 7: Implement the strategies that are identified to best fill the profit gap
» Task 8: Control and diagnose results
» Task 9: Repeat the planning process

Key terms and concepts

• Planning
• Strategic planning
• Contingency planning
• Vision
• BHAG
• Mission
• Core purpose
• Core strategies
• Core values
• Core behaviour standards
• SWOT Analysis
• Strategic objectives
• Functional objectives
• Operational objectives
• Gap analysis
• Strategies
• Corporate-level strategies
• Internal growth strategies
• Market-penetration strategy
• Market-development strategy
• Product-development strategy
• Innovation strategies
• Red Oceans
• Blue Oceans
• Value innovation
• Value curve
• Four action framework (ERRC analysis)
• Consolidation strategy
• External growth strategies
• Vertical forward integration
• Vertical backward integration
• Horizontal integration
• Diversification
• Related diversification
• Unrelated diversification
• Turnaround strategies
• Co-operative strategies
• Business-level strategies
• Generic strategies
• Differentiation strategy
• Focused- differentiation strategy
• Cost-leadership strategy
• Focused cost-leadership strategy
• Best cost strategy
• Functional-level strategies
• Tactical plans
• Operational plans

COMPETENCY WHY IS THIS COMPETENCY EXAMPLE

IMPORTANT IN RELATION TO
STRATEGIC PLANNING AND
STRATEGY FORMULATION?

Communication Managers involved in the process Woolworths’ managerial team realises the
should build strong interpersonal importance of understanding the interests
relationships with a diverse range of and expectations of their stakeholders, and
people, show genuine sensitivity to how it critically impacts on relationships.
the diverse needs, opinions and
feelings of others, and must be
 tolerant of their eccentricities and See how Woolworths engages with all
shortcomings. They must also keep stakeholders in order to ensure effective
people informed of relevant events strategy implementation.1
and activities, and be skilled at
developing relationships, exercising
influence upward with superiors,
laterally with peers and downward
with subordinates, as well as
externally with customers, suppliers
and other stakeholders.

Planning and If an organisation does not The following are some of Barloworld’s
financial effectively (a) set specific and 2020 objectives for its strategic focus areas:
management measurable goals, and (b) • People: Grow operating profit by R350k
innovatively develop plans and per employee
schedules to achieve those goals, it • Sustainable development: 10%
will not be competitive in a turbulent efficiency improvement in water
environment. In addition, it will be intensity (KL/Rm revenue) off a 2015
hard-pressed to satisfy all its baseline.
stakeholders. • Innovative customer solutions:
Leadership in customer satisfaction and
loyalty in targeted segments
• Diversity and inclusion: >75% of total
headcount to comprise African, Indian
and Coloured employees
• Financial returns: Return on net assets to
be >18%
• Profitable growth: Double revenue in
five years2

Teamwork Strategy formulation is never Zyda Rylands, Managing Director of

undertaken by one person in Woolworths Food, says. “I have a team of
isolation. Successful strategy 350 people in Foods, 10 of whom report
formulation, as well as successful directly to me. Teamwork is vital in our
strategy implementation, is a team business, and we all share the same
effort. As such, managers involved objectives. We grow as a result of one
in the strategy formulation process another’s strengths and support one another
must be very competent in designing in our weaknesses. As a collective, we are
teams and managing team dynamics. much more magical than the individual
parts.” She further confirms that this
teamwork approach explains the success of
the team in delivering on the Group’s
strategy.3

Strategic action It is vitally important for top From the Barloworld CEO: “Barloworld is
management to effectively (a) assign 114 years old which underscores our belief
priorities and make decisions that that a sustainable organisation is created
are consistent with the organisation’s through integrated and co-ordinated
mission and strategic goals, (b) to activities addressing economic,
recognise the challenges of environmental and social aspects …Climate
alternative strategies, and (c) to change and environmental considerations
establish tactical and operational remain central components of the group’s
goals. A lack of competence in these ethos of responsible corporate citizenship. …
Our Vision 2020 aspirational targets ensure
 areas will result in poor strategy continued focus on reducing our
formulation. environmental impact through improving
efficiency in non-renewable energy
consumption, related greenhouse gas
emissions, and water consumption. We have
also set a target for renewable energy and I
am pleased that we implemented our first
solar photovoltaic installation during the
year… Waste management also remained a
focus which is underscored by our
investment in SmartMatta, an environmental
solutions company.4

Global awareness It is very important for managers to Barloworld Equipment, a division of

(a) stay informed of political, social Barloworld, is the official dealer for the
and economic trends and events Caterpillar construction, mining and
around the world, and (b) to industrial machine range in eleven southern
recognise the potential impact of African countries, in addition to Spain,
those global events on the Portugal, Siberia and the Russian Far East.
organisation. A lack of competence As such, Barloworld Equipment executives
in these areas will result in the and managers responsible for those foreign
organisation missing out on countries, are required to develop a global
potentially profitable market awareness competence to identify threats
development strategies. and opportunities in those markets, as well
as to effectively do business in cultures
which are often quite different from South
Africa.5

Emotional To be successful in whatever activity “The most effective leaders are all alike in
Intelligence and they are involved in, managers must one crucial way: they all have a high degree
self-management display competence in the areas of of what has come to be known as emotional
emotional intelligence, and self- intelligence. It’s not that IQ and technical
management is essential. This skills are irrelevant. They do matter, but…
applies no less in the area of strategy they are the entry-level requirements for
formulation. executive positions. My research … clearly
shows that emotional intelligence is the sine
qua non of leadership. Without it, a person
can have the best training in the world, an
incisive, analytical mind, and an endless
supply of smart ideas, but he still won’t
make a great leader.” – Daniel Goleman6

The strategic profile of Barloworld

Barloworld is a multinational corporation headquartered in South Africa that operates in 24 countries

worldwide. The organisation is a distributor of leading international brands, providing integrated rental,
fleet management, product support and logistics solutions, and they generate some R62 billion in annual
revenue.
Barloworld is made up of two divisions: (a) Barloworld Equipment and Barloworld Handling, and (b)
Barloworld Automotive and Logistics. A common strategic approach guides their two divisions so that
they can meet exacting performance standards and create sustainable value for all stakeholders.
Source: BARLOWORLD. 2016. Group Strategy. [Online]. Available: https://www.barloworld.com/our-
business/group-strategy/ [Accessed 12 August 2016].
Barloworld’s Strategic Triangle, as shown on the previous page, reflects the company’s vision at the
apex, followed by the components of its strategy which is directed at fulfilling its vision.
Each component of Barloworld’s Strategic Triangle will be briefly outlined below:

Barloworld’s Vision 2020: Inspiring a world of difference

“… by creating shared value through building world-class businesses, generating superior shareholder
returns and delivering sustainable societal outcomes.”

Shared value
Barloworld’s Value Based Management (VBM) approach supports sustainable development in the group.
Integration of activities addressing economic, environmental and social aspects, and balancing the short
and long-term interests of all stakeholders, including the communities in which they operate, is therefore
required. This is institutionalised through structured strategic planning and risk management initiatives, a
leadership philosophy and managerial approach that entrenches accountability for sustainable value
creation, stakeholder engagement, and a commitment to consistent, transparent and comparable reporting.
Central to their VBM approach and sustainability are the following commitments to their stakeholders:
• Delivering top returns for shareholders
• Attracting, developing, retaining and rewarding talented and diverse employees
• Attaining market leadership and helping their customers to be successful by delivering innovative
solutions
• Aligning with their principals strategically, and being recognised as a top performer
• Treating suppliers fairly and expecting them to be ethically committed
• Being respected members of society and communities where they operate
• Taking care of the environment through responsible and ethical business practices.
The ten ‘Pillars of Sustainability’, used to guide their activities, assess progress, and act as a filter against
which future opportunities are examined, are presented in the table below.

Barloworld’s ten pillars of sustainability

1 Clear vision and strategy: 3 Integrated customer solutions:

• Develop a vision that inspires our employees • Focus on the customer
• Clearly communicate the vision so that it is understood • Strategically segment customers and determine
• Develop a clear strategy that delivers top quintile returns their fundamental needs
• Develop a geographic expansion strategy that optimises • Commit to exceeding customer expectations and
global growth opportunities continuously growing value for the customer
2 Market leadership: 4 Globally competitive employees:
• Develop strategies to achieve market or sector leadership • Attract and retain the best employees
in each of our core businesses • Develop our people to globally competitive
• Plan to exit from businesses where we cannot attain standards
market or sector leadership • Recognise and reward good performance and
• Plan to exit from businesses where there is insufficient rectify poor performance
return on managerial effort • Ensure succession plans at all critical levels
• Inculcate the Barloworld leadership philosophy
• Celebrate success and have fun
5 Environmental and social legitimacy: 8 Values and ethics:
• Accept that we are custodians for future generations and • Focus on doing what is right
engage proactively in global sustainability issues • Behave in line with our Code of Conduct
• Ensure that business strategies are legitimate in the eyes • Act in accordance with our Code of Ethics
of the communities and governments where we operate » Be fair
• Commit to leading in empowerment and transformation » Obey the law
(B-BBEE) » Be honest
• Adopt a caring approach towards the socio-economic » Respect others
issues of the communities in which we operate » Protect the environment
• Strive towards reducing the environmental impact of our • Always remember: ‘Our word is our bond’
business activities
6 Focus on the core: 9 Corporate governance:
• Limit the number of core businesses • Manage business risks to enhance and protect
• Regularly review which businesses should remain core shareholder value rather than to eradicate all risk
• Only grow areas that are aligned to the core • Comply with all relevant regulations and
• Critically review all potential new core businesses standards
• Ensure that investor and public communication is
beyond reproach
• Ensure financial prudence in all dealings
• Comply with the group risk philosophy
• Implement effective controls that protect
stakeholder value
7 Decisive management: 10 Learning organisation:
• Strive to deliver clear, decisive and inspiring leadership • Constantly look at re-inventing ourselves through:
• Implement decisions rapidly » Exploration
• Acknowledge mistakes and take corrective action » Innovation
• Intervene where business performance is unsatisfactory » Learning, especially from mistakes
• Exit businesses where corrective action fails » Sharing (best practices and successes)

Growth Segments:
Barloworld recognises that in order to achieve profitable growth, it needs to focus on opportunities in
certain high-growth sectors of the South African economy such as mining, infrastructure, agriculture,
power, automotive and logistics.

Strategic Focus Areas or core strategies:

The organisation describes its strategic focus areas or core strategies as follows:
 • Integrated customer solutions: To transform their business model to accelerate the evolution from pure
distribution to the provision of flexible value-added integrated solutions. These include customised
maintenance and repair contracts, cost-efficient combinations of rental, used and new equipment and
vehicle offerings, long-term fleet management solutions, turnkey power solutions in the electric power,
marine and petroleum segments, and integrated supply-chain management and integrated logistics
contracts.
• People: To create value through and for all employees by attracting, developing and retaining globally
competitive people and skills necessary to deliver our integrated customer-solutions strategy and
achieve our growth targets. This will be achieved through individual development action plans,
supported by comprehensive skills development programmes, performance-related rewards and
employee-participation systems.
• Diversity and inclusion: To enhance their competitiveness and legitimacy by leading in transformation
and diversity while ensuring equality and fairness across the entire organisation.
• Sustainable development: To enhance their competitiveness and legitimacy by leading in sustainable
development and ensuring long-term value creation for all our stakeholders by responsible business
conduct, developing products and services to capitalise on business opportunities allied to core
businesses and realising cost savings through energy-efficiency initiatives and other sustainable
business practices. The Barloworld ‘Ten pillars of sustainability’, outlined above, guide and reflect the
group’s activities.
• Financial returns: To consistently achieve top quartile returns, at or above our cost of equity, as
measured against relevant peer groups in each of our chosen business segments.
• Profitable growth: To achieve top quartile growth in total shareholder returns over five years to
September 2020. Pursue opportunities in high-growth sectors such as mining, infrastructure, power,
agriculture, tourism and logistics with a focus on emerging markets.

Worldwide Code of Conduct:

The Worldwide Code of Conduct articulates Barloworld’s commitment to doing business the right way; it
is guided by their values of integrity (the power of honesty), excellence (the power of intense focus),
teamwork (the power of working together) commitment (the power of responsibility) and sustainability
(the power of endurance). It sets the standards to which they hold themselves accountable.
One of their key values is sustainability, which reinforces the company’s Vision 2020. “We are
committed to building a better world. Sustainability is an integral part of who we are and what we do every
single day. We recognise progress involves a balance of environmental stewardship, social responsibility
and economic growth (the triple bottom line). We provide work environments, products, services and
solutions that make productive and efficient use of resources as we strive to achieve our vision. We believe
this commitment supports the enduring success of our customers, shareholders, people and other
stakeholders.”
The Code of Ethics binds Barloworld directors, management and employees to obey the law, respect
others, be fair and honest, and protect the environment.
Source: BARLOWORLD. 2016. Group Strategy. [Online]. Available: https://www.barloworld.com/our-
business/group-strategy/ (Accessed 12 August 2016); BARLOWORLD. 2016. Barloworld’s 10 pillars of
sustainability. [Online]. Available:
https://www.barloworld.com/pdf/sustainability/other_disclosure/barloworlds_10_pillars_of_sustainability-2015.pdf
(Accessed 12 August 2016); BARLOWORLD. 2016. Worldwide conduct. [Online]. Available:
https://www.barloworld.com/sustainability/worldwide-code/ (Accessed 12 August 2016).

6.1 The managerial task of planning

Planning is a formal process involving the following steps:
• Choosing the organisation’s vision, mission and overall goals for both the short term and the
long term
• Devising divisional, departmental and even individual goals based on overall organisational
goals
• Choosing strategies and tactics to achieve those goals
• Allocating resources (people, money, equipment and facilities) to achieve the various goals,
strategies and tactics.

Why is planning important? The following are some of the key responses to this question:
• Planning provides a focus for the other managerial tasks, namely organising, leading and
controlling. It is, in fact, the primary managerial task. This is so because until plans have been
set and an organisation knows what it wants to achieve and how, it will not be possible to
decide how to structure the organisation (the organising task of management), how to
influence and motivate staff (the leading task of management) or how to compare actual
results with required results (the controlling task of management).
• Planning gives the organisation a sense of direction and purpose as a focus for setting goals
and developing strategies7
• It helps to identify future opportunities
• It helps to identify future threats
• It develops the most appropriate courses of action (strategies and tactics) to achieve the goals
set
• It helps to co-ordinate managers of the different functions and divisions of an organisation to
ensure that they all pull in the same direction and work to achieve its desired future state8
• It helps in understanding the risks and uncertainties associated with various strategic options.
As a result of planning, the organisation has a better chance of achieving its overall goals, which
for business organisations are usually set in terms of survival, profitability and long-term growth.

The strategic plan for an organisation is in fact its ‘master plan’. As the overall long-term
plan for the organisation (normally five years or longer), it also includes and integrates the shorter
termfunctional plans (normally one to five years) and the operational plans (normally less than
one year). Strategic planning is concerned with two things: strategy formulation (determining
what the organisation is going to do to achieve its goals and objectives) andstrategy
implementation (determining what key internal variables have to be addressed to ensure that the
strategies are actually turned into action). This chapter is essentially concerned with strategy
formulation. The importance of strategy implementation is, however, touched upon in Task 7 of
the strategic planning process below. This is because other chapters in this book cover key internal
variables that impact on effectively and efficiently turning strategies into action in more detail,
(strategy implementation): strategic purposes and shared values (Chapter 6), organisational
structure (Chapter 8), leadership (Chapter 11), motivation (Chapter 12), culture and diversity
(Chapter 10), and resources and capabilities (Chapter 5).
The basic strategic planning process will now be used as a framework for discussing the task
of planning.

6.2 The strategic planning process

In its simplest form, strategic planning is concerned with asking and answering four basic
questions:
• Where have we come from?
• Where are we now?
• Where do we want to be (or what kind of organisation do we want to be) at some time in the
future?
• How are we going to get from where we are now to where we want to be?

It must be emphasised that in most large organisations, such as Anglo American and Sappi, for
example, strategic planning includes contingency planning, which involves preparation for
unexpected, major and quick changes (positive or negative) in the environment that will have a
major impact on the organisation and require a quick response. This process begins with managers
developing scenarios of major environmental events that could occur. A contingency plan could
be developed for responding to a disaster (for example, a flood or fire destroying the
organisation’s factory) or for managing a crisis (for example, a 48-hour electricity shut down). A
contingency plan may also be developed for a positive event such as an increase in demand for
products that is greater than the organisation’s present manufacturing capacity or ability to render
a particular service. Generally, managers should plan for three to five potentially serious and
unexpected events. To consider any more than this is likely to make the contingency planning
process too time consuming and unmanageable. Contingency planning forces managers to think of
possible unexpected crises and to outline strategies with which to respond to them. It increases the
probability of an organisation adapting to unexpected events in an orderly and speedy way, rather
than reacting in a panic-stricken way.9Chapter 16 covers the themes of risk, and the management
of different internal and external organisational risks, where contingency planning is aligned with
the organisation’s risk management practice.
The planning process comprises a sequence of nine primary tasks, which are summarised in
Figure 6.1.
Each of the nine tasks making up this basic strategic planning process is discussed in more
detail below.

Figure 6.1 Strategic planning process

6.2.1 Task 1: Clarify the organisation’s strategic intent: vision

and mission
An organisation’s strategic intent is a combination of its vision and mission. An organisation’s
vision is concerned with addressing the second of the three strategic planning questions, namely:
‘Where do we want to be or what kind of organisation do we want to be at some time in the
future?’
The following statements are the visions of three South African organisations:
• Coca-Cola Sabco: “We will be the best Coca-Cola bottler in the world.”10
• South African Breweries Limited: “Our Vision: To be the most admired company in South
Africa; a partner of choice, an investment of choice and an employer of choice.”11
• Tiger Brands: “To be the world’s most admired branded consumer packaged goods company
in emerging markets.”12

As reflected in each of the three visions above, a vision should:

• Be inspiring and aspirational
• Incorporate a ‘stretch goal’
• Provide a sense of direction and destination for an organisation.

With regard to a vision incorporating a stretch goal, it has in fact been suggested that a vision
should reflect what Collins and Porras refer to as a ‘big, hairy, audacious goal’ (BHAG,
pronounced ‘beehag’).13 A true BHAG:
• Is clear and easily understood by everyone
• Is compelling and excites people
• Serves as a unifying focal point of effort
• Acts as a catalyst for team spirit
• Has a clear finish line
• Applies to the whole organisation.

As Collins and Porras point out: “Setting a BHAG as far as 10 to 30 years into the future requires
management to think beyond the organisation’s current resources and capabilities and also beyond
the current environment within which it is operating. In fact, developing such a goal forces
management to be visionary, rather than just strategic or tactical. The attainment of a BHAG
should require extraordinary effort and perhaps a little luck! “14
While actions without a vision might be directionless, vision without action is of very little
practical value. An organisation has to take steps to bridge the gap between where it is at a
particular point in time and its vision for the future (where and what it wants to be in the future).
To help it in this task, it is useful for an organisation to develop a mission statement, the four
components of which are the following:15
• Core purpose
• Core strategies
• Core values
• Core behaviour standards.

Remember that an organisation’s mission is the second component of its overall strategic intent.
These aspects are discussed in more detail below.

6.2.1.1 Core purpose

The core purpose of an organisation is its fundamental reason for existing. This is more than
just making a profit. It is essentially concerned with identifying the underlying set of customer
needs and wants that the organisation sets out to satisfy with various products and services. Thus
Volkswagen is not in the motor-car business, for example, but in the transport business. In fact,
motor manufacturers are increasingly seeing themselves as being in the mobility business which
brings in Uber as a competitor – a provider of a substitute service.
The core purpose of Tiger Brands, for example, is “to provide a broad portfolio of leading
food, beverage, personal-care and home-care brands that add value to consumers’, shoppers’ and
customers’ lives, and to the broader communities in which we operate. The successful
performance of the business also enhances the lives of our other important stakeholders, in other
words, our staff, our business partners, our investors and the countries in which we operate.”16 The
important point to note is the clear distinction between what Tiger Brands does (“provide … food,
beverage, personal care and home-care brands”) and what business they are in (“to enhance the
lives of consumers, shoppers, customers and communities”). This ensures that in formulating
strategies, the organisation has a much broader perspective and can focus on doing things that
truly are going to enhance the lives of its key stakeholders, instead of focusing narrowly on
providing better and better food, beverage, personal-care and home-care products.
Another important aspect of core purpose is stakeholders. Many organisations exist to serve
certain stakeholders, and so it is vitally important that an organisation identifies its primary
stakeholders upfront and also clarifies the responsibilities that it believes it has towards them.
Refer back to the South African Insight at the beginning of the chapter and see how Barloworld
clearly identifies who its primary stakeholders are and what its responsibilities to them are. Of
course, customers are always going to be vitally important stakeholders in any business
organisation.

6.2.1.2 Core strategies

The core strategies are the handful of things that an organisation must do well if it is going to
thrive in the industry concerned and fulfil its core purpose. In the South African Insight at the
beginning of the chapter, you can see a clear indication of Barloworld’s core strategies which it
describes as ‘focus areas’. Barloworld’s core strategies cover the following six focus areas:
integrated customer solutions, people, diversity and inclusion, sustainable development, financial
returns, and profitable growth.

6.2.1.3 Core values

These are the key principles for which an organisation stands and that serve to guide the
behaviour of everyone in the organisation. Core values can be of two kinds, namely, ethical or
moral values or business performance-related values. Ethical or moral values are those that the
organisation wants to stick to because it is the right thing to do, while business performance-
related values are those that the organisation wants to stick to because they are going to help
increase profits. In the South African Insight, the core values identified for Barloworld are:
integrity, excellence, teamwork, commitment and sustainability. Each of these values is briefly
elaborated on in the South African Insight at the beginning of this chapter.
Another example is Tiger Brands, who lives by the following values that guide their everyday
behaviour:17

Our People
 We value our people and treat them with dignity.
• We treat our people with care, concern and respect
• We are committed to the development of our people, and to help them thrive
• We believe in enabling and empowering our people
• We promote workplace diversity
• We work hard and play hard together

Our Performance
We have a passion for excellence.
• We value flawless execution
• We have no tolerance for mediocrity
• We act with a sense of urgency
• We deliver on time, every time
• We encourage innovative thinking
• We recognise and reward excellence

Our Consumers
Our consumers are our business.
• We are passionate about understanding our consumers’ needs
• We produce quality products and build reputable brands that drive consumer preference
• We are responsive to every consumer request and/or complaint
• We invest in the highest quality and safety standards

Our World
We continue to reinvest in our society.
• We respond to the needs of society whenever we can
• We undertake Corporate Social Investment because it’s the right thing to do
• Our business practices are guided by our desire to sustain our environment

Our Integrity
We act with integrity in everything we do.
• What we say on the outside is what is on the inside
• We never compromise the safety of our consumers
• We never do anything that we would be ashamed of if the facts became public
• We communicate with integrity

In the list of Tiger Brands’ values, you can clearly see that ‘Our People’, ‘Our Performance’ and
‘Our Customers’ are business performance-related values. The organisation sticks to those values
because they make good business sense and will result in a profitable business. ‘Our World’ and
‘Our Integrity’ are clearly ethical or moral values; the organisation sticks to them because they are
the right thing to do – although, indirectly they will also, of course, contribute to profitable
business in the long term.

6.2.1.4 Core behaviour standards

The fourth key element of an organisation’s mission is core behaviour standards. They
are the behaviours expected of employees to ensure that they execute the core strategies properly
and stick to the core values. Many business organisations prefer to combine ‘core values’ and
‘core behaviour standards’, rather than treat them separately.
 In the South African Insight at the beginning of the chapter, Barloworld’s Worldwide Code of
Conduct and its Code of Ethics specify how it expects its employees to behave to ensure that its
vision is fulfilled and its values are observed.
To illustrate how Coca-Cola Sabco (CCS) integrates the four elements to arrive at a mission
statement, see Table 6.1. Organisations will differ in how they actually write their mission
statements; layouts and formats may differ quite significantly. What is important, however, is that
it is possible to identify each of the four components somewhere or other in the mission statement.
From Table 6.1 it is possible to identify:
• What CCS does – it manufactures, sells and distributes Coca-Cola products
• What business it is in (core purpose) – the refreshment business
• CSS’s core strategies - consumer driven, and customer orientated
• CSS’s core values – integrity, mutual trust and respect, customer value
• CSS’s core behaviour standards – individual initiative, commitment.

One of the main advantages of having a clear vision and mission is that employees know exactly
what kind of organisation they are working for, and what kind of things they need to do to ensure
that the organisation fulfils its vision and achieves its objectives. This elicits passion, emotion and
commitment from employees. In other words, a vision and mission are indispensable in helping an
organisation in the areas of both strategy formulation (what to do) and strategy implementation
(how and when to do it).

Table 6.1 Coca-Cola’s mission statement

Mission statement

Our We will be the best Coca-Cola bottler in the world.

Vision The Best:
In sales volume growth and in return on capital employed
Coca-Cola Bottler:
A consumer-driven, customer-orientated manufacturer, sales and distribution company,
which markets the products and brands of the Coca-Cola Company
In the World:
We measure ourselves against the best Coca-Cola bottlers in the world

Our To create value for everyone touched by our business by providing with passion and focus
Purpose the right refreshment, at the right price, in the right place

Our We will create an environment where our people are passionate about performance. This
Values will be based on:
• Integrity – be honest, open and sincere
• Individual initiative – take proactive steps to drive performance
• Customer value – exceed customer expectations and add value to customers’ businesses
• Teamwork – work with and support colleagues to raise overall performance
• People development – realise employee potential through training and development
• Mutual trust and respect – treat each other with respect and dignity, and earn trust
• Commitment – be accountable and do as you say.

Source: COCA-COLA SABCO. 2014. Our company. [Online]. Available:

http://www.cocacolasabco.com/pages/our-company [Accessed 12 April 2017].
 6.2.2Task 2: Assess threats and opportunities
The purpose of Task 2 is to scan the external environment (which comprises both
the macro-environment and the industry environment as outlined in Chapter 5) in order to identify
high-prioritythreats to the organisation, on the one hand, and high-priority opportunities for the
organisation, on the other. Opportunities are favourable trends and developments in the external
environment that, if acted upon, will increase the profitability of the organisation. Threats are
negative trends and developments in the external environment that, if ignored, will decrease the
profitability of the organisation. Refer to Chapter 5 for a general discussion of factors to take into
account when assessing the external environment and refer to Figure 5.3 for the Issues Priority
Matrix. Armed with as much information as possible on the high-priority issues (threats and
opportunities), an organisation needs to develop strategies and tactics that eliminate or minimise
the effects of threats, as well as strategies and tactics that take advantage of the opportunities.

6.2.3 Task 3: Assess strengths and weaknesses

The purpose of this task is to assess the organisation’s internal resources and
capabilities (internal environment), and to determine which represent strengths and which
represent weaknessescompared with the resources and capabilities of key competitors, as well as
compared with the industry’s key success factors that are the handful of things that must be done
to ensure success in the industry. The factors that should be taken into account when diagnosing
an organisation’s strengths and weaknesses are covered in Chapter 5. Once an organisation has
identified its key strengths and weaknesses, it then needs to develop strategies and tactics that
build on these strengths and/or correct these weaknesses.
The assessment of strengths and weaknesses (see the Relative Strength/Strategic importance
Matrix – Figure 5.6) as well as the identification of opportunities and threats (see the Issues
Priority Matrix – Figure 5.3) form part of what is commonly known as a SWOT analysis. The
SWOT analysis plays a very important role in the process of making strategic decisions. A SWOT
analysis helps strategy makers answer key questions:
• Which opportunities does the organisation have the technical skills, competencies and
resources to pursue with a real chance of success?
• Does the organisation have any internal strengths by way of resources and capabilities that an
attractive strategy can be built around?
• Do the organisation’s weaknesses make it competitively vulnerable and/or do they disqualify
the company from pursuing certain opportunities?
• Which weaknesses does a strategy need to correct?
• Which opportunities does the organisation not currently have the technical skills,
competencies and resources to pursue, but which could be developed as part of a strategy?
• What threats should management be most worried about and what strategic moves should be
considered in crafting a good defence against those threats?

6.2.4 Task 4: Set strategic objectives

Against the background of the strategic analysis undertaken in tasks 1 to 3, it is now
time to become more specific and to identify clearly what the organisation needs to achieve in
order to fulfil its vision and mission, and to satisfy its various stakeholders. Unless and until the
organisation’s strategic intent is translated into specific, measurable targets, it will simply remain
a statement of good intentions. Remember that an organisation’s strategic intent is a combination
of its vision and mission.
 Strategic objectives, which are long-term objectives for at least a five-year period, serve as
guidelines in formulating strategy. In addition, they serve as a benchmark against which to
evaluate actual performance. In other words, once we know what we need to achieve in specific
terms in a future time period – the ‘what’ – we are in a much better position to consider the types
of strategies that are likely to get us there – the ‘how’.
The strategic objectives must cascade down throughout the organisation to ensure that the gap
between now and five years’ time is bridged. Functional objectives are derived from the strategic
objectives. In turn, operational objectives are derived from the functional objectives. It is no
good setting objectives for five years’ time if we have no idea what has to be achieved in the
intervening years. Table 6.2 presents an example of these objectives.
Table 6.3 presents two types of strategic objectives that are required: financial objectives and
competitive objectives. These should stand side by side. The reason for this is to ensure that the
competitive objectives in column 2 are not compromised in the interests of achieving financial
objectives in column 1 in the short term. Another point to note is that competitive objectives in
column 2 are clearly the means of achieving the financial objectives in column 1. If you
compromise the competitive objectives in the short term, you will prejudice the attainment of
financial objectives in the long term.

Table 6.2 A hierarchy of strategic, functional and operational objectives

Type of objective Hypothetical example: The City Lodge Family of Hotels

Mission • To provide affordable accommodation in urban areas

Strategic objectives • Increase financial returns from 8% to 12% over the next five years
(five to ten years) • Expand market share from 15% to 25% over the next five years
• Improve the image and perception of economical accommodation from
being ‘cheap and nasty’ to being ‘affordable quality’

Functional objectives • Raise room occupation by 15% over the next two years
(one to five years) • Increase restaurant turnover by 10% over the next two years
• Reduce staff turnover by 3% over the next three years

Operational objectives • Launch six-month advertising campaign

(one year) • Employ extra 200 staff for December
• Extend restaurant hours over Easter

Table 6.3 Financial objectives and competitive objectives

Financial objectives (illustrative outcomes Competitive objectives (illustrative outcomes that

that improve an organisation’s financial strengthen an organisation’s competitiveness and
performance) long-term market position)

• Faster revenue growth • Higher product quality

• Higher dividends • Lower costs relative to competitors
• Higher return on investment • Strong reputation with customers
• Bigger cash flows • Superior customer service
• Rising share price • Leadership in technology
• Faster earnings growth • Differentiated products
 For strategic objectives to be meaningful, to serve as a guide to strategy formulation and to
serve as a basis for strategy evaluation, they should be SMART. In other words, they should be:
• Specific
• Measurable (preferably also set in quantitative terms)
• Ambitious, but achievable
• Relevant to the organisation’s strategic intent (strategic objectives are more likely to be
supported when they are clearly relevant to the major work of the organisation, and therefore
to its vision and mission)
• Time related.

The objectives reflected in Table 6.3 meet the SMART criteria.

6.2.5 Task 5: Undertake a gap analysis

Having set its strategic objectives and having determined where it is currently, the
organisation now needs to undertake a ‘gap analysis’ and ask and answer the strategic-gap
question: ‘Will what we have been doing in the past get us to where we want to be in the future?’
In other words, ‘What is the size of the profit gap that we need to fill over the next five years?’ If
the answer to the strategic-gap questions is, ‘Yes’ (although this is extremely unlikely), there is no
profit gap. In this case, the strategic-planning process will end at this point and it will be business
as usual for the organisation. It will simply carry on doing what it is currently doing. In a highly
competitive and turbulent environment, however, most organisations will find that the answer is
‘No’ and that there is indeed a profit gap that needs to be filled. These organisations will have to
move on to Task 6, which is to find new and different ways of filling the strategic gap.

6.2.6Task 6: Develop strategies to fill the profit gap

Strategies are the major courses of action that are selected and implemented to
achieve one or more goals, and in the process of doing so, to fill the profit gap identified as part of
Task 5.18 You can see an example of a set of corporate strategies, for Barloworld, in the South
African Insight at the beginning of this chapter. The organisation has firstly identified ‘growth
segments’ on which it wants to concentrate, and then six ‘strategic focus areas’ (core strategies).
A key challenge is to develop strategies that are at least partially unique relative to competitors
or to pursue strategies similar to those of competitors, but in different ways.19 Strategies have the
greatest impact when they position an organisation to be different from its competitors in one or
more key aspects. SPAR and Pick n Pay, for example, are both in the supermarket industry, but
whereas SPAR stores are franchised and operated by owner-managers, Pick n Pay stores, in the
main, are corporate owned.
In summary, strategies must be developed to:
• Exploit opportunities
• Defend against threats
• Capitalise on strengths
• Overcome weaknesses
• Achieve the organisation’s vision and mission.

As illustrated in Figure 6.2, strategic decisions are made on three levels, namely on the corporate,
business and operational levels, each of which has a different focus.
6.2.6.1 Corporate-level strategies (see Figure 6.2)
Corporate-level strategies are also referred to as grand or master strategies. They mainly answer
three questions:
• What businesses and industries should an organisation operate in?
• How many businesses and industries should it operate in?

Figure 6.2 Levels of strategy

Source: LOUW, L. & VENTER, P. 2013. Strategic management: Developing Sustainability in Southern
Africa. 3rd ed. Cape Town: Oxford University Press.

• How can an organisation build synergies and competitive advantages between and among
business units?20

There are four sets of corporate-level strategies that an organisation may consider, namely,
internal growth, external growth, turnaround and co-operative strategies. These four sets of
strategies are discussed in more detail below.

6.2.6.1.1 Internal growth strategies

Internal growth strategies essentially involve decisions about which products an organisation is
going to sell in which markets. There are four different internal growth strategies that an
organisation may consider in order to fill the profit gap:
• Market penetration strategy: This involves selling more of existing products in existing
markets.
• Market development strategy: This involves selling existing products to new markets.
Famous Brands did this when it acquired a 95% stake in Wimpy in the United Kingdom (UK)
in 2009. The organisation transferred what it was doing with Wimpy in South Africa into a
new market, the UK. By 2015 the organisation “had 113 Wimpy sites operating across the
UK, in service areas, sports centres, football stadia and other leisure venues”.21 It is also
important for South African organisations to investigate the opportunities that Africa presents
as a new market for their existing products. Over the past 18 years, Shoprite Holdings
(Checkers supermarkets), for example, has expanded aggressively into the rest of Africa. By
2015, 294 corporate and 39 franchise stores serve consumers via world-class supermarkets in
 14 countries including Angola, Botswana, Ghana, Lesotho, Madagascar, Malawi, Swaziland,
Uganda, Zambia and the DRC.22
• Product development strategy: This involves developing new products for existing markets.
• Innovation strategy: This involves developing new products for new markets. Here again,
Africa as a new market must not be ignored. Innovation as a corporate-level strategy is
becoming increasingly important as more and more organisations find themselves in ‘Red
Ocean’ situations. As Kim and Mauborgne point out: “‘Red Oceans’ represent all the
industries in existence today – the known market space. In Red Oceans, industry boundaries
are defined and accepted, and the competitive rules of the game are known. Here organisations
try to outperform their rivals to grab a greater share of product or service demand. As the
market space gets crowded, prospects for profits and growth are reduced. Products become
commodities or niche, and cutthroat competition turns the ocean bloody; hence, the term ‘Red
Oceans’. (The focus here is on gaining market share of an existing ‘pie’ and so all the players
in the industry retaliate aggressively in order to retain their market share.) ‘Blue Oceans’, in
contrast, denote all the industries not in existence today – the unknown market space,
untainted by competition. In ‘Blue Oceans’, demand is created rather than fought over. There
is ample opportunity for growth that is both profitable and rapid. In ‘Blue Oceans’,
competition is irrelevant because the rules of the game are waiting to be set. ‘Blue Oceans’ is
an analogy to describe the wider, deeper potential of market space that is not yet explored.”23
• The cornerstone of Blue Ocean strategy is ‘value innovation’24. Value innovation is the
simultaneous pursuit of differentiation and low cost (similar to Michael Porter’s Best Cost
Strategy), thereby creating value for both the buyer and the company. (Michael Porter’s
Generic Strategies are explained in Section 6.2.6.2.) Value innovation raises and creates value
for the market, while simultaneously reducing or eliminating features or services that are less
valued by the current or future market, thereby reducing costs.
• To apply value innovation, carry out the following three steps:
» Step 1: Compare your organisation with your competitors’ by drawing the current industry
value curve which comprises the ‘as is’ canvas. See Figure 6.3. On the horizontal axis are
the key elements of customer value that are the focus for the industry as a whole at the
present time. In the hotel industry, for example, these may include things such as eating
facilities, lounges, room size, availability of a receptionist, conference rooms, bed quality,
hygiene, quietness, furniture and amenities in rooms. The vertical axis represents the
extent to which existing industry players are offering these facilities on a scale from ‘low’
to ‘high’. In the hotel industry, for example, an average of three star hotels may be taken if
that is against whom we wish to position ourselves.
» Step 2: Based on a thorough analysis of the feedback from your competitors’ customers,
from your own customers and, in particular, from non-customers, ask and answer the key
questions posed in the Four Actions Framework. See Figure 6.4. This is often referred to
as the ‘ERRC’ (Eliminate-Reduce-Raise-Create) Analysis.25
» Step 3: On the basis of the information obtained in Step 2, draw your ‘Blue Ocean’ value
curve, which comprises your ‘to be’ strategy canvas, on the same diagram as your ‘as is’
strategy canvas. See Figure 6.5 which illustrates that we have seen an opportunity to
‘raise’ Factors, A, E and F above the industry standard, to ‘eliminate’ factors B and C, to
‘reduce’ Factor D to below the industry standard and to ‘create’ a new factor, namely,
Factor G.
» Step 4: Compare the ‘as is’ strategy canvas with the ‘to be’ strategy canvas and evaluate
the feasibility and viability of developing strategies to make the ‘Blue Ocean’ value curve
a reality, thereby helping to fill the profit gap.
•
 Consolidation strategy: This is the fifth possible internal growth strategy. It involves doing
what is necessary to maintain the organisation’s existing market share in existing markets.
This does not imply that the organisation does not do anything new or different. In a
competitive, turbulent environment, it may need to innovate and/or restructure simply to
consolidate and, in a sense, to stand still.

Figure 6.3 The ‘as is’ strategy canvas

Figure 6.4 The Four Actions Framework

Figure 6.5 The ‘as is’ strategy canvas together with the ‘to be’ strategy canvas

6.2.6.1.2 External growth strategies

External growth strategies essentially involve decisions about whether an organisation can grow
by getting involved in other stages of the value chain, taking over competitors or by diversifying.
Here are some external growth strategies that an organisation may consider:
• Vertical forward integration: This involves expansion into the distribution of an
organisation’s outputs. In South Africa, there are Nike Stores in Cape Town, Pretoria, Durban,
Polokwane and Johannesburg, for example. This ensures that Nike controls the distribution of
its products right up to the point of consumer contact. In addition, however, Nike also
distributes its products through other non-owned retailers such as Edgars, for example, which
sells a wide range of other footwear and related products.
• Vertical backward integration: This involves expansion into the supply of the organisation’s
inputs. Famous Brands is a good example of a South African organisation that has relied on
vertical backward integration in order to maintain the quality of inputs, increase the reliability
of supply and reduce costs of supply. It, for example, owns or controls producers of sauces
and spices, meat processors, bakeries, manufacturers of ice cream, and producers of fruit
juices and mineral water, all of which are inputs for its various fast-food restaurants. In
addition, Famous Brands also sells its manufactured products such as Steers sauces, Wimpy
tomato sauce, Mugg and Bean coffee and Famous Brands ice-cream into various retails stores
and supermarkets. Another example of vertical backward integration is South African
Breweries, which owns hops farms in the George area to provide its breweries with a vitally
important beer ingredient. With a continuously growing market these farms save South
African Breweries substantially as they supply between 70% and 75% of SAB’s hops needs
and therefore less has to be imported.26
• Horizontal integration: This involves growth through merging with or acquiring another
organisation in the same or a similar line of business. Once again, Famous Brands has relied
significantly on horizontal integration to increase its footprint in the food-service leisure
industry in South Africa. This it did with the acquisition of the Bimbo’s franchise agreements
at selected Engen garage sites and its successful conversion of these into Steers stores in 2006
as well as with the acquisition of the trademarks and franchise agreement with Black Steer in
2010.
• Diversification: This refers to the variety of different goods and/or services produced by an
organisation and the number of different markets to which they are sold. The degree of
diversification increases the complexity of an organisation’s strategic planning as well as its
risk. Because of this, organisations need to think very carefully before they decide to diversify.
Once an organisation has decided that diversification is a strategy that in principle could fill
the profit gap, it needs to decide on the type of diversification that would be appropriate. There
are two kinds of diversification an organisation can undertake: related diversification (lower
risk) and unrelated diversification (higher risk).
» Related diversification: refers to an organisation diversifying into areas in which it has
some experience and/or know-how, either from a marketing point of view, or from a
production/technology point of view, or both. A related-business organisation provides a
variety of similar goods and/or services. Its divisions generally operate in the same or
similar markets, use similar technologies, share common distribution channels or benefit
from common strategic assets. The City Lodge Hotel Group is a related-business
organisation. It is firmly established in the hospitality industry and focuses on different
segments at the lower end of the hospitality market via City Lodges, Town Lodges and
Road Lodges.
Another example of a business that has achieved growth through a related-
diversification strategy is Clover. The dairy and consumer goods organisation used its
traditional role as a supplier of fresh milk as an enabler for related diversification into
beverages. It owns the Tropika juice brand, which is expected to grow strongly as a
revenue generator. As CEO Johann Vorster stated, “We are already the biggest distributor
of chilled goods in South Africa and distribution is our strong point. Our route to the shelf
is established and an extension into beverages such as juices, carbonated products and iced
tea is a natural.”27 Note that from a strategic management point of view, Clover views itself
as being in the distribution business, not in the milk business. Thus it is open to consider
any opportunities in the area of beverage distribution.
» Unrelated diversification (conglomerates): refers to an organisation that moves into an
entirely new area of activity where the organisation’s knowledge of the relevant markets or
technology is either very limited or non-existent. When Taste Holdings said it was looking
to make an acquisition, the assumption was that it would buy another food operation. The
purchase of jewellery chain NWJ Holdings was not seen as a natural fit for an organisation
that runs Scooters Pizza and Maxi’s.28 Unrelated-business organisations are not common
today, although they are typically very large. For the most part, the volume and diversity
of information needed to plan for and manage such organisations are enormous. As a
result, in making strategic decisions, the top managers of these organisations often revert
to planning and controlling through financial data that focus on the past. These factors help
to account for the relatively few successful unrelated businesses and the tendency of firms
to unbundle if they move too much from their core businesses. Barloworld is also an
example of a South African conglomerate that unbundled. Before 1994, Barloworld, then
known as Barlow Rand, was a conglomerate with interests in Nampak, Tiger Oats, Illovo
Sugar, gold mining (in the form of Rand Mines, ERPM, Harmony and Durban Roodepoort
Deep), information technology company Comparex, Oceana Fishing, platinum group
Barplats, and property companies Barprop and Rand Mines Properties. In 1994, the
organisation unbundled, sold its interests in its non-core businesses and changed its name
to Barlow Ltd. The company changed its name again in 2000 to Barloworld. Today, the
organisation regards itself as a global industrial brand-management company, representing
many of the world’s greatest industrial brands, including Caterpillar and Avis.29
 Notwithstanding the negative comments about conglomerates, the Bidvest Group is
currently a very successful South African conglomerate. It comprises four overarching
divisions: Bidvest Corporate, Bidvest South Africa, Bidvest Foodservices, and Bidvest
Namibia. The Bidvest South Africa Division is made up of seven unrelated groups of
businesses, as shown in Table 6.4. In turn, each division making up the overarching
division of Bidvest South Africa comprises a number of different businesses. Bidvest
Automotive, for example, is made up of the McCarthy Motor Group and Burchmores.
From Table 6.4, it is clear that Bidvest is involved in a number of unrelated businesses.

Table 6.4 Divisions making up Bidvest South Africa

Division Type of business

Bidvest One of South Africa’s largest motor vehicle groups offering leading motor brands
Automotive through over 116 dealerships as well as vehicle auctioneering. It also provides car rental
services through its extensive networks and an online portal.

Bidvest House of Living Brands Limited is a focused group specialising in the sales and
Consumer marketing of branded household durables such as Hoover, Russell Hobbs, Salton and
Products Tedelex. Also offers the full range of Yamaha products, Nissan imports, electrical
appliances, packaging closures and catering equipment.

Bidvest This Division comprising Bidvest Bank and Bidvest Insurance offers a comprehensive
Financial range of financial products and insurance services.
Services

Bidvest A manufacturer and distributor of electrical products and service.

Electrical

Bidvest Offers a full range of outsourced services, including cleaning, hygiene, security, interior
Services and exterior landscaping, and industrial suppliers.

Bidvest Office Distributors of office stationery, and furniture and office automation products and
and Paper services. Also manufactures, supplies and distributes commercial office products,
printer products, services, stationery and packaging.

Bidvest Freight Focuses on terminal operations and logistics, international clearing and freight
forwarding, and marine services.

Source: BIDVEST. 2016. Divisional information. [Online]. Available:

http://www.bidvest.com/div_info_bidvest_south_africa.html [Accessed 10 August 2016].

6.2.6.1.3 Turnaround strategies

Turnaround strategies refer to strategies applied in an organisation that has potential, but that
has suffered setbacks in recent times. The focus of a turnaround strategy is on speed of change as
well as on rapid cost reduction and/or revenue increase. The following are some turnaround
strategies that may be considered as a means of reducing the size of the profit gap:
• Retrenchment: This strategy has two focus areas:
» Cost-cutting
»
 Reducing non-core assets such as selling vacant land, sale and leaseback of property, and
outsourcing non-core activities such as canteen facilities for employees.
• Recovery: This strategy aims to ‘nurse’ the business back to health by reducing costs and
increasing revenues.
• Revenue growth: This strategy aims to optimise one of the multiple ways of increasing sales,
particularly during a recession, including reducing prices, increasing promotions, modifying
products, increasing sales staff and improving customer service.
• Divestiture: This strategy is fundamentally focused on a process of closing down part of a
business or selling a part of a business in order to concentrate on those parts of the business
that are healthier.
• Liquidation and bankruptcy: This final option is the ultimate exit strategy whereby a business
is sold, either as a whole and/or in parts, or declared bankrupt.

6.2.6.1.4 Co-operative strategies

Co-operative strategies represent attempts by organisations who are traditionally competitors, to
form partnerships in order to share resources, capabilities or technical know-how as a basis for
developing a competitive advantage for the participants.
• Joint venture: A joint venture represents the creation of a new organisation owned by two or
more partners. Famous Brands, for example, has entered into joint ventures with Tashas,
House of Coffees, Wakaberry and Turn ‘n Tender.
• Strategic alliance: A strategic alliance represents a partnership in which organisations
collaborate commercially to achieve shared goals. Fujitsu South Africa’s brand promise
“shaping tomorrow with you” is established through their offering of a full range of computing
and communications products and advanced microelectronics including, for example, servers,
storage, various devices, software, IT solutions and their integrated system Primeflex. Their
product range is supported by business and application services, managed infrastructures
services, spares logistics and product support services as well as financial services. In order to
optimise their offering to their customers, they have established various strategic alliances
with market leading experts such as Microsoft, Intel, Oracle, and SAP.30

Having outlined various corporate-level strategies that might be used as a basis for filling a profit
gap, we now need to look at some business-level strategies that might be used for the same
purpose.

6.2.6.2 Business-level strategies (see Figure 6.2)

Business-level strategies refer to the resources allocated and actions taken to achieve desired
goals in serving a specific market with a highly-interrelated set of goods and/or services.
Barloworld, for example, is a multiple business comprising two divisions (strategic business
units), namely, Barloworld Automotive and Barloworld Equipment and Handling. A strategic
business unit (SBU) such as Barloworld Automotive in our South African Insight, provides a
particular line of goods or services to a specific industry or market segment. Barloworld
Automotive provides a range of integrated vehicle usage solutions including, for example, car
rental, motor retail, and fleet management services. Please note that from a strategic point of view,
Barloworld Automotive does not see itself as being in the business of selling cars or in car rentals
(this is what they do) but rather in the “business of providing integrated vehicle usage
solutions” (this is a customer needs perspective).
Top managers of an organisation or SBU are constantly involved in planning and formulating
strategies for:
• Maintaining or gaining a competitive edge in serving its customers
• Determining how each functional area (for example, production, human resources, marketing
and finance) can best contribute to its overall effectiveness
• Allocating resources among its functions.

A focus on customers is one of the foundations of successful business-level plans and strategies.
When planning and formulating strategies that focus on customers, management must address
three basic questions:
1 Who will be served? Customer needs and demands may vary according to demographic
characteristics (for example, age, gender, income, occupation, education, race, nationality and
social class), geographic location, lifestyle choices (for example, single or married, or with or
without children), type of customer (for example, manufacturer, wholesaler, retailer or end
customer) and so on.
2 Which customer needs will be satisfied?
3 How will customers’ needs be satisfied?31

A focus on competition is another foundation of successful business-level strategies. When

planning and formulating strategies that focus on competitors, organisations would do well to
consider thegeneric strategies, which comprises a framework of four basic business-level
strategies and one hybrid strategy, that can be applied to a variety of organisations in diverse
industries.32 These strategies are referred to as generic, because all types of organisations can use
them, whether they are involved in manufacturing, distribution or services. Figure 6.6 shows the
basic parts of this model. The strategic-target dimension (vertical axis) indicates how widely the
product or service is intended to compete, whether for the mass market (broad) or within a
particular segment of the total market (narrow). The source-of-advantage dimension (horizontal
axis) indicates the basis on which the product or service is intended to compete: either
differentiation as perceived by the customer, or low cost. The various combinations of these two
variables, namely, (a) strategic target and (b) source of advantage, suggest five different generic
strategies as follows:
• Differentiation strategy
• Focused differentiation strategy
• Cost-leadership strategy
• Focused cost-leadership strategy
• Best-cost strategy (a hybrid strategy combining both a low-cost strategy and a differentiation
strategy at the same time).
Figure 6.6 Generic strategies model

6.2.6.2.1 Differentiation strategy

The differentiation strategy involves competing by means of offering products or services that
customers across the board (the mass market), perceive to be unique in ways that are important to
them. Mr Price, for example, implements a differentiation strategy. It offers fashion clothing, of
acceptable quality, at affordable prices. This appeals to the mass market because, as a rule, fashion
clothing of acceptable quality is very expensive. The long-term effectiveness of the differentiation
strategy depends on how easily competitors can copy the unique benefits provided by the
organisation. As soon as most or all competitors copy the offering, it is no longer an effective
means of differentiation.

6.2.6.2.2 Focused differentiation strategy

The focused differentiation strategy involves competing in a specific niche by serving the
unique needs of certain customers or a specific geographic market. A niche is a specialised group
of customers (for example, heart surgeons, business travellers or Porsche owners) or a narrowly
defined market segment that competitors may overlook, ignore or have difficulty serving (for
example, teenagers). Organisations try to create a unique image for their products by catering to
the specific demands of the selected niche segment and ignoring other potential customers. So
Rand Merchant Private Bank (RMB), for example, will have luxurious premises in which wealthy
clients feel pampered. The bank will also undertake to visit wealthy clients at their homes in order
to conduct their banking activities in privacy and comfort.

6.2.6.2.3 Cost-leadership strategy

The cost-leadership strategy means competing by providing goods and services at costs to the
mass market that are as low as, or lower than, those of competitors. It is important to point out,
however, that low cost does not necessarily mean low price. The competitive advantage of the
cost-leadership strategy lies in the fact that an organisation can compete on price if it has to, but it
is not necessarily compelled to if its offering happens to be differentiated in some way or other as
well. This strategy requires a constant concern with efficiency (reduction in per-unit costs) and
driving out unnecessary costs throughout the value chain. High volume and/or rapid growth are
often needed for profitability with the cost-leadership strategy. Makro through the Wal-Mart
group follows a cost-leadership strategy.

6.2.6.2.4 Focused cost-leadership strategy

The focused cost-leadership strategy refers to competing in a specific customer or geographic
niche by providing goods and services at a cost as low as or lower than competitors’ costs. The
requirements for implementing this strategy are aligned with those of cost leadership, but the
focus is on serving a subset of customers in an industry, such as business travellers in the travel
industry or a set of customers in a particular geographic area. City Lodge, for example, pursues a
focused cost-leadership strategy in the hotel industry. It offers no-frills, clean, comfortable and
well-located hotel accommodation to business travellers at relatively low prices. City Lodges are
also frequently located near airports. City Lodge does not, for example, target families
specifically.

6.2.6.2.5 Best-cost strategy

The best-cost strategy involves providing highly differentiated products and services at a low
cost, both at the same time. It was originally thought that it was impossible to implement a hybrid
strategy like this because of the fact that a differentiation strategy usually involves high costs.
However, it has become imperative for many organisations to pursue a hybrid strategy. For
example, the demand for value-for-money (good quality at lower prices) products and services has
increased since the recent global recession. Even producers of premium products have to work out
a way to grab opportunities in the middle and the low end of the market. “Singapore Airlines has
combined the supposedly incompatible strategies of differentiation – which it pursues through
service excellence and continuous innovation – and cost leadership … It has won the World’s
Best Airline award from Conde Nast Traveller 21 out of the 22 times it has been awarded.”33
Having discussed business-level strategies, a comment needs to be made about operational or
functional-level strategies.

6.2.6.3 Operational or functional strategies

These are the strategies which slot in at the bottom of the strategy pyramid in Figure 6.2.
Operational or functional-level strategies refer to the actions and resource commitments decided
upon for the manufacturing, marketing, human resources and finance functions as well as other
functional areas. Operational or functional-level plans and strategies should be designed to
implement business level strategies and plans.
6.2.6.4 Evaluation of corporate-level and business-level strategies
Once an organisation has identified a number of potential strategies to fill the profit gap, they need
to be evaluated in terms of their actual ability to fill the profit gap. It is suggested that the
potential strategies be evaluated against the following criteria:34
• Appropriateness: Johnson, Scholes and Whittington suggest that when considering whether or
not a potential strategy is appropriate, an organisation needs to assess the following:35
» The extent to which a strategy option fits with expected changes in the environment
» Whether the strategy option is built on the organisation’s strengths
» Whether the strategy option meets the stakeholders’ expectations.
• Feasibility: This refers to whether or not the organisation is able to implement the proposed
strategy. Questions that the organisation needs to ask to test for feasibility are:36
» Is the strategy capable of achieving the objectives that it addresses?
» Can the organisation implement the strategy effectively and efficiently?
» Does the organisation have the resources to implement this strategy?
• Desirability: This criterion refers to the ability of the strategy to produce results in either the
short term or the long term in light of the organisation’s needs and priorities.37
• Consistency: This criterion refers to the extent to which the proposed strategy will contribute
to the fulfilment of the organisation’s strategic intent and objectives.
• Validity: This criterion refers to the extent to which the proposed strategy is based on
assumptions and information that are well-grounded and meaningful.
• Attractiveness: This criterion refers to the extent to which the proposed strategy is acceptable
to all stakeholders.

Having outlined some key corporate-level and business-level strategies that might be used as a
basis for filling the profit gap, and having evaluated them in terms of their ability to actually fill
the profit gap, we now need to look at tactical and operational plans that might also contribute to
filling the profit gap.

6.2.6.5 Functional and operational strategies (see Figure 6.2)

Once the organisation’s strategic intent, strategic objectives and corporate- and business-level
strategies have been decided upon, they become the basis of planning done by middle managers
and frontline managers. As summarised in Table 6.5, goals and plans become more specific and
involve shorter periods of time as they move from the strategic level to the tactical level and then
to the operational level. A strategic plan will typically have a time horizon of at least five years;
tactical plans may have a time horizon of one to five years and operational plans may cover a
period of twelve months. Tactical planning translates the broad strategic goals and plans into
specific plans and goals for the various functional departments in the organisation such as
Marketing, Production, Human Resources, and Finance for example. Tactical plans are concerned
with the major actions a functional department must take in order to fulfill its part of the strategic
plan. For example, if the strategic plans call for the launch of a new product line, then the tactical
plan for the Production Department might involve the design, testing, and installation of the
equipment needed to produce the new product line. In other words, while strategic planning is
largely concerned with ‘strategy formulation’ (what to do), tactical planning is more concerned
with ‘strategy implementation’ (how to do it). Operational plans are concerned with the specific
procedures and processes required at lower levels of the organisation in order to carry out the
tactical plans. Frontline managers usually focus on routine tasks such as production runs, delivery
schedules and human resources requirements.
 Table 6.6 provides examples of the issues that management in various types of organisations
usually has to deal with in developing tactical and operational plans.
With reference to Table 6.6, human resources strategies outline how an organisation will
attract, retain and develop human talent. Similarly, manufacturing strategies specify how the
organisation will use its production capabilities to support its business-level strategies. Marketing
strategies address how the organisation will sell and distribute its goods and services. Finance
strategies identify how best to obtain and allocate the organisation’s financial resources.

6.2.7 Task 7: Implement the strategies identified to best fill the

profit gap
To be fully effective, the organisation’s strategic, tactical and operational goals and strategies
must all be aligned. In other words, they must be consistent, mutually supportive and focused on
achieving the organisation’s strategic intent.
Guidelines for successful strategy implementation are provided by Higgins who points out
that, “Successful executives spend a great deal of their time on strategy execution
(implementation). They realise that executing strategy is just as important, if not more important,
as formulating strategy. They know that organisational performance invariably suffers when
insufficient time and effort are expended on executing strategy, or when time and effort are
expended on inappropriate execution actions.”38 Successful strategy execution or implementation
that leads to successful strategic performance essentially involves aligning key organisational
factors with the strategy that was formulated. Get this wrong and a brilliant strategy can fail.

Table 6.5 Hierarchy of goals and plans

Source: BATEMAN, T.S. and SNELL, S.A. 2007. Management: Leading and Collaborating in Competitive
World. 7th ed. New York: McGraw-Hill, p. 123.

Table 6.6 Examples of issues addressed in developing tactical and operational plans

Sample functions Sample key issues

Human resources What type of reward system is needed?

How should the performance of employees be reviewed?
What approach should be used to recruit qualified personnel?
How is affirmative and fair treatment ensured for women, the previously
disadvantaged and the disabled?

Finance What is the desired mixture of borrowed funds and equity funds?
What portion of profits should be reinvested and what portion should be paid
out as dividends?
 What criteria should be used in allocating financial and human resources to
projects?
What should be the criteria for issuing credit to customers?

Marketing What goods or services should be emphasised?

How should products be distributed (for example, direct selling, wholesalers or
retailers)?
Should competition be primarily on price or on other factors?
What corporate image and product features should be emphasised to customers?

Operations What should be the level of commitment to total quality?

(manufacturing) How should suppliers be selected?
Should the focus be on production runs for inventory or producing primarily in
response to customer orders?
What production operations should be changed (for example, automated or laid
out differently) to improve productivity?

The key organisational variables that must be aligned are strategic purposes (vision, mission,
goals and strategic objectives), structure (jobs, authority, the grouping of jobs, span of control and
methods of co-ordination), systems and processes (information systems, quality systems, capital
budgeting systems and so on), leadership style, staff, resources (people, technology and money)
andshared values (corporate culture). If one emphasises the ‘S’ in ‘resources’, seven contextual
S’s can be identified. An eighth S, strategic performance, puts the emphasis on results. Thus the
Eight S Model of strategy execution was developed.
Figure 6.7 shows the seven contextual S’s all closely aligned, leading to the eighth element,
namely, successful strategic performance. Figure 6.8, on the other hand, shows the seven
contextual S’s totally non-aligned, leading to unsuccessful (or less than completely successful)
strategic performance. The model is useful in alerting top managers as to where the causes of
unsuccessful strategic performance may lie and what may need to be done to turn the situation
around.

Figure 6.7 Aligned eight Ss

Source: HIGGINS, J.M. 2005. The eight Ss of successful strategy execution. Journal of Change
Management, 5(1), 6. The eight ‘S’ of successful strategy execution, Higgins James M, Journal of Change
Management, Vol 5, Issue 1, 2005, Taylor & Francis. Reprinted by permission of the publisher (Taylor &
Francis Ltd, http://www.tandfonline.com).

Figure 6.8 Non-aligned eight Ss

Source: HIGGINS, J.M. 2005. The eight Ss of successful strategy execution. Journal of Change
Management, 5(1), 6. The eight ‘S’ of successful strategy execution, Higgins James M, Journal of Change
Management, Vol 5, Issue 1, 2005, Taylor & Francis. Reprinted by permission of the publisher (Taylor &
Francis Ltd, http://www.tandfonline.com).

6.2.8 Task 8: Control and diagnose results

Controls are needed to ensure (a) that the plans are carried out as intended, and (b) to
evaluate whether or not the actual results are the same as the planned, expected results. If the
plans do not produce the intended results, managers may need to change the goals or strategies, or
the strategies themselves. See Chapter 15 for further discussion on the controlling task of
management.

6.2.9 Task 9: Repeat the planning process

The forces that affect organisations are constantly changing. Sometimes these changes are gradual
and foreseeable. At other times, they are abrupt and unpredictable. For example, many South
African organisations that developed aggressive export strategies when the Rand was weak,
encountered severe difficulties when it strengthened during 2003, making their exports less price
competitive in foreign markets. In 2015, the Rand has weakened again, once again demanding that
many organisations adapt their strategies. Whatever the nature of change, managers and other
employees need to be ready to adapt or innovate by repeating the planning process. Hence
planning is an ongoing process. It is always a means to an end and never an end in itself.
Having outlined the nine steps involved in the strategic-planning process which has as its
focus, the formulation of strategies to fill a profit gap, it is vitally important to note that the overall
strategic plan is not cast in concrete. This can never be possible in a macro-environment and an
industry environment that are constantly changing. While the vision of the organisation is
normally fixed, the strategies followed can change and must change as changes in the external
environment dictate.

Chapter summary
Planning is the primary managerial task because until it has been done, none of the other
managerial tasks of organising, leading and controlling can take place. Planning helps an
organisation adapt to change by identifying opportunities and threats, and developing appropriate
strategies and tactics in response.
The strategic plan is the master plan for any organisation. As such, it includes both functional
and operational plans, and presents a blueprint for how the organisation is going to operate over
the next five years (or more). It must be remembered, however, that important parts of the
strategic plan are never cast in concrete. Strategies and plans must change in response to changes
in the external environment that will impact on the organisation.
The strategic-planning process involves nine interrelated tasks: Task 1: Clarify the
organisation’s strategic intent, which embraces its vision and mission. Task 2: Assess threats and
opportunities facing the organisation. Task 3: Assess the organisation’s strengths and weaknesses.
Task 4: Set strategic objectives, which must be SMART (specific, measurable, ambitious, relevant
and time based). Task 5: Undertake a gap analysis. Task 6: Formulate strategies to fill the profit
gap identified in Task 5. These will include corporate-level strategies, business-level strategies
and functional-level strategies. These strategies must be evaluated in terms of their ability to
contribute to the closing of the profit gap. Task 7: Map your strategy. This is done with reference
to the Balanced Scorecard. Higgins’s 8S Model provides guidelines for effective strategy
implementation by recommending that key organisational variables must be aligned. Task 8:
Control and diagnose the results of the strategies that were implemented as a basis for taking
possible remedial action should the actual results not be the same as the expected results. Task 9:
Repeat the planning process for the next planning period.

Questions for discussion

1. Justify fully why the task of planning is regarded as the primary managerial task.
2. If Woolworths wanted to engage in vertical backward integration, which possible strategic
actions might they consider? Suggest three.
3. As key outcomes of the strategy formulation process, what are the main differences between
corporate-level, business-level and functional-level strategies? Give an example of each for
South African business organisations with which you are familiar.
4. Explain why South African organisations need to consider Africa as a potential new market
for their current and new products as part of a ‘market-development’ strategy.
5. Explain how each of the five generic strategies are effective defences against each of the five
forces that drive competition in any industry.

Exercise for competency development

As domestic markets mature, many organisations look to foreign markets in order to grow. Retailers,
for example, are frantically learning about the major differences involved in conducting business in new
international markets compared with conducting business in their domestic markets. Thus it is vitally
important for managers in these organisations to develop a global awareness competency.
 Africa is starting to appear on the radar screens of Western retailers in general and South African
supermarket groups in particular, as they look for the next growth opportunity in emerging markets while
coping with subdued consumer spending at home. “Between 2000 and 2010, growth in private
consumption in Africa rose 152%. And the trend is expected to continue. By 2050, more than 60% of the
two billion Africans at the time will be urbanised. This would bring enormous economic spin-offs
because African urban household incomes are more than double rural incomes. Urban poverty rates in
Africa stand at around 35%, compared with 52% for rural areas. The larger, more affluent population
would support local firms, create economic opportunity and inspire foreign investments.”39
Against the background of the above statement, compare and contrast the strategies used by Shoprite,
Pick n Pay and Woolworths to expand into Africa. Visit their websites and consult various other sources
such newspapers and webpages of Business Day and the Financial Mail in order to collect the relevant
information.

Websites:
www.woolworthsholdings.co.za
www.shopriteholdings.co.za
www.picknpay-ir.co.za

Contemporary management in practice

Sustainability (achieving a balance amongst economic performance, social responsibility and

environmental responsibility) is a key element of Woolworths’ strategic plan. Visit their website
(www.woolworthsholdings.co.za/downloads/2016/WHL-Good-Business-Journey-Report-2016. pdf) and
read their Good Business Journey Report. Summarise and critically comment on what Woolworths is
doing to ensure that it creates shared value and does business responsibly. For additional information
and insights, visit Youtube.com and view various videos of your choice in the ‘Woolworths’ Good
Business Journey’ series.

Endnotes
1 WOOLWORTHS HOLDINGS. 2012. Stakeholders. [Online]. Available:
http://www.woolworthsholdings.co.za/investor/annual_reports/ar2012/integrated/business/our_stakeholders.asp
[Accessed 23 May 2017].
2 BARLOWORLD. 2017. Group strategy. [Online]. Available: https://www.barloworld.com/our-
business/group-strategy/ [Accessed 23 May 2017].
3 CEO GLOBAL. CEO Magazine. 2015. Mind of a Supermarket – Soul of a Deli. [Online]. Available:
http://www.ceomag.co.za/#!124-focus-on-excellencetitans/c1nw3 [Accessed 13 August 2016].
4 BARLOWORLD. 2016. Chief Executive’s sustainable development message. [Online]. Available:
https://www.barloworld.com/sustainability/ce-message/ [Accessed 23 May 2017].
5 BARLOWORLD. 2017. Barloworld Equipment. [Online]. Available: https://www.barloworld.com/our-
business/barloworld-equipment/ [Accessed 23 May 2017].
6 GOLEMAN, D. In Harvard Business Review. OVANS, E. 28 April 2015. How Emotional Intelligence
Became a Key Leadership Skill. [Online]. Available: https://hbr.org/2015/04/how-emotional-
intelligence-became-a-key-leadership-skill [Accessed 13 August 2016].
7 JONES, G.R. & GEORGE, J.M. 2014. Contemporary Management. 8th ed. McGraw-Hill/Irwin, New
York, p. 230.
8 Ibid., p. 231.
9 THOMPSON, A.A. Jr & STRICKLAND, A.J. III. 1998. Strategic management: Concepts and cases.
10th ed. Burr Ridge, Ill.: Irwin/McGraw-Hill.
10 COCA-COLA SABCO. 2015. Vision. [Online]. Available:
http://www.cocacolasabco.com/company/our-company/ [Accessed 8 August 2015].
11 SOUTH AFRICAN BREWERIES. 2015. Vision and Values. [Online]. Available:
http://www.sablimited.co.za/sablimited/content/en/sab-vision-and-values. [Accessed 8 August 2015].
12 TIGER BRANDS. 2015. [Online]. Vision. Available: http://www.tigerbrands.co.za/about-us-4/vision-
and-mission/ [Accessed 8 August 2015].
13 COLLINS, J.C. & PORRAS, J.I. 1996. Building your company’s vision. Harvard Business Review, 73,
September–October, p. 73.
14 Ibid., p. 73.
15 CAMPBELL, A. & YEUNG, S. 1991. Creating a Sense of Mission. Long Range Planning. Vol 24. (4).
16 TIGER BRANDS. Op cit.
17 TIGER BRANDS. 2015. Values. [Online]. Available: http://www.tigerbrands.co.za/about-us-4/our-
values. [Accessed 8 August 2015].
18 LIEDTKA, J.M. 2000. Strategic planning as contributor to strategic change: A generative model.
European Management Journal, 18(2), pp. 195–206.
19 PORTER, M.E. 1996. What is strategy? Harvard Business Review, 61–78, November–December;
RAJAGOPALAN, N. & SPREITZER, G.M. 1997. Toward a theory of strategic change: A multi-lens
perspective and integrative framework. Academy of Management Review, 22, pp. 48–79.
20 LOUW, L. & VENTER, P. 2013. Strategic Management: Developing Sustainability in Southern Africa.
3rd ed. Cape Town: Oxford University Press.
21 WIMPY. 2015. [Online]. Available: www.famousbrands.co.za/brands/wimpy.php. [Accessed 10 August
2015].
22 SHOPRITE HOLDINGS LTD. 2015. [Online]. Available:
http://www.shopriteholdings.co.za/OurGroup/Pages/Geographical-pread.aspx. [Accessed 3 December
2015].
23 KIM, W. C. & MAUGORGNE, R. 2005. Blue Ocean Strategy: From Theory to Practice. California
Management Review, Vol. 47, No. 3. Spring, p. 106
24 KIM, W. C. & MAUBORGNE, R. 1997. Value Innovation: The Strategic Logic of High Growth,
Harvard Business Review, January-February.
25 KIM, W. C. & MAUGORGNE, R. 2005. Op cit., p. 113.
26 SAB. 2014. HOP HARVEST 2014 SUCCESS. 2 April. [Online]. Available: http://www.sab.co.za/the-
sab-story/hop-harvest-2014-success/ [Accessed 19 January 2017]; HERON, M. 2016. Farming Hops.
Country Life. [Online]. Available: http://www.countrylife.co.za/localflavours/farming-hops [Accessed
19 January 2017].
27 SHERRY, S. 2011. Clover: Just chill for now. Financial Mail. 8 April, p. 56.
28 TASTE HOLDINGS. 2014. Integrated Annual Report 2014. [Online]. Available:
http://www.tasteholdings.co.za/downloads/2014/Taste_IAR_2014.pdf [Accessed 12 August 2016].
29 A BDFM PUBLICATION. 2013. Barloworld. Our Values Live On. June.
30 LOUW, L. & VENTER, P. 2013. Op cit.; FUJUTSI. 2016. Strategic Alliance Partner. [Online].
Available: http://www.fujitsu.com/za/about/info-center/partners/alliance/strategic/ [Accessed 13 August
2016].
31 HITT, M.A., IRELAND, R.D. & HOSKISSON, R.E. 2010. Strategic management: Competitiveness
and globalization. 9th ed. Cincinnati: Cengage Learning.
32 PORTER, M.E. 1998. Michael Porter on competition. Boston: Harvard Business School Press;
MacMILLAN, I.C. & McGRATH, R.G. 1997. Discovering new points of differentiation. Harvard
Business Review, 33–145, July–August.
33 HERACLEOUS, L. & WIRTZ, J. 2010. Singapore Airlines’ Balancing Act. Harvard Business Review,
July–August, p. 145.
34 LOUW, L. & VENTER, P. Op cit.
35 JOHNSON, G., SCHOLES, K., & WHITTINGTON, R. 2008. Exploring Corporate Strategy. (8th ed.).
Harlow, England: Prentice-Hall Financial Times.
36 LOUW, L. & VENTER, P. Op cit.
37 Ibid.
38 HIGGINS, J.M. 2005. The eight Ss of successful strategy execution. Journal of Change Management,
March, 5(1), 3.
39 HAZELHURST, E. 2011. Local Firms ‘can harness African gains’. Business Report, 7 October, p. 20.
LEARNING OUTCOMES
After studying this chapter, you should be able to:
• Define decision-making
• Explain the conditions of certainty, risk and uncertainty under which decisions are made
• Describe the characteristics of routine, adaptive and innovative decisions
• Explain how goals affect decision-making
• Compare and contrast the rational, bounded rationality and political models of decision-making
• Explain knowledge management as a means of creating and using an information base for quality
decision-making
• Describe the basic features of the Delphi technique, simulation and scenario-forecasting aids
• Use Osborn’s creativity model to stimulate adaptive and innovative decisions
• Apply four quality management decision aids: benchmarking, the Deming cycle, Pareto Analysis and the
Fishbone (Ishikawa) Diagram.

CHAPTER OUTLINE
• South African Insight: Woolworths makes more difficult, but important decisions for the future
• Introducing decision-making fundamentals
• Decision-making conditions
» Certainty
» Risk
» Uncertainty
• Types of decisions
» Types of problems and solutions
• Goals and decision-making
» The nature of goals
» Benefits of setting goals
» General and operational goals
» Role of stakeholders
• Decision-making models
» Rational decision-making model
» Bounded rationality model
» Political model
• Knowledge management
» Knowledge-management drivers
» Knowledge-management targets
» Enabling technology
» Enabling culture
• Tools to assist in forecasting scenarios
» The Delphi technique
 » Simulation
» Virtual reality
• A tool to assist in promoting creativity
• The creative process
• Osborn’s creativity model
• Tools to assist in promoting quality
» Benchmarking
» The Deming cycle
» Pareto Analysis
» Fishbone (Ishikawa) Diagram

Key terms and concepts

• Decision-making
• Certainty
• Risk
• Probability
• Objective probability
• Subjective probability
• Uncertainty
• Routine decisions
• Adaptive decisions
• Innovative decisions
• Demands
• Constraints
• Choices
• Balanced scorecard
• Customer perspective
• Internal-process perspective
• Learning and growth perspective
• Financial perspective
• Rational decision-making model
• Bounded rationality model
• Political model
• Knowledge management
• Explicit knowledge
• Tacit knowledge
• Enabling technologies
• Forecasting
• Extrapolation
• Scenario
• Delphi technique
• Simulation
• Virtual reality
• Creativity
• Osborn’s creativity model
• Brainstorming
• Quality
• Benchmarking
• Deming cycle
• Pareto Analysis
• Fishbone (Ishikawa) Diagram

COMPETENCY EXAMPLE
 WHY IS THIS COMPETENCY
IMPORTANT IN RELATION TO
THE FUNDAMENTALS OF
DECISION-MAKING?

Communication During the decision-making process, it is While leaders know that

essential that members consult and communication is one of the key
communicate with one another in order to managerial competencies, often they
share information, and to focus the are not very good at it. Employees
decision-making process by improving frequently wish that leaders would
access to alternatives. Final decisions communicate more often and/or more
should also be clearly and timeously clearly. They often feel ‘in the dark’
communicated to relevant stakeholders. about decisions, plans and future
direction. One of the areas where the
gap is widest is in communicating
decisions. Decisions are made (or
follower think or assume they have
been made), but the communication of
those decision is ineffective or
incomplete.1

Planning and Decision-making is central to any A key strategy at BMW is innovation.

financial planning process. Management need to For example, the BMW i3 electric car,
management make good quality decisions in order to which arrived in South Africa in 2015,
set realistic goals and to formulate was developed at the height of the
appropriate strategies to achieve those recession. At the time no other
goals. company took the risk. In the face of
environmental pressures and in line
with their strategy of innovation, BMW
took the decision to use carbon fibre
which is completely renewable in
terms of the process that it’s made
with.2

Teamwork Group decision-making demands Group think is one problem associated

effective teamwork. with group decision-making. With that
in mind, four typical group decision-
making problems are:
• Not considering all alternatives
adequately in order to ensure
harmony in the group
• Not developing or understanding
the decision objectives clearly
• Failing to evaluate the risks of the
alternative chosen as a solution
• Doing information searches that are
inadequate or biased.3

Strategic action One of the important roles that a business In line with its mission “to be a high-
organisation’s strategic intent plays, is to performing, fast-moving consumer
provide guidance in terms of its strategic goods company with leading brands,
decision-making. An organisation should operating across the globe in several
make decisions that are consistent with selected emerging territories”, Tiger
the fulfilment of its strategic intent. Brands has manufacturing operations
 in Kenya, Nigeria, Cameroon and
Ethiopia. It also exports to Angola,
Madagascar, Ghana, Guinea, Uganda,
Malawi and Chile, amongst many
others.4

Global awareness Making sound decisions requires Virtual Experience Economy (VIE)
awareness of global trends and innovations are the new trend taking
developments. markets by storm. It requires a mindset
shift from digital experiences that
provide entertainment, to digital
experiences that accrue status. For
businesses to decide if they want to
participate in this new global trend they
need to create and offer virtual
experiences that consumers will value
and want to share.5

Emotional People often let their emotions trump People who are emotionally intelligent
intelligence (EI) their judgement. Understanding the are self-aware and sensitive to others.
and self- source and relevance of emotions can They can effectively manage their
management impact how much sway they have over relationships with people and
decision-making and affect the importantly, they have a healthy
willingness to rake risks. People often relationship with themselves.
make decisions that are influenced by Successful people in business have not
emotions that have nothing to do with got there because of IQ alone. Great
decisions they are making. People who decision-makers have the ability to
are emotionally intelligent don’t remove empathise with others and are effective
all emotions from their decision-making. communicators.7
They remove emotions that have nothing
to do with the decision.6

Woolworths makes more difficult, but important decisions for

the future

The Woolworths business model is impacted by value-driven decisions: “Our business model describes
how we create sustainable value by using the resources available to us in an integrated way. Our values
direct the decisions we make, challenge us to consider the impact on all our stakeholders and guide us
when we manage the trade-off between resources and capitals”. Part of their strategic focus is to ensure
that through customer insights and data, they will drive and inform all business decisions, shifting the
Group from being a customer centric business to a customer driven business.
Once such example was the 2015 business decision with regard to sugary goodies at the check-out tills
that was aligned with their strategic plan and Good Business Journey. “Retailer Woolworths has a
bittersweet treat for its customers — it’s removing all chocolates and other sugary goodies from its
checkout queue.” This was being done in a bid to provide healthier alternatives for children and adults, it
said in a statement released on Friday. “Customers will decide what they’d rather see on the stands at the
pay points.” Woolworths has already removed MSG and tartrazine, along with cutting the quantity of salt
and sugar from various food products. Last year the Department of Health said it was considering a sugar
tax to encourage South Africans to consume less sugar. Sugar contributes to obesity, which is linked to
other lifestyle illnesses, including diabetes and cardiovascular diseases. “Children are considered a
vulnerable group in society often with little influence on, or involvement in, what they eat. Evidence
suggests that dietary habits in childhood and adolescence also influence eating patterns in later life” the
Department of Health said on its website.
 Too much salt is linked to hypertension, strokes, heart attacks and high blood pressure. The World
Health Organisation recommends 5g (or a teaspoon) of salt a day, but the average South African has up to
9.5g a day. The problem is most of this salt is in food products. South Africa has passed legislation to limit
salt in items such as bread, crisps, stock cubes, biscuits, instant noodles, processed meat and margarine.
The regulations are to be phased in from next year to 2019. Analysts said people should also be
encouraged to take responsibility for their own health and make changes to their diet and lifestyle.
The retailer indicated that by the end of June 2016, half of all Woolworths stores will have removed
sweets and chocolates from their checkout aisles, and replaced them with “better snacking options”.
Customers can expect to find biltong, nuts and dried fruit instead of sweets, chocolates, and crisps in these
checkout aisles. These new snacking options will not include fresh vegetables and fruit. Woolworths said
the choice of these items was based on initial research, but the company remained open to suggestions
concerning alternative snack options.
“This June 2016 milestone in the sweets and chocolates relocation roll-out will represent 50% of all
our stores, with the remaining 50% to be completed during the course of 2016 and 2017.”
Source: TIMES LIVE. 2015. Bittersweet choice in retailer’s checkout aisles. 28 August. [Online]. Available:
http://www.timeslive.co.za/local/2015/08/28/Bittersweet-choice-in-retailers-checkout-aisles [Accessed 10 December
2016]; SUPERMARKET & RETAILER. 2016. Woolworths well on its way to healthier queues. 10 June. [Online].
Available: http://www.supermarket.co.za/news-article.asp?ID=6108&CatTags=12-%20No%20Category%20Tags
[Accessed 14 December 2016]; WOOLWORTHS HOLDINGS LTD. 2016. WHL 2016 Integrated Report. [Online].
Available: http://www.woolworthsholdings.co.za/downloads/2016/WHL-Integrated-Report-2016.pdf [Accessed 14
December 2016].

7.1 Introducing the decision-making process

We all make decisions every day. Decision-making includes defining problems, gathering
information, generating alternatives and choosing a course of action. In this chapter, we discuss
how managers and employees can base various types of decisions on the nature of the problem to
be solved, the possible solutions available, and the degree of risk involved. Effective managers
rely on several managerial competencies to make and implement decisions. In turn decision-
making underlies most managerial competencies. Refer to Chapter 2 to refresh your memory on
the competencies and skills of effective managers.

7.2 Decision-making conditions

The conditions under which individuals in an organisation make decisions reflect the
environmental forces (developments and events) that individuals cannot control, but that may in
the future influence the outcomes of their decisions.8 In Chapter 4, we described how various
stakeholders affect decisions involving ethics and social responsibility, and in the discussions on
general and global environmental forces in Chapter 5, we introduced many of the forces that
managers and employees often confront. Thus, decisions are affected by forces that can range
from new technologies or the entrance of new competitors into a market, to new laws or political
turmoil. Besides attempting to identify and measure the magnitude of these forces, managers must
estimate their potential impact. For example, the continuous introduction of new technology has
resulted in many banks closing down branches, offering mobile or cellphone banking platforms by
means of cellphone applications (apps), such as Absa Mobile, for example.
The impact of such events is always felt in the future, either sooner or later. Managers and
others involved in forecasting and planning may be hard pressed to identify those events and their
impact, especially when they may not occur until years later. More often than not, people have to
base their decisions on limited available information. Thus the amount of information that is
available and the accuracy of this information as well as the depth of individuals’ managerial
competencies (see Chapter 2) are crucial to sound decision-making.
We can broadly classify the conditions under which decisions are made as certainty, risk and
uncertainty.9 Figure 7.1 shows these conditions as a continuum.

7.2.1 Certainty
When decision-makers are fully informed about a problem, with obvious alternative solutions and
clear likely results of each solution, they will be operating under certainty. This condition allows
one to anticipate events and their likely outcomes. Certainty means that both the problem and
alternative solutions are known and well defined for decision-making purposes. The availability of
alternative solutions and their expected results makes decision-making relatively easy as the
decision-maker simply chooses the solution with the best potential outcome.

Figure 7.1 Conditions under which decisions are made

For example, if a business considers an investment of R5 million in a second warehouse

facility in another province that it knows for certain will yield R2 million in cost savings per year
over the next five years, managers can calculate a before-tax return of about 40%. If managers
compare this investment with one that yields only R1 million per year in cost savings, they can
confidently select the 40% return. However, few decisions are certain in the real world. Most
decisions involve risk and uncertainty. A problem may have many possible solutions, and
calculating the expected outcomes for all of them might be extremely time-consuming and
expensive.
Decision-making under the condition of certainty is the exception for most middle managers,
top managers and various professionals. However, first-line managers make most day-to-day
decisions under conditions of certainty or near certainty. For example, managers at retailers such
as Checkers, SPAR and Pick n Pay consider the past or historical sales trends for particular events,
such as Christmas or New Year, in order to estimate the turnover for a specific week. Based on
this estimate, a certain number of hours is allocated to the till supervisor, who in turn schedules till
staff accordingly. The supervisor can determine the number of staff required for each specific day
with certainty.

7.2.2 Risk
Risk is the condition under which individuals can define a problem, specify the probability of
certain events, identify alternative solutions and state the probability of each solution leading to
the desired result. Risk generally means that the problem and alternative solutions fall somewhere
between the extremes of being relatively common and well defined, and being unusual and
ambitious.10
For example, with the introduction of new legislation such as the National Credit Act (NCA)
and the continuous weak economic conditions experienced, the credit policy of the banking
industry is being applied more stringently than in the past. Previously, banks issued home loans at
high interest rates, but many transactions ended in bad debt. Because of the high risk and
ambiguous conditions, banks are now more cautious, irrespective of the interest rate. They need to
calculate the probabilities of success or failure. Banks such as Standard Bank SA, FNB, Nedbank
and Absa have developed risk management policies to guide decision-making in this regard. In
Chapter 16, the concepts of risk and risk management are discussed in greater detail.
Probability is the percentage of times that a specific outcome would occur if an individual
makes a particular decision repeatedly over a period of time. The tossing of a coin is the most
common example used in probability. That is, with adequate tosses of the coin, heads will likely
show up 50% of the time and tails the other 50%.
The amount and quality of information available to a decision-maker with regard to a
particular decision can vary widely, as can the individual’s estimates of risk. The type, amount
and reliability of information influences the level of risk and whether the decision-maker can use
objective or subjective probability in estimating the outcome (see Figure 7.1).

7.2.2.1 Objective probability

The likelihood that a specific outcome will occur, based on hard facts and numbers, is known as
objective probability. Past records can be used to determine the likely outcome of a decision.
Take the example of an organisation such as AVBOB offering funeral services and life cover.
AVBOB cannot determine the year each policyholder will die. However, through the use of past
records they can calculate objective probabilities that a specific number of policyholders in
various age groups will die in a particular year. These objective probabilities will be based on the
expected trend that past death rates will be repeated in the future.

7.2.2.2 Subjective probability

The likelihood that a specific outcome will occur, based on personal judgement and beliefs, is
known as subjective probability. Such judgements vary among individuals, depending on their
intuition, previous experience with similar situations, expertise and personality traits (for example,
preference for risk-taking or risk avoidance). In subjective probability, personal judgement and
beliefs are used to predict the occurrence of a specific outcome. These judgements will vary with
individuals based on previous experience with similar situations, one’s expertise and personal
traits.
For example, Strategy Dynamics Global SA provides information on current and future trends
through their platform Globaltrends.com. They assist organisations to identify, interpret and
understand the changes in the world around them, and to create opportunities which will make
them successful. This assists with the subjective process in order to establish a clear picture of
these changes. Management of these organisations, therefore, recognises many risks and
uncertainties, and annually identifies ‘risk factors’.11
A change in the conditions under which decisions are made can alter expectations and
practices. Such a change may shift the basis for judging the likelihood of an outcome from
objective to subjective probability or even to uncertainty.

7.2.3 Uncertainty
Uncertainty is the condition under which an individual does not have the necessary information
to assign probabilities to the outcomes of alternative solutions. In fact, the individual may not
even be able to define the problem, much less identify alternative solutions and possible
outcomes. Uncertainty often suggests that the problem and the alternative solutions are both
ambiguous and highly unusual.12
In the business environment, economic variables like market prices, exchange rates, inflation
and interest rates are difficult to analyse and predict, and affect decision-making. Under these
conditions a manager has to use assumptions in making a decision. Wrong assumptions will result
in a bad decision being made which might have a negative effect on the business.
Managers face uncertainty every day. Many problems have no clear-cut solution, but
managers rely on creativity, judgment, intuition and experience to craft a response. Dealing with
uncertainty is an important facet of the jobs of many managers and various professionals such as
research and development engineers, market researchers, and strategic planners.13
Late December 2016, the International Monetary Fund (IMF) confirmed that global and
domestic factors, including perceptions of weakening governance and rising uncertainty regarding
policy direction, are key factors to negatively impact South Africa’s economic growth in 2017.
South Africans have seen their income decline for three years on average. All these indicators
suggest further uncertainties for the retail sector and 2017 could be the fourth year of a per capita
recession. “South Africans are poorer than they were in 2012 in real terms”, says Mike Schüssler,
chief economist at Economists.co.za – bringing about uncertain demands for the economy and
retail sector.14
Uncertainty is present even when organisations do considerable research and planning before
committing resources to projects. As the philosopher K.E. Boulding put it, “The impossibility of
total prediction is clearly illustrated by the principle that if we had tomorrow’s newspaper today,
many of the events reported would not happen.”15 The 2016 US election results are such an
example, with Hillary Clinton being predicted by most as the likely candidate to win, and then at
the polls, Donald Trump came through as the winning candidate. Yet individuals must often make
decisions under conditions of uncertainty. They may base these decisions on a combination of
research, experience and hunches that they hope will lead to desirable results.

7.3 Types of decisions

Most of us make decisions automatically without realising that people have diverse decision-
making behaviours that they bring to managerial positions. Think back to how you make decisions
in your personal, student or work life, especially where other people are involved.
New managers typically use a different decision-making behaviour from that of experienced
executives. The decision-making behaviour of a successful CEO may be almost the opposite of
the decision-making behaviour of a first-level supervisor. The difference is partly due to the types
of decisions and partly to learning what works at each level. New managers often start out with a
more directive, decisive, command-orientated behaviour, and gradually move toward more
openness, diversity of viewpoints and interactions with others, as they move up the hierarchy.
Managers and employees must make decisions in a variety of situations. No single decision-
making method will cover all of them. In general, though, the decision-maker should begin by
accurately defining the problem at hand, moving on to evaluating alternative solutions and finally
making a decision. Doing so, however, is not that simple in reality.
The conditions under which decisions are made – certainty, risk and uncertainty – provide a
foundation for a comprehensive framework for decision-making. Decisions may be classified as
routine, adaptive or innovative. These categories reflect the types of problems encountered and the
types of solutions considered. Figure 7.2 illustrates the different combinations of problem types
(vertical axis) and solution types (horizontal axis) that result in the three types of decision-making
(routine, adaptive and/or innovative). In addition, the conditions of certainty, risk and uncertainty
appear along the diagonal line from lower left to upper right.

7.3.1 Types of problems and solutions

The types of problems and solutions that managers and other employees deal with range from the
relatively common and well defined, to the unusual and ambiguous, as illustrated in Figure 7.2.
The bank teller with an out-of-balance cash drawer at the end of the day follows a specific, well-
defined procedure: check all deposit slips against deposit receipts and cash tickets, and recount all
the cash. In contrast, managers and other professionals must often develop solutions that are
untried and ambiguous. Within the context of different types of problems and solutions, the
following three types of decisions are discussed.

7.3.1.1 Routine decisions

Routine decisions are standard choices made in response to relatively well-defined and common
problems with alternative solutions. The way in which to make various routine decisions is often
covered by established rules or standard operating procedures. Increasingly, these routine
decisions are made by computer software, such as computerised airline-reservation systems, for
example. Examples of tasks requiring routine decisions include the skills required in filling certain
jobs, processing payroll vouchers, packing and shipping customers’ orders, and the reorder point
for manufacturing inventory.
Employees need to guard against the tendency to make routine decisions when a problem or
situation actually calls for an adaptive or innovative solution.16
Figure 7.2 Framework for decision-making

7.3.1.2 Adaptive decisions

Adaptive decisions are choices made in response to a combination of moderately unusual and
fairly uncommon problems with alternative solutions. Adaptive decisions often involve modifying
and improving upon past routine decisions and practices. In fact, the concept of continuous
improvement is a key to total quality management. It involves streams of adaptive organisational
decisions made over time that result in a large number of small, incremental improvements year
after year. Continuous improvement requires a commitment to constant diagnosis of technical,
organisational and managerial processes in search of improvements.17 In part, the process
resembles the wheel in a hamster cage: a ladder wrapped around a cylinder, with no beginning and
no end. Each ‘turn of the wheel’ improves an existing product and/or its production methods. Year
after year, the organisation’s products keep getting better, more reliable and less expensive.
Decisions about continuous improvement are driven by the goals of providing better quality,
improving efficiency and being responsive to customers. Accordingly, improvements typically:18
• Enhance value to the customer through improved and new products and services
• Reduce errors, defects and waste
• Increase responsiveness to customer changes and expectations
• Elevate productivity and effectiveness in the use of all resources.
 These improvements are also noticeable in our South African Insight. Removal of MSG, and
the lowering of sugar and salt content in products by Woolworths in order to offer healthy and
quality goods, illustrate this notion of continuous improvement to ensure satisfied customers.

7.3.1.3 Innovative decisions

Innovative decisions are made when the problems on hand have no definite solutions. The
decision-makers have to depend on their own experience, creativity and intuition to decide on the
course of action. These decisions are made when solutions to the problem are ambiguous and
unusual. The solutions frequently involve a series of small, interrelated decisions made over a
period of months or even years. In particular, leading-edge innovations may take years to develop,
and involve numerous professional specialists and teams. Because innovative decisions normally
represent a sharp break with the past, they normally do not happen in a logical, orderly sequence.
They are often based on incomplete and rapidly changing information and, in fact, may be made
before problems are fully defined and understood. To be effective, decision-makers therefore must
be especially careful to define the right problem and recognise that earlier actions can significantly
affect later decisions.
Having looked at the types of decisions, the next section will be devoted to the relationship
between goals and decision-making.

7.4 Goals and decision-making

Decision-making in organisations under the conditions of risk and uncertainty is coupled directly
with goals in one of two ways:
• The decision-making process is triggered by a search for better ways to achieve established
goals
• The decision-making process is triggered by an effort to discover new goals, revise current
goals or drop outdated goals.

Goals are crucial in giving employees, managers and organisations a sense of order, direction and
meaning. In fact, the six managerial competencies would be relatively ineffective if they were not
directed at achieving goals. Setting goals is especially important in adaptive and innovative
decision-making. As suggested in Chapter 6, the planning process is vitally concerned with
identifying possible new goals, revising goals, and finding better ways to accomplish existing
goals.

7.4.1 The nature of goals

Goals are results to be attained, and thus indicate the direction in which decisions and actions
should be aimed. Clear goals specify the quality or quantity of the desired results. Many goals
guide people’s behaviour without the people giving the goals much thought. When individuals
deliberately choose to modify or change goals, they often engage in a conscious, full-blown
decision-making process.
Goals are also called objectives, ends, purposes, standards, deadlines, targets and quotas.
Goals can cover the long term (years) or the short term (minutes, hours, days or months). Long-
term organisational goals – such as survival, growth and profitability – often remain stable.
However, the development of specific, short-term goals for departments and projects requires
constant managerial and employee attention. Specific production, human resources, marketing and
financial goals usually change from year to year or even from quarter to quarter.

7.4.2 Benefits of setting goals

Setting goals can yield several benefits, which are the same whether the goals apply to an entire
organisation, a specific department or division, a team or an individual employee.
Firstly, goals serve to focus individual and organisational decisions and efforts. In terms of the
organisation, goals provide a set of stated expectations that everyone can understand and work to
achieve.
Secondly, goals aid the planning process, as discussed in Chapter 6. After diagnosing
problems and the competition, managers usually establish goals as a part of their planning efforts.
Thirdly, goals motivate people and stimulate better performance. Clear and specific goals
often raise productivity and improve the quality of work.19
Fourthly, goals assist in performance evaluation and control. To modify an old saying, ‘If you
don’t know where you’re going, you’ll never know when you get there.’

7.4.3 General and operational goals

General goals provide broad direction for decision-making in qualitative terms. For example, one
of the general goals set by Mr Price Group Limited for its South African retail outlets during the
2016 financial period, was to maintain a sales growth trajectory and increase market share. In
retrospect, they were able to establish a sales growth of 8.3% in South Africa, which was
impacted by a poor economic climate and the introduction of new legislation regarding the
granting of credit during 2015/16. On the other hand, operational goals state what is to be
achieved in quantitative terms, for whom and within what time period. An operational goal for the
Mr Price Group Limited, during the 2015/16 financial year, was to open 45 new stores, including
outlets such as Mr Price, Mr Price Home and Mr Price Sport.20 An operational goal for a person
enrolled at Weigh-Less or on some other diet or training programme, might be ‘to reduce my
weight by ten kilograms within three months’. This goal specifies what in quantitative terms (to
lose ten kilograms), for whom (me) and a measurable time period (in three months).

7.4.4 Role of stakeholders

Goals are not set in a vacuum. As mentioned in Chapters 1 and 4, various stakeholders (for
example, customers, shareholders, suppliers and government agencies) have an impact on an
organisation and its employees. This impact is felt in the goal-setting and revision process. As
suggested in Figure 7.3, stakeholders play a crucial role in shaping the demands, constraints and
choices of alternatives that managers and employees face when setting goals.21 As seen in the
South African Insight at the beginning of the chapter, Woolworths took into account the interests,
needs and concerns of key stakeholders when it made the decision to remove chocolates and
sugary goodies from checkout aisles.
A brief discussion of each of the components of Figure 7.3, follows.
Demands are the desires expressed by powerful stakeholders, that an organisation make
certain decisions and achieve particular goals.22
Figure 7.3 Stakeholders, alternatives and goals

Constraints limit the types of goals set, the decisions made and the actions taken. Two
important constraints are laws and ethics. A salesperson facing declining sales cannot legally
obtain a government contract by giving the contracting officer a bribe. Likewise, for a salesperson
to promise customers a product that cannot be delivered at the quoted price is unethical.
Choices are goals and alternatives that organisations and individuals are free to select, but do
not have to select. Mr Price Group Limited has chosen to focus equally on achieving its
employment equity targets on the one hand and incorporating the national priorities of education
and skills development, on the other.23
One of the techniques that can be used by managers to ensure that organisational goals are
achieved while considering the interests of stakeholders, is the balanced scorecard. As explained
in Chapter 6, the balanced scorecard keeps track of the implementation of its strategies by
considering both internal and external stakeholder perspectives. It does this by looking at the
organisation’s strategic approach from four perspectives:24
• The financial perspective
• The customer perspective
• The internal-process perspective
• The learning and growth perspectives.

The balanced scorecard is also covered in Chapter 6.

7.5 Decision-making models

Our discussion of the circumstances surrounding the decision-making process has set the stage for
examining three decision-making models: the rational model, the bounded rationality model and
the political model. These models have been developed to represent different decision-making
processes. Each model provides valuable insights into those processes.

7.5.1 Rational decision-making model

The rational decision-making model contains a number of steps that managers have to follow in
making a decision. By following these steps managers increase their chances of being successful
in problem solving and decision-making.
Figure 7.4 shows the rational decision-making model as a seven-step process. It begins with
defining and diagnosing the problem, and moves through successive steps to following up and
controlling. When making routine decisions, individuals can follow these steps easily. In addition,
people are more likely to utilise this process in situations involving conditions of near certainty or
low risk, that is, when they can assign objective probabilities to outcomes. Routine decisions
under conditions that approximate certainty obviously do not require the use of all the steps in the
model. For example, if a particular problem tends to recur, decisions (solutions) may be written as
standard operating procedures or rules. Moreover, individuals or teams rarely follow these seven
steps sequentially when making adaptive or innovative decisions.25

Figure 7.4 Rational decision-making model

7.5.1.1 Step 1: Define and diagnose the problem

If managers, teams or individual employees are unaware of the true problems and their possible
causes, no effective decision-making can occur. Problem definition and diagnosis involves three
critical skills: noticing, interpreting and incorporating.
• Noticing involves identifying and monitoring numerous external and internal
environmental forces, and deciding which ones are contributing to the problem or problems
• Interpreting involves assessing the forces noticed and determining which are causes, not
merely symptoms, of the real problem or problems
• Incorporating involves relating those interpretations to the current or desired goals (Step 2) of
the department or organisation.

If noticing, interpreting and incorporating are done haphazardly or incorrectly, the individual or
team may eventually choose a poor solution.
For effective decision-making, it is important to distinguish between the symptoms of a
problem and the underlying causes of that problem. Let us consider the following examples in
terms of sound problem definition and diagnosis. Taking aspirin for headaches may do the trick in
the short term, but headaches are usually a symptom of a problem, not the problem itself. The
problem underlying the symptom could be physiological (for example, eyestrain) or psychological
(for example, stress). So effective decision-making to solve the headache problem may revolve
around eyestrain. Also, problems are sometimes incorrectly defined in terms of proposed
solutions. For example, Nokia and Blackberry offered technology which was not offering what
customers wanted. The strategic choices Nokia and Blackberry should have made are fairly
obvious when looking at Apple today. Apple’s iPhone proved instantly that consumers wanted not
just better phones but well-designed mobile internet devices. The design choices that Nokia and
Blackberry made to maximize the opportunity of discovering and executing a successful strategy
in the face of a rapidly transforming industry, was not the solution to the problem.26
Asking numerous probing questions is fundamental to problem definition and diagnosis.
Individuals and teams will improve the odds of effective problem definition and diagnosis by
asking a variety of ‘who?’, ‘when?’, ‘where?’, ‘how?’ and ‘why?’ questions.
7.5.1.2 Step 2: Set goals
After individuals or teams have defined a problem, they can set specific goals for eliminating it.
For example, let us say that top management has defined excessive manufacturing costs as a
problem, but that these costs are actually merely a symptom of the real problem. The real problem
could be defective materials (inputs) getting into the production process, production workers’
inadequate quality control (inspection) skills or any one of numerous other possibilities.
Management could set a hierarchy of goals for the various levels in the organisation, from the
division manager to the operator, to solve the real problem. So goals would be set in the
purchasing process to overcome the problem of defective materials and in the training department
to overcome the problem of a lack of inspection skills. In both cases, the goals would spell out the
desired results: what is to be achieved and by what date.
Setting precise goals can be extremely difficult under the condition of uncertainty. Individuals
or teams may have to identify alternative goals, compare and evaluate them, and choose among
them as best they can.

7.5.1.3 Step 3: Search for alternative solutions

Individuals or teams must look for alternative ways to achieve a goal. This step might include
such actions as seeking additional information, thinking creatively, consulting experts and
undertaking research. However, when there seems to be no feasible solution for reaching a goal,
there may be a need to modify the goal. For example, some people set impossible goals for
themselves, and then try harder and harder to achieve them, often without success. The solution
selected might be to work longer and longer hours, literally seven days a week. The ultimate result
could be high levels of stress and dissatisfaction that eventually force these individuals to re-
examine their goals and decide which ones are really important.

7.5.1.4 Step 4: Compare and evaluate alternative solutions

After individuals or teams have identified alternative solutions, they must compare and evaluate
them. This step emphasises expected results and determining the relative cost of each alternative.
Many big food franchises entering South Africa could easily decide to rather import their goods
from suppliers in their ‘head office’ country. Burger King South Africa decided to source locally.
Reasons supporting Burger King SA’s decision to source their goods locally were access to
quality products and a contribution to sustainability, speed-to-market, managing lower costs,
innovation as well as creating local employment opportunities. By 2016, 98% of their supplies
(such as chicken, beef, burger buns, fresh produce, dairy and packaging) were sourced locally.27
Several aids for comparing and evaluating alternative solutions rationally are also presented in this
chapter.

7.5.1.5 Step 5: Choose from among alternative solutions

When a final choice has been made, decision-making would have taken place. The choice of a
solution is only one step in the rational decision-making process. Complex and ambiguous
problems involve high degrees of risk or uncertainty, making the choice of an alternative solution
difficult.

7.5.1.6 Step 6: Implement the solution selected

An appropriate solution might not always be successful. A sound decision has to be accepted and
supported by those responsible for implementing it. This is necessary for the taken decision to be
effective. If the selected solution cannot be implemented for some reason, another one should be
considered.

7.5.1.7 Step 7: Follow-up and control

Implementing the preferred solution will not automatically result in the desired outcome being
attained. The implementation process must be controlled through the evaluation of results by those
involved in the decision-making process. Corrective measures should be taken if implementation
does not produce desirable results. The business environment is not constant hence the need to
always redefine the problem or review the original goal from time to time. Feedback from this
step could even suggest the need to start again and repeat the entire decision-making process.
You might think of the rational model as an ideal, nudging individuals or teams closer to
rationality in making decisions. At best, though, human decision-making only approximates this
ideal. When dealing with some types of problems, people do not even attempt to follow the
rational model’s seven steps; instead, they may apply the bounded rationality or political models.28
Observations of actual decision-making processes in organisations suggest that individuals modify
or even ignore the rational model, especially when faced with making certain types of adaptive
and innovative decisions.

7.5.2 Bounded rationality model

Herbert Simon, a management scholar, introduced this model in the mid-1950s. The bounded
rationality model is particularly useful because it emphasises the limitations of rationality and thus
provides a better picture of the day-to-day decision-making processes used by most people. This
model partially explains why different individuals make different decisions when they have
exactly the same information.
The bounded rationality model refers to an individual’s tendencies to do the following:29
• Select less than the best goal or alternative solution (known as satisficing)
• Engage in a limited search for alternative solutions
• Have inadequate information and control over external and internal environmental forces
influencing the outcomes of decisions
• Allow information-processing biases to influence decision-making.

These tendencies are discussed in more detail below.

7.5.2.1 Satisficing
Satisficing is the practice of selecting an acceptable goal or alternative solution rather than
searching extensively for the best goal or solution. An acceptable goal might be easier to identify
and achieve, less controversial and safer than the best available goal. The factors that result in a
satisficing decision are often limited search, inadequate information and information-processing
bias, as shown in Figure 7.5. However, the achievement of quality improvement goals is often a
result of a series of satisficing decisions. You will recall from Chapter 3 that W. Edwards Deming
taught management that the greatest cause of defective products was poorly designed processes.
Many successful organisations map, measure and continuously improve their processes
incrementally to reach a high level of quality. In our South African Insight, the offer by
Woolworths of nuts and biltong at the check-out tills, rather than chocolates, is an example of an
acceptable alternative solution for all stakeholders involved.

7.5.2.2 Limited search

Individuals usually make only a limited search for alternative solutions to a problem, considering
options until they find one that seems adequate. For example, when trying to choose the ‘best’ job,
students cannot evaluate every available job in their fields. In the bounded rationality model,
individuals stop searching for alternatives as soon as they hit on an acceptable one. Even the
rational decision-making model recognises that identifying and assessing alternative solutions
costs time, energy and money.

7.5.2.3 Inadequate or misinterpreted information

Bounded rationality also recognises that individuals frequently have inadequate information about
the precise nature of the problems facing them and the consequences of each alternative. These
conditions create a condition of ignorance – the lack of relevant information or the incorrect
interpretation of the information that is available. Faced with increasing customer resistance to
high motor car prices, management at Honda and Toyota believed that the only way to produce a
less expensive car was to skimp on features. In the USA, Honda replaced the rear disc brakes on
the Civic with lower-cost drum brakes and used cheaper fabric for the back seat, hoping that
customers would not notice. Toyota tried to sell a version of its best-selling Corolla in Japan with
unpainted bumpers and cheaper seats. Management at both Honda and Toyota made these
decisions without adequate information. As soon as customers rebelled, they quickly reversed
their decisions.

Figure 7.5 Factors influencing a satisficing decision

7.5.2.4 Information-processing biases

Consistent with the bounded rationality model, individuals often fall prey to information-
processing biases when they engage in bounded rationality decision-making. The following are
five of these biases:30
1 The availability bias means that people who easily recall specific instances of an event may
overestimate how frequently the event occurs. People who have been robbed or hijacked often
overestimate the frequency of such accidents.
2 The selective perception bias means that what people expect to see often is what they do see.
People seek information that is consistent with their own views and downplay conflicting
information. Some people eagerly drive in a car daily and assume that because they perceive
themselves to be good drivers, their chances of being in a vehicle accident is far less than
being in a plane crash; therefore, these same people may be hesitant or even terrified to fly in
 an aeroplane. The fact is that substantially more people die annually on South African roads
than they do in aeroplane accidents.
3 The concrete information bias means that vivid, direct experience usually prevails over
abstract information. A single personal experience can outweigh statistical evidence. An initial
bad experience on the job may lead a worker to conclude that most managers cannot be trusted
and are simply out to exploit their subordinates.
4 The law of small numbers bias means that people may view a few incidents or cases as
representative of a larger population (in other words, a few cases ‘prove the rule’) even when
they do not. Widely publicised but infrequent events of excessive use of force by a few police
officers often trigger characterisations of most police officers as people who regularly engage
in extreme use of force and aggression.
5 The gambler’s fallacy bias means that seeing an unexpected number of similar events can lead
people to the conviction that an event not seen will occur. For example, after observing nine
successive reds turn up on a roulette wheel, a player might incorrectly believe that the chances
of a black on the next spin are greater than 50/50. They are not!

7.5.3 Political model

The political model describes the decision-making process in terms of the particular interests and
goals of powerful external and internal stakeholders.31 Before considering this model, however, we
need to define power. Power is the ability to influence or control individual, departmental, team or
organisational decisions and goals.32 To have power is to be able to influence or control the
following factors:
• The definition of the problem
• The choice of the goal
• The consideration of alternative solutions
• The selection of the alternative to be implemented
• The actions and success of the organisation.

Political processes are most likely to occur when decisions involve powerful stakeholders,
disagreement over choice of goals, and people who are not searching for alternative solutions.
These three factors are highly interrelated, as shown in Figure 7.6.

Figure 7.6 Factors affecting the political decision-making process

Key characteristics of the political model of decision-making are outlined in the following
sections.

7.5.3.1 Problem definition

In the political model, external and internal stakeholders try to define problems for their own
advantage. An example is the probing by the Minister of Finance at the time into the SAA deal to
purchase 20 aircraft from Airbus. The decision to insert a middle-man in a deal that stood to
enrich a few connected partners with hundreds of millions of Rands in unnecessary commissions
and finance charges, was eventually stopped. This saved the South African taxpayer about R1.6bn
and enabled SAA to obtain a refund of R1.3bn in pre-delivery deposits from Airbus.33
In politically oriented organisations there is little teamwork, and individualism is rife. This is
evident in the fact that one or more individuals, rather than the whole team, tend to be singled out
as the cause of the problem if something goes wrong. This finger-pointing is called scapegoating.
Scapegoating is a process of casting blame for problems or shortcomings on an innocent or only
partially responsible individual, team or department. This is done by powerful individuals to
preserve a position of power or maintain a positive image.

7.5.3.2 Divergence in goals

The political model recognises the likelihood of conflicting goals among stakeholders and that the
choice of goals will be influenced by the relative power of stakeholders. This scenario often leads
to no clear ‘winner’ emerging. However, if power is concentrated in one stakeholder, the
organisation’s primary goals will likely reflect that stakeholder’s goals.
Negotiation and compromise in the decision-making process is only possible if there is a
balance of power among several stakeholders. This scenario is mostly characterised by the push
and pull of the stakeholders, who have both power and conflicting goals. This balance of power
sometimes might also result in a stalemate. Stakeholders might form an alliance when no one
person or a group has sufficient power to select or implement its preferred goal. This is a common
political strategy. For example, in South Africa, health-related organisations and associations such
as the Cancer Association of South Africa and the South African Heart Foundation, have formed
an informal coalition to fight smoking and tobacco interests.

7.5.3.3 Divergence in solutions

Due to the divergence of goals, a win-lose situation often prevails in achieving the set goals. Since
there is no agreement upon the goals, one’s gain is another’s loss. To further their personal
interests under these conditions, stakeholders often distort and withhold information selectively.
A major source of power is information which is used by stakeholders in a politically oriented
organisation. This is in contrast to the rational decision-making model which calls for all
employees to present all relevant information openly. Under the politically driven organisation the
disclosure of vital information reduces one’s power. Open disclosure is viewed as naive, making
achievement of their personal, team or departmental goals more difficult.
One of the common political strategies used by stakeholders to achieve their goals, is co-
optation. Co-optation involves bringing new stakeholder representatives into the strategic
decision-making process as a way to avert threats to an organisation’s stability or existence.34
The political model of decision-making sometimes reflects the pursuit of short-term and
narrowly defined self-interests. In this situation, an individual or organisation is prone to behave
in ethically questionable ways. Table 7.1 provides a short checklist of questions that you can use
to help you decide whether personal use of your organisation’s supplies and equipment is ethical.
What decision-making rule or rules did you follow? Would you be proud to have others see your
choices?
The rest of the chapter will be devoted to knowledge management, as well as a discussion of
eight planning and decision-making aids that can be used (1) at various organisational levels, (2)
in virtually all functional areas (e.g. marketing, finance, human resources and so on) and (3) for
assisting in the analyses essential to planning and decision-making.

7.6 Knowledge management

Knowledge management is both a philosophy about information-sharing and an aid to planning
and decision-making. Knowledge management is the art and science of creating, measuring,
distributing, enhancing, evaluating and integrating the information base of an organisation, and
building on its intellectual assets. Knowledge management consists of three main parts:

Table 7.1 Did you make an ethical decision?

How do you rate the ethics of a decision to make personal use of each of the following organisational
resources? Assume that the organisation has no formal policy on personal use of any of these resources.
Place an X in the appropriate blank space.

Knowledge management consists of three main parts:

• Explicit knowledge. This refers to published and internally generated reports and manuals,
books, magazines and journals, government data and reports, online services and the like.
• Tacit knowledge. This refers to the information, competencies and experience possessed by
employees. This knowledge may be unconsciously understood and used, difficult to express,
often developed from direct experiences and action, and typically shared through
conversations involving storytelling and shared experiences.
• Enabling technologies. These include intranets, the internet and search engines.
7.6.1 Knowledge management drivers
The information age has replaced the industrial age. The balance sheet, which typically measures
physical assets (for example, land, factories, equipment and cash), is increasingly measuring a
new asset: knowledge. Knowledge is becoming more valuable than physical or financial assets, or
even natural resources. Information and knowledge (for example, experience, advice, best
practices and communication) are the new competitive weapons.
The serious risks of not taking steps to manage knowledge assets and processes are driving
organisations to re-evaluate their knowledge strategies. In doing so, they are finding some rather
serious shortcomings in their systems, including the following:
• Productivity and opportunity loss (a lack of knowledge where and when it is needed)
• Information overload (too much unsorted and non-targeted information)
• Re-inventing the wheel (lack of standards and infrastructure for creating, capturing, sharing
and applying best practices or lessons learnt).

