Business Practice 3

Module 3: The business environment

Module 3: The business environment

• After completing this module, you will be able to: – explain the structure and roles of different

types of organisations within their own industry in South Africa

– demonstrate an understanding of the concept of a market

– discuss and describe market positioning – explain the role of professional associations in

the business sector

1. EXPLAIN THE STRUCTURE AND ROLES OF DIFFERENT TYPES OF ORGANISATIONS WITHIN THEIR OWN INDUSTRY IN SOUTH AFRICA

After completing this outcome, you will be able to:• name and explain the various types of organisations, using

terminology accepted within their own industry.• explain the roles of different types of organisations in the context

of the business environment.• identify and list business activities common to all organisations

within the sector.• identify two examples of companies in each business sub-sector

from advertisements in the media.• identify four of the main role players in the field.• identify, list and categorise the kind of products or services

offered by each organisation in the field.

1.1 Types of organisations in the South African economy

1.1.1 Government organisations

• These organisations offer products and services at a profit and sometimes in competition with other businesses in the market.

• These public organisations are sometimes regarded as business organisations, but with the big difference that they are owned by the state.

• Organisations, such as Telkom, SAA, Eskom and Transnet are examples of such organisations.

• The government did privatise some of them, but often kept a share in the companies.

1.1.2 Role of government organisations

• Providing essential services to the country and its people.

• Providing a basic infrastructure to assist private organisations.

• Facilitating economic growth, by providing finance to would-be entrepreneurs.

• Protecting the public against malpractices of private organisations.

• Providing specialised services such as national lottery.

1.1.3 Non-profit organisations

• These organisations provide their services without seeking profit and include sports clubs, welfare organisations, cultural organisations and a variety of other non-governmental (NGO) and community-based (CBO) organisations. They rely on the financial support of the communities which they serve. Some of them receive state subsidies, overseas funding and money from the national lottery, called the “Lotto”.

1.1.4 Role of non-profit organisations

• To provide specific medical support to people. • To protect against cruelty to animals or assist with the

protection and rehabilitation of wild animals. • To protect the environment. • To provide emergency relief with floods, fire or other

natural disasters.• To support the arts in our country. • To uphold the religious and moral values of our country. • To assist with community upliftment and development.• To lobby to enhance a specific cause or common interest. • To manage recreational and sports bodies.

Activity 1

• Identify a non profit organisation that functions nationally or even locally in your community:

• Compile a presentation that includes:1. An internet search to obtain more information

about this organisation.2. A poster that explains the role of this organisation.3. Pictures, articles and logos of this organisation or

the projects that they are involved in.4. Present it to the rest of the class.

1.1.5 Business organisations

• Companies such as Pick ‘n Pay and Nando’s can be defined as private need-satisfying institutions of a free-market economy.

• They accepts risks in pursuit of profit by offering products and services on the open market to customers

Expenditure patterns of South African households

Product and service needs Total expenditure %

Food, drink and tobacco 36,0

Clothing and shoes 6,9

Housing and household goods 19,3

Transport and communication 17,4

Medical 6,3

Other 7,3

Total expenditure 100,0

1.2.1 The role of business organisations

• The role of private organisations (businesses) is almost exclusively an economical role. Their role is to:– grow our economy

– create wealth for the country

– create employment

– pay taxes

– provide essential services in some instances.

Activity 2

• Collect any of your local newspapers. Make a list of at least 10 (ten) organisations that appear somewhere in the newspaper. 1. Classify these organisations into the three

categories discussed above: business organisations, government organisations and no-profit organisations.

2. Describe the product or service that each organisation delivers.

1.3 Business activities common to all organisations• Businesses have to supply products and

services to their customers. • Businesses have to be managed effectively and

efficiently to be successful and be in a position to create wealth for all stakeholders.

• One of the most important aspects that make it possible for a business to achieve its objectives is for the business to continuously improve productivity of all operations.

• The business processes are very important for its success.

