Solutions for all
Business Studies
Grade 11
Learner’s Book
C Chaplin D Nel R Rehbock
L van Scheers A Voges
Solutions for all Business Studies Grade 11 Learner’s Book
© C Chaplin, D Nel, R Rehbock, L van Scheers, A Voges, 2012
© Illustrations and design Macmillan South Africa (Pty) Ltd, 2012
All rights reserved. No part of this publication may be reproduced,
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First published 2012
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Published by
Macmillan South Africa (Pty) Ltd
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Typeset by Boss Repro & Design Studio
Cover image from The Bigger Picture
Cover design by Deevine Design
Illustrations by Luyanda Cwane, Sean Vester, Geoff Walton
Photographs by
AfriPics: 17, 49, 60, 67, 70, 106, 131, 159, 166, 180, 196ii, 196iii, 196iv, 196v,
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ISBN: 978-1-4310-1056-1
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e-ISBN:
e-ISBN: 9781431018062
9781431018062
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Contents
Topic 1
Influences on business environments ............................................. 1
Topic 2
Challenges of the business environment ..................................... 17
Topic 3
Adapting to challenges of the business environment ................ 34
Topic 4
Contemporary socio-economic issues .......................................... 49
Topic 5
Business sectors ............................................................................... 67
Topic 6
Benefits of a company over other forms of ownership .............. 72
Topic 7
Avenues of acquiring a business ................................................... 87
Topic 8
Creative thinking and problem-solving ..................................... 106
Topic 9
Stress and crisis management ...................................................... 122
Topic 10
Transformation of a business plan into an action plan ............ 135
Topic 11
Setting up/starting a business .................................................... 147
Topic 12
Professionalism and ethics ........................................................... 159
Topic 13
Presentation of business information ......................................... 166
Topic 14
Entrepreneurial qualities and success factors ........................... 174
Topic 15
Citizenship roles and responsibilities ......................................... 183
Topic 16
Marketing function........................................................................ 192
Topic 17
Production function ...................................................................... 218
Topic 18
Team dynamics and conflict management ................................ 240
Topic 19
Introduction to human resources ................................................ 256
Term 1 Revision questions .......................................................................................... 272
Term 2 Revision questions .......................................................................................... 274
Term 3 Revision questions .......................................................................................... 276
Term 4 Revision questions .......................................................................................... 277
Word list ........................................................................................................................ 278
Note to the teacher:
Please refer to the Teacher’s Guide for possible formal assessment tasks,
sample tests and exam papers, as well as their memoranda.
T
1
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opi
Topic 1
Influences on business
environments
PPY SCHOOL HOLIDAYS
A
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ellul
C
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First-4-
What you will learn about in this topic
•
•
•
•
•
Examination of control factors, e.g. more control over the micro environment, less
control over the market environment and even less control over the macro
environment
Ways to be involved in the macro environment – if beneficial to business
Micro environment: the business mission and objectives, its management structure,
its resources and its culture are controlled primarily by the enterprise’s
management
Market environment: the customers, suppliers, competitors, regulators, strategic
allies and unions give rise to particular opportunities and threats. Business has no
control over the factors
Macro environment: enterprise in relation to the macro environment, i.e. economic,
technological and political environments.
Let’s talk about this topic
Think about how you spent your December holiday and answer the following
questions:
• What did you do differently with your money and time?
• Did you have a different attitude towards your time and money? How was your
attitude different?
• What opportunities did your behaviour and attitude present for businesses in your
community? List as many as possible and be specific about the opportunity.
• How were your decisions and actions influenced during this period? Who was
influencing them, and why?
Topic 1: Influences on business environments
•
1
What you already know
The business environment consists of the macro environment, the micro
environment and the market environment. These environments all influence one
another. For example, the December holiday you’ve just enjoyed is a macro event
– it’s beyond your control or influence. Businesses are aware of the holiday long
in advance, and they can make plans to control and respond to every opportunity
and threat it presents. The holiday also has a big impact on the market
environment – people behave differently, they have a different attitude and they
do different things. The way the market behaves and the choices people make
can’t be controlled, but they can be influenced.
k
Chec lf
myse
When thinking about your holiday, are you able to answer the
following questions?
1. Why is the holiday considered a macro event?
2. What opportunities were created for businesses in your
community during the holiday season?
3. What resources did businesses use to meet your needs and
wants?
4. What did these businesses do to influence your behaviour?
5. What threats and risks did the holiday present to businesses?
6. How would businesses and individuals have planned for these
threats and risks?
Word bank
ABC
open system:
market trends:
environmental scanning:
open market:
public opinion:
advocacy:
span of control:
chain of command:
hierarchy:
2
•
a number of elements within the same
environment influence one another constantly
and dynamically.
patterns of behaviour and attitudes in the market
environment that are repetitive and predictable.
the process of observing the environment,
gathering information and using that
information to make decisions.
a market environment where all businesses can
respond to market stimuli in any way they
choose, as long as they use legal and ethical
practices.
the general view, feeling or opinion that a
community may have towards a particular
subject.
the attempts to influence decision-makers other
than government officials.
the scope that a manager controls.
the levels of authority and management in an
organisation. The chain tells us who manages
whom.
a structure made up of different levels in
ascending order, i.e. from bottom to top.
Topic 1: Influences on business environments
Topic 1
synergy:
direct competition:
indirect competition:
competitive advantage:
price fixing:
monopoly:
cartels:
collusion:
when different individual units work together to
produce a greater output than they could
produce on their own.
the same goods and services are offered by a
competitor.
a substitute product is available that can be used
in place of the product or service.
something that makes a product or service
distinguishable from the competition.
a secret agreement where competitors agree to set
a certain price for goods or services. This prevents
competition because the consumer cannot
conduct a fair price comparison and, therefore,
cannot know the real value of the goods.
one business controls an entire industry or
business sector. This prevents competition.
groups of businesses that work together to
control an industry, supply or business sector.
when businesses make secret agreements with
one another that would have an impact on an
industry or business sector. A cartel may collude
to withhold the supply of raw materials in order
to stimulate demand and thereby increase the
price.
What you still need to know
1. Influences on the environment
1.1 Examining control factors
The macro, micro and market environments work together – each one influences
the other in some way. This constant interaction of cause and effect is called an
open system. You need to understand how much each part of the business
environment can be controlled and influenced. The advantages of knowing this
are that you can:
• make flexible business decisions that allow the business to adapt to changes
in the environment
• manage both foreseen and unforeseen risks, reducing losses to the business
• plan marketing strategies to take advantage of opportunities
• better manage human resources and productivity
• ensure the availability of stock
• manage supply and demand.
The business exists within the macro environment. The macro environment
provides the opportunities and threats to which a business must respond. Some
of the forces in the macro environment are unknown and cannot be predicted.
Topic 1: Influences on business environments
•
3
Natural disasters and social unrest can happen at any time and without warning.
In these instances, the micro environment will not have much time to respond to
the changes that occur.
Other forces of the macro environment are regular and predictable. These
recurring cycles are called market trends. It is a market trend that consumers
spend more money in December. A business can follow, predict and satisfy
trends.
The macro environment cannot be controlled. It is the
most dynamic of all environments and presents
constant threats and opportunities. It is, therefore,
essential for entrepreneurs and business managers to
be very aware of both the remote and immediate
macro environment. They must be informed and up
to date. This process of staying in touch, and in tune,
is called environmental scanning.
The micro environment is the business itself and
consists of a number of features that include its
management, functions, owners, rules and
regulations. The micro environment can be
completely controlled.
Business managers can have complete knowledge of
their business if all records and accounts are kept up to date. This complete
knowledge allows full control of the micro environment.
The market environment consists of consumers, competitors, suppliers and
intermediaries. This environment cannot be controlled because it is too complex
and there are too many factors involved. The market environment interacts with
the macro environment and shifts and changes according to events in the macro
environment. As a business responds to these changes, it will formulate strategies
that will affect other components of the market environment.
This creates an open and dynamic market that offers constant
opportunities and threats.
Market research includes gathering detailed information about
your consumers and your competitors. If you know what your
consumers want, and how best to communicate with them, you
have the opportunity to influence them. Having information
about competitors and understanding environmental
conditions will allow a business to charge the correct market
price, to offer the best value and to identify and exploit market
gaps.
The market environment cannot be fully understood and it
cannot be controlled. It can, however, be influenced to varying
degrees by the micro environment/business.
4
•
Topic 1: Influences on business environments
Topic 1
1.2 The macro environment
You already know that a business has no control over the macro environment and
very little direct influence over it. The business is powerless in relation to the
macro environment. This makes it even more important for the business to be
actively involved in the macro environment because:
• it can more accurately predict future events and, therefore, the threats and
opportunities that may arise
• the business can contribute to creating wealthier and healthier consumers
• it can contribute to a healthier, more skilled and more productive
workforce
• it can protect natural resources and meet consumer needs in a sustainable
way
• the business can reduce industrial conflict and increase productivity.
A business can become involved in promoting a cause that is a concern to society.
It can contribute its expertise and resources and, in so doing, can influence public
opinion. This is called advocacy.
The public sector refers to government services and responsibilities. The
government has a duty to provide certain services to the citizens of the country,
including healthcare, education and security. In communities where social
services are good, the entire business environment will benefit. Better education
leads to better health, which leads to more productivity. If people are wealthier,
they will be more secure and they will spend more money. Healthy and happy
people are good for business.
Providing good services is a challenge for government. Where businesses can
assist government to provide these services, businesses will benefit in many
ways. The co-operation between government and business to achieve improved
services and healthy communities is called a public/private partnership.
Classroom activity 1
1
Explain why the business environment is considered an open
system.
(4)
2
List four ways in which a business can benefit from
understanding the control factors in the business environment.
Explain each one briefly.
(8)
3
What is environmental scanning?
4
Identify a market trend of your own. Explain the trend and
suggest how a business can respond to the opportunities the
trend presents.
(5)
5
What makes it possible for a business manager to have
complete control over the micro environment?
(4)
List four components of the market environment.