These shortcomings must be eliminated or reduced so that the right knowledge is available to the
right employees at the right time.
In the next section we present the factors that need to be considered in the successful
application of knowledge management, namely, knowledge management targets, the importance
of an enabling technology and the importance of an enabling culture.

7.6.2 Knowledge management targets

The application of knowledge management has three natural targets: an organisation’s teams,
customers and employees.

7.6.2.1 Teams
Different people working together are often crucial to ensuring that goods and services are
designed to meet customer needs. By getting input from finance, marketing, research and design,
operations and other groups, for example, knowledge management provides a method of sharing
ideas as well as identifying best practices in design and development. By bringing together the
ideas and information of each group, a project team can move ahead more quickly and efficiently.
It becomes aware of work being done elsewhere in the organisation, thereby reducing duplication
and enhancing intergroup problem-solving and decision-making.
Procter & Gamble (P&G), a manufacturer of numerous consumer products such as soap,
toothpaste, cosmetics and shaving products, has been in South Africa since 1994. One component
of P&G’s knowledge management system is the Innovation Net, an intranet developed to provide
it with specialised databases and knowledge. It also contains information on research being
conducted throughout P&G, enabling researchers to identify others who are working on similar
problems. P&G, however, has gone further than this in managing knowledge. Recognising that it
does not, cannot and will not know everything, it has developed its Connect + Develop Innovation
Partner System. P&G Connect + Develop invites any individual or organisation to establish
partner solutions for various current need areas such as personal and family care innovation,
household care innovations, and so on.35

7.6.2.2 Customers
The cornerstone of organisational success is customer satisfaction. The ability to understand
customers’ needs, buying patterns and expectations is key in establishing and improving long-
term relationships between the organisation and its customers. This is also the case in our South
African Insight, where Woolworths’ customers will decide what they’d rather see on the stands at
the pay points. Knowledge management can help this process. In environments where change is a
constant, organisations are constantly challenged to revise strategies affecting every area, from the
mail room to the managing director’s office.
Woolworths offers rewards through their World of Difference loyalty programme. Apart from
the multiple benefits offered to customers, the organisation has much to gain and learn, assisting
them in making better decisions. “The World of Difference loyalty programme gives the business
more information about what people are buying and when, and has increased Woolworths’
understanding of what customers are looking for. Product ranges can be tailored more effectively
and we can provide customers with information which is more relevant to their needs and
lifestyles.”36

7.6.2.3 Employees
In today’s ever-changing business environment, an organisation’s employees are the single most
valuable asset. Through knowledge management, organisations can track every aspect of their
employees including skills and abilities, performance management and training and development.
This helps organisations to keep their employees competent and motivated. Organisations operate
in an ever-changing business environment which requires continuous skills update. An effective
knowledge management system aids organisations to anticipate and identify a skills gap and
provides mechanisms for further employee training and development so that they always perform
efficiently in a dynamic business environment.

7.6.3 Enabling technology

Technology is the knowledge management enabler. It provides the foundation for solutions that
automate and centralise the sharing of knowledge and facilitating innovation.
Users must be provided with relevant business information timeously from every possible
source through technology. Knowledge creation and storage in different places is a by-product of
technological changes. The chosen technology must be able to support exploration of new ideas
and solutions to problems, making existing knowledge easily available to both developers and
users. P&G Connect + Develop Innovation Partner System is an example of such technology.
The technologies used must consist of a variety of devices ranging from mobile phones to
laptop computers to cater for mobile knowledge workers. To be useful, the received information
must be transmitted to where a decision needs to be made.

7.6.4 Enabling culture

Cultural issues are the chief obstacle to the successful implementation of knowledge management
in many organisations. An environment where knowledge sharing and innovation are valued and
rewarded, both implicitly and explicitly, will result in the overcoming of cultural obstacles. If
people feel out of place or unappreciated in changing their behaviours, they will not react
positively to the application of knowledge management. They will resort to hoarding knowledge
rather than sharing knowledge.
Having considered some of the key features of knowledge management, we now go on to consider
forecasting as an aid to organisations in the processes of planning and decision-making.

7.7 Tools to assist in forecasting

Forecasting involves predicting, projecting or estimating future events or conditions in an
organisation’s environment. Forecasting is concerned primarily with external events or conditions
beyond the organisation’s control that are important to its survival and growth. Considering our
South African Insight, Woolworths needs to take into account various aspects ranging from
changes in legislation to trends in customer behaviour, in order to drive their sustainability
strategy.
Most forecasting is based on extrapolation. Extrapolation is the projection of some tendency
from the past or present into the future. The simplest (and, at times, most misleading) form of
extrapolation is a linear or straight-line projection of a past trend into the future.37 There are four
forecasting pitfalls to note:38
• Listening to the media. If you track trends through the headlines, you are in trouble. The media
often distort trends, blow fads up into trends or completely miss trends.
• Assuming things are going to return to the way they used to be. There is a school of thought
that believes that trends are like a swinging pendulum: we go one way, then the other. That is
a nice concept, but it really does not work that way.
• Hearsay. This is the mentality that because the neighbours are doing it or everyone says they
know someone doing it, a trend must exist.
• Tunnel vision. You need to read materials in areas about which you would not typically think.
If all you read is the business press, you need to expand your scope.

Even though forecasting is uncertain, it is still necessary. Managers and teams at all levels have to
use whatever is available to them in anticipating future events and conditions. Three forecasting
aids – scenarios, the Delphi technique, and simulation – are often used in planning and decision-
making situations. Because all of them focus on understanding possible futures, they are not
mutually exclusive.

7.7.1 Scenarios
A scenario is a written description of a possible future. Multiple scenarios are simply written
descriptions of several possible futures. Planners at Anglo American, Standard Bank South Africa
and Shell South Africa might use scenarios to address questions such as the following:
• What might South Africa look like in terms of political, economic and social dimensions in
twenty years’ time?
• What future opportunities might exist for banks in South Africa in twenty years’ time?
• How could developments in e-commerce dramatically change traditional ways of doing
business in South Africa?
• What types of strategies might be useful in preventing, diverting, encouraging or dealing with
the possible future for e-commerce?

Thus scenarios are intended to:39

• Provide a wide range of possibilities against which to evaluate strategies
• Provide a broad vision of possible events
• Assist in the identification of events that warrant the development of contingency plans
• Help managers and others identify patterns, generalisations and interrelationships.
Scenarios are quite useful in forcing those involved in planning to evaluate preliminary plans
against future possibilities.

Scenarios are usually developed for possible futures five to twenty years ahead. To keep the
process manageable, three scenarios are usually sufficient:
• The most probable scenario
• A pessimistic scenario
• An optimistic scenario.
In South Africa, scenario-planning was popularised by Clem Sunter and the Anglo American
Corporation. In 1985, they developed a set of scenarios for South Africa for the 1990s.40 Having
looked at various economic factors, as well as political forces and uncertainties, they proceeded to
develop two political and economic scenarios, which they called the ‘High road’ and the ‘Low
road’. Their ‘High road’ was characterised by few sanctions, a small government, decentralised
power, joint negotiation and synergy leading to democratic welfare and economic growth. Their
‘Low road’ was characterised by increasing sanctions, a controlled economy, centralised
government, and eventual confrontation and conflict leading to greater authoritarianism and an
economic wasteland. In conjunction with Chantell Illbury, Clem Sunter later went on to develop a
methodology for writing scenarios that was accessible even to small organisations. It was built
around ‘the mind of a fox’.41

In the course of its strategic planning, Standard Bank South Africa developed three five-year
scenarios for beyond the year 2000. It labelled them ‘The road to Mecca’, ‘A long walk to
freedom’ and ‘Cry the beloved country’:42
• ‘The road to Mecca’. In this scenario, South Africa enjoys substantial success because it fully
adopts the right policies and attitudes. The macro-economic strategy developed by government
is enthusiastically put into place and it works. Government recognises the impact of pressures
from globalisation and accepts the disciplines imposed by them.
• ‘A long walk to freedom’. In this scenario, government implements some critical elements
contained in its growth strategy, but reluctantly and too slowly. There are too many
compromises with anti-market political factions. In the end, most of the strategy’s policies are
applied, but this piecemeal approach is inadequate. As a result it fails, at least partially.
• ‘Cry the beloved country’. In this scenario, government’s market-driven economic strategy of
restructuring for increased competitiveness is dumped because of the pain caused by some of
its component policies and because of the loss of sovereignty involved. All areas of
government become incompetent and the country gradually falls apart. South Africa falls in
with prevailing foreign perceptions of Africa as a continent with massive resources that
somehow fails to live up to its potential.

The important thing about a scenario-building exercise is that once a favourable scenario has been
identified based on certain assumptions, an organisation is then empowered to work towards
making that favourable scenario a reality. Scenario analysis is also touched upon in Chapter 5.

7.7.2 The Delphi technique

Named after an ancient Greek oracle, the Delphi technique is a forecasting aid based on the
consensus of a panel of experts. The experts refine their opinions, step by step, until they reach
consensus. Because the technique relies on opinions, it obviously is not foolproof, but the
consensus arrived at tends to be much more accurate than a single expert’s opinion. The Delphi
process replaces face-to-face communication and debate with a carefully planned, orderly
programme of sequential discussions. The first decision that has to be made involves the selection
of a group of experts.
The method was developed by the Rand Corporation in the early 1950s to obtain expert
judgments on how many Soviet atomic bombs would be required to do a specific amount of
damage to the US.43 The Delphi technique is now recognised as an important aid to strategic
planning.

7.7.2.1 Phases and questionnaire

The Delphi technique involves the following three phases:44
1 A questionnaire is sent to a group of experts. These experts remain unknown to one another.
The questionnaire requests numerical estimates of specific technological or market
possibilities. It asks for expected dates (years) and an assignment of probabilities to each of
these possibilities. Respondents are asked to provide reasons for their expressed opinions. This
process may be conducted through e-mail and other electronic means.
2 A summary of the first phase is prepared. This report may show the average, medium and
quartile ranges of responses. The report, along with a revised questionnaire, is sent to the
experts who completed the first questionnaire. They are asked to revise their earlier estimates,
if appropriate, or to justify their original opinions. The reasons for the possibilities presented
in the first round by the experts are subjected to a critique by fellow respondents in writing.
The technique emphasises informed judgment. It subjects the views of individual experts to
others’ reactions in ways that avoid face-to-face confrontation, and it provides anonymity of
opinion and arguments given in defence of those opinions.
3 A summary of the second phase is then prepared. This report often shows that a consensus is
developing. The experts are then asked in a third questionnaire to indicate whether they
support this emerging consensus and the explanations that accompany it. To avoid blind
agreement, they are encouraged to find reasons for not joining the consensus.

Three phases are generally recommended. Although more phases could be used, the experts often
begin dropping out after the third phase because of other time commitments. The number of
participating experts may range from only a few to more than 100, depending on the scope of the
study. A range of 15–20 experts is recommended for a very focused issue. As the sample size
(number of experts) increases, the amount of co-ordination required also increases, as do costs.
The heart of the Delphi technique is a series of questionnaires. The first questionnaire may
include broadly worded questions. In later rounds, the questions become more specific because
they are built on responses to the preceding questionnaires.

7.7.3 Simulation
A simulation is a representation of a real system. A simulation model usually describes the
behaviour of the real system (or some aspect of it) in quantitative and/or qualitative terms.
BMW’s R&D team worked closely with Simulia over a period of ten years, to develop a
simulation programme that allowed them to attain their corporate goal of zero-prototyping for
passive safety. Continuous pressures to meet and exceed ever-changing crashworthiness
standards, while responding to consumer demands, increased petrol consumption requirements
and complex, new materials, are some of the reasons for this simulation development, bringing
about substantial cost savings and product development time.45
 Advanced business simulations are relatively expensive, complex and custom-designed, and
often require the use of computers to perform hundreds of thousands of calculations. Simulations
provide a real chance for senior decision-makers to anticipate the company’s future success or
failure.
Simulation is often used to forecast the effects of environmental changes and internal
managerial decisions on an organisation, department or strategic business unit. The goal of
simulation is to reproduce or test reality without actually experiencing it. Most simulations are
intended to let management ask numerous ‘what if’ questions, for example: ‘What profits can we
anticipate next year if inflation is 8% and we continue current pricing policies?’ or ‘What profits
can we expect next year if inflation is 2% and we open two new plants?’. To answer such
questions, analysts often develop complex equations and use computers to perform many of the
step-by-step computations required. Such models can be used to simulate virtually any issue of
interest (for example, profits, sales and earnings per share) for which a forecast is needed.
A simulation can help planners deal with three common strategic questions:
1 What general effect will certain changes in the economy (for example, an increase in interest
rates from 6% to 10%) have on the organisation if its primary strategies remain unchanged?
2 What will the specific effects on the organisation be if a particular strategy (for example, low
cost, focus or differentiation) is selected in anticipation of those changes in the economy?
3 Are there any particular combinations of strategies that will enable the organisation to gain a
competitive advantage?

7.7.4 Virtual reality

Virtual reality is a surrogate environment created by communications and computer systems.46
The term denotes a simulated environment. A user ‘enters’ this environment, moves around and
interacts with objects. Virtual reality fulfils the sensory requirements of human beings for sight,
sound and movement. One of the earliest practical uses of virtual reality was the training of pilots
in flight simulators. Entertainment manufacturers are increasingly using it in their video games.
Some dentists are even using it to relax their patients while performing oral surgery. Currently the
virtual experience economy, allowing for real experiences using virtual reality technology, is a
fast-growing trend in consumer markets.
Having outlined some tools to assist in forecasting, we now go on to consider creativity as an
aid to organisations in the processes of planning and decision-making.

7.8 A tool to assist in promoting creativity

Creativity complements all forecasting aids. Creativity is the ability to visualise, foresee,
generate and implement new ideas. Through creative thinking, quality solutions for different
problems can be generated. Creativity stimulates innovation, invigorates motivation and
commitment by challenging individual competencies, and serves as a catalyst for effective team
performance. The cornerstone for many organisational successes is creativity.47

7.8.1 The creative process

The creative process comprises five interconnected stages:
1 Preparation – which involves a thorough analysis of information in order to understand the
entire problem. At this stage all the necessary information must be collected.
2
 Concentration – occurs when everyone in the organisation is committed to identify and solve a
problem. Organisational resources are also committed. At this stage the suggested solution
must be implemented.
3 Incubation – involves an internal organisation of the information that has been gathered. This
stage is often characterised by personal conflict between what is currently accepted as reality
and what may be possible. At this stage to ease conflicts individuals tend to relax or distance
themselves from the issue in order to allow others to search for possible issues or problems
and solutions. A successful incubation stage yields renewed ideas and innovative ways of
thinking about the nature of an issue or a problem and alternative solutions.
4 Illumination – is the moment of discovery, the instant of recognition. This is the enlightenment
stage. The mind instantly discovers a solution to an issue or a problem through a remembered
observation or occurrence.
5 Verification – involves the testing of the created solution or idea. This is where confirmation
and acceptance of the new approach are sought.

The knowledge and insights obtained from each stage of the creative process are often useful in
addressing new issues and problems at the next preparation stage.
In the next section, we present A.F. Osborn’s creativity model as an aid for fostering creative
planning and decision-making in organisations.

7.8.2 Osborn’s creativity model

Osborn’s creativity model is a three-phase decision-making process that involves fact-, idea- and
solution-finding. It is designed to help overcome blockages to creativity and innovation, which
may occur for a variety of reasons. It is intended to stimulate co-operation and freewheeling-
thinking, which may lead to innovative decisions.48

It can be used with all types of groups (for example, a manager and subordinates or a team of
employees). Sufficient time and freedom must be allowed for the model to work well, and some
degree of external pressure and self-generated tension is helpful. However, too much pressure or
too many threats from the wrong sources (for example, an order from top management to
determine within ten days why quality has deteriorated) can easily undermine the process.
Osborn’s creativity model stimulates novel ideas and curiosity. It is one of several aids for finding
new ways of identifying and considering problems, and generating solutions.

7.8.2.1 Fact-finding phase

This is where the issue or problem is defined. Important data is gathered and analysed. To
improve fact-finding, decision-makers have to begin with a broad view of the issue or problem,
and then proceed to define sub issues or sub problems. A distinction has to be made between a
symptom of an issue or problem and an actual issue or problem. For example, a manager might
claim that negative employee attitudes constitute a problem. A deeper investigation might reveal
that negative employee attitudes are only symptoms of a greater issue, such as a lack of feedback
on individual employees’ job performance.

7.8.2.2 Idea-finding phase

The starting point is the generation of tentative ideas and possible leads. From the generated ideas,
the ones deemed suitable are modified, combined and added to, if necessary. According to
Osborn, individuals can generate more good ideas by following two principles:
• Deferring judgment. This allows individuals to think up almost twice as many good ideas in
the same length of time by deferring judgement on any idea until after creating a list of
possible leads to a solution.
• Quantity breeds quality. The more ideas generated by individuals, the more likely they are to
reach the possible best leads to a solution.

Osborn developed 75 general questions that encourage uninhibited individual thinking resulting in
the generation of many ideas when brainstorming a problem. Brainstorming is an unrestrained
flow of ideas in a group, without critical judgements. The group leader must decide which of the
75 questions are most appropriate to the issue or problem being addressed. This is due to the fact
that the group leader cannot be expected to use all of the questions in a single session. Examples
of questions that could be used in a brainstorming session are:49
• How can this issue, idea or thing be put to other uses?
• How can it be adjusted?
• How can it be substituted for something else or can something else be substituted for part of
it?
• How could it be reversed?
• How could it be combined with other things?

A brainstorming session should follow four basic rules:

1 Criticism is ruled out. To generate more ideas, participants must only pass critical judgement
of ideas at the end of the brainstorming session.
2 Freewheeling is encouraged. All ideas are appreciated as it is better to refine an idea than to
think up a new idea.
3 Quantity is desired. The more ideas generated the better, as there is a higher probability that
some of the ideas will be useful.
4 Combination and improvement are sought. Participants are encouraged to deliberate about
other people’s ideas and refine them in order to improve them. They can also merge two or
more ideas to come up with a sound one. This is in addition to contributing their own ideas.

The above basic rules are intended to separate creative imagination from judgement. Creative
imagination and judgement are incompatible and relate to different aspects of the decision-making
process. The two can be explained by the following analogy: Trying to get hot or cold water out of
the same tap at the same time, will result in one getting only lukewarm water. This means one
cannot criticise and be creative at the same time as you will not do either very well. The starting
point should be idea generation and the avoidance of criticisms during the brainstorming session.50
To generate useful and diverse ideas, a brainstorming session should have between five and
twelve participants. This is a manageable size range which allows each participant to maintain a
sense of identification and involvement with the group. An effective session should be between
twenty minutes and one hour in order to capture participants’ creativeness. Brainstorming could
consist of several sessions geared towards idea-generating. For example, follow-up sessions could
address each of the ideas previously generated individually.

7.8.2.3 Solution-finding phase

Solution-finding involves generating and evaluating possible courses of action and deciding how
to implement the chosen course of action. Judgement, analysis and criticism are very important for
this stage to be successful. A variety of planning and decision-making aids – such as those
presented in this chapter – can be used. As a starting point the leader could ask the group to
identify a few of the most important ideas generated on a piece of paper and evaluate them based
on a provided measurement scale like a five-point Likert scale (for more information regarding the
use of the five-point Likert scale, visit the following website:
http://www.socialresearchmethods.net/kb/scallik.php). A very important idea might get five
points, a moderately important idea could get three points and an unimportant idea could be
assigned one point. The highest combined scores may indicate the actions or ideas to be
investigated further for possible solutions.

Having outlined some of the key aspects of creativity, we now go on to consider quality as an
aid to organisations in the processes of planning and decision-making.

7.9 Tools to assist in promoting quality

The most common definition of quality is the extent to which a product or service meets and/or
exceeds customers’ expectations.51 Consumers often apply the value definition of quality when
making purchasing decisions. We review four of many planning and decision aids that focus on
improving quality: benchmarking, the Deming cycle, Pareto analysis and the Fishbone (Ishikawa)
Diagram.

7.9.1 Benchmarking
Benchmarking is the continuous process of comparing an organisation’s strategies, products or
processes with those of best-in-class organisations. It helps employees learn how such
organisations achieved excellence, and then to set out to match or exceed them.52 Benchmarking
has been used to assess most aspects of organisations’ operations. It identifies the ‘best’ that is
occurring elsewhere, and helps organisations determine how to develop their own strategic or
tactical plans and processes to reach that level.

7.9.1.1 Basic benchmarking process steps

As noted in Figure 7.7, benchmarking includes seven basic steps:53
• Step 1: This step involves defining the domain to be benchmarked. It includes a careful study
of the organisation’s own products and processes that are to be compared to benchmarked
products and processes. Functions such as operations, finance, marketing, inventory
management, transportation, legal services, human resources and marketing are typically
benchmarked. Each function or process may be broken down into more specific categories or
processes for that purpose. For example, benchmarking in human resources may include the
processes of recruiting, diversity enhancement, training, compensation, performance appraisal,
recognition programmes and job design. Benchmarking can be expensive and time consuming,
thus some people recommend that it be directed at the specific issues and processes that are
likely to yield the greatest competitive advantage (for example, core strategic competencies,
managerial competencies and the like).54
Figure 7.7 The benchmarking process

• Step 2: This step involves identifying the best performers, or best-in-class, for each function,
process and product to be benchmarked. They may include organisations in the organisation’s
own industry or in other industries. SPAR, Checkers and Pick n Pay in South Africa could
well compare their customer service systems with those of Woolworths Foods, for example,
because of the latter’s excellent reputation in this area.
• Step 3: This step involves collecting and analysing data to identify gaps, if any, between the
function, product or process being evaluated and that of best-in-class organisations. The data
collected needs to focus on specific methods used, not simply on the results obtained. It is one
thing to know that Unilever has a superb warehouse distribution system; it is another to learn
how Unilever has achieved this level of excellence. There are many sources of information for
learning about best-in-class organisations. They include customers, suppliers, distributors,
trade journals, company publications, newspapers, books on total quality, consultants,
presentations at professional meetings and even on-site interviews with people at best-in-class
organisations. This last source is usually easier to tap if the organisations are not direct
competitors.

The remaining steps are consistent with the typical planning phases:
• Step 4: This step involves setting improvement goals
• Step 5: This step involves developing and implementing plans to close gaps
• Step 6: This step involves evaluating results
• Step 7: This step involves repeating the evaluations as necessary.

Step 7 suggests that benchmarking needs to be an ongoing process. Over time, the things
benchmarked may remain the same or may need to be revised. Revisions may include dropping
and/or adding functions, products or processes as issues, conditions, technology and markets
change.

7.9.1.2 Limitations
Benchmarking should be linked to other sources of information such as changing customer
expectations and preferences. Benchmarking always looks at the present in terms of how some
process (logistics or operations) or quality dimension is being performed by others. This approach
may not be adequate for determining what should be done in the future, or whether an
organisation should retain a function or process or contract it out. For example, an organisation
could contract out its computer operations to Dimension Data, as Coca-Cola Sabco in Port
Elizabeth did. When used simply to copy the best-in-class competitors, benchmarking may lead
only to a short-term competitive advantage. Finally, benchmarking needs to be used to
complement and aid, not to be a substitute for, the creative and innovative efforts of the
organisation’s own employees.55

7.9.2 The Deming cycle

As stated in Chapter 3, W. Edwards Deming is considered by many people to be the ‘godfather’ of
the quality movement. One of the aids he advocated for improving quality is commonly known as
the Deming cycle. It was originally developed by Walter Shewhart, which is why it is also called
the Shewhart cycle. Others refer to it as the PDCA cycle because it involves the following four
stages: plan (P), do (D), check (C) and act (A).

Figure 7.8 The Deming cycle

As Figure 7.8 suggests, these stages unfold in sequence and continuously. Thus the Deming
cycle comprises four stages – plan, do, check and act – that should be repeated over time to ensure
continuous improvements in a function, product or process.

Plan stage
Three questions must be answered during the plan stage of the Deming cycle:
• What are we trying to accomplish?
• What changes can we make that will result in improvement?
• How will we know that a change is an improvement?

The plan stage involves analysing the current situation, gathering data and developing ways to
make improvements. Benchmarking may be one of the aids used in the plan stage.

Do stage
This stage involves testing alternatives experimentally in a laboratory, establishing a pilot
production process or trying it out with a small number of customers.

Check stage
This stage requires determining whether the trial or process is working as intended, and whether
any revisions are needed or whether it should be scrapped.

Act stage
This stage focuses on implementing the process within the organisation or with its customers and
suppliers.56

7.9.3 Pareto Analysis

Pareto Analysis is a statistical technique in decision-making used for the identification of a
limited number of causal items that account for a significant number of effects. It uses the Pareto
Principle (also known as the 80/20 rule) that suggests that by doing 20% of the work you can
generate 80% of the benefit of doing the entire job. Take quality improvement, for example: A
vast majority of problems (80%) are produced by a few key causes (20%). This technique is also
called the vital few and the trivial many. Although Pareto Analysis is widely used in quality
control, it can be applied to almost anything:
• 80% of customer complaints arise from 20% of your products and services
• 20% of your products and services account for 80% of your profit
• 20% of your sales force produces 80% of your company revenues
• 80% of delays in the schedule result from 20% of the possible causes of the delays.

The Pareto Principle is the basis for the Pareto diagram, one of the key tools used in total quality
control.
There are eight steps to identifying the main causes you should focus on using Pareto
Analysis: You must read these eight steps in conjunction with Figure 7.8 in order to make any
sense of them:
1 Create a vertical bar chart with causes on the x-axis and the number of occurrences on the
y-axis.
2 Arrange the bar chart in descending order of cause importance, that is, the cause with the
highest count comes first.
3 Calculate the cumulative count for each cause in descending order.
4 Calculate the cumulative count percentage for each cause in descending order. Percentage
calculation: [Individual Cause Count] / [Total Causes Count] × 100.
5 Create a second y-axis with percentages descending in increments of 10 from 100% to 0%.
6 Plot the cumulative count percentage of each cause on the x-axis.
7 Join the points to form a curve.
8 Draw a line at 80% on the y-axis running parallel to the x-axis. Then drop the line at the point
of intersection with the curve on the x-axis. This point on the x-axis separates the important
causes on the left (vital few) from the less important causes on the right (trivial many).57

Figure 7.9 is a simple example of a Pareto diagram that uses sample data showing the relative
frequency of causes for errors on websites. It enables you to see which 20% of cases are causing
80% of the problems and where efforts should be focused to achieve the greatest improvement. In
this case, we can see that ‘broken links’, ‘spelling errors’ and ‘missing title tags’ should be the
focus of attention.
Figure 7.9 Pareto analysis diagram

The value of the Pareto Principle for a project manager is that it reminds you to focus on the
20% of things that matter. Of the things you do for your project, only 20% are crucial. That 20%
produces 80% of your results. Identify and focus on those things first, but, of course, do not
entirely ignore the remaining 80% of the causes.

7.9.4 The Fishbone (Ishikawa) Diagram

Also known as a ‘Cause-and-Effect Diagram’, the Fishbone Diagram identifies many possible
causes of an effect or problem. As such, it can be used to structure a brainstorming session. It
immediately sorts ideas into useful categories. When you have a serious problem, it is important
to explore all of the things that could cause it, before you start to think about a solution. That way
you can solve the problem completely, first time round, rather than just addressing part of it and
having the problem run on and on.
There are six steps involved in drawing a Fishbone diagram. These must be read in
conjunction with Figure 7.10 to make any sense of them:
1 Agree on a problem statement (effect). Write it at the centre right of the flipchart. Draw a box
around it and draw a horizontal arrow running to it. In Figure 7.10, the problem that a
manufacturing team was trying to solve, was iron contamination in a product.
2 Brainstorm the major categories of the causes of the problem. If this is difficult, use the
following generic headings as was used by the manufacturing team in Figure 7.10.
» Methods
» Machines (equipment)
» People (manpower)
» Materials
 » Measurement
» Environment.
Layers of branches show thorough thinking about the causes of the problem. For example,
under the heading ‘Equipment’, there are three kinds of equipment with specific machine
numbers.
3 Write the categories of causes as branches from the main arrow
4 Brainstorm all the possible causes of the problem. Ask, ‘Why does this happen?’. As each idea
is given, the facilitator writes it as a branch from the appropriate category. Causes can be
written in several places if they relate to several categories. In Figure 7.10, ‘calibration’, for
example, shows up under ‘Methods’ as a factor in the analytical procedure, and also under
‘Measurement’ as a cause of lab error. Also, ‘Iron tools’ can be considered a ‘Methods’
problem when taking samples or a ‘Manpower’ problem with maintenance personnel.

Figure 7.10 Fishbone diagram

5 Again ask, ‘Why does this happen?’ about each cause. Write sub-causes branching off the
causes. Continue to ask ‘Why?’ and generate deeper levels of causes. Layers of branches
indicate causal relationships.
6 When the group runs out of ideas, focus attention on places on the chart where ideas are few.58

By this stage, you should have a diagram showing all of the possible causes of the problem that
you can think of. Depending on the complexity and importance of the problem, you can now
investigate the most likely causes further. This may involve setting up investigations, carrying out
surveys, and so on. These were designed to test which of these possible causes is actually
contributing to the problem.59

Chapter summary
The fundamentals of decision-making include defining problems, gathering information,
generating alternatives and defining a course of action. We can broadly classify the conditions
under which decisions are made as certainty, risk and uncertainty. Managers and employees must
make decisions in a variety of situations and no single decision-making method will cover all of
them. Decisions may be classified as routine, adaptive or innovative. Decision-making is coupled
with the achievement of goals. Goals are results to be attained, and thus indicate the direction in
which decisions and actions should be aimed. One technique used to achieve organisational goals
that meet the needs of various stakeholders is the balanced scorecard. This keeps track of the
internal and external organisational strategy and its implementation, achieving pre-determined
goals.
There are three decision-making models: rational, bounded rationality and political. The
rational model prescribes a series of steps that individuals or teams should follow to increase the
likelihood that their decisions will be logical and sound. The bounded rationality model refers to
an individual’s tendencies to select less than the best goal or alternative solution (known as
satisficing), engage in a limited search for alternative solutions, and have inadequate information
and control over the external and internal environmental forces influencing the outcomes of
decisions. The political model describes the decision-making process in terms of the particular
interests and goals of powerful external and internal stakeholders.
Knowledge management is the art and practice of obtaining and transforming information, and
using intellectual assets to create value for an organisation’s employees and customers.
Forecasting is the process of estimating future events and conditions in an organisation’s
environment. The Delphi technique is a process of consensus-building among experts to arrive at
such estimates. Simulation involves the use of models of real systems to test alternatives, often on
a computer. Scenarios are written descriptions of possible futures. All three methods are
especially relevant as aids in the strategic-planning process.
Creativity is the ability to visualise, generate and implement new ideas. The creative process
usually involves five interconnected stages: preparation, concentration, incubation, illumination
and verification. Osborn’s creativity model attempts to stimulate creativity and innovation. It
helps decision-makers address unstructured and ambiguous problems.
Quality management is concerned with improving how well a product, service or process does
what it is supposed to do, as well as raising the standards and specifications for what it is
supposed to do. In brief, benchmarking involves comparing an organisation’s functions, products
or processes with those of best-in-class organisations. The Deming cycle includes four steps: plan,
do, check and act. These four steps should be repeated over time to ensure continuous learning
and improvements in functions, products and processes. Pareto Analysis (based on the Pareto
principle known as the 80:20 rule) is a statistical technique in decision-making used for the
identification of a limited number of causal items that account for a significant number of effects.
The Ishikawa diagram (also known as the Fishbone Diagram and the Cause-and-Effect diagram)
identifies many possible causes of an effect or problem. As such it can be used to structure
brainstorming sessions.

Questions for discussion

1. Think of an important decision that you have made during the past year or so. In what ways
did your process of making the decision match or vary from each factor in the political model
of decision-making?
2. ‘The bounded rationality model of decision-making is particularly useful because it
emphasises the limitations of the rational model of decision-making and thus provides a better
picture of the day-to-day decision-making processes used by most people’. Explain this
statement.
3. Did your decision to enrol in this course involve certainty, risk or uncertainty? Explain your
answer.
4. Forecasting, scenario analysis and the Delphi technique are all methods of predicting, rejecting
or estimating future events in an organisation’s environment. What are the merits and demerits
of each method? Under what conditions would each method be most effective?
5.
 Describe how benchmarking could be used to help plan improvements in service delivery in
your town or city. Against which organisations would you benchmark? Explain why.

Exercise for competency development

Study the South African Insight at the beginning of the chapter. Consider the three decision-making
models proposed in the chapter. As part of the planning process, apply each of the three models in order
to arrive at the decision to replace the typical products of sweets and chocolates in the check-out aisles
with healthy snacks, in order to achieve the goal of a customer-driven business. Highlight the factors that
influenced each decision-making model.

Contemporary management in practice

1. In 2016 FNB was rated South Africa’s best digital bank as well as the best mobile bank. Columinate
conducts annual research to establish these role players and leaders in this industry –
(https://www.columinate.com/). Identify examples of adaptive and innovative decisions made by
FNB while developing online platforms for their banking product and service offerings to local
customers, since they started their online journey.
2. Access the most recent annual report of Woolworths Holdings Limited
(http://www.woolworthsholdings.co.za/). Consider their focus areas and the associated risks. Can
you identify areas of certainty, risk and uncertainty? Explain your answer.

Endnotes
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solutions.com/group-decision-making-groupthink.html [Accessed 30 November 2016].
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7 LEAHY, E. 2015. How does emotional intelligence affect our decision-making? [Online]. Available:
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April 2017].
8 KUNREUTHER, H. & BOWMAN, E. 1997. A dynamic model of organizational decision-making:
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primer on decision-making: How decisions happen. New York: Free Press.
9 ROBBINS, S.P., DECENZO, D.A. & COULTER. M. 2013. Fundamentals of Management. 8th ed.
Boston: Pearson; HARRISON, E.F. 1994. The managerial decision-making process. (4th ed.). Boston:
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25 COHEN, S.G. & BAILEY, D.E. 1997. What makes teams work: Group effectiveness research from the
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26 ANTHONY, S.D. 2013. The Real Lessons From the Fates of BlackBerry and Nokia. Bloomberg. 8
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from-the-fates-of-blackberry-and-nokia [Accessed 14 December 2016].
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28 ROBBINS, S.P., DECENZO, D.A. & COULTER. M. 2013. Op cit.; PFEFFER, J. 1996. When it comes
to ‘best practices’, why do smart organizations occasionally do dumb things? Organizational Dynamic,
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problem of legitimation. Journal for the Theory of Social Behavior, 17, 63–82.
30 BEYER, J.M., CHATTOPADHYAY, P., GEORGE, E., GLICK, W.M., OGILVIE, D.T. & PUGLIESE,
D. 1997. The selective perceptions of managers revisited. Academy of Management Journal, 40, 717
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31 COMBE, C. 2014. Op cit.
32 KOTTER, J.P. 1997. Matsushita leadership. New York: Free Press.
33 DUVENHAGE, W. 2016. Meet SAA ‘whistle-blower’ that saved SA taxpayers billions of rands. 7
December. [Online]. Available: http://www.fin24.com/BizNews/meet-saa-whistle-blower-that-saved-sa-
taxpayers-billions-of-rands-20161207 [Accessed 15 December 2016].
34 PFEFFER, J. 1997. New directions for organization theory. New York: Oxford University Press.
35 PROCTOR & GAMBLE. 2012. Connect and develop. [Online]. Available:
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36 WOOLWORTHS HOLDINGS LTD. 2016. Our customers. [Online]. Available:
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37 CELENTE, G. 1998. Trends 2000: How to prepare for and profit from the changes of the 21st century.
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38 Adapted from HUBER, J. 1995. Trend track: Experts tell you how to spot tomorrow’s hottest trends.
Business Startups, January, 45–51; RUSSEL, C. 1996. The official guide to racial and ethnic diversity.
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39 BOOD, R. & POSTMA, T. 1997. Strategic learning with scenarios. European Management Journal, 15,
633–647; VAN DER HEIJDEN, K. 1996. Scenarios: The art of strategic conversation. New York: John
Wiley & Sons.
40 SUNTER, C. 1987. The world and South Africa in the 1990s. Cape Town: Human & Rosseau
Tafelberg.
41 ILLBURY, C. & SUNTER, C. 2001. The Mind of a Fox: Scenario Planning in Action. Cape Town:
Human & Rosseau and Tafelberg Publishers.
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year scenarios. Standard Bank Investment Corporation: Johannesburg.
43 BROWN, B.B. 1968. Delphi process: A methodology used for the elicitation of opinions of experts.
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Education; KASTEIN, M.R. 1993. Delphi, the issues of reliability: A qualitative Delphi study in
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45 SIMULIA-BMW. 2015. Moving Towards Zero-Prototyping for Automotive Passive Safety. Dassault
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study/simulia-bmw.pdf [Accessed 16 December 2016].
46 SHERIDAN, T.B. & ZELTZER, D. 1993. Virtual reality check. Technology Review, October, 20–28.
47 ROBBINS, S.P., DECENZO, D.A. & COULTER, M. 2013. Op cit.; ROBINSON, A.G. & STERN, S.
1997. Corporative Creativity: How innovation and improvement actually happen. San Francisco:
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love and loving what you do. California Management Review, Fall, 39–58.
48 OSBORN, A.F. 1963. Applied imagination. (3rd rev. ed.). New York: Scribner’s.
49 OSBORN, A.F. Op cit., pp. 229–290.
50 Ibid., p. 156.
51 BERRY, L.L. & PARASURAMAN, A. 1997. Listening to the customer – the concept of a service-
quality information system. Sloan Management Review, Spring, 65–76.
52 GRIFFIN, R.W. 2014. Op cit.; SWIFT, J.A., ROSS, J.E. & OMACHONU, V.K. 1997. Principles of
total quality. (2nd ed.). Delray Beach, Fla.: St. Luci Press.
53 CAMP, R.E. 1995. Business process benchmarking: Finding and implementing best practices.
Milwaukee: American Society for Quality Control.
54 GOH, S. & EDWARDS, G. 1997. Benchmarking the learning capability of organisations. European
Management Journal, 5, 575–583; AMERICAN PRODUCTIVITY AND QUALITY CENTER
 INTERNATIONAL BENCHMARKING CLEARNINGHOUSE. Make best practices your practices.
[Online]. Available: http://www.apqc.org/ [Accessed 19 January 2012].
55 TUSHMAN, M.L. & O’REILLY, C.A. III. 1997. Op cit.
56 DEMING, W.E. 1993. The new economics for industry, government and education. Cambridge, Mass.:
Massachusetts Institute of Technology.
57 HAUGHEY, DUNCAN, Pareto Analysis Step by Step. [Online]. Available:
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58 LEARN ABOUT QUALITY. [Online]. Available: http://asq.org/learn-about-quality/cause-analysis-
tools/overview/fishbone.html [Accessed 25 April 2017].
59 MINDTOOLS. Cause and Effect Analysis. [Online]. Available:
https://www.mindtools.com/pages/article/newTMC_03.htm [Accessed 25 April 2017].
LEARNING OUTCOMES
After studying this chapter, you should be able to:
• Define the managerial task of organising
• Define organisational structure
• Describe the main elements of organisational structure and how they are applied in organisational design
• State the basic principles of co-ordination
• Describe authority and its use in an organisation
• Explain the factors that affect the centralisation or decentralisation of decision-making
• Understand organisational design and the use of an organisation chart
• Discuss the most common types of departmentalisation and choose the most suitable form for an
organisation
• Describe three methods of integration.

CHAPTER OUTLINE
• South African Insight: The Road Accident Fund (RAF): Redesigning its organisational structure for
improved efficiency
• Organisational structure
• Elements of organisational structure
» Work specialisation
» Standardisation
» Co-ordination
» Authority
» Centralisation and decentralisation
• Organisational design
• The organisation chart
• Departmentalisation
» Functional departmentalisation
» Product or service departmentalisation
» Geographic departmentalisation
» Customer departmentalisation
» Network departmentalisation
» Matrix departmentalisation
» Which type of departmentalisation is the best?
• Organisational integration
» Job design
» Integration through systems
» Integration through technology
Key terms and concepts
• Organising
• Organisational structure
• Specialisation
• Standardisation
• Co-ordination
• Unity-of-command
• Scalar principle
• Span of control
• Authority
• Responsibility
• Accountability
• Delegation
• Line of authority
• Staff authority
• Centralisation
• Decentralisation
• Organisational design
• Organisation chart
• Departmentalisation
• Functional departmentalisation
• Product or service departmentalisation
• Geographic departmentalisation
• Customer departmentalisation
• Network departmentalisation
• Matrix departmentalisation
• Job design
• Job specialisation/simplification
• Job expansion
• Job rotation
• Job enlargement
• Job enrichment
• Mechanistic systems
• Organic systems
• Technological interdependence
• Pooled interdependence
• Sequential interdependence
• Reciprocal interdependence

COMPETENCY WHY IS THIS COMPETENCY EXAMPLE

IMPORTANT IN RELATION TO
ORGANISATIONAL DESIGN AND
STRUCTURE?

Communication Structures should enhance and support Telecommuting, also referred to as

effective communication channels. teleworking, refers to virtual working
Telecommuting is one option for the arrangements. Research conducted in
organic business structure whereby a South Africa at two financial institutions
work arrangement is established in and one cellular telecommunications
which employees work at home and are company, confirmed that teleworking
linked to the workplace using a affords them most of the internationally
computer. accepted benefits associated with the
practice. These are: less distraction and
greater productivity; greater work
 flexibility and increased job satisfaction;
increased morale and organisational
loyalty; greater work-life balance; less
stress; and somewhat of a reduction in
monthly expenses.1

Planning and The biggest and most pressing threat Massmart is addressing this problem of
financial facing South Africa today is the scarce skills, by investing in individuals
management shortage of skills. This need is being with an appropriate education and core
fuelled locally by factors such as competencies to become general
transformation, rapid economic growth managers. More specifically, the
and the emigration of many young leadership development, retention and
graduates. A global shortage in the succession programmes of Massmart
quantitative disciplines and the fact that nurtures individuals who can thrive on the
the market for top-level executives has ambiguities and stress of top-level
opened to global markets means that enterprise leadership. Finally, in
South African managers must plan responding to its transformation
carefully to ensure that it has the obligation, Massmart aggressively seeks
required human resources on hand to out the considerable and increasing talent
implement its strategies. and potential of disadvantaged groups,
and actively creates the mechanisms,
practices, processes and paths to senior
executive competence and confidence.2

Teamwork Teamwork in the workplace offers Teamwork is an essential part of life at

employees the opportunity to learn Unilever. Often, employees at Unilever
from one another. Teamwork creates work with colleagues from many different
human synergy and it amplifies the countries and disciplines. At Unilever,
results of each member of your team. every individual is responsible for
Therefore, the overall result is greater contributing to the team’s efforts.
than the individual contributions made Through working closely together, they
by each member. foster a true sense of collaboration,
stimulating ideas in each other and
encouraging more innovative thinking.3

Strategic action An organisation’s structure is the way Woolworths believes that employees
the pieces of the organisation fit (people) are the underpinning of the
together internally. For the organisation business enabling the execution of their
to deliver its plans, the strategy and the business strategy to deliver sustainable
structure must be woven together profitable growth. One of their people
seamlessly. (Human Resources) strategy objectives is:
“Develop our workforce and structures to
support the delivery of the strategic plans
and grow our next generation of leaders
from within.”4

Globalawareness Organisations with a global footprint Shoprite Holdings Ltd has an organigram
have a structure with a global profile. It developed to accommodate the various
is therefore critical to develop a culture South African and international
of global awareness into your businesses (Shoprite Checkers Pty (Ltd),
organisation. This requires employees Shoprite International Ltd) as well as the
to be sensitive to globally important different areas of business: retail,
issues and the impact of diversity in the insurance (Shoprite Insurance Ltd) and
workplace. investments (Shoprite Investments Ltd).
 Their international subsidiary has
presence in nine African countries and
Madagascar, each with a different global
context and diversity aspects to be
considered.5

The Road Accident Fund (RAF): Redesigning its organisational

structure for improved efficiency

Road transportation is a critical element supporting and directly contributing to growth in any economy.
Road accidents are, unfortunately, a negative consequence of this economic growth, affecting both
economically active members of our society and other citizens. Free markets, and the private sector, do not
fully address the impact of road accidents on society and the economy. The Road Accident Fund (RAF)
provides a social security safety net to the country and economy by making available compulsory social
insurance cover to all users of South African roads. The RAF provides compulsory cover to all users of
South African roads, citizens and foreigners, against injuries sustained or death arising from accidents
involving motor vehicles within the borders of South Africa. This cover is in the form of indemnity
insurance to persons who cause the accident, as well as personal injury and death insurance to victims of
motor vehicle accidents and their families.
The 2013/14 financial year saw the RAF effectively continuing its path of change. Overall, change was
well-received within the organisation owing to several factors, including alignment of organisational
systems to support the changes, which included a sound change and succession management plan, a well-
executed performance management system, rewards for and recognition of top performers, stringent
disciplinary approaches, fair compensation, internal promotions and the hiring of new staff in critical
positions. This was augmented by frequent and honest communication, operational efficiency, leadership
commitment, and the perceived need for change to design appropriate strategies to avoid change failures or
resolve troubled change projects.
Seven years ago, the RAF’s number of outstanding claims (i.e. open and unpaid claims) increased to
450 000. This was caused by legislative challenges, inefficiencies in the claims processing environment
and the fact that the main source of revenue for the RAF, the fuel levy, had increased in relation to
inflation and not the claims experience. By 31 March 2014 the number had decreased to 198 140. The
improvement can mainly be ascribed to the 2012/13 financial year, during which the organisational
structure was revised with the introduction of segregated functions and expansion of teams in the claims
processing environment. 833 appointments were made during the reporting period and the vacancy rate
was reduced to below 10%.
Management successfully introduced interventions designed to optimise claims processing and to
reduce the number of accumulated open claims. Some of these measures included the following:
• Designed, documented and implemented operational business processes across the organisation
• Rolled out a re-aligned organisational structure with clear segmentation and segregation of claims
processing at the core
• Improved claims processing in terms of turn-around times and adherence to defined processes
• Introduced the highly-revered community outreach programme, ‘RAF on the Road’ – taking the RAF’s
service offering to far-flung communities of the country
• Performed a full review and staging of all claim files
• Implemented a performance management system.
Productivity improved due to the new organisational structure and business processes – and claims
processing, in particular, increased by 47% to R22.2 billion. RAF staff interacted with more than 16 000
claimants in remote areas of the country and settled claims to the value of R376 million out of the office,
while 220 000 calls were responded to by the Call Centre. 147 168 new claims were received and 240 783
claims were finalised. The number of open claims was reduced, audit findings were resolved, risk
mitigation measures were implemented, a performance management system for all staff and a succession
management plan for Management was implemented, and the organisation received a Clean Audit award
from the Auditor-General for the 2012/13 financial year.
Measuring the success of the organisational restructuring
The creation and filling of leadership positions such as the new Executive positions, and the additional tier
of General Managers and Senior Managers has opened more communication lines resulting in quicker
response and turnaround times and ensuring that decisions are made timeously. The creation of Regional
General Managers and Senior Managers for both Operations and Support in the regions has allowed for
more effective and efficient stakeholder relations with the provincial and local government tiers. The
entrenchment of the new organisational structure, approval of new delegations, decentralisation of
functions (especially in the regions) have allowed regions to be autonomous, and deliver services in an
efficient and effective manner where they are required.

Revised organisational structure of RAF

 Over the following three financial years, the RAF Strategy will be anchored on four main pillars,
namely:
• A legislative dispensation that is aligned to the principles of social security
• A mandate to effectively manage the RAF’s finances and pursue sustainability
 • A customer-centric, operationally effective and efficient RAF
• A transformed and capacitated RAF.
Each pillar aims to deal with specific challenges that the RAF faces. In addition, these will form the basis
on which subsequent performance and operational plans will be developed. Benefits realised by the
organisational re-structure during the review period include:
• Manageable span of control from CEO to supervisor levels
• Unambiguous reporting lines
• Enhanced capacity to manage, especially in the regions
• Delegation of authority to enhance swift decision-making
• Consolidation of operational processes
• Consolidation of risk mitigation functions into one business unit
• Stakeholder management elevated and managed by one function
• Clear segregation of responsibilities, which optimises controls
• Management of complaints is centrally co-ordinated
• Enhanced business reporting is now evident.
Operationally, the RAF took proactive and decisive steps to render its business operations more accessible
and efficient. The organisational structure was aligned to current and future service requirements, while
the national service footprint has been expanded and functional areas segregated.
Source: ROAD ACCIDENT FUND. 2014. Integrated Annual Report 2013/2014. [Online]. Available:
http://www.raf.co.za/Media-Center/Documents/RAF%20Annual%20Report%202014.pdf [Accessed 18 October
2016].

8.1 Organisational structure

An important part of the implementation of the business strategy, with a view to achieving goals,
is the way the organisation is structured. Organisational structure is the formal arrangement of
jobs within an organisation. When managers develop, or change an organisation’s structure, they
are engaged in organisational design.6 As such it is important that the design of an organisation’s
structure should support strategy implementation. A change in strategy necessitates, in
consequence, change in the organisational structure. Effective organisational structure and design,
as in the case of the South African Insight of the Road Accident Fund presented earlier in the
chapter, are crucial for the effective and efficient management of any business. All too often,
managers are too far removed from day-to-day operations to apply their competencies effectively
and to structure their organisations for greater productivity. Only a dramatic turn of events, such
as a substantial drop in sales and/or profits, may motivate managers to identify and deal with
problems of organisational structure. Organisational structure, as already mentioned, is a formal
system of working relationships that both separates and integrates tasks. Separation of tasks makes
clear who should do what, and integration of tasks indicates how efforts should be meshed.
Organisational structure helps employees work together effectively by:
• Assigning human and other resources to tasks
• Clarifying employees’ responsibilities and how their efforts should mesh through job
descriptions, organisation charts and lines of authority – as in the case of the Road Accident
Fund in the South African Insight, unambiguous lines of authority were established
• Letting employees know what is expected of them through rules, operating procedures and
performance standards
• Establishing procedures for collecting and evaluating information to help managers make
decisions and solve problems.
Considering these aspects relating to organisational structure, we can define organising as the co-
ordination of activities and allocation of work to certain people to achieve organisational goals.7
To understand the working of any organisation, an understanding of the various elements of
organising and the organisational structure is important.

8.2 Elements of organisational structure

Organisational structure determines the manner and extent to which roles, power and
responsibilities are delegated, controlled and co-ordinated, and how information flows between
levels of management.8 In this section, we will investigate the following basic elements:
specialisation, standardisation, co-ordination, authority, and centralisation and
decentralisation.

8.2.1 Specialisation
Specialisation is the process of identifying specific tasks and assigning them to individuals or
teams who have been trained to do them. The essence of specialisation is that an entire job is not
done by an individual, but is broken down into tasks, and each is completed by a different person.
Pick n Pay developed a single specialised category buying division in order to overcome past
procurement problems. Pick n Pay’s sourcing activities, which were previously spread across the
operating regions, were restructured by applying the principle of specialisation. The new
specialised category buying division addresses two issues; it eliminates the problem of fragmented
buying, as well as the dilemma of individual buyers having a wide range of products to source.
This new structure allows for a buying division made up of category teams, each of which is
responsible for the end-to-end profitability of a specific product category.9

8.2.2 Standardisation
Standardisation refers to the uniform and consistent procedures that employees are to follow in
doing their jobs. Written procedures, job descriptions, instructions, rules and regulations are used
to standardise the routine aspects of jobs. Standards permit managers to measure an employee’s
performance against established criteria. Job descriptions and application forms standardise the
selection of employees. On-the-job training programmes develop standardised skills and reinforce
values important to the organisation’s success. This approach may seem mechanical, but if jobs
were not standardised, many organisations could not achieve their goals.
BMW SA is one of the network partners within BMW Production Finance Global, taking
responsibility for the securing of profitable growth through value-orientated management,
focussing on production costs and capital expenditure across all business segments. BMW
achieves this through the standardisation and simplification of the financial processes, as well as
the management of capital structures within BMW. Standardisation aims to align processes such
as reporting of financial results (including budgets and forecasts) as well as the drafting and
reporting of internal management accounts.10

8.2.3Co-ordination
Co-ordination comprises the formal and informal procedures and controls that
synchronise and integrate the activities and responsibilities of individuals, teams and departments
in an organisation, to attain the set objectives. In bureaucratic organisations, written rules are
enough to link such activities, whereas in less-structured organisations, co-ordination requires
managerial sensitivity to company-wide problems, willingness to share responsibility and
effective interpersonal communication. To achieve organisational goals, people, projects and tasks
must be co-ordinated. Without co-ordination, people’s efforts are likely to result in delay,
frustration and waste.
Many managers believe that good people can make any organisational design work, if co-
ordinated well. South Africa, like the majority of countries in the world, does not follow the
model of a centralised anti-corruption commission. Rather, its capacity to fight corruption is
spread across various departments and agencies, allowing them to manage and co-ordinate efforts
themselves. At the level of policy co-ordination, the Cabinet has established the Anti-Corruption
Co-ordinating Committee to integrate and co-ordinate Government’s anti-corruption work. This
Committee consists of 14 departments and agencies within Government, which allows for
decentralised functioning as explained above.11
Although such managers may be overstating the case, people who work well together are a
valuable asset. Managers must encourage employees to subordinate their individual interests to
the organisation’s broader goals and yet be able to innovate when the situation demands.
The three basic principles of co-ordination are:
• The unity-of-command principle
• The scalar principle
• The span-of-control principle.

These principles, which are directly related to the planning and financial management
competency, will be discussed in further detail.

8.2.3.1 The unity-of-command principle

The unity-of-command or leadership principle (one of Fayol’s managerial
principles) states that an employee should have only one superior to whom he or she is directly
responsible. Every employee is supposed to know who is giving direction and to whom he or she
reports. According to this principle, managers should minimise any confusion over who makes
decisions and who implements them because uncertainty in this area can lead to serious
productivity and morale problems. Situations that lead to a violation of this principle tend to arise
inadvertently and may continue for some time before they cause any difficulty, depending on
circumstances and personalities. If the unity-of-command principle is not adhered to, a
subordinate might have to cope with conflicting demands or priorities from several superiors. By
respecting command unity, managers can help prevent or minimise problems in this regard.

8.2.3.2 The scalar principle

The scalar principle states that a clear and unbroken chain of command should link every person
in the organisation with someone at a level higher, all the way to the top of the organisation. The
basic idea is that each individual in an organisation should be able to identify his or her boss and
trace the line of authority through the organisation all the way to the top position. It helps
employees to determine to whom they must go if they have a problem and also to whom they are
responsible. A general organisation chart, indicating the major managerial positions and
departments, is particularly helpful in providing a visual map of the chain of command. This is
why tasks should be delegated clearly, with no overlapping or splitting of assignments. If followed
rigidly, the scalar principle would require that all job-related communications between employees
in different product departments at the same level must be approved by their respective superiors.
Obviously, strict adherence to this principle would waste time and money, and could be extremely
frustrating. In practice, informal relationships across departmental lines spring up to facilitate
problem-solving and communication within the organisation.

8.2.3.3 The span-of-control principle

The span-of-control principle states that the number of people reporting directly to any manager
should be limited because one manager cannot supervise many subordinates effectively. For the
most part, successful organisations in the future will have flat structures, that is, few levels of
management. Many organisations have already flattened their structures by reducing the number
of managerial layers between the CEO and first-line managers. This approach broadens the span
of control, with a much larger number of people reporting to each manager. Span of control is
important to vertical co-ordination because it has a direct bearing on the degree to which
managers can interact with and supervise subordinates. On the one hand, with too many
subordinates, managers can become overloaded, experience difficulty in co-ordinating activities
and lose control of what is occurring in their work units. This was seen in the case of the Road
Accident Fund in the South African Insight at the beginning of the chapter. On the other hand,
with too few subordinates, managers are underutilised and tend to engage in excessive
supervision, leaving subordinates little discretion in doing their work. It is important to remember
that there is no ‘correct’ number of subordinates that a manager can supervise effectively, and
although initially it was thought that smaller is better, many modern organisations apply a larger
span of management. However, five key factors determine the best span of management for any
situation12:
1 The competence of both the manager and the employees. If a manager and/or employees are
new to a task, they obviously require more supervision than knowledgeable, experienced
managers and employees do. The less experienced the manager and/or employees, the
narrower the span of control should be. The more training and experience the employees have,
the less direct supervision they will need.
2 The similarity or dissimilarity of tasks being supervised. A process focus means widely
varying products and tasks requiring less span of control, whereas a product focus means more
standardisation, resulting in an increase in span of control.
3 The incidence of new problems in the manager’s department. A manager should know enough
about the operations of the department to understand precisely the problems that subordinates
are likely to face. The more the manager knows about these factors, the broader the span of
control can be.
4 Clear rules and standard operating procedures (SOPs) leave little to chance and lessen the need
for adaptive decisions. The greater the reliance on rules and standard operating procedures, the
broader the span of control may be because the rules do much of the controlling.13
5 The complexity of subordinates’ jobs. The more complex the jobs of a manager’s
subordinates, the fewer subordinates that manager should supervise. The more routine the
work of subordinates, the greater the number of workers the manager can direct and control
effectively.

These factors explain why organisations usually incorporate a narrow span of control at their top
levels and a wider span of control at lower levels. The span of control can differ for managers at
the same level in an organisation, depending on each manager’s capabilities.

8.2.4 Authority
Authority is basically the right to decide and act. Different organisations distribute authority
differently. In a centralised organisation, top managers make decisions about what merchandise to
buy and where to locate a new store. These decisions are then communicated to lower-level
managers. In a decentralised organisation, decision-making authority is given to lower-level
managers and employees working in teams. Organisations often combine the two approaches by
centralising certain functions (for example, finance and purchasing) and decentralising others (for
example, marketing and human resources). To facilitate decision-making and co-ordination, the
organisation allocates each managerial position in the organisational structure a place in the chain
of command and grants each manager a certain degree of authority to meet his or her
responsibilities. In the case of the Road Accident Fund in the South African Insight at the
beginning of the chapter, clear segregation of responsibilities was established with the new
structure. Authority is exercised when a board of directors authorises a bond issue to raise capital,
when an executive approves a new advertising campaign, when a sales manager signs a contract
with a client, when a production manager promotes a worker to first-line manager and even when
a supervisor fires someone.
In Standard Bank, the board of directors retains effective control over the operations of the
organisation through a well-developed governance structure that comprises various board
committees. These regularly report to the board in terms of their agreed mandates. Management
performance is monitored through effective and regular reporting against strategies and budgets
agreed by the board. In short, authority is the glue of organisational structure and corporate
governance, the proof thereof at Standard Bank.14
Authority implies both responsibility and accountability. That is, by exercising authority,
managers accept the responsibility for acting and are willing to be held accountable for success or
failure. Furthermore, when delegating tasks to others, managers should take care to match the
responsibility they confer with authority, and then insist on accountability for results.

8.2.4.1 Responsibility
The obligation of an employee to perform assigned tasks is known as responsibility. It is clear
that the employee acquires this obligation upon accepting a job or a specific assignment. A
manager is responsible not only for carrying out certain tasks, but also for the actions of
subordinates. Let us assume you are one of fifteen Spur restaurant managers in Johannesburg who
report to a district manager in Gauteng. As a restaurant manager, you have the responsibility of
keeping the restaurant open during certain hours, seeing that food is served, making sure the
customers are satisfied and achieving a certain profit margin.

8.2.4.2 Accountability
Accountability is the belief that employees would accept credit or blame for the results of their
work. This brings about the “state of being subject to reporting and justifying task outcomes to
those above in the chain of command”.15 Employees are expected to report those results, and this
feedback enables management to determine whether effective decisions are being made and tasks
are being done properly. No supervisor can check everything an employee does, therefore
management establishes guidelines within which responsibilities are to be carried out. Employees
are accountable for performance within these limits. Thus, unlike authority, accountability always
flows from the bottom up. The news assistant working at a leading newspaper is accountable to
the senior reporter, the senior reporter is accountable to the editor and the editor is accountable to
the publisher. Accountability is the point at which authority and responsibility meet, and is
essential for effective performance.
8.2.4.3 Delegation of authority
Delegation of authority is the process by which managers assign to subordinates the right to make
decisions and act in certain situations. Thus, in addition to assigning a task to a subordinate, the
manager also gives the subordinate adequate decision-making power to carry out the task
effectively. Delegation starts when the structure of the organisation is being established and tasks
are divided. It continues as new tasks are added during day-to-day operations.
Delegation of authority occurs in conjunction with the assignment of responsibilities. In the
case of Standard Bank, Absa and First National Bank, the group credit committee delegates
authority to the African and offshore credit committees for the approval of credit proposals. These
committees have the authority to delegate authority further within their limits. The delegated
authorities are documented and take into consideration the various levels of credit quality,
exposure limits, committee representation and experience levels for individual authorities.16
Another example would be when the head of a computer department instructs a programmer to
debug a new management reporting system.
The basic components of the delegation process are determining expected results, assigning
tasks and the authority needed to accomplish them, and holding those to whom the tasks were
assigned accountable for results achieved. These components should not be separated. However,
one must keep in mind that delegation does not relieve a manager of responsibility and
accountability. A manager remains responsible and accountable for the use of his or her authority,
and for personal performance, as well as the performance of subordinates. It is important to realise
that the delegation of authority by managers to employees is necessary for the efficient
functioning of any organisation because no manager can personally accomplish or completely
supervise all that happens in an organisation. When managers have difficulty in delegating, they
try to do everything themselves, which limits the development of the manager, as well as that of
the employees.
The following six principles are useful for improving delegation of authority: 17
• Establish goals and standards in conjunction with subordinates
• Define authority and responsibility for delegated tasks to ensure accountability for results
• Select appropriate candidates and involve these subordinates in decision-making
• Require that subordinates should complete work delegated
• Provide training as and when the need arises to build strengths and overcome deficiencies
• Establish adequate controls to measure performance of subordinates.

Organisations in which decisions are effectively delegated have managers whose

communication competencies build strong interpersonal relationships across departmental or
product lines. Delegation can be only as effective as the ability of people to delegate.18 The
greatest psychological barrier to delegation is fear. A manager may be afraid that if subordinates
do not do the job properly, the manager’s own reputation will suffer. Such a manager may
rationalise, ‘I can do it better myself’, ‘My subordinates are not capable enough’ or ‘It takes too
much time to explain what I want done’. In addition, some managers may be reluctant to delegate
because they fear that subordinates will do the work their own way, do it too well and outshine the
boss!19
Failing to delegate can be justified only if subordinates are untrained or poorly motivated.
However, it is the manager’s responsibility to overcome such deficiencies. Among the
organisational barriers that may block delegation is a failure to define authority and responsibility
clearly. If managers themselves do not know what is expected or what to do, they cannot delegate
authority to others properly.
 Effective delegation requires that employees be given some freedom to accomplish assigned
tasks. Managers must accept the fact that there are several ways to deal with problems and that
their own ways of solving them are not necessarily the ways their subordinates will choose.
Subordinates will make mistakes, but whenever possible, they should be allowed to develop their
own solutions to problems and learn from their mistakes. This approach is very difficult for many
managers, but unless they use it, they will not be able to delegate effectively. They will be so busy
with minor tasks or with checking on subordinates that they will fail to complete their own
important assignments. Thus managers should always keep in mind that the advantages of
delegation justify giving subordinates freedom of action even at the risk of mistakes occurring.
Improved communication between managers and subordinates can also overcome barriers to
delegation. Managers who make a point of learning the strengths, weaknesses and preferences of
their subordinates can decide more effectively which tasks can be delegated to whom. Such
knowledge will give them greater confidence in their delegation decisions. In addition,
subordinates who are encouraged to use their abilities and who feel that their managers will back
them are likely to accept responsibility eagerly. The new organisational structure in the Road
Accident Fund in our South African Insight, will empower managers to effectively delegate to
subordinates to improve performance, resulting in increased outputs.

8.2.4.4 Line and staff authority

Line authority belongs to managers who have the right to direct and control the activities of
subordinates who perform tasks essential to achieving organisational goals. Line authority thus
flows down the organisation through the primary chain of command, according to the scalar
principle. In contrast, staff authority belongs to those who support line functions through advice,
recommendations, research, technical expertise and specialised services. Departments that are
considered either line or staff vary with the type of organisation. In the example provided in
Figure 8.1, there are three line departments: production, finance, and marketing (directly related to
organisation goals) because managers in these sections receive their authority through the chain of
command connected to the general manager at the top. The only staff department is the human
resource department (indirectly related to organisation goals) because it provides specialised
expertise and assistance to certain line managers, as indicated by the dotted lines in the diagram.
It is important to remember that each organisation must be evaluated in terms of its own major
goals in designing line and staff departments. Among the departments that are considered staff in
many organisations are human resources, legal, research and development, and purchasing
(procurement). However, in a major law firm, such as Webber Wentzel in South Africa, the legal
function would be a line department, even though it is often a staff department in other types of
organisations, due to the organisation’s area of focus – law. In manufacturing organisations such
as Cape Gate or Highveld Steel, production and sales are typically considered line departments,
while purchasing is normally a staff department.
Figure 8.1 Line and staff authority

The decision about whether a department should be a line or staff department therefore
depends mainly on the organisation’s goals. The concept of the chain of command defines the role
of the staff specialist in the organisation, namely to advise and provide information, without
having authority over the work of a line manager’s subordinates. Still, conflict can develop
between the line and staff managers when the latter overstep their authority by not adhering to a
merely advisory function. Therefore, to place a subordinate under the jurisdiction of a staff official
as well as a line manager would contravene the chain of command. The concept of line and staff
relations presents a number of difficulties. With the increasing complexity of organisations and
the rise of specialist services, it becomes harder to distinguish clearly between what is directly
essential to the operation of the organisation and what might be regarded only as an auxiliary
function. The distinction between a line manager and a staff manager is not absolute. There may
be a fine division between offering professional advice and giving instructions. Friction inevitably
seems to occur between line and staff managers. Neither side may fully understand nor appreciate
the purpose and role of the other. Staff managers are often criticised for unnecessary interference
in the work of the line manager and for being out of touch with practical realities. Line managers,
on the one hand, may feel that staff managers have easier and less-demanding jobs than they have,
with no direct responsibility for producing a product or providing a service for the customer, and
are free from day-to-day operational problems. Staff managers, on the other hand, may feel that
their own difficulties and work problems are not appreciated fully by line managers. Staff
managers often complain about resistance to their attempts to provide assistance, and about the
unnecessary demands for departmental independence by line managers. A major source of
difficulty is persuading line managers to accept and act upon the advice and recommendations
offered.20
Usually, the location of staff departments within an organisation is determined by the
differences between generalised and specialised functions.21 If staff services are used extensively
throughout an organisation, staff departments may need to be located relatively high up in the
organisational hierarchy. In fact, most large organisations centralise general staff functions at the
top. If a staff department provides necessary services to a specific line function, it should be
located near that function, both physically and in terms of managerial authority. A staff specialist
who performs some support functions that a line manager would otherwise have to perform,
usually reports directly to that line manager.

8.2.4.5 Centralisation and decentralisation

In some organisations, top managers make all the decisions, and lower-level managers and
employees simply carry out their directives. At the other extreme are organisations in which
decision-making is pushed down to the managers who are closest to the action. The former
organisations are highly centralised and the latter are decentralised.
The philosophy of Standard Bank, when managing risk, is to use both a centralised and a
decentralised approach in which the responsibility and accountability for risk management rests
with an operational risk management function as well as individual business units. The risk
management function’s role is to monitor, manage and report on risks to ensure operational risk
exposure remains within the risk appetite as mandated by senior management and the board. They
are also responsible for developing and implementing the operational risk management framework
and ensuring sound implementation thereof across the Standard Bank Group.22
Centralisation of authority is the concentration of decision-making at the top of an
organisation or department, with little delegation to middle and lower managers. If top managers
make the organisation’s key decisions with little or no input from below, then the organisation is
centralised. In contrast, the more that lower-level employees provide input or make decisions, the
more decentralisation there is. Decentralisation is an approach that requires managers to decide
what and when to delegate, to select and train personnel carefully, and to formulate adequate
controls. Thus, vertical division of labour/ work refers to the specialisation of work based on the
establishment of lines of authority. Vertical division of work uses hierarchical reporting and
organisation in functional departments, to allow work to be done at various levels in an
organisation, with clear reporting lines.
In bureaucratic organisations with a strong hierarchical structure, decisions are centralised. A
high degree of centralisation can be expensive, time-consuming and frustrating, whereas a
reasonable amount of decentralisation can motivate employees. The recent trend towards
decentralising decision-making makes organisations more flexible and responsive, but total
decentralisation, with no co-ordination or guidance from top managers, is clearly undesirable. The
question is not whether an organisation should be decentralised, but to what extent this should be
done.

Advantages of decentralisation
Decentralisation has several potential advantages:
• It frees top managers to develop organisational plans and strategies while lower-level
managers and employees handle routine, day-to-day decisions. Managers can exercise more
 autonomy, which satisfies the desire to participate in problem-solving. This freedom leads to
managerial creativity and ingenuity, and contributes to the flexibility and profitability of the
organisation.
• It develops lower-level managers’ self-management competencies. Managers in a
decentralised structure often must adapt to and deal with difficult decisions, and this trains
them for promotion into positions of greater authority and responsibility.
• Because subordinates are often closer to the action than higher-level managers, they may have
a better grasp of all the facts. This knowledge may enable them to make sound decisions
quickly. Valuable time can be lost when a subordinate must check everything with the boss.
• Decentralisation fosters a healthy, achievement-orientated atmosphere among employees. This
competitive climate within the organisation motivates the managers to make contributions
since they are compared with their peers on various performance criteria.

Neither centralisation nor decentralisation is absolute in an organisation because organisations

could not function effectively if all decisions were made by only a select group of top managers,
nor could they function effectively if all decisions were delegated to the lowest level of employee.
No individual manager makes all the decisions, even in a highly-centralised setting. Total
delegation would end the need for middle and first-line managers, thus there are only degrees of
centralisation and decentralisation. In most organisations, some tasks are relatively centralised (for
example, payroll systems, purchasing and human resource policies) and others are relatively
decentralised (for example, marketing and production). There has been a distinct trend toward
decentralising decision-making that is consistent with efforts to make organisations more flexible
and responsive. In large organisations especially, lower-level managers are ‘closer to the action’,
and typically have more detailed knowledge about problems and how best to solve them than do
top managers. The Edcon Group of which well-known retailers Edgars and Jet are part, has moved
from a hierarchically heavy top-management structure to a much flatter, team-based structure.
Before the change, decisions were more centralised at headquarters, but now authority has been
pushed down to individual branch and brand managers.23

Factors affecting centralisation and decentralisation

Several factors can affect management’s decision to centralise or decentralise:
• Cost attached to the decision. Cost is perhaps the most important factor in determining the
extent of centralisation. As a rule, the costlier it is to the organisation, the more likely it is that
top management will make the decision.
• Uniformity of policy. Managers who value consistency, favour centralisation of authority.
These managers may want to assure customers that everyone is treated equally in terms of
quality, price, credit, delivery and service. Uniform policies have definite advantages for cost
accounting, production and financial departments.
• Organisational culture. Organisational culture comprises the norms, values and practices that
characterise an organisation. In organisations where the managerial style is autocratic,
decision-making will be centralised. In organisations where the managerial style is
participatory, responsibility and authority will be decentralised.
• Availability of managers. In South Africa, with its mixture of developed and developing
country characteristics, a shortage of qualified managers in organisations is frequently
experienced.
• Control mechanisms. The establishment of an effective control process is a prerequisite for
effective delegation. Even the most avid proponents of decentralisation, such as Holiday Inn,
insist on controls and procedures to determine whether actual events are meeting expectations.
Each hotel in the Holiday Inn chain collects certain key data, including number of beds
 occupied, employee turnover, number of meals served, and the average amount that guests
spend on food and beverages. Analysis of the data helps each manager control important
aspects of the hotel’s operation and compare it with the performance of other hotels in the
chain. If a hotel’s operations do not fall within certain guidelines, top management may step in
to diagnose the situation. Controlling as a managerial task is discussed in Chapter 15.
• Environmental influences. External factors (for example, trade unions, state regulatory
agencies and tax policies) affect the degree of centralisation in an organisation. Laws and
government regulations regarding hours, wages and the employment of minorities makes it
difficult for organisations to decentralise the employee hiring process.

8.3 Organisational design

When managers develop or change an organisation’s structure, they are engaged in organisational
design. Therefore, organisational design involves determining the organisational structure for an
entire organisation in order to implement the strategies and plans embodied in the organisation’s
goals. Organisational design involves difficult choices about how to co-ordinate organisational
tasks and motivate the people who perform them to maximise an organisation’s ability to create
value. If an organisation is to remain effective and successful as it changes and grows, and as its
environment changes and grows, management must continuously evaluate how the organisation
divides up the work that needs to be done and how it controls its human, financial and physical
resources. The practice of matching organisational design to an organisation’s strategy is not new.
In his landmark study of 70 large organisations, Alfred Chandler found that organisational design
follows strategy.24

The choice of organisational design makes a difference because not all structures support a
particular strategy equally well. This structure-follows-strategy theory is based on the idea that an
organisation’s design, like a plan, should be a means to an end, not an end in itself. Thus there are
few hard-and-fast rules for designing or redesigning an organisation. It is also important to
remember that every firm’s organisational design is the result of many decisions and historical
circumstances.
To some extent, managers and other employees make design decisions all the time and not just
during major upheavals such as expansions, reorganisations or downsizing. In any organisation,
every time a new department is formed, new methods of co-ordination are tried or a task is
assigned to a different department, the organisational design is being tinkered with or tested. This
type of change is not necessarily bad. Consider our South African Insight, whereby the new
structure of the Road Accident Fund lead to several advantages such as increased productivity,
problem resolution, improved performance, and goal achievement, to mention a few. The effective
manager also constantly fine-tunes the organisation’s design in light of changes in the
environment and technology. The organisational design is illustrated through the organisation
chart and by the type of departmentalisation.

8.4 The organisation chart

One way to visualise the interrelationships of the basic elements of organisational structure, as
discussed in the previous section, is to create an organisation chart. The organisation chart
provides a pictorial representation of the overall shape and structural framework of an
organisation or group of organisations. Figure 8.2 is the organisation chart for Telkom.
 The chart in Figure 8.2 does not indicate the titles of departmental managers but identifies
work teams and/or jobs within the departments according to the specific tasks performed. In
general, an organisation chart provides four important pieces of information about an
organisation’s structure:
1 Tasks. The chart shows the range of different tasks within the organisation. For instance, tasks
at Telkom range from innovation and business development to sourcing technology.
2 Subdivisions. Each box represents a subdivision of the organisation that is responsible for
certain tasks. The Managing Director Wholesale and Networks at Telkom is responsible for all
activities in this division including products and innovation, technology, operations, etc.
3 Levels of management. The chart shows the managerial hierarchy from the head of the
organisation (e.g. Group CEO in the Telkom organogram) to the various divisional managers
(e.g. Chief Information Officer in the Telkom organogram). All those directly subordinate to
the same individual usually appear at the same managerial level and report to that individual.
4 Lines of authority. Vertical lines connecting the boxes on the chart show which positions have
authority over others.

The advantages and disadvantages of organisation charts have been debated for years.25 One
advantage is that such a chart shows employees how the pieces of the entire organisation fit
together and indicates how their own specialised tasks relate to the whole. Thus everyone knows
who reports to whom and where to go with a particular problem. The chart may also help
management detect gaps in authority or duplication of tasks. A major disadvantage of the
organisation chart is that it is just a piece of paper, sometimes without much validity. It simply
cannot show everything about an organisation’s structure, nor much about the way things often
really get done. It cannot show who has the most political influence or where the vital informal
channels of communication operate. In addition, employees may incorrectly read status and power
into their jobs based on the proximity of their boxes to that of the CEO or head of the
organisation. These disadvantages can be overcome if the chart is used for its intended purpose,
which is to illustrate the basic, formal structure of the entire organisation. The aim is for each
individual in an organisation to be able to identify his or her boss and trace the line of authority
through the organisation all the way to the top position.
Figure 8.2 Organisation chart for Telkom

Source: TELKOM. 2015. New company structure for Telkom. My Broadband. 1 September. [Online].
Available: http://businesstech.co.za/news/telecommunications/97209/new-company-structure-for-telkom/
[Accessed 21 October 2016].

8.5 Departmentalisation
The basis on which jobs are grouped to accomplish organisational goals is called
departmentalisation. Every organisation has its own unique way of classifying and grouping work
activities. In a bank, if a group of people work together to make decisions about small business
funding, the relevant SME divisional manager might group these people into a small-business
funding department.Departmentalisation therefore involves subdividing work into tasks and
assigning these tasks to specialised groups within an organisation. It also includes devising
standards for the performance of tasks. The reasons for departmentalisation are the advantages of
specialisation and the pressure in a growing business to split the total task of management into
smaller units, which are easier to manage. Departmentalisation, or the formation of departments,
is not only a result of specialisation, but also promotes specialisation, for it is necessitated by the
logical grouping of activities that belong together. Departmentalisation therefore addresses two of
the four basic elements of organisational structure: specialisation and standardisation. Once jobs
have been divided up through specialisation, the tasks should be grouped together so that the
common tasks can be co-ordinated. The various departments created constitute the organisational
structure of the business as they appear on the organisation chart. Departmentalisation depends on
the goals of the organisation. The key to effective departmentalisation lies in organising people
and activities in such a way that there is an easy flow of decision-making throughout the
organisation. Large, complex organisations, such as Johnson & Johnson, Toyota SA and Absa, use
different forms of departmentalisation at various organisational levels to facilitate this flow of
decision-making.
Management can use any of six basic types of departmentalisation:
• By function (functional departmentalisation)
• By product and/or services (product departmentalisation)
• By place (geographic departmentalisation)
• By customer (customer departmentalisation)
• By network (network departmentalisation)
• By function and product combined (matrix departmentalisation).

8.5.1 Functional departmentalisation

You will recall that functions are the groups or sets of tasks that an organisation performs such as
production, marketing, human resources and finance. Functional departmentalisation involves
creating departments by grouping employees according to their areas of expertise and the
resources they draw on to perform a common set of tasks. Activities such as market research,
sales, advertising and even public relations belong together under the marketing function, while
those activities concerned with the production of goods are grouped under the operations function.
Functional grouping is the most basic, widely-used and accepted form of departmentalisation.26
Figure 8.3 provides an example of functional departmentalisation, where the chief executive
officer organised his or her organisation by separating marketing, production, finance, purchasing
and human resource specialists into departments.
 Functions vary widely, depending on the nature of the organisation. For example, hospitals do
not have production departments, but they do have admission desks, emergency rooms and
nursing departments. Retail organisations also do not have production departments, but they do
have merchandising, finance, procurement and sales departments. Departmentalisation by function
can be used in all types of organisations, although the functions change to reflect the
organisation’s objectives and work activities. Grouping tasks and employees by function can be
both efficient and economical.
Functional departmentalisation has both advantages and disadvantages, as summarised in
Table 8.1. Functional structures predominate in businesses with a single or narrow product focus.
Such organisations require well-defined skills and areas of specialisation to build competitive
advantages in providing their products or services. Dividing tasks into functional specialities
enables personnel to specialise. This allows use of the latest technical skills and develops a high
level of efficiency.27

Figure 8.3 Functional departmentalisation

Table 8.1 Advantages and disadvantages of functional departmentalisation

Advantages Disadvantages

• Promotes skill specialisation • Emphasises routine tasks

• Reduces duplication of resources and increases • Reduces communication between departments
co-ordination within the functional area • May create conflict over product priorities
• Enhances career development and training within • May make interdepartmental scheduling
the department difficult
• Allows superiors and subordinates to share • Focuses on departmentalisation rather than
common expertise organisational issues and goals
• Promotes high-quality technical problem-solving • Develops managers who are experts in narrow
• Centralises decision-making fields
8.5.2 Product or service departmentalisation
As an organisation grows, the weaknesses of functional and geographical departmentalisation
begin to overshadow their strengths. These weaknesses become apparent when an organisation
expands its product lines and attracts diverse customers. In response, top management often turns
to product departmentalisation. In the case of product departmentalisation, each major product
area in the organisation is placed under the authority of a manager who is a specialist in that area.
This manager is responsible for everything to do with his or her product line.
Product departmentalisation thus divides the organisation into self-contained units, each
with a different focus, as indicated in Figure 8.4. It is clear from this diagram that each department
produces an independent product, for example, cleaning products, frozen foods, beverages and
cereals. Each of these departments is capable of designing, producing and marketing its own
goods and/or services. The business operations structure of Tiger Brands is structured according to
three divisions namely Consumer products, Grains and milling, and the International division. The
Consumer products division follows product departmentalisation and includes four product
departments namely: Culinary; Snacks, treats and beverages; Value added meat products; and Out
of home products.28
In the case of product departmentalisation, the organising of activities focuses on the product
and/or service being produced. Usually, product departmentalisation is used when each product
and/or service of the organisation requires a unique marketing strategy, production process,
distribution system or financial resource. Organisations that have global operations often use this
form of departmentalisation. Large multi-product organisations – such as Tiger Brands, Procter &
Gamble and Samsung – also use this approach. Each of these businesses started with a
combination of functional and geographical departmentalisation, but growth and an increasing
inability to serve the needs of particular customers made those structures unworkable or
uneconomical.

Table 8.2 lists the advantages and disadvantages of product or service departmentalisation.

Figure 8.4 Product or service departmentalisation

Table 8.2 Advantages and disadvantages of product or service departmentalisation

Advantages Disadvantages

• Is suited to fast changes in a product • May not use skills and resources effectively
• Allows greater product visibility • Does not foster co-ordination of activities across
• Fosters a concern for customer demand product lines
• Clearly defines responsibilities • Fosters politics in resource allocation
• • Restricts problem-solving to a single product
 Develops managers who can think across • Limits career mobility for personnel outside their
functional lines product line

8.5.3 Geographic departmentalisation

Geographic departmentalisation groups all functions for a geographic area at one location under
one manager, rather than dividing functions among different managers or grouping all tasks in one
central office. It is commonly used by organisations with operations in many different locations.
Many large organisations, including SABMiller plc, Unilever, Accenture and Metropolitan Life
Insurance, have set up regional and district offices. Multinational firms often use this form of
departmentalisation to address cultural and legal differences in various countries as well as the
lack of uniformity among geographic markets.29 Figure 8.5 provides an example of place
departmentalisation. From this diagram, it is clear that the sales function, for instance, may be
organised around different regions, for example, Gauteng, Mpumalanga, KwaZulu-Natal and
Northern Province. Each of these regions is, in effect, a department organised around a place or
territory.
This form of departmentalisation can be valuable if an organisation’s customers are scattered
over a large geographical area. Organisations often grow by expanding the sale of their products
or services to new geographical areas. In these areas, they frequently encounter differences that
necessitate different approaches in producing, providing, or selling their products or services.
SABMiller plc and Anheuser-Busch InBev are two examples of local and global organisations
utilising geographical departmentalisation. In 2014 they captured more than half the sales in North
America and Latin America, and had just over 40% of the market share in Africa. Therefore, after
their merger in 2016, the newly formed organisation grew its market share in key regions, as well
as those other regions which are critical to establish and grow their presence, such as Eastern
Europe, Western Europe and the Asia Pacific regions. With their newly established geographical
regions and divisions, they now have operations in more than 50 markets and sell their products in
more than 100 markets.30

Figure 8.5 Geographic departmentalisation

Table 8.3 Advantages and disadvantages of geographic departmentalisation

Advantages Disadvantages

• Equipment used for products is all in one place, saving time • All functions – accounting,
and costs purchasing, manufacturing and
• Managers develop expertise in solving problems unique to customer service – are duplicated
one location at each location
• Managers know customers’ problems • There may be conflict between
• The method is suited to multinational organisations – each location’s goals and corporate
organisations that have their headquarters in one country, goals
 but have assembly or production facilities in other countries. • Extensive rules and regulations
Coca-Cola, Nike and BP are examples of multinationals. may be required to co-ordinate and
ensure uniformity of quality among
locations

Table 8.3 summarises the advantages and disadvantages of geographic departmentalisation.

8.5.4 Customer departmentalisation

Customer departmentalisation involves organising around the type of customer served. It is
used when management wants to ensure a focus on the customer’s needs rather than on the
organisation’s skills (functional departmentalisation) or the brands it produces and sells (product
departmentalisation). Customer departmentalisation is generally used to differentiate products and
offer different terms to different customers (for example, production of different models and
volume discounts to bulk-buying customers and not-for-profit customers). This form of
departmentalisation indicates that management is sensitive to the needs of each customer segment
and that it has identified segments that have substantial sales potential. Figure 8.6 gives an
example of customer departmentalisation, where sales activities in an organisation are broken
down into three departments, that is, service retail, wholesale and international customers.
Customer departmentalisation emphasises the service offered with the product and makes
provision for consumer behaviour, as indicated in the diagram. A business that markets products
and/or services to different customer groups faces a difficult task because each type of customer
poses different demands, needs and preferences. Within the Clothing and General merchandise
division of Woolworths, for example, different departments may be set up for men’s clothing,
women’s clothing, children’s clothing, baby clothing, beauty, and homeware and gift departments.
Table 8.4 lists the advantages and disadvantages of customer departmentalisation.

8.5.5 Network departmentalisation

This form of organisational design permits the effective and efficient processing of information.
With network departmentalisation, the organisation subcontracts some or all of its operating
functions to other organisations, and co-ordinates their activities through managers and other
personnel at its headquarters or by means of a virtual organisation.31 The traditional functions of
sales, accounting and manufacturing are no longer under one roof, but are provided by separate
organisations connected by computer to the organisation’s headquarters. Contacts and working
relationships in the network are maintained by electronic means, not personal meetings. Use of the
internet permits managers to locate suppliers, designers, manufacturers and others quickly through
online clearing houses. Network organisations cannot operate effectively unless they can
communicate quickly, accurately and over great distances. When this capability exists, managers
of network organisations can:
Figure 8.6 Customer departmentalisation

Table 8.4 Advantages and disadvantages of customer departmentalisation

Advantages Disadvantages

• Allows greater customer focus • Does not foster co-ordination between customers
• Clearly identifies key customers • Fosters politics in resource allocation
• Is suited to understanding customer needs • Employees feel pressure from customers to give
• Develops managers who become customer them privileges
advocates • Restricts problem-solving to a single type of
customer

• Search globally for opportunities and resources

• Maximise the use of resources, whether owned by the organisation or not
• Have the organisation perform only those functions for which it has or can develop expertise
• Outsource those activities that can be performed better and at less cost by others.

An example of a network organisation is Nike for which the organisational structure is illustrated
in Figure 8.7.
Network departmentalisation means that contractors are either added to or removed from the
network, as and when they are needed. Organisations in the fashion, toy, publishing, film and
software industries have used this design effectively. Many large retailers outsource the
manufacturing function. Many organisations even outsource the distribution function as well. At
large retailers, such as Woolworths, corporate headquarters aggregates sales daily, as reported by
each store over the electronic cash register point-of-sale information system. The system breaks
product-line sales into item, cut, size, material, colour, style and number sold. This information is
then transmitted from corporate headquarters to contractors around the world. Woolworths
vertically integrated its supply chain and therefore improved the turnaround time for new or
replacement merchandise on the shelves of its retail stores. This is all possible using an effective
network distribution and supply chain structure.32
Nike is another good example of a global network organisation. The organisation’s success
lies in its ability to design technologically advanced athletic shoes that are delivered to the market
very quickly. Nike does not own any factories for manufacturing their footwear and apparel. Most
raw materials in Nike’s supply chain are sourced in the manufacturing host country by
independent contractors. The manufacturing supplier network responsible for Nike’s products,
consists of over 700 factories in 42 countries. Each product moves from 57 distribution centres
across a network of suppliers and manufacturers to the final customer.33
Figure 8.7 Network departmentalisation

Table 8.5 Advantages and disadvantages of network departmentalisation

Advantages Disadvantages

• Lean structure • Little hands-on control

• Very few employees on payroll • Operations not under one roof
• Workforce flexibility • Structure changes rapidly
• Specialised teams • Characterised by contractors

The advantages and disadvantages of a network organisation are listed in Table 8.5.

8.5.6 Matrix departmentalisation

Yet another alternative is to create a matrix form of departmentalisation. This combines the
advantages of functional and product organisation structures to increase the ability of managers
and employees to process information. In a matrix organisation, project managers are appointed to
head the project and are provided with the necessary skills from various functional areas such as
engineering, manufacturing and sales, and product managers (individual product lines) to
complete the job, as indicated in Figure 8.8.
A matrix structure integrates activities and holds down costs by eliminating duplication of key
functional activities for each product line. The functional manager’s responsibility is to identify
the resources needed to perform a job and the product manager’s responsibility is to identify
products that the organisation can make to satisfy customers’ needs. The matrix manager’s job is
to achieve an overall balance by co-ordinating the organisation’s functional and product activities
to ensure delivery of the product on time and within budget. The functional and product managers
need to work closely with each other (reciprocal interdependence) to make a matrix design work
well.34

In a matrix structure, project or product teams will only perform optimally if those managers
are appropriately skilled and communicate clearly. Often, human resources managers work with
managers and employees to help them learn how to make decisions organically (this is typical of a
company that is very flexible and is able to adapt well to changes. Its structure is identified as
having little job specialisation, few layers of management, decentralised decision-making, and not
much direct supervision) rather than mechanistically (this is typical of a company with a highly
organised, rigid and bureaucratic structure, which is characterised by formal procedures, constant
business activities and slow response to change. Centralised authority in management is another
key trait). See also Section 8.6.2. That is, they need to base decisions on expertise and persuasion
rather than on rules, standard operating procedures, formal roles and hierarchical positions.
Disagreements must be dealt with through confrontation and problem-solving rather than getting
passed ‘upstairs’ to more senior managers. Co-ordination is achieved through extensive formal
and informal meetings or in one-to-one conversations. Teams consisting of both product and
functional managers, as well as employees, decide who will do what and when.

Figure 8.8 Matrix departmentalisation

The advantages and disadvantages of a matrix design are highlighted in Table 8.6.35

8.5.7 Which type of departmentalisation is the best?

No particular type of departmentalisation is best in all circumstances. Managers should select the
organisational structure that matches the organisation’s specific needs.36 Clearly, the choice
depends on the situation.37 Some organisations even use all types of departmentalisation: a
business may organise each of its divisions along functional lines while organising its
manufacturing units around products, departmentalising sales around geographical regions and
dividing each sales region into customer groupings. Large organisations often combine most or all
of these forms of departmentalisation. Each of these structures has advantages and disadvantages
that strategists must consider when choosing an organisational structure.
In any organisation, tension exists between co-ordination and departmentalisation. When
forces for co-ordination are stronger than those for departmentalisation, functional
departmentalisation works best. In general, when a problem arises, top managers must be able to
co-ordinate the actions of various functional departments (for example, merchandising, marketing
and distribution) quickly to find a solution. Under such conditions, functional departmentalisation
helps ensure the necessary degree of co-ordination.

Table 8.6 Advantages and disadvantages of matrix departmentalisation

Advantages Disadvantages

• Achieves co-ordination to meet dual • Requires people to work for two bosses –
demands of efficiency and changing functional and product – which can be frustrating
customer preferences and confusing
• Encourages flexible sharing of human • Requires people to develop good interpersonal
resources across product lines skills
• Allows employees to learn new skills in • Requires managers and other employees to
different areas understand and accept organic rather than
• Works best in organisations with limited mechanistic management
resources and multiple products • Requires a skilled matrix manager who can
maintain a balance between functional and product
interests

When forces for co-ordination and departmentalisation are equal, a customer form of
departmentalisation works best. The customer structure addresses the conflict between, say, the
product manager’s need to satisfy a customer and the functional department’s need to provide
technical help. Employees move from customer to customer, depending on the customer’s needs.
When forces for departmentalisation are stronger than those for co-ordination, place or
product departmentalisation is best. Managers decide what is appropriate for only their market
area or product, without having to consider the impact of their decisions on other areas or product
lines. The methods of co-ordination vary for each division or department, depending on the
circumstances of the organisation. In some of the functional departments, the scalar principle and
narrow spans of control are effective. In departments that reflect place departmentalisation,
violation of the scalar principle is common and wide spans of control are effective.

8.6 Organisational integration

With the above discussions in mind, we can turn our attention to how managers integrate the
efforts of all employees. Specialisation and division of labour refer to the fact that employees
think and act in ways that are good for their department, but may not be good for the entire
organisation. However, to achieve organisational goals, employees, projects and tasks must be
integrated properly. Without this integration, employees’ efforts are likely to result in delay,
frustration and waste. Managers can use a variety of methods to integrate the activities of their
employees to achieve the goals of their organisation. In this section, we review the following
methods: job design, systems and technology.
8.6.1 Job design
Once the organisational structure and design is in place, management must consider the design of
jobs to motivate the officers of the different positions in the structure to contribute towards the
organisation’s goals. The term job design is used to refer to the way tasks are combined to form
complete jobs. Jobs that people perform in organisations should not evolve by chance. Managers
should design jobs deliberately and thoughtfully to reflect the demands of the changing
environment, as well as the organisation’s technology, skills and abilities, and the preferences of
its employees.38 Job design is a crucial part of organising as it affects job satisfaction and
productivity. As such managers must consider:
• Job specialisation or job simplification which refers to the narrowing-down of activities to
simple, repetitive routines. This approach to job design is often used in South African
industries where some employees are not sufficiently skilled or still inexperienced in the
working of a business. The term ‘job specialisation’ should not be confused with ‘work
specialisation’ discussed in Section 8.6.2 earlier in this chapter.
• Job expansion is almost the opposite of job simplification – it is the process of making a job
less specialised. Jobs can be expanded through job rotation, job enlargement and job
enrichment.
» Job rotation involves employees performing different jobs for a set period of time. Many
organisations appoint managerial trainees and then develop their conceptual skills by
rotating them through the various departments of an organisation. For example, a worker
in a warehouse might unload trucks on Monday, carry incoming inventory to storage on
Tuesday, verify invoices on Wednesday, pull outgoing inventory from storage on
Thursday, and load trucks on Friday. Jobs that are amenable to rotation tend to be
relatively standard and routine.
» Job enlargement stems from the thinking of industrial engineers. They wanted to increase
a job’s scope in order to break the monotony of a limited routine. A job is enlarged when
an employee carries out a wider range of activities of approximately the same level of
skill, such as a typist whose job is enlarged to include general administration tasks. The
expanded job will be more interesting because it is more varied. Unfortunately, although
job enlargement does have positive consequences, it is often offset by several
disadvantages: namely, (1) training costs usually rise, (2) unions have argued that pay
should increase because the worker is doing more tasks, and (3) in many cases the work
remains boring and routine even after job enlargement.
» Job enrichment is implemented by adding depth to the job. It is based on Herzberg’s two-
factor theory of motivation, which is addressed in Chapter 12. Herzberg argued that job
rotation and job enlargement do not enhance employee motivation. A worker should be
provided with actual control over the task to make the job more motivating.39 Job
enrichment entails increasing both the number of tasks a worker does and the control the
worker has over the job. Basically, job enrichment entails managers’ removing some
controls from the job; delegating more authority to employees so as to give them more
responsibility and accountability, thus providing them with a complete, meaningful unit of
work; and introducing more difficult or challenging tasks as and when required, so as to
increase employees’ opportunities for growth and advancement.40

8.6.2 Integration through systems

When organisations integrate activities by establishing rules and routines, we say that they are
using systems. One can identify two kinds of systems: mechanistic systems and organic
systems.41 A mechanistic system is one in which management breaks activities into separate,
specialised tasks. Tasks, authority, responsibility and accountability for both managers and
subordinates are defined by level in the organisation. Organisations using this design resemble
bureaucratic organisations and are centralised at the top. A mechanistic system is characterised by
high specialisation, rigid departmentalisation, narrow spans of control, high formalisation, a
limited information network (mostly downward communication) and little participation in
decision-making by lower-level employees. In a mechanistic structure, work specialisation creates
jobs that are simple, routine and standardised.
Top management decides what is important and how to share this information with everyone
else in the organisation. The objective of this type of organisational design is to train employees to
work efficiently. When one employee leaves, another can slip into the empty spot, like an
interchangeable part of a machine. Thus the mechanistic organisation seems best suited to
organisations operating in stable environments. In such environments, where employees tend to
perform the same tasks over and over, job specialisation and standardisation are particularly
appropriate to drive down the costs of training and operations. Mechanistic types of organisational
structure tend to be efficiency machines, driven by rules, regulations, standardised tasks and
similar controls. This organisational design tries to minimise the impact of differing personalities,
judgements and ambiguity because these human traits are seen as inefficient and inconsistent.
Although no pure form of a mechanistic organisation exists in reality, almost all large
corporations and governmental agencies have a least some of these mechanistic characteristics.
Examples of mechanistic structures include healthcare, universities, governmental organisations
and standardised practice organisations such as franchise take-away outlets, since these and
similar companies are highly organised, with rigid and bureaucratic structures. They are
characterised by formal procedures, constant business activities and slow response to change.
Centralised authority in management is another key trait of mechanistic structures.
In direct contrast to the rigid and stable mechanistic form of organising, is the organic system,
which is a highly adaptive and flexible structure. An organic organisation places less emphasis on
giving and taking orders, and more on encouraging managers and subordinates to work together in
teams and to communicate openly with each other. Employees are highly trained and empowered
to handle diverse job activities and problems, and require minimal formal rules and little direct
supervision. In fact, employees are encouraged to communicate with anyone who might help them
in solving a problem. Decision-making is decentralised, with authority, responsibility and
accountability flowing to employees having the expertise required to solve problems as they arise.
An organic organisation is well suited to a changing environment. Good examples of this type of
structure would be Woolworths, H&M, Google and the Facebook Corporation, since they are very
flexible and are able to adapt well to changes. Organic structures are identified as having little job
specialisation, few layers of management, decentralised decision-making, and not much direct
supervision. Organic organisations have quickly realized that a happy workplace makes for a
happy employee.

Table 8.7 Differences between mechanistic systems and organic systems

Mechanistic system Organic system

It is a rigid and tightly controlled structure This is a highly adaptive, flexible structure

There is strict adherence to the unity-of- There is free flow of information, which actively
command principle, with mostly downward involves all employees in decision-making with
communication and little participation (formal lateral, upward as well as downward communication
vertical communication from top levels) (informal horizontal communication)
 There are narrow spans of control (especially at There are wide spans of control with little direct
higher levels), which create tall and impersonal supervision at all levels owing to the flat
structures (centralised) (decentralised) structure

This organisational form minimises the impact of Employees are highly trained and empowered to
personalities, human judgements and ambiguity make job-related decisions at all levels because they
because decisions are made by the specified have relevant knowledge and experience
hierarchical level

Work is divided into fixed and highly specialised Work is defined in terms of general tasks
tasks

Tasks are performed as specified, unless changed Tasks are continually adjusted and redefined as
by managers in the hierarchy needed, through interaction with others involved in
the task

Specific roles (rights, obligations and technical Generalised roles (responsibility for task
methods) are prescribed for each employee accomplishment beyond specific role definition) are
accepted

Emphasis is on loyalty to the organisation and Emphasis is on commitment to organisational goals

obedience to superiors and possession of needed expertise

Mechanistic (bureaucratic) systems are effective in stable environments, while organic

systems are effective in changing environments involving rapidly changing markets and
technologies, for example.42 Table 8.7 highlights the differences between mechanistic and organic
organisations.

8.6.3 Integration through technology

An organisation’s technology has a significant impact on how managers co-ordinate the
organisation’s various activities because different types of technology generate various types of
internal interdependence. Technological interdependence is the degree of co-ordination required
between individuals and departments to transform information and raw materials into finished
products.43There are three types of technological interdependence:
• Pooled technological interdependence
• Sequential technological interdependence
• Reciprocal technological interdependence.

8.6.3.1 Pooled interdependence

Pooled interdependence, illustrated in Figure 8.9, involves little sharing of information or
resources among individuals within a department or among departments. Although the various
departments contribute to overall organisational efforts, they work on their own specialised tasks,
thus they work independently of one another. The meaning of pooled interdependence is best
explained by this example: When you go to the local branch of your bank, there is rarely a need
for that branch to contact another branch in order for you to complete your transaction. However,
if the branch you have visited performs poorly, and loses you and other customers, its problems
will ultimately have a negative effect on the health of the bank as a whole. Co-ordination in a
bank as a whole is achieved by each department in a bank meeting certain standards and following
certain rules.

8.6.3.2 Sequential interdependence

Sequential interdependence, illustrated in Figure 8.10, serialises the flow of information and
resources between individuals within the same department or among departments. That is, the
output from department A becomes the input for department B, the output from department B
becomes the input for department C and so on. The assembly process of a BMW 3-series at Plant
Rosslyn north of Pretoria is designed around standardised methods and procedures, which
stipulate the exact and proper way to do every task, when assembling a right-hand drive BMW
3-series. Every activity and process was drawn up by engineers and communicated to employees.
For example, when an employee has finished with a tool, for example, guides (like the chalk
outline used to show the position of a corpse) indicate exactly where it is to be laid. To ensure co-
ordination of various stations on the assembly line, schedules meticulously indicate when parts
arrive and leave each department workstation.

Figure 8.9 Pooled interdependence

Figure 8.10 Sequential interdependence

8.6.3.3 Reciprocal interdependence

Reciprocal interdependence
LEARNING OUTCOMES
After studying this chapter, you should be able to:
• Differentiate between a group and a team
• Explain the importance of groups and teams in an organisation
• Discuss the different types of groups and teams
• Discuss the major components of a model of work team functioning
• Describe the role of a work team leader
• Advise on what a team leader and team member can do to ensure effective team functioning
• Analyse and understand how a particular team functions by applying a model of work team functioning.

CHAPTER OUTLINE
• South African Insight: Teamwork at Oxford University Press South Africa (OUPSA)
• Differences between a group and a team
• Importance of groups and teams
• Types of groups and teams
• Types of work teams
» Functional work teams
» Problem-solving work teams
» Multidisciplinary work teams
» Self-managing work teams
» Virtual work teams
• A model of work team functioning
» External system
» Team design
• Internal processes
• Effectiveness criteria
• Work team leadership
» Empowerment
» Managing the external boundary
» Disbanding an ineffective work team
• Support for work teams
» Team training
» Team rewards

Key terms and concepts

• Group
• Team
• Informal group
• Formal group
• Work team
• Functional team
• Problem-solving team
• Quality circle
• Multidisciplinary work team
• Self-managing (or self-directed) work team
• Virtual work team
• High-performance teams
• External system
• Team proximity
• Intrapreneurship
• Internal processes
• Forming stage
• Storming stage
• Norming stage
• Performing stage
• Groupthink
• Adjourning stage
• Feelings
• Cohesiveness
• Behavioural norms
• Effectiveness criteria
• Empowerment
• Disbanding

COMPETENCY WHY IS THIS EXAMPLE

COMPETENCY IMPORTANT
IN RELATION TO GROUPS
AND TEAMS?

Communication To ensure all team members are A survey conducted among 150 South African
informed, participate in the organisations indicated that trust in a team
process, understand their task context is eroded by a lack of effective and
duties and responsibilities, and open communication.1
have a clear focus of the team
goal at hand.

Teamwork Working in a team can motivate A survey conducted among 150 South African
employees to greater goal organisations indicated that 82% of staff regards
commitment and more effective lack of trust as their worst or second-worst
task performance as effective problem. Lack of trust in their managers and
team functioning allows for colleagues was indicated as the main reason
synergistic achievements. why teamwork was not effective in South
African organisations.2

Global To be knowledgeable on how to Diverse teams add value by:

awareness conduct business with a diverse • Optimising the innovativeness of team
group of people and organisations members
in a team context, face-to-face or • Sourcing their best talents
in a virtual environment. • Helping people live their passions
• Educating the organisation about ‘micro-
inequities’
 • Knowing what motivates different people.3

Emotional To put in context and understand “Talents are defined as people’s naturally
intelligence different people’s personalities, recurring patterns of thought, feeling or
strengths and weaknesses when behaviour that can be productively applied.
forming a team and working Research has proven that focusing on enhancing
within a team. people’s talents, rather than eliminating their
weaknesses, is the most direct route to
individual and organisational improvements.” 4

Teamwork at Oxford University Press Southern Africa

(OUPSA)

Oxford University Press Southern Africa (OUPSA) was established in 1915 and is a publisher of
educational books for learners and students of all ages. Their books can be classified into four categories:
schools, higher education, general interest and reference books. Their target audience is mostly Southern
African learners and students. OUPSA is committed to providing outstanding hard copy educational
materials that support learning and teaching in South Africa, as well as publishing electronic books and
other digital material. They publish books in 11 languages and have about 1 000 expert South African
authors.
There is a specific process in place for the publication of all books. To publish a textbook, academics
and subject experts in their related fields are identified and invited to participate as authors. The process of
getting an academic textbook published is lengthy and contains many steps and many teams involved.
If everyone identified in the author team consents to participate in the writing of the textbook, a
commissioning meeting is arranged with all the contributing authors to brief them on their roles,
expectations regarding the content of the book, chapter distribution, timelines for completion of the
chapters, and so on. The OUPSA representatives will explain the procedure that will be followed by
clearly outlining the contributing authors’ responsibilities. Suggestions will be obtained from the
contributing authors on aspects such as the type of supporting materials to accompany the academic
textbook and the style of writing. It must be noted that each publisher requires a specific style of writing.
The contributing authors are thus briefed to work together as a team. Their responsibilities are clearly
outlined so that the content of the textbook is streamlined and to ensure continuity between chapters. They
are also briefed on the intended target market for the textbook so that the contributing authors can pitch the
content of the textbook at the required academic level.
In addition to the contributing authors working together as a team, there are four main teams involved
in the publication of an academic textbook, namely the editorial team, the content operations team, the
design (production) team, and the marketing team. Once the content is written by the contributing authors,
OUPSA will send the chapters to the development editor to put all the chapters together in the required
format. Thereafter, it will go to the content editor who needs to check for inconsistencies and consistent
use of terminology, to determine if the content is pitched at the right level for the target market, to ensure
there is no repetition and to allow for cross-references between chapters. Once this process is completed,
the book will be sent to the senior editor who will manage the project management team of the book to
include production, permissions clearance, design, organising of a copy editor, proofreading and indexing.
This is a time-consuming process as copyright clearance permissions of all the sources cited in the
chapters must be obtained. This will conclude the editorial process with a first draft to be sent to the
contributing authors to check for correctness.
The production team will co-ordinate the design of the title, the typeface, layout and jacket or cover of
the textbook, getting it ready for online publication, printing and binding. The textbook is then ready to be
marketed. The marketing team is responsible for promoting the textbook to retailers, libraries and end-
users (e.g. universities), both nationally and internationally. The type of marketing media used could
include e-marketing, advertising, exhibiting or launching the book at conferences, solicited reviews and if
appropriate, to organise bookseller promotions.
 Source: Adapted from: OUPSA. How to get published. n.d. [Online]. Available: http://www.oxford.co.za/page/about-
us/how-to-get-published/index [Accessed 14 August 2015]; OUPSA. n.d. [Online]. Available:
http://www.isasa.org/oxford-university-press-southern-africa/ [ Accessed 14 August 2015]; OUPSA. Welcome to
OUP. n.d. [Online]. Available: http://global.oup.com/uk/academic/authors/AuthorGuidelinesMain/AGWelcome/
[Accessed 14 August 2015].

9.1 The differences between a group and a team

A group refers to two or more individuals who share common interests or characteristics and
interact and influence each other. Each group will elect a leader but group members can function
independently from each other. On the other hand, a team is a group with complementary skills
who are committed to a common purpose defined by a set of performance goals. Each member of
the team is mutually accountable for achieving the common purpose. It must be noted that all
teams can be regarded as groups, but not all groups are teams.5
Let us consider an example to illustrate this point. If you meet up with colleagues during lunch
time in the cafeteria, you are a group. Your goal is to have lunch. If you did not have lunch
together, it would not be a big deal. On the other hand, if you are a member of the social
committee in your division, you are part of a team. The performance goal of your team is to
arrange the year-end function for the department. During the year, this team meets once a month
to plan and organise this event, considering what was a success the previous year and what did not
work, incorporating the new budget and considering diversity in the department. Each of the team
members will be held accountable for his or her contribution towards ensuring a successful year-
end function. It is important to note that a team can accomplish more together than its individual
members. We call this the synergistic effect: 1 + 1 = 3.
Table 9.1 highlights the main differences between a group and a team.
In addition to the differences indicated in Table 9.1, in the next section, we will look at the
importance of groups and teams in organisations.

Table 9.1 The difference between a group and a team

Criteria Group Team

Leadership Strong individual Shared

Goals Shared interests Mutually agreed

Commitment Low; more self-centred High commitment to team and organisation

Relationship Interactive and shared Cohesive, co-ordinated and interdependent

Contributions Individual Collective

Accountability Individual Individual and shared

Purpose Discrete for each member Specific team orientated

Skills Complementary Varied

Meetings Information focus Problem-solving focus

 Performance measure Indirectly through other indicators Directly

Information-sharing Share and delegate Discuss and work together

9.2 The importance of groups and teams

Groups and teams are fundamental to human existence. Without at least one other person to
support him or her, an infant could not survive. Without friendship groups, young children could
not develop into emotionally healthy adults. Without help from others, a single firefighter would
struggle to extinguish a raging fire, a surgeon could not transplant a heart successfully and a single
member of a pit crew could not get a Formula One racing car out of the pits within seconds. There
are many reasons why organisations group employees into work teams instead of having them
work on small tasks that they can complete alone. Work teams:6
• Improve on-time delivery of results
• Improve customer relations
• Lead to better problem solving
• Facilitate innovation in products and services
• Are essential for management and employee development as well as career growth
• Reinforce or expand informal networks in the organisation
• Improve employees’ understanding of the business
• Allow better use of resources, reduce costs and improve efficiency
• Improve quality
• Increase employees’ ownership, commitment and motivation.

The increasing popularity of team-based organisational structures reflects the belief that teamwork
can achieve outcomes that could not be achieved by the same number of individuals working in
isolation. Teamwork can also increase job satisfaction, especially for employees with an introvert
personality type. Many organisations change to a team-based approach when restructuring
themselves. Figure 9.1 illustrates how South Africa, in comparison to the other BRICS countries,
spends the least time on teamwork activities, whereas of all the BRICS countries China spends the
most of their time on teamwork activities.
Figure 9.1 Time spent on teamwork activities in BRICS countries

Source: EY. 2013. The power of many: How companies use teams to drive superior corporate performance.
[Online]. Available: http://www.ey.com/Publication/vwLUAssets/EY-The-power-of-many/$FILE/EY-The-
power-of-many.pdf [Accessed 22 August 2015]. p.12.

The differences in time spent on teamwork activities can be explained by the cultural differences
of countries based on Hofstede’s research. This is also referred to in Chapter 5 where the impact
of the external environment on organisations is discussed. This confirms that the Chinese practise
collectivism whereas South Africans are more individualistically orientated. Or differently put,
South Africa has a society that values individual achievement while China has a society that
values group achievement.7
Our South African Insight confirms the need for, and importance of teamwork in order to
achieve the goals of this organisation.

9.3 Types of groups and teams

There are many classifications of groups and teams. We firstly can distinguish between groups as
formal groups and informal groups. An informal group consists of a small number of individuals,
who frequently participate in activities together to meet their mutual needs. The members of an
informal group may support or oppose organisational goals, rules or higher authority, or be
indifferent to them. This is because the group develops naturally, without direction from
management.
Informal groups are, for example, social groups such as interest, friendship or reference
groups. Interest groups usually develop over time and may last for a long time. An example of an
informal group is employees who come together during a tea or lunch break to discuss sport or
some other event of mutual interest. Friendship groups are formed by members who enjoy similar
social activities, political beliefs or other common bonds, for example, when employees get
together to play a sport on weekends, or sing in a choir. A reference group is any group against
which a person evaluates him- or herself, for example, family or friends.8
The friendships formed in informal groups are valued by many employees and may result in
them feeling a greater sense of loyalty towards their employer. Informal groups can have a
positive or negative influence in the organisation. For example, an informal group of employees
may choose to discuss a topic with a positive impact on the organisation, such as how to reduce
cycle time (finish manufacturing products more quickly). On the other hand, they may choose to
discuss how to leave work early without being noticed!
A formal group is created within an organisation with the intention of completing a specific
role or task. Formal groups are also called work teams. A work team normally consists of a small
number of identifiable, interdependent employees who are held accountable for performing tasks
that contribute to achieving an organisation’s goals.9 Members of a work team, such as those at
our South African Insight OUPSA, have a shared goal and must interact with each other to
achieve it. The requirement that team members interact with each other differentiates work teams
from organisations. Members of an organisation share a goal, but not all of them need to interact
with each other in order to achieve it. Generally, work teams range in size from two to about
twenty members. Work teams have an identity, both to their members and to others in the
organisation.
In our South African Insight OUPSA, there are various work teams such as the author and
editorial team, content operations team, the design and production team, as well as the marketing
team. A summary of the different types of teams that are typically found in organisations is
presented in Figure 9.2.

Figure 9.2 Types of teams

Each of these types of teams will be discussed in the following section.

9.3.1 Functional work teams

A functional work team includes members from a single department (for example, marketing,
finance, operations or human resources) who consider issues and solve problems common to their
area of responsibility and expertise. Functional team members must not make decisions based on
their own interests. They must engage in honest debate and compromise, and so build trust
amongst each other. All team members must be committed to the decisions made.10 A functional
team that pursues a shared vision has the best chance of producing the desired results. The nature
of a shared vision is explored more fully in Chapter 6.
At a large food retailer such as Pick n Pay, a functional team could, for example, be the
purchasing team made up of the purchasing manager and various representatives from forecasting,
replenishment, and distribution in their supply chain. Their goals might include minimising costs
and ensuring that product supplies are available to stores when needed. To achieve their goals,
these work team members need to co-ordinate their activities constantly, sharing information on
price changes and new products.

