MNG3701 EXAM PREP

QUESTION 1 – LU 1

a) Critically differentiate between the concepts of strategy, strategic planning and strategic management.

Strategy:

Strategy can be described as the long-term direction of the organisation, a pattern in a stream of decisions, the means by which organisations achieve their objectives and the deliberate choice of a set of activities to achieve competitive advantage. It has generally been acknowledged as the result or outcome of fundamentally important pre-emptive, innovative management decisions about an organisation’s strategic direction and strategic action plans to attain a sustainable competitive advantage and achieve its long-term objectives in rapidly changing and competitive external business environments.

Strategic planning:

Strategic planning or strategy formulation is the first phase of an integrated strategic management process, based on the concepts of strategic thinking and strategy, and comprises the three main decision stages:

1) deciding on the future of the organisation

2) analysing the organisation's external and internal environments

3) selecting appropriate competitive strategies – strategic choice

Strategic planning or strategy formulation specifies the strategies that need to be implemented for the achievement of an organisation's long-term objectives. Strategic planning involves making decisions about the organisation's long-term goals and strategies. Strategic planning becomes an ongoing activity in which all managers are encouraged to think strategically and focus on long-term, externally-orientated issues as well as short-term tactical and operational issues.

Strategic management:

Traditionally, strategic management has been defined as setting strategic direction, setting goals, crafting a strategy, implementing and executing strategy, and then, over time, initiating whatever correct adjustments are deemed appropriate. But recent research has suggested that strategy is not a sequential and discrete process; it is a rather more messy, overlapping and iterative process. However, the overall purpose of a strategy remains the attainment of a long-term position of advantage. The purpose of strategic management is to ensure that the organisation applies the following four key elements of a successful strategy:

1) A clear and consistent long-term strategic direction in terms of what the organisation wants to achieve in future.

2) A profound understanding of the competitive environment, to ensure that the organisation is able to align itself with opportunities and to deal with threats as effectively as possible.

3) An objective knowledge of the key resources and capabilities that the organisation possess, as well as an understanding of its value for the organisation, to allow the organisation to build on these and develop a distinct advantage.

4) The proper alignment of the organisation's structure, systems, culture and functional and operational management to ensure the effective implementation of strategic plans, projects and initiatives.

Strategic management is ultimately about consistently aligning the organisation with its internal and external environments. It involves managers from all parts of the organisation in the formulation and implementation of strategies, and integrates it into a single process.

Differentiation:

In conclusion, one can differentiate between these three concepts by stating that strategy itself is the long-term direction of the organisation, while strategic planning involves the decisions made to ensure that this long-term direction is indeed followed. And lastly strategic management integrates the formulation (planning) and implementation of these decisions into a single process, that ensures that organisation is on track with its long-term direction, and ultimately achieves its long-term objectives.

b) Describe the different levels of strategy in an organisation. [LU1]

Strategic management and decision making occur at different hierarchical levels in an organisation. The organisational structure of a multi-business organisation or corporation differs from that of a single business organisation. Corporate entities have four levels of strategy, with corporate strategy at the corporate level, business level strategies at the business unit level and tactical or functional strategies at lower levels. Single business organisations have no corporate level strategies. They only have three levels of strategy, with business level strategies at the top, followed by the other two types of strategies lower down:

Corporate level strategy - Corporate level strategy is only present in corporate entities. It involves the CEO, board of directors and corporate staff.

Business level strategy - Business level strategies involve the divisional managers and staff of separate business units of corporate entities, and the executive manager and senior staff of single business organisations.

Functional level strategy - Functional level strategies involve functional level managers and staff in each functional area in a business unit of a corporate entity, or functional areas of single business organisations.

Operational strategy - Operational strategies involve frontline managers in operations departments, in both corporate entities as well as single business organisations.

c) Critically discuss the importance, benefits and risks of strategy. [LU1]

Importance and benefits of strategy:

Strategy is a coherent narrative about the future direction of an organisation. It combines the views and thinking of many members of the organisation and communicates the outcome back to the organisation so that everyone follows the same strategy. It provides members of the organisation with a framework to guide their decision-making. It provides an actionable blueprint for achieving its aspirations. More specifically, the importance of strategy and, hence, strategic management is confirmed in the following broad terms:

It provides for cohesive strategic thinking and an innovative and future-oriented decision framework for the organisation.