(4)
6
(3)
Topic 1: Influences on business environments
•
5
7
List and briefly explain four benefits that a business may get
from being involved in the macro environment.
(8)
8
What is it called when private business joins forces with the
government to provide services, such as infrastructure, to a
community?
(2)
2. Micro environment
2.1 Mission and objectives
A business only exists to achieve its objectives. The objectives
state the purpose of the business. Once management have
established their objectives, they start to organise the
resources they need. Without objectives, the employees will
lack a common purpose (motivation) and there will be
nothing for management to control.
The first plans that managers make are organisational plans:
where they want the business to be at a specific time in the
future, the business’s identity and its purpose. The purpose of
a business or organisation is its mission.
Mission
Statement for
Delia’s Nails
We put lasting
beauty at the
fingertips of all
ladies of style and
elegance.
2.1.1 The mission
The mission states the long-term broad goals of the business
and usually contains the following:
• what the business actually does
• where the business believes it is going in the future
• whose needs the business will satisfy.
2.1.2 Objectives
The mission and vision are extremely broad plans that only set a direction. They
do not have real details that can be properly organised and controlled. It is,
therefore, necessary to start long-term planning that is more specific. The top
management or owners who are responsible for the mission will also set the
long-term plans. The medium-term objectives are set by middle managers or
department heads. Production managers must manage their department and
function to ensure that they produce the correct quality and quantity of
products.
Objectives have to be monitored to ensure that the plan is progressing. This is
the control function of management. To control something, though, there must
be something to measure. Therefore, it is essential that objectives are
measurable. They must also have a delegated responsibility. This simply means
that someone must be responsible for achieving the objectives.
6
•
Topic 1: Influences on business environments
Topic 1
2.2 Management structure
The management structure of a business will depend on the size and complexity
of the business. An entrepreneur just starting out may have a small ownermanaged business. In this case the entrepreneur will be able to control all the
business functions. As a business becomes more complex, there are too many
responsibilities and objectives for one person to manage practically. Specialised
skills and knowledge are needed to manage the business functions effectively as
they become more complex and challenging.
The management structure must take into account both the span of control and
the chain of command. The span of control refers to the range of objectives of
which a manager has ownership. For example, the production manager may be
responsible for production, purchasing and stock control. This manager, therefore,
will have to manage all aspects of these business functions and their objectives.
He or she will have the help of employees, perhaps even other managers, but will
have to lead and monitor them all. This is possible through a chain of command.
The chain of command is a communication network where each manager or
supervisor is responsible for communicating messages from above. Employees
will also communicate upward using the chain of command.
Chain of Command
Managing Director
Financial Manager
Marketing Manager
Accountant
Sales Manager
Production Manager
Supervisor
IT Manager
Store Manager
Span of Control
Topic 1: Influences on business environments
•
7
This communication and management structure is used in tall or hierarchical
businesses. These businesses will be very large and very complex. The complexity
is broken down into smaller specialised departments or units. Communication up
and down the hierarchy of management can be slow and is often distorted. These
structures are considered tight structures because they are relatively inflexible.
In a flat management structure employees are encouraged to communicate
openly with all levels. This type of structure is common in family businesses or in
small to medium-sized businesses, where a ‘family’ culture is one of the strategic
objectives. This management structure is also very suitable for professionals and
skilled people because they are made to feel valuable and involved in decisionmaking. It strongly encourages teamwork and co-operation and is considered a
loose structure, which is flexible.
The management structure describes the levels of responsibilities and
communication in a business. It allows the business to achieve its objectives and
to communicate effectively. The ultimate aim of management is to achieve
internal synergy. This means that every part of the business works so well
together that they achieve more than what they would have achieved
individually.
2.3 Resources
Businesses use resources to achieve their objectives. They use capital to buy
assets, raw materials to make products and human skills and labour to operate.
Energy, technology and ideas are also important. Business managers organise
their resources to achieve the objectives in their plans.
The resources of a business are its assets – they have value because they provide
the business with the means of production for making a profit. These are called
the inputs. What businesses produce is called outputs. The difference in value
between the inputs and the outputs is called profit. It is, therefore, essential that
these resources are managed properly in every way. Resources will need to be
accounted for, their risks will have to be managed, they will have to be
maintained and they will have to replaced or renewed.
2.4 Culture
A culture can be explained simply as the common
attitudes, beliefs, values and behaviours that a specific
group of people associate with and practise.
A successful micro environment must create its own
culture because its culture is an expression of its
identity. It is the role of senior management or the
entrepreneur to establish the culture and nurture it. In
doing this, every employee of the business will come to
think and behave consistently. This is part of the
leading function.
8
•
Topic 1: Influences on business environments
Topic 1
There are few limits to organisational culture and they will vary widely, but the
culture should reflect the business’s mission and objectives. In other words, the
culture must be appropriate and must suit the type of business. A bank is
expected to have a formal and efficient culture and it would not work for staff
members to dress and behave casually.
Classroom activity 2
1
Which three questions must entrepreneurs answer if they
are going to write a mission statement for their new business
venture?
(3)
2
Make a list of the resources that a business might use to
make a product.
(5)
3
What does a management structure describe?
(4)
4
Identify the two basic management structures.
(2)
5
How does a tall or hierarchical management structure help
a large organisation with its objectives?
(5)
Why are flat management structures suitable for family
businesses?
(4)
7
What is organisational culture?
(4)
8
What is your school’s culture? Describe it using adjectives,
such as diligent, lazy or motivated. If you were the senior
manager of the school, which part of the culture would you
change? Explain why.
(0)
6
3. Market environment
3.1 Customers
The needs and wants of consumers provide the market for a business. The
consumer market is constantly changing. Tastes, likes, dislikes, fashions and
preferences change all the time. The challenge for any business is to continually
have products that the consumer wants (or needs) of the right quality, price and
quantity. When consumers use your product or service regularly, they develop
the custom of using you, thereby becoming customers.
A powerful force has emerged as a result of the widespread access to technology.
Customers can now communicate with a business and other customers very
quickly and in many ways. Businesses must ensure that they are able to interact
with their customers via these technology networks, such as Facebook, Twitter
and websites.
Topic 1: Influences on business environments
•
9
3.2 Suppliers
Suppliers provide goods and services to a business so that they can trade. A
business will require raw materials, stationery, furniture, capital, electricity, water,
land, buildings and many other resources. The success of a business will depend
on the reliable supply of these resources at the right time and at the right price.
For this reason, the entrepreneur or manager must build meaningful and trusting
relationships with suppliers of goods and services. They may, for example,
negotiate trade discounts, bulk discounts and credit terms (‘buy now, pay later’).
The honest and diligent payment of suppliers will also help to establish trust and
loyalty.
Once again, technology has provided both threats and opportunities in the
supply market. The Internet and growing e-commerce market provide the
opportunity to source inputs from anywhere in the world. This results in
unlimited supply options and resources. It also means, however, that a business
has far more competitors than those that may be operating in their immediate
environment. Businesses must now compete globally because they have access to
both global markets and global suppliers.
3.3 Competitors
A competitor is another business or entrepreneur that offers the same or similar
goods and services to the same market. Where the same goods or services are
offered, there is direct competition. Where similar goods or services are offered,
there is indirect competition.
Competition is an important part of the business cycle and, while it may pose a
threat to the entrepreneur, it also offers opportunities. Business managers must be
aware of what their competitors do and how they do it. They must analyse the
competitors’ strengths and weaknesses because the strengths pose a threat. The
weaknesses present an opportunity to identify a product or service that is unique
and that will offer a competitive advantage. Competitors help keep a business on
its toes, continually making sure that it produces better quality at better prices,
which means better value.
3.4 Regulators
Regulators are bodies that control certain aspects of a business or
industry. For example, they control the prices of resources such as
petrol and water and prevent price fixing. They are responsible
for institutional rules that govern the acceptable behaviour of
professional individuals and businesses towards the
environment. Regulators ensure that there is free
competition by preventing monopolies, cartels and
collusion. They can be considered intermediaries in the
market environment because they provide and regulate
a connection between the business and the business
environment.
10
•
Topic 1: Influences on business environments
REGULATOR
Topic 1
Regulators can be government entities such as the South African Revenue Service
(SARS) and the Department of Labour, or they can be professional bodies.
Examples would be the General Council for the Bar of South Africa for lawyers,
the Medical and Dental Council for healthcare workers and the Financial Services
Board for professionals in the financial services industry.
3.5 Strategic allies and unions
A business must navigate a complex network of relationships to achieve its
objectives. It is, therefore, useful if the business can identify organisations or
businesses that are going to benefit and support it the most in achieving those
objectives. These will be strategic allies with which the business can work so that
both will benefit and achieve their objectives. Strategic allies can co-operate in
researching and developing a new product or market, or new technologies.
Strategic allies always remain independent – they do not join to form a new
business.
Unions representing workers are necessary strategic allies because without the cooperation of unions businesses will not be able to operate.
Classroom activity 3
1
Explain why a business is under constant pressure to develop
new products and services.
(3)
2
Explain why good relationships with suppliers are essential. (5)
3
Distinguish between direct and indirect competition.
(6)
4
List four functions of regulators. Explain each function
briefly.
(8)
5
Think about your own experience as a consumer over the
December holidays. In a paragraph, explain some of the ways
in which businesses influenced you during this period.
(6)
4. Macro environment
4.1 Economic environment
Perhaps, of all the events and influences in the macro environment, the most
important are the economic factors because these may well have an immediate
and considerable effect on the financial management of the business. The
challenge of business is to keep informed about these economic changes in order
to identify new opportunities and to deal with any new threats. To do this,
business managers and entrepreneurs will watch the key economic indicators.
These indicators will tell the business what changes are taking place in the
economy and how the business should respond. The key economic indicators
include exchange rates, interest rates, taxation rates, inflation rates, the oil and
gold prices and the daily movement of the stock exchange.
Topic 1: Influences on business environments
•
11
4.2 Technological environment
A business must use the latest technological trends in its production and
management systems if it is going to compete effectively in the market
environment. Therefore, technology poses certain threats to business because the
business might not be able to afford the latest technology or the employees may
not have the right skills. However, technology is also an opportunity because it
can create a more effective business environment and satisfy the existing and new
demands for goods and services.