9.3.2 Problem-solving work teams

A problem-solving work team usually consists of between five and twenty employees in an
organisation who consider how something can be done better. This team will typically be formed
for a limited time frame incorporating staff from different organisational levels with various
relevant skill sets.11 Such a team may meet for one or two hours a week on an ongoing basis to
discuss ways to improve quality, safety, productivity or morale. Alternatively, it might meet
intensively during the course of a few weeks and then disband.
Task forces are perhaps the most common type of problem-solving work team. An example is
a marketing group conducting a feasibility study for a new product. Quality circles are another
form of a problem-solving work team. A quality circle (also called a Total Quality Management
team) is a group of employees who meet regularly to identify and analyse various types of
workplace problems, and propose solutions to them.
Effective problem-solving work teams allow members to contribute readily from their
experience. They encourage disagreements as a way of enabling members to find the best solution
to the problem. All decisions must be supported by facts or logic and not just be taken for the sake
of agreement. Team members must facilitate the discussion and respect each other’s new ideas or
views, in particular the final decision that is made.12 Problem-solving teams do not just solve
problems but can actually by coincidence discover new products. This occurred when one of 3M’s
glue experiment failures eventually became the basis of the ‘Post It’ pads, which is today one of
3M’s biggest global money-earners.13

9.3.3 Multidisciplinary work teams

A multidisciplinary work team (also called a cross-functional team) may be permanent or
temporary, depending on its goals and tasks. It may consist of between five and 30 employees
from various functional areas, and sometimes several organisational levels, who collectively have
specific goal-orientated tasks. These tasks may include designing and introducing process reforms
and new technology, meeting with customers and suppliers to improve quality, developing new
products, linking separate functions (for example, marketing, finance, operations and human
resources) to increase the rate and amount of product innovation, and/or improving links among
strategic and tactical decisions and plans. You may recall movies such as the A-team and Ocean’s
11. They have cross-functional work teams in common – meaning a task force consisting of
people with different talents and skills. The same applies in our South African Insight. OUPSA
looks for the best experts to participate in the writing of a new book, the best graphic designers
and lay-out artists, the most experienced editorial staff, and so on.
Product-development teams are another common type of multidisciplinary work team. A
product-development team exists for the period of time required to bring a product to market,
which could vary from a couple of months to several years. Samsung is one of many organisations
making extensive use of product-development teams. To develop new products, Samsung has
many internal teams competing to develop the best new products. For example, Samsung is
producing more than 100 different models of handsets each year, with more than 400 groups,
internally or externally, working on the different models of handsets. In the telecommunications
and electronics industries, multidisciplinary research and development (R&D) teams bring
together experts with a variety of knowledge and backgrounds to generate ideas for new products
and services. To ensure that the products appeal to customers, the work teams may include
representatives from marketing as well as the eventual end-users.14
Hewlett Packard is working with CenPRA, an expert in display technologies, to use nano
crystal emission display technology in their new generation printers which allows large-sized
displays.15Multidisciplinary work teams provide several important competitive advantages, such as
speed and creativity, if they are properly formed and managed. Multidisciplinary teams also tend
to introduce many innovations.16

9.3.4 Self-managing work teams

A self-managing (also known as self-management, self-manage or self-directed) work team
normally consists of between five and 15 employees who work together daily to make an entire
product or deliver an entire service. The members may all be from a single functional area, but
more often, self-managing work teams are multidisciplinary. For example, an orthopaedic surgeon
assisted by an anaesthetist, general practitioner and nurses in theatre is an example of a self-
managing team. They assist the surgeon from the beginning till the end of the operation and make
decisions there and then as the need arises. These teams often perform various managerial tasks,
including scheduling their members’ work and vacations, rotating job tasks and assignments
among members, ordering materials, deciding on team leadership (which may rotate among
members) and setting production goals.17 There are several advantages of using self-managing
work teams in the organisation, including the following:18
• Improved quality, productivity and service
• Greater flexibility
• Reduced operating costs
• Faster response to technological change
• Fewer, simpler job classifications
• Increased employee commitment to the organisation.

The benefits of self-managing teams at BMW are twofold. The monetary benefits for the
organisation include saving costs, increasing profits and improving the quality of products which
reduce motor vehicle recalls. Employee benefits include creating team and organisational
cohesiveness, employees becoming multi-skilled to eliminate task monotony, and employee
empowerment not by management, but through other team members.19
There may be a delay between the time of the organisation’s decision to use self-managed
teams and the actual implementation of this decision.20 Self-managing work teams composed of
highly skilled members who are fully empowered to accomplish major tasks are sometimes called
high-performance teams.
The degree to which one or more of these characteristics is absent determines the extent to
which teams are likely to be ineffective. At BMW South Africa, self-management teams comprise
of 24 employees who are given equal decision-making capabilities. All BMW’s teams are fully
responsible for the quality of their work and can be penalised if passing poor quality work to the
next team.21

9.3.5 Virtual work teams

A virtual work team is a team that meets and does its tasks without everyone being physically
present in the same place or even at the same time. Virtual work teams can be functional,
problem-solving, multi-disciplinary or self-managing teams. Virtual work teams use new
communications technology such as Google hangouts for web conferencing or Google docs to co-
create and co-edit documents in real time and so extend the reach of their organisations far beyond
their traditional physical and cultural boundaries. Despite the importance of new technology in
facilitating teamwork, face-to-face interactions are still regarded as the most valuable as found in
a 2013 survey of 821 business executives represented by 14 countries around the world. Figure
9.3 depicts a comparison of the ways in which teams of these organisations interact.22
 Many of the principles of effective teamwork that apply to face-to-face team activities, also
apply to virtual work teams. However, other principles for designing and managing virtual work
teams address the special nature of such teams.23 Here are some guidelines to ensure the success of
a virtual team:24
• Select the right team members
• Find a way to get team members acquainted on a personal level and connecting to the job at
hand
• Use effective technology
• Make information available to all team members at the same time
• Ensure that all team members are aware of the objectives to be achieved.

Figure 9.3 Survey results on preferred way of team interaction

Source: EY. 2013. The power of many: How companies use teams to drive superior corporate performance.
[Online]. Available: http://www.ey.com/Publication/vwLUAssets/EY-The-power-of-many/$FILE/EY-The-
powerof-many.pdf [Accessed 22 August 2015]. p.12.

As organisations expand into global consumer and labour markets, managing virtual work
teams will be an increasingly important managerial responsibility. There are many advantages of
using global virtual teams:25
• The organisation benefits from a diversity of knowledge from people all over the world
• The organisation is not limited to one time zone as a 24-hour work day can be achieved by
global virtual teams
• The organisation benefits from cost savings as online meetings via remote computer access are
used to link the team
• Team members have virtual access to each other via e-mail at any time
• Team members save time as meetings take place online and they are not required to travel in
order to attend meetings.
To prevent virtual team members from feeling socially alienated, organisations can hold project
rallies and a social event at least once a year to assist in overcoming feelings of isolation and to
build team cohesion. However, to build relationships will require more than these face-to-face
meetings, so using face-to-face virtual communication tools, like video conferencing or Skyping
on a regular basis, can help nurture relationships.26
Different types of work teams suit different purposes, so there is no one best way to organise a
work team. Instead, an organisation is likely to tailor different types of work teams to various
needs and goals at various times.

9.4 A model of work team functioning

Figure 9.4 illustrates a general model of work team functioning. The four key components are:
• The external support system
• Team design
• Internal team processes
• Criteria for assessing the team’s effectiveness.

These four components are highly interrelated and, considered together, they provide a full
understanding of how well a particular work team functions. The model provides a way to
diagnose work team problems and identify key contingency factors that are likely to affect the
work team’s functioning. It provides guidance for managers interested in assessing whether a
work team is achieving all of the various outcomes that are possible.27
Let’s consider each of the elements of Figure 9.4 in more detail.

Figure 9.4 A general model of work team functioning

9.4.1 External system

The external system comprises the conditions and influences, in an organisational context, that
exist before and after the work team is formed. These influences may include societal and
organisational culture, organisational design and the human resources management system. The
conditions encountered in the external system usually continue even after the work team ceases to
function.
9.4.1.1 Culture
In the context of work teams, there are two levels of culture that are relevant, namely, societal
culture and organisational culture. The societal culture in which the work team operates is one
major aspect of the external system. In collectivistic cultures, such as Korea, people are very
comfortable working in teams. In contrast, forming effective work teams in individualistic
cultures such as South Africa, is more of a challenge. Nevertheless, even in individualistic
societies, work teams can function well if they are supported by the organisational culture. When
individualistic employees are empowered through self-managing work teams, they gain more
control and influence over their work. This result is consistent with the high value that they place
on individualism and thus may increase their satisfaction.28 Organisational values that support
participation by lower-level employees increase the likelihood that work team members will
embrace organisational goals and authority relations, rather than attempting to undermine them.29

9.4.1.2 Organisational design

Organisational design also directly influences the formation and functioning of work teams. As
described in Chapters 10 and 11, traditional organisations rely heavily on stable, functional work
teams with a designated leader. In organisations striving to be more adaptive, such as our South
African Insight OUPSA, temporary multi-disciplinary work teams greatly increase the
organisations’ flexibility. A team may choose its own leader or the leadership role may be shared
among several members. In traditional organisations, employees are seldom members of more
than one work team at a time. In innovative organisations, working on several different teams
simultaneously or in rapid succession is typical. Figure 9.5 presents a typical team-based
organisational structure for a project to build a new house.
Figure 9.5 Team-based organisational structure to build a house

As can be seen in Figure 9.5, team-based organisations follow a different type of hierarchical
layout than a traditional organisational structure. The contractor will act as the project manager in
charge of building a house and will employ a team of experts to assist in the completion of the
project.

9.4.1.3 Human resources management system

Organisations have quickly learnt that practices designed to enhance individual performance can
be detrimental to teamwork and have recognised that new performance management systems are
needed. In addition to changing the criteria used to select new employees, team-based
organisations may also change the basic procedures used to assign people to jobs. Some self-
managing work teams have the authority to make their own hiring and firing decisions. In such
cases, employees must be trained how to make valid human resources decisions and adhere to
legal constraints.
Two other key human resources management practices that can support or hinder effective
teamwork are the training given to teams and the organisation’s reward system. These two human
resources managerial practices are discussed later in the chapter.

9.4.2 Team design

The design choices involved in creating a work team are numerous. Other than choices concerning
team duration, team goals, and team membership, two additional design choices are team size and
team location (or team proximity).

9.4.2.1 Team size

The size of a team can influence how well team members work together with one
another towards achieving their goals. However, it is difficult to identify an ideal team size
because this depends on the team’s purpose and goals. As the number of team members increases,
changes occur in the team’s internal decision-making processes. The optimal team size seems to
be between five and twelve members, depending on the team’s tasks. A good rule of thumb to
remember is that understaffed teams tend to outperform overstaffed ones.30 Members of larger
teams generally have difficulty in participating and communicating directly with one another.
Consequently, a large team may divide into subgroups (sub-teams). The purpose of sub-teams is
to encourage all team members to share ideas when analysing task-related problems, information
and alternative solutions. The full team can then meet to discuss sub-team assessments and
recommendations. In some instances, different sub-teams work on the same set of problems, and
then share and discuss their conclusions with the entire team. Unfortunately, there may be
disagreements between subgroups of large teams. There may even be absenteeism of team
members. For innovative decision-making, the ideal size of a work team is probably between five
and nine members.31

9.4.2.2 Team location (team proximity)

Team proximity refers to the location of a team’s members. Two aspects of proximity are
relevant when designing a work team: the team’s proximity to other work teams and members of
the organisation, and the proximity of team members to one another. In some instances, team
members are dispersed. An example of this is a virtual team, where team members are not in the
same location.
When many teams are working together on a single project, teams benefit from being near
other teams in the organisation. Members from different teams can meet at the canteen to fill one
another in on developments within their respective teams. Problem-solving occurs readily as the
need arises. For some work teams, however, performance is improved when the team is removed
from the daily activities of the organisation. Innovation and creativity are essential to successful
intrapreneurship, which refers to entrepreneurial activity within a large corporate organisation.
These attributes can be stifled by the bureaucracy and political intrigue often found in large
businesses. Consequently, intrapreneurial teams frequently set up operations in a remote location
such as an old warehouse or someone’s garage. Isolated from outside distractions, the
intrapreneurs are able to focus on the future without having to battle the status quo of the present.
Consider the example of Aspen, the leading global player in specialty, branded and generic
pharmaceuticals, which illustrates how important team proximity is in terms of team design. In
2011, a project was initiated to transfer products from Aspen’s facilities in Australia to the Port
Elizabeth site. Aspen Port Elizabeth acted as a contract manufacturer. At that point in time, a total
of 18 finished product stock keeping units (‘SKUs’), had been successfully transferred and
commercialised. The South African operations team that worked on this project had demonstrated
their ability to successfully manage product transfers and supply high quality, affordable products
to international markets. The successful management of product transfers was enabled by the
South African team being at one location in Port Elizabeth, making the size and proximity of each
team more manageable.32
9.4.3 Internal processes
Work teams are effective only when their activities are co-ordinated and integrated.33 Simply
putting people together and assigning them a task does not ensure co-ordination and integration.
Internal processes include the development of work team norms over time, personal feelings and
behaviours. These components are interrelated. A change in one may result in changes in others.

Observations of newly formed work teams reveal that co-ordination and integration tend to
develop over a period of time. People with little experience of working in teams often expect a
team to be fully functioning immediately. Those who understand the stages of team development
realise that team members usually need to spend some time together before the team can gel and
begin to function most effectively. The foundation of effective teams is trust. The team members
must believe that they can rely on each other, that each team member is capable of helping the
team to reach its goals and that all team members have integrity. Team objectives should be
SMART. In other words, they should be specific, measurable, attainable, results-orientated and
time bound. The establishment of clear norms and positive feelings precedes effective completion
of the task. Paying attention to norms and feelings is as important as understanding the task.
Effective leaders of work teams help shape the development of effective internal processes.

9.4.3.1 Stages of work team development

Social scientists have developed many different models to explain how teams develop.34 Because
many of these models overlap, we present only one of them, as outlined in Figure 9.6.

Figure 9.6 The development of work teams

Source: Adapted and modified from TUCKMAN, B.W. & JENSEN, M.A.C. 1977. Stages of small-group
development revisited. Group and Organisation Studies, 2; TUCKMAN, B.W. 1965. Development sequence
in small groups. Psychological Bulletin, 63, 384–389.

In Figure 9.6, the vertical axis indicates that work teams develop levels of maturity over time,
ranging from immature (inefficient and ineffective) to mature (efficient and effective) in a team
performance context. The time period that the team is together, indicated on the horizontal axis,
ranges from the moment the team commences till the time the team adjourns.
There is no given time limit between each of the stages of team development before the team
moves on from one stage to the next. At the end of the final period the work team may be
discontinued in multiple ways. It may simply stop meeting or may meet less often to only
participate in routine tasks, or its membership may change (for example, members may be added,
removed or changed). Work teams in general develop slowly at first but as deadlines draw closer
the team members feel more pressured to perform and often respond by resolving personal
differences in order to complete the job at hand.
Note that Figure 9.6 also indicates the possibility that a team at the end of each stage, may
recycle to a previous stage of development. For example, over an extended period of time a
mature work team could lose members due to promotions, resignations, membership rotations and
so on. Because of this reason there might be many new members at some point in time and
subsequently the team may recycle to an earlier stage of development. The stages identified
represent general tendencies and teams may develop by going through repeated cycles rather than
in a linear fashion, as shown.35 Each stage of work team development is examined in more detail
below.

A The forming stage

During the forming stage, a work team focuses on orientation to its goals and procedures. Most
members may be anxious about what the team and individual members are supposed to do. Take,
for example, a team of authors who must write an academic textbook. Initially, each author may
be concerned about what is expected of him or her, his or her role and the roles of the other team
members. Team members may also be concerned that some members might dominate team
discussions in the meetings, making them feel intimidated and hesitant to participate. In newly
formed teams, task relationships are often guarded, cautious and non-committal. Understanding
leadership roles and getting acquainted with other team members facilitates development.36 In our
South African Insight with OUPSA, the publisher of such a new academic textbook needs to
ensure that all participating authors understand their roles, have a clear perception of their
responsibilities and feel comfortable to participate with the other team members.
Team members can hold many roles, including relationship-orientated roles that foster group
unity, task-orientated roles that focus on establishing and achieving the goals of getting the job
done, and self-orientated roles that focus on meeting the personal goals of the individual team
member. Whereas relationship-orientated roles are beneficial for team development, self-
orientated roles have a negative impact on team development and, ultimately, on performance.
Team members with dual roles contribute towards the task at hand and meet members’ emotional
needs. Engaging in team-building exercises can create a minimum level of familiarity, assist
members of the team in feeling at ease and comfortable about working in the team, and assist the
group in moving to the next stage of development.

B The storming stage

The second stage is the storming stage and during this stage potential conflicts or disagreements
and competitive behaviour develop. Initially, intolerance and even resistance may be typical team
member behaviour because of a perceived lack of progress.36 Later on, dominant members may try
to force their agenda onto other members of the team and/or team members may challenge the
leader. Some members even leave or remove and distance themselves from team discussions.
Conflict should be managed during this stage otherwise it may become counterproductive. It is
also important to notice that if conflict is suppressed and not allowed to transpire, team members
might experience negative emotions resulting in indifferences or rejection among members.
Although conflict resolution is often the goal of work teams during the storming stage, conflict
management is generally what is achieved. In fact, conflict management is a more appropriate
goal because maintaining conflict at a manageable level is a desirable way of encouraging a work
team’s growth and development.

C The norming stage

During the norming stage, conflict has been addressed and team members are gradually more
positive about the team, its members and the team’s objective. At the beginning of the norming
stage, the team members may begin to develop a sense of belonging and commitment. Task-
related and role behaviours of team members are progressively resolved through co-operation,
teamwork, support and open communication.

During the norming stage the team ensures that acceptable rules of behaviour are developed
and adhered to. This results in a more positive member experience among most team members. It
is sometimes necessary to review the team’s strengths and weaknesses as it could help members to
recognise potential problem areas as well as areas of excellence. If managed positively, this can
enhance performance.

D The performing stage

When team members enter the performing stage, they have usually established a sense of trust
and acceptance of each other. The reality exists that some work teams never attain their full
potential, irrespective of how long they exist. To optimally perform and achieve the objectives set,
diverse viewpoints are supported and encouraged to generate creativity and innovative practice.
Members are then willing to risk presenting ‘wild’ or ‘crazy’ ideas without fear of being ridiculed
by team members. Developing good teamwork skills such as communication skills, including
careful listening and giving accurate feedback, allows improved performance and enhances goal
achievement.

Leadership is necessary to direct team performance during this stage. Shared leadership may
occur, especially when each team member has a high regard for the abilities of the other members.
In terms of relationship behaviours, the team accepts the reality of differences and disagreements,
and works on them co-operatively and enthusiastically. The team tries to reach consensus on
important issues and aims to avoid internal politics. Normally, strategies are developed for
improving performance during the performing stage. Effective teams can also become inactive
over time, with initial enthusiasm dwindling or suffering from groupthink. Groupthink is an
agreement-at-any-cost mentality that results in ineffective decision-making by work teams and
may lead to poor solutions. The fundamental problem underlying groupthink is pressure on
members to concede and accept what other members think. The likelihood of groupthink increases
when: 38
• Peer pressure to conform is great
• A highly directive leader presses for a particular interpretation of the problem and a specific
course of action to be followed
• The need to process a complex and unstructured issue under crisis conditions exists
• The group is isolated (the group does not come into contact with other groups).

A study conducted during 2004 in South Africa found that groupthink was prevalent in the police
force.39 Groupthink can be associated with high stress conditions, when people believe in their
own morality, where there is high cohesiveness and an absence of an external audit. It was found
that these conditions are pertinent to police officers, especially if under pressure to solve crimes
and that may be the reason why they influence each other and become involved in misconduct.
Furthermore, peer pressure or a sentiment that they should support each other is another likely
reason.
To counteract this way of thinking (groupthink), mature teams can be invigorated by being
sent on a training course, which could encourage team members to change the way they think,
focus on self-development and give an understanding of how to deal with team maturity.

E The adjourning stage

The adjourning stage involves terminating task behaviours and disengaging from relationships.
This stage is not always planned and may be rather abrupt. Team members often experience
feelings of closure and sadness as they prepare to leave. However, a planned team conclusion
often involves recognition for participation and achievement, and an opportunity for members to
say personal goodbyes. Adjournment of a work team charged with a particular task should be set
for a specific time and should have a recognisable ending point. However, many work teams (for
example, the executive committee of an organisation’s board of directors) are ongoing. As
members change, some recycling through earlier stages may occur instead of adjournment.
Staggered terms of appointment can minimise the amount of recycling required.
Throughout the stages of a work team’s development, team members experience a variety of
feelings. These feelings are discussed in more detail below.

9.4.3.2 Feelings
Feelings reflect the emotional climate of a group. The key feelings that most likely influence work
team effectiveness and productivity are the feelings of:
• Trusting members
• Openness towards other members
• Freedom to participate responsibly, without any pressure
• Interdependence (working together to achieve common goals).

The more these feelings are present, the more likely it is that the work team will be effective and
the members will experience satisfaction.40
Also, the greater the degree to which the four feelings are present, the higher the level of
group cohesiveness. Cohesiveness is the strength of members’ desires to remain in the group and
their commitment to it. Managers or other work team members cannot dictate cohesiveness. It is a
reflection of the members’ feelings towards one another and the team as a whole. A cohesive team
can work effectively for or against organisational goals.41 As was mentioned earlier in the example
of BMW, cohesiveness is very beneficial for self-managing teams. The same is the case with our
South African Insight, OUPSA, where members selected for the author team must share a mutual
interest in the subject field, and therefore be experts who are passionate about the subject field in
which the book is being written, and love writing about their passion. Only then can true
cohesiveness be established when these authors share the same level of passion for the subject
field and writing.
A cohesive team with negative feelings towards the organisation may promote performance
standards that limit productivity and pressure individual members to conform to them. In contrast,
a cohesive team with positive feelings towards the organisation may support and reinforce high
quality and productivity. In today’s business world, team members with a highly developed
emotional intelligence tend to produce better results for their organisations. This means that the
more team members are in control of their feelings, the more productive they are. Member morale
is also better in cohesive teams as team members support each other and are committed to the
team.

How people feel is one important aspect of working in teams, but how people actually behave
may be even more important. We now turn to a discussion of behaviour patterns within work
teams.

9.4.3.3 Behavioural norms

Behavioural norms are the informal unwritten rules of behaviour that are widely shared and
enforced by members of a work team. They set standards for members’ behaviours under specific
circumstances. Their main function is to regulate and standardise the behaviours viewed as
important by team members.42 Norms may specify how much members should do, how customers
should be treated, the importance that should be assigned to quality, what members should wear,
what kinds of jokes are acceptable, how members should feel about the organisation, how they
should deal with their managers and so on. It must be noted that norms may change and that
additional norms may develop with time.
A work team norm exists when the following criteria have been met:43
• There is a standard of appropriate behaviour for team members.
• Members must generally agree on the standard. That does not mean that all team members
need to agree.
• Members must be aware that the team supports the particular standard through a system of
rewards and punishments. This will be a system of rewards for compliance and punishments
for violations.

Most norms develop as the result of one or more of following factors:44

• Explicit statements. Superiors or co-workers may make an explicit statement with respect to
the rules of behaviour to enable the work team to meet its goals. Management at a petroleum
company bans smoking (except in designated areas) at its refineries for safety reasons.
• Critical events. Critical events in a group’s history may lead to the development of norms. For
example, a team member who loses his arm in a machine may lead to other team members
monitoring one another to ensure that they wear their protective clothing to prevent another
serious accident.
• First behaviours. The first behaviours in new work teams may emerge as norms, setting future
expectations and standards. The seating arrangement at a team’s first meeting may lead to
norms dictating where each team member is to sit. Even if the initial seating arrangements are
changed, norms that developed early in the life of the team will continue to influence
behaviour.
• Past experiences. The carryover of norms from past experiences also influences the formation
of norms in a new situation. Members of the previous project teams do not have to create new
norms about acceptable field behaviour; they simply carry them over. Similarly, some
organisations use formal training to develop organisation-wide norms about how team
 members should behave. This training establishes company-wide norms, which employees
carry into each new work team they enter.

In South Africa, Netcare Limited is a public company consisting of 54 owned and five managed
hospitals. The team norms of the Netcare Greenacres Hospital in Port Elizabeth are to take pride
in providing a multidisciplinary healthcare service and be dedicated and committed to providing
exceptional customer service and compassionate care to patients and their families within the
Eastern Cape community.45 This explicit statement of their norms is displayed at the entrance to
the hospital.
Norms govern both task-orientated behaviours and relationship behaviours.46 For work teams
to be effective, they need to focus on task-orientated behaviour. However, important relationship
behaviour must also be present: warmth, praise and acceptance of others, encouragement of
participation by all members, and resolution of team conflict and tension.47 Norms concerning how
to handle conflicts within the team are especially important for teams that engage in a lot of
problem-solving and decision-making. When decision-making work teams are so cohesive that
conflict is stifled, groupthink can develop.

When a team leader and individual team members learn how to manage the work team’s
internal processes, they improve the likelihood of the team being effective. A tool for assessing a
work team’s internal processes is presented in the Team Assessment Survey, included at the end
of the chapter – see the exercise for competency development. A team leader can use the survey to
pinpoint problems that the team needs to address. With a better understanding of specific problem
areas, team members can then be encouraged to develop their own approaches to addressing those
problems.

9.4.4 Effectiveness criteria

Effectiveness criteria measure the outcomes achieved by individual members and the whole
team. A particular work team may be effective in some respects and ineffective in others. A team
may take longer than expected to make a decision. Thus, on speed and cost criteria, the team may
seem ineffective. However, the team’s decision may be highly creative and make the team’s
primary customer feel very satisfied with the output. Thus, on creativity and customer satisfaction,
the team would be viewed as effective. Whether the work team will be viewed as effective overall
will depend on the relative importance of the various effectiveness criteria shown in Figure 9.7.

9.5 Work team leadership

Informal social groups tend to be leaderless, but work teams usually have designated leaders. In
some work teams, one person remains the leader throughout the life of the team, whereas in other
teams, the leadership role is rotated among team members.
In Chapter 11, we discuss issues of leadership in depth. The theories and principles of
leadership described there generally apply to leadership of work teams. Here we discuss three
leadership roles that new work team leaders sometimes find particularly difficult: empowerment,
managing the external boundary of the team and disbanding an ineffective work team. Each of
these will now be further explored.

9.5.1 Empowerment
Empowerment is about putting employees in charge of and allowing them to making decisions
that affect themselves and what they do (their work). The most difficult aspect of being a work
team leader is the empowerment of team members. Empowering team members by means of the
following seven steps below may lead to highly empowered teams and encourage team
cohesiveness:
• Step 1: Offer empowerment that match the skills set of the team
• Step 2: Communicate the intention of empowerment to the team and ask for suggestions on
the type of empowerment expected
• Step 3: Ensure team members trust the reason for empowerment
• Step 4: Offer rewards to team members that engage in team empowerment
• Step 5: Align team empowerment with organisational vision
• Step 6: Offer empowerment that challenges team abilities
• Step 7: Provide insight into past problem-solving outcomes to reveal successful problem
solving methods.48

Work teams may be more successful in achieving organisational goals if their members are
empowered (given authority and responsibility) to do their jobs. Conversely, if their authority and
responsibility are restricted, team members may well reduce their levels of commitment. They
might continue to perform satisfactorily, but with little enthusiasm for improving quality and
productivity.
It is difficult for some leaders to accept the idea of empowerment. Learning how to empower
team members means realising that empowerment of self-managing work teams does not imply
adopting a strictly hands-off style. Especially for a newly empowered work team, a leader needs
to take responsibility for ensuring that the team’s goals are clear. Training can assist in team
empowerment, whether it is aimed at helping team members develop technical, organisational or
interpersonal skills. Some planning and monitoring of the team’s work is also necessary. Leaders
of newly created self-managing work teams should take responsibility for explaining the
organisation’s business plan, and should then help their teams define the results to be achieved.
Initially, the work team leader may also need to handle the budget, monitor team results, provide
feedback to team members and provide coaching as needed.49
Figure 9.7 Effectiveness criteria for work teams

Source: Adapted from JACKSON, S.E., MAY, K.E. & WHITNEY, K. Understanding the dynamics of
diversity in decision making teams. In GUZZO, R.A., SALAS, E. & ASSOCIATES (EDS). 1995. Team
effectiveness and decision making in organisations. San Francisco: Jossey-Bass, pp. 204–261; 1996. A
seven-step model to develop team measures. ACA News, November–December, 15–16; BORWHAT, D.C.
JR. 1997. How do you know if your work teams work? Workforce, May (suppl.), 7; DENISON, D.R.,
HART, S.L. & KAHN, J.A. 1996. From chimneys to cross-functional teams: Developing and validating a
diagnostic model. Academy of Management Journal, 39, 1 005–1 023;CIANNI, M. & WNUCK, D. 1997.
Individual growth and team enhancement: Moving toward a new model of career development. Academy of
Management Executive, 11, 105–113.

As work team members become more experienced, the leader’s role changes. A mature self-
managing work team will take over responsibility for establishing team performance goals,
assigning responsibilities to individual team members, monitoring the performance of the team
and the team members, and addressing many of the performance problems that arise.50
But even when self-managed work teams are fully mature, the leaders normally retain a few
administrative responsibilities or at least share them with team members. These duties include
preparing and managing the team’s budget, conducting formal performance appraisals and
providing feedback, handling persistent individual performance problems and making
compensation decisions.51
Work teams of all types are being empowered to perform tasks that previously were not
employees’ responsibility.
As organisations move towards more empowered work teams, their success becomes more tightly
linked to work team effectiveness. Organisations that invest resources to train teams can increase
both team and organisational effectiveness. Even the most highly trained work team can misdirect
its energy, so organisations must also be sure that expectations and rewards align with the work
team’s responsibilities and results. Often, work team leaders are held accountable for ensuring that
team members have the training they need. Team leaders may also be expected to make decisions
about the pay of team members and distribute other rewards among them. How well team leaders
fulfil these responsibilities depends in part on their own individual competencies and in part on
the administrative support available. Team leaders can address issues of training and rewards
more easily when their organisations’ human resources management systems include formal
training for teams and appropriately designed compensation plans.

9.5.2 Managing the external boundary

Many team activities involve the interface between the work team and the external system within
which the team operates. Work team members and leaders alike naturally focus much of their
attention on the team’s internal processes:
• Is the work moving along?
• Are team members getting along?

Experienced work team leaders realise that they must also be concerned with matters outside the
team’s scope. Even the most mature work teams may continue to look to their leaders for
information about business plans and other external conditions. In particular, work team leaders
are often the people who liaise with top management, other teams within the organisation, key
clients and suppliers, and even competitors. Some of these constituencies (for example, suppliers,
top management and other teams within the organisation) are important because they control
valuable resources that the team may need to complete its work. Some may be important because
their evaluations of the team indicate the team’s effectiveness. Some may also be important
because they can actively oppose the team’s actions and prevent the achievement of the team’s
goals. In our South African Insight, the publisher in charge of the academic publication needs to
liaise with various stakeholders including existing and potential lecturers prescribing the textbook
to students, marketing staff promoting the book, editorial staff involved in the development of the
book, and so on.
Effective leaders actively manage relationships with all of these important external groups. To
start the process, a leader should lead a team discussion to generate a list of the important external
groups and their concerns of interest to the team. The leader should also encourage team members
to identify the information they need about these groups and the types of relationships the team
should establish with them. Such relationships can be formal or informal and contact may be
frequent or occasional. The purpose of maintaining external relationships with other groups, such
as obtaining and/or providing information, attempting to influence them, co-ordinating activities
with them, involving them in decisions and/or obtaining their permission to implement decisions
made by the team, should be determined.
After identifying key external groups and clarifying why each is important to the work team,
the leader should develop strategies for maintaining such relationships.
The work team leader may be deeply involved in establishing and maintaining these various
external relations. Alternatively, team members themselves may take much of that responsibility.
Regardless of how work teams decide to manage external relationships, work team leaders should
be sure that their teams are attuned to the external contexts of their responsibilities and are being
responsive to appropriate external groups.
9.5.3 Disbanding an ineffective work team
Finally, work team leaders must learn to recognise when poorly functioning work teams have
reached the point of no return. Occasionally, despite all efforts to build an effective team, conflicts
between team members escalate beyond repair. Disbanding therefore occurs when the team is
terminated or breaks up.

9.6 Support for work teams

9.6.1 Team training

Training should develop behaviours that build an effective internal team process. Management
often rushes to form work teams without considering how the behaviour needed for effective
teamwork differs from that needed for effective individual contributions. Team members may
receive little or no training to ensure that they can perform the required tasks and achieve the
goals set.52
Team training can take many forms. The main goals of team training programmes are to
develop the following aspects:
• Team cohesiveness
• Effective team procedures
• Effective work team leaders.

Although some training efforts address all three of these objectives simultaneously, here we
discuss them in sequence for the sake of clarity.

9.6.1.1 Training to develop team cohesiveness

Team cohesiveness signifies loyalty of team members to each other and to the team. Normally,
smaller teams experience higher cohesiveness. Many organisations use experientially-based
adventure training to develop team cohesiveness.

9.6.1.2 Training in team procedures

Experiential training is an effective way to develop cohesiveness, but it is not likely to result in
optimal work team effectiveness if used alone. Team members who are taught about the stages of
team development are less likely to become frustrated during the early forming and storming
stages of team development. They will also realise the importance of norms to their performance
and therefore strive to develop norms that aid rather than hinder it.
In addition to explaining the evolution of team development, formal training programmes
often cover how to:
• Use a variety of techniques for generating creative ideas (for example, brainstorming,
discussed in Chapter 7)
• Identify and discuss problems and their possible causes (for example, using decision-making
aids described in Chapter 7)
• Choose one solution from among the many available (for example, when to resort to voting
and compromise)
• Ensure that solutions are implemented according to an agreed-upon schedule.
For self-managing work teams, formal training may also include company-specific procedures for
obtaining resources, cost accounting, progress reports and team evaluations.

9.6.1.3 Training to develop work team leaders

New team leaders could easily misinterpret their role within a team. Team leaders that have
developed appropriate skills will be open and supportive to member contributions. The skills
developed will allow team leaders to summarise information, stimulate discussion, create
awareness of problems, and detect when the team members are willing to resolve problems. New
team leaders require training especially in the following areas:
• Supporting disagreement. A leader should create a suitable situation where members are
allowed to disagree in order to stimulate creativity and the opportunity for innovative
solutions. This should be done ensuring that negative emotions are best managed. Decision-
making aids, such as brainstorming, the nominal group technique, devil’s advocacy and
dialectical inquiry, are suitable to create productive debate resulting in improved decision-
making.53
• Managing meetings. Team leaders often assume they know how to manage a meeting,
however training them in the basic tactics of managing a meeting will improve team meeting
efficiency. A critical skill a team leader needs to develop is to establish a good balance
between tolerance and control in the meeting. For example, to rush the meeting might be
perceived as negative by members, as they don’t get the opportunity to share their opinion, but
on the other hand if the leader doesn’t maintain a good tempo team members could lose
interest and might become bored.

9.6.2 Team rewards

The basic principles that apply to creating any reward system also apply to systems for teams. The
biggest question is whether to reward the team, the individuals in the team or both. This depends
on whether the organisation wishes to reward the individuals’ results, performance, behaviour or
skills. Another issue to consider is what kind of reward to use, for example, cash bonuses or a
form of recognition such as an award or a certificate. Both monetary and non-monetary rewards
can be used, taking into account differences in what individuals value most. The timing of the
reward is also important. Employees should understand the system, feel that it is fair and
equitable, and understand the link between their performance and their rewards.
Different team structures call for different reward systems. Rewards should be linked to the
assessment of the work team’s accomplishments. It is more useful for organisations to understand
the basic choices involved in tailoring a reward system to their situations than for them to follow a
specific approach to rewarding work teams.54 Volkswagen has a three tier employee pay structure
in the form of a basic competitive monthly salary, an individual performance bonus and an
entitlement to profit sharing. Their pay structure thus rewards both individual and team
performance.55

Chapter summary
Contemporary organisational designs differ from traditional organisations in many ways. One of
the most striking differences is the increasing reliance on work teams. This trend is the reason that
teamwork competency is a key managerial competency. Understanding the model of work team
functioning presented in this chapter is one way to begin improving your teamwork competency.
 Teams may serve many important purposes. Understanding that a group is two or more
individuals who come into personal and meaningful contact on a continuing basis, there are two
basic types of groups in organisations. An informal group consists of a small number of
individuals who frequently participate in activities together to meet their mutual needs. A formal
group or work team consists of a small number of identifiable, interdependent employees who are
held accountable for performing tasks that contribute to achieving an organisation’s goals.
Members of a work team have a shared goal and must interact with each other to achieve it. The
four most common types of work teams are functional teams, problem-solving teams, multi-
disciplinary teams and self-managing teams. Three key differences among work teams are the
nature of their goals, their duration and their membership. Different types of work teams suit
different purposes. There is no one best way to organise a work team.
The primary components of a model of work team functioning are the external system, team
design, internal team processes and criteria for assessing the team’s effectiveness. These four
components are highly interrelated and must be considered together in order to understand fully
how a particular team functions.
The external system comprises outside conditions and influences that exist before and after the
team is formed. These external influences may include societal and organisational culture,
organisational design and the human resources management system.
The team design choices involved in creating a team are numerous. In addition to choices
concerning team duration, goals and membership are those concerning size and location. Virtual
work teams are an increasingly common choice in organisations.
Internal processes include the development of work team norms, personal feelings and
behaviours over time. Through these processes, the members of a work team develop and
integrate their behaviours. Co-ordination and integration tend to emerge over time and in several
stages. Feelings reflect the emotional climate of a group. The four feelings most likely to
influence work team effectiveness and productivity are trust, openness, freedom and
interdependence. Behavioural norms are the informal rules of behaviour that are widely shared
and enforced by the members of a group. They set standards for members’ behaviours under
specific circumstances.
Effectiveness criteria measure the outcomes achieved by individual members and the work
team as a whole. A particular work team may be effective in some respects, but not in others.
Three leadership functions that new work team leaders sometimes find particularly difficult to
carry out are empowerment, managing the external boundary of the team and disbanding an
ineffective work team.
Addressing issues of training and rewards is easier for team leaders when their organisations’
human resources management systems include formal team training and sound compensation
plans. Team training can take many forms. Formal compensation systems in most organisations
reward individual and/or business unit performance. Systems designed specifically to reward team
efforts are relatively new and involve making several choices. The choices made should reflect the
specific organisational context of the work teams.

Questions for discussion

1. Teams are forms of work groups, but not all work groups are teams. Discuss this statement by
providing examples to clearly differentiate between a group and a team.
2. You are given the task to put together a team of four members to find a solution for improving
online banking through the development of a new application (app). Describe how you would
go about forming your team and indicate who you will choose to work in the team to solve the
 problem. Also indicate why you will choose each of these team members. Do you think the
team will work well together from the onset? Explain your answer.
3. Simphiwe described his workplace as, ‘Friendly, just great. All the people get along together,
and we play action cricket after work.’ Quality records show that Simphiwe’s team produces
high-quality results, but that the team’s costs are high and work output is low. Is this an
effective work team? Explain why or why not.
4. You have an opportunity to take a new job as work team leader in an organisation. Before you
accept the offer, you want to assess whether the organisation is likely to provide a supportive
environment for the team. What are the questions you would ask about the organisation to
determine whether the environment is supportive?
5. Volkswagen Wörthersee in Austria launched a competition to design the ultimate sports car
for the PlayStation’s Gran Turismo 6 (GT6) game series. Designers and engineers in Austria
and Japan worked together on the car for six months. The production of this car required the
use of a virtual team. What, in your opinion, would have been challenges for the virtual team?
If you were a member of this team, how would you have gone about ensuring that your virtual
team members did not experience feelings of isolation? Do you think that this virtual team was
more or less productive? Explain why you think so.

Exercise for competency development

Team performance assessment

This survey should be completed individually by each team member. Indicate the extent to which you think
the team exhibits the characteristics and behaviours listed below by responding to the statements that
follow using a scale of 1 to 5, where:
• 1 = To a very small extent
• 2 = To a small extent
• 3 = To some extent
• 4 = To a large extent
• 5 = To a very large extent

_____________ 1 Members understand the range of backgrounds, skills preferences and perspectives in
the team.
_____________ 2 Member differences and similarities have been harnessed effectively.
_____________ 3 The team can integrate diverse viewpoints.
_____________ 4 Members view themselves as a team, not as a collection of individuals with their own
particular jobs to do (e.g. they work interdependently and have joint accountability).
_____________ 5 Members have articulated a clear set of goals.
_____________ 6 Team goals motivate members.
_____________ 7 Members agree on what goals and objectives are important.
_____________ 8 The team has an effective work structure. It understands what work needs to be done,
when work needs to be completed and who is responsible for what.
_____________ 9 What each member is supposed to do is clear.
_____________ 10 Members have devised effective timetables and deadlines.
_____________ 11 Members have a clear set of norms that cover most aspects of how to function.
_____________ 12 Members don’t take arguments personally and don’t get angry easily.
_____________ 13 Every team member does their fair share of work.
_____________ 14 Most teams share the work.
_____________ 15 Members share responsibility.
_____________ 16 Members are imaginative in thinking of new or better ways to perform tasks.
_____________ 17 All members participate in decision-making.
_____________ 18 Members have the resources, information, and support they need from people outside
the team.
_____________ 19 Team meetings are well organised.
_____________ 20 Team meetings are productive.
_____________ 21 Co-ordination among members is effective. People seem to know what to do and
when to do it.
_____________ 22 Members express their feelings freely in the team.
_____________ 23 Members support each other.
_____________ 24 Members are effective decision-makers.

Scoring and interpretation

After completing the survey, the team leader should calculate the team’s average score for each question.
Suppose a team had four members and that they gave these responses to the first question: The first person
wrote 3, the second person wrote 4, the third person wrote 5 and the fourth person wrote 4. The team’s
average for that question is: (3 + 4 + 5 + 4) ÷ 4 = 4.
After calculating the average score per question, the team leader should provide feedback to the team.
Effective feedback involves acknowledging what the team seem to be doing well, and identifying what
needs immediate improvement (i.e. questions with an average of 2 or lower). Questions with an average of
between 2 and 4 represent areas that should become targets for eventual improvement.
After setting priorities for which areas need improvement, the team should agree on a schedule for
those improvements. At the end of that time, the leader should again ask team members to complete the
survey. Members should assess whether they have made satisfactory progress in addressing the issues
previously identified. If they find that they haven’t done so, adjustments and reassessments will be
required.
Source: ANCONA, D. 1996. Managing for the future: Organisational behavior and processes, Module 3: Making
teams work. © South-Western College Publishing, 37–39. Republished with permission of South-Western College
Publishing, a division of Cengage Learning, from Managing for the future: Organizational behavior and processes,
Module 3: Making teams work, Ancona, D., 3rd Edition, 2005; permission conveyed throughCopyright Clearance
Center, Inc.

Contemporary management in practice

Businesses can be compared to ants as they are nature’s example of teamwork, with each ant fulfilling a
role within the colony so that it functions as a coherent whole. Deborah Gordon did research into the
complex systems of the insect world and how they can be applied to humans who also have to work in
teams to survive. Go to http://www.ted.com/talks/deborah_gordon_digs_ants and watch The emergent
genius of ant colonies by Deborah Gordon.
1. What did you learn about teamwork from watching the video?
2. Do you think we can learn from ants on how to more effectively work in a team context?

Endnotes
1 FONTYN, Y. 2009. Lack of communication and trust undermines teams. [Online]. Available:
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[Accessed 22 August 2015].
2 Ibid.
3 MARTINUZZI, B. 2012. Diversity in the Workplace: 5 Ways to Help Your Team Perform Better.
American Express Open Forum. 12 February. [Online]. Available:
 https://www.americanexpress.com/us/small-business/openforum/articles/business-by-the-book-
diversity-in-the-workplace/ [Accessed 23 October 2016].
4 Ibid.
5 BOUNDLESS. 2015. Differences between groups and teams. Boundless Management. 21 July. 2015.
[Online]. Available: https://www.boundless.com/management/textbooks/boundless-management-
textbook/groups-teams-and-teamwork-6/defining-teams-and-teamwork-51/differences-between-groups-
and-teams-261-4011/22 [Accessed 22 August 2015].
6 AXEL, H. 1997. Teaming in the global arena. Across the Board, 56, February; BANKER, R.D., FIELD,
J.M., SCHROEDER, R.G. & SINHA, K.K. 1996. Impact of work teams on manufacturing performance:
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7 EY. 2013. The power of many: How companies use teams to drive superior corporate performance.
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8 BARNETT, T. n.d. Group dynamics. [Online]. Available:
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9 CLARK, D. 2014. Growing a team. [Online]. Available:
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10 SCHNELL, E. 2007. Five Characteristics of a Functional Team. [Online]. Available:
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11 BUSINESS DICTIONARY. 2016. [Online]. Available:
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12 WALLACE, K. 2006. Ten components of effective team problem solving. [Online]. Available:
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13 ROBINSON, P. 2015. Effective Team Decision-Making and Problem-Solving Part 2. [Online].
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14 KATA FOUNDATION. n.d. Parallel product development. [Online]. Available:
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15 REDDY, P. 2011. Global Innovation in Emerging Economies. New York: Routledge, p. 185.
16 FAY, D., BORRILL, C., AMIR, Z., HAWARD, R. & WEST, M. A. 2006. Getting the most out of
multidisciplinary teams: A multi-sample study of team innovation in health care. Journal of
Occupational and Organisational Psychology, 79, 553–567.
17 WELLINS, R. S., BYHAM, W. C. & WILSON, J. M. 1991. Empowered teams: Creating self-directed
work groups that improve quality, productivity, and participation. San Francisco: Jossey-Bass.
18 WILLIAMS, R. 1995. Directed work teams: A competitive advantage. [Online]. Available:
http://www.qualitydigest.com/nov95/html/self-dir.html, 1 [Accessed 15 August 2015].
19 MASONDO, D. 2005. Trade Liberalization and Work Restructuring in Post-Apartheid South Africa: A
Case-study of BMW. In WEBSTER, E. & VON HOLDT, K. (Eds.). Beyond the Apartheid Workplace.
Studies in Transition. Scottsville: University of KwaZulu-Natal Press, pp. 149–172.
20 STEVENS, M. J. & CAMPION, M. A. 1994. The knowledge, skill, and ability requirements for
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22 EY. 2013. Op cit., p.12.
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staff. Inc. Tech, 2, 29–31. An interesting study showing how computer-mediated group decision making
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culture and change. [Online]. Available: http://geert-hofstede.com/south-africa.html [Accessed 23
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29 SAGIE, A. 1994. Participative decision making and performance. A moderator analysis. Journal of
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Internal models and their organisational consequences. Academy of Management Review, 19, 17–50.
30 GANSTER, D.C. & DWYER, D.J. 1995. The effects of understaffing on individual and group
performance in professional and trade occupations. Journal of Management, 21, 175–190.
31 SUNDSTROM, E., DeMEUSE, K.P. & FUTRELL, D. 1990. Work teams: Applications and
effectiveness. American Psychologist, 45, 12–133; SMITH, K.G., SMITH, K.A., OLIAN, J.D., SIMS,
H.P., O’BANNON, D.P. & SCULLY, J.A.1994. Top management team demography and process: The
role of social integration and communication. Administrative Science Quarterly, 39, 412–438.
32 ASPEN PHARMACARE HOLDINGS LIMITED. 2013. Integrated Report. [Online]. Available:
https://www.jse.co.za/content/JSE AnnualReportsItems/20131111-Aspen%20Pharmacare%
20Holdings%20Limited%202013%20Integrated%20Report.pdf [Accessed 22 August 2015]. p 49.
33 ZALEZNY, M.D., SALAS, E. & PRINCE, C. 1995. Conceptual and measurement issues in
coordination: Implications for team behavior and performance. In ROWLAND, K. & FERRIS, G.
(Eds.). Research in personnel and human resource management, 13, pp. 81–115; WILLIAMS, C. 2014.
Effective Management: a multimedia approach. 6th ed. Australia: South Western Cengage Learning, pp.
307 – 312.
34 MONTEBELLO, A.R. 1994. Work teams that work: Skills for managing across the organisation.
Minneapolis: Best Sellers, pp. 33–39; WORCHEL, S. 1994. You can go home again: Returning group
research to the group context with an eye on developmental issues. Small Group Research, 25, 205–223;
GERSICK, C.J.G. 1989. Marking time: Predictable transitions in task groups. Academy of Management
Journal, 32, 274–309.
35 WORCHEL, S., WOOD, W. & SIMPSON, J.A. (Eds.). 1992. Group process and productivity.
Newbury Park, Calif.: Sage; KLIMOSKI, R. & MOHAMMED, S. 1994. Team mental model: Construct
or metaphor. Journal of Management, 20, 403–437; WILLIAMS, C. 2014. Op cit., pp. 305–306.
36 Adapted from SIXEL, L.M. 1994. Bag manufacturing growing up fast. Houston Chronicle, 16 October,
1E, 4E; WILLIAMS, C. 2014. Op cit., pp. 305–306.
37 MULLEN, B., ANTHONY, T., SALAS, E. & DRISKELL, J.E. 1994. Group cohesiveness and quality
of decision making: An integration of tests of the groupthink hypothesis. Small Group Research, 25,
189–204; MIRANDA, S.M. 1994. Avoidance of groupthink: Meeting management using group support
systems. Small Group Research, 25, 105–136.
38 STEYN, J., DE VRIES, I. & MEYER, M. 2004. Groupthink in the South African Police Service: An
experimental analysis. Acta Criminologica, 17(2), 1–16, p. 10; PORTER, L. & WARRENDER, C.
2009. A multivariate model of police deviance: examining the nature of corruption, crime and
misconduct. Policing & Society, 19(1), 79–99; FLEMING, J. & LAFFERTY, G., 2000. New
management techniques and restructuring for accountability in Australian police organisations.
Policing: An International Journal of Police Strategies & Management, 23(2), 154–168.
39 STEYN, J., DE VRIES, I. & MEYER, M. 2004. Op cit.
40 MUELLER, C.W., BOYER, E.M., PRICE, J.L. & IVERSON, R.D. 1994. Employee attachment and
noncoercive conditions of work. Work and Occupations, 21, 179–212.
41 RABBIE, J.M. 1993. Determinants of ingroup cohesion and outgroup hostility. International Journal of
Group Tensions, 23, 309–328.
42 HACKMAN, J.R. Group influences on individuals in organisations. In DUNNETTE, M.D. & HOUGH,
L.M. (Eds.). 1992. Handbook of industrial and organisational psychology 3. (2nd ed.). Palo Alto, Calif.:
Consulting Psychologists Press, pp. 199–267.
43 ZANDER, A. 1994. Making groups effective. (2nd ed.). San Francisco: Jossey-Bass.
44 FELDMAN, D.C. 1984. The development and enforcement of group norms. Academy of Management
Review, 9, 47–53.
45 NETCARE GREENACRES HOSPITAL. 2003. Facilities and service. [Online]. Available:
https://www.netcare.co.za/98/netcare-greenacres-hospital [Accessed 22 August 2015].
46 BURKHARDT, M.E. 1994. Social interaction effects following a technological change: A longitudinal
investigation. Academy of Management Journal, 37, 869–898.
47 COOKE, R.A. & SZUMAL, J.L. 1994. The impact of group interaction styles on problem-solving
effectiveness. Journal of Applied Behavioral Science, 30, 415–437.
48 SCHEID, J. 2010. Explaining the principles of employee empowerment. [Online]. Available:
http://www.brighthub.com/office/human resources/articles/84839.aspx [Accessed 22 August 2015].
49 MATSON, E. 1997. Congratulations, you’re promoted. (Now what?). Fast Company, June–July, 116
–130; O’LEARY-KELLY, A.M., MARTOCCHIO, J.J. & FRINK, D.D. 1994. A review of the influence
of group goals on group performance. Academy of Management Journal, 37, 1 285–1 301.
50 GUINN, K.A. 1995. Performance management for evolving self-directed work teams. ACA Journal,
Winter, 74–81.
51 WELLINS, R.S., BYHAM, W.C. & WILSON, J.M. 1991. Empowered teams: Creating self-directed
work groups that improve quality, productivity, and participation. San Francisco: Jossey-Bass;
PRUSSIA, G.E. & KINICKI, A.J. 1996. A motivational investigation of group effectiveness using
social-cognitive theory. Journal of Applied Psychology, 81, 187–198; COHEN, S.G., LEDFORD, G.E.
Jr & SPREITZER, G. 1996. A predictive model of self-managing work team effectiveness. Human
Relations, 49, 643–676; CAMPION, M.A., PAPPER, E.M. & MEDSKER, G.J. 1996. Relations
between work team characteristics and effectiveness: A replication and extension. Personnel
Psychology, 49, 429–452.
52 WETLAUFER, S. 1994, The team that wasn’t. Harvard Business Review, November–December, 22
–38; REAGAN-CIRINCIONE, P. 1994. Improving the accuracy of group judgment: A process
intervention combining group facilitation, social judgment analysis, and information technology.
Organisational Behavior and Human Decision Processes, 58, 246–270.
53 DEAN, J.W. JR & SHARFMAN, M.P. 1996. Does decision process matter? A study of strategic
decision making effectiveness. Academy of Management Journal, 39, 368–396; MULVEY, P.W.,
 VIEGA, J.F. & ELSASS, P.M. 1996. When teammates raise a white flag. Academy of Management
Executive, 10, 40–49; PRIEM, R.L., HARRISON, D.A. & MUIR, N.K. 1995. Structured conflict and
consensus outcomes in group decision making. Journal of Management, 21, 691–710.
54 WAGEMAN, R. 1995. Interdependencies and group effectiveness. Administrative Science Quarterly,
40, 145–180.
55 VOLKSWAGEN. 2013. [Online]. Available:
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August 2015].
LEARNING OUTCOMES
After studying this chapter, you should be able to:
• Define the concept of culture, and differentiate between the non-observable and observable elements of
culture
• Identify and discuss the levels of culture and subculture that are important to managing organisations
• Analyse the factors influencing organisational culture and develop a framework for understanding
organisational cultures
• Compare the types of organisational culture and provide supporting examples
• Explain the meaning and importance of workforce diversity
• Appraise how the organisational goals for managing diversity can contribute towards improved
organisational performance.

CHAPTER OUTLINE
• South African Insight: Mr Price Group Limited
• The elements of culture
• Non-observable elements of culture
» Shared assumptions
» Values and norms
• Observable elements of culture
» Socialisation
» Symbols
» Language
» Narratives
» Practices
• Levels of culture
» Societal cultures and subcultures
» Industry cultures and subcultures
» Organisational cultures and subcultures
» Multicultural, monolithic and pluralistic organisations
• Types of organisational culture
» Bureaucratic culture
» Clan culture
» Entrepreneurial culture
» Market culture
» Organisational implications
• Managing workforce diversity
» Demographic and cultural diversity
» Organisational goals for managing workforce diversity
Key terms and concepts
• Culture
• Manifest culture
• Expressed-values level
• Shared assumptions
• Value
• Value system
• Norms
• Socialisation
• Symbol
• Narratives
• Taboos
• Rites and ceremonies
• Macro-culture
• Multicultural organisations
• Monolithic organisations
• Pluralistic organisations
• Bureaucratic culture
• Clan culture
• Entrepreneurial culture
• Market culture
• Workforce diversity
• Demographic diversity
• Cultural diversity
• Legal compliance
• Positive organisational culture

COMPETENCY WHY IS THIS EXAMPLE

COMPETENCY
IMPORTANT IN
RELATION TO CULTURE
AND DIVERSITY?

Global It is necessary for managers to The culture of Microsoft is described as dynamic,

awareness have cultural knowledge and competitive and passionate, and it is defined by the
understanding in a globalised company’s values. Its values, which are espoused
world. They should be around the world by the global group, are also part
culturally open and have of staff members’ performance reviews. These
sensitivity to national, ethnic values include having honesty and integrity, having
and cultural differences in the a passion for customers, partners and technology,
workplace. striving for excellence, being open to and respectful
of others, taking on big challenges, being
accountable and being dedicated to quality.1

Communication In a global context, the way An organisation such as SABMiller plc, prior to the
managers communicate the merger and afterwards with Anheuser-Bush InBev,
organisational values to the illustrates the importance of effective
organisation’s stakeholders, communication. The group comprises a diverse
allows for a consistent and portfolio of businesses, operating in a wide range of
clear understanding of the countries and cultures. The group has identified an
organisation’s values across inner core of non-negotiable values regarding
the different continents in integrity, honesty and its responsibilities towards
which they operate. society which are clearly communicated to its
 stakeholders. Based on these values and guiding
principles, corporate codes of conduct are
formulated with specific reference to the group’s
human resources, operating management and the
holding company.2

Teamwork Organisational performance is Ricardo Semler, of SEMCO, provided the proof in

dependent on how managers the value of teamwork, when he realised that
and employees work together employees who participated in key decisions would
in teams and support each be better motivated than those who simply obeyed
other to raise the overall orders. Semler introduced a form of participatory
performance, as well as management and established a clan organisational
understanding and embracing culture. Employees from different cultures could
workplace diversity. unleash their full potential for their own benefit and
the company’s.3

Mr Price Group Limited

Mr Price knew from the start that good business is simple business, that’s why when they started in 1987
in Durban with their first retail outlet they had a few simple goals. They saw themselves as average Joe’s,
and therefore looked at what the average South Africans needed in their lives. They realised that it was
more choice, honest value for money and the ability to enjoy life on a budget. Today, reflecting over a
couple of decades, each division in the Mr Price Group delivers these needs across the different product
categories offered. The Mr Price Group consists of four retail chains focusing on clothing, footwear,
accessories and homeware. These chains are divided into two operational divisions, namely the apparel
and home divisions.
At Mr Price they belief in the motto – ‘doing it right the first time’! This is only possible with the help
of their business partners and associates, and they include everyone who works in every division at all
levels, in the group. The Mr Price Group developed the foundation of their business on three core beliefs,
namely: passion, value and partnership.
• “Passion is the positive attitude of our associates created through trust, communication and
recognition.”
• “Value is the low-cost, high-volume, low-price philosophy of the group.”
• “Partnership is sharing ownership of the company with all associates who work for the group.”

“We have a dream for this company. If we achieve this dream it will dramatically improve the incomes,
lifestyles and happiness of our associates and their families. Our dream is to see every individual in this
company achieving their full potential, everyone passionate to perform at their best in a happy fun-filled
workplace.”
The mission statement of Mr Price Group Limited emphasises this: “Our mission is to add value to our
customers’ lives and worth to our partners’ lives, whilst caring for the community and environment.” –
(2012)
The ability of understanding the differences in each associate’s (employee’s) life, is reflected in Mr
Price’s achievement when they were awarded the prize as being the ‘Best Employer in South Africa in
2010/11’.
This award confirms that the organisation takes excellent care of their employees. Objective research
also shows that these employers have outstanding HR policies and practices. The Group continues to
remain committed to talent management and excellence in the employer framework, therefore enabling the
group to remain one of the best organisations to work for in South Africa.
The Business Code of Conduct provides a clear set of guidelines for all directors and associates of the
Mr Price Group. This Code of Conduct reflects the organisation’s culture. All associates should always
comply with laws and regulations; act in the best interest of the Group ensuring no conflict of interest;
treat customers with honesty, fairness and respect; accept principles of fairness and equal opportunity and
 not disregard discrimination, workplace violence or misconduct; be committed to operate in a socially and
environmentally responsible manner; remain politically neutral; respect the Group’s assets and property;
maintain valid, accurate and complete records; communicate with stakeholders in a responsible manner;
uphold privacy and confidentiality of information; be committed to compete fairly in the marketplace; and
be committed to uphold the ethical code of conduct.
This principle is built on a spirit of trust, demanding of all associates to act with integrity and to be
open and transparent. The Mr Price Group perceives trust as one of the most important values and states
that unless associates fully trust one another, the Group will not be able to outperform its competitors.
“It is trust that creates a magic environment. It is trust that builds self-confidence and self-respect.
Trust comes from us being honest, open and transparent with ourselves and each other. It is demonstrated
in having enough confidence to express concerns and aspirations to others. Trust means creating
opportunities for listening to and talking with each other.”
Anyone who interferes with this spirit of trust is damaging the Mr Price Group spirit and organisational
culture.
Source: Adapted from MR PRICE GROUP LTD. 2012. [Online].
Available:http://www.mrpricegroup.com/CorporateProfile/VisionMissionValues.aspx [Accessed 22 October 2016];
MR PRICE GROUP. 2016. [Online].
Available:http://www.mrpricegroup.com/CorporateProfile/VisionMissionValues.aspx [Accessed 22 October 2016];
MR PRICE GROUP LTD. 2016. [Online]. Available:http://www.mrpricegroup.com/search.aspx?
searchtext=best+employers+award&searchmode=anyword [Accessed 22 October 2016]; MR PRICE GROUP LTD.
2015. Business Code of Conduct. [Online]. Available:http://www.mrpricegroup.com/getmedia/51a2013e-1ebc-4a5f-
9878-2e2aaf43d5f2/Business-Code-of-Conduct-approved-November-2015.pdf.aspx [Accessed 25 October 2016].

10.1 The elements of culture

A culture is the unique pattern of shared assumptions, values and norms that shape the
socialisation activities, language, symbols, rites and ceremonies of a group of people.4 As shown
in Figure 10.1, the concept of culture ranges from non-observable elements (basic assumptions) to
observable elements such as expressed values and manifest culture. Easily observable elements
such as behaviours, language, music, food and technology are seen as manifest culture.5 The
manifest culture also represents the first contact with a new culture, for example, people’s speech,
dress, interactions with each other and possessions. Manifest culture provides some insights into a
culture rather than explaining the deeper meaning.
Culture can be inferred only from the expressed values and can be observed from the manifest
element: its socialisation activities, symbols, language, narratives and practices. The expressed-
values level represents how people in the culture explain the manifest level. This level provides
additional insight into a culture beyond the manifest level, but some aspects may remain unclear.
For example, in the Chinese culture it is inappropriate to leave chopsticks sticking out of a rice
bowl as it resembles an offering being made to an ancestor.6
Figure 10.1 The two elements of culture

The basic assumption level includes norms, values and assumptions that form the base of
culture and guide people’s thoughts and actions, but cannot be observed. The unobservable, for
example, could relate to a specific religion, guided by specific norms and values.
Cultures develop in both large and small groups of people. In this chapter, we focus on one
specific type of culture: organisational culture. However, in doing so, we recognise that
organisational cultures are influenced by larger societal and industry cultures as well as smaller
employee group subcultures. In our South African Insight, Mr Price Group Limited, a key element
of organisational culture is a shared assumption that associates (all employees and directors) must
be trustworthy and must be able to trust each other, as well as those stakeholders with whom they
interact.
One way to think about culture is to compare it to personality. Like personality, culture affects
in predictable ways how people behave when no one is telling them what to do. In the various Mr
Price divisions, such as Mr Price Sport or Mr Price Home, customers can expect the employees to
be trustworthy and meet the set of guidelines stated in the code of conduct, even though there is
nobody to tell them to perform accordingly. There is shared responsibility between Mr Price
Group and the associates (employees). Shared assumptions, values, socialisation experiences,
symbols, language, narratives and practices are the cultural elements that unite members of a
culture, and maintain a distinction between members and non-members.
When people belong to the same culture, there can still be great variation among the culture’s
members. A society can have its own unique culture, while at the same time, subcultures can exist
within it. In many countries, distinct tribal, ethnic and regional subcultures have developed over
time. Similarly, an organisation may have its own unique culture, while also having distinctive
subcultures in some departments or among members of some professions. In most large
organisations, multiple cultures exist side by side. Accountants and designers may work together
on a multidisciplinary work team. Customers and employees from multiple societal cultures and
subcultures may interact daily. People from different corporate and industry cultures may be
brought together through mergers, acquisitions, joint ventures and other forms of strategic
alliance.
Managing cultural diversity effectively has emerged as a key business issue during the past
decade. The effective management of cultural diversity begins with an understanding of the
elements of culture.

10.2 Non-observable elements of culture

The effective management of culture begins with an understanding of the non-observable
elements of culture: shared assumptions as well as values and norms, as shown in Figure 10.1.

10.2.1Shared assumptions
Shared assumptions are the underlying thoughts and feelings that members of a culture take for
granted and believe to be true. Societies differ in their assumptions about time and trust, for
example. Hindus in India and some Latin Americans in South America and other African cultures
believe that time is everlasting, and they frequently arrive late for meetings, to the frustration of
most Western managers. In countries, such as Norway, Sweden and Finland, more than 60% of
respondents in the World Value Survey think that people can be trusted. On the other hand, in
countries such as Colombia, Brazil, Ecuador and Peru, less than 10% think that this is the case. In
Western Europe, Germany has twice as much trust in people than their neighbour France.7
Industries can also differ in their assumptions about customers. At Sony (and other high-tech
companies in the industry), a common assumption is that customers are not viewed as central to
the company’s core value system.8 This is so because they assume that as technological experts,
they know more than customers with regard to what products and features are possible and
desirable. In contrast, consumer products organisations such as our South African Insight Mr Price
Group Limited, including retailers such as Mr Price Home and Mr Price Sport, as well as other
organisations such as Woolworths, and Coca-Cola Sabco (Pty) Limited, give relatively more
weight to the input they receive from consumers. Organisations may also differ in their
assumptions about what the notion of effectiveness means and so on.

10.2.2Values and norms

A value is a basic belief about a condition that has considerable importance and meaning to
individuals and is stable over time. Values are general beliefs in what we deem to be right and
wrong and in what we regard as highly desirable. A value system comprises multiple beliefs that
are compatible and support one another. The societal values of private enterprise and individual
rights are mutually supportive.

In organisations with cultures that support Total Quality Management (TQM) for example,
such as Toyota, Ford Motor company, and Xerox, employees value continuous improvement and
information sharing.9 Many contemporary organisations are striving to ensure that all employees
value ethical and socially responsible conduct. Values shape the choices about what an
organisation will do and how it will do it, thus providing a principled guideline to corporate self-
interest. It is interesting to note that previous research revealed that organisations with a strong
value base outperformed rivals, growing revenue four times as fast and delivering 750% as much
profit.10
The shared values in an organisation may be described in various ways. The organisation
culture profile (OCP) provides one way.11 The OCP contains 54 statements that express a value,
with each statement printed on a card. To determine which values describe the organisation,
employees sort the statements of the OCP into categories ranging from most characteristic to least
characteristic of the organisation. The results can then be analysed to determine which values are
shared most strongly throughout the organisation. The unique combination of values found in an
organisation contributes to its identity and also reflects the values of the larger society. The values
of the Mr Price Group Limited, for example, are listed and described in Table 10.1.
 When investigating the three core values of our South African Insight, Mr Price Group
Limited, it is noticeable that these values form the key beliefs on which the Group of companies
has been built. They also serve as the foundation stones of their business and are used as
guidelines for all participating partners.

Table 10.1 Mr Price Group Limited Values

Value Description

Passion It is the positive attitude and enthusiasm of all the associates who approach each day
energised, happy with a smile and projecting a positive image – believing work is fun.

Value Value is at the heart of Mr Price’s business. They strive to add value in everything they do.
Value is more than the products they offer for sale, it is the way they render a service in
their business, to each other and to their customers. Value is about doing more than what is
expected or required from an associate.

Partnership Partnership means that all associates become shareholders in the organisation. Through
partnership and ownership, the success of Mr Price Group Limited is shared with all
associates. Solid and long term partnerships with their supplier are also encouraged.

Source: MR PRICE GROUP LIMITED. 2016. Values. [Online]. Available:

http://www.mrpricegroupcareers.com/Our-Values.aspx [Accessed 27 October 2016].

Norms are rules of behaviour of group members. When a norm is shared throughout an
organisation, it becomes an element of the organisation’s culture.12
Norms are cultural elements including values, customs, and traditions. They represent
individuals’ basic knowledge of what others do and what others think that they should do. Thus
norms become informal understandings that govern individuals’ behaviour in society. Norms then
describe the standard, expected or typical behaviour.13 In South Africa, for example, it has become
the norm that miners could potentially strike in the first quarter of the year since June is the
beginning of wage negotiations for the mines.14

10.3 Observable elements of culture

You will remember that culture can be inferred only from the expressed values and can be
observed from the manifest element: its socialisation activities, symbols, language, narratives and
practices. Each of these elements is discussed below.

10.3.1Socialisation
Socialisation is a systematic process by which new members are brought into a culture.15
Individuals learn the ropes and are introduced to the culture’s behavioural norms. The most
powerful way to socialise people into a culture is through consistent role-modelling, teaching,
coaching and enforcement by others in the culture. At Nampak, this is done by means of an
intensive training process for all new appointees who attend induction training, including a
comprehensive overview of the company’s approach to ethics as set out in the code of ethics and
business conduct policy.16 At the societal level, socialisation takes place within the family, in
schools and religious organisations, and through the media. At the industry level, socialisation
often occurs through organised activities conducted by industry associations. For example, the
South African Chamber of Commerce and Industry (SACCII) organises events to help business
persons keep in touch with the business community. In doing so, it socialises members through
regularly scheduled meetings, courses and workshops, social events and award ceremonies.17

10.3.2Symbols
A symbol is anything visible that can be used to represent an abstract shared value or something
having special meaning. Symbols are the simplest and most basic observable form of cultural
expression. The culture of an organisation is often articulated by means of public symbols. These
symbols can be verbal (stories and myths), physical symbols (such as material objects and logos),
and ceremonies and rituals (such as casual Fridays or yearly meetings). The use of these symbols
creates a sense of solidarity between the individuals involved.18

Symbols may therefore be expressed through various avenues including: logos, architecture,
parking priorities (for example, assigned versus unassigned spaces), uniforms, offices (for
example, open plan versus private office, location, type of furniture), a general cafeteria or a
separate dining facility for higher management, plaques, lapel pins, the type of art on walls and
types of awards (for example, emphasising quality and customer service achievements).
Kulula.com is known for its humorous in-flight commentary which forms part of in-flight rituals,
with the aim to make the travel experience more enjoyable to travellers as well as less stressful,
including, for example, statements such as: “There may be 50 ways to leave your lover, but there
are only four ways out of this plane.”19

10.3.3Language
From a cultural perspective, language is a shared system of vocal sounds, written signs and/or
gestures used to convey special meaning among members.20 The elements of this system include
shared jargon, slang, gestures, signals, signs, songs, humour, jokes, gossip, rumours, proverbs,
metaphors and slogans. In general, the greater the number and use of such language elements, the
more ingrained the culture is.21 One of Coca-Cola Sabco’s slogans, “Unbottle your potential”,
focuses on the organisation’s aim of being the best Coca-Cola bottler in the world.22 At Absa, the
focus on building lasting relationships is announced by the slogan, “Today, tomorrow, together”.23

The concept of teamwork is best illustrated by the sign in the entrance lobby of the head
office of Clicks Holdings in Cape Town, which reads, “Clicks Holdings: Yesterday’s JSE share
price was …, tomorrow’s price depends on us.” The catch phrase “Everything keeps going right,
Toyota” was coined in 1979, the year before Toyota assumed market leadership in South Africa.
At General Electric (GE), an example of shared language includes the phrase “imagination at
work”.24

10.3.4Narratives
Narratives are the unique stories, sagas, legends and myths in a culture. Narratives often describe
the unique accomplishments and beliefs of leaders over time, usually in heroic and romantic
terms. The general story may be based on historical fact, but as the story gets told and retold, the
facts may be embellished with fictional details.25 One well-known narrative, which appears on the
Allan Gray website, is how the founder set out the purpose for the organisation. In a letter, dated
31 December 2015, he introduces the following unique story about the organisation: “In starting
Allan Gray Investment Counsel in 1973, I was convinced that my passion for investing could be
deployed to demonstrably enhance clients’ savings and wealth and provide them with good value
for their money. This was our raison d’être, our driving sense of purpose. We focused on earning
and retaining the trust and confidence of our clients, leaving them to determine through their
actions whether the firm would grow and prosper—or languish and fail. Our financial services
were to be bought and not sold. Thus, if the firm prospered we would know we were making a
positive difference to others in our daily work.”26

10.3.5Practices
The most complex but observable cultural form is shared practices. These practices include taboos
as well as rites and ceremonies.

10.3.5.1 Taboos
Taboos are behaviours that are forbidden in the culture. In our South Africa Insight, Mr Price
Group Limited, ethical responsibilities of associates (employees) come before making profit and
this should not be jeopardised.

10.3.5.2 Rites and ceremonies

Rites and ceremonies are elaborate and formal activities designed to generate strong feelings.
They are usually carried out as special events.27 In most societies, important rites and ceremonies
celebrate the birth, marriage and death of the society’s members. Organisations often use awards
ceremonies as a rite to encourage better performance from employees. End of the year events and
parties are also seen as rites of integration into an organisation. Each year, universities in South
Africa celebrate the academic achievement of their graduates by having a graduation ceremony.

10.4 Levels of culture

Culture is a fuzzy concept. It is not something that you can put in a box and weigh. The
boundaries that separate cultures are often blurred. So, too, are the boundaries that separate one
level of culture from another. Rather than try to describe a culture directly, the best way to
understand a culture is often to compare and contrast it with other cultures. With this approach in
mind, three levels of culture can be identified as most important to managing organisations:
• Societal culture
• Industry culture
• Organisational culture.

We discuss each of these levels of culture in more detail in the following sub-sections.

10.4.1Societal cultures and subcultures

Societal cultures usually encompass the most people, that is, they represent the most general level
of aggregation. South Africa has a diverse set of societal cultures, referred to as the rainbow
nation. Societal values have many far-reaching consequences for managing organisations. They
shape the preferences and behaviours of customers, employees and all other members of the
communities in which an organisation operates. In individualistic cultures, people are more
comfortable being given direct feedback about their individual strengths and weaknesses. In
collectivistic cultures, such as the Afrocentric cultures in South Africa, feedback is given in more
subtle and indirect ways, and focuses less directly on the individual. Thus, managers develop
skills enabling them to understand a variety of societal cultures and work with other managers and
employees in local and international outlets. Individuals who lack cultural sensitivity and global
awareness experience problems in communication and feelings of isolation. Managers working in
a culture that they do not understand are likely to make poor decisions about how to staff their
organisations and motivate employees.28

Experienced travellers know that societal cultures do not necessarily change suddenly when
they cross the border between countries. However, experienced managers realise that cultures
often change dramatically from one side of a mountain range to the other, from north to south, and
from the seashore to the landlocked interior within countries. In China, the USA, South Africa and
many other countries, distinct regional subcultures are present, and thinking that all members of a
society share the same attitudes, values and norms is a mistake.
A youth subculture prominent in Soweto is called ‘Izikhothane’, where youths dress up in
designer clothes and have dance-offs against other similar groups in public places.29
In South Africa, ethnic subcultures are often based on language, religion and race. The most
popular faiths practiced in South Africa are Christianity, Islam, Hinduism, Judaism, and
traditional African religions.30

10.4.2Industry cultures and subcultures

Industry cultures represent groups of organisations that share common assumptions, values and so
on, for example organisations in the finance and banking sector such as Absa, FNB, Nedbank,
Standard Bank, and so on. Identifying the boundaries between industry cultures can be as difficult
as locating the boundaries between regional subcultures. Nevertheless, when employees move
between industries, they usually can sense the cultural differences, even if they are not able to
identify them explicitly. Industry cultures can be compared by using the dimensions such as being
employee versus results orientated, parochial versus professional, open versus closed system,
loose versus tight control, as shown in Figure 10.2.
When organisations from different industries or different segments of the same industry
merge, form joint ventures or enter into any other type of strategic alliance, cultural clashes often
flare up unexpectedly. Such a cultural clash seems to be one of the primary reasons that so many
mergers fail to meet expectations, such as the merger in 1998 between Daimler Chrysler in the
USA and Mercedes-Benz in Germany. For example, the management style of creativity and
adaptability at Daimler Chrysler contrasted sharply with the centralised and systematic decision-
making management style at Mercedes-Benz31. Likewise, the financial services industry has
undergone restructuring through mergers and acquisitions during the past several years. In
general, the trend has been toward consolidation, with the eventual goal being to provide
customers with one-stop financial shopping. In the process, financial institutions learnt that there
are major subcultures within the financial services industry, as experienced by the incorporation of
Momentum/Southern Life, Discovery Health and FirstRand Asset Management into a single
insurance holding company called FirstRand Insurance Limited. The culture of FirstRand
Insurance Limited is entrepreneurial, owner managed and innovative. It is also motivated by
profit, with different businesses ‘chunked’ together to form profit centres that control revenue and
costs. While the creation of FirstRand was based on these principles, the challenge lay in
introducing this culture into the less entrepreneurial First National Bank (FNB) and Southern Life
mergers. To learn more about the mergers and subcultures at FirstRand Insurance Limited, visit
http://www.firstrand.co.za/Pages/Firstrand.aspx.32

Figure 10.2 Dimensions for describing industry cultures

Source: Adapted from HOFSTEDE, G. 1995. Cultures and organizations: Software of the mind. New York:
McGraw-Hill; HOFSTEDE, G., NEUIJEN, B., OHAYV, D.D. & SANDERS, G. 1990. Measuring
organizational cultures: A qualitative and quantitative study of twenty cases. Administrative Science
Quarterly, 35, 286–316.

10.4.3Organisational cultures and subcultures

Of the three types, organisational cultures usually encompass the fewest people. As we discuss
organisational cultures, keep in mind the fact that, to some extent at least, they are shaped by the
broader cultural influences of the societies and industries of which the organisations are a part.
Figure 10.3 provides a general framework for examining organisational cultures. It shows that the
observable elements of an organisation and the types of culture in organisations are shaped by the
higher-level macro-cultures of societies and industries. For our purposes, the macro-culture
includes a combination of the assumptions and values of both the society and industry in which
the organisation (or one of its business units) operates. In turn, the macro-culture has an indirect
impact on organisational performance, individual and customer satisfaction, and legal compliance.
The boundaries that separate one organisational culture from another are usually more clear-
cut than those that separate societal or industrial cultures. For many organisations, membership is
not ambiguous – either you belong to the organisation or you do not – as highlighted in our South
African insight, Mr Price Group Limited, at the beginning of this chapter. In some organisations,
however, the boundaries are becoming fuzzy because of increased reliance on temporary
employees, contract workers and strategic alliances. GE’s Jack Welch even went so far as to
suggest that his ideal organisation would be ‘boundaryless’. Despite GE’s efforts to minimise its
internal and external boundaries, GE retains a strong and distinctive organisational culture.
 As is true of societal culture, many organisations have several distinct subcultures. Managers
have many different views about whether subcultures are ‘good’ or ‘bad’ for business. Some
managers believe that organisations function best when they have a single strong organisational
culture. Other managers believe that the presence of many subcultures can be a source of
creativity and change.
If the members of different subcultures do not trust and co-operate with one another, power
struggles and gamesmanship may result. In our South African insight, Mr Price Group Limited,
trust is one of the most important values considered by all associates, within the organisation.
Sometimes organisational subcultures co-exist peacefully within the overall organisational culture.
At other times, however, subcultures are a major source of continuing conflict.33

Figure 10.3 Framework for understanding organisational cultures

Subcultures within organisations often reflect business or functional specialities (for example,
manufacturing, research and development, accounting, marketing and human resources). One of
the goals of TQM and re-engineering efforts is to integrate subcultures that divide functional
specialities and thereby reduce the conflicts that so often go hand-in-hand with them. Fragmented
subcultures can also be stitched together by changing the physical layout, rotating employees
among departments and linking monetary rewards to the achievement of goals that require
collaborative effort.34
The more predictable behaviour patterns are, the stronger an organisation’s culture is. An
organisation is said to have a strong culture when the more observable cultural elements project a
single consistent message. In such organisations, managers and employees share a common
behavioural style. They use the same basic approach to solve problems, meet goals and deal with
important customers, suppliers and other stakeholders. They share common norms that guide how
they relate to one another. Results are measured the same way throughout the organisation. In
addition, a common set of rules governs the use of rewards and punishments.35 In other words, a
strong organisational culture results in predictable, well-specified behaviour patterns.
A strong organisational culture does not just happen. It is cultivated by management, learnt
and reinforced by employees, and passed on to new employees. Over time, it can change, though
not easily. This uniformity does not mean that a culture can simply be written into a handbook for
new employees and learnt by reading it, or even that employees can fully explain the culture. The
underlying shared assumptions and values may be unstated, and the organisation’s members may
have trouble consciously verbalising some of them.36
 The extent to which a particular culture is dominant within an organisation can differ from
organisation to organsiation. From an organisational culture point of view, it is possible to
distinguish between multicultural, monolithic and pluralistic organisations.
A multicultural organisation is defined as having a culture representing the full mix of
cultures found in the population at large, along with a commitment to utilise these human
resources fully. In multicultural organisations, the organisational culture reflects a blending of
many cultures and subcultures, with no one culture dominating the others. As a result, a new type
of culture emerges from this combination. Such an organisational culture is in sharp contrast to
monolithic and pluralistic organisations.
Monolithic organisations are dominated by a single majority culture or subculture (strong
culture). Members of other cultures or subcultures are expected to adopt the norms and values of
the majority.
Compared to monolithic organisations, pluralistic organisations are more mixed in their
cultural composition. The norms are still those of a dominant culture or subculture, which
members of the organisation are expected to follow, but members from other cultural backgrounds
fill a variety of jobs at all levels in the organisation. Cultural differences are accepted as part of
the work environment, and each subculture attempts to maintain its own set of norms and values.
That is, the subcultures are not fully blended, as in a multicultural organisation. Many pluralistic
organisations are located in large urban centres, such as Cape Town and Johannesburg, where
small and medium-sized high-tech enterprises and management consultants hire immigrants to fill
approximately one-third of their technical jobs. A management consulting and professional
service organisation such as Accenture is a typical example, employing approximately 384 000
people globally, serving clients in more than 120 countries with offices in 55 countries and 200
cities. In South Africa, it employs almost 2 000 executives who are able to interact and learn from
each other through a knowledge exchange in an electronic knowledge-sharing system.37
Many South African organisations are in the process of transforming themselves from
monolithic organisations to pluralistic organisations or from pluralistic organisations to
multicultural organisations. Fundamentally, these transformations involve changing the
organisational culture to be more accepting of other cultures and diversity. The specific approach
that an organisation uses to transform its culture depends on the organisation’s goals.

10.5 Types of organisational culture

In Figure 10.3 we indicated that the cultural elements and their relationships create a pattern that
is a distinctive part of an organisation resulting in types of cultures emerging in an organisation,
just as a personality is unique to an individual. As with a classification of individuals that share
some common characteristics, several general types of organisational cultures can be identified
such as those shown in Table 10.2.
As can be seen in Table 10.2, there are many classifications of organisational culture. Despite
the many classifications that exist, they all share certain commonalities. For this reason, not all the
classifications of corporate culture will be discussed in detail. Of the many frameworks that have
been proposed in Table 10.2, one is presented in Figure 10.4.
In Figure 10.4, the vertical axis reflects the relative formal organisational control orientation
(controlled or open systems), ranging from a stable controlled system (predictability, efficiency
and stability) to a flexible open system (risk taking behaviour and creativity). The horizontal axis
reflects the relative focus of attention of the organisation, ranging from focusing on the internal
functioning (responsibilities and authority of employees) of the organisation as opposed to
focusing on the external functioning such as market share, sales growth and response to the
external environment. We provide a more detailed explanation in Sections 10.5.1 to 10.5.4. The
extreme corners of the four quadrants represent four pure types of organisational culture:
• Bureaucratic culture
• Clan culture
• Entrepreneurial culture
• Market culture.38

Table 10.2 Classifications of organisational culture

Source: Author’s own construction, based on the following: MILES, R.E. & SNOW, C.C. 1978.
Organizational strategy, structure and process. New York: McGraw-Hill Book Co; DEAL, T.E. &
KENNEDY, A.A. 1982. Corporate culture: The rites and rituals of corporate life. Harmondsworth: Penguin
Books; HARRISON, R. 1993. Diagnosing organizational culture – trainer’s manual. San Diego: Pfeiffer &
Company; ROWE, A.J., MASON, R.O., DICKEL, K.E., MANN, R.B. & MOCKLER, R.J. 1994. Strategic
management – a methodological approach. (4th ed.). Reading, Mass.: Addison-Wesley Publishing
Company; HELLRIEGEL, D., JACKSON, S.E., SLOCUM, J., STAUDE, G., AMOS, T., KLOPPER, H.B.,
LOUW, L. & OOSTHUIZEN, T. 2004. Management: Second South African edition. Cape Town: Oxford
University Press Southern Africa.
Figure 10.4 Framework of types of organisational culture

In a culturally homogeneous organisation, such as a monolithic organisation, one of these basic

types of culture will be predominant. In a culturally fragmented organisation, such as a pluralistic
organisation, multiple cultures are not only likely to exist, but each will probably also compete for
superiority.
As is true of organisational designs, different organisational cultures may be appropriate under
different conditions, with no one type of culture being ideal for every situation. However, some
employees may prefer one culture to another. As you read about each type of culture, consider
which best fits your preferences. Employees who work in organisations with cultures that fit their
views of ideal cultures tend to be committed to their organisations and optimistic about their
futures.39
Each of the types of organisational culture identified in Figure 10.4 will be discussed further in
the following sub-sections.

10.5.1Bureaucratic culture
An organisation that values formalisation, rules, standard operating procedures and hierarchical
co-ordination has a bureaucratic culture. You will remember from Chapter 3 that the long-term
concerns of a bureaucracy are predictability, efficiency and stability. Its members value
standardised goods and customer service very highly. Behavioural norms support formality over
informality.40Managers view their roles as being good co-ordinators and organisers as well as
enforcers of written rules and standards. Tasks, responsibilities and authority for all employees are
clearly defined. The many rules and processes are spelt out in thick manuals, and employees
believe that their duty is to ‘go by the book’ and follow legalistic procedures.
Most municipalities and government institutions have bureaucratic cultures, which can impede
their effectiveness because following procedures and set processes could slow down the decision-
making and actions taken. Detailed personnel manuals clearly delineate the rules for hiring and
dismissing personnel.
At times, it is important that the business practices of an organisation comply with set
standards such as those of the International Organisation for Standardisation (ISO). The ISO is the
world’s largest developer and publisher of international standards that prescribe how certain
things should be done. For example, ISO standards act as guidelines for good management and
leadership practice. They prescribe how organisations should manage their processes or activities
so that their products or services meet the objectives they have set for themselves, such as
satisfying the customer’s quality requirements, complying with regulations or meeting
environmental objectives.41

10.5.2Clan culture
As highlighted at the beginning of this chapter, Semler and his team were able to establish
typical attributes associated with a clan culture. Tradition, loyalty, personal commitment,
extensive socialisation, teamwork, self-management and social influence are attributes of a clan
culture. Its members recognise an obligation beyond the simple exchange of labour for a salary.
They understand that contributions to the organisation (in other words, hours worked per week)
may exceed any contractual agreements. The individual’s long-term commitment to the
organisation (loyalty) is exchanged for the organisation’s long-term commitment to the individual
(security).
The clan culture achieves unity with a long and thorough socialisation process. Long-time clan
members serve as mentors and role models for newer members. These relationships perpetuate the
organisation’s values and norms over successive generations of employees. The clan is aware of
its unique history, and often documents its origins and celebrates its traditions in various rites.
Members have a shared image of the organisation’s style and manner of conduct. Public
statements reinforce the organisation’s values.
In a clan culture, members share feelings of pride in membership. They have a strong sense of
identification and recognise their interdependence. The up-through-the-ranks career pattern results
in an extensive network of colleagues whose paths have crossed and who have shared similar
experiences. Shared goals, perceptions and behavioural tendencies foster communication, co-
ordination and integration. A clan culture generates feelings of personal ownership of a business,
product or ideas. In addition, peer pressure to adhere to important norms is strong. The richness of
the culture creates an environment in which few areas are left totally free from normative
pressures. Depending on the types of norms, the culture may or may not generate risk-taking
behaviour or innovation. Success is assumed to depend substantially on sensitivity to customers
and concern for people. Team work, participation and consensual decision-making are believed to
lead to this success. Many traditional Japanese organisations also have a clan culture.
Our South African Insight, The Mr Price Group Limited, has a strong clan culture with an
emphasis on loyalty, personal commitment, extensive socialisation, teamwork, self-management
and social influence. Consider the following statement from the opening case study: “We have a
dream for this company. If we achieve this dream it will dramatically improve the incomes,
lifestyles and happiness of our associates and their families. Our dream is to see every individual
in this company achieving their full potential and every passionate employee to perform at their
best in a happy fun-filled workplace.”

10.5.3Entrepreneurial culture
High levels of risk-taking, dynamism and creativity characterise an entrepreneurial culture.
There is a commitment to experimentation and innovation, and a sense of being at the cutting
edge. This culture does not just react quickly to changes in the environment. Rather, it creates
change. Effectiveness means providing new and unique products and rapid growth. Individual
initiative, flexibility and freedom foster growth, and are encouraged and well rewarded.
Entrepreneurial cultures are usually associated with organisations such as Massmart and
Discovery Health. Adrian Gore, the founder of Discovery Health, is still involved in the business.
Organisations such as FirstRand, 3M, and Liberty Life have managed to keep their entrepreneurial
cultures, even though the founders of these businesses are no longer directly involved.
FirstRand, a financial services group consisting of First National Bank, Momentum,
OUTsurance, Rand Merchant Bank and WesBank, is distinguished by its entrepreneurial culture.
This culture, which was instilled by its founders, is maintained by the professional management
team. The entrepreneurial culture is passed down from one generation to the next and all new
members of staff are inducted into this organisational culture. Despite the recent financial crisis
and questions from its stakeholders about its entrepreneurial and innovative culture, one of the
pillars of FirstRand’s philosophy is to “talk about traditional values and innovative ideas”, which
empowers employees and provides a platform for lateral thinking. Employees are incentivised to
be innovative and to put forward their ideas. The organisation was voted one of the most
innovative retail and commercial banks in South Africa after having established itself as a leader
in pioneering areas such as cellphone banking.42

10.5.4Market culture
The achievement of measurable and demanding goals, especially those that are finance and
market-based (for example, sales growth, profitability and market share) characterise a market
culture. Hard-driving competitiveness and a profit orientation prevail throughout the organisation.
The MTN Group, Clicks Group Limited, Sun International, and McDonald’s are examples of
organisations that have created predominant market cultures.
In a market culture, the relationship between individual and organisation is contractual. That
is, the obligations of each party are agreed on in advance. In this sense, the formal control
orientation is quite stable. The individual is responsible for some level of performance and the
organisation promises a specified level of rewards in return. Increased levels of performance are
exchanged for increased rewards, as outlined in an agreed schedule. Neither party recognises the
right of the other to demand more than was originally specified. The organisation does not
promise (or imply) security; the individual does not promise (or imply) loyalty. The contract,
renewed annually if each party performs its obligations adequately, is utilitarian because each
party uses the other to further its own goals. Rather than promoting a feeling of membership in a
social system, the market culture values independence and individuality. It encourages members
to pursue their own financial goals and, in so doing, to help the organisation itself. The
salesperson who increases his or her sales will make more money and the organisation will earn
more profits as a result of the salesperson’s greater sales volume.
The market culture does not exert much informal, social pressure on an organisation’s
members. They do not share a common set of expectations regarding management style or
philosophy. Superiors’ interactions with subordinates largely consist of negotiating performance
–reward agreements and/or evaluating requests for resource allocations. Superiors are not formally
judged on their effectiveness as role models or mentors. The absence of a long-term commitment
by both parties results in a weak socialisation process. Social relations among co-workers are not
officially emphasised and few economic incentives are tied directly to co-operating with peers.
Managers are expected to co-operate with managers in other departments only to the extent
needed to achieve their performance goals. As a result, they may not develop an extensive
network of colleagues within the organisation. The market culture is often tied to monthly,
quarterly and annual performance goals based on profits.

10.5.5Organisational implications
Organisational culture has the potential to enhance organisational performance, individual
satisfaction, the sense of certainty about how problems are to be handled and so on. However, if
the organisational culture gets out of step with the changing expectations of external stakeholders,
it can hinder effectiveness.43
The need to determine which attributes of an organisation’s culture should be preserved and
which should be modified is constant. For example: “MTN Group faced the risk of being
victimised by its own success. After a rapid growth period the mobile operator had a well-
established subscriber footprint. But a variety of traditional and new digital services competitors
noticed the opportunity and began moving in, trying to push prices down. The external
environmental pressures and internal drivers of change demanded new skills and competencies
from all of MTN’s operations and employees. But a few executive pronouncements or training
rollouts wouldn’t create the top-to-bottom behavioural change that executives knew was necessary
to remain competitive. The entire organisational culture needed to change.” 44

In the 2000s, organisations continue to be pressurised to scrutinise their cultures owing to

rapid globalisation and the need for new business models that are effective in a variety of
countries. This continuous adaptation to change has forced organisations to become innovative
and to establish a learning culture, which will be discussed in more detail in Chapter 14. The
ability of management to understand, assess and blend together different organisations’ cultures
during mergers is continually under the spotlight. Research indicates that they have often failed to
merge cultures successfully.
The South African workforce is continuously changing demographically, becoming more
diverse. More and more employees have begun to feel that organisational cultures established
decades ago are out of step with contemporary values. We address the challenge of adjusting
established organisational cultures to meet the expectations of a demographically diverse
workforce in the remainder of this chapter.

10.6 Managing workforce diversity

The composition of the South African workforce has changed dramatically. Many of the changes
are summarised by the term workforce diversity. Workforce diversity refers to the mix of people
from various backgrounds in the labour force. Two important aspects of workforce diversity are:
• Demographic diversity
• Cultural diversity.

In large organisations, different staff may be responsible for initiatives related to managing these
two types of diversity. However, most managers do not make a sharp distinction between them.

10.6.1Demographic and cultural diversity

Characteristics such as age, sex, race and national origin are typically referred to as demographics.
Demographic diversity reflects the degree of mix of characteristics of the people who make up
an organisation’s workforce. In our South Africa Insight, Mr Price Group Limited, we see that the
board is sensitive to demographic diversity when appointing new board members: “The Board
appreciates the need for gender and ethnicity diversity and will give consideration to these
demographic criteria.”45
The Central Statistical Service of South Africa regularly issues reports that document the
demographic characteristics of the South African workforce - http://www.statssa.gov.za/
Most organisations also keep track of the demographic characteristics of their employees. In
South Africa numerous laws and regulations, which will be referred to in the section on legal
compliance, guide the reforms to ensure that all individuals have equal employment opportunities.
Because of the legal issues associated with demographic diversity, many organisations now
consider compliance with laws and regulations to be distinct from the effective management of
cultural diversity.
An organisation’s cultural diversity refers to the full mix of the cultures and subcultures to
which members of the workforce belong. Subcultures with which employees may identify include
those described earlier in this chapter (such as occupational and regional characteristics). Also
included, however, are subcultures associated with demographic characteristics. Employees within
each generation (or even each age group) tend to share a subculture that is distinct from the
subcultures of other generations. In addition, subcultures based on religion, marital and family
status, sexual orientation and other unifying life experiences are typically included in the meaning
of cultural diversity. Exxaro CEO since 2016, Mxolisi Mgojo, who has officially taken over the
reins from Sipho Nkosi, previous CEO of Exxaro Resources Limited, manages one of the largest
black-controlled diversified mining companies in South Africa. One of the highlights of Exxaro is
the organisation’s culture of accountability and transparency, which is driven by its Board of
Directors in terms of governance, risk and empowerment. Exxaro deserves recognition for its
empowerment and diversity. At executive level, 50% of the management team is from previously
disadvantaged groups. Furthermore, preferential procurement targets have been exceeded. The
organisation is also proud of its gender empowerment record, with 18% female ownership.46
The Coca-Cola Company’s global diversity mission aims to reflect the diversity of each
marketplace they serve. They take a leading role in establishing diversity, ensuring inclusion and
fairness in all aspects of their business. Diversity is optimally managed in the Coca-Cola and
associates marketplace (customers and product offerings), through their suppliers, and within the
communities they operate.47

10.6.2Organisational goals for managing workforce diversity

We have noted that legal compliance with non-discriminatory laws is one reason that
organisations are concerned about managing cultural diversity. Human resources management
systems, designed to promote the goal of equal employment, communicate an organisation’s
commitment to treating employees fairly and have improved the employment status of protected
groups.48 Although many laws and regulations address demographic diversity, few address cultural
diversity. Increasingly, however, concerns about cultural diversity reflect recognition of the
potential benefits of diversity for improved organisational performance.49 CEOs who embrace a
culture of diversity may reap the following benefits because employees appreciate their diversity
being valued:
• Reduced recruitment cost as staff turnover decreases
• An increase in business opportunities
• Increased innovations from employees as they embrace diverse ideas
• Improved employee satisfaction and productivity
• Retention of talented employees
• The organisation has a competitive edge over its competitors.50

Strategies for managing workforce diversity include legal compliance, creating a positive culture
and creating economic value. We will explain how each of these strategies enhances
organisational performance in the next section.

10.6.2.1 Legal compliance

Legal compliance concerns an organisation’s compliance with laws and regulations that prohibit
discrimination. Since 1994, the democratic government of South Africa has initiated various
reforms and actions intended to address the injustices of the past. Some of the reforms and actions
aim to ensure equal employment opportunities, especially for previously disadvantaged groups,
including Asians, women and disabled people. The following legislation has been introduced to
facilitate the process of reform:
• The Labour Relations Act, No. 66 of 1995 (as amended). The purpose of this Act is to advance
economic development, social justice, labour, peace and the democratisation of the workplace.
• The Constitution of the Republic of South Africa Act, No. 108 of 1996. The Bill of Rights
(Chapter Two) of the Constitution is important since it guarantees fundamental rights for all.
• The Basic Conditions of Employment Act, No. 75 of 1997 (as amended). The main purpose of
this Act is to prescribe the minimum conditions of employment that an employer must provide
for employees.
• The Employment Equity Act, No. 55 of 1998 (as amended). This Act aims to achieve equity in
the workplace by promoting equal opportunities and fair treatment in employment through the
elimination of unfair discrimination and by implementing affirmative action measures to
redress the inequalities in employment.
• The Promotion of Equality and Prevention of Unfair Discrimination Act, No. 4 of 2000. The
main aim of this Act is the prevention, prohibition and elimination of unfair discrimination,
hate speech and harassment.51

The basic premise of such laws and regulations is that employment decisions reflect the
demographics of the country. To monitor their progress, employers generally assess various
employment numbers and ratios.52 At some organisations, these measures include female and
equity hiring numbers, offer/acceptance ratios, turnover and retention rates, promotion patterns,
downsizing decisions and compensation levels.
Of course, simply monitoring numbers is not sufficient to ensure legal compliance. Afrox
holds the view that, to sustain its business performance into the future, the profile of the
organisation’s employees at all levels should eventually reflect the demographics of the country.
Employment equity and affirmative action are viewed as business imperatives, guided by
legislation. The organisation is committed to support the South African government’s policy on
B-BBEE, with the identification and development of talented previously disadvantaged
individuals, and, ultimately, ensuring that Afrox’s management levels are representative of the
South African population. Various programmes are in place to select and develop individual’s
skills and job competencies to ensure that the organisation sustains its Level 3 B-BBEE rating.53

10.6.2.2 Creating a positive culture

By analysing various employment statistics, an organisation can determine whether people from
different backgrounds are being given job opportunities that match their capabilities. Research
indicates that as the number of employees who share a subculture increases, its members
experience fewer problems and less negative stereotyping.54 Nevertheless, managers should not
fall into the trap of using records kept to monitor legal compliance as a basis for drawing
conclusions about how employees are matched to jobs or how they feel about their work
situations.
A positive organisational culture is one in which everyone feels equally integrated into the
larger system as would be the case in a multicultural organisation. Members of majority and
minority subcultures feel respected, everyone has an equal chance to express his or her views and
influence decisions, and everyone has similar access to both formal and informal networks within
the organisation. Microsoft has a positive culture in terms of diversity. The management
philosophy at Microsoft can be described as follows: “You are ultimately judged on your ability to
articulate leadership and do a really great job in what you do. And that is irrespective of whoever
you are.”55
Marriott International Hotels, owners of Protea Hotels in South Africa, has a policy aimed at
guaranteeing fair treatment of all employees. The hotel’s employees come from many different
countries, speak many languages, and represent many different religious and ethnic backgrounds.
At Marriott, cultural diversity and inclusivity among employees is beneficial for customers. For,
example, multi-lingual employees make it easier for hotel and restaurant guests to communicate in
a language other than English. Programmes such as “Be You, With Us” or “For You, We’re
Marriott” are their commitment to welcoming guests, engaging with diverse customer groups, and
creating inclusive guest experiences. 56
The most common methods used to assess organisational culture are employee surveys and
focus groups. Questionnaires may be used to ask employees about the following issues, either
individually or in focus group discussions:
• Whether they feel valued and whether they feel that everyone is equally valued
• The degree of respect, sensitivity and fairness managers show towards employees from
different subcultures
• How they feel about their future career opportunities.

In addition to asking employees about the organisational culture directly, some organisations
conduct cultural audits to evaluate the language used in organisational documents and advertising,
the visible symbols that decorate public spaces, the types of awards given to employees, the types
and quality of food available in the organisation’s cafeteria, policies regarding applying for sick
leave or holiday, and the types of social activity sponsored by the organisation, among other
items. Cultural audits often reveal that the organisational culture reflects the values and
preferences of some subcultures, while ignoring those of others. When such discrepancies are
found, simple changes can often be made to create a more positive culture.

10.6.2.3 Creating economic value

A third reason that organisations are striving to manage diversity effectively is that they believe
that they can use it to create greater economic value.57 With a diverse workforce and positive
organisational culture in place, many managers believe their organisations will be able to:
• Develop products and services for new markets
• Attract a broader range of customers
• Improve customer satisfaction and increase business from repeat customers
• Reduce costs, including those associated with litigation.

To date, little research is publicly available to document the economic benefits of a culturally
diverse and positive organisational culture. However, some enterprises use proprietary
information to establish the economic benefits of diversity. Others simply believe that there is a
link and do not require research evidence to support their views.
Vodacom developed the popular ‘please call me’ concept in November 2000 for cellphone
users who did not have air time to request a person to phone them, based on the invention
proposed by an employee, Kenneth Nkosana Makate. This unique feature acknowledges the
diversity of South African society allowing a vast opportunity to keep people connected.58 Mr
Makate took Vodacom to court, claiming that the ‘please call me’ message service was originally
his invention and demanded compensation. Eight years later Mr Makate won his case in the
Constitutional Court.
For organisations with diverse workforces in place, the challenges of creating a positive
organisational culture and using diversity to create economic value are substantial. Most people
are simply more at ease interacting with people who are similar to themselves in various ways.
Communication seems easier, and misunderstandings, perceptions of unfair treatment and conflict
seem to occur less often. For employees who live and socialise mostly with people who have
similar cultural backgrounds, working in a culturally diverse organisation may be uncomfortable,
especially if they do not have well-developed communication, teamwork and self-management
competencies. As many employers are learning, however, they can manage cultural diversity in
ways that enable all employees to feel comfortable and to use their talents to the fullest.
As is true for many other managerial responsibilities, managing cultural diversity effectively is
a continuing process, not a one-time programme or short-term fad. Organisations that succeed in
managing diversity do so because top management is committed to achieving legal compliance,
instituting a positive organisational culture and using diversity to create economic value. Such
managers recognise that significant organisational changes may be needed to achieve these goals
and they are willing to commit resources to making such changes. Investment of time, money and
people is necessary to complete any type of large-scale organisational change.

Perhaps the biggest challenge to managers, however, is the fact that cultural diversity can
have many organisational consequences. On the one hand, diversity can enhance a team’s ability
to solve problems creatively. On the other hand, the price of such creativity may be heightened
conflict within the team. Similarly, changing the mix of men and women in a team or department
towards a 50–50 split may improve the attitudes of the women involved, while irritating the men.
Managers should not expect diversity-related initiatives to affect members of the organisation in
uniformly positive ways. They should be prepared to weigh carefully which costs they are willing
to incur in order to achieve other gains.59
Complete the diversity knowledge quiz that follows to assess how much you know about
diversity.

Diversity knowledge quiz

Instructions
Indicate whether each of the eight statements that follow is true or false.
1. Joy and fear are feelings that can be accurately recognised from facial expressions, regardless of which
cultures people are from.
2. A person who is older than 65 and lives in one of the world’s developing regions is three times more
likely to be working than a person of that age who lives in a developed region.
3. Worldwide, about 50% of women between the ages of fifteen and 64 are in the labour force.
4. Most people could count on their fingers the number of female and minority CEOs they could name
who head one of the top 100 organisations in South Africa.
5. Compared to other employees, people with disabilities have better safety records on the job.
6. Mental speed slows down slightly but steadily from about age 30, but performance of many complex
mental tasks continues to improve steadily as people age.
7. Almost all of the top 100 organisations in South Africa indicate that they are implementing initiatives
to manage diversity.
8. The proportion of organisations with at least one woman director is greater among the Top 20
companies on the Johannesburg Stock Exchange (JSE) than among companies ranked 21 to 50.

You will find the answers after question 5 of the Questions for discussion below.
Source: Adapted from HELLRIEGEL, D., JACKSON, S.E. & SLOCUM, J.W. 2002. Management: A competency-
based approach. Cincinnati, Ohio: South-Western Thomson Learning, p. 506. © 2002. Don Hellreigel, Susan E.
Jackson,and John W. Slocum, Jr. All rights reserved. Used with permission of the authors.

Chapter summary
A culture is the unique pattern of shared assumptions, values and norms that shape the
socialisation activities, language, symbols, rites and ceremonies of a group of people. The concept
of culture ranges from non-observable elements (basic assumptions) to observable elements
(manifest culture). Norms, values and assumptions form the basis of culture and guide people’s
thoughts and actions, but cannot be observed. Culture can only be inferred from the manifest
element: its socialisation activities, symbols, language, narratives and practices. The expressed-
values level represents how people in the culture explain the manifest level. In other words, it is
the culture’s own explanation of itself. The expressed-values level provides additional insight into
a culture beyond the manifest level, but some aspects remain unclear, while the manifest culture
contains easily observable elements such as behaviours, language, music, food and technology.
Three levels of culture can be identified as most important to managing organisations: societal
culture, industry culture and organisational culture.
There are four types of organisational culture: bureaucratic, clan, entrepreneurial and market
cultures. An organisation that values formalisation, rules, standard operating procedures and
hierarchical co-ordination has a bureaucratic culture. Tradition, loyalty, personal commitment,
extensive socialisation, teamwork, self-management and social influence are attributes of a clan
culture. High levels of risk-taking, dynamism and creativity characterise an entrepreneurial
culture. The achievement of measurable and demanding goals, especially those that are finance
and market based (for example, sales growth, profitability and market share), characterise a
market culture. Organisational culture has the potential to enhance organisational performance,
individual satisfaction, the sense of certainty about how problems are to be handled and so on.
However, if the organisational culture gets out of step with the changing expectations of external
stakeholders, it can hinder effectiveness.
Workforce diversity refers to the mix of people from various backgrounds in the labour force.
Two important aspects of workforce diversity are demographic diversity and cultural diversity.
Demographic diversity reflects the degree of mixed characteristics of the people who make up an
organisation’s workforce, while cultural diversity refers to the full mix of the cultures and
subcultures to which members of the workforce belong. As is true for many other managerial
responsibilities, managing cultural diversity effectively is a continuing process, not a one-time
programme or short-term fad. Organisations that succeed in managing diversity do so because top
management is committed to achieving legal compliance, instituting a positive organisational
culture and using diversity to create economic value. Such managers recognise that significant
organisational changes may be needed to achieve these goals and they are willing to commit
resources to making such changes. An investment of time, money and people is necessary to
complete any type of large-scale organisational change.

Questions for discussion

1. Define the concept of culture, and differentiate between the non-observable and observable
elements of culture.
2. Identify and discuss the levels of culture and subculture that are important in managing
organisations.
3. Compare and contrast the types of organisational culture with supporting examples.
4. Explain the meaning of workforce diversity.
5. Evaluate how the organisational strategies for managing diversity can contribute towards
improved organisational performance.
Answers to the Diversity knowledge quiz:
All the statements in the quiz on page 326–327 are true.

Exercise for competency development

After the merger of SABMiller with Anheuser-Busch InBev, you have been appointed to a task force to
make suggestions for diversity initiatives in the new organisation. Visit SABMiller’s website at
www.sabmiller.comto learn what they are currently doing in this regard. What would you add to its
current efforts? Be sure to state the goals to be met by the initiatives you recommend adding.
Also advise management at SABMiller on how cultural diversity could benefit them. To assist you in
giving your advice, view the training programme entitled ‘Cultural Diversity in the Workplace’,
available athttp://www.youtube.com/watch?v=bChZfFG5RqA

Contemporary management in practice

View the interview with members of the Mr Price Foundation at https://www.youtube.com/watch?
v=8cO_bFB5lA8
Comment on the following issues after viewing the video clip:
• Observable elements of their organisational culture
• Non-observable elements of culture
• Diversity management
• Creating opportunity through diversity
• The influence of different levels of culture.

Based on your comments of the previous issues, identify two main types of organisational culture that
best describe the Mr Price Group. Briefly outline the reasons for choosing these two types of
organisational culture.

Endnotes
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|
LEARNING OUTCOMES
After studying this chapter, you should be able to:
• Advise on the effective leadership of people in organisations
• Explain how a manager could use various types of power to influence others
• Identify and discuss the characteristics of effective leaders
• Discuss and analyse the behaviour of effective leaders
• Advise on the role of emotional intelligence in effective leadership
• Argue for ethical leadership
• Advise on the behaviour of effective leaders
• Identify and explain the situational factors and followers’ characteristics that need to be considered by
leaders
• Explain the unique behaviours of transformational leaders and their impact on followers
• Advise on the development of effective leaders
• Understand your own leadership behaviour or actions.

CHAPTER OUTLINE
• South African Insight: Leadership at Mercedes-Benz South Africa, East London
• Introduction to leadership in business
• Understanding leadership
» Leadership as a function of power
» Using power effectively
• Traits models
» Emotional Intelligence
» Ethical leadership
• Behavioural models
» Theory X and Theory Y
» Ohio State University and University of Michigan models
» Managerial grid model
» Summary
• Contingency models
» Fiedler’s contingency model
» Hersey and Blanchard’s situational leadership model
» House’s path–goal model
» Leader-participation model
» Comparing contingency models
• Transformational and charismatic leadership
» Vision
» Framing
» Impression management
• Leadership development
» Learning on the job
» Formal assessment and training
» Coaching and mentoring
» Developing leaders for global organizations

Key terms and concepts

• Leadership
• Legitimate power
• Reward power
• Coercive power
• Referent power
• Expert power
• Traits
• Traits models
• Emotional intelligence
• Ethical leadership
• Behavioural models
• Theory X and Theory Y
• Theory X
• Theory Y
• Considerate leadership style
• Initiating-structure leadership style
• Production-centred leadership style
• Employee-centred leadership style
• Managerial grid model
• Impoverished style (1,1)
• Country-club style (1,9)
• Produce-or-perish style (9,1)
• Middle-of-the-road style (5,5)
• Team style (9,9)
• Contingent
• Contingency models
• Fiedler’s contingency model
• Least-preferred co-worker (LPC)
• Relationship-orientated leader
• Task-orientated leader
• Leader-member relations
• Task structure
• Leader position power
• Hersey and Blanchard’s situational leadership model
• Directive behaviour
• Supportive behaviour
• Readiness
• House’s path-goal model
• Achievement-oriented leadership
• Directive leadership
• Participative leadership
• Supportive leadership
• Leader-participation model
• Transformational leadership
• Framing
• Impression management
• Mentors
COMPETENCY WHY IS THIS COMPETENCY EXAMPLE
IMPORTANT IN RELATION TO
LEADING?

Communication The ability to communicate both in • Communicating a vision

written and verbal format is • Writing a report or
important for leaders as it is through memorandum
communication that leaders • Preparing and presenting a
influence. What is said and how it is slideshow on a business topic
said using what medium or channel • Verbal communication with
of communication is important in staff, including listening to
leading people. Open, two-way others
communication is critical to • Negotiating with unions over
successful leadership. conditions of service
• Influencing staff through verbal
and written communication
• Ensuring appropriate
communication channels within
an organisation
• Signage in an organisation
relating to safety, for example
• Giving and receiving feedback
• Communicate the importance of
ethics and listen to staff.

Planning Leaders need to have a clear vision, • Gather/have access to relevant

andfinancialmanagement goals and objectives. They need to data
gather information, work with it and • Make sense of and interpret data
solve problems. Basic administration • Interpreting market research and
systems, policies and procedures using it to make decisions on
such as financial systems and managing a brand
disciplinary codes and procedures • Ensuring on-time delivery of
need to be in place to ensure product
effective and efficient administration • Ensure required record keeping.
that also complies with relevant
regulations.

Teamwork Leaders need to work with • Choosing a group of

collectives of people, developing multidisciplinary individuals
them into teams which perform as a and moulding them into a team
result of synergy. To do this they to solve problems or to design a
then need to understand and new product.
influence team dynamics and • Research done at Google
provide a supportive environment. initially aimed to test whether
managers really do matter.
Results proved that managers do
matter: “teams with great
managers were happier and
more productive.” These
managers at Google fulfilled
various managerial and
leadership roles such as:1
» being a good coach
»
 empowering the team (do
not micromanage)
» having important technical
skills to advise the team.
• Teams where psychological
safety (the ability to take risks in
a team without feeling insecure
or embarrassed) was established
by the leader, indicating it was
paramount for team
2
performance.

Strategic action Leaders provide strategic direction • Providing direction and

based on their understanding of the formulating strategies based on
organisation and the industry it understanding the organisation
operates in. They align people and and its environment
goals. Systems thinking is required. • Balancing stakeholder interest
Leaders also need to provide • Focusing on the bigger picture.
guidance on ethical conduct within
organisations.

Global awareness Global awareness is important as • Knowing how to behave in a

leaders need to understand the different culture
potential influence of the global • Understand the influence of
environment and be able to operate global trends on an organisation.
effectively in different cultures.
Leaders need to be sensitive to ethics
in different contexts and cultures and
ensure that they comply.

