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Business Management 3

BM303

Strategic Management

STRM

Revised: November 2013

IMM GSM Learner Guide Business Management 3/Strategic Management BM303/STRM of 109

Table of contents

SECTION A

1. Welcome to Business Management 3

2. A word from alumni 3

3. A brief summary of this module 3

4. Relationship with other modules 4

5. How to use this guide 5

6. Prescribed learning material 6

7. Additional support 6

8. Assessment 6

9. National Qualifications Framework specifications 8

10. Critical cross-field outcomes 8

11. Curriculum 9

12. A summary of Business Management 10

SECTION B

STUDY UNIT 1: Introduction to strategic management 11

STUDY UNIT 2: Strategic direction to strategic management 17

STUDY UNIT 3: Strategic formulation 46

STUDY UNIT 4: The drivers of strategic implementation 69

STUDY UNIT 5: Contemporary strategic applications 94

BIBLIOGRAPHY & LIST OF REFERENCES 103

GLOSSARY 104


SECTION A

1. Welcome to Business Management

Today's business environment is competitive, demanding,

and ever changing. If your career goal is the strategic management — of people, projects, or

policies — this module will be an asset. The program is designed to give you the strategic skills

that employers value across industries: critical thinking, communication, teamwork, management,

and strategic principles. This module provides leading edge management education that you can

apply to any business environment. Maybe your goal is a career in the challenging field of finance.

Maybe you are focused on the fast-paced world of marketing. Alternatively, you want to start your

own business. With this program, you will be able to take your career in any direction you want.

2. A word from alumni- Siham Latif, IMM Graduate

“When I first started the subject Business Management 3, I wasn't sure

what to expect, I knew I was interested in learning more about the

business management side of marketing but I wasn't exactly sure what I

would be learning. In the beginning everything seemed plain and simple,

but as it moved along, it became more complex and intricate. Many

things left me confused yet enthralled and eager to learn more, I took

everything in my stride, pushing myself to do more research and to

inquire about topics I didn't understand clearly which has led to a

promising distinction. Both the textbook and learner guide are so beneficial that I find myself

returning to refresh my memory regarding certain aspects which relate to my job.”

Siham Latif, IMM Graduate

3. A brief summary of this module

This module serves as an introduction to strategic management, strategic direction, environmental

analysis, strategy formulation and implementation, contemporary strategic applications and

provides an overall direction to the enterprise. In short, it entails specifying the organisation’s

objectives, developing policies and plans designed to achieve these objectives, and then

allocating resources to implement the plans. Business management is a practical discipline,

requiring both hard and soft skills: It is both an art and a science. The course aims to instil in


students a healthy sense of respect for and understanding of, all aspects of modern business

management and to make them confident users of management tools and techniques.

4. Relationship with other modules

Business Management is a core module - one of the 19 modules

of the Bachelor of Business Administration (BBA) in Marketing

Management and the Bachelor of Commerce (BCOM) in

Marketing and Management Sciences. It is a third year (under-

graduate) module at NQF Level 7 and carries 20 credits. The

BBA and BCOM in Marketing and Management Science

combines the management and marketing function with associated support functions such as

business communications, business statistics, economics, financial management, distribution,

logistics, operations management and project management with a strong focus on business

research. These qualifications aim at fulfilling a management role in the industry and therefore

have a strong business focus. They will provide you with specialised marketing and management

knowledge as well as the skills to apply that knowledge in order to further your career through

academic studies. Your studies will focus on the following:

the strategic management process;

strategic direction;

corporate governance and strategy;

internal environmental analysis;

external environmental analysis;

strategy formulation: long-term goals and generic and functional strategies;

aligning strategy with the industry life cycle;

strategic analysis and choice;

strategy implementation and change management;

the drivers of strategy implementation;

continuous improvement through strategic control and evaluation;

strategic management in not-for-profit organisations; and

strategic management concepts in the global marketplace.


What are your career opportunities in business management?

The career options with a business/management major are certainly varied, almost limitless.

Whether you want to explore your entrepreneurial side and start your own business, or just be a

part of one, business management is the right course for you. Careers in business management

offer some of the most broad-based set of job opportunities. Business management includes jobs

that direct business operations, functions, and finance. Most careers in this career group involve

evaluating, managing, and directing operations in order to achieve greater efficiency and yield

productive operations. Jobs in business management include any management level job that has

its core discipline in managing people, operations, and financial record keeping. Jobs include any

business management position, from a line manager or business consultant, to a CEO or a VP of

operations. These jobs are cross disciplines and industry, meaning that their function can be

brought to other industries easily.

5. How to use this guide

This learner guide is especially designed for students studying at a distance. It provides an

overview of the total curriculum, the major topics and the learning outcomes. The guide also

indicates how the learning material must be prepared for examination. At the end of each study

unit, typical examples of examination questions are given. However, the guide must be studied in

conjunction with the prescribed textbook and does not replace it.

In using the following learner guide, you will need to make use of the below keys to understand

the meaning behind the icons

Additional reading Key concepts

Learning outcomes Revision Exercise

Revision Questions


6. Prescribed learning material

You need to make use of the following prescribed material throughout your studies of this module:

Prescribed textbook: Your prescribed textbook for this module is Ehlers, T

and Lazenby, K. Strategic Management: Southern African Concepts and Cases.

3rd Edition. Van Schaik. 2010

Prescribed IMM learner guide for BM303 dated November 2013.

7. Additional support

Please make use of all materials (additional resources, tutorial letters) available to you on the IMM

Website and the student portal - these materials are critical in providing you with the necessary

support as a distance-learning student to unpack all the additional resources available to you.

8. Assessment

Assessments comprise of both the assignments and examinations for this module. Please make

sure that you thoroughly read the IMM GSM Yearbook under the assessment section for a

complete understanding of the rules and regulations when it comes to assignments and

exams.Your assessment for this module consists of submitting an assignment and writing

an exam.

Assignment

The assignment constitutes 20% of your mark. Although it may seem like a small

percentage, when calculating your final mark, the assignment mark may be the

difference between a pass, fail, and even a distinction.

You need to familiarise yourself with the Year Book as this gives you important guidelines as to

font, styles, formatting and referencing requirements for submitting your assignment. Your

assignment will have 10 marks allocated to presentation; these 10 marks will be awarded to how

successfully you adhered to the assignment formatting requirements.

Yet again, it is an easy way to get 10 marks and these marks in the end could be extremely

valuable. Therefore, I urge you to comply with the assignment guidelines.

An assignment is an open book format;

therefore, you will not receive marks for


regurgitating what is said in the textbook, it is all about the markers seeing your understanding of

the question at hand. It is therefore imperative that you make use of your own words. The IMM

GSM takes copying out the textbook WITHOUT referencing very seriously, this is known as

plagiarism (see Year Book) and you will be held accountable for disciplinary action if you fail to

reference your sources. The assignment generally consists of a few essay type questions and is

usually based on a short case study.

Examination

The exam incorporates all content that is covered in the referred pages of

the textbook and learner guide. This mark makes up the other 80% of your

final mark for this module.

The final mark/semester mark can be calculated as follows:

Exam mark= 75% Assignment Mark = 65%

75 x 0.8 (as it contributes 80% towards your final mark) = 60

65 x 0.2 (as it contributes 20% towards your final mark) = 13

Therefore your final mark would be 60 + 13 = 73%

The grading system of your marks is as follows

75% or more = Pass with a distinction

50% - 74% = Pass

0% - 49% = Fail


9. National Qualifications Framework specifications

This module is a compulsory module for the BBA in Marketing Management and the B Com in

Marketing and Management Science. In terms of the new National Qualifications Framework

(NQF) it is designed as a 20-credit module offered on NQF level 7.

10. Critical cross-field outcomes

The critical cross-field outcomes, also known as transferable skills as

identified by the South African Qualifications Authority (SAQA), are

essential for your development as a student within the education and

training system, regardless of the specific area of learning. It is these outcomes that are deemed

critical for your development in the capacity of life-long learning

The critical cross-field outcomes adopted by SAQA are as follows:

Identify and solve problems in which responses display that responsible decisions using

critical and creative thinking have been made.

Work effectively with others as a member of a team, group, organisation and community.

Organise and manage oneself and ones activities responsibility and effectively.

Collect, analyse, organise and critically evaluate information

Communicate effectively using visual, mathematical and/or/language skills in the modes of

oral and/or written presentation

Use science and technology effectively and critically, showing responsibility towards the

environment and health of others

Demonstrate an understanding of the world as a set of related systems by realising that

problem solving contexts do not exist in isolation

Reflecting on and exploring a variety of strategies to learn more effectively

Participating as responsible citizens in the life of local, national and global communities

Being culturally and aesthetically sensitive across a range of social contexts

Exploring education and career opportunities

Developing entrepreneurial opportunities


11. Curriculum

The curriculum for this module is summarised in the below table.

Unit Description Learning Outcomes

1 Introduction to

Strategic

Management

Understand the definition and explanation of strategic

management.

Identify the people involved in strategic management and explain

what strategy planning champions are.

Differentiate between qualitative and quantitative decisions.

Understand the strategic management process as well as strategic

visualisation.

Recognise the functional aspects (benefits) of strategic

management.

Recognise the dysfunctional aspects (risks) of strategic

management.

Understand all the strategic issues and concepts leading us into

the future.

Perceive how strategic management could benefit not-for-profit

and global organisations.

2 Strategic Direction

and Environmental

Analysis

Understand, explain and apply issues such as corporate

citizenship, corporate governance, mission formulation and the

importance of performing an external and internal environmental

analysis.

3 Strategy Formulation Understand, explain and apply issues such as long-term goals,

competitive, corporate and functional strategies, and strategy

analysis and choice.

4 Strategy

Implementation

Understand, explain and apply strategy implementation, strategic

control and evaluation, including change management, and the

different drivers and instruments for strategy implementation.

5 Contemporary

Strategic Applications

Understand and explain two contemporary strategic applications,

namely strategic management in not-for-profit organisations and

strategic management in the global marketplace.


12. A summary of Business Management

In a world where competition is harsh and no mercy is given to anyone in the business environment,

organisations have to plan and prepare themselves for any unforeseen circumstances. The world in

which we live has changed so radically in the past few decades that the factors and competencies that

made an organisation successful in the past do not guarantee success in the future. On the contrary,

they might even lead to its downfall. The new competitive landscape, characterised by the significant

and discontinuous change that started emerging in the 1990s altered the rules of engagement

drastically. The impact and spread of the World Wide Web and the Internet, as well as ecological

sensitivities and the emergence of non-governmental organisations such as the Green Movement,

were just some of the new dimensions of the competitive landscape that altered these rules. This has

led to the statement that "strategists must start with a new mindset" because these disruptive changes

in the new competitive landscape continue to challenge the traditional strategic planning processes.

Managers should realise that they can influence the competitive landscape. They should not just

focus on positioning the company in a given industry space, they should rather influence, shape,

and create the industries they want to be part of.


SECTION B

Study Unit 1: Introduction to strategic management

Section 1: The strategic

management process

In this Section, we will be looking at strategic management and the importance of

implementing it into an organisation. A method of how a strategy should be implemented

is also described together with the benefits and risks an organisation can realise form

effective strategic management.

“The essence of strategy is

choosing what not to do.”

Michael Porter, is a leading authority on company strategy and the competitiveness of

nations and regions


STUDY UNIT I: INTRODUCTION TO STRATEGIC

MANAGEMENT: THE STRATEGIC MANAGEMENT PROCESS

Learning Outcomes

After completing this Section you should be able to:

Understand the definition and explanation of strategic management

Identify the people involved in strategic management and explain what strategy planning

champions are

Differentiate between qualitative and quantitative decisions

Understand the strategic management process as well as strategic visualisation

Recognise the functional aspects (benefits) of strategic management

Recognise the dysfunctional aspects (risks) of strategic management

Understand all the strategic issues and concepts leading us into the future

Perceive how strategic management could benefit not-for-profit and global organisations

1.1 INTRODUCTION

Strategic management can be defined as the process whereby all an organisations functions and

resources are coordinated, in order to achieve long term goals and thereby gaining a competitive

advantage. This needs to be monitored and managed over the years as competition,

organisations and the business environment change.