Value chain management

Activity 3

• As customers we often only notice the “outputs” part of the whole transformation process. The table overleaf lists three outputs (products and services). In your group:

1. Make a list of inputs that you think were required to ensure the outputs.

2. Describe the transformation process of each of these outputs. It should include the type of equipment, processes and people that were needed.

Sustainable businesses

• Try to achieve a balance between:– Profit

– Environmental issues

– Social issues

Types of stakeholders

• Customers• Employees• Shareholders• General community• Suppliers• Financial institutions• Media and press• Government

Demands of stakeholders

Customers demand High quality products; Good service value

Employees require Job security; Compensation; Job satisfaction

General community deserves

Fair employment; Socially and environmentally responsible actions

Suppliers want Regular payments; Continuity of business; Long-term relationships

Financial institutions need Interest; Security of loans

Media and press look for Transparent and honest reporting

Government imposes Taxes; skills development; BEE

Activity 4

• Who are the stakeholders of your college? Make a list and discuss in class what each of these stakeholders need from the college.

1.4 Business sectors and sub-sectors

• Primary sector– Mining – Agriculture– Forestry– Fishing

• Secondary sector– Manufacturing– Construction– Electricity, gas and water

• Tertiary industries– Finance, real estate and business services– Wholesale and retail– Transport, storage and communication– General government services– Personal services

Industries Percentage Contribution

Primary activities 11,1

Agriculture, forestry, fishing 3,7

Mining 7,4

Secondary industries 24,3

Manufacturing 19,5

Electricity, gas and water 2,4

Construction 2,4

Tertiary industries 64,6

Wholesale and retail 13,9

Transport, storage and communication 9,7

Finance, real estate and business services 20,1

General government services 14,7

Personal services 6,2

Activity 5

• Nominate one member in your group to collect the “share price index” from any daily newspaper and bring it to class.

• Answer the following questions:1. How many different sub sectors are listed in the

financial sector? (Keep in mind that the JSE is using its own classification for the various sectors).

2. How many companies are listed in the resources (mining) sector?

3. Why can’t you find Kellogg’s name on the JSE price index?

Activity 6

• Use the JSE Share price index for the following research task.1. Select a business sub-sector, eg. general retail.2. Search in newspapers or magazines for advertisements

of any two companies that are considered to be major role players in that business sub sector.

3. Visit this company’s website for detailed information. 4. What kind of products or services are they providing?5. List the various products or services that each

company provides.

Summative assessment

• Test yourself by answering the following questions:1. Name the 3 different types of business organisations.2. What is the difference between a stakeholder and a

role player?3. The value chain consists of 3 very important

categories. What are they?4. Name three different roles of non-profit organisations.

Give an example of each.5. What sub-sector in the South African economy

contributes the most to the GDP? Name two companies in this sub-sector.

2. DEMONSTRATE AN UNDERSTANDING OF THE CONCEPT OF A MARKETAfter completing this outcome, you will be able to:• discuss the principles of trade that define marketing.

• outline and discuss the basic principles for marketing products and services.

• explain the basic principles of supply and demand.

• compare product and service markets with the basic principles of trade.

• identify a product or service and explain how it is marketed.

Business marketing

• Business marketing is the decision and efforts by a business to develop a new need-satisfying product or service and successfully selling it to customers.

• The aim is to make a profit, but also to satisfy the needs of the customer and the community.

• The key element of this definition is the need-satisfying product or service.

• Needs that society have, include:– Need for food– Need for clothing– Need for security– Need for social contact

Products and services

• What is a product?– Anything that the customer obtains in exchange for

some item of value (usually money) in order to satisfy a need.

– Products are tangible

• What is a service?– Intangible– Inseparable– Variable– Perishable

Activity 7• Draw up your own list of products (at least 5 examples),

as well as services (also at least 5 examples). Put this list on a worksheet that you have divided into two columns. In the left-hand column, put the name of the product or service. In the right-hand column, write down one or two reasons why you think it is a product or a service. Find advertisements for at least three of the products and three of the services on your list and bring these advertisements to class. In class, discuss your list (10 items) and your list of advertisements with your classmates.

