Semester 2: Module 2

THE PRINCIPLES OF BUSINESS MANAGEMENT

Strydom, J. 2018. Principles of Business Management. 4th Edition.
Oxford University Press. Southern Africa

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 LEARNING UNIT 7: Operations Management
After completion of this learning unit/outcome you should be able to:

7.1 Understand the importance of operations management

Operations management involves the management of the conversion process, in all kinds of
organisations for the manufacturing of goods and/or services. An operation is a process in which inputs
are transformed into outputs. The contributions of operations management to society include:
- Better quality goods and services
- Higher standards of living
- Improved working conditions
- A concern for the environment
Operations management is the core function in all organisations, and is also important in all parts of the
business, because all the activities aim to add value. Operations management is a ‘make or brake’ activity
because in most businesses it works with the bulk of its assets and resources. It will continue to affect
profitability, it will remain the way to achieve strategic performance objectives, and it will continue to satisfy
a wide range of stakeholders.

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7.2 Discuss what productivity is
Operations management involves making the processes effective (doing the right thing to create the most
value for the company) and efficient (doing something at the lowest possible cost). Productivity is a
common measure of how well inputs are being used by a business or a country, it includes both efficiency
and effectiveness.
Lead-time, or throughput time refers to general time for the actual manufacturing process. The main
elements of lead-time are:
- Queue time: The period for which a job stays in the queue at a work centre.
- Set-up time: The time needed to prepare equipment for processing a new job.
- Processing time: The actual time needed to process the job.
- Waiting time: The empty time between the processing of a job and its transportation to the next work
centre.
- Transportation time: The time needed to move the job from one work centre to the next.
- Inspection time: The time needed to check whether the job comes up to quality standard.
Operations management is concerned with process management, reducing all kinds of lead-time
elements to improve both effectiveness and efficiency. Process lead-time can be reduced by:
- Re-engineering
- Performing activities in parallel
- Changing the order of activities 3
Process management
Process management is a central role of all management. The process associated within the different
functional areas are the following three process categories:
1. Upper management process refers to governing, visioning, designing, strategizing, etc.
2. Operational processes refers to purchasing, production and marketing.
3. Supporting processes refers to information technology, accounting and human-resources
management.
All processes need to be managed in terms of design, sustainability and variation. Variation occurs in all
business processes due to variability and variety. The following are the four types of variations:
4. Variety of goods and services being offered
5. Structural variation in demand patterns
6. Assignable variation due to mistakes, incorrect methods, defective inputs, old equipment, etc.
7. Random variation is natural variability present to some extent in all processes.

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7.3 Understand how an operations strategy relates to a business strategy – NOT INCLUDED IN
LEARNING OUTCOMES
Business strategies are wider, large-scale plans for the future which aim to achieve objectives in the very
best way. Significant (meaningful) decisions that have a big effect can also be called business strategies.
The following are core aspects of a business’s strategic decisions:
- Strategic decisions are future-orientated.
- Strategic decisions must involve top-level management.
- Strategic decisions involve a lot of resources.
Operational strategies are defined as the total pattern of decisions and actions that form the roles,
objectives and activities of each part of the operation, so that they support the organization’s business
strategies. Operations strategies are designed, created and implemented to make the business more
competitive in the market. Operation-management function (operations strategy) has three important roles,
namely:
- Driving business strategy.
- Supporting business strategy.
- Implementing business strategy.
Performance objectives are the skills that drive business strategy. The can be referred to as ‘strategic
performance objectives’. Examples of these are quality, cost, service delivery, speed, reliability,
consistency, responsiveness, and flexibility.
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7.4 Describe the characteristics of different operations systems
Operations designs are the plans for how to produce goods or services. The following are ten
guidelines for effective product and operations designs:
1. Take into account target-market expectations and target costs.
2. Simplify assemblies and reduce the number of parts or operations to bring down costs, improve
quality, and make production or service easier.
3. Ensure that exact customer or client requirements are known, so that designs are based on actual
needs.
4. Ensure that there is enough available process ability to carry out the design.
5. Use standard materials, parts, methods and procedures of known and proven quality.
6. Design parts and service elements that are multi-functional and that can be used in different situations.
7. Design products for ease of joining, separating or rejoining, and services for ease of coupling or
uncoupling.
8. Design for one-way assembly and one-way travel, by avoiding back-tracking and return visits.
9. Avoid special, complicated fasteners and connectors for products and off-line services, or elements
that break and spoil the service.
10. Design strength, and avoid designs that require a great deal of care during manufacture or delivery, or
that may lead to poor or unsafe performance.
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The characteristics of the three main categories of operations systems
Continuous/Repetitive Operations Batch/Job Operations Project Operations System
System System
Product Type Standardised Diversified Unique
Layout Product layout in which facilities are Process layout where similar Fixed-position layout – where
placed along flow lines according to the process, skilled labour or the product is kept at a fixed
product’s subcomponents facilities are grouped position and the production
together in one place facilities come to it
Product flow Standardised According to requirements of Almost one
particular product
Materials Handling Materials flow determinable, systimised Handling depends on the Special equipment often
and often automated product, therefore highly necessary; high cost
variable and expensive
Raw Material High turnover Low turnover Variable because of
Inventory production time
Work-In-Progress Small quantities Large quantities Single product
Production Cost Relatively high fixed cost; low variable Relatively low fixed cost; high Relatively high fixed cost;
Component cost per unit variable cost per unit high variable cost per unit

Labour Highly specialised routine tasks at a High skilled artisans working High degree of adaptability to
Requirements specific rate without supervision various tasks

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7.5 Explain operations planning and control
Capacity planning is planning for the resources needed over a certain time period. Fixed-capacity
planning is done for a long-term period, and variable-capacity planning is done for a short-term or
medium-term period. Control function include cost control, quality control and quantity control.
Planning and control require handling supply and demand in terms of volumes, timing, and quality. To
reconcile volume and timing, four overlapping activities are performed:
1. Loading involves allocating amounts of work to particular work centres.
2. Sequencing involves deciding on the order in which the work will be done.
3. Scheduling means deciding how many jobs are to be done, and when they are to be completed.
4. Monitoring is a controlling activity to ensure that the planned actions are happening according to
schedule.
Addressing bottlenecks
Theory of Constraints (TOC) is defined as a systems approach to improving business systems. The
basic idea of the TOC is that only a few elements prevent it from achieving its goal. Also referred to as the
‘drum-buffer-rope method’, the basic idea of the TOC is to focus on bottlenecks to increase throughput.