It is important to realise that an organisations management can influence the competitive

landscape to better fit the organisation. Management should encourage innovation instead of

trying to improve what is already there.

There are four transformations influencing a business model. These are:

Expansion of available strategic space

Globalisation

Speed is always a critical factor

Innovation is a source of competitive advantage


Additional reading

Visit the http://www.worldwideworx.com/broadband-and-experience-the-keys-to-online-retail/ to have a better understanding of the success of Kulula.

1.2 WHAT IS STRATEGIC MANAGEMENT?

According to the introduction on the previous page, we can realise that the importance of strategic

management is about the following:

Long term strategy and goals

Integrating all aspects of the organisation

Gaining a competitive advantage

Formulating strategies that facilitate the factors above

Views on strategy

Stakeholders should understand that the traditional strategies have changed over the year. It is

therefore important to focus on the new immerging and customised strategies instead of using

outdated strategies. This strategy is not simply a plan but would develop purpose and identity for

an entire organisation.

People involved

In any organisation, the human resources are the most important factor, driving the organisation.

The same goes for developing and managing a strategy. Without people, in this case the right

people, a successful strategy and strategic management will not be possible.

According to Nordqvist and Melin (2008), a strategic planning champion (SPC) is a strategy

practitioner who can guide the strategic processes of an organisation. A SPC should possess the

following aspects.

Social craftsperson who brings different stakeholders expectation together

A person who understand that each organisation is unique and needs an unique strategy

Needs to be neutral

http://www.worldwideworx.com/broadband-and-experience-the-keys-to-online-retail/


Qualitative and Quantitative decision

Strategic management involves both qualitative and quantitative decision for analysis and

assessment. The idea will be to made, qualitative and quantitative, decisions together in order to

build and manage a proper strategy.

Quantitative decisions are built on proper strategic analysis and choices

Qualitative decisions is based on perception of the strategic manager

1.3 THE STRATEGIC MANAGEMENT PROCESS

There are five stages in developing a strategic management process.

Stage 1: Strategic visualisation

Visualisation techniques should be used to improve an organisations strategic management

process. Visualisation is the graphical representation of strategic content necessary in the

strategic process.

Stage 2: Organisational direction and environmental analysis

A common and established method of understanding and familiarising an organisation with its

strategy is by using a vision and mission statements. Together with this, organisations should use

an environmental analysis, also known as a SWOT analysis, to recognise the Strengths,

Weaknesses, Opportunities and Threats of an organisation. Strengths and Weaknesses are

internal and under the control of an organisation. Opportunities and Threats, in turn, are external

to the organisation and cannot be controlled by the organisation.

Stage 3: Strategic formulation

In the third step, the organisation needs to develop long term goals and ways of achieving these

goals. In addition to developing an organisational strategy, an organisation should also focus on

generic and ‘grand’ strategies.

Market Environ

ment Macro Environ

ment

Micro Environ

ment


Stage 4: Strategic implementation

The strategy that has been developed to suit the needs of the specific organisation needs to be

implemented. By using driving forces, an organisation can achieve the goals and missions that

have been set.

Stage 5: Application

A strategic management process applies to all types of organisation including non-profit and

global organisation. Managers should realise that it should not only be used in large organisations

but in all organisations, regardless of the size.

1.4 FUNCTIONAL ASPECTS (BENEFITS) OF STRATEGIC MANAGEMENT

Benefits of strategic management may differ in terms of whom and what is influenced by the

strategy as well as in which stage, of the strategic management process, an organisation finds it

strategy. These eight benefits of strategic management needs to understood.

1.5 DYSFUNCTIONAL ASPECTS (RISKS) OF STRATEGIC MANAGEMENT

Many organisations do not believe in strategic management due to risks involved. The possible

damage that could be cause due to risks should be identified, considered and prevented. These

eight risks of strategic management need to be understood.

On page 15 of the pre-described textbook, the hierarchy of strategic implementation shows which

employees are responsible for the strategic formulation and implementation.

1.6 STRATEGIC ISSUES AND CONCEPTS LEADING US INTO THE FUTURE

Ethics and strategy

A lot of organisations are beginning to operate more ethically in the 21st century due to the

increasing awareness of ethics. Ethics, therefore also influences an organisations strategy as

these are linked.

Stakeholder management

Stakeholder management plays a vital role in ensuring the continuation and growth of

organisations. The future also moves towards developing long term relationships with customers


instead of trying to make once off transactions. In doing this, the focus has been shifted to

creating mutually beneficial benefits.

Stakeholders include, but are not limited to, customers, employees, investors, shareholders,

partners, suppliers, the public etc. These stakeholders are found in the micro environment of an

organisation.

Innovation economy and knowledge

The following are four very important concepts which all managers need to be able to define and

understand.

Knowledge management

Innovation management

Knowledge innovation

Change management

1.7 CONCLUSION

In this Section, an overview of strategic management, the strategic management process and its

steps involved are explained. The importance of people in the strategic management process is

demonstrated. It is important to visualise a strategy in order to know where an organisation wants

to see itself in the future. The benefits and risks of strategic management should also be

considered. It is very important for managers to understand that strategic management is for all

organisations including global and non-profit organisations, big and small.

Revision Exercise

Read the SAB case study at the end of Chapter 1 in your prescribed textbook and answer the following questions:

How could SAB benefit from following strategic management process?

What are the risks that SAB may face when following a strategic management process?

What contemporary special application of strategic management could be applicable to Sab and why do you say that?

Explain the important strategic concepts and issues that would lead SAB into the future?


Study Unit 2: Strategic

direction and environmental

analysis

Section1: Strategic direction

The strategic direction of an organisation is determined by its strategic leaders. An

organisation should be steered in the direction the shareholders would like to see it

moving in.

“The thing is, continuity of strategic

direction and continuous

improvement in how you do things

which are absolutely consistent

with each other. In fact, they're

mutually reinforcing”


nations and regions


STUDY UNIT 2: STRATEGIC DIRECTION AND

SECTION 1: ENVIRONMENTAL ANALYSIS: STRATEGIC

DIRECTION

Learning Outcomes


Distinguish between the great leader view and the great groups views of strategy

Know the components of strategic leadership

Discuss the six leadership tasks that are emerging as priority

Understand and apply strategic intelligence

Know how to set strategic direction, which is the first step in the strategic management

process

Understand and discuss the vision statement, the strategic intent and the mission

statement as ways to set strategic direction

2.1 INTRODUCTION

Strategic leadership is needed for successful competition and in this Section we will discuss the

difference between the great leader and the great groups view of strategy. We will also look at the

components of strategic leadership, the six leadership tasks and understand and apply strategic

intelligence.

2.2 STRATEGIC LEADERSHIP

According to Ireland and Hitt (1999) strategic management is the ability to anticipate and maintain

flexibility as well as thinking strategically in order to work with others to facilitate change which will

create value in the future of an organisation.

The main elements of strategic thinking are:

Flexibility

Strategic thinking

Innovative thinking


Strategic leadership started in the 1960’s & 1970’s from which two different viewpoints emerged.

Great leader view

Great groups view

There are different components of strategic leadership which an organisation should incorporate

in order to facilitate effective strategic leadership.

Organisational vision and mission

Maintaining core competencies

Developing human capital

An effective organisational culture

Emphasising ethical practices

Balanced organisational control

Revision Question 1

Explain the two views of strategic leadership.

Abell (2006) identified six leadership tasks of leadership which are emerging as priority in terms of

strategic leadership.

The short and long terms of strategy

Vision, mission and a distinctive profile

Replacing the ‘resource-based’ strategy

Strategy as alignment between internal and external environments

Competing through business systems

Decentralisation of strategy-making and leadership

By identifying these components and implementing these tasks, the organisation can move

towards strategic leadership and ultimately strategic intelligence. Strategic intelligence is the

ability to develop strategies in order to address future impact on the organisation (Service, 2006).


Additional reading

Study table 2.1 in Chapter 2 of your prescribed textbook to understand the different traits

associated with strategic intelligence.

2.3 SETTING STRATEGIC DIRECTION: VISION, STRATEGIC INTENT AND

MISSION

The first step which is necessary to take towards an organisational strategic direction, is selecting

a strategy that fits the organisation. The strategy should be selected to fit the organisation which

will determine the strategic direction. This is the first step in the strategic management process.

The two main tools used for setting a strategic direction are the mission and vision statements.

These statements are critical to the direction of the organisation and should be shared with all

stakeholders.

Additional reading

Read ‘Strategy in Action’ 2.1 in Chapter 2 of your prescribed textbook for research on vision and

mission.

Read ‘Strategy in Action’ 2.2 in Chapter 2 of your prescribed textbook about the example of

Massmart.

Vision

The first step toward a strategic formulation is

an organisations vision. A strategic vision can

be seen as an organisations dream of what it would

be in the future. The question, “What do

we want to be in 10 years’ time?” or “What do

we want to achieve in 10 years’ time?” could

be used to gain a better understanding of the

organisations vision.


Nedbank’s vision statement is, “to become Southern Africa’s most highly rated and respected

bank by our staff, clients, shareholders, regulators and communities.” This statement shows

Nedbank’s aspiration of being highly rated and respected.

In terms of the organisations vision statement, there are some considerations that need to be

taken into account which will ensure value in the formulation of a vision statement.

All managers should contribute in the creation of a vision

The vision should be achievable

The vision should be redeveloped as the organisation and environments change

A vision statement is important in the sense that it provides a general view towards the

organisations future. The following are other purposes or functions of a vision statement.

Provide a way for managers to integrate goals

Provide focus and direction

Forms a foundation of mission

Serves as a motivational tool

Additional reading

Read ‘Strategy in Action’s 2.3, 2.4 & 2.5 in Chapter 2 of the prescribed textbook

Mission

A mission statement deals with what the organisation is about and how to achieve the vision. The

mission statement consists of various components which will address the interests of the

organisations’ stakeholders.

Product/service

Market

Technology

Survival

Growth

Profitability

Philosophy

Public image


Self-concept

Quality

Customers

When formulating a mission statement, there are important factors that should be taken into

consideration. The following are some of the most important factors.

As many managers should be involved to ensure a variety of views

Should create emotional bond between the organisation and its employees

The mission should be shared with internal and external stakeholders

Additional reading

Read ‘Strategy in Action’s 2.6 and 2.8 in Chapter 2 of the prescribed textbook

2.4 VISION, STRATEGIC INTENT AND MISSION

Some organisations choose to only use one statement which contains aspects of both the mission

and vision statements. Although the strategic intent is a lot different to a universal statement, it

also contains elements of both statements. The strategic intent is focused on the goal and

purpose of the organisation and its leaders.

Revision Question 2

Explain the difference between:

Strategic intelligence

Vision statement

Strategic intent

Mission statement


Revision Question 3

Explain the components of the mission statement.

Additional reading

Read ‘Strategy in Action’ 2.9 in Chapter 2 of the prescribed textbook for the strategic intent of

Neotel.

2.5 CONCLUSION

After studying this Section you would be able to set a strategic direction and understand the vision

statement, the strategic intent and the mission statement as ways to set strategic direction. You

would know the difference between the great leader view and the great groups view, knowing that

leadership plays an important role to successful competition.

Revision Exercise

Read the Case Studies at the end of Chapter 2 in your prescribed textbook and answer the

following questions:

Apply the components of strategic leadership to the various companies being depicted in these

case studies.




analysis

Section 2: Corporate

governance and strategy An organisations strategy should be integrated with its corporate governance. This is

important as these two parts cannot move in their own direction as it will tear the

organisation.

“It is clear that good corporate

governance makes good sense.

