Developmental Requirements for SMMEs in the
Mahikeng Area
NP Kagiso
orcid.org
0000-0002-1024-5533
Dissertation accepted in fulfilment of the requirements for the
degree
Master of Commerce in Business Management
at the North
West University
Supervisor:
Prof Marius Potgieter
Graduation ceremony July 2018
Student number: 28085167
i
DECLARATION
I Neo Patrick Kagiso, declare that this dissertation is my own work; that it has not been submitted before for any degree or examination in any university; and that all the sources I have used or quoted have been indicated and acknowledged as complete references.
______________________ ______________________
ii
ACKNOWLEDGEMENT
I thank God for having given me the ability, strength and time to undertake and complete this task. I thank my supervisor, Prof Marius Potgieter for his kindness, wisdom and patience and for the lessons that he taught me explicitly and implicitly. I wish Prof all the blessings. I thank Prof Erik Hofstee for the invaluable advice he gave in his workshop. Prof Hofstee’s advice became a well I could draw from each time the going got tough. I thank Mr Martin Chansa for his assistance with statistical analysis. I thank my partner, Tebogo, for being my pillar of strength and for all the support she always provides. I thank my daughters for giving me the purpose to strive for the best. I thank my late friend, Sabata Santho, for always believing in me.
iii
ABSTRACT
Small, medium and micro enterprises (SMMEs) are omnipresent and form an integral part of every economy. Therefore, a discussion about the economy of every country cannot be complete without taking into consideration SMMEs. Different aspects related to SMMEs remain relevant most of the time or even all of the time, for example; the establishment, development, survival and growth of SMMEs. Whether a country or big businesses decide to be involved in SMME establishment, development, survival and growth, or not to be involved, conversations regarding these aspects will remain pertinent.
In South Africa and many other countries, policies on SMME support are part of the economic agenda and efforts are made to ensure that SMMEs are provided with the support they require to develop. It is, however, always important to determine if the support being provided indeed matches the needs of SMMEs, so as to place an emphasis on useful programmes and to avoid wasting resources on programmes that are not needed.
This study facilitates a discussion about the provision of suitable programmes to SMMEs in Mahikeng, by investigating the different forms of support available to SMMEs from public and private institutions and whether such support matches the needs of SMMEs or not. Ultimately, a symbiotic relationship should result, where SMMEs benefit through development and growth, and support institutions succeed in creating an economic environment where SMMEs also contribute towards the development of the country.
An investigation of 421 SMMEs was undertaken based on criteria spawned from a review of business management theory and similar research projects. As a result, it was found that SMMEs require developmental support; there are challenges that hamper SMME development; many support programmes are not being utilised; SMMEs are aware of support institutions but do not utilise their support; and, most of the support programmes provided match the needs of SMMEs. The results of this study show that although most of the support programmes match the needs of SMMEs, those programmes are still not being utilised. Obviously, the objective contributing in towards the establishment, development, survival and growth of SMMEs is not being achieved. Further investigation is required to determine why these programmes are not being utilised.
iv
TABLE OF CONTENTS
PRELIMINARY DOCUMENTS Declaration i Acknowledgement ii Abstract iiiCHAPTER 1: INTRODUCTION AND BACKGROUND
1.1 Introduction 2
1.2 Literature review 3
1.2.1 The South African context: in brief 5
1.2.2 Issues that may influence SMME development in SA 6
1.2.3 Arguments against intervention 8
1.2.4 The domain of the study 8
1.3 Problem statement 9
1.4 Objectives 9
1.4.1 Primary objective 9
1.4.2 Secondary objectives 10
1.5 Significance of the study 10
1.6 Delimitation 10
1.7 Conceptual framework 11
1.8 Method of research 11
1.8.1 Reliability and validity 13
1.8.2 Sampling techniques 14
1.8.3 Data analysis 14
1.9 Limitations 15
1.10 Ethical considerations 15
v
CHAPTER 2: THEORETICAL FOUNDATIONS OF BUSINESS AND SMME
MANAGEMENT
2.1 Introduction 19
2.2 Nature of business management 19
2.3 The role of management 23
2.4 The evolution of management theory 25
2.4.1 Classical theories 26
2.4.2 Behavioural approach 28
2.4.3 Quantitative management 29
2.4.4 Contemporary approaches 29
2.5 Management skills 31
2.6 Functional areas of management 34
2.7 Tasks of management 39 2.7.1 Planning 40 2.7.2 Organising 42 2.7.3 Leading 44 2.7.3.1 Leadership styles 45 2.7.4 Controlling 46
2.8 The business environment 50
2.9 Summary 54
CHAPTER 3: DEVELOPMENTAL SUPPORT FOR SMMEs
3.1 Introduction 56
3.2 The significance of SMMEs in economic development 57
3.3 SMME success and failure 59
3.4 Developmental support provided to SMMEs 63
3.4.1 Developed countries 63
vi
3.4.3 Transition countries 67
3.4.4 African countries 69
3.4.5 Regional economies 71
3.4.6 South Africa 73
3.4.6.1 Government departments and agencies 73
3.4.6.2 Financial institutions 78
3.4.6.3 Business incubators 81
3.5 Arguments for and against intervention 82
3.6 Summary 84
CHAPTER 4: METHOD OF RESEARCH
4.1 Introduction 87
4.2 Overview of the research process 88
4.3 Research paradigm 89
4.4 Research questions 89
4.5 Research approach 92
4.5.1 Qualitative approach 94
4.5.2 Quantitative approach 94
4.5.3 Mixed methods approach 95
4.6 Research design 96
4.6.1 Qualitative research design 98
4.6.1.1 Types of qualitative research design 98
4.6.1.2 Data collection in qualitative research 100
4.6.2 Quantitative research design 100
4.6.2.1 Types of quantitative research 101
4.6.2.2 Data collection in quantitative research 102
vii
4.6.3 Mixed methods research design 105
4.6.3.1 Types of mixed methods research design 106
4.7 Research setting 106
4.8 Population and sampling 110
4.8.1 Sampling 112
4.8.2 Types of sampling 113
4.9 Data collection instrument 116
4.9.1 Instrument alignment 119
4.9.2 Types of questions and scaling 120
4.10 Reliability and validity 122
4.11 Data analysis 124
4.11.1 Qualitative data analysis 125
4.11.2 Quantitative data analysis 126
4.11.3 Mixed methods data analysis 129
4.12 Ethical considerations 130
4.13 Summary 131
CHAPTER 5: RESEARCH RESULTS
5.1 Introduction 133
5.2 Pilot study 133
5.3 Demographical description 136
5.4 Analysis of developmental needs 141
5.4.1 Reliability analysis 143
5.4.2 Validity analysis 148
viii
CHAPTER 6: CONCLUSIONS AND RECOMMENDATIONS
6.1 Introduction 166
6.2 Conclusions 167
6.2.1 Relationship between secondary objectives and findings 167
6.2.2 Relationship between the primary objective and findings 172