Technology also provides a business with the opportunity to develop a
sustainable business model. This means that technology can offer
alternative sources of energy, cleaner energy, the efficient use of
resources, the most effective disposal of waste and the maximum protection of
the physical environment. The costs of such technology may be high to start with,
but their cost is offset against the long-term social, environmental and economic
benefits.
The Internet and email provide instant communication with workers, consumers
and suppliers. This technology has created new markets and new strategic allies.
It also allows a business to interact directly with its consumers and suppliers via
websites, social media, online communities and networks. There are
entire markets that only buy and pay for goods and services
online. Banking, travel and tourism rely increasingly on
technology for their marketing and selling. Technology
provides a global market with global opportunities that
are no longer limited by physical space and time.
Markets are unlimited and business can operate 24
hours a day over every time zone.
Advances in technology also result in certain social
dilemmas. For example, by automating a production
line in order to be competitive, a business may have to
reduce its human resources, which creates
unemployment. As business environments develop and
their use of technology advances, they will need more
skilled workers. Technology, therefore, also drives social and
economic development.
4.3 Political environment
The political environment includes all the laws and government agencies that
influence or restrict individuals, businesses and organisations in society.
Government is usually the biggest consumer in the economy, spending the
money earned from tax on social developments and large investment projects.
The government is also responsible for creating a physical environment
that supports business. It must provide good infrastructure and
maintain it. Goverment should also use policies that promote
sustainable planning. These laws, regulations and policies should protect the
natural environment from pollution and degradation. They should also invest in,
12
•
Topic 1: Influences on business environments
Topic 1
and actively promote the efficient use of resources and the correct disposal of
waste.
The political environment also determines the economic system in which the
business environment operates. The government will determine whether the
macro environment will be a free market, a socialist market or a governmentcontrolled market.
Classroom activity 4
1
Identify three important elements of the economic
environment.
(3)
2
List three key economic indicators.
(3)
3
Explain how changes in the technological environment can
pose a threat to business. Try to identify a specific business
or industry in your community (market environment) that
has been affected in this way. Explain what happened.
(4)
4
Identify a social disadvantage of technology in business.
(3)
5
What is infrastructure and why is it essential for developing
the business environment? Use examples in your
explanation.
(5)
6
Identify and explain three ways in which the political
environment can impact business.
(6)
Homework activity
1
Read a daily newspaper and identify a story about a macro
event. Cut out the article and paste it into your exercise book.
a) Explain how this event will affect the market
environment.
(6)
b) Explain the threats and opportunities that the event will
present for businesses.
(4)
2
What are the advantages of a flat management structure?
(3)
3
How does the organisational culture of a business help the
management to achieve its mission and objectives? Provide
some examples.
(6)
Select two small to medium-sized businesses in your
community that offer different goods or services.
a) Do they have specific customers?
b) How do they influence their customers?
(2)
(2)
4
5
Explain why the economic environment is so important to
business managers. Provide examples to demonstrate your
understanding.
(10)
Topic 1: Influences on business environments
•
13
6
Identify an infrastructure project in your community
(market environment). Explain how this project will affect
the community and businesses in the area. Try to identify
both the advantages and disadvantages.
(4–12)
7
Use daily newspapers and other media to do the following
research:
a) What is the current inflation rate in South Africa? State
the CPIX for the last month.
b) What is the current PPIX? What does this mean for
businesses?
c) Is the current inflation rate considered high or low? Use
the South African Reserve Bank’s inflation target as
your reference.
d) What are economists currently saying about the interest
rate? Do they foresee an increase or decrease in the
coming months? Use a newspaper article as a reference
and paste it into your workbook.
(2)
(2)
(3)
(4)
Extra practice activity
1
(2)
(2)
2
Can the micro environment be controlled? Give a reason for
your answer.
(2)
3
What is environmental scanning and why is it so important
to business managers?
(5)
What is advocacy and how can it be used to benefit a
business?
(5)
4
5
14
Describe the relationship between the following and how
they influence each other:
a) the micro environment and the macro environment
b) the micro environment and the market environment.
•
Do some research to discover the following:
a) Who is South Africa’s largest trading partner for
imports? List a few of these imported goods.
(4)
b) Who is South Africa’s largest trading partner for
exports? List a few of these exported goods.
(4)
c) What currency is used for each partner?
(2)
d) What is today’s exchange rates for these currencies?
(2)
e) What would be the effect on the price of imported goods
for consumers if the rand were to weaken dramatically
next week?
(4)
Topic 1: Influences on business environments
Topic 1
Summary
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The business environment consists of the macro environment, the
market environment and the micro environment. These
environments create an open system where each is influenced by
the other.
The micro environment refers to the business as a unit. Good
management controls every aspect of the micro environment. All
information relevant to the business can be known to the
entrepreneur or manager and they can formulate plans and
objectives that allow them total control over their environment.
The micro environment can be fully controlled by management.
Strategic objectives can only be achieved through the correct
management structure. This management structure will be simpler
in smaller businesses and much more complex in larger
corporations. The management structure can be tall (hierarchical)
or it can be flat.
To reach the organisational objectives, management will have to
allocate the correct resources required. These resources are both
scarce and valuable, and they must be managed closely.
An organisational culture means that the employees should think
and behave according to a similar attitude and value system.
Managers set the tone and value system of the culture.
The market environment lies immediately outside of the business
and, although it cannot be controlled by the business, it can be
heavily influenced by a business.
Consumers provide the market for the business’s goods and
services. The consumer market is dynamic and must be influenced
through various media in the form of advertising, promotions and
branding.
Suppliers provide the business with the inputs or resources
required to provide goods and services of their own. Suppliers are
influenced mainly by the relationships that the business develops
with them.
Competition is good because it stimulates business and provides
consumers with greater choice and better value. It forces
businesses to constantly improve their products and services. The
weaknesses of one business are opportunities for another.
The Internet and e-commerce have increased the scope of
competition because they have created global markets that are
instantly accessible to consumers wherever they may be.
Regulators, strategic allies and trade unions are intermediaries in
the market environment because they provide support for the
resources and inputs that a business needs to trade.
The macro environment surrounds both the market and micro
environments. It cannot be controlled or influenced.
Topic 1: Influences on business environments
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It is essential that entrepreneurs and business managers scan their
environment constantly so that they are aware of changes and
events that may present threats or opportunities. They must then
adapt to the changes to maximise opportunities and minimise
threats.
Perhaps the most important changes that the micro environment
must be aware of are those that happen in the economic
environment. These changes can be followed through a number of
economic indicators; the most important to watch are interest
rates, inflation rates and exchange rates.
Technology is used in every aspect of business. Changes in
technology provide new ways to produce goods, to manage them
and to sell them. Technology is a resource that businesses use as
an input.
The government plays an active role in the business environment.
Topic 1: Influences on business environments
T
2
c
opi
Challenges of the
business environment
What you will learn about in this topic
•
The challenges faced by businesses in each business environment:
o Challenges of the micro environment – difficult employees, lack of vision and
mission, lack of adequate management skills, unions, strikes and go-slows
o Challenges of the market environment – competition, shortages of supply,
changes in consumer behaviour, demographics and psychographics and sociocultural factors
o Challenges of the macro environment – changes in income levels, political
changes, contemporary legislation, labour restrictions, microlending,
globalisation/international challenges, social values, demographics and socioeconomic issues.
Let’s talk about this topic
Identify all the role players in the business environment, which is comprised of the
macro, market and micro environment. This environment forms a complex network of
connections and relationships. Considering all the role players, what challenges do you
think this environment creates?
Topic 2: Challenges of the business environment
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17
What you already know
You already know the influencing factors of the business environment and about
the relationship between the macro, market and micro environments. You have
also learnt who the important role players in the business environment are and
what factors need to be considered when influencing or controlling an
environment.
Next, we must consider the challenges that the business environment poses.
k
Chec lf
myse
What is the relationship between a business and the business
environment? For example, who has influence and control over
which parts of the environment?
Word bank
ABC
industrial dispute: a disagreement or area of conflict between employees
and employers.
mediation:
a meeting between two parties to resolve conflict
without using the legal system.
conciliation:
an informal discussion and negotiation to resolve
differences between parties.
arbitration:
a formal and structured negotiation between conflicting
parties where a third party is used to make a decision
that is binding on both parties.
shop steward:
a worker in a business who represents the trade union of
the employees.
grievance:
a complaint that an employer has against an employee,
or that an employee has against the employer.
industrial action: union-led activities against an employer in order to
break a deadlock. A deadlock happens when neither
party is willing to compromise and the negotiations
come to a standstill.
go-slow:
a form of industrial action where workers work slowly.
just-in-time:
a philosophy of management where resources are
ordered just in time to be used.
acquisition:
a business takes control of another private business.
takeover:
a business buys enough shares of a public company to
have control of it.
vertical backward integration: a business takes control of its suppliers to
ensure consistent supply.
market segment:
a well-defined section of the total market. It is defined
by the behaviour, demographics and psychographics of
consumers.
demographics:
criteria used to describe the characteristics of consumers,
such as age and gender.
psychographics:
criteria that describe the attitudes, values and beliefs of
consumers.
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Topic 2: Challenges of the business environment
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spending power:
privatisation:
nationalisation:
expropriation:
Government Gazette:
the amount of disposable income that consumers
have to buy goods and services. Higher income
communities with more savings have higher
spending power.
the government sells government-owned assets or
businesses to private investors.
the government takes control of privately owned
assets and pays compensation to owners.
the government seizes privately owned assets with
no compensation.
a publication issued by the government that
publishes all government announcements, legal
amendments and new laws.
What you still need to know
1. Challenges of the micro
environment
You know by now that the micro environment has several challenges. Now we
will discuss them in detail.
1.1 Difficult employees
Managing employees successfully is a challenge. The poor management of a
difficult or challenging employee can threaten the survival of the business
because the business may be financially liable if it does not follow the correct
procedures. This may lead to industrial disputes.