The name of the game for a

company in the 21st Century will

be conform while it performs”

Mervyn King, a South African corporate attorney, arbitrator, mediator, corporate director,

commission chair, author and speaker



ENVIRONMENTAL ANALYSIS: CORPORATE GOVERNANCE

AND STRATEGY

Learning Outcomes


Define the terms “responsible leadership”, “sustainable” and “corporate citizenship”

Define “corporate governance”

Explain how corporate governance relates to corporate citizenship, sustainable and

responsible leadership

Explain what the agency problem is and how it relates to corporate governance

Understand the difference in focus between early corporate governance theory and the

current focus in corporate governance

Understand the link between corporate governance and strategy

Understand the link between ethics and corporate governance

Explain the initiatives taken in South Africa to ensure good corporate governance in

organisations

Explain the principles of good corporate governance as set out in the King Reports on

corporate governance

3.1 INTRODUCTION

In this Section we will define the terms responsible leadership, sustainability, corporate citizenship

and corporate governance. The way in which corporate governance relates to corporate

citizenship, sustainability and responsible leadership should be understood as per part of a

manager’s approach to give organisational direction.

3.2 RESPONSIBLE LEADERSHIP

Responsible leadership is about organisations being responsible towards its stakeholders in order

to ensure sustainable success for the future. The reason why organisations should take this

responsibility is because the organisation will take ownership of the following factors.


Economic

Social

Environmental

There are two organisational responsibility movements which are mainly referred to, namely:

Corporate Social Responsibility (CSR)

CSR is about doing what is right and fair in order to

avoiding harm anything or anyone. The following

are concepts which are related to CSR which are

also important to understand.

Corporate citizenship

Social accountability

CSR also focuses on helping underdeveloped communities by building clinics as an example.

Corporate sustainability

Corporate sustainability provides support for an organisational sustainable development, long-

term performance, sustainability and survival. This is also needed for the protection, support and

enhancing human and natural resources which are important for future.

Most mining organisations like BHP Billiton and Anglo American has strong focus on corporate

sustainability as these giants play a major role in aspects by using a triple bottom line approach.

The aspects that are influenced by corporate sustainability are:

Economic impact

Social impact

Environment impact

Additional reading

Read ‘Strategy in Action’ 3.1 in chapter 3 of your prescribed textbook on different company terms


Revision Question 4

Explain what corporate citizenship encompasses.

Revision Question 5

Explain what social accountability encompasses.

3.3 WHAT IS CORPORATE GOVERNANCE?

Corporate governance provides a structure for managing responsible organisations which strive in

performing in the triple bottom line. It strives in aligning goals of individuals, organisations and

societies. Corporate governance work on the following three principles:

Responsible leadership

Sustainability

Corporate citizenship

One common problem that might arise in terms of corporative governance is due to the

management of the organisation. The agency problem arises due to the separation of ownership

in terms of capital needed to fund an organisation. Management separates ownership and control

of an organisation as they run the funds invested by shareholders. For this reason, managers act

as agents between the shareholder and the organisation, who should make decisions in the best

interests of the owners.

The agency problem arises because managers do not always work towards the interest of gaining

the highest profit. A simple example is employees who demand higher salary increase which is

not acting

Figure 3.1 in the prescribed textbook illustrates the major parties involved in corporative

governance. It is important to realise that it critical in the strategic management process areas.


Strategy formulation

Implementation

Control and evaluation

Another leg of corporate governance the importance of organisations operating based on ethical

values. In other words, it is focused on acting in a way that is morally right. Jennings (2006)

developed seven signs of ethical collapse, which managers should be aware of when considering

ethical operation.

Sign 1: Pressure to meet financial objectives

Sign 2: Employees know about ethical problems but kept quite

Sign 3: CEO’s given iconic status in media

Sign 4: An organisations’ board is weak and incompetent

Sign 5: Have atmosphere of nepotism and ‘back-scratching’

Sign 6: Overconfidence

Sign 7: Social responsibility being the only measure of goodness

Additional reading

Read ‘Strategy in Action’ 3.2 in chapter 3 of your prescribed textbook for most recent example

where organisations fail to act ethically

3.4 CORPORATE GOVERNANCE IN SOUTH AFRICA

In this part, we have a look at corporate governance in terms of the local (South African) context.

Organisations are exposed to a rapid change in different environments affecting the organisation.

Corporate governance also impacts the economic stability and growth of a country and

organisations.

Corporate governance includes governance codes that show principles and practices that

organisations can follow. 56 countries, including South Africa, opted for a code of principles and


practices that forces organisations to ‘comply or explain’. This corporate governance report has

19 recommendations, or best practices, which was established for this reason.

The King report states these corporate governance guidelines. Together with the King report,

South Africa also incorporated an environmental protection rights.

King I report

This first King report was published in 1994. It addressed the fundamental principles of good

financial, social, ethical and environmental practices. This focused specifically on financial and

ethical aspects.

Revision Question 6

Explain why the King 1 Report of 1994 is important.

King II report

The King II report was published in 2002 which incorporated recommendations on the code of

corporate practice and conduct. The King II report identified the following seven characteristics.

Discipline

Transparency

Independence

Accountability

Responsibility

Fairness

Social responsibility

Revision Question 7

Discuss the recommendations on several key issues in the Kind II report.


King III report

A draft of the King III report was circulated in 2009 as it became necessary due to the anticipated

new companies act and changes in international trend. The following are key points emphasised

in the King III.

Risk-based approach instead of pure legal approach

Integrated reporting

Explanation of financial crisis

Sustainability, ethics and new risk areas

Executive remuneration

Internal audit have a role in assessing control

Revision Question 8

Explain the key points of the draft Kind III Report.

Additional reading

Examine table 3.2 in chapter 3 of your prescribed textbook which explains the responsibility of the

board of directors in term of the King report.

3.5 CONCLUSION

By understanding the terms discussed in this section you would be able to know how corporate

governance relates to corporate citizenship, sustainability and responsible leadership. You would

also understand the difference between early corporate governance theory, the current focus in

corporate governance, the link between corporate governance and strategy and the link between

ethics and corporate governance.


Revision Exercise

Read the Case Study at the end of Chapter 3 in your prescribed textbook and answer the

following questions:

In what areas of the strategic management process of Sasol is corporate governance critical?

Explain why.

Revision Exercise

Visit www.dell.com/leadership and read the sections dedicated to Dell’s board of directors

and corporate governance. Is there evidence of effective governance at Dell in regard to:

Accurate financial reports and controls

A critical appraisal of strategic action plans

Evaluation of the strategic leadership skills of the CEO, and

Executive compensation

Revision Exercise

In the context of the case study on business ethics below, discuss the most common forms of

unethical behaviour found in business organisations. What can be done to eradicate such

behaviour from business practices?

http://www.dell.com/leadership


CASE STUDY: BUSINESS ETHICS – James Fieser

When business people speak about “business ethics” they usually mean one of three things: (1)

avoid breaking the criminal law in one’s work-related activity; (2) avoid action that may result in

civil law suits against the company; and (3) avoid actions that are bad for the company image.

Businesses are especially concerned with these three things since they involve loss of money and

company reputation. In theory, a business could address these three concerns by assigning

corporate attorneys and public relations experts to escort employees on their daily activities.

Anytime an employee might stray from the straight and narrow path of acceptable conduct, the

experts would guide him back. Obviously this solution would be a financial disaster if carried out in

practice since it would cost a business more in attorney and public relations fees than they would

save from proper employee conduct. Perhaps reluctantly, businesses turn to philosophers to

instruct employees on becoming “moral.” For over 2,000 years philosophers have systematically

addressed the issue of right and wrong conduct. Presumably, then, philosophers can teach

employees a basic understanding of morality will keep them out of trouble. However, it is not likely

that philosophers can teach anyone to be ethical. The job of teaching morality rests squarely on

the shoulders of parents and one’s early social environment. By the time philosophers enter the

picture, it is too late to change the moral predispositions of an adult. Also, even if philosophers

could teach morality, their recommendations are not always the most financially efficient. Although

being moral may save a company from some legal and public relations nightmares, morality in

business is also costly. A morally responsible company must pay special attention to product

safety, environmental impact, truthful advertising, scrupulous marketing, and humane working

conditions. This may be more than a tight-budgeted business bargained for. We cannot easily

resolve this tension between the ethical interests of the money-minded businessperson and the

ideal-minded philosopher. In most issues of business ethics, ideal moral principles will be checked

by economic viability.

Fiesser, J., 2012. Business Ethics. Research Business Books. [Online] Available at:

http://www.utm.edu/staff/jfieser/vita/research/busbook.htm [Accessed 30 March 2012]




analysis

Section 3: Internal

environment analysis

Analysing an organisation should be done on a regular basis as the organisations

environments continuously change. Without analysing the organisation, it will become

outdated and competition will gain in market share.

“An organization's ability to learn,

and translate that learning into

action rapidly, is the ultimate

competitive advantage”

Jack Welch, an American business executive, author and chemical engineer.



ENVIRONMENTAL ANALYSIS: INTERNAL ENVIRONMENT

ANALYSIS

Learning Outcomes

After completing this section you should be able to:

Discuss the importance and challenge of internal environment analysis

Apply SWOT analysis and explain its importance in environment analysis

Identify all the important resources and capabilities in an organisation and discuss their

importance in the resource-based view with regard to internal environmental analysis

Describe value chain analysis as a method for performing internal environmental analysis

Apply the functional approach in internal factor evaluation matrix as a method of doing an

internal audit

4.1 INTRODUCTION

Organisations are involved in more than one environment which is constantly changing. These

environments can be broadly classified as internal and external analysis. By applying the SWOT

analysis an organisation can analyse the environment in which it operates.

4.2 THE IMPORTANCE AND CHALLENGES OF INTERNAL ANALYSIS

The importance of organisations understanding what they can do and what they are unable to do

cannot be emphasised enough, especially in order to understand the strategic direction. When

organisations match the ‘can’s and ‘cant’s’ with the strategic direction, they will be able to develop

a vision, mission, strategic intent and the implementation of strategies. The link between an

organisations vision and internal environments should also be considered.


Additional reading

Examine figure 4.1 to understand the relationship between organisational resource, capabilities,

value chain, SWOT analysis and strategic competitiveness.

4.3 SWOT ANALYSIS

SWOT is an acronym for Strengths, Weaknesses, Opportunities and Threats, which provides an

analysis of an organisations internal and external environment. The following are the definitions of

each element in the SWOT acronym.

Strength

A strength is capital, knowledge, skill that a firm holds over its competitors. Strengths are part of

the internal environment. http://www.businessdictionary.com/definition/strength.html

Weakness

A weakness is a flaw that increases the risk of failure. A weakness

is also a part of the internal environment.

(http://www.businessdictionary.com/definition/weakness.html)

Opportunity

An opportunity is an exploitable set of circumstances with an

uncertain outcome. An opportunity is external to the organisation.

(http://www.businessdictionary.com/definition/opportunity.html)

Threat

A threat is a negative event which can become a loss for the organisation.

(http://www.businessdictionary.com/definition/threat.html)

http://www.businessdictionary.com/definition/strength.html

http://www.businessdictionary.com/definition/weakness.html

http://www.businessdictionary.com/definition/opportunity.html

http://www.businessdictionary.com/definition/threat.html


Additional reading

Examine figure 4.2 to understand the relationship between the SWOT analysis and environmental

analysis.

Read ‘Strategy in Action’ 4.1 on pp. 113 for the example of strengths of the Mr Price Groups.

4.4 INTERNAL ANALYSIS FOR EFFECTIVE STRATEGY DEVELOPMENT

There are different methods of carrying out an internal analysis which will be listed below.

Resource based

This is split between the resources and capabilities an organisation can use.

Value chain analysis

It is important to understand figure 4.3 on pp.122 and each of its primary and support activities.

The primary activities are the following.

Input logistics

Operations

Output logistics

Marketing

Customer service.

The following are the supporting activities in the value chain.

Procurement

Technological development

HR management

General administration and infrastructure

Financial management

There are two other approaches that can be followed namely functional approach and internal

factor evaluation matrix.


4.5 CONCLUSION

After studying this Section you would be able to recognise the importance and challenges of the

internal environment analysis. It is also important to know how to apply the SWOT analysis in an

organisational environment.

Revision Exercise

Read the case study on Ackermans at the end of Chapter 4 in your prescribed textbook and

answer the following questions:

Using a value chain analysis, determine which are the real value-adding activities of

Ackermans.

Explore the company’s website. What are the resources and capabilities that lead (or support)

the core competencies of Ackermans?

Apply a SWOT analysis of Ackermans.