6.3 Recommendations 173
6.4 Further research prospects 175
6.5 Limitations 176
6.6 Conclusion 177
REFERENCES 178
ANNEXURE A Ethics approval certificate
ANNEXURE B The evolution of management theory
ix
LIST OF FIGURES
Figure 1.1 Theoretical framework 12
Figure 2.1 Overlapping role distribution of managers 24
Figure 2.2 Management skills needed at various management levels 32
Figure 2.3 Tasks of management in large businesses 49
Figure 2.4 Tasks of management in SMMEs 50
Figure 2.5 Components of a business environment 51
Figure 4.1 Steps in the research process 88
Figure 4.2 Continuum of research approaches 93
Figure 5.1 Spread of sectors during pilot test 135
Figure 5.2 Spread of sectors during actual study 135
Figure 5.3 Position in business 136
Figure 5.4 Business sector of SMME 137
Figure 5.5 Age of respondents 138
Figure 5.6 Gender of respondents 138
Figure 5.7 Annual turnover (R) 139
Figure 5.8 Number of employees 140
Figure 5.9 Number of years in business 140
Figure 5.10 Awareness about institutions providing support 141
Figure 5.11 Factor 1: Support required in business skills 150
Figure 5.12 Factor 2: Support required in business skills 151
Figure 5.13 Factor 3: Support required in business skills 152
Figure 5.14 Factor 1: Challenges for SMME development 155
Figure 5.15 Factor 2: Challenges for SMME development 156
Figure 5.16 Factor 3: Challenges for SMME development 156
Figure 5.17 Factor 4: Challenges for SMME development 157
x
Figure 5.19 Support in business skills received from the private sector 159 Figure 5.20 Support in management skills received from the public sector 159 Figure 5.21 Support in management skills received from the private sector 160
Figure 5.22 Support in business skills offered by support institutions 161
Figure 5.23 Support in business skills needed by support institutions 162
Figure 5.24 Support in management skills offered by support institutions 163
xi
LIST OF TABLES
Table 2.1 SMME categorisation by sector 22
Table 3.1 Determinants of business success and failure 62
Table 3.2 Factors influencing entrepreneurial motivation 71
Table 3.3 Arguments for and against intervention 84
Table 4.1 Qualities of good and poor research questions 90
Table 4.2 Characteristics of the qualitative approach 94
Table 4.3 Characteristics of the quantitative approach 95
Table 4.4 Characteristics of the mixed methods approach 96
Table 4.5 Qualitative data collection methods 101
Table 4.6 Quantitative data collection methods 103
Table 4.7 Sample size calculation 111
Table 4.8 Determining the z-score 113
Table 4.9 Probability sampling methods 114
Table 4.10 Non-probability sampling methods 115
Table 4.11 Alignment of the questionnaire 120
Table 4.12 Scaling techniques 121
Table 4.13 Reliability techniques 123
Table 4.14 Validity techniques 124
Table 4.15 Data preparation process 125
Table 4.16 Measurement scales 127
Table 4.17 Univariate, bivariate and multivariate techniques 128
Table 4.18 Ethical considerations per section 130
Table 5.1 Pilot test demographical statistics 135
Table 5.2 Utilisation of institutions that provide support (%) 142
xii
Table 5.4 Removed item: Assistance with business registration 144
Table 5.5 Results obtained: Assistance with business registration 144
Table 5.6 Reliability analysis: Support required in business skills 145
Table 5.7 Reliability analysis: Support required in management skills 145
Table 5.8 Support required in management skills 146
Table 5.9 Challenges for SMME development 147
Table 5.10 Reliability analysis: Challenges for SMME development 148
Table 5.11 Validity analysis: Support required in business skills 148
Table 5.12 Initial Factor Solution: Support required in business skills 149 Table 5.13 Rotated Factor Solution: Support required in business skills 149
Table 5.14 Eigenvalues of support required in business skills 150
Table 5.15 Validity analysis: Challenges for SMME development 153
Table 5.16 Initial Factor Solution: Challenges for SMME development 153
Table 5.17 Rotated Factor Solution: Challenges for SMME development 154
Table 5.18 Eigenvalues of challenges for SMME development 154
Table 6.1 Summary of the findings 167
xiii
ACRONYMS
ABSA Amalgamated Banks of South Africa
ASSET Association of Small Scale Enterprises in Tourism
BBSDP Black Business Supplier Development Programme
BER Bureau of Economic Research
CARILED Caribbean Local Economic Development Project CIPC Companies and Intellectual Property Commission
CIS Co-operative Incentive Scheme
DFI Development Financial Institutions
DSBD Department of Small Business Development
dti Department of Trade and Industry
EPA Economic Partnership Agreements
EPS Export Promotion Instruments and Services
ERP Enterprise Resource Planning
ESS Earthquake Support Subsidy
EU European Union
FEED Department of Finance, Economic and Enterprise Development
FNB First National Bank
GAAP Generally Accepted Accounting Practices
GDP Gross Domestic Product
HDI Human Development Index
HRD Human Resource Development
ICMR Intellectual Capital Management and Reporting
IDC Industrial Development Corporation
ISO International Organisation of Standardisation
ISP Incubation Support Programme
KMO Kaiser-Meyer-Olkin
LIP Light Industrial Park
MIS Management Information System
NFP Non-farm proprietorship
NGO Non-governmental organisation
NIBUS National Informal Business Upliftment Strategy
xiv
NYDA National Youth Development Agency
PERT Programme Evaluation and Review Technique
RBV Resource-based view
SABS South African Bureau of Standards
SADC Southern African Development Community
Seda Small Enterprise Development Agency
SEFA Small Enterprise Finance Agency
SEIF Shared Economic Infrastructure Facility
SEP Shayamoya Echo Park
SME Small and Medium Enterprises
SMME Small Medium and Micro Enterprises
SMTE Small and Medium Tourism Enterprise
StatsSA Statistics South Africa
STP Seda Technology Programme
SWOT Strengths Weaknesses Opportunities and Threats
TQM Total Quality Management
UKBI United Kingdom Business Incubation
1
CHAPTER 1
INTRODUCTION AND BACKGROUND
Introduction and background
Literature review
The South African context: in brief
Issues that may influence SMME development in SA Arguments against
government intervention The domain of the
study
Objectives
Primary objectives Secondary objectives Issues that may
influence SMME development in SA Significance of the study Problem statement Theoretical framework Delimitation Research methods Sampling techniques Data analysis Limitations Ethical considerations
2
1.1 Introduction
Small, medium and micro enterprises (SMMEs) in South Africa will make a substantial contribution towards the economy if they are sustainable. However, various challenges are faced in the quest for small business development as many SMMEs do not achieve desirable levels of operation and profitability. This study examines the developmental support that SMMEs in Mahikeng require and the support that is available to them in order to reach anticipated levels of growth and sustainability, in the context of worldwide practices.