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8.6 Think of ways to change capacity to suit change in demand
Demand management
Demand management is used to determine aggregate demand, which is the demand for a group of
products sharing the same capacity in the plant. Aggregate planning refers to the anticipation of
aggregate demand, and includes capacity planning. Forecasting is the science of anticipation determining
the demand for a product in the light of future events. Forecasting techniques are divided into three
categories:
1. Quantitative technique which uses numerical data and mathematical calculations.
2. Qualitative technique which are based on the forecaster’s feelings about the data rather than actual
calculations.
3. Casual methods which determine a cause-and-effect relationship.
Fixed-capacity planning
A business’s capacity is the greatest workload that a business can handle. The elements of fixed-
capacity planning are:
4. Identify a suitable place
5. Deciding the size of the production unit
6. Designing the layout of the production unit
7. The choice and design of equipment
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8. Considering safety of the workers.
Adapting capacity to a change in demand
If a production unit is working at full capacity, a change in demand could mean that the capacity has
become either too small or too big. If the capacity to produce a product is smaller than the demand for the
product, the production unit could:
- Hire more employees or get additional machines.
- Introduce overtime or introduce an extra shift.
- Specialise in a particular type of that product.
- Use temporary means of production or accept a transfer of surplus capacity from other divisions.
- Open a new section in the factory.

If the capacity to produce a product is greater than the demand for the product, the production unit can:
- Close a section of the factory.
- Scale down workers’ hours or use fewer shifts.
- Combine products.
- Reduce the temporary means of production.
- Move surplus capacity to another division or sell excess equipment.

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Inventory management
Inventory management is the planning and controlling of all types of inventory. The central part of
inventory management is to have enough inventory at any given time. The principles for good inventory
management are:
1. The most economical quantities should be ordered.
2. Production should never be held up by a shortage of a certain item in the inventory.
3. Losses should be prevented by controlling all incoming inventory.
4. A great mixture of different items should be avoided.
5. The financial investment in inventory must be controlled to save on interest and cost.
6. A scientific and factual method to simplify purchases needs to be created.
7. Dead or slow-moving stock should be identified and managed.
8. There should be a reduction in possible losses as a result of obsolescence and incorrect or excessive
purchases.
9. Inventory control must serve as a source of information for management decisions.
A business’s capital should not be tied up in idle stock. Stock that is tied up in this way is called the
carrying cost. The total inventory carrying cost usually includes the following elements:
10. Direct inventory carrying-cost elements: capital cost (interest costs) and holding cost (renting costs)
11. Indirect inventory carrying-cost elements: obsolescence, record-keeping, stocktaking costs. 11
8.7 Understand the essence of total quality management and operations improvement
8.7.1 Operations improvement
The basic performance objectives of any operation include improvement. Speediness, cost-effectiveness
and flexibility are a few examples of such improvement. Agility can be regarded as the ultimate operational
performance objective that will demand constant attention.
8.7.2 Total quality management (TQM) management.
TQM is a holistic and therefore an organization-wide approach to quality management. This implies a
complete and comprehensive approach to quality inputs, quality process and quality outputs. The TQM
approach goes beyond checking for faults. It focuses on quality at the source, prevention of defects and
continuous improvement. A feature of this holistic approach is its wide application of tools, teams, and
systems. ‘Soft’ components such as culture, communication and commitment are also naturally part of
TQM. It uses international quality management system standards such as those based on ISO 9000 to
support quality, and it creates and supports quality improvement and control techniques.

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8.8 Discuss the principles of operations safety, quality, maintenance and improvement
The basic performance objectives of any operation include improvement. Operations managers can use
the following improvement strategies and techniques:
8.8.1 Statistical Process Control (SPC): SPC is one tool used by quality management. It is about
checking whether the process for the manufacturer of goods or delivery of services is either under control
or outside control. If the process is outside control, it means that the variations are outside the limits of the
natural process variation for one or other reason, in which case the process must be stopped,
investigated, and the cause of the unnatural variation be removed.
8.8.2 Maintenance and Replacement: The science of maintenance is connected to operations
improvement because it aims at sustaining the operational system. Machinery and other pieces of
equipment are subject to a good deal of wear because their moving parts are in constant use. Preventive
maintenance requires employees to prevent failures where possible. It also involves training maintenance
teams and predicting the possible times of equipment failure through good record keeping.
8.8.3 Safety, Health and Environmental Management: Operations improvement also includes the
environment around the operational system. Running a safe working environment is part of the
responsibility of operations management. Risks in the workplace must be managed by safety managers
and safety engineers. Managing safe operations has a strong humanistic aspect since many operations
solutions lie in employee motivation and well-being.

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8.9 Understand projects and project management
A project is a temporary attempt to create a unique product. Project management is needed when the
scope of a project is complex. A project’s complexity increases as the number of activities, resources, and
people involved increase. A project manager should have:
1. A background in, and experience of, related projects.
2. An understanding of project management as a profession.
3. Strategic expertise of the overall project and its environment.
4. Proven project-managerial ability based on a track record and leadership skills.
Project planning, scheduling and Gantt charts
Project planning is a complex activity that follows project definition. Several planning tools such as Gantt
chart which are time charts can be used. A Gantt chart gives a drawing of the progress made on a project.
Scheduling by means of networks
Network diagramming is a planning tool used for more complex projects. Several software packages are
available to simply its use. The longest route from the first to the last activity of the project is the critical
path. Duration of activities on this path must not be increased as they will extend project duration.