Difficult employees do not perform their duties with the required attitude, skill or
competence. They may refuse to follow instructions, may always be late or rude
or may even commit offences such as stealing or assault. In these cases, the
employees must be properly managed and helped wherever possible to correct
their attitude and performance. They may be warned, counselled, trained or even
dismissed.
All records on difficult employees must be kept and filed as evidence that the
employee was indeed offered help and treated fairly at all times.
Mediation is the best strategy to resolve issues with difficult employees. This is
a process where both employer and employee have the opportunity to discuss
their problems and to reach agreement. Mediation can happen through
conciliation, which is an informal discussion that hopes to achieve agreement.
Topic 2: Challenges of the business environment
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19
However, arbitration may be required, where an impartial
third party considers the position of both parties and then
makes a determination or decision that is binding on both. In
South Africa this process is managed by the Commission for
Conciliation, Mediation and Arbitration (CCMA).
1.2 Lack of mission and vision
The mission of a business defines the actual objective of the
business as an organisation. It is a clear plan of what the
business does and who its target market is. The vision of the
business tells the owners and management where the business
is headed in the future.
When there is no mission, the business will lack focus,
direction and a single long-term objective. Without a long-term
plan (strategic plan), the business management will not be able
to correctly allocate resources to achieve objectives, they will
have no direction in which to lead their employees and there
will be nothing to control. Without focus and purpose, the business will fail. The
mission also allows business managers to know what distinguishes them from
their competitors.
The vision provides a long-term goal. It motivates the business manager and
employees to work towards the future and to change their behaviour to achieve
future objectives. Without a vision, the business will lack direction and
motivation, and will find competitors an extreme challenge.
1.3 Lack of adequate management skills
You will remember that every business has eight management functions that
must be managed effectively for the business to be successful. As a business
becomes more complex, so do these functions and responsibilities. Managers
must plan, organise, lead and control all the business functions and their
respective employees. Therefore, they need a variety of specialised technical and
people skills to be effective. For example, a marketing manager must manage the
technical aspects of marketing. He or she must set objectives and understand how
to achieve them. The same manager must also lead and motivate the sales team
and marketing staff.
A lack of adequate management skills poses a significant threat to a business in
every respect. Financial mismanagement can lead to insolvency and bankruptcy,
and poor production management will lead to higher costs, reduced quality,
increased prices and low productivity.
Technology also poses a significant threat in this regard. It changes rapidly and
frequently and is an increasingly essential business tool. Managers are under
pressure to maintain their skills in this area. This means that individual managers
and the business that employs them have to invest time and money consistently
in skills development. Skills development must be an ongoing habit in business
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Topic 2: Challenges of the business environment
Topic 2
so that skills gaps are constantly filled. New managers should be identified and
trained so that when existing managers leave there is no management gap.
1.4 Unions, strikes and go-slows
Trade unions are organisations that represent workers. In South Africa it is every
worker’s right to belong to a trade union. Worker representatives of the trade
union are called shop stewards. Shop stewards organise workers and listen to
their grievances. They are intermediaries between the worker and the employer
and between the trade union and the workers.
Unions engage in collective bargaining. This means that workers negotiate with
employers and act as one unit. This balances the power between the employer
and the employee.
Where employees have a grievance against their employer
relating to payment, workers’ rights or working
conditions, they will declare an industrial dispute. The
business will first negotiate through the union and if that
fails, the union may take industrial action. This action
may include strikes or go-slows.
No to slave
labour
Pay a living
wage
VIVA!
A strike occurs when the union declares a dispute and the
workers refuse to work. These workers may pose risks to
other employees, managers and property due to the high
levels of emotion caused by unresolved conflict.
A go-slow occurs when the union declares a dispute and
workers simply slow down their productivity and output in
order to influence the employer.
Both strikes and go-slows pose significant risks to a business.
If a business is not productive, it is not earning income. Rent, salaries and other
overheads still have to be paid, but there may be no income. Supplies of raw
materials and other inputs could be severely limited or even stopped altogether.
The effects can be direct (your own workers are striking) or indirect (the workers
of suppliers and intermediaries are striking).
1.5 Other challenges
Good managers learn to expect the unexpected. They are able to solve problems
and can take the lead when challenges arise. They will analyse the problem,
gather the relevant information, evaluate their options, make a decision and then
implement and monitor it.
Perhaps one of the biggest challenges that a manager can face is change. Changes
in jobs, responsibilities, process, technology and business location are extremely
stressful for employees. Any change poses a threat to people and they will feel
vulnerable and afraid. In these instances, managers must be honest and provide
as much open and transparent information to employees as possible.
Topic 2: Challenges of the business environment
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Classroom activity 1
1
What technique would you recommend to resolve a conflict
with a difficult employee? Explain your answer.
(3)
2
What challenges will a lack of a mission and vision pose to a
business?
(4)
3
Why is technology a challenge to the management skills of a
business?
(3)
4
Who represents workers in the workplace on behalf of the
union?
(1)
5
Explain what industrial action means and provide at least two
examples.
(5)
6
What is the difference between a strike and a go-slow?
(4)
2. Challenges of the market
environment
The market environment provides the support networks that allow businesses to
exist and operate. Consumers provide a market for goods and services,
competitors ensure constant development, and suppliers and intermediaries
provide resources and services. There are a number of challenges in managing
these relationships.
2.1 Competition
Competition is an important part of the business cycle and, although it may pose
a threat to the entrepreneur, it also offers opportunities. Competitors help keep a
business on its toes, continually making sure that it produces better quality, at
better prices. The challenge is to ensure that your market share is not eroded
(eaten up) by the competition.
Competition occurs in an open market. This is a market where there is no control
over who may provide goods and services or over the prices that can be charged.
South Africa has an open and free market in most industries, but there are some
industries that are regulated (government controlled) and where competition is
limited. Government will regulate an industry when it is in the best interests of
society. An example of this is the purification and supply of running water.
Consumers benefit from competition because businesses will have to compete to
make their products more affordable, more attractive and of better quality.
Competition also ensures a wider variety of products and services in the market.
To compete with other businesses that offer either direct or indirect competition, a
business must look for a competitive advantage. The competitive advantage is
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Topic 2: Challenges of the business environment
Topic 2
that characteristic that distinguishes one product from another. For example,
there are a variety of takeaway businesses in South Africa, but those that provide
a drive-through service offer the competitive advantage of convenience. Can you
think of other examples?
2.2 Shortages of supply
Suppliers provide goods and services to a business so that they can trade. The
success of a business will depend on the reliable supply of these resources at the
right time and at the right price. For this reason, the entrepreneur or manager
must build meaningful and trusting relationships with suppliers of goods and
services. This helps to ensure an uninterrupted supply of raw materials and other
inputs.
Supplies can be disrupted as a result of
bottlenecks, where supplies are available
but they aren’t flowing through the system.
Shortages can also be caused by strikes in
the supply chain, climatic conditions,
natural disasters or depletion (the supply
has been totally consumed and not
replaced).
Wherever possible, the entrepreneur should
build relationships with more than one
supplier. This is called a supply network.
The benefit of this is that he or she reduces
risk if a supplier is unable to deliver the
required stock. This is especially important
if the business uses just-in-time stock
control. This means that it buys its stock only as it is needed.
Of course, a business can also hold stock of materials in case there is a shortage.
However, this is not always practical because this will require an advance
investment of capital. Stock will also have to be stored safely, which costs money
and space.
Entrepreneurs will be able to use the relationships that they have built with
suppliers to influence them through negotiation. They may, for example,
negotiate trade discounts, bulk discounts and credit terms (‘buy now, pay later’).
The honest and diligent payment of suppliers will also help to establish trust and
loyalty. Entrepreneurs may also agree to promote the supplier’s goods in return
for favourable trade conditions, such as discounts and extended credit. In a strong
relationship the supplier will be able to warn the business early enough if there
are going to be supply shortages.
Suppliers can be influenced but they cannot be controlled because they are
independent businesses in the external environment. Sometimes a business may
need to have total control over its supply to ensure continuity and, in this case, it
may acquire or take over a supplier. This is called vertical backward integration.
Topic 2: Challenges of the business environment
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2.3 Changes in consumer behaviour
Business managers rely on consumers to provide their target market. This target
market is a specific group of people that the business can clearly identify and
describe. Goods and services will be marketed directly to this market and
distributed to meet the target market’s expectations. The target market will
represent a market segment that is described in terms of behaviour,
demographics and psychographics.
The challenge is that consumers and consumer markets are constantly changing.
The behaviour of consumers changes because of a change in their own
lives. For example, they may lose their job, get a promotion, move to a
different area or move into a new stage of their lives. As consumers
change, they may no longer be a part of the target market. These
consumers will need to be replaced, or goods and services will have to be
changed to accommodate the changes in the consumers.
A recent and important change in consumer behaviour is the use of the
Internet and technology for buying goods and services. Very few people
buy CDs today; most now buy music by downloading it directly from the
Internet, via their computer or smartphone.
Businesses must adapt to changes in consumer behaviour or their market
will no longer exist and they could end up having no purpose.
2.4 Demographics and psychographics
Demographics and psychographics are two groups of features that are used to
describe a target market.
Demographics are characteristics that describe the physical or actual features of
the target market. They tell us the ‘who’ – who the customers are. For example,
they may be of a certain age, gender, profession, race, education and income level.
Psychographics are characteristics that describe the consumers’ attitudes, beliefs
and value systems. They describe how the target market behaves and what they
value. Psychographics, therefore, tell us the ‘why’ – why our customers buy our
goods or services.
Business managers must be aware of how demographic and psychographic
factors change as society changes. They must meet this challenge by adjusting
their product, service, marketing messages and prices accordingly.
2.5 Socio-cultural factors
Socio-cultural factors describe the common behaviours and attitudes of a
particular society. As society changes and shifts, so will the cultural values and
practices of individuals. For example, if someone buys a house in an older suburb
and then spends money renovating it, this might cause other homeowners to also
improve their properties. This can lead to entirely new behaviour from a number
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Topic 2: Challenges of the business environment
Topic 2
of residents in the area. This may attract
more buyers and new businesses, which
will cause the value of properties to
increase.