Ideally, everybody is to contribute towards economic growth. There is a realisation that lack of empowerment leads to poor economic growth and a reliance on government for welfare. Thus, governments initiate programmes that are aimed at creating environments where developmental support is made available to the public and private sector, including SMMEs. What should be borne in mind is that the needs of different SMMEs, in different countries, localities and sectors, as well as with different resources and capabilities can never be the same. SMMEs are products of their environments. The different political, economic, social, cultural and even personal orientations have a bearing on the trajectory that SMME establishment, growth and sustainability takes in different locations. Therefore, there has to be some interaction between governments and other role players in the economy, such as big businesses and SMME owners in creating conducive environments for the formation and sustainability of SMMEs. Added to this, is that, there can never be universal agreement on the roles that public and private entities should play in SMME support, not even on whether support is necessary. However, such disagreements should not preclude a search for new ideas and cooperation in the quest for prosperity for all.
Public and private institutions around the world play a significant role in small business development and governments are adopting various approaches to improve the performance of SMMEs and to ultimately strengthen the economies of their countries. SMMEs and institutions providing support have to identify the developmental requirements that will enable SMMEs to achieve sustainability, in order to develop programmes that address these requirements properly. This study searches for ways in which different governments, public and private institutions and SMMEs around the world collaborate to ensure SMME establishment, growth and sustainability with the ultimate aim of contributing towards the economies of their respective countries.
3
Focus is also placed on the individual SMME by investigating internal capabilities that SMMEs require in order to be able to take advantage of the support offered by other stakeholders. A spotlight is further placed on SMME management as the main attribute to unlock the potential for existence and collaboration. Management theories and practices are explored with the aim to expose SMME management to the depth of knowledge available to assist in traversing the difficult terrain of ensuring that SMMEs are worthy participants in stakeholder collaboration. Indeed, SMMEs as beneficiaries of support from stakeholders have to provide encouragement by demonstrating that the support afforded to them shall not be in vain. One of the first steps towards this is to exhibit sound management practices.
Lastly, this study researches challenges faced by SMMEs worldwide and resources available to assist in overcoming those challenges. The challenges of SMMEs in Mahikeng are investigated against the background of these worldwide challenges, with a view to providing contextual recommendations. The first step undertaken to kick-start the process outlined above is to review existing literature on SMME development and this is discussed in section 1.2.
1.2 Literature review
The definition of SMMEs differs from country to country and it is usually based on the number of employees and/or annual turnover (Rahman et al., 2013; Bureau of Economic Research, 2016). In South Africa, small, medium and micro enterprises (SMMEs) are defined according to economic sector, where the maximum number of employees does not exceed 200, the annual turnover is less than R50 million and the total asset value is less than R18 million (SA National Small Business Act no.102 of 1996).
This literature review is premised on the understanding that South Africa has an open society (Reiter, 2010) and actions taken by other societies could have a direct and indirect influence on the people of this country. It is advisable that South Africa should endeavour to learn from the challenges and successes of other countries and it is from this position that this study aims to investigate the developmental requirements of SMMEs in comparison to the roles that different governments and private organisations around the world play in assisting in the sustainable development of small businesses. Furthermore, this study investigates specifically the role the South African government and its agencies, together with private institutions in South Africa, play in the development of small businesses and assess if these intervention strategies match the needs of small businesses.
4
Evidence surfaced that there is a general consensus about the necessity for intervention in small business development (Klonowski, 2010; Maseko et al., 2011; Fischer-Smith, 2013; O’Connor, 2013; Sonfield, 2014). There are, however, views which are against intervention (Mason & Brown, 2013; Taylor, 2013:29). Governments appear to generally accept the view that intervention is necessary. The reasons for this are various and include economic growth, economic and political health, regeneration and social inclusion (Bridge & O’Neill, 2013:302) and self-interest (Marsh & Stoker, 2010:332).
In order to comprehend the role of public and private support in small business development, a literature review was done on developed countries (that is where South Africa (SA) aims to be), developing countries (this is where SA is and it would help to know the challenges its counterparts face), transition economies (SA’s economy is to all intents and purposes still a transition economy), Commonwealth countries (as a Commonwealth country SA shares a historical background with other Commonwealth countries) and African countries (SA as an African country shares many commonalities with other African countries). Following is a synopsis of what was discovered.
Evidence from studies on developed countries show an existence of strong institutional frameworks for small business development (Scillitoe & Chakrabarti, 2010; Mason & Brown, 2013; O'Connor, 2013). The emphasis is on policy and institutional support such as, business incubation and government partnerships with academic institutions and private businesses. Different countries may have different approaches, for example, a developed country such as the United States (US) usually uses targeted programmes while the United Kingdom (UK) typically applies non-discrimination policies for small business assistance (Sonfield, 2014), but generally, there is proof of readiness to offer support. Studies on developing countries reveal a need to strengthen their institutional frameworks (Olawale & Garwe, 2010), to create supportive policies (Barbieri et al., 2010), to improve regulatory structures (Smallbone et al., 2010), to establish institutional support and to improve access to financing (Wonglimpiyarat, 2011). In transition economies, governments are still seeking to move from controlled economies to market economies. Some countries seem to be more successful (for example Estonia and Ukraine) than others (for example Poland and Belarus) in establishing sound institutional and policy frameworks (Klonowski, 2010; Smallbone et al., 2010; Welter & Smallbone, 2010). Klonowski identified challenges that small businesses are faced with and these include registration processes, poorly structured programmes, low usage of support and
5
poor financing. Smallbone et al. (2010) identified institutional deficiencies, regulatory burdens and poor financing. In Commonwealth countries, there was an indication of a preference for co-operation in terms of regional settings and historical background (Schoburgh, 2014). This gave rise to the need for sound regional policies. The main focus of African studies appears to be on financing (Olawale & Garwe, 2010; Oni & Daniya, 2012; Mulaga, 2013). Small businesses in Africa seem to concentrate on the challenge of funding more than on other forms of support, which may be reflective of the general socio-economic statuses of African countries.