Emotional intelligence This is critical as identifying, • Managing one’s anger

understanding and being able to appropriately with an employee
work with one’s own emotions, as who yet again has arrived late
well as the emotions of others to • Showing empathy for an
achieve desirable outcomes, is even employee’s personal
more important than technical skills circumstances
and cognitive ability. • Self-awareness and role model
ethical conduct
• Reward ethical conduct, and
discipline conduct contrary to
standards or values.

Leadership at Mercedes-Benz South Africa, East London

“Out of Africa, for the world.” This is the essence of Mercedes-Benz South Africa’s (MBSA) East London
Plant. The manufacturing plant, a wholly owned subsidiary of German parent company Daimler AG, has
consistently produced excellent quality passenger cars and commercial vehicles since the original
company opened its doors 65 years ago. In 2015, the plant’s passenger car assembly line, producing the
new C-Class model, was set to reach a new record of more than 100 000 vehicles, most of them for the
right- and left-hand export markets.
Mercedes-Benz South Africa is driven by the values of Passion, Respect, Discipline and Integrity, and
it is these values within the organisation that are the cornerstone of the East London plant’s achievements.
The plant has been awarded six consecutive JD Power Awards for best quality products from 2009 when it
exported the previous generation C-Class vehicles to the USA.
Part of the success at Mercedes-Benz South Africa’s East London plant has been the appointment of
Mr Arno van der Merwe, the first South African CEO of the company in its current guise as wholly-owned
subsidiary of Daimler AG. His people-oriented leadership style was acknowledged by the outgoing CEO,
Dr Martin Zimmermann, who had the following to say about Van der Merwe: “…his experience, passion,
dedication and people-oriented leadership style will allow MBSA to continue its drive to becoming the
undisputed leader in all segments where it competes, as well as to remain a passionate contributor to the
socio-economic development and transformation in South Africa.”
Indeed it is this passion and people-oriented leadership style that Van der Merwe and the East London
Plant Leadership Team want to see lived at all levels within the organisation. To this end, Mercedes-Benz
South Africa has partnered with the Daimler Corporate Academy, responsible for Daimler’s leadership
development initiatives, to focus on ‘Strengthening Leadership’ within the plant. Van der Merwe and his
team believe that in order to sustain the plant for the future and to continue to be a good transformative
corporate citizen, the continuous development of the Plant Leadership Team is vital.
In collaboration with the Daimler Corporate Academy, the East London Plant Leadership has defined a
‘Leadership Compact’, which encapsulates the approach of the Plant Leadership Team in leading its
people.
The attributes of the ‘Leadership Compact’ are explicitly outlined to be:
Accountable
We will hold ourselves, and our people and each other accountable to uphold the company values and
leadership behaviours expected of us.
Proactive
We continuously utilise knowledge and experience to anticipate future demands and challenges. We
demonstrate this by motivating and empowering our people to think and act innovatively and take
responsibility.
Strategically aligned and united
As a leadership team, we think strategically and see the common ‘big picture’. We aim for everyone to
understand and commit to his /her contribution to achieve the desired outcome.
Adaptable and forward-thinking
We are able to identify opportunities and challenges in order to influence our environment to be
benchmarked (sic). In this way, we are not afraid to challenge the norm and embrace change.
Process focused
Our unrelenting commitment to process adherence ensures reputability and reliability of our products and
services. We continuously review our processes to improve efficiency.
Trust each other and our people
We must be unwavering in our dealings with each other, be transparent, honest and never scared to show
our vulnerability.
Effective communication
As leaders, we are accountable for appropriate and meaningful communication and responsible for
translating messages that are clearly understood by all our employees.
Develops people
We create an environment to have regular dialogue with our people, to manage expectations and support
their development. We build people to build cars!
Independent, autonomous
We want to establish a culture of independent and autonomous decision making. We trust and respect
every employee on every level.
Source: Pralene Mahabir, Manager, Executive Development & Performance Management, Mercedes-Benz South
Africa. This Insight was written especially for this chapter.
11.1 Introduction to leadership in business
Effective leadership is essential to governments, communities, organisations and life in general.
Leaders can and do make a difference through their behaviour. They disrupt industries, create new
markets, pioneer innovation, create jobs and have a social impact in the environment.3
Nelson Mandela, Mohandas Gandhi, Joan of Arc, Abraham Lincoln, Franklin D. Roosevelt,
John F. Kennedy and Martin Luther King, among others, have transformed entire societies
through their words and by their actions.
Individuals like Steve Jobs (co-founder of Apple), Walt Disney (founder of The Walt Disney
Company), Mark Zuckerberg (founder of Facebook), Henry Ford (founder of Ford Motor
Company), Jeff Bezos (founder of Amazon.com), Estée Lauder (founder of Estée Lauder),
Richard Branson (founder of the Virgin Group), Sam Walton (founder of Wal-Mart), Ray Croc
(founder of McDonalds)4 and others have established and led entire organisations that provide
goods and/or services that make a difference in our lives on a daily basis.
Think also of those leaders in South African business who have made, and continue to make a
difference, not only by establishing business organisations and providing direction in the business
world, but also by transforming organisations from what they were, into what they ought to have
been. Examples of these South African business leaders include Anton Rupert, the founder of the
Rembrandt group, Donald Gordon, the founder of Liberty Life, Jeremy Ord, who developed a
small, private, data-communications consultancy into the massive Dimension Data group, G.T.
Ferreira, Laurie Dippenaar and Pat Goss, who, in 1977, formed a small company called Rand
Consolidated Investments (RCI), which is today known as Rand Merchant Bank,5 and Pieter Cox,
the man credited with ‘pumping up Sasol’s performance’ for his success in globalising what could
be described as a parochial South African oil company into a respected world player.6 Other
examples include Graham Mackay, CEO of SABMiller, who transformed SAB into one of the
world’s largest brewers and shifted the company’s listing to London, Raymond Ackerman who
built up Pick n Pay, Alan Gray, founder of Alan Gray Limited, the largest privately-owned
investment management firm in Southern Africa, Phil Gutsche Sr and Phil Gutsche Jr, whose
visionary leadership and entrepreneurship took the SA Bottling Company (now Coca-Cola Sabco)
from humble beginnings to its current position of anchor bottler for Coca-Cola, and Brian Joffe,
founder of Bidvest Group.

Effective leadership of an organisation requires that a leader clearly understands the

industry as well as the organisation, and takes strategic action as required. The leader also needs to
be able to work with and through people to achieve what needs to be done. This ability not only
depends on who the person is but also on their behaviour, what they do and say. Think of Arno
van der Merwe and what it must require of a person to be able to lead an organisation such as the
MBSA plant in East London.
Leadership is not, however, exclusive to those individual managers such as the Chief
Executive Officers (CEO) or Managing Directors (MDs) leading entire organisations. Leadership
is also critical to the success of managers who are responsible for managing stores (e.g. a Mr Price
store), a supermarket (e.g. Pick n Pay) a franchise (e.g. Steers which is a franchise of Famous
Brands), branches (e.g. a First National Bank branch in your town), an automotive dealership (e.g.
a Mercedes-Benz dealership), a restaurant (e.g. Spur Steak Ranch), a pharmacy (e.g. Dischem) or
a Municipal Manager. Leadership is also important for managers of divisions or departments
within an organisation such as the manager of the Marketing or Human Resources Management
Department or a manager of a team on the assembly line of an automotive assembly plant. Think
also of a Dean or Head of Department within a South African university.
 Ideally, people throughout an organisation should exercise leadership and the best
organisations have effective leaders at all levels. Examples of organisations who acknowledge the
importance of effective leadership at all levels are MBSA (EL) and Pfizer Laboratories. Pfizer
state that they are “… determined to enhance leadership at every level”.7
A CEO would not succeed if he or she were a company’s only leader. Middle managers as
well as machine operators must also lead effectively. Note from the South African Insight MBSA
(EL), that Van der Merwe and the East London Plant Leadership Team want to see passion and a
people-oriented leadership style lived at all levels within the organisation. To this end, recall their
initiative to partner with the Daimler Corporate Academy to strengthen leadership within the plant
in East London where the new C-Class is produced. Note also that Van der Merwe and his team
believe that to sustain the plant for the future and to continue to be a good transformative
corporate citizen, the continuous development of the Plant Leadership Team is vital. This supports
the idea that a CEO is not the only leader but is supported by a leadership team as well as
leadership at all levels within an organisation. What is important though is that the leadership is
appropriate to that organisation and everyone clearly knows and understands the leadership
expected of them. On this point, recall the attributes of the ‘Leadership Compact’ explicitly
outlined by MBSA (EL) which communicates the leadership behaviour regarded as pertinent
within the organisation.
To be able to understand and make the appropriate leadership explicit as done by MBSA (EL),
one needs to be able to have insight and understanding of leadership as a field of study.

11.2 Understanding leadership

To be an effective leader, it is important to understand what leadership is, how one can make a
difference and how to influence others.
There are many definitions of leadership, but very simply leadership involves influencing
others to act willingly towards the attainment of a goal. It is based on interpersonal relationships,
not administrative activities and directives. In everything a leader does though, they need to be
ethical, doing right not only in what they aim to achieve but also in how they do it.
There are a number of theoretical models of leadership which help in developing the insight
and understanding necessary for effective leadership. Key models are outlined in this chapter to
assist in developing this insight and understanding, beginning with a focus on power.

11.2.1Leadership as a function of power

Leadership and power are closely connected. Leaders exercise power in order to influence others.
Effective leaders know how to use power wisely. The types of power used by a leader reveal a
great deal about why others follow that individual leader. One of the most useful frameworks for
understanding the power of leaders was developed by John French and Bertram Raven.8 They
identified five types of power:
• Legitimate power
• Reward power
• Coercive power
• Referent power
• Expert power.

Effective leaders may find it necessary to use all five types of power at different times.
11.2.1.1 Legitimate power
Influence based on the leader’s formal position in the organisation’s hierarchy is legitimate
power. For example, the CEO of an organisation, like Arno van der Merwe of MBSA (EL), has
legitimate power on the mere basis of the fact that they are the CEO of the organisation. Access to
resources, information and key decision-makers give some leaders legitimate power in influencing
events, and passing on information and rewards to subordinates. Such leaders are often said to
have ‘clout’ or political influence within an organisation. By virtue of their formal position they
can make demands and expect individuals to comply and make decisions about individuals.
However, it is worth considering whether legitimate power alone is sufficient to make a difference
in an organisation.

11.2.1.2 Reward power

The influence stemming from a leader’s ability to satisfy followers’ needs is reward power. In
other words, employees act on a leader’s requests and comply in the belief that their behaviours
will be rewarded. The leader may be able to reward them with favourable job assignments,
preferred vacation schedules, promotions and/or salary increases.

11.2.1.3 Coercive power

The ability of a leader to obtain compliance through fear or punishment is coercive power. A
corporal in the military would use coercive power in getting troops to follow orders or to pass
inspection. Punishment may take the form of official reprimands, less-desirable work assignments,
pay cuts, demotions, suspensions or even termination.9 Coercive power is usually less effective
than, say, reward power, for the same reasons that punishment has a limited effect as a motivator
(see Chapter 12). For example, some employees may respond to coercion by falsifying
performance reports, stealing company property and exhibiting similar negative behaviour, rather
than improving their performance.

11.2.1.4 Referent power

Influence based on followers’ personal identification with and respect for the leader is referent
power. Former president of South Africa, Nelson Mandela, had a great deal of referent power.
The followers are apt to like, admire and want to emulate the leader. Leaders who have admirable
personal characteristics, charisma, and/or an excellent reputation usually possess referent power.

11.2.1.5 Expert power

A leader’s specialised knowledge and/or skills grants that person expert power. Arno van der
Merwe would have expert power based on his experience and expertise in the automotive
assembly business. Subordinates act on the leader’s recommendations because of their knowledge.
Andy Grove, co-founder of Intel, was able to lead his company in part because he knew so much
about microchip processors.10 Another example of expert power is the power based on a patient’s
perception that a medical doctor has expert knowledge and skills.

The use of power is often experienced by subordinates through what leaders say and do. For
example, one would experience reward and/or coercive power through a leader communicating
the outcomes (reward or punishment) that would be associated with a particular behaviour or level
of performance. One would experience the expert power of a leader who shares their experience
and knowledge to assist staff in the solving of a unique problem.

11.2.2Using power effectively

The leader’s use of different types of power can lead to one of three types of behaviour in
followers:
• Commitment
• Compliance
• Resistance.

Committed employees are eager to meet the expectations of the leader and strive to do so actively
and with passion. Employees who merely comply with the expectations of the leader only do what
has to be done, usually without much enthusiasm. In most cases, resistance by employees will be
expressed by appearing to respond to the expectations of the leader while not actually doing so, or
even intentionally delaying or sabotaging plans.11

Figure 11.1 Consequences of using the five types of power

As Figure 11.1 shows, expert and referent power tend to result in staff commitment, legitimate
and reward power tend to result in compliance, and coercive power tends to result in resistance.
Referent power usually leads to high levels of performance. Effective leaders are therefore likely
to rely on referent as well as expert and reward power, using legitimate and coercive power only
when necessary. Legitimate power is effective when a manager simply requires an employee to
perform a task that is within the person’s capabilities and job description. In some situations,
coercive power may be effective in getting subordinates to comply with rules or behave as
necessary under emergency conditions. In general, however, when leaders threaten or punish
employees, the response is anger and resentment.

When influencing others through the use of the different types of power, leaders need to be
sensitive to the effect of the use of power on people. In particular, leaders need to consider the
long-term effects of their use of the different types of power. What may work in the short term
may not be sustainable. The use of power to achieve the expectations of a leader is a key
consideration in ethical leadership, where an important issue is respect for the rights and dignity of
people and awareness and sensitivity of the impact on stakeholders.
Many models have been developed over time in an attempt to understand effective leadership,
including:
• Traits models
• Behavioural models
• Contingency models
• Transformational models.

The focus now shifts to these different models of leadership.

11.3 Traits models

Many early studies of leadership were directed at identifying the personal traits or characteristics
of leaders. Traits models are based on the assumption that certain physical, social and personal
characteristics are inherent in leaders.12 According to this view, the presence or absence of these
characteristics distinguishes leaders from non-leaders. Some of the key traits are:
• Physical (young to middle-aged, energetic, of striking appearance, tall and slender)
• Social background (educated at the ‘right’ schools, socially prominent or upwardly mobile)
• Personality (adaptable, aggressive, emotionally stable, dominant, self-confident and sociable).

There is some common-sense support for the notion that effective leaders have certain traits.
However, research has not proved that traits consistently separate potential leaders from non-
leaders.13For example, physical characteristics do not correlate with successful leadership; they
relate only to perceived leadership ability. Physical characteristics may be helpful in the
performance of some manual-labour jobs, but effective leadership rarely depends on a person’s
height, strength or weight.
Personality traits found to relate to a sales manager’s effectiveness include gregariousness,
risk-taking, impulsiveness, exhibitionism and egocentrism. However, these same traits are not
common to successful coaches of sports teams. Their personality traits usually include self-
assertion, self-assurance, a strong need for power and a low need for security. Besides, many
successful sales managers and coaches have personality profiles that are completely different from
those mentioned. This lack of proof does not mean that certain traits have nothing to do with
effective leadership.14Leaders are still described in terms of traits. Brand Pretorius for example
points out that a leader needs to demonstrate the following personal characteristics: principles like
consistency and integrity, fairness, patience, courage, determination and perseverance, and skills
such as innovative thinking, the ability to instil entrepreneurship in the organisation, rational
decision-making, self-management and a bias for action.15

One approach to describing effective leadership in terms of traits is emotional

intelligence, while another is ethical leadership. You will remember that emotional intelligence
is a key managerial competency identified in Chapter 2.

11.3.1Emotional intelligence
The idea of emotional intelligence is captured by the following quotation from Aristotle:
 “Anybody can become angry – that is easy, but to be angry with the right person and to the right
degree and at the right time and for the right purpose, and in the right way – that is not within everybody’s
power and is not easy”.16

To work intelligently with your own emotions, as well as with the emotions of others, and to
guide one’s thinking and behaviour, are regarded as critical to effective leadership. The role and
importance of emotional intelligence in the workplace was highlighted by Daniel Goleman. For
Goleman17, without emotional intelligence a leader can have the best technical skills and
Intelligent Quotient (IQ) but still won’t make a great leader. For Daniel Goleman18, effective
leaders all have a high degree of emotional intelligence.
Emotional intelligence according to Goleman19 consists of two areas of competence: personal
(the ability to manage ourselves) and social (the ability to handle relationships).
Personal competence20 consists of the following traits:
• Self-awareness – the ability to identify and understand our own emotions and their impact on
others. It is also about knowing our strengths and weaknesses and having a strong sense of
self-worth and of our abilities. To be effective, leaders need to be aware of who they are. This
requires that they be self-aware and reflect on what they do and say and the influence of their
behaviour on others.
• Self-regulation – the ability to control our internal emotions and impulses and behave
appropriately in a range of situations. It involves displaying honesty and integrity, taking
responsibility for our own performance, being flexible to change and comfortable with
novelty.
• Motivation – this refers to the emotions involved in reaching goals, such as a drive to achieve,
commitment, readiness to take action when there are opportunities, and optimism to pursue
goals despite difficulties.

Social competence is about21:

• Empathy – awareness of and understanding others, and being able to respond appropriately.
• Social skills – the ability to bring out appropriate responses in others through effectively
influencing others, listening and communicating convincingly, resolving conflict and
negotiating, inspiring and guiding others, initiating and managing change, building
relationships, working with others and developing the abilities of teams.

11.3.2Ethical leadership
Business is not without its ethical scandals, which raises the idea of ethics in business. Leadership
should be the source of ethical guidance to shape ethical behaviour within organisations.22 To
understand ethical leadership means that we need to not only understand who the leader is in
terms of their traits or characteristics, but also understand their personal behaviour. One definition
of ethical leadership is that it is “the demonstration of normatively appropriate conduct through
personal actions and interpersonal relationships, and the promotion of such conduct to followers
through two-way communication, reinforcement, and decision-making”.23 Notice the use of the
term ‘appropriate’, implying that the conduct or behaviour is also dependent on the situation or
context which includes culture. For example, the giving of gifts in business in some cultures is
regarded as the normal or correct way of doing business. The behaviour of an ethical leader would
be based on the person being an ethical individual. Such a person would have relevant traits such
as honesty, integrity, fairness, trustworthiness and respect of others.
 Recall from the MBSA opening insight that one of the attributes of the MBSA (EL)
‘Leadership Compact’ is to be ‘Accountable’, described as “We will hold ourselves, and our
people and each other accountable to uphold the company values and leadership behaviours
expected of us.” Remember the values are passion, discipline and integrity.

“The Board of Mr Price Group Ltd subscribes to ethical leadership, business sustainability,
stakeholder inclusivity and sound values of good corporate governance. It recognises that
governance is about effective and ethical leadership, the outcomes of which are sustained value
creation, success and longevity. It seeks to go ‘beyond compliance’ through the adoption,
integration and embedding of the spirit and principles of governance (fairness, accountability,
integrity, responsibility and transparency). Effective governance is considered to be a vital
component and contributor to the Group’s sustained performance and a key enabler of its
resilience, agility and sustainability. The governance foundation is based on the combination of
voluntary and compulsory guidelines, including the principles and practices of the King Code of
Governance for South Africa 2009 (King III) and the JSE Listings Requirements”.24
“Ensuring that ethical behaviour is widely practiced and demonstrated is very important to the
sustainability of our Group culture. As such the Business Code of Conduct is acknowledged by
each new associate when joining the Group. Senior and other selected associates complete an
annual declaration in which compliance with the Code is confirmed and any external interests or
relationships that could potentially give rise to a conflict of interest are disclosed. The Group has a
confidential, independently managed, toll-free number for the reporting of suspected fraudulent
activity or unacceptable behaviour. Associates are encouraged to be alert to fraud or unacceptable
activity and immediately report incidents. These reports are investigated by Internal Audit. The
Social, Ethics, Transformation and Sustainability Committee monitors matters relating to ethical
conduct”.25

11.4 Behavioural models

After discovering that leaders do not have a uniform set of personal traits, researchers turned their
attention to isolating behaviours (leadership styles) that are characteristic of effective leaders.
Behavioural models of leadership focus on differences in the actions (behaviour or conduct)
of effective and ineffective leaders. In other words, they are based on what effective and
ineffective leaders actually do: how they delegate tasks to subordinates, how they make decisions,
where and when they communicate with others, how they perform their roles and so on. It should
be remembered though that the traits of an individual will influence their behaviour. For example,
an honest person (trait) will tell the truth (behaviour). Someone who has emotional intelligence
traits will behave appropriately in different situations (e.g. will control their emotion of anger in a
situation where a staff member is disrespectful and behave appropriately to achieve a desired
constructive outcome). Unlike traits though, behaviour can be observed and learnt. Because
leadership behaviour can be learnt, individuals can be developed to lead more effectively.

11.4.1Theory X and Theory Y

Assumptions and beliefs about people and how to motivate them often influence a leader’s
behaviour. A widely-used model to help make sense of and understand the different assumptions
and beliefs we may hold about human nature, is Douglas McGregor’s Theory X and Theory Y.26
Figure 11.2 lists these two contrasting sets of assumptions that leaders may hold about their
subordinates.
Figure 11.2 Comparison of Theory X and Theory Y assumptions

Managers who believe that people are motivated mainly by money, are lazy and unco-operative,
and have poor work habits, will treat them accordingly. Such managers tend to use a directive
leadership style: they tell people what to do. They lead by telling their subordinates what is
expected of them, instructing them how to perform their jobs, insisting that they meet certain
standards, and being sure that everyone knows who is boss. Douglas McGregor, author of The
human side of the enterprise, labelled this leadership style Theory X.27
In contrast, leaders who believe that their people work hard, co-operate and have positive
attitudes will treat them accordingly. Such leaders use a participative leadership style: they act by
consulting their subordinates, seeking their opinions, and encouraging them to take part in
planning and decision-making. According to McGregor, these leaders practise Theory Y.
By and large, employees clearly prefer Theory Y behaviour because of the opportunities
afforded them for getting involved in the decision-making process. In his book, McGregor cites
the case of a CEO who, after reflecting on his use of the Theory X approach, realised that his
military mentality made a lot of people unhappy. Although the company was a financial success,
the culture was destructive, and it sometimes led people to act against the long-term interests of
the company and its customers.
A Theory Y leader operates under the assumption that most people want to take pride in their
work and make a positive contribution. This belief impacts the manager’s behaviour in that he or
she now involves people in decision-making and problem-solving, delegates responsibility and
authority, and leaves people to get on with their jobs.

11.4.2Ohio State University and University of Michigan models

Researchers at Ohio State University took another approach to studying leadership styles. They
asked employees to describe the behaviours of their supervisors. Based on the responses, the
researchers identified two leadership styles:
• Considerate leadership style
• Initiating-structure leadership style.28
A considerate leadership style is characterised by concern for employees’ well-being, status and
comfort. Typical behaviours of a considerate leader include:
• Expressing appreciation when employees do a good job
• Not demanding more than employees can achieve
• Helping employees with their personal problems
• Being friendly and accessible
• Rewarding employees for jobs well done.

A considerate leader seeks to create a friendly and pleasant working climate. Such a leader
assumes that subordinates want to do their best and that the leader’s job is to make it easier for
them to do their work well. A considerate leader seeks acceptance by treating subordinates with
respect and dignity, and tends to downplay the use of both legitimate and coercive power.
Not surprisingly, the considerate leadership style is usually readily accepted by subordinates.
The style generates goodwill and leads to job satisfaction for subordinates. Other positive
outcomes include closer co-operation between leader and subordinates, increased motivation of
subordinates, more productive work groups, and low turnover and grievance rates.
The initiating-structure leadership style is characterised by active planning, organising,
controlling and co-ordinating of subordinates’ activities. Typical behaviour of an initiating-
structure leader includes:
• Assigning employees to particular tasks
• Establishing standards of job performance
• Informing employees of job requirements
• Scheduling work to be done by employees
• Encouraging the use of uniform procedures.

Used as the only approach, a forceful initiating-structure leadership style can lead to grievances,
high staff turnover and lower satisfaction in employees. However, research suggests that effective
leaders may exhibit both considerate and initiating-structure behaviours.29 Employees’ reactions to
initiating-structure leaders tend to depend on whether they also believe that their leaders are
considerate. If so, they view their leader’s behaviour as effective. However, if employees believe a
leader to be inconsiderate, they tend to view the leader’s behaviour as ‘watching over employees’
shoulders’ or micro-managing.
Researchers at the University of Michigan undertook similar studies of leadership behaviours.
They classified leaders’ behaviours as either production centred or employee centred. Leaders
who utilise a production-centred leadership style set standards, organise, pay close attention to
employees’ work, keep production schedules and stress results. Those who have an employee-
centred leadership style encourage employees to participate in making decisions and make sure
that they are satisfied with their work. This type of leader’s primary concern is with employees’
welfare. The researchers found that employee-centred leaders were more likely to be in charge of
high-performance teams than were production-centred managers. More effective leaders were
those who had supportive relationships with their team members, and encouraged them to set and
achieve their own goals.30

11.4.3Managerial grid model

Developed by Robert Blake and Jane Mouton, the managerial grid model identifies five
leadership styles that combine different proportions of concern for production (similar to the
initiating-structure and production-centred styles) and concern for people (similar to the
considerate and employee-centred styles).31 These styles are plotted on a grid in Figure 11.3.
 Each of the five managerial styles identified in Figure 11.3 will now be explained:
• Impoverished style – point (1, 1): At the lower left-hand corner of the grid, point (1, 1) is the
impoverished style, characterised by low concern for both people and production. The
primary objective of managers who use this style is to stay out of trouble. They pass orders
along to employees, go with the flow and make sure that they cannot be held accountable for
mistakes. They exert the minimum effort required to get the work done to avoid being fired or
demoted.
• Country-club style – point (1, 9): At the upper left-hand corner, point (1, 9) is the country-
club style, identified as a high concern for people and a low concern for production. Managers
who use this style try to create a secure and comfortable atmosphere, and trust that their
subordinates will respond positively. Attention to the need for satisfying relationships leads to
a friendly, if not necessarily productive, atmosphere and work tempo.
• Produce-or-perish style – point (9, 10): A high concern for production and a low concern for
people are reflected at point (9, 1), in the lower right-hand corner. This style is theproduce-or-
perish style. Leaders who use this style do not consider employees’ personal needs to be
relevant to achieving the organisation’s objectives. They use their legitimate and coercive
powers to pressure subordinates to meet production quotas. They believe that operational
efficiency results from arranging the work so that employees merely have to follow orders.
When a company’s profitability is falling, showing more concern for production may seem
like the best thing a leader can do to turn the company around. Effective leaders realise that
this approach is only a short-term solution, however.
Figure 11.3 The managerial grid model

• Middle-of-the-road style – point (5, 5): In the middle of the grid, point (5, 5) indicates the
middle-of-the-road style. Leaders who use this style seek a balance between workers’ needs
and the organisation’s productivity goals. Adequate performance is obtained by maintaining
employees’ morale at a level sufficient to get the work done.
•
Team style – (9, 9): The upper right-hand corner, point (9, 9), represents the team style,
which shows high levels of concern for both people and production. According to South
African business leader Brand Pretorius, effective leadership is not only about being soft-
hearted; it is not only about heart but also about results.32 Leaders who use this style attempt to
establish cohesion and foster feelings of commitment among workers. By introducing a
‘common stake’ in the organisation’s purposes, the leader builds relationships of trust and
respect. Think of Arno van der Merwe and his leadership style where his focus needs to be
both on production as well as on people – after all people build the cars.
11.4.4Summary
Behavioural models have added greatly to the understanding of leadership. The focus has shifted
from who leaders are (traits) towards what leaders do (behaviour). However, leadership behaviour
that is appropriate in one situation is not necessarily appropriate in another. Because the
behavioural models failed to uncover leadership styles that were consistently appropriate to all
situations, other models of leadership were devised. The next step in the evolution of our
knowledge and understanding of leadership was the creation of contingency or situational models.

11.5 Contingency models

According to contingency models of leadership, the situation determines the best style to use.33
The concept contingent, refers to something being dependent, thus the best leadership style is
dependent on the situation and its unique factors.
The situational factors contained in these models are shown in Figure 11.4. However, no
single contingency model encompasses all these factors. The four most influential contingency
models of leadership are Fiedler’s contingency model, Hersey and Blanchard’s situational model,
House’s path–goal model and the leader-participation model.

11.5.1Fiedler’s contingency model

The first contingency model was developed by Fred Fiedler and his associates.34 Fiedler’s
contingency model suggests that there is no one best leadership style. Successful leadership
rather depends on matching a leader’s style to a situation’s demands. In other words, each
leadership style is most effective when it is used in the right situation. According to this model,
the manager has to understand his or her own leadership style, diagnose the particular situation,
and then match style and situation. That may mean either changing the situation to match the
manager’s style or giving the leadership role to someone whose style matches the situation.
Figure 11.4 Situational factors influencing a leader’s effectiveness

11.5.1.1 Leadership styles

Fiedler viewed leadership style as a trait that is difficult to change. Leadership style is determined
by asking the manager to describe his or her least-preferred co-worker (LPC), that is, the
employee with whom the manager can work least well. By seeing how a leader describes this
LPC, the leader’s style can be determined.

A leader who recognises the importance of developing strong and positive emotional ties with
followers is called a relationship-orientated leader. This type of leader would always use a
considerate or an employee-centred style. A leader who does not value relationships and instead
focuses only on the task is called a task-orientated leader. This type of person structures the job
for employees and closely watches their behaviour. Such a leader simply wants to get the job
done.

11.5.1.2 Situational variables

Fiedler identified three variables in the work situation that help determine which leadership
style will be effective (each can be described as either favourable or unfavourable for the leader):
• Leader–member relations
Leader–member relations refer to the extent to which followers accept the leader. A leader
who gets along well with employees and whose expertise is respected is in a favourable
situation. A leader who is disliked and is not trusted is in an unfavourable situation.
• Task structure
Task structure is the degree to which a job is routine. When giving directions, the leader can
refer to standard operating procedures (SOPs). Fiedler considered this situation to be
 favourable for a leader. In contrast, for a complex and non-routine job, the leader has no clear
guidelines or procedures to which to point. In this case, the leader has to guide and direct
employees. This situation is considered to be unfavourable for a leader.
• Leader position power
Leader position power is the extent to which a leader has legitimate, coercive and reward
power. Having a strong position power is favourable for a leader because it simplifies the
leader’s ability to influence subordinates. Low position power makes the leader’s task difficult
because the leader has to rely on personal sources of influence.
Figure 11.5 illustrates Fiedler’s contingency model of leadership. The basic situational
variables are shown on the far left. The numbered columns represent possible combinations of
the three variables and are arranged from the most favourable situation (1) to the least
favourable situation (8) for the leader. The leadership style – task orientated or relationship
orientated – best suited to each combination of variables is indicated by T or R in the bottom
row.
A leader will have the most control and influence in situations represented by column 1
and progressively less control and influence in situations represented by columns 2–7. A
leader’s control and influence are quite limited in situations represented by column 8.

11.5.1.3 Effective leadership styles

As suggested in Figure 11.5, task-orientated leaders perform most effectively in the most
favourable situations (columns 1, 2 and 3) and least effectively in the least favourable situation
(column 8). In the most favourable situations, the leader is well respected and has freedom to
reward and punish subordinates, and subordinates’ activities are clear and specific (for example,
payroll, data entry and maintenance). In the least favourable situation (column 8), tasks are
unstructured, group support is lacking and the leader’s position power is low. The unpopular
manager who has to downsize an organisation is an example. In such cases, the only hope for
achieving any results appears to be task-orientated leadership.

Figure 11.5 Fiedler’s contingency model

Relationship-orientated leaders are generally most effective in moderately favourable

situations. Regardless of the situation, the leader must depend on employees’ willingness and
creativity to accomplish the required tasks.
11.5.1.4 Limitations
Fiedler’s model, like any other, has its limitations:35
• Situational variables are complex and difficult to assess.
• The model pays little attention to the characteristics of subordinates. Whether they are highly
skilled or unskilled could make a big difference in determining an appropriate leadership style.
• Fiedler asserts that a leader cannot easily change his or her leadership style to fit a situation.
When a leader’s style and the situation do not match, he argues, the situation and not the
leader should be changed to fit the leader’s style. However, this is often not possible or
practical.

11.5.1.5 Organisational implications

The model’s greatest contribution may be its redirection of research in the field, rather than
provision of any concrete answers. It has caused researchers to examine situations more closely
before attempting to find the leadership styles most appropriate to them. Fiedler pointed out that a
leader cannot be labelled ‘good’ or ‘poor’. Rather, the leader may perform well in one situation,
but not in others. Hence organisations can gain better leadership by making the situation more
favourable or shifting the leader to a situation that better matches the individual’s style.36

11.5.2Hersey and Blanchard’s situational leadership model

Hersey and Blanchard’s situational leadership model suggests that the levels of directive
(similar to initiating-structure and production-centred) and supportive (similar to considerate and
employee-centred) leader behaviour be based on the level of readiness of the followers.37 In
contrast to Fiedler, who believes that a leader’s style is relatively rigid, Hersey and Blanchard
emphasise a leader’s flexibility to adapt to changing situations.
•
Directive behaviour occurs when a leader relies on one-way communication, spelling out
duties and telling followers what to do, and where, when and how to do it. Directive leaders
structure, control and supervise subordinates.
• Supportive behaviour occurs when a leader relies on two-way communication, listening,
encouraging and involving followers in decision-making. Being supportive does not mean just
being nice. It is about being receptive to other people’s ideas and respecting what they do.
• Readiness is a subordinate’s ability to set high but attainable task-related goals and a
willingness to accept responsibility for reaching them. People have varying degrees of
readiness, depending on their backgrounds and the specific tasks they are trying to
accomplish.

This model prescribes different combinations of directive (task) and supportive (relationship)
leader behaviour for different levels of subordinates’ readiness.
A leader with a directive or telling style (High task and low relationship) provides clear
instructions and specific direction in situations where subordinate readiness is described as unable
but willing. This could be when an employee first enters an organisation. They are usually
committed, enthusiastic and anxious to get started and learn (willing) but not likely to be able to
perform at the level expected (unable). Directive leadership is most appropriate with little support
required from the leader.
The coaching or selling style (High task and high relationship) is used in situations where
subordinates are unable and unwilling or insecure. As employees learn their jobs, a directive style
is still important because the employees are not yet ready to assume total responsibility for doing
the job (Unable) and may feel insecure (Unwilling). A leader uses supportive behaviour in order
to build employees’ confidence and maintain their enthusiasm by encouraging two-way
communication.
When followers feel confident performing their tasks (Able), the leader no longer needs to be
directive. However, the leader does need to maintain open communication by actively listening
and supporting subordinates’ efforts to use what they have learnt to ensure they are willing and
confident. The participating style (High relationship and low task) is used where subordinates are
able and unwilling or insecure.
The delegating style is appropriate for a leader whose followers are ready to accomplish a
particular task, and are both competent and motivated to take full responsibility for it (able and
willing). Even though the leader may still identify problems, the responsibility for carrying out
plans is given to experienced followers. They are permitted to manage projects, and decide how,
when and where tasks are to be done.

11.5.2.1 Limitations
Additional research is needed to begin to answer the following questions:
1. Can leaders actually choose a leadership style when faced with a new situation? The answer to
this question has important implications for management selection, placement and promotion.
Some people can read situations better and adapt their leadership style more effectively than
others. For those who cannot, what are the costs of training them to be able to do so? Do these
costs exceed the potential benefits?
2. In the same group, different employees are likely to be at different levels of readiness. Under
this condition, what is the best style?
3. The model does not distinguish between the reasons for low readiness. Does lack of readiness
reflect a lack of motivation, a lack of competencies or some combination of both?38

11.5.2.2 Organisational implications

The idea that leaders should be flexible with respect to the leadership styles they use is
appealing. However, the leader must constantly monitor the maturity level of followers in order to
determine the combination of directive and supportive behaviours that is most appropriate. An
inexperienced employee may perform as well as an experienced employee if properly directed and
closely supervised. If the leader’s style is appropriate, it should also help followers gain more
experience and become more competent. Thus, as a leader helps followers evolve, his or her
leadership style also needs to evolve.

11.5.3House’s path–goal model

Another contingency model was developed by Robert House. House’s path–goal model
indicates that effective leaders clearly specify the task, reduce barriers to task achievement and
increase opportunities for task-related satisfaction for subordinates, thereby clarifying the paths or
means by which employees can attain job satisfaction and improve performance. The leader’s
function is to motivate subordinates and help them reach their highly valued, job-related
objectives. The specific style of leader behaviour exhibited should be determined by two
contingency variables:
• Employee characteristics
• Task characteristics.
A version of the path–goal model is shown in Figure 11.6.
Like the other two contingency models, the path–goal model does not provide a formula for
the best way to lead. Instead, it stresses that, to be effective, a leader should select the style most
appropriate to a particular situation and the followers’ needs. The model identifies four styles of
leadership:

1.
Achievement-orientated leadership: This involves setting challenging goals, expecting
followers to perform at their highest level and showing confidence that they will meet this
expectation.
2. Directive leadership: This involves letting followers know what is expected of them and
telling them how to perform their tasks. This style is similar to the initiating-structure and
production-centred styles.
3. Participative leadership: This involves consulting with followers and asking for their
suggestions before making a decision.
4. Supportive leadership: This involves being friendly and approachable, and showing concern
for followers’ psychological well-being. This style is much like the considerate and employee-
centred styles.

11.5.3.1 Employee characteristics

House’s first contingency variable is employee characteristics. The model suggests that employees
will accept a particular leadership style if they perceive it to be an immediate source of job
satisfaction or to be necessary for future job satisfaction. For example, employees who have
strong needs for self-esteem and affiliation may readily accept supportive leadership. Employees
who have strong needs for autonomy, responsibility and achievement are more likely to accept
and be motivated by achievement-orientated leadership.

11.5.3.2 Task characteristics

The other contingency variable of the path–goal model is task characteristics. When tasks are
routine and simple, employees will regard directions as unnecessary. Directive leadership may
increase performance by preventing ‘loafing’, but it may also decrease job satisfaction.
Participative or supportive leadership is likely to increase satisfaction with the leader and with
company policies even when the tasks are unsatisfying. Where many tasks are routine with some
being quite unpleasant, supportive and participative leadership style would be appropriate. When
tasks are non-routine and complex, directive or achievement-orientated leadership is more
appropriate than supportive leadership. Subordinates appreciate the leader who clarifies the paths
to their objectives. Managers may use a more directive style when employees first begin working
in a new job or when the company first begins working with a new type of client.
Figure 11.6 House’s path–goal model

There are situations that involve multiple tasks. In these situations, a mix of types of
leadership behaviour may be appropriate.

11.5.3.3 Organisational implications

Employees performing routine and simple tasks have reported greater job satisfaction when
leaders provide supportive rather than directive leadership. Employees performing non-routine
and complex tasks have reported higher productivity when leaders provided directive leadership,
but they have not necessarily reported greater job satisfaction. Like Fiedler’s model, and Hersey
and Blanchard’s model, House’s model indicates that participative leadership styles are not
always effective. A participatory style is needed most when employees’ acceptance of a decision
is important, when the leader does not have some of the information needed to make a decision,
and when a problem is unstructured. Directive or task-orientated leadership seems to work better
when employees do not share the manager’s and/or organisation’s goals, when the production
schedule is tight and when employees are receptive to top-down decision-making.39

11.5.4Leader-participation model
Another contribution to the contingency approach is the leader-participation model proposed by
Victor Vroom and Philip Yetton, and revised by Arthur Jago.40 The leader-participation model
provides a set of rules to determine the amount and form of participative decision-making that
should be encouraged in different situations. Recognising that a task can be either structured or
unstructured, the model suggests that the leader’s behaviour be adjusted to the task’s structure.
This model provides a sequence of rules for a leader to follow in determining the form and
amount of employee participation in decision-making.
For this model the effectiveness of a decision is gauged by both its quality and its acceptance.
To arrive at the best decision a leader needs to analyse the situation and then choose a decision-
making style from two autocratic styles (AI and AII), two consultative styles (CI and CII), and
one group style (GII).

These styles are summarised in Table 11.1.

The leader’s analysis is guided by eight contingency questions, which must be answered in the
following order:
1. Quality requirement: How important is the technical quality of this decision?
2. Commitment requirement: How important is subordinate commitment to the decision?
3. Leader’s information: Do you have sufficient information to make a high-quality decision?
4. Problem structure: Is the problem well structured?
5. Commitment probability: If you were to make the decision by yourself, is it reasonably certain
that your subordinates would be committed to the decision?
6. Goal congruence: Do subordinates share the organisational goals to be attained in solving this
problem?
7. Subordinate conflict: Is conflict among subordinates over preferred solutions likely?
8. Subordinate information: Do subordinates have sufficient information to make a high-quality
decision?

Table 11.1 Decision-making styles according to the leader-participation model

Decision Definition
style

AI Leader makes the decision alone

AII Leader asks for information from team members, but makes the decision alone. Team
members may or may not be informed as to what the situation is

CI Leader shares the situation with each team member and asks for information and evaluation.
Team members do not meet as a team and the leader alone makes the decision

CII Leader and team members meet as a team to discuss the situation, but the leader makes the
decision

GII Leader and team members meet as a team to discuss the situation, and the team makes the
decision

Note: A = Autocratic; C = Consultative; G = Group.

Source: VROOM, V.H. & YETTON, P.W.1973. Leadership and decision making. Pittsburgh: University of
Pittsburgh Press. Reprinted by permission of the University of Pittsburgh Press.

The leader-participation model follows a series of questions in the form of a decision tree. To
use this model, the leader asks the first question: How important is the technical quality of this
decision? The answer – high or low – determines the path to the second question: How important
is subordinate commitment to the decision? After answering that question – either high or low –
the leader goes to the next question, and so on until the eighth question is asked and answered, and
an appropriate leadership style is determined. The leadership style should then lead to a high-
quality decision that will be accepted by subordinates.

11.5.4.1 Organisational implications

The leader-participation model provides a useful guide for determining the type and degree of
subordinate participation in decision-making. Leaders should use participation when the quality of
the decision is important, when subordinates should accept the decision but are unlikely to do so
unless they are allowed to have some say in it, and when subordinates can be trusted to strive for
organisational rather than individual goals.41
This model also stresses that the situation – not the leader – should receive attention. Along
with Hersey and Blanchard’s model, and House’s model, the leader-participation model states that
a leader can adopt different styles of leadership to meet the demands of different situations, but
before choosing a leadership style, the leader must assess the situation. However, not all leaders
can do what is suggested by the model. Although they may know how they should behave, they
may lack the ability to tailor their behaviour to meet the specific situation.

11.5.5Comparing contingency models

To summarise, leaders need to lead others in such a way that they not only perform but also
experience satisfaction. The four contingency models just discussed offer somewhat different
advice about choosing an effective leadership style. Table 11.2 compares the elements of these
models.

The contingency models demonstrate the importance to a leader of situational factors and
followers’ characteristics. Successful leaders are able to recognise the requirements of the
situation and the needs of their followers, and then adjust their own leadership style (or the
situation) accordingly. Contingency models imply that leaders should be able to adapt their
behaviour to the different situations they may face. Can leaders realistically be expected to be so
flexible? One study of more than 500 managers in a public utility indicates that managers can and
do use different leadership styles in different situations. Managers who displayed a broad range of
leadership behaviours were more effective in their jobs.42

11.6 Transformational and charismatic leadership

Clearly, the leadership models presented so far do not agree on ways in which leaders can
best influence followers. Early models focused on personality traits and most of the later ones
look at leader behaviours as determined by contingency or situational factors. Many top managers
around the world have realised that they will have to make significant changes in the way things
are done if their organisations are to survive. Many now believe that the type of leadership needed
by top managers for tomorrow’s organisations is what has been labelled transformational.43
 Quite simply, transformational leadership is leading by motivating. Transformational
leaders provide extraordinary motivation by appealing to followers’ ideals and moral values, and
inspiring them to think about problems in new ways.44
Followers of transformational leaders feel trust, admiration, loyalty and respect for the leader,
and are motivated to do more than they thought they could or would do. A leader can motivate
followers by making them more aware of the importance and value of their tasks, and the need to
place these ahead of their own self-interests. Transformational leaders’ influence rests on their
ability to inspire others through their words, visions and actions. In essence, transformational
leaders make tomorrow’s dreams a reality for their followers.

Table 11.2 A comparison of four contingency models

What methods do transformational leaders use to affect their followers profoundly and
generate this type of response? Transformational leaders exhibit three behaviours:
• Vision
• Framing
• Impression management.45

11.6.1 Vision
Perhaps the most important characteristic that transformational leaders possess is
their ability to create a vision that binds people to each other. Recall from the South African
Insight MBSA the attribute of the company’s ‘Leadership Compact’, namely, ‘Strategically
Aligned and United’. This is about leaders thinking strategically and seeing the common big
picture and aiming for all to understand and commit their contribution to achieve the desired
outcome. It is about leaders being able to align people to the goals and strategy of the
organisation.

Figure 11.7 Transformational leadership model

Transformational leaders must have more than just a vision: they also should have a road map
for attaining it. What is important is that followers ‘buy into’ that vision and that the leader has a
plan to energise them to reach it.46
 Consider the vision and purpose of Coca-Cola Sabco. The organisation’s vision is: “We will
be the best Coca-Cola bottler in the world”, while its purpose is: “To create value for everyone
touched by our business by providing, with passion and focus, the right refreshment, at the right
price, in the right place”.47
Leaders who are totally committed to their vision and course of action are often called
charismatic. Charismatic leaders have an unshakeable belief in their mission, are supremely
confident that they and their followers can succeed, and have the ability to convey these
certainties to their followers. Followers of charismatic leaders demonstrate unquestioning loyalty
and obedience.48

11.6.2Framing
The second behavior of transformational leaders is framing. What we communicate and how we
communicate it influences people. For example: A farmer in a drought stricken area of the country
hearing that there is a 30% chance of rain in the area in the next 48 hours will most likely think,
feel and respond differently to hearing that there is a 70% chance of no rain. Think of the media
we are exposed to daily where journalists not only determine what to report on but also report on
the chosen issue in a way that influences how we will think, feel and respond. How factual
information on employment, for example, is reported on affects us. Referring to the employment
rate is more positive than referring to the unemployment rate. The choice of words evokes images
within a person. The word ‘war’ for example evokes a particular frame. One would then use the
word ‘war’ in communication when wanting to create a common point of reference with an
audience. A slogan such as ‘war on drugs’ is an example.
Framing is about constructing a message to evoke a particular response from an audience.
Transformational leaders frame messages to provide purpose and meaning to people. These
leaders often use the values of the organisation in framing their messages and vision. Think back
to the MBSA (EL) South African Insight. Recall the organisational values and how they can be
used to frame messages and the vision of the company to positively influence the sense of purpose
and meaning people have as they go about their daily work.

11.6.3Impression management
The third behaviour of transformational leaders is impression management.

Impression management involves an attempt to control the impressions that others form about
the leader through behaviour that makes the leader more attractive and appealing to others.
Impression management sounds manipulative and calculating, and sometimes it is. But more
often, impression management is a natural and sincere expression that reveals to followers an
alignment between the vision and the person. When observers of effective leaders refer to the
importance of integrity, that is often what they mean: revealing to followers how the message they
are hearing relates to the personal experiences of the messenger. Telling stories and anecdotes is a
particularly effective way to manage impressions and, according to some, it is the essence of
charisma.49
A strong communication competency enables leaders to engage in effective storytelling and
impression management in general. Also, leaders need to behave in such a way that they live their
values. Employees must see their commitment to the values. They must walk the talk.
Recall from the South African Insight that MBSA (EL) places emphasis on ‘Effective
communication’ as an element of their ‘Leadership Compact’.
11.7 Leadership development
On management and leadership development, the Mr Price Group reports the following:
“The Group recognises and rewards leadership innovation, and managers are encouraged to
build their own entrepreneurial leadership styles. Their growth and development is supported by
personal and career development discussions, leadership assessments, creation of personal
development plans and regular performance feedback. We partner with highly credible training
organisations and business schools, locally and internationally, to design and run programmes that
cater flexibly for unique peer group needs within the demands of busy day-to-day working
environments. Succession planning is actively encouraged within all divisions, to ensure the
constant availability of high quality managers and executives. The Leadership NEXT Series,
currently underway in partnership with the Gordon Institute of Business Science, comprises
leadership sessions aimed at preparing selected executives to grow the business in diverse and
changing global markets. The series is designed exclusively for our Group in consultation with
senior executives and stakeholders, and makes use of local and international faculties and guest
speakers. The successful Emerging Leaders Development Programme has enriched our succession
plans with entry-level leaders who display high potential for future leadership positions, with past
delegates being constantly monitored for promotional opportunities. Our productive relationship
with the Wholesale and Retail SETA has led to a number of our managers being selected for the
SETA’s International Leadership Development Programme, with one of our managers finishing
second overall in 2014.”50

Recall also from the South African Insight on MBSA (EL):

“Indeed it is this passion and people-oriented leadership style that Van der Merwe and the East
London Plant Leadership Team want to see lived at all levels within the organisation. To this end,
Mercedes-Benz South Africa has partnered with the Daimler Corporate Academy, responsible for
Daimler’s leadership development initiatives, to focus on ‘Strengthening Leadership’ within the
plant. Van der Merwe and his team believe that in order to sustain the plant for the future and to
continue to be a good transformative corporate citizen, the continuous development of the plant
leadership team is vital.”
The recognition of the importance of effective leadership explains why organisations invest in
efforts to improve leadership effectiveness.51 These investments fall into three general categories:
• Assigning people to positions to promote learning on the job
• Sending employees to formal leadership assessment and training programmes
• Offering assistance through coaching and mentoring.

11.7.1Learning on the job

On-the-job learning is important for all aspects of managerial work. To develop leadership on the
job requires that employees take on jobs or projects that include leadership responsibilities.

11.7.2Formal assessment and training

Learning on the job is an excellent method for developing leadership capacity, but most large
organisations do not rely solely on this approach to leadership development. In addition, they
ensure that their most talented employees receive formal leadership assessments and attend
leadership training programmes or even complete MBA degrees. Formal assessment and training
may be conducted at the organisation’s own educational facilities, at a university or by training
and development organisations. Regardless of location, formal assessment and training
programmes generally include evaluating the individual’s current approach to leadership and
providing educational experiences designed to improve the individual’s effectiveness as a leader.

11.7.3Coaching and mentoring

Mentors are most often supervisors or senior colleagues in the organisation who provide
advice and guidance about a variety of career-related concerns. For a manager, talking with
mentors about how to develop into a more effective leader is important for career advancement. In
particular, mentors can help the manager understand how others respond to his or her behaviours
and point out weaknesses or blind spots. Mentors also serve as role models that a manager can
emulate and they provide valuable advice concerning the styles of leadership favoured in the
organisation. Finally, mentors often assist managers in developing leadership capabilities by
helping them find assignments that foster on-the-job learning.52

By now, perhaps you are eager to begin developing your own leadership style and are
wondering what you can do immediately. Reflecting on your own strengths and weaknesses, and
accepting responsibility for making improvements are two actions that you can take to promote
your own leadership development. To begin that process, respond to the questions in the self-
management competency feature that follows.

11.7.4Developing leaders for global organisations

Increasingly, managers at all levels and in many types of organisations have jobs that involve
exercising leadership in various cultures. Examples of such organisations include MBSA and
Coca-Cola Sabco.
What type of leadership is effective in global companies? Think of German managers leading
within MBSA, either in Pretoria or East London. Think of South African managers leading in one
of the Mercedes-Benz plants in Germany or anywhere else in the world. Do people from different
countries prefer different types of leadership? Do leaders need to behave differently with each
employee, depending on the employee’s cultural background? The transformational and
charismatic leadership models have been studied the most in different cultures.

Based on studies of managers and military leaders in the US, Africa, the Netherlands, India,
Spain, Singapore, China and Austria, among other countries, it appears that people worldwide
have images of leaders that match the transformational approach to leadership. Around the world,
transformational leadership seems to be effective in creating satisfaction and inspiring effort.53
However, although effective leaders in many different countries seem to portray similar images to
their followers, they create these images while adhering to the cultural norms of a specific region.

Chapter summary
Leadership is an integral component of organisations. People at all levels of an organisation can
exercise leadership, which can take many forms. Because it is so important, researchers have
conducted numerous studies in attempts to understand effective leadership better. Based on their
studies, they have developed various theoretical models. Each of these models explains some, but
not all, aspects of leader effectiveness. Organisations interested in developing effective leaders
often use these models as the basis for their leadership development activities.
Leadership involves influencing others to act toward the attainment of a goal. Leaders rely on
five types of power to exert influence: legitimate power, reward power, coercive power, referent
power and expert power. The most effective use of power results in followers who are committed
to the leader’s goals. The improper use of power, however, can also result in mere compliance and
even resistance.
Traits models of leadership were early attempts to identify the personal characteristics that
make a leader successful. The characteristics studied included physical characteristics, social
background and personality. Research has failed to show that traits consistently separate potential
leaders from non-leaders, thus other models of leadership developed to advance the understanding
of leadership. The lack of proof though does not mean that traits have nothing to do with effective
leadership and are not used to make sense of and describe effective leadership. Contemporary
approaches used to describe effective leadership in terms of traits include emotional intelligence
and ethical leadership. Emotional intelligence highlights the need to consider factors other than
intellectual and technical ability as indicators of effective leadership. In particular, the ability to
identify and understand emotions within oneself and others and to utilise this understanding to
achieve desired outcomes is important. Emotional intelligence involves personal competencies
such as self-awareness, self-regulation and motivation as well as social competencies such as
empathy and social skills. Ethical leadership focuses on the type of leadership that respects the
rights and dignity of people and is guided by beliefs and values that embrace what a particular
society regards as right behaviour.

Your preferred leadership style

This questionnaire measures your preferences for certain styles of leadership behaviour. It is intended to
help you understand your leadership actions better and perhaps control them better. You must answer the
questions honestly. There are no right or wrong answers. Trying to figure out the best answer will only
make the results useless for improving your self-awareness and understanding. These questions may ask
you to make difficult choices. Please make these choices only on your personal preferences.
The questions ask you to describe how you treat employees. If you have never supervised other
employees, try to imagine what you would probably do if you were supervising someone. For example,
think of a work situation that you have experienced and imagine that you are the supervisor. Choose the
statement that best describes how you think you would behave.

Instructions
Read each pair of statements. For each pair, choose the statement that best describes your own
management behaviour and preferences. In some cases, you will probably feel that both statements
describe you pretty well, but you must still pick only the one that describes you best. In other cases, you
might feel that neither statement describes you at all. Even so, you must pick one (the one that is the least
inaccurate). You will not be able to work out your score when you finish the questionnaire unless you have
picked only one statement from each pair.
Place an X in the space to indicate which statement describes you best.

Statements
1 a _____ I take the time to explain to employees exactly what I expect of them.
b _____ Employees should be responsible for determining what is expected of them on the job.
2 c _____ I am pleasant towards employees, but I avoid getting too friendly.
d _____ I respond to employees in a warm and friendly manner.
3 e _____ I help employees set specific high goals for themselves.
 f _____ I allow employees to find their own ways to do their jobs better.
4 g _____ I try to get employees to work together as a team.
h _____ I try to keep a proper distance from individual employees.
5 a _____ I make clear to employees exactly how I want the job done.
b _____ As long as the job gets done, I do not care how employees go about doing it.
6 c _____ Employees know when they have done a good job and do not need me to tell them.
d _____ I tell employees how much I appreciate their efforts.
7 e _____ I provide employees with the information needed to plan the work effectively.
f _____ I take employees’ limitations into account and do not expect too much of them.
8 g _____ I provide opportunities for employees to get together to share ideas and information.
I make productive use of the time when others are speaking to prepare my own
h _____
arguments.
9 a _____ I encourage employees to try out new work-related ideas.
b _____ I expect employees to adhere to and maintain standard work procedures.
10 c _____ I respect effective employees, but I do not pretend to be at their level.
d _____ I treat employees with respect and as equals.
11 e _____ I make sure that employees have the resources they need to do a good job.
f _____ I expect employees to solve their own work problems.
12 g _____ I am understanding when employees come to me with their problems.
h _____ I emphasise to employees their own responsibility for their work.
13 a _____ I express my views about the ways things should be done clearly to employees.
b _____ I expect employees to figure out for themselves how things should be done.
There is little point in encouraging employees’ ideas since almost all the ideas that
14 c _____
they come up with were tried out long ago.
I ask employees for their ideas, and let them know that their suggestions are desired
d _____
and appreciated.
15 e _____ I expect a great deal from employees in terms of performance.
f _____ I avoid giving employees specific numerical goals or targets.
16 g _____ I show employees that I am personally concerned about them.
h _____ I prefer to deal with employees privately and one-to-one rather than in a group.
If employees want to know how to do a specific task or activity, they know there are
17 a _____
established procedures they can follow.
b _____ I decide myself what will be done as well as how to do it.
With so much always changing, there is no point in worrying employees with the
18 c _____
details too far in advance.
d _____ I let employees know of changes well in advance so that they can prepare.
19 e _____ I help employees get the training they need to perform the job effectively.
f _____ I let employees know that I expect them to do their best.
20 g _____ I show employees that I really listen to them.
h _____ I rarely spend time in group meetings with employees.
21 a _____ I make clear assignments of particular employees to specific tasks.
I find it best to let employees sort out informally who is best for which task
b _____
assignment.
I screen out all the unimportant interactions with employees and attend only to those
22 c _____
that are really important in order to minimise disruptions to my own work.
 d _____ I make sure that employees find me accessible to them and interested in their
concerns.
23 e _____ I make sure that employees clearly understand my role and responsibilities.
When employees know and carry out their job responsibilities, there is little need for
f _____
me to get involved.
24 g _____ I show a great deal of concern for employees’ personal welfare.
h _____ I respect employees’ privacy and right to have personal concerns left alone.
I prepare specific work schedules for employees to help define responsibilities and to
25 a _____
co-ordinate work activities.
b _____ As long as the work gets done, employees can keep to their own schedules.
I permit employees to try out new ideas that seem unlikely to have an adverse effect
26 c _____
on productivity.
I listen to employees’ ideas for doing things better and make changes based on their
d _____
suggestions.
I make sure that all employees understand the specific standards of performance that
27 e _____
apply to their work.
f _____ I ask employees to do their best without setting overly specific standards.
I make sure that when I take actions or make decisions affecting them, employees
28 g _____
understand the reasons.
Employees accept the fact that I am the boss, so there is no need for constant
h _____
explanations of my actions.
29 a _____ I let employees know exactly what standards and regulations I expect them to follow.
Employees can develop their own informal standards and work rules, as long as the
b _____
job gets done.
30 c _____ I try to get all the relevant information before making an important decision.
d _____ I consult with employees before making important decisions about the work.

Directions for scoring

1 Count the number of times you picked ‘a’. Put the number here: __________________
2 Count the number of times you picked ‘e’. Put the number here: __________________
3 To get your Task Behaviour Score, add the two numbers above and put the total here:
__________________
Task behaviour score
4 Count the number of times you picked ‘d’. Put the number here: __________________
5 Count the number of times you picked ‘g’. Put the number here: __________________
6 To get your Relationship Behaviour Score, add the two numbers above and put the total here:
__________________
Relationship behaviour score
7 Plot your scores on the chart below. Find your Task Behaviour Score on the vertical axis first and draw
a horizontal line across the chart at this level. Then find your Relationship Behaviour Score on the
horizontal axis and, from this point, draw a vertical line up the chart.
Interpreting your score
Most research on leadership suggests that the best style of leadership depends a lot on the situation. The
scores on this questionnaire cannot tell you how well you are able to adapt your leadership style to
different situations. What it can tell you is something about the leadership style that is most natural to you.
By plotting your scores on the chart, you can see clearly just what your overall tendency is.
• Uninvolved: Low on task behaviour and relationship behaviour
• Participating: High on both task behaviour and relationship behaviour
• Friendly: Low on task behaviour and high on relationship behaviour
• Controlling: High on task behaviour and low on relationship behaviour.

By understanding your own typical pattern of behaviour, you will probably find it easier to learn how to
improve on it or change it to meet varying situations.
Source: SASHKIN, M. 1998. George Washington University, Washington, DC, Copyright (A9) 1998, Marshall
Sashkin. Used with permission. No further reproduction without written permission.

Behavioural models of leadership provide a way of identifying effective leaders by their

actions. There are five primary behavioural models. The Theory X and Theory Y model states that
leaders’ behaviours reflect their basic assumptions about people. Theory X and Theory Y
represent two quite different ways that leaders view their subordinates and thus manage them. The
Ohio State University and University of Michigan models also identify two leadership behaviour
styles. These styles were called the considerate leadership style and the initiating-structure
leadership style by the Ohio State researchers, and the production-centred leadership style and the
employee-centred leadership style by the Michigan researchers. The managerial grid model
identifies various combinations of concern for people and production.
There are four principal contingency leadership models. Fiedler’s contingency model suggests
that successful leadership depends on matching the demands of the situation to leadership style.
Hersey and Blanchard’s situational leadership model indicates that leaders must adapt their
leadership style to the readiness level of their followers. House’s path–goal model holds that
effective leaders clarify the paths or means by which subordinates can attain job satisfaction and
perform well. The leader-participation model suggests that leaders can choose one of five
leadership-decision styles, depending on the situation.
Transformational leadership involves inspiring (and thereby motivating) individuals to reach
the leader’s highest goals. Leaders influence others by creating a vision that appeals to
subordinates’ emotions, framing the vision in ways that others can easily understand and using
impression management tactics to increase their attractiveness to followers. These types of
behaviour create feelings of identification with the leader, heightened emotions, feelings of
empowerment and a willingness to follow the leader unquestioningly.
Organisations use three approaches to develop effective leaders: placing employees in
positions that promote learning on the job, providing employees with formal leadership
assessments and training, and offering mentoring and coaching. In global organisations, these
development activities must take into account the leadership behaviours and attributes that are
viewed positively throughout the world. They also must recognise that some types of behaviour
may be desirable in one region of the world, but ineffective in others. In addition to what
organisations do to develop leaders, individuals can develop their own leadership capabilities by
assessing their current approaches to leadership, developing action plans for improvement and
carrying out those plans.

Questions for discussion

1. With reference to the theories outlined in this chapter and to the MBSA (EL) ‘Leadership
Compact’, identify and describe 10 attributes that you believe would define effective
leadership in South Africa.
2. Think about how you have used each type of power. How did others react to you using the
particular types of power? What would you change about how you use power next time?
Think about those who have power over you. What sources of power do they use and do they
use the power they have, appropriately?
3. Research the topic of ethical leadership and discuss the relevance of ethical leadership in
South Africa.
4. Think of someone who you would regard as an effective leader. First describe this person in
terms of their characteristics or traits. Secondly describe what the person does as a leader.
How would you describe their leadership style? Does the style change their behaviour at all?
How would you explain the change in their behaviour or style?
5. What behaviours would you look for in a transformational leader? How would you know
whether a transformational leader was present in your class? What behaviours and skills might
such a person show to others?

Exercises for competency development

 1. Imagine that you are a manager with a multinational organisation with offices in many countries,
including China. Briefly describe what you as a leader would need to be sensitive to when visiting
Japan and in particular when leading within a Chinese organisation.
2. Imagine that you are the managing director of a South African motor-vehicle assembly plant like
MBSA. The company has just secured a multi-billion-rand export deal. Prepare a memorandum for
circulation among the staff wherein you announce the export deal and outline the implications for the
business, South Africa’s economy and the staff.

Contemporary management in practice

• Identify and discuss some of the more newsworthy business scandals. Access
http://money.cnn.com/gallery/news/2015/10/14/biggest-corporate-scandals/. Also identify and
discuss some of the challenges and opportunities facing business organisations in South Africa.
• Describe what is regarded as ‘right behaviour’ in South African business. Identify the sources of
literature and other information (reference list) that informs and supports your description.
• Research ‘ethical leadership’. Advise on what ethical leaders do and on the role of ethical leadership
in contemporary business. Access www.ted.com/talks and research the talks available on ethical
leadership and its role. Advise on those talks you believe would be most useful in explaining ethical
leadership and its practice.
• Considering the ‘Leadership Compact’ of MBSA (EL), create your own ‘Leadership Compact’ that
specifically addresses ethical leadership and the type of leadership required to lead in the South
African context, given its challenges and opportunities.
• Advise on how leaders could be developed to be able to exercise the leadership style identified and
described in your ‘Leadership Compact’.

Endnotes
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LEARNING OUTCOMES
After studying this chapter, you should be able to:
• Explain the concept of motivation within the workplace
• Debate why managers need to be concerned about motivation within the workplace
• Differentiate between the need and the process theories of motivation, and explain the implications of
each for management practice
• Compare and contrast four need theories of motivation and advise on the implications for motivating staff
• Explain how individual needs influence motivation
• Explain the idea that employees work for more than money
• Explain how job content and organisational context influence the motivation of staff
• Explain how goals and rewards influence motivation
• Advise on the design of an enriched job
• Advise on the application of equity theory in the workplace
• Advise on the use of reinforcement theory to influence behaviour in the workplace
• Explain how managers can use goals to motivate employees
• Present an integrated understanding of motivation
• Identify and explain the factors that affect the motivation of staff
• Advise on the application of motivation theory to the effective performance management of staff
• Advise on strategies to enhance the motivation of staff within an organisation
• Identify and discuss the needs that are important to you.

CHAPTER OUTLINE
• South African Insight: Employees work for more than money
• Introduction to motivation
• Overview of work motivation theories
» Individual differences
» The job and organisational contexts
» Behaviours of managers
» An integrative approach to motivation
• Theories about individual differences
» Maslow’s hierarchy of needs
» Which needs motivate you?
» Alderfer’s ERG theory
» McClelland’s theory of learnt needs
• Job and organisational contexts as motivators
» Herzberg’s two-factor theory
» Job enrichment
» Equity theory
• How the behaviour of managers affects motivation
 » Reinforcement theory
» Goal-setting
• Motivation: An integrated view
» Basic expectancy theory
» The integrated expectancy model
• Emotional intelligence competency: Remuneration ethics
• Guidelines for performance management
» Enhancing employees’ performance
» Diagnosing performance deficiencies

Key terms and concepts

• Motivation
• Individual differences
• A need
• Physiological needs
• Security needs
• Affiliation needs
• Esteem needs
• Self-actualisation needs
• Satisfaction-progression hypothesis
• Existence needs
• Relatedness needs
• Growth needs
• Frustration-regression hypothesis
• Theory of learnt needs
• Achievement motive
• Affiliation motive
• Power motive
• Herzberg’s two-factor theory
• Motivator factors
• Hygiene factors
• Critical psychological states
• Experienced meaningfulness
• Experienced responsibility
• Knowledge of results
• Job characteristics
• Skill variety
• Task identity
• Task significance
• Autonomy
• Feedback
• Growth need strength
• Equity theory
• Reinforcement theory
• Positive reinforcement
• Punishment
• Negative reinforcement
• Extinction
• Goal-setting theory
• Management by objectives
• Basic expectancy theory
• Expectancy
• Instrumentality
• Valence
• Ability
• Traits
• Role perceptions
• Extrinsic rewards
• Intrinsic rewards
• Satisfaction

COMPETENCY WHY IS THIS COMPETENCY EXAMPLE

IMPORTANT IN RELATION
TO MOTIVATION?

Communication To motivate staff one needs to be Review performance, provide feedback and
able to communicate about set goals in a performance interview
individual needs, set goals with Write a compensation and rewards policy
staff and communicate around Communicate strategic direction
expectations and rewards. Listen to staff
Management also needs to be able Salary and wage negotiations with unions
to write policy and negotiate. Leadership guru Glenn Llopis states that
managers in a leadership capacity must be
perceived as trustworthy, equal and
accountable by employees.
Employeesfollow and support leaders who
are approachable and to whom they can
relate. This requires managers who are
willing to communicate and share.1

Planning and Knowing the current state of affairs Design and implement interventions to
financial with regards to staff engagement motivate staff.
management and motivation at work, means that
problems can be identified and
solved.

Teamwork People have social/relatedness • Bring a group of individuals together to

needs which managers need to work with each other.
address. • Lead a team.
• Motivate a team.

Strategic action Understanding the industry and the • Design and implement motivation
organisation and being able to take strategies for any workplace.
strategic actions to create a • Link compensation and reward to the
motivating work environment. culture and values of the organisation.
To work towards optimal • Ensure compensation and rewards
performance, management needs to support business strategy.
develop strategic action plans aimed
at motivating innovative
performance, directed at self-
actualisation and optimal individual
and organisational success.

Globalawareness Openness to other cultures means • Be sensitive to, and know what to do to
one can develop knowledge and motivate people from diverse cultures.
 understanding ofcultures and • Learn from what organisations around
differences within the workplace. the world do, to motivate staff.
This makes one sensitive to what • “Don’t view differences as a melting
will motivate employees in those pot, but rather as a mosaic of
cultures and groups. opportunities.”
• “Employees want to be authentic and
appreciate it if a manager or fellow
employees embrace their diversity. The
more inclusive your management style,
the wider the breadth and depth of
opportunities and potential innovation.”2

Emotional Emotional intelligence is important • Be aware of what motivates you.

intelligence to motivation, as it pertains to one’s • Be aware of what motivates others.
own level of motivation and that of • Managers accept responsibility for
others. attracting and retaining staff and for
their performance.
• Managers behave ethically in managing
compensation and rewards.

Employees work for more than money

Attracting and retaining talented people who are able to perform at their best in line with organisational
goals is a key challenge facing the managers of organisations. Read what Anisha Archary, the Human
Resources Director of Old Mutual Emerging Markets (South Africa, Rest of Africa, Latin America, India
and China) has to say on what Old Mutual is doing.
“Sustainable employee value propositions need to offer compelling tangible and intangible rewards.
Compensation and benefits is the area of human resources responsible for ensuring that the company
has relevant, sustainable and competitive pay and benefits packages that attract, retain and motivate talent.
Within this realm, strategies aimed at rewarding people fairly, equitably and consistently in accordance
with their value to the organisation are formulated and implemented. At Old Mutual we believe that
reward is only one component of the integrated employee value proposition. Research indicates that the
major drivers of attraction, retention and engagement are in the intangible aspects of total rewards: career
progression, development, effective leadership and the ability to make a difference through meaningful
work. We invest a great deal in these aspects to ensure that the overall offering to employees is
compelling.
Total reward is about strategies of how you reward and retain employees through pay, tangible and
intangible benefits. This is the guiding philosophy for us. At Old Mutual we focus on total reward
delivered through a multi-dimensional employee value proposition, which includes culture, leadership
development, talent management, community work and an opportunity to develop a career. For us,
benefits are more than monetary reward. We know that money is important to employees, but also
understand that people work for more than money.
Our promise to employees is personal and professional growth aligned to our core values and purpose
as a business. What attracts, retains and motivates people often lies in non-monetary aspects of an
employer’s offering to its people: the opportunity to learn and grow, to progress in a career, to work with
great people, to make a difference in the world. We see reward in its totality. This ranges from flexible
working hours, medical aid, life assurance, retirement funding, maternity benefits as well as counselling
and a health programme. Old Mutual provides supporting infrastructure such as a crèche, gym, canteen,
shopping mall, sports facilities, access to proactive financial wellbeing and advice for staff to promote
work-life integration. All these initiatives create a great place to work.
Old Mutual’s response, together with our board remuneration committee, has been to ensure that we
invest strongly in growing our internal talent to meet our evolving business needs.
 External sourcing of key talent is used on a targeted basis to strengthen and refresh our talent pools.
Offers are positioned holistically, considering all aspects of the value proposition that the position
presents.
These aspects of an organisation are crucial and are huge contributing factors towards its success. If a
company wants to attract and retain the best people in the industry, it is critical that they offer fair and
market-related pay at all levels, as well as competitive benefits and effective risk and retirement funds.
Incentives and recognition schemes in particular play a key role in driving and rewarding performance
excellence, because they help to focus employees on delivering great work aligned to the strategy of the
business, in a manner that demonstrates its values.
While pay is undeniably a major part of a company’s costs, it is important that it is managed prudently
and sustainably, in the interests of customers and clients. Setting pay outside the context of sustainable
business will eventually catch up with the business, so maintaining a keen eye on affordability and pay
increases is a skillful juggling act.
There are two key principles that can help guide businesses in this regard:
• Businesses must ensure consistent and disciplined approaches to pay that promote fair pay strategies
• There must be appropriate pay structures that support the strategic and operational delivery of a
business.

At Old Mutual, we employ structural mechanisms such as market and internal equity benchmarking and
integrated reward management processes, and through line leadership taking accountability for pay costs
as part of their business management responsibilities. Our reward offering to employees is under constant
review. It is also consistently evolving, especially in the rest of Africa where market data is sometimes
hard to obtain. Rigorous benchmarking is employed and we ensure that our total reward packages are fair
and market-related. We conduct ongoing market research on benefits, which ensures that we review and
update practices to remain competitive and relevant in the 13 countries in which we operate across Africa.
We also offer risk and retirement benefits to our employees, which help them to cover key risks like
medical emergencies, death and disability and provide for retirement as part of their broader financial
goals. Investment boutiques and asset management offerings are regularly benchmarked and managed to
ensure that our employees receive optimal outcomes. We recognise that employees have varying personal
circumstances and needs, thus we offer choice and flexibility, allowing them to structure their total
package in line with their personal and family needs. This includes aspects such as buying and selling of
leave, differing levels of retirement funding and many different medical aid options.
Our secret sauce at Old Mutual is employee empowerment through an integrated financial education
programme, a single view of the reward statement that helps in planning and finally, programs that
encourage savings and behaviour change. We drive this through targeted communication to assist
employees in making informed choices, and to optimise their packages. We utilise the benefits usage
information to inform targeted campaigns.
Our reward structures are performance-driven, rewarding performance excellence. This ensures that
high performers share in the value they help to create. Through a variety of recognition schemes and
opportunities, we reward employees for their contribution to the building of a client-focused, values-driven
business. We believe in sustainable total reward of employees and essentially we balance the interests of
our shareholders, policyholders and employee interests. We need to always look at the long-term
sustainability of the business to project employment in this very trying time of low economic growth.
Over and above all of this, employee engagement is a critical part of our strategy to understand their
needs and wants, focusing on key employee segments where appropriate. This constitutes an important
differentiator for us as a business. We frequently hold debriefing sessions with our employees, leaders and
unions on our position as the No.1 Top Employer in Financial Services and No.1 Best Company To Work
For in the large company category (Deloitte). These sessions are important in order to get feedback on all
aspects that we can improve on. Thereafter the teams work in a focussed and diligent way to improve on
this. We are transparent around company performance with our union partners and involve them in our
business planning and HR practice improvement exercises.
The competition for key talent remains a challenge in businesses around the world and to an even
greater extent, in our continent. We constantly see the effect of the experience gap. A company undeniably
 stands out when it offers rewards that are consistent with its culture and values, and when those rewards
support its business strategy – attracting, retaining and motivating the right talent for that business.”
Source: ARCHARY, A. 2015. Employees work for more than money. Mail and Guardian. [Online]. Available:
http://mg.co.za/article/2015-10-02-employees-work-for-more-than-money/ [Accessed 16 November 2015.]

12.1 Introduction to motivation

Organisations play an important role in society, providing goods and/or services to satisfy our
many needs and wants. Think for example of the role of organisations like Old Mutual presented
in our South African Insight, and organisations like Pick n Pay, in our daily lives.
A key factor in organisations being able to provide these goods and/or services sustainably is
people, particularly people with the right talent. Organisations need to be able to attract and retain
talented people. These are individuals who are able to perform consistently, act ethically and add
value to the organisation. It is the commitment and performance of people individually and
collectively that determines the performance and sustained success of organisations. Faced with
the challenge of being responsible for the performance of organisations, managers need to ensure
that the organisation is able to not only attract and retain talented staff but also ensure high levels
of performance from staff.
Playing a key role in this responsibility of managers is motivation. Key to attracting and
retaining talented staff and encouraging them to high levels of performance is motivation. This is
so because motivated staff are engaged, committed and perform at their best. Managers
consequently need to understand what motivates both themselves and others and be able to create
an environment and implement strategies to ensure that the organisation is able to attract, retain
and ensure a motivated staff. In doing this, managers need to be able to communicate with staff
about:
• Needs
• Goals
• Consequences of behaviour (rewards and sanctions)
• The strategic direction of the organisation
• Negotiate wages and write relevant policy
• Plan and administer initiatives to motivate staff
• Bring people into teams as a source of motivation and ensure that teams are motivated
• Take strategic actions to align the behaviour of staff individually and collectively to the
strategic needs of the organisation
• Be aware of initiatives to motivate staff across cultures and national borders
• Be aware of what motivates them personally and others.

The competition for key talent is a real challenge for organisations across industries, globally and
in South Africa. The South African Insight provides a glimpse into the challenge, and what an
organisation like Old Mutual believes about people and what they do to attract, retain and
motivate the right talent for their business.
In their study on the relative importance of different types of rewards for employee motivation
and commitment in South Africa, Nujjoo and Meyer conclude that “by effectively managing their
reward strategies, organisations are likely to attract, retain and capitalise on the benefits of a loyal
and high calibre workforce”.3 South African employers, according to the study by Nujjoo and
Meyer, “need to take cognisance of the fact that monetary rewards seem to have less relevance in
creating and maintaining a motivated and committed workforce in comparison to non-monetary
and in particular intrinsic rewards”.4 They advise that “employers in South Africa should thus
place particular emphasis on designing jobs in such a way that employees find them intrinsically
rewarding, for example, by ensuring employees are exposed to a variety of tasks and allowing
them to challenge their potential”.5 The opening South African Insight case of Old Mutual is
evidence of this being put into practice by an organisation.

Ranked as the 2015 Number 1 in Fortune’s 100 Best Companies to Work For, is
Google.6 Google offer staff a number of compensation programs (e.g. deferred profit sharing
plan), perks to make life easier (e.g. a hair salon), work-life balance programs (e.g. elder care
resources), health insurance covers (e.g. alternative treatments, such as acupuncture, homeopathy,
or chiropractic) and onsite health benefits (e.g. breast cancer screening).7
A programme which Google staff identify as making their workplace unique is:
“Recognition: Google knows that employees want to feel valued. And they should. Through
our ‘gThanks’ platform, employees are able to offer recognition to their colleagues’ outstanding
achievements with ‘kudos’ and peer bonuses. One department even started a ‘Wall of Happy’ on
which glowing thank-you notes and praise emails are displayed for all to see. Google also rewards
hard work through spot bonuses, which can be awarded in cash or made more personal by letting
employees choose the form of the award – they can choose items like tickets to sporting events,
experiences that are meaningful to them, or gift cards. The company also has a peer bonuses
program, in which employees can nominate their fellow Googlers to receive a bonus of $175.”8
Access http://reviews.greatplacetowork.com/google-inc to develop your Global Competency
by obtaining greater insight into what Google does to make it the 2015 Number 1 in Fortune’s 100
Best Companies to Work For.
Rated as the Top Employer 2015 in both Africa and South Africa, is Unilever South Africa.9,10
Access www.top-employers.com/companyprofiles/ZA/Unilever-South-Africa/ to learn about the
employee offerings of Unilever.
“Traced back to 1887 when the Sunlight Trademark was first registered in South Africa by
William Lever, Unilever South Africa has long mastered the balance of striving for global
prosperity while remaining committed to the local trends and requirements in each of its operating
countries along its expansion journey. As a subsidiary of Unilever plc, one of the largest consumer
goods companies in the region, the business houses more than 3 000 employees across its two
offices and five manufacturing locations in South Africa. Consistently recognised for adapting to
trends and being proactive in its continuous development, the company has made huge
investments over the years in creating optimum working conditions for its employees,
complemented by a staunch set of HR policies and practices; all of which encourages potential
employees to stay in South Africa amid temptation to move overseas to seek work.”11 It is no
wonder Unilever invests in creating optimum working conditions for its staff.
The challenges of attracting, retaining and encouraging staff to top performance is not only
limited to corporate organisations. Retention of academic staff in Higher Education Institutions
(HEIs) in South Africa is also a challenge. What can be done to retain academic staff? Having
investigated the factors that influence turnover and retention of academic staff, Theron,
Barkhuizen and du Plessis recommended “that the national government revisit and increase the
budget allocation for academic salaries. In addition, HEIs should also focus on designing suitable
incentives and perks for academic staff, and offer fair and equitable bonus structures. Emotional
recognition is a potential retention factor that can be addressed with an adequate leadership
development programme that educates direct line managers in suitable recognition practices. HEIs
should endeavour to create suitable job descriptions for academic staff members, with clear and
measurable performance outputs in order to improve the performance management system as a
retention factor. Career-path development and mentorship for academics should be more robust
and reinforced for academic institutions”.12

12.2 Overview of motivation theories

As managers, we clearly need the insight and understanding to help us design and implement
appropriate motivation strategies. This chapter presents key theories of motivation. We obtain
important insights into motivation and how to motivate staff from each theory as well as from
considering all the theories together. In addition, the chapter considers the implications of insights
from motivation theory on the design of performance management systems. Understanding
motivation, assists managers to understand what influences people to do what they do and why
they continue doing that over time. Understanding this helps the manager decide on what
strategies to implement to influence behaviour in line with organisational goals.
There are many definitions of motivation but very simply, motivation is any influence either
within or external to a person that triggers, directs or maintains goal-directed behaviour.
Assisting in developing insight into, and understanding of, motivation, are many different
theories about work motivation, each of which offers some insight into the topic. However, no
single theory adequately addresses all aspects of motivation. The theories described in this chapter
fall into four general categories:
1 Theories about individual differences in motivation focus on motivation as a characteristic of
each individual which varies from individual to individual. One person may be motivated to
earn a high salary while another person may be driven by security so will seek out a stable job.
These theories address questions such as, ‘Are the factors that motivate one individual
different from those that motivate another?’ Recall from the South African Insight that Old
Mutual recognises that employees have varying personal circumstances and needs. These
theories assist managers in understanding what drives the behaviour of each individual.
Managers can then use their understanding to maximise the performance of each individual.
2 Theories about how the job and organisational contexts focus on the design of the job and the
general context of the organisation, as affecting the motivation of staff. These theories address
questions such as, ‘Are people who work for an organisation committed to creating a
workplace where all employees can enjoy equal opportunities and apply their skills and
develop to their fullest potential, more satisfied than people who work at another
organisation?’ and ‘Is the job of an auditor more motivating than the job of an operator on an
automotive assembly line, for example?’ Note from the South African Insight that Old Mutual
acknowledges the role of tangible (lower order, extrinsic) rewards and intangible (higher
order, intrinsic) rewards.
3 Theories about how managerial behaviour affects motivation focuses in particular on how the
use of goals and rewards affects motivation. These theories address questions such as, ‘How
can a manager use goals and rewards to improve the motivation of people?’ The role too of
recognition and performance-driven rewards is acknowledged in the South African Insight on
Old Mutual.
4 Theories that consider the entire motivation process (such as integrated expectancy theory)
assist in understanding how several motivational factors or influencers combine to influence
motivation and performance. They can be used to design effective performance management
systems.
All these theories form the basis of what guides and informs managers in the design and
implementation of strategies to motivate staff in the workplace and so create an attractive work
environment that attracts and retains staff and encourages top performance. For each of the
descriptions of the theories, think of the connection to the South African Insight and other
examples presented above, including the research findings.
Figure 12.1 lists the theories in each of the four categories. Insights from all of them help in
understanding how employees feel about their work and how effective performance management
systems can be developed.
The theories of motivation can also be categorised as either need theories or process theories.
This can be seen in Figure 12.2. Need theories focus on the factors within each individual that
initiate, direct, maintain and stop behaviour. Managers need to be aware of the different needs that
individuals have and have strategies to satisfy these needs to motivate people. Process theories
outline the process of how behaviour is initiated, directed, maintained and stopped. By
understanding the process of motivation, managers can implement strategies to influence the
choices individuals make in the process. Understanding these theories can assist managers in
determining what to do to ensure a motivated staff.

Figure 12.1 Categories of understanding motivation

Figure 12.2 Categorisation of needs and process theories

Source: AMOS T.L., PEARSE N.J., RISTOW L. & RISTOW A. 2016. Human resource management. (4th
ed.). Cape Town: Juta & Co. Ltd, p. 214.

As explained above, there are many different theories to assist us in understanding motivation
and to be able to motivate others. The various theories can be classified as either need theories or
process theories (Figure 12.2) or alternatively into four categories: theories about individual
differences, theories about the job and organisational contexts as motivators, theories about how
the behaviour of managers affects motivation, and theories offering an integrated view of
motivation (Figure 12.1). Each of the four categories are briefly described in sections 12.2.1 to
12.2.4 before the theories in each category are described in detail.

12.2.1Individual differences
Each person is different in terms of the needs that are most significant, the values that are most
important, the competencies that are most developed and so on. The specific content of individual
differences is what makes each person unique. Managers need to acknowledge this as Old Mutual
does. They consequently offer choice and flexibility which allows staff to structure their total
package in line with their personal and family needs.
The common thread is that these individual differences are important determinants of
how people think, feel and behave. One person may be motivated by an opportunity to earn more
money and prefer a job that offers such an opportunity. Another may be motivated by security,
preferring a job that involves less risk of unemployment.13 Other people may thrive on challenges
and seek positions that stretch their competencies to the limit and help them develop their
potential. Effective managers understand the individual differences that shape each employee’s
unique view of work and use this understanding to maximise each employee’s motivation.

12.2.2The job and organisational contexts

The specific characteristics of a job determine the extent to which employees experience work to
be meaningful, the level of personal responsibility that employees feel and the knowledge that
employees gain about how well they are performing.
 The way jobs are designed determines the immediate context of work, but the job
itself is not the only such determinant of motivation. The organisational context – in particular, the
organisation’s human resources management policies, procedures and practices – also affects
employee motivation. In addition, people want to know about the company and where it is
heading, implying that an organisation needs a clear strategy.

12.2.3Behaviours of managers
Managers are responsible for the design of jobs as well as for the policies to
implement. However, managers also motivate employees directly through more personal, one-on-
one communication including providing recognition. Above, it was noted that people want to
know that an organisation has clear direction. Managers have an important role to play here in
communicating the strategy of the organisation in a manner that people can relate to and
understand. Managers can also work with employees to set realistic goals, and they can use both
monetary and non-monetary means to reward employees for achieving those goals or to penalise
them for failing to do so.

12.2.4An integrative approach to motivation

Many theories of motivation address how one factor (for example, an individual’s
needs or the design of a job) affects motivation at any particular time. Few theories, however,
consider the ways in which many factors combine to affect the ebb and flow of a person’s
motivation over time. Expectancy theory is one theory that does so. It accounts for individual
differences in employee needs, the way work is designed, human resources management policies
and managerial behaviours.

12.3 Theories about individual differences

Each employee is a unique individual who differs from others in many ways. Individuals have
different abilities, personalities, values and needs. Here three theories of individual differences
explain how these differences affect employee motivation in the workplace. Furthermore, all three
of these theories consider individual differences in terms of needs as particularly important for
explaining what motivates people. The three theories are:
• Maslow’s hierarchy of needs
• Alderfer’s ERG theory
• McClelland’s theory of learnt needs.

12.3.1Maslow’s hierarchy of needs

A need is a strong feeling of deficiency in some aspect of a person’s life that creates an
uncomfortable tension. Hunger is an example of a need. The tension becomes a motivating force,
causing the person to take actions to satisfy the need, reduce the tension and diminish the intensity
of the motivating force.

Psychologist Abraham Maslow believed that people have five types of needs, which he
arranged in a hierarchy of needs with the most basic needs at the bottom. Maslow suggested that
as a person satisfies each level of needs, motivation shifts to satisfying the next, higher level of
needs.14 The various needs create a sense of internal drive within a person that influences what
they do. Essentially, needs motivate or drive us to act or behave in a certain direction. Where an
individual is hungry there is an internal pressure or desire to satisfy the hunger through eating
food so the person is motivated or driven to behave (find a restaurant, call Mr Delivery or prepare
a meal) in a manner to satisfy the need for food. If eating a meal satisfies the need there is no
longer the desire to behave in the direction of seeking food. If the need is not satisfied the person
will continue behaving in a manner to satisfy their need for food. In an organisation, the manager
can use an understanding of individual needs to direct work behaviour towards organisational
goals.

Maslow’s five types of needs are as follows:

1 Physiological needs. Physiological needs are those basic needs people try to satisfy before all
others and include needs such as food, clothing and shelter. A person who is hungry has a
need for food before any other need. People consequently work for wages that provide the
spending power to meet these needs first.
2 Security needs. These needs include the desire for safety and security. In an organisational
context these needs can be expressed as a desire for a stable job with medical, unemployment
and retirement benefits.
Pay and benefits are considered important basic lower-level needs (physiological and
security). They are preconditions for employee motivation and need to be perceived as fair.
This can be done by ensuring that pay and benefits are market related by using credible salary
surveys. Stability in the form of job security can also be a need. Here an organisation can offer
a sense of job security on the basis of its history as a stable employer. Recall that Old Mutual
believes it is critical that they offer fair and market-related pay at all levels, as well as
competitive benefits and effective risk and retirement benefits, cover for medical emergencies,
death and disability, all of which would provide a sense of security.
3 Affiliation needs. Affiliation needs are the desire for friendship, love and a sense of
belonging. This level in Maslow’s hierarchy represents a clear step up from the truly basic
physiological and security needs and is seen as the first higher level need. Employees with
high affiliation needs enjoy working closely with others. Employees with low affiliation needs
may be content to work independently on tasks. When an organisation does not meet
affiliation needs, an employee’s dissatisfaction may be expressed by frequent absenteeism,
low productivity, stress-related behaviour and even emotional breakdown. A manager who
recognises that a subordinate is striving to satisfy affiliation needs should act supportively.
The manager might encourage others to work more closely with the employee and suggest that
the employee participate in the organisation’s social activities.
A manager can organise staff into teams and allocate responsibility to the teams in the
form of production targets. This is something which could be done in automotive assembly
plants where a team is held responsible for its own quality, safety and efficiency. This creates
a sense of belonging and of ownership and empowerment, especially where teams are
responsible for their own production targets. Other teams which could be created are problem
solving teams which come together to identify and solve problems.
4 Esteem needs. These needs represent the desire for self-respect, a sense of personal
achievement and recognition from other people. Remember Google’s ‘gThanks’ platform,
where employees are able to offer recognition to their colleagues. Opportunities for
challenging work, achievement, promotion, bonuses, praise and status are ways of addressing
these needs.
 Talent management can be used to address esteem needs, whereby people with talent are
identified and developed for more responsibility within the organisation. Esteem needs are
also classified as a higher-level need.
5 Self-actualisation needs. Self-actualisation needs are the desire for personal growth, self-
fulfilment and the realisation of the individual’s full potential. Managers who recognise this
motivation in employees can help them discover the growth opportunities available in their
jobs. Alternatively, they can create special growth opportunities such as offering employees
special assignments or the chance to work on a team that reports to top management. Training
and development opportunities within organisations are also important. Many organisations
express their commitment to the development of staff. This is classified as the highest-level
need.

12.3.1.1 Which needs motivate you?

Maslow’s theory predicts the needs that will drive a person’s behaviour, based on consideration of
which needs have been satisfied and which remain to be satisfied. A key hypothesis of the theory
is the satisfaction-progression hypothesis, which proposes that a satisfied need is no longer a
motivator and that once a need has been satisfied, another need emerges to take its place. In
general, lower-level needs must be satisfied before higher-level needs become strong enough to
motivate behaviour, thus people are always striving to satisfy some higher need.

Do you know which needs are most influential in motivating you? To identify their relative
importance to you, complete the following questionnaire. After you have done so, consider the
implications of your scores for the competencies that you need to develop. For example,
strengthening your teamwork competency may enable you to satisfy strong affiliation needs.
Developing the drive and persistence component of your emotional intelligence competency may
improve your chances of satisfying a strong need for self-actualisation.

12.3.2Alderfer’s ERG theory

Like Maslow, Clay Alderfer looked at motivation from a needs perspective. Instead of five
categories of needs, however, his ERG theory specifies three need categories:15
1 Existence needs. These are the desires for material and physical well-being that are satisfied
through food, water, air, shelter, working conditions, pay, fringe benefits and so on. They are
similar to a combination of Maslow’s physiological and security needs.
2 Relatedness needs. These needs are the desires to establish and maintain interpersonal
relationships with other people, including family, friends, supervisors, subordinates and co-
workers. Relatedness is similar to Maslow’s affiliation needs.

Work motivation questionnaire

Instructions
This questionnaire is designed to assess the needs that are important to you. There are no right or wrong
answers. The best response to any item is the one that best reflects your feelings – as you have
experienced them or as you anticipate you would experience them – in a work situation. Respond to the
twenty statements by indicating the degree to which each is true for you. Use a scale of 1 through to 5,
where:
• 1 = Not true and accurate
• 2 = Slightly true and accurate
• 3 = Partly true and accurate
• 4 = Mostly true and accurate
• 5 = Completely true.

_____________ 1 I believe that the real rewards for working are good pay, good working conditions
and the like.
_____________ 2 The most important thing to me in evaluating a job is whether it gives me job
security and employee benefits.
_____________ 3 I would not want a job in which I had no co-workers to talk to and share work
stories with.
_____________ 4 I want a job that allows rapid advancement based on my own achievements.
_____________ 5 Searching for what will make me happy is most important in my life.
_____________ 6 Working conditions (office space, equipment and basic physical necessities) are
important to me.
_____________ 7 I would not want a job if the equipment was poor or I was without adequate
protection against layoffs.
_____________ 8 Whether the people I was going to work with were compatible would affect my
decision about whether or not to take a promotion.
_____________ 9 A job should offer tangible rewards and recognition for a person’s performance.
_____________ 10 I want a job that is challenging and stimulating, and has meaningful activities.
_____________ 11 If I took a job in which there were strong pressures to rush and little time for lunch,
coffee breaks and the like, my motivation would suffer.
_____________ 12 My motivation would suffer if my fellow employees were cold or held grudges
against me.
_____________ 13 Being a valued member of the team and enjoying the social aspects of work are
important to me.
_____________ 14 I’m likely to work hardest in a situation that offers tangible rewards and recognition
for performance.
_____________ 15 Going as far as I can, using my skills and capabilities, and exploring new ideas are
what really drive me.
_____________ 16 An important factor for me is that my job pays well enough to satisfy my needs and
the needs of my family.
_____________ 17 Fringe benefits, such as hospitalisation insurance, retirement plans and medical-aid
programmes, are important to me.
_____________ 18 I would most likely work hardest in a job where a group of employees discuss and
plan their work as a team.
_____________ 19 My accomplishments give me an important sense of self-respect.
_____________ 20 I would work the hardest in a job where I could see the returns of my work from the
standpoint of personal interest and growth.

Scoring directions
In the table that follows, insert the number you chose for each of the twenty statements. Then add each
column to get your summary scores.

Motives
Basic creature comfort Safety and security Social or affiliation Self-esteem Self-actualisation

Interpretation
 For each of the five motives, there is a minimum of four and a maximum of twenty points. Scores of
eighteen or more are quite high and suggest that the motives measured by that scale are very important to
you. Scores from thirteen to seventeen suggest that the motives measured are moderately important to
you. Scores from nine to twelve suggest that the motives are not especially important to you. Scores
below nine are quite low and suggest that the motives measured are not at all important to you.

3 Growth needs. These are the desires to be creative, to make useful and productive
contributions, and to have opportunities for personal development. They are similar to
Maslow’s esteem and self-actualisation needs. Growth and development are important so
organisations need to offer development opportunities for staff. Recall Old Mutual and their
promise to employees of personal and professional growth.

Alderfer’s ERG model recognises Maslow’s satisfaction-progression hypothesis, but it

also contains a frustration-regression hypothesis. The frustration-regression hypothesis holds
that when individuals are frustrated in meeting higher-level needs, the next lower-level needs re-
emerge and again direct behaviour. A cashier in a supermarket may have a need to express his/her
creativity and to be developed to be a supervisor (growth need). Because the job itself may not
provide an opportunity for her to be creative and the supermarket may not offer self-development
opportunities, the frustrated cashier may stop pursuing satisfaction of growth needs at work and
instead regress to pursuing activities that satisfy relatedness needs. An example would be
socialising with other staff in the supermarket.
Figure 12.3 illustrates the satisfaction-progression and frustration-regression components of
the ERG model. The satisfaction-progression hypothesis is on the right, with the frustration-
regression hypothesis on the left. Even though an individual has regressed to seeking satisfaction
of a lower-level need, the higher-level need may still re-emerge as an important motivator of
behaviour. If this happens, the person will progress to the next higher-level need, seeking again to
satisfy that need, though perhaps in a different way.

Perhaps the most important contribution of the ERG model is the frustration-
regression hypothesis, which indicates how managers can approach employee motivation. When
employees are frustrated in fulfilling their needs, managers should try to determine the cause of
the frustration and, if possible, work to remove any blockages to needs satisfaction. If blockages
cannot be removed, managers should try to redirect the employees’ behaviour toward satisfying a
lower-level need. For example, to ensure high and consistent quality, standard operating
procedures may limit individuals being creative on the production line. If employees are frustrated
because they cannot be creative, managers could encourage them to focus on relating to their co-
workers.
Figure 12.3 ERG model of motivation

12.3.3McClelland’s theory of learnt needs

David McClelland’s theory of learnt needs, also referred to as Acquired Needs Theory,
specifies that people acquire needs over time through interaction with their surrounding
environment. In other words, the social contexts in which people live and work influence the
learning of motivating needs and their strength. In contrast to the theories of Maslow and
Alderfer, McClelland’s theory does not view needs as a hierarchy through which people move.
When a need is acting as a determinant of a person’s behaviour, it is referred to as a motive.
McClelland believed that three key motives were particularly useful for understanding the
differences among individuals.16
1 Achievement. The achievement motive is the desire to succeed relative to some standard of
excellence or in competitive situations. People with a high need for achievement often like to
assume personal responsibility for setting their own goals, prefer to pursue moderately
difficult goals, desire immediate and concrete feedback and seek a sense of accomplishment
and advancement in the job. Being achievement orientated may be necessary in order to
succeed at work in an increasingly competitive business world.
2 Affiliation. The affiliation motive is a person’s desire to develop and maintain close, mutually
satisfying interpersonal relationships with others. Individuals with a strong affiliation motive
tend to seek approval and reassurance from others, feel accepted and conform to group norms.
The affiliation motive affects people’s willingness to work together in teams. Where people
have a high affiliation motive, managers should try to create a co-operative environment
where people work with each other and feel accepted.
3 Power. The power motive is an individual’s desire to have influence and control over others
as well as their social environment. The power motive is expressed in two ways: as personal
power and as socialised power.17 In the case of personal power, people try to influence and
control others merely to assert their dominance. In such instances, managers should try to
create opportunities for these individuals to manage others. In the case of socialised power,
individuals use their power to solve organisational problems and help the organisation reach
its goals. These individuals have an ability to gather and motivate others to work towards
organisational goals. The power motive also may affect how employees react to team
operations, particularly with regard to self-managing work teams.
To assist readers in understanding the similarities and differences between theories, Figure 12.4
presents an integration of the three need theories discussed above as well as Herzberg’s two-factor
theory, which will be discussed in section 12.4.1.

12.4 Job and organisational contexts as motivators

The needs theories of Maslow, Alderfer and McClelland emphasise
individual needs as explanations for individual motivation. They are based on the assumption that
the work situation is less important than individual needs as a determinant of behaviour. In
contrast to this approach are theories that emphasise the importance of the environment and play
down differences in how individuals respond to the same situation. In the South African Insight it
is evident that Old Mutual takes both individual needs into consideration, as well as the role and
importance of the work environment. For them, reward is about strategies of how to reward and
retain staff through a combination of pay, tangible and intangible benefits. The need for pay,
tangible and intangible benefits was developed through understanding the three need theories
above, but is developed further by understanding in particular Herzberg’s theory, Hackman and
Oldham’s theory and Equity theory described below.

Figure 12.4 Integrating need theories of motivation

Source: AMOS, T.L., PEARSE, N.J., RISTOW, L. & RISTOW, A. 2016. Human resource management.
(4th ed.). Cape Town: Juta & Co. Ltd, p. 223.

Three theories that view the job and organisational contexts as important determinants of
behaviour are:
• Herzberg’s two-factor theory
• Hackman and Oldham’s job-enrichment theory
• Equity theory.

12.4.1Herzberg’s two-factor theory

Herzberg’s two-factor theory identifies aspects of the job and organisational contexts that
contribute to satisfaction and motivation.18 For Herzberg, two separate and distinct aspects of the
environment are responsible for creating feelings of job satisfaction and job dissatisfaction. He
used the terms motivator factors and hygiene factors to refer to these two aspects of the
environment, giving the theory its name: the two-factor theory.

12.4.1.1 Motivator factors

Motivator factors are aspects of the job and organisational contexts that create positive feelings
among employees. These feelings are often referred to as intrinsic motivation. The motivation
comes from within you rather than from an external source. Motivator factors, also referred to as
intrinsic or intangible rewards, are job characteristics (challenge of the work itself, responsibility,
recognition, achievement, advancement and growth) that should, when present, create high levels
of motivation. These factors determine whether a job is exciting and rewarding. However, their
presence alone does not guarantee that employees will be productive. Motivators lead to superior
performance only if no dissatisfiers are present.

12.4.1.2 Hygiene factors

Hygiene factors are the non-task characteristics of the work environment that create
dissatisfaction. They include aspects of the environment that are closely associated with the job
(for example, compensation and level of responsibility) and certain aspects of the broader
organisation (working conditions, company policies, supervision, co-workers, salary, formal status
and job security). It is such factors from outside oneself, also called extrinsic or tangible rewards
that result in what is called extrinsic motivation, which is based on external factors such as
rewards and punishment.
Hygiene factors need to be present, at least to some extent, to avoid dissatisfaction. Lack of
dissatisfaction is essential for motivator factors to be effective. However, lack of dissatisfaction
alone will not motivate employees. If a company provides free parking, excellent health and life
insurance, a retirement plan and time off for child or elderly care, will its employees be more
highly motivated to perform than they would be if those benefits were not provided? Herzberg’s
theory suggests that, although these positive environmental factors will prevent feelings of
dissatisfaction, they will not generate feelings of excitement about the job and organisation.
Motivator factors must also be present for satisfaction to be experienced, for individuals to be
intrinsically motivated.
Hygiene factors tend to be aspects of the work environment that would satisfy the lower-level
needs identified by Maslow and Alderfer. Motivator factors tend to be conditions that would
satisfy higher-level needs. Despite this parallel, however, Herzberg’s view of motivation was
quite different from the view of the needs theorists. He believed that the factors he identified were
universally applicable. In his view, individual differences among employees were not very
important. That is, most employees would be dissatisfied in jobs lacking in hygiene factors and, if
hygiene factors were addressed, most employees would be satisfied and productive if motivator
factors were present.19 Therefore, in Herzberg’s view, managers should be able to motivate all
employees in the same way: by ensuring the presence of both hygiene and motivator factors.

12.4.2Job enrichment
The job-enrichment model was developed by J. Richard Hackman and Greg Oldham.20 Figure
12.5 illustrates the components of this theory. Numerous studies have shown that the theory
provides a good explanation for understanding how employees feel about their work (satisfaction)
as well as how well they do their work (performance).21 Recall from the introduction the advice
from Nujjoo and Meyer that employers in South Africa should place particular emphasis on
designing jobs that employees find intrinsically rewarding. Think about how job enrichment
theory can assist employers in South Africa in designing such jobs.

The Hackman–Oldham model states that three critical psychological states are needed to create
high levels of motivation in the workplace, namely positive personal and work outcomes. The
three critical psychological states are affected by five key job characteristics. The model goes on
to claim that the strength of an employee’s growth needs influences the relationships among job
characteristics, critical psychological states and work motivation. Each of the core elements of the
Hackman–Oldham model will now be discussed.

Figure 12.5 Hackman–Oldman job-enrichment theory

12.4.2.1 Critical psychological states

The three critical psychological states needed to create high levels of motivation in the
workplace are:
1 Experienced meaningfulness. This refers to whether employees perceive their work as
valuable and worthwhile.
2 Experienced responsibility. This refers to whether employees feel personally responsible for
the quantity and quality of their work.
3 Knowledge of results. This refers to the extent to which employees receive feedback about
how well they are doing. Feedback can come from the task itself or from other sources, such
as managers, peers and customers. On a production line, for example, real time information
 pertaining to the target for the shift, actual performance achieved and the variance between the
two, could be displayed on a dashboard for all to see.

When all three of the psychological states of experienced meaningfulness, experienced

responsibility and knowledge of results are experienced, employee motivation is high.22
We can illustrate the concepts represented by these psychological states when sales reps make
use of online technology to track sales. Once a sale is made, the result will immediately appear on
the online web portal providing immediate feedback to the salesperson. Experienced responsibility
for performance is high even though sales reps may make excuses for poor sales (performance).
Experienced meaningfulness may also be high when sales reps see their efforts translated at once
into sales accumulating online which can be compared to the sales of their fellow sales team
members (knowledge of results). Because all three psychological states are usually high among
the sales team, motivation is usually high. We can further illustrate the concepts represented by
these psychological states with an analogy to the game of golf. Players hit the ball and follow its
flight. They receive immediate feedback in the form of their scores on each hole, which tells the
golfers how well they are playing against a standard (par). Personal responsibility for performance
is high even though golfers may make excuses for poor performance. Experienced meaningfulness
may also be high when golfers see their efforts translated at once into scores that can be compared
to par and to the scores of their playing partners. Because all three psychological states are usually
high among regular players, motivation is usually high. In fact, some golfers exhibit motivated
behaviour rarelyseen at work: getting up before dawn, playing in wet and cold conditions, feeling
despair or joy (depending on how the round went) and even aggression (throwing a club after a
poor shot). How can these same feelings be created at work? The answer lies in job
characteristics.

12.4.2.2 Key job characteristics

The five key job characteristics that affect the three critical psychological states in the Hackman
–Oldham model, are discussed below. Key job characteristics are objective aspects of job design
that can be changed to improve the critical psychological states.
1 Skill variety. This is the degree to which the job involves many different work activities or
requires several skills and talents. A car wash employee who washes cars may show low levels
of task variety. However, if the employee takes bookings from clients and advises them on the
best materials and on various options available, takes in the cash, and decides on monthly
specials, is responsible for ordering car care materials, and maintains the high pressure
equipment, then the person may enjoy higher levels of task variety.
2 Task identity. This is present when a job involves completing an identifiable piece of work
(that is, doing a job with a visible beginning and outcome). A website designer who is
responsible for the entire website would have higher levels of task identity than a designer
who designed only a part of the website.
3 Task significance. This is present when a job has a substantial impact on the goals or work of
others in the organisation. A person responsible for ordering components for a television
manufacturing plant can experience task significance in that should they not order the
components in time, the production line will come to a standstill until components are
available.
4 Autonomy. This is present when the job provides substantial freedom, independence and
discretion to the individual in scheduling work and determining the procedures to be used in
carrying out tasks. Lecturers who have the freedom to identify the outcomes of their courses
 and to decide on the textbook and classroom activities, have higher autonomy than lecturers
provided with set courses to teach.
5 Feedback. Feedback is present when work results give the employee direct and clear
information about his or her performance.23 Such feedback motivates employees and helps
them improve their performance. A painter working for a subcontractor may not receive any
communication from their employer as to the levels of satisfaction of the client with the
painting work completed. In this case, a key job characteristic is missing and could lead to
reduced motivation.
Typically, managers provide staff with timely formal and informal feedback as part of the
performance management system. Both manager and staff member meet formally at least once
a year to review performance against predetermined goals or criteria. Recall this point when
reading about goal setting theory. Feedback is then provided to employees about their progress
towards achieving goals and the consequences (consider reinforcement theory – rewards or
punishment) of the achievement or lack thereof determined. This feedback on how one is
progressing in relation to the pre-determined goals is important for motivating staff, but in
addition to the formal review, managers also need to be providing staff with informal feedback
on a continuous basis. Just as goals assist individuals, so too can goals help teams perform.

Hackman and Oldham argue that employees are motivated to the extent that their jobs have all
five of these key job characteristics. When all are present at a significant level, employees feel
involved in their work and involved employees exert more effort.24 In this regard, the Hackman
–Oldham theory is similar to Herzberg’s theory in that both theories recognise the importance of
the job context in motivation. Like the needs theorists, however, Hackman and Oldham also
believe that individual differences play a role. In particular, they identified the strength of an
employee’s growth needs as an individual difference that would influence how people reacted to
enriched jobs.

12.4.2.3 Growth need strength

Figure 12.5 indicates that the strength of an employee’s growth needs influences the relationships
among job characteristics, critical psychological states and work motivation. Growth need
strength refers to a desire for personal challenges, a sense of accomplishment and learning.
Employees with a strong growth need are likely to respond positively to enriched jobs. However,
employees with a weak growth need may experience enriched jobs as frustrating and dissatisfying.
The objective of job enrichment is to create jobs that employees will enjoy doing. People who
enjoy the tasks they perform may experience intrinsic motivation and not need the extra
motivation of high pay and impressive job titles. Nevertheless, if such rewards are not distributed
equitably, dissatisfaction may result.

12.4.3Equity theory
Equity theory relates to how employees make judgements about whether the organisation is
treating them fairly compared to others. Recall from the South African Insight of Old Mutual that
they employ structural mechanisms such as market and internal equity benchmarking, to ensure
perceptions of internal equity. “Internal equity is the fairness of what is paid for one job in the
organisation, compared to that of other jobs. External equity is concerned with the fairness of the
organisation’s pay in comparison with the payments made to similar jobs outside the
organisation.”25
 The primary research on equity theory was done by J.S. Adams.26 He stated that individuals
mentally form ratios to compare their inputs and outcomes with those of others doing similar work
to determine whether they are being treated fairly. Inputs are what an employee gives to the job
(for example, time, effort, education and commitment to the organisation) to obtain desired
outcomes. Outcomes from work include the feelings of meaningfulness and responsibility
associated with enriched jobs as well as rewards (for example, recognition, promotions and
increased pay).
An example of the equity comparison process is presented in Table 12.1. It is a simple rand-
per-hour example to illustrate how the ratios work. In reality the ratios can be quite complex,
involving factors that are quite difficult to quantify and compare. As a result of such a
comparison, an employee or even a team will feel equitably rewarded, under-rewarded or over-
rewarded. Feelings of being over-rewarded are probably rare, but when they occur, they have
beneficial consequences for employers. Over-rewarded employees tend to perform better in their
jobs and are better members of the organisation than those who have not been so well rewarded.27

Table 12.1 The equity model of motivation: Comparing hourly wages

More typical are situations that result in employees feeling under-rewarded. When people
perceive that they are being treated unfairly, they are likely to look for justifications for the
treatment. Failing to find any, they may behave in ways that harm the organisation. For example,
when high performers leave the organisation, the company loses their productive talents.28 If
dissatisfied employees stay, they may react by withholding effort in order to restrict output or
lower quality.29 Another way that employees deal with unfair treatment is by being hostile towards
customers. Sometimes employees resort to more drastic and even illegal ways of dealing with the
perceived inequity. Deliberate sabotage of equipment is an example of this sort of reaction.30
Generally, six alternatives are available to employees who want to reduce their feelings of
inequity:
1 Increase their inputs to justify higher rewards when they feel that they are over-rewarded in
comparison with others.
2 Decrease their inputs to compensate for lower rewards when they feel under-rewarded.
3 Change the compensation they receive through legal or other actions, such as leaving work
early, forming a union and so on.
4 Modify their comparisons by choosing other people with whom to compare themselves.
5 Distort reality by rationalising that the inequities are justified.
6 Leave their situations (resign from their jobs) if the inequities cannot be resolved.

Perceived inequities can arise in many ways. They often occur with respect to promotions, pay
raises, perks and other human resources management practices in organisations. To be effective in
their roles, managers must strive to treat all members of the organisation fairly. Doing so can pay
huge dividends. People who are paid and treated fairly are more likely to believe in and be
committed to what they do. In turn, they will become more trusting, honourable and loyal
employees, and will work harder to exceed the expectations that managers have of them.31

12.5 How the behaviour of managers affects motivation

Decisions about how jobs are designed and policies about how people are to be
paid have important consequences for employee motivation. In large organisations, managers at
high levels often make these decisions. Regardless of whether decisions made by high-level
managers are good or bad for employee motivation, they place constraints on how much middle
and first-line managers can change the type of work that people are asked to do or the general
level of pay that they will receive. Even when managers are not able to redesign jobs or create
new pay structures, they can affect employees’ motivation through their use of reinforcers and
goals. Each of these will be discussed in the following sub-sections.

12.5.1Reinforcement theory
Reinforcement theory states that behaviour is a function of its consequences (rewards or
punishments). Simply put, by using rewards and punishments, managers can change the behaviour
of people in the workplace. This is an important part of a manager’s strategic action competency
as managers need to align the behaviour of organisational members with the strategic
requirements of the organisation. This approach to understanding what motivates behaviour was
developed most extensively by noted psychologist B.F. Skinner.32 Reinforcement theory principles
hold that behaviour followed by pleasant consequences is more likely to be repeated and that
behaviour followed by unpleasant consequences is less likely to be repeated. If you receive a
reward (for example, a bonus, a compliment or a promotion) for superior performance, you are
likely to continue performing well in anticipation of future rewards. However, if the consequences
of a particular behaviour are unpleasant (for example, management’s disapproval or a demotion),
you will tend to modify that behaviour. At Old Mutual, reward structures are performance-driven
whereby performance excellence is rewarded, ensuring that high performers share in the value
they help create. See the Emotional Intelligence Competency: Remuneration ethics on p. xx and
consider the ethical consideration to be taken into account with structuring performance-based pay
options.