Socio-cultural factors will change with
income levels, education, the crime rate
and the rate of employment. Businesses
must be aware of changes and they must
anticipate the possible effects so that they
can avoid threats and take advantage of the
new opportunities that the changes may
present.
2.6 Other challenges
Other challenges in the market environment are managed in a similar way.
Business managers must be aware of the aspects of the market environment that
impact their professional responsibilities. They must be able to infer (work out)
what the challenges mean for their objectives and strategies and adopt plans that
allow them to adapt to the challenges as quickly and effectively as possible.
An example of a challenge is technology. The technological environment is
constantly changing. This impacts production, marketing and consumer
behaviour. Managers must be constantly aware of technological developments
and develop their skills accordingly.
Classroom activity 2
1
Why are competitors a challenge for businesses?
(4)
2
Explain what a competitive advantage is and why it is
important to a business.
(3)
3
What is a bottleneck in supply?
(2)
4
What are the threats a business will face if its supply is
disrupted?
(3)
How can changes in consumer behaviour present an
opportunity for business?
(4)
Which aspects of a market segment can change?
(5)
5
6
Topic 2: Challenges of the business environment
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3. Challenges of the macro
environment
The macro environment can be unpredictable and even remote events can have a
strong effect on a business. You have already learnt that business managers must
use environmental scanning to be aware of events in the macro environment so
that they will be prepared to respond to both threats and opportunities.
3.1 Changes in income levels
Any change in income levels will have an effect on the spending power of a
household. This, in turn, will lead to a change in the spending patterns and
behaviours of that household. There are a number of factors that will affect the
income levels in a society. The closure of an industry or mine that employs the
majority of people or the collapse of the economy will lead to unemployment and
a decrease in income. An increase in education levels and greater access to
technology may create employment and, therefore, increase income.
People of different income levels (demographics) have different needs and wants
and, therefore, they provide different markets for business. They also have
different values (psychographics) and buying behaviours. Effective business
managers must be aware of the changes in the income levels of their market so
that they can adapt their products and services to meet the demands of their
market.
As income levels change, they have a direct effect on sustainability.
Poorer people often place less stress on their environment because they
are satisfying simple needs. They also produce less waste because
everything has value – waste is traded, recycled or used. As income levels
increase, so do the demands of people. Simple needs become more complex and
complex needs become wants. Things start to lose their value, resulting in an
increase in waste.
Even the demand for different types of food changes with income levels. As
people become wealthier, they eat more protein in the form of chicken, meat and
dairy products. These products require more land, water and energy to produce.
Good planning is needed to manage the demands placed on sustainability by any
change in income level.
3.2 Political changes
All societies are dynamic. This means that they are constantly evolving to adapt
to the needs of people. New laws may be enacted (passed in parliament) to
govern these changes. This will have an effect on business.
In South Africa there have been radical changes in the political nature of our
society and all South Africans are striving to build a new society based on
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Topic 2: Challenges of the business environment
Topic 2
equality, freedom and dignity. This change has presented enormous challenges to
the entrepreneurs in South Africa. The workforce of a company, and the
ownership of resources such as capital and land, must represent the social
make-up of our society.
The government in South Africa is an active role player in the business
environment. It may find it necessary to intervene in the business environment
from time to time in order to serve the best interests of all citizens. When this
happens the government may intervene on a number of levels:
• privatisation – the government sells a government-owned business to private
investors. It can earn large sums from these deals and often privatisation
leads to improved and more efficient services.
• nationalisation – the government takes a privately owned business or
property from private owners. The existing owners will receive compensation
but the value will be substantially reduced.
• expropriation – the government takes a privately In
NEW
owned business or property without
minevgerstors fear S
ab
compensation.
3.3 Contemporary
legislation
Legislation refers to the laws that parliament makes, amends or
repeals. This is an ongoing process. Businesses are considered to be legal persons
with the same rights and duties as ordinary citizens.
Once laws have been made and signed by the president of the country, they take
effect after they have been printed in the Government Gazette (a government
journal that announces all legal matters and notices). Businesses must be
prepared in advance to comply with new laws once they are gazetted. This may
require considerable planning and preparation in advance, especially where the
law directly affects the business.
You may have heard about the new Consumer Protection Act (CPA). This is
extremely complex and detailed legislation designed to protect
consumers against unfair business practices. For example, the CPA
says that all legal documents that a business gives to customers
must be written in plain English. This means that documents and
contracts must be easy to read and understand. Businesses have
known about the legislation for a long time and they were
included in its development. When the law came into effect in
April 2011, they were expected to be ready with new contracts and
new documentation in order to avoid penalties.
Changes to the law can pose a significant challenge to business.
Businesses can be involved to some extent in influencing the law,
but ultimately they can’t control it. Business managers must
constantly scan the media to identify new laws and to do whatever
is necessary to adapt to them. If they don’t do this, they will be
liable to penalties, fines or even criminal prosecution as managers.
Topic 2: Challenges of the business environment
•
27
Of particular importance to businesses are the labour restrictions introduced by
the labour laws as well as the implementation of Black Economic Empowerment
(BEE) and Broad-Based Black Economic Empowerment (BBBEE). These
regulations apply to the employment of previously disadvantaged persons at all
levels of employment as well as to trade unions, workplace forums, working
conditions, fair remuneration, dismissal and dispute resolution.
3.4 Microlending
Microlending refers to a form of credit that is available to people who would not
normally qualify for credit. Microlenders take bigger risks than normal banks
when lending money, but to cover these increased risks they may charge very
high interest rates.
Microfinance is a popular strategy used to fight poverty in many countries
because it allows small businesses to borrow small amounts of money for short
periods. This allows many entrepreneurs to have opportunities to earn an
income.
Think of a self-employed plasterer who has been offered a job. If he does the job,
he can employ himself and two workers for three days. He can also earn a good
profit on the work, but he needs R300 to buy materials. He has no bank account
or fixed address . Therefore, his only option is to use a microlender. The
microlender will charge the plasterer 150% interest per year. This sounds a lot,
and it is, but the plasterer will repay the money after just four days and will
therefore pay only R4,93 interest. Microloans must be repaid as quickly as
possible or the debt will very soon become unmanageable.
In South Africa, microlenders are controlled by the Micro Finance Regulatory
Council (MFRC). They are responsible for protecting consumers from unfair
business practices and exploitation. All microlenders must be registered with the
MFRC to operate.
3.5 Globalisation/international
challenges
Globalisation means that businesses now operate in an international
market, where changes in one part of the world may have a direct
influence on local businesses. Events on other continents, such as war,
natural disasters and economic developments, will have an
effect on local business conditions.
Think about the following: the 2011 war in Libya
interrupted the supply of oil to the Western world. This
led to a shortage of supply and increases in costs of oil,
which led to higher petrol and diesel prices. This
affected the international and local costs of transport for
goods and workers, which had a severe effect on markets.
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Topic 2
Globalisation means that the entrepreneur needs to compete with international
businesses that are mobile and that may have branches in every country. These
companies have large supply networks and their buying power ensures that they
get cheaper rates for goods. International markets change rapidly and are affected
by exchange rates. Many countries in the same geographic region that face similar
challenges will form trading zones that promote business and the exchange of
goods. For example, businesses can transport goods within these economic zones
without paying import and export duties. The Southern African Development
Community (SADC) consists of countries in southern Africa that have trade
agreements. The European Economic Union (EU) is an alliance between many
European countries that promotes free trade across their borders. In these
instances entrepreneurs are able to export goods at reduced costs and more
effectively to larger markets, but with increased competition.
3.6 Social values and demographics
You have already learnt that demographics refer to the physical
characteristics we use to describe consumers. For example, the
demographic 13–18 year olds describes teenagers but, you will
agree that not all teenagers share the same experiences,
opportunities and social circumstances. This means that teenagers
in the demographic 13–18 years will have different social values.
Some will be concerned about sporting success, some about
academic success, some about caring for their siblings and others
about being socially popular.
Demographics will shift as a result of macro forces and this change
will create shifts in social values. People who were once concerned
about status and wealth will grow older and, as they do, their
values will change. They will become more concerned about
security and health. As demographics shift, so do the values of
society. Businesses must be aware of the constant shifts in
demographics and social values so that they can adapt their products, services
and marketing to meet ever-changing opportunities.
3.7 Socio-economic issues
Any event or process that changes society will naturally change the economic
condition in that society. In fact, the two concepts of economy and society are
very closely linked. Here are some examples: over the last 30–40 years there has
been a growing trend of working mothers. This means that both parents now
work, which creates greater spending power for each family. It also means that
women have their own income and have become the most important consumers
in a modern society – they make the buying decisions for most products in most
households. Additionally, more children are having to do the shopping for their
families, and teenagers are more financially independent than in the past.
As society changes, so will its economic conditions. Consumers may spend more
or less, or their values and behaviour may change. In turn, the goods and services
they need to satisfy their needs and wants will change.
Topic 2: Challenges of the business environment
•
29
3.8 Other challenges
There are numerous challenges that come from the macro environment and not
all of them can be anticipated. For this reason, the business manager and
entrepreneur must scan their environment constantly for any shifts and to
identify the signs that may indicate a possible challenge.
An example of an important challenge today is the recession in the world’s
economy. This has led to widespread global unemployment and a sudden
reduction in spending power of consumers. The recession has changed income
levels, social values and consumer behaviour. People are spending more money
on essentials and safety than they are spending on luxuries and status.
Consumers are also very aware of value and they expect good service that makes
them feel valued as a customer. These changes pose a challenge to businesses
because they offer both threats and opportunities, but only if the businesses align
themselves with their market.
Classroom activity 3
1
What does it mean for businesses if income levels of
consumers change?
(3)
How does a business know about new laws and proposals
for new laws?
(2)
What are the challenges of microlending for the micro
entrepreneur?
(4)
4
Using your own words, explain what globalisation is.