Different studies show that governments around the world play a role in helping small businesses to deal with additional issues such as; technology (Wonglimpiyarat, 2011), networking (Garcia & Flannery, 2010), immigrants and culture (Rante & Warokka, 2013), gender differences (Sciglimpaglia et al., 2013) and globalisation (Durmuşoğlu et al., 2012).
1.2.1 The South African context: in brief
Similar to other governments, the South African government has risen to the challenge of providing support to small businesses. It has put in place an institutional framework to support small businesses, formulated policies to guide its strategies and promulgated laws to regulate small business behaviour. In terms of the institutional framework, there are two ministries, the Department of Small Business Development and the Department of Trade and Industries, which are dedicated to small business development. There are also a number of agencies such as the Small Enterprise Development Agency, Invest North West and the Small Enterprise Finance Agency, that offer support ranging from funding to business incubation. With regard to policies and regulations, the South African government consistently outlines its policy to support small businesses through various programmes and regulatory interventions (SA Budget Speech 2014, 2015 & 2016). The government has also passed applicable legislation such as the National Small Business Act (102 of 1996), the Broad-Based Black Economic Empowerment Act (53 of 2003) and the Preferential Procurement Policy Framework Act (5 of 2000) to enhance small business development. The official term that is generally used for small businesses in South Africa is SMMEs, which is an acronym for Small, Medium and Micro Enterprises. In most other countries they are referred to as small and medium enterprises (SME). SMME is the term that is used in reference to small business in this study.
6
There is proof of various governments working in collaboration with banks and other institutions to strengthen the National Innovation System in Malaysia and Thailand (Wonglimpiyarat, 2011). There is also proof that governments form partnerships with universities in Latin America on business incubation (Garcia & Flannery, 2010); and with large firms in different countries on various programmes (Zu´n˜iga-Vicente et al., 2014) to assist SMMEs. There is also evidence of large businesses and non-governmental institutions working alone to offer support programmes to SMMEs (Sonfield, 2014). A similar situation exists in South Africa, where government is working through and with agencies and other institutions in SMME development. Many private institutions such as banks and other blue chip companies also have special programmes aimed at assisting SMMEs.
1.2.2 Issues that may influence SMME development in SA
While people may be aware of what they require from government, they may not be aware of their own shortcomings that may render such support ineffective because people rarely analyse their motivations (Ahmad et al., 2014). As a result, this study does not only seek to investigate what SMMEs think they need in terms of support, it also seeks to explore some of the issues that have been identified through empirical research as having an effect on the establishment, survival and growth of small businesses. It is envisaged that this approach will be beneficial to assess the viability of different projects and acquire essential tools for effective support. Krishna (2013) investigated factors that motivate people to start business enterprises and drive them to maintain an entrepreneurial spirit, even in the face of challenges. This study found that government assistance was one of the factors that may serve as motivation to undertake entrepreneurial activity. Push and pull factors are believed by various authors (Kirkwood & Walton, 2010; Ahmad et al., 2014) to be a good measure of motivation by entrepreneurs to start a business and of their prospects of future success.
Social entrepreneurship is a form of entrepreneurship aimed at alleviating social problems such as poverty, discrimination or exclusion (Estrin et al., 2013). It refers to the establishment of non-profit making institutions such as non-government organisations (NGOs). While these organisations may not be commercially driven, they are regarded as being able to contribute to the socio-economic well-being of countries by providing essential services such as job creation and training. Social entrepreneurship is therefore viewed as an important contributor to economic growth. Furthermore, Estrin et al. found that the country-level prevalence rate of
7
social entrepreneurs has a significant positive effect on the likelihood of individuals becoming commercial entrepreneurs. Governments have to nurture social entrepreneurs and social entrepreneurship for the possibility that they might be laying a foundation for commercial enterprises. These authors also argue that governments need to control the level of welfare support they provide to their citizens because individuals may forego opportunities for commercial entrepreneurship if welfare support provides sufficient alternative income.
Place attachment is described as the emotional bond between person and place (Wikipedia). This is an environmental psychology concept which posits amongst others that, place attachment can encourage individuals to actively protect and engage in pro-environmental behaviour (Wolf et al. 2014). Hallak et al. (2013) found that ‘place attachment’ of Small and Medium Tourism Enterprise (SMTE) owners in South Australia had a direct positive effect on the level of support that the business owners provide to people of their towns. Owners that have an attachment to the towns in which they operate offer different forms of support to their communities and they also receive patronage in return. They also found that SMTEs that engage with the community outperform those that do not.
Paul et al. (2013) identified over-dependence on government as one of the issues that hindered small business development in Malaysia. Small business owners failed to recognize opportunities before them because they expected the government to be involved in every initiative. Indeed, a study by Adebisi and Gbegi (2013) in Nigeria shows how over-dependence on government can lead even researchers to view government support as the panacea to ‘all’ challenges facing small businesses.
It serves no purpose for governments to have good intervention mechanisms if the intended recipients are not aware of them. In studies about “the effectiveness of government-sponsored programmes in supporting the SME sector in Poland” (Klonowski, 2010) and government support for women entrepreneurs in Russia and Ukraine (Iakovleva et al., 2013), the researchers found a low level of awareness for support programmes among small businesses. This, the authors found, led to low utilization of support programmes and ultimately affected the effectiveness of such programmes.
The above issues are some of the SMME-specific issues that may affect the level of responsiveness to intervention efforts and knowledge of such may increase the compatibility of support programmes.
8
1.2.3 Arguments against intervention
The literature review uncovered the following arguments against government intervention: (1) Contribution to the economy as a result of improvement in business performance must
justify the cost of the intervention (Bridge & O’Neill, 2013:316).
(2) Advocates of the free enterprise system believe that intervention interferes with market forces. They argue that the pursuit of self-interest leads to the most efficient utilization of economic resources (Porter & Kramer, 2011; Esping-Andersen, 2012).
A detailed account of these arguments and more is provided later in the study.
1.2.4 The domain of the study
The topic of this study is within the business management domain, whereunder SMME management falls. Parallel to other disciplines, business management has theoretical foundations, as well as principles and practices that are the bedrock of any activity within the discipline. Therefore, all activities in SMME management, including developmental efforts, have to find a basis within theoretical foundations, principles and practices of business management.
