introduction to b s

8/2/2019 Introduction to b s

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To: Mr. Kinoti

From: Ogunsanlu Elizabeth

Date: 09/06/11

INTRODUCTION

Strategic management is about setting aims of an organization, choosing the most appropriate

goals towards the set aims, and fulfilling both the chosen appropriate goals & aims of an

organization over time. According to Steiner(1979) business strategy is the act of designing a

desired future and identify ways to bring it about, the activities that are involved in business

strategy have in the past been referred to as strategic planning, long-range planning, corporate

planning and business policy. The term planning has been put aside in recent years and

replaced with management, may be because of its association with neatness, detail, and

structures, which suggests a broader approach to the activities involved in business strategy.

Therefore business strategy is seen to be as much about vision, mission, goals, objectives and

direction as about mechanisms and structures.

COMPERATIVE DEFINITIONS OF BUSINESS STRATEGY

Alfred D.Chandler(19862): Alfred provided one of the early definition of business strategy, as an

American business historian he viewed business strategy as the determination of the basic

long-term goals and objectives of an organization, and the adoption of courses of action and

the allocation of resources necessary for carrying out those goals. Alfred subscribes to the view

that business strategy is as much about defining goals, objectives, mission as well as vision and

providing means to achieve them.

Kenneth Andrews(1987): Kenneth in his definition of business strategy distinguishes between

corporate strategy and business strategy, Kenneth viewed business strategy as a vital aspect of

corporate strategy which is the pattern of decisions that represent the unity, coherence and

internal consistency of a companys strategic decisions that position a company in its

environment and give the firm its identity, power to mobilize its strengths and its likelihood of


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success in the marketplace. Kenneth according to its definition, combines goal-setting with the

policies and plans needed to achieve the goals.

Ansoff and McDonnell(1990): They provide the following definition by comparison, separating

goal-setting from strategy. They defined business strategy as the systematic approach for

managing strategic change which consists the following:

Positioning the firm through strategy and capability planning Real-time strategic response through issue management Systematic management of resistance during strategic implementation.

This definition is applicable where it is important to watch the process in operation and make

appropriate changes as soon as possible.

Finally, business strategy is to make an organisation to act as a responsible corporate citizen in

the communities within which it operates. Directing and implementing the process of business

strategy is the responsibility of the organizationss board of directors, or equi valent top

management. However the process once started is an organization-wide collaborative effort to

satisfy the expectations of all its stakeholders. Business strategy is all about organisations

mission, vision, goals, and objectives which can be defined as follows:

Mission: It is the overall purpose of an organization, such as tasks that are undertakenfrequently by the organization. It should contain the products and services of the

organization and the target market.

Vision: It is the desired future state of an organization and the inspiration around whichstrategies may seek to focus the attention and energies of members of the organization.

It has to show the bright future of the organization and should not be ambiguous but

clear and well understood.

Goal: It is the short term aim that is in line with the organisations mission which theorganization wants to achieve. It is qualitative in nature.

Objective: It is also a short term aim of an organization that is in line with the missionbut quantitative in nature.


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ENVIROMENTAL AND ORGANISATIONAL AUDIT OF KENOLKOBIL

The process of Kenolkobil business strategy takes place in a complex environment of business,

economic, technological, social, and political influences. Understanding this external

environment is crucial to strategic decision-makers of Kenolkobil, and has to be taken into

account alongside any assessment of Kenolkobil`s internal environment.

MACRO(EXTERNAL ENVORONMENT)

The principal external forces that bear on Kenolkobil are as follows:

Political and legal Environment: This includes government, company law, labour law, and

taxation

Government: The activities of the Kenya government through its legislature and law

enforcement agencies may impinge considerably on Kenolbil. Kenkobil as well as all

other organisations are affected by the fiscal and economic policies, and all have to

operate within the law of the land.

Company law: These are laws that allow Kenolkobil to exist as an organisation and as

well define the way and manner in which Kenolkobil should operate as an organisation.

It also determines the right and relationship at the heart of the new ways Kenolkobil

should act and think as well as the impact Kenolkobil have on the environment and

people. This law also considerably impinges on the businesses and activities of

Kenolkobil.

Labour laws: It is the body of laws, administrative rulings, and precedents which

address the legal rights of, and restrictions on Kenolkobil and its employees. Labour law

may at times increase the power of employees as a stakeholder and making their

influence to affect the activities and decisions of Kenolkobil.