Revision Exercise

Refer to the SAB case study at the end of Chapter 1 in your prescribed textbook and answer

the following questions:

Conduct an internal analysis of SAB using the following methods:

SWOT analysis

Resource-based view

Value chain analysis

Functional approach analysis




analysis

Section 4: External

environment analysis

The external environment cannot be controlled by an organisation but the organisation

can change with the changes by changing threats and creating opportunities.

“Politics is the art of controlling

your environment”

Hunter S. Thompson, was an American journalist and author



ENVIRONMENTAL ANALYSIS: EXTERNAL ENVIRONMENT

ANALYSIS

Learning Outcomes


Describe all the elements of the external environment

Apply all the elements of the macro environment in the environmental analysis of an

organisation

Describe and identify what an industry is and how to do an industry-competitive analysis

by using Porter’s model

Analyse the importance of key success factors for an organisation

Construct an external factor evaluation matrix for an organisation

5.1 INTRODUCTION

In this Section we will describe all the elements of the external environment and how to apply the

macro environment in the environmental analysis of an organisation. We will also take a look at

analysing the importance of key success factors and constructing an external factor evaluation

matrix for an organisation.

5.2 THE EXTERNAL INVIRONMENT

In order to achieve strategic competitiveness, an organisation needs a full understanding of the

external environment. An external environment is divided into three major areas namely,

Global

Macro

Market


By understanding these areas, the decision making of a manger can be influenced. It is also

important to consider the continuous changing within an organisation which must be analysed in

order to compete with rivals.

Organisations do not have direct control of its external environment but can still have a major

impact on the organisation. An example can be a country which has a change in ruling political

party which bring along many different changes in the external environment that has an influence

on the organisation.

Understand area’s in order to influence and decision making of managers. Continuous changing

in which an organisation operate and compete. The following are some elements of an external

environment that has an influence on organisations.

Customers’ demands

Types of products needed

Nature of positioning and market segmentation strategies

Types of services needed

Business to acquire of sell

Competitors’ actions

Selecting suppliers and distributers

Government laws

Organisations need to anticipate and empower managers to identify these external forces in order

to realise emerging opportunities and threats. Read the example on pp. 140 of South African

context.

Additional reading

Read ‘Strategy in Action’ 5.2 on pp. 139 of the example of SA recession.


5.3 THE MACRO ENVIRONMENT

Changes in the macro environment can have a positive (Opportunity) or negative (Threat) impact

on an organisation. Some changes may not have any effect on an organisation. A change

resulting in a threat to one organisation might be an opportunity to another. All changes in this

environment are uncontrollable to organisations. There are five elements in the macro

environment which can change in this environment. An acronym used for the macro environment

is PESTEL, in this case L and P is combined.

Political/Legal

Interest groups may compete for attention, resource or voice over regulations. A good example of

this is how unions operate in South Africa. Changes in government’s decisions can impact both

small and large organisations.

Additional reading

Read ‘Strategy in Action’ 5.3 on pp. 142 – ‘smoking companies to cough up’.

Economic

A countries economic factors can affect an organisations strategic direction as it changes the

factors that the strategic direction was built on in the first place. Managers should keep an eye on

economical which would usually have a direct impact on most organisations. In terms of the

economic factors, the managers should consider the following factors.

Unemployment rate

Disposable income

Availability and cost of credit

Trends of GDP

Population growth

Monetary policy


Additional reading

Read ‘Strategy in Action’ 5.4 on pp. 143 – ‘Rates lowest in three years’.

Sociocultural

The sociocultural element is concerned with the society’s attitudes & cultural values. All

organisations are influenced, in some way, by changing social, cultural and demographic

capabilities.

Additional reading

Read ‘Strategy in Action’ 5.5 on pp. 144 – ‘Health food expensive-survey’.

Technological

The technological element influences all organisation and society on a continuous basis because

it changes so fast. These changes happen through the following factors.

New products

Processes

Materials

Additional reading

Read ‘Strategy in Action’ 5.6 on pp. 146 – ‘Zero emissions are up in the air’


Ecological/Market

This can be explained as the relationship between humans (organisation) and the physical

environment. Global climate is changing due to human behaviour, resulting to global warming.

The food production can be an example of how it is directly influenced by this.

5.4 INDUSTRY OR MARKET ENVIRONMENT

This is a group of organisations that sells similar products (competitors) which influences each

other. This is referred to as an industry.

Michael Porter identified five competitive forces influencing competition in an industry.

Threat of new entrants

Bargaining power of suppliers

Bargaining power of buyers

Threat of substitute products

Rivalry among competing organisations

The Five forces model for industry analysis, (Source: Adapted from Pearce & Robinson 2003)

These five forces are very important to understand and should be studied thoroughly. Although

this is a brilliant model, like all good things, it also has limitations.

No profitability assessment

Five factors does not apply equally to all competitors


Product and resource markets not adequately covered

Model can never be applied in isolation

Assumes hostile relationships between competitors

It is also important to identify all the major competitors and their specific strengths and

weaknesses in relation to the organisation’s strategic position. Consult Figure 5.5 in the

prescribed textbook for an illustration of the components of a competitor analysis.

Revision Question 9

Apply Porters Five Forces model with specific reference to the southern African banking

market. Use practical examples throughout your answer.

Additional reading

Read ‘Strategy in Action’ 5.7 in Chapter 5 of the prescribed textbook – ‘2010 first local sponsor

signed’.

5.5 THE EXTERNAL FACTOR EVALUTION MATRIX

Additional reading

Examine table 5.2 for an example of the external factor evaluation matrix.

5.6 CONCLUSION

After studying this Section you will be able to describe all the elements of the external

environment and apply the macro environment in the environmental analysis of an organisation.


You will also know how to identify what an industry is and how to do an industry-competitive

analysis by using Porter’s model.

Revision Exercise

Conduct an external environmental analysis for a bank wanting to enter the southern African

market in the next year, and identify opportunities and threats that exist in the environment.

Revision Exercise

Read the Shoprite case study at the end of Chapter 5 in your prescribed textbook and answer


Analyse Shoprite using Porter’s five forces.

Construct a strategic group map for Shoprite.

Revision Exercise

Refer to the SAB case study at the end of Chapter 1 in your prescribed textbook and answer


Conduct a macro environmental analysis on SAB.

Compile an EFE (External Factor Evaluation) Matrix for SAB.


Study Unit 3: Strategy

Formulation

Section 1: Strategy

formulation: long-term goals

and generic strategies

Crafting and executing strategy are the heart and soul of managing a successful

business.

“The vision we have …. Determines

what we do and the opportunities we

see or don’t see”

Charles G. Koch, American businessman and philanthropist. He is co-owner, chairman of

the board, and chief executive officer of Koch Industries.


STUDY UNIT 3: STRATEGY FORMULATION: STRATEGY

FORMULATION: LONG-TERM GOALS AND GENERIC

STRATEGIES

Learning Outcomes


Define long-term goals and discuss the requirements that they should meet in order to be

used effectively in the strategic management process

Explain what competitive advantage is

Understand how capabilities contribute to competitive advantage

Discuss the generic strategies identified by Michael Porter and illustrate with practical

examples how these strategies can contribute to the attainment of competitive advantage

for an organisation

Outline and discuss the distinguishing features of each of the generic strategies, optimum

conditions for selecting each specific strategy and the potential pitfalls of each generic

strategy

6.1 INTRODUCTION

In this Section we will define long-term goals and discuss the requirements they should meet in

order to be used effectively in the strategic management process. We will explain what

competitive advantage is and how capabilities contribute to competitive advantage.

6.2 LONG-TERM GOALS

The long-term goals of an organisation go hand in hand with its vision statement. It is therefore

important that the goals will be determined in line with the organisational vision. Long-term goals

are also used as a basis for the short term goal.


A strategy is a high-level plan. Both long-term and short-term goals should comply with the

organisational requirements and should also be open for interpretation. An example will be market

share, as it takes a long time to grow an organisations market share.

The goals that have been set should be clear, realistic and decisive. By understanding the

consideration, the goals can be set in a way that is achievable.

Additional reading

Examine table 6.1 in Chapter 6 of the prescribed textbook to understand the difference between

long-term and short-term strategies.

6.3 COMPETITIVE ADVANTAGES

According to Michael Porter (1985), competitive strategy is about the activities that organisations

undertake in order to gain a competitive advantage. There are two questions that will be

answered in terms of competitive advantage.

“What can we do better that our competitors?”

“How can we be elevated from a

competitor’s products?”

The competitive advantage should fulfil the

following criteria.

Attribute with value an relevance to

customers

Perceived by customer as competitive

advantage

Sustainable

A competitive advantage should be based on:

Resources

Strengths

competencies


A distinct capabilities is one of which the characteristics cannot be replicated by competitors. A

reproducible capability cannot be replicated.

Revision Question 10

Discuss MTN’s competitive advantage in the southern African cellular industry market.

Additional reading

Examine table 6.2 for examples of capabilities.

6.4 CLASSIFYING STRATEGIES

The aim of strategies is to achieve a fit between capabilities, customer expectation and the

competitive environment. A generic classification of strategies fits all situations.

6.5 GENERIC COMPETITIVE STRATEGIES

Michael Porter (1980,1985) developed the generic strategy classification of cost leadership,

differentiation and focus. These were called the three generic types of competitive strategy.


Adapted from Porter (1980)

Cost leadership

Table 6.3 in the prescribed textbook explains the distinguishing features of the cost leadership

strategy.

It is important to understand the factors to consider when cost leadership is the best strategy to

follow. There are potential pitfalls and advantages of cost leadership.

Differentiation

Differentiation is creating a difference in organisational products and services, in order to be

something unique with value. Table 6.4 explains the distinguishing features of the differentiation

strategy. It is important to understand when differentiation is best strategy to use as well as

potential pitfalls associated the differentiation.


Focus

Focus, is based on a choice of a narrow competitive scope within an industry. An organisation will

target a specific segment or group. An example of a focused strategy is a Porsche as it is only

marketed to people that earns a lot of money.

A focus strategy, based on cost leadership aims at securing a competitive advantage. Table 6.5

explains the distinguishing features of a focus strategy. It is also important to understand when

the focus strategy is the best strategy to follow as well as potential pitfalls associated with it.

Best strategy

The ‘best strategy’ is used by organisations that have successfully integrated cost leadership and

differentiation strategies in order to find a competitive advantage. This enables organisations to

provide value in terms of differentiation attributes and lower prices. It is important to understand

when best strategy should be used and the potential pitfalls associated with this strategy.


How would SAB implement a cost leadership strategy?

Additional reading

Read ‘Strategy in Action’s 6.1, 6.2 and 6.3 in Chapter 6 of the prescribed textbook.

6.6 CRITICISM AGAINST THE GENERIC STRATEGY FRAMEWORK

Porter’s generic strategy has been the target of criticism. The most prominent objections were the

following.

Organisations can employ a successful hybrid strategy without being stuck in the middle

Low-cost strategy does not, in itself, sell products

Price can sometimes be used to differentiate


6.7 CONCLUSION

After studying this Section you will know what competitive advantages are and the requirements

to make it effective. You would be able to discuss the distinguishing features of each of the

generic strategies, optimum conditions for selecting each specific strategy and the potential

pitfalls of each generic strategy.

Revision Exercise

How would SAB implement a cost leadership strategy?


Study Unit 3: Strategy Formulation

Section 2: Strategy

formulation: grand and

functional strategies

When formulating a strategy, managers should also take the grand and functional

strategies into account. By realising, understanding and implementing these grand and

generic strategies, an organisation can create additional strategies in order to keep the

strategy on track.

“However beautiful the strategy, you

should occasionally look at the

results”

Winston Churchill, was a British politician who was Prime Minister of the United Kingdom

from 1940 to 1945 and again from 1951 to 1955


STUDY UNIT 3: STRATEGY FORMULATION: STRATEGY

FORMULATION: GRAND AND FUNCTIONAL STRATEGIES

Learning Outcomes


Explain the relationship between Porter’s generic strategies and grand strategies

Discuss the grand strategies that organisations can pursue to achieve their long-term

objectives, with specific reference to the circumstances under which each strategy would

be appropriate

Illustrate with practical; examples how each of the grand strategies is implemented by

organisational environment

Explain what a combination of strategies entails

Explain the relationship between grand strategies and functional strategies

7.1 INTRODUCTION

General strategies are used by organisations and in this Section we will explain the relationship

between Porter’s generic strategies and grand strategies. It is also important to know how

organisations can pursue these strategies to achieve their long-term objectives, with specific

references to the circumstances under which each strategy would be appropriate.