The basic premise of business management is that management is key to the survival and purposeful action of any business because, according to Rudansky-Kloppers (2016), management; (1) directs a business towards its goals, (2) sets and keeps the operations of a business on a balanced course, (3) keeps the organisation in equilibrium with its environment and (4) is necessary to reach the goals of the organisation at the highest level of productivity. From the explanation provided by Rudansky-Kloppers, it is clear that business or specifically, SMME management is essential to collaborative exercises undertaken by SMMEs. This assertion is emphasized by Venter (2016:31) that the task of business management “is to study those factors, principles and methods that will lead a business organisation, as a component of the prevailing economic system, to reach its objectives.” SMME managers would be better placed to exploit opportunities for developmental support if they are conversant with the theoretical foundations, principles and practices of business management.
9
1.3 Problem statement
The failure rate of SMMEs in South Africa, according to Fatoki (2014), is between 70% and 80%. One of the reasons for failure was found to be the inability of political institutions to create a conducive environment for SMME survival. Public and private institutions should be able to provide SMMEs with the kind of support that would enable them to reach their developmental aspirations. Unfortunately, the assistance available to SMMEs is sometimes discordant to their needs. This can lead to ineffective strategies that benefit neither the economy nor SMMEs. Support providers can incur wasteful expenditure by running programmes that do not generate sustainable success.
Two of the reasons for supporting SMMEs are to capacitate them to be able to help (1) grow the economy and (2) create jobs. Current statistics indicate that the economy of South Africa is growing at a lower than targeted rate and unemployment continues to rise (StatsSA, 2015). Studies have shown that the SMME sector can help in this regard.
The problem that this study seeks to address is to determine if the support provided by private and public institutions matches the requirements of SMMEs in Mahikeng. 1.4 Objectives
According to Brink et al. (2012:85), an objective is an end towards which effort is directed. Objectives determine direction, give a study its purpose and specify what is to be researched, thereby providing a proper perspective about the purpose a study. A study may have several objectives, depending on what it aims to achieve. This study has one primary objective and six secondary objectives.
1.4.1 Primary objective
Primary objectives are dominant objectives that define the purpose of a study. The overall findings of the study should answer the primary objectives. The primary objective for this study is:
• To investigate if private and public support programmes adequately address the developmental needs of SMMEs in Mahikeng.
10
1.4.2 Secondary objectives
Secondary objectives support the primary objective by breaking down the primary objective into manageable parts that can be translated into researchable tasks. Secondary objectives should lead to the achievement of primary objectives, which ultimately define the purpose of a study. The secondary objectives of this study are:
• To identify the needs of SMMEs in terms of developmental support.
• To investigate SMME-specific challenges that may hamper SMME development. • To identify support programmes available to SMMEs.
• To assess SMME awareness for institutions that provide support. • To determine the extent to which SMMEs use support from institutions. • To evaluate if support programmes match SMME needs.
1.5 Significance of the study
Different studies show that there are gaps between institutional support and SMME needs (Maseko et al., 2011; Mason & Brown, 2013). This study researched the real support needs of SMMEs in Mahikeng, in order to assist private and public support providers to tailor their intervention strategies to address these needs, resulting in the prevention of wasted resources on support that end-users do not benefit from and/or do not need. Governments use public funds to finance the support it provides to small businesses and must account to the public that those funds were used efficiently (Zu´n˜iga-Vicente et al., 2014).
The findings of this study will enable support providers to compare their developmental support programmes with the identified needs of SMMEs. This will sensitise providers about the real needs of SMMEs, who can then adapt existing programmes to be in line with SMME needs, which will ultimately contribute towards more sustainable and profitable business practices in future.
1.6 Delimitation
Delimitation states what the researcher did not do in order to maintain the focus of the study (Leedy & Ormrod, 2015:62). The study did not:
• Examine whether the government should intervene or not.
11
• Investigate whether or not available support programmes do render business success. • Investigate all support programmes available to SMMEs in South Africa, but dealt with
only those that were uncovered during the research process.
• Investigate the personal attributes of individuals within the business, but concentrated only on factors related to the business.
This study was restricted to SMMEs in Mahikeng only due to a limitation in research resources.
1.7 Theoretical framework
This study follows the direction alluded to in the sections above. In the beginning, an extensive literature review was undertaken on SMME development studies to determine what has been done across the world to develop SMMEs. This was aimed at uncovering trends, patterns, commonalities and differences, challenges and perspectives, but above all to ensure that firstly, this study was undertaken within the confines of the norms and standards of SMME development. Secondly, a review was done to identify a gap in the literature on this particular subject. Lastly, the review was aimed at ensuring that the work done in this study addresses the gap that exists in the literature and is not a duplication of previous studies.
A literature review of the theory of business management was also undertaken to place this study within the framework of its domain. The purpose of this exercise was to ensure that the study is grounded within the correct foundations that will ensure that all subsequent activities are guided by solid theoretical promptings.
Lastly, a detailed review of the different research methods was completed to ensure that all the methods used are insightful and geared towards extracting maximum value from the research process. This also ensured that the guidelines for doing acceptable research were followed to the letter. Exhibited in Figure 1.1 is the visual impression of the conceptual framework of this study. It provides an overview of how this study was undertaken.
1.8 Method of research
The post-positivist approach that combines qualitative and quantitative research designs would have been suitable for this study. In this ideal situation, the qualitative approach would have allowed for an inductive determination of the real needs of SMMEs, which would then be divided into researchable themes and categories. Afterwards, the quantitative approach would
12
Figure 1.1 Conceptual framework
Literature review
(Types of support for SMME development)
Rest of the world South Africa
Arguments for Challenges for Arguments against support support support
Domain of the study
(Business management and SMME management)
Research Methods
(Research approach, research design, sampling, data collection, data analysis)
Findings
have been used for an objective investigation of the different categories, with the intention to match support programmes to SMME needs. Finally, a qualitative approach would have been applied to probe for the reasons for matches or mismatches, however, due to time and resource constraints, the post-positivist approach was not feasible to apply. This process would have required longer than the time allocated to this study, as well as more human and financial resources.
This study, therefore, adopted a positivist approach and used only the quantitative method. Research criteria was determined a priori from secondary resources and challenges identified in literature. The positivist approach was able to achieve the objectives of this study, albeit at a slightly superficial level than would have been the case with the post-positivist approach.