It pools the contributions by organisational members, thereby facilitating the communication of strategy to all.

It is the verbalisation of the organisation's aspirations and serves as a source of motivation for everyone in the organisation.

Risks of strategy:

Despite its acclaimed benefits, strategic management also deals with risks of a strategic nature. Even though there are different perspectives on risk, strategic risk can be defined as “an array of external events and trends that can devastate a company's growth trajectory and shareholder value”.

Strategic risk can be categorised into seven major categories, namely:

1) Industry risk

2) Technology risk

3) Brand risk

4) Competitor risk

5) Customer risk

6) Project risk

7) Stagnation risk

Rowe cautions that there is a common view that strategic risk is about managing risk strategically instead of examining it as a category similar to operational, financial and other risk areas. This is a common view that mainly stems from the complexity and difficulty of identifying strategic risk.

d) Describe the tests for a winning strategy. [LU1]

The measure of strategic success is not always a simple matter. Grant and Jordan identify the following four common requirements for strategy success:

1) Goals that are consistent and long term

2) An in-depth understanding of the competitive environment

3) An objective appraisal of resources

4) Effective implementation

However, the following three tests could be used to assess the success of an organisation's strategy:

1) The “goodness of fit” test measures how well the strategy fits the organisation's situation in matching the organisation to the industry and competitive conditions.

2) The “competitive advantage” test measures whether the strategy can help the organisation achieve a sustainable competitive advantage.

3) The “performance” test measures performance of the strategy in terms of profitability, financial strength, competitive strength and market standing.

Organisations need to evaluate their existing strategies on an ongoing basis.

QUESTION 2 – LU 2

a) Critically differentiate between deliberate and emergent strategies [LU2]

Deliberate strategies:

Deliberate strategies are implemented and realised as intended, and tend to emphasise central direction and hierarchy. In order for a strategy to be deliberate, three conditions need to be satisfied:

1) The management team must know precisely what they wish to achieve and what they intend for the organisation before any actions are taken

2) Organisation means collective action. All members of the organisation must believe in the strategy and work towards it

3) The strategy must be realised exactly as intended, with no external interference.

Emergent strategies:

For a strategy to be emergent, there must be order in the absence of intention about the strategy. Thus, strategy may suddenly be rationalised to mean something very different from what was originally intended. Emergent strategies are actions taken by middle managers within the organisation. Emergent strategy implies learning what works – taking one action at a time in search of that viable pattern of consistency. It is also frequently the means by which deliberate strategies change. Strategies are open, flexible and responsive to allow the organisation to learn and adapt to its environment. It enables the senior management team, to surrender control to those middle level managers who have the information current and detailed enough to shape realistic strategies. In short:

Emergent strategies typically have to do with the actions of middle managers.

Emergent strategies imply learning tactics that work.

Emergent strategising often precedes the full understanding of situations.

Emergent strategies open the way for collective action and convergent behaviour.

Emergent strategies can influence intended strategies during their implementation.

b) Explain what is meant by strategy as practice? Critically defend why is it an appropriate approach to manage new strategic realities [LU2]

Criticism of the process approach to strategic management have provided the impetus for new insights into and approaches to strategic management to cope with new environmental and competitive realities. Responses to these challenges include dealing with the increasing trend in emergent as opposed to deliberate strategies, and adopting a strategy-as-practice approach.

The key insight of strategy-as-practice studies is that strategy work (strategizing) relies on organisational and other practices that significantly affect both the process and the outcome of resulting strategies. Thus, the scope of the strategy-as-practice perspective is wider than just the strategy formulation itself. The practice perspective focuses on social practices as the basis for explaining strategy emergence. It seeks to identify the strategic activities reiterate in time by the diverse actors interacting in an organisational context. The strategy-as-practice perspective is concerned with the detailed aspects of strategizing – how strategists think, talk, reflect, act, interact, emote, embellish, politicise, which tools and technologies they use, and the implications of different forms of strategizing for strategy as an organisational activity. The practice perspective is also concerned with what people do less often during board meetings, strategy breakaways and other occurrences. Strategy-as-practice researchers recognise the complexity of the process and the potential influence of organisational members, not only through formal organisational processes, but also in everyday activities. The strategy-as-practice research field is not only focused on the micro-activities, but also on the context within which these micro-activities take place.