Figure 12.6 shows the process by which rewards and punishments influence
behaviour. A person’s response (behaviour) to a stimulus (situation) results in specific
consequences (rewards and punishments), which in turn shape future behaviour. Suppose that you
work for an Information Technology (IT) organisation. You come to a monthly staff meeting with
a proposal relating to changes you would like to make to how clients log jobs. If your manager
praises your initiative and creativity, your behaviour is rewarded. You will probably be motivated
to come up with other innovations. However, if your manager gives you a disapproving look and
says that the firm is perfectly happy with existing methods, you would probably feel put down or
embarrassed in front of your colleagues. In effect, your behaviour has been punished. You
probably will conclude that new ideas lead to unpleasant consequences and that the best way to
earn a reward is just to follow orders.

Figure 12.6 Reinforcement process

According to reinforcement theory, a manager who wants to change an employee’s

behaviour must also change the specific consequences of that behaviour. Behaviours that
managers can most easily change by using reinforcement principles are those that can easily be
measured.33 Measurable behaviour is action that can be observed and counted. Examples include
smiling and greeting when a customer approaches, using a seatbelt when driving a delivery truck,
ensuring that a customer’s vehicle is available after a service at the time promised and wiping up
spills when they occur on the shop floor.
Behaviour can be modified in the following ways:
• Through positive reinforcement
• Through punishment
• Through negative reinforcement
• Through extinction.

Positive and negative reinforcement are consequences that strengthen or maintain behaviours.
Punishment and extinction are consequences that reduce or stop behaviours. Each of these will be
discussed in the following sections.

12.5.1.1 Positive reinforcement

Positive reinforcement creates a pleasant consequence by the use of rewards to increase the
likelihood that a behaviour will be repeated. Any reward that encourages an individual to repeat a
behaviour can be classified as a positive reinforcer. Some common positive reinforcers used by
organisations are praise, recognition of accomplishment, promotion and salary increases. Another
example is an individual piece-rate system whereby one can incentivise someone who picks fruit
by paying on the basis of the quantity picked.
On positive reinforcement, think of a salesperson who works on commission. What are the
ethical implications of this? Think about a situation where the salesperson knows they won’t meet
target sales and is considering the options available to him/her. One option could be to fudge sales
figures for the month.

12.5.1.2 Punishment
Punishment is an attempt to discourage a behaviour by the application of negative
outcomes whenever it does occur. The purpose of punishment is to reduce the likelihood that an
individual will repeat the target behaviour. For example, disciplinary action may be taken against
an employee who comes to work late, neglects to clean up the work area or turns out too many
defective parts. The disciplinary action might take the form of a verbal warning, a written warning
or a suspension, all with the intention of discouraging the behaviour. Whatever form it takes,
punishment should match the nature of the misconduct and should be consistent with what other
employees have received.34 In disciplining staff, managers need to do so in line with the
Disciplinary Code and Procedure of the organisation.
The concepts of reinforcement and punishment are easy for most people to understand because
most individuals can readily recall examples of their behaviours being reinforced or punished. The
concepts of negative reinforcement and extinction are sometimes more difficult to grasp, however.
The reason is that both refer to the absence of behavioural consequences.

12.5.1.3 Negative reinforcement

When people engage in behaviour to avoid unpleasant consequences, they experience
negative reinforcement. Some students may come to class on time to avoid a reprimand from the
lecturer. Similarly, most employees follow coffee-break and lunch-hour guidelines to avoid the
disapproval of managers or colleagues. In both cases, these individuals are acting to avoid
unpleasant results; when they are successful, they are negatively reinforced. On an automotive
assembly line, where workers are in teams, the assembly plant manager notes that absenteeism is
low, attributable partly to peer pressure.35 Note that whereas punishment causes a behaviour to
occur less frequently, negative reinforcement causes the behaviour to be repeated.

12.5.1.4 Extinction
Extinction is the absence of any reinforcement, either positive or negative, following the
occurrence of a behaviour. Usually, extinction occurs when the positive reinforcement that once
normally resulted from the behaviour is removed. Because the behaviour no longer produces
reinforcement, the employee stops engaging in it.

Extinction is a common problem for managers, who often become victims of their own
successful attempts to be more systematic in delivering rewards and punishments. A manager who
seeks to reduce absenteeism may put in place a plan to reward employees for coming to work and
not taking days off. The manager begins to offer a small monetary bonus for a perfect attendance
record. If eventually there is pressure to reduce costs, the manager may decide to eliminate the
bonus programme and soon absenteeism is higher than ever. Even employees who had low
absentee rates prior to the bonus programme may now be absent more often. What happened?
Unfortunately, the manager has trained everyone to overcome any barriers they encounter in order
to get to work on time and receive their bonuses. Removing the opportunity to earn a bonus
(positive reinforcement) caused extinction of the behaviour.
12.5.1.5 Guidelines for managers
Positive reinforcement is the preferred approach for influencing work behaviour.
However, an effectively designed and implemented Disciplinary Code and Procedure is usually
also necessary in organisations. Managers can use positive reinforcement or punishment to
improve efficiency, cut costs, increase attendance and raise productivity by following the
guidelines shown in Table 12.2.
Although the reinforcement model has many positive features, it also has some drawbacks:36
• The model may oversimplify behaviour by not recognising individual characteristics such as
needs and values37
• It may unduly emphasise manipulating and controlling subordinates
• With its heavy emphasis on external rewards, the model tends to ignore the fact that an
increasing number of employees are motivated by the job itself.

Like each of the other theories described, this one also presents only a partial explanation of
behaviour. Nevertheless, the basic principles identified in Table 12.2 provide useful guidelines for
managers.

Table 12.2 Five guidelines for using reinforcement theory

Guideline Comment

Do not reward all To be effective, reinforcers should be based on performance; rewarding everyone
individuals equally equally in effect reinforces poor or average performance and ignores high
performance

Failure to respond Managers influence their subordinates by what they do not do as well as by what
can also modify they do; for example, failing to praise deserving subordinates may cause them to
behaviour perform poorly the next time

Tell individuals what Setting performance standards lets individuals know what they should do to be
they can do to receive rewarded; they can then adjust their work habits to get these rewards
a reward

Tell individuals what If managers withhold rewards from subordinates without indicating why they are
they are doing wrong not being rewarded, the subordinates may be confused about what behaviour the
manager finds undesirable; the subordinates may also feel that they are being
manipulated

Do not punish in Reprimanding subordinates might sometimes be a useful way of eliminating an

front of others undesirable behaviour; public reprimand, however, humiliates subordinates and
may cause all the members of the work group to resent the manager

12.5.2Goal-setting
Goal-setting theory was introduced by Edwin A. Locke in the 1960s and
further developed during three decades of research as a reaction to the reinforcement theory.38
Whereas reinforcement theory focuses attention on the consequences of behaviour, Locke’s goal-
setting theory focuses attention on the aspirations that people have. Goal-setting theory states that
managers can direct the performance of their employees by assigning specific, challenging goals
that employees accept and to which they are willing to commit. Such goals increase and direct the
effort individuals exert in the workplace. Managers, however, need to ensure that these goals are
aligned with the strategic goals of the organisation to ensure that individual staff behaviour is
directed and channelled in line with the strategic requirements of the organisation. This requires
managers to understand the organisation’s strategic intent and vision, in other words, to exercise
their strategic action competency. Providing feedback to employees about their progress towards
achieving goals is also important if the goals are to be an effective motivator. According to this
theory, managers can improve performance without directly controlling all the consequences of
employees’ behaviours.
Goal-setting theory views employees as rational beings who control their own behaviour
which they choose in order to achieve their goals. Goals affect motivation in two ways:
• By increasing the amount of effort people choose to exert
• By directing or channelling that effort.

When employees accept a goal as something to strive for and commit to achieving it, they
essentially agree to exert the amount of effort required to do so. If goals are too easy or so difficult
that employees reject them as impossible, the goals will have no motivational effects.
Specific goals are more effective motivators than vague, ambiguous goals. Specific goals help
focus attention on a well-defined task so that any effort expended by employees is more likely to
translate into goal achievement. Specific goals also make it easier for employees to gauge how
well they are doing. If a goal is specific, employees can quickly judge whether their efforts are
paying off in terms of performance. Employees can then use this feedback to decide whether to
continue using the same methods or to try new approaches.
Done correctly, goal-setting can be an effective motivational tool. Think of cycling where
having a clear goal (to enter an endurance ride, finish a particular race, to finish in the top 10 of a
race or to be able to cycle a particular distance) can enforce the behaviour or actions of waking
early every morning and climbing on your bike, often irrespective of the weather conditions, in
order to train.
Many managers believe that goals work best when employees participate in the goal-setting
process. Participation increases the employees’ willingness to accept goals, which is essential in
order for the goals to be motivating. In addition, goal-setting can be effective only if employees
have the competencies needed to achieve the goal, obtain feedback about how they are doing and
receive rewards for achieving the goal. These basic principles are the foundation for management
by objectives.
Management by objectives (MBO) is a managerial technique used in many types of
organisations. Generally, the MBO process begins with a conversation between the manager and
the employee. During this conversation, past performance is reviewed and objectives (goals) for
the future are identified. The manager and the employee agree on a set of goals that both parties
accept as appropriate, with the understanding that future performance evaluations and rewards
will reflect the employee’s progress towards the agreed-upon goals. An example of an objective
would be ‘to increase production by 2% by a particular date’.

12.6 Motivation: An integrated view

Each of the motivation theories described so far offers useful
insights into motivation. Effective managers can use all of these theories and insights to motivate
employees. To take maximum advantage of the theories, however, managers must be able to
integrate them. In this section, we describe an integrated view of motivation that incorporates
many of the specific principles discussed so far in this chapter. Before we do so, however, we
need to present yet another theory of motivation: basic expectancy theory. This simple theory is
the basis for the integrated view of motivation.

12.6.1Basic expectancy theory

One of the most widely accepted models for explaining how people make decisions about how to
behave is Victor Vroom’s basic expectancy theory. It suggests that people choose among
alternative behaviours by considering which behaviour will lead to the more desired outcomes for
them (for example, recognition or new challenges).39 It thus combines ideas from both
reinforcement theory and goal-setting theory. More specifically, basic expectancy theory states
that people tend to choose behaviour that they believe will help them achieve their goals (for
example, a promotion or job security) and avoid behaviour that they believe will lead to
undesirable consequences (for example, a demotion or criticism).
The theory is formulated as a general theory that can explain a wide range of behavioural
choices, but here we focus on behaviour related to work performance. Examples of behavioural
choices that are related to work performance include whether to go to work or call in sick, whether
to leave work at the official time or stay late, and whether to exert a great deal of effort or to work
at a more relaxed pace. When making behavioural choices such as these, employees normally
consider three questions, perhaps unconsciously at times:
1 The expectancy question. If I make an effort, will I be able to perform the intended
behaviour?
2 The instrumentality question. If I perform the intended behaviour, what will the outcome be?
3 The valence question. How much do I value the outcome associated with the intended
behaviour?

12.6.1.1 Expectancy
Before acting, an employee must assess whether expending the required effort will result in
improved performance. Expectancy is the belief that a certain level of effort will lead to improved
performance. We use the term performance broadly here, as the level of the individual’s work-
related achievements. It could involve making more sales, creating a satisfied customer and/or
helping another salesperson do his or her job more effectively, or it may refer to what the
employee has learnt.40 Effort is the amount of physical and/or mental energy exerted to perform a
task or to learn something new. In other words, how hard is the employee trying? At a clothing
store, a salesperson’s attempts to find a medium-sized blue shirt is an example of effort. Effort
refers solely to the energy expended, not to how successful it is. However, employees who believe
that exerting more effort results in better performance generally show higher levels of
performance than employees who do not believe that their efforts will pay off.41

12.6.1.2 Instrumentality
Instrumentality is the perceived usefulness of performance as a means for obtaining desired
outcomes (or avoiding undesired outcomes). To be willing to expend the effort needed to achieve
the desired performance, employees must believe that the performance is instrumental to them. If
you make more sales, will your pay be greater? If you develop an innovative product design, will
you receive public recognition for this accomplishment? If you arrive at work on time, rather than
being a few minutes late, will anyone else really care? If your performance rating says that your
work is outstanding, will you get paid more?
A good example of a firm that uses expectancy theory to motivate its employees, is a
manufacturer of electric motors. The performance appraisal and reward system used at the firm is
effective in creating feelings of high expectancy and instrumentality. This company is well known
for its highly motivated and productive employees. Supervisors rate employees on four
performance dimensions:
• Quality
• Dependability
• Ideas and co-operation
• Output.

Managers keep records regarding behaviour such as lateness (which affects the dependability
score) and the number of motor defects that can be directly traced to the employee’s work (which
affects the quality score). Consequently, employees expect that, if they put in the effort to arrive
on time and avoid making errors as they assemble motors, they will be rated as superior
performers. In addition, they know that their supervisors’ ratings will be used to calculate their
annual bonuses, which represent a large portion of their annual pay. In fact, they even know the
formula that will be used to calculate their bonuses. The company performs extremely well most
years, so bonuses are usually sizeable. Compared to the industry average, the company’s
workforce is about twice as productive as the workforces of other companies.42

12.6.1.3 Valence
The valence of an outcome associated with performance is the importance that a particular
employee attaches to the outcome. Valences are subjective. The same outcome may have a high
valence for one person and a low valence for another. A promotion from museum curator to the
higher-paying position of museum director would appeal more to an individual who values (places
a high valence on) financial gain and increased responsibility than to an individual who values
creativity and independence.43
Like goal-setting theory, expectancy theory gives great weight to how people think about the
future. The assumption is that people base rational choices about how to behave on the
information available to them. One implication of this view is that employers who offer incentives
for performance must do more than simply design a good incentive plan. They must also
communicate it effectively.

12.6.2The integrated expectancy model

Lyman Porter and Edward Lawler realised that basic expectancy theory could serve as a good
foundation for a more fully developed model of motivation. The Porter–Lawler integrated
expectancy model recognises that employee satisfaction and performance are two different, but
related, phenomena. Note that, in this model, satisfaction is not viewed as a cause of high
performance. Instead, the model suggests that employees who perform well will feel more
satisfied, assuming that their performance is rewarded appropriately.44
Briefly, this model begins with the idea that employees will exert effort when they believe that
increased effort will lead to a reward and that the reward is something they value. If increased
effort is needed to perform at a level that will allow you to keep your job, then keeping your job is
the reward and the value of this reward is the importance you attach to friendships with your co-
workers, your pay or your feelings of accomplishment in the job. Some workers might prize the
friendship of co-workers; others might value money more highly.
Of course, employees’ effort is not the only variable that affects performance; abilities, traits
and role perceptions also do so. Ability refers to the individual’s mastery of competencies
required to do a job. Traits are individual characteristics (for example, the strengths of various
needs) that can affect a person’s job performance. Thus abilities and traits are relatively
independent of the work situation. Although employees can learn new skills on the job, they
generally acquire basic abilities and traits before beginning work.
Role perceptions are the employee’s beliefs about what is required to do the job successfully.
Role perceptions include both the specific tasks that an employee believes are part of the job, as
well as the attitudes and behaviour that an employee thinks are appropriate in terms of
organisational culture. Many types of employee experiences, including interactions with
customers, co-workers and supervisors, form role perceptions.
Performance can be rewarded in two ways:
• Through extrinsic rewards, which are outcomes supplied by the organisation, such as a good
salary, status, job security and fringe benefits (these rewards are similar to the job context
items that Herzberg called hygiene factors)
• Through intrinsic rewards, which are personally satisfying outcomes, such as feelings of
achievement and personal growth (these rewards are similar to Herzberg’s motivator factors).

In the Porter–Lawler model, both intrinsic and extrinsic rewards are desirable. Employees’
perceptions of whether their rewards are equitable include their evaluations of both extrinsic and
intrinsic rewards.
Finally, satisfaction is an employee’s attitude towards the work situation. Porter and Lawler
believed that this attitude is determined by the difference between the rewards employees receive
and the rewards they believe that they should have received; the smaller the difference, the greater
the employee’s satisfaction. People often compare the rewards they receive to the rewards that
others receive. If an employee believes that the comparison shows unfair treatment, dissatisfaction
results.
Satisfaction is important to organisations because it is related to absenteeism, tardiness,
turnover and commitment. The more satisfied employees are, the less likely they are to be absent
or late, or to resign from the company. Satisfied employees focus on the positive aspects of their
work, not the negative aspects. They are therefore more likely to make a commitment to the
organisation than are dissatisfied employees. This commitment, in turn, translates into continued
effort, better performance and increasing rewards. Conversely, dissatisfied employees exert less
effort, which results in declining performance and a general downward spiralling to
ineffectiveness.45
It must not be forgotten that an important consideration in remuneration is ethics. Consider the
Emotional Intelligence Competency focussing on remuneration ethics below.

Emotional Intelligence Competency: Remuneration ethics

The South African Insight on Old Mutual states that it is important that pay is manged prudently and
sustainably and that it is also important to keep a keen eye on affordability and pay increases. Recall the
two key principles that help guide Old Mutual in this regard, and that line managers take responsibility
for pay costs. It is clear that Old Mutual would need to practice ethical remuneration. Below are some
guidelines on ethical remuneration.
Organisations are “placing greater emphasis on the more effective management of ethics and on the
goal of an ethical workplace culture where ethical behaviour is the norm”.46
 “The principles underlying remuneration ethics are:
1. Transparency in the sense of communicating openly with employees about remuneration; inviting
and listening to their feedback, ideas and concerns; discussing alternatives and constraints, and
resolving differences by debate.
2. Participation or involvement of employees in decision-making on remuneration policy, practices and
decisions which affect them.
3. Compliance with accepted best professional practice, the prescriptions of good governance and
securities exchange as well as statutory requirements.
4. Fair and non-discriminatory policy and practices that seek to advance the common good, rather than
to advance the interests of any particular group at the expense of others.
5. Accountability of senior leadership and HR professionals for remuneration policy and the effective
and well-managed implementation of remuneration processes and practices.”47

There are no hard and fast yardsticks, but the framework presented here is intended to provide some
‘thought starters’ towards better remuneration ethics:48
Performance related-ness
Performance is an important determinant of pay but must be seen as more than just the ‘hard’ business
results. Performance can also include skills and competences, ethical behaviour, behaviour which reflects
organisational values or expected leader behaviour.
Remuneration policy and procedure guidelines
Remuneration policy and procedures should be fully communicated and understood by all, including
communicating any deviation from policy or change to policy. Legislation on equal pay for work of
equal value guides one as to when any pay inconsistencies are justifiable or not.
Demanding yet achievable performance expectations
Performance expectations deliberately set too low or too high could possibly indicate unethical
remuneration practice. Ideally, performance expectations should be negotiated with the relevant
employees.
Risky business practice
What behaviour does the reward and recognition system encourage? Ethical remuneration practices
encourage employees to do the ‘right’ thing for the optimal short- and long-term benefit of the
organisation.
Reward for doing nothing
Are managers and others rewarded for the organisation performing beyond expectations as a result of
external factors (e.g. a favourable exchange rate) beyond the control of the managers? Ethical
remuneration practices reward those whose actions directly result in organisational performance beyond
expectations.
Pay ratio
What are managers paid in comparison to others? Ethical remuneration determines, monitors, reports on
and manages the manager-to-worker pay ratio.
Changing the ‘goal posts’
Ethical remuneration practice sticks to performance goals for all until the end of the performance period.
Human resources practitioners and consultants
Human resources practitioners and/or consultants employed by the organisation need to subscribe to a
code of behaviour and ethics and provide unbiased advice.

12.7 Guidelines for performance management

When researchers develop theories such as those described in this
chapter, their intent is usually to propose explanations for why people behave as they do. They
focus on developing accurate descriptions of human behaviour. Managers can use the descriptions
to design performance management systems that enhance employees’ motivation. They can also
use the theories that we have described to help diagnose causes of performance problems.

12.7.1Enhancing employees’ performance

Recruiting and retaining employees who are highly motivated is an important first step in
maximising employees’ performance. Maximising employees’ performance through motivation
requires several actions. These actions are discussed in more detail below.

12.7.1.1 Design jobs with high motivating potential

Fully enriched jobs may not be appropriate in all situations, but the evidence indicates that
enriched jobs tend to be more satisfying than those that are not enriched. Jobs that may be
candidates for enrichment are those that are characterised by repetitive tasks requiring few skills,
are narrow in scope and are restrictive in terms of the amount of freedom they give employees as
they carry out their tasks. To determine whether jobs need to be redesigned, managers should
assess the degree to which employees experience their work as meaningful, feel personally
responsible for their work outcomes and receive adequate feedback.

12.7.1.2 Clearly identify the behaviours and performance

achievements that will be rewarded
For employees to be energised by their work, they must have a clear understanding of what
performing well requires. Too often, managers assume that employees understand how best to
direct their efforts. More likely, employees feel uncertain about what is most important. By
working with employees to set specific and measurable goals, managers can clarify their
expectations for employees. These goals may include job-specific performance goals as well as
behaviours that extend beyond job tasks, but are necessary for the organisation to function
effectively.49 An example would be a goal relating to leadership behaviour. A manager responsible
for other managers would need to collaboratively set a goal relevant to this behavioural
competency for a particular manager. An example could be to have completed and signed
development plans for all staff by a particular date.
When setting goals, managers should be careful not to fall into the trap of focusing only on
goals that are easily quantified.50 An employee described a manager she once had as confusing
productivity goals with ‘face time’ goals. The employee’s work involved 30% travel time, which
meant she put in long hours away from the office, including some weekends. Nevertheless, her
manager expected her to be at her desk at 8 a.m. sharp on Monday morning. She kept working, but
her motivation plummeted. She felt, ‘Okay, I’ll do the best I can, but you’re not getting any more
from me.’ That manager has since left the company. Her new boss has a better approach, setting
clear goals for getting the job done and not trying to dictate the methods to be followed nor the
amount of time to be put in to get the job done.51

12.7.1.3 Align rewards with what employees value

To be motivators, rewards must be aligned with the things that employees value. The rewards
that employees want can be determined simply by asking them. Some employees value monetary
rewards above everything else, whereas others value scheduling flexibility, the opportunity to
work on special projects, training and development opportunities, and so on. Whenever possible,
effective managers find ways to use various rewards to motivate a variety of employees.

12.7.1.4 Provide plenty of feedback

Feedback is essential to motivation, regardless of whether employees are performing well or
poorly. When employees are performing well, feedback telling them so spurs them on. When
employees are performing poorly, feedback to that effect suggests that they consider a different
approach to the task or intensify their efforts. Giving appropriate feedback can be difficult,
however, and inappropriate feedback may actually decrease motivation. How does a manager
know what type of feedback to give? One general rule is to focus on task performance and avoid
criticising personal characteristics that are difficult for employees to change.52

12.7.1.5 Provide equitable rewards

Employees’ perceptions of whether rewards are equitable are affected by many factors.
Managers must be aware of all of these factors. Employees make two types of comparison when
evaluating whether they have been rewarded fairly:
1 Assessing their own accomplishments in terms of the rewards they receive. Insufficient
rewards may demotivate employees, causing them to do little more than go through the
motions. Conversely, sufficient rewards can motivate superior performance.
2 Assessing their own accomplishments and rewards in terms of those of other employees.
Effective managers recognise that employees’ assessments of equity and fairness are basically
subjective perceptions. Perceptions may partially reflect objective facts, but inaccurate
assumptions and beliefs often play a role, too.

Effective communication about rewards is essential. A well-designed reward system will have
little motivational value if employees misunderstand it, and rely on inferences and rumour when
assessing whether the system is fair.

12.7.2Diagnosing performance deficiencies

By clarifying performance expectations, linking performance to rewards that
employees value and paying attention to employees’ perceptions of equity, managers can increase
employees’ motivation levels. Even when employees are highly motivated, however, other
barriers to effective performance may exist. To remove these barriers, managers must first identify
them. The theories described in this chapter suggest that barriers to performance may be caused by
underdeveloped competencies, inappropriate performance goals or lack of feedback about
performance.

12.7.2.1 Assess whether employees have the necessary competencies

To perform well, people must know more than simply what is expected of them. They must
know how to do their assigned tasks. That is, they must have the competencies required to
translate their efforts into achievements. Motivated employees who lack the required
competencies perform just as poorly as competent employees who are unmotivated. Organisations
that take a systematic approach to recruitment, selection and placement are usually less likely to
put employees in jobs for which they are not qualified. However, because jobs can change over
time, managers must also consider whether additional training is needed in order for employees to
remain competent in the context of their changing jobs.

12.7.2.2 Verify that employees perceive their goals as feasible yet

challenging
Managers who set specific goals (with or without employees’ participation) help
employees focus on the most important aspects of their jobs. However, specific goals can
sometimes backfire and become barriers to performance, especially if they are either too easy or
too difficult. In general, difficult goals are more motivating than easy goals, but if the goals are
too difficult, employees will feel that they have no chance of achieving them and exert little or no
effort trying. Specific goals that conflict with each other also create barriers to performance. Like
goals that are too difficult, conflicting goals cause employees to feel that the goals are impossible
to achieve. For example, a production manager may want to invest in new technology to improve
the quality (goal of production is to improve quality) of a product whereas the finance manager
refuses to sign off on the expenditure to save costs (goal of finance is to save money).

12.7.2.3 Verify that employees believe that the performance desired

by managers is what will be rewarded
To maintain or increase motivation, the link between rewards and performance must
be clear. While managers often believe that good performance is rewarded, employees may feel
that behaviour such as putting in time at the office, socialising with the boss, being agreeable and
not causing trouble, gets rewarded. When such perceptions are discovered, managers must do
more than simply say that employees are wrong, but rather uncover the causes of such perceptions
and work to change them.

Chapter summary
Ensuring that employees are motivated to remain with an organisation and to perform well, is a
primary managerial responsibility. Managers who are able to do so will be rewarded for their
efforts with a workforce that expresses little dissatisfaction, is retained and exerts high levels of
effort. To be effective, managers must understand their own motivation and that of others. They
need to understand the many factors that, in combination, can enhance or inhibit motivation. The
four approaches to motivation described in this chapter provide useful insights about how to
enhance the motivation and performance of an organisation’s workforce. Four approaches to
understanding work motivation are understanding individual differences in employees’ needs,
understanding how the job and organisational contexts affect motivation, understanding how
managers’ behaviours affect employee motivation and understanding how the separate approaches
can be integrated into a single, comprehensive approach.
Maslow’s hierarchy of needs identifies five categories of individual needs: physiological
needs, security needs, affiliation needs, esteem needs and self-actualisation needs. This theory
holds that people are motivated to satisfy these needs according to their importance at specific
times in their lives. Its framework includes the satisfaction-progression phenomenon.
 Alderfer’s ERG model identifies three, rather than five, categories of needs: existence needs,
relatedness needs and growth needs. ERG theory includes a description of the frustration-
regression phenomenon.
McClelland’s learnt-needs model suggests that people acquire three motives over time –
achievement, affiliation and power – by interacting with their social environment. These motives
have implications for what people want from their work experiences and how they interact with
others, but they are not arranged in a hierarchy.
Herzberg’s two-factor model states that factors in the work situation strongly influence
satisfaction and performance. Motivator factors – including the challenge of the work itself,
responsibility, recognition, achievement, and advancement and growth – reflect the nature of the
job and can create high levels of motivation and satisfaction. Hygiene factors – such as reasonable
working conditions, company policies and benefits – involve the context in which the job occurs
and relate to feelings of dissatisfaction. Hygiene factors can have a detrimental effect on employee
performance if not present, but do not necessarily increase motivation when present.
The job-enrichment model states that three critical psychological states – experienced
meaningfulness, experienced responsibility and knowledge of results – lead to high motivation
and job satisfaction. In turn, five job characteristics – skill variety, task identity, task significance,
autonomy and feedback – influence critical psychological states. Individuals with strong growth
needs as well as the necessary knowledge and skills to perform the job are more likely to respond
positively to job-enrichment programmes than people who do not have these characteristics.
Equity theory is based on the assumption that people want to be treated fairly. A fair or
equitable situation is one in which people with similar inputs experience similar outcomes. When
inequities exist, people are not satisfied and performance drops. They then choose one of several
actions to reduce their inequity: modify their inputs, modify their outcomes, rationalise the
inequities or leave the situation.
Reinforcement theory states that behaviour is a function of its consequences. There are four
types of consequence: positive reinforcement, negative reinforcement, punishment and extinction.
Positive reinforcement provides rewards to increase the probability of a behaviour occurring.
Negative reinforcement occurs when an employee engages in certain behaviour to avoid or escape
unpleasant outcomes. Punishment applies negative outcomes to discourage repetition of a
behaviour. Extinction withdraws the reinforcement that had previously been applied to a
behaviour. Positive and negative reinforcement should be used to encourage desired work
behaviours, whereas punishment and extinction should be applied to discourage undesired work
behaviours.
Goal-setting theory states that managers can direct the performance of their employees by
assigning specific, difficult goals that employees accept and are willing to commit to. Goals affect
motivation in two ways: by increasing the amount of effort that people choose to exert and by
directing or channelling that effort. Specific goals are more effective than vague, ambiguous ones.
Providing feedback to employees about their progress toward those goals is also important for
their effectiveness. Management by objectives is a goal-setting technique used by managers who
set goals jointly with employees.
The Porter–Lawler expectancy model of motivation suggests that people make conscious
decisions about their own behaviour and select a course of action because they expect a certain
behaviour to lead to a desired outcome. The model explains motivation in terms of value of
reward, perceived effort in relation to reward probability, effort, abilities and traits, role
perceptions, performance, rewards, perceived equitable rewards and satisfaction.
Effective performance management systems reflect the key principles of several theories of
motivation. These principles include designing enriched jobs, clarifying performance
expectations, providing rewards that employees value, giving feedback and ensuring equitable
treatment. In addition, managers must be able to diagnose the causes of poor performance. In
doing so, managers need to consider whether employees have the competencies or ability required
to do the job, whether goals are viewed as challenging and feasible, and whether employees and
managers alike have the same view of what is rewarded.

Questions for discussion

1. On the basis of motivation theory, critically evaluate what Old Mutual do to motivate staff.
Research what Fortune’s 100 ‘Best Companies to Work For’ and what Top Employers in
South Africa and Africa do to be certified as Best or Top Employer. On the basis of this
research and your theoretical understanding of motivation, advise on what a manager can do to
create a motivating work environment in order to attract and retain high performing staff.
Provide specific and practical examples or motivation strategies.
2. Advise on the principles to be considered in ensuring ethical remuneration.
3. Formulate an argument against money as a motivator. Explain what is meant when it is said
that reward is seen in its totality. Use practical examples to illustrate your explanation.
4. The owner of a new coffee shop and restaurant approaches you for advice on job design. What
do you advise the owner to consider when designing jobs for the business which consists of a
chef, cleaner, manager and three waitrons? Also advise the owner on basic principles to
consider in managing the performance of the staff.
5. What behaviour of yours would you like to change? Explain what the reinforcement model
suggests about how you can change this behaviour.

Exercise for competency development

Imagine you have just started as a new manager in a South African organisation. During your first week,
you observe that motivation levels among staff are low. What questions would you ask to assist you to
better understand your observation? Clearly explain how theory influences the questions you formulated.
With reference to relevant motivation theory and case examples of what other organisation do, describe
the options available to you in addressing low motivation levels in a South African organisation.

Contemporary management in practice

Organisations are challenged to attract and retain talent within a work environment that is diverse. A
characteristic of diversity is generational differences. Conduct research on generational differences in
the South African labour market and workplace, focussing specifically on Generation Z (also known as
Post-Millennials or the iGeneration with birth dates ranging from the mid-1990s to the early 2000s).
Advise on how to effectively attract and retain individuals from different generations, particularly
focussing on creating a motivating work environment to attract and retain Generation Z individuals. For
further critical insight into motivation in relation to attracting and retaining Generation Z individuals,
access ‘The puzzle of motivation’ on TEDTalks at www.ted.com/talks/dan_pink_on_motivation?
language=en.

Endnotes
1 LLOPIS, G. 2012. 5 Ways to Lead with Emotional Intelligence – and Boost Productivity. Forbes. 24
September. [Online]. Available: http://www.forbes.com/sites/glennllopis/2012/09/24/5-ways-to-lead-
with-emotional-intelligence-and-boost-productivity/#14555a19c2c4 [Accessed 9 November 2016].
2 Ibid.
3 NUJJOO, A. & MEYER, I. 2012. The relative importance of different types of rewards for employee
motivation and commitment in South Africa. SA Journal of Human Resource Management/SA Tydskrif
vir Menslikehulpbronbestuur, 10 (2), Art. #442, 10 pages. http://dx.doi.org/10.4102/ sajhrm.v10i2.442
4 Ibid.
5 Ibid.
6 FORTUNE. 2015. 100 best companies to work for. [Online]. Available: http://fortune.com/best-
companies/google-1 [Accessed 16 November 2015].
7 GOOGLE INC. [Online]. Available: http://reviews.greatplacetowork.com/google-inc [Accessed 16
November 2015].
8 Ibid.
9 AFRICAN BUSINESS REVIEW. Top 10 employers in Africa. [Online]. Available:
http://www.africanbusinessreview.co.za/top10/1713/Top-10-Employers-in-Africa-2015 [Accessed 16
November 2015].
10 Ibid.
11 Ibid.
12 THERON, M., BARKHUIZEN, N. & DU PLESSIS, Y. 2014. Managing the academic talent void:
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24
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27 TSUI, A.S., PEARCE, J.L., PORTER, L.W. & TRIPOLI, A.M. 1997. Alternative approaches to the
employee–organization relationship: Does investment in employees pay off? Academy of Management
Journal, 40, 1 089–1 121.
28 AQUINO, K., GRIFFETH, R.W., ALLEN, D.G. & HOM, P.W. 1997. Integrating justice constructs into
the turnover process: A test of a referent cognitions model. Academy of Management Journal, 40, 1 208
–1 227.
29 KIDWELL, R.E. JR & BENNETT, N. 1993. Employee propensity to withhold effort: A conceptual
model to intersect three avenues of research. Academy of Management Review, 18, 429–456.
30 SCHAUBROEK, J., MAY, D.R. & BROWN, F.W. 1994. Procedural justice explanations and employee
reactions to economic hardship: A field experiment. Journal of Applied Psychology, 79, 455–460;
KONOVSKY, M.A. & PUGH, S.D. 1994. Citizenship behavior and social exchange. Academy of
Management Journal, 37, 656–669; GREENBERG, J. 1990. Employee theft as a reaction to
underpayment inequity: The hidden costs of pay cuts. Journal of Applied Psychology, 75, 561–568;
GREENBERG, J. 1993. Stealing in the name of justice: Informational and interpersonal moderators of
theft reactions to underpayment inequity. Organizational Behavior and Human Decision Processes, 54,
81–103.
31 Adapted from SONNENBERG, F.K. & GOLDBERG, B. 1992. Business integrity: An oxymoron?
Industry Week, 53–56, 6 April; SONNENBERG, F.K. & GOLDBERG, B. 1992. New bottom lines?
Executive Excellence, December, 3–4.
32 SKINNER, B.F. 1969. Contingencies of reinforcement. New York: Appleton-Century-Crofts;
SKINNER, B.F. 1971. Beyond freedom and dignity. New York: Bantam; SKINNER, B.F. About
behaviorism. 1974. New York: Knopf.
33 STRAJKOVIC, A.D. & LUTHANS, F. 1997. A meta-analysis of the effects of organizational behavior
modification on task performance, 1975–1995. Academy of Management Journal, 40, 1 122–1 149;
LUTHANS, F. & KREITNER, R. 1985. Organizational behavior modification and beyond: An operant
and social learning perspective. Glenview, Ill.: Scott, Foresman.
34 BALL, G.A., TREVINO, L.K. & SIMS, H.P. JR. 1994. Just and unjust punishment: Influences on
subordinate performance and citizenship. Academy of Management Journal, 37, 299–322.
35 CAR. 1999. Opel Astra: A bright new galaxy of models under one name. A special report by the
publishers of CAR, in association with Delta Motor Corporation. CAR, December 1999, 125.
36 Critiques of reinforcement theory are provided by KREITNER, R. & LUTHANS, F. 1984. A social
learning approach to behavioral management: Radical behaviorists mellowing out. Organizational
Dynamics, Autumn, 47–65;HIGGINS, E.T. 1997. Beyond pleasure and pain. American Psychologist,
52, 1 280–1 300.
37 The possible detrimental effects of external rewards have been discussed at length, but the research
evidence to date indicates that rewards seldom have detrimental effects. See EISENBERGER, R. &
CAMERON, J. 1996. Detrimental effects of reward. Reality or myth? American Psychologist, 51, 1 153
–1 166.
38 LOCKE, E.A. 1968. Toward a theory of task motivation and incentives. Organizational Behavior and
Human Performance, 3, 157–189; LOCKE, E.A. & LATHAM, G.P. 1990. A theory of goal setting and
task performance. Englewood Cliffs, N.J.: Prentice Hall.
39 VROOM, V.H. 1964. Work and motivation. New York: John Wiley & Sons.
40 COLLINS, J. 1997. The learning executive. Inc., August, 35–36.
41 VAN ERDE, W. & THIERRY, H. 1996. Vroom’s expectancy models and work-related criteria: A
meta-analysis. Journal of Applied Psychology, 81, 575–586.
42 SCHULER, R.S. & JACKSON, S.E. 1996. Human resource management: Positioning for the 21st
century. St. Paul: West.
43 BLAU, G. 1993. Operationalizing direction and level of effort and testing their relationships to
individual job performance. Organizational Behavior and Human Decision Processes, 55, 152–170;
TUBBS, M.E., BOEHNE, D.M. & DAHL, J.B. 1993. Expectancy, valence, and motivational force
functions in goal-setting research: An empirical test. Journal of Applied Psychology, 78, 361–373;
FARRELL, J.N., LORD, R.G., ALEXANDER, R.A. & GRADWOHL, W.C. 1994. The measurement of
performance valence: An examination of construct-related evidence. Organizational Behavior and
Human Decision Processes, 60, 157–178.
44 PORTER, L.W. & LAWLER, E.E. III. 1968. Managerial attitudes and performance. Homewood, Ill.:
Irwin.
45 LINDSLEY, D.H., BRASS, D.J. & THOMAS, J.B. 1995. Efficacy-performance spirals: A multilevel
perspective. Academy of Management Review, 20, 645–678; GRIFFETH, R.W. & HOM, P.W. 1995.
The employee turnover process. Research in Personnel and Human Resources Management, 13, 245
–293. Note, however, that the link between satisfaction and turnover may be weaker for employees with
high financial requirements. See BRETT, J.F., CRON, W.L. & SLOCUM, J.W. JR. 1995. Economic
dependency on work: A moderator of the relationship between organizational commitment and
performance. Academy of Management Journal, 38, 261–271.
46 SCHOEMAN, C. Ethics in the Workplace. In ABBOTT, P. 2015. (Ed.). Ethical Competence in HR
management Practice. Parktown, Johannesburg. SA Board for People Practices, p. 181.
47 HONNET, M. Ethics in Remuneration and Reward. In ABBOTT, P. 2015. (Ed.). Ethical Competence in
HR management Practice. Parktown, Johannesburg. SA Board for People Practices, p. 181.
48 Ibid., pp. 181-183.
49 MURPHY, P. & JACKSON, S.E. 1998. Managing work role performance: Challenges for 21st century
organizations and their employees. In ILGEN, D.R. & PULAKOS, E. (EDS). The changing nature of
work performance: Implications for staffing, performance management and development. San
Francisco: Jossey-Bass; VAN DYNE, L. & CUMMINGS, L.L. 1995. Extra-role behaviors: In pursuit of
construct and definitional clarity (a bridge over muddied waters). Research in Organizational Behavior,
17, 215–285.
50 For a discussion of this and other common pitfalls, see KERR, S. 1995. An academy classic: On the
folly of rewarding A, while hoping for B. Academy of Management Executive, 9, 7–16.
51 SHELLENBARGER, S. 1996, Work and family – enter the ‘new hero’: A boss who knows you have a
life. Wall Street Journal, 8 May, B1; SHELLENBARGER, S. 1996. Work and family: Family-friendly
jobs are the first step to efficient workplace. Wall Street Journal, 15 May, B1.
52 KLUGER, A.N. & DENISI, A. 1996. The effects of feedback interventions on performance: A
historical review, a meta-analysis, and a preliminary feedback intervention theory. Psychological
Bulletin, 119, 254–284.
LEARNING OUTCOMES
After studying this chapter, you should be able to:
• Explain the main elements of the communication process
• Identify the main forms of non-verbal communication and describe their impact on cross-cultural
communication
• Identify and describe how modern business communication tools have changed the nature of
communication in contemporary organisations
• Explain how the Johari Window can be used as a framework to improve interpersonal relationships and
enhance the feedback process
• Identify barriers to communication and describe ways to overcome them
• Explain the principles of persuasive communication and how to apply them
• Develop an action plan that will help you to improve your informal communication competencies after
completing the questionnaire at the end of this chapter
• Appraise the challenges pertaining to ethical and privacy issues in communication.

CHAPTER OUTLINE
• South African Insight: MMI and stakeholder engagement
• Introducing communication
• The communication process
» Sender (encoder)
» Receiver (decoder)
» Message
» Traditional business communication tools
» Channels
» Feedback
» Perception
• The impact of modern business communication tools on organisational communication
» Information technology
» Internet
» Electronic commerce
» Information and communication technology laws
» Ethical and privacy issues in communication
• Barriers to effective communication
» Organisational barriers
» Individual barriers
» Overcoming barriers
• Using persuasion for effective communication
» Steps in persuasive communication
» Principles of persuasion
Key terms and concepts
• Formal communication
• Informal communication
• Communication
• Sender
• Receiver
• Encoding
• Decoding
• Messages
• Non-verbal messages
• Kinesics
• Oculesics
• Haptics
• Proxemics
• Chronemics
• Chromatics
• Visual signs
• Audio signs
• Channel
• Information richness
• Downward channels
• Upward channels
• Horizontal channels
• Grapevine
• External networking
• Feedback
• Johari Window
• Perception
• Selective perception
• Stereotyping
• Business communication tools
• Information technology
• Networked computer system
• E-mail
• Instant messaging
• Voice mail
• Electronic data interchange (EDI)
• Tele-and-videoconferencing technology
• Intranet communication network
• Extranet network
• Weblog
• Wireless communication
• Facebook
• LinkedIn
• Twitter
• Internet
• E-commerce activities
• Computer ethics
• Semantics
• Back translation
• Emotion
• Persuasion
• Influence
COMPETENCY WHY IS THIS COMPETENCY EXAMPLE
IMPORTANT IN RELATION TO
COMMUNICATION?

Communication Effective communication makes use Social media is one communication

of upward, downward and horizontal medium taking the customer service
channels. Listening to the needs of industry by storm but it’s not as simple as
stakeholders and embracing creating a Facebook or Twitter profile.
technology are essential to manage Today customers expect much more of
future communication requirements, businesses. Customers are exposed to a
today. broad range of brands, products and
services locally and globally. Furthermore,
customers are well informed and apart from
sharing opinions with peers, they can find
information on anything, anytime,
anywhere. We live in an era where
customers have choices – and today through
social media, they have a voice.
(FNB – digital marketing and media head)1

Teamwork Optimum team performance requires In transforming their communications

effective teamwork including process, Impala Platinum focused on
communication within and outside the receiving prompt feedback. For example in
team to raise overall performance and communicating a new policy using the
ensure goal achievement. downward channel of communication, it
was possible to get the buy-in of teams and
the trade union because of immediate
feedback from the CEO.2

Strategic action Communication is essential in clearly In the South African Insight below, MMI
expressing the organisational vision, have indicated how they communicate their
mission, goals and objectives strategic focus areas to their clients,
throughout the organisation. employees, investors, trade unions, media,
suppliers and governmental regulators.

Globalawareness When it comes to global awareness it Various examples are provided in this
is necessary to have cultural chapter in the sections on verbal and non-
knowledge and understanding in a verbal communication. In South Africa,
globalised world, as well as being Brand SA has the objective to positively
culturally open and sensitive to influence and shape perceptions about
national, ethnic and cultural South Africa among target audiences. As a
differences in the worklace member of BRICS, Brand SA utilise this
international membership as a platform to
communicate, engage and influence
international perceptions.3

MMI and stakeholder engagement

MMI is one of the largest insurance-based financial services groups listed on the South African stock
exchange. MMI’s core business areas are long and short-term insurance, asset management, savings,
investment, healthcare administration, health risk management, employee benefits, property management
and rewards programmes.
 In recent years MMI has moved closer to its clients through the implementation of a client-centric
strategy. MMI’s vision is to be the preferred lifetime financial wellness partner, with a reputation for
innovation and trustworthiness. Their vision together with their purpose, strategic focus areas and values,
all support value creation through a client-centric operating model. According to MMI, client-centricity
defines the existence of their organisation, which is to enhance the lifetime financial wellness of people,
their communities and their businesses.
At MMI they believe that the strength of their relationships with all their key stakeholders is critical in
the achievement of their strategic purpose and creating mutual value for both the organisation and
stakeholders. As such, their stakeholder management approach involves gaining a thorough understanding
of key stakeholder groups and assessing the issues that are material to them and communicating with them
on a regular basis. Through various channels and activities, MMI have communicated and engaged with
their stakeholders. Examples of the engagements include:
• Clients – Metropolitan, a client of MMI, has hosted a number of workshops on financial education
with MMI clients
• Employees – The CEO hosted breakfasts with senior managers to obtain views on key business
matters, the internal and external working environment and the way forward for MMI
• Investors – Many formal and informal engagements and presentations are held with the JSE,
shareholders and analysts, all forms of media, as well as road shows in South Africa and
internationally
• Communities – Through the MMI Foundation and the Metropolitan and Momentum brand divisions,
they invest in communities in collaboration with national, provincial and local government
departments
• Trade Unions – Regular meetings and information sharing sessions are held with trade unions to
maintain strong trust relationships and ensure that employees are fairly treated
• Media – MMI have regular contact with the media to communicate financial results, acquisitions and
senior management appointments
• Suppliers – Through their procurement processes, MMI regularly interacts with suppliers to discuss
their services, products, quality and pricing
• Regulators and government – MMI expertise and experience in healthcare and administration space,
has resulted in MMI being able to engage with regulators and government in matters such as the
National Health Initiative.
Source: MMI. 2015. Vision and purpose. [Online]. Available: http://www.mmiholdings.co.za/en/about/vision-and-
purpose [Accessed 9 October 2015]; MMI. 2015. Stakeholder engagement. [Online]. Available:
http://mmiholdingsintegratedreport2014.com/stakeholder-engagement/ [Accessed 9 October 2015]; MMI. 2015. About
MMI. [Online]. Available: http://mmiholdingsintegratedreport2014.com/about-mmi/ [Accessed 9 October 2015].

13.1 Introduction to communication

Whether the organisation one considers is a retail store, a school, a bank, a small business or large
corporation or a manufacturing plant, effective communication is essential. Communication is to
an organisation what the bloodstream is to a person.
Without effective communication, managers can accomplish little. This is why communication
is highlighted as one of the six key managerial competencies. Communication can be formal or
informal, verbal or non-verbal, and may take many forms, including face-to-face interactions,
phone calls, faxes, e-mails, online messages, formal business letters, memos, reports, videos and
oral presentations. As highlighted in our South African Insight, MMI makes use of a variety of
forms of communication when communicating with their stakeholders. Stakeholders are seen as
individuals or groups, internal and external to the organisation on whom the organisation relies. In
turn the stakeholders also depend on an organisation to attain their own goals and objectives.4 In
our South African Insight, MMI clearly identified their stakeholders as: clients, employees,
investors, communities, trade unions, media, suppliers, and regulators and government. This
allows them to communicate with each stakeholder effectively using the most appropriate means
of communication. As in the case of our South African Insight, MMI’s communication with
stakeholders can take place both formally and informally.5
Formal communication methods include meetings, conference calls, newsletters, e-mails,
intranet and posters. Informal communication methods include one-on-one conversations,
meetings in the passages, restaurants, sporting events, voice mail and social media such as blogs
and chatter conversations. When communicating to stakeholders, organisations should be aware
that often the message might not be understood upon hearing it for the first time. Thus, it is
necessary to ensure that communication is clearly understood by stakeholders, as illustrated in our
South African Insight, MMI.
Communication is the transfer and exchange of information and understanding from one
person to another through meaningful symbols. It is a way of exchanging and sharing ideas,
attitudes, values, opinions and facts. Communication is a process that requires both a sender, who
begins the process, and a receiver, who completes the communication link. When the receiver
understands the communication, the cycle is complete.
In organisations, managers use the communication process to carry out their four managerial
tasks (planning, organising, leading and controlling). To do so, they need to gather information
from both inside and outside the organisation. The manager’s communication role is purpose
directed, and includes strategic conversations by means of different communication methods, as
shown in Figure 13.1.

In Figure 13.1, one of the manager’s communication roles is to be purpose directed. In this
role, managers influence employees’ behaviour to achieve the desired organisational outcomes,
which are aligned with the mission, vision and values of the organisation. Managers also facilitate
strategic conversations with employees at different hierarchical levels and across boundaries to
achieve the organisation’s strategic purpose. In their strategic conversations, they need to ensure
that their communication is open, that they listen carefully, enter into a meaningful dialogue in
which they influence employees to achieve the organisation’s goals, and provide sufficient and
constructive feedback. In their communication role, managers make use of different channels of
communication across boundaries and functional areas.6 These include upward, downward and
horizontal channels as well as personal networks. Both verbal and non-verbal methods of
communication are used to communicate effectively.
Because they must have access to relevant information in order to make sound decisions,
effective managers build networks of contacts who facilitate information-gathering, interpretation
and dissemination. These contacts help managers become the nerve centres of their organisations.
Much like radar screens, managers scan the environment for changes that could affect the
organisation and share this information with others. Once made, decisions are quickly
disseminated to those who will help carry them out.
In contrast, ineffective managers often leave employees in the dark about what is happening.
Poor communication seems to be a particular problem during downsizing, when the stress levels
of managers and employees increase. Poor communication allows rumours to replace facts, causes
unfriendliness between departments and work teams, and slows down successful organisational
change. Under such circumstances, poor communication seems to be the single most important
reason for poor strategy implementation. However, effective communication is also necessary
during times of expansion and growth.
Figure 13.1 The manager’s communication role

Source: MINTZBERG, H. 1973. The nature of managerial work. New York: Harper and Row; DAFT, R.L.
2005. The leadership experience. (3rd ed.). Cincinnati, OH: South-Western.

13.2 The communication process

Most managers spend a large part of their working day communicating with superiors, peers,
customers and others. They do so by writing memos, letters and reports, and by talking on the
telephone. In doing so, they are engaged in the communication process, which involves six basic
elements:7
• Sender (encoder)
• Receiver (decoder)
• Message
• Channels
• Feedback
• Perception.

Figure 13.2 shows how these elements interact during the communication process.8
Managers and employees who are concerned with improving their communication
competency need to be aware of these elements and how they contribute to successful
communication. Figure 13.2 contains five key communications elements. These are: the sender,
the receiver, the message, channels and feedback. We will briefly discuss the roles of the sender
and the receiver first because they are the actors in the process.

13.2.1Sender (encoder)
The sender is the source of information and the initiator of the communication process. The
sender chooses the type of message and the channel that will be most effective. You will recall
from our opening South African Insight that MMI chose different channels of communication
(workshops, presentation, breakfasts) for different messages for different stakeholders. Once this
has been done, the sender then encodes the message.
 Encoding translates thoughts or feelings into a medium – written, visual or spoken – that
conveys the intended meaning. Imagine that you are planning to apply for a vacation job. You
should explain why you are interested in that particular organisation. You also need to provide
background information about your qualifications for the job and explain how you believe the job
will further your career. When you transfer these ideas to an electronic memo or to paper, you are
encoding your message.

13.2.2Receiver (decoder)
The receiver is the person who receives and decodes (or interprets) the sender’s message.
Decoding translates messages into a form that has meaning to the receiver. The person who
receives your electronic application or letter about a vacation job reacts to it first on the basis of
whether there are any openings. If there are openings, the receiver will probably compare what
you wrote about yourself to the type of person the organisation wants to hire.

Figure 13.2 The communication process

One of the main requirements of the receiver is the ability to listen. Listening involves paying
attention to the message, not merely hearing it. In a research study of 4 000 employees and
managers interviewed, nine out of ten managers felt that they showed they cared when they
communicated and that they were good listeners, while only four out of ten employees agreed
with the managers.9 The guidelines for effective listening are highlighted later in the chapter.

13.2.3Message
The message contains the verbal (spoken, written and audio-visual) symbols and non-verbal cues
representing the information that the sender wants to convey to the receiver. Like a coin, a
message has two sides, and the message sent and the one received are not necessarily the same,
for the following reasons:
• Encoding and decoding of the message may vary owing to differences between the sender’s
and the receiver’s backgrounds and viewpoints.
• The sender may be sending more than one message.

Recruiters, managers and employees generally use four types of messages:

• Verbal messages
• Non-verbal messages
• Written messages
• Audio-visual messages.

These four types of messages are referred to as the traditional tools of effective business
communication in this chapter. The communication tools for the effective transmission of
messages in business communication include the traditional and modern communication tools
shown in Figure 13.3.
We will discuss the traditional tools for effective transmission of messages in business
communication as part of messaging in the communication process. The modern tools for
effective business communication are discussed in Section 13.3. Traditional business
communication tools include verbal, non-verbal, written and audio-visual tools. Some of these
tools are discussed below.

13.2.3.1 Verbal messages

Employees communicate verbally (by speaking and writing) more often than in any other way.
Spoken communication takes place face-to-face and over the telephone, using both formal and
informal ways of communication. Most people prefer face-to-face communication because non-
verbal messages are an important part of verbal communication. However, some people prefer
written communication because it allows them to choose their words more carefully before
sending the message. When emotions run high or you are writing in a second language,
considering your words carefully can be advantageous.

Figure 13.3 Tools of business communication

Effective verbal communication requires the sender to:

• Encode the message in words (and non-verbal cues) that will convey it accurately to the
receiver
• Convey the message in a well-organised manner
• Try to eliminate distractions.
At Woolworths Holdings Limited, internal communication with employees is critically important
as this motivates employees to be engaged and contribute towards implementing the
organisation’s strategy. Effective communication is therefore paramount to ensure that
Woolworths can implement their strategy allowing them to shift from being a customer centric
business to a more customer driven business. This will ensure that the message is conveyed
accurately and distractions are minimised.10

13.2.3.2 Non-verbal messages

All messages that are not spoken or written constitute non-verbal messages. Non-verbal
messages involve the use of facial expressions, body movement, gestures and physical contact
(often called body language) to convey meaning. When people communicate in person, much of
the message content is transmitted through facial expressions and body movement.
During an interview, every bit of information is important. A strong handshake creates the first
impression. First impressions based on non-verbal cues can be misleading, but they are hard to
ignore. It is important for the recruiter to use his or her understanding of non-verbal
communication to gather information about the candidate during the interview.11
In terms of personal appearance, you have undoubtedly heard the expression, ‘Clothes make
the person’. Style consultants for major organisations believe that the way a person dresses
definitely communicates something to others. You should ask yourself: Is the way I am dressed
going to hurt or help my business relationships? Like it or not, people still judge you partly on the
basis of how you look. If you are dressed appropriately, customers and others may see you as a
more competent person than one who dresses inappropriately. Of course, what is appropriate
depends on the organisation. A formal business suit fits in well at a law or accounting firm such as
KPMG, but looks out of place at an IT or advertising organisation such as Hunt Lascaris, which
have more informal atmospheres.

When considering how people differ, it is important to understand how people communicate
differently by means of non-verbal communication. There are six forms of non-verbal
communication that you should be aware of, namely the use of body language, eye contact, body
contact, space, time and colours. These forms of non-verbal communication, summarised in Table
13.1, are discussed next.
Let us consider each of the forms of non-verbal communication presented in Table 13.1.

Kinesics
Kinesics refers to communication through body movement, including facial expression, gestures
and posture. The body and its movement – particularly movements of the face, which are very
expressive – tell other people a lot about you. As much as 50% of the content of a message may
be communicated by facial expression and body posture; another 30% is communicated by
inflection and the tone of the speech. The words themselves may account for only 20% of the
content of the message.12 The ability to interpret facial expressions is an important part of
communication. In most instances smiling that often goes hand in hand with nodding creates a
feeling of social attractiveness and warmth, for example. For Asians, a smile could also be a sign
of discomfort.13 Posture also communicates meaning by signalling a person’s degree of self-
confidence or interest in what is being discussed. The more interested you are, the more likely you
are to lean towards the person who is talking. Conversely, leaning away may communicate a lack
of interest. A good posture with arms in a relaxed parallel position next to the body is perceived as
portraying confidence. Similarly, tension and anxiety typically show in a person’s legs and feet.
People are often able to hide tension from the waist up, but may give themselves away by crossing
their legs tightly or tapping their feet.14

Table 13.1 Forms of non-verbal communication

Forms of non-verbal communication

Colours (chromatics)

Time within a cultural context (chronemics)

Space when communicating (proxemics)

Bodily contact (haptics)

Eye contact and gaze (oculesics)

Body movement, gestures, expressions, posture (kinesics)

Source: Adapted from FRANCISCO, A.M. & GOLD, B.A. 2005. International organizational behaviour. 2nd
ed. Upper Saddle River, New Jersey: Pearson Prentice Hall, p. 76; SKILLS YOU NEED. 2017. Non-verbal
communication. [Online]. Available:https://www.skillsyouneed.com/ips/nonverbal-communication.html;
CHERRY, K. 2017. Types of nonverbal communication. [Online]. Available:
https://www.verywell.com/types-of-nonverbal-communication-2795397; BERGER, V. 2005. Non-verbal
communication. [Online]. Available:
http://www.psychologistanywhereanytime.com/psychologist/psychologist_non_verbal_communication.htm;
WOODHOUSE, D. 2016. What are some examples of chronemics in nonverbal communication? [Online].
Available: https://www.quora.com/What-are-some-examples-of-chronemics-in-nonverbal-communication

Oculesics
Oculesics refers to communication through eye contact and gazing. Eye contact is a direct and
powerful way of communicating non-verbally. In South Africa, Western cultural social rules
suggest that, in most situations, brief eye contact is appropriate. However, if eye contact is too
brief, people may interpret you as being aloof or untrustworthy. Conversely, many South African
cultures often interpret prolonged eye contact as either a threat or a sign of romantic interest,
depending on the context. Interestingly in Japan and China maintaining direct eye contact could
indicate mistrust.15

Haptics
Haptics refers to communication by means of body contact. Body contact in this case, would
include greetings or touching someone’s shoulder to acknowledge their presence, for example.
Greetings in most Western countries are done by the shaking of hands, Japanese bow and Middle
Easterners of the same gender kiss on the cheek. In South Africa, congratulating someone by
tapping them on the shoulder is acceptable while this would not be the norm in Chinese culture.16

Proxemics
Space where communication takes place and the use thereof, communicates a message.
Proxemics refers to these aspects of space. How close you are to another person, where you sit or
stand and how you arrange your office can have a real impact on communication. Think about the
following: In one scenario, a manager tells you that your work is not up to standard while his face
is one centimetre away from yours. In another scenario, the same manager informs you about your
work, sharing the message across the floor of a large office. You would probably feel highly
threatened in the first scenario, because your space or territory has been invaded. Space and the
use of space has communicative importance. To test how important your territory is to you,
complete the questionnaire below. |
Questionnaire: How territorial are you?
Instructions
Respond to the ten statements that follow using a scale of 1 through to 5, where:
• 1 = Strongly agree
• 2 = Agree
• 3 = Not sure
• 4 = Disagree
• 5 = Strongly disagree.

_____________ 1 If I arrive at my room and find my roommate sitting in my chair, I get annoyed if he
or she does not at least offer to get up immediately.
_____________ 2 I do not like anyone to remove anything from my desk without first asking me.
_____________ 3 If a stranger puts a hand on my shoulder when talking to me, I feel uncomfortable.
_____________ 4 If my jacket were hanging over the back of a chair and another student came in and
chose to sit in the chair, I feel that he or she should have asked me to move my jacket
first.
_____________ 5 If I enter a classroom and ‘reserve’ a chair with a book, I am annoyed and offended
upon my return to find my book removed and someone sitting in ‘my’ seat.
_____________ 6 If a person who is not a close friend of mine gets within 30 cm of my face when
talking to me, I either back off or hold my ground while feeling uncomfortable.
_____________ 7 I do not like strangers walking into my room.
_____________ 8 If I lived in a flat, I would not want the landlord to enter for any reason without my
permission.
_____________ 9 I do not like my friends or family borrowing my clothes without asking me first.
_____________ 10 If I notice that someone staring at me in a restaurant, I become annoyed and
uncomfortable.

Scoring
To score and interpret your responses, add the numbers you wrote down for all ten statements. Then
compare your total with the following definitions:
• 10–25 points: Highly territorial. Your instincts for staking out and protecting what you consider to be
yours are high. You strongly believe in your territorial rights.
• 26–39 points: Ambiguous but territorial. You may act territorially in some circumstances, but not in
others. You feel differently about different types of space.
• 40–50 points: Not territorial. You disagree with the entire concept of territoriality. You dislike
possessiveness, protectiveness and jealousy. The concept of private ownership is not central to your
philosophy of life.

In Japan, strict rules of etiquette guide seating behaviour. If business people are travelling
together in a taxi, the ‘top’ seat is the seat behind the driver and the most junior seat is the one
next to the driver. In elevators, the senior person stands in the rear in the centre facing the door
and the most junior person stands near the buttons.17 Spatial arrangements in corporate offices can
also send many signals to members of the organisation. In some organisations such as Shell, for
example, top managers have larger offices, windows with better views, plusher carpets and
higher-quality furnishings than middle managers. In the Gold Fields’ corporate office based in
Sandton, Gauteng, the atmosphere is best described as warm and relaxed.18 Making decisions
about the environment in which people work can be an important administrative responsibility.
The shape of tables and seating arrangements can affect more than just the flow of conversation; it
also sends messages that reinforce (or contradict) the desired corporate culture.

Chronemics
Chronemics refers to communication through the use of time within a culture. The use of time in
a specific culture is determined by having either a monochronic or polychronic orientation to time.
In a monochronic cultural orientation to time, activities are linear and performed one at a time.
Consequently, punctuality would be important as time is considered as a resource that should not
be wasted. Punctuality is usually important in Northern Europe and the USA. On the other hand,
with a polychronic time schedule, people tend to do many things at a time. As such, relationships
are more important than schedules and punctuality, as is evident in the Middle East and Latin
America, for example.19 South Africa has cultures that are both polychronic and monochronic.

Chromatics
Chromatics refers to communication through the use of colours which have different meanings in
different contexts and cultures. Be aware that the colours of clothing, products, packaging or gifts
send unintentional messages in cross-cultural communication. For instance, the colour red
signifies good luck or happiness in many Eastern countries while it could be associated with death
in countries in Africa. In South Africa, yellow roses imply friendship while in Chile it would
mean that you dislike the person.20 You should be careful in selecting the colours of clothing for
special occasions or meetings.
Having outlined key principles of non-verbal messages, we need to have a look at written
messages.

13.2.3.3 Written messages

Although spoken communication is quicker than written communication and allows the sender
and receiver to interact, organisations use many forms of written messages (for example, reports,
memoranda, letters, e-mail and newsletters). Such messages are most appropriate when
information has to be collected from or distributed to many people at scattered locations, and
when it is necessary to keep a record of what has been sent. In written communication, it is
important to build logical arguments in your communication to ensure that it is clear and logically
structured. An argument begins with a set of premises at the beginning and a conclusion at the
end. Often there are a series of intermediate steps that connect the premises with the conclusion.
One set of guidelines to consider on how to construct a logical argument for effective
communication, is available at http://www.dummies.com/education/math/building-logical-
arguments/

13.2.3.4 Audio-visual messages

The fourth type of message we consider, is audio-visual messages. Organisations use signs and
symbols that are mutually understood between at least two employees or groups in their
communication. These signs and signals are generally of two types: visual and audio. Employees
normally absorb more than 50% of information received through their eyes. Sometimes words fail
to convey the exact meaning of a message, while a picture leaves a long-lasting impression.21
Organisations therefore do not communicate through words alone, but make use of signs and
symbols, for example, video and audio signals.
• Visual signs: An example of a visual sign, is the corporate logo. The logos of well-known
organisations such as Volvo, Goodyear, McDonalds, BMW and others, as well as their
changes over the years, can be viewed at http://www.complex.com/style/2013/03/the-50-most-
iconic-brand-logos-of-all-time/
• Audio signs: Examples of audio signs include drum-beating, hooters, bells, sirens, public
address systems and radio. Audio signs are also universal in nature and are easily understood
by employees. Audio signs can be used to enhance the daily functioning of an organisation.

13.2.4Channels
The communications channel is the fifth element of the communications model that we need to
have a look at. Refer back to Figure 13.2. The channel is the path a message follows from the
sender to the receiver. Information richness is the information-carrying capacity of the channel.
Not all channels carry the same richness of information. Written communications are low in
richness. Customer and employee surveys are a form of written communication that many
organisations rely on, despite their lack of information richness. Surveys usually ask people to
express their opinions about various topics by choosing among a fixed set of opinions. For
example, customers might be asked to indicate whether they were ‘delighted’, ‘satisfied’ or
‘disappointed’ with the customer service they received. This form of communication facilitates
quantitative analysis, but it limits the type and amount of information received from customers
and employees. Channels that are low in richness are considered to be economical and efficient
because they are effective mainly for sending specific data and facts.
As Figure 13.4 indicates, the use of e-mail and the intranet has a medium channel richness and
will be discussed in the section on understanding the impact of information technology on
communication. However, face-to-face interaction is the richest communication channel. It
conveys several cues simultaneously, including spoken and non-verbal information. Face-to-face
interaction also provides immediate feedback so that comprehension can be checked and
misinterpretations can be corrected. Managers can gather additional information about how
customers and employees feel about the organisation and its products by speaking with them
personally.

Figure 13.4 Degrees of information richness of different information channels

 In addition to selecting a level of information richness, individuals must choose among several
types of channels for communicating with others. These include downward, upward and
horizontal formal communication channels, as well as informal communication channels such as
the grapevine and networking or caucus groups.
Formal communication is when the exchange of information is done through pre-defined
channels via meetings, paper or electronic means, in order to convey requests, commands and
orders, for example.22 While informal communication does not follow any set channels, it is
usually casual, spontaneous and not written down. This means that there is no documentary
evidence, and includes sharing of emotions, networking and casual chats, for example.
In terms of using formal channels of communication with stakeholders, it is imperative that all
organisations have a communications policy to ensure effective communication. A
communications policy provides clear guidelines on how to communicate and share information
in a timely and consistent manner with stakeholders. The Naspers Group have a communication
policy that clearly indicates how the organisation must communicate with their stakeholders in
order to avoid selective disclosure of information. Based on the Naspers Group communications
policy (available at: http://www.naspers.com/pdf/policies/communication-policy.pdf), the
following are examples of communication issues that must be covered in such a policy:23
• Definition of key terms
• When to disclose material information
• When to disclose material non-public information
• Procedures for press releases
• How to deal with investors and securities professionals
• Review of analyst reports and estimates
• Communication relating to major changes at the organisation, share prices, visits to the
organisation, monitoring of websites and organisational closed and ‘quiet’ period.

13.2.4.1 Downward channels

This is one of the most effective channels. Managers use downward channels to send messages
to employees. However, the fundamental problem with downward communication is that it is too
often one way: it is a lean channel that does not encourage feedback from those on the receiving
end. To correct this problem, managers should urge employees to use upward channels. In our
South African Insight, MMI successfully make use of downward channels of communication,
informing its stakeholders of any important information.

On 25 September 2015, the Sustainable Development Goals (SDGs) to end poverty, protect
the planet and ensure prosperity for all were agreed upon at the United Nations Sustainable
Development Summit. SABMiller, for example, provide regular feedback to its stakeholders on
sustainable development priorities. As such SABMiller has announced its five shared imperatives
in support of the SDGs and encourages all its businesses to communicate regularly on the topic of
sustainable development with stakeholders, including employees, consumers and customers. This
builds on the organisation’s sustainable development ambition campaign entitled ‘Prosper’, with
the aims to ensure a thriving world, a sociable world, a resilient world, a clean world, and a
productive world.24

13.2.4.2 Upward channels

Subordinates use upward channels such as e-mail, telephone, and reports, to send messages to
superiors. Such channels may be the only formal means that employees have for communicating
with higher-level managers in the organisation. Upward communication provides feedback on
how well employees understand the messages they have received. Moreover, it enables employees
to voice their opinions and ideas. Effective upward communication can provide an emotional
release and, at the same time, give employees a chance to participate, the feeling they are being
listened to and a sense of personal worth. Most importantly, employees often have excellent
suggestions for improving the efficiency and effectiveness of the organisation.

At UNISON, for example, a public service union in the UK, the discussion on the revision of
a policy follows a formal upward channel of communication. Members discuss the policy in their
branches after which delegates from the branches meet at the Annual Conference and debate and
agree on the policy.25

13.2.4.3 Horizontal channels

Managers and other employees use horizontal channels, such as the company’s internal and
external networks, when communicating across departmental lines, with suppliers or with
customers. As discussed in Chapter 8, maintaining effective communication among customers,
suppliers and employees in various divisions or functional areas is essential to the success of a
network organisation. Messages that are communicated horizontally are usually related to co-
ordinating activities, sharing information and solving problems.

Horizontal channels are extremely important in today’s team-based organisations where

employees must often communicate among themselves to solve their clients’ production or
process problems. Examples of team-based organisations include First National Bank, Pick n Pay,
Liberty Life, Toyota (SA), Avroy Shlain, South African Airways, Shoprite Checkers, Edgars and
Coca-Cola Sabco (Pty) Ltd.

13.2.4.4 Informal channels

So far, we have concentrated on formal channels of communication. However, never
underestimate the importance of informal channels of communication. The grapevine is an
organisation’s informal communication system, along which information can travel in any
direction. The term comes from a practice in the American Civil War of hanging telegraph lines
loosely from tree to tree, like a grapevine. In organisations, the path that messages follow along
the grapevine is based on social interaction, not organisational charts.
Many organisations recognise the importance of informal channels of communication to such
a degree that they encourage and support employees’ efforts to strengthen them. Employee
network groups are informal groups that organise regularly scheduled social activities promoting
informal communication among employees who share a common interest or concern.26 Informal
communication channels allow people to use their own initiative more freely. At UNISON, for
example, through informal communication, members feel that they are being supported. This
helps them to take more ownership of many challenges as they work towards resolving them.27

13.2.4.5 External networking

Managers and employees also spend considerable time meeting with peers and others outside the
organisation. This is known as external networking. They attend meetings of professional
associations, trade shows and other gatherings. As a result, they may develop various close,
informal relationships with talented and interesting people outside the organisation. People use
these networks to help each other, trading favours and calling on each other’s resources for career
advancement or other types of information and support. As highlighted in our South African
Insight, MMI makes extensive use of meeting with various external stakeholders.

13.2.5Feedback
Feedback is the sixth key element of the communications process – see Figure 13.2 – that we
need to have a look at. Feedback is the receiver’s response to the sender’s message. It is the best
way to show that a message has been received and to indicate whether it has been understood.
You should not assume that everything you say or write is understood exactly as you intend it to
be. If you do not encourage feedback, you are likely to misjudge how much others understand you
and you will be less effective than people who encourage feedback. Feedback assures the sender
that things are going as planned or brings to light problems that have to be solved.
Effective managers are normally excellent interpersonal communicators who provide regular
feedback to staff on work-related issues. The Johari Window model is a simple and useful tool
for describing interpersonal communication between managers and staff. The tool illustrates
interaction styles, how to improve self-awareness and how to create mutual understanding
between individuals within a group. The Johari Window model can also be used to assess and
improve communication amongst individuals and groups, and create a better understanding of
employee/employer relationships at the workplace.28
The Johari Window model uses a four-paned ‘window’, as illustrated in Table 13.2, to reflect
interaction styles between individuals. The lines dividing the four panes are like window shades,
which can move as an interaction progresses.29
The quadrants (open self, concealed self, blind self and unknown self) represent information-
processing elements that are significant in creating quality interpersonal relationships. In this
model, each person is represented by his or her own window.
1 The ‘open self’ quadrant represents information known by the self and others. In this quadrant,
communication and co-operation occurs free from distractions, mistrust, conflict and
misunderstanding. Highly effective managers have a large open self area, leading to effective
feedback and productive relationships.

Table 13.2 Johari Window

2 The ‘blind self’ quadrant represents information that is unknown to the self (the person), but is
known to others. Managers with a large blind self are not good at giving effective feedback.
They typically talk too much and do not listen.
3 The ‘concealed self’ quadrant represents information known by the self, but unknown by
others. This includes fears, hidden plans and devious intentions. This quadrant can be reduced
by informing others how you feel personally, thereby ensuring better understanding and trust.
4 The ‘unknown self’ quadrant represents information that is not known by the self or others.
This can include feelings, experiences or aspects of a person’s personality that influence his or
her behaviour. Effective managers have a small unknown self. They therefore communicate
openly with employees.30

Successful managers should always attempt to increase their open self areas and reduce the other
areas. Managers can use the Johari Window model to assist their organisations in creating an
environment that encourages self-discovery, constructive observation and feedback among team
members. Creating a culture of constructive feedback will help employees to fulfil more of their
potential and contribute to enhanced organisational performance.31

13.2.5.1 Perception
Perception is the meaning ascribed to a message by either the sender or receiver. Perceptions are
influenced by what people see, by the ways they organise these elements in memory and by the
meanings they attach to them. The ability to perceive varies from person to person. Some people,
having entered a room only once, can later describe it in detail, whereas others can barely
remember anything about it. Thus, the mental ability to notice and remember differences is
important. How people interpret what they perceive is affected by their pasts. A clenched fist
raised in the air by an employee on strike and walking the picket line could be interpreted as either
an angry threat to the organisation or an expression of union solidarity and accomplishment. The
attitudes that people bring to a situation influence their perceptions of it.
Some problems in communication can be traced to two problems of perception:
• Selective perception
• Stereotyping.

Selective perception is the process of screening out information that a person wants or needs to
avoid. Almost everyone has been accused at one time or another of listening only to what they
want to hear. In organisations, employees sometimes do the same thing. Manufacturing employees
pay close attention to manufacturing problems, and accounting employees pay close attention to
debits and credits. Such employees tend to filter out information about other areas of the
organisation and focus on information that is directly related to their own jobs.32
Stereotyping is the process of making assumptions about individuals solely on the basis of
their belonging to a certain gender, race, age or other group. Stereotyping distorts reality by
suggesting that all people in a category have similar characteristics, which is simply not true.
Organisations have become increasingly sensitive to the potential negative consequences of such
stereotyping. As they have sought to manage workforce diversity more effectively, many
organisations have developed training programmes and other initiatives designed to reduce the
negative personal and organisational consequences of stereotyping.
In summary, then, the message sent, the channel of communication used and the ability to
respond all depend on a person’s perceptions. Encoding and decoding skills are based on a
person’s ability to perceive a message and situation accurately. Developing the ability to send and
receive messages accurately is central to being an effective manager.

13.3 The impact of modern business communication tools

on organisational communication
Business communication tools include traditional and modern alternatives, such as information
technology, the internet and electronic media, for transmitting a message to a targeted audience.
The modern tools of communication, which we discuss in the next section, are required to
transmit and receive well-defined messages to targeted receivers at the right time and place.

13.3.1Information technology
Information technology (IT) is the study, design, development, implementation, support or
management of computer-based information systems.33 New information technologies are rapidly
changing the way we work and live by influencing the methods of communication available to
managers and employees alike, and thus the tools of business communication that they use. These
technologies have the potential to improve organisational effectiveness and efficiency. For
example, IT can be used to improve a manager’s ability to monitor individual and team
performance, to facilitate the way in which employees communicate and collaborate with each
other, and to enhance decision-making. Managers and employees no longer need to be in their
own offices to communicate with others in the organisation and can be reached wherever they
are.34 In our South African Insight, MMI communicated and engaged with their stakeholders using
various channels and by means of different activities.
The three most significant developments in information technology that seem to be impacting
managerial communication include networked computer systems, wireless capabilities and social
networks.35

13.3.1.1 Networked computer systems

In a networked computer system, an organisation’s computers are linked into an organisation-
wide network. Employees can then communicate with each other irrespective of where they are.
Some of the main communication application aspects of a networked computer system, which
include e-mail, instant messaging, voice mail, fax, electronic data interchange, teleconferencing,
videoconferencing, intranets and extranets, are discussed in more detail below.
 E-mail uses computer text composition and editing to send and receive written information
quickly, inexpensively and efficiently. Messages are transmitted from the sender’s computer to the
receiver’s computer in seconds. They can be read at the receiver’s convenience. Senders and
receivers usually process their own e-mail. E-mail has become popular with managers for the
following reasons:
• Communication is fast and immediate
• Communication is inexpensive and convenient
• It increases productivity as it is a direct medium that reduces status and hierarchy differences.

One significant disadvantage has been observed in organisations that use e-mail extensively:
employees who might never confront co-workers face to face are more likely to engage in conflict
with others via e-mail, a phenomenon called ‘flaming’. E-mail messages are sometimes
misunderstood because of the lack of visual and verbal cues, and limited interaction and feedback.
Consequently, e-mail communication is not an ideal channel for conflict resolution.36
Because e-mails are often misunderstood and so much time is spent on processing so many
e-mails a day, it is easy to make mistakes that could be detrimental in a professional interaction. It
is thus very important to consider the following ten tips for e-mail etiquette proposed by MWEB,
a South African internet service provider:37
1. Subject line: Ensure the subject line is short, relevant and clear and gets the attention of the
recipient.
2. Urgent icon: Do not use this icon unless it is absolutely necessary. If regularly used, recipients
may not pay attention to it.
3. CC and BCC: Only CC (Carbon Copy) recipients if it is absolutely necessary. People are
usually bombarded with too many e-mails. The use of the BCC (Blind Carbon Copy) function
should be used when sending an e-mail to a large group of people who don’t know each other.
4. Spelling and punctuation: Be sensitive to the use of capital letters in an e-mail as you could be
sending out the wrong message. The use of exclamation marks also conveys a specific
message. It is also important to use proper punctuation and spelling, such as the correct use of
capitals and lower case.
5. Language usage: Do not use discriminatory language or make inappropriate comments. Once
you have pushed the send button you cannot retrieve the e-mail. It is also recommended that
you scrutinize an e-mail before sending it out and ensure the use of clear, short and concise
messages.
6. Signature: It is recommended that you include your name, e-mail signature, contact and
organisation details at the end of an e-mail.
7. Large files: If possible do not send large files via e-mail as they tend to clog up the system and
often recipients cannot receive files bigger than 5MB. Rather use file sharing services such as
Dropbox and Google Drive.
8. Reply to All: If you use the ‘Reply to All’ function, be aware that you might be sending an
e-mail to recipients who should not have received the message.
9. Forwarding a message: You should ensure that you are only forwarding relevant information.
Often confidential or irrelevant information is accidently shared with a recipient.
10. Re-formatting of e-mails: Attempt to use acceptable e-mail font, font size and colours. it
conveys a professional tone in your communication and is easy to read.
Instant messaging is interactive real-time communication that takes place by computer users who
are logged on to the same computer system at a given point in time. Instant messaging has gained
popularity, indicating that it helps to get responses immediately and facilitates collaborative
teamwork. This means of communication is often used by employees who find e-mail slow and
cumbersome.38
 On the other hand, voice mail digitises a spoken message and transmits it over the network.
The message is stored and retrieved by the receiver at his or her convenience. A fax machine
allows the transmission of documents containing text and graphics to be transmitted over ordinary
telephone lines. The benefit of a fax is that it can be viewed in printed form and easily shared by
organisational members. In developing countries, this medium of communication is useful as the
ordinary telephone line can be used. In electronic data interchange (EDI), use is made of direct
computer-to-computer networks to facilitate the exchange of transaction documents such as
invoices and purchase orders. Efficiency in handling paperwork is thus improved, and time and
money are saved. EDI is used in doing business with vendors, suppliers and customers.
Tele- and videoconferencing technology, which combines television and telephone
technologies, is another high-fidelity communications tool that organisations use to facilitate
discussions among people dispersed around the world. Unlike traditional conference calls over the
telephone, tele- and videoconferencing allow participants to see each other’s body language and to
view jointly materials such as blueprints, charts, graphs and even product prototypes. Tele- and
videoconferencing can also be used in combination with other information technology, such as
groupware, which is an aid to group problem-solving and decision-making.
Networked computer systems have allowed for intranet and extranet organisational
communication. An intranet communication network relies on internet technology and is
accessible only by employees within an organisation. Organisations make use of the intranet to
share information, and collaborate on issues and projects from different locations worldwide. On
the other hand, anextranet network, which is internet based, allows authorised users within an
organisation to communicate with users in another organisation, such as customers and vendors.
For example, Mediclinic, a South African private hospital group have “collaborated with
Microsoft South Africa and Intervate (a T-Systems company who is a leading provider of
Information and Communications Technology – ICT) to revolutionise its communication platform
that can be accessed at any time by its doctors. Microsoft SharePoint was used as the secure
platform for sharing information and documents with Mediclinic’s network of doctors and
healthcare services providers.”39
Blogging, referred to as a ‘weblog’ is an “online diary, usually maintained by an individual
with regular entries of events and happenings.”40 Blogs are often used by organisations as a
branding tool to communicate with their customers. The types of blogs include individual,
organisational, question and answer and news blogs. A question and answer blog would be used
by an organisation, for example, to provide answers to service related questions or facts about
products.41

13.3.1.2 Wireless capabilities

The latest development in communication technology has progressed to network connections
without the use of wire. Wireless communication depends on the use of signals that are sent
through the air, for example, microwave signals, satellites, radio waves or infrared light rays. The
use of ‘hot spots’, where users gain access to the internet in a specific area, has gained
popularity.42

13.3.1.3 Social networks

Social network sites (SNS) such as Facebook, LinkedIn, Twitter and YouTube are growing at a
rapid rate. SNS allow people to communicate with others with whom they have a common interest
or connection. While SNS have enhanced communication, it also has the threat of employees
spending too much of their time at work on these sites. As such many organisations do not permit
the use of SNS during work time.
Search Engine Optimisation (SEO) “is a set of tactics that brings more people to your site by
improving search engine rankings”43, which aims to improve the visibility of a website or a web
page in search engines. As social media became more prominent, Social Media Optimisation
(SMO) became that part of SEO that deals with all things social relating to a particular website or
web page.44Social media marketing, for example, has been widely accepted as the magic key that
opens the doors to prospects and customer interaction beyond the reach of traditional media and
marketing techniques. It is slowly taking over traditional forms of advertising.45
• Facebook has become the most widely recognised name in social networks, allowing people
to join and ‘friend’ members or invite others to join, and then share and exchange information.
Facebook continues to grow in popularity with small businesses to the point where it is no
longer a question of whether you should be utilising this platform as much as how you do
so.46According to research conducted in 2016, Facebook is the most popular social media
platform used by South Africans, followed by YouTube, Twitter and Instagram.47
• LinkedIn is often billed as the largest network of business professionals. It has a much more
focused business participation than many social networks, and is an e-platform to network and
do research on specific organisations and opportunities.
• Twitter is a free service that allows anyone to say anything to anybody in 140 characters or
less. People are using Twitter not only to share experiences, but also as a way to network and
communicate with old and new contacts.48
As a matter of interest, other SNS examples include: MySpace, LiveJournal, Xanga, Orkut, and
Friendster.

According to a 2016 survey on the South African social media landscape, it has been
confirmed that an increasing percentage of businesses are using social media platforms to
establish a social presence and to communicate to stakeholders. Organisations such as Mr Price
and Mercedes Benz SA are two examples of the current 42% of local companies using Instagram
to market and position themselves in the social arena. It is even more interesting to note that a
further 24% of the participating organisations have indicated their intention to make use of this
platform in the near future.49
The real business value of social networking is that it can be used as an enabler for
organisations to collaborate, en mass, to achieve otherwise impossible results. It is this mass
collaboration that sets social media apart as a phenomenon. It brings together large and diverse
groups of employees, customers and other stakeholders to pursue a mutual purpose that creates
value, leading to a competitive advantage for the organisation. It is thought that mass
collaboration is the way people will work in the future. For example, one engineering organisation
used social media to improve the productivity of its 500-person engineering team in two months
by 25%. It did so simply by giving employees the purpose and the tools to collaborate faster and
smarter.50

13.3.2Internet
The internet is a loosely configured, rapidly growing web of thousands of corporate, educational
and research computer networks around the world. The USA Department of Defence created it in
1969 and it was designed to survive a nuclear war. Rather than route messages through central
computers, the internet makes use of thousands of computers linked by thousands of different
paths. Anyone with a computer and a modem can access the internet. Each message sent bears an
address code that speeds it toward its destination. Messages usually arrive in seconds; only on rare
occasions do they vanish into cyberspace. The internet is like any other communications device in
that a user can get a busy signal. With thousands of internet groups and e-mail lists, the traffic is
sometimes heavy and a user might have to wait a short time to connect to the system. In South
Africa, personal banking via the internet is widely used. There is little privacy of information sent
over the internet, although finding methods to make information secure is a high priority of
researchers and users.

However, because information on the internet is potentially available to almost anyone in the
world, it offers many communication opportunities. It has benefits such as seamless
communication, currency, global reach, comprehensiveness and interactivity.51 For example, SAP
developed MySAP which enables SAP clients to use all of its solutions in a collaborative way
across the internet through a mySAP Web portal. MySAP is an e-business software integration
tool that delivers content to the user based on his or her role in an organisation. Various pre-
defined templates are available to the user as resources and applications and are task-focused such
as customer relationship management (CRM), supply chain management (SCM), e-procurement,
business intelligence, product lifecycle management, human resources, financial and marketing.52

13.3.3Electronic commerce
The Worldwide Web, which enables the location of information and data via a uniform resource
locator (URL), has become a global vehicle for electronic commerce (e-commerce), creating new
ways for businesses to communicate with one another and their customers. For example,
customers can now buy a large variety of products or services over the web instead of going to a
store to buy them.53 E-commerce includes online retailing activities such as having a take-away
delivered to your door without using a telephone. E-commerce activities are also conducted
between organisations that have developed complex networking systems dedicated to processing
orders, managing inventories and handling payments. There are four types of e-commerce
transactions: business-to-consumer transactions (B2C), business-to-business transactions (B2B),
business-to-administration transactions (B2A), and consumer-to-administration transactions
(C2A).54

13.3.4Information and communication technology laws

Over the past two decades, the internet has grown to include more than 3.5 billion internet users of
which more than 28 million users have access in South Africa alone, according to 2016
statistics.55The implication of all this is that information and communication technology (ICT)
now permeates every aspect of social, political and economic relationships.
In South Africa, the Independent Communications Authority of South Africa (ICASA) plays a
significant role in terms of developing appropriate market-friendly regulations and helping to
ensure a stable climate for investment in ICT. ICASA’s mandate is to regulate electronic
communications (in other words, broadcasting and telecommunications) and postal services in the
public interest. The Authority derives its mandate from the following principal legislative acts:56
• The Constitution of the Republic of South Africa, Act No. 108 of 1996
• The Broadcasting Act, No. 4 of 1999 and Act No. 64 of 2002 (Amended)
• The Independent Communications Authority of South Africa Act, No. 13 of 2000 (ICASA
Act)
• The Electronic Communications Act, No. 36 of 2005 (ECA)
• The Competition Act, No. 89 of 1998
• The Promotion of Administration Justice Act, No. 3 of 2000 (PAJA)
• The Postal Services Act, No. 124 of 1998.

The relevant legislation highlighting ICASA’s mandate and purpose with regards to electronic
communication includes the Independent Communications Authority of South Africa Act, No. 3
of 2006 (Amended), with the primary objective being to provide for the regulation and control of
telecommunication matters in the public interest (Section 2). It seeks, among other aims, to
promote the universal and affordable provision of telecommunication services. The Electronic
Communications Act, No. 36 of 2005 (ECA) pertains to the sectors of broadcasting, postal
services and electronic communications.

13.3.5Ethical and privacy issues in communication

Advances in communication technology, as explained previously, have placed pressure on
managers to develop codes of ethics. Two areas of ethical issues will be discussed briefly:
computer ethics and privacy.
Computer ethics is concerned with the nature and social impact of information technologies,
and the formulation of policies for their appropriate use.57
The access to ‘private information’ (rather than privacy protection) has increased since the 11
September 2001, 9/11 attacks. The amount and types of information available about individuals
and organisations in South Africa is surprising. Information is gathered by credit-rating
organisations when purchases are made by credit card, as well as by financial institutions when
money is borrowed and when accounts are opened. This information is accessible and available in
a matter of seconds. The protection of privacy through legal systems, organisational policies and
practices as well as professional associations need to keep up with advances in technology
development.58
An example of how organisational policies and practices have changed in South Africa is the
impact of the Protection of Personal Information (POPI) Act No. 4 of 2013, on South African
businesses. Organisations need to ensure the right to privacy is taken seriously by adhering to the
provisions of the POPI Act. The POPI Act regulates how organisations handle, store and secure
personal information. As such, organisations need to ensure the protection against any unlawful
collection, holding, disclosure and use of an individual’s personal information. Organisations must
receive permission from individuals before they can obtain and retain personal information for
dissemination. In the Information Technology (IT) industry, for example, it means that the manner
in which personal information is stored and processed must be better safeguarded to ensure that
the information is not misused or abused.59
For more detail on the POPI Act visit the website of the Department of Justice and
Constitutional Development and refer to the relevant Government Gazette at
http://www.justice.gov.za/legislation/acts/2013-004.pdf

13.4 Barriers to effective communication

One of the first steps in communicating more effectively is to identify barriers to the process.
These barriers hinder the sending and receiving of messages by distorting and sometimes even
completely blocking intended meanings. We have divided these impediments into organisational
and individual barriers – although there is obviously some overlapping – and listed them in Table
13.3.
Table 13.3 Barriers to communication

Organisational barriers to communication Individual barriers to communication

• Authority and status levels • Semantics

• Specialisation of task functions by members • Emotions
• Different goals

These barriers to communication are discussed in more detail below.

13.4.1Organisational barriers
Channels of communication, both formal and informal, are largely determined by organisational
design. Hierarchical organisations have more levels of authority and greater differences in status
among their members. Flat organisations have relatively few authority levels and tend to be more
on a par in terms of status. The degree of specialisation present in the organisation may also affect
clear communication, as can the presence of conflicting goals.

13.4.1.1 Authority and status levels

When one person holds a higher formal position than another, that person has a higher level of
authority. When one person is held in higher esteem than another, regardless of each individual’s
position in the organisation, that person has a higher status level. Authority level and status often
go hand in hand, but not always. Status is a person’s social rank in a group, which is often
determined by the person’s characteristics in addition to his or her formal position. When status
and authority levels differ, communication problems are likely to occur.
The more levels there are in the organisation – and the further the receiver is from the sender –
the more difficult effective communication becomes.
Figure 13.5 illustrates the loss of understanding as messages are sent downward through a
formal communication channel. To help reduce this problem, top managers are increasingly using
live teleconferencing and video or DVDs to deliver the same message to employees at all the
organisation’s locations. In doing so, these managers use both verbal and non-verbal messages,
and cut out intervening receivers and senders in order to increase the probability that the original
messages will be received intact. Many organisations use videos when trying to move managers to
new locations. The presentations can reinforce the reason or reasons for the relocation and the
need for employees’ co-operation during the changeover.
Even when a person is communicating with others at the same level of authority, status can
interfere with the process. In group discussions, members with a higher status speak more and
have more influence than those with a lower status. This phenomenon is difficult to overcome,
and it has been observed in both computer-mediated and face-to-face discussion groups. When
computer-mediated group discussion techniques were first introduced, many people expected
them to reduce the effects of status on communication. Instead, information technologies often
reinforce existing status relationships and magnify their effects on communication.60
Figure 13.5 Levels of understanding for a message from top management

In flat organisations, authority levels may not interfere with communication, but status is
likely to come into play. At Cell-C, one of South Africa’s cellular service providers, their flat
organisational structure allows them to adapt quickly, adding to its nimble approach and making it
possible for staff to move effortlessly between authority levels.61

13.4.1.2 Specialisation
As discussed in Chapter 8, specialisation is the process of identifying particular tasks and
assigning them to individuals or teams who have been trained to do them. As knowledge becomes
more specialised, professionals in many fields develop their own jargon or shorthand to simplify
communication among themselves. That often makes communication with people outside a
particular field difficult. A tax accountant and a marketing research manager might have trouble
communicating successfully based on their areas of expertise and reference. Moreover, in an
attempt to make themselves indispensable, some people intentionally use the language of
specialisation to obscure what is going on. Employees often use specialised language when trying
to impress others.
At Toyota various functional experts specialising in different fields such as design, research,
engineering, and sales, need to work together when designing a new vehicle. They believe that
face-to-face consultation is still the most important medium for individuals from diverse areas of
specialisation to focus, discuss and resolve issues. This is supported by a detailed write-up sent to
various participants, reinforced by a short conference call if a meeting is not possible. They also
develop short summarised A3 one-sided reports. These reports compiled by any staff member
within Toyota, such as a designer or engineer, have the same format. This enables everyone,
irrespective of their functional area, to find the definition of the problem, the responsible engineer
or designer and department, the results of the analysis, and the recommendations.62
13.4.1.3 Different goals
When departments in an organisation have different goals, interdepartmental conflict may occur.
Such conflicts can be the direct consequences of competing interests or they may simply arise
from misunderstandings created by the different perspectives of the parties involved. Open
communication between people with differing goals speeds up problem-solving and improves the
quality of solutions.
Having touched on organisational barriers, we need to consider a few individual barriers to
communication.

13.4.2Individual barriers
Communication is the only means by which people can build relationships in the workplace and
elsewhere. It is estimated that the majority of leaders fail to communicate with their co-workers in
a way that is conducive to building productive relationships based on mutual trust and respect.63
These problems can be caused by semantics and emotions.

13.4.2.1 Semantics
The study of the way in which words are used and the meanings they convey is called semantics.
Misinterpretation of word meanings can play a large role in communication failure. When two
people attribute different meanings to the same words, but do not realise it, a barrier exists.
Consider what happened when the sales manager required the IT department to update the new
product price list and remove all the promotions on offer which have now expired, on their
website ‘as soon as possible’, expecting these words to ensure that the order was given top
priority. Three days later, the sales manager is informed by a sales representative that a large order
is placed for 2 500 units and that the long-standing client is confirming the current prices and
special promotions advertised on the organisation’s website. Upon checking the website, the sales
manager notices with a shock that the price list and other relevant information have not yet been
updated. A call to the IT department results in some shouting, and the sales manager realise that in
the IT department, ‘as soon as possible’ meant that the request did not need to be given top
priority.
Problems caused by semantics are compounded when people who speak different languages
attempt to communicate. Imprecise translations cause many blunders in international business
dealings as indicated earlier. To avoid such blunders, organisations should routinely have
messages translated back to the original language to ensure the accuracy of the original
translation. This process is called back translation. If the original message and the back-
translated version agree, the translated version probably will not have unexpected meanings. Even
back translation is not foolproof, however, because the meanings of words often depend on the
context in which they are used, especially in high-context cultures such as the Arabic, Japanese
and Chinese cultures. In a high-context culture, communication involves sending and receiving
many subtle cues. Non-verbal cues, intonation subtleties and inferences are all essential aspects of
communication. The Japanese often talk around a point without ever stating it directly. From their
perspective, it is the responsibility of the listener to discern the message from the context.
German, Scandinavian and Anglo cultures are low-context cultures that place more emphasis on
the precise meanings of words and concepts.

13.4.2.2 Emotions
An emotion is a subjective reaction or feeling. Remembering experiences, an individual recalls
not only events, but also the feelings that accompanied them. Thus, when people communicate,
they convey emotions as well as facts and opinions. The sender’s feelings influence encoding of
the message and may or may not be apparent to the receiver. The receiver’s feelings affect
decoding of the message and the nature of the response.
Misunderstandings owing to differences in what arouses people’s emotions often accompany
cross-cultural communications. In Japan, feelings of embarrassment and shame are more easily
aroused during social interactions than they are in Western cultures. Furthermore, these emotions
are not easily detected by people who are not socialised in the Japanese culture. Consequently,
Westerners are likely to create situations that cause their Japanese counterparts to feel
embarrassment and shame without realising it, and thus seem insensitive.
Although there are many other cultural differences in how people experience and express
emotions, there are also many similarities. Rather than being barriers to communication, these
similarities aid communication. In particular, the antecedents of some emotions – anger,
happiness, disgust, fear, sadness and surprise – seem to be similar in most cultures, as are the
facial expressions that accompany the emotions.64 These similarities mean that non-verbal cues are
less likely to be misinterpreted when emotions are involved.
Having touched on organisational and individual barriers to communication, the question
arises as to how to overcome them.

13.4.3Overcoming barriers
It is possible to overcome barriers to effective communication. People must first be aware that
barriers exist and can cause serious organisational problems. Then they must be willing to invest
the effort and time necessary to overcome the barriers. Ways of overcoming some of the barriers
to effective communication include the following:65
• Regulating the flow of information
• Encouraging feedback
• Simplifying the language used in the message
• Listening actively
• Restraining negative emotions
• Using non-verbal cues
• Using the grapevine and informal networks.

These ways of overcoming barriers to communication are discussed in more detail below.

13.4.3.1 Regulating the flow of information

If you receive too much information, you will suffer from information overload. How much
information is too much varies from one person to the next. Some observers believe that the
differences in experiences have significantly changed the speed with which people can process
information and the amount of information that they can process simultaneously.66 Consider the
potential differences in terms of experiences between members of generations X, Y and Z.
Regardless of how much information is needed to create feelings of overload, every
organisation is capable of producing volumes of information. For this reason, it is important to set
up a system that identifies priority messages for immediate attention. Some e-mail software
packages allow senders to put ‘red flags’ next to their messages, indicating urgency.
13.4.3.2 Encouraging feedback
You should follow up to determine whether important messages have been understood. Feedback
lets you know whether the other person understands the message accurately. Feedback does not
have to be verbal. In fact, actions often speak louder than words. The sales manager who describes
desired changes in the monthly sales planning report receives feedback in the form of the
amended report. If it contains the proper changes, the manager knows that the message was
received and understood. Similarly, when you talk to a group of people, look for non-verbal
feedback that will tell you whether you are getting through to them.

13.4.3.3 Simplifying the language of the message

Because language can be a barrier, you should choose words that others will understand. Your
sentences should be concise and you should avoid jargon that others will not understand or that
may be misleading. In general, understanding is improved by simplifying the language used in a
way that is consistent with the nature of your intended audience.

13.4.3.4 Listening actively

You need to become a good listener as well as a good message sender. Recently, several
organisations have developed training programmes to improve employees’ listening. These
programmes often emphasise that listening is an active process in which listeners and speakers
share equal responsibility for successful communication. Active listeners have the following
characteristics:67
• They are appreciative. They listen in a relaxed manner, seeking enjoyment or inspiration.
• They are empathic. They listen without judging, are supportive of the speaker and learn from
the experiences of others.
• They are comprehensive. They listen to, organise and make sense of information by
understanding relationships among ideas.
• They are discerning. They listen to get complete information, understand the main message
and determine important details.
• They are evaluative. They listen in order to make a decision based on the information
provided.

In our South African Insight, MMI’s CEO hosted breakfasts with senior managers to listen to their
views on key business matters.

13.4.3.5 Restraining negative emotions

Like everyone else, you convey emotions when communicating, but negative emotions can distort
the content of the message. When emotionally upset, you are more likely to phrase the message
poorly than at other times. In addition, you are more likely to misinterpret a message. The
simplest answer in such a situation is to call a halt until the people involved can restrain their
emotions.

13.4.3.6 Using non-verbal cues

You should use non-verbal cues to emphasise points and express feelings. Recall the methods of
non-verbal communication that we have presented. You need to be sure that your actions reinforce
your words so that you do not send mixed messages.
13.4.3.7 Using the grapevine
As a manager, you could not get rid of the grapevine in an organisation even if you tried, so you
should use it to send information rapidly, test reactions before announcing a final decision and
obtain valuable feedback. Also, the grapevine frequently carries destructive rumours, reducing
employees’ morale and organisational effectiveness. By being ‘plugged into’ the grapevine, you
can partially counteract this negative effect by being sure that relevant, accurate, meaningful and
timely information reaches others.

13.5 Using persuasion for effective communication

In Chapter 2 an important aspect relating to business communication, the skill to negotiate,
which requires the ability to persuade, was introduced. Each day a manager is involved in using
persuasive communication, be it with a team member, supplier or with top management, as is the
case in our South African insight, MMI and Stakeholder engagement. To be able to communicate
effectively would require adequate preparation, clarity on the action and providing a compelling
reason for the action desired.68 Before we discuss the steps and principles in guiding persuasive
communication, it is important to distinguish between persuasion and influence, as these concepts
are often used interchangeably. Both can be used to motivate and guide the behaviour and attitude
of individuals.
Persuasion refers to altering behaviour through reasoning and communication. It is usually a
deliberate attempt by one individual to alter the course of action of another individual through
communication. As such, individuals who are persuaded become motivated to do what the other
person would like them to do.69 Effective persuasion becomes a negotiation and learning process
through which a persuader leads colleagues to a problem’s shared solution.70
On the other hand, whenever there is a change in an individual’s thoughts, feeling or
behaviour, because of another person’s personality, influence has taken place. Both persuasion
and influence can be used to change behaviour and attitudes but their methods are different. While
persuasion requires an individual to communicate, influence works silently without the individual
having to make an effort. Influence is thus based on trust and credibility.71
To be able to influence and persuade others is seen as essential for the effective performance
of managers. Managers daily have to decide on how to motivate and lead their employees. No
longer is it possible to say, do the work because I am the boss.72 In this instance persuasion skills
exert much more influence over others’ behaviour than formal power structures do. Based on the
research done by the behavioural scientists, persuasion works by appealing to a limited set of
deeply rooted human drives and needs, and it does so in predictable ways.73 Therefore, persuasion
can be taught, learnt and applied. This means that managers learn how to apply the steps and the 7
Cs of effective communication and persuasion, which are discussed next.

13.5.1Steps in persuasive communication

The following steps can be taken to guide a manager’s endeavours when persuading other
individuals in the work place.74
• Confirm your credibility.
A manager’s credibility is determined by their expertise, relationships and evidence provided.
As such they should have proved their ability to make sound judgements, being
knowledgeable in their field, trusted as a good listener and perceived to consider the interests
of others.
• Know your target audience or person.
As a manager, you need to know how to get the attention of the person or the audience you
would like to persuade by starting with a story or anecdote, and by reassuring them that it is
worth their time to listen to your suggestion. Providing personal evidence would capture the
listener’s attention as it would open them up to considering the idea being suggested.
• Communicate benefits and action.
As a manager, you should identify tangible shared benefits with the person or audience you
are trying to persuade. As such you will be framing your goal. For example, if your goal is
trying to convince your manager to let you work from home part time, frame your request with
evidence of how working at home will improve productivity. Framing the benefits should be
balanced between being considerate of the other person’s needs and your own goals.
To gather essential information to frame your goal, as a manager, you would also have to
study the issues that matter to your employees by using conversations, attending meetings and
listening carefully. It is also important that you test your ideas with a trusted colleague before
approaching the person who needs to be persuaded.
• Reinforce your position, using clear language and convincing evidence.
Reinforce your position by making use of examples, stories, or metaphors to make the
persuasion more vivid.
• Connect emotionally with your target audience or person.
Managers should be aware of the importance of emotions in persuading someone. As such
they should show their own emotional commitment to the position they are advocating and
have a sense of the other person’s emotional state. It is important to be emotionally intelligent
by adjusting tones and intensity of arguments as well as being aware of non-verbal
communication cues such as posture and eye contact. For example, standing up straight
projects authority and confidence; relaxing your arms and keeping them at your side,
demonstrates sincerity and openness.

To ensure that communication during the persuading process is effective, the following 7 Cs of
effective communication should be considered:75
1. Concise – Get your point across clearly by using concise and simple language to encourage
effective action.
2. Complete – Make sure that your message is complete the first time by having all the necessary
information available before communicating.
3. Conversational – A conversational tone is professional and invites interaction rather than
confrontation.
4. Clear – There is only one opportunity to make your point, so be clear the first time.
5. Considerate – Provide the opportunity after each statement for questions and provide clarity to
make sure there is a clear and common understanding.
6. Confidence – Be aware of your posture, know what you are talking about and speak clearly.
7. Check – Verify whether the information you have is accurate before you engage with others.

13.5.2Principles of persuasion
The principles of persuasion include liking, reciprocity, social proof, consistency, authority and
scarcity.76 In addition to the steps and the 7 Cs of effective communication, understanding how to
use the following principles of persuasion, is critical to being an effective leader in the
contemporary work environment.
• The principle of liking.
 People like those who like them.77 Generally, one would support the person who likes you. In
this instance, persuading means that you need to find areas of commonalities. This can be
done by uncovering real similarities and offering genuine praise. To do so, you need to be a
good listener, establish a relationship, and build trust and credibility through praising.78
• The principle of reciprocity.
People generally repay in kind.79 For example, charities rely on reciprocity to help them raise
funds because they generally give something away for free. In persuasive communication, you
must first seek to understand before being understood.80 In other words, give what you want to
receive. People are inclined to respond in kind if they perceive that you are making a genuine
attempt to understand their needs. For example, if you notice that a colleague urgently needs
additional help to meet a deadline, help them. Next time you need help you should be able to
rely on this colleague.81
• The principle of social proof.
People follow the lead of similar others.82 The line of argument followed in this principle is
because everyone else is doing it, you would like to do it as well. While this principle is not
always ideal, it can be used as a powerful motivator by using peer power. If, for example, a
manager experiences resistance to a new initiative, it would be wiser to ask a colleague who
supports this initiative to speak up at a meeting rather than them trying to convince the
meeting of their viewpoint. As such, influence would be exercised by horizontal rather than
vertical channels of communication.83
• The principle of consistency.
People align with their clear commitments.84 The principle of consistency means that, besides
liking you, people need to be committed to what you would like them to do. Research has
shown that once a person takes a stand in favour of a position, they prefer sticking to it, no
matter how small the commitment was. There is also evidence that a choice made explicitly,
either verbally or in writing, is more likely to direct future behaviour than choice left
unspoken.85
• The principle of authority.
People defer to experts.86 In the principle of authority, it is important to expose expertise and
experience rather than assuming it to be self-evident. As such managers should take the time
to establish their own expertise before they attempt to exert influence.87 Besides formal
qualifications, this would mean attending formal dinners, meetings or negotiations.
• The principle of scarcity.
People want more of what they can have less of.88 In the principle of scarcity, it is important to
emphasize the advantages and exclusive information. Research has shown that items and
opportunities are seen to be more valuable as they become less available. Rather than
highlighting what people stand to gain, managers need to highlight what people stand to lose if
they do not act on the information. For example, highlighting potential losses to the
organisation would be more effective than highlighting the potential gains. Furthermore,
managers should keep in mind that using exclusive information is more effective than using
information that is generally available. For example, if a manager has access to a newly
released report that is not readily available yet, it can be used to get buy-in from employees.
However, this should be done within the context of the rule of reciprocity.89

Chapter summary
Communication is the transfer and exchange of information and understanding from one person to
another through meaningful symbols. There are five principles that are fundamental to
communication: relevance, simplicity, organisation, repetition and focus. The sender is the source
of information and the initiator of the communication process. The receiver is the person who
receives and decodes or interprets the sender’s message. The message contains the verbal (spoken,
written and audio-visual) symbols and non-verbal cues representing the information that the
sender wants to convey to the receiver. The communication tools for the effective transmission of
messages in business communication include traditional and modern communication tools. A
channel is the path a message follows from the sender to the receiver. Channels of
communication, both formal and informal, are largely determined by organisational design.
Feedback is the receiver’s response to the sender’s message, while perception is the meaning
ascribed to a message by either sender or receiver.
New information technologies are rapidly changing the methods of communication available
to managers and employees alike, and thus the channels of communication they use. Traditional
messages in business communication are facilitated by modern business communication tools
such as information technology, the internet and electronic media.
Social networks such as Facebook, LinkedIn and Twitter have become increasingly important.
New information technologies have also facilitated what is known as e-commerce. Advances in
communication technology have also created a need for information and communication
technology laws, and given rise to issues concerning computer ethics and privacy such as the
POPI Act.
Barriers to effective communication hinder the sending and receiving of messages by
distorting and even blocking intended meanings. Barriers to communication can be classified into
two categories: organisational barriers and individual barriers. Organisational barriers include
authority and status levels, specialisation of task functions by members and different goals.
Semantics and emotions create individual barriers to communication. People can overcome
barriers to effective communication. To do so, they must first be aware that barriers exist and can
cause serious organisational problems. Then they must be willing to invest the effort and time
necessary to overcome the barriers. Ways of overcoming barriers to communication include
regulating the flow of information, encouraging feedback, simplifying the language of the
message, listening actively, restraining negative emotions, using non-verbal cues and using the
grapevine.
To be able to influence and persuade others is essential for the effective performance of
managers and it also enhances the profile of an effective leader. Persuasive communication is
concerned with altering behaviour through reasoning and communication. As such, effective
persuasive communication relies on a number of steps, the 7 Cs, as well as the principles of
persuasion including liking, reciprocity, social proof, consistency, authority and scarcity.

Questions for discussion

1. Explain the three most commonly used information channels in organisations. When is each
channel most effective?
2. Identify the main forms of non-verbal communication and describe their impact on cross-
cultural communication.
3. Describe how modern business communication tools have changed the nature of
communication in contemporary organisations and highlight the challenges it poses for
management.
4. Identify the primary barriers to communication and explain how they can be overcome.
5. Explain how you would use the six principles of persuasion to enhance your persuasive, non-
manipulative communication ability.
 Exercise for competency development
How well do you communicate in the workplace or with your fellow students? Sometimes some of them
just communicate in such a manner that you want to do things for or with them. We do most likely turn
to these people for feedback, even if it is about things we don’t want to hear.
So, do you understand your communication style? Understanding your behaviour at work will allow
you to assess your communication style, in order to establish your preferred communication style.

Complete the Communication Style Self-Assessment at:

http://www.newlineideas.com/communication-style-quiz.html

Contemporary management in practice

You have recently been appointed to a managerial position. How are you going to persuade and not
manipulate the employees reporting to you?

View the YouTube video entitled ‘Science of Persuasion’ at

https://www.youtube.com/watch?v=cFdCzN7RYbw
Explain how you would use the six principles of persuasion to enhance your persuasive, non-
manipulative communication.