Development in East African Community: Any development in EAU as per the economy

of the country members shall surely have either negative or positive effect on

Kenolkobil as organisation in one of the member country.

Political changes: Political changes relate to changes in government influence and can

have a huge significance for Kenolkobil. Changes in the priorities for public spending or


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Kenya relationships with other countries can open or close major markets for

Kenolkobil as well as other organisations operating in KENYA.

Economic Environment: This includes inflation rate, employment levels, interest rate, exchange

rates, and business cycle.

Inflation Rate: Because prices are always changing due to inflation rate businesses as

well as consumers spend a lot of time looking for the best price (moving up and down)

which is a cost on its own and they may not find the best deal which is another cost.

Interest Rate: Kenolkobil may want to borrow from the bank, if the interest rate is low it

will be a good deal for Kenolkobil but if the interest rate is high it may difficult for

Kenolkobil to borrow money and expansion plan may have to be delayed or

abandoned.

Employment level: The number of employed people is particularly important for

consumer market, if the levels of unemployment are high a few people will purchase

goods or services of Kenolkobil.

Level of personal savings: If people earn money they can either spend it or save it, if

they spend Kenolkobil may get benefit through making sales of their products and

services.

Taxation levels: Taxation levels and the nature of taxes can greatly affect Kenolkobil and

its customers in the sense that, income tax rate affect the amount that people would

have to spend and the VAT also affect the way customers will purchase the goods and

services of Kenolkobil.

Social Environment: This includes population changes, consumer confidence, skills levels,

spending patterns, attitude to work and leisure. Kenolkobil should take into consideration all

these things stated above when taking into account social influences. Life style of both young

and the respectable middle-aged life style are often influenced by the media while the

influence of peer groups pressurising to conform to be like their peers in making their choice of

products and services.


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Technology Environment: Rapid developments in technology can exert a powerful influence on

Kenolkobil. The combined impact of the computer, digital technology and telecommunications

affect Kenolkobil and its activities. As an organisation that wants to maintain a competitive

advantage, Kenolkobil have to be ready to adopt and adapt technological developments to their

production and administrative procedures in order to stay ahead.

In conclusion, the above external or micro environment audit shows the complete analysis of

PEST which is important to Kenolkobil as well as other organisations.

MICRO ENVIRONMENT (INTERNAL ENVIRONMENT)

It includes all factors which impact directly on Kenolkobil and its activities in relation to a

particular market in which it operate, It can also include any internal development of a

marketing strategy.

Micro Environment involves the following parties: supplier, customers, competitors and

interest groups.

Bargaining power of buyers: The buyers of goods and services offered by kenolkobil are

in a strong position in this situation. What is often called a buyers market. They can

drive a hard bargain with Kenolkobil may be by seeking a good trade in price or free

delivery offered to them. It is also open to Kenolkobil to squeeze price margins for their

customers thus reduce distribution cost. However, such a step as to be weighed up

against the possibility of causing customers to go elsewhere but in severe competition

the prices of Kenolkobil products may come down, which ultimately benefit the

customers.

Bargaining power of suppliers: When competition is high, those who are serving

Kenolkobil in a subsidiary capacity such as suppliers are in a relatively weak bargaining

position in relation to Kenolkobil. The reason is that the sales of th suppliers are

dependent on the end products Kenolkobil being sold, therefore they vested interest to

see that Kenolkobil is doing well in sales of their products. In these circumstances,

Kenolkobil will be foolish not to look for saving on the bills of their suppliers and put


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pressure on their suppliers to ease their prices, thus allowing Kenolkobil to compete

with judicious price-cuts against the competition.

Threat of substitute products: This gives customers Kenolkobil the possibility of giving

up Kerosene or cooking gas in favour of charcoal. This will limit the ability of Kenolkobil

to raise the prices of kerosene and cooking gas. The threat of substitute offer impact on

price based competition contribution.

Threat of new entrant: Newcomers into oil and gas industry will bring extra and more

competition to the existing organisation like Kenolkobil. But low the profit margin as a

result of substitute products the high cost of entering the market would be unattractive

to newcomers. In considering the issue of new entrants, there are seven major barriers

to market entry listed by Porter, which can be summarised as follows:

1. Economic of scale, i.e newcomers have to come on large scale or they run intoinevitable cost disadvantages unless they can buy their way into the market by

purchasing a firm that is already existing and active in the market.