The strategy-as-practice perspective supports and builds on the strategy process perspective and views strategy as a situated, socially accomplished activity – meaning it is done by people and influenced by their context. It refers to activities that are connected with particular practices such as strategic planning, annual reviews, strategy workshops and their associated discussions.

The promise of strategy-as-practice is an enhanced capacity to design more practical strategy processes and develop more trained and skilled strategists and practitioners to effectively address the real complexities and unintended consequences of organisational life.

The strategy-as-practice perspective distinguishes between strategy praxis (the work), strategy practitioners (the workers) and strategy practices (the tools). The strategy praxis, practitioners and practices are discrete, but interrelated social phenomena. It is not possible to study one without also drawing aspects of the others.

c) Explain what is meant by strategising and critically explain the role of strategists and managers in the context of strategy as practice [LU2]

Strategising:

Strategizing is essentially what strategists do, and can be described as devising or influencing strategies. Through their actions, strategists influence the allocation of the organisation’s resources and control or influence key actions. Strategizing and strategy making are often used interchangeably and include strategizing activities. Strategizing not only involves those within the organisation, but also consulting firms, business schools, business media, academic journals, professional societies, enterprises and management in a joint endeavour that all recognise as somehow strategic. Clearly, strategizing is an action performed by people, the strategists, who guide the organisation's strategic planning as well as the strategic management processes. Strategizing assumes even greater importance where emergent as opposed to deliberate strategies occur in organisations. Strategizing is no longer seen as the exclusive domain of the top management team, the traditional, internal strategist or corporate strategic planner. Note that strategizing increasingly occurs, or should occur, at all levels of an organisation, and that external role players like consultants may be involved in strategizing. Involving everyone in an organisation in strategizing might be the ideal, but there are at least two requirements for this to happen. Firstly, everyone in the organisation knows what the strategy is − which requires visionary leadership, the effective communication of the strategy to all, and a receptive organisation culture. Secondly, the first requirement will largely depend on the extent to which the organisation becomes a learning organisation.

Role of strategists and managers in the context of strategy as practice:

A strategist is the ‘doer’ of the strategy. Whereas top managers have traditionally been regarded as the custodians of strategy, the idea that other people and even artefacts can also be strategists is gaining ground. Any individual or group within the organisation that controls key actions can be regarded as a strategist. Since objects can also control or influence key actions, we can extend this definition to include presentations, written documents, information systems, and so on. Individual strategists will, cognitively speaking, fall into one of four broad types: detail-conscious, big-picture conscious, non-discerning, and cognitively versatile.

Strategists Description

Detail-conscious

Practitioners who are detail-conscious are highly analytic and driven by the minutiae of available data, with little or no regard for intuition. They have a tendency to approach problems in a step-by-step, systematic fashion.

Big-picture conscious

Practitioners who are big-picture conscious can become preoccupied with gaining an overview of the problem at the expense of the details. They are highly intuitive in orientation, with little or no regard for analytical approaches to problem-solving or decision-making.

Non-discerning

Non-discerning practitioners deploy minimal cognitive resources in order to derive strategic insight, being disciplined to process the detail or to extract a bigger picture from such detail. They rely on opinion and wisdom received from others and thereby relieve themselves of the burdens of analytic and intuitive processing altogether.