13
Primary data was collected from SMMEs in Mahikeng, private support institutions and government departments and agencies. Secondary data was collected from literature, websites, newspaper articles, reports and other relevant information sources. This study utilized the survey method to collect data with the aid of a structured questionnaire. The survey method was chosen because Babbie (2011) explains that surveys are particularly useful when the researcher is unable to observe the entire population that is being studied because it is too large. The sample frame was compiled from various published sources and databases specifically for the purpose of this study.
The quantitative nature of this research makes questionnaires a suitable instrument for data collection (McGivern, 2013). Different sections in the questionnaire were designed to deal with the different facets of this study. The questionnaires were administered by the researcher and three field workers.
1.8.1 Reliability and validity
Of utmost importance in guaranteeing reliability and validity is the choice and compilation of the research instrument, which in this case was a questionnaire. Firstly, using the correct instrument maximises collection of useful and accurate data, therefore enhancing reliability. Secondly, proper compilation of the research instrument delivers data that answers research questions sufficiently, therefore enhancing validity (Saunders et al., 2016).
Validity was confirmed through a pilot study that assessed the effectiveness of the questionnaire to adequately answer the research questions and objectives before the commencement of the actual study. The pilot study was also used to search for concealed limitations of both the research and the researcher.
In order to achieve reliability during the research stage, data was triangulated through an iterative process of checking and re-checking. At each step, data that is deemed acceptable was passed to the next step, whereas unacceptable data was either referred to the previous step(s) or discarded.
14
1.8.2 Sampling techniques
The total number of SMMEs in Mahikeng form the population in which this study is interested and which the findings of this research represent. It is not possible to study all the members of the population because of the unavailability of a comprehensive list or database. In such instances, the rules of research make it possible to base the study on a “tangible list such as a phone directory” (Bradley, 2010:154). Such a list is called a sampling frame. This research also used SMMEs listed in the telephone directory complemented with various published sources and databases to determine a sample frame. The simple random sampling technique was used to select subjects to be studied from the list. Simple random sampling is a probability sampling method in which “the probability of being selected into the sample is equal for all members of the population” (Burns & Bush, 2010:370).
A search in the North West Province telephone directory and lists of SMMEs obtained from the Mahikeng Local Municipality, the Small Enterprise Development Agency (Seda) and the Department of Finance, Economic and Enterprise Development (FEED), yielded 511 SMMEs. Some of the names from the telephone directory and the lists were the same and therefore eliminated. The 511 SMMEs became the sampling frame from which a sample for this study was drawn. Reasons and techniques used to determine the sample size are elaborated further in section 4.8.
1.8.3 Data analysis
The significance of data analysis is to provide an understanding of what happened in a study, to make data meaningful to the researcher and others, to determine if the information from the data answers the research questions and, to ensure that results justify conclusions (Gravetter & Forzano, 2014:443).
There is an incontrovertible nexus between data analysis and the research instrument. A good research instrument not only safeguards reliability and validity but is also crucial to the selection of the appropriate data analysis technique. To make this a possibility, the research instrument was compiled with its effect on the data analysis stage in mind.
This study used multiple data analysis techniques at various and appropriate stages. The kind of technique used at any instance was determined by the kind of data being manipulated.
15
In turn, the data was the result of a data collection strategy and scale of measurement that answer a particular research question best. Therefore, where suitable, descriptive techniques were used to describe individual variables; correlations were used to measure and describe the degree of relationships; regressions were used to show where the data best fits; the chi-square and the Cronbach’s alpha were used where applicable.
1.9 Limitations
A longitudinal study would have been suitable for this research but time, financial and human resources allowed only for a cross-sectional study delimited to SMMEs in Mahikeng.
1.10 Ethical considerations
A history of abuse of research subjects in the past and misconduct led to the current strict observance of ethics in research (Rubin & Babbie, 2013:286). It has become common practice that universities and other research institutions demand that certain ethical standards be upheld during research. This research was conducted in accordance with the ethical guidelines proposed by various scholars and that of the North-West University (NWU). These guidelines indicate acceptable and unacceptable behaviour and include:
• Voluntary participation.
• The requirement of informed consent.
• Protection of participants from exposure to risk or harm. • The principle of anonymity.
• Guarantee of confidentiality.
• Information from resources will be duly acknowledged.
In addition, ethical clearance was sought from the NWU prior to the commencement of this study and a copy of it is exhibited as Annexure A. A more detailed discussion of how steps were taken to ensure that this study prescribes to the correct ethical standards is presented in section 4.12.
1.11 Chapter outline
This study is divided into six chapters and following is a brief account of every chapter. Every chapter commences with a graphical layout of the content of the chapter.
16
Chapter 1: Introduction and background
Chapter one identifies a gap in the literature which gave rise to a need for this study. It then isolates the problem and explains the significance of this study in addressing that problem. It also streamlines the objectives to provide focus to the research. An outline of the methods used as well as the ethical considerations are provided.
Chapter 2: Theoretical foundations of business and SMME management
In Chapter 2, theoretical foundations on which this study is based are explained. The theory of business and SMME management is used as a guideline to ensure that this study is conducted within a framework of sound principles. In the end, the study had to fit within its domain and reach conclusions that can be supported by the principles of this domain. A comprehensive overview of the requirements necessary for good management is provided, as well as the interaction between different roles and activities of management.
Chapter 3: Developmental support for SMMEs
This chapter reviews SMME literature in order to investigate how the challenge of SMME development is addressed around the world, including South Africa. It examines perspectives, approaches and roles adopted by different countries and stakeholders. The aim of this chapter is to learn from what has been (or is being) done, what has worked and/or what has not worked. It further explores the reasons behind some of the actions and outcomes.
Chapter 4: Method of research
Chapter 4 offers a detailed discussion and comparison of several research methods, with the aim of selecting the most appropriate method for conducting this research. This includes the different research approaches, data collection methods, research instruments, sampling techniques and data analysis methods.
Chapter 5: Research results
Comprehensive findings based on the statistical analysis of the collected data are discussed in Chapter 5. This is a formal interpretation of the data and it represents what the research has yielded. The discussion is presented in the form of tables, figures and narratives in order to ‘make sense’ of the information.
17
Chapter 6: Conclusions and recommendations
Chapter 6 presents conclusions that emanate from the findings to round off the research and provide the final perspective. It is a summary of the research results within the context of the entire study. This chapter ends the study by recommending possible areas for future research.
18
CHAPTER 2
THEORETICAL FOUNDATIONS OF BUSINESS AND SMME
MANAGEMENT
Theoretical foundations of business and SMME
management
The nature of business management
The role of management
The evolution of management theory Classical theories Behavioural approach Quantitative management Contemporary approaches Management skills Functional areas of management Tasks of management Planning Organising Leading Controlling Business environment
19
2.1 Introduction
Managing a business is an unending race which presents an assortment of challenges and involves a continual search for ways to overcome such challenges. The challenges managers face are not only about surmounting the obstacles found along the way but also about outsmarting competitors who also want to win the race.