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 LEARNING UNIT 8: Logistics Management
After completion of this learning unit/outcome you should be able to:
18.1 Define logistics and logistics management
10.1.1 Logistics is the process of planning, implementing and controlling procedure, for the efficient and
effective transportation and storage of goods including services, and related information from the point of
origin to the point of consumption for the purpose of conforming to customer requirements.
10.1.2 Logistics Management is that part of supply chain management that plans, implement and
controls the efficient, effective forward and reverse flow and storage of goods, services and related
information between the point of origin and the point of consumption in order to meet customers’
requirements.
8.2 Explain the types, objectives, phases and components of a logistics system
8.2.1 Types of logistics
- Business logistics: The process that efficiently and effectively plans, implements and controls the flow
and storage of goods and services from point of origin to point of consumption or consumption.
- Military logistics: The planning, design, integration, development and deployment of all aspects of the
operational capability of a military force and their equipment.
- Event logistics: The various activities, facilities and personnel required to plan, organize, schedule,
deploy and lead the resources for an event.
- Service logistics: The recruitment, training, scheduling, leadership and management of people 15to
support and develop a service operation.
8.2.2 The logistics process from a system approach
The system concept is defined as ‘a decision-making strategy that emphasizes overall system efficiency
rather than the efficiency of the individual parts of the system’. A logistic system is made up of a physical
structure consisting of two things: immovable facilities and the transportation activities between those
facilities, as well as information flows between the various systems components.
To ensure an efficient and effective logistics system it is important to focus on and emphasise quality
throughout the process. The quality focus can be summarized in a set of rights known as the ‘7 rights of
logistics’. They can be summarized as follows:
- Move the right materials/products.
- In the right quantity.
- In the right condition.
- At the right time.
- To the right place.
- At the right cost.
- To the right customers, associates, suppliers, and stockholders.

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8.2.3 The phases of logistics are described as:
- Inbound Logistics (Physical Supply/Upstream Logistics): The movement of goods/materials from
the point of origin to point of production.
- Outbound Logistics (Physical Distribution/Downstream Logistics): The movement of finished
goods from the point of production to the point consumer at the point of consumption.
- Reverse Logistics: The movement or return of damaged, expired or unsold goods from the point of
consumption to the producer.
8.2.4 Components of a logistics system
- Customer service
- Inventory management
- Transportation
- Storage and materials handling
- Packaging
- Information processing
- Demand forecasting
- Purchasing
- Facility location
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- Production planning
8.3 Explain the concept of logistics management
Logistics management is an integrating function which co-ordinates and optimizes all logistics activities,
as well as integrating logistics activities with other functions, including marketing, sales, manufacturing,
finance and information technology. Logistics management is a sub-discipline of supply chain
management that plans, implements and controls the efficient, effective, forward and reverse flow and
storage of goods, services and related information within the organisation.
8.4 Discuss the objectives and activities of logistics management
4.1 The main objectives that need to be achieved by a logistics manager are:
1. To make available the right quantity and quality products.
2. To make products available at the right place and time.
3. To offer the most appropriate and best service to consumers.
4. To reduce the cost of activities within the operation.
5. To maintain transparency and visibility in the operation.

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8.4. Logistics management activities can be summarised into six main categories:
- Purchasing/procurement logistics consists of activities such as market research, requirements
planning, make-or-buy decisions, supplier management, ordering, and order controlling.
- Order processing involves the forecasting of orders and order requirements, customer order
management, and production and materials management.
- Transportation logistics consists of the planning of the transport, including intermodal transportation as
well as the actual use of freight transport.
- Warehousing and materials handling involves the storage and internal movement of goods and
materials.
- Inventory management involves both the procurement of appropriate inventory as well as the
management of production inventory.
8.5. Describe the concept of integrated logistics
Integrated logistics is defined as ‘A comprehensive, system-wide view of the entire supply chain as a
single process, from raw materials supply through finished goods distribution’.
Integrated logistics is an organization’s coherent and continuous ability to offer a one-stop solution to the
product, material and logistic requirements of the organization.

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8.6 Describe the concept of reverse logistics
Reverse logistics is a term used to describe all the activities within the operation that support the reuse of
products and materials, it is the process of planning, implementing, and controlling the efficient, cost
effective flow of raw materials, in-process inventory, finished goods and related information from the point
of consumption to the point of origin for the purpose of recapturing value or proper disposal. Reverse
logistics can therefore support the recycling of products and the use of recycled materials into new
products. Reverse logistics is the process of reversing the flow of goods and moving them back from the
customer to the source in order to add value or correctly dispose of the goods. Remanufacturing, recycling
and refurbishing activities can also be included in the definition of reverse logistics.
8.7 Explain global logistics
Definition of global logistics states: ‘Global logistics plans, controls, and manages the movement and
storage of goods, services, and related information as it moves across international boundaries from raw
material provider to consumers also considering the handling of return goods and containers’.
The key to focus of global logistics is the internationalization of all the operations, logistics and supply
network activities to take into account the complexities of doing business in a foreign country or in multiple
countries.

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8.8 Describe the benefits of good logistics management
These benefits include:
- Cost savings
- Reduced inventory
- Improved efficiency
- Improved delivery times
- Customer satisfaction
- Competitive advantage

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8.9 Discuss ethics in logistics management – NOT INCLUDED IN LEARNING OUTCOMES
The issues that are often highlighted may include illegal or unethical and questionable practices that can
lead to conflict of interests, abuse of resources or inventory, and the mismanagement or fraudulent
management of contracts and agreements. Sound ethical standards should be the foundation on which all
the procurement related principles, such as fairness, integrity and transparency are based.
Professional standards of ethical conduct, in all organisations, should contain core aspects, including
commitment to:
- Behave honourably in all aspects of business.
- Maintain trust and confidence in the integrity of the purchasing and logistics processes.
- Avoid ‘creative’ practices that may undermine or negatively influence others in the process.
- Publish and adhere to organisational standards and policies and all relevant legislation.
- Avoid conflict of interest amongst stakeholders within the supply chain.
A number of issues have been highlighted over the past decade that require the careful attention of the
logistics manager and his/her staff. These include: the sourcing of green products, carbon emissions and
environmental awareness, health and safety of workers and stakeholders through the supply chain, and
sustainable resources.