Endnotes
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2 IMPLATS. 2000. Annual Report. [Online]. Available:
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October 2015].
3 BRAND SA. 2016. [Online]. Available: http://www.gov.za/about-government/government-
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4 JOHNSON, G., WITTINGTON, R., SCHOLES, K., ANGWIN, D. & REGNER, P. 2014. Exploring
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[Accessed 9 October 2015].
6 DAFT, R. 2013. The new era of management. 11th ed. Florence, USA: South-Western College
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7 JONES, G.R. & GEORGE, J.M. 2016. Contemporary Management. 9th ed. New York: McGraw Hill
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 PLOYHART, R. E. 2000. Applicants’ perceptions of selection procedures and decisions: A critical
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14 Ibid., p.77.
15 Ibid., p.76.
16 Ibid., p.77.
17 AUTHOR UNKNOWN. 1996. Workplace potpourri: Strict etiquette in Japanese firms lives on.
Manpower Argus, August, 11.
18 GOLD FIELDS. 2016. Corporate office. [Online]. Available:
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19 FRANCISCO, A. M. & GOLD, B. A. 2005. Op cit., p.78.
20 Ibid.
21 KUMAR, J. 2010. Basic Business Communication: Concepts, application and skills. Naraina, New
Delhi: Excel Books, p. 268.
22 HOFFMANN, D. 2015. Formal versus informal communication – how they differ. [Online]. Available:
http://communicationverbalnonverbal.blogspot.co.za/2011/04/formal-vs-informal-communication-
how.html [Accessed 9 October 2015].
23 MORRIS, K. 2012. The importance of setting communication policies and procedures. [Online].
Available: http://www.mybusiness.com.au/experts/the-importance-of-setting-communication-policies-
and-procedures [Accessed 10 October 2015]; NASPERS. 2015. Communication policy. [Online].
Available: http://www.naspers.com/pdf/policies/communication-policy.pdf [Accessed on 10 October
2015].
24 SAB MILLER PLC. 2016. SAB Miller plc Sustainability Development Report 2016. [Online].
Available: http://www.ab-inbev.com/content/dam/universaltemplate/ab-
inbev/investors/sabmiller/reports/sustainable-development-reports/sustainable-development-report-
2016.pdf [Accessed 22 December 2016].
25 UNISON. Using effective communications: A UNISON case study. [Online]. Available
http://businesscasestudies.co.uk/unison/using-effective-communications/formal-and-informal-
communications.html [Accessed 9 October 2015].
26 FRIEDMAN, R. A. 1996. Defining the scope and logic of minority and female network groups: Can
separation enhance integration? In FERRIS, J. & ROWLAND, K. (Eds.). Research in personnel and
human resources management, 14, 307–349.
27 UNISON. nd. Using effective communications: A UNISON case study. [Online]. Available:
http://businesscasestudies.co.uk/unison/using-effective-communications/formal-and-informal-
communications.html [Accessed 9 October 2015].
28 BUSINESSBALLS.COM. 2016. Johari Window. [Online]. Available:
http://www.businessballs.com/johariwindowmodel.htm [Accessed 23 December 2016].
29 CHATTERJEE, B. 2016. Fundamentals of Johari Window. [Online]. Available:
http://cnx.org/contents/bP001ULW@1/Fundamentals-of-Johari-Window [Accessed 23 December
2016].
30 NORTHUP, T. 2006. Effective Communication; A Necessity for a Successful Organisation. [Online].
Available: www.lmgsuccess.com/documents/EffectiveComm.pdfSimilar [Accessed 23 March 2012].
31 KUMAR, J. 2010. Basic Business Communication: Concepts, application and skills. Naraina, New
Delhi: Excel Books, pp. 476–477; GRIFFIN, R.W. 2012. Management fundamentals. 6th ed. London:
South-Western Cengage Learning, p. 27.
32 ROBBINS, S. P., DECENZO, D. A. & COULTER, M. 2013. Fundamentals of Management. 8th ed.
Boston: Pearson; SUTCLIFFE, K.M. 1994. What executives notice: Accurate perceptions in top
management teams.Academy of Management Journal, 37, 1 360–1 378.
33 KUMAR, J. 2010. Op cit., p. 281.
34 ROBBINS, S. P., DECENZO, D. A. & COULTER, M. 2013. Op cit.
35 Ibid.
36 DAFT, R. 2013. Op cit.
37 MWEB. 2016. 10 tips for top email etiquette. Marketing communication.
38 DAFT, R. 2013. Op cit.
39 INTERVATE. 2015. Mediclinic reinvents doctor communication with Microsoft SharePoint. [Online].
Available: http://www.intervate.com/About-Intervate/Pages/Mediclinic-doctors-portal.aspx [Accessed
10 October 2015].
40 DU PLESSIS, F., VAN HEERDEN, N. & COOK, G. (Eds.). 2014. Integrated marketing
communication: A contemporary approach. 3rd ed. Pretoria: Van Schaik, p. 385.
41 Ibid.
42 ROBBINS, S. P., DECENZO, D. A. & COULTER, M. 2013. Op cit.
43 WAYPOST. 2016. SEO vs. SMO: The Impact of Social Media on Search Engine Optimization.
[Online]. Available: http://blog.waypostmarketing.com/seo-vs.-smo-the-impact-of-social-media-on-
search-engine-optimizatio [Accessed 21 December 2016].
44 Ibid.
45 SOCIAL MEDIA FOR YOUR BUSINESS. 2011. Social Media for Business – Australia. [Online].
Available: http://www.socialmediaforbusiness.com.au/ [Accessed 8 March 2012].
46 DU PLESSIS, F., VAN HEERDEN, N. & COOK, G. (Eds.). 2014. Op cit., p. 388.
47 SNYMAN, A. 2016. Social Media – The Latest South African Stats. WebAfrica. 11 March. [Online].
Available: https://www.webafrica.co.za/blog/social-media-2/social-media-latest-south-african-stats/
[Accessed 24 December 2016].
48 JANTSCH, J. 2011. Let’s talk social media for small business Version 2. [Online]. Available:
http://www.ducttapemarketing.com/socialmediaforbusiness.pdf [Accessed 8 March 2012].
49 SNYMAN, A. 2016. Op cit.
50 TAYLOR, P. 2011. Making use of social media for business. [Online]. Available:
http://www.ft.com/intl/cms/s/0/c95c362a-e0b1-11e0-947a-00144feabdc0.xhtml#axzz1bQ6kqiC2
[Accessed 8 March 2012].
51 DU PLESSIS, F., VAN HEERDEN, N. & COOK, G. (Eds.). 2014. Op cit., p. 377.
52 TECHTARGET. 2007. MySAP. [Online]. Available: http://searchsap.techtarget.com/definition/mySAP
[Accessed 27 December 2016].
53 HALBERSTADT, M. 2000. Surf the Internet from your cell. Professional Management Review,
January, 110.; AFRICA CELLULAR TOWERS. 2011. Welcome to African Cellular Towers Limited
(ACTowers). [Online]. Available: http://www.africacellular.co.za/index.html [Accessed 8 March 2012].
54 KUMAR, J. 2010. Op cit., pp. 288–289.
55 INTERNET LIVE STATS. 2016. Internet Users. [Online]. Available:
http://www.internetlivestats.com/internet-users/ [Accessed 22 December 2016].
56 ICASA. 2016. ICASA Annual Report 2016. [Online]. Available:
https://www.icasa.org.za/AboutUs/AnnualReports/tabid/290/ctl/ItemDetails/mid/935/ItemID/12844/Default.aspx
[Accessed 21 December 2016].
57 HELLRIEGEL, D., JACKSON, S. E. & SLOCUM, J. W. Jr. 2005. Management: International student
edition. Mason, Ohio: Thomson South-Western.
58 Ibid.
59 Act No. 4 of 2013. Protection of Personal Information Act. 2013. Government gazette, vol. 581, number
37067, 26 November 2013. Pretoria: Government printers.; MATTHES, C. 2014. Unpacking the POPI
Act: The ins and outs of protecting personal information. [Online]. Available:
http://www.itweb.co.za/index.php?option=com_content&view=article&id=71001 [Accessed 8 October
2015].
60 WEISBAND, S. P., SCHNEIDER, S. K. & CONNOLLY, T. 1995. Computer-mediated communication
and social information: Status salience and status differences. Academy of Management Journal, 38, 1
124–1 151; ZACK, M. H. & McKENNY, J. L. 1995. Social context and interaction in ongoing
computer-supported management groups. Organization Science, 6, 394–404.
61 AFRICAN BUSINESS REVIEW. 2011. Top 10 Best Companies to Work for in South Africa. 19 May.
[Online]. Available: http://www.africanbusinessreview.co.za/top10/1535/Top-10-Best-Companies-To-
Work-For-in-South-Africa [Accessed 27 December 2016].
62 SOBEK, D. K. II, LIKER, J. & WARD, A. C. 1998. Another Look at How Toyota Integrates Product
Development. Harvard Business Review. July-August. [Online]. Available:
https://hbr.org/1998/07/another-look-at-how-toyota-integrates-product-development [Accessed 21
December 2016].
63 SPRONG, M. 1999. The ethics of leadership – from the NPI. Journal of the Southern Africa Institute of
Management Services, September, 7(3), 7–8; KEVIN MURRAY & CO. 2016. How well do you listen?
Take the “good listener” test. It could make you a better leader. [Online]. Available:
http://www.leadershipcommunication.co.uk/how-well-do-you-listen-take-the-good-listener-test-it-
could-make-you-a-better-leader/ [Accessed 19 December 2016].
64 MESQUITA, B. & FRIJDA, N. H. 1992. Cultural variations in emotions: A review. Psychological
Bulletin, 2, 179–204.
65 RODGERS, E. M. 1994. A history of communication study. New York: Free Press.
66 PRENSKY, M. 1998. Twitch speed. Across the Board, January, 14–19.
67 Personal listening profile facilitator’s kit. 2014. Center for Internal Change. 10 November. [Online].
Available: http://www.internalchange.com/personal-listening-profile-facilitator-kit [Accessed 23
December 2016].
68 CARNEGIE, D. 2013. Communicate to persuade. 21 August. [Online]. Available:
http://www.dalecarnegie.com/blog/main/communicate-to-persuade/ [Accessed 29 December 2016].
69 DIFFERENCE BETWEEN.COM. 2016. Difference between persuasion and influence. [Online].
Available: http://www.differencebetween.com/difference-between-persuasion-and-vs-influence/
[Accessed 29 December 2016].
70 HARRISON, K. 2015. Four steps in persuasive communication at work. [Online]. Available:
http://www.Cuttingedgepr.com/ [Accessed 12 October 2015].
71 DIFFERENCE BETWEEN.COM. 2016. Op cit.
72 CIALDINI, R. B. 2001. Harnessing the science of persuasion. Harvard Business Review, October: 72
–79.
73 Ibid.
74 HARRISON, K. 2015. Op cit.; WILLIAMS, E. 2015. Effective persuasive communication. Demand
media. [Online]. Available: http://www.smallbusiness.chron.com/effective [Accessed 13 October 2015];
CARNEGIE, D. 2013. Communicate to persuade. 21 August. [Online]. Available:
http://www.dalecarnegie.com/blog/main/communicate-to-persuade/ [Accessed 29 December 2016].
75 ROOT, G. N. III. 7Cs of effective business communication. Demand media. [Online]. Available:
http://www.smallbusiness.chron.com/7-cs-effective [Accessed 13 October 2015].
76 CIALDINI, R. B. 2001. Harnessing the science of persuasion. Harvard Business Review. October: 72
–79.
77 Ibid.
78 Ibid.
79 Ibid.
80 GILBERT, M. 2010. Effective persuasion through good communication. [Online]. Available:
http://www.corporatecomplianceinsights.com [Accessed 13 October 2015].
81 CIALDINI, R. B. 2001. Op cit.
82 Ibid.
83 Ibid.
84 Ibid.
85 Ibid.
86 Ibid.
87 Ibid.
88 Ibid.
89 Ibid.
LEARNING OUTCOMES
After studying this chapter, you should be able to:
• Define change and change management
• Describe the different types of organisational change
• Explain the planning process for organisational change
• Discuss a comprehensive model to manage the change process
• Identify and differentiate between the different approaches used to implement organisational change
• Describe the role of innovation in organisational change
• Describe the meaning of learning organisations and its relevance to a changing organisation.

CHAPTER OUTLINE
• South African Insight: Organisational change at Sappi
• Organisational change
» Types of organisational change
• Planning for organisational change
» Assess the environment
» Determine the performance gap
» Diagnose organisational problems
» Identify sources of resistance
» Reduce resistance to change
• A model: The change management process
» Recognise the need for change
» Set goals
» Diagnosis of relevant variables
» Selection of appropriate change techniques
» Develop and implement an action plan
» Evaluation and follow-up
• Implementing change in the organisation
» Technology-based approach
» Organisational redesign approach
» Task-based approach
» People-orientated approach
• The role of innovation in organisational change
» Types of innovation
• Learning organisations
» Shared leadership
» Organisational culture
» Strategy
» Organic organisational design
 » Use of information

Key terms and concepts

• Change management
• Planned change
• Reactive change
• Incremental change
• Technology-based approach
• Socio-technical systems
• Organisational redesign approach
• Re-engineering
• Structural redesign
• Task-based approach
• Job simplification
• Job enrichment
• People-orientated approach
• Radical change
• Technical innovation
• Administrative innovation
• Product innovation
• Process innovation
• Traditional organisation
• Learning organisation

COMPETENCY WHY IS THIS COMPETENCY EXAMPLE

IMPORTANT IN RELATION
TO CHANGE
MANAGEMENT?

Communication The key to overcoming resistance Telkom realised the importance of mobilising
to change is through well planned all employees to allow them to transform
and executed change themselves to be able to adapt to the
communication strategies. challenges. As such, regular internal
Communication before, during and newsletters, memos and reports are shared
after a change intervention helps with all staff to ensure that they are fully
all stakeholders to understand the informed at all times.1
rationale for and implication of the
change.

Planning and The planning for organisational Typical examples of planning activities in any
financial change in most cases is triggered business relate to legislation, government
management by the need to respond to policy, new product and service developments
opportunities or threats facing the or advances in technology, amongst others.
organisation at present or to BMW launched two new models in South
proactively make internal Africa in 2016 and is currently accelerating
improvements or adjustments to plans for the introduction of an expanded
address future demands. number of new pure electric and petrol-
electric hybrid powered models, both to its
regular line-up, as well as its current ‘i-sub
brand’, which forms part of its 2020 change
strategy.2

Teamwork
 Teamwork and participation in the Teamwork at Telkom is crucial for their
change process is an important success and forms one of their key value
driver to any change intervention. propositions. Team efforts must be motivated
Standardised practises across an to address the constant changes required by
organisation optimise team the dynamic telecommunications market in
participation across departments which Telkom employees operate.3
and business units ensuring the
likelihood of commitment to the
change.

Strategic action At the heart of the success of any Telkom successfully transformed itself from a
business lies its ability to adapt to telephone company focusing only on landlines
change, quickly and in an to a company with an integrated
innovative manner. Planned communications approach. Through this
change has the advantage over Telkom successfully adapted to competitive
reactive change, in that the market conditions, with the introduction of 3G
organisation and its employees are data technology in 2000, 4G in 2009 and from
prepared for the change. 2015 preparing for 5G technology.4

Global awareness Any organisation has to adapt to Being in landline communication since its
global changing markets and inception, Telkom realised that it had to adapt
customer behaviour as well as to the new global challenges and trends. As
continuous advancing trends. As such they continuously update their business
such it allows organisations to model to also make provision for a variety of
make the necessary internal new telecommunication products and services,
changes to secure or gain a including data. This is necessary as most
sustainable competitive advantage. customers demand data, using internet
services such as Skype, Viber, or WhatsApp
to communicate, in contrast to phoning using
a landline.5

Emotional To be a successful change agent, Executive chairman and founder of the World
intelligence managers and team leaders must Economic Forum, Professor Klaus Schawb,
have emotional intelligence to indicates in his book The fourth industrial
handle the impact of change. This revolution that digital and technological
requires self‐insight and insight progress, and specifically the speed at which it
into interpersonal interactions to is evolving and changing, certainly brings
facilitate change interventions, about opportunities and challenges. One key
ensuring that employees will requirement for employees to cope with this
embrace the change initiative. change in the future, will be to develop their
emotional intelligence skills.6

Organisational change at Sappi

The goal at Sappi during 2015, was to actively transform the organisation into a growing and profitable
diversified wood-fibre group. As summarised in the diagram below, Sappi specifically opted for no radical
changes. It has been, and continues to be, an intentional evolution of the business – changing to meet
market needs and take advantage of growth opportunities. They did, however, introduce various changes
based on their 2020Vision strategy. Key elements of their group strategy include: achieving cost
advantages, growing through moderate investments, rationalising declining businesses, generating cash to
strengthen the balance sheet and accelerating growth in adjacent businesses as indicated in the diagram
below.
 The reasons for this change is that during the past few years Sappi has been wrestling with very
challenging market conditions, in an industry that is largely considered to be in its ‘twilight years’. There
has been a quest by the organisation to reduce costs so as to become a low-cost producer and to address the
need to fix underperforming businesses. In addition, the organisation has felt the need to redefine its
business proposition in an ever-changing world. It is a fact that Sappi, operating in turbulent times and
with a need to focus on, and cope with, large scale organisational change in future, will need to focus
specifically on leadership development. There is an ever-increasing need for the development of leaders
who are well-equipped to deal with the challenges that face the organisation – both now and in the future.
Teams struggle with an uncertain future and the challenge for leadership is to ensure that people remain
engaged within the reality of constant and turbulent change.
Employee engagement, employee alignment and a focus on a successful future, have presented
challenges as the organisation seeks to redefine itself in a fast paced and ever changing environment. Sappi
puts a high priority on the relationship with employees and their representatives. The protection of the
right to freedom of association and collective bargaining, stands central to Sappi’s business philosophy.
To stay abreast of challenges, Sappi rely on talented people who work for them. Their success is
largely due to their clear and focused strategy, which also ensures that the entire team at Sappi is aligned to
their short- and long-term strategies. The significant cash they generate each year, allows them to remain
flexible and to withstand any negative impacts they might experience from the declining demand in paper.
Sappi’s market leadership and low cost mills enables them to successfully steer through the pricing
pressures in the short term, while also providing them with a platform to grow the business in the long
term. Sappi is in a favourable position because although the South African paper market is in decline, it
 enjoys a cost advantage in North America, while also having the flexibility in Europe to proactively
respond to the needs and demands of the market.
In line with the One Sappi strategic approach and 2020Vision, in 2015 they introduced various changes
driven by global sustainability targets. Regional targets are aligned to these goals. The base year for the
targets developed is 2014, with five-year targets from 2016 to 2020.
Source: SAPPI. 2015. 2015 Annual Integrated Report. [Online]. Available: https://cdn-s3.sappi.com/s3fs-
public/slices/downloads/2015-Sappi-Annual-Integrated-Report_0.pdf [Accessed 17 March 2017]; SAPPI. 2016. 2016
Annual Integrated Report. [Online]. Available: https://cdn-s3.sappi.com/s3fs-public/2016-Sappi-Annual-Integrated-
Report.pdf [Accessed 17 March 2017]; SAPPI. 2016. Our strategy. December 2016. [Online]. Available: https://cdn-
s3.sappi.com/s3fs-public/Sappi-Fact-Sheet-Strategy-and-2020Vision-progress-review-December-2016.pdf [Accessed
17 March 2017]; SAPPI. 2017. Sappi 2020Vision. [Online]. Available: https://www.sappi.com/sappi-2020vision
[Accessed 18 March 2017].

14.1 Organisational change

Any significant modification or change to one or more parts of an organisation can be classified as
organisational change. Typical changes facing managers, influencing their organisations, are new
government regulations, new products or services, increased growth and intensification of
competition, technological developments, and even a change in the composition of their
workforce, amongst others. Therefore, organisational change refers to any form of transformation
in either the design or functioning of an organisation. Successful leaders introduce internal
changes in order to adapt to changes in the external environment. As Jack Welch, the former long-
time chairman and CEO of General Electric, put it, “When the rate of change outside exceeds the
rate of change inside, the end is in sight.”7
Change in an organisational context may be defined as: “planned alterations of organisational
components to improve the effectiveness of the organisation.”8 The organisational components
indicated in the definition refer to the organisation’s vision, mission, strategies, goals, objectives,
structure, processes, systems, technology and human resources. In order for planned change to
take place, we require a change management process, sometimes also referred to as a change
intervention. Change management can be defined as an ongoing process which enables an
organisation to anticipate and respond to changes taking place in its external environment and to
enable employees on all levels to effectively and efficiently deal with these changes in the
organisation’s internal environment.9 In our South African Insight, Sappi, we can clearly see how
they developed their 2020Vision as a strategy to realign their internal components to meet the
changing demands in their external environment.

14.1.1Types of organisational change

Organisational change is an inevitable process, as organisations continually need to realign their
activities with the changing environment in which they operate. Massive changes in the way
organisations operate occur occasionally, but more often, change occurs in small steps. The desire
to improve performance continuously in order to stay ahead of competitors is a common reason
for smaller organisational changes. Some changes are brought about by carefully planning in
advance, while other changes come about as a reaction to unexpected events.10

14.1.1.1 Anticipatory change (planned change)

 Change that is planned takes place when managers make organisational modifications based
on forecasts of upcoming events in anticipation of a new trend. Planned change is change that is
designed and implemented in an orderly and timely fashion in anticipation of future events. The
best-run organisations always look for better ways to do things to stay ahead of the competition.
They constantly fine-tune their policies and practices, introduce technological improvements and
set new standards for customer satisfaction. In our South African Insight, we note how Sappi
planned several change interventions in order to achieve their 2020Vision.

14.1.1.2 Reactive change

Reactive change occurs when an organisation is forced to change (make modifications) in
response to some event/s in the external or internal environment. New strategic moves made by
competitors and new scientific or technological discoveries are common reasons for reactive
change, as is declining organisational performance. When a business organisation is in severe
decline, a new top management team is often hired to develop and implement a turnaround plan.
In our South African Insight, we note how Sappi had to react to substantial changes taking place
in its external business environment, which initially happened much faster than anticipated.
Generally, planned change is almost always preferable to reactive change. Figure 14.1
illustrates how the degree and timing of change combine to form four different types of
organisational change.

If an organisation adapts to a change in the environment without undergoing a substantial

reorientation in its strategy or values, the change is reactive and incremental. Sometimes reactive
change takes the form of a new organisational design. Shaking up a conservative and staid culture
in an organisation in an effort to turn it into a more entrepreneurial organisation, is a good
example of a radical and reactive change. Often, anticipatory change is incremental and results
from constant tinkering and improvements. Incremental change is an ongoing process of
evolution over time, during which many small adjustments occur routinely.

Figure 14.1 Types of organisational change

 Occasionally, anticipatory change is radical, when visionary leaders within an organisation,
for instance, become convinced that major changes are needed even though there is no apparent
crisis. Because there is no crisis, the change can be planned carefully and implemented gradually.
Effective managers understand when change is needed and are able to guide their organisations
through the change process.

14.2 Planning for organisational change

The need to respond to new challenges in the business environment, or to respond to opportunities
presented in the industry, or to act in anticipation of potential problems, triggers the planning of
organisation change. Typical examples of these include: intended government legislation, a new
product development by a major competitor or future technological advances. As we have already
noted, organisational change can be unplanned and somewhat chaotic or planned and relatively
smooth. By its very nature, chaotic change is difficult to manage. Nevertheless, large-scale
organisational changes seldom occur without some chaos. An example of chaos is seen with the
result of changes that followed the legal actions taken by governments and class action lawsuits
by groups of customers, in the Volkswagen emissions scandal which also affected South African
motorists.11 Another example of chaos, was the recall in 2017 of Ford Kuga vehicles as a result of
dozens of vehicles catching fire.12 Organisations usually strive to minimise chaos by imposing
some order on the change process. Change is most likely to be orderly when it has been planned.
The planning process itself can help unfreeze the organisation by convincing people of the need
for change and involving them in decisions about how to change.

The well-known three-step planned change process developed by Kurt Lewin, a key
researcher on change management, can be divided roughly into three stages:13
• Unfreezing the status quo
• Changing (moving) to a new state
• Refreezing new changes to make it permanent.

In the first stage (unfreezing the status quo), management plans and prepares the members of the
organisation for a major transformation. A primary objective in this stage is to convince members
of the organisation of the need for change and to reduce their tendency to resist it. In the second
stage (transitioning), most of the actual change occurs. Often this stage is described as the
implementation process. Finally, in the third stage (refreezing), the change is solidified. Ideally,
changes remain in place once they have been made. During the refreezing stage, it is important to
monitor the intended outcomes and to provide support for new behaviours, which are essential to
minimise relapses into the old way of doing things. A more detailed process of planned
organisational change comprises the eight steps shown in Figure 14.2.
Although planned changes do not always proceed exactly as shown, remember that these steps
constitute the basic components of a planned change process, regardless of the sequence
followed.14Each of the steps in the process of organisational change will now be discussed.
Figure 14.2 The process of organisational change

14.2.1Assess the environment

Learning organisations are keenly aware of the need to scan the environment for information that
may signal the need for change. As mentioned in Chapter 5, both the degree and rate of change in
the environment have implications for organisations. The external environmental factors that most
commonly stimulate organisational change are:15
• Market factors
» Customers
» Competitors
» The workforce
» Suppliers
• Macro factors
» Technology
» Demographics
» Globalisation
» Social issues
» Politics and legislation.

Factors that may pressure organisations to change include globalisation, as well as the actions
of important stakeholders such as shareholders, government, unions and action groups.16 An
example of changes taking place in the external environment is found in the food and beverage
industry. Historically, shoppers in the food and beverage industry have made purchase decisions
based primarily on three key drivers: taste, price, and convenience. Research conducted in 2016
by Deloitte, however, confirmed that certain changes had taken place in the global food and
beverage industry. The contemporary buyer, globally, is nowadays focusing on aspects such as
Health & Wellness; Safety; Social impact; Experience and Transparency (an overarching driver).
Local organisations in this industry include retailers such as Woolworths and Checkers, as well as
restaurants and take-away outlets such as McDonalds and Kauai. For these organisation to
capitalise on this change in the consumer food value equation, the new set of ‘evolving drivers’
should be acknowledged as a progressively important feature in the consumer’s purchase
decision.17

14.2.2Determine the performance gap

The next step in the change process is to identify the performance gap. A performance gap can be
explained as the difference between what management in the organisation wants to do and what
they actually accomplish. By determining the performance gap, managers provide clear and
focused answers to the question: ‘What is wrong?’ In our South African Insight, the managerial
team at Sappi was able during 2014 to establish through in-depth analyses, what the gap was
between where the organisation was supposed to be and where it currently was.

14.2.3Diagnose organisational problems

The purpose of this step is to identify both the nature and extent of problems before taking any
action. The notion that diagnosis of problems should precede action may seem obvious to many,
but its importance must never be underestimated.18 In most instances, managers that are driven by
results start the change process at a premature stage, with a strong and impatient push for
solutions, without a proper understanding of the problem itself. In most instances, organisational
problems have multiple causes which are never simple and obvious. In most cases, it is seldom
possible to consider one perspective only. The best approach is to use a variety of information-
gathering techniques. Typical examples include attitude surveys, informal interviews and team
meetings, and conferences. Organisations often hire consultants external to the organisation to
assist them with problem diagnosis. Interpersonal problems may require gathering sensitive
information from employees. Outside consultants may be better able to conduct interviews and
interpret data in an unbiased manner. In addition, consultants often have the experience and
insights that the organisation lacks.
Deloitte South Africa has confirmed that the overall spending on food, beverages and tobacco
is expected to grow annually by an average of 10.2% during 2016–2020, reaching R1.1 trillion by
the end of the forecast period. They anticipate that the demand for healthy and high-quality
products will continue to rise as the South African food and beverages market becomes
increasingly developed and sensitised towards healthier and sustainably sourced goods.
Organisations in this industry that do not plan for this change or gear their market offering
towards this shift in consumer needs, will have problems in maintaining, or growing, their future
market share.19

14.2.4Identify sources of resistance

Despite all the potential positive outcomes of a change process, it is also a fact that change is often
resisted at both the individual and the organisational level within business organisations. In most
cases organisational change efforts never go as smoothly as managers would like. Experienced
managers are all too aware of the various forms of resistance, namely immediate criticism,
sabotage, malicious compliance, insincere agreement, deflection, silence, and in-your-face
defiance, amongst others.20 Some managers do not even initiate needed changes because they feel
incapable of overcoming expected resistance. Resistance to change can take many forms. It is
often also difficult for managers or organisations to pinpoint the exact reasons for the resistance.
Successful managers should be sensitive to the reasons why people resist change and be open
minded to actions or strategies to overcome any resistance.
 Although many reasons exist, in general, people, and sometimes even entire organisations,
tend to resist change for the following key reasons:
• Fear/uncertainty
• Vested interests
• Misunderstandings and lack of trust
• Different assessments of the situation
• Interorganisational agreements.21

These reasons are briefly discussed below.

14.2.4.1 Fear/Uncertainty
Many people resist change, simply because of the fear of being unable to cope and develop the
required competencies to be effective in the new situation. A common obstacle to organisational
change is the reluctance of managers and other employees alike to change their attitudes and learn
the new behaviours that their organisations require. Even when employees understand and accept
the fact that they need to change, they often find it difficult to change, because of their fear of the
consequences of change. Changes often bring with it ambiguity and uncertainty. If, for example,
the introduction of a new computer system requires that the employees learn some specific
computer software, some may fear they will be unable to do so. They may, therefore, develop a
negative attitude toward the introduction of the new computer system. In line with many
organisations that relocated from the Johannesburg city centre, Wesbank relocated their vehicle
finance and insurance division to their newly built head-office in Fairland, Randburg. Due to
uncertainty and the fear of unknown implications (where will their desk be, how long will it take
to travel to work and back, etc.), some employees initially resisted the proposed relocation. Job
loss is another major reason that employees resist change in the workplace. In any business, there
are constantly going to be things moving and changing, whether it is due to the need for more
efficiency, better turnaround times, or the need for the employees to work smarter. With all these
needs come the opportunity for the company to downsize or create new jobs, and this is where the
fear of job loss comes into play.22

14.2.4.2 Vested interests

Fear often goes hand in hand with vested interests. The fact that employees are convinced that
they will lose something of value as a result of change, can lead to resistance. Because employees
focus on their own best interests and not on those of the organisation, resistance to change often
results in ‘politics’ or ‘political behaviour’.23 People who have vested interests in maintaining
things also often resist change.24
AB InBev indicated in 2016 that it would cut approximately 5 500 jobs once the SABMiller
takeover was completed. It was planned that approximately 3% of the new staff component would
be eliminated over a three-year period. SABMiller employs in the region of 70 000 employees in
more than 80 countries, and AB InBev has about 150 000 employees in 26 countries. This
announcement brought about uncertainty and subsequent fear among certain staff members, which
obviously resulted in resistance to change.25

14.2.4.3 Misunderstandings and lack of trust

 People tend to resist change, especially when they do not understand its implications. In
situations like this, it is common for employees to believe that the cost of change will outweigh
the benefits gained from it – even more so when employees do not trust the person initiating the
change.26 Misunderstandings and lack of trust build resistance, unless quickly addressed. Top
managers must play an active role and be visible during all stages of the change process, in order
to clearly spell out the new direction for the organisation and the meaning of it to all those
involved. Creating a platform for employees to discuss their problems openly, is an important step
in the direction to overcome resistance to change.

14.2.4.4 Different assessments

In most cases employees tend to resist change, especially if their interpretation of the situation
is different to that of their managers or fellow team members. Some people initiate change
believing that anyone with the same information would make the same decision. This assumption
is not always correct. Often, top level managers view change as a way to strengthen the
organisation. They may also believe that change will offer them new opportunities to develop
their own competencies as they tackle new challenges. In contrast, employees may view proposed
changes as upsetting the implicit and explicit contracts between themselves and their employer.
Employees and managers may also have different assessments because of different experiences
with change. An example of this can be found in a few organisations where the start of change is
viewed as something that managers do to make an impression or leave a legacy. As numerous
change efforts are introduced over time, employees sometimes become negative, resulting in them
refusing to support yet another change programme. The change efforts fail without employees’
support, which further contributes to cynicism.27

14.2.4.5 Interorganisational agreements

Labour contracts tend to be the most common examples of interorganisational agreements that are
responsible for resistance to change. Actions once considered major rights of management (for
example, to recruit and dismiss, assign personnel to jobs and promote) have become subjects of
negotiation. Advocates of change, often referred to as change agents, may also find their plans
delayed because of agreements with competitors, public officials, suppliers, or contractors.
Although agreements are sometimes ignored or violated, the legal costs of settlement can be
expensive. In our South African Insight, Sappi, numerous changes resulted due to the 2020Vision.
This brought about new work arrangements, focus areas and shifts in strategy.

14.2.5Reduce resistance to change

Managers often underestimate the variety of different reactions that people have to organisational
change, as well as the positive influence of specific individuals and groups during change.
Resistance to change will never disappear completely, but managers can learn to overcome its
negative consequences. In fact, some resistance to change may actually be useful. The first lesson
in reducing resistance is not to be afraid of it. Employees can operate as a checks-and-balance
mechanism to ensure that management plans and implements change properly. Justifiable
resistance that causes management to think through its proposed changes more carefully, may
result in better decisions. Remember, however, that it is not always employees who resist change,
but sometimes even managers. Six well-known methods used for managing resistance are:28
• Education and communication
• Participation and involvement
• Facilitation and support
• Negotiation and agreement
• Manipulation and co-optation
• Explicit and implicit coercion.

14.2.5.1 Education and communication

In most instances, individuals are not sure how change will affect them and because they do
not understand the change, they will resist it. The key to overcoming such a resistance to change is
locked up in education and communication to all stakeholders. Overcoming resistance to change
in this way is ideal when resistance is based on inadequate or inaccurate information and
accompanying analysis. It also applies when the employees who resist will most likely also be the
ones responsible for implementing the change, as instructed by their line managers.
Communication of ideas helps employees to understand the reason for change and the logic
thereof. The education process, therefore, typically involves individual discussions, presentations
to groups, or communication via memos and reports. Willard’s Batteries (South Africa) used
education and communication to help eliminate the resistance to change from the shop floor
employees when it improved employee involvement by introducing continuous improvement
projects, allowing everybody to participate and make contributions. It did this by introducing
basic lean manufacturing training programmes that also improved employee involvement when
continuous improvement projects were implemented.29

14.2.5.2 Participation and involvement

Organisations can successfully reduce the resistance of employees to change by allowing
their participation and involvement. Resistance to change tends to be lower when employees are
involved in the process of identifying the areas that need change and also when they are included
in the decisions and recommendations relating to proposed changes. As a result, involvement in
the change process usually necessitates teamwork. Research predicts that participation in most
instances leads to commitment, especially in situations when it is voluntary.30 If participation is
not carefully managed and controlled, however, it can negatively affect the outcomes, besides
being a waste of time and money. In our South Africa Insight, Sappi, the aspects of participation
and involvement are demonstrated, as “employee engagement as well as alignment and focus on a
successful future have been challenging as the organisation seeks to redefine itself in a fast paced
and ever changing environment. Sappi puts a high priority on the relationship with employees and
their representatives. The protection of the right to freedom of association and collective
bargaining, stands central to Sappi’s business philosophy.”

14.2.5.3 Facilitation and support

Another way to deal effectively with potential resistance to change is to be supportive to
employees. This, for example, might include listening and providing emotional support, the
provision of training in new skills, or recommending that employees take time off, specifically
after a demanding period.31 A drawback of the above approach to manage successful change,
besides being expensive, is that it is also time consuming in most instances. The possibility of
failure also remains a danger.
14.2.5.4 Negotiation and agreement
Another way of managing resistance to change, is negotiating and offering rewards or incentives
to those who might resist. This is an appropriate and acceptable method of dealing with resistance,
especially when someone is going to be worse off as a result of the change. Negotiation is an
important strategy for an organisation implementing change when, for instance, one group in the
organisation is of the opinion that they will be worse off after the change. When strategies such as
education and participation are unsuccessful, it is often necessary to rely on negotiation in order to
gain co-operation. For instance, management may decide to allow a union a higher wage rate in
return for a work rule change; it can decide to increase an employee’s pension benefits in return
for the employee retiring earlier. Negotiated agreements provide for a relatively easy way to avoid
major resistance to change, though they might be very expensive. It is also a fact that once a
manager suggests negotiation to avoid major resistance, he/she opens himself/herself up to the
possibility of blackmail.

14.2.5.5 Manipulation and co-optation

In some situations, management attempts to manipulate others to reduce their resistance to
change. Manipulation usually involves selectively providing information about a change so that it
appears more attractive or necessary to potential resisters of change. Co-optation is a political
manoeuvre that brings people into the process to obtain their endorsement of change or, at least, to
get them not to resist it. Co-opting a group involves giving one of its leaders a role in the change
process. This method is not a form of participation because those who are proposing the change
do not really want advice from the people who are co-opted. Co-optation can be a dangerous
response to resistance, however. People who feel that they have been tricked, or that they are not
being treated fairly or are being lied to, are likely to respond negatively to a change.32 Many
managers have found that, by manipulating subordinates, they have ultimately created more
resistance to the change than they would have had they chosen another tactic.

14.2.5.6 Explicit and implicit coercion

Dealing with resistance coercively is when managers essentially force employees to accept a
change by explicitly or implicitly threatening them (with the loss of jobs, promotion possibilities
and so forth), or by transferring them to another unit in the organisation or even going as far as
firing them. Similar to manipulation discussed earlier, relying on coercion is a risky process in
light of the fact that inevitably, employees strongly resent forced change.33
To conclude: There is no best or recommended approach to ensure the effective reduction of
resistance to change. A common mistake, often made by managers, is to rely on one approach or a
limited set of strategies to reduce resistance to change, with a lack of sensitivity to the situation in
the organisation. Successful efforts of managers to minimise resistance to change, have two
characteristics in common:
• Change is approached with a great deal of sensitivity to their own strengths and limitations
• While appraising the situation realistically.

Change is often approached in a disjointed and incremental way that does not form part of a clear
and well-articulated strategy. The most common mistake managers make is to use only one
approach or a limited set of them regardless of the situation.
 Each approach has some potential strengths and weaknesses, as summarised in Table 14.1.
Therefore, the following issues need to be considered when selecting a method to overcome
resistance to change:34

Table 14.1 Methods of overcoming resistance to change

Source: KOTLER, J.P. & SCHLESINGER, L.A. 1979. Choosing strategies for change. Harvard Business
Review, March–April, 111.

1 Amount and types of resistance anticipated. All other things being equal, the greater the
anticipated resistance, the more difficult it will be to overcome it. Education and participation
are probably the most appropriate methods of combatting strong resistance.
2 Power of resisters. The greater the power of the resisters, the more those in favour of change
must involve them. Conversely, the stronger the position of those in favour of the change, the
greater is the opportunity for negotiation.
3 Location of needed information and commitment. The greater the need for information and
commitment from others to help design and implement change, the more the advocates of
change should use education and participation. Gaining vital information and commitment
from others requires time, as well as their involvement.
4 Stakes involved. The greater the short-term potential for damage to the organisation’s
performance and survival if the situation is not changed, the greater is the need for managers
to negotiate and/or use co-optation to overcome resistance.
5 Short- and long-term effects. Accurate assessment of the first four factors still leaves the
manager with the choice between short- and long-term effects. Forcing change on people can
have many negative effects, both in the short term and the long term. Education and
negotiation can often overcome initial resistance, and can lead to long-term benefits.
Participation can lessen both short- and long-term resistance. Co-optation may be the quickest
approach in the short term, but it can lead to long-term resistance.
Some researchers believe storytelling in an organisational setting can help to break down
resistance to change. Storytelling is often the best way for leaders to communicate with people.
This is because it is inherently well adapted to handling the most difficult leadership challenges of
today: sparking change, communicating who you are, enhancing the brand, transmitting values,
creating high-performance teams, sharing knowledge, taming the grapevine and leading people
into the future. Storytelling is a crucial tool for management and leadership because often nothing
else works. Charts leave listeners bemused. Text remains unread. Dialogue is just too … slow.
Time after time, when faced with the task of persuading a group of managers or frontline staff in a
large organisation to get enthusiastic about a major change, storytelling is the only thing that
works.35 Well-known organisations that are using storytelling to change or create shifts in their
business or markets, are Apple (‘What will your verse be’ advertisement), Dove (‘Real Beauty’
and ‘Men Care’ campaigns), Nike (‘The chance’ advertisement), and Weight Watchers (‘Awaken
your Incredible’ campaign).36

14.3 A model: The change management process

Research confirms that nearly 70 percent of organisational change management interventions do
not reach the result which they intended to produce.37 A pointer for managers to consider is that
any change effort communicated poorly, negatively impacts the change effort and often results in
rumours, resistance to change, and even not achieving the goals of the change intervention. For
this reason, communication is accepted as crucial to influence effective implementation of
organisational change.38 When the levels of resistance to change are low within an organisation,
the change-effort turns out to be more productive in most instances. Since organisational change
introduces variation of tasks given to individual employees, transmission of information to these
employees on future change efforts is an essential and integrative part of any change strategy.

Although many models exist to guide change management, they lack operational specificity
in most instances. For this reason, most managers prefer a more comprehensive approach to
change, often based on a systems view.39 A process involving six steps is illustrated in Figure 14.3
below.
Figure 14.3 Steps in the change process

Source: DAVIDSON, P. & GRIFFIN, R.W. 2000. Management: Australia in a global context. John Wiley
& Sons, Brisbane, p. 439.

Each step in the process will now be explained.

14.3.1Recognise the need for change

The first step in managing change is to recognise the need for change, as indicated in Figure
14.3. Employees’ complaints, sales slumps, declines in productivity or turnover, or labour strikes
trigger reactive change. Realising or recognising that change is required or unavoidable, shows
sensitivity to the situation and level of awareness to the forces of change. In most cases situations
in countries are not isolated, and are influenced by global forces, such as Standard & Poor who
downgraded their foreign currency ratings of South African banks on 3 April 2017, which led to
an immediate devaluation of the Rand, and in turn immediately turned all eyes to local governance
and the ability of our leader.40 Managers, for example, may have an opinion on how often most
organisations implement changes, which they use as a rule of thumb to guide their own
implementation of change in their organisations. Typical reasons leading to change, are the results
of a market scan indicating new market potential, surplus cash in the organisation earmarked for
possible investment or an opportunity to capitalise on a major technical breakthrough. Managers
sometimes will also initiate change when believing that it will be necessary for the organisation in
the near future. In our South African Insight, Sappi established that the reason for change was
“that during the past few years Sappi has been wrestling with very challenging market conditions,
in an industry that is largely considered to be in its ‘twilight years’.”
14.3.2Set goals
For change to be effective, goals should be set before the change effort is started. Entering new
markets to increase market share, restoring employee’s morale, or settling a strike are all common
goals of change. If possible, the goals should be:
• Based on realistic objectives
• Stated in clear and measurable terms
• Consistent with the organisation’s overall goals and policies
• Attainable.

When UberEats decided that it needed to improve driver safety, it began by collecting systematic
information about behaviour, such as whether drivers came to a complete stop at intersections,
average and top speed travelled, as well as the use of indicators when turning or changing lanes,
while delivering orders. Management shared the information with employees and gave them the
task of setting specific goals for improvement. During the months that followed, driving
behaviour was monitored and charts were used to inform employees of their progress towards
those goals. Employees participating in goal-setting showed improvement in several areas of
behaviour, including some for which they had not even set specific goals.41

14.3.3Diagnosis of relevant variables

In this step, managers must determine what brought on the need for change. Low productivity, for
example, might be caused by poor working conditions, low pay or no financial performance
recognition, poor supervision and support by management, or general employee dissatisfaction.
Thus, although productivity may be the immediate stimulus for change, managers must
understand what causes employees to be unproductive and then make the necessary modifications
in the business processes, structures or work conditions.

14.3.4Selection of appropriate change techniques

Upon completion of the diagnoses of the relevant variables leading to change, managers must next
select a change technique that will accomplish the intended goals. If turnover is caused by low
pay, a new reward system may be needed. If the cause is poor supervision, interpersonal skills
training may be called for. Alternative change techniques include: diagnostic activities, team
building, survey feedback, education, intergroup activities, third-party peace-making, coaching,
counselling, etc.

14.3.5Develop and implement an action plan

The next step in a planned organisational change is to select and implement a practical approach
to achieve it. This action plan should articulate the identified goals for change, and describe
specific measures to be used to monitor and evaluate progress toward achieving them. For major
change efforts, the organisation’s action plan can be quite complex and not easily understood by
most employees because it includes proposals for all levels and all units involved in the change
efforts. However, in an organisation structured by functional departmentalisation, each department
should be tasked with developing a more focused action plan, that aligns to the overall plan.
Similarly, in organisations structured by region, more detailed plans for each region should be
developed. When developing an action plan, management should consider all feasible alternatives,
while also considering the related advantages and disadvantages linked to them. Furthermore, for
a plan to be effective, the people who will be affected must buy into it. The best way to ensure this
is through early involvement. Later in this chapter, we will describe the four interrelated
approaches to change: technology, design, task and people.
Regardless of which approach is used, the ability to sustain effective change depends largely
on an organisation’s ability to reinforce newly learned behaviours during and after the change
effort.42 If employees view the rewards as fair, they are likely to improve their competencies and
maintain their new behaviours.

14.3.6Evaluation and follow-up

During the follow-up phase following implementation, managers are required to monitor results to
ensure that the change process has been successful. This may be based on measures such as
customers’ and employees’ satisfaction, productivity analyses, new-product development audits,
market share analyses or other results that the change process was intended to achieve. The speed,
degree and duration of improvement should also be monitored. The results of a change process
should be monitored continuously. However, because it is usually too costly and time consuming
to do so, assessments are typically made at predetermined intervals. One assessment should be
made immediately after a change is implemented.43 To avoid jumping to premature conclusions,
another assessment should be made later. Sometimes the second assessment reveals that the
positive effects of change have worn off. Alternatively, a second assessment could reveal delayed
positive effects. Underestimating the time needed to see the positive results of a change process is
the most common mistake that managers make. As this description of the change process reveals,
organisational change is a complex undertaking. For the change process to lead to desired
outcomes, management must give careful consideration to implementing the change.
In our South African Insight, Sappi is monitoring their performance over a five-year cycle and
in the case study provided in the beginning of this chapter the 2016 results of the changes
implemented to date is summarised according to triple-bottom-line principles: profit (prosperity),
people and planet as incorporated into their 2020Vision strategy (Sappi’s targets are developed
with five year targets from 2016 to 2020).

14.4 Implementing change in the organisation

During the implementation phase, someone in the organisation must take on the responsibility to
manage the change process. The successful implementation of change not only demands a change
agent, but also a certain style of transformational leadership to gain commitment amongst the
organisational or team members to change. A common misperception is that the changes should
be initiated and co-ordinated by a manager within the organisation. However, the change agent
could also be a change specialist from the HR department, or even an outside consultant whose
expertise is in change implementation. As such, change agents need to know why people resist
change (see previous discussion on resistance to change) and what can be done about their
resistance (see section on how to reduce resistance to change).
The following key attributes and behaviours are valuable for the success of change agents.44
•
Effective communication and interpersonal skills: Explaining the reasons for change is
important. Change agents must embrace all possible communication tools to support a change
management intervention such as meetings, newsletters, emails and organisational intranets.
• Commitment to releasing the potential of everyone involved in the change intervention. A
practical suggestion to leaders is to involve potential or actual resistors to change in the
decision-making process. It is a fact that individuals are more likely to believe the process of
 change is fair and more likely to trust the organisation and change leaders if they are included
in the decision-making process and feel part of the change process.
• Determination. Change agents are committed to succeed and see the change process through,
showing resilience especially during times of major setbacks.
• Intelligence. Skills and know-how on processes, tools and techniques to manage the change
intervention process, are valuable for the professional change agent.
• Experience and networks. A change agent that can source support and consult with experts on
relevant matters, based on previous change related experiences, will have an advantage in
managing a change intervention.
• A change agent should always stay focused on the goals and be flexible.

In the case of system-wide changes, it is advisable that the organisation hires external consultants
to provide objective and unbiased advice and assistance. On the downside, external consultants
are usually at a disadvantage because they have a limited understanding of the organisation’s
history, culture, operating procedures and people. External consultants also tend to initiate more
drastic changes than insiders (which can be either a benefit or a disadvantage), because they do
not have to live with the repercussions after the change is implemented. In contrast, employees of
the company who act as change agents tend to be more thoughtful (and possibly overcautious),
because they must live with the consequences of decisions during the change process and
thereafter.45

Whether the change agent assists the organisational or team leader or even fulfils the role as
leader during the change intervention, appropriate actions are necessary to guide the change
process. To give your change effort the best chance of succeeding, Kotter advises organisations to
take the right actions at each stage – and avoid common pitfalls.

Table 14.2 Successfully leading change

Stage Actions needed Pitfalls

Establish a sense of • Examine market and competitive • Underestimating the difficulty of

urgency realities for potential crises and driving people from their comfort
untapped opportunities. zones
• Convince at least 75% of your • Becoming paralysed by risks
managers that the status quo is
more dangerous than the
unknown.

Form a powerful • Assemble a group with shared • No prior experience in teamwork at

guiding coalition commitment and enough power to the top
lead the change effort. • Transferring team leadership to an
• Encourage them to work as a HR, quality, or strategic-planning
team outside the normal executive rather than a senior line
hierarchy. manager

Create a vision • Create a vision to direct the • Presenting a vision that’s too
change effort. complicated or vague to be
• Develop strategies for realising communicated in five minutes
that vision.

• • Under-communicating the vision

 Communicate the Use every vehicle possible to • Behaving in ways antithetical to the
vision communicate the new vision and vision
strategies for achieving it.
• Teach new behaviours by the
example of the guiding coalition.

Empower others to act • Remove or alter systems or • Failing to remove powerful

on the vision structures undermining the vision. individuals who resist the change
• Encourage risk taking and non- effort
traditional ideas, activities, and
actions.

Plan for and create • Define and engineer visible • Leaving short-term successes up to
short-term wins performance improvements. chance
• Recognise and reward employees • Failing to score successes early
contributing to those enough (12–24 months into the
improvements. change effort)

Consolidate • Use increased credibility from • Declaring victory too soon – with
improvements and early wins to change systems, the first performance improvement
produce more change structures, and policies • Allowing resistors to convince
undermining the vision. ‘troops’ that the war has been won
• Hire, promote, and develop
employees who can implement
the vision.
• Reinvigorate the change process
with new projects and change
agents.

Institutionalise new • Articulate connections between • Not creating new social norms and
approaches new behaviours and corporate shared values consistent with
success. changes
• Create leadership development • Promoting people into leadership
and succession plans consistent positions who don’t personify the
with the new approach. new approach

Source: Adapted from KOTTER, J.P. 2007. Leading Change: why transformational efforts fail. Harvard
Business Review, January, 2-10.

As change agents, it is a known fact that managers take ownership of the change process to ensure
success, since they are committed to improving the performance of the organisation. Initiating
changes involves identifying what types of change is needed. Managers have many methods
available to them that they can use to make it happen. Here we discuss the four major approaches
to change, as depicted in Figure 14.4. Although we describe each approach separately, some
combination of these approaches is involved in most large organisational change efforts.
Significant change can seldom be based on one of these approaches alone.46
Figure 14.4 Approaches to organisational change

14.4.1Technology-based approach
The technology-based approach to organisational change involves either incremental
adjustments or even radical innovations that not only affect workflow, but also production
methods, as well as materials and information systems. At the turn of the century, Frederick
Taylor changed the workplace with his ideas of scientific management. His intention was to
increase organisational efficiency by the application of scientific principles.47 In 1908, Henry Ford
launched the mass production of cars. In an age of mass consumption, assembly lines were ideal
for making identical goods in volume.48 Today many organisations are forced to turn out goods in
smaller lots and change lines quickly due to customer preference and demands, and therefore,
cannot mass-produce the quantities needed to make traditional assembly lines viable for all types
of production. BMW at their Rosslyn plant north of Pretoria is one example in South Africa of a
global organisation that in 2017 replaced their assembly of the 3-series BMW with a new state of
the art bodyshop developed at Rosslyn for the new BMW X3, relying on the newest technology.
The R6-billion investment allows for a full replacement of the assembly line and associated
processes with new infrastructure and operational enhancements, employee training, etc.49

14.4.1.1 Socio-technical systems

Socio-technical systems involve consideration of the needs of both employees and the
organisation in the process of finding ways to satisfy customer demand. That is, employees must
be able to satisfy their needs at the same time that the organisation must be able to produce the
goods or services desired by its customers. An essential aspect of the socio-technical approach to
change is to delegate responsibility to teams of employees for a product or service, and allow
them to determine their own decisions about task assignments and work methods.50
Socio-technical systems interventions work in conjunction with work design and employee
involvement. In other words, there is a combination of a social system and a technical system.
This implies that when employees are working, there is a joint system in operation – a social part
(which includes people and their relationships) and a technical part (tools, techniques and methods
for performing the task). Change agents, also referred to as socio-technical practitioners, design
work and organisations to optimise the social (people) and technical parts, ensuring high
employee satisfaction as well as productivity.51 BMW SA ensured, with the assembly of the BMW
X3-series, that associates (employees) involved on the assembly line participate in the
development of processes and methods of assembly to optimise customisation of vehicles ordered
by customers. The assembly line associates (employees) at Plant Rosslyn produce hundreds of
personalised customer features on every car built with a cycle time of 4 minutes per station for
each associate.52

14.4.1.2 Information technology

Coping with competition often requires information flexibility. Information technology (IT)
comprises complex networks of computers and software telecommunications systems and
networks, as well as office devices or cloud-based computing and storage. An organisation can
link its manufacturing and inventory functions to suppliers and customers so that, as soon as the
supply of a part runs low, a central computer automatically executes an electronic purchase order,
signalling the supplier to ship a new quantity of the part. Such technologies enable learning
organisations to diffuse their best practices instantly throughout a country or around the world.
Various vehicle manufacturers such as Land Rover and Jaguar announce and communicate to
existing and potential customers, news about vehicle launches, new product information or
improvements, through social media such as Facebook or their websites.
Computer-integrated manufacturing (CIM) is another type of technology that can facilitate
organisational change. CIM typically links organisational sales, production activities and shipping
functions to each other in a synchronised manner. This technology breaks down barriers between
departments within the organisation. It also improves quality control, while simultaneously
reducing inventory costs by creating just-in-time (JIT) manufacturing processes. The employees
involved can use their computers to ‘talk’ to each other and monitor the manufacturing process as
the product moves through the system.53 BMW SA makes use of JIT supply systems which
ensures that various items such as seats are only ordered and made available when they are
required for fitment into the vehicle, during the assembly process. This process is managed using
information technology. For organisations with websites and social media platforms, IT also
provides an efficient method for communicating with customers. In addition to providing
comments and feedback to the organisation, websites and social media can be used to educate
customers about changes in the organisation’s products and services.54

14.4.2Organisational redesign approach

The organisational redesign approach to organisational change emphasises internal structural
changes (realigning departments, changing who makes decisions and merging or reorganising
departments that sell the company’s products). As we pointed out, in the 1990s, many
organisations experimented with changing their organisational designs. Often the need for
redesign followed directly from implementing new processes or technologies. As bank customers
became more comfortable using automatic teller machines (ATMs) and then internet banking,
followed by phone banking, banks found that they needed fewer branches, so many branches are
continuously redesigned to focus more on selling new products and offering new services,
replacing products and services such as cashing cheques and paper-based services. Managers are
bombarded with ideas on how to redesign their organisations to improve customers’ satisfaction.
These ideas include de-layering, downsizing, re-engineering, restructuring and becoming
networked. Regardless of the redesign chosen, the intention is usually to clarify what gives the
organisation its leadership position with its customers. In other words, design changes should
capitalise on the capabilities that distinguish the organisation from its competitors. Businesses,
products or services that do not contribute to this goal should be eliminated or sold.

14.4.2.1 Re-engineering
Re-engineering focuses on finding and establishing new ways to get work done. Re-engineering
often involves the redesign of processes related to manufacturing and logistics in the supply chain
with a focus on increasing efficiency.55 Effective processes are those that cost the least, while
simultaneously producing goods and services of excellent quality. Thus, the starting point is to
assess current processes from the customer’s point of view. For re-engineering to be successful it
requires change agents to examine the breadth of activities to be redesigned and the depth of the
changes needed. In terms of breadth, although re-engineering a single activity or function may be
important to an organisation, including more activities or functions is likely to extend re-
engineering’s benefits throughout the organisation.56 Often, re-engineering a process is interrelated
with other key activities. You will remember that many organisations are structured by function
and that employees’ ideas about change are typically based on its effect on their departments.
However, re-engineering requires employees to think across functions. The depth of a re-
engineering effort is measured by the number of roles, responsibilities, rewards, incentives and
information technologies to be changed. Successful re-engineering requires in-depth changes.
Starting from scratch, in effect, the organisation can redesign itself and new support systems will
emerge. In the short term, the change process may create excess capacity and financial stress.
Unless the organisation is growing, such pressures can lead to layoffs.57

14.4.2.2 Structural redesign

Structural redesign typically requires a reconfiguration of the distribution of authority,
associated responsibility and control in the organisation.58 Authority, responsibility and control
change radically when entire businesses or divisions might be combined or spun off. Thus, when
MMI Holdings was formed as a result of the merger of Metropolitan and Momentum, it used
structural redesign to create a radical organisational change to form new divisions.59 Downsizing
is another familiar approach to structural redesign and is usually a reactive response to poor
organisational performance. Managers often assess what needs to be restructured through the
computation of ratios. Such ratios include total employees to sales, corporate staff to operating
employees and managerial span of control. An organisation typically benchmarks competitors to
determine how their ratios compare. Several studies indicated that restructured organisations
sometimes end up in worse financial shape after the restructuring than they were in before it –
confirmation that restructuring does not always work.60 Obviously, no one knows whether the
businesses would even have survived without the radical changes undertaken. Regardless of how
effective it may be in the long run, when restructuring involves layoffs, it is a painful experience
for those who are let go as well as those who survive the cuts. The survivors often feel guilty
because, somehow, they have been spared, but they are also anxious because they might be next.
Survivors often have trouble maintaining their commitment to an organisation when they might
just be ‘doing time’ until the next round of layoffs is announced.61

14.4.3Task-based approach
The task-based approach to organisational change concentrates on changing specific employees’
job responsibilities and daily tasks. It goes without saying that whenever a job is changed, whether
because of new technology or a redesign effort, tasks also change. Two dramatically different
ways of changing a task are job simplification and job enrichment.

14.4.3.1 Job simplification

Job simplification involves the scientific analysis of tasks performed by people in order to
identify procedures and tasks that produce the maximum output for the minimum input. The job
specification states the tasks to be performed, the specific work methods to be used and the best
workflow to be obtained. Like process re-engineering, job simplification is founded on
engineering concepts, but there is a big difference between these two approaches to change. Re-
engineering focuses on an entire process, which may involve many employees working in many
parts of the organisation.
The downside of job simplification is that it leads to low commitment by employees, often
resulting in high turnover of employees. Most current competitive challenges necessitate a
committed and involved workforce that is capable of making decisions and is comfortable in
experimenting with new ways of doing things. Many people seek jobs that allow greater discretion
and offer more of a challenge. Designing jobs with employees’ needs in mind requires a different
approach.62

14.4.3.2 Job enrichment

Job enrichment involves changing job specifications to broaden and add challenge to the tasks
required in order to increase productivity and efficiency. Job enrichment is characterised by four
unique aspects:63
1 It changes the basic relationships between employees and their work, based on the assumption
that interesting and challenging work can be a source of employees’ satisfaction and
involvement. Refer to Chapter 12 for a description of the motivational benefits of job
enrichment.
2 It directly changes employees’ behaviour in ways that over time lead to more positive attitudes
about the organisation and a better self-image. It is a known fact that enriched jobs usually
increase feelings of autonomy and personal freedom.
3
Numerous opportunities for initiating other types of organisational change are also
provided through job enrichment. When jobs are changed, technical problems are likely to
develop, which offers management an opportunity to refine the technology used. As a result of
this interpersonal problems almost inevitably arise between managers and subordinates, and/or
sometimes among co-workers who have to relate to one another in different ways. These
situations offer opportunities for developing teamwork and communication competencies.
4 Job enrichment can humanise an organisation as individuals can experience the psychological
lift that comes from the development of new competencies and by doing a job well. Job
enrichment often encourages employees to grow and push themselves.

14.4.4People-orientated approach
The people-orientated approach to organisational change consists of a wide range of activities
intended specifically to improve individual competencies and performance levels. The people-
orientated approach often has implications for all components of the human resources
management system. Organisations try to improve organisational performance through
technology, design and task approaches by changing the way work is done.64 People-orientated
approaches, on the other hand, try to create organisational change by focusing on changing
employees’ perceptions, attitudes, competencies and expectations. As these factors change,
employees may then seek changes in the organisation’s technology, design or tasks. According to
this view, employees are the captains of change, not just the vessels for carrying it out. People-
orientated change can involve individuals, groups or the entire organisation. Many people-
orientated approaches are commonly grouped under the broad label of organisational development
(OD), which is a planned, long-range behavioural-science strategy for understanding, changing
and developing an organisation’s workforce in order to improve its effectiveness.65

Although OD methods frequently include design, task and technological changes, their
primary focus is on changing people. Three core sets of values define the OD approach to
organisational change and are consistent with learning organisations:
1 People values. People have a natural desire to grow and develop. Organisational development
aims to overcome obstacles to individual growth and to enable employees to give more to the
organisation. It stresses treating people with dignity and respect, behaving genuinely rather
than playing games and communicating openly.
2 Group values. Acceptance, collaboration and involvement in a group lead to expressions of
feelings and perceptions. Hiding feelings or not being accepted by the group diminishes the
individual’s willingness to work constructively towards solutions to problems. Openness can
be risky, but it can usually help people effectively plan solutions to problems and carry them
out.
3 Organisational values. The way groups are linked strongly influences their effectiveness.
Organisational development recognises the importance of starting the change process at the
top and gradually introducing it throughout the rest of the organisation. Top-level managers
should not attempt to introduce change at lower levels of the organisation until they have
begun to change themselves.

Of the many OD methods available, the most commonly used methods involve focus groups,
survey feedback and team-building.

14.4.4.1 Focus groups

When focus groups are used for organisational development, the objective is usually to learn
about how employees feel about the current situation in their organisation. Understanding the
perspectives of employees is important when designing change efforts. A carefully planned focus-
group discussion among several employees about a specific topic or issue of interest, which is led
by a trained facilitator, can create an open, non-threatening environment and keep the discussion
on track.

14.4.4.2 Survey feedback

Survey feedback enables both employees and managers to provide in-time feedback about the
organisation and similarly receive feedback about their own behaviours.66 Such information then
becomes the basis for group discussion and the stimulus for change. Accurate feedback from
others about behaviour and job performance is one of the primary characteristics and values on
which OD is based. The most common method for obtaining feedback is by means of a
questionnaire, completed and returned anonymously. The content of the questionnaire depends on
the areas of most concern to the organisation. Surveys used for obtaining feedback may be custom
designed for the organisation. Alternatively, standardised questionnaires can be used. The
advantage of customised questionnaires is that organisations can design the questions to obtain
specific information. A disadvantage is that they can be difficult to interpret on a longitudinal
basis, unless the same questions have been asked over a period of a few years in the same manner.
When information is available for a period of several years, a custom-designed questionnaire can
be used to assess whether the organisation is generally improving. An alternative to a custom-
designed questionnaire is a standardised questionnaire, which is a questionnaire that has been
developed for use in a wide range of organisations. Often, standardised questionnaires are
developed according to scientific principles, so users of these questionnaires can be confident that
the assessments they yield are valid reflections of the organisation. Because standardised
questionnaires have often been used by many organisations, they allow an organisation to
compare its employees’ responses to those of employees in other organisations.67 Through using
benchmarking, management can assess the degree to which employees’ attitudes match or diverge
from the attitudes of employees in other organisations. Little evidence suggests that survey
feedback alone will result in changes in individual behaviour or organisational effectiveness.
However, it does enable managers to collect information from a large number of employees and
feed that information back to them for the purpose of solving organisational problems.

14.4.4.3 Team-building
The importance of team-building has grown, as organisations become flatter and rely more on
people and teams to get work done. Team-building is a process that develops the ability of team
members to function and collaborate effectively when performing the tasks assigned to them.
Team-building often emphasises the importance of developing a climate amongst the team
members that is safe, where they can trust each other, and have freedom to express themselves and
share perceptions about daily experiences and hassles. There are too many people-orientated
approaches to change, to list them all here. In general, however, they usually involve changing the
organisation’s human resources management practices. When large-scale organisational change is
the objective, changes in many aspects of the human resources management system might be
considered. If an organisation seeks to improve customer satisfaction, it should consider using
selection and training techniques that increase the levels of customer-orientated competencies
among new recruits as well as redesigning compensation and reward systems. If an organisation
changes the technologies, design and tasks of employees to increase the quality of products and
services, it should also offer appropriate training and make changes to both the performance
measurement and compensation components of the human resources management system.68 In our
South African Insight, Sappi emphasises the value of employees and makes use of several people-
oriented approaches to ensure change relative to the Vision2020 strategy.

14.5 The role of innovation in organisational change

Innovation is the process of creating and implementing a new idea. Consider Jeff Bezos who
founded Amazon.com, when he invented a new way for people to purchase books: over the
internet. Also, what about Larry Page and Sergey Brin who opened the doors to millions of people
when they founded Google, the innovation search engine of our time. Whatsapp, the freeware,
cross-platform and instant messaging application for smartphones innovated by Brian Action and
Jan Koum, has empowered millions of customers. These new ideas that lead to innovation may
come from inside the organisation, but often they come from somewhere else. For example, many
organisations copied Bezos’ invention and began selling products other than books over the
internet.
 Although they are not the same, innovation and change are closely related. Successful
organisations appreciate that both innovation and change are important building blocks required to
continuously satisfy their most important stakeholders. Successful organisations cannot rest on
their prior successes. In a dynamic and changing environment, organisations need to incorporate
innovation and change into their planning processes. When an organisation fails to innovate and
change as needed, employees and customers may suffer. Refer to Chapter 6 where innovation is
discussed as a strategy that may be used as a means of filling an organisation’s profit gap.

14.5.1Types of innovation
Because new ideas require different solutions, many types of innovation are possible. Innovations
can either be radical or incremental, technical or administrative, or can relate to product or
process.

14.5.1.1 Radical versus incremental innovations 69

Radical innovations are when organisations make fundamental or major innovations in the way
they operate. Typical examples of radical innovations include merging with another organisation
or changing from a privately held to a public traded company, or adopting a new organisational
design. Radical innovation occurs relatively infrequently and is stimulated by changes in the
environment, by continuing performance declines, by significant changes in staff, or by a
combination of all these factors. BMW launching their first electric vehicles namely the i8 and i3
are examples of radical change and innovation, replacing typical forms of technology used in
vehicle drivetrains.
In contrast, incremental innovation, on the other hand, is an ongoing process evolving over
time, during which many small adjustments or modifications occur routinely. With time, these
small adjustments transform organisations totally. While they occur, these minor adjustments or
modifications seem to be a normal aspect of revising and improving the way in which work gets
done, and are not necessarily regarded as innovations. In our South African Insight, Sappi applies
incremental innovation to enhance processes and methods implemented, as Sappi specifically opts
for no radical changes, while preparing for renewed growth implementing various changes
initiatives based on their 2020Vision strategy.
Organisations usually make radical innovations in response to a crisis or because leaders have
a crystallised view of what the future might hold. Similarly, organisations make incremental
innovations as a reaction to past events or in anticipation of trends that have just begun to develop.
In Chapter 6 it is pointed out that radical innovations tend to be associated with Blue Oceans,
while incremental innovations tend to be associated with Red Oceans.

14.5.1.2 Technical versus administrative innovations

The creation of new products and services is often referred to as technical innovation. Basic
research and development is often the reason for technical innovations intended to satisfy
demanding customers who are always seeking new, better, faster and/or cheaper products. For
example, numerous technical innovations have spurred the shift to wireless communication
systems such as ADSL, and more recently fibre, to connect people to the internet.
Having said this, not all innovations introduced by organisations are technical. Changes in the
administrative process by which products or services are conceived, built and delivered to
customers, are typically labelled as administrative innovations. A good example of
administrative innovation is virtual teams that focus on the organisation as the target for change.
With office space often being limited, and with an increasing number of staff, many organisations
in South Africa such as Absa and FNB have implemented variations on open office spaces,
flexible work schedules and telecommuting or hot-desks. With the introduction of these
alternatives, organisations must find innovative ways to supervise and co-ordinate work
effectively. In this regard, network and virtual organisations are examples of more recent
administrative innovations.

14.5.1.3 Product versus process innovations

Product innovations are characterised by changes in the physical characteristics or performance
of existing products or services or the creation of brand new products or services. Even in the
absence of new products or services, innovation can still occur. Process innovation involves the
creation of a new means of producing, selling and/or distributing existing products or services.
The introduction of do-it-yourself online stock trading represents a process innovation. At Toyota,
oobeya (pronounced ‘ooh-bay-yuh’, meaning ‘big open office’) was a process innovation that
enabled the company to dramatically lower the cost of producing cars through bringing together
large teams of people involved in all aspects of the business to discuss how to cut costs in the
design, production and sales processes. Before oobeya was introduced, each unit was given a
budget and all that was expected of that unit was not to exceed its budget. By encouraging
everyone at Toyota to work together to cut costs, the company succeeded in producing high-
quality cars that cost substantially less than similar models offered by competitors.70
From the previous discussion, it is clear that various forms of innovation often go hand in
hand. For example, the rapid development of business-to-business e-commerce represents process
innovation. This new process required numerous technical innovations in computer hardware and
software. As these organisations increasingly began to use business-to-business e-commerce,
administrative innovation had to follow.

14.5.1.4 Ways to create a culture of innovation 71

Shaping the culture of organisations and embracing innovation are typical objectives of savvy
leaders who know that performance is often limited by norms, values, unconscious messages and
subtle behaviours of leaders and employees. Six ways to create a culture of innovation in any
organisation are discussed below:
1 Be intentional with your innovation plans. Have a clear view of how you want to change the
organisation, ensuring that it is based on the customer’s needs. Communicate this widely to
everybody within your organisation.
2 Create a structure for unstructured time. One needs time for creative thinking and managers
need to make time for this within a very busy work schedule. It is during times like this that
employees come forward with tremendous insights and ideas that lead to new innovations.
3 Allow creative ideas. Processes and solutions to problems are often over-engineered. Ideas do
not always come from experts. Sometimes the greatest innovations come from novices or new
employees in the company. Create just enough structure and support to help people navigate
uncertainty and to allow them to tap into the creative process without stifling it.
4 Measure what is meaningful. This is important as one gets what you measure – what is
measured improves. Give some thought about the most effective metrics to use to promote
organisational innovation. Focus on outcomes.
5
 Give informal rewards. Informal awards, in addition to annual innovation wards, tend to be
more powerful and robust. Specifically embrace noteworthy contributions by employees on an
ad hoc basis. This also assists in creating mutual trust.
6 Get symbolic. Intentionally curate the innovation symbols of your companies. Explicitly shape
stories in your organisation to convey key values. Many of the greatest innovations’ leapfrogs
were unintended results and oftentimes, created by accident.

14.6 Learning organisations

Successful innovation and change are not events with clear-cut beginnings and endings.
Innovation and change is, rather, a never-ending process, forming part of the daily routine.
Innovation and change are definitely not infrequent and special; it should be built into the way
organisations do things – the so-called learning organisations. What, then, are the differences
between traditional organisations and learning organisations? Traditional organisations are
based on a rational model that emphasises a command and control structure, characterised by
centralised decision-making, specialised tasks, highly formalised systems, a competitive strategy
and a rigid, closed employee culture.
The learning organisation, on the other hand, represents a shift in organisational paradigm
that is far less structured, decentralised and informal. A learning organisation’s strategy is more
collaborative, and its culture is more open and adaptable than that of a traditional organisation. In
a learning organisation, capacity exists to develop and adapt to change continuously, because all
members take active roles in identifying and resolving work-related issues. The employees in a
learning organisation are practising knowledge management by continually acquiring and sharing
new knowledge, while at the same time being open to the idea of applying knowledge in making
decisions or performing their work.72 Both the drive and the capabilities exist in a learning
organisation to improve its performance continuously, based on experience.73 In a learning
organisation the idea that people will learn if encouraged to face challenges, experiment, fail and
reflect on their experiences, is embraced at all times. Learning organisations further continuously
add value for customers (by identifying new needs) and then developing ways to satisfy these
needs. When the environment is complex and dynamic, the process seems chaotic as learning may
require a lot of exploration and experimentation. Failures in a learning organisation are frequent,
but so are unexpected achievements. Learning is more likely to occur through a systematic
process of testing alternative approaches, during times when the environment is stable.74
Irrespective of whether the process is chaotic or systematic, a learning organisation almost always
creates a sustainable competitive advantage in its industry through continuous innovation and
change. The basic rationale for the existence of learning organisations is that in situations of rapid
change and instability, only those organisations that are flexible and have the ability to adapt
quickly while remaining productive, will excel.75
Figure 14.5 presents the five interrelated building blocks of a learning organisation: shared
leadership, culture, strategy, organic organisational design, and use of information, each one of
which will be discussed in the following sections.
Figure 14.5 Building blocks of learning organisations

14.6.1Shared leadership
The first building block in a learning organisation is shared leadership. In learning organisations,
employees share the responsibility for making decisions, achieving organisational goals and
leading operations. As an organisation moves to become a learning organisation, leadership plays
an important role. One of a leader’s most important functions is facilitating the creation of a
shared vision for the organisation’s future, and aligning all employees in the organisation toward
that vision. It is extremely difficult for the organisation to be a learning organisation, without
strong and committed leadership guiding the organisation. In bureaucratic organisations, top-level
managers take responsibility for making decisions, and leading operations to achieve
organisational goals. Employees often perform routine tasks that allow them little opportunity to
share in decision-making and leadership. In learning organisations, irrespective of the tasks at
hand, all employees share at least some leadership responsibilities. Every employee is encouraged
to discover ways to improve products and services. Experimentation with new methods to serve
the organisation is encouraged. At well-known global organisations such as movie-maker Pixar,
computer and cellphone giant Apple and search-engine and technological market leader Google,
all employees are allowed to experiment constantly to satisfy customer demand. These
organisations receive thousands of comments and suggestions from customers. Employees who
read and review these submissions are fully empowered and encouraged to make changes as they
see fit. The sharing of decision-making and leadership at organisations such as Pixar and Google,
creates a culture that fully supports the goals and efforts of a typical learning organisation.76

14.6.2Organisational culture
The second building block in a learning organisation is organisational culture. A simple way of
defining organisational change is to think about how things are done in the organisation.
Organisational culture for example reflects the underlying assumptions about the way work is
performed, what is acceptable and not acceptable, and what behaviour and actions are encouraged
and discouraged.77 The culture in an organisation is an important aspect of such an organisation
towards being a learning organisation. A learning organisation’s culture is one in which all
employees share the same vision and recognise the inherent interrelationships among the
organisation’s processes, activities, functions and external environment. In a learning
organisation, everyone needs to have freedom to communicate, share, experiment and learn
openly, without fear of criticism or punishment. In bureaucratic organisations, on the other hand,
employees are often assigned to routine tasks that allow little experimentation. Employees in a
learning organisation are encouraged to discover and experiment with new methods and
approaches. In this regard, empowerment creates a way to integrate tasks and allow employees in
the organisation to buy into the goals of the organisation. The organisational culture of Sappi in
our South African Insight is best reflected in the following words: “creating an entrepreneurial
coaching-based culture is a priority for Sappi, for our leaders to encourage learning and growth,
increase change capacity and continuously improve business performance.”78
When discussing the concept of culture in a learning organisation, the influence of community
and continuous learning (as referred to above) cannot be ignored. These two influences are briefly
discussed below.79

14.6.2.1 Community
Employees in a learning organisation develop a sense of community and trust amongst each other.
Everyone needs to work with everyone else, respecting each other and being able to communicate
openly and honestly. Employees realise that problems cannot be avoided or handled by just
passing them along to someone else or to another department or up the hierarchy. Everyone
accepts conflict and debate as a responsible form of communication. A sense of community also
gives everyone the security that they are important and have an important role to play. It is
important to note that employees co-operate because they want to, not because they have to.80
When employees feel that they are part of a community with a shared purpose, they are far more
willing to make the extra effort needed to identify and solve problems. They are also less likely to
leave the organisation or to break up an alliance, taking their accumulated knowledge with them.
Short-term learning is of little use if it is followed by long-term memory loss. Organisational
memory loss is a problem facing many learning organisations.

14.6.2.2 Continuous learning

In a learning organisation, everyone is encouraged to learn and change in many ways. The culture
of empowerment places the responsibility for problem-finding and problem-solving on everyone
in the organisation.81 The flat, team-based structure found in learning organisations facilitates
effective learning because everyone is involved in a broad range of activities and works with
others from whom they can learn. Another way to ensure continuous learning is through formal
training programmes which form part of an employee’s personal development and growth plans
within the organisation. Continuous learning for managers is essential for developing the
competencies needed by generalists who are knowledgeable in several areas, as opposed to
specialists. A point in case is the difference between specialist nurses and generalist nurses.
Specialist nurses are contributing in unique and important ways to decreasing the individual
problems patients find themselves facing. They are trained to address the needs of patient
populations with specific disease processes, for example cardiac, chronic airway disease, diabetes,
rehabilitation and subspecialty areas of paediatric nursing. Generalist nurses are equally important
in modernising the health service and carrying out a much broader approach to patient care,
ensuring co-ordination across specialities and specialists, maintaining the fundamentals of nursing
and providing not only evidence-based practice but ensuring that the patient is involved and
satisfied with the quality of the service they receive.82
14.6.3Strategy
The third building block in a learning organisation is strategy. Several strategies are available to
learning organisations. Regardless of which strategies are used, however, they need to address
three key issues in a learning organisation: customer focus, long-term perspective and internal
alignment.

14.6.3.1 Customer focus

Whether a learning organisation’s primary goal is satisfying current customers or gaining new
ones, customer-focused strategies reflect a clear understanding by everyone in the organisation of
how important customers are to the success of the organisation. A drive to become more customer
orientated and to forge strong personal relationships with customers while offering innovative
banking solutions has paid off for First National Bank (FNB.) In recent years it has been awarded
various prizes, and in particular, it has been acknowledged as the most innovative bank in the
world.83

14.6.3.2 Long-term perspective

During times when most organisations and shareholders look no further than the next quarterly
report, sensitivity to the need for a long-term perspective is important for a learning organisation.
The processes of learning and change simply take time. To ensure a long-term focus, we notice in
our South Africa Insight, Sappi’s market leadership and low cost mills enable them to successfully
steer through the pricing pressures in the short term, while also providing them with a platform to
grow the business in the long term.

14.6.3.3 Internal alignment

For learning organisations, the business strategy drives the design of all the systems and processes
within the organisation: human resources management, communications and logistics. When that
is done, the learning that occurs is much more likely to translate into success for the organisation.
In our South Africa Insight, the human resources management practices and focus in Sappi is
closely aligned with the company’s goals. Each manager, supervisor and front-line associate has
goals, action plans and performance measures that flow directly from the company’s strategic
goals. Monthly customer reviews help the organisation assess employees.

14.6.4Organic organisational design

The fourth building block in a learning organistions is organic organisational design. Irrespective
of which structural design managers choose for their organisations, the chosen design should help
all employees in the organisation to do their work in the most efficient and effective way. The
design of a learning organisation often reflects an emphasis on organic rather than mechanistic
systems. In particular, they emphasise the use of teams, strategic alliances and networks without
boundaries.

14.6.4.1 Teams
In learning organisations, ‘bosses’ are practically eliminated as employees take responsibility for
training, safety, scheduling vacations and purchases. At Woolworths Foods, Managing Director
Zyda Rylands confirms that teamwork is vital in their business, and they all share the same
objectives. “We grow as a result of one another’s strengths and support one another in our
weaknesses. As a collective, we are much more magical than the individual parts – and this also
explains the success of the team in delivering on the Group’s strategy.”84

14.6.4.2 Strategic alliances

In addition to experimenting on their own, many learning organisations use strategic alliances
with customers, suppliers and even their competitors as methods of learning. Standard Bank’s
strategic alliance, which was formed with the world’s largest bank, Industrial and Commercial
Bank of China Limited (ICBC), during October 2007, was a significant boost for the Standard
Bank Offshore Group. Besides substantially enhancing Standard Bank’s global presence, this
strategic alliance also brought new business opportunities for the bank.85 Similarly, one of Adcock
Ingram’s key strategies for growth is to become the partner of choice in Africa for multinational
companies. Not only does the organisation have a market leading presence in South Africa, but its
footprint also extends to Kenya and Ghana in serving East and West Africa respectively. It is
worth noting that Adcock Ingram has a dedicated Strategic Alliance Department that services all
of its collaboration partners.86

14.6.4.3 Boundary-less networks

An extreme design option for a learning organisation is to become a network of co-operating units
connected by complex interdependencies and processes, separated by very few boundaries.
Network structures, which were described in Chapter 8, maximise the linkages between
organisations. It is these linkages, that provide learning opportunities, and generate innovation in
products and services in learning organisations.87 Network structures in general appear to work in
part, mainly because they create a sense of community among all employees who share diverse
knowledge and expertise in the organisation, and use these to find creative solutions to difficult
problems.88

14.6.5Use of information
The fifth building block in learning organisations is the use of information. In a learning
organisation, employees must share information and collaborate on tasks and work activities
across the entire organisation. Information is therefore the lifeblood of learning organisations,
which implies the necessity of sharing information widely in an accurate and timeous manner.

14.6.5.1 Scanning the environment

Staying attuned to relevant changes is a passion for learning organisations. Learning organisations
aggressively scan both the external (uncontrollable) and internal (controllable) environments for
information, to ensure that they do not miss important changes or new trends. Due to this, large
amounts of data and information are obtained from the above mentioned environmental scanning
on how customers perceive current products and services, how customers compare them to those
of competitors and whether new competitors may be on the horizon. Information such as this, is
crucial to judgements concerning the need to create new products or services to meet the needs
and demands of customers. Information obtained from scanning the internal environmental
typically indicates employees’ perception of the organisation, whether they are customer centric,
whether they feel energised to solve complex problems and the likelihood that key employees will
defect to competitors. These are just a few of the concerns that learning organisations address by
scanning their environments and evaluating the information received from the scanning process.
In our South Africa Insight, Sappi has found it challenging to align and focus on a successful
future as the organisation seeks to redefine itself in a fast paced and ever changing environment.

14.6.5.2 Measurement orientated

Organisations learn in order to continuously improve their performance. To judge improvement,
organisations need to understand where they were before, where they are now and where they are
heading. Performance measurements make assessing improvement possible and relatively easy. In
learning organisations, employees have access to data about customer satisfaction surveys and
insights, profits and losses, relative market share, the commitment of employees and the strategies
of competitors, among other things. Data is gathered at every possible point, monitored on a daily
basis, disseminated and used throughout the organisation. The days of managers hoarding
information are long gone in learning organisations.89 A good example of learning organisations is
pharmaceutical companies. They would have no new products to offer, without continuous
learning. During the new product development process, pharmaceutical companies measure their
learning progress in a variety of different ways. For example, they keep track of the expertise of
their scientists and engineers, they count the number of scientific papers published by their
scientists, besides placing a high premium on the number of new patent applications and
registrations.

14.6.5.3 Shared problems and solutions

Numerical data (measurements) as discussed above are not the only type of information deemed
important in learning organisations. ‘Tacit knowledge’ (the so-called soft information) is valued
too, because organisations are sometimes more interested in anecdotal evidence than in hard data.
If one gets 500 anecdotes, which all begin to fit together, then one can claim you have a pattern
that makes sense. Whereas measurements help an organisation judge how much progress has been
made, soft information is the stuff of which learning is made. When employees share information
about the problems they are facing and the solutions they discover, they are able to minimise the
number of times they reinvent the wheel and speed up the process of organisational learning.
PricewaterhouseCoopers (PwC), an accounting firm with offices in South Africa, identified a way
to increase the amount and effectiveness of ‘soft’ information-sharing as one of its key strategic
challenges in the future. Their clients, scattered all around the world, increasingly demand cutting
edge services and practices. PwC knew that its success depended on discovering new and quick
ways to transfer the learning that occurs with each consulting engagement, across the entire
organisation. The learning and new insights gained, and experiments with new solutions, are
usually only useful for that specific engagement, but it may very well also be useful to another
team elsewhere in the organisation or sometime in the future. However, transferring the lessons
learnt by one team to other teams working elsewhere around the world is not easy. These lessons
cannot be taught with numbers alone; detailed narrative explanations are also needed.
The challenge is to find effective ways to record and transmit narrative explanations of what
has been learnt. Several organisations now use computer-aided systems for managing narrative
information. Like e-mail, these systems allow the organisation to quickly distribute information
widely throughout the organisation. In addition, it also enables the organisation to store shared
solutions and insights in electronic format, available to the entire organisation. Although this
technology is in its infancy, it promises to enhance organisational learning even when knowledge
is widely dispersed in both space and time.90
 Since innovation is an underlying theme to any learning organisation, it is important to
understand how innovative you or the employees working for you are. In this regard, the
Contemporary management in practice questionnaire that follows can be used with great success
to determine an individual’s level of innovativeness.

Chapter summary
In this chapter, we focused on the planning and implementation of organisational change, the role
of innovation in organisational change, and learning organisations. The different types of
organisational change (radical change, incremental change, reactive change and anticipatory
change) are reviewed as an introduction to the process of planning organisational change. The
change process presented, includes an eight-step process for planned organisational change. The
eight steps involve accessing the environment, determining the performance gap, diagnosing
organisational problems, identifying sources of resistance, reducing resistance, setting goals,
developing and implementing an action plan, and monitoring change. Specific attention is given to
the reasons for resisting change and the common methods used to manage such resistance.
During the implementation of change, organisations can use four different yet related
approaches to change. The technology-based approach, the organisational redesign approach, the
task-based approach and the people-orientated approach are introduced. Although we described
each approach separately, some combinations of these approaches are prevalent in most large
organisational change efforts.
Although they are not the same, innovation and change are closely related. Successful
organisations understand that both innovation and change are required to satisfy their most
important stakeholders. The types of innovation discussed include technical innovation, process
innovation and administrative innovation.
Successful change is not characterised by clearly defined beginnings and endings. It is rather
viewed as a continuous process. In most successful organisations, these change interventions are
grounded in the daily routine of employees, rather than being infrequent and special. Change is
built into the manner in which organisations approach and deal with opportunities and threats.

Questions for discussion

1. Define and differentiate between the concepts of change and change management.
2. Why do people generally resist change? How should managers deal with employees’
resistance to change?
3. How would the elements of a learning organisation contribute to an organisation dealing with
change more successfully than a bureaucratic organisation?
4. Identify the eight steps of the planned change management process. Discuss each of these
steps in further detail and apply it in a context with which you are fully familiar.
5. What is the relationship between innovation and change?

Exercise for competency development

Deloris is a manager at Thobogo Electric Corporation. Deloris has been with the company for five years,
with an excellent track record. Rumours of a substantial reduction in the number of employees have been
circulating via the grapevine, in the last few weeks. These rumours, from reliable sources, ranged from a
small-scale reduction to a large-scale reduction. Every day the story changed and Deloris could not get
any confirmation from higher up in the hierarchy. Work output in her department started to suffer. Her
employees were busy spending their time on finding other jobs. The best qualified employees were
shopping around. It was just a rumour and Deloris became demoralised because things were falling apart.
A week later, two of her most reliable employees informed her that they were taking up jobs with
competitors. For Deloris this was the last straw. Instead of having the best department, she may now have
the worst.

Questions:
1. To what extent do rumours of change have an effect on the morale of employees?
2. Discuss the merit for resistance to change in the company, considering the fact that a rumour is
spreading amongst employees about a substantial reduction in workforce, even though Deloris still
could not verify whether it is true or not?
3. What should Deloris do in a situation like this in order to manage any potential negative reactions
from staff?

Contemporary management in practice

How innovative are you?
Instructions
Respond to the eighteen statements that follow using a scale of 1 through to 5, where:
• 5 = Strongly agree
• 4 = Agree
• 3 = Undecided
• 2 = Disagree
• 1 = Strongly disagree.

In each case, there is no correct or incorrect answer. Rather, the intention is to help you explore your
attitudes.

_____________ 1 I try new ideas and new approaches to solve problems.

_____________ 2 I take things or situations apart to find out how they work.
_____________ 3 I can be counted on by my colleagues to find a new use for existing methods or
existing equipment.
_____________ 4 Among my colleagues, I am usually the first person to try out a new idea or
method.
_____________ 5 I demonstrate originality.
_____________ 6 I like to work on a problem that has caused others great difficulty.
_____________ 7 I plan on developing contacts with experts in my field located in different
companies or departments.
_____________ 8 I plan on budgeting time and money for the pursuit of novel ideas.
_____________ 9 I make comments at meetings on new ways of doing things.
_____________ 10 If my colleagues were asked, they would say I am a wit.
_____________ 11 I seldom stick to the rules or follow protocol.
_____________ 12 I discourage formal meetings to discuss ideas.
_____________ 13 I usually support a colleague’s suggestion on new ways to do things.
_____________ 14 I probably would not turn down an ambiguous job assignment.
_____________ 15 People who depart from the accepted organisational routine should not be
punished.
_____________ 16 I hope to be known for the quantity of my work rather than the quality when
starting a new project.
_____________ 17 If I couldn’t find enough variety of experience on my job, I would leave it.
_____________ 18 I would leave a job that did not challenge me.
 Scoring
Total your scores for all of the statements.
Interpretation
The higher your total score, the more willing you are to be innovative and to welcome change. A score
of 72 or greater is high and a score of 45 or less is low. People who are not innovators have a tendency
to maintain the status quo. Innovative people like to create changes in their organisations to increase
performance.
Source: Adapted from ETTLIE, J.E. & O’KEEFE, R.D. 1982. Innovative attitudes, values, and intentions in
organizations. Journal of Management Studies, 19, 176.

Endnotes
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4 TELKOM. Ibid.
5 TELKOM. Ibid.
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LEARNING OUTCOMES
After studying this chapter, you should be able to:
• Define control within an organisational context as a managerial task
• Explain the elements of control and analyse its relation to planning, decision-making and organisational
strategy
• Identify and explain the different types of control and give examples
• Indicate the relationship of the different types of control with the systems approach
• Discuss and investigate the criteria for creating effective controls
• Identify and apply the steps of the control process
• Identify, classify and give examples of the different control standards
• Describe and present real-life examples of the different approaches to organisational control, considering
the classification of controls
• Debate the value of quality control, considering the various approaches.

CHAPTER OUTLINE
• South African Insight: BMW: Efficiency and effectiveness to meet their sustainability strategy
• Understanding and defining control
» Types of control
» Sources of control
• The control process
» Step 1a: Define the subsystem
» Step 1b: Identify key characteristics
» Step 2: Set standards (for control)
» Step 3: Collect information (of actual performance)
» Step 4: Make comparisons
» Step 5: Diagnose and correct problems if required
• Creating effective controls
» Cost–benefit model
» Criteria for effective controls
• Performance management
» Market controls
» Financial controls
» Comparative financial analysis
» Budgeting
» Activity-based costing (accounting)
» Integrated strategic controls: The balanced scorecard
» Automation-based controls
» Quality control approaches
» Six Sigma
 » Just-in-time
» Total quality management (TQM)
• Corporate governance

Key terms and concepts

• Control
• Organisational control
• Preventive controls
• Concurrent control
• Post-control
• Group or teams
• Stakeholder control
• Organisational control
• Individual self-control
• Quantitative standards
• Qualitative standards
• Performance standards
• Performance management
• Market controls
• Financial controls
• Ratio analysis
• Budgeting
• Activity-based costing
• Balanced scorecard
• Economic value added
• Automation-based controls
• Six Sigma
• Just-in-time
• Total quality management
• Corporate governance

COMPETENCY WHY IS THIS EXAMPLE

COMPETENCY
IMPORTANT IN
RELATION TO
CONTROLLING?

Strategic action Preparing for an effective At Tsogo Sun the board delegates responsibility
control system which is for determining, implementing and managing the
integrated into the planning and group’s strategy, to the CEO, Marcel Von Aulock,
formulation of strategies and and the members of the Group Executive
objectives, is essential for Committee. This committee ensures that effective
optimum performance internal controls are functioning and that there is
management an effective and functional risk management
process throughout the group. At Tsogo Sun, they
understand that internal controls provide:
reasonable but not absolute assurance as to the
integrity and reliability of the financial statements,
compliance with statutory laws and regulations,
and safeguarding and maintaining accountability
of the group’s assets.1
Global Understanding the impact of Woolworths Holdings Ltd. presents an annual
awareness global practices in specific sustainability report based on a set of controls.
industries will guide They apply the criteria for sustainability,
management with the recommended by the International Integrated
development of control Reporting Council including aspects on human,
standards and assist in the social and relationship, natural, capital, financial,
performance measurement manufacturing and intellectual capital. This
practices which are seen as the reporting framework allows Woolworths Holdings
norm or acceptable in the Ltd. to establish an understanding of:
industry. • The entity and its environment
• Entity-level controls
• The stakeholder engagement process
• The selection and application of sustainability
reporting policies
• How management applied the principle of
materiality in preparing the report and their
performance indicators
• The significant reporting and information
management processes.2

BMW: Efficiency and effectiveness to meet their sustainability

strategy

In the global context of a continuous changing and demanding environment, BMW is posed with questions
such as: “How will BMW continue to be successful in times of climate change, tougher fuel economy
legislation, volatile oil prices and a growing environmental awareness amongst the general public?”
Some of the key solutions to these problems are based on the controls applied at BMW. Therefore,
BMW considers the impact of their Facility Management on their overall performance and productivity.
BMW Group South Africa’s Facility and Energy Management team includes various planners, project
managers, maintenance managers and an energy manager.
The BMW Group Real Estate & Facility Management Division supplies and maintains the space
necessary for all the various business processes. These areas have a high demand on flexibility and quality,
and part of the requirements (standards) that should be met by the relevant division is that these spaces are
sustainable environments which are suitable and ideal for work. The five requirements (qualitative
standards) for corporate real estate considered by BMW Group are efficiency, reliable operation,
sustainable buildings, employee satisfaction and appearance.
At Plant Rosslyn north of Pretoria, various input factors are considered that impact on efficiency and
effectiveness. Control measures are put into place to optimally manage the use of resources relating to
energy consumption and other facility resources such as equipment. Aligning efficiency and effectiveness
with sustainability strategies allows them to seek alternative solutions in minimising waste or consumption
of energy within the plant. Gas heating as an alternative heating source is considered which minimises the
use of electricity and the Bodyshop LED light project will bring an estimated cost saving of R4 275 087
over a 7-year period. Standardising office equipment to specific dimensions will bring about a substantial
decrease in facility development cost over time due to less capacity required. The expected savings
resulting in smaller office space needed could result in a €3.7 million saving (excluding life cycle costs).
Other performance management actions taken by BMW to meet their sustainability goals are based on
performance management feedback throughout the group. Examples of these actions within their supplier
network are the implementation of performance standards which are both environmentally and socially
sensitive. Furthermore, BMW promotes standards and actions of transparency and resource efficiency in
the supply chain. They provide standards and guidelines on procurement of raw materials from
environmentally and socially friendly sources, as well as the consideration of renewable raw materials and
materials with sustainable characteristics, e.g. secondary aluminium.
 In their assembly plants such as the Rosslyn Plant in South Africa, controls aligned with their
sustainable strategies include the reduction in overall resource consumption (energy, water, process waste
water and waste in general), thereby addressing efficiencies and effectiveness. Other aspects addressed are
the use of recycled material and the reduction in environmentally damaging waste water and emissions, to
mention a few.
Source: VILJOEN, F. BMW Group (South Africa) (Pty) Ltd. General Manager: Market Operations SA. May 2013.
BMW Facility Management. “The Impact of Efficient and Effective FM on Productivity in the Workplace“. [Online].
Available: http://www.safma.co.za/portals/0/conference2013/bmw_fm.pdf [Accessed 12 August 2015]; BWM
GROUP. 2014. BMW Group Sustainable Value Report 2014. [Online]. Available:
http://www.bmwgroup.com/com/en/_common/_pdf/BMW_Group_SVR2014_EN.pdf [Accessed 5 June 2015].

15.1 Understanding and defining control

Control can be described as the process of establishing performance standards, monitoring
performance and taking corrective action when necessary, to ensure the achievement of
organisational goals.3 During this process, the actual performance of employees (individuals or
groups) is monitored to ensure that it is in line with set performance standards. This monitoring is
necessary to ensure that organisational goals are achieved. If actual performance is not in line with
these standards, corrective action should be triggered.4 Therefore we can define control as a
management process whereby the actual performance of employees is monitored against set
performance standards in order to optimise organisational goal achievement and overall
performance, which require corrective action if the actual performance does not meet the required
standards.5
To most people, the word control has a negative connotation of restraining, forcing, checking
up, limiting, watching or manipulating. Various manufacturers, retailers and service providers
such as banks, hotels and hospitals have surveillance cameras that record customer movements
throughout the store or institution, or the interaction taking place at the cashiers, reception areas or
security counters. Although some employees and customers resent such practices, others accept
this action as a measure to protect them, as well as the organisation.
Controls are both useful and necessary. Effective control can be one of the keys to increased
profits for South African organisations, by means of savings on unnecessary wastage, theft,
unethical or inappropriate use or allocation of resources. We can illustrate the need for control by
describing how control interacts with planning:
• Planning, covered in Chapters 5 and 6 of this book, is the formal process of developing goals,
objectives, strategies, tactics and action plans regarding the transformation of inputs
(production factors such as natural and human resources, technology, capital and
entrepreneurship) into outputs (products and services).
• Developing and implementing controls help ensure that all relevant decisions made (as
discussed in Chapter 7), actions taken and subsequent results are consistent with the plans and
their goals and objectives which were developed during planning. Furthermore, all standards
developed for control measures must be based on the original goals and objectives of the
organisation, department, team or individual. This means that standards can, in certain cases,
be perceived as a breakdown of an existing goal formulated during the planning process.6
• If you can recall when reading Part 2 of this book, it was indicated that planning prescribes
desired behaviours and results in terms of outcomes and outputs. Applying controls, therefore,
helps maintain or redirect actual behaviours and results in order to maximise the outputs of
individuals and work teams in an organisation according to those set plans. Considering the
South African Insight, BMW aims to address corporate objectives in conjunction with
 customer needs, requirements and demands. Customers will complain or immediately provide
negative feedback if vehicles no longer reflect sustainable and technological innovative needs.
If customer satisfaction falls below this agreed level, market researchers should establish the
reason or reasons for not performing according to the ‘promised’ or agreed norm. BMW
addresses the gap and ensures customer satisfaction, as well as the achievement of their
sustainable strategy and objectives.
• Managers and employees cannot plan effectively without accurate and timely information.
Controls provide much of this essential information as a feedback-loop for future planning and
decision-making. Development in electronic communications, for example, the internet,
software technology and cellphone communication (SMS, social media, etc.), have enabled
organisations to attract and hold new customers by providing them with crucial information as
needed. Banks such as Absa, FNB and SBSA monitor customer communication on social
media in order to obtain feedback on product and service satisfaction and dissatisfaction in
order to make future adjustments and changes to their product and service offerings.
• Plans indicate the purposes to be served by controls. This means that controls help ensure that
plans are implemented as intended.7 Therefore planning and control complement one another
to ensure overall strategic business performance and success. The control process requires the
formulation of performance standards. These performance standards should always be aligned
with the objectives and goals set during the planning process. If this is not the case, then
control has limited effectiveness. If an insurance broker’s objective is to increase the number
of new customers signed up from 16 to 20 per month, then performance standards need to
ensure that the broker reaches, for example, a set standard of five new customers per week,
over four weeks, in a monthly cycle, in order to achieve the set objective.

15.1.1Types of control
There are three general types of organisational control:
• Preventive or proactive control
• Concurrent or steering control
• Post-control or reactive control.8

Figure 15.1 indicates the relationship between the three different types of control and the systems
approach. The systems approach indicates the relationship between inputs, transformation of those
resources and the final outputs. Control is required during each of these phases to ensure that the
set plans and formulated objectives are achieved.
Figure 15.1 Types of control

15.1.1.1 Preventive controls

Preventive controls are mechanisms intended to reduce errors proactively, thereby minimising
the need for corrective action. These controls are developed and applied on the input factors of the
transformation process in order to proactively ensure that any deviations are identified. Known
brands such as Puma, Nike and Adidas apply preventive controls such as quality standards to
ensure that quality materials, fabric, equipment and other related resources are used when
manufacturing sport and fashion apparel. If any deviation in the quality is noticed when sourcing
various fabrics for the manufacturing of shirts, it will be possible for operational management to
remove such goods and investigate the reason for the sub-standard quality resources.
Rules and regulations, quality standards, recruitment and selection procedures for new
employees, training and development programmes, information requirements, and product or
service specifications are typical examples of preventive controls.9 They all direct the behaviours
of managers and employees. The assumption is that if managers and employees comply with these
requirements, the organisation is likely to achieve its goals. Thus, preventive controls are needed
to ensure that rules, regulations and standards are being followed and are working. The focus of
proactive control is on the input factors of the transformation process.

15.1.1.2 Concurrent control

Concurrent control or steering control indicates control measures that monitor activities while
they are taking place. The focus of this type of control is to address problems while they are
developing or occurring and not to assume post-control as the only solution to problems.
Concurrent control measures are most effective in situations where time is of the essence and
especially where corrective action is essential for the completion of a process. Examples include
industries with production processes, such as at an electronics assembly line involving various
activities such as circuit board assembly, cable and harness manufacturing. Vehicle manufacturer
Volkswagen South Africa (VWSA) is just one of many examples of such an organisation using
concurrent control at their Uitenhage assembly plant. VWSA is the first manufacturing plant in
the larger group’s global production network to install a press line that combines wave motion
technology, partnered with Cobra robotics technology. This technology allows for standards of
performance during the assembly process which reduces energy consumption on the assembly line
by 30% and increases overall quality output.10 An example in the services industry would be
where the service provided entails a step-by-step process, for example, an events company
catering for a corporate year-end function providing food, dancing facilities, well-presented tables
and entertainment at the ceremony. Each activity in this chain must be good enough to ensure that
the final product or service is up to standard.
The actual difference between preventive and concurrent control is that preventive control is a
proactive control measure developed and put in place before any activity has taken place, focusing
on the input factors. Concurrent control is a continuous control measure that involves standards
being used to measure performance while the activity is taking place. The focus of concurrent
control is therefore on the activities of the transformation process.

15.1.1.3 Post-control
Post-control is a mechanism intended to reduce or eliminate unwanted behaviours or results in
order to meet the organisation’s regulations and standards. Post-control, or reactive control,
focuses on rectifying a problem that has occurred. This means that the damage has already been
done, although the aim is to ensure that this error will not recur in the future. This control measure
does not have a current advantage, but it certainly has a future advantage. Feedback received from
post control is also used for future planning.
Considering the South African Insight, BMW South Africa utilises post-control to ensure that
their sustainability strategy is optimally rolled-out. Various checks are put in place to ensure that
assembly processes completed lead to final post-control. The aim of this is to ensure that these
vehicles meet the highest sustainable performance standards set, and directly and indirectly
support the corporate sustainability strategy and objectives.

15.1.2Sources of control
Sources of control indicate those internal and external role-players who influence and guide the
development of controls within an organisation. The four primary sources of control in most
organisations are:
• Stakeholders
• The organisation itself
• Groups or teams
• Individuals.

These sources are indicated in Table 15.1 along with examples of preventive, steering and post-
controls for each.

15.1.2.1 Stakeholder control

Stakeholder control is expressed as pressures from outside sources on organisations to change
their behaviours. You will recall that stakeholders may be unions, government institutions,
customers, shareholders and others who have direct interests in the well-being of an organisation.
Discovery Health classifies its stakeholders in eight categories11:
• Employees: irrelevant of their level of engagement within the organisation
• Clients: Discovery Health Medical Scheme (DHMS) members
• Healthcare professionals: Skilled healthcare workers and medical specialists in the country
•
 Financial advisers: Registered individuals offering Discovery products, services and financial
advice
• Investors and analysts: Individuals and teams responsible for Discovery’s long-term growth
strategy and the company’s short-term financial outlook
• The media: Fair, newsworthy, publishable, accurate and informative healthcare journalism
• Community and public healthcare organisations: Discovery Foundation recipients engaging
with the Discovery Foundation
• Regulators and governments: South African government and representative bodies in the
healthcare and associated industries.

Table 15.1 Examples of different sources and types of control

Discovery allows participation of these stakeholders through various ways to ensure that the
performance standards and expectations set as a result of their inputs and participation are met at
all times. For example, Discovery supported the Competition Inquiry into the South African
healthcare system, which aimed to investigate ways of managing rising costs by reviewing
components of the healthcare system for wastage, inefficiencies and other potential drivers of
healthcare costs.12
Customers supporting the environmental benefits of using recyclable bags have joined the
impact created by 2003 government legislation on plastic shopping bags in South Africa. This
stakeholder group will therefore support retailers providing cost-effective shopping bags that are
recyclable as well as reusable, such as Woolworths’ reusable shopping bags. By using recyclable
materials for packaging, South African retailers can reduce environmental waste. Woolworths has
taken this stakeholder source of control one step further. A few examples are that they can proudly
say that everything from their plastic hangers, in-store signage, baskets and trolleys are made of
recycled materials, which is certainly a new industry standard.13
15.1.2.2 Organisational control
Organisational control includes the formal rules and procedures for preventing or correcting
deviations from plans, and for achieving desired goals. Examples include rules, standards, budgets
and audits. Chapters 5 and 6 indicate how these examples are included in the strategic planning
process and how we can then utilise them to apply organisational controls, once those plans have
been implemented.
Woolworths implements a specified shelf-life quality and waste management system, whereby
products whose shelf-life has expired will not be sold to customers, at the same time as they aim
to reduce the quantity of food waste throughout their supply chain and continuously want to
encourage food security. Woolworths pioneered the practice of date marking on fresh produce
using terms such as ‘Sell By’, ‘Best Before’ or ‘Use By’ dates in South Africa, giving customers
an indication of when food would be at its best.14
The legal compliance policy of Naspers Limited (‘Naspers’) and its subsidiaries (‘Naspers
Group’) is indicative of the planning they undertook in terms of conduct, but also the control they
will apply to evaluate whether they are successful in meeting these applicable laws, rules, codes,
standards and regulations. This legal compliance policy is applicable to Naspers Group directors,
officers and employees and their performance will be assessed against these controls. It provides,
for example, control standards and regulations for basic compliance principles such as how to act
with integrity towards third parties, ensure fair competition, be committed to the community, and
protect the group’s assets.15

15.1.2.3 Group or team control

Group control comprises the norms and values that group members share and maintain through
rewards and punishments. Examples include acceptable behaviour of group members at the office
or in a meeting, where members will not allow any comments reflecting sexual discrimination or
racist remarks to be made to, and between, members in the workplace.
Considering the South African Insight, the performance management system at BMW South
Africa, called Portfolio, includes a three-level target commitment process that aligns individual
employee targets with departmental and divisional objectives, and ultimately with organisational
objectives. Regular developmental reviews are conducted to make sure everyone has the right
support, resources and motivation to achieve their objectives.16 This interactive and integrated
approach ensures that controls are developed with multiple inputs from various role-players and
are perceived to be fair among those who will be assessed according to those performance
standards.

15.1.2.4 Individual self-control

Individual self-control comprises the guiding mechanisms that operate consciously and
unconsciously within each person. Standards of professionalism are becoming an increasingly
important aspect of individual self-control. Becoming a professional involves acquiring detailed
knowledge and specialised skills as well as specific attitudes and ways of behaving. These skills
and knowledge also need to be continuously revised and updated in order to ensure that each
individual provides the best possible service. In doing their work, chartered accountants,
managers, lawyers, engineers, business school graduates and physicians, among others, are
expected to exercise individual self-control based on the guiding standards of their professions, as
well as their professional bodies. Self-control is a control system based on clearly defined
boundaries within which these professional people set their own goals, carry out their daily work
tasks, monitor their own progress and self-apply rewards based on how well they achieve their
objectives and long-term goals.17
Personal goals need to be aligned with team and organisational goals in order to ensure
optimal performance alignment. Ensuring that everyone has a strong sense of purpose in the
organisation is one reason an organisation is able to retain the best people. Self-control focuses on
the setting of personal performance standards and behaviour that ensures that these standards are
met. In addition, it emphasises ethical conduct, self-management and leadership to ensure that the
individual takes responsibility to perform when required and according to overall acceptable
standards to accommodate for the variation in levels of self-control between individuals.18
Successful management is not built on good performance only. Excellence is the responsibility of
every employee within a department or team.
At Old Mutual, all staff members must adhere to the Business Code of Conduct. Their code of
business conduct is developed to earn, establish and retain trust and confidence inside and outside
their business. Their code guides and directs all decisions and every action that affects
communities, competitors, customers, intermediaries and suppliers, employees, the environment,
government and regulators, shareholders, as well as investors.19

15.2 The control process

The corrective control process aims to detect and eliminate or reduce deviations from an
organisation’s established standards.20 This process relies heavily on information feedback and
responses to it. Figure 15.2 illustrates the various steps of the control process, each of which will
be discussed in more detail.

Figure 15.2 The control process

15.2.1Step 1: Define the subsystem
A formal control subsystem can be created and maintained for an employee, a department or even
an entire organisation. That is why we need to define the employee, group, department, business
unit, project or organisation as a whole in order to establish the focus group of the control process.
The control mechanisms could focus on specific inputs, transformation processes or outputs. Input
controls aim to often limit the number of production factors (capital, entrepreneurship,
information, raw materials, technology etc.), which are used in the transformation process, as a
risk management precaution, as these inputs used for manufacturing, retailing or service provision
can deviate from the organisation’s standards. SABMiller uses elaborate controls (including
inspections and laboratory testing) to guarantee that, for example, the barley they use for brewing
meets pre-determined standards – input controls. Malting prepares barley for brewing and takes
place when barley is soaked in water, allowed to germinate and then kiln-dried in highly
controlled conditions. Furthermore, the selection and blending of a specific selection of malts –
pale, crystal or roasted – contribute to the final flavour, body, colour and aroma of the beer that
customers love. Such controls ensure that the correct quantity and quality of inputs enter the
brewing (production) process.
Many formal controls are applied during production (the transformation controls). For
SABMiller and other brewers, these controls include timing the cooking of the brew, monitoring
the temperature in the vats, sampling and laboratory testing of the brew at each stage of the
process, and visual inspection of the beer prior to final packing. Finally, output controls are used.
For brewers, they range from specifying the levels of distributor inventories to monitoring
consumer attitudes towards the beer and related services.21

15.2.1.1 Identify key characteristics of the subsystem/s

During the second phase of the first step of the control process, it is essential to identify key
characteristics of the subsystem or subsystems involved. The key types of information to be
obtained about a person, team, department or organisation must be identified. Establishing a
formal control process requires early determination of the characteristics that can be measured, the
costs and benefits of obtaining information about each characteristic, and whether variations in
each characteristic are likely to affect performance.
After identifying them, managers must choose the characteristics to be measured. The
principle of selectivity (also known as Pareto’s law, referred to in Chapter 7, holds that a small
number of characteristics always accounts for a large number of effects. Considering the South
African Insight, in assembling a vehicle such as a BMW, four characteristics that greatly influence
the final product’s quality are in-time delivery of components, quality of components,
information, and computerised and robot technology. Focusing on these identified characteristics
makes it possible to set control standards for these few vital characteristics that can account for
major variations in results. This allows for the maximum chance of meeting set objectives.

15.2.2Step 2: Set standards (for control)

Standards are criteria for evaluating quantitative (measurable) and qualitative (subjective and non-
measurable) characteristics, and should be set for each characteristic measured. Quantitative
standards are usually expressed in terms of quantity (for example, numbers, litres, kilowatts or
kilometres), quality (for example, number of errors), time (for example, hours, days or months) or
monetary value and/or cost (for example, rand and cents). As previously mentioned, all standards
must be linked to the set objectives and goals, formulated during planning, of the specific
subsystem. Examples of the quantitative standards are presented in Table 15.2.

Qualitative standards are usually expressed in a descriptive manner and are not measurable. A
restaurant owner would expect the kitchen staff and waiters to provide fast service. The standard,
fast service, needs to be interpreted and clarified or can be related to other quantitative standards.
The restaurant manager can express fast service as the ability to provide the customers with warm
prepared food within 30 minutes, serve an order for drinks in five minutes or deliver the bill to the
table within two minutes of it being requested by the patron. If qualitative standards are not
explained to the people who will be measured according to them, they will have limited value.
Increasingly, control systems are being based on performance standards. Of the many possible
types of performance standards, the following are but a few examples from different functional
areas.

Table 15.2 Quantitative control standards

Standard22 Example

Time standards A staff member at a call centre must handle a customer’s enquiry within two minutes of
receiving the call.

Quantity A telesalesperson must make at least 25 calls per hour.

standards

Quality The minimum acceptable error at an electronics production plant can be set at one unit
standards for every 100 units manufactured.

Monetary A clothing retail group can set a minimum sales turnover of R500 000 per week for
standards branches in suburban areas and a minimum of R250 000 for branches in rural areas.

Cost standards A daily food allowance of R45 per sales person allowed.

Table 15.3 Performance standards for functional organisational controls

Functional Performance Example

area standard

Financial Sales standard A sales turnover of R2 500 000 per store per month indicates a
minimum acceptable level of sales.

Marketing Marketing Increased market share of 2% per annum for BMW, for example,
standard relative to that of competitors (such as Mercedes-Benz, Audi or
Jaguar) in the same market segment, could be a requirement to
maintain a competitive advantage.

Operations Production At a bottling plant of ABI, for example, the bottling capacity per man-
standard hour at the bottling plant should not drop below 400 m3 of cold drink
(liquid) per hour to ensure the daily bottling capacity of 3 200 m3 of
cold drink is achieved.
 Logistics Inventory BMW Plant Rosslyn can use a just-in-time inventory system to ensure
standard that vehicle components are readily available within a short period of
time. Minimum engine inventory should not be less than five at any
time and additional units must be delivered every two hours.

Financial Accounts Monthly accounts receivable should be no more than the rand value of
receivable the previous month’s sales. This means that an organisation’s
standard customers should not owe it more than the amount in rand value that
was sold in the previous month.

Sales and Sales The rand value of sales per month per sales executive at a Toyota
marketing productivity dealership should be greater than the average of the previous year’s
standard sales.

Human Employee The turnover of medical reps acting as sales personnel for
resources turnover pharmaceutical firms should, for example, be no more than two per
standard 100 salespeople per month and no more than twenty per 100
salespeople annually.

Operations Production Waste should amount to no more than R50 per month per full-time
waste standard production worker or no more than R600 per year per full-time
production worker. In an office environment, this standard can indicate
that an employee is not allowed to print more than 100 A4 pages per
week to minimise wastage.

15.2.3Step 3: Collect information (on the actual performance)

Information on actual performance relating to each of the set standards can be collected manually
or automatically. Examples are the paper-based or online feedback questionnaire completed by a
hotel guest after a weekend stay, or the electronic keypads in a bank branch that are used by
customers to rate the performance of tellers. Considering the South African Insight, the
computerised technology used at Plant Rosslyn by BMW South Africa measures dimensions
during the welding process at the bodyworks, as well as the quality of the painting process. A
retailer such as Woolworths or Checkers could make use of scientists to assist the organisation in
securing the minimum health standards at its distribution centres by taking swabs (samples) of the
trucks arriving and leaving the centre, and then by sealing and sending off those samples for
laboratory testing. Feedback from the laboratory could indicate possible diseases on trucks that
might contaminate the load or the whole distribution centre.
If information is collected by the individual or team whose performance is to be controlled, its
validity (in other words, the fact that it measures what it is supposed to measure) must be checked.
Employees and managers have an incentive to distort or conceal information if negative results
will be used to criticise or punish them. This is why measurement must be reliable and thus have
the same results for the same circumstances over the long term. Moreover, when formal controls
involve punishment, strong group controls often emerge to distort the information reported to
management. As also indicated in Chapter 4, implementing the principles of the King Report is
essential to ensure ethical and complete reporting.
Top managers may create special departments, or rely on regular departments, to collect
information by means of monitoring or auditing certain activities. These individuals or teams must
concentrate on the key characteristics of specific core activities within the specific subsystem
being measured. Thus, if managers evaluate the performance of their subordinates, they must
focus on core activities related to the individual’s job. A principal of an estate agency franchise,
for example, should measure the productivity level (input versus output) of estate agents by
evaluating an individual’s sales turnover in relation to the hours worked on marketing, canvassing
and selling properties, and not by evaluating information related to the customer service levels of
the specific individual.

15.2.4Step 4: Make comparisons

Comparisons are needed to determine whether what is happening is what should be happening. In
other words, information about actual results must be compared with performance standards. Such
comparisons allow managers and team members to identify and concentrate on deviations or
exceptions. A forklift operator at a Colgate-Palmolive warehouse is, for example, supposed to
upload 20 truckloads of toothpaste products a day. If all operators reach this goal, the production
process operates efficiently. If standards are known, over-controlling becomes less likely and
employees can use their time more effectively. If there is no apparent difference between what is
happening and what should be happening, operations normally continue without any change and
staff members are acknowledged for good performance.
As indicated in Figure 15.2, if there are no deviations or the deviation is within limits, the
current performance levels are perceived as acceptable. With reference to the forklift operator
example, management may perceive a 10% deviation on the set standard as acceptable (within
limits). The performance of a forklift operator who uploads 27 trucks per day would then be
perceived as acceptable. The cost-benefit ratio will be the guiding factor indicating what is an
acceptable deviation from the set standard.