(2)
5
Explain the concept of e-commerce.
(2)
6
How does a change in demographics affect social values?
Give an example of your own to illustrate your answer.
(5)
2
3
Homework activity
1
Explain the difference between conciliation and arbitration
(5)
2
Identify the unions that represent the following workers:
a) teachers
b) mineworkers
c) hotel and hospitality workers
d) motor industry workers.
(2)
(2)
(2)
(2)
Explain the advantages of competition for:
a) the business
b) the consumer.
(3)
(3)
3
4
30
•
What can a business do if it needs total control of its supply? (2)
Topic 2: Challenges of the business environment
Topic 2
5
6
Explain how consumer behaviour is affected by changes in
demographics, psychographics and socio-cultural factors.
Find a newspaper article about recent industrial action. Cut
it out and paste it into your excercise book. Now answer the
following questions:
a) What is the nature of the industrial action and its cause? (3)
b) Which unions are involved and which workers do they
represent?
(2)
c) Will the industrial action have any effect on supplies?
Which businesses are likely to be affected?
(4)
d)
7
8
(3)
What is your view of the industrial action?
Explain your response.
(3)
Select any recent change in law of which you are aware.
Briefly explain the change in law and the challenge that it
may present for businesses.
(6)
Imagine that you have won the Lotto and your prize is
R10 million. Explain whether this will change:
a) your demographics – provide details
b) your psychographics – provide details
c) your consumer behaviour – provide details.
(4)
(4)
(4)
Extra practice activity
1
Identify and briefly explain two challenges of the following
environments:
a) micro environment
(4)
b) market environment
(4)
c) macro environment.
(4)
2
Explain what a market segment is and how it is described.
3
Is there a brand or business that you currently support or
would support in the future because of its corporate
citizenship and the values it represents? Explain your
answer.
(5)
Find a newspaper article about a possible change in or
implementation of government policy in your environment.
For example, the government may have decided to
expropriate private homes in your community. Paste the
article into your exercise book and explain the following:
a) the reason for the government’s possible change in
policy – what do they hope to achieve?
(4)
b) whether there are any opportunities for businesses to
become involved in this change in policy so that they
will benefit from it
(4)
4
(5)
Topic 2: Challenges of the business environment
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31
c)
d)
the effect this policy might have on society and business
in the community
(4)
your own view of this development and whether you
agree or disagree with the policy, its objectives and its
effects.
(4)
Summary
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32
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Difficult employees do not perform their duties and
responsibilities as they are expected to. They can influence other
employees and will impact productivity negatively. Conflict with
employees can lead to an industrial dispute, which can be
resolved through mediation.
The lack of a mission and vision for a business will pose a
challenge as the business will then have no direction, no objectives
and no purpose.
Good management skills ensure that the business operates
properly. A gap in technical and people skills will threaten the
business. Management skills, especially in the field of technology,
must be constantly developed and refreshed.
Workers are represented by trade unions. A dispute between the
union and the employer may lead to industrial action. Industrial
action can consist of an outright refusal to work – a strike – or a
go-slow.
Competition in the market environment can severely affect market
share and challenge a business for its consumers. It also provides
opportunities when it leaves a market gap. A strategy or product
that sets competitors apart is called a competitive advantage.
Supplies are necessary to keep a business operational. Their price
and quality must, therefore, be secure and consistent. A business
will develop good supplier relationships and networks to prevent
a shortage of supply. It should never rely on a single supplier.
Consumer behaviour determines how consumers make decisions
and how they buy and use products. This behaviour will change
as the consumers’ living conditions and lifestyles change.
Demographics and psychographics are groups of criteria that
describe a target market. Demographics refer to the characteristics
that tell us who the target market is, for example, their age, income
and gender. Psychographics are psychological characteristics that
describe why consumers behave the way they do – their attitudes,
values and beliefs. Both demographics and psychographics are
constantly shifting.
The common attitudes and behaviours of a group of people can be
considered the culture of a society. Culture constantly changes in
society. This poses a challenge to businesses, which must be
constantly aware of the cultural shifts in their markets.
Topic 2: Challenges of the business environment
Topic 2
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•
•
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Shifts and changes in the macro environment will very often have
an effect on the income levels of households. Any change in
income levels will affect consumer spending and, therefore, the
demand for goods and services. The challenge of a business is to
adapt to these changes so that its products and prices meet the
needs of the market. A business may also have to identify new
markets.
The political environment will determine the conditions in which
a business operates. The type of economic system, laws and
regulations may change as the political environment changes.
Businesses must be informed of possible political changes and
plan accordingly.
Contemporary legislation refers to the most recent laws that a
business must obey. These laws are researched and enacted by
parliament and they are published in the Government Gazette
before being applied. Businesses are considered legal persons and
they must comply with all relevant laws.
Microlending is a form of finance available to high-risk lenders. It
provides essential capital for small businesses, but at extremely
high interest rates. The cost of microlending can pose a significant
challenge to small businesses so they must repay their loan as
soon as possible.
Technology has made the world smaller and created the global
village. This has opened enormous markets for trade and is called
globalisation. Globalisation is a challenge because it creates many
more competitors and a greater need to use technology as a
business resource. It also creates a variety of opportunities with
many more consumers accessible globally.
Social values are those beliefs, attitudes and behaviours that
society considers worth protecting. These values are not constant
and will change as the social structure changes. For example, as
people grow older, they value different things. The challenge of
business is to keep track of these changes in values so that it can
continue to adapt to the needs and wants of its market.
Socio-economics is the study of the relationship between money
and society. As the income levels of society change, so will its
education and skills levels. These changes will also lead to a shift
in demographics and values. These changes are a constant
challenge to business.
Topic 2: Challenges of the business environment
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33
T
3
c
opi
Adapting to challenges
of the business
environment
What you will learn about in this topic
•
•
•
•
•
How a business constantly needs to adapt to the challenges of the micro, market
and macro business environments
Ways in which a business can adapt to challenges of the macro environment, and
whether this is to the benefit of the business:
o Information management, strategic responses, mergers, takeovers, acquisitions
and alliances, organisation design and flexibility, direct influence of the
environment and social responsibility
o Lobbying, networking and power relations
Lobbying, e.g. hedging against inflation, bargaining sessions between management
and unions, influencing supervisory bodies/regulators
Networking, e.g. finding new customers
Power relationships, e.g. strategic alliance agreements, persuasion of large
investors, company representatives’ influence.
•
Macro challenges
•
Market challenges
•
Micro challenges
•
•
•
•
•
•
•
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Information management
Strategic responses
Mergers
Takeovers
Acquisitions and alliances
Organisation design and flexibility
Direct influence of the environment
and social responsibility
Lobbying
Networking
Power relations
Let’s talk about this topic
Look at the picture above and see how businesses are able to balance the challenges of
the business environment. How many of these strategies do you think you already
understand?
34
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Topic 3: Adapting to challenges of the business environment
Topic 3
What you already know
The business environment is complex and ever-changing. You have learnt about
the degree of control and influence over the business environment, and you have
also learnt what some of the challenges are that the environment presents.
You are going to learn how a business can respond to some of these challenges.
You will learn the basic details of what a business can actually do to meet the
challenges of the micro, market and macro environments.
k
Chec lf
myse
Can you list and briefly describe at least two challenges each from the
micro, market and macro environments?
Word bank
contingency plan:
ABC
a plan made in advance to deal with something that
may occur.
a plan made when and where required.
ad hoc plan:
information technology
(IT):
the use of computer technology to manage business
information.
malware:
any computer program designed to cause harm to
an information system.
corporate citizenship: a business that acts in the best interests of its
consumers, environment and community.
bottom line:
the most important objective of a business – usually
refers to profits.
parliamentary portfolio
committee:
a committee made up of members of parliament
that does research into proposed laws and makes
recommendations for the law in their field of
experience.
White Paper:
the first document issued by parliament containing
the first proposals and reasons for new laws.
hedging:
taking action that will reduce losses if an expected
event occurs.
audit:
a thorough check of compliance with laws,
standards and procedures.
stakeholder:
any party that is impacted by a business and its
management.
Topic 3: Adapting to challenges of the business environment
•
35
What you still need to know
1. Adapting to challenges
The foundation of business management is understanding that the business
environment is constantly changing, with relationships between the participants
that are also always changing. This makes the business environment extremely
challenging. Successful business managers and, therefore, successful businesses
identify the challenges they face and take action to manage these challenges.
Managing environmental challenges means that plans must be made, resources
must be organised, employees must be motivated and led and the process must
be measured and controlled.
Many challenges in the business environment can be anticipated. This makes
them easy to manage and plan for. Where managers anticipate a challenge and
plan in advance how to deal with it, they are making contingency plans. A
contingency plan works on the basis of managing risk and knowing in advance
that if X happens, the business will do Y.
When plans are made to deal with challenges as they arise, they are ad hoc plans.
Both types of planning are necessary when responding to the challenges we’ve
already identified.
1.1 Micro environments
Micro environments can be fully controlled. Therefore the micro challenges are
much easier to control. Business managers should have all internal information
available and they should be able to identify most challenges in advance and
have contingency plans in place. For example, a great risk to any business is a
lack of adequate cash flow. Business managers must accept this risk and make a
plan to deal with it. They may negotiate with the bank for access to an overdraft
if they need it. This means that they will only use the money when necessary and
will not pay interest until then.
Some of the most important factors in managing the challenges of the micro
environment are effective communication, a strong organisational culture, good
information management and decision-making, the willingness of managers to
accept responsibility and a flexible attitude.
1.2 Market environments
Market environments pose a greater risk to business managers because not
everything can be known and nothing can be controlled. The best that business
managers can do is use every legal means to influence the environment as they
respond to challenges. Ad hoc planning will be required to respond to challenges in
the market environment but making contingency plans is still very important. For
example, business managers can identify trends and plan marketing strategies
accordingly; they can also have extra suppliers lined up for a possible increase in
demand.