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8.10 Describe various future trends in logistics management
The future of logistics looks bright in that the world is seeing a renewed focus on cost reduction initiatives.
There is a also a shift to a more customer friendly approach.
The transportation and delivery functions face increasing demand for flexible, timely, reliable and visible
last mile or even door-to-door services.
Advances in computer technology and improved quantitative techniques allow for a more accurate and
‘real time’ approach to logistics.
Industry best practice is becoming a benchmark for all companies who need to be profitable and
competitive.
The weakening global economic climate has focused attention on the need for efficiency and effectiveness
in logistics process.

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 LEARNING UNIT 9: Financial Management
After completion of this learning unit/outcome you should be able to:
9.1 Understand the basics of economics
Economics mainly has to do with the study of the financial welfare of countries around the world.
Economics was formally defined as follows: ‘ A social science concerned chiefly with description and
analysis of the production, distribution and consumption of goods and services’. Economics has to
do with the optimum utilisation of limited resources which are required in terms of production, distribution
and consumption of specific goods and/or services.
From the economic point of view, apart from scarcity, the price/value of resources is also influenced by
certain economic factors. Economic factors are factors that influence the economy of the country in a
broad sense. Two types of economic factors are micro economic factors (over which the management has
a fair amount of control – e.g. employee competence, the morale of the employees, product and/or service
quality, customer satisfaction, etc.) and macro economic factors (over which the management has limited
control (e.g. strikes, power outages, taxation, inflation rates, interest rates, etc.).
A key macro economic factor that any business needs to take into account is that of supply and demand.
When the supply of any resource is more than the demand (meaning abundance of resource), the cost to
attain the resource will be lower than normal. In turn, when the supply of a resource is less than the
demand for the same resource (meaning scarcity of resource) the cost to attain the resource will be
greater than normal. The point where the demand for a resource meets the supply of the same resource is
known as equilibrium. Equilibrium can be seen as the best price that should be paid for a particular
resource.
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9.2 Understand the importance of basic budgets
Budgets are used to:
- Plan (How much money needs to be generated and how much money may be spent?)
- Co-ordinate (How will the money generated be used by the company?)
- Communicate (What are the expectations of all stakeholders with regards to the generation of money
and the spending of money?)
- Motivate (How will the financial planning contribute to the business in achieving its respective
objectives?)
- Control (How will money generation and money spending be managed?)
- Evaluate (How well can the business utilize its money on hand?)
The three main costs in any organization can be categorized as follows:
- Labour cost: This cost relate to staff members who get either salaries or wages. Labour cost can be split
into direct labour cost (the cost of labour that is directly involved in the development and/or transformation
of resources into desirable products) and indirect labour cost (the cost of labour that is not directly involved
in the development and/or transformation of resources into desirable products, e.g. an accountant).

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- Material cost: This cost relates to the acquisition of resources and the processing and/or transformation
of resources into desirable products. Material cost can be split into direct material cost (the cost of
material that is directly processed and/or transformed into desirable products and the indirect material
cost (the cost of material that is not directly processed and/or transformed into a desirable product, e.g.
screws, nuts and bolts).
- Overheads: These are general costs associated with an organisation that do not form part of labour
cost or material cost, e.g. rent , water and electricity expenses.
9.2.1 Flexible budgets
A flexible budget is a budget which is updated according to the number of products being produced. For
the management to make effective use of flexible budget, it is of vital importance that they differentiate
between variable costs, fixed costs and mixed costs.
- Variable costs: The most common variable costs include direct material, indirect material and direct
labour. These costs change on monthly basis.
- Fixed costs: These costs include rent expenses which do not change on monthly basis.
- Mixed costs: These costs consist of a portion of which is mixed and a portion which is variable.
9.2.2 Cash budgets
The cash budgets reflects estimates of all cash receipts and cash payments for a certain period of time.
Cash receipt is an actual receipt of cash which can take the form of cash sales made, collections received
from the debtors, proceeds made from sale of a non-current assets (assets that have a lifespan of more
than 12 months), investment sold, loans made and other income received. 26
Cash payment is an actual payment of cash which can take the form of payment made for materials,
goods, and/or services, wages and/or salaries paid, overheads paid, operating expenses paid, purchase
of non-current assets, investments made and repayments of loans.
9.3 Explain the concept off basic budgets
A budget can be seen as a tool that is generally used by the management to assist them with their
financial planning activities for the foreseeable future. A budget can only show the management of a
business how they should manage the finances of their business.
9.4 Understand the importance of basic financial statements
The official purpose of financial statements is to provide users with financial information that is useful
which can assist in better and more effective business decisions. Financial statements provide
shareholders, owners, management, customers, debtors, creditors and banks with financial information on
the profitability, liquidity (state of having money or goods that can be easily sold for money), solvency (not
in debt) and efficiency of an organisation. In all financial statements there are three main elements that a
user should be aware of:
- Assets: An asset (e.g. machinery, equipment, vehicles and building) is a resource which will result in a
future income. An asset can be either be regarded as non-current it has a lifespan of more than 12
months, or current it has a lifespan of less than 12 months.
- Liabilities: A liability (e.g. debt to be paid) is a present obligation which will result in an expense. A
liability can either be regarded as non-current it will be paid off over a period extending 12 months, or
current if it will be paid off in a period of less than 12 months.
- Equity: equity (assets less liabilities) is a term which comprises capital, income, drawings and 27
9.5 Describe the basic financial statements
Three basic financial statements are:
- Statement of income and expenses (income statement): This statement provides a detailed
summary of all income and expenses that occurred in a particular business over the course of one
financial year. By using this statement, the profitability of a business can be measured.
- Statement of financial position (balance sheet): This statement provides a detailed summary of all
assets, equity and liabilities for a particular financial year. In this statement, the solvency, liquidity and
efficiency of a business can be measured.
- Cash flow statement: This statement provides a detailed summary of the cash situation at hand of a
particular business for a financial year. The one important aspect of this statement is that it clearly shows
where cash is generated and where cash is spent. This is done by making use of the following three
headings:
1. Cash flow from operating activities: This shows the amount of money a business generated over
the course of a financial year.
2. Cash flow from investing activities: This shows the amount of money which was invested in assets
over the course of a financial year.
3. Cash flow from financing activities: This shows the amount of money which was received in the
form of liabilities (i.e. creditors, bank overdrafts and loans) over the course of a financial year, from
third parties.
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9.6 Understand the importance of basic ratio analysis
Ratio analysis is a systematic process where the financial statements of a business are analysed by
using various calculations. These calculations can provide a lot of information on the business’s
profitability. Solvency liquidity and efficiency.
11.7 Compute basic ratio analyses from basic financial statements
Page 209 to 216 of the prescribed text book refers.
9.8 Understand the importance of the basics of investments
Whenever a business makes an investment, its management needs to determine whether the investment
made is regarded as an asset or a liability. As soon as the costs (expenses) of an asset outweigh the
income thereof, the asset can be regarded as a liability. For example, if it costs money to maintain a
particular vehicle than what the vehicle brings in the business, it is clear that the vehicle will not really be
an asset to the business but a liability.
9.9 Explain how the basic investment work
All assets should provide an organization with a positive cash flow (income). A financially educated
management team will ensure that its respective business will have an abundance of assets and close to
no liabilities. With all the assets generating money, a business can use it to expand. This can be done by
investing in infrastructure or buying even more assets.

