Introduction to Business Management Chapter 1: The Business World and Business Management

Preface and Document Information

• Original Source: "Introduction to Business Management", $11^{th}$ Edition.

• Authors: Barney Erasmus, Sharon Rudansky-Klo, and Johan Strydom.

• Publisher: Oxford University Press Southern Africa (Pty) Ltd.

• Copyright Year: $2019$.

• ISBN: $978\,019\,07\,4576\,9$.

• Address: P O Box $12119$, N1 City, $7463$, Cape Town, Republic of South Africa.

Learning Outcomes

• Examine and explain the role played by the business organisation in making available the various products and services society requires to exist and thrive.

• Describe the specific needs of society and the mechanisms through which a business organisation satisfies those needs within a market economy.

• Identify and distinguish between the three primary economic systems found globally.

• Explain the interface and relationship between a business organisation and a market economy.

• Describe the nature and purpose of business management as a science, specifically how the study of enabling factors, methods, and principles ensures the efficient functioning of a business.

• Comment on the historical and academic development of business management as a scientific field.

• Distinguish between and provide comments on the various management functions.

The Role of Business in Society

• Definition of the Business World: The business world is viewed as a complex system involving the transformation of resources into products and services to satisfy consumer needs in exchange for profit.

• Core Elements of Business Description:

  • Human Activities: Business is driven by the actions and decisions of people.

  • Production: Business involves the actual creation or assembly of goods and services.

  • Exchange: Business involves the trade of products/services for value.

  • Profit: Business seeks a financial return over and above the costs of production.

Sectors of the Market Economy

• The market economy consists of various businesses grouped into industries, further categorized into two main sectors:

• Formal Sector:

  • Composed of large businesses, many of which are listed on the JSE (Johannesburg Stock Exchange).

  • Examples provided: Old Mutual, Exxaro, Telkom, and Sasol.

• Informal Sector:

  • Composed of micro-enterprises.

  • These businesses generally do not contribute to official rates and taxes.

  • Examples provided: Independent family-owned enterprises.

Sustainability and Interdependence

• Sustainability: Defined as the ability of a business to survive and prosper over long durations of time.

• Interdependence: Society and the business world are codependent; each depends on and influences the other.

• Themes of Sustainability:

  • Social responsibility.

  • Employment equity.

  • Business ethics.

  • Consumerism.

  • Environmental sustainability.

Needs and Need Satisfaction

• Maslow’s Hierarchy of Needs: Humans possess a wide range of unlimited physical, psychological, and social needs.

  • Range: From the most basic physiological needs (e.g., food) to high-level self-realisation.

• Hierarchy Levels:

  1. Physiological needs.

  2. Safety needs.

  3. Social needs.

  4. Esteem needs.

  5. Self-realisation needs.

Factors of Production (Limited Resources)

• While needs are unlimited, the resources available to society are limited. These are categorized as factors of production:

• Natural Resources: Includes the factor of "land." The supply cannot be increased. Examples: water, forests, minerals.

• Human Resources: Includes the factor of "labour." This encompasses the physical work, mental talents, and skills of people. Example: employees.

• Capital: Includes the factor of "assets." These are not for final consumption but are used to facilitate the production of final consumer products. Examples: buildings, machinery, computers.

• Entrepreneurship (Including Management): The factor of collective managerial capacity. It involves individuals who accept risks to coordinate resources. Examples: Elon Musk and Richard Branson.

The Cycle of Need-Satisfaction

• The Economic Principle: Society faces the "economic problem" of utilizing scarce resources to satisfy community needs.

• Crucial Economic Questions:

  • Which products and services should be produced, and in what quantities?

  • Who should produce these products and services?

  • How should these products and services be produced, and with which resources?

  • Who is the target audience for these products and services?

• The Cycle Flow:

  • The community has unlimited needs and limited resources.

  • The community chooses a need-satisfying system (Market economy, Socialism, or Command economy).

  • The chosen system is subject to the economic principle (achieving highest satisfaction with scarce resources).

  • In a free market, the entrepreneur is the driving force, motivated by profit.

  • If needs are not met, the community may change or choose a different economic system.