7.2 GRAND STRATEGIES

A grand strategy is described as a comprehensive general strategy that guides organisations

major actions. There are a variety of strategies that organisations can use to peruse in order to

achieve long term strategic goals, which are broadly grouped into three categories.

Growth strategies

Decline strategies

Corporate combination strategies


Internal growth strategies

Concentrated growth

Market development

Product development

Innovation

External strategies

Diversification

Integration

Decline strategies

Retrenchment or turnaround

Divestiture

Liquidation

Consider bankruptcy

Corporate combination strategy

Joint ventures

Strategic alliances

Consortia

Risks of combination strategies


Achieving growth is the major focus of my future strategy.

What grand strategies should I consider?

What does each of them entail?



My organisation is in a vulnerable position as a result of inefficiency and ineffectiveness.

What strategies should I consider and why?


What strategies can I use to increase my organisation’s competitiveness through joint efforts

with other organisations?

Additional reading

Read the various ‘Strategy in Action’s in Chapter 7 of the prescribed textbook on Cell C, MTN,

The Body Shop, Dove, Videovision and Imperial and Excel.

7.3 COMBINATION OF GRAND STRATEGIES

Organisations would usually integrate a few of the strategies mentioned above together, to

achieve the organisational objectives. The extent of the achievement of objectives is limited to its

access to resources. Organisations with limited resources will not be able to implement multiple

strategies. In the case that an organisation decides to use multiple strategies, it should prioritise

its resources (capital, people and skills)


7.4 FUNCTIONAL STRATEGIES

The implementation of grand strategies should be in the functional and operational levels. In

practice, everybody needs to do what is necessary to implement strategy. The functional

managers should also be included in the strategic planning process. The formulation of short term

goals, for different functional areas, is biggest challenge.

7.5 CONCLUSION

Once you know how strategies are used in organisations you would be able to explain what a

combination of strategies entails and the relationship between grand strategies versus functional

strategies.

Revision Exercise

Read the Toyota case study at the end of Chapter 7 in the prescribed textbook and answer


Identify the grand strategies that Toyota has implemented over the past 40 years.

Identify two grand strategies that Toyota will be pursuing in future.

Revision Exercise

Provide strategic comment on the different grand strategies that SAB have used over the

past few years.

Recommend two grand strategies that SAB can pursue in the future and justify why.

How will these grand strategies influence SAB’s functional ones?


Study Unit 3: Strategy Formulation

Section 3: Aligning strategy

with industry life cycle

Different strategies exist for each stage in the industry life cycle. An organisation should

align the strategies, which were formulated to the organisation, by analysing in which

phase an organisation finds itself.

“There's only one growth strategy:

work hard”

William Hague, is a British politician who has been the First Secretary of State and the

Secretary of State for Foreign and Commonwealth Affairs since 2010


STUDY UNIT 3: STRATEGY FORMULATION: ALIGNING

STRATEGY WITH INDUSTRY LIFE CYCLE

Learning Outcomes


Understand the importance of the industry life cycle when doing an external environment

analysis

Identify the strategies applicable to organisations in emerging markets

Apply your knowledge in the identification of strategic options for competing in turbulent

high-velocity markets

Understand the strategies for competing in mature markets

Understand what a declining industry is and what strategic options may be available in

these industries

Identify the strategies applicable to organisations in fragmented markets

Apply your knowledge to identifying strategies for industry leaders

Align a strategy with a specific organisational situation

8.1 INTRODUCTION

An industry life cycle is used to graphically show how an industry moves through four phases in its

life cycle. For each phase there are different strategies which can be used to ensure stability. A

manager will need to identify these strategies and align them to the organisation situations.

8.2 THE INDUSRTY LIFE CYCLE

The industry life cycle shows how an industry moves through different stages. It is important to

determine the nature and extent of these forces in an organisations task environment.

Figure 8.1 shows the typical stages through which an industry moves. There are four stages, of

which, each has its own characteristics.


Introduction

This is the early stages of an industry’s development

Uncertain and difficult to predict and control because relationships with suppliers and customers

are likely to change.

Growth

Here the industry will gain customers as the demand increases and thereby attracting customers.

Organisations have the advantage of pioneering new varieties of products or improved ways of

producing products.

Maturity

In the maturity stage the demand growing slowly. Most customers already bought the product and

customers chose their brand and follow it loyally. Good relationships have been established with

suppliers. The level of competition lowers because at this stage only a few large organisations

dominate. High barriers of entry to the market have been set and organisations have high profits.

Decline

The customer demand decreases gradually. Because organisations produce more products that

the demand, organisations would start to cut prices.

Additional reading

Examine table 8.1 in your prescribed textbook for a summary of the main characters in different stages in the industry life cycle.


8.3 STRATEGIES FOR COMPETING IN EMERGING INDUSTRIES OF THE

FUTURE

An emerging industry is an industry in the introduction stage of the life cycle. Typical

characteristics of emerging industries are:

New and unproven

Know-how is guarded providing barrier to new-entry

No consensus of which product will survive

Large organisations with required resources will attempt to enter the market

All buyers are first time users

Improvement is rapid

Trouble securing suppliers

Organisation find themselves short of funds

Two critical strategic issues are how to fund initial organisation and what market segments to

target. Organisations would be able to target a range of strategic avenues.

8.4 STRATEGIES FOR COMPETING IN TURBULENT, HIGH-VELOCITY

MARKETS

Here, rapid technological changes would be dominant. Personal computers and medical

equipment is typical products. Organisation will have three strategic options to choose from,

namely:

React to change

Anticipate change

Lead change

The following strategic moves will help gain a competitive advantage:

Specific organisational capabilities

Resources

Proactive time-paced moves

Keeping products ‘fresh’


Additional reading

Read ‘Strategy in Action’ 8.1 in your prescribed textbook – Microsoft gets into search - with a Bing.

8.5 STRATEGIES FOR COMPETING IN MATURING INDUSTRIES

Slower growth will be realised as changes in the industry’s competitive environment occurs. The following are some of these changes.

Slow growth – intense competition

Buyers more sophisticated (more experience with product)

Buyers focus on what sellers has to offer

Pressure of profitability

Mergers and acquisitions

8.6 STRATEGIES FOR ORGANISATIONS IN STAGNANT OR DECLINING

INDUSTRIES

There are a few secret to survival in the declining stage of an industry:

Pursue strategy aimed at fastest growing market segment

Stress differentiation on improving products

Low-cost leadership

Additional reading

Read ‘Strategy in Action’ 8.2 in your prescribed textbook – The circus


8.7 STRATEGIES FOR COMPETING IN FRAGMENTED INDUSTRIES

Here, there are many small and medium organisations of which none of them hold a large share

of the market. Example of these is nursery’s and real-estate organisations. The reasons from the

fragmentation are the low entry barriers and absence of market leaders.

8.8 STRATEGIES FOR INDUSTRY LEADERS

SAB is a good example of an industry leader. For these leaders, there are only two strategies that

can be followed.

Offensive

The organisation will be the first mover in order to strengthen position.

Defensive

On the defence, an organisation will aim to protect its competitive position by making it harder for

others to reach.

Additional reading

Read ‘Strategy in Action’ 8.3 in your prescribed textbook – Raymond Ackerman

8.9 ALIGNMENT OF STRATEGY WITH SPECIFIC SITUATION

When an organisation aligns itself with the organisational environment, there are two questions to

be asked.

What industry environment is the organisation operating in?

What is the specific position of the organisation in the industry?


8.10 CONCLUSION

After studying this section you will be able to identify the strategies applicable to organisations in

emerging markets and the strategies applicable to organisations in fragmented markets. You will

also understand the strategies for competing in mature markets, what a declining industry is and

what strategic options may be available in these industries.

Revision Exercise

Read the Sleeping Beauty Candles case study at the end of Chapter 8 in the prescribed

textbook and answer the following questions:

What are the strategy options for Fred?

What are the strategic decisions in this case?

What possible strategy is Fred applying if he buys a smallholding? Will this be a good

strategic move? Explain.

Revision Exercise

Refer to the SAB case study at the end of Chapter 1 in the prescribed textbook and answer


Which stage of the industry life cycle applies to SAB?

Indicate how this stage applies to SAB.

Discuss the strategies available to SAB as an industry leader.



Formulation

Section 4: Strategy analysis

and choice

Analysing and choosing a strategy is very important and could be a difficult task as there

are many different strategies which can be implemented. A variety of strategies are

available to do this analysis.

“You may not be interested in strategy,

but strategy is interested in you”

Leon Trotsky, was a Russian Marxist revolutionary and theorist, Soviet politician, and the

founder and first leader of the Red Army


STUDY UNIT 3: STRATEGY FORMULATION: STRATEGIC

ANALYSIS AND CHOICE

Learning Outcomes


Discuss the strategic analysis framework

Implement the SWOT matrix

Implement the SPACE matrix

Implement the Grand Strategy matrix

Implement the Quantitative Strategic Planning Matrix (QSPM)

9.1 INTRODUCTION

This Section deals with analysing the possible strategies an organisation can follow and then

choosing the strategy or strategies that would best suit the situation. These choices are necessary

because we are dealing with a very flexible and changing environment which makes many

strategic decisions more qualitative than quantitative.

9.2 STRATEGY ANALYSIS FRAMEWORK

Organisations face important question regarding the decision of strategy. An organisation can

choose from three matrixes.

SWOT matrix

SPACE matrix

Grand strategy matrix

9.3 THE THREE STRATEGIC ANALYSIS MATRIXES

The same people who took part in the strategy formulation should also take part in the strategic

analysis.


SWOT matrix

Follow the seven steps to construct a SWOT matrix.

SPACE matrix

Follow the six steps to construct a SPACE matrix and understand the different strategies in each

quadrant.

Grand strategy matrix

This offers the same outcomes as the previous two matrixes. It can be identified by its two axis’s

(x and y) and four quadrants. It is important for a student to understand what each quadrant is

used for.

Additional reading

Examine the following figures in Chapter 9 of your prescribed textbook:

Figures 9.1, 9.2, 9.3 and 9.4.

9.4 FINAL STRATEGIC CHOICE/DECISION

Organisations will have several options to choose from in the final strategic decision. Here,

managers need to evaluate the strategies qualitatively in order to narrow it down to the four most

feasible strategies. Making use of QSPM to make decision can help a manager point out which

strategy would be best for the organisation. Follow the six steps in order to choose best strategy

for the organisation.

Additional reading

Examine figure 9.5 in your prescribed textbook for an example of the QSPM


9.5 CONCLUSION

No matter how many different analytical tools or matrixes are used during the strategic

management process, they can still not guarantee competitive advantage and long-term

sustainability. They can, however, decrease the amount of uncertainty and risk. If these tools and

matrixes are used efficiently, the organisation aligns itself for success and eliminates most

uncertainties and contingencies.

Revision Exercise

Consider the SAB case study at the end of Chapter 1 in the prescribed textbook combined

with the information gained from the IFE and EFE Matrixes done in Section 4 & 5 to compile

the following:

A SWOT Matrix

A SPACE Matrix

A Grand Strategy Matrix

A QSPM



Implementation

Section 1: Strategy

implementation and change

management Implementing a strategy would be a bit more difficult than formulating a strategy. Due to

the continuously evolving and changing of a strategy, an organisation will also be required

to change the strategy once in a while.

"Strategy without tactics is the

slowest route to victory. Tactics

without strategy is the noise before

defeat."