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 LEARNING UNIT 10: Employment Relations Management
After completion of this learning unit/outcome you should be able to:
10.1 Explain what is meant by ‘employment relations’; and specifically define ‘human resource
management’, ‘strategic human resource management’ and ‘labour relations’.
- Employment relations refers to the consideration of both the human resources and labour relations of
the employment relationship.
- Human resource management is the function in the workplace that deals with all the practices and
policies related to the management of people in the organization
- Strategic human resource management is the process through which an optimal fit is achieved
among the employee, job, organization and environment so that employees reach their desired level of
satisfaction and performance and the organization meets its goals.
- Labour relations refers to the organisation’s employment relations issues, such as the role trade unions
play in the organisation.
- 10.2 Discuss the importance of human resources management in the context of managing the
organization as an integrated whole
Human resources management (HRM) involves the planning, organising, leading, motivating and
controlling of a business’s human resources which are often viewed as a business’s greatest assets.
When HRM is done well, it makes a valuable contribution to a successful organisation. HRM is the function
in the workplace that deals with all the practices and policies related to the management of people in the
organisation.
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10.3 Explain the role of human-resource management
The HRM department must ensure that the organization’s human resources are managed as effectively
and efficiently as possible. The modern trend in HRM is towards meeting two goals in an integrated way:
- Increased organisational effectiveness
- Satisfying each employee’s needs.
The human-resources strategies should tie with the whole organization’s strategy regarding its people and
general effectiveness. It is necessary to determine who will be responsible for which HRM related
activities. In the most of the bigger organisations, the HRM staff will design HRM policies and procedures.
The HR manager co-ordinates all HRM activities, but the human resources management of the
organization is the responsibility of all managers in the organisation. Therefore HRM fulfils a co-ordination
function.

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The primary responsibility of the HR manager can be summarized as ensuring the best use of human
resources of the organization. To do this, he or she will perform the following roles:
- Partly a strategist: Making sure that the HR strategy and policies are in line with the bigger
organisational strategies and policies as well as forming new policies, practices and procedures as the
needs arise.
- Partly an advise: Advising line management on HR related issues, policies, and practices.
- Partly manager: Through planning, organizing, leading and controlling HR tasks and functions.
- Partly a trainer developer: Ensuring that staff are optimally trained and developed.
- Partly a counsellor: Listening to and advising employees and management regarding staff issues such
as low morale, discipline, grievances, etc.
HR managers need sound interpersonal skills, including good problem solving and motivational skills.
They need administrative skills and specific types of knowledge (for example, how to do performance
appraisals and manage reward system). They also need business skills such as strategic planning,
change management, analytical and conceptual skills, and general management skills.
10.4 Identify and explain the functions of human resources management by discussing the
strategic (HR) planning, staffing, assessment, development and maintenance of human resources
- Strategic HR planning is the process of planning an organisation’s HR needs by finding, developing
and keeping a qualified workforce.
- The objective of staffing is to find suitably qualified workers to fill particular jobs.
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- Employees need to be continuously assessed on how they do their jobs. This is necessary for the
development of both the employee and the organization, which can, through assessment, determine
and manage the training and development programme that it offers.
- Development has a more long-term focus on preparing employees for future work responsibilities.
- Maintenance involves rewards provided by the organization for an employee’s fulfilment of his or her job
requirements aimed at achieving organizational objectives.
10.4.1 Staffing the organization
The objective of staffing is to find the suitably qualified workers to fill particular jobs. This is done through
recruitment, selection and induction.
10.2.1.1 Recruitment
Recruitment refers to all the HRM actions that can be used to get several qualified job applicants to apply
for a job so that the best one can be chosen.
Internal Recruitment takes place when an organization tries to fill vacant positions from inside the
organization. Advantages include the following:
1. Employees may see a future for themselves in the organisation, which would have a positive effect on
morale.
2. Judging applicants become mush easier as the organisation already has information on the possible
candidates’ performance, abilities and potential.
3. This form of recruitment is cost-effective . 33
4. Staff will mostly be appointed at entry level.
5. A chain effect of promotion is achieved in the organisation.