2.2 The principles of trade that define marketing

• When a business engages in marketing activities, it may be said to be involved in a process of planning which products or services it wants to make, sell, distribute and advertise in order to create mutually satisfying exchanges. In order to do this, a marketer has to be aware of the trade principles involved. The principles of trade that affect marketing are:– Needs, wants, demands– Exchange– Value

Case study

• Jacob is sitting at home reading a magazine. He worked hard all day at the office and is feeling very thirsty. He cannot decide what he wants to drink to take away his thirst. He thought about drinking a beer, but is aware of the fact that beer can be bad for his heart. Suddenly, he sees an advertisement for a particular brand of beer that has been approved by the Heart Foundation of South Africa. This means that he can drink this kind of beer without feeling that he is doing something that is bad for his heart. Here is the advertisement that Jacob saw:

Case study

• Jacob decided to buy a Windhoek Light beer. This is an example of how a marketer turned a need (thirst) into a want (Windhoek) for a product with specific benefits (Heart Foundation approval).

Activity 8

• Gather copies of at least six advertisements for food, cold drinks and clothing. Make a list of the needs that you think these advertisements address. Then explain how the marketer of each of these products is trying to turn a need into a want for his/her specific product. Discuss your findings in class.

2.2.2 Exchange

• In order for something to be a legal transaction, the following conditions (among others) must apply:– There must be at least two parties (a buyer and a

seller).– The buyer must be free to decide whether to

buy/not to buy the offering.– Sellers must feel that they get enough value

(money) out of the transaction.– Buyers must be satisfied that the value they get out

of the transaction equals the monetary value.

Activity 9

• Describe the transaction which you will enter into with the shopkeeper when you go to the shop around the corner to buy bread and milk. Which of the conditions of a transaction can you identify? Share your experience in class

2.2.3 Value

• What is value?– Value can be described as the difference

between the benefit of having the product/using the service and the cost of obtaining the product or service.

Activity 10

• This picture is an example of a product that relies on building a particular image for itself.

• Questions– What image do you think the manufacturer of the phone

wants to create for the product? – Describe the typical customer who would use this phone.

Keep the following in mind: • age • personality • income • lifestyle

2.3 Principles for marketing products and services

• The fours Ps of marketing:– Product

– Price

– Place

– Promotion

Activity 11

• Select a product that you use on a daily basis. Describe how this product is marketed in terms of the 4 P’s.

3. DISCUSS AND DESCRIBE MARKETING POSITIONING

After completing this outcome, you will be able to:• identify and compare the products or services

marketed by a business and a competitor.

• identify and compare the strengths and weaknesses of a business and two major competitors.

• identify the threats and opportunities facing a business from the external environment.

3.1.1 Identify and compare products or services marketed by a business

and its competitor• The competition between companies has a

number of benefits for the individual customer:– It leads to lower prices.

– It motivates companies to continue innovation.

– It helps to keep companies honest.

– It provides a wider choice for the customer.

Activity 12• Identify three shops that you like to visit. Look at their

advertising materials (such as advertisements, posters, pamphlets, or brochures), and specifically at their advertising slogan and then answer the following questions:– How do they position themselves?– Are they delivering on this position? Motivate the answer.– Compare these shops with two competitors. How do they differ in

their marketing approach?– Write a brief report and share your findings in class.

• Hewlett Packard wants to convince business people with their slogan “Go anywhere, do anything” that if they buy their new notebook computers, they can go anywhere and do all their business wherever they are.

3.1.2 Identify and compare strengths and weaknesses of a business and two major

competitors• A company’s strengths can include:– Sufficient money.– Seen as the market leader.– Ownership of a patent.– Can produce its product at lower costs than the

competition can.– Strong image in the marketplace.– Very good quality product.– Committed employees.– Good business location.

Activity 13

• Make a list of five companies that you admire. Next to each company on your list, write down the name of two competitors.