Sun Tzu, was a Chinese military general, strategist, and philosopher during the Zhou dynasty's

Spring and Autumn Period


STUDY UNIT 4: STRATEGY IMPLEMENTATION: STRATEGY

IMPLEMENTATION AND CHANGE MANAGEMENT

Learning Outcomes


Understand the significance of strategy implementation

Differentiate between strategy formulation and strategy implementation

Assess strategy implementation as a component of the strategic management process

Examine the problems of and barriers to successful strategy implementation

Explain the different types and issues of strategic change

Demonstrate the different causes of strategic change

Analyse the strategic change process and illustrate knowledge of the different components

of the change process

10.1 INTRODUCTION

In this Section you will understand the significance of strategy implementation and differentiate

between strategy formulation and strategy implementation. You would also examine the problems

of and barriers to successful strategy implementation and explain the different types and issues of

strategic change.

10.2 THE SIGNIFICANCE OF SUCCESSFUL STRATEGY IMPLEMENTATION

According to Ehlers and Lazenby (2012), strategy implementation is the process that turns a

strategy into action to ensure set goals will be achieved. Strategy implementation is an essential

component of the strategic management process. It is much easier to formulate a strategy that to

implement a strategy.


Strategic implementation differs from strategic formulation in four major ways. These are

explained in the table below.

Strategic Implementation Strategic Formulation

Intellectual or thinking phase Thoughts are operationalized and turned into

action

Internal operations-driven activity External market-driven activity

Requires motivation and leadership skills Requires good intuitive and analytical skills

Managers on all levels Senior management

Because strategic implementation is such a time consuming and complex process, many

organisations experience problems with the implementation of a strategy. The following are some

of the most common problems which organisations can expect to come across.

No alignment between org structure and strategy

Inadequate information and communication systems

Ineffective coordination

Inadequate leadership and direction

Undefined goals

Formulators not involved in implementation

Responsibilities not defined

The authors have also identified four barriers to successful strategic implementation.

Vision barrier

People barrier

Resource barrier

Management barrier


10.3 CHANGE – A FUNDAMENTAL IMPLEMENTATION ISSUE

When a strategy is changed, it will need to be analysed in terms of nature and scope of change.

Figure 10.3 in chapter 10 of the prescribed text book explains the four different types of strategy

change which can be used.

Adaptation

Reconstruction

Evolution

Revolution

When a strategy is changed by using any of these types of strategy change, it should be

managed in terms of the following.

Time

Scope

Diversity

Capacity

Readiness

Capability

Main triggers or forces for strategy change have also been identified. These are:

Environment

Regulatory events

Business relationships

Strategy awareness and skills of management as well as other employees

There are three areas which need to change as a result of a new strategy:

Technology

Operations

Administration

People


Sometimes, there are resistance to change from employees in the organisation. These are shown

in table 10.1 in chapter 10 of the prescribed textbook. There are however ways of overcoming this

resistance to change according to Thompson (2001):

Education and communication

Participation and involvement

Facilitation and support

Negotiation and agreement

Manipulation and co-optation

Giving clear direction

Explicit & impact coercion

When implementing a strategy, managers must have the necessary power to implement decisions

taken. There are a few tactics listed which management can use.

Continuous process

Work and learn as a team

Vision shared

Employees skills most important asset

Reconsider habits

System approach used

Additional reading

Read the ‘Strategy in Action’s 10.1 and 10.2 in Chapter 10 of the prescribed textbook on Mr Price, BP and Pick & Pay.

10.4 CONCLUSION

By understanding the significance of strategy implementation you would be able to differentiate

between strategy formulation and strategy implementation. You would also be able to explain the


different types and issues of strategic change and demonstrate the different causes of strategic

change.

Revision Exercise

Read the case study at the end of Chapter 10 in the prescribed textbook and answer the

relevant questions.

Revision Exercise

Refer to the SAB case study at the end of Chapter 1 in the prescribed textbook and answer


What strategic changes do you foresee for SAB?

How can management manage these strategic changes at SAB?



Implementation

Section 2: The drivers of

strategy implementation

When implementing a strategy, the organisations managers should ensure that it is

managed. Different drivers of strategic implementation are available which can be used

steer a strategy into a desired direction.

“That strategy of racing for the top

five and racing for the win is where

everybody wants to be”

Dale Earnhardt, was an American race car driver and team owner, best known for his

involvement in stock car racing for NASCAR


STUDY UNIT 4: STRATEGY IMPLEMENTION: THE DRIVERS

OF STRATEGY IMPLEMENTAION

Learning Outcomes


Evaluate leadership, organisational culture and reward system as drivers for strategic

implementation

Describe the relationship between corporative governance, leadership, organisational

culture and reward system

11.1 INTRODUCTION

In this Section we will evaluate leadership, organisational culture and reward systems as drivers

for strategic implementation are discussed.

11.2 LEADERSHIP AS A DRIVER OF STRATEGIC IMPLEMENTATION

In terms of strategic changes, a revolutionary change is sometimes more appropriate. A strategy

does not implement itself, but should rather be guided by the organisational vision. In order to

strengthen the organisation’s strategic leadership, the CFO and HR director should supplement

leadership skills to the CEO.

Strategic leadership is not entirely the responsibility of the top management but should be found

at all levels of managers. This means that strategic implementation depends on leaders on all

levels of the organisation.

Strategic leadership is defined as an ability to anticipate and empower others in order to create a

strategic change. (Hitt, Ireland & Hoskisson, 2003)

It is important that strategic leaders have good EQ. The following are components of EQ:

Self-awareness

Self-regulation


Motivation

Empathy

Social skills

It is also important to understand the difference between leadership and management. Table 11.1

in chapter 11 of the prescribed textbook shows the difference between visionary and managerial

leadership (Louw & Venter, 2007). The following are responsibilities of a strategic leader:

Developing vision and direction

Communicate strategy

Inspiring and motivating employees

Design reward system

Develop and maintain reward system

Incorporate corporate governance

An essential factor is alignment. When top management is aligned, it drives the entire

organisation to be successful. Figure 11.1 in chapter 11 shows the different leadership styles in

the organisational life cycle with following levels:

Risk taker

Caretaker

Surgeon

Undertaker

The King III report (2009) identifies five moral duties (5 C’s) for strategic leaders:

Conscience

Care

Competence

Commitment

Courage

Additional reading

Read ‘Strategy in Action’s 11.1, 11.2 and 11.3 in Chapter 11 of the prescribed textbook.


11.3 ORGANISATIONAL CULTURE AS A DRIVER FOR STRATEGY

IMPLEMENTATION

An organisational culture refers to the way things are dome in an organisation. It also manifests

traditions and ways of approaching problems and decision making. Table 11.2 gives examples of

corporate values in different organisations.

An Organisational culture can be a valuable ally or stumbling block to terms of strategic

implementation. The organisational culture and leadership are closely related. There are four

broad categories of organisation culture.

Strong

Weak

Unhealthy

Adaptive

The most organisations do not have a single homogeneous culture but a personalised culture. It is

important to also consider the corporate culture when formulating a strategy. An organisational

culture will support the strategy when implementing as it creates structure, standards, value

system and informal rules. A change in organisational culture might also be necessary

Pearce & Robinson (2005) developed figure 11.2 to be able to manage an organisation’s

strategic-culture relationship. The most difficult cell is D.

Additional reading

Read ‘Strategy in Action’s 11.4, 11.5 and 11.6 in chapter 11 of the prescribed textbook.

11.4 REWARD SYSTEM AS A DRIVER FOR STRATEGY IMPLEMENTATION

Leadership and corporate culture are key success factors for strategic implementation. Another

success factor is motivating employees. A new strategy involves risk and change to leadership,

culture and structure.

According to the Business Dictionary, a reward system is standards associated with the allocation

of benefits to employees.


A reward system plays an important role in strategy implementation which is directly linked to an

organisations strategy. A reward system reflects the top management’s attitudes and also

influences the organisational culture and leadership styles. The following are different types of

reward systems:

Share options

Restricted share plan

Golden handcuffs

Golden parachutes

Cash bonuses

Additional reading

Read ‘Strategy in Action’s 11.7, 11.8, 11.9 and 11.10 in Chapter 11 of the prescribed textbook.

11.5 CONCLUSION

After the evaluation of leadership, organisational culture and reward system you will be able to

describe the relationship between corporative governance, leadership, organisational culture and

reward system.

Revision Exercise

Read the case study Leaders on the couch at the end of Chapter 11 in the prescribed

textbook.

Apply the components of emotional intelligence (EQ) to each of these leaders.

Discuss Iqbal Surve’s leadership style with reference to the Kind II Report’s

recommendations on leadership and the role of directors in strategic management.


Revision Exercise

Read the SAB case study at the end of Chapter 1 in the prescribed textbook.

Explain the role of SAB’s culture in the implementation of these strategies.

Apply to SAB the framework for managing the strategy-culture relationship.



Implementation

Section 3: The structural

drivers and instruments for

strategy implementation

When a strategy has been implemented, it should be analysed and evaluated to ensure

the successful working of this strategy.

“Strategy is about making choices,

trade-offs; it's about deliberately

choosing to be different”


nations and regions


STUDY UNIT 3: STRATEGY FORMULATION: STRUCTURAL

DRIVERS AND INSTRUMENTS FOR STRATEGY

IMPLEMENTATION

Learning Outcomes


Analyse and discuss the use of organisational design as a drive for strategic

implementation

Realise and evaluate the importance of resource allocation as a driver for strategy

implementation

Apply and discuss the role of short-term goals, functional tactics and policies as

instruments for strategic implementation

12.1 INTRODUCTION

Strategic implementation has different drivers which should be realised and evaluated when

allocating resources. We will discuss the role of short-term goals, functional tactics and policies as

instruments for strategic implementation.

12.2 ORGANISATIONAL DESIGN AS A DRIVER OF STRATEGY

IMPLEMENTATION

Role of organisational design in strategic implementation

A business environment is dynamic with evolutionary and revolutionary changes. The

organisational structure is a framework in which the strategic process must operate to achieve

goals.

Organisational design and organisational structure are used interchangeably. The organisational

design can be a source of competitive advantage.


Structure follows strategy

When the fit between strategy and structure is absent, an organisations performance declines. A

strategy and structure influence each other and are costly and difficult to change.

Evolution of organisational structures

As organisations grow and environmental changes happen, different strategies need to be used at

different stages. Organisations tend to grow first by volume, then by geography, integration and

lastly by product diversification

Building blocks of organisational design

There are five basic parts of an organisation namely:

Strategic apex

Middle line

Operating core

Techno-structure

Support staff

There are six basic coordinating mechanisms namely:

Mutual adjustment

Direct supervision

Standardisation of work processes

Standardisation of output

Standardisation of skills and knowledge

Standardisation of norms

Ehlers and Lazenby describe a few essential parameters of design. You should ensure a

thorough understanding of each.

Job specialisation

Behaviour formalisation

Training

Socialisation


Grouping

Unit size

Planning and control systems

Centralisation/ Decentralisation

Types of organisational structures

The five basic parts, six coordinating mechanisms and design parameters will be used to design a

structure. There are seven different structures which can be used. Examples of these can be seen

in figures 12.2 - 12.8.

Entrepreneurial structure

Functional structure

Divisional structure

Strategic business unit structure

Matrix structure

Network structures

Future structures

Matching structure with strategies

As mentioned before, organisations change which influences the choice of strategy. This is

important because there are no fixed recipe that will match all types of organisations. The

structure that best suits the organisation will be chosen.

Additional reading

Read ‘Strategy in Action’ 12.1 in Chapter 12 of the prescribed textbook.

12.3 RESOURCE ALLOCATION AS A DRIVER OF STRATEGY IMPLEMENTATION

Organisations have different collections of physical and intangible assets or resources and

capabilities as organisations differ. The successful strategic implementation requires successful


management of resources. Resources are classifies as either tangible or intangible, the ratio of

which will have an impact on strategic formulation.

The HR in organisations is increasingly important in strategic implementation. Budgets are also

important as resources can only be purchased as budget is provided. These resources need to be

aligned with a chosen strategy.

Additional reading

Read ‘Strategy in Action’s 12.2 and 12.3 in Chapter 12 of the prescribed textbook

12.4 SHORT-TERM GOAL AS AN INSTRUMENT FOR STRATEGY

IMPLEMENTATION

Short term goals guide an organisations activities and what needs to be done to reach these long-

term goals. Using short-term goals is valuable in strategic implementation as it helps establishing

priorities, monitoring and linked to reward system. Short-term goals should be translated from

long-term goals.