The disadvantages of internal recruitment are:

1. The business may stop being creative because new ideas and contacts are not coming into the
organisation.
2. Staff appointed at lower levels do not necessarily have the potential to be promoted to higher
positions.
3. A lot of personal competition may be created amongst colleagues, which may be an obstacle to co-
operation.
4. A morale problem may occur among the employees who were not promoted.
5. A strong management development programme may become necessary which may be costly and time
consuming.
When an organisation tries to fill available positions from the outside, this this is called external
recruitment. The advantages of external recruitment include the following:
6. An active effort is made to find the best person for the job
7. The pool of possible candidates is bigger, which allows for a bigger selection of candidates.
8. New ideas, new contacts and fresh approaches to problem solving are usually brought into the
34
organization with this approach.
Some disadvantages of external of external recruitment are:
1. It takes longer and is more expensive than inside recruitment.
2. The success of the candidate can only be determined once he/she has been employed.
3. Adjustment problems will be bigger with candidates from the outside.
4. The morale of existing employees may be negatively influenced.
12.4.2. Selection
Selection is the process in which the person who best suits a particular position is chosen from a group of
applicants. The selection process has the following steps:
Step 1: Gathering relevant information through CVs and application blanks
Step 2: Screening and short-listing applications
Step 3: Making interviews and employment test arrangements
Step 4: Conducting interviews and any other applicable tests
Step 5: Verifying information
Step 6: Performing follow-up interviews
Step 7: Making a hiring decision and job offer, and notifying unsuccessful candidates
Step 8: Physical examination
Step 9: Keep records 35
10.5 Explain briefly how labour relations impact on and are managed in South African
organisations
There are three main parties to this relationship. Namely the employees, the employer and the state. Due
to the interaction of these three parties in the employment relationship, it is called a tripartite
relationship. The primary parties are the employees and the employer. The state is the secondary party
and it consist of three organs of state, namely the legislature, the judiciary and the Constitutional and
labour courts. To enhance a healthy employment relations in South Africa, the tripartite parties
communicate, negotiate and collaborate on macro labour matters in an institution called the National
Economic and Development Labour Council (NEDLAC). In South Africa the employment relationship is
regulated by the Labour Relations Act 66 of 1995. South Arica is member of the International Labour
Organisation (ILO) and has accepted the ILO conventions. These conventions also guide our labour rights
as set out in our Constitution, and also our labour laws.
10.6 Explain the managerial importance of ethics, also with regard to employment relation
In South Africa, the professionalism of HRM has led to a Code of Professional Conduct. The code assist
the HR professional in knowing what is accepted behavior, considering what is wrong and right, and also
understanding the moral duties and obligations. Ethics can be defined as the principles governing an
individual or a group’s behavior or conduct. Fair treatment of employees is also considered ethical
behaviour. Managers play an important role in shaping ethical behavior at work. Their conduct and
leadership may foster a climate of honesty, integrity and good moral standrads. Managers can enhance an
ethical culture in the organisation by clarifying expectations; using signs and symbols; and by providing
physical support. HR managers play an important part in creating an ethical organisation through
appointing morally sound employees, conducting training on ethical behaviour, supporting honest and
36
transparent performance management, instituting reward and disciplinary systems.
10.7 Discuss the current trends in employment relations
The following themes were found likely to have an impact on HRM:
- The continued effect of the economy on business strategy and employees.
- The influence of information and communication technologies.
- The competition for in-demand skilled and educated workers.
- Demographic changes and its impact on diversity and labour availability.
- The ongoing significance of work/life balance as employees deal with multiple caring responsibilities and
in some cases multiple paid jobs.
- A rise in volatility and uncertainty of markets.
- The need for measurement of results and the development and consistency of key HR measures.
- The implication of government legislation.

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 LEARNING UNIT 11: Marketing Management
After completion of this learning unit/outcome you should be able to:
11.1 Define the term marketing and demonstrate an understanding of the marketing process
- Marketing is defined as the methods used to persuade consumers to buy the product.
- The Marketing Process
FEEDBACK BY MEANS OF MARKET RESEARCH

MARKETING MANAGEMENT MARKET OFFERING THE TARGET MARKET

Takes a decision regarding the market Consist of consumers with certain

consisting of four variables: needs for products and services, and
- A product with need-satisfying who are willing to sacrifice something
properties SACRIFICE MONEY (money) to satisfy these needs
- Distribution, which will deliver the
product to the customer at the
correct place and time
- Marketing communication
messages, which inform
consumers about the market
offering and persuade them to
purchase
- A price that the customer will be
willing to pay

Main objective: Maximisation of Objective: Total need satisfaction

profitability in the long term

ENVIRONMENT 38
11.2 Demonstrate an understanding of the market offering by highlighting its four variables
Marketing management takes a decision regarding the market offering consisting of four following
variables:
- A product with need satisfying properties. .
- Distribution which will deliver the product to the consumer at the correct place and time.
- Marketing communication messages which inform consumers about the market offering and persuade
them to purchase.
- A price that the consumer will be willing to pay.
11.3 Describe the evolution of marketing thought by highlighting the management thinking during
each era
- Production era: Businesses focused mainly on production and ignored consumer needs.
- Sales era: Consumer needs were ignored and businesses tried to sell as much as possible, many times
through dishonest practices.
- Marketing era: Marketers realized that they also had to consider aspects like quality of the products, the
packaging, the selection of distribution channels and the promotion methods used to persuade
consumers to buy the products.
- During this era, marketing management experienced a mindshift towards an ethical code called
marketing concept.
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This marketing concept is based on the four principles of:
- Profit orientation
The marketing concept views customers as means to get profit.
- Consumer orientation
Consumer orientation sees the customer as a king or queen and tries to satisfy the customer’s needs
within the boundaries of making profit.
- Social responsibility
The principle of social responsibility implies that businesses have a responsibility towards society and that
they should make a contribution to the community.
- Organisational integration
Organisational integration means that all functions, departments and employees in the business should
work together to satisfy the needs of the customers and maximise profitability.