The Main Economic Systems

• Market Economy:

  • Members may possess assets and earn profits.

  • Resource allocation is managed via free markets.

  • Members have free choice regarding products, services, residence, and careers.

  • Minimal state interference.

• Command Economy:

  • Communal ownership; individuals own no property except domestic assets.

  • Product choices are limited to what the state provides.

  • The state decides community needs, quantities, and methods of obtainment.

• Socialism:

  • A compromise between pure market and pure command economies.

  • Businesses and consumers operate in markets with a degree of liberty to make decisions.

  • Consumers have more freedom than in a command economy, but basic industries are often state-controlled.

• Mixed Economies: Note that none of the three systems occur in their pure form; most modern economies are "mixed."

Comprehensive Comparison of Economic Systems

Need-Satisfying Institutions

• Business Organisations: Need-satisfying institutions that must make a profit to survive. Example: Pick ‘n Pay.

• Government Organisations: Institutions where the state creates products/services deemed of strategic, economic, or political importance. Examples: SAA (South African Airways) and SABC (South African Broadcasting Corporation).

• Non-Profit Seeking Organisations: Institutions whose primary motivation is not profit. Example: SPCA (Society for the Prevention of Cruelty to Animals).

The Nature of Business Management

• Business Management is studied as an independent science related to Economics.

• It focuses on the efficient functioning of the business through specific methods and principles.

• Functional management areas include:

  1. General Management.

  2. Marketing Management.

  3. Financial Management.

  4. Production and Operations Management.

  5. Purchasing Management.

  6. Human Resource Management.

  7. Public Relations Management.

Interdisciplinary Interfaces of Business Management

Anthropology

• General Management: Focuses on cultural relationships and organizational behavior determinants.

• Marketing Management: Analyzes cultural diversity.

Economics

• General Management: Environmental scanning.

• Marketing Management: Market analysis of consumer expenditure.

• Financial Management: Influence of financial strategy; behavior of financial markets.

• Production/Operations: Location problems.

• Purchasing Management: Market analysis of availability and stockpiling.

• HR Management: Labour-market analyses; remuneration.

• Public Relations: Economic influence of external groups.

Engineering

• Production/Operations: Product development; factory erection and outlay.

• Purchasing Management: Value analysis.

• HR Management: Safety of employees.

Law (Mercantile Law)

• General Management: Format of an organization.

• Marketing Management: Misleading practices; product safety; packaging.

• Financial Management: Takeovers and mergers.

• Production/Operations: Pollution control for factories.

• Purchasing Management: Law of contracts.

• HR Management: Conditions of employment; labor laws; union negotiations.

• Public Relations: Misleading messages; sponsorship contracts.

Computer Science

• General Management: Information management; planning models.

• Marketing Management: Marketing research; e-research.

• Financial Management: Financial models.

• Production/Operations: Optimal outlays; Manufacturing Resource Planning (MRP).

• Purchasing Management: Materials Requirement Planning.

• HR Management: Labour-information systems.

• Public Relations: Public relations research.

Accounting

• General Management: Control systems; budgets.

• Marketing Management: Marketing audit; sales and cost analyses.

• Financial Management: Interpretation of financial statements.

• Production/Operations: Cost analysis.

• Purchasing Management: Inventory valuation.

• HR Management: Human-asset accounting.

• Public Relations: Budgets; cost analysis.

Psychology

• General Management: Leadership; motivation.

• Marketing Management: Consumer behavior.

• Financial Management: Negotiation.

• HR Management: Testing and performance analysis.

• Public Relations: Communication; persuasion.

Sociology

• General Management: Organizational behavior.

• Marketing Management: Socio-demographic classification.

• Financial Management: Business ethics.

• Production/Operations: Organizational behavior.

• Purchasing Management: Group influence.

• Public Relations: Interfaces between the organization and environment.

Mathematics and Statistics

• General Management: Decision and planning models.

• Marketing Management: Market research, forecasting, and measuring.

• Financial Management: Financial models.

• Production/Operations: Deviations.

• Purchasing Management: Inventory forecasting.

• HR Management: Human resource planning models.

• Public Relations: Pre- and post-testing of programmes.