2. Capital requirement, i.e the need to invest considerable sums of money in a newbusiness, which may not be recover due to start-up losses, advertising, reaserch and

development. This is another huge barrier to newcomers.

3.

Switching costs, i.e it refers to the cost (time, money, convenience) that a customerwould have to incur by switching from one products to another.

4. Lack of access to distribution channels, i.e new comers must work their way intoexisting distribution channels e.g dealers networks, wholesalers etc or they establish

brand new ones which could be difficult for them.

5. Cost disadvantages regardless of size, i.e newcomers will always tend to have certaincost disadvantages compared with established firms, who will have gained experience in

the market and have enjoyed some benefits from the government. New entrant maynot have none of these advantages, and are likely to pay a premium price to share in

them.

6. Government policy, i.e through licensing and legal regulation, governments can limit oreven prevent newcomers from operating in the industry.


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7. Product differentiation, i.e newcomers have to find ways of overcoming existing brandloyalties in order to get their own products or brands accepted.

Degree of competitive rivalry: The intensity of competitive rivalry within the oil

industries will affect the profitability of Kenolkobil, the reason is that one of surest way

to compete is through price, where for goods and services of a comparable quality the

competitor of Kenolkobil is offering a lower price. For this reason Kenolkobil will be

forced to bring down its price even when it is not convenient, in order to be able to

compete and as well increase market share. In considering the issue above, there are

determinants to degree of rivalry which are summarised as follows:

1. Size of the organisation, i.e if the firms are of equal capacity, the degree of rivalry willbe high but if the firms competing are of different capacity the degree of rivalry will be

low e,g large firm competing with small firm, degree of rivalry will be low but small firm

competing with small firm, degree of rivalry will be high.

2. Size of the market, i.e If the market is small the rivalry will be high but if the market islarge there is no need to fight or rival.

3. Switching cost, i.e if the switching cost is high the rivalry will be low but if switching costis low the degree of rivalry will be high.

4.

Exist of entrant, i.e if there is easy exist from the market the degree of rivalry will below.

The above stated points are major possible determinants of rivalry in any type of industry which

are important for the decision maker of any industry to put into consideration.

APPLIICATION OF STRATEGIC POSITIONING TECHNIQUES

The above discussion have concentrated on the key aspects of Kenolkobil`s internal and

external environments. A major portion of the assessment of those environments has to be

focused on the present and past performance of both Kenolkobil and its competitors, it is even

more critical to look to the future and predict potential performance and trends. This has to be

attempted internally for Kenolkobil`s own performance which is the strategic positioning, and

externally for the competition in term of political, economic, social, and technological


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environment. There are techniques that can be used in strategic positioning which are

discussed as follows:

1. Market Growth Strategies (Ansoff Matrix 1965): The basic matrix adapted from Ansoffis as follows;

Present markets Present products New products

Market penetration Product development

Market development Diversification

New markets Market development Diversification

The model indicates four principal product-market strategies, which can be summarised as

follows:

Market penetration, i.e Kenolkobil should aim to focus its activities on increasing its

market share by exploiting its present product range in its present markets. This

indicates a situation where by Kenolkobil is consolidating its strength on maintenance of

market share as well as increasing it rather than profitability. Also to be the dominant

producer in oil industry as well as increasing the usage of its products by the existing

customers.

Market development, i.e Kenolkobil should take its present products into fresh markets

and then focus its activities on market opportunities and competitors situation.

Product development, i.e Kenolkobil should aim at introducing new products into

existing markets and then focus on developing, launching, and supporting the new

product and the range.


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Diversification, i.e Kenolkobil should branch out into both new products and newmarket. This strategy can be further sub-divided into horizontal diversification, vertical

integration, and conglomerate diversification. Kenolkobil should aim diversification

strategies at extending the core businesses. They can achieve this in the following ways:

Horizontal diversification: This occurs when an organisation takes over a business ofthe same type and with a related technology, for example Kenolkobil took-over shell`s

operation in Rwanda 4th

of February 2006.

Conglomerate diversification: This is where an organisation branch into another line ofbusiness or another business in a completely new product-market situation, for example

Kenolkobil diversify into Estate management and Property development East Africa with

about 4-acre piece of land in Addis Ababa where they intend to develop into residentialcentre.