Refer to Section 6 for criteria of creating quality goals.

Additional reading

Read ‘Strategy in Action’ 12.4 and 12.5 in Chapter 12 of the prescribed textbook

12.5 FUNCTIONAL TACTICS AS AN INSTRUMENT FOR STRATEGY

IMPLEMENTATION

Functional tactics support organisations short-term goals which are key routine activities. These

tactics identifies activities that must be performed. Functional tactics are different from business

strategy in three ways.


Time horizon

Specificity

Participation

The following are different functional areas in which tactics can be made:

Marketing

Finance

Operations

HRM

12.6 POLICIES AS AN INSTRUMENT FOR STRATEGIC IMPLEMENTATION

Policies provide guidance from functional tactical which uses guidelines, methods, procedures,

rules, forms and administration practices. Policies are developed in many different areas from

finance to corporate communication. When an organisation implements a new strategy,

redevelopment of policies is necessary.

12.7 CONCLUSION

Once you understand the different drivers of strategic implementation you would be able to

discuss the role of short-term goals, functional tactics and policies as instruments for strategic

implementation.

Revision Exercise

Read the Nedcor case study at the end of Chapter 12 in the prescribed textbook.

Discuss the statement “structure follows strategy” with reference to the evolution of the

Nedbank Group’s structure from 2001 to 2006.

Why did the structure change again from 2003 to 2006?

Explain why the CEO, Tom Boardman, redesigned the organisational structure.


Revision Exercise


Apply the Balanced Scorecard to SAB



Implementation

Section 4: Continuous

improvement through

strategic control and

evaluation Once again, this Section acts as a reminder that change is continuous of any

organisation. For this reason, managers need to focus on strategic control and evaluation

of the strategy.

“You have to be fast on your feet and

adaptive or else a strategy is

useless”

Charles de Gaulle, was a French general and statesman who led the Free French Forces

during World War II. He later founded the French Fifth Republic in 1958 and served as its

first president from 1959 to 1969


STUDY UNIT 4: STRATEGY IMPLEMENTATION: CONTINUOUS

IMPROVEMENT THROUGH STRATEGIC CONTROL AND

EVALUATION

Learning Outcomes


Understand and discuss strategic control as a component of the strategic management

process

Describe the different types of strategic control

Design a strategic control system

Comment on the value of the role of the balanced scorecard in strategy implementation

and control

Appreciate the relationship between strategic control and corporative governance

Understand benchmarking, total quality management and re-engineering as ways of

sustaining a competitive advantage through continuous improvement

13.1 INTRODUCTION

In this Section we will discuss strategic control as a component of the strategic management

process. Descriptions of the different types of strategic control are explained in order to design a

strategic control system.

13.2 STRATEGIC CONTROL

In terms of strategic control, there are different types which can be identified.

Premise control

Strategic surveillance

Special alert control

Implementing control

Simons (1995) developed four levers of control. Figure 13.1 shows the example these:


Diagnostic control systems

Belief systems

Boundary systems

Interactive control system

Additional reading

Read ‘Strategy in Action’ 13.1 in Chapter 13 of the prescribed textbook

13.3 THE BALANCED SCORECARD IN STRATEGY IMPLEMENTATION AND

CONTROL

Earlier on this book, the balanced score card was introduced with vision and long-term goals. Now

the critical success factors would be needed to achieve and measured an implemented strategy

which drives performance.

Key action programmes are developed to achieve goals. In order for the balanced scorecard to be

successful, goals and measures should be consistent and reinforcing.

By using a balanced scorecard, a manager can monitor and evaluate short-term results in four

different perspectives, namely:

Translating the vision

Communicate and linking

Business planning

Feedback and learning


13.4 EVALUATE STRATEGIC SUCCESS

Organisations should choose strategies which will facilitate a completive advantage. Thompson &

Martin (2005) identified criteria for an effective strategy; table13.1 on page 368 explains these

differences.

Appropriateness

Feasibility

Desirability

Additional reading

Read ‘Strategy in Action’ 13.2 in Chapter 13 of the prescribed textbook

13.5 SUSTAINING COMPETITIVE ADVANTAGE THROUGH CONTINIOUS

IMPROVEMENT

Organisations can achieve continuous improvement through four practices.

Benchmarking

This is comparing against a challenging yardsticks. It can also be measured against its own

history, competitors and ‘best in class’ performers

TQM

TQM is focused on delivering quality products which aims to improve organisational performance.

There are four principles which TQM are based on namely:

Commitment

Scientific tools, technologies and methods

Teamwork and empowerment

Continuous improvement


Six Sigma

The six sigma is used to link improvement and profitability. The six sigma works with five steps.

Define

Measure

Analyse

Improve

Control

Re-engineering

Re-engineering is also known as business process engineering. The organisation reorganise that

re-engineering creates value for customers by eliminating barriers. Re-engineering and TQM is

interrelated and complementary.

13.6 CONCLUSION

After studying this Section you would be able to identify the different types of strategic control and

to design a strategic control system.

Revision Exercise

Read the Gosafeleng case study at the end of Chapter 13 in the prescribed textbook.

Discuss the importance of linking GosaTech’s goals, measures, initiatives and targets to

its vision statement.

Provide strategic comment on the importance of the cause-and-effect linkage between

GosaTech’s various strategic goals.

Explain how the balanced scorecard will help GosaTech to avoid the barriers to strategy

implementation.


Revision Exercise


Explain how SAB can use the balanced scorecard you have developed in the previous

section as a strategy implementation and control system.

Explain the practices for continuous improvement available to SAB that can be used to

gain a sustainable competitive advantage.


Study Unit 5: Contemporary

strategic applications

Section 1: Strategic

management in not-for-profit

organisations

Non-profit-organisations, also known as not-for-profit organisations, will also need to

implement a strategic management process as it also needs direction. There are some

strategies which are specially formulated for not-for-profit organisations.

“Incentives are not strategy, they

are tactics. Defensive measures”

Carlos Ghosn, Chairman and CEO of Paris-based Renault and holds the same positions

at Japan-based Nissan


STUDY UNIT 5: CONTEMPORARY STRATEGIC

APPLICATIONS: STRATEGIC MANAGEMENT IN NOT-FOR-

PORFIT ORGANISATIONS

Learning Outcomes


Discuss the usefulness of strategic management concept and techniques for non-profit or

not-for-profit organisations

Explain the difference between revenue sources for profit-seeking and not-for-profit

organisations

Identify the constraints on strategic management for not-for-profit organisations

Apply some strategies for not-for-profit organisations

14.1 INTRODUCTION

This Section will give insight into the benefits of strategic management. Strategic management

can also be used not-for-profit organisations which will influence revenue and constrains.

Additional reading

Read ‘Strategy in Action’ 14.1 in chapter 14 of the prescribed textbook.

14.2 THE BENEFITS OF STRATEGIC MANAGEMENT CONCEPTS AND

TECHNIQUES

As with profit-seeking organisations, NFP organisations seek a competitive advantage which

raises questions. Instead of speaking about a competitive advantage, NFP organisations will

rather use the term ‘institutional advantage’.


It is important for NFP organisations also have mission and vision statements. This will bring

strengths and weaknesses to the attention of the managers.

14.3 REVENUE SOURCES FOR NOT-FOR-PROFIT ORGANISATIONS

The main difference between profit-seeking and NFP organisations in terms of revenue is the

source of revenue. A NFP organisation has many different sources of revenue whereas a profit-

seeking organisation mainly generates revenue from customers. Figure 14.2 illustrates how

sources of revenue will influence the strategic decision making.

14.4 CONSTRAINTS ON STRATEGIC MANAGEMENT FOR NFP ORGANISATIONS

The following are characteristics that have an impact on an organisations behaviour and strategic

management.

NFP services are intangible

Difficult as organisations rely on customers and sponsors

Communities expects services from NFP organisations

Entail community involvement

Part-time employees and voluntary employees in NFP organisation

A student needs to understand the impact of constraints on strategy formulation, strategy

formulation as well as evaluation and control.

14.5 SOME USEFUL STRATEGIES

Two strategies can be used by NFP organisation in order to meet demand.

Strategic piggybacking

This is when a NFP organisation develops new activities which will generate revenue to make up

the difference between revenue and expenses. This is not about how to deliver a better service

but rather making up the shortfall in revenue. In order for engage in successful piggybacking, the

NFP organisation needs the following.


Something to sell

Venture capital

Management talent

Management support

Strategic alliance

This is when two or more organisations form a partnership which will be an attractive alternative

for profit–seeking organisations

14.6 CONCLUSION

After studying this Section, a student will be able understand the benefits of strategic

management. It is important to understand that strategic management is not only applicable to

organisations that are profit driven, but also to not-for-profit organisations.

Revision Exercise

Read the CANSA case study at the end of Chapter 14 in the prescribed textbook.

Evaluate the mission statement of CANSA.

Conduct a SWOT analysis of CANSA.

How would you structure a strategic planning session for the organisation?

Revision Exercise


Discuss your view of SAB’s social responsibility as a large firm towards the non-profit

organisations in southern Africa.


Study Unit 5: Contemporary

strategic applications

Section 2: Strategic

management concepts in the

global marketplace

Strategic management is a critical factor when considering the global marketplace.

Globalisation is changing the way in which organisations operate and trade around the

world as organisations needs to compete with organisations in the rest of the world.

“The underlying principles of strategy

are enduring, regardless of

technology or the pace of change”


nations and regions


STUDY UNIT 5: CONTEMPORARY STRATEGIC

APPLICATIONS: STRATEGIC MANAGEMENT CONCEPTS IN

THE GLOBAL MARKETPLACE

Learning Outcomes


Understand the scope and dynamics of the global business arena

Distinguish between global and “glocalisation”

Identify the various strategic orientations of international business

Describe modes of entry and countertrade

Discuss how southern African organisations can become world-class ones

15.1 INTRODUCTION

All organisations are affected by globalisation which can come in different forms and dynamics.

The organisation strategy should be altered as globalisation affects the organisation.

15.2 THE SCOPE AND DYNAMICS OF GLOBAL BUSINESS

In business and specifically in international business, change is the only constant. The world

changes so rapidly that managers need to keep an eye on the environment and the business to

ensure that the organisation is not outdated. The following are different types of trade barriers in

global organisations.

Distance

Time zones

Language

Government regulation

Culture

Business systems and procedures

Globalisation is when national economies merge into an interdependent global economic system.


15.3 STRATEGIC ORIENTATIONS OF GLOBAL ORGANISATIONS

Globalisation is not as easy to integrate as it seems. Therefore,“Glocalisation” is used as an

alternative which is built on the principle of globalisation except that it “Thinks global, but act

local”. The following are four different orientations in which organisations can function abroad:

Ethnocentric orientation

Polycentric orientation

Regiocentric orientation

Geocentric orientation

15.4 THE STRATEGIC CHOICES OF THE GLOBAL BUSINESS

Organisations that operate internationally are able to do the following:

Earn a greater return

Realise location economies

Realise greater experience-curve economics.

In figure 15.1 the four strategy choices are shown.

International strategy

Multidomestic strategy

Global strategy

Transitional strategy

Figure 15.2 shows the four modes of entry namely:

Importing and exporting

Licensing and franchising

Strategic alliances

Wholly owned foreign subsidiaries


A countertrade is an alternative way of structuring an international sale when conventional means

of payment are difficult. The following are the different types of countertrades.

Barter

Counterpurchase

Offset

Switch trading

Compensation and buybackss

Additional reading

Read ‘Strategy in Action’ 15.1 in chapter 15 of the prescribed textbook – The 2010 opportunity

15.5 SOUTHERN AFRICA – AN EMERGING GLOBAL MARKET

Southern Africa is an emerging global market of potential importance. Continuous investments

and growth will depend on the ability of markets. The prescribed text book discusses factors that

affect foreign direct investment as well as high growth industries in southern Africa.