40
11.4 Analyse the behaviour patterns of consumers by identifying the determinants of consumer
behaviour and the consumer’s decision making process
Marketers must investigate the factors that influence consumer behaviour. There are two sets factors to do
this, namely individual factors and group factors.
11.4.1 Individual Factors
There are six individual factors that influence consumer behaviour:
- Motivation: The consumer has specific needs that will motivate his/her purchasing behaviour. For
instance, if a young woman wants to feel beautiful she may buy a DKNY fragrance.
- Attitudes: A consumer may have a positive, neutral or negative attitude towards a product, depending
on his /her experience with the product or the organization. For instance, if a customer had a bad
experience with a particular business, the resulting negative attitude will make him/her ignore any
advertisement of the business.
- Perceptions: How a customer reacts to something depends on his/her perception of the situation. This
refers to the way the customer sees, hears, smells, touches and tastes stimuli in the environment and
interprets their meaning.
- Learning ability: Refers to the consumer’s ability to grasp and remember the marketing message. For
example, a housewife may learn through experience that Omo washing powder makes clothes clean
and fresh. This experience could then influence her to buy Omo washing powder.
- Personality: every person’s specific personality influences his/her consumer behaviour. An introvert, for
instance, is likely to buy flashy clothing than an extrovert is, who will not be shy to draw attention41to
him/herself.
- Lifestyle: Includes aspects such as the social behaviour, leisure activities and interests that will
influence the consumer’s response to the market offering. A person might, for instance, like to party
during weekends, play tennis regularly, buy DIY magazines and travel overseas frequently.
11.4.2 Group Factors
There are five groups that influence customer behaviour:
- Family: Family members play different roles during the buying process. Children, for example, are
known to be initiators and influencers when buying products such as cereals and toys.
- Reference groups: Are groups that positively or negatively influence our attitudes or behaviour. For
example, teenagers typically use their friends as a reference group for deciding what clothes are
attractive.
- Opinion leaders: Are reference people to whom others look in forming opinions and taking consumer
decisions. Advertisements that show a well known actress who use Lux soap will influence consumers
who admire her to buy Lux soap.
- Cultural groups: The cultural groups to which consumers belong also influence their purchasing
patterns. Advertisements should not portray unacceptable behaviour that might be insulting to certain
cultural groups.
- Social class: Factors that are often used to rank people into lower, middle or higher social classes
include occupation, education, income and possessions. A consumer from the higher social class will, for
instance, be more likely to consider buying expensive 4x4 vehicle than someone from the lower social
class.
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11.4.3 The consumer’s decision making process
The consumer’s decision making process consist of five phases through which the consumer progresses
systematically. During these stages of this process, marketers try to convince consumers to buy their
products. These stages are explained below:
- Awareness of an unsatisfied need or problem
This phase involves recognition of an unsatisfied need. For example, a consumer’s car might break down for
the third time in one month. This could indicate to him/her the need for a new car.
- Gathering the information on how best to solve the problem
In this phase the consumer collects information to help with the buying decision. For example, the consumer
shopping for a new car collects information regarding cars that she can afford.
- Evaluating possible solutions
During this phase the consumer compares and evaluates the information regarding the different available
products. For example, the consumer shopping for a new car would compare makes and models in terms of
price, colour, engine size and features such as air bags and central locking.
- Deciding on a course of action
If the consumer decides to buy, he/she also makes a decision on what to buy. For example, the consumer
shopping for a new car could choose which make and model to buy, and which dealer to buy it from.
- Post (after) purchase evaluation
During this phase the consumer evaluates his/her decision and uses this evaluation for future decision
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making. For example, if the consumer is dissatisfied, he/she might decide never to buy this make of car
11.5 Demonstrate an understanding of marketing research by explaining the steps in the marketing
research process
Step 1: Defining the problem
The problem to be investigated should be clearly defined and specific objectives for the marketing
research should be set.
Step 2: Developing hypotheses
Hypotheses or possible causes and explanation for the problem should be developed.
Step 3: Collecting data
This step consist of four different activities, namely: the determination of data needs, the selection of the
primary data collection instrument, sample selection and training of field workers.
Step 4: Processing, analyzing and interpreting information
This step is the conversion of raw data into findings that are used as a base for conclusions and
recommendations.
Step 5: Compiling a research report and making a recommendation
The last step involves writing a report of the research findings and presenting these findings in tables,
figures and graphs. Based on the research findings, certain recommendations or practical suggestions
now have to be made in order to solve the problem.

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11.6 Demonstrate an understanding of how the consumer market can be segmented by
emphasising the parts of market segmentation, target market selection and product positioning
11.6.1 Market segmentation
Market segmentation is the process in which the total ‘heterogeneous’ market is divided into smaller,
relatively ‘homogeneous’ groups of consumers with relatively similar characteristics and needs. The
purpose of market segmentation is to identify consumers within the total consumer market who have
similar needs, tastes, interests, and so on.
There are three approaches to market segmentation, namely:
- Market aggregation approach: The market aggregation approach (total market approach) to market
segmentation is to treat all consumers as relatively homogeneous.
- The single segment approach: The marketer identifies one single group and directs the product
offering only to that particular segment.
- The multi-segment approach: The same product is aimed at different market segments.
11.6.2 Target marketing
Marketing management must choose one or more segments that they want to serve.
11.6.3 Product positioning
Marketers must choose a positioning strategy that will create a certain image of their product in the minds
of consumers that will differentiate it from those of rival companies.
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11.7 Understand how consumer products can be classified
Consumer products can be classified as intangible consumer products and tangible consumer products.
Intangible consumer products are services such as legal advice, medical consultation and hairdressing services.
Tangible consumer products can be further classified as durable and non-durable. Durable consumer products,
such as microwaves, cars and furniture can be used by the consumer over a longer period. Non-durable
consumer products, such as fruit, bread and milk have a relatively short life span.
Consumer products can also be classified on the basis of consumer buying habits into:
- Convenience products: Non-durable products used on a daily basis
- Shopping products: Durable products where product comparisons occur.
- Specialty products: Unique products where a special purchasing effort is required.
- Unsought products: Products that the customer does not think about.
11.8 Explain the phases in product development process
Phases in the development of new products:
- Phase 1: Development of new ideas.
- Phase 2: Screening of product ideas to see that are viable and that are not viable.
- Phase 3: Removal of product ideas that are not viable.
- Phase 4: Development of the physical product by the manufacturing division.
- Phase 5: Developing of marketing strategy
- Phase 6: Marketing in a small segment to test the market’s reaction. 46
11.9 Demonstrate an understanding of the importance of branding
The brand can be defined as a mark that is unique to the product manufactured and marketed by the
organisation which is used to distinguish it from similar competing products. The branding of a product
includes the brand name and a specially designed trademark. The brand name is a word, a letter, or a
group of words. Consumers use this name when they intend to buy the product. In today’s highly
competitive markets, it is impossible to market consumer products successfully without brand
identification. Organisations use branding to build brand loyalty in their customer base.
Brand loyalty is what consumers show when they buy certain brans on regular basis. It is the result of
various factors such as good product quality, proven usefulness to the consumer and effective marketing
communication. There are three stages of brand loyalty namely:
- Brand recognition which is consumers recognising the brand and knowing what it stand for.
- Brand preferencing which is consumers preferring the brand to other competing brands.
- Brand insistence which is the consumer insisting on the specific brand and refusing to accept a
substitute.