Vertical integration: In practice this refers to take-over of either supplier firm or adistributor firm.

2. Market Leadership or Competitive strategy( Porters strategy 1985): This a differentapproach proposed by Porter in 1985, in examining from the point of view he terms

competitive advantage, he proposed three principal strategies; cost leadership,

differentiation and focus. A competitive strategy requires Kenolkobil to either compete

across the entire market or choose a segment of the market i.e competitive scope. The

principal competitive strategies are summarised as follows:

Cost leadership, i.e Kenolkobil sets out to operate at the least-cost possible in order to

be the least-cost producer and as well make profit.

Differentiation, i.e Kenolkobil should find one or more unique attributes for which

customers are ready to pay a premium price and positioning itself to provide those

attributes. This differentiation can be based on the following strategies:

Price differentiation, i.e Kenolkobil can be charging less than its competitors Image differentiation, i.e Kenolkobil can be giving their products a unique packaging

that is more fascinating more than the competitors without affecting the products.


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Support differentiation, i.e Kenolkobil should endeavour to provide extra services fortheir customers after the sale e.g easy credit facilities or a free safari holiday in Kenya, if

you buy any of products before the end of the month

Quality differentiation, i.e producing a better product that is more reliable and superiorin performance.

Design differentiation, i.e This producing a product that is truly different.Focus strategies, i.e a small market segment that is to be targeted, this can be based on

the following strategies:

Segmentation strategy, i.e deliberately aiming to reach specific market segment orgroups of segments

Niche strategy, i.e focusing exclusively on a single market Customising strategy, i.e even more closely focused than a niche strategy, in that an

individual customer becomes the segment.

3. Profitability: Profits are achieved when cost are less than revenues. To achieve thisstrategy a lot of effort should be put to increase the revenue generated e,g increasing

customer retention and loyalty, on the other hand cost should be reduced. But some

cost are unavoidable, the only thing Kenolkobil can do in such situation is to ensure that

such cost incurred generates more revenue.

4. Survival: This strategy is used at initial stages of operation when the organisationanticipate a bright future, it can be used during harsh economic condition like recession

but the organisation anticipate a better future.

5. The Boston Consulting Groups portfolio frame work: BCG, founded Bruce Hendersonhas contributed some important ideas to the debate about strategic choice. The most

important ideas given by Bruce Henderson are summarised and reviewed as follows:

The BCG Growth-Share Matrix, In 1979 this model was originally aimed at diversified

companies, but was subsequently extended to encompass product portfolios, each with

their different growth rates and different market share. In application of this model,

Kenolkobil would have to rate its products basically on three major variables which are;

market share, growth rate, and cash flow. The four alternative categories of products


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that emerge from the model are given the somewhat idiosyncratic labels of Stars, Cash

Cows, Problem Children and Dogs.

High

Growth Rate

Low

High Low

Relative market share

Stars are Kenolkobil product with high market share, high growth, but limited cash flow due to

investment required to maintain the growth. Successful stars go on to become cash cow which

are Kenolkobil products that have high share but slow growth, they tend to have a very positive

cash flow most of which can be used to develop other business or products e.g Kenolkobil fuel.

Dogs are the Kenolkobil products that have low share of slow growth market. They may be

profitable, but only at the expense of cash reinvestment and generate little or nothing for other

project. Problem children are the kenolkobil products which have a low share of a fast growingmarket and need more cash than they can generate themselves in order to keep up with the

market.

BCG Experience Curve, Experience curve is a useful model of focusing on the

relationship between costs and experience as well as competitors cost. Once the

StarProblem child

Cash cow Dog


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competitors cost has been determined with the use of Experience curve, then

Kenolkobil can now lower its price down in order to displace its competitors. Factors

that contribute to the experience curve includes:

Improved labour efficiency over time Improved performance from existing equipment Improved production methods in the light of experience, and Improved supplier condition

When Kenolkobil experience at producing and selling it products increases, the cost of

production will be reduced to an extent, which can enable Kenolkobil to consider the early

option of price reduction on its products, which in turn leads to lower prices than the

competitors as Kenolkobil take advantage of its experience curve.

POSSIBLE CONSIDERATION FOR STRATEGIC ANALYSIS

Change: change, especially in the sense of improvement, is at the centre of business strategy.