Cognitively versatile

These practitioners possess in equal abundance the inclination to attend to analytical detail and cut through that detail, as and when required. This type of practitioner is able to switch more

readily between analytic and intuitive processing strategies

Top managers as strategists:

The role of the top management team is to set the overall strategic direction of the organisation by formulating the strategy, allocating the resources and reviewing the strategic success. They are responsible for gathering information, from both the internal and external environment, and choosing strategies and actions to help the organisation gain a sustainable competitive advantage. They then communicate this to middle management, explaining the rationale behind their strategic choices so that middle managers can link the strategies and strategic goals to implementation efforts. Top managers are also responsible for the review of strategies. They reflect upon their decisions and actions, and this may lead to changes or new decisions and actions.

Board of directors as strategists:

Boards of directors of companies influence strategizing in organisations, being the focal point and custodians for corporate governance. Although strategic decision making is done by senior management, the board of directors influences the overall direction and monitors the relationship between management and other stakeholders to ensure the organisation is sustainable in the long term.

Middle managers as strategists:

Middle management is now much closer to the strategic apex and makes a variety of contributions to the formulation, implementation, review and success of strategies. Consequently, the new model of the middle manager is one that has more strategic focus.

Three strategic roles of middle managers:

1) Implementing deliberate strategy - This role is aligned with the traditional role of strategic management, but remains valid in the contemporary business organisation, especially in relation to deliberate strategies. It deals with managerial interventions, actions and tasks to align the organisational action with the strategic intention of top management. Middle managers’ ability to understand, anticipate and manage processes needed to secure positive and pervasive commitment to strategy is a critical general management implementation skill. Middle managers implement strategy by translating corporate strategy into action plans and individual objectives.

2) Synthesising information - This is the interpretation and evaluation of information. How middle managers understand and share information influences the success or failure of the organisational strategies. Not only do middle managers provide information concerning internal and external events to top management, but they are also responsible for passing information down to subordinates, which can reduce uncertainty and resistance to change. Middle managers are considered linking pins, equipped with the ability to combine strategic macro-information and hands-on micro-information.

3) Reshaping the strategic thinking of top management by selling to them strategic initiatives that diverge from their current conception of strategy

This role links with emergent strategizing. Middle managers frequently become organisational champions for initiatives developed at the operating level. This role is distinct from product championing as it centres on influencing corporate management to adjust their current concept of management. It is defined as the persistent and persuasive communication of strategic options to top management. By proposing and defining issues for top managers, middle managers provide important contributions to an organisation’s strategic direction and thereby influence organisational effectiveness.

Consultants as strategists:

The management consulting industry is considered to be one of the most powerful forces shaping organisational strategy. Management consultants are practitioners who are considered to be knowledgeable about the

business environment and organisations. They have a wealth of industry contacts and a good reputation based on experience. Most importantly, management consultant firms pool their resources, knowledge and experience across industries and are authoritative forces in advising on best practices.

People bring with them their own personalities and backgrounds in the form of culture, education, politics, and religion. Strategizing is therefore not only a cognitive activity, but is fuelled by the individual’s quest for personal power. Strategizing is essentially what strategists do, and can be described as devising or influencing strategies. Through their actions, strategists influence the allocation of the organisation’s resources and control or influence key actions. Strategizing and strategy making are often used interchangeably and include strategizing activities. Strategizing not only involves those within the organisation, but also consulting firms, business schools, business media, academic journals, professional societies, enterprises and management in a joint endeavour that all recognise as somehow strategic.

QUESTION 3

a) Explain the various methods for macro-environmental analysis

The list of factors that constitute an environment is almost endless. While changes in the broad (macro) environment may affect a cross-section of industries, some factors (PESTLE/G) are more important than others as drivers of change in different industries. Factors are context specific and vary from industry to industry, even from business to business, and can be operating at a national, regional or even a global level. Therefore, when analysing the broad environment, managers are required to go beyond a mere description of change in the environment to an assessment of the forces driving it in order to prioritise it so that the organisation can focus its resources on the most strategically important issues. How companies respond to these influences can have important competitive implications.

The PESTLE/G factors mentioned, are as follows:

Political-legal factors - From a business perspective, the extent of political stability and a government's ability to ensure a stable business environment are possibly the two main political considerations for business. The most important legal considerations from a business perspective are the appropriateness of a country's legal system, the effectiveness of law enforcement and whether the country adheres to the rule of law.