Moreover, management is not about a personal victory for an individual but the ability to guide a group of individuals or teams towards a collective victory within the confines of available resources. It can thus be said, managing is about activating others and guiding them as a team through a maze of challenges to a successful end.
This chapter takes a closer look at various lessons managers can learn from, as well as the tools and techniques that can be used to enable managers to achieve anticipated goals. Firstly, this chapter will look at the reasons for this race by exploring business formation and the nature of business management. Secondly, an outline of the different schools of thought developed for dealing with the challenges of business management will be provided. This is followed by an explanation of the roles a manager is expected to play in a business and the skills required for the execution of these roles. The chapter then continues with a delineation of the functional areas of an organisation which require management, and the tasks managers must perform in order to successfully manage those functional areas, before dealing with the environment within which an organisation exists and its bearing on the organisation is examined. The chapter terminates with an analysis of the different management practices applicable to SMMEs.
2.2 The nature of business management
There are various forms of management, for example; education management, health management, sports management, economic management, environmental management and business management. All of these are informed by the same basic doctrines of management but differ in their orientation, in the same way that businesses differ in their goals and objectives. This study deals specifically with business management.
Business management falls within the realm of economics and it is guided by the principles of achieving the highest possible satisfaction of needs and accomplishing business objectives with scarce resources.
20
Human beings have different and unlimited needs for goods and services, whereas the amount of resources available to satisfy those needs is limited (Mohr, 2015; Strydom et al., 2015). While economics examines the entire economic system of a country, business management limits its focus to one component of the economic system, which is, the individual organisation (Erasmus et al., 2013). In the process of satisfying human needs, business management aims to maximize productivity in order to achieve the highest rate of return for the business in an effective and efficient way (Nel & de Beer, 2014). To achieve this, businesses require managers to guide them.
Business management, for the purpose of this study, is regarded as the process of working with and through other people to plan, organise, lead and control in order to provide goods and services to customers effectively and efficiently. The study of business management does not only examine the role of businesses in an economy but underscores the integral part of management in promoting that role.
There are also different forms of business management, for example corporate management, global management and SMME management. These three forms of management are similar in many ways and their definitions can be used to describe the size and capabilities of particular formations. SMME management basically deals with the management of small enterprises with less resources and capacity. While SMMEs are guided by the same management principles as large enterprises, the lack of resources presents SMME managers with unique challenges. For example, a large capital base enables big businesses to have access to a larger pool of human resources and by extension more brainpower to assist in growing the business. Financial power, among other benefits, gives big businesses a greater cushion in times of distress, entry to lucrative markets and the ability to undertake costly research and development.
In many cases, SMME owners manage a business alone or with the help of a few individuals and provide all the resources the business needs. This severely limits the business’ ability to develop and to compete successfully. Such a situation makes the role SMME managers play in the sustainability of their business even more significant.
(1) Definition of management
Different authors define management differently. Many of the definitions are within the context of the tasks of management namely, planning, organising, leading and controlling (Botha &
21
Musengi, 2012; Staude, 2012; Lazenby, 2015a). These authors define management in terms of what managers do. The other dominant definitions encompass (1) the efficient and effective achievement of organisational goals (Nel & de Beer, 2014; Strydom et al., 2015) and (2) getting things done through and with other people (Williams, 2015). For the purpose of this study, management is defined as:
The process of working with and through other people to plan, organise, lead and control in order to achieve organisational goals effectively and efficiently.
(2) What is a business?
Strydom et al. (2015:4) describe a business as “an organisation that provides goods and services to its customers in an economic system in which they operate”. Businesses are essentially organisations that are formed to make profit for their investors. To make this a reality, businesses provide resources; formulate goals, plans and strategies; set up operations; and hire employees to produce goods and services consumers need on a continual basis.
(3) What are SMMEs?
There is no universal definition of SMMEs as they are defined differently between and within countries (Botha & Musengi, 2012; Orobia et al., 2013; Spasskaya, 2013). The definitions are usually based on the descriptions of the business’ annual turnover, asset value or number of employees (Hashim, 2012; Mulaga, 2013; Rahman et al., 2013; Bureau of Economic Research, 2016). Botha and Musengi believe that the definitions are based on the differences in the requirements for funding, and the educational and advisory services of SMMEs. The National Small Business Act no.102 of 1996 contains the official definition of SMMEs in South Africa and according to this definition, which is also found in Nieman and Nieuwenhuizen (2014:11), in order for a small business to qualify in terms of its ownership structure, it must:
• be a separate and distinct business entity; • not be part of a group of companies,
• include any subsidiaries and branches when measuring the size; • be managed by its owners; and
• be a natural person, sole proprietorship, partnership or a legal person, such as a close corporation or company.
22
This study acknowledges that there is often no clear distinction between small and large business in terms of size, organisational structure and scale of operations. In spite of this, all the discussions of SMMEs found herein will be premised on the qualitative criteria indicated above. Furthermore, discussions will be focused on SMMEs with apparent dissimilarities with large businesses.
Table 2.1 gives an example of sector classifications according to four categories, as per the National Small Business Amendment Act no. 26 of 2003.
Table 2.1 SMME categorisation by sector Sector/subsector according
to standard industrial
classification Size of class
The total fulltime equivalent of paid employees
Total turnover
Total gross asset value (fixed property excluded) Agriculture Medium 100 R5m R5m Small 50 R3m R3m Very Small 10 R0.50m R0.50m Micro 5 R0.20m R0.10m
Mining and Quarrying Medium 200 R39m R23m Small 50 R10m R6m Very Small 20 R4m R2m Micro 5 R0.20m R0.10m Manufacturing Medium 200 R51m R19m Small 50 R13m R5m Very Small 20 R5m R2m Micro 5 R0.20m R0.10m
Electricity, Gas and Water Medium 200 R51m R19m Small 50 R13m R5m Very Small 20 R5.10m R1.90m Micro 5 R0.20m R0.10m Construction Medium 200 R26m R5m Small 50 R6m R1m Very Small 20 R3m R0.50m Micro 5 R0.20m R0.10m
Note: This table does not list all the sectors.