Some organisations change largely in response to external circumstances, this is often called

reactive change. Others change principally because they have decided to introduce change, this

usually known as proactive change. Some organisations are conservative in outlook, seeking

little by way of change while others are always on the look-out for new opportunities and

challenges. Business strategy is the process that combines a number of these varying attitudes

towards change. Once an organisations senior management begins to think strategically, it

follows that some changes will be made because of changes in the external environment, and

are hence reactive. Other changes, however, will be introduced(proactively) because they are

seen to be useful in their own right and not because they have been dictated as a result of

external pressure.

Competitive Market: In a situation where by organisations would have to compete fiercely in

the market on differentiation, where distinct competitive advantage can be gained due to close

contact with customers and better understanding of their specific value requirements. They


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compete as closely as possible on price, and how they can find competitive advantage within

the industry. In situation like this organisations need strategic analysis to survive.

Product/Service Quality: One of the most consistent themes to be found embedded in mission

statements, goals, and objectives is that of quality. Organisations have been keen to stress their

attention to product/service quality not just in their mission statement but also in the way they

implement their chosen strategies internally. In fact no business strategy will succeed fully in

todays competitive conditions unless it gives adequate priority to quality, also no organisation

will succeed in offering good quality and service unless it gives adequate priority to strategic

analysis.

Stakeholders: All organisations exist to serve one or more interests outside themselves. Most,

in fact, have relationships with a range of interested stakeholders. The most obvious of

interested stakeholder is the customer, who may be a private buyer, a work colleague, or

another organisation. Customers have concerns such as the quality, price and timeliness of the

product or service they are buying. Organisation need to analyse strategically in other to meet

these concerns and to so in a profitable manner.

STRATEGIC PLAN FRAME WORK

Task 1 is to define the overall business and develop a mission Task 2 is to break down the mission statement into goals and specific performance

objectives

Task 3 is the crafting of strategy and strategy capacity Task 4 is implementation and execution of strategy Task 5 is to evaluate and review the implementation


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STRATEGIC PLAN FOR KENOL KOBIL

Task 1

Vision of Kenolkobil: To be the leading brand in all markets it operates in, and a major player in

Africa.

Mission of Kenolkobil:

To develop, improve and increase quality and total value of products and services.To become a market leader through continuous innovation, customer focus and provide the highest

quality products and services.

To maintain a highly motivated, well trained human resources base. To deliver the highest shareholders value.

Task 2, Goals

Increase in market share Aggressive Expansion.

Objectives

To increase its market share in the regional markets before the year runs out. To have Kenolkobil present in all member of the East Africa before the year runs out.

Task 3

Strategy: Growth via acquisition

Strategy capacity:

Investigation of acquisition candidate Self-analysis Conducting thorough evaluation and Acquire companies with smaller P/E Ratios than yours


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Task 4

Financing the transaction Ensuring a smooth Transaction Budgetary procedures

Task 5

The review and evaluation of the objectives

CASE STUDY: Kenolkobil and BP Africa-Growth via Acquisition

Introduction

Kenol previously operated in Kenya under a joint management arrangement with Kobil

Petroleum Limited, where the two shared profits and expenses in certain areas of business.

Under the terms of the operating agreement, Kenol accounted for 42.5% of the combined costs

and revenues of Kenya retail service while Kobil accounted for the remaining 57.5%.

Kenya Oil acquired 100% of the shares in Kobil Petroleum on 19 December 2007, after Kenols

2007 financial year. The transaction involved Kenol allotting 45.5 million shares in exchange for

100% of the issued shares of Kobil which has strategic assets including important strorage

depot facilities across Kenya.

Growth via Acquisition- Kenol Kobil self analysis

Kenolkobil is the leading oil marketing company in Kenya with a rapidly expanding network of

subsidiaries in Africa. The company is also engaged in direct trading business activities in East,

Central and Southern Africa. It is a dynamic, innovative company with a focused growth and

diversification strategy in the continent.

Kenolkobil has a combined stronger balance sheet that has given them improved borrowing

terms with financiers as well as enables a better negotiating platform with oil suppliers, thus

resulting in improved earnings going forward.