• Discuss each of these companies in your groups and make a list of the strengths of each

3.1.2 Identify and compare strengths and weaknesses of a business and two major

competitors• A weakness is an area where the business lacks

resources, experience, knowledge or anything that has a negative influence on its ability to do business effectively and outwit the competition. Businesses must identify weaknesses so that these can be eliminated or turned into strengths. Possible weaknesses include:– Lack of planning or direction– Too few products– Limited distribution– Products are out of date– Bad image in the market– Employees lack training

Activity 14

• Take the list of companies you used in the previous exercise (strengths) and list what you think the weaknesses of these companies are.

3.1.3 Identify opportunities and threats

• The opportunities that businesses should be on the look out for, obviously depends on the kind of industry in which it operates. The following are typical examples of opportunities for businesses:– Growth of the market– Customer needs and wants changing– Foreign markets opening– Economic growth– Development of new technology– Shifts in the demographic pattern– New methods of distribution

Activity 15

• Take your list of companies that you have used before. List the opportunities that you think may exist for these companies. Discuss in class.

3.1.3 Identify opportunities and threats

• Changes in the environment may also pose threats to a business. In South Africa the textile industry is suffering badly because foreign companies, using cheap labour, take business away from local ones. Again, the industry in which a business operates will determine what is a threat and what is not a threat.

• Listed here are some of the most common threats:– Foreign competitors entering the market.– Substitutes are introduced.– Customer needs and wants change.– The economy goes into a recession.– New technology replaces your technology.– Shifts in the demographic pattern.– Strike action by trade unions.

Activity 16

• Take your list of companies and draw up a threat analysis for them. Discuss your findings in class.

SWOT Guidelines

• Below are a few guidelines if you are not sure whether something is a strength or an opportunity, or a weakness or a threat.– Strengths and Weaknesses are about your current situation,

the “here and now”, while Opportunities and Threats may happen sometime in the future.

– Strengths and Weaknesses normally refer to you as a person or matters inside your business, while Opportunities and Threats usually happen from outside the business in the business environments that we discussed in the previous section.

– You have less control over Opportunities and Threats.– You can still do something about your Strengths and

Weaknesses.

SWOT Analysis

Activity 17

• Do a SWOT analysis of the following companies:– Checkers

–Wimpy

– Your college

4. EXPLAIN THE ROLE OF PROFESSIONAL ASSOCIATIONS IN THE BUSINESS SECTORAfter completing this outcome, you will be able to:• explain the roles of and the reasons why professional

bodies, associations and regulatory authorities exist in the business sector.

• identify professional bodies, associations and regulatory authorities in the business sector.

• describe the benefits of a business and an individual belonging to professional bodies, associations and regulatory bodies in the business sector.

• access websites of industry publications dealing with professional bodies, associations and regulatory authorities in business.

4.1 Definition and roles of professional bodies

• A regulatory authority is a body which ensures that certain practices within specific industries are standardised and that they meet certain minimum criteria as set out by the particular regulatory body.

• A professional body is an organisation to which professional people, such as accountants, lawyers, teachers and doctors, belong with its main function to develop and support the people in that profession.

SAICA• The mission of the South African Institute of Chartered

Accountants (SAICA) is to serve the interests of the Chartered Accountancy profession and society, by upholding professional standards and integrity. They aim to do this by:1. Delivering competent entry-level members.2. Providing services to assist members to maintain and enhance

their professional competence, thereby enabling them to create value for their customers and employers.

3. Enhancing the quality of information used in the private and public sectors for measuring and enhancing organisational performance.

4. Running and facilitating programmes to transform the profession and to facilitate community upliftment.

5. Fulfilling a leadership role regarding relevant business-related issues and providing reliable and respected public commentary.

SAICA

• The benefits of membership include:– Acceptability for financial/accountancy/audit positions

within business.– First choice financial and business advisors or employees

within the business community.– Potential to command a premium remuneration.– International recognition and demand for members’

capabilities.– Opportunity to remain at the leading edge of knowledge and

expertise in the field of audit, accountancy, finance and business.