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Topic 3: Adapting to challenges of the business environment
Topic 3
When events in the market environment change very rapidly and there are
numerous challenges to deal with, smaller businesses can often respond better
than bigger ones. They can make ad hoc plans more quickly and communicate
them more effectively. Smaller businesses may not have the finances that big
businesses do but they will be more flexible and quicker to adapt because of their
smaller workforce and infrastructure.
In responding to the challenges of the market environment, business managers
must be very aware of what is happening in their market and they must be
willing and able to adapt to different demands as quickly as possible.
1.3 Macro environments
The most challenging environment is the macro environment. These challenges
are completely beyond control and many of them will be totally unknown until
they arise. They may also originate in a remote environment, such as a foreign
country, and they may arise very quickly. Some challenges are more likely to
occur than others. Risk management is the study of challenges that are likely to
happen and what their effects will be. Where the risk is real and may cause
financial loss, managers will cover the risk by making a contingency plan.
Insurance on business assets is a good example of a contingency plan used to
cover the challenge of crime, poverty, social unrest and riot damage.
To respond successfully to the macro environment so that it benefits the business,
managers will have to understand the macro environment, interpret information
and draw conclusions, identify challenges in advance and make good
contingency plans.
Classroom activity 1
1
2
What are contingency plans and ad hoc plans, and how do
they differ from one another?
(4)
Why are the challenges of the micro environment easier to
overcome than those of other environments?
(4)
3
Identify four factors that help a business meet the challenges
of the micro environment.
(4)
4
Explain why the challenges of the market environment are
more dangerous than those of the micro environment.
5
6
Why is a smaller business better equipped to meet the
challenges of the market environment than a larger one?
How does risk management help a business manage the
challenges of the macro environment?
(4)
(3)
(4)
Topic 3: Adapting to challenges of the business environment
•
37
2. Changes in the macro
environment
2.1 Information management
Information management is a process of communicating to the relevant parties all
the information that a business needs, produces and exchanges with stakeholders
in a way that the information is properly organised and accurately stored. This is
done using information technology (IT), which is becoming increasingly complex
and requires more sophisticated and specialised skills. Skills and technology must
be constantly updated in a changing business environment.
The technological environment has made information management quicker, faster
and more convenient. For example, banking can be done online; it is cheaper,
faster and safer than cash. A business can also access tax forms, source tax
information and submit its tax and VAT returns online. This saves time and is
environmentally responsible. However, using technology to
manage information also poses severe technological risks.
Other people can illegally access sensitive information, such
as customer details and bank account numbers, by hacking
into your computer system. Viruses and other malware can
also compromise your information.
Information management includes securing sensitive
information against being stolen or compromised.
Technology security is essential in a competitive
environment. Firewalls and other security systems must
constantly be updated to protect sensitive information from
being accessed via the Internet.
Information management can create a competitive
advantage by helping the business to achieve its objectives
through properly organised and co-ordinated information.
It will also allow the business present better information in
better ways to stakeholders such as customers and
investors. Information management is a legal requirement for businesses because
they must keep all business records for at least five years. This is a substantial
amount of data, and technology is the best way to store this data for later
retrieval. This is called data storage.
As technology develops, there is greater pressure on businesses to have more
competitive information systems. They should be able to communicate with
customers via the Internet and smartphones. They must use technology to
improve internal communications and to co-ordinate information so that they can
better manage the micro environment.
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Topic 3: Adapting to challenges of the business environment
WARNING!
Malware
detected
Topic 3
2.2 Strategic responses
Senior managers are responsible for analysing the business environment and
making long-term decisions about future objectives. These decisions are based on
the resources they have available and the environmental conditions. They will,
therefore, gather and analyse information about the environment and consider all
the options available to them. From these options, they will choose one strategic
response and implement it. The strategic response will include the steps to be
taken, the time frame planned, the resources required and the objectives to be
achieved.
A strategic response may be made at three levels in a business:
• Organisational strategies relate to the business’s objectives and mission. They
will affect the entire business.
• Business unit strategies relate to how a business competes in the market. They
will relate to its product, competitive advantage and the exploitation of new
opportunities.
• Operational strategies relate to how each part of the business is organised to
meet objectives. These strategies will affect employees, processes and
resources.
strategic
research
strategic
response
strategic
implementation
Think of a small organic vegetable farmer that is worried about climate change,
which has resulted in unreliable rainfall. The long-term forecast is that this will
continue into the future. Having done research, the farmer realises that she has
several options. She could change her products to those that need less water and
that are in higher demand. She could also use a highly effective irrigation system.
Perhaps she should consider using growing tunnels to conserve water. She must
select the best option based on her resources and then make a detailed plan that
includes the steps required and the resources needed. The strategic response must
then be implemented.
Topic 3: Adapting to challenges of the business environment
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39
2.3 Mergers, takeovers, acquisitions and
alliances
All businesses have growth as an important strategic objective. Most businesses
will grow organically. This means that as they make more sales and profits, they
employ more workers and use more technology. They may also reach a point
where growth is limited or slow and they need a new product, market or territory
in which to operate. In these instances, they may choose an inorganic growth
option such as a merger, takeover, acquisition or alliance. This will lead to a need
to restructure the business. This is an expensive and complex process.
•
A merger occurs when two companies join together and form one new
business. If it is a public company, then shareholders will swop their shares in
one company for the equivalent value of shares in the new merged company.
A takeover occurs when one business buys the controlling shares in a public
company listed on the stock exchange.
An acquisition happens when one company buys another. In this case,
acquisitions refer specifically to private companies that are not listed.
Alliances occur when two or more businesses work together to achieve their
objectives. They remain separate and merely co-operate with one another.
•
•
•
2.4 Organisation design and flexibility
By now you will realise that there are many challenges to managing a business in
a modern and ever-changing world where there are constantly new threats and
opportunities. If a business is to survive and grow, it must be able to adapt at
different levels to meet these challenges. In other words, a business must be
flexible. The challenge is to create a business that has structure and firm
objectives, but that can shift and adapt when necessary.
Organisational design describes how a business is structured, how it
communicates and its culture. It also describes how flexible a business can be. A
very rigid, hierarchical structure that doesn’t encourage personal responsibility
will be inflexible because communication will be difficult and employees will be
afraid of change. This type of organisational design is considered a tight design.
The flexibility of an organisational design depends on three factors:
• Technology allows a business to compete and to manage its information and
communication.
• The structure of an organisation controls responsibility, decision-making and
communication.
• The organisational culture determines the attitudes and behaviours of the
employees and representatives of a business.
The challenge for management is to create appropriate technological, structural
and cultural conditions so that their business has the potential to be flexible in
response to the challenges of the business environment.
40
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Topic 3: Adapting to challenges of the business environment
Topic 3
2.5 Environmental and social responsibility
A business is considered a legal person, which means that it is a citizen of the
country. A business is protected by law and enjoys rights and freedoms like any
individual. It has, therefore, a social responsibility to behave in a way that is in
the best interests of its community while still maintaining its profitability. This is
called corporate citizenship.
In the past, businesses acted in the best interests of their owners
or shareholders. The single biggest objective was profits. This is
no longer acceptable business practice or philosophy. Businesses
must now recognise that there are a variety of stakeholders, not
just owners and shareholders. Stakeholders are any parties that
are affected by the business and its practices, for example,
customers, suppliers, the community, the employees and others.
Modern business practice is to make decisions that are in the best
interests of all stakeholders and that meet both national and
international standards.
Consumers are becoming better educated and more informed as a
result of their access to technology. As a result, there is a greater
demand on businesses to be good corporate citizens. They need
to be ethical, be fair to their customers, conserve energy, be
sensitive to the environment and develop their local
communities. Environmental and social responsibility must be a
business strategy and an important part of the business
objectives.
When a business makes a commitment to environmental and social
responsibilities it will deliver a triple bottom line – planet, people and profits.
The commitment of a business to the planet is a commitment to the
survival of society. Society and business are dependent on the planet to
provide the natural resources necessary to meet the needs of the Earth’s
population. The issue of sustainability and, therefore, the responsibility
of business to the environment, is a growing concern. Consumers and markets are
increasingly aware of the environmental impact of their products and services. A
good business policy that addresses these issues will strengthen a company’s
brand and create a positive impression of their value system.
Classroom activity 2
1
Explain what information management is.
(5)
2
Why is security so important in information management?
(4)
3
Use your own words to explain a strategic response.
(4)
4
How can a business benefit from a merger, acquisition or
takeover?
(5)
Distinguish between a takeover and an acquisition.
(5)
5
Topic 3: Adapting to challenges of the business environment
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41
6
List and briefly explain three factors that will determine how
flexible a business may be.
(6)
7
Explain the concept of corporate citizenship.
(4)
3. Lobbying, networking and
power relations
3.1 Lobbying
Lobbying is an organised process where individuals, businesses and
organisations use their influence to change government policy. Lobbying
specifically applies to law-makers and government officials and is a participatory
approach to government. When parties other than government are being
influenced, it is called advocacy.
Lobbying can be abused and not everybody agrees with it. Lobbying does not
mean making payments to change government policy – this is corruption. It may,
however, include the following:
•
submitting brief proposals to the parliamentary portfolio committee
responsible for the policy
making oral presentations at parliamentary portfolio committee hearings
conducting research and writing reports that support the proposals and
submissions made to parliament
monitoring parliamentary debates and White Papers that outline policy
proposals from government
signing petitions in support of a proposal
writing letters to individual politicians and cabinet ministers.
•
•
•
•
•
3.1.1 Hedging against inflation
Businesses could lobby to prevent an increase in fuel or
electricity prices as a method of hedging against inflation
because higher prices would leave consumers with less
disposable income, which would lead to a decrease in
demand and lower profits for businesses. Lobbying could
also be used for bargaining sessions between management
and trade unions to prevent labour strikes, to provide
critical information to people in power or to influence a
supervisory body or regulator to ease restrictions.
Hedging against inflation involves every aspect of the
business from managing stock to managing finances. It is
important because it ensures the business’s survival and
growth.