15.6 CONCLUSION

Globalisation is a given to all organisations all over the world. No matter what type of organisation,

globalisation will affect it. The organisations strategy will need to be adjusted to facilitate

globalisation.

Revision Exercise

Read the DaimlerChrysler in South Africa case study at the end of Chapter 15 in the

prescribed textbook.

Discuss the concepts of globalisation versus glocalisation in relation to the case.


Discuss which of the four international strategies available to managers was chosen by

DaimlerChrysler and the reasons why.

Discuss the mode of entry DaimlerChrysler used in South Africa.

Suggest and evaluate other international strategies DaimlerChrysler could follow to secure

a future in southern Africa.

Revision Exercise


Explain the strategic choices that SAB has for further expansion into the global market.

Which global strategy would probably be the best for SAB to pursue in the following

regions:

North Africa

Asian countries

European countries


LIST OF REFERENCES

The overall content of this learner guide is based on the prescribed textbook of this module.

Ehlers, T. Lazenby, K. (2012). Strategic Management. 3rd ed. Van Schaik.

Alphabetical list

Abell, D.F. (2006). “The future of strategy leadership”. Journal of Business Research. 57(3): 310-314

Ehlers, T. Lazenby, K. (2012). Strategic Management. 3rd ed. Van Schaik.

Business Dictionary. (2010). Available from:

http://www.businessdictionary.com/definition/strategic-management.html


http://www.businessdictionary.com/definition/strength.html html


http://www.businessdictionary.com/definition/weakness.html html


http://www.businessdictionary.com/definition/opportunity.html html


http://www.businessdictionary.com/definition/threat.html html

http://www.nedbankgroup.co.za

Business Dictionary. (2010). Available from: http://www.businessdictionary.com/definition/reward-

system.html

Hill, C.W.L. (2001). International business: competing in the global marketplace. 3rd ed. New York: McGraw-Hill Irwin

Ireland, R.D. Hitt, M.A. (1999). “Achieving and maintaining strategic competitiveness in the twenty-first century: the role of strategic leadership.” Academy of management executive. 13(1): 43-57

Nordqvist,M. Mellin, L. (2009). “Strategic planning champions: Social craftsperson, artful interpreters and known strangers.” Long range planning. 41(3): 326-344

Service, R.W. (2006). “Development of strategic intelligence: a managerial perspective.” International journal of management March:61.

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GLOSSARY

Acquisition: When one company, the acquirer, purchases and absorbs the operations of another, the acquired.

Barriers to Entry/Exit: Economic or other characteristics of a marketplace that make it difficult for new firms to enter or exit. Examples include: economies of scale; product differentiation; capital requirements; cost disadvantages other than size; access to distribution channels; government policy; etc.

Benchmarking:

An analysis of competitor strengths and weaknesses; used to evaluate a firm’s relative competitive position, opportunities or improving, and success/failure in achieving such improvement.

Best Practices: The business methods and procedures utilized by firms considered the leader in an industry.

Business Model: A company’s business model is management’s storyline for how the strategy will be a money maker.

Company Culture:

The mix of important assumptions shared by members of an organization; may be explicit or implicit, usually determined by the business environment of a firm’s industry; the prior experience of employees in other firms, professions, communities, etc; and the experiences that the employees share in their everyday work environment within the firm.

Company Mission:

The unique purpose of a firm that sets it apart from firms of its type; identifies scope of operations including markets, customers, products, distribution, technology, etc. in manner that reflects values and priorities of the firm’s strategies.

Competitive Advantage:

Advantages that a firm has over its competitors. See also Sustainable Competitive Advantage.

Competitive Position: The position that a firm has or wishes to achieve within its industry as measured against its competition.

Competitive Reaction: Anticipated reaction of competition to a firm’s strategic initiatives.

Concentric Diversification:

A strategy of growing a firm by acquiring other firms which are similar to and synergistic with the acquiring firm in terms of markets, products, or technology. See also Conglomerate Diversification.

Conglomerate Diversification:

A strategy of growing a firm by acquiring other firms for investment purposes; usually little or no anticipated synergy with the acquired firm. See also Concentric Diversification.

Consolidation: The merger of business units and/or property portfolios.

Core Competencies: The competencies of a firm required to fulfill its value proposition with its customers; competencies may be competitively unique to an industry but not necessarily a single firm. See also Competencies, Non-Core Activities, Value Proposition.


Cost Advantage (Disadvantage):

Operating advantage enjoyed by an entrenched firm, which would be difficult for entering firms to capture, regardless of size. May relate to patent protection, proprietary technology, learning curve, experience curve, government subsidies, favorable locations or access to key raw materials.

Differentiation Strategy:

One of three generic strategies in which a firm strives to create and market unique

products/services for various customer groups. See also Focus Strategy and Low Cost Strategy.

Diseconomy of Scale:

When a company has become so large that additional production creates reduced marginal revenue. See also Economy of Scale.

Distribution Channel: The means by which products or services are moved from production to customer.

Distinctive Competence:

A competence that provides a firm with a competitive advantage in the marketplace.

Diversified Company: A company that has enough different products so it does not depend on success of one product or type of product.

Divestiture: The sale of all or major part of a firm.

Driving Forces:

The most dominate forces because they have the biggest influence on what kinds of changes will take place in the industry’s structure and competitive environment.

Early Entrants: Firms entering new markets or developing new products before other firms. (Also known as “first mover”) See also Late Entrants.

Economy of Scale: A reduction in costs through larger operating units, spreading fixed costs over large numbers of items/units. See also Diseconomy of Scale.

Emerging Industry:

A newly formed or restructured industry growing faster than the overall economy. Usually created by changing customer needs, technological change or other socioeconomic conditions. See also Mature Industry.

External Environment: The conditions and forces that define a firm’s competitive position and influences its strategic options. Also called Competitive Environment.

Financial Objectives: Concerned with the financial results and outcomes the management wants the organizations to receive. Ex: earnings/growth/stock price.


Five Competitive Forces:

A tool that helps diagnose the principle competitive forces in the market and assess how important each one is:

- The rivalry among competitive sellers in the industry

- The potential entry of new competitors

- The market attempts of companies in other industries to win customers to their own substitute products

- The competitive pressures from sellers

- The competitive pressure from buyers

Flat Organization:

An organizational structure in which most middle management functions are eliminated, allowing senior management to have greater exposure to customers and to those in the organization that deal with customers. See also Flat and Matrix Organizations.

Focus Strategy:

One of three generic strategies in which a firm tries to appeal to one or more customer groups focusing on their cost or differentiation concerns. See also Low Cost Strategy and Differentiation Strategy.

Focused (Market Niche) Strategy Based on Lower Cost:

Concentrating on a narrow buyer segment and out competing rivals by serving niche members at lower cost than rivals.

Functional Organization:

An organizational structure along functional lines (e.g. marketing, acquisition, asset management, development, finance and accounting, etc.) See also Flat and Matrix Organizations.

Functional Strategies:

Strategies for each firm’s function or division; integrates into Grand Strategy and ties to Long-Term Objectives. See Grand Strategy; Long-Term Objectives.

Generic Strategies:

Three approaches to strategic planning based on different fundamental ideas about how to appeal to the customer. See Low Cost Strategy, Differentiation Strategy, and Focus Strategy.

Grand Strategy:

A firm’s comprehensive plan of key actions by which it plans to achieve it Long-Term Objectives; usually considers factors such as market development, product development, innovation, horizontal and/or vertical integration, diversification, joint ventures and strategic alliances, turnaround, divestiture, liquidation, etc.

Growth Industry:

Horizontal Integration:

An industry growing at the same rate as the nation’s economy.

The acquisition of similar firms operating at the same stage of the production/marketing chain as the acquiring firm. Utilized to expand into new markets and/or eliminate competition. See also Vertical Integration.

Joint Venture:

A third party commercial operation established by two or more firms to pursue a particular market, resource supply, or other business opportunity. Created and operated for the benefit of the co-owners.

Key Success Factors: The product attributes, competencies, competitive capabilities and


market achievements with the direct bearing on company profitability.

Late Entrants:

Firms entering new markets or developing new products after they have been established by other firms. Also called Latecomers. See also Early Entrants.

Leapfrogging:

Establishing entirely new competitive space in which a firm is not only a leader but establishes most, if not all, of the standards by which other firms in its industry are measured.

Long-Term Objectives:

A firm’s intended performance over a multi-year period of time; usually includes measures such as competitive position profitability, return on investment, technology leadership, productivity, employee relations and development, public responsibility. See also Short-Term Objectives.

Low Cost Strategy:

One of three generic strategies in which a firm attempts to establish itself as the cost leader in the industry. See also Focus Strategy and Differentiation Strategy.

Macro-environment:

All relevant forces outside company boundaries that are important enough to affect the company’s business model strategies.

- The economy at large

- Legislations and regulations

- Population and demographics

- Societal values and lifestyles

- Technology

- Immediate industry and competitive environment

Market Leader:

Market Share:

The company that has control over a certain market.

The revenues generated by a firm as a percentage of total revenues; usually measured by industries, markets, or products.

Matrix Organization:

An organizational structure which delegates power to independent operating units which then rely on centralized corporate facilities for functional support. See also Flat and Matrix Organizations.

Mature Industry: An industry growing slower than the overall economy or actually declining. See also Emerging Industry.

Merger:

Combination and pooling of equal companies, with the newly created company often taking on a new name.

Outcomes: Results arising from management actions.

Outsourcing:

Partnerships:

Contracting and activity to another firm. Entails forming a new corporate entity owned by partners that can be terminated whenever one of the partners choose.

Portfolio Approach: A method of looking at each of the “businesses” of a firm as elements in a total portfolio.


Product Life Cycle Analysis:

A forecasting technique which analyzes/predicts the performance of a product/service during each stage of its development.

Retrenchment Response:

In a turnaround situation, cost cutting and asset reduction to improve a firm’s fortunes.

Short-Term Objectives:

Usually one year objectives sometimes known as Annual Objectives. They often coincide with Long-Term Objectives; they usually indicate the speed at which management wants the organization to progress. See also Long-Term Objectives.

Stakeholder: A person, group, or business that has an interest in the outcomes of a firm’s operations.

Strategic Advantage: See Competitive Advantage.

Strategic Alliances:

Cooperative agreements between firms that go beyond normal company-to-company dealings but fall short of merger or full joint venture partnership with formal ownership ties.

Strategic Analysis:

Contrasts a firm’s Company Profile with its External Environment to identify a range of possible strategic alternatives; screened against the Company Mission statement to determine desired opportunities.

Strategic Business Units:

The organization of a firm by “groups” of divisions that serve similar strategic interests of the firm. Utilized by larger firms with multiple divisions.

Strategic Decisions: Management decisions related to the future of a firm’s operations; made at the corporate, business, functional, and individual level.

Strategic Vision: The company’s direction and future product/customer/market/technology focus.

Strategic Management- Consists of 5 Interrelated Managerial Tasks:

1. Develop a Strategic Vision

2. Set Objectives

3. Craft a Strategy

4. Implement and Execute the Strategy

5. Evaluate Performance, Monitoring New Development and Initiating Corrective Adjustment.

Strength:

A skill, resource, or other advantage that a firm has relative to its competitors that is important to serving the needs of customers in its marketplace. See also Weakness.

Sustainable Competitive Advantage:

Competitive advantages that can be maintained over a fairly long period of time. See also Competitive Advantage.

Switching Costs:

The costs incurred by a customer in changing from one firm to another to meet their requirements.

Trend Extrapolation: A forecasting technique utilizing linear or exponential smoothing or


averaging of historical values.

Value-Chain:

Separate activities, function and business processes that are performed in designing, producing, marketing, deliveries, and supporting a product or service.

Vertical Integration:

The acquisition of suppliers (backward integration) or distributors (forward integration). Utilized to expand operations, achieve greater market share, increase the efficiency of capital, and/or improve economies of scale. See also Horizontal Integration.

Weakness: A limitation or lack of skills, resources, or capabilities that impedes a firm’s effective performance. See also Strength.

Compiled by Debora Dragseth, Ph.D. [PDF] Glossary of Strategic Management Terms www2.dsu.nodak.edu/users/rbutz/.../pdf/terminology.pdf

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