Source: The Banking Association South Africa (2016)
The table indicates that the description of SMMEs in South Africa differs according to sector. For example; a medium sector business in agriculture has between 50 and 100 employees, a total turnover of R5 million and a total gross asset value of R5 million, whereas its counterpart
23
in manufacturing has 51 to 200 employees, a maximum turnover of R51 million and a gross asset value of R9 million. It is important to note that the description of SMMEs shows categorisations within a single country and the different categorisations complicates classifying SMMEs entirely in one country. The table also shows how huge a gap between a medium enterprise and a micro enterprise can be, even though they are all collectively categorised as SMMEs.
It can be further argued that given the unequal distribution of wealth between provinces and urban and rural centres in South Africa, what might be regarded as a micro enterprise in wealthier areas of the country may be considered a medium or even large enterprise in not-so-affluent areas. Additionally, a medium enterprise in a third world country may be considered as micro in developed countries. Such differences demonstrate the impossibility of having a common description applicable on a world-wide scale.
A common denominator between all SMMEs is that they are grounded on the same economic motive and steered by similar business and management principles.
2.3 The role of management
Every business ought to have goals and objectives that form the basis of its existence. Every business uses valuable and scarce resources to achieve its goals and objectives. The role of management is to direct organisational resources towards the successful achievement of those goals and objectives. The absence of management may lead members of a business to engage in activities that may not be beneficial to the business (Erasmus et al., 2013). Managers are there to ensure that amongst others, the business maintains its focus, resources are used properly, and goals are achieved.
Henry Mintzberg undertook a study on the activities of managers and concluded that managers’ roles can be divided into three main categories, namely interpersonal roles, information roles and decision-making roles (Botha & Musengi, 2012; Staude, 2012). These categories are made up of ten different sub-roles as depicted in Figure 2.1.
A management role is described by Strydom et al. (2015:55) as “a set of specific tasks or behaviours that a person is expected to perform because of the position he or she holds in an organisation”.
24
Figure 2.1 Overlapping role-distribution of managers
Source: Smit et al. (2015)
Managers’ interpersonal role represents the business, guides others and builds constructive relationships.
In the decision-making role, managers are required to identify what constitutes opportunities or threats and how to tackle them; resolve conflict amongst employees and disputes among customers and suppliers; decide which customer or supplier to pursue; allocate resources and tasks; and negotiate with suppliers and employees on behalf of the business.
In the informational role, managers scan the environment to monitor trends and to communicate those trends to employees; analyse information; act as a link between the organisation and the environment; and present the business’ perspective to the outside world. Clearly, managers often perform duties that do not appear on their job descriptions. The roles of managers highlight what managers do by virtue of what is expected of them (Botha & Musengi, 2012). For example, it is expected of a manager in times of conflict to be the one who rises above the situation and becomes a relationship builder. It is expected of a manager to be the entrepreneur who can identify new trends and windows of opportunity ahead of others. It is expected of a manager to be a spokesperson who is able to give answers even to unfamiliar questions.
Questions arise concerning the application of these roles in an SMME setup. For instance, an SMME manager may lack the gumption to negotiate with trade unions, but may have the
Information role Monitor Analyser Spokesperson Decision-making role Entrepreneur Problem solver Allocator Negotiator Interpersonal role Figurehead Leader Relationship builder
25
unique closeness with employees because of the smaller teams they usually manage. This proximity may provide opportunities for open and frequent communication that a manager in a larger organisation may not have. The frequency of interaction between an SMME manager and employees may also enhance the ease of gathering information about social trends from a team. Moreover, regular contact may improve the decision-making role by allowing a manager to ‘catch wind’ of conflict as soon as it emerges, consequently affording the chance to handle it promptly. The lack of clarity regarding the applicability of the roles of management to SMMEs indicate gaps in the literature in terms of particularizing those roles to SMME managers. Evident peculiarities of the SMME environment dissuade from simply generalising those roles to SMME managers as they are.
Nevertheless, the knowledge of management roles should serve to enlighten both big business and SMME managers that in order to make good decisions, they need an insight of management principles which include theories that form the foundation of business management. Managing a business is a complicated activity and over time managers have sought to find what they thought would be the most effective way of managing. This gave rise to different schools of thought that continue to influence the development of the theory of management.
2.4 The evolution of management theory
The existence of management can be traced back as far as 5 000 BC (De Beer & Rossouw, 2015). A business transaction in the beginning of time involved bartering, which was an exchange of goods between two individuals. It then progressed to basic markets which involved trading in one or a few products.
As time went by, the need for goods and services grew rapidly and the domain of business became more and more complex. As a result, it became difficult for business owners to manage their businesses. This gave rise to the need to employ more qualified and experienced business managers. These managers were also met with difficulties as business became even more complex. This prompted owners and managers to look for ways to solve problems encountered and ultimately leading to the birth of different management theories aimed at solving management problems. A comprehensive account of management theories is provided in Annexure B to provide an overall, detailed picture of the different theories and to allow for easier comparison.
26
Management theories lay the foundation on which management can base their plans and decisions. These theories enable managers to become aware of various alternatives that can help them to manage their businesses more effectively. Thus, managers are now able to make calculated choices and decisions. According to Cameron (2011:128), the term ‘management theory’ encompasses “any description, checklist, prescription for good practice, framework, model or predictive theory in any area related to management or managing provided it is derived from some sort of observations or other data”. An understanding of the different theories makes managers aware that the business environment is dynamic and it poses continuous challenges. Managers are able to realise that what is presently working may not necessarily work in the future, and also to be aware that the prevailing environment influences management issues of the time.
The Industrial Revolution gave birth to mass production, the building of factories, the need for more workers and the requirement for effective management. Unlike managers of that time, who had to devise solutions to problems they encountered, sometimes through trial and error, managers nowadays have foundational theories on which to base their decisions. Managers who do not learn about these theories will have to rely only on their limited knowledge and experience when deciding on a course of action. It is advisable for managers to be familiar with the different management approaches as this will enable them to be better prepared in the face of challenges (Benedict, 2015; Lazenby, 2015).
The theories of management are divided into classical (traditional) and contemporary approaches (Brevis & Vrba, 2014; Benedict, 2015). While new theories come into being over a period of time, none that existed before has become obsolete. Classical theories are still relevant and useful. None of the theories can be judged to be better than the rest in all respects, but all of them can be relevant and useful at certain points in time. Following is a delineation of the theories of management.
2.4.1 Classical theories
Classical theories were developed from the late nineteenth century to the 1920s. Some developed simultaneously, while others were developed as a response to counter or complement others (Botha & Musengi, 2012; Smit et al., 2013). There are three classical theories and a synopsis of these now follows.