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Topic 3: Adapting to challenges of the business environment
N
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FREE ERY
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DELIVERY
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Topic 3
3.1.2 Bargaining sessions between management
and unions
Unions are often seen as the adversary (enemy) of the business manager and
owner but it does not have to be this way. Trade unions represent workers. They
enable each individual worker, who is powerless on his or her own, to negotiate
with the employer as a group and ensure that his or her rights are protected.
Unions are very interested in the success of any business. If the business is
successful it will employ more workers, pay the workers more, provide them
with more benefits and improve working conditions – all the employee interests
that unions promote and protect.
In many countries of the world, trade unions have a participatory relationship
with the employing business. This means that the union is an active participant in
long-term planning decisions. The union and workers become invested in the
business itself and all, therefore, want the most beneficial outcome for all parties.
Trade unions have to negotiate with employers by law. They cannot engage in
industrial action without warning and without negotiating first. This allows both
parties to find a win-win situation. It is the responsibility of management to avoid
any form of industrial action whenever possible. Industrial action damages the
trust relationship between employer and employee, it creates disharmony and
leads to a drop in productivity.
3.1.3 Influencing the supervisory body/regulators
Regulators can be influenced when business management take an active role as
members of certain professional bodies. Through their membership, advocacy
and submissions, business management may be able to influence changes to
existing regulations.
Business managers must ensure that they comply with the relevant regulations.
To do this, good internal administration and record keeping are essential because
the businesses will be audited from time to time by regulators.
Public entities can be lobbied and influenced through public interest. Business
managers and leaders can be involved in the debates and discussions that
contribute to and shape public policy and that are supervised and enforced by
regulators.
3.2 Networking and finding new customers
Networking refers to a co-ordinated activity where people who have similar
objectives meet and exchange information and ideas.
Formal networking is organised and will occur in a formal context. There are a
number of networks available to businesses. These are usually organised as local,
provincial and national chambers of business, industry and commerce. These
chambers represent the interests of business and will form lobby and advocacy
groups. They also provide opportunities to meet and mix with customers.
Topic 3: Adapting to challenges of the business environment
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43
Informal networking occurs informally. It is more social
and less organised. Business managers often network
while playing golf, attending sports events or getting
involved in social projects.
Social media and the Internet have provided new and
cheap ways for businesses to network via online forums
and business groups. They can engage with customers,
competitors, suppliers and strategic partners instantly
and globally.
Informal networking is useful in making contacts.
Business cards can be exchanged and a more formal meeting can be arranged to
start the process of building a relationship. Formal networks are created in
organised situations where the specific objective is to meet potential customers.
This might be at trade shows, conventions or expos.
Finding new customers is one of the most important objectives of a business
because markets are constantly shifting and changing. A business will only be
successful if it has a good customer base and it maintains or grows its market
share.
3.3 Power relationships
Power, in this context, is how much control or influence an organisation has over
its environment.
All individuals and businesses have a complex network of relationships with
various parties in the business environment. These parties are called stakeholders.
Stakeholders include shareholders, managers, employees, unions, consumers,
regulators and suppliers. These relationships are not always equal and one party
may often have more power than another. In other words, one stakeholder can have
more control or influence in promoting their objectives. This may lead to a power
struggle.
Different strategies can be used to diffuse (resolve) and
deal with a power struggle:
•
•
•
44
•
Bargaining councils allow employers and trade
unions from a specific business sector to meet and
negotiate long-term agreements that benefit both
business owners and workers.
Stakeholder directors are relatively new in business
management. Important stakeholders are included
as directors of the business and therefore have a say
in management and a vote in decision-making.
Arbitration and conciliation refer to organised
forums where employers and employees can resolve
their disputes with the help of an impartial third
party. This process can also be used between
consumers and suppliers.
Topic 3: Adapting to challenges of the business environment
Topic 3
These strategies promote the balance of power so that fair strategic agreements
can be negotiated.
3.3.1 Strategic alliance agreements
Strategic allies assist one another in achieving their objectives. When alliance
partners make agreements, it is very important for those agreements to be clear
and fair. These agreements must also be legal and must fall within the guidelines
of all relevant regulators, such as the Competition Commission and the National
Consumer Commission.
Strategic alliances allow a business to respond to challenges in the environment
by sharing information, technology, products, resources, intellectual property and
risk. Each party can concentrate on their own strengths and those of their partner
should complement their weaknesses.
The objectives, as well as obligations and rights, of all strategic allies must be
clearly defined in the agreements. Agreements must be very specific about the
nature of the relationship and the commitments of each party.
3.3.2 Persuasion of large investors
Large investors can provide the capital that a business needs to grow its markets
and profits. These investors can be other companies, institutional investors such
as pension funds, financial institutions or government investors such as the
Independent Development Corporation (IDC).
Large investors are in demand and receive numerous
applications for investment. That is why an applicant
should be as persuasive as possible. It is important for the
business to have a good business proposal that provides
all the details of the business, how it’s managed and its
current financial position. The business proposal must
clearly show the realistic returns that investors can expect
on their investment. A business must be open and honest
with the investor because all facts will be very carefully
checked and confirmed before the investment is actually
made.
A company representative must also be prepared to do a
professional presentation to investors. This is an
opportunity for a face-to-face meeting, and the
communication must be clear and effective.
3.3.3 Company representative’s influence
A company representative acts on behalf of a company within a variety of
contexts. These representatives may represent the company as an agent during
negotiations with customers, competitors and strategic partners. A company
cannot speak or act for itself; it has to rely on representatives to influence role
players in the environment. The company representatives play a very important
Topic 3: Adapting to challenges of the business environment
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role because they are seen as the ‘face’ of the company and they represent the
company’s image. They should dress, act and communicate in line with the
company’s culture, reputation and brand.
Company representatives must have a thorough knowledge of their company
and their products, services and policies. They should also be well informed of
the regulations affecting their industry so that they act ethically and legally in all
situations.
Classroom activity 3
1
Why is lobbying used by businesses?
(4)
2
Explain what hedging against inflation means and why a
business would do this. Use your own words.
(5)
3
Why is it in the best interests of a business to negotiate with a
trade union to find a resolution?
(6)
4
Distinguish between formal and informal networking.
(4)
5
What are stakeholders?
(3)
6
Identify two strategies that can be used to balance the power
in power relationships.
(4)
7
How do company representatives influence other
stakeholders?
(5)
Homework activity
1
2
(4)
Explain the difference between a strategic response at
business level and one at operational level.
(4)
3
List and briefly explain three techniques that a business can
use to lobby.
(6)
4
Identify and explain two things that a business can do to
hedge against inflation.
(4)
How can a business influence regulators and supervisory
bodies?
(3)
What is the most important consideration for large
investors?
(3)
List two techniques that can be used to persuade large
investors.
(4)
5
6
7
8
46
Identify two internal factors that will allow a business to
meet the challenges of its environment. Explain each factor
briefly.
•
Which points must be clearly stated in strategic partnership
agreements?
(4)
Topic 3: Adapting to challenges of the business environment
Topic 3
Extra practice activity
1
How can networking be used to identify new customers?
(4)
2
Explain power relationships in your own words.
(4)
3
Identify and explain the three steps to a strategic response.
(6)
4
Why are company representatives so important?
(5)
5
If you had the opportunity to lobby government about any
issue in your own life, what would you lobby for? Discuss
your answer fully. Explain why you have made this choice
and how you could actually do this.
(10)
Summary
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A business must adapt to the challenges of the business
environment or die. A business can use planning to meet
challenges. Contingency plans are made in advance in case a
specific event occurs. Ad hoc plans are made where and when
they are needed.
Managing the challenges of the micro environment relies on good
communication and organisational skills.
The challenges of the market and macro environments are often
hard to determine in advance. Awareness of both environments
will help the business to identify and meet the challenges that are
presented by constant change.
Information management is becoming increasingly technological.
This constantly requires new skills and systems. Information
technology poses several security threats. This challenge must be
met to protect sensitive information.
Strategic responses are long-term strategies that are selected to
deal with the challenges of the macro environment in the best way.
Mergers, takeovers and acquisitions provide an inorganic way for
a business to grow.
The organisational design tells us the structure of responsibility
and communication of a business. It will also determine how
flexible a business can be when adapting to challenges.
A business is expected to be a corporate citizen – it should act
ethically, legally and in the best interests of the environment and
society.
Lobbying is a process used to influence government decisionmakers through formal and legal channels.
Hedging against inflation occurs when a business takes steps to
protect itself against the effects of increasing costs.
Unions bargain with employers on behalf of workers – they
negotiate. This relationship should be a participatory one where
unions and owners work towards common objectives that are in
the interest of all parties.
Topic 3: Adapting to challenges of the business environment
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Regulators can be influenced through lobbying, advocacy and
membership of professional bodies.
Networking is used to influence a variety of role players in the
environment. Formal networking is organised and has a specific
objective. Informal networking is not organised and takes place in
a social context. Networking is used to find new customers and
build relationships with suppliers and strategic allies.
Topic 3: Adapting to challenges of the business environment
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c
opi
Contemporary
socio-economic issues
What you will learn about in this topic
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The impact of contemporary socio-economic issues on business operations and their
challenges, and decisions for specific business situations:
o The impact of contemporary socio-economic issues on business operations and
productivity, e.g. income; inflation; social, cultural and demographic issues;
economic crime; ethical misconduct (sexual harassment, corruption,
mismanagement of funds, etc.); population growth; illiteracy; lack of skills;
unavailability of natural resources; inefficiency in the use of resources;
dumping; exhaustion of natural resources; piracy and strikes
Possible business solutions/contributions to deal with the socio-economic issues
o Piracy – the nature and definition of each intellectual property right:
• Copyright
• Patent
• Trademark
o Investigation of developments in industrial relations that relate to
contemporary business practice:
• Labourstrikes,go-slowsandlockouts
• LabourRelationsAct(natureandpurpose)
• Whatisatradeunion?
• Historyoftradeunions
• Rolesoftradeunions
• Functionsoftradeunions.
Let’s talk about this topic
Take a look at the picture. What do you think are the effects of a happy and motivated
workforce? How would you describe productivity?
Topic 4: Contemporary socio-economic issues
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