15.2.5Step 5: Diagnose and correct problems if required

Diagnosis involves assessing the types, number and causes of deviations from the set standards.
Action can then be taken to eliminate those deviations and correct problems. At a Pick n Pay,
Woolworths or Shoprite distribution centre, management and staff may monitor the potential
threat of the health risk of contaminated vehicles. If a problem has been identified, the particular
supplier is informed. The supplier is monitored and if the problem occurs a third time (according
to the set standard), the services of the supplier would be permanently discontinued. This allows
the supplier the opportunity to rectify the problem (contaminated vehicle), but if the problem were
to occur repeatedly, the organisation could cancel the supplier contract, allowing it to maintain
quality performance standards.
The fact that a characteristic can be controlled does not necessarily mean that it should be
controlled. At times, the problem may be one of under-control because the timeliness of
information and the linkage of corrective controls to desired results are inadequate. An employee
who arrives 10 minutes late due to traffic problems, for example, is not worth corrective action, as
it is a matter out of both the manager’s and employee’s control. If this problem should repeat itself
over time, then it is not a once off occurrence and would require a manager’s instruction for
corrective action. Corrective action results only when the performance is beyond limits (for
example, a vehicle has been damaged on the production line). Successful implementation of
corrective action is based on the involvement of management or a specialist, as well as those
employees who are affected or those employees who participate in the activities that need to be
revised or adjusted.

15.3 Creating effective controls

One way to develop and measure the effectiveness of formal organisational controls is to compare
their costs and benefits. Such a cost–benefit analysis addresses three basic questions:
1 For what desired behaviours and results should organisational controls be developed?
2 What are the costs and benefits of the organisational controls required to achieve the desired
behaviours and results?
3 What are the costs and benefits of utilising alternative organisational controls to obtain the
desired behaviours and results?

15.3.1Cost–benefit model
Managers have to consider trade-offs when choosing the amount of organisational control to use.
With too little control, costs exceed benefits and the controls are ineffective. As the amount of
control increases, effectiveness also increases, but only up to a point. Beyond a certain point,
effectiveness declines with further increases in the amount of control exercised.23 An organisation
might benefit from reducing the average managerial span of control in a particular region when
retrenching employees during difficult economic times. Having less staff per manager might save
the organisation money in the short run but could lead to other problems such as error, back-log in
manufacturing, bad or late service, etc. These aspects could over the long term contribute to a
larger expense in terms of loss in sales, when upset customers decide to rather support another
competitor.

15.3.2Criteria for effective controls

Designing effective organisational controls and control systems is not simple because many issues
must be considered. However, control systems are more likely to be effective if they are linked to
desired goals and are objective, complete, timely and acceptable.24
A control may satisfy each of these criteria to a greater or lesser degree. It is therefore
necessary to ensure that a particular control or control system should be designed and evaluated in
terms of all possible criteria, to optimise its effectiveness. Organisational controls that fail to
satisfy the identified criteria to a reasonable degree may actually do more harm than good. The
following section will present various criteria for effective control.25

15.3.2.1 Linkage to desired goals

Control or control systems should be linked to the desired goals of the organisation. These goals
often include improving customer service, protecting the organisation’s assets, and innovating and
improving the quality of its goods and/or services while maximising profits. Therefore, the
standards for control must support these goals, for example, performance standards reflecting cost
effectiveness or maximum productivity. As mentioned in the beginning of the chapter, planning
and control need to be integrated. Therefore, performance standards formulated during the control
process should be aligned with the goals and objectives stated during the planning process. The
continuous improvement of sourcing quality products such as wine from various wine farms and
cheese from all over the world, offered at Checkers, is an essential performance standard to
achieve the market objectives (for example, customer satisfaction) and financial objectives (for
example, profits and market share) of the food retailer.

15.3.2.2 Objective
An objective control or control system is impartial and cannot be manipulated by employees for
personal gain. Objectivity can be established by means of greater participation of those individuals
and groups who will be influenced by the control system, as well as external members. Employees
whose performance will be measured according to the set standards must participate in the process
of setting the standard. Only then will they believe it to be a fair, objective and acceptable
measure. Considering the South African Insight, BMW continuously requests employees and
managers from various divisions and levels in the organisation, to provide inputs in making BMW
a sustainable, innovative organisation.

15.3.2.3 Complete
A complete control system encompasses all the desired behaviours and goals. A sales manager at
a large manufacturer evaluated solely on the basis of cost per sale may allow service quality to
slip. A car salesperson evaluated only on the basis of sales volume may ignore after-sales service.
Thus it is necessary to balance quantitative (measurable) and qualitative (subjective and non-
measurable) controls. Checkers uses pre-controls, concurrent controls and post-controls to ensure
continuous and complete assessment of performance, from the moment suppliers are identified
and products for its stores are ordered, to the point at which the products are delivered to its
distribution centre and finally to the time when these goods are sold in its stores.26

15.3.2.4 Timely
A timely control system provides information when it is needed most. Timeliness may be
measured in terms of seconds for evaluating the safe movement of trains and planes or in terms of
months for evaluating employees’ performance. The computerised cash registers at a franchise
restaurant or take-away outlet such as Steers, Nando’s and KFC give managers daily data on each
commodity’s sales (for example, various types of beverages sold or the number of burgers sold as
take-aways) as well as stock requirements or potential shortages. BMW Plant Rosslyn utilises
various electronic and computerised systems that can provide staff with information within
milliseconds. On-time information at the plant’s assembly facility ensures suppliers are informed
on stock demand in-time. In-time information also allows the just-in-time (JIT) order system to
ensure that components of the cars are ready when required on the assembly line. For example, the
JIT supply systems bring door panels, exhaust systems and front and rear axles to the right point
on the assembly line, minimising error and ensuring on-time placement of parts. It also saves
space in the plant by minimising unnecessary stock on the premises, thereby also preventing
damage to stock not used. This confirms the cost-benefit advantage of these systems. Considering
the South African Insight, at BMW Plant Rosslyn, there is only one and a half hours’ worth of
stock on the line at any given time.27

15.3.2.5 Acceptable
An acceptable control system is recognised as necessary and appropriate. If a control system is
widely ignored, managers need to find out why. Perhaps the controls should be dropped or
modified. They may need to be linked to rewards for compliance and punishment for non-
compliance, or be adjusted more closely to reasonable desired results. If a facility manager at a
manufacturer for Samsung or LG decides to expect a zero-defect standard for future operational
activities, employees could perceive it as unfair and unacceptable because they have not been
consulted. Consultation with staff members is therefore crucial to ensure that extended retailer
hours, for example, do address increased customer demand, but within the context of an
acceptable agreement with staff and according to the legal requirements set by South African
labour law.

15.3.2.6 Understandable
All individuals who are exposed to a control system must completely understand the meaning of
the controls and the implications of the set standards. Confusion because of misinterpretation of
the set performance standards can result in chaos and ineffective control. This is especially true in
the case where qualitative (non-measurable) standards are implemented. These standards must be
clearly defined to ensure that everyone understands what is perceived as acceptable performance
according to the standard.
Woolworths is continuously looking for ways of obtaining information about its customers in
order to improve its ability to meet the standards of customer service. The eBucks loyalty
programme provides FNB with customer behaviour information and the WRewards programme
gives Woolworths more information about what people are buying and when they are buying
these goods at the organisation’s stores. This valuable source of information has increased
Woolworths’ understanding of what customers are looking for, how, when, and at which outlet
they buy. Woolworths can now offer many responses as a result of the information received such
as product ranges being tailored more effectively, supply adjusted to areas with higher or different
demand and providing customers with information that is more relevant to their needs and
lifestyles.28 As a result, Woolworths is continuously able to develop a clear understanding of its
view of a performance standard such as good customer service.

15.3.2.7 Economical
As discussed previously, the cost–benefit scenario regarding control must be clearly evaluated to
establish the viability of the measure. If all hotels within the Protea group decide that all reception
staff in their hotels must be able to speak at least three official languages in order to improve their
ability to provide better customer service, a cost implication will be created. This could have an
initial cost of sourcing staff externally with the actual skill set, as well as allowing all existing
reception staff to undergo training. The organisation as a whole, as well as each individual hotel,
must calculate to what extent this training (cost) will influence (outcome advantage) its service
quality, competitiveness and sales.

15.3.2.8 Corrective action

In many circumstances, managers tend not to utilise controls to the full. It is no use if the control
measures indicate deviations, but no applicable corrective action follows. The aim of effective
control is therefore not only to identify the problem and the area of the problem, but also to
establish the appropriate solution and its implementation. The control system must also clearly
distinguish between symptoms and causes of the problem. If, for example, the profitability of a
computer software and hardware retailer is decreasing constantly, the first and obvious cause
could be that sales are dropping, although this could be a symptom of staff members not being
capable of selling because they do not have the knowledge or training pertaining to the product
range.
As mentioned earlier, the WRewards programme at Woolworths as well as the Clicks
ClubCard are examples of how retailers can source information about customer behaviour. If the
data collected indicates great demand for a product that is regularly out of stock, then corrective
action should be taken. Banking and other service institutions such as hotels and restaurants make
use of paper-based, electronic and online feedback systems. Dissatisfied customers can indicate
problem areas that require corrective action.

15.3.2.9 Participation
When employees’ performance is evaluated using a specific control system in their work
environment, they will only agree to be exposed to these performance measures if they have
accepted them. That is why all managers must allow subordinates to participate in the process of
developing control systems and performance standards. Only then will employees perceive these
systems and standards to be fair. If the sales manager at a particular insurance broker decides that
as of the following month, all sales representatives must sell at least R2 million worth of short-
term insurance before qualifying for commission, instead of the current R1 million, in order to
qualify, they will experience this new standard as negative. This is due to the fact that they have
not been consulted. These sales representatives must participate in the decision-making process of
setting and implementing the new standard.

15.3.2.10Flexibility
Effective control depends on the ability of the organisation, groups and individuals to adapt to
their changing environment. Changes result in differences in the status quo in terms of the
competitiveness, productivity, effectiveness and efficiency of these various groups. Computer, cell
phone and information technology companies continually add new products to their ranges. These
additions will influence their sales. Sales targets must therefore be revised on a continuous basis to
allow for the inclusion or removal of products. So, can Porsche realistically assume that sales
representatives will sell more cabriolet models during summer time than during the winter season?
Or can Ola, the manufacturers of Magnum ice creams, assume that people only eat ice cream in
summer time or when they are on holiday?

15.4 Performance management

The performance of the organisation is a measure of how efficient and effective managers use the
available resources to satisfy the multiple needs of existing and potential customers and thereby
achieve organisational goals and objectives.29 If the effectiveness and efficiency in your
organisation increases, your organisation’s performance will increase. The opposite will also be
true. As discussed in Chapter 1, effectiveness can be best described as how well an organisation
pursues its goals and to what extent it achieves these set goals. Efficiency, on the other hand,
indicates how well resources are applied or used during the process of achieving these goals. Your
organisation could, for example, be efficient by minimising inputs and maximising outputs or
maintaining inputs and increasing outputs.
Goals are formulated during the planning process as discussed in Chapter 6. How appropriate
these goals are and how well these goals are formulated will be measured during the control
process. Furthermore, to what extent we achieve these set goals is also measured during the
control process. Therefore, organisational performance is measured in terms of effectiveness and
efficiency. The following outcomes are possible when applying controls to measure whether the
outcomes are efficient and effective:30
• High efficiency and high effectiveness: In this case the manager selected the appropriate goals
to pursue and optimally apply the resources to achieve these chosen goals. The customers
want the product as it meets their needs in terms of quality and price.
• Low efficiency and low effectiveness: In this case the manager selected inappropriate goals to
pursue and also did not optimally apply the resources to achieve these chosen goals. The
customers are not interested in a low-quality product.
• High efficiency and low effectiveness: In this case the manager selected inappropriate goals to
pursue but optimally applied the resources to achieve these chosen goals. The customers don’t
want the product, even though it is a high quality product.
• Low efficiency and high effectiveness: In this case the manager selected the appropriate goals
to pursue but did not optimally apply the resources to achieve these chosen goals. The
customers want the product but it is far too expensive and they can’t afford it.

Within the Tsogo Sun Group, the Sandton Sun provides luxury accommodation and services,
compared to the Sun 1 hotels providing basic, low-cost, comfortable accommodation. Therefore,
Sun 1 hotel control systems focus on maintaining a low-cost strategy allowing for maximum
efficiencies and effectiveness in low-cost hotel accommodation and comfort.31
The fundamental goal of performance management is to stimulate and develop organisational,
departmental, team, employee and managerial effectiveness and efficiency. It is a continuous
process with the aim to plan, monitor and review an employee’s work objectives or goals and his
or her overall contribution to the organisation’s performance. Performance management allows
managers and employees to:32
• Develop performance standards
• Communicate performance standards as well as any relevant expectations about them
• Do observations
• Establish understanding on contextual (situational) issues
• Provide feedback
• Conduct appraisals
• Thereby, enabling the individual, team and management to achieve the optimum results
through managing employee performance.

Managing the performance of each member of staff, each team and each division will eventually
contribute to the accumulative result indicating the overall effectiveness and efficiency of the
organisation.
Throughout this chapter, we have discussed various aspects of control and have indicated how
an organisation’s strategy helps focus (control) employees’ behaviour.33 In terms of human
resources management, performance appraisal systems help managers assess the behaviour of
employees and compare it with performance standards. Deviations are noted and corrective
controls are used to reduce or eliminate problems.
In the following section, reference will also be made to various areas for managing
performance, as well as some of the methodologies that could be considered for managing
performance, thereby ensuring optimum internal organisational control. Internal organisational
control emphasises the importance of strategic control (having alignment between performance
management, measurement and organisational strategies).

15.4.1Market controls
Market controls involve the use of data to monitor performance in terms of sales, prices, costs
and profits relating to products sold, market share and services rendered, to mention a few. This is
used to guide decisions and evaluate results for marketing, sales, research and development,
logistics, operations, as well as for exploring the strategic implications. To be effective, market
controls generally require that:
• The costs of the resources used in producing outputs be measured monetarily
• The value of the goods and services produced be defined clearly and priced monetarily
• The prices of the goods and services produced be set competitively.

Customer monitoring and market research are examples of market controls, and consist of
ongoing efforts to obtain feedback from customers concerning the quality of goods and services.
Such monitoring is done to prevent problems or to learn of their existence so that they can be
solved. Customer monitoring through observing customer behaviour and getting feedback is
increasingly being used in an attempt to assess or measure customers’ perceptions as a basis for
implementing corrective controls.34 Based on such assessments, management may take action to
prevent the loss of further business because of customer dissatisfaction. Market controls are most
effective as a performance management control in a context where genuine competition is taking
place within the particular industry. This is so because data relating to aspects such as the price,
product requirements, customer demand and behaviour, will not be a true reflection if the
organisation is the only supplier of the product or service.
Customer monitoring is often used by service providers. The Edgars division utilises the
organisation’s ThankU rewards programme and Woolworths uses its WRewards rewards
programme to monitor customer purchases. By offering vouchers and special promotions to
customers who have not purchased any goods on their accounts recently, these organisations
address deviations in the purchasing activities of their account customers and thereby manage
performance. This system allows Edgars to know its customers’ purchasing habits well because of
its differentiated account and reward system (for example, Edgars, Boardmans, Topman, Red
Square), which distinguishes between buying preferences, quantities and frequency. On the other
hand, Woolworths does not need to use generic promotion coupons. Instead, it can target specific
customer segments for selected coupons, mailings and promotions. If their customer normally
spends money at a Woolworths Food market and not the clothing outlet, a discounted coupon for
food products and not a clothing coupon should be provided by post or e-mail.

15.4.2Financial controls
Financial controls include a wide range of methods, techniques and procedures intended to
prevent or correct the misallocation of resources.35 External auditors, usually chartered
accountants’ organisations (for example, Pricewaterhouse Coopers and KPMG) and/or internal
auditing departments (for example, accounting, controller and treasurer), monitor the effectiveness
of financial controls. The primary responsibility of external auditors is to the shareholders. The
auditors’ role is to assure shareholders that the organisation’s financial statements present its true
financial position and are in conformity with generally accepted accounting principles as required
by the South African government and the South African Institute of Chartered Accountants.
Financial and investment institutions such as banks and insurance companies need to adhere to the
guidelines of external stakeholders such as the Financial Services Board, the National Credit
Regulator and the Department of Labour. They also need to adhere to the requirements on
reporting specified in the King Report, as discussed in Chapter 5.
Because there are so many financial control methods, techniques and procedures, we focus on
two of the important ones:
• Comparative financial analysis
• Budgeting.

15.4.2.1 Comparative financial analysis

 Evaluation of an organisation’s financial condition for two or more time periods is called
comparative financial analysis. When data is available from similar organisations, it is used in
making comparisons. Industry trade associations often collect information from their members
and publish it in summary form. Publicly owned companies publish income statements, balance
sheets and other financial statements in newspapers such as the Star and Financial Mail. These
sources are often used by managers and outsiders to assess changes in the organisation’s financial
indicators and to compare its financial health with that of other organisations in the same industry.
Organisations that have multiple production facilities (for example, Volkswagen and Apple), retail
outlets (such as Makro and Checkers), restaurants (including Mugg & Bean, Wimpy and Spur) or
hotels (for example, Tsogo Sun, Holiday Inn and Protea Hotels) can compare the financial records
of all units to manage business unit performance.
The most common method of comparison is ratio analysis. Ratio analysis involves selecting
two significant figures, expressing their relationship as a proportion or fraction, and comparing its
value for two periods of time, or with the same ratio of similar organisations. Of the many types of
ratios, those most commonly used by organisations are profitability, liquidity, activity and
leverage. They are summarised in Table 15.4.
• Return on investment (ROI) is considered a very important profitability ratio because it
indicates how efficiently and effectively the organisation is using its resources. A ratio value
greater than 1.0 indicates that the organisation is using its resources efficiently and effectively.
• Current ratio indicates an organisation’s ability to pay bills on time. A current ratio should be
well above 1:1. If an organisation has a ratio of 2:1, it should be financially sound. A low
current ratio might mean that the organisation has unnecessary inventory, a lot of cash sitting
idle or heavy accounts receivable that are difficult to collect.
• Inventory turnover indicates the average number of times that inventory is sold and restocked
during the year. A high ratio means efficient operations. In other words, a relatively small
amount of money is tied up in inventory, enabling the organisation to use its resources
elsewhere, and reflects good cashflow.
• Debt ratio is calculated to assess an organisation’s ability to meet its long-term financial
commitments. A value of 0.4 would indicate that the organisation has R0.40 in liabilities for
every R1.00 of assets. The higher this ratio, the poorer credit risk the organisation is perceived
to be by financial institutions. Generally, organisations with debt ratios above 1.0 are
considered to be relying too much on debt to finance their operations and therefore their
performance is at risk.

Table 15.4 Examples of financial ratios

Financial ratios as a performance management tool used for control purposes, have little value
unless you know how to interpret them. It is especially important to realise that ratios indicate the
overall performance of an organisation and not that of a division, department or subsection of an
organisation. The inventory ratio of Musica can vary from store to store. The comparison of
financial data from different stores allows management to measure stock turnover against a set
standard for every store. An inventory turnover rate of five at an auto parts supply store might be
excellent, but would be disastrous for a large supermarket, for which an inventory turnover rate of
15 is common. Organisations can improve their inventory turnover rates by offering ‘specials’ to
stimulate customer demand, by lowering prices or by not carrying items that move slowly.

15.4.2.2 Budgeting
The process of categorising proposed expenditures and linking them to goals is known as
budgeting. Budgets usually express the Rand costs of various tasks or resources (for example,
production budgets may be based on hours of labour per unit produced, machine downtime per
thousand hours of running time, wage rates and similar information). The main budget categories
usually include labour, supplies and materials, and facilities (property, buildings and equipment).36
Budgeting has three primary purposes when managing performance:
• To help in planning work effectively
• To assist in allocating resources
• To assist in controlling and monitoring resource utilisation during the budget period.

When managers assign rand costs to the resources needed, they sometimes realise that proposed
tasks are not worth the cost. After budgeting, they can modify or abandon the proposal. Budgeting
for completely new tasks usually requires the forecasting of conditions and estimating of costs.
Budgeting for established tasks is easier because historical cost data is available. In either case,
the people who prepare budgets must exercise good judgement. Budgets are often developed for a
year and then broken down by month. Managers are thus able to track progress in meeting the
budget as the year unfolds and to take corrective action as necessary.
The control aspect of budgeting may be either corrective or preventive. When budgeting is
used as a corrective control, the emphasis is on identifying deviations from the budget. Deviations
indicate the need to identify and correct their causes or to change the budget itself.
There is no single classification system for budgets. Specific individuals, projects, teams,
committees, departments, divisions or strategic business units (SBUs) may be given budgets
within which they are expected to operate. Table 15.5 summarise the most common types of
budgets used in business.
The types of budgets and budget categories used are strongly influenced by organisational
design and organisational culture. An organisation having a functional structure usually has a
budget for each function (for example, marketing, operations, finance and human resources).
However, an organisation having a product structure usually has a budget for each product line. If
a retailer such as Makro has an organisational structure based on products – office, sports
equipment, household electronics, hardware and home improvements, music, outdoors and so
forth – it can use product-line budgeting to manage their performance. The organisation’s
management has found that this type of budgeting enables its control system to measure the
contributions of each product line effectively.

Table 15.5 Types of budgets used for performance management

Types Description Examples

Sales budget This is a forecast of expected In order to ensure that Mr Price Home and Mr Price
revenue (sales), generally Sport are able to meet the demand of customers for
stated by product line on a household goods and sporting attire, a sales budget is
monthly basis and revised at required. A sales budget assists the store in securing an
least annually. adequate supply of goods to meet the growing demand
for its affordable and trendy range of products.

Materials Expected purchases are BMW makes use of a variety of suppliers. Its just-in-
budget generally stated by specific time (JIT) system allows it to minimise the quantity of
categories, which may vary materials kept in storage. Exhausts, seats and gearboxes
from month to month because are ordered by means of this system, that is, only when
of seasonal variations and they are needed. Comprehensive materials budgeting is
inventory levels. required to ensure effective inbound logistics.

Labour Expected staffing is generally At Woolworths Foods, for example, multiple shifts are
budget stated by number of scheduled depending on the variation in trading hours
individuals and Rand for each during weekdays and over weekends. To consider the
job category. cost and performance impact, it is crucial that managers
budget for labour skills, costs and availability.

Capital This refers to targeted The Shoprite Group has been one of the fastest-growing
budget spending for major tangible retail groups in South Africa during the last decade. The
assets (for example, a new or organisation’s continuous growth has a direct impact on
renovated headquarters its capital budget for this capital investment. It entered
building, a new factory or into an agreement with Metcash Trading Africa (Pty)
retail outlet, or major Ltd in terms of which the franchise division of Metcash
equipment), often requiring a was sold to Shoprite Checkers, including known
time horizon beyond one registered trademark names such as Friendly, Seven
year. Eleven and Price Club Discount Supermarket.37

Research and This is spending targeted for Volkswagen has been taking the top position for three
development the development or consecutive years (2012–2014) as the organisation
budget refinement of products, spending the most globally on research and
materials and processes. The development, followed in 2014 by Samsung in second
design of the various position and Intel in third place, showing how
processes and the technology organisations in different industries manage
of manufacturing and performance in changing industries.38 Different brands
assembly equipment require in the various industries use research and development
intense time and cost to obtain a competitive advantage. Their expenditure on
budgeting. innovation might just ensure them a more sustainable
future. It certainly is a key tool with which to measure
their performance.

Cash budget This refers to the expected Cash flow management is crucial to ensure that funding
flow of monetary receipts and is available for all organisational activities. Many
expenditure (cash flow), organisations experience difficulties in managing their
generally developed at least cash flow during times of economic downswing such as
once a year for each month of Telkom and Eskom. Cash flow problems limit any
the year. organisation’s ability to sustain its operations or grow.
15.4.3Activity-based costing (accounting)
Activity-based costing (ABC) is a performance management system that focuses on activities as
the fundamental cost centres of organisations.39 Activities become the focal point for the
organisation. An activity is any event that drives costs, including energy consumed, kilometres
driven, computer hours logged, quality inspections done, shipments made and scrap or rework
orders filled.
In contrast to traditional accounting, ABC focuses on the work activities associated with
operating a business. The number of these activities usually depends on the complexity of
operations. The more complex the organisation’s operations, the more cost-driving activities it is
likely to have. Equally important, managers have discovered that not all products have the same
mix of these activities. If a product does not require the use of an activity, its cost would be zero
for that activity.
At Mercedes Benz, various vehicles are manufactured, ranging from sedans, cabriolets to 4×4
multi-purpose vehicles. A low-volume product such as a Mercedes Benz S-Class Coupe requires
frequent machine set-ups, has various options that generate numerous purchase orders and
necessitates constant inspections to maintain quality. On the other hand, a high-volume product
such as a Mercedes C-Class sedan requires much fewer machine set-ups and few variations on
purchase orders. If Mercedes Benz were to ignore the differences in these two products in terms of
their cost-driving activities and simply assign a general overhead cost to the products on the basis
of volume, the high-volume product would bear most of the overhead cost. This approach would
seriously distort actual unit costs for each product. The company could survive with misleading
cost allocations and without knowing the real costs of its individual business processes, but profits
would not be as high as they could be. As the organisation develops standards for the cost of each
activity, it will be able to determine quickly which activities are driving costs and which are
directly related to customer satisfaction. The result will be better products and higher profits.

15.4.4Integrated strategic controls: The balanced scorecard

Many organisations use standard financial and accounting measures, such as return on assets, cash
flow and net income to measure actual performance. Robert Kaplan and David Norton developed
the balanced scorecard during the mid-1990s. Today, more than 50% of the Fortune 500
organisations in the United States of America, as well as many government and non-profit
organisations, use the scorecard.40 The use of the balanced scorecard within the context of
strategic planning is discussed in Chapter 6. A balanced scorecard is a format for describing the
activities of an organisation through a number of measures for each of four perspectives. These
four perspectives are identified below. The balanced scorecard encourages managers to look more
broadly and to consider more than just financial measures of performance. The balanced scorecard
includes four measures of performance:
• Financial perspective (for example, profitability, increased revenue and lower costs)
• Customer perspective (how customers see the organisation; customer satisfaction)
• Internal operations perspective (what the organisation must excel at; quality management in
operations)
• A learning and innovation perspective (can the organisation continue to improve and create
value, in other words, can it be sustainable).41

View the following clip on YouTube for a further explanation on the four perspectives.
https://www.youtube.com/watch?v=M_IlOlywryw
The balanced scorecard allows managers to set specific goals and performance standards for each
of the four areas in terms of a strategic (long-term) focus. This eliminates some traditions of
measuring performance by only focusing on financial performance.42 An organisation introducing
scorecards needs to develop and implement the system patiently for several years to manage
performance effectively and before it can claim to have reformed its control system.43
Table 15.6 is an example of a basic balanced scorecard for a retailer illustrating some of the
elements included in such a balanced scorecard. Each of these elements is considered as part of
the framework for planning and managing such a balanced scorecard. The standards for each of
the elements presented in this balanced scorecard can be seen as the performance standards used
for control purposes. These performance standards should always be aligned with the original
goals set out in the scorecard.44 Therefore, the performance measures within the scorecard allow
for feedback so that the organisation can establish whether actual performance matches the set
performance standards. As a result, each of the actions indicated in the last column of Table 15.6
is used to drive the scorecard in such a way as to improve and align performance with the set
standards. The balanced scorecard thus allows management to plan and control the overall
activities of the organisation interactively.

Table 15.6 Balanced scorecard for retailer

In terms of controlling, the balanced scorecard allows the management team to focus on the
following elements when managing organisational performance:
• Financial performance: The organisation considers how it is viewed by its shareholders. Its
financial performance can usually be evaluated by investigating the economic value added
(EVA). EVA can be described as the value of profits exceeding the cost of capital for a
particular financial year. Remember that capital is far more than cash. It includes computers,
buildings, raw materials, vehicles, etc. The most typical costs of capital would include interest
 on short-term and long-term bank loans, and dividends paid. EVA will be positive when the
business profits is able to cover both short-term and long-terms costs.
• Performance in terms of customers: The organisation considers how it is viewed by its
customers. This allows management to ask how well the organisation is meeting customer
needs and demands. In addition to using customer feedback to evaluate organisational
performance in this respect, management must also monitor how many customers are leaving
the business and why they are doing so.
• Internal operational performance: The organisation considers what it must excel at. The focus
is not external, as for the two previous performance areas, but internal, allowing management
to focus on quality. Customers perceive a product or service as being of quality when they
perceive it to offer value.
• Learning and innovation performance: The organisation considers whether it is able to
improve continuously and create value. This directs management to focus on continuous
improvement of what the organisation offers, and then to relearn and redesign those
organisational processes.45

15.4.5Automation-based controls
Automation involves the use of devices and processes that are self-regulating and operate
independently of people. Automation usually involves linking machines with other machines to
perform tasks. Machine controls are methods that use instruments or devices to prevent and
correct deviations from desired results, as automated performance management systems. The use
of machines in business has advanced extensively over the last couple of years. Machines initially
increased productivity by giving employees better physical control over certain tasks. Eventually
the interaction of employee and machine created a mutual control system, which meant that a new
threshold was reached with automation.
Machine control of other machines, better known as automation-based controls, takes over
part of the managerial control function. That is, machines can now participate in the control
process with managers. Computerised robots and machinery at the Mercedes-Benz Plant in the
Eastern Cape apply a computerised system to control the assembly process of a C-class motor
vehicle. Various sections in the assembly line each focus on a specified activity, such as welding,
painting, chassis assembly or engine mounting. A computerised system monitors all work done to
establish if the work-in-progress item (a semi-produced vehicle) is up to standard. If, in the case of
assessing the alignment of the body panels of the vehicle, the laser camera system picks up
discrepancies, it immediately stops the whole assembly process and informs the personnel on
duty. Floor engineers then inspect the data provided and decide whether the current body frame is
suitable for production or needs to be destroyed.

15.4.6Quality control approaches

Production environments that utilise modern quality control methods are dependent upon
statistical literacy. The approaches used therein are called quality control tools. The approaches
that will be discussed in this section include Six Sigma, just-in-time (JIT) and total quality
management (TQM).

15.4.6.1 Six Sigma

Six Sigma is one of the most valuable total quality management performance management tools
since the introduction of mathematical and statistical tools used to measure and analyse defects
while controlling quality as a performance standard. Six Sigma is a quality-based programme that
aims to ensure that organisational performance is aligned with an objective of perfection when the
performance standard of quality is applied and measured. Six Sigma is a disciplined,
mathematical, computer- and data-driven approach used for eliminating defects in processes and
products. Using Six Sigma allows an organisation to reduce costs, lead times and the number of
rejects while improving overall financial performance.46 The fewer defects an organisation can
obtain, the more likely it is that the organisation will achieve the quality objective of perfection.
Therefore, this quality-based programme is used to apply and measure the quality performance
standards of products and processes.
The statistical representation of Six Sigma describes quantitatively in statistical terms how a
process, for example, is performing in terms of a quality standard. To achieve Six Sigma, a
process must not produce more than 3.4 defects per million opportunities (in other words, the
product or process is 99.99966% defect free). Sigma refers to the Greek letter used in statistics to
indicate the estimated standard deviation or variation in a process. A Six Sigma defect is defined
as anything outside of customer specifications.47
The fundamental objective of the Six Sigma methodology is the implementation of a
measurement-based control strategy that focuses on process improvement and variation reduction
through the application of Six Sigma improvement projects. This is accomplished by using one of
two Six Sigma sub-methodologies, DMAIC and DMADV:
• DMAIC is the first Six Sigma process. It consists of five steps (define, measure, analyse,
improve and control) and is applied in relation to the products or process being assessed. This
methodology is used as an improvement system for existing processes falling below
specification (the set quality performance standard) and for looking for incremental
improvement (corrective action). Refer to Figure 15.3 for an illustration of the DMAIC
process.
• DMADV is the second Six Sigma process. It also consists of five steps (define, measure,
analyse, design and verify) with a variation that allows it to be used as an improvement system
to develop new processes or products at Six Sigma quality levels. It can also be employed if a
current process requires fundamental change rather than incremental improvement.

Different key roles are identified to ensure successful implementation of Six Sigma. Apart from
the critical involvement of the CEO and top management, four other groups of roles players can
be identified:
• Champions: they implement Six Sigma across the organisation to ensure full integration. They
also act as mentors to Master Black Belts.
• Master Black Belts: they are 100% devoted to Six Sigma and assist the Champions. In
addition, they provide guidance to black belts and green belts on a functional and/or
departmental level.
• Black Belts: they apply Six Sigma methodology to specific projects to which they are 100%
committed.
• Green Belts: they are regular employees who have Six Sigma, as well as other work-related
responsibilities.

Both Six Sigma processes are executed by Six Sigma Green Belts and Six Sigma Black Belts, and
are overseen by Six Sigma Master Black Belts according to the Six Sigma Academy.48
As mentioned earlier, the key steps in the Six Sigma improvement process (DMAIC) are
define, measure, analyse, improve and control (see Figure 15.3). When a specific Six Sigma
project is announced in the organisation, the customer-satisfaction goals should be established and
broken down into sub-goals, for example, reduced cycle time, cost minimisation or defect decline.
Taking these customer-satisfaction goals into account, the define stage for the specific project
requires that the Six Sigma participants understand and then benchmark the process that should be
improved. This requires that project members break down the process into manageable sub-
processes, further specifying goals or sub-goals for the project and establishing resources and
infrastructure to accomplish them. As any improvement can be classified as a form of change, it
would be sensible at this stage to assess the Six Sigma participants and other relevant stakeholders
in terms of their orientation towards organisational change.49

Once a process or product has been classified as a project and has been defined as described
above, the Six Sigma team proceeds methodically through the rest of the steps (measurement,
analysis, improvement and control). As data and information become available as step 2
(measurement) is conducted, the team moves on to step 3 (analyse) to evaluate the data or
information for trends, patterns, causal relationships and a ‘root cause’. Once results from the
analyses are available, it is time to move on to step 4 (improvement). Many improvement projects
may be accomplished with the most basic statistical and non-statistical tools such as a cause-and-
effect diagram, a Pareto diagram, a flow chart, a check sheet, a histogram, a scatter diagram or a
control chart. It is often necessary to repeat the second, third and fourth steps (measure-analyse-
improve) to obtain accurate and complete information. When the target level of performance is
achieved, step 5 comes into action, as control measures are then established to sustain
performance.

Figure 15.3 Six Sigma process and tool examples

Source: Adapted from http://www.dmaictools.com/ [Accessed 10 August 2015].

An important consideration throughout all of the Six Sigma steps is to distinguish which
process sub-steps contribute significantly to the end result. The defect rate of the process, service
or final product is likely to be more sensitive to some factors than others. The analysis phase of
Six Sigma can help identify the extent of improvement needed in each sub-step to achieve the
target in the final product. It is important to remain mindful that Six Sigma performance is not
required for every aspect of every process, product or service. It is the goal only where it
quantitatively drives the end result of customer satisfaction and profitability.50

15.4.6.2 Just-in-time
Just-in-time (JIT), also known as lean or stockless production, can be described as an approach
with the objective of producing the right part, in the right place, at the right time, therefore, the
term ‘just in time’. The objective of JIT is to minimise waste. Waste can be described as the
outcome from an activity that adds cost, but no value. Typical examples include the unnecessary
movement of materials in the operations process, the accumulation of excess inventory that is not
used or sold when ready, or the use of defective production methods that result in the delivery of
products that need additional work or rework to rectify errors. JIT aims to improve profits and
return on investment (ROI). This can be achieved by reducing inventory levels or increasing the
inventory turnover rate, reducing variability in products, improving product quality, reducing
operational and delivery lead times, and reducing other costs, for example, costs associated with
machine set-up and equipment breakdown.
JIT is mostly related to repetitive manufacturing processes in which the same products and
components are produced continuously. The fundamental aim is to create an even, balanced flow
of materials throughout the entire operations process. An assembly line could be seen as a good
example of such a balanced flow. Good material flow can be established when the different work
centres are linked and when all inventory buffers are minimised to zero, allowing for an ideal lot
size.51
JIT forms part of the Toyota production system (TPS) and was designed by Toyota to
establish a lean manufacturing system that eliminates waste. “The Toyota Production System
(TPS) was established based on two concepts: The first is called jidoka (which can be loosely
translated as ‘automation with a human touch’), which means that when a problem occurs, the
equipment stops immediately, preventing defective products from being produced. The second is
the concept of ‘just-in-time’, in which each process produces only what is needed by the next
process in a continuous flow.”52

15.4.6.3 Total quality management

Quality control is a process of ensuring that all types of inventory and services meet the minimum
set standards.
Total quality management (TQM)53 is much broader in scope than regular quality control. It
aims at improving the work of all employees and not just the operational activities, which is the
focus of quality control. Customers determine quality according to TQM practices and not
employee-developed standards, as in the case of quality control. The final outcome of TQM is
continuous improvement and not mere acceptance or rejection of a product based on quality
standards. Woolworths has, for example, removed MSG and tartrazine completely from its
products in order to maintain the organisation’s environmental objectives, which are aligned with
its overall TQM strategy. Woolworths is no longer concerned only with meeting the minimum
quality control of freshness, but also considers the overall impact of a total quality management
strategy that is aligned with its sustainability focus.54
The four major principles of TQM are:
• Focusing on delivering customer value
• Continually improving processes and systems
• Focusing on managing process rather than people
• Using teams to improve continually.

The International Standards Organisation (ISO) certifies organisations that meet the set quality
standards. JIT and TQM are part of the ISO 9000 certification, as organisations must document all
relevant policies that focus on continuous improvement, quality management and customer
satisfaction.

15.5 Corporate governance

An organisation or corporation is a government-approved business form that allows different
parties to contribute capital expertise and labour for the benefit of all of them. It is a legal entity
separate from the owners, board members, executives and other employees. Corporate
governance is the pattern of relations and controls between the shareholders, the board of
directors and the top management of a company. These relations and controls are defined by the
corporate charter, bylaws, formal policy, governmental laws and regulations, and the courts. The
Institute of Directors in Southern Africa (IoDSA) formally introduced the King Code of
Governance Principles and the King Report on Governance (King III). On 1 November 2016, the
King IV report was released. King IV introduces various amendments and enhancements to its
predecessor, the King III Report (1 September 2009) on Governance for South Africa. The 75
principles contained in King III have been reduced to 17 principles under King IV.
A few of the terms that are central to corporate governance are defined as follows:
• Annual meeting. This is a company gathering, usually held at the end of each fiscal year, at
which shareholders and management discuss the previous year and the outlook for the future,
elect directors and address other shareholder concerns.
• Annual report. This is an audited document issued annually by all publicly listed corporations
to their shareholders in accordance with Securities and Exchange Commissions regulations. It
contains information on financial results and overall performance of the previous fiscal year,
and comments on the future outlook for the organisation.
• Board of directors. This refers to the collective group of individuals elected by the
shareholders of a corporation to oversee the management of the corporation.
• Bylaws. These state the rules of internal governance for a corporation as adopted by its board
of directors.
• Disclosure. This refers to the public dissemination of material, market-influencing
information.
• Proxy statement. This is a document sent by publicly listed corporations to their shareholders
providing material information on corporate matters subject to vote at the general
shareholders’ meeting.55

Corporate governance includes a wide variety of issues and activities, such as:
• Strategic and business planning
• Risk management, discussed in Chapter 16, associated with major capital investments and the
purchase of another organisation, or sale of a company or division
• Performance assessment of the top executive and the organisation as a whole
• Compensation and benefits paid to executive and higher-level managers
• CEO or management succession and appointment
• Disclosure and reporting to stockholders and government agencies
• Corporate values and corporate culture
• Independent inputs from members of the board of directors
• Organisational design.

Table 15.7 Internal and external control mechanisms

Internal control mechanisms External control mechanisms

• Boards of directors • Laws and regulatory agencies

• Compensation contracts that attempt to align the • The possibility of being acquired by other
interests of top executives with those of shareholders organisations
• •
 Corporate bylaws that set ground rules for the The possibility of being sued in the courts
responsibilities of top executives and board by stockholders or other stakeholders
members • Proxy statements in which stockholders
vote on issues of interest to top executives

Source: HELLRIEGEL, D., JACKSON, S.E. & SLOCUM, J.W. 2008. Competency-based management.
Australia: Thomson South-Western, pp. 342–344.

Many complex issues and activities are considered under corporate governance. The control
aspects of corporate governance include external and internal mechanisms, some of which are
presented in Table 15.7.
As discussed in this chapter, control success is dependent on various factors and role players
in the organisation. Therefore, we can conclude by saying that successful business leaders of the
future will be those who:
• Develop a control system through effective performance management for each important
product, service, process, or activity within the organisation
• Incorporate sufficient variety, sensitivity, anticipation capability and control feedback in the
system
• Determine the appropriate areas in the organisation where control should be focused
• Measure the control system’s effectiveness by considering its relation to the organisational
strategy and objectives
• Understand the financial data and value of financial control techniques
• Adopt a philosophy of control that is consistent with the organisational culture, management
style and employee practices
• Align internal organisational controls with risk management.

Chapter summary
This chapter focuses on the controlling task of management. Controls can be developed to focus
on inputs, transformation and outputs within the systems approach. Different types of control are
used to ensure that the performance standards developed by the organisation are met. Controlling
should always be done in alignment with managerial planning and decision-making to ensure
efficiency and effectiveness. It allows managers to make quality decisions regarding the
performance feedback obtained and allow for performance management. A variety of factors
should be considered to optimise effective controlling. The focus of controlling is therefore
internal in terms of management and employee behaviour and performance, operational in terms
of manufacturing, retailing and/or service delivery, and external in terms of value added for all
stakeholders. Controlling is not a restrictive measure or process, but it is necessary to achieve
critical performance standards such as quality and economic value added. Internal controls should
be the key for optimal risk management.

Questions for discussion

1. Develop preventive, concurrent and post-controls for one of the following types of business:
clothing manufacturer, electronics and computer retailer or hotel. What are the differences
between these three types of control?
2.
 What are the key steps in the control process? Describe them and briefly apply them in a
manufacturing business environment, such as a vehicle manufacturer, or service business
environment, such as an airline.
3. What are the primary control approaches? How is each approach used?
4. What are the various control performance standards that can be used at a jewellery
manufacturer? Explain these control performance standards.
5. What are the four major principles of total quality management which should be considered
during the control process?

Exercise for competency development

Visit Standard Bank South Africa’s website and establish whether it is possible to align the key
performance indicators (e.g. return on equity, dividends per share, etc.) as performance standards against
the different organisational goals (e.g. client centricity, people, culture, etc.) stated in Standard Bank’s
strategy.

Visit: http://reporting.standardbank.com/about.php#key

Contemporary management in practice

The release of King IV report on 1 November 2016 signifies a milestone in the evolution of corporate
governance in South Africa. PwC is one of the key role players monitoring the impact and opportunities
generated by King IV and the subsequent implementation of corporate governance. View their website
at http://www.pwc.co.za/en/publications/king4.html to establish how organisations can use King IV and
corporate governance to ensure corporate performance standards and controls for:
• Board and director performance
• Ethical leadership
• Governance of information technology
• Stakeholder relationships.

Endnotes
1 TSOGO SUN. 2014. Integrated Annual Report 2014. [Online]. Available:
http://www.tsogosun.com/reports%20%20annual/20140331-tsogo-sun-holdings-integrated-annual-
report.pdf [Accessed 25 August 2015].
2 WOOLWORTHS HOLDINGS LTD. 2014. Good Business Journey Report 2014. [Online]. Available:
http://www.woolworthsholdings.co.za/investor/annual_reports/ar2014/whl_2014_gbj1.pdf [Accessed 24
August 2015].
3 LUSSIER, R.N. 2015. Management fundamentals: Concepts, applications, skill development. 6th ed.
Thousand Oaks, California: Sage Publications, p. 418; WILLIAMS, C. 2014. Effective Management: a
multimedia approach. 6th ed. Asia: Cengage Learning, p. 472; OOSTHUIZEN, T.F.J. 2013.
Management success: a task focus. 2nd ed. Johannesburg: FVBC, p. 121.
4 DAFT, R.L. 2010. New era of management. 9th ed. Asia: South Western Cengage Learning, p. 378.
5 OOSTHUIZEN, T.F.J. 2010. Op cit., p. 122.
6 Ibid., pp. 122–127.
7 HELLRIEGEL, D., JACKSON, S.E. & SLOCUM, J.W. 2008. Competency-based management.
Australia: Thomson South-Western, p. 322.
8 OOSTHUIZEN, T.F.J. 2013. Op cit., pp. 122–127; STRYDOM, J. 2015. Principles of Business
management. 4th ed. Cape Town: Oxford University Press, pp. 135–137.
9 JONES, G.R. & GEORGE, J.M. 2014. Contemporary Management. 8th ed. New York: McGraw Hill
Education, pp. 338–339.
10 VENTER, I. 2013. Engineering News. VWSA’s R500m Uitenhage press shop incorporates technology
firsts. [Online]. Available: http://www.engineeringnews.co.za/article/auto-industry-2013-04-12-1
[Accessed 13 August 2015].
11 DISCOVERY. 2013. Our stakeholders. [Online]. Available:
https://www.malcormedicalaid.co.za/discovery_coza/web/investor_relations/results_and_reports/annual_reports/2013/htm
stakeholders.html [Accessed 13 August 2015].
12 Ibid.
13 WOOLWORTHS. 2015. Waste: What Are We Doing? [Online]. Available:
http://www.woolworths.co.za/store/fragments/corporate/corporate-index.jsp?
content=../article/article&contentId=cmp100403 [Accessed 12 August 2015].
14 WOOLWORTHS. 2015. Woolworths Food Waste and Food Security Position Statement. [Online].
Available: http://www.woolworths.co.za/images/New_Site/Corporate/food_waste.pdf [Accessed 13
August 2015].
15 NASPERS. 2015. Naspers Legal Compliance Policy. 26 June 2015. [Online]. Available:
https://www.openline.naspers.com/Documents/Legal_Compliance_Policy/26_June_2015/Legal_Compliance_Policy_En
[Accessed 14 August 2015].
16 BMW. 2015. Pursuing common goals. [Online]. Available:
http://www.bmw.co.za/products/automobiles/bmw_insights/sense.asp [Accessed 14 August 2015].
17 WILLIAMS, C. 2014. Op cit., p. 480.
18 DE BOER, B.J., VAN HOOFT, E.A.J. & BAKKER, A.B. 2015. Self-control at work: its relationship
with contextual performance. Journal of Managerial Psychology. Vol. 30: 4, 406–421.
19 OLD MUTUAL. 2016. [Online]. Available: http://www.oldmutual.com/vpage. jsp?vpage_id=2726
[Accessed 13 July 2016].
20 LUSSIER, R.N. 2015. Management fundamentals: Concepts, applications, skill development. (6th ed.).
Thousand Oaks, California: Sage Publications, pp. 421–422.
21 SOUTH AFRICAN BREWERIES. 2011. [Online]. Available:
http://www.sab.co.za/sablimited/action/media/downloadFile?media_fileid=1093 [Accessed 14 August
2015].
22 Adapted from LUSSIER, R.N. Op cit., pp. 459–463.
23 STRYDOM, J. (Ed.). 2015. Principles of Business management. 4th ed. Cape Town: Oxford University
Press, p. 142.
24 HREBINIAK, L. 2008. Making Strategy Work: Overcoming the Obstacles to Effective Execution. Ive
Business Journal. March/April 2008. [Online]. Available:
http://iveybusinessjournal.com/publication/making-strategy-work-overcoming-the-obstacles-to-
effective-execution/ [Accessed 12 August 2015].
25 OOSTHUIZEN, T.F.J. 2013. Op cit., pp. 128–131; BATEMAN, T.S. & SNELL, S.A. 2013.
Management: leading and collaborating in a competitive world. 10th ed. Boston: McGraw-Hill Irwin,
pp. 584–590.
26 CHECKERS. 2016. [Online]. Available: http://www.checkers.co.za/wine/wine-blog/Cheese-and-
Wine.html [Accessed 15 July 2016].
27 BMW. 2016. BMW Plant Rosslyn. [Online]. Available: http://www.bmwplant.co.za/assembly.html
[Accessed 3 August 2016].
28 OXFORD, T. 2013. Loyalty for sale. Mail & Guardian. 25 October 2013. [Online]. Available:
http://mg.co.za/article/2013-10-25-00-loyalty-for-sale [Accessed 14 August 2015]; WOOLWORTHS
HOLDINGS LIMITED. 2015. How it works [Online]. Available:
http://www.woolworths.co.za/store/fragments/wrewards/wrewards-index.jsp?content=how-it-works
[Accessed 14 August 2015].
29 JONES, G.R. & GEORGE, J.M. 2014. Op cit., p. 6.
30 Ibid., p. 6.
31
 TSOGO SUN. 2015. SUN 1 The Smarter Choice. [Online]. Available:
http://www.tsogosunhotels.com/sun1/pages/overview.aspx#.Vc7Q0vmqqko [Accessed 15 August
2015].
32 HUMAN RESOURCES. 2015 Guide to Human Resource Management. Performance Management.
Chapter 7. San Francisco: University of California. [Online]. Available:
http://ucsfhr.ucsf.edu/index.php/pubs/hrguidearticle/chapter-7-performance-management/ [Accessed 12
August 2015].
33 LUSSIER, R.N. Op cit., pp. 421–425.
34 BERNDT, A., KLOPPER H.B. & OOSTHUIZEN, T.F.J. (Eds.). 2015. Introduction to Marketing
Management. 8th ed. Johannesburg: FDC, pp. 13-17, 150; BERNDT, A. (Ed.). 2009. Starting out in
marketing. Johannesburg: FVBC, p. 14.
35 LUSSIER, R.N. Op cit., pp. 426–431.
36 Ibid., pp. 426-431
37 SHOPRITE HOLDINGS. 2008. About our company. [Online]. Available:
http://www.shopriteholdings.co.za/pages/1019812640/about-our-company/history.asp [Accessed 2
April 2012].
38 PWC. Top 20 R&D Spenders and 10 Most Innovative companies, 2005-2014. [Online]. Available:
http://www.strategyand.pwc.com/global/home/what-we-think/innovation1000/top-20-rd-spenders-2014
[Accessed 15 August 2015].
39 BATEMAN, T.S. & SNELL, S.A. 2013. Op cit., p. 579.
40 BALANCED SCORECARD INSTITUTE. 2011. Link Sustainability to Corporate Strategy Using the
Balanced Scorecard. [Online]. Available:
http://www.balancedscorecard.org/portals/0/pdf/linkingsustainabilitytocorporatestrategyusingthebalancedscorecard.pdf
[Accessed 15 August 2015]; OLVE, N., PETRI, C., ROY, J. & ROY, S. 2003. Making scorecards
actionable: balancing strategy and control. Chichester: Wiley, pp. 1–19.
41 WILLIAMS, C. Op cit., pp. 382–390; KAPLAN, R.S. & NORTON, D.P. Using the Balanced Scorecard
as a Strategic Management System. Harvard Business Review. Jan- Feb 1996: 75–85.
42 WILLIAMS, C. Ibid., pp. 382–390.
43 OLVE, N. et al. Op cit., pp. 3–9.
44 BATEMAN, T.S. & SNELL, S.A. Op cit., p. 589.
45 WILLIAMS, C. Op cit., pp. 484–489.
46 LUSSIER, R.N. Op cit., p. 464.
47 BATEMAN, T.S. & SNELL, S.A. 2013. Op cit., pp. 581–582.
48 SIX SIGMA. 2000–2015. What is Six Sigma? [Online]. Available: http://www.isixsigma.com/new-to-
six-sigma/getting-started/what-six-sigma/ [Accessed 15 August 2015].
49 DMAIC Tools. Six sigma tools: The DMAIC process. [Online]. Available: http://www.dmaictools.com/
[Accessed 10 August 2015].
50 Ibid.
51 JIT. Just-in-time production. 2006. [Online]. Available:
http://personal.ashland.edu/~rjacobs/m503jit.html [Accessed 3 August 2015].
52 TOYOTA. 2015. Toyota production system. [Online]. Available: http://www.toyota-
global.com/company/vision_philosophy/toyota_production_system/ [Accessed 13 August 2015].
53 LUSSIER, R.N. Op cit., p. 463.
54 FMCG.co.za. 2011. Woolworths plays a Role in Environmental Sustainability and Community
Upliftment. [Online]. Available: http://www.fmcg.co.za/default.aspx?tabid=293 [Accessed 3 April
2012].
55 HELLRIEGEL, D., JACKSON, S.E. & SLOCUM, J.W. 2008. Op cit., pp. 342–344.
LEARNING OUTCOMES
After studying this chapter, you should be able to:
• Define risk
• Define risk management (RM) with specific reference to Enterprise Risk Management (ERM)
• Discuss and reason the advantages of risk management
• Identify, list, explain and apply the steps of a risk management process
• Identify, describe and classify the different sources or types of risk
• Identify, explain and give examples of internal (micro) sources of organisational risk
• Identify and explain and give examples of external (macro) sources of organisational risk.

CHAPTER OUTLINE
• South African Insight – Barclays Africa Group Ltd: Risk management in a leading bank
• Risk in context
• Defining risk and risk management
» ISO 31000:2009 Risk management
» Risk management advantages
• Risk management process
» Stage 1: Analysing and establishing the context
» Stage 2: Risk assessment
» Stage 2.1: Risk identification
» Stage 2.2: Risk analysis
» Stage 2.3: Risk evaluation
» Stage 3: Risk treatment
» Stage 4: Monitor and review
» Stage 5: Communication and consultation
• Internal sources of risk
» Financial risk
» Ethical risk
» Operational risk
» Project risk
» Technological risk
» Health and safety risk
• External sources of risk
» Environmental risk
» Economic risk
» Legal risk
» Market risk
» Social risk
» Political risk
Key terms and concepts
• Risk
• Risk management
• Enterprise RiskManagement
• Risk assessment
• Risk identification
• Risk analysis
• Risk evaluation
• Risk register
• Risk appetite
• Internal sources of risk
• External sources of risk

COMPETENCY WHY IS THIS COMPETENCY EXAMPLE

IMPORTANT IN RELATION TO
RISK MANAGEMENT?

Communication Continuous communication Within the mandate of the Group risk

throughout the risk management committee, the Bidvest IT Forum was
process is essential to ensure that all established during the 2014 financial
stakeholders (internal and external) year.The purpose of this forum is to
are informed and understand the risk, promoteand co-ordinate the decentralised
as well as the risk treatment decisions and autonomous management of information
made for the various risks. technology within the Bidvest Group. The
objective being to strengthen the current
divisional IT teams, providing them acentral
platform to share risk relatedinformation,
risk services, risk resourcesand
infrastructure as well as associated
technologies used for risk management.1

Teamwork To ensure that risks are notmanaged At Shoprite Holdings, the Board is
in isolation, it isnecessary to establish thecustodian of corporate governance and is
a risk management committee. This structured to perform this function. One of
risk team, consisting of management the various committees established to assist
representatives from different areas the Board in this governance function is the
within the organisation, will oversee Audit and Risk Committee. This team
all risk management practices. The monitors the integrity of the Group’s
exact size andcomposition of this financial statements and oversees integrated
team, and how many times they meet, reporting. It also assesses the effectiveness
will vary from business to business. It of internal financial controls as well as the
normally includes a representative external and internal audit functions.
from each key business area and it Furthermore, with its focus on risk
reports to senior management or management, the committee ensures that the
directly to the Board. Shoprite Group has implemented an
effective risk management process, allowing
them to identify and observe the
management of the relevant key risks.2

Standard Bank Group – An integrated risk management

approach
“Annually the Standard Bank Group releases a series of documentation to investors and other related
stakeholders. The risk and capital management report provides a detailed discussion of the management of
strategic risks related to the Group’s banking and insurance operations and the annual financial statements
set out the full audited annual financial statements for the Group, including the report of the group audit
committee. These management documents critically summarise key management decisions and actions
which strategically impact the Group.
The Standard Bank Group’s board of directors has the final responsibility for the oversight of risk.
They, therefore, have to ensure that:
• The Group’s risk, compliance, treasury, capital management and group internal audit (GIA) processes
generally operated effectively
• The Group’s business activities are managed within the board-approved risk appetite
• The Group is adequately funded and capitalised to support the execution of the Group’s strategy.

The group risk and capital management committee (GRCMC) is a sub-committee of the board. This sub-
committee provides an independent objective oversight of risk, compliance and capital management in the
group. It also reviews and assesses the adequacy and effectiveness of the group risk, compliance and
capital management governance framework, and the integrity of risk controls and systems.
The Group’s approach to managing risk and capital is set out in the group’s risk, compliance and
capital management (RCCM) governance framework, and it is approved by the GRCMC. The framework
has two components:
• Governance committees
• Governance documents such as standards, frameworks and policies.

Standard Bank Group’s business activities give rise to various risks, which include:
• Credit risk
• Funding and liquidity risk
• Operational risk
• Compliance risk
• Market risk
• Business risk
• Country risk
• Insurance risk
• Reputational risk.

Considering the different types of risk identified by the Standard Bank Group, their risk appetite is set, and
stress testing activities are undertaken at a group level in business lines, in risk types and at a legal entity
level within the risk appetite and stress testing governance frameworks. The Standard Bank Group has
adopted the following definitions, where entity refers to a business line or legal entity within the Group, or
the Group itself:
• Risk appetite: An expression of the amount or type of risk an entity is generally willing to take in
pursuit of its financial and strategic objectives, reflecting its capacity to sustain losses and continue to
meet its obligations as they fall due, under both normal and a range of stress conditions. The metric is
referred to as a risk appetite trigger.
• Risk tolerance: The maximum amount of risk an entity is prepared to tolerate above risk appetite. The
metric is referred to as a risk tolerance limit.
• Risk capacity: The maximum amount of risk the entity is able to support within its available financial
resources.
• Risk appetite statement (RAS): The documented expression of risk appetite and risk tolerance which
has been approved by the entity’s relevant governance committee. The RAS is reviewed and revised, if
necessary, on an annual basis.
• Risk profile: The risk profile is defined in terms of three dimensions, namely current risk profile or
forward risk profile unstressed or stressed.

The current risk profile is the amount or type of risk to which the entity is currently exposed. The
unstressed forward risk profile is the forward-looking view of how the entity’s risk profile is expected to
 evolve under expected conditions. The effectiveness of available management actions can be assessed
through an analysis of pre- and post-management action risk profiles against risk appetite triggers and
tolerance limits.
The following illustration indicates the three levels of risk appetite for the Standard Bank Group and
the integral role that risk types play in the process of cascading risk appetite from dimensions such as
regulatory capital, economic capital, stressed earnings and liquidity, to portfolio limits classified as risk
types.

In 2015 the GRCMC held four meetings, attended by the Group’s external auditors. One special meeting
was held to approve the interim risk and capital management report. During this period, the GRCMC
considered the Group’s current and future risk profile relative to the Group’s risk appetite. The committee
reported to the board following each meeting on its consideration of the Group’s risk profile and any
concerns it may have had.”
Source: Adapted from STANDARD BANK GROUP. 2015. Risk and capital management report and annual financial
statements. [Online]. Available: http://reporting.standardbank.com/downloads/SBG_FY15_Risk%20and%20capital%
20management%20report%20and%20AFS.pdf [Accessed 28 June 2017].

16.1 Risk in organisational context

In a fast-changing business environment and with the continuous exposure to the elements of the
local and global macro-environment, the modern organisation is always facing risk. As introduced
in Chapter 1 and discussed in Chapter 14, this changing environment is reflected in the global
economic crisis, the high demand for e-technology, growing online communication and increased
business technology, local and worldwide economic and political instability, the inability of many
organisations to ensure a triple bottom line in the interests of sustainability, and the growing
demand for resources globally.
The reality is therefore that it is no longer a choice of whether an organisation would like to
expose itself to risk or not, but to what extent the organisation can proactively manage the risk in
its environment. The simple decision to set up and run a business creates the presence of risk. No
organisation can function today without a varying level of risk in its operational and strategic
actions. Thus, the question is, “What isan organisation’s risk appetite with regard to translating its
business strategy into operations?”.
The International Organisation for Standardisation (ISO) is a worldwide federationof national
standards bodies. The ISOGuide 73 was prepared by the relevant ISO technical committee on risk
management. Consult ISO 31000:2009 for more information on principles and guidelines on risk
management.3
This chapter focuses on risk management and provides an introductory overview of the
relevant concepts of risk management in an organisational context (Enterprise Risk Management –
ERM). It also provides an overview of the risk management process.
In Chapter 15 we have discussed control as a critical management task for managing
performance. As such, it is also an essential task for managing risk. When considering internal
controls, it allows us to establish the context for creating a risk management framework in the
organisation.
Understanding the relationship between internal controls and risk management, will prove
valuable in developing strategic management skills. The viewpoint of risk as positive or negative
should be acknowledged and the meaning of ERM in context be understood, when realising that
an organisation’s approach to risk could also lead to an opportunity resulting in growth.
The steps involved in a risk management process will be outlined. The aim of a risk
management process is to provide a guide to standardise risk management practice within the
organisation. This will allow stakeholders to identify and manage internal and external risk
factors. Although various classifications of risk sources exist, we aim to standardise the different
sources of risk in order to identify, describe and classify them as controlled or uncontrolled
sources and/or types of risk in terms of micro (internal) organisational influences versus macro
(external) influences.
The role of stakeholders in risk management can be seen as strongly influential. Stakeholders
mostly demand that management show an awareness and alertness to risk, as they are also
exposed to the outcome of how the risk has been managed. The value of continuous risk
management within organisations will enhance the ability of organisations to:
• Seize opportunities
• Improve risk response decisions
• Identify and manage interdepartmental organisational risks
• Align their risk appetite with the organisational strategy
• Improve business performance and overall effectiveness
• Minimise operational crises and losses
• Enhance optimal resource utilisation
• Establish a link between risk, organisational growth and overall return on investment.4

Inherently we cannot classify all risk as negative or as a threat. Risk often presents opportunities
for business growth and success which will be explained later in the chapter.

16.2 Defining risk and risk management

In order to have a clear understanding of the concept of risk, we need to consider various
definitions of risk. The Institute of Internal Auditors (IIA) describes risk as the uncertainty of an
event occurring that could have an impact on the achievement of objectives.5 Another viewpoint
would be that risk is a probability or threat of damage, injury, liability, loss, or any other negative
occurrence that is caused by external or internal vulnerabilities, and that may be avoided through
pre-emptive action.6 According to the risk management ISO standard: ISO 31000, risk is defined
as an effect of uncertainty on objectives.7
It is therefore clear that risk can have an advantage (opportunity) or a disadvantage (threat). It
also brings about a potential inability for the organisation, department, project or team to not meet
their originally set objectives. The exposure of an organisation to events that will result in it not
achieving its objectives, can be minimised or avoided by means of following a risk management
process consisting of several steps.
Risk management can be described as the proactive actions taken to identify and manage
internal and external threats or actions that could negatively impact on the ability of the
organisation to be successful. This process therefore demands not only the management of
existing risk, but also anticipating potential risks which could have a negative influence on those
organisational objectives formulated. According to the risk management standard ISO
31000:2009, risk management (RM) is defined as a co-ordinated set of activities and methods that
is used to direct an organisation and to control the many risks that can affect its ability to achieve
objectives.8
Within the context of risk management, we need to refer to the concept of Enterprise Risk
Management (ERM). Enterprise Risk Management (ERM) is the process of planning,
organising, leading, and controlling the activities of an organisation in order to minimise the
effects of risk on an organisation’s capital and earnings.9
The Committee of Sponsoring Organisations of the Treadway Commission (COSO) is a joint
initiative of five private sector organisations globally. COSO is dedicated to providing thought
leadership through the development of frameworks and guidance on ERM, internal control and
fraud deterrence.10 COSO describes ERM as a systematic process embedded in an organisation’s
system of internal control, to satisfy policies effected by its board of directors, aimed at fulfilling
its business objectives and safeguarding both the shareholder’s investment and the company’s
assets.11
It therefore means that ERM refers to a process of identifying and analysing relevant risk from
an integrated, organisation-wide perspective. The concept is designed to identify potential events
that may prevent an organisation from achieving its operational, financial and compliance
objectives.12

16.2.1ISO 31000:2009 risk management

According to the International Standards Organisation (ISO), risks affect organisations and can
have consequences in terms of economic performance and professional reputation, as well as
environmental, safety and societal outcomes. Therefore, managing risk effectively helps
organisations to perform well in an environment full of uncertainty. As briefly mentioned earlier
in this chapter, the ISO 31000 – Risk management standard was developed, better known as the
ISO 31000:2009.
The ISO 31000:2009, Risk management – Principles and guidelines, provides principles,
framework and a process for managing risk. It can be used by any organisation regardless of its
size, activity or sector. The aim is to assist organisations to increase the likelihood of achieving
objectives, improving the identification of opportunities and threats and effectively allocating and
using resources for risk treatment. However, ISO 31000 cannot be used for certification purposes,
but does provide guidance for internal or external audit programmes. Organisations using it can
compare their risk management practices with an internationally recognised benchmark, providing
sound principles for effective management and corporate governance.13
 Note that a number of other standards also relate to risk management:
• ISO Guide 73:2009, Risk management – Specific compilations of terminology complements
ISO 31000 by providing a collection of terms and definitions relating to the management of
risk.
• ISO/IEC 31010:2009, Risk management – Risk assessment techniques focusing on risk
assessment. Risk assessment helps decision-makers understand the risks that could affect the
achievement of objectives, as well as the adequacy of the controls already in place. ISO/IEC
31010:2009 focuses on risk assessment concepts, processes and the selection of risk
assessment techniques.14 In the South African context, the SANS 31010:2010 was released.
This is the South African National Standard providing risk assessment techniques for risk
management purposes in the South African context, based on the ISO/IEC 31010:2009. This
document is available and published by SABS – see www.sabs.co.za.

16.2.2Risk management advantages

Introducing ERM should bring about more advantages than disadvantages to any organisation.
The following list of advantages confirms the benefits gained from implementing and managing a
successful risk management programme in any organisation.

Having defined what risk is, and what risk management involves, it is necessary to consider the
risk management process.

Table 16.1 Advantages of risk management

Advantages Description

Improve organisational Lessons learnt from previous risk scenarios with records of successful risk
learning treatment plans and failures are a useful reference prior to the start of new
change projects.

Meeting objectives Proactively managing risk increases the likelihood of a business realising its
objectives, increasing performance and effectiveness.

Meeting legislator An effective risk management process will comply with the relevant legal and
requirements regulatory requirements set by government, industry and/or representative
bodies to which an organisation needs to adhere.

Minimise operational Organisations have improved ability to identify potential risks, assess those
surprises and losses risks and establish suitable responses – this reduces the occurrence of the
surprise factor and associated costs or losses.

Enhance corporate Improved corporate governance is possible as a result of effective risk

governance management control.

Creating a risk Establishing an entrenched risk management process throughout the

management culture organisation allows a culture of proactive risk management on all levels and in
all divisions.

Enhance risk response Improved ability to identify and select an appropriate risk management
decisions response among the options e.g. removal, transfer, reduction or retention.
 Improve allocation of A clear understanding of the risks facing an organisation can increase the
resources effective direction and use of the business’s resources to manage risk.

Identify and manage Every organisation faces countless risks affecting different parts of the
cross-enterprise risks organisation. The benefits are only optimised when an organisation-wide
approach is adopted, integrating all risk aspects into one unit within the
business.

Integration of risk Centralised risk reporting, the integration of risk transfer strategies and the
management across all integration of risk management into the business processes of a business.
processes Rather than being an exclusive defensive mechanism, it can be used as a tool to
maximise opportunities.

Link growth, risk and Understanding that risk is part of wealth creation and preservation, risk
return management provides an enhanced ability to identify and assess risks and
establish acceptable levels of risk in relation to potential growth and
achievement of set organisational objectives.

Justify capital use More vigorous information on risk exposure allows management to effectively
assess overall capital needs and improve capital allocation.

Seize opportunities The process of identifying risks can stimulate thinking and generate
opportunities as well as threats.

Stakeholder A strong risk management programme will develop confidence for stakeholders
relationships and the investment community to support projects and investments or
participate in activities.

Align risk appetite with Risk appetite is the degree of risk that a business is in general willing to accept
organisational strategy in pursuit of its objectives. Management considers the business’s risk appetite
first in evaluating strategic alternatives. It then develops boundaries for
negative risks.

Source: BATEMAN, T.S. & SNELL, S.A. 2013. Management: Leading & Collaborating in a competitive
world. 10th ed. New York: McGraw Hill, p. 88; OSBORNE, A. 2012. Risk Management Made Easy.
BookBoon.com, p. 8; CHAPMAN, R.J. 2011. Simple tools and technique for enterprise risk management.
2nd ed. West Sussex: Wiley & Sons, p. 10.

16.3 Risk management process

An event that can be seen as certain or uncertain, a single occurrence or multiple occurrences, will
lead to a consequence. A consequence can be classified as positive or negative, singular or
multiple, and is normally expressed in either qualitative or quantitative terms with reference to the
achievement of set organisational objectives. During the risk management process, you would
therefore consider the organisational objectives when conducting a business analysis before doing
a risk assessment, which could lead to risk planning for future risk or treatment of current risks.
Risk management is an advanced field of study. It is therefore not the objective of this book to
discuss it in detail. The objective of this discussion on risk is to create an awareness of risk in
order to develop the necessary sensitivity that will allow organisations to develop a culture that
will support a risk management strategy. It is critical that all stakeholders be communicated and
consulted with during the risk management process.
 The risk management process indicates all the steps you need to take to identify and
implement risk management in an organisation. By using a risk management process to monitor
and control risk, it enables teams and managers to meet their objectives. Various risk management
processes exist such as those proposed, for example by COSO, the Orange Book and ISO
31000:2009.15 We incorporate best practices in the following risk management process. The risk
management process illustrated in Figure 16.1 and that will be discussed in the following section,
consists of five main stages with interactive sub-stages.
Throughout the risk management process four critical aspects will influence how any risk will
be managed.16 This will be applicable to a greater or lesser extent during each of the stages.
• The risk management culture of the organisation. The risk culture will constrain or enhance
the risk management activities based on the degree of importance, commitment, enthusiasm,
as well as support that might exist for the particular risk and/or risk management process.

Figure 16.1 Risk management process

Source: Adapted from CHAPMAN, R.J. 2011. Simple tools and technique for enterprise risk management.
2nd ed. West Sussex: Wiley & Sons, pp. 137–138; COSO. 2004. Enterprise Risk Management – Integrated
Framework. September. Committee of Sponsoring Organisations of the Treadway Commission. UK.

• The resources available for managing risk. The available resources such as time, capital
(funding, infrastructure, facilities, equipment), people (employees and management) etc.,
could limit or empower a risk process in terms of time (rushed activities lead to lower quality
versus adequate time allocated leading to enhanced quality) and cost (less or more experienced
staff involved).
• The risk management restrictions. Establishing the focus i.e. the parameters of the risk
investigated, and what will be managed, could be influenced by multiple aspects. Various
factors could constrain the risk identification process, for example, having a lack of clear
focus, a too ambitious project for the given time scale, inadequate notification, limited
experience or preparation of participants, etc.
• What the risk management plan entails. The risk identification process could, for example, be
jeopardised if roles and responsibilities of participants are not clearly defined, the purpose of
the risk management process is not clearly stated, business objectives are not identified and
communicated, and so on.

16.3.1Stage 1: Establishing and analysing the context

During the first stage of the risk management process we need to get a better understanding of
the background of the business as a whole, and the current situation that the business is facing.
Furthermore we need to get an understanding of the specific business activity, process or project,
being investigated. In order to eliminate the possible negative impact of having an incorrect focus,
the risk management team needs to establish a clear focus. It is therefore essential for the risk
management team to get a clear understanding from the beginning, whether it is an analysis of the
whole organisation, a single business activity, a project or, for example, current activities within a
particular department.
The objective of stage one is to understand the organisation’s business processes and what the
current status is. Depending on the objective of the risk study, a variety of activities can be
undertaken during stage one, ranging from a SWOT analysis (Strength, Weakness, Opportunities,
Threats) to a PESTLE analysis (Political, Economic, Social, Technological, Legal,
Environmental), or to clarify and establish the organisation’s objectives in terms of the SMART
criteria (Specific, Measurable, Achievable, Relevant, Timeous). You will recall that these were
first discussed in Chapter 5.
Investigating the different processes in the organisation could lead to different classifications
such as:
• Generic customer processes: e.g. marketing and sales, manufacturing or billing
• Industry specific processes: e.g. loan processing (banking) or merchandise return (retail)
• Generic administrative processes: e.g. budgeting, purchasing or training.

Financial analysis tools can be used to investigate the financial performance and position of the
organisation in terms of profitability, efficiency, liquidity, gearing and investment. Use cash flow
statements, profit and loss statements, and asset and liability statements for this type of analysis.
Once the team has a clear picture of what resources an organisation has and how they are used to
create a competitive advantage, as well as its ability to handle change and manage change in order
to minimise the possibility of risk, then it will be possible to better understand to what extent the
organisation meets other aspects such as the regulatory framework within which it performs.
Organisations such as banks in the financial sector or those organisations in the pharmaceutical or
petrol retail industry, are all exposed to change and therefore need to apply their resources in such
a way to address the needs of their customers, make a profit, manage the risk but also meet the
regulations stated by the industry bodies or legislation within which their industry functions.

16.3.2Stage 2: Risk assessment

Risk assessment can be described as the overall process of risk identification, risk analysis and
risk evaluation.17 Each of these three sub-stages is critical in order to assess the risk. Therefore, we
structure stage two in such a way as to allow us to first complete a sequence of three sub-stages
before we decide on how we will treat the particular risk, discussed in stage three. The three sub-
stages include:
• Risk identification: which is the process of determining what, where, when, how, and why
something (an event known as the risk) can happen
• Risk analysis: which is a systematic process to understand the nature of the risk and to
evaluate the level of risk
• Risk evaluation: which is the process of comparing the level of risk against the set
performance criteria.

Each of these sub-stages will now be discussed in more detail.

16.3.2.1 Stage 2.1: Risk identification

Risk identification is a process whereby events seen as risks are recognised and described. These
risks could impact the ability to achieve set obejctives. Risk practitioners or professional
personnel, fulfill the role of risk identification and generate a series of risks and opportunities,
which they record in a risk register.18 The objective of risk identification is to identify the risks to
the business (which would limit or eliminate the organisation’s ability to achieve its objectives)
and the opportunities (which could improve the organisation’s performance).
The risk register is the main output result of the risk identification stage (stage 2.1). Various
risk register formats exist. Some are more comprehensive than others. Table 16.2 is a
comprehensive summary of typical content that could be included in a risk register to ensure a
thorough document for reference, management and learning.
A risk register is used as a central source or collection for all risks identified by the
organisation. For each risk identified, information on source, nature, treatment option, people
responsible and so on, are stored in this risk register or log. A business risk taxonomy is normally
used. It makes use of a structured checklist that organises enterprise risks into general classes, and
then subdivides it into elements and those elements into attributes. The aim is to break down risk
and opportunity into manageable components for measurement, management and reporting
purposes. Such a taxonomy will be discussed later in the chapter when the internal and external
souces of risks are identified and classified as a business risk taxonomy.
If we consider the South African Insight of Barclays, its South African subsidiary, Absa, has
created a business risk taxonomy based on five main risks namely credit risk, market risk, funding
risk, operational risk and conduct risk. Each of these principal risks consist of several key risks.
Conduct risk at Absa includes the following key risks, namely:
• Culture and governance: the risk that the organisation does not organise or govern itself in a
way that effectively identifies and manages typical conduct risks.
•
 Strategy and business model: the risk that strategy and business models cause customer
detriment or negatively impact on market integrity (e.g. full product disclosure, orderly and
efficient trading and price formation, and avoiding market abuse).

Table 16.2 Typical contents of a risk register

Document reference and controls

Register title Title of the register

Author of the Creator of the register and contact details for any questions
register

Compilation date Date of the risk was issued

of register

Risk register content

Risk identifier Unique number allocated to identify the specific risk.

Risk category Risk subject area (main type/source of risk – internal or external).

Risk cause The activity or event which will trigger the risk event.

Risk description Full description of the risk which will be easily understood by all parties (or team) on
completion of the identification process.

Risk impact The impact of the risk should it materialise such as delay, increase in costs, reduction
in quality, environmental impact, etc.

Risk status Whether the risk has been addressed, not addressed or is being attended to.

Probability Assessment of how likely the risk is to happen. Probability can be recorded as a
percentage, a category or both.

Impact Impact can be measured in terms of cost, duration, quality or any other business or
project objective.

Proximity Reflects the timing of the threat of the risk. Is its threat strongest at a particular point
in time? Does its probability or impact change over time?

Risk response Four strategies normally proposed. The terms used are normally Reduce, Retain,
category Remove, or Transfer.

Risk response A description of the specific action or actions decided upon to address the identified
action risk in alignment with the category Remove, Reduce, Retain, Transfer the risk.

Owner ‘Owner’ refers to the business entity and/or individual that will be affected by the
risk, should it materialise, and the person responsible for managing and
implementing the risk response action.

Planned start date Planned commencement date of the risk response action.
 Planned finish Planned completion date of the risk response action.
date

Expected value Calculated by multiplying the average impact by the probability percentage.

Source: VAN DER LINDE, T.N. 2010. Introduction to risk management. Certificate in risk management.
University of Johannesburg: Johannesburg, p. 170.

• Product design: the risk that products do not meet the needs of customers for whom they are
intended, both at launch and during the lifetime of the product.
• Transaction services: the risk that introducing, promoting, offering, advising, managing,
selling, executing and dealing of products will be deterimental to clients or negatively impact
market integrity. It includes wholesale and retail transactions and both advisory and non-
advisory transactions.
• Client servicing: the risk that customers’ related and ancillary activities, not directly related to
Product Design or Transaction Services (outlined above), that typically begin after each
transaction is agreed with a customer, are detrimental to customers.
• Financial crime: the risk of breaching economic and financial sanctions, the facilitation of
money laundering or terrorist financing and/or bribery and corruption.
• Regulatory authorisations and permissions: the risks associated with the bank meeting or not
meeting relevant criteria set by entities such as the Banking Association of South Africa.

Other ways of classifying risk for identification purposes would be to make use of a risk checklist,
also referred to as an ‘in-house’ list of risks, which were identified during previous projects or
activities.19 Another way of differentiating between risks are risk prompt lists whereby risks are
categorised into types or areas. For our purpose, we make use of a business risk taxonomy which
classifies internal and external risk. In each of these two categories, which differentiate between
internal processes and the external business environment, six primary risk sources are identified as
discussed later in this chapter. Each of these primary risk sources have sub classifications (sub-
sources) contributing to the main source, for example, credit risk (sub-source) will be a
contributing risk source to financial risk (primary source) which is an internal source.

16.3.2.2 Stage 2.2: Risk analysis

This stage of the Risk Management Process involves assessing the likelihood of the risks and
opportunities occurring, as well as their impact, should they materialise. The objective is to assess
the risks and the opportunities to the organisation in terms of their probability (likeliness) and
impact (positive and/or negative).

In the process of risk analysis, a probability impact matrix should be created. The risk
management team should ensure that it has at least established which risks have a minor and
which will have a major impact. Table 16.3 illustrates an example of a probability matrix. In order
to understand the value of this matrix, let us clarify the concept of probability. On a scale from 0
–1, no chance of an event happening indicates a probability of zero. If there is a 50% chance of
something happening, then the scale will indicate a 0.5 probability. When using a probability
impact matrix, a risk analysis should at least distinguish between those risks that will have a
minor, and those that will have a major impact.
 The following key activities should be considered in order to establish the probability that a
risk will occur, and its resulting impact, should it happen:
• Firstly, understand and assess the likelihood (probability) of the risk or opportunity arising
• Secondly, assess the impact of the risk or opportunity in terms of the business or project
objectives. Consider using an Ishakawa diagram, also known as the fishbone or cause and
effect diagram. This allows for the risk management team to break down the problem,
identifying each element contributing to the problem (risk). For more information on the
Ishakawa diagram, refer back to Chapter 7.

Table 16.3 Quantitative Probability Impact Matrix

Figure 16.2 Cause and effect diagram

For more information on the basic properties of a cause and effect diagram, visit
https://www.mindtools.com/pages/article/newTMC_03.htm
It is also important to understand and take into account the interdependencies between risks.
Are the interdependencies sequential (one risk triggers another risk), for example, if the price of
oil goes up the price of petrol goes up; or are they concurrent (parallel), for example, people who
are poverty stricken are more likely to become involved in illegal activities such as alcohol and
substance abuse.
Also consider using a Pareto analysis (based on the 80/20 rule) to analyse the likelihood of a
risk occurring. The Pareto principle states that, for example, 80% of the benefit comes from the
first 20% of effort, or that 80% of complaints are about the same 20% of service problems.20 For
more information on Pareto analysis, refer back to Chapter 7 and visit
https://www.mindtools.com/pages/article/newTED_01.htm
16.3.2.3 Stage 2.3: Risk evaluation
During the last stage of risk assessment, we want to get a better understanding of the individual
risks and opportunities so that we can see the total impact when they are combined, as well as
their true net effect. Therefore, during risk evaluation, we combine the risks and opportunities
together to determine their net effect. The objective is to establish to what extent the risk or
opportunity, in total, impacts the business as a whole, or a specific project.

Figure 16.3 Framework for a decision tree

Various tools are available for conducting risk evaluation:

• The decision tree is a useful tool during this stage when considering alternative options. It
visually illustrates the alternative options relating to a particular decision or set of decisions.
Using the decision tree allows a risk team to evaluate the relation of the decision in context.
For more information on how to draw a decision tree, visit
https://www.mindtools.com/dectree.html?
• Quantitative results, for example, a cost-benefit analysis as discussed in Chapter 15, allow for
the evaluation of the risk, considering the cost and benefit attributes.
• Scenario analysis / modelling aims to consider various ‘states of the world’. It is possible to
allow for three views: ‘optimistic’, ‘pessimistic’ and the ‘most likely’ in order to consider the
possible impact during each possible scenario. Consider the role played by scenario
developers such as Clem Sunter at www.clemsunter.co.za
• Sensitivity analysis is used when evaluating the profitability of an investment proposal for a
specific project or activity. The technique requires the team to consider one variable, for
example, volume of sales, and then examine what effect any changes in the variable will have
on the organisational performance.
• Probability trees will illustrate either independent events or dependent events during the
decision process and their possible outcomes (see Figure 16.4 illustrating the tossing of a coin
before kick-off at a soccer game). As discussed earlier, when considering probability, we can
say that the probability of an event occurring lies in the range l 0 ≤ P (E) ≥ 1. In this range, P is
probability and E is the event being examined. If something is certain to occur then it has a
probability of 1. If two or more different outcomes of a trial or experiment cannot happen at
 the same time, then the probability of one or other of these outcomes occurring is the sum of
the individual probabilities.
• Expected monetary values (EMV) – If it is possible to assign the probability of each outcome
being achieved, then the combination of the weighted outcomes can be calculated. The sum of
the weighted outcomes is known as the EMV as illustrated in Figure 16.4 – the sum of 0.25
would be the EMV for each of the four possibilities (probability being equal) and the
combination adding up to one.
• Simulation and data analysis – this is used in analysing financial or programme (over time)
models, especially where the values of the input data, or the variables, might not be clear.
Nowadays simulation is conducted using software e.g. Monte Carlo Simulation, which is used
to evaluate the effect of uncertainty on a planned activity in a wide range of situations.21 For
more information on Monte Carlo Simulation, visit:
http://www.palisade.com/risk/monte_carlo_simulation.asp Various other tools are available to
consider including the Utility theory and Markov chain to mention a few. For more
information visit: http://math.stackexchange.com/questions/1579314/optimal-utility-
calculation-for-a-simple-discrete-markov-chain

Figure 16.4 Probability tree

16.3.3Stage 3: Risk treatment

During stage 3, known as risk treatment, the key task is to use all of the preceding efforts to
produce responses and take specific action plans to address the risks and opportunities identified
in order to achieve the business or project objectives. The objective is to plan specific
management responses to both the threats and opportunities identified during the risk management
process.
During the risk treatment stage it is critical to do adequate risk research before the final
decision is made. This will allow for the risk management team to make an informed decision
about an appropriate risk response. Then an appropriate alternative response can be developed
which will be whether the risk will be retained, reduced, removed or transferred. A risk response
should be developed for each risk (opportunity). See Figure 16.5 for a summary of the different
risk response strategies that are generally considered.
When selecting an appropriate risk response strategy, it is necessary to assess the cost of each
response against the impact of the risk, should it be realised. Identify the risk owner (organisation
or entity that will retain ownership of the risk and person who will be responsible for managing
and implementing the response (remember several people could be involved). Time management
and planning is also critical at this time and therefore the team needs to decide when the response
should be implemented. The proverbial plan B is also important, and the team should consider the
reality that secondary risk/s could arise from the planned risk response. To manage this
possibility, early warning indicators should be established to measure success or problems of the
risk response. Never attempt this process without a clear definition of the organisation’s risk
appetite.

Figure 16.5 Risk response strategies

Risk appetite is also referred to as risk preference, risk attitude, risk tolerance or risk capacity.
This concept refers to the amount of a risk an organisation is prepared to endure or tolerate (be
exposed to) at any point in time. It therefore reflects on the organisation’s capacity to absorb risk.
Examples of risk appetite statements include certain risk related themes:
• General – “We seek to fully meet all regulatory expectations.”
• Capital – “Maintain an insurance insolvency ratio of at least 150%.”
• Reputation – “Our people will have the highest levels of competence and integrity.”

Considering the organisation’s risk appetite, four risk response strategies can be considered.22
Figure 16.6 summarises each possible response option in terms of business value (nett assets and
earnings) retained.
Risk reduction is also known as risk treatment or risk mitigation. This response refers to
actions in order to minimise risk, for example by means of diversification or by means of
proactive actions such as learning from previous negative events to be more prepared in case they
should re-occur.23 For example, installing a security alarm or appointing an armed response
company at a factory, fitting smoke detectors in an office, or wearing safety gear such as a helmet
in an assembly plant are ways of prompting risk reduction. Diversification of assets and hedging
are forms of risk reduction with investments.
Figure 16.6 Evaluating risk response strategy options

Source: OSBORNE, A. 2012. Risk Management Made Easy. BookBoon.com, pp. 35-37; CHAPMAN, R.J.
2011. Simple tools and technique for enterprise risk management. 2nd ed. West Sussex: Wiley & Sons, pp.
226-230.

Risk avoidance is also known as risk removal, risk elimination, risk exclusion or risk
termination. A risk may be avoided by not accepting or entering into the event which has hazards
or prominent threats and which could directly result in reputational, legal or financial risks, to
mention a few. Three tests should be applied when considering this strategy:
• If the risk is removed, is a significant opportunity being lost? If the opportunity is lost, then it
is not a good decision and the risk is therefore not well managed.
• If the risk is being removed and a different route chosen, will the business objectives still be
optimally obtained? If the objectives are no longer obtained, then it is not a good decision and
the risk is therefore not well managed.
• Removing the risk will bring a cost saving – does this cost saving outweigh the impact if we
would have continued? If the answer is Yes, then we have made the best choice and have
managed the risk well.

Risk transfer is also known as risk reassignment or risk deflection. The most typical practice
would be to obtain insurance as a solution for risk transfer. The insurance policy obtained from an
insurance company would be the transfer of the risk to a third party. In the case of risk transfer,
four questions should be asked to ensure that the risk is transferred for the ideal reason, and
therefore well managed:
• What are the motives for either accepting or transferring the risk? Does it have a positive or
negative implication now or in the long term?
• Transfer will only be successful if the party to whom the risk has been transferred has the
ability to manage it. Do they have the ability?
• Risk context seen in terms of volatility (unpredictability) or stability. The context of the risk
also contributes to whether a risk that is accepted or transferred, will turn out to be successful.
• Compare the cost implication for accepting the risk against the advantage of transferring the
risk. Which is the highest – is it adding value?

Risk retention is also known as risk acceptance, risk absorption or risk tolerance. An organisation
requires resources to absorb risk such as savings, or a method of self-insurance where the
organisation retains a reserve fund for the purpose of offsetting unexpected financial claims. In
considering risk retention, the following three tests should be considered:
• Does no other option exist and have all options of removal, reduction or transfers been
considered?
• No business context stays the same – so what is retained now might change in six or twelve
months’ time! What is the situation then?
• In this case, the test is that it should be clear what the impact would be, should it materialise.
Then if it materialises, the test is, “What is the likelihood of it re-occurring?” This is necessary
to verify the ability to absorb the risk.

16.3.4Stage 4: Monitor and review

During stage 4 of the risk management process, the objective is to monitor the performance of the
risk response actions to inform the need for proactive risk management intervention. Five key (R)
activities should be conducted during stage 4 of monitoring and review:24
• React to early warning indicators to warn managers of the need to make risk management
interventions
• Register changes in the details of the risk and opportunities already captured on the risk
register
• Record emerging risks and opportunities, lessons learnt and changes in the internal and
external context
• Review whether the risk owners are implementing the responses for which they are responsible
• Report on the successes or otherwise of the risk and opportunity management actions
implemented to date, the need for additional response actions and the changes in the overall
risk exposure profile of the business.

Three key activities make up stage 4, with the aim of monitoring and reviewing all the other
stages. These activities include ensuring that everything is executed, monitoring current activities
and ensuring that all controls are met, as follows:
• Ensure that the risk response actions (retain, reduce, remove, or transfer) are performed
• Monitor the following:
» Are owners working together successfully in implementing and managing the risk
treatment actions?
» Are new risks and opportunities identified across all business sectors due to changes in
legislation, while current risks are being managed?
» Is the risk register updated regularly?
» Are previous insurance arrangements still valid?
» Hedging and funding opportunities – have they changed?
» Are previous market analyses still valid, or has the context changed?
» Is risk management providing the contribution anticipated?
» Are all functions and activities in the organisation represented under risk management
considering the changes occurring?
• Ensure that the internal controls are applied. Are the controls applied:25
» Economical? (The fewer controls the more efficient they will most likely be)
» Meaningful? (Events measured must be meaningful)
» Appropriate? (Controls must provide correct information for effective action)
» Congruent? (The type of measurement used must be appropriate)
» Timely? (It must correspond with the real time of the event measured)
» Simple? (Complicated controls do not work)
 » Operational? (Focus the design of the control rather on action than information).

16.3.5Stage 5: Communication and consultation

The last stage refers to the dialogue that takes place across all the risk management stages to
support their effective implementation (also refers to ISO 2900 for the relevant standard). The
objective is to develop plans for communication and consultation at the outset of the risk
management process.

Communication and consultation takes place during all of the risk management process steps
from stage one till the last stage. This includes the creation of a risk management framework
which ensures that risk information derived from the risk management process is adequately
reported and used as a basis for decision-making. It also furthermore allows for the development
of the risk management policy which communicates the objectives for managing risk; ensures
resources are made available for managing risk; indicates how risk management performance will
be measured and reported; and communicates methods for implementing continuous
improvement. Risk management performance indicators are developed and communicated, as well
as the benefits of risk management, to stakeholders. The accountabilities and responsibilities for
managing risk throughout the organisation are communicated, as well as how risk management
will be embedded in all of the organisation’s practices and processes. Finally internal and
external communication mechanisms are established and communicated.

16.3.5.1 Internal risk communication

The aim of internal risk communication would be to support and encourage accountability
and ownership of risk and opportunity management. Internal communication mechanisms should
ensure that:26
• The risk framework and updates are communicated throughout the organisation
• The risk policy and updates are communicated throughout the organisation
• Templates developed to ensure consistency in how risk data is captured, as well as how risk
management and risk reporting are communicated
• Risk information is stored in a way that it is readily accessible to the business as a whole
• There is adequate and appropriate dialogue with key internal stakeholders who will influence
the success of embedding risk management as a key organistional element
• There is an open channel to maintain dialogue with key external stakeholders and others to aid
the implementation of risk management.

16.3.5.2 External risk communication

The aim of external risk communication would be to deliver open and honest information on
the risk that the organisation faces and how it is responding to those risks. External
communication mechanisms should ensure that:27
• External reporting complies with legal, regulatory and government requirements; furthermore,
reporting should be timely, accurate and complete
• Suitable external stakeholders are engaged and an effective exchange of suitable risk related
information is ensured
•
 Answers to questions on the risk management framework, policy, process, procedures or
reporting are given on time
• If possible, risk management information is used to provide a positive message to build
confidence in the organisation
• The business is equipped to quickly communicate with stakeholders in the event of a crisis
with current accurate information, in a consistent way.

16.4 Internal sources of risk

The following section establishes the business risk taxonomy used for identifying risks during the
risk management process, as discussed in stage 2.1. The first category identifies the internal
sources of risk which impacts on organisational processes. As illustrated in Figure 16.7, six main
internal sources of risk are identified for the purpose of this chapter.

Figure 16.7 Internal sources of risk

Each of the internal sources of risk will be discussed in more detail.

16.4.1Financial risk
Financial risk is the exposure to adverse (hostile and antagonistic) events that erode (wear down)
profitability and, in extreme circumstances, even bring about a total business collapse.28 Various
sub-sources contribute to financial risk. These risks are seen as financial risk sources which
directly relate to the internal processes of the organisation.
16.4.1.1 Sources of financial risk
Some of these sub-sources also contribute to external risks, but in this context, these risks generate
internal process risks due to lack of planning, internal errors, changes or vulnerabilities in systems
and processes, and therefore are classified as financial risks. The following compilation can be
classified as typical sources that contribute to and cause financial risk:29
• Liquidity risk develops from a short-term inability of the organisation to meet financial
obligations such as payment of suppliers, staff salaries, facilities (rental payment to the
landlord), etc. Liquidity is measured using the ratio formula: Current ratio = Current assets /
Current liabilities.
• Credit risk results from the lack of payment of goods which were supplied by the organisation
to customers. Risk could be default-based (for example, payment default by customers who
missed payments), exposure-based (future amounts which could potentially not be paid and
the potential risk it holds for the organisation), or recovery-based (which refers to the
uncertainty as to whether outstanding amounts due will actually be recovered).
• Interest rate risk affects consumer’s disposable income most and therefore it results in a
decline of trade for retailers, manufacturers, and service providers. The higher the interest rate
paid by consumers, the higher the risk for the mentioned organisations on potential future
business (sales) and/or subsequent credit risk, for example.
• Inflation risk will be applicable to investment projects, whereby calculations in terms of cash
flows and the discount rate over the life of the project will be affected. An example would be
the continuous negative implication of higher costs, expenses and lack of productivity allowed
by Eskom and contractors at the overdue Medupi power station, for a project already five
years behind schedule.
• Currency risk refers to risk in terms of fluctuations in exchange rates, whether it is investment
income or goods sold or goods purchased. The continuous weakening of the South African
Rand against major currencies in Spring 2015, is an example of how the exchange rate could
impact ineffective procurement systems and processes locally.
• Funding risk is when those who borrowed are unable to meet payment requirements (re-pay
the capital and interest). Therefore, they are exposed to being rated negatively for future credit
applications – this will put them at risk when they require large capital investments for
projects because they would pay higher rates for credit. Standard and Poor is an example of a
credit rating agency who rated South Africa on 3 April 2017 by downgraded the country to
B-B plus – otherwise known as junk status.
• Foreign investment risk includes, for example, restrictions on the right for an organisation
doing business in a foreign country to repatriate (send home) funds, high levels of taxation on
profits remitted overseas, the temporary freezing of bank account balances or the
expropriation of assets. When preparing for foreign investment risk, two key risks should be
considered, namely the country itself in which the organisation wants to invest, and the
political risk and social risk within the relevant business environment. Internal processes,
therefore, should be prepared taking these aspects into account.
• Derivatives risk arise from speculation in the market or hedging by, say, buying forward with
the aim of acquiring a commodity at a price lower than the price prevailing at the time.
Options and futures are the best-known markets for derivatives. Hedging is a risk management
strategy used in limiting or balancing the likelihood of loss from fluctuations in commodity
prices, currency values, or prices of securities. In effect, hedging is a transfer of risk without
buying an insurance policy.30
• Systems risk is risk based on the loss as a result of failure caused by the breakdown of business
procedures, processes, systems or controls leading to financial implications. A website being
down and clients not being able to do online banking, would be an example of systems risk.
• Outsourcing risk is risk arising from the default of a sub-contractor that has gone into
liquidation, failed to deliver goods by a due date or breached contract conditions. This risk
brings about potential financial risk in that the organisation is not able to render its services, or
conduct is daily business, such as retail or manufacturing.

16.4.2Ethical risk
Ethical risk refers to exposure to events which may result in criminal prosecution, law suits or
erosion of reputation. As changes occur, society continuously develops opinions on what is
perceived to be right and wrong, acceptable and unacceptable. Therefore, it is important that
organisations need to be aware of society’s growing expectations on how organisations
incorporate change and develop its ability to devise and implement concrete measures to establish
desired ethical behaviours in decision-making and everyday business processes.

16.4.2.1 Sources of ethical risk

Typical sources of ethical risk will include, for example:31
• A transgression refers to any act that is against South African law and which will therefore be
considered as unethical conduct.
• Bribery is the act whereby a person is receiving something with the intent to influence the
person in order to get something else in return. For example, the alleged involvement of
government officials in the FIFA 2010 soccer bid for South Africa.
• False accounting refers to misrepresenting information in financial statements – for example,
the Enron scandal and the subsequent fall of its accounting firm, Arthur Anderson, who was
responsible for their financials over this period.
• Use of child labour, for example, in Pakistan, Nike was exposed in 1996 in an article
published in a magazine confirming the use of child labour for manufacturing Nike soccer
balls.32
• Insider trading, for example, the case of Martha Stewart, an internationally known American
businesswoman, who was found guilty on chargers relating to insider trading in 2004.
• Misleading or exaggerated advertising. The Advertising Standards Authority (ASA) is the
body in South Africa where complaints can be lodged against organisations that present
misleading advertising, including misleading packaging or industrial espionage, for example,
BAT (British American Tobacco) allegedly paid informers to commit industrial espionage in
rival local organisations.
• Breach of copyright whereby content, ideas, products etc., is used without permission or
without any acknowledgement. A recent case of breach of copyright in South Africa is the
Moneyweb and Fin24 case which went to court in 2014.
• Money laundering whereby the origins of money obtained are concealed or illegal. In South
Africa, legislation in the form of FICA (Financial Intelligence Centre Act No. 38 of 2001) has
been promulgated to assist with controlling money laundering. This Act, in conjunction with
the Prevention of Organised Crime Act No. 121 of 1998 (‘POCA’), aims to minimise this risk.
• Tax evasion whereby the organisation does not fulfil its taxation responsibilities.
• Improper competition practices refers to organisations dominating an industry, or situations
where, for example, members of an industry negotiate prices, better known as price fixing. In
2011 various organisations did not settle with the Competition Commission during the initial
fast-track process initiated by the commission based on collusion claims during the building of
stadia for the 2010 soccer World Cup. The commission’s construction cartel investigation
 involved 140 projects worth R47bn. WBHO paid a fine of R311 million, Murray & Roberts
paid R309 million, Stefanutti R307 million, and Basil Read paid R95 million.33
• Exploitation of workers, suppliers and other stakeholders in terms of, for example, work
hours, working conditions, rates per hour, late or no payments, etc.
• Counterfeit goods refer to, for example, the use of sub-standard material in manufacturing or
the retail of items such as counterfeit designer clothes, bags, accessories, perfumes as well as
pirated DVDs, CDs, phones and computer games, to mention a few.
• Invasion of privacy refers to situations when organisations or employees intrude into a
person’s life, for example, by way of disclosing a customer’s private affairs, disclosing a
customer’s private information, putting a customer in a false light, or using a customer’s name
for personal gain.

16.4.2.2 Why should we manage ethical risk?

Several advantages accrue when a department, project or organisation focuses on managing
ethical risks. These advantages include:
• Enhanced reputation and goodwill from various stakeholders including employees, customers,
investors and suppliers
• Protection from own employees, subcontractors and customers regarding legal action
• A stronger competitive position in markets and improved access to capital, credit and foreign
investment
• Increased profits due to market support for ethical business practice
• Sustained long-term growth due to goodwill and ethical conduct
• Business partner of choice
• Stronger employee performance (morale and turnover) and ability to attract quality employees
• Positive media exposure and coverage
• Customer loyalty
• Reduced insurance premiums, etc.

16.4.3Operational risk
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people or
systems, or these can also be influenced by external events.34 Contributing influences are the
failures of people, processes and technology, all of which are dependent on external factors.35

16.4.3.1 Sources of operational risk

The following can be classified as typical sources that fall within the category of operational
risk:36
• Business or strategic risk – This refers to strategic risk as a result of hostile changes in the
organisation’s market, customers, products, services and the economic and political
environments. As technology changes, organisations need to adapt. Nokia, for example, did
not anticipate the changes for Android platform phones and eventually lost their market share,
resulting in major strategic risk for the organisation.
• Crime risk – This refers to risks such as theft, fraud, computer hacking, etc. Computer
hacking, for example, is a crime risk and also an information technology risk, pending the
source and focus of the risk. As a crime risk, its source is theft and as an information
technology risk, the internal IT process is not functional in protecting or securing information.
•
 Disaster risk – This include risks such as fires, floods and other natural disasters and terrorist
activity. Some examples of major global disasters that have impacted countries, people and
organisations globally since the turn of the millennium are listed below:
» 9/11 (terrorist attack, USA): On 11 September 2011, a terrorist attack on the USA focused
on key American targets. Two planes crashed into the World Trade Centre in New York
City, one plane crashed into the Pentagon in Washington DC, and one plane, which was
aimed for the White House, crashed in a field outside Pennsylvania. US businesses, as well
as all global businesses that had a relationship with the USA, were exposed to the impact
of this disaster. The telecommunications and transportation sectors in the USA and
globally were greatly exposed, as were many businesses that lost people, information,
investors, money and other resources. More than 500 businesses were housed in the World
Trade Centre, which collapsed on that day.
» Indian Ocean tsunami: On 26 December 2004, people in the eastern hemisphere were
rudely awakened by walls of water that destroyed many coastlines and killed thousands of
people, bringing cities and businesses to a standstill. Hundreds of thousands of lives were
lost, thousands of businesses were totally destroyed and billions of dollars’ worth of
infrastructure was demolished in a matter of minutes. An earthquake had resulted in the
deadliest tsunami in the world.
» Earthquake and tsunami in Japan: The earthquake struck 230 miles north-east of Tokyo
on 11 March 2011. This already major disaster was followed one day later by an explosion
in reactor number one at the Fukushima Daiichi Nuclear Power Station. More than 200
000 residents were evacuated after the expected meltdown of reactors one and three raised
concerns about the release of radioactive material. As a result, more than 1 200 000
households were without electricity. Other damage included an oil refinery that caught
fire, a dam that burst in Fukushima, destroying houses and six harbours, and businesses
were down. In the months that followed, shares dropped in value and tourism decreased to
a level lower than 50% of comparative years.
• Information technology risk – this risk refers to unauthorised access to, and disclosure of,
information, as well as data corruption. SABMiller places great emphasis on identifying,
monitoring and mitigating risks to their business and applies a well-developed risk
management process. In 2014 they added information security, including cyber security and
the resultant possible disruption to business, as a specific principal risk.37
• Regulatory risk – This relates to the lack of observance of rules set by a regulatory body which
the organisation needs to adhere to. The South African banks, including FNB, Absa, Standard
Bank and Nedbank, are all members of BASA (The Banking Association of South Africa) and
function within a given decision-making framework.
• Reputational risk – This will include negative publicity about business practices or internal
controls. Many organisations are exposed by customers if bad practice is the order of the day.
The KFC fast food store in Braamfontein, Johannesburg, experienced this in 2015 after a
video clip surfaced on social media implicating staff showing unprofessional conduct.
• Systems risk loss – This risk is as a result of failure caused by the breakdown of business
procedures, processes or systems and controls. In this case systems risk is due to negligence or
unprofessional conduct by staff or teams resulting in services not being rendered.
• Outsourcing risk – This risk occurs because of reduced control over people, processes and
systems that are delegated to a third party. This risk also involves the impact of e-commerce,
insourcing and highly automated or technologically driven entities. What happens is that third
party competency, their financial standing or expertise is not adequately assessed prior to the
contract and therefore this internal process misconduct could be the source of ethical risk.
There are many examples of tender contracts where subcontractors who are not suitable for the
 tender are appointed. This is often due to unethical conduct. This is a clear example that the
internal processes are not effective and involves ethical risk.

The rewards of managing operational risk are optimal achievement of the organisation’s
objectives, optimising profit, minimising costs and wastage, and ensuring best possible quality.

16.4.4Project risk
Project risk is the risk relating to the delivery of a product or service, usually within the
constraints of time, cost and quality. Therefore, project risk management can be described as the
management process of identifying, analysing and managing all risks in a project’s life cycle
which impact on a project’s agreed and defined objectives.38

16.4.4.1 Sources of project risk

The key risk sources contributing to risk within a project are included in the following list:39
• The business environment within which the project is conducted and to what extent the project
is prepared for this context
• The ‘host’ industry within which the project is conducted and to what extent the project is
prepared for this context
• The sponsor’s organisation and to what extent they are geared or prepared
• The business case indicating the need for the particular project
• The project brief indicating the specifications of the project
• The user requirements indicating the standard requirements for the specific project and to what
extent the internal processes address this
• The project team, members of the team and how it is compiled
• The design, specification and the lay-out relevant to the specific project
• The internal and/or external approvals of the project
• The project controls, for example, scheduling, cost management and change control
• Procurement (Purchasing) of all relevant resources needed for the project
• Internal processes during implementation of the project
• Testing and commissioning of physical projects
• Handover of the project to clients or client departments.

The CHAOS Reports have been published every year since 1994 and are an overview of the state
of the software development industry. The CHAOS report has consistently reported project
success at less than 35% of all projects.40 The wastage of money and opportunity resulting from
65% of unsuccessfully implemented projects could be addressed with a proper risk management
approach.

16.4.5Technological risk
Technology is perceived as a production factor, an element of capital goods. It is therefore a
component of the transformation process. Therefore, this risk refers to events that would lead to
insufficient, inappropriate or mismanagement of investment in technology, in terms of
manufacturing processes, product design and/or information management.

16.4.5.1 Sources of technology risk

The following can be classified as typical sources that fall within the category technology risk:41
• Inadequate investment in technology and the succeeding inability of an organisation to be
competitive in the market. An example of this was when Nokia did not advance its
technological research in comparison to that of other cellphone companies such as Apple,
HTC and Blackberry. The development of Android platforms for cellphones created a
technological leap in cellphone technology with which Nokia were not able to catch-up.
• Inadequate technology governance and specific information technology governance. An
example in this would be governance relating to social media and the use of it by individuals
and organisations to communicate and share opinions freely. Regulation on what level of
freedom exists and how this technology can be applied is still not clear. Lack of alignment of
information technology with business objectives refers to organisations that are lacking the
implementation of new technology that is relevant to their overall organisational strategies and
objectives. Some organisations follow a growth strategy without considering the multiple
online e-commerce options available to fast-track the growth of their business into multiple
new markets.
• Inadequate protection against viruses, hacking and loss of confidential information. Paypal
and Payfast are examples of local and international digital merchants protecting organisations’
online stores from fraud, using tools such as 3D Secure and instant EFT.

The primary technology types used in organisations and which need to be considered for risk
management purposes, are summarised in three categories presented in Table 16.4.

16.4.6Health and safety risk

Health and safety risk can be described as the risk of injury or ill health to an employee or the
fatality of an employee(s). The aim is to prevent death, injury and ill health to those working and
those affected by the work activities.

16.4.6.1 Sources of health and safety risk

Typical sources of health and safety risk are:42
• The need of the organisation to meet government policies and legislation criteria. An example
is the South African Occupational Health and Safety Act which is applicable to organisations
and which, if not adhered to, understood or correctly implemented, will be a source of health
and safety risk.
• Actions to prevent reputation damage, with specific reference to health and safety of
employees.
• Criminal prosecution or civil lawsuits as a result of health and safety misconduct, in cases
where employees or individuals are hurt or even killed on premises, and the necessary
regulations were not followed.
• Loss of market share, customers, suppliers, shareholders, funding, partners and/or employees
due to misconduct relating to health and safety practices.
• Disruption to production, retail, service provision, use of advanced technology or other
operational activities as a result of health and safety issues.
• Negative media, press and internet coverage as a result of health and safety issues.
• Increased insurance premiums or loss of profits as a result of health and safety issues.
• Increased staff turnover and associated additional recruitment costs due to health and safety
issues.
Table 16.4 Primary technology types

Information technology Communication Control technology

technology

• Software applications e.g. bought • Using broadband e.g. • Computer aided design e.g.
in-store such as Windows 10 or high speed internet in architecture
developed in-house connection • Computer aided
• Management Information Systems • Video conferencing manufacturing e.g. in vehicle
• Intranets • E-commerce – various assembly plants
• Telematics e.g. GPS online presence options • Flexible manufacturing
• Information assets e.g. business • E-mail systems e.g. industrial
sharing info such as loyalty • Social media, etc. robots, etc.
programmes, etc.

Source: CHAPMAN, R.J. 2011. Simple tools and technique for enterprise risk management. 2nd ed. West
Sussex: Wiley & Sons, pp. 312–323.

A motion was filed on 21 December 2012, in the South Gauteng High Court, requesting class
certification of more than 15 000 prospective class members. In this example of legal action it was
alleged that respondent gold mining companies knew of the dangers posed to miners by silica dust
for more than a century. Therefore, the claim was that they were liable for 12 specific forms of
neglect and endangerment, including wilful disregard and/or failure to execute almost all the steps
mandated in regulations and legislation designed to protect miners from silica dust.

16.5 External sources of risk

The following section identifies and discusses the second part of the business risk taxonomy,
namely, external sources of risk. As illustrated in Figure 16.8, six main external sources of risk
are identified for the purpose of this chapter.
Figure 16.8 External sources of risk

16.5.1Environmental risk
Environmental risk can be described as the real or potential threat of adverse effects on living
organisms and the environment by emissions, wastes, discharges, resource depletion, abuse or any
other form of negative impact, as a result of an organisation’s activities. The term environment is
normally seen as: air, water and land (and this is inside and outside buildings – above and below
ground). For the majority of organisations, environmental risk is also perceived as the weakening
or decline in their profitability (bottom-line performance), as a result of:43
• Increased regulation of energy usage, for example, higher price tariffs for electricity during
certain periods
• Damaged reputation, brand name and weakened market share as a result of an environmental
incident
• Increased operating costs from the effects of global warming
• Higher fuel and energy costs as natural resources are increasingly depleted
• Loss of market share due to more environmentally ‘savvy’ competitors with marketing
campaigns that portray social responsibility and sustainability.

We need to acknowledge the importance of sustainable growth and sustainable business practices
in the context of environmental risk. Although many organisations show some level of
environmental awareness, it is not certain that those organisations have a strategy driving their
operations and managerial practices to ensure a sustainable future. Sustainability within an
organisational context can be defined as the ability of organisations to service the current needs of
their existing and potential customers without jeopardising the ability of future generations to
meet their needs in the future.44Refer back to Chapter 5 in which the ecological environment is
identified as a key element of the external macro-environment that organisations need to monitor
on a regular basis.
Taking this definition into account, businesses of today need to assess how they can design
and develop products or create services that utilise current resources optimally in such a way that
future generations will still have access to those resources. In addition, organisations need to find
ways to make use of renewable resources when developing new products or creating new services.
A commitment to sustainability (the responsible use of natural resources) requires action, not just
talk, from all stakeholders involved in manufacturing or retailing a product and rendering a
service, including the employees of the organisation, competitors, customers, suppliers and so on.
Thus, a sustainable organisation is one that contributes to sustainable development. This is
done by the organisation providing benefits that are better known as the triple bottom line. This
refers to three focus areas of performance: economic performance (profitability), social
performance (people) and the natural environment. Stakeholders may understand the meaning of
the triple bottom line, but their motivations and perceptions on sustainability are likely to vary.
For some managers, sustainability is a cost that the organisation must cover in order to do
business while meeting the legal requirements. Other managers perceive sustainability as a
business opportunity, based on the development of the organisation’s ability to lower costs,
minimise risk, increase market share, and even grow profit and turnover by means of innovation.45

16.5.1.1 Sources of environmental risk

Sources contributing to environmental risk include the following examples, but are not limited
to:46
• Pollution of land, water or air. BP, for example, had to pay a record environmental fine of
$18.7bn to settle legal actions brought by the US and several states over the fatal 2010 Gulf of
Mexico oil spill.47
• Increased environmental regulation and as a result, higher operational costs. Greenpeace
Africa announced that new legislation referring to Minimum Emission Standards (MES)
would come into action in 2015 focusing on pollution. The aim is to protect people’s lives as
part of South Africa’s air quality legislation. According to Eskom, the costs of implementing
these standards at the utility outweigh the benefits. Resistance from various stakeholders is
developing. Greenpeace states that it is not possible to “put a price on human life, and that no
polluter should be above the law”48.
• Prosecution arising from the lack of compliance with rules set by a regulatory body.
• Reputational risk from adverse publicity as a result of pollution events, resulting in a reduced
customer base.
• Destruction of facilities or loss of manufacturing as a result of severe weather conditions.
• Variation of oil production, resulting in higher energy costs.
• Excessive production of hazardous products and any other form of hazard.
• Ecologically unsustainable consumption of natural resources.

The advantages of managing environmental risks would include the following:

• It encourages the examination of business continuity issues stemming from possible climate
change events.
• It stimulates closer examination of the risks of adverse environmental incidents and response
actions should they occur.
•
 It initiates marketing initiatives to promote products and brands in the context of the
environment, sustainability, renewable energy and preservation of natural resources, of which
Woolworths is an excellent local example.
• It provides management the opportunity to focus on revenue generating activities rather than
fire-fighting adverse publicity.
• It contributes to management actions which prevent attracting greater regulatory supervision
and intrusion.
• It increases competitor advantage where customer buying preferences favour business with a
better environmental performance.
• It reduces exposure to prosecution.