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Investigation of acquisition candidate (BP Africa)

British Petroleum Company plc

The British Petroleum Company plc is one of the largest companies in Europe and the third

largest oil company in the world. Its total turnover in each of the last five years has been in

excess of 30billion pounds with total capital employed in excess of 17billion pounds. At the year

ending 31 December 1996 it employed 53,150 employees worldwide. The BP Group is

composed of three core businesses as follows:

BP Exploration, the upstream part of the business, which is reaponsible for theexploration and production of oil and gas; it operates all over the world-in the Africa,

North Sea, off the Shetlands Islands, and off the coasts of Venezuela and in Azerbaijan

to name but a few of its drilling and exploration sites.

BP Oil, the downstream part of the business, responsible for the refining, marketing andsupply of petroleum products.

BP Chemicals, which manufactures and markets a wide range of petro-chemicalproducts.

British Petroleum Africa

BP Africa region consists of the companys downstream operation in Namabia, Boswana,

Mozambique, South Africa, Tanzania, Malawi and Zambia which employ about 1760 staff.

In addition the company is engaged in oil and gas exploration activities in Angola, Algeria and

Libya. The downstream infrastructure in the region includes some 29 depots and terminals,

more than 800 retail sites and the largest refinery in the region co-owned with shell.

Valuation Principles

The two major value determiners are:

Perception of risk Expectation of future profit


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P/E RatiosIt is important to consider the P/E Ratios(Price/Earnings Ratios) at the valuation level. P/E ratios

of public company measures the amount investors are willing to pay for 1KSh of company

earnings and that private company P/E ratios are much lower than those of public companies.

Small companies generally have small P/E ratios. P/E ratios increase as companies grow and

develop structure, it also increases as dependency upon owner decrease.

Financing the Transaction

Kenolkobil has a combined strong balance sheet (Kenol&Kobil) that can improve borrowing

terms with financiers as well as enables a better negotiating platform with the financiers. Banks

and other lenders are aggressively pursuing acquisition lending, which makes financing the

transaction much easier.

Budgetary procedure

Budgetary procedures, and the budgets themselves have the function not only of identify

priorities(targets) and allocating resources, but also of enabling those resources to be shared

out with a reasonable degree of fairness. Thus, through the organizational explanations for

their units allocations and have access to procedures that can justify them.

The Review

The strategic plan begins with an honest assessment of Kenolkobils strength and opportunities

the business represent.

BPs operation in the markets are strong marketing businesses with strong market shares, well-

run and developed operations and infrastructure which Kenolkobil is very much interested to

acquire due to their goal of seeing their market shares grow substantially.

Kenolkobil has recently embarked on an aggressive expansion programme majorly through

ACQUISITION that has seen Kenolkobil gain command in several regional markets.


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For instance, last year the company set up shop in Burundi in a 100 per cent takeover of top oil

maker oil Burundi SA, previously owned by Engen international holdings, the largest brand in

South Africa and which belongs to Malaysian multinational petronas. The deal could provide

Kenolkobil with reliable fuel supply chain from Durban where Engens runs refinery which will

definitely be a great advantage to Kenolkobil.

In all, Kenolkobil has seen itself have a presence in all member of the East Africa majorly

through ACQUISITION.

FINAL NOTE

From the above discussion, there are theorist and business historians who separate out the

setting of aims and goals from the mechanisms and decisions designed to ensure their

achievement. However, it is much easier and better to consider or propose business strategy as

an organizational process designed to sustain, and direct the organisations human and other

resources in the profitable fulfillment of the needs of customers and other principal

stakeholders. The process is guided by organizations value system, or culture, which is

manifested not only in the organisations mission statement, policies, and strategic goals, but

also in the behavior of top management and other managers in the organization.

Business management process involves setting goals and objectives, and assessing the

organisations prospects for attaining these in the context of its internal and external

environment. It involves deciding which customers to serve, with which products or services,

and meeting those customers legitimate needs and wants by allocating resources in the most

advantageous way. It also involves decisions about stakeholders other than customers. It is

particularly concerned to meet the needs of the organisations shareholders for an adequate

return on their investment. It is concerned to treat all its employees fairly and to make

reasonable efforts to ensure that they are provided with satisfying services or jobs. It is

concerned to deal fairly, as well as cost effectively, with all its suppliers and to act responsibly

towards its major creditors.


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To: Mr. Kinoti

From: Elizabeth Ogunsanlu

Date: 09/06/11

RETRENCHMENT

It is the act of reducing expenditure in order to improve financial stability. Retrenchment is

something akin to downsizing. When a company goes through retrenchment, it reduces

outgoing money and redirect focus in an attempt to become more financially solvent.