– Access to networking opportunities among business leaders.– Access to information in both printed and electronic format.

The Law Society of South Africa

• The role of the Law Society of South Africa includes the following:– All attorneys and advocates need to pass the examination of the law society

to be able to operate as an attorney or advocate.– The law society regulates the rates that attorneys and advocates may

charge their customers.– Any customers who have complaints about certain attorneys or advocates

may approach the Law Society to help them deal with those complaints. If the Law Society feels that the complaint is justified, the attorney or advocate may be struck from the Law Society roll, meaning that they cannot practice any longer.

– These points would be part of the regulatory body role of the Law Society.– The role of the professional body would be to assist attorneys and

advocates to pass their bar and side examinations, workshops and training for attorneys, advocates and other legal professionals, support for and promotion of the legal fraternity, etc.

Advertising Standards Authority

• The following are some of the general principles for advertising standards as published on the web site of ASA:– No advertising may offend against any good taste or decency to the public.– Advertisements should not abuse the trust of the customer.– Advertisements should not play on fear.– Advertisements should not contain anything that may lead to or support

acts of violence or criminal activity.– No advertisements shall contain content of any description that is

discriminatory.– Gender stereotyping or negative gender portrayal shall not be permitted

in advertising.– Products should not be described as “free” when there is any cost to the

customer, other than the actual costs of delivery, freight or postage.– Advertisements should not attack, discredit or disparage other products,

services, advertisers or advertisements directly or indirectly.

4.2 Professional bodies in South Africa

• Master Builders’ Association• Marketing Federation of South Africa• Law Society• Public Relations Institute of Southern Africa• Certified Public Accountants of South Africa• The Media Institute of Southern Africa (MISA)• Banking Council of Southern Africa• Chambers of Commerce• The Johannesburg Stock Exchange• The Internet Service Provider Organisation• Die Afrikaanse Handelsinstituut• National Association of Broadcasters• The Life Offices’ Association of South Africa• The Association of Collective Investments• The Linked Investment Service Providers’ Association• The Timeshare Institute of South Africa

4.3 The benefits of belonging to professional bodies

• It is in the best interest of businesses to belong to professional bodies. Membership of these bodies can benefit businesses in the following ways:– They adhere to a code of ethics.– They adhere to a code of conduct.– They are exposed to training opportunities.– It gives them network opportunities with other companies in the industry.– The body keeps its members up to date with new developments in the

industry.– Companies that belong to professional bodies are regarded as responsible

and credible.– It gives customers a platform to raise issues within the industry – this

provides valuable feedback to companies.– It can serve as a marketing tool – customers will deal more easily with

companies who are registered with professional bodies.

Activity 18

• Identify three professional bodies and then go and find the following information about these bodies on the Internet:–Who belongs to the body.

– A short history of the professional body.

–What the role of the body is.

– Print the home page of the web site.

Summative assessment1. Pick a product or service that interests you, you have knowledge of, you love using or

wearing and whose value chain you can easily describe. 2. Hand your product or service idea to your lecturer for approval. Your lecturer might want to

change your idea to ensure that everyone in your class investigates a different product or service.

3. Once you have received your approval your investigation starts.4. Find an advertisement or the logo of the product or the actual product itself (if you can bring

it to class). This is going to be part of your presentation. 5. Categorise your product under the following headings and give detailed reasons for your

answers. 1. Is it a product or a service?2. What type of organisation is providing this product/service?3. To which industry sector does this organisation/business belongs?4. Describe 5 different stakeholders that have an interest in this business.

6. Describe the value chain of your product under the following headings:1. Inputs2. Transformation process3. Outputs

7. Visit the web site of this business and download the home page plus any other page that interests you.

8. Identify one professional body that will interact with the business that provides your product/service. Do they have a web site? If so, include their home page in your presentation.

9. Put all the information that you collected together and hand it in for assessment.