16.5.2Economic risk
Economic risk can be best described as the influence of national macro-economics on the
performance of an individual organisation. The essence to economic risk is that because of the
influence of government policy, no organisation will have direct control over national influences
on aggregate (collective) demand.

16.5.2.1 Sources of economic risk

The following are typical sources of economic risk:49
• A fall in demand (a shift in the aggregate demand curve), which refers to the spending on
goods and services produced in an economy.
• Government policies – consider monetary policies (relating to the Reserve bank’s influence of
money supply, interest rates etc.) and fiscal policies (relating to taxation for revenue
generation and government expenditure), and policies including, for example, trade
protectionism and other related policies.
• Movement in property (house) prices. This indicator will indicate investment stability or
instability and potential for growth among other factors. The nominal house price for the
middle segment in South Africa was R271 863 in 2000 and R 1 275 530 in 2014.50
• Exchange rates creating currency risk and interest rate fluctuations (government’s actions to
influence inflation). The implication, for example, of a weakening rand has many risk related
consequences for South African businesses. As the Rand weakens, so interest rates most likely
will rise, hurting businesses with debt, home owners and indebted customers who could
default on payments and/or spend less. The price of oil, and therefore the price of petrol also
increases, which has an additional inflationary effect, including higher product prices due to
transportation costs.

At the turn of the millennium, the biggest, fastest-growing economies of the third world were
identified as Brazil, Russia, India and China. But while the big four, also known as BRIC, have
attracted the most investor attention, there are also opportunities in less-prominent but still
promising emerging markets such as Egypt, Mexico, Poland, South Africa, South Korea and
Turkey. These countries may not have the advantage of billion-plus population markets, but in
general they have potential. An invitation in December 2010 by the member countries of BRICS
resulted in South Africa becoming the fifth member of the group. The member countries of
BRICS represent more than 25% of the world land surface and in excess of 40% of the world
population. South Africa’s BRICS membership also grants them front seat access to the New
Development Bank (NDB) announced in 2015. The South African government’s ability to
manage this membership advantageously, could address economic risk, or if not managed
properly, create economic risk for business.

16.5.3Legal risk
Legal risk can be described as the risk of failing to operate within the law. Therefore, an
organisation and its employees need to be aware of its legal obligations; honour contractual
commitments; show evidence that it has operated within the law; and recognise and effectively
manage legal threats. Consider the law in terms of the organisation’s business format, patent,
copyright, employment, contracts, or criminal liability.

16.5.3.1 Sources of legal risk

External sources contributing to risk may include, but are not limited to:51
• Breach of legislation, for example, environmental legislation (e.g. National Environmental
Management Air Quality Act of 2004 in terms of air pollution, not meeting requirements
stated by FICA in terms of money laundering prevention legislation, etc.)
• Inaccurate listing of information such as misstatements, material oversights or providing
misleading opinions. An example would be when an organisation provides misleading
information about their products in advertisements or labels on products, thereby creating false
expectations.
• Breach of copyright – using sources without acknowledging the original source content. As
indicated, this could also refer to an internal source, but as an external source, it refers to the
legal implication whereby an employee of the organisation fails to operate within the law by
using, for example, copyrighted material such as software from a previous company without
obtaining approval.
• Loss of business, as a result of senior management time being lost, due to time being spent
attending to legal disputes.
• Prosecution for breach of law.
• Legal disputes with trading partners or suppliers (local versus overseas law).
• Loss of reputation as a result of prosecution or a dispute with a customer, partner or supplier.

16.5.4Market risk
Market risk is the exposure to potential loss arising from diminishing sales or margins due to
changes in market conditions, outside of the control of the business.

16.5.4.1 Sources of market risk

Sources of market risk (based on the macro marketing environment) are summarised below:52
• Political – level of political stability and participation in the market
• Cultural – values, norms and standards of customers
• Demographic – customer profile e.g. age, gender, sexual orientation, population, income
group and so on.
• Physical and natural – resources and production factors
• Legal and regulatory – legislation and regulations by government and standards governing
bodies
• Economic – financial ability of customer base
• Technology – technological use in market by customer and for access to customer
• Competitive – level of competition in market.

16.5.5Social risk
In business context, social risk stems from changes in society, which create changes in demand,
open new market opportunities or alter business’s responsiveness to demand, as a consequence of
the characteristics of its workforce.

16.5.5.1 Sources of social risk

The following are examples of possible factors that would be considered as sources of social
risk:53
• Poor standard of education of new recruits. In South Africa language and numeracy skills are a
critical problem for learners who need to enter to job market. This risk factor further
contributes to lack of productivity, error, and health and safety issues.
• Linguistic barriers in trade, complicating people’s ability to communicate effectively in the
workplace. A weak school system and in particular, a lack of quality language education for
writing and reading skills, results in further weak communication. The result is that
instructions and feedback in the workplace become constrained and ineffective with the
subsequent potential for miscommunication, error and low morale.
• The growing percentage of the working population that demands work but has no skills. As
technology increasingly replaces unskilled or low skilled work, more of this group will have
less chance of getting a job in due course. In South Africa the unemployment rate has been in
excess of 25% for some time.54 In 1994 2.9 million people were classified as low skilled
labour and 20 years later this figure has grown to 4.3 million people. This certainly qualifies as
a social risk.55
• The value of the home improvement market and the way it responds to interest rates.
• Growing obesity (especially among teenagers) and its potential impact on the future
workforce.
• High pregnancy rate among teenagers in South Africa.

The question needs to be asked: why we should manage social risk? This can be answered as
follows:
• It allows the organisation and its employees to understand the impact of the risks to the
organisation and its personnel in terms of crime including theft, arson, vandalism and violence
(e.g. xenophobia).
• It helps with identifying the risks associated with employment, and especially the level of
education required of new recruits. It also enables a proactive approach to dealing with these
shortcomings in the South African context.
• It allows the organisation to understand the ongoing changes in socio-economic groups and
the changes these make to market sectors and to future product markets.
• It assists with identifying social problems within the workplace and the risk resulting from
employees using substances such as alcohols and drugs – resulting in physical and mental
health problems, risk of accidents, lower productivity and an increase in insurance costs and
reduced profitability.

16.5.6Political risk
Political risk is the uncertainty that stems, in whole or in part, from the exercise of power by
governmental role-players, and the actions of non-governmental groups.56 This would therefore
involve national and local governing bodies, as well as groups of a political nature such as
political parties or action groups.

16.5.6.1 Sources of political risk

Sources of political risk can be classified in two major groups: 57
• Macro-politics (potentially will affect all organisations in a country).
• This source of political risk refers to phenomena such as recession, civil wars, expropriation,
nationalisation, terrorism, politically motivated violence, bureaucratic incompetence in
municipalities or governments, nationalisation of industries or projects, currency devaluations,
new or revised legislation, corruption within national and local government, and so on.
• Micro-politics (will affect specific organisations, industries or types of business).
• This source of political risk includes, for example, industry specific taxation, tariffs and
quotas, politically motivated violence (for example, against a specific industry such as the
mining industry in South Africa.

Chapter summary
The issues discussed in this chapter include an introductory overview of risk management to be
considered by South African business, key terminology relating to risk and risk management, a
risk management process as well as internal and external sources of risk. Considering the fact that
businesses in every country worldwide are exposed to different types of risk, it is impossible to
deal in detail with all sources of risk in this chapter. Therefore, the discussion aims to create risk
management awareness among existing and future managers.
Each of the aspects of the various stages of the risk management process discussed in this
chapter demands further in-depth investigation by the reader to allow for application. This is so
because it is not possible to address all the details in one chapter. An awareness created by the
discussion formulated here will guide you in your further investigations. You as a manager must
continuously investigate risk management practices and processes that will impact on your current
and strategic actions. Consider the business risk taxonomy presented as a brief guide for
identifying and registering risks according to their internal or external focus. Helping to identify
the different internal and external sources of risk will furthermore assist in the process of
identifying, evaluating and managing different risks.
Food for thought is the first Risk Report presented in 2015 by IRMSA (Institute of Risk
Management South Africa) which confirmed that six of the top ten risks prevalent in the South
African context appeared on both the likelihood (probability) as well as consequence
(significance) scales. The top three risks identified were corruption, unemployment and critically
weak infrastructure.58

Questions for discussion

1. Explain the concepts of risk and risk management.
2. Identify and discuss the different stages of the risk management process.
3. Classify the two main sources of enterprise risk relating to the internal and external
environmental context.
4. Select any organisation. Which internal sources of risk impact the organisation currently?
5. Which external sources of risk are currently managed using a risk management process?

Exercise for competency development

Consider the following quotation:
“In business context, risk emanates from changes in society that create changes in demand, open new
market opportunities or alter business’s responsiveness to demand.”
Identify the source of risk and classify whether the source is internal or external of nature. Select any
retail organisation and investigate how this source of risk could potentially impact the retail
organisation’s day-to-day business, as well as its future business plans. Select another retail business but
in a different industry, and evaluate and compare the results.

Contemporary management in practice

Consider the following news clip. Do you think the airline was exposed to any internal risk when
developing this communication and any external risk as a result of the ruling by the Advertising
Standards Authority? What type(s) of risks would you identify in this case?59

South African Airways has been ordered to withdraw a print advertisement because it created unrealistic
consumer expectations of seating and flight meals.
The Advertising Standards Authority of South Africa (ASA) found in favour of a frequent flyer who
complained that the advertisement, for business class domestic flights, was misleading because it
showed passengers being served a full course meal with wine in reclining seats spaced far apart.
He argued that it created the false expectation that these conditions applied on all local business class
flights. The only caution in the advertisement was a small-print disclaimer stating that the Airbus A330-
200 only serves selected routes.
SAA countered that it could not show every one of the five types of aircraft it used domestically and
was free to feature any one it wished.
The directorate accepted in its ruling “that not all planes are ‘equal’ with regards to space, luxury
and seating” but said it could not ignore the fact the example depicted created a “mental expectation”
that any flight would offer these conditions.
“What the respondent appears to have done is relied on an image of its most spacious aircraft, to
create an image and therefore an expectation that ‘what you see is what you would most likely get’.”
It ordered that SAA withdraw the advert immediately on receipt of its ruling.

Endnotes
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4 CHAPMAN, R.J. 2006. Simple tools and techniques for enterprise risk management. UK: Wiley
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8 Ibid.
9 TRENT, R. J. & ROBERTS, R.R. 2010. Managing Global Supply and Risk: Best Practices, Concepts,
and Strategies. Fort Lauderdale: J Ross Publishing, p. 129.
10 COSO. 2015. [Online]. Available: http://www.coso.org/ [Accessed 30 May 2015].
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12 KURDZIEL, K. 2012. [Online]. Available: http://www.slideshare.net/JamesMooreCo/ken-kurdziel-
enterprise-risk-management [Accessed 11 May 2015].
13 Ibid.
14 Ibid.
15 CHAPMAN, R.J. 2011. Op cit.
16 Ibid., p. 145.
17 VAN DER LINDE, T.N. 2010. Introduction to risk management. Certificate in risk management.
University of Johannesburg: Johannesburg.
18 Ibid., p. 159.
19 SIMON, P., HILSON, D. & NEWLAND, K. 1997. Project Risk Analysis and Management Guide.
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23 WILKINSON, S. 2003. Risk control. London: Witherby.
24 CHAPMAN, R.J. 2011. Op cit., p. 234.
25 DRUCKER, P.F. 1979. Management, an Abridged and Revised Version of Management: Tasks,
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26 CHAPMAN. R.J. 2011. Op cit., p. 245.
27 Ibid., p. 245.
28 Ibid., p. 249.
29 CHAPMAN, R.J. 2011. Op cit., pp. 251–264; EPSTEIN, M. J. & BUHOVAC, R.J. 2006. The Reporting
of Organizational Risks for Internal and External Decision-Making. CIMAGlobal. AICPA. [Online].
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36 CHAPMAN, R.J. 2011. Op cit.; OSBORNE, A. 2012. Op cit.; EPSTEIN, M. J. & BUHOVAC, R.J.
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37 SABMILLER. 2014. SABMiller Annual Report 2014. [Online]. Available:
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38 CHAPMAN, R.J. 2011. Op cit.; OSBORNE, A. 2012. Op cit.; EPSTEIN, M. J. & BUHOVAC, R.J.
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39 OOSTHUIZEN, T.F.J. & VENTER, J. 2011. Op cit., pp. 227–228; CHAPMAN, R.J. 2011. Op cit., p.
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Ability. Ability refers to the individual’s mastery of competencies required to do a job.
Absorption. Absorption refers to the ability of a business organisation to cushion itself against the ups and
downs of turbulent times.
Accountability. Accountability is the expectation that employees will accept credit or blame for the results of
their work.
Achievement motive. The achievement motive is the desire to succeed relative to some standard of
excellence or in competitive situations.
Achievement-orientated leadership. Achievement-orientated leadership involves setting challenging goals,
expecting followers to perform at their highest level and showing confidence that they will meet this
expectation.
Activity-based costing. Activity-based costing is an accounting system that focuses on activities as the
fundamental cost centres and can be used to measure actual cost considering independent activities.
Adaptive decisions. Adaptive decisions are choices made in response to a combination of moderately
unusual and only fairly uncommon problems with alternative solutions.
Adjourning stage. The adjourning stage involves terminating task behaviours and disengaging from
relationships.
Administrative innovation. Administrative innovation occurs when the creation of a new organisational
design better supports the creation, production and delivery of products and services.
Administrative management. Administrative management focuses on the manager and basic managerial
tasks.
Affiliation motive. The affiliation motive is a person’s desire to develop and maintain close, mutually
satisfying interpersonal relationships with others.
Affiliation needs. Affiliation needs are the desire for friendship, love and a sense of belonging.
Agility. Agility refers to the ability of an organisation to respond quickly to threats and opportunities, to
quickly adapt their underlying investment holdings in line with the changing business environment, and
the courage to follow new directions as the business environment dictates.
Art. An art is something a person practices based on skills applied to achieve a desired result.
Assessing. Assessing involves working out what the implications of the changes and trends in the external
environment are for the organisation’s strategic and tactical decisions.
Audio signs. Audio signs are universal in nature and are easily understood by employees. Examples include
drum beating, hooters, bells, sirens, public address systems and radio.
Authority. Authority refers to the right to decide and act.
Authority structure. Authority structure determines who has the right to make decisions of different degrees
of importance at different levels within the organisation.
Automation-based controls. Automation-based controls usually involve linking machines with other
machines to perform tasks by measuring performance to prevent and correct deviations from desired
results.
Autonomy. Autonomy is present when the job provides substantial freedom, independence and discretion to
the individual in scheduling work and determining the procedures to be used in carrying out tasks.
Back translation. Back translation is a process whereby messages are translated back into the original
language to ensure the accuracy of the original translation.
Balanced scorecard. The balanced scorecard is a format for describing the activities of an organisation
through a number of measures for each of four perspectives, namely, the financial perspective, the
customer perspective, the internal processes perspective and the learning and growth perspective.
Basic expectancy theory. Basic expectancy theory states that people tend to choose behaviour that they
believe will help them achieve their goals (for example, a promotion or job security) and avoid behaviour
that they believe will lead to undesirable consequences (for example, a demotion or criticism).
Behavioural (human-relations) viewpoint of management. The behavioural (human-relations) viewpoint
of management focuses on dealing effectively with the human aspects of organisations.
Behavioural models of leadership. Behavioural models of leadership focus on differences in the actions or
behaviour of effective and ineffective leaders.
Behavioural norms. Behavioural norms are the informal rules of behaviour that are widely shared and
enforced by members of a work team.
Benchmarking. Benchmarking is the continuous process of comparing an organisation’s strategies, products
or processes with those of best-in-class organisations.
Best-cost strategy. A best-cost strategy involves developing a hybrid strategy that is a combination of both
differentiation and low cost.
BHAG. A BHAG is a ‘big, hairy, audacious goal’.
Blue Oceans. Blue Oceans denote all the industries not in existence today and strategies are formulated to
create new markets.
Bounded rationality model. The bounded rationality model refers to an individual’s tendencies to select
less than the best goal or alternative solution owing to inadequate information and limited search for
alternatives.
Brainstorming. Brainstorming is an unrestrained flow of ideas in a group, with all critical judgements
suspended.
Budgeting. Budgeting is the process of categorising proposed expenditures and linking them to goals.
Bureaucratic culture. A bureaucratic culture refers to an organisation that values formalisation, rules,
standard operating procedures and hierarchical co-ordination.
Bureaucratic management. Bureaucratic management relies on rules, a set hierarchy, a clear division of
labour and detailed procedures.
Business communications tools. Business communications tools include traditional and modern means, such
as information technology, internet and electronic commerce, of transmitting a message to a targeted
audience.
Business functions. The activities of various functional areas within a business organisation are
indispensable in the process of converting inputs (raw materials and other resources) into outputs (finished
products). The seven most typical functional areas are operations, purchasing, marketing, logistics,
finance, human resources and public relations.
Business-level strategies. Business-level strategies refer to the organisation’s deliberate decisions on how to
meet its customers’ needs, how to counter the competitive efforts of its rivals, how to cope with the
existing market conditions and how to build its competitive advantage.
Centralisation. Centralisation is the concentration of decision-making at the top of an organisation or
department, with little delegation to middle and lower-level managers.
Certainty. Certainty is the condition under which individuals are fully informed about a problem, alternative
solutions are obvious and the likely results of each solution are clear.
Change management. Change management is an ongoing process which enables organisations to anticipate
and respond to changes taking place in their external environment and to enable employees on all levels to
effectively and efficiently deal with these changes in the organisation’s internal environment.
Change. Change is the planned alterations of organisational components to improve the effectiveness of the
organisation.
Channel. A channel is the path a message follows from the sender to the receiver.
Charismatic authority. Charismatic authority is evident when subordinates suspend their own judgements
and comply voluntarily with a leader because of special personal qualities or abilities they perceive in that
individual.
Choices. Choices are goals and alternatives that organisations and individuals are free to select, but do not
have to select.
Chromatics. Chromatics Is defined as communication through the use of colours which have different
meanings in different contexts and cultures.
Chronemics. Chronemics is defined as communication through the use of time within a culture.
Clan culture. A clan culture is one that includes attributes such as tradition, loyalty, personal commitment,
extensive socialisation, teamwork, self-management and social influence.
Closed system. A closed system is one that limits its interactions with its environment.
Co-operative strategies. Co-operative strategies refer to attempts by organisations that are traditionally
competitors to form partnerships in order to share resources, capabilities or technical know-how as a basis
for developing a competitive advantage for the participants.
Co-ordination. Co-ordination comprises the formal and informal procedures and controls that synchronise
and integrate the activities and responsibilities of individuals, teams and departments in an organisation, to
attain the set objectives.
Code of ethics. A code of ethics is a formal statement of an organisation’s principles concerning ethics and
social values.
Coercive power. Coercive power is the ability of a leader to obtain compliance through fear or punishment.
Cohesiveness. Cohesiveness is the strength of members’ desires to remain in the group and their
commitment to it.
Collectivism. Collectivism (by Hofstede) recognises broader, tightly knit social networks in which group
members focus on the common welfare and feel a strong loyalty toward one another. The spirit of Ubuntu
is part of this.
Communication. Communication is the transfer and exchange of information and understanding from one
person to another through meaningful symbols.
Communication competency. Communication competency refers to the effective transfer and exchange of
information that leads to understanding between yourself and others.
Competency. Competency refers to combinations of knowledge, skills, behaviours and attitudes that
contribute to personal effectiveness.
Computer ethics. Computer ethics is concerned with the nature and social impact of information
technologies, and the formulation of policies for their appropriate use.
Conceptual skill. Conceptual skill is the ability to think analytically and to solve complex problems. This
involves an ability to break down problems into their constituent parts, to see the relationship between the
parts and to recognise the implications of one problem for other problems. It involves the ability to see the
big picture, to take a systems perspective, and to recognise that an organisation influences and is
influenced by the external environment.
Concurrent control. Concurrent control is a control measure that monitors activities while they are taking
place and therefore focuses on input factors such as resources.
Considerate leadership style. Considerate leadership style is characterised by concern for employees’ well-
being, status and comfort.
Consolidation strategy. A consolidation strategy involves maintaining the existing market share in existing
markets.
Constraints. Constraints limit the types of goals set, the decisions made and the actions taken.
Contingency models. Contingency models focus on the situational factors that influence the behaviour
(style) of leaders, suggesting that effective leadership is when the leader’s style is appropriate for the
situation.
Contingency planning. Contingency planning involves preparing for unexpected, major and quick changes
(positive or negative) in the environment that will have a major impact on the organisation and require a
quick response.
Contingency viewpoint of management. The contingency viewpoint of management (sometimes called the
situational approach) is one in which management practices should be consistent with the requirements of
the external environment and technology, and the capabilities of the people involved.
Contingent. Contingent means dependent upon.
Control. Control involves the use of mechanisms to ensure that the behaviours and performance of
individuals, groups and teams conform to an organisation’s rules and procedures, and to set performance
standards.
Controlling. Controlling is the process by which a person, group or organisation consciously monitors
performance and takes corrective action.
Core behaviour standards. An organisation’s core behaviour standards are the behaviours expected of
employees if they are going to carry out the core strategies effectively and stick to the core values.
Core capabilities. A threshold capability becomes a core capability (what an organisation can do) when the
well-performed activity is central to what delivers value to the customer, and is therefore central to the
organisation’s competitiveness and profitability.
Core purpose. An organisation’s core purpose is its fundamental reason for existing.
Core strategies. An organisation’s core strategies are the key actions it needs to undertake in order to be
successful in its industry and fulfill its core purpose.
Core values. An organisation’s core values are the key principles for which it stands and that serve to guide
the behavior of everyone in the organisation.
Corporate citizenship. In terms of corporate citizenship, organisations consider the interests of society by
behaving in an ethical manner and taking responsibility for the impact of their activities on customers,
suppliers, employees, shareholders, communities and other stakeholders as well as on the environment.
Corporate governance. Corporate governance is the pattern of relations and controls between the
shareholders, the board of directors and the top management of a company.
Corporate social responsibility. Corporate social responsibility is an organisation or manager’s duty or
obligation to make decisions that nurture, protect, enhance and promote the welfare and
Corporate-level strategy. Corporate-level strategy guides the overall direction of organisations having more
than one line of business.
Cost-leadership strategy. A broad cost-leadership strategy means competing for the mass market by
providing goods and services at costs that are as low as, or lower than, those of competitors.
Country-club style (1,9). The country-club style (1, 9) is used by managers who try to create a secure and
comfortable atmosphere, and trust that their subordinates will respond positively. Attention to the need for
satisfying relationships leads to a friendly, if not necessarily productive, atmosphere and work tempo.
Creativity. Creativity is the ability to visualise, foresee, generate and implement new ideas.
Critical psychological states. Critical psychological states are the states (experienced meaningfulness,
experienced responsibility and knowledge of results) needed to create high levels of motivation in the
workplace.
Cultural diversity. Cultural diversity refers to the full mix of the cultures and subcultures to which members
of the workforce belong.
Culture. Culture is the unique pattern of shared assumptions, values and norms that shape the socialisation,
activities, language, symbols, rites and ceremonies of a group of people.
Customer departmentalisation. Customer departmentalisation involves organising around the type of
customer served. It is used when management wants to ensure a focus on the customer’s needs rather than
on the organisation’s skills (functional departmentalisation) or the brands it produces and sells (product
departmentalisation).
Customer perspective. The customer perspective of the balanced scorecard requires that managers translate
their general mission statement on customer service into specific measures that reflect the factors that
affect customers the most.
Decentralisation. Decentralisation is an approach that requires managers to decide what and when to
delegate, to select and train personnel carefully, and to formulate adequate controls.
Decision-making. Decision-making includes the ability to define problems, gather information, generate
alternatives and choose a course of action.
Decoding. Decoding translates messages received from the sender into a form that has meaning to the
receiver.
Delegation. Delegation is the process by which managers assign to subordinates the right to make decisions
and act in certain situations.
Delphi technique. The Delphi technique is a forecasting aid based on the consensus of a panel of experts.
The experts refine their opinions, step by step, until they reach consensus.
Demands. Demands are the desires expressed by powerful stakeholders that an organisation make certain
decisions and achieve particular goals.
Deming cycle. The Deming cycle is a decision aid that focuses on improving quality. It comprises four stages
– plan, do, check and act – that should be repeated over time to ensure continuous improvements in a
function, product or process
Demographic diversity. Demographic diversity reflects the degree of mix of characteristics of the people
who make up an organisation’s workforce.
Demography and social structure. Demography and social structure are concerned with measuring the size
and structure of a population, in other words, gender, age, location and education.
Departmentalisation. Departmentalisation is the basis on which jobs are grouped in order to accomplish
organisational goals.
Differentiation. A broad differentiation strategy involves competing for the mass market by offering
products or services that customers perceive to be unique in ways that are important to them.
Directive behaviour. Directive behaviour occurs when a leader relies on one-way communication, spelling
out duties, and telling followers what to do and where, when and how to do it. Directive leaders structure,
control and supervise subordinates.
Directive leadership. Directive leadership involves letting followers know what is expected of them and
telling them how to perform their tasks. This style is similar to the initiating-structure and production-
centred styles.
Disbanding. Disbanding occurs when the team breaks up or is terminated.
Discipline. A discipline implies that scholars, through research and publications, communicate relevant
knowledge and that the knowledge should be formally imparted by education and training programmes.
Disseminator managerial role. The managerial role of disseminator involves informing employees about
changes taking place in the external and internal environments that will affect them and the organisation,
and communicating to employees the vision and purpose of the organisation.
Distinctive capabilities. Distinctive capabilities are core capabilities (what an organisation can do) that an
organisation performs better than its competitors.
Distributive-justice principle. The distributive-justice principle requires that individuals not be treated
differently on the basis of arbitrarily defined characteristics.
Disturbance handler managerial role. The managerial role of disturbance handler involves moving
quickly to take corrective action to deal with unexpected problems arising in the organisation’s external
environment.
Diversification. Diversification refers to the variety of different goods and services produced by an
organisation, and the number of different markets to which they are sold.
Division of labour. Division of labour means that duties are divided into simpler, more specialised tasks.
Downward channels. Downward channels are used by managers to send messages to employees.
E-commerce activities. E-commerce activities are conducted between organisations that have developed
complex networking systems dedicated to processing orders, managing inventories and handling
payments.
E-mail. E-mail uses computer text composition and editing to send and receive written information quickly,
inexpensively and efficiently.
Economic environment. The economic environment comprises those economic factors in the macro-
economy that also could change and affect business and consumers.
Economic sustainability. Economic sustainability is an organisation’s commitment to addressing current
business needs and economicviability so as to prepare strategically for long-term business success,
markets and operating environments of the organisation.
Economic value added. Economic value added (EVA) is the value of profits exceeding the cost of capital
for a particular financial year.
Effectiveness criteria. Effectiveness criteria measure the outcomes achieved by individual members and the
whole team.
Effectiveness. Effectiveness refers to performing those activities that are going to ensure that the organisation
fulfils its purpose and attains its goals; in other words, ‘doing the right things’.
Efficiency. Efficiency refers to how well tasks are done; in other words, ‘doing things right’.
Electronic data interchange (EDI). In electronic data interchange (EDI), use is made of direct computer-
to-computer networks to facilitate the exchange of transaction documents such as invoices and purchase
orders.
Emotion. Emotion is a subjective reaction or feeling.
Emotional intelligence. Emotional intelligence is a person’s ability to be able to identify, understand and use
their own emotions and those of others to effectively influence people and build relationships to achieve
desired outcomes.
Employee-centred leadership style. An employee-centred leadership style encourages employees to
participate in making decisions and makes sure that they are satisfied with their work.
Empowerment. Empowerment is about putting employees in charge of and allowing them to making
decisions that affect themselves and what they do (their work).
Enabling technologies. Enabling technologies refer to information technology such as intranets, the internet
and search engines that facilitate the management of knowledge in organisations.
Encoding. Encoding translates thoughts or feelings into a medium – written, visual or spoken – that conveys
the intended meaning.
Enterprise risk management. Enterprise risk management is the risk management process within an
organisational context.
Entrepreneur managerial role. The managerial role of entrepreneur involves identifying and evaluating
business opportunities, and allocating resources to them in order to make a profit.
Entrepreneurial culture. An entrepreneurial culture involves high levels of risk-taking, dynamism and
creativity.
Environmental sustainability. Environmental sustainability is an organisation’s commitment to the long-
term quality of our environment.
Equity theory. Equity theory relates to how employees make judgements about whether the organisation is
treating them fairly.
Esteem needs. Esteem needs are the desire for self-respect, a sense of personal achievement and recognition
from others.
Ethical leadership. Ethical leadership is about leadership that demonstrates behaviour that is right within a
particular context and culture, respecting human dignity and rights.
Ethics committee. An ethics committee consists of a group of employees who oversee all aspects related to
ethics in the organisation, well-being of stakeholders and society as a whole.
Ethics. Ethics is a set of values and rules that define right and wrong behaviour.
Existence needs. Existence needs are the desires for material and physical well-being that are satisfied
through food, water, air, shelter, working conditions, pay, fringe benefits and the like. They are similar to
Maslow’s physiological and security needs.
Expectancy. Expectancy is the belief that a certain level of effort will lead to improved performance.
Experienced meaningfulness. Experienced meaningfulness refers to whether employees perceive their work
as valuable and worthwhile.
Experienced responsibility. Experienced responsibility refers to whether employees feel personally
responsible for the quantity and quality of their work.
Expert power. Expert power is based on specialised knowledge.
Explicit knowledge. Explicit knowledge is all published and internally generated reports, manuals, books,
magazines and journals, government data and reports, online services and the like.
Expressed-values level. The expressed-values level represents how people in the culture explain the
manifest level. In other words, it is the culture’s own explanation of itself.
External environment. The external environment of a business comprises the macro-environment and the
industry environment.
External growth strategies. External growth strategies are the actions taken by companies involving other
organisations to a greater or lesser extent, in order to fill any profit gaps.
External networking. External networking refers to time that managers and employees spend meeting with
peers and others outside the organisation.
External risk sources. External risk sources are those risks which originate outside the organisation. Key
sub-sources of external risk are environmental risk, economic risk, legal risk, market risk, social risk and
political risk.
External system. The external system comprises outside organisational conditions and influences that exist
before and after the work team is formed.
Extinction. Extinction is the absence of any reinforcement, either positive or negative, following the
occurrence of a behaviour.
Extranet network. An extranet network, which is internet based, allows authorised users within an
organisation to communicate with users in another organisation, such as customers and vendors.
Extrapolation. Extrapolation is the projection of some tendency from the past or present into the future. The
simplest (and at times most misleading) form of extrapolation is a linear or straight-line projection of a
past trend into the future.
Extrinsic rewards. Extrinsic rewards are outcomes supplied by the organisation such as a good salary,
status, job security and fringe benefits (these rewards are similar to the job context items that Herzberg
called hygiene factors).
Facebook. Facebook has become the most widely recognised name in social networks, allowing people to
join and ‘friend’ members or invite others to join, and then share and exchange information.
Fairness principle. The fairness principle requires employees to support the rules of the organisation when
the following two conditions are met: the organisation is just (or fair) and employees have voluntarily
accepted benefits provided by the organisation or have taken advantage of opportunities offered in order
to further their own interests.
Feedback. Feedback is the receiver’s response to the sender’s message. It is also information about a
system’s status and performance.
Feelings. Feelings reflect the emotional climate of a group.
Fiedler’s contingency models. Fiedler’s contingency model suggests that successful leadership depends on
matching a leader’s style to a situation’s demands.
Figurehead managerial role. The managerial role of figurehead involves performing ceremonial and
symbolic duties, and representing the organisation when and where necessary.
Financial controls. Financial controls include a wide range of methods, techniques and procedures such as
budgets, financial ratios and activity-based costing to prevent or correct the misallocation of resources.
Financial perspective. The financial perspective measures indicate whether an organisation’s strategy,
implementation and execution are contributing to its improvement in market value.
First-line managers. First-line managers are responsible for directing the day-to-day activities of operative
employees.
Fiscal policy. Fiscal policy refers to the regulation of the national economy through the management of
government revenues raised through taxation, and government expenditure on things such as health,
education and infrastructure.
Five Forces analysis. The Five Forces analysis (by Michael Porter) identifies the key competitive forces in
an industry: rivals (competitors), power of customers (buyers), power of suppliers, substitutes and new
entrants.
Focused cost-leadership strategy. A focused cost-leadership strategy refers to competing in a specific
customer or geographic niche by providing goods and services at a cost as low as, or lower than,
competitors’ costs.
Focused differentiation strategy. A focused differentiation strategy involves competing in a specific market
niche by serving the unique needs of certain customers or a specific geographic market.
Forecasting. Forecasting involves predicting, projecting or estimating future events or conditions in an
organisation’s external environment.
Formal communication. Formal communication is when the exchange of information is done through pre-
defined channels such as meetings, paper or electronic means.
Formal group. A formal group is created within an organisation with the intention of completing a specific
role or task. Formal groups are also called work teams.
Forming stage. During the forming stage, a work team focuses on orientation to its goals and procedures.
Four action framework (‘ERRC’ analysis). The four action framework (‘ERRC’ analysis) involves asking
the following questions: What key elements of customer value on which the value curve is based, can be
eliminated, reduced, raised or created.
Framing. Framing is a process whereby leaders define the group’s purpose in highly meaningful terms. In
organisations, framing often involves identifying the core values and purpose that should guide
employees.
Frustration-regression hypothesis. The frustration-regression hypothesis holds that when individuals are
frustrated in meeting higher-level needs, the next lower-level needs re-emerge and again direct behaviour.
Functional departmentalisation. Functional departmentalisation involves creating departments by
grouping employees according to their areas of expertise and the resources they draw on to perform a
common set of tasks.
Functional objectives. Functional objectives are normally set by middle management for specific
departments for a medium period of time of, say, one to four years.
Functional team. A functional work team includes members from a single department (for example,
marketing, finance, manufacturing or human resources) who jointly consider issues and solve problems
common to their area of responsibility and expertise.
Functional-level strategy. A functional-level strategy refers to the actions and resource commitments
decided upon for the operations (manufacturing), marketing, human resources, finance and other
functional areas.
Gap analysis. Gap analysis involves calculating the difference between profits earned now and the desired
level of profits in the future as reflected in the strategic objectives.
Generic strategies. The five generic strategies are differentiation, focused differentiation, cost leadership,
focused cost leadership and best cost.
Geographic departmentalisation. Geographic departmentalisation groups all functions for a geographic
area at one location under one manager, rather than dividing functions among different managers or
grouping all tasks in one central office.
Global awareness competency. Global awareness competency requires carrying out an organisation’s
managerial work by drawing on human, financial, information and material resources from multiple
countries, and serving markets that span multiple cultures.
Global Competitiveness Index. The Global Competitiveness Index defines competitiveness as the set of
institutions, policies and factors that determine the level of productivity of a country.
Goal-setting theory. Goal-setting theory states that managers can direct the performance of their employees
by assigning specific, difficult goals that employees accept and to which they are willing to commit.
Grapevine. A grapevine is an organisation’s informal communication system, along which information can
travel in any direction.
Group or team control. Group or team control comprises the norms and values that group members share
and maintain through rewards and punishments.
Group. A group is two or more individuals who come into personal and meaningful contact on a continuing
basis.
Groupthink. Groupthink is an agreement-at-any-cost mentality that results in ineffective decision-making by
work teams and may lead to poor solutions.
Growth need strength. Growth need strength refers to a desire for personal challenges, a sense of
accomplishment and learning.
Growth needs. Growth needs are the desires to be creative, to make useful and productive contributions, and
to have opportunities for personal development. They are similar to Maslow’s esteem and self-
actualisation needs.
Haptics. Haptics is defined as communication through the use of body contact.
Hawthorne effect. The Hawthorne effect occurs when employees are given special attention. Productivity is
likely to change regardless of whether working conditions change.
Hersey and Blanchard’s situational leadership model. Hersey and Blanchard’s situational leadership
model suggests that the levels of directive (similar to initiating-structure and production-centred) and
supportive (similar to considerate and employee-centred) leader behaviours be based on the level of
readiness of the followers.
Herzberg’s two-factor theory. Herzberg’s two-factor theory identifies aspects of the job and organisational
contexts that contribute to satisfaction and motivation.
Hierarchical structure. Hierarchical structure means that organisations have a pyramid-shaped structure
that ranks jobs according to the amount of authority (the right to decide) given to each.
High-performance teams. High-performance teams are self-managing work teams composed of highly
skilled members who are fully empowered to accomplish major tasks.
Horizontal channels. Horizontal channels are used by managers and other employees when communicating
across departmental lines with suppliers or with customers.
Horizontal integration. Horizontal integration involves growth through merging with or acquiring another
organisation in the same or a similar line of business.
House’s path–goal model. House’s path–goal model indicates that effective leaders clearly specify the task,
reduce barriers to task achievement and increase opportunities for task-related satisfaction, thereby
clarifying the paths or means by which employees can attain job satisfaction and improve performance.
Human resources. Human resources (people that an organisation employs and of whom it has certain
expectations) include the skills, expertise and competencies of an organisation’s employees.
Hygiene factors. Hygiene factors are the non-task characteristics of the work environment that create
dissatisfaction.
Impersonally. This means that employees are evaluated according to rules and objective data, such as sales
or units produced.
Impoverished style (1,1). The impoverished style (1, 1) is characterised by low concern for both people and
production. It is used by managers who pass orders along to employees, go with the flow and make sure
that they cannot be held accountable for mistakes. Such managers exert the minimum effort required to
get the work done to avoid being fired or demoted.
Impression management. Impression management involves an attempt to control the impressions that
others form about the leader through behaviours that make the leader more attractive and appealing to
others.
Incremental change. Incremental change is an ongoing process of evolution over time, during which many
small adjustments occur routinely.
Individual differences. Individual differences refer to the awareness that each person is different in terms of
the needs that are most important, the values that are most important, the competencies that are most
developed and so on.
Individual self-control. Individual self-control comprises the guiding mechanisms that operate consciously
and unconsciously within each person.
Individualism. Individualism (by Hofstede) is the tendency to take care of oneself and one’s immediate
family. The opposite of individualism is collectivism.
Industry environment. The industry environment comprises the five competitive forces: rivals
(competitors), power of buyers, power of suppliers, new entrants and substitutes.
Industry-organisation model. The industry-organisation model holds that the primary determinant of an
organisation’s strategies is the external environment, in other words, the macro-environment and the
industry environment.
Influence. Influence means that there is a change in an individual’s thoughts, feelings or behaviour because
of another person’s personality. It Is based on trust and credibility.
Informal communication. Informal communication does not follow any set channels. It is usually casual,
spontaneous and not written down.
Informal group. An informal group consists of a small number of individuals – usually between three and
twelve – who frequently participate in activities together to meet their mutual needs.
Information richness. Information richness is the information-carrying capacity of the channel, for example
written communication is low in richness.
Information technology. Information technology is the study, design, development, implementation, support
or management of computer-based information systems.
Initiating-structure leadership style. Initiating-structure leadership style is characterised by active
planning, organising, controlling and co-ordinating of subordinates’ activities.
Innovation strategy. An innovation strategy involves developing new products for new markets.
Innovative decisions. Innovative decisions are choices based on the discovery, identification and diagnosis
of unusual and ambiguous problems and/or the development of unique or creative alternative solutions.
Inputs. Inputs are the physical, human, material, financial and information resources that enter a
transformation process.
Instant messaging. Instant messaging is interactive real-time communication that takes place by computer
users who are logged onto the same computer system at a given point in time.
Instrumentality. Instrumentality is the perceived usefulness of performance as a means for obtaining desired
outcomes (or avoiding undesired outcomes).
Intangible resources. Intangible resources (what an organisation owns) refer to such things as brand value,
reputation, culture and intellectual capital.
Internal controls. Internal controls are those subsequent financial, operational, and compliance control
measures created to ensure corporate governance and used in conjunction with risk management.
Internal environment. An organisation’s resources and capabilities make up its internal environment.
Internal growth strategies. Internal growth strategies are the actions taken by an organisation on its own to
fill any profit gaps.
Internal processes: Internal processes include the development of work team norms, personal feelings and
behaviours over time.
Internal risk sources. Internal risk sources are those risks which originate within the organisation. Key sub-
sources of internal risk are financial risk, ethical risk, operational risk, project risk, technological, risk as
well as health and safety risk.
Internal-process perspective. The internal-process perspective stipulates that customer-based measures are
translated into measures of what the organisation must do internally to meet its customers’ expectations.
Internet. The internet is a loosely configured, rapidly growing web of thousands of corporate, educational
and research computer networks around the world.
Interpersonal skill. Interpersonal skill is the ability to work well in co-operation with other people.
Intranet communication network. An intranet communication network relies on internet technology and is
accessible only by employees within an organisation.
Intrapreneurship. Intrapreneurship refers to entrepreneurial activity within a large corporate organisation.
Intrinsic rewards. Intrinsic rewards are personally satisfying outcomes such as feelings of achievement and
personal growth (these rewards are similar to Herzberg’s motivator factors).
Ishikawa (Fishbone) Diagram. The Ishikawa Diagram (also known as the Fishbone diagram or the Cause-
and-Effect Diagram) identifies many possible causes of an effect or problem. As such it can be used to
structure brainstorming sessions.
Issues Priority Matrix. The Issues Priority Matrix has ‘impact on the organisation’ on the horizontal axis
and ‘probability of occurrence’ on the vertical axis. It helps to identify the ‘high priority’ issues, either
opportunities and threats (or both), facing an organisation.
Job characteristics. Job characteristics are objective aspects of job design that can be changed to improve
the critical psychological states. They include skill variety, task identity, task significance, autonomy and
feedback.
Job design. Job design refers to the way tasks are combined to form complete jobs.
Job enlargement. Job enlargement increases a job’s scope in order to break the monotony of a limited
routine.
Job enrichment. Job enrichment entails increasing both the number of tasks a worker does and the control
the worker has over the job.
Job expansion. Job expansion is the process of making a job less specialised.
Job rotation. Job rotation involves performing different jobs for a set period of time.
Job simplification. Job simplification involves the scientific analysis of tasks performed by employees in
order to discover procedures that produce the maximum output for the minimum input.
Job specialisation/simplification. Job specialisation or job simplification refers to the narrowing-down of
activities to simple, repetitive routines.
Johari Window. The Johari Window is a framework that can be used to receive and give feedback
objectively.
Just-in-time. Just-in-time (JIT) can be described as an approach with the objective of producing the right
part in the right place at the right time (in other words, ‘just in time’).
Justice model. The justice model of making ethical judgements evaluates decisions and behaviour with
regard to how equitably they distribute benefits and costs among individuals and groups.
Kinesics. Kinesics is defined as communication through body movements, including facial expression,
gestures, and posture.
Knowledge management. Knowledge management refers to the systematic efforts made to find, organise
and make available an organisation’s intellectual capital, and to foster a culture of continuous learning and
knowledge-sharing.
Knowledge of results. Knowledge of results refers to the extent to which employees receive feedback about
how well they are doing.
Leader managerial role. The managerial role of leader involves directing and co-ordinating the activities of
subordinates. This may involve motivating employees.
Leader position power. Leader position power is the extent to which a leader has legitimate, coercive and
reward power.
Leader–member relations. Leader–member relations refer to the extent to which followers accept the
leader.
Leader-participation model. The leader-participation model provides a set of rules to determine the
amount and form of participative decision-making that should be encouraged in different situations.
Leadership. Leadership involves influencing others to act towards the attainment of a goal.
Leading. Leading involves communicating with and motivating others to perform the tasks necessary to
achieve the organisation’s goals within the context of a supporting organisational culture.
Learning and growth perspective. The learning and growth perspective requires that organisations make
continual improvements to their existing products and processes, and have the ability to introduce entirely
new products with expanded capabilities.
Learning organisation. A learning organisation, in contrast to a traditional organisation, represents a shift
in paradigm that is less structured, decentralised and informal.
Least-preferred co-worker (LPC). The least-preferred co-worker (LPC) is the employee with whom the
manager can work least well.
Legal compliance. Legal compliance concerns organisational compliance with laws and regulations that
prohibit discrimination.
Legitimate power. Legitimate power is based on the leader’s formal position in the organisation’s hierarchy.
Level-five manager. A level-five manager or leader has the personal humility and professional resolve that
allows for the development of a sustainable organisation.
Levels of organisational development. Levels of organisational development include the organisational,
managerial, interpersonal and personal levels.
Liaison managerial role. The managerial role of liaison involves managers in interpersonal relationships
outside their area of command. Within the organisation, managers must interact with numerous other
managers and other individuals.
Line of authority. Line authority belongs to managers who have the right to direct and control the activities
of subordinates who perform tasks essential to achieving organisational goals.
LinkedIn. LinkedIn is the largest online social network of business professionals.
Macro-culture. A macro-culture includes a combination of the assumptions and values of both the society
and the industry in which the organisation (or one of its business units) operates.
Macro-environment. The macro-environment comprises the following sub-environments: political-legal,
economic, socio-cultural and demographic, technological and the natural environment.
Management as a discipline. Management as a discipline is characterised by the complex interplay of
functions, contingencies and processes to accomplish the goals of an organisation in an efficient and
effective manner.
Management as an art. Management as an art requires practical application of scientific theoretical
principles because it deals with the application of principles in order to mould the attitudes and behaviour
of people at work towards desired goals.
Management by objectives (MBO). Management by objectives (MBO) is a managerial technique whereby
the manager and employee review past performance, and identify and agree on objectives (goals) for the
future, with the understanding that future performance evaluations and rewards will reflect the employee’s
progress towards these goals.
Management roles. Management roles refer to the behaviour patterns expected of an individual in a
management position.
Management. Management refers to the process of getting things done effectively and efficiently through
and with other people, and involves planning, organising, leading and controlling.
Managerial competencies. Managerial competencies are sets of knowledge, skills, behaviours and attitudes
that a person needs to be effective in a wide range of managerial jobs in various types of organisations.
Managerial grid model. The managerial grid model identifies five leadership styles that combine different
proportions of concern for production (similar to the initiating-structure and production-centred styles)
and concern for people (similar to the considerate leadership and employee-centred styles).
Managers. Managers are responsible for directing and supervising both operative employees and lower-
level managers.
Manifest culture. The manifest culture contains easily observable elements such as behaviours, language,
music, food and technology.
Market controls. Market controls involve the use of data to monitor sales, prices, costs and profits relating
to products sold and service rendered.
Market culture. A market culture is characterised by the achievement of measurable and demanding goals,
especially those that are finance and market based (for example, sales growth, profitability and market
share).
Market development strategy. A market development strategy involves seeking new markets for current
products.
Market penetration strategy. A market penetration strategy involves seeking growth in current markets
with current products.
Masculinity. Masculinity by (Hofstede) is the degree to which assertiveness and the accumulation of money
and material things are valued, as well as the degree of indifference to the quality of life of others.
Matrix departmentalisation. Matrix departmentalisation combines the advantages of functional and
product organisation structures through the use of project managers to head a project, supported with the
necessary skills from each functional area (for example, engineering, manufacturing and sales) and
product managers (individual product lines), to complete the job.
McClelland’s theory of learnt needs. McClelland’s theory of learnt needs specifies that people acquire
needs through interaction with the surrounding environment.
Mechanistic systems. Mechanistic systems are characterised by management breaking activities into
separate, specialised tasks.
Mentors. Mentors are most often supervisors or senior colleagues in the organisation who provide advice
and guidance about a variety of career-related concerns.
Messages. Messages contain the verbal (spoken and written) symbols and non-verbal cues representing the
information that the sender wants to convey to the receiver.
Middle managers. Middle managers are responsible for managing other managers, and for translating the
goals set by top management into goals and activities for their lower-level managers to perform.
Middle-of-the-road style (5,5). The middle-of-the-road style (5, 5) is used by managers to seek a balance
between workers’ needs and the organisation’s productivity goals. Adequate performance is obtained by
maintaining employees’ morale at a level sufficient to get the work done.
Millennials. Millennials (born in the period between 1977 and 1995 and also known as Generation Y) are
comfortable with diversity and using technology. They demand an appropriate balance between work and
life, and aspire to a portfolio of jobs with flexible working hours.
Mission. An organisation’s mission is made up of its core purpose, its core strategies, its core values and its
core behavior standards. (Many organisations combine core values and core behaviour standards.)
Monetary policy. Monetary policy refers to the regulation of the national economy by changing the supply
of money and interest rates.
Monitor managerial role. The managerial role of monitor involves evaluating the performance of managers
in different functions, taking corrective action to improve their performance, and watching for changes
occurring in the external and internal environments that may affect the organisation in the future.
Monitoring. Monitoring the external environment involves an organisation determining whether an
important trend has emerged from among those that were spotted during the scanning stage.
Monolithic organisations. Monolithic organisations are dominated by a single majority culture or
subculture (strong culture), and members of other cultures or subcultures are expected to adopt the norms
and values of the majority.
Moral principles. Moral principles prescribe general rules of acceptable behaviour.
Moral-rights model. The moral-rights model of making ethical judgements holds that decisions should be
consistent with fundamental rights and privileges (for example, life, freedom, health, privacy and
property) as set forth in documents such as the South African Constitution and the United Nations’
Declaration of Human Rights.
Motivation. Motivation is any influence that triggers, directs or maintains goal-directed behaviour.
Motivator factors. Motivator factors are aspects of the job and organisational contexts that create positive
feelings among employees.
Multicultural organisations. Multicultural organisations are defined as having a culture representing the
full mix of cultures found in the population at large, reflecting a blending of many cultures and
subcultures, with no one culture dominating the others.
Multidisciplinary work team. A multidisciplinary work team may be permanent or temporary, depending
on its goals and tasks, and may consist of between five and 30 employees from various functional areas,
and sometimes several organisational levels, who collectively have specific goal-orientated tasks.
Narratives. Narratives are the unique stories, sagas, legends and myths in a culture.
Natural environment. The natural environment embraces all things ecological.
Natural-duty principle. The natural-duty principle requires that decisions and behaviour be based on
universal principles associated with being a responsible member of society. The principles say that people
should help others who are in need or in jeopardy, provided that the help can be given without excessive
personal risk or loss, that no person should harm or injure another, that people should not cause
unnecessary suffering and that they should support just institutions.
Need. A need is a strong feeling of deficiency in some aspect of a person’s life that creates an uncomfortable
tension.
Negative reinforcement. Negative reinforcement is what people experience when they engage in behaviour
to avoid unpleasant consequences.
Negotiator managerial role. The managerial role of negotiator involves working with suppliers,
distributors and trade unions to reach agreements about the quality and price of inputs as well as technical
and human resources.
Network departmentalisation. Network departmentalisation subcontracts some or all of its operating
functions to other firms, and co-ordinates their activities through managers and other personnel at its
headquarters.
Networked computer system. A networked computer system is when an organisation’s computers are linked
into an organisation-wide network.
Non-verbal messages. Non-verbal messages involve the use of facial expressions, body movement, gestures
and physical contact (often called body language) to convey meaning.
Norming stage. In the norming stage, team members become increasingly positive about the team as a
whole, the other members as individuals, and what the team is doing.
Norms. Norms are rules of behaviour of group members.
Objective probability. Objective probability is the likelihood that a specific outcome will occur, based on
hard facts and numbers.
Oculesics. Oculesics is defined as communication through eye contact and gaze.
Open system. An open system is a collection of interrelated parts that function together to achieve a common
purpose. It operates in a broader environment with which it interacts during the process of converting
inputs into product and service outputs.
Operational objectives. Operational objectives are set for a shorter period of time of, say, up to one year.
Operational plans. Operational plans are concerned with the specific procedures and processes required at
lower levels of the organisation in order to carry out the tactical plans
Operative employees. Operative employees are normally those people who work on a particular task, but
who do not have any supervisory role or authority over other people.
Opportunities. Opportunities are positive trends in the external environment which if acted upon, are likely
to lead to an increase in a business organisation’s profitability.
Organic systems. Organic systems are highly adaptive and flexible structures, whereas the mechanistic
organisation is rigid and stable.
Organisation chart. An organisation chart is a pictorial representation of the overall shape and structural
framework of an organisation.
Organisation. An organisation is a collection of people working together to achieve a common purpose.
Organisational control. Organisational control comprises the formal rules and procedures for preventing or
correcting deviations from plans and for achieving desired goals, and includes preventive, concurrent and
post-control.
Organisational design. An organisational design involves determining the organisational structure for an
entire organisation to implement the strategies and plans embodied in the organisation’s goals.
Organisational identity. Organisational identity represents a clear picture of the organisational intent
(vision and mission) of an organisation.
Organisational redesign approach. The organisational redesign approach to change emphasises internal
structural changes: realigning departments, changing who makes decisions and merging or reorganising
departments that sell the company’s products.
Organisational structure. Organisational structure is a formal system of working relationships that both
separates and integrates tasks. Separation of tasks makes clear who should do what, and integration of
tasks indicates how efforts should be meshed.
Organising. The organising function takes the tasks identified during planning and assigns them to
individuals and groups within the organisation so that objectives set by planning can be achieved.
Osborn’s creativity model. Osborn’s creativity model is a three-phase decision-making process that
involves fact-, idea-, and solution-finding. It is designed to help overcome blockages to creativity and
innovation.
Outputs. Outputs are the original inputs (human, physical, material, information and financial resources) as
changed by a transformation process.
Pareto Analysis. Pareto Analysis (based on the Pareto principle of the 80:20 rule) is a statistical technique in
decision-making used for the identification of a limited number of causal items that account for a
significant number of effects.
Participative leadership. Participative leadership involves consulting with followers and asking for their
suggestions before making a decision.
People-orientated approach. The people-orientated approach to change includes a wide range of activities
intended to improve individual competencies and performance levels.
Perception. Perception is the meaning ascribed to a message by either the sender or the receiver.
Performance management. Performance management allows managers and employees to develop
performance standards, communicate performance standards as well as any relevant expectations about
them, do observation, establish understanding on contextual (situational) issues, provide feedback,
conduct appraisals, thereby enabling the individual, team and management to achieve the optimum results
through managing employee performance.
Performance standards. Performance standards are criteria for evaluating qualitative (subjective and non-
measurable) and quantitative (measurable) characteristics, and should be set for each characteristic
measured.
Performing stage. By the performing stage, members have usually come to trust and accept one another and
the team performs optimally.
Persuasion. Persuasion refers to altering behaviour through reasoning and communication. It is usually a
deliberate attempt by one individual to alter the course of action of another individual through
communication.
Physiological needs. Physiological needs are those for food, clothing and shelter. People try to satisfy
physiological needs before all other needs.
Planned change. Planned change is change that is designed and implemented in an orderly and timely
fashion in anticipation of future events.
Planning and financial competency. Planning and financial competency involves deciding what tasks need
to be done, determining how they can be done, allocating resources to enable them to be done, and then
monitoring progress to ensure that they are done.
Planning. Planning is a formal process of choosing the organisation’s vision, mission and overall goals for
both the short and long term, devising divisional, departmental and even individual goals based on
organisational goals, choosing strategies and tactics to achieve those goals, and allocating resources
(people, money, equipment and facilities) to achieve the various goals, strategies and tactics.
Pluralistic organisations. Pluralistic organisations are more mixed in their cultural composition. The norms
are still those of a dominant culture or subculture, which members of the organisation are expected to
follow, but members from other cultural backgrounds fill a variety of jobs at all levels in the organisation.
Political model. The political model describes the decision-making process in terms of the particular interest
and goals of powerful external and internal stakeholders.
Political-legal environment. The political-legal environment is that part of the macro-environment that is
under either the direct or the indirect control of the government.
Pooled interdependence. Pooled interdependence involves little sharing of information or resources among
individuals within a department or among departments.
Positive organisational culture. A positive organisational culture is one in which everyone feels equally
integrated into the larger system.
Positive reinforcement. Positive reinforcement creates a pleasant consequence by the use of rewards to
increase the likelihood that a behaviour will be repeated.
Post-control. Post-control mechanisms are intended to reduce or eliminate unwanted behaviours or results to
meet the organisation’s regulations and standards.
Power distance. Power distance (by Hofstede) reflects the type of relationship between people in an
organisation who have power and those who have less or no power. Small power distance = participative
management. Large power distance = autocratic management.
Power motive. The power motive is an individual’s desire to influence and control others and the social
environment.
Preventive control. Preventive control mechanisms are intended to reduce errors proactively, thereby
minimising the need for corrective action.
Principle-led management framework. The principle-led management framework integrates the
foundational components of organisational development and the leadership principles essential for
organisational, association or institutional effectiveness, representing a practical framework of how the
manager or leader sees an organisation.
Probability. Probability is the percentage of times that a specific outcome would occur if an individual were
to make a particular decision a large number of times.
Problem-solving team. A problem-solving work team usually consists of between five and twenty
employees from different areas of a department who consider how something can be done better.
Process innovation. Process innovation involves creating a new means of producing, selling and/or
distributing an existing product or service.
Produce-or-perish style (9,1). The produce-or-perish style (9, 1) is used by managers who do not consider
employees’ personal needs to be relevant in order to achieve the organisation’s objectives. Such managers
use their legitimate and coercive powers to pressure subordinates to meet production quotas. They believe
that operational efficiency results from arranging the work so that employees merely have to follow
orders.
Product development strategy. A product development strategy involves developing new or improved
goods or services for current markets.
Product innovations. Product innovations are characterised by changes in the physical characteristics or
performance of existing products or services, or the creation of brand new products or services.
Product or service departmentalisation. Product departmentalisation places each major product or service
area in the organisation under the authority of a manager who is a specialist in that area.
Production-centred leadership style. Production-centred leadership style sets standards, organises and
pays close attention to employees’ work, keeps production schedules and stresses results.
Profession. A profession may be defined as an occupation that requires specialised knowledge and intensive
academic preparations to which entry is regulated by a representative body, such as professions in Law,
Medicine and Accounting.
Proxemics. Proxemics is defined as communication through the use of space.
Punishment. Punishment is an attempt to discourage a behaviour by the application of negative outcomes
whenever it does occur.
Qualitative standards. Qualitative standards are standards that are usually expressed in a descriptive
manner and are not measurable.
Quality circle. A quality circle (also called a TQM team) is a group of employees who meet regularly to
identify, analyse and propose solutions to various types of workplace problems.
Quality. Quality is the extent to which a product or service meets and/or exceeds customers’ expectations.
Quantitative standards. Quantitative standards are usually expressed in terms of quantity (for example,
numbers, litres, kilowatts or kilometres), quality (for example, number of errors), time (for example,
hours, days or months) or monetary value (for example, Rand and cents).
Radical change. Radical change occurs when organisations make major innovations in the way they do
business.
Ratio analysis. Ratio analysis involves selecting two significant figures, expressing their relationship as a
proportion or fraction, and comparing its value for two periods of time or with the same ratio of similar
organisations.
Rational decision-making model. The rational decision-making model prescribes a series of steps that
individuals or teams should follow to increase the likelihood that their decisions will be logical and sound.
Rational-legal authority. Rational-legal authority is based on established laws and rules that are applied
uniformly.
Rationality. Rationality means that the most efficient methods are used to achieve the set goals.
Re-engineering. Re-engineering focuses on creating new ways to get work done. It often involves the
redesign of processes related to logistics, manufacturing and distribution.
Reactive change. Reactive change occurs when an organisation is forced to change in response to some
event in the external or internal environment.
Readiness. Readiness is a subordinate’s ability to set high but attainable task-related goals and a willingness
to accept responsibility for reaching them. People have varying degrees of readiness, depending on their
backgrounds and the specific tasks they are trying to accomplish.
Receiver. The receiver is the person who receives and decodes (or interprets) the sender’s message.
Reciprocal interdependence. Reciprocal interdependence encourages every individual and department to
work with every other individual and department, ensuring that information and resources flow back and
forth freely until the task is completed.
Red Oceans. Red Oceans represent all the industries in existence today and strategies are formulated to
increase market share.
Referent power. Referent power is based on followers’ personal identification with the leader.
Reinforcement theory. Reinforcement theory states that behaviour is a function of its consequences
(rewards or punishments).
Related diversification. Related diversification refers to diversification into areas where there is some
degree of relatedness with what the organisation is currently doing, whether with products, markets,
resources or capabilities.
Relatedness needs. Relatedness needs are the desires to establish and maintain interpersonal relationships
with other people, including family, friends, supervisors, subordinates and co-workers. Relatedness is
similar to Maslow’s affiliation needs.
Relationship-orientated leader. A relationship-orientated leader recognises the importance of developing
strong and positive emotional ties with followers.
Relative Strength/Strategic Importance Matrix. This matrix enables the strategist to identify an
organisation’s key strengths, key weaknesses, superfluous strengths and those resources and capabilities
that fall into the zone of irrelevance.
Resource allocator managerial role. The managerial role of resource allocator involves allocating
organisational resources among different functions and departments of the organisation.
Resource-based model. The resource-based model holds that the primary determinant of an organisation’s
strategies is the organisation’s internal environment, in other words, its resources and capabilities.
Responsibility. Responsibility is the obligation of an employee to perform assigned tasks.
Reward power. Reward power stems from a leader’s ability to satisfy followers’ needs.
Risk. Risk refers to those uncertainties which can be threats or opportunities relating to the outcome of the
set organisational objectives. It is the condition under which individuals can define a problem, specify the
probability of certain events, identify alternative solutions and state the probability of each solution
leading to the desired result.
Risk analysis. Risk analysis is a process to understand the nature of the risk and to evaluate the level of risk.
Risk appetite. Risk appetite is the degree or level of risk that an organisation is in general willing to accept
in pursuit of its objectives.
Risk assessment. Risk assessment can be described as the overall process of risk identification, risk analysis
and risk evaluation.
Risk evaluation. Risk evaluation is the process of comparing the level of risk against the set performance
criteria.
Risk identification. Risk identification is the process of determining the risk in terms of: what, where, when,
how, and why.
Risk management. Risk management refers to the proactive actions taken to identify and manage external
threats, as well as internal events, that will most likely influence the likelihood of organisational success.
Risk register. Risk register is used as a central collection for all risks identified by the organisation for each
risk identified. Information on, for example, the source, nature, treatment option, people responsible, etc.,
are stored in this risk register or risk log.
Rites and ceremonies. Rites and ceremonies are elaborate and formal activities designed to generate strong
feelings.
Role perceptions. Role perceptions are the employee’s beliefs about what is required to do the job
successfully.
Routine decisions. Routine decisions are standard choices made in response to relatively well-defined and
common problems with alternative solutions.
Rules. Rules are formal guidelines for the behaviour of employees while they are on the job; rules can help
provide the discipline an organisation needs if it is to reach its goals.
Satisfaction-progression hypothesis. The satisfaction-progression hypothesis proposes that a satisfied need
is no longer a motivator and that, once a need has been satisfied, another need emerges to take its place.
Satisfaction. Satisfaction is an employee’s attitude towards the work situation.
Satisficing. Satisficing is the practice of selecting an acceptable goal or alternative solution.
Scalar principle. The scalar principle states that each individual in an organisation should be able to
identify his or her boss and trace the line of authority through the organisation all the way to the top
position.
Scanning. Scanning the external environment refers to studying all the elements of the external environment
to identify signs of current and potential change.
Scenario. A scenario is a written description of a possible future.
Science. Science is a systematic body of knowledge pertaining to a specific field of study that contains
general facts which explains a phenomenon.
Scientific management. Scientific management focuses on individuals and their machines or tools.
Security needs. Security needs include the desire for safety and stability, and the absence of pain, threat and
illness.
Selective perception. Selective perception is the process of screening out information that a person wants or
needs to avoid.
Self-actualisation. Self-actualisation needs are the desire for personal growth, self-fulfilment and the
realisation of the individual’s full potential.
Self-management competency. Self-management competency involves taking responsibility for your life at
work and beyond.
Self-managing (or self-directed) work team. A self-managing (or self-directed) work team normally
consists of between five and 15 employees who work together daily to make an entire product or deliver
an entire service.
Semantics. Semantics is the study of the way in which words are used and the meanings they convey.
Sender. The sender is the source of information and the initiator of the communication process.
Sequential interdependence. Sequential interdependence serialises the flow of information and resources
between individuals within the same department or among departments.
Servant-leader. A servant-leader can be described as a manager or leader who is community centred,
altruistic and empathetic rather than being ego driven.
Shared assumptions. Shared assumptions are the underlying thoughts and feelings that members of a
culture take for granted and believe to be true.
Simulation. A simulation is a representation of a real system. A simulation model usually describes the
behaviour of the real system (or some aspect of it) in quantitative and/or qualitative terms.
Six Sigma. Six Sigma is a disciplined, data-driven approach and methodology for eliminating defects
(driving towards six standard deviations between the mean and the nearest specification limit) in any
process.
Skill variety. Skill variety is the degree to which the job involves many different work activities or requires
several skills and talents.
Social sustainability. Social sustainability is an organisation’s commitment to improving the quality of life
of its communities and society.
Socialisation. Socialisation is a systematic process by which new members are brought into a culture.
Socio-cultural and demographic environment. An analysis of the socio-cultural and demographic
environment involves (a) a study of the impact of a country’s culture on such things as the way in which
consumers behave, on what they buy, on their needs, on their attitudes to work, savings, ecology and
ethics, and (b) a study of the impact of the size and structure of the population on such things as the
patterns of demand and attitudes to work.
Socio-technical systems. Socio-technical systems involve consideration of the needs of both employee and
organisation in devising ways to satisfy customer demand.
Span of control. The span-of-control principle states that the number of people reporting directly to any
manager should be limited because one manager cannot supervise a large number of subordinates
effectively.
Specialisation. Work specialisation is the process of identifying specific tasks and assigning them to
individuals or teams who have been trained to do them.
Spiritual intelligence. Spiritual intelligence (SI) helps us to assess the most meaningful course of action.
Spokesperson managerial role. The managerial role of spokesperson involves representing the unit or
organisation to other people, either within or outside the organisation.
Staff authority. Staff authority belongs to those who support line functions through advice,
recommendations, research, technical expertise and specialised services.
Stakeholder control. Stakeholder control is expressed as pressures from outside sources on organisations to
change their behaviours.
Stakeholders. Stakeholders are individuals or groups with interests and rights in, or ownership of, an
organisation and its activities.
Standardisation. Standardisation refers to the uniform and consistent procedures that employees are to
follow in doing their jobs.
Stereotyping. Stereotyping is the process of making assumptions about individuals solely on the basis that
they are a certain gender or belong to a particular race, age or other group.
Storming stage. The storming stage begins when competitive or strained behaviours emerge.
Strategic action competency. Strategic action competency involves understanding the overall mission and
values of the organisation, and ensuring that your actions and those of the people you manage are aligned
with them.
Strategic analysis. Strategic analysis involves (a) the evaluation of the external environment of an
organisation to identify opportunities and threats for that organisation, and (b) the evaluation of the
internal environment of an organisation to identify the strengths and weaknesses of that organisation.
Strategic objectives. Strategic objectives are normally set by top management for the organisation as a
whole and for a longer, rather than a shorter, period of time, very often for five years.
Strategic planning. Strategic planning is the process of diagnosing the organisation’s external and internal
environments, deciding on a vision and mission, developing overall goals, formulating and selecting
general strategies to implement, and allocating resources to ensure that the general strategies can be
implemented in order to achieve the organisation’s goals.
Strategies. Strategies are the major courses of action (choices) selected and implemented to achieve one or
more goals.
8 S Model. A model developed in order to show that effective strategic performance is dependent upon key
organisational variables being internally aligned.
Strengths. Strengths are the things that an organisation is good at doing and/or a set of resources that will
increase its competitiveness in the marketplace.
Structural redesign. Structural redesign means reconfiguring the distribution of authority, responsibility
and control in the organisation.
Sub-system. A sub-system refers to a person, group or organisation, or a component consisting of one or
more parts of a system.
Subjective probability. Subjective probability is the likelihood that a specific outcome will occur, based on
personal judgement and beliefs.
Supportive behaviour. Supportive behaviour occurs when a leader relies on two-way communication,
listening, encouraging and involving followers in decision-making. Being supportive does not mean just
being nice. It is about being receptive to other people’s ideas and respecting what they do.
Supportive leadership. Supportive leadership involves being friendly and approachable, and showing
concern for followers’ psychological well-being. This style is much like the considerate leadership and
employee-centred styles.
Sustainability. Sustainability refers to an organisation’s ability to address current business needs
strategically and to develop a successful long-term strategy that embraces the opportunities and risks
associated with the environment, society and the economic viability of the organisation.
Sustainable development. Sustainable development is development that meets the needs of the present
generation without compromising the ability of future generations to meet their own needs.
SWOT analysis. A SWOT analysis is the assessment of an organisation’s strengths and weaknesses as well
as the assessment of opportunities and threats in the external environment.
Symbol. A symbol is anything visible that can be used to represent an abstract shared value or something
having special meaning.
System. A system is an association of interrelated and interdependent parts.
Systems viewpoint of management. The systems viewpoint of management represents an approach to
solving problems by diagnosing them within a framework of inputs, transformation processes, outputs and
feedback.
Taboos. Taboos are behaviours that are forbidden in a culture.
Tacit knowledge. Tacit knowledge is the information, competencies and experience possessed by
employees.
Tactical plans. Tactical plans reflect detailed decisions about what to do, who will do it and how to do it in
order to carry out the strategic plans.
Talent management. Talent management refers to training and developing staff so that they have defined
yet flexible career paths within the organisation. It also involves identifying each individual’s particular
strength or talent and focusing on this.
Tangible resources. Tangible resources (what an organisation owns) include such things as property, raw
materials, equipment and production facilities.
Task identity. Task identity is present when a job involves completing an identifiable piece of work, in other
words, doing a job with a visible beginning and outcome.
Task significance. Task significance is present when a job has a substantial impact on the goals or work of
others in the company.
Task structure. Task structure is the degree to which a job is routine.
Task-based approach. The task-based approach to change concentrates on changing specific employees’
job responsibilities and tasks.
Task-orientated leader. A task-orientated leader does not value relationships and instead focuses only on
the task.
Team proximity. Team proximity refers to the location of a team’s members.
Team style (9,9). The team style (9, 9) is used by managers to attempt to establish cohesion and foster
feelings of commitment among workers. By introducing a common stake in the organisation’s purposes,
the leader builds relationships of trust and respect.
Team. A team is a group with complementary skills who are committed to a common purpose defined by a
set of performance goals.
Teamwork competency. Teamwork competency involves accomplishing tasks through small groups of
people who are collectively responsible and whose work is interdependent.
Technical innovation. Technical innovation is the creation of new products and services.
Technical skills. Technical skills are the ability to use specific knowledge, techniques and resources to
perform work. Accountants, computer scientists and engineers, for example, possess substantial technical
skills.
Technological interdependence. Technological interdependence is the degree of co-ordination required
between individuals and departments to transform information and raw materials into finished products.
Technology-based approach. The technology-based approach to change involves incremental adjustments
or radical innovations that affect workflow, production methods, materials and information systems.
Technology. Technology is the transformation process that changes organisational inputs into outputs. It
comprises information technology and manufacturing technology.
Tele-and-videoconferencing technology. Tele-and-videoconferencing technology, which combines
television and telephone technologies, is another high-fidelity communications tool that organisations use
to facilitate discussions among people dispersed around the world.
Theory X and Theory Y. Theory X and Theory Y represent contrasting sets of assumptions and beliefs about
individuals.
Theory X. Theory X represents beliefs that people are motivated mainly by money, are lazy and unco-
operative, and have poor work habits. Managers with this belief system treat people accordingly and tend
to use a more directive style.
Theory Y. Theory Y represents the belief that people work hard, co-operate and have positive attitudes.
Managers with such a belief system tend to use a participative leadership style.
Threats. Threats are negative trends in the external environment which if ignored, are likely to lead to a
decrease in a business organisation’s profitability.
Threshold capabilities. Threshold capabilities (what an organisation can do) represent the minimum
capabilities that an organisation needs in order to participate in a particular industry.
Top managers. Top managers are responsible for making decisions regarding the direction in which their
organisation should go and for developing policies that will affect everyone who works for their
organisation.
Total quality management. Total quality management (TQM) is the continuous process of ensuring that
every aspect of production builds in product quality.
Traditional authority. Traditional authority is based on custom, ancestry, gender, birth order and the like.
Traditional organisation. A traditional organisation is based on a rational model that emphasises a
command and control structure, centralised decision-making, highly formalised systems, specialised tasks,
competitive strategy and a rigid closed culture.
Traits models of leadership. Traits models of leadership are based on the assumption that certain physical,
social and personal characteristics are inherent in leaders.
Traits. Traits are individual characteristics (for example, the strengths of various needs) that can affect a
person’s job performance.
Transformation processes. Transformation processes comprise the technologies used to convert inputs into
outputs.
Transformational leadership. Transformational leadership is leading by motivating, by appealing to
followers’ ideals and moral values, and inspiring them to think about problems in new ways.
Triple bottom line. The triple bottom line includes a combination of (a) financial and operating results for
the period of the financial statements, (b) responsibility for the environment and (c) social responsibility.
Turnaround strategies. Turnaround strategies refer to strategies designed to rescue companies that still
have potential, but that have suffered setbacks in recent times.
Twitter. Twitter is a free service that allows anyone to say anything to anybody in 140 characters or less.
Uncertainty avoidance. Uncertainty avoidance (by Hofstede) refers to the extent to which people feel
threatened by ambiguous situations and try to avoid them. Weak uncertainty avoidance = dislike for rules;
a more informal workplace. Strong uncertainty avoidance = need for rules.
Uncertainty. Uncertainty is the condition under which an individual does not have the necessary information
to assign probabilities to the outcomes of alternative solutions.
Unity-of-command. The unity-of-command principle states that an employee should have only one superior
to whom he or she is directly responsible.
Universality of the role of manager. The question is whether the role of a manager is universal. Is it
exactly the same in all types of organisations all over the world? The answer is no.
Unrelated or conglomerate diversification. Unrelated or conglomerate diversification refers to
diversification that has very little, if anything, to do with what the organisation is currently doing, whether
in terms of products, markets, resources or capabilities.
Upward channels. Upward channels are used by subordinates to send messages to superiors.
Utilitarian model. The utilitarian model of making ethical judgements focuses on actions (behaviours) and
not on the motives for such actions. When choosing between two courses of action, the one chosen is
supposed to benefit the greatest number of people, although such benefit may come at the expense of a
few people or those with little power.
Valence. The valence of an outcome associated with performance is the importance that a particular
employee attaches to the outcome.
Value curve. A value curve plots the positions of either an organisation or the industry average on various
key elements of buyer value.
Value innovation. Value innovation is the simultaneous pursuit of differentiation and low cost strategies
thereby creating value for both the buyer and the company.
Value system. A value system comprises multiple beliefs that are compatible and supportive of one another.
For example, beliefs in private business and individual rights are mutually supportive.
Value. A value is a basic belief about a condition that has considerable importance and meaning to
individuals, and is relatively stable over time.
Vertical backward integration. Vertical backward integration involves an organisation moving into the
business of supplying its inputs.
Vertical forward integration. Vertical forward integration involves an organisation moving into the
distribution of its own outputs.
Virtual reality. Virtual reality is a surrogate environment created by communications and computer systems.
The term denotes a simulated environment; a user ‘enters’ this environment, moves around and interacts
with objects.
Virtual work team. A virtual work team is a team that meets and does its tasks without everyone being
physically present in the same place or even at the same time.
Vision. An organisation’s vision is concerned with addressing the following strategic-planning question:
Where do we want to be or what kind of organisation do we want to be at some time in the future?
Visual signs. Visual signs can be seen as posters, drawings, cartoons, photographs and diagrams.
Voice mail. Voice mail digitises a spoken message and transmits it over the network.
Weaknesses. Weaknesses are those things that an organisation is not so good at doing and/or a set of
resources that will hinder its competitiveness in the marketplace.
Weblog. Weblog, referred to as a blog, is an online diary, usually maintained by an individual with regular
entries of events and happenings.
Whistle-blowers. Whistle-blowers are employees who report unethical or illegal actions of their fellow
employees to other people or organisations that are capable of taking corrective action.
Wireless communication. Wireless communication depends on the use of signals that are sent through the
air, for example, microwave signals, satellites, radio waves or infrared light rays.
Work team. A work team consists of a small number of identifiable, interdependent employees who are held
accountable for performing tasks that contribute to achieving an organisation’s goals.
Workforce diversity. Workforce diversity refers to the mix of people from various backgrounds in the
labour force.
Note: Page numbers in italics refer to Figures, Tables, and Boxes.

A
absorption 141–142
activity-based costing (ABC), accounting 509
administrative management 68
Advertising Standards Authority (ASA) 542
African humanism 44
see also Ubuntu
Afrocentricity 42
agility 141
Alderfer, Clay 384
Alderfer’s ERG theory 384, 403
ERG model of motivation 384
existence needs 384
frustration-regression hypothesis 384
growth needs 384
relatedness needs 384
alignment 85
analysis 36
attitudes 47
authority 244, 268
accountability 244–245, 268
centralisation and decentralisation 269
delegation principles 245–246, 268
line 246–248
line and staff 247, 269
responsibility 244, 268
staff 246–248
automation-based controls 511

B
balanced scorecard 509–510
customer perspective 510
financial perspective 510
internal operations perspective 510
 learning and innovation perspective 510
for retailer 510
balanced scorecard and management team focus
economic value added (EVA) 511
financial performance 511
internal operational performance 511
learning and innovation performance 511
performance in terms of customers 511
balancing work/life issues 43, 44–45
Barnard, Chester 70
barriers to effective communication 431, 439
authority and status levels 432–433, 439
back translation 434
different goals 433
emotions 434, 439
individual barriers 433, 439
levels of understanding for message 432
organisational barriers 431, 439
semantics 433–434, 439
specialisation of task functions 433, 439
see also overcoming barriers to communication
Basic Conditions of Employment Act 322
behaving responsibly 18–19
total corporate responsibility 18
behavioural models
comparison of theories X and Y assumptions 344
of leadership 364
Theory X 344–345, 364
Theory Y 344–345, 364
behavioural viewpoint of management 68–71, 84
assessing 71
behaviour types 47
best-cost strategy 187–188
BRICS (Brazil, Russia, India, China, South Africa) 549
Broad-Based Black Economic Empowerment (B-BBEE) 117, 324
budgeting 36, 506, 509
strategic business units (SBUs) 507
types of budgets for performance management 508
business communication tools
blogging, referred to as ‘weblog’ 428
electronic data interchange (EDI) 427
E-mail 426–427
extranet network 428
information technology (IT) 426
instant messaging 427
intranet communication network 428
networked computer systems 426
tele- and videoconferencing technology 427–428
voice mail 427
business intelligence 430
business-level strategies 185
evaluation 188
generic strategies model 186, 186
business organisation, functional areas 19–20
control 20
plan, organise, lead 19
business risk taxonomy 552

C
capabilities 154
threshold, core, distinctive 154–155
centralisation 248–249, 268
factors affecting 249–250
CEO or management succession and appointment 517
change management 449
competency 446–447
see also organisational change
change management process model 458–459
develop and implement action plan 460
diagnosis of relevant variables 460
evaluation and follow-up 460–461
recognise need for change 459
selection of appropriate techniques 460
set goals 459–460
steps in change process 459
channels of communication 439
degrees of information richness 421
downward 422
external networking 423–424
horizontal 423
informal 423, 439
information richness 421–422
upward 422–423
clan culture 325
coaching and mentoring 359–360
Code of Banking Practice 63
Code of ethics/Code of conduct 118, 119, 122
Collins, Jim 82
Committee of Sponsoring Organisations of the Treadway
Commission (COSO) 526
The Orange Book 530
communication 47, 413–414
audio signs 421
audio-visual messages 420–421, 439
competency 413–412
competency of managers 21, 33–36
dimensions 35–36
encoding and decoding message 416
 ethical and privacy issues 431
formal 413
informal 413
manager’s role 414
non-verbal messages 417, 439
process 415
receiver (decoder) 415–416, 439
sender (encoder) 415, 439
symbols 439
tools of business communication 416
verbal messages 416
visual signs 421
written messages 416–417, 420, 439
see also non-verbal communication
communication and consultation on risk 538–539
accountability and responsibility 539
external risk communication 539, 552
internal risk communication 539, 552
practices and processes 539
risk management framework 539
risk management policy 539
compensation and benefits 515
competencies
assess employees’ necessary competencies 402
of successful managers 21–22
verify employees’ perceptions 402–403
Competition Commission 542
competition, local and global 99
Constitution of the Republic of South Africa Act, 1996 322
consumer demand 142
contemporary organisational designs 295
contingency models 348
comparing 355–356, 356
contingency planning 171
contingency viewpoint of management 75, 76, 83
also known as situational viewpoint 75
assessing the viewpoint 75–76
diagnostic approach 85
control process 496
corrective 495
Step 1: define the subsystem 496
Step 2: set standards (for control) 497
Step 3: collect information on actual performance 498–499
Step 4: make comparisons 499
Step 5: diagnose and correct problems 499–500
control, sources of
different sources and types 493
group or team control 495
individual self-control 495
 organisational control 494
performance standards 497–498, 498, 516
qualitative standards 497
quantitative control standards 497, 497
stakeholder control 493–494
see also stakeholders
control, types of 491, 516
concurrent or proactive control 491, 492
post-control or reactive control 491, 492–493
preventive or proactive control 491, 492
control, understanding and defining
accurate and timely information 491
competency 488
developing and implementing 490
outcomes and outputs 490–491
planning 490
plans, purposes served by controls 491
co-operative strategies 184
joint venture 185
strategic alliance 185
co-ordination principles 268
scalar principle 242–243, 268
span-of-control principle 242, 243–244, 268
unity-of-command principle 242, 268
corporate citizenship 96–98
principles 97
stakeholders 96
corporate governance
annual meeting 515
annual report 515
board of directors 515
bylaws 515
internal and external control mechanisms 516
issues and activities 515–516
proxy statement 517
corporate-level strategies 178, 178
evaluation 188
corporate social performance (CSP) 99
corporate social responsibility 98
corporate values and culture 516
cost competitiveness 21
cost-leadership strategy 187
creating effective controls
acceptable system 502
complete control system 501
corrective action 502–503
cost–benefit model 500
criteria for effective controls 500
economical system 502
 flexibility 503
linkage to desired goals 500–501
objective 501
participation 503
timely control system 501–502
understandable system 502
creativity, tool to assist promoting 227
concentration 220
illumination 220
incubation 220
preparation stage 219–220
verification 220
cultural diversity consequences 324
culture 306–308, 325
competency 304–305
concept of teamwork 310–311
entrepreneurial 325
expressed-values level 306
framework for understanding organisational cultures 314
industry cultures and subcultures 312–313, 312
language 310, 325
macro-culture 313
manifest 306, 325
Mr Price Group Limited Values 309
narratives 311, 325
non-observable elements 308, 325
norms 309, 325
observable elements 309
organisational cultures and subcultures 313–315
rites and ceremonies 311, 325
shared assumptions 308
shared values 309, 325
socialisation 310, 325
societal cultures and subcultures 311–312
symbols 310, 325
taboos 311
values and norms 308–309, 325
value system 308
customer departmentalisation 257
advantages and disadvantages 257
customer relationship management (CRM) 430

D
decentralisation 248, 268
advantages 249
factors affecting 249–250
decision category of roles of managers
disturbance handler 13
entrepreneur 13
 negotiator 13
resource allocator 13
decision-making conditions 227
achievement of goals 227, 271
adaptive 227
certainty 200–201, 227
framework 204
innovative 227
objective probability 201–202
risk 201, 227
routine 227
subjective probability 202
uncertainty 202–203, 227
decision-making models 207–213
bounded rationality 227
political 227
rational 227
decision-making process 16, 516
competency 197–198
rational decision-making model 207
see also types of decisions
Delphi technique 217–218
phases and questionnaire 218
Deming cycle 224, 228
act stage 224
check stage 224
do stage 224
plan stage 224
see also Shewhart cycle, or PDCA cycle 224
Deming, W. Edwards 223
demography and social structure 145–146
average annual household income 146
highest level of education 146
managerial challenges 146–147
departmentalisation 253, 269
best type question 260–261
types used by management 253
differentiation strategy 187
disclosure and reporting to stockholders and government 515
distribution of profits 36–37
diversity knowledge quiz 324–325
dividend policies, managing of 36
divisions making up Bidvest South Africa 184

E
economic risk sources
exchange rates 549
fall in demand 549
government policies 549
 movement in property prices 549
economic value, creating 323–324
effectiveness 9–10
criteria 291
efficiency 9
electronic commerce
E-commerce activities and transactions 430
uniform resource locator (URL) 430
Worldwide Web 430
emotional intelligence (EI) 22, 43–46, 47, 342, 360
competency: remuneration ethics 399–400
dimensions 45–46
see also self-management competency
emotional relationships of connection and trust 85
employees rewarded for efforts 403
Employment Equity Act, 1998 322
empowerment 85
enabling culture 215–216
enabling technology 215
Enterprise Risk Management (ERM) 525, 526
environmental factors in organisational change
macro factors 452
market factors 452
environmental preservation 102
e-procurement 430
equity model of motivation, comparing hourly wages 391
equity theory 390, 404
perceived inequities 391–392
ERRC (Eliminate-Reduce-Raise-Create) Analysis 180
establishing and analysing context
financial analysis tools 530–531
generic administrative processes 530
generic customer processes 530
industry specific processes 530
ethical approaches, combining 110, 121
and models 121
ethical conduct
forces that shape 100, 121
individual perspectives 121
ethical guidelines 101
ethical judgements
achieving organisational goals 107
conflicts of interest 107
efficiency 107
perspectives 121
utilitarian model 106–107, 121
ethical leadership 342, 360, 364
ethical perspectives for evaluating behaviour 100
ethical risk management, reasons for 542–543
ethical risk sources
breach of copyright 542
bribery 541
counterfeit goods 542
exploitation of workers, suppliers, stakeholders 542
false accounting 542
improper competitive practices 542
industrial espionage 542
insider trading 542
invasion of privacy 542
misleading or exaggerated advertising 542
money laundering 542
tax evasion 542
transgression 541
use of child labour 542
ethical training 122
ethics 97, 121
committee 118–119, 122
corporate responsibility 99
training 119
ethics and social responsibility 93
competency 94
importance of 98–100
evolution of managerial thought
competency 54–55
external environment, assessing turbulence 152
external environment, strategic importance 134–136
assessing 138
forecasting 138, 227
industry environment component 135
macro-environmental factors 135–136
threats and opportunities 152–153
see also scanning
external growth strategies 181
diversification, related 182–183
diversification, unrelated 183
horizontal integration 182
vertical backward integration 182
vertical forward integration 181–182
external sources of risk 547
advantages of managing risks 548–549
sources of environmental 547–548

F
feedback 7, 439
‘blind self’ quadrant 424
‘concealed self’ quadrant 425
Johari Window 424, 424
‘open self’ quadrant 424
 ‘unknown self’ quadrant 425
Fiedler’s contingency model 348, 350
limitations 350
organisational implications 350
finance function of business organisation 19, 23
financial analysis, comparative
current ratio 506
debt ratio 507
examples of financial ratios 506
inventory turnover 506–508
return on investment (ROI) 506
financial controls 505–506
Financial Intelligence Centre Act (FICA), 2001 542
financial risks
credit 540
currency 540–541
derivatives 541
foreign investment 541
funding 541
inflation 540
interest rate risk 540
liquidity 540
outsourcing 541
systems 541
fiscal policy 140–141
Fishbone (Ishikawa) Diagram 226, 226–227
Cause-and-Effect diagram 228
flexible viewpoint of management 78–79
accelerated globalisation 85
pacesetting leadership style 78–79
focused cost-leadership strategy 187
focused differentiation strategy 187
Follett, Mary Parker 69–70
forecasting, tools to assist
extrapolation 216
most probable scenario 217
optimistic scenario 217
pessimistic scenario 217
scenario-planning 217
formal assessment and training 359
formal communication 33, 34–35
Four Actions Framework 180
functional and operational strategies 189
functional departmentalisation 253–254, 254
advantages and disadvantages 254
functional objectives 176

G
Gantt, Henry 67
geographic departmentalisation 256, 256–257
advantages and disadvantages 256
Gilbreths, Frank and Lillian 67
global awareness competency 22, 47
cultural knowledge and understanding 41–42
cultural openness and sensitivity 41, 42
dimensions 42–43
multicultural sensitivity 42
Global Competitive Index (GCI) 142
globalisation 42, 320
goals and decision-making 205–207
benefits of setting goals 205–206
general and operational goals 206
nature of goals 205
qualitative terms 206
quantitative terms 206
see also stakeholders, role of in decision-making
Google 376
groups and teams
behavioural norms 296
competency 274
co-ordination and integration 296
differences between 276, 276
emotional climate 296
formal groups 278
friendship groups 278
importance of 277
informal groups 278
internal processes 298
reference groups 278
types 278, 278
see also work team
group think 288

H
Hackman, J. Richard 387
Hawthorne
effect 71
Illumination Tests 70
studies 70–71
health and safety risk sources 546–547
Hersey and Blanchard’s situational leadership model 350
directive behaviour 351
limitations 351
organisational implications 352
readiness 351
supportive behaviour 351
Herzberg’s two-factor theory 386, 403
hygiene factors 387, 403–404
 motivator factors 387
HIV/Aids 146–147
medications 105
prevalence in southern Africa 115
House’s path–goal model 353
achievement-orientated leadership 352
directive leadership 352
employee characteristics 352
organisational implications 353–354
participative leadership 352
supportive leadership 352
task characteristics 352–353
human resources 430
function of business organisation 19, 23
management system 284, 296

I
identify sources of resistance
different assessments of situation 453, 454–455
fear/uncertainty 453–454
interorganisational agreements 453, 455
misunderstandings and lack of trust 453, 454
vested interests 453, 454
implementing change in organisation 461
approaches to organisational change 463, 463
change agents 462–463
commitment to releasing potential 461
determination 461
effective communication and interpersonal skills 461
experience and networks 462
intelligence 461
stay focused on goals and be flexible 462
successfully leading change 462–463
impression management 358
communication competency 358
Independent Communications Authority of South Africa (ICASA) 430
independent inputs from members of board of directors 516
individual differences theories 380
see Alderfer’s ERG theory; Maslow’s hierarchy
of needs; McClelland’s theory of learnt needs
individual perspectives 105–106
personal moral philosophy 105
Industrial Conciliation Act, 1924 62
Industrial Conciliation Amendment Act, 1979 62
industry culture 325
industry environment 134, 149
competitive forces 150
competitors 150
new entrants 150
 Porter’s Five Forces and profitability 151
power of customers 150–151
power of suppliers 151
substitute products and services 150
informal communication 33, 34
information
communication 85
gathering 36
measurement orientated 476
scanning the environment 476
shared problems and solutions 476–477
technology 17, 85, 147–148, 439
informational category of roles of managers
disseminator 13
monitor 13
spokesperson 13
information and communication technology laws
Broadcasting Act, 1999, 2002 430
Competition Act, 1998 430
Constitution of the Republic of South Africa, 1996 430
Electronic Communications Act, 2005 430
Independent Communications Authority of South Africa Act, 2000/2006 430
Postal Services Act, 1998 430
Promotion of Administration Justice Act, 2000 430
information-processing biases
availability bias 211
concrete information bias 211
gambler’s fallacy bias 211
law of small numbers bias 211
selective perception bias 211
innovation in business context 20
administrative 478
process 478
stakeholders 478
technical 478
innovation role in organisational change 469, 477, 478
administrative innovations 470
process innovation 470–471
product innovations 470
radical versus incremental innovations 470
technical versus administrative innovations 470
ways to create culture of innovation 471
inputs and outputs 7, 23
Institute of Directors in Southern Africa (IoDSA) 515
Institute of Risk Management South Arica (IRMSA) 552
insurance companies 20
integrated expectancy model
ability 398
extrinsic rewards 398
 intrinsic rewards 398
Porter–Lawler model 398–399
role perceptions 398
satisfaction 399
traits 398
integrated strategic controls 509–511
see also balanced scorecard
integration of managerial viewpoints and competencies 83
planning and administration competencies 83
traditional viewpoint 83
integration through systems 262–264, 269
differences between mechanistic and organic 263
mechanistic (bureaucratic) systems 264
mechanistic systems 262
organic systems 262
integration through technology
pooled interdependence 264, 269
reciprocal interdependence 264, 265, 265
sequential interdependence 264, 264–265
integrity and ethical conduct 43
intellectual virtue, phronesis (Aristotle) 61
practical knowledge and ethics 61
value-based judgements 61
internal communication 33–34
internal environment 134
core and threshold capabilities 154
core capabilities 154–155
criteria for sustainable competitive advantage 155
distinctive capabilities 155
human resources 153
intangible resources 153
tangible or physical resources 153
threshold capabilities 154
internal growth strategies 179
consolidation strategy 180–181
innovation strategy 179
market development strategy 179
market penetration strategy 179
product development strategy 179
The ‘as is’ strategy canvas 180
The ‘as is’ strategy canvas with the ‘to be’ canvas 181
value innovation steps 179–180
internal sources of risk 539–540, 540
International Standards Organisation (ISO) 515, 525, 526–527
ISO 9000 certification (JIT, TQM) 515
interpersonal category of roles of managers
figurehead 13
leader 13
liaison 13
intrapreneurship 285
investment decisions 36
and financing decisions 36–37
ISO 31000:2009 risk management 526–527
ISO Guide 73:2009, Risk management 527
ISO/IEC 31000:2009, Risk management 527, 529

J
job and organisational contexts as motivators
theories 386–392
job-enrichment theory 404
autonomy 389
critical psychological states 388
experienced meaningfulness 388
experienced responsibility 388
feedback 389–390
growth need strength 390
Hackman–Oldman theory 386–388, 388
knowledge of results 388
skill variety 389
task identity 389
task significance 389
justice model
distributive justice principle 109
fairness principle 109–110
natural duty principle 110
just-in-time (JIT) order system 501, 512, 514

K
King Code of Governance Principles 515
King Report on Governance (King III) 115, 515
King IV Report 115, 515
knowledge about other cultures 42
knowledge management 213–214, 227
drivers 214
enabling technologies 214
explicit knowledge 214
tacit knowledge 214
knowledge management targets
customers 215
employees 215
teams 214–215

L
Labour Relations Act, 1995 322
laws and regulations 102, 104, 121
leader-participation model
decision-making styles 354
organisational implications 354–355
leaders for global organisations, developing 360
leadership 288, 360
in business 337–339
coercive power 339, 340, 360
committed employees 340–341
competency 334–336
compliance 340
consequences of using five types of power 341
empowerment 296
ethical 343–344
expert power 339, 340, 360
functions in work team leaders 296
legitimate power 339–340, 360
principles 85
referent power 339, 340, 360
resistance 340
reward power 339, 340, 360
situational factors influencing effectiveness 348
training and rewards 296
understanding 339
leadership development 358–359
leadership styles
effective 349–350
least-preferred co-worker (LPC) 349
relationship-orientated leader 349
task-orientated leader 349
your preferred style 361–364
learning on the job 359
learning organisations 471–472, 477
building blocks of 472
customer focus 474
internal alignment 475
long-term perspective 475
strategy 474
traditional organisations 472
legal risk sources
breach of copyright 550
breach of legislation 550
inaccurate listing of information 550
legal disputes 550
loss of business 550
prosecution for breach of law 550
level-five manager or leader 82
logistics function of business organisation 19, 23

M
macro-environment 134–135, 149
economic factors 140–143
political-legal environment 138–140
management
administrative 84
as an art 58–59, 84
bureaucratic 84
continuous dynamic environment 57
defining 9–10
as a discipline 60, 84
dynamic process 22
integration of resources 57
level of in organisation 15
occupation with professional character 84
as a profession 60–61, 84
as a science 58, 61, 84
see also techne
management by objectives (MBO) 396
managerial competencies 27–28, 30–32, 47
conceptual, interpersonal, technical skills 47
conceptual skill 31
developing 46–47
developing for managerial effectiveness 47
interpersonal (human) skill 31
key competencies 32
model 32
technical skills 31–32
managerial grid model 347
country-club style 346
impoverished style 346
middle-of-the-road style 347
produce-or-perish style 346–347
team style 347–348
managerial roles in small and large businesses 14
managerial task of planning 170, 516
managerial thought, development of 62–64
history of 63
labour unions 62
managers
first-line level 8, 22
middle level 8–9, 22
tasks and roles 9
top level 9, 22–23
versus operational employees 7–8
managing change 16–17
characteristics of new workplace 17
forces impacting organisations 17–18
managerial responses 18
transition to a new workplace 17
managing corporate social responsibility 110–111
stakeholders of an organisation 111, 111–112
managing sustainability 114–118
 organisational purpose 114
sustainable development 114
Three Ps (People, Planet, Prosperity) 115
market controls
cost of resources 505
prices of goods and services 505
value of goods and services 505
marketing 23
function of business organisation 19
market risk sources
cultural 550
demographic 550
economic 550
legal and regulatory 550
physical and natural 550
political 550
technology 550
Maslow, Abraham 380
Maslow’s hierarchy of needs 380–381, 403
affiliation needs 381
esteem needs 381
physiological needs 380
security needs 380
self-actualisation needs 381
matrix departmentalisation 259, 259–260
advantages and disadvantages 260
McClelland, David 385
McClelland’s theory of learnt needs 385, 403
achievement motive 385
affiliation motive 385
power motive 385
medical ethics 105
Millennial generation (Millennials) 80, 84
mission statement 172
models of effective leadership
behavioural models 341
contingency models 341
traits models 341–342, 360
transformational models 341
monetary policy 141
monitor and review risk
controls met 538
five key activities 538
internal controls applied 538
monitoring 137–138
moral principles 97–98
moral rights model 107–108
freedom of conscience and speech 108–109
life and safety 108
 privacy 108
truthfulness 108
motivation 364
categorisation of needs and process theories 378
communication with staff 375
competency 371–372
competition for key talent 375–377
employees 402
individual differences 379
integrating need theories 386
integrative approach 380
job and organisational contexts 379
overview of theories 377–379
motivation and behaviours of managers 379–380
extinction 393, 394
goal-setting theory 395–396, 404
guidelines for managers 394
guidelines for using reinforcement theory 395, 404
negative reinforcement 393, 394
positive reinforcement 393
punishment 393–394
reinforcement process 392
reinforcement theory 392–393
motivation: integrated view 403
basic expectancy theory 395–397
expectancy question 397
instrumentality question 397
valence question 397
see also performance dimensions rating

N
natural environment 148–149
sustainable development 148
‘triple bottom line’ 148
negotiation 33–35
network departmentalisation 257, 258, 258–259
advantages and disadvantages 259
New Development Bank (NDB) 549
non-verbal communication
chromatics 420
chronemics 420
forms of 418
haptics 418
kinesics 417–418
oculesics 418
proxemics 419–420
questionnaire 419
norm development factors
critical events 290
 explicit statements 290
first behaviours 290
past experiences 290
relationship behaviours 290
task-orientated behaviours 290

O
Ohio State University and University of Michigan models 345
considerate leadership style 345
employee-centred leadership style 346
initiating-structure leadership style 345–346
production-centred leadership style 346
Oldham, Greg 387
operational employees 7–8
operational objectives 176
operational or functional strategies 188
operational plans 189
operational risk sources
business or strategic 543
crime 543
disaster 543
information technology 544
major global disasters 543–544
outsourcing 544
regulatory 544
reputational 544
systems risk loss 544
operations 23
opportunities and threats
approach of organisations 478
identifying and evaluating 152–153
Issues Priority Matrix 153,159
organic organisational design
boundary-less networks 475–476
strategic alliances 475
teams 475
organisational change
anticipatory (planned) change 450, 477
assess the environment 452
determine performance gap 452–453
diagnose organisational problems 453
implementation 477
incremental change 451, 477
planning for 451–458, 477
process 452, 477
radical change 477
reactive change 450–451, 477
types 449–450, 450
organisational chart 251, 269
 information about structure 251
Telkom 252
organisational control 494
group or team control 495
individual self-control 495
organisational cultures 315–319, 325, 473
bureaucratic 317, 325
clan 317–318, 325
classification 316
community 474
continuous learning 474
entrepreneurial 315, 318, 325
framework of types 316
market 315, 318–319, 325
organisational implications 319–320
organisational design 244, 268, 269
choice of 250–251
competency 236–237
matching design features and service technologies 266
Quadrants A, B, C, D 267–268
and service technology 266–268, 269
organisational integration
job design 261
job enlargement 262
job enrichment 262
job expansion 261
job rotation 261–262
job specialisation or simplification 261, 268
organisational levels for management and employees 9
organisational location 16
organisational practices and culture 121
Codes of Conduct 104
ethical leadership 104
organisational redesign approach to change 477
re-engineering 465–466
structural redesign 466
organisational structure 242–241, 268, 269
authority 268
competency 236–237
co-ordination 241–242, 268
defining organising 241
responsibility 242
specialisation 241, 268
standardisation 241, 268
organisation and external environment interrelationship 134–135, 135
external environment 134
industry-organisation model 133
internal environment 134
resource-based model 134
organisations
managers and their place in 5–6
monolithic 315
multicultural 315
pluralistic 315
seven main functional areas 23
socially responsible and ethical 99–100
Osborn’s creativity model 228
brainstorming session and rules 222, 229
fact-finding phase 221
idea-finding phase 221–222
solution-finding phase 222–223
overcoming barriers to communication 434–435
encouraging feedback 435
listening actively 435–436
regulating flow of information 435
restraining negative emotions 436
simplifying language of message 435
using non-verbal cues 436, 439
using the grapevine 436

P
Pareto analysis diagram 225
Pareto Analysis technique 224–226, 228
also called vital few and trivial many 224
Pareto Principle (80/20 rule) 224, 228
people-orientated approach to change 477
focus groups 468
group values 468
organisational development (OD) 467
organisational values 468
people values 467–468
survey feedback 468–469
team-building 469
perception
selective 425
stereotyping 425
performance
assessment 515
diagnosing deficiencies 402
feedback 516
standards 516
performance management 503–504, 516
high efficiency and high effectiveness 504
high efficiency and low effectiveness 504
low efficiency and low effectiveness 504
low efficiency and high effectiveness 504
performance management guidelines
align rewards with what employees value 401
 design jobs with high motivating potential 400–401
effective systems 404
enhancing employees’ performance 400
identify achievements that will be awarded 401
provide equitable rewards 402
provide plenty of feedback 401–402
performance rating dimensions
dependability 397
ideas and co-operation 397
output 397
quality 397
personal commitment 325
personal competence
motivation 343
self-awareness 342
self-regulation 343
personal drive and resilience 43, 44
persuasive communication 436–437
communicate benefits and action 437
confirm your credibility 437
connect emotionally with target audience 437
know your target audience 437
7 cs of effective communication 437–438, 439
use clear language and convincing evidence 437
planned change process steps 451
moving to new state 451
refreezing new changes to make permanent 451
unfreezing the status quo 451
planning
primary managerial task 192
steps 170
planning and financial management competency 21, 36–37, 47
dimensions 37
and organising projects 36
political model of decision-making process
alternative solutions 212
disagreement over choice of goals 212
divergence in goals 212
divergence in solutions 212–213
ethical decision question 213
external and internal stakeholders 211–212
factors affecting process 212
problem definition 212
political risk sources
industry specific taxation 552
macro-politics 551
micro-politics 551
phenomena 551
Porter–Lawler model 398–399
positive organisational culture, creating 322–323
pre-determined goals 227
Prevention of Organised Crime Act (POCA), 1998 542
principle- and value-based organisational identity 81
principle-led management framework 81–82, 85
empowerment 82
interpersonal and personal levels 82
leadership principle of alignment 82
levels of organisational development 81–82
organisational level 82
principle-led viewpoint of management 79
careers in future and talent management 79, 80–81
knowledge management 79
principle- and value-based organisational identity 79, 81
principle-led management framework 79, 81–82
sustainable organisations 79, 80
principles of communication
focus 439
organisation 439
relevance 439
repetition 439
simplicity 439
principles of persuasion
authority 438, 439
consistency 438, 439
liking 438, 439
reciprocity 438, 439
scarcity 438, 439
social proof 438, 439
productivity and organisational performance 10
product lifecycle management 430
product or service departmentalisation 255
advantages or disadvantages 255
profit
distribution or retention 37
versus not-for-profit organisations 15–16
project risk 544–545
CHAOS Reports 545
sources 545
Promotion of Equality and Prevention of Unfair Discrimination Act, 2000 322
public relations function of business organisation 19, 23
purchasing 23

Q
quality 85
decisions about 77
importance of 77
management 228
product or service 21
 and economic value 516
quality control approaches 512–515
quality, tools to assist in promoting
basic benchmarking process steps 222–223
benchmarking process 222, 222
limitations 223
quality viewpoint of management 76–78
Quantitative Probability Impact Matrix 533
quantitative techniques 73–74

R
rational decision-making model
choose from among alternative solutions 209
compare and evaluate alternative solutions 209
define and diagnose problem 208
follow-up and control 209–211
implement the solution selected 209
search for alternative solutions 209
set goals 208–209
reduce resistance to change
education and communication 455–456
explicit and implicit coercion 455, 457
facilitation and support 455, 456
issues to be considered 457–458
manipulation and co-optation 455, 456–457
methods of overcoming resistance to change 457
negotiation and agreement 455, 456
participation and involvement 455, 456
relationship management 43
resources and capabilities in organisation 156–159
appraising resources and capabilities 156
appraising Volkswagen’s resources and capabilities 157
developing strategy implications 158–159
identify key resources and capabilities 156
Relative Strength/Strategic Importance Matrix 156, 158
tangible, intangible, human 159–160
retrenchments 99–100
risk
ability to manage 537
appetite statements 536
avoidance 537
consequence (significance) scales 552
context 537
corruption 552
cost implication 537
impact 540
likelihood (probability) scales 538, 552
motives 537
reduction 536–537
 response strategies 536, 537
retention, acceptance, absorption, tolerance 537
tests and strategy 537
transfer 537
unemployment 552
weak infrastructure 552
risk analysis
cause and effect diagram (Ishakawa/fishbone) 533, 534
impact of risk or opportunity 533
likelihood of risk or opportunity 533
Pareto analysis 534
probability impact matrix 533
Quantitative Probability Impact Matrix 533
risk assessment
analysis 531
client servicing 532–533
culture and governance 531
evaluation 531
financial crime 533
identification 531
product design 532
register 531
regulatory authorisations and permissions 533
strategy and business model 531
transaction services 532
typical contents of risk register 532
risk evaluation
decision tree 534–535
expected monetary values (EMV) 535
framework for decision tree 534
probability tree 535, 535
quantitative results 535
scenario analysis/modelling 535
sensitivity analysis 535
simulation and data analysis 535–536
risk in organisational context 525–526
risk management (RM) 515, 552
advantages 527–528
competency 522
defining risk and management 526
internal controls 516
Principles and guidelines 527
role of stakeholders 525–526
risk management process 528–529, 529, 552
culture 530
plan 530
resources available 530
restrictions 530
roles of managers 12–13
 decisional 23
informational 23
interpersonal 23

S
scanning 136
political route markers 136
scenario analysis 136
scenario matrix 137
scenarios 227
self-awareness and development 43, 45, 364
self-management competency 22, 43–45, 47
dimensions 45–46
see also emotional intelligence (EI)
self-regulation 364
servant-leader 82
service technologies 265–266, 267
closeness 265
intangibility 265
shared leadership 473
Shewhart, Walter 223–224
simulation 218–219
situational variables
leader–member relations 349
leader position power 349
task structure 351
Six Sigma 513–514
Black Belts 513
champions 512–513
DMAIC first process 512, 513
DMADV second process 512
Green Belts 513
Master Black Belts 513
Six Sigma process and tool examples 513
size of organisation 14
skills 47
social awareness 43
social competence
empathy 343, 364
social skills 343, 364
social culture 143–145
collectivism 143
individualism 143–144
indulgence 144
long-term orientation 144
masculinity 144
power distance 144
uncertainty avoidance 143
socialisation activities 325
Social Media Optimisation (SMO) 428
Facebook 428–429, 439
Internet 429–430
LinkedIn 429, 439
Twitter 429, 439
social network sites (SNS) 428, 429, 439
social responsibility issues 100, 101
laws pertaining to 102–103
social risk sources
growing obesity 551
growing working population 551
high pregnancy rate 551
linguistic barriers in trade 551
poor standard of education of new recruits 550–551
value of home improvement market 551
social skills 43
societal norms and culture 101–102, 121, 325
socio-cultural and demographic environment
demography and social structure 143
social culture 143
value system 143
South African insight
Barloworld 166–169
BMW 489
Dr Reuel Jethro Khoza 29–30
economy 132–122
Mercedes-Benz South Africa 336–337, 359
MMI and stakeholder engagement 412–413
Mr Price Group Limited 305–306
Road Accident Fund (RAF) 237–240
Sappi 447–449
Standard Bank 55–57
Standard Bank Group 523–524
Teamwork at OUPSA 275
Woolworths 95–96, 199
work motivation 373–374
speed in competitive business arena 21
spiritual intelligence (SI) 43, 45, 47
stakeholder concerns 122
customers 112
employees 112–113
owners and shareholders 113–114
society 113
when evaluating corporate performance 117
stakeholders 516
clients 493
community and public healthcare organisations 494
employees 493
financial advisers 494
 healthcare professionals 494
investors and analysts 484
media 494
regulators and governments 494
stakeholders, role of in decision-making
alternatives and goals 206
balanced scorecard 207, 227
choices 207
constraints 207
customer perspective 207
demands 206
financial perspective 207
internal-process perspective 207
learning and growth perspectives 207
strategic action competency 22, 47
dimensions 40
taking strategic actions 40
understanding the organisation 39–40
strategic analysis 134
competency 130–131
strategic and business planning 515
strategic objectives
competitive objectives 176
financial objectives 176
financial and competitive objectives 177
functional and operational objectives 177
strategic plan 189
for organisation 170
strategic planning competency 164–166
strategic planning process 171
Coca-Cola’s mission statement 175
contingency planning 171
core behaviour standards 174–175
core purpose of organisation 172–173
core strategies 173
core values 173–174
Eight S Model of strategy execution 190, 191
nine interrelated tasks 192
Tiger Brands 173–174
strategic planning process tasks
assess strengths and weaknesses 175–176
assess threats and opportunities 175
clarify strategic intent, vision and mission 172–175
control and diagnose results 191
developing tactical and operational plans 190
develop strategies to fill profit gap 178–189
hierarchy of goals and plans 189
implement strategies identified 189–191
repeat planning process 192
 set strategic objectives 176–177
undertake gap analysis 177–178
supply chain management (SCM) 430
sustainability
economic 80, 85
environmental 80, 85
social 80, 85
sustainable development 98
SWOT analysis 176
systems, organisations as 6
basic systems view of organisation 6
systems concepts 73
feedback 73
inputs and outputs 73
transformation processes 73
systems viewpoint of management 71
assessing viewpoint 74–75
basic systems view of organisation 74
characteristics and proponents 72
framework of inputs 85
main characteristics 73
outputs and feedback 85
quantitative techniques 73–74
transformation processes 85

T
tactical plans 189
task-based approach to change 477
job enrichment aspects 467
job simplification 466–467
tasks of managers 23
basic managerial tasks 11
controlling 10, 12, 23
leading 10, 12, 23
organising 11–12, 23
planning 10, 11, 23
Taylor, Frederick Winslow 66–67, 68
team
design choices 284, 296
emotional climate of group 296
formal group 295
informal group 295
location 284–285
proximity 284–285
size 284
sub-teams 284
Team Assessment Survey 290–291
teamwork competency 21, 47, 295
designing the team 38
 dimensions 39
internal processes 285, 296
managing team dynamics 38
in organisational settings 37–38
techne and art of management disciplines 61
contingent characteristics 61
instrumental characteristics 61
procedural and/or processual 61
technological environment 147
technological risk sources 545–546
primary technology types 546
technology 17–18, 147
role in manufacturing 148
role in strategy 147–148
technology-based approach to change 477
information technology 464–465
socio-technical systems 464
threats and opportunities 22
time
management 36
Total Quality Management (TQM) 77, 84, 85, 308, 511, 514
major principles 515
tradition 325
traditional (or classical) viewpoint of management 63, 68, 84
assessing scientific management 67
bureaucratic management 64
characteristics of bureaucratic management 65
scientific management 66–68
traditional organisations 295
transformational and charismatic leadership 355–358, 364
framing 357–358
impression management 358
vision 356
transformation processes 7
triple bottom line 98
trust relationships 85
trustworthiness 85
turnaround strategies
divestiture 184
liquidation and bankruptcy 184
recovery 184
retrenchment 184
revenue growth 184
types of decisions
adaptive 204–205
innovative 205
problems and solutions 203
routine 203–204
U
Ubuntu 42
unethical conduct 122
universality of management 16

V
values and ethical approaches, diverse 122
virtual reality 219

W
whistle-blower 119–121
allegation of wrongdoing 120
legislation to protect 121
questions about 120
wireless communication 428
workforce diversity, managing
creating a positive culture 322–323
creating economic value 323–324
demographic and cultural diversity 320–321, 325
legal compliance 321–322
organisational goals 321
work motivation
approaches to understanding 403
questionnaire 382–383
see also motivation
work team 278, 295
activities 277
behavioural norms 296
co-ordination and integration 296
disbanding an ineffective team 294
effectiveness criteria 296
functional 279, 295
high-performance teams 280
internal processes 285, 296
leaders 293
members 292
multidisciplinary/cross-functional team 279–280, 296
problem-solving 279, 296
self-managing/self-management/self-directed 280–281, 296
survey results on team interaction 281
team-based organisational structure 283
time spent on teamwork in BRICS countries 277
virtual 281–282
work team functioning model 282
external system 283, 296
key components 282
organisational culture 283
organisational design 283–284
societal culture 283
work team leadership
effectiveness criteria for work teams 292, 296
empowerment 291–293
managing the external boundary 293–294
work teams stages of development 285, 286, 286
adjourning 288–289
behavioural norms 289–290
cohesiveness 289
feelings 289
forming 287
leadership 288
norming 287–288
peer pressure 288
performing 288
storming stage 287
see also norm development factors
work teams support
team rewards 295
team training 294
training in team procedures 294
training to develop team cohesiveness 294
training to develop work team members 294–295
World Economic Forum (WEF) 142
Global Competitiveness Report, 2016/17 142