One way a company can employ this tactic is by slashing expenditure through laying off

employees, closing superfluous offices, reducing benefits such as medical coverage, freezing

salaries or cutting salaries.

The second way in which a company may practice retrenchment is to downsize in one market

that is proving unprofitable and build up the company in a more profitable market. If one

market has become obsolete due to modernization or technology, then a company may decide

to change with the time to remain profitable.

Retrenchment has both negative and positive impact on organization as well as individuals,

which is discuss as follows:

Disadvantages of Retrenchment Strategy

Levin 1984 found that retrenchment leads to decrease of human resource that results from

cost cutting measures which brings loss of skills, energy, morale, commitment. It also cause

reduced co-operation attitudes, restriction of production and increased turnover as well as

lowered performance goals.

Biller(1976) is of the view that organizational costs increase as a result of retrenchment due to

the package granted on retrenchment and catering for the needs of re-training those retained

by the organization. Although lay-offs are intended to reduce the costs but some costs like the

out-of-placement benefit, pension and administrative processing costs may increase.


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Bench 1980 is of the view that retrenchment may create demoralization, dampen

organizational productivity and increase voluntary retrenchment, which means the

organisations most talented and productive members who will end up leaving the organization

on their own.

Biller 1980 says retrenchment causes industrial unrest. People whose status, income, and

future are dependent on the programs that employ them will inevitably resist the change there

by leading to industrial unrest which is further enhance by trade union.

Advantages

Retrenchment improve the quality service delivery of an organisation It improves financial viability in the short and medium term It strengthen organisations capacity and reverse any progressive decline in service

efficiency and effectiveness

GROWTH STRATEGY

It is a strategy aimed at winning large market share, even at the expense of short-term

earnings. One of broad growth strategies is diversification. Diversification in the context of

growth strategies is the strategy that involves a significant increase in performance of sales or

market share beyond past levels of performance.

Advantages

Rewards for managers are usually greater when a firm is pursuing a growth strategy.Managers are often paid a commission based on sales. The higher the sales level, the

larger the compensation received.

Growth strategies improve the effectiveness of the organisation. Larger companies havea number of advantages over smaller firms operating in more limited markets.

Large market share can lead to economies of scale. Marketing or production synergiesmay result from more efficient use of sales calls, reduced travel time, and longer

production runs.


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Growth in sales may make the company more attractive to investors.Disadvantages

The biggest disadvantage of growth via conglomerate diversification strategy is the

increase in administrative problems associated with operating unrelated businesses.

Managers from different divisions may have different backgrounds and may be unable

to work together effectively there by slowing down the organisations cooperative

objectives.

Without some knowledge of the new industry, a firm may be unable to accurately

evaluate the industrys potential. Even if the new business is initially successful,

problems will eventually occur. Executives from conglomerate will have to become

involved in the operations of the new enterprise at some point. Without adequate

experience or skills the new business may become a poor performer.

It is difficult entering a business with seemingly promising opportunities, especially if the

management team lacks experience or skill in the new line of business.

The major disadvantage of growth via vertical diversification is that, A vertically

integrated firm places all of its eggs in one basket. If demand for the products falls,

essential supplies are not available or a substitute product displaces the product in the

market place, the earning of the entire organisation may suffer.

SUGGESTED POSSIBLE ALTERNATIVE STRATEGIES FOR KENOLKOBIL

Product Strategies:

Maintaining existing products Developing range of new products Focusing on product quality and value-for-money Continuously improve product performance Employing the latest technology in production


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Market Strategies:

Increasing the proportion of our marketing expenditure allocated to advertising Continuously strive for a price advantage over our competitors Concentrating on current markets Concentrate on providing value for customers Constantly promote Kenolkobil reputation for quality/reliability

Financial Strategies:

Reduce the extent of debtors liabilities Increase level of borrowing(gearing) to fund new developments Maintaining present level of dividends to shareholders Acquire suitable companies and negotiate joint venture to achieve desired market

position.

Maintaining tight budgetary control over expenditure.Responsibilities for Strategy Implementation In the Context of Project Management

Project Responsibilities are the responsibilities taken in the roles at each level.

Functional manager: Functional managers are often department heads. Projects come and go,

but departments generally remain. Functional managers will have a large role in deciding how

the project work in their functional area is done. Functional managers and project managers

may negotiate who will be assigned to work on the project.