47
11.10 Differentiate between different distribution channels that can be used to distribute the
product
- The different types of distribution channels
Manufacturers

Wholesalers

1 2 3 4 5

Retailers Wholesaler

Retailer
Consumers

The first channel is called the direct distribution channel. There is no middleman involved. For example,
the producer (farmer) who directly sells vegetables to the consumer.
The second channel is an indirect distribution channel, where manufacturers sell to large retail business
that then sell to consumers. The Shoprite Group buys directly from manufactures to sell to its customers.
The third channel is the traditional indirect distribution channel, where manufacturers sell to wholesalers,
who sell to retailers, who then sell to customers. An example: manufacturers supply stock to wholesalers
48
The fourth channel is another indirect distribution channel. This is where wholesalers (Makro/Metro) may
sell directly to the final customer.
The fifth channel is an indirect distribution channel with two wholesalers. In this case, the first wholesaler is
usually a specialty wholesaler, who gets a specific product from numerous manufacturers and then sells it
to the second wholesaler, who sells it to a retailer who sells it to the customer. An example is where the
first wholesaler is located in a foreign country. The wholesaler buys products from the manufacturer in that
country and delivers them to a wholesaler in South Africa for sale to the retailer, who the sell them to the
final consumer.
11.11 Explain the concept of channel leadership, market coverage and physical distribution
- Channel leadership: The business that controls or dominates a channel is known as the channel
captain. Traditionally, it was the manufacturer of consumer products who made distribution channel
decisions, and therefore chose which retail outlet would market the business’s products the best. Today
it is frequently the large retailing organisations that make the decisions.
- Market coverage means the manner in which the product is distribute throughout the market. The
number of intermediaries in the channel is directly linked to the type of market coverage being aimed at.
Three types of market coverage can be identified, namely:
1. Intensive market coverage which occurs when a many suitable middlemen as possible are used.
2. Selective market coverage refers to the selection of a limited number of capable intermediaries who
will distribute the product efficiently.
3. Exclusive market coverage takes place when a manufacturer limits the number of middlemen
handling its products to only a few intermediaries who get exclusive rights to sell the product in49a
- Physical distribution (logistics): The logistical activities have to take place to make a product available
to the final consumer at the right time . These logistical activities include transportation, storage, inventory
holding, receipt and dispatch, packaging, administration and ordering. The purpose of the logistical
function is to maintain a satisfactory service level to the client at the lowest possible distribution cost.

11.12 Understanding the process of determining the price for a good or service.
The process of price determination
- Step 1: Determine the cost price.
- Step 2: Determine the market price.
- Step 3: Determine the target price.
- Step 4: Determine the final price.

50
11.13 Differentiate between the various adaptions that can be made to the final price
- Skimming price: Is a high price charged for a new unique product.
- Market penetrating price: Here the initial price of a new product is lower and the organisation hopes to
penetrate the market rapidly, discouraging competitors in the process.
- Market price: If there is competition and similar products are competing against one another, an
organisation has to maintain the market price.
- Leader pricing: Concerns special offers which are widely used by retailers.
- Odd prices: Are the final prices of products that have odd numbers.
- Bait prices: Are advertised prices that are particularly low, but when purchasers come to buy the item,
they are encouraged to buy a far more expensive item.

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11.14 Distinguish between the four elements of marketing communication
Marketing communication is the process of informing, persuading and reminding the consumer about
the availability of an organisation’s product. The differences between the four elements of marketing
communication are explained below:
- Advertising: Can be defined as controlled and paid non-personal marketing communication activities
about a good or service aimed at a specific target market. Takes place on television, in the electronic
media, in the movies, on the radio or in magazines and newspapers.
- Direct marketing: Uses advertising media such as radio and television to communicate information
about a product to the customer who can then buy the product by telephone, mail or through the
Internet.
- Personal selling: Can be defined as the verbal presentation of a good, service or idea to one or more
potential purchasers in order to conclude a transaction. Sales representative of manufacturers visit
other businesses and dealers to pass the marketing message directly to them.
- Sales promotions: Use methods such as diaries, calendars and T-shirts displaying the brand name
and a short sales message. Competitions, demonstrations and handing out samples are also examples
of sales promotions.
- Public-relations management: The aim of PR management is to build good relations with the different
stakeholders of the organisation. PR management is a formal and systematic effort to portray the
organisation in a favourable light and to counteract unfavourable publicity.

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11.15 Marketing Mix
Marketing mix is the set of tools that the firm uses to pursue its marketing objectives in the target market.
These tools are called the four Ps of marketing: product, price, place and promotion. Marketing mix
decisions must be made for influencing the trade channels as well the final consumer.
Product Price Promotion Place
Product variety List price Sales promotion Channels
Quality Discount Advertising Coverage
Design Allowances Sales force Assortments
Features Payment period Public relations Locations
Brand name Credit terms Direct marketing Inventory
Packaging Transport
Sizes
Services
Warranties
Returns

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