Economic factors - Economic factors that are important from a business perspective are the growth rate of the economy, the level of interest rates, the currency exchange rates and inflation. Changing economic conditions can influence the timing and relative success of an organisation's strategies.

Sociocultural factors - Sociocultural factors and forces refer to existing and changing social values, beliefs, attitudes, traditions and lifestyles in a society that could affect the preference and demand for certain products and services over time. Changes in sociocultural factors may create a demand for new products and services, creating totally new opportunities and thereby changing the rules of industry competition.

Technological factors - Technological change has become a main driving force in the global economy over the past few decades and continues unabated. Needless to say, managers must be aware of and understand how these changes could affect their business and how they need to respond strategically to ensure that they are at the cutting edge of new technological advances in order to remain competitive.

Legal, linked to political

Ecological - Concerns about the natural environment have increased dramatically in recent years. Preservation of the ecology worldwide is threatened by continuous air, water and land pollution. Global climate change and global warming have been accelerated by humanity's activities.

Global - Global (G) factors can be included as an additional force to the PESTLE framework to yield PESTLE/G. Scholars at the Penn State Centre for Global Business Studies identified 12 global trends which have the potential to significantly affect and challenge leaders in the next 30 years:

1) Increasing population

2) Increasing urbanisation

3) The spread of infectious disease

4) Natural resource crises

5) Environmental degradation

6) Economic integration

7) Knowledge dissemination

8) Information technology

9) Biotechnology

10) Nanotechnology

11) Increasing conflict

12) Governance

The implications of these global trends for leaders and organisations are far reaching. They have the potential to shake up individual companies, entire industries or even entire economies.

b) Analyse the structure, dynamics and attractiveness of an industry

Industry structure

The first and fundamental determinant of an organisation’s profitability is industry structure. The general types of industry structure are monopoly, duopoly and oligopoly −and the competitive implications of major types of competition, namely monopolistic and perfect competition.

A monopoly player, such as a state-owned enterprise, serves in a closed domestic environment and normally has a total advantage, while it retains government support. In a monopoly there are high barriers to exit and entry into the market for firms. A low degree of competition is evident and the market is stable and predictable.

An oligopolistic structure is characterised by a few large organisations, each with substantial shares of the market. They try to maintain their own long-term competitive advantage through crafting largely defensive strategies. In an oligopoly there are significant barriers to exit and entry into the market, there is a moderate degree of competition and the market share is stable.

Monopolistic competition has more rivals of a similar size, which can result in less stability and short-term competitive advantage. This leads to aggressive strategic approaches and more intense competition. There is also a moderate to high degree of competition. A low to moderate degree of market stability is evident.

Perfect competition implies that an organisation would require an aggressive strategic approach. The market would be volatile, with frequent entry and exit of players. There exists a large number of identical firms with no barriers to entry and exit. There is also a high degree of competition and a low degree of market stability. This leads to aggressive strategic approaches and more intense competition.

Industry dynamics

Industry dynamics means the rate of change in industries over time, in particular the competitive and structural changes. Traditional industry boundaries are blurring as many industries converge and overlap, especially in information-based industries.

Industry revolution

Industry changes over time are an important determinant of the strength of the competitive forces in the industry and the nature of threats and opportunities. The strength and the nature of each force also change as an industry evolves, particularly the two forces of risk of entry by potential competitors and rivalry among existing firms. A useful tool for analysing the effects that industry evolution has on competitive forces is the industry life cycle, which closely resembles the business life cycle.

In combination with assessing the type of industry structure and the degree of concentration, it is useful to consider the stages of maturity of the industry. This model describes four stages in the industry life cycle: introduction, growth, maturity and decline. The model is useful in estimating the current level of competitive intensity within an industry, as well as making predictions about the future level of competition at different stages in the life cycle. The task managers face is to anticipate how the strength of competitive forces will change as the industry environment evolves, and to formulate strategies that take advantage of opportunities as they arise and counter threats as they emerge.

Industry drivers of change

All industries are affected by new developments and ongoing trends that alter industry conditions, some more speedily than others. Many of these changes are not important enough to require a strategic response. Since the