Project manager: The project manager is the focal point of the project. He or she will spend a

large amount of time communicating with everyone who is interested in the project. The

project manager will lead the planning, execution, and closing of the project. This person ideally

should be flexible facilitating type of a leader. Since project managers are responsible for the

project schedule, they will have a large role in deciding when project activities need to be

accomplished. Project managers are trusted with delivering project result needed by their

parent organization.

Facilitator: Many situations in project management require facilitation because the situation is

so complex or because opinions are varied. Sometimes, the workers on a project need to


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expand their thinking by considering the many possibilities(possible projects, approaches, risks,

personnel, and other issues). Other times the workers on the project need to focus their

thinking by selecting from many options( a project, an approach, a contractor, or a strategy).

Some project managers and sponsors can and do facilitate many of the meetings or enlist a

facilitator to help focus on the process of meeting while they focus on the project itself and the

content of the meetings.

Team members: Team members are the small group of people who are on the project from the

start to finish and who jointly with the project manager make many decisions and carry out

many project activities. Team members understand all aspect of the project and stay with the

project through completion. They are more concerned with completing the project on time,

with good quality, and on budget if possible than with either personal glory or doing the work

in his/her own discipline. He/she will do what it takes to get the project done.

Experts: While team members are typically assigned to the project from start to finish, many

projects also have a specific and temporary need for additional help. The necessary help may be

an expert who can help make a decision. It may be extra workers who are needed at a busy

time during the life time of a project. These extra helpers are often called experts since they are

usually needed for their specific expertise, and they are sometimes called extended team

members, because they are brought in for performing specific project activities whennecessary.

RESOURCES REQUIRED FOR IMPLEMENTATION OF STRATEGY

Human Resources: Human resource/personnel skills are a vital factor in implementation of a

strategy, for they are what are an organization must harvest in order to achieve its particular

reputation and perceived competencies in the marketplace. Together with motivation, skills are

what organizations need in order to meet the challenges of change . In the final analysis,

organizations are people. If people decide that they cannot or will not, commit themselves to

organizational goals and objectives, then their organization will not grow and such organization

will be subjected to revolutionary change. Sainbury considers people to be is its most valuable

asset. The management of human resource through the recruitment, training and retention of


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staff are vital to the companys continued growth and the importance of the personnel division

in the companys overall strategy. Forecasting human resource requirements can only be

carried out within the framework of a strategic plan. Otherwise it is difficult to answer such vital

questions as What new skill do we need to employ?, Have we sufficient personnel to carry

through the implementation of strategy?, Who should we recruit?, How best can we prepare

our own managers to move from specialist role to general management roles?. Thus like any

other major function in the organization, the human resource functions have to be planned

against the background of the overall plan for the company.

Financial Resources: This is another resource that is very important in implementation of an

organisations strategy. Without financial resource no strategy can be implemented, therefore

organization has to source for finance and allocate it through Budgetary Procedures to the

necessary areas in which it is needed during and after implementation.

Physical Resources: This includes lands and other properties that organization may need for

their growth and implementation of their strategy. For example, Kenolkobil diversify into

property development and estate management, definitely they need lands, and they acquire 4-

acres of lands in Addis Abbaba to carry out this operation. This is typical example of physical

resources. If the required physical resources needed are not provided, it may leads to delay in

implementation of strategy.

FINAL NOTE

Models of any kind are a representation of what is happening in reality. They do not tell the

whole truth, but are a useful guide to it. In focusing on strategic choices, on the grand plan

itself, we are looking at how an organization proposes to move itself forward over the next few

years. In reality the truth is usually less tidy than representations suggest, and it will be noticed

that, in some of the examples discussed, there is often a confusion between goals/aims and

strategies. For example, some organizations consider gaining market share to be a strategy,

whereas it may be more accurate to consider it as a goal or aim. Typical goals/aim may include:

profitability(return on investment), growth( such as in sales, assets, earnings per share) market

share(percentage, market leadership), and provision of value for customers.


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As a result of this, Peter(1987), in an emphatic manner, asks what is a good strategic plan?

There is none. But there is a good strategic planning process, said by Peter(1987).

This is a very typical question to all of us that have one thing or the other to do with Business

Strategy. Do we all agree with PETER, that there is no good strategic plan or do we have a

different opinion? This a question we must all provide answer for, either now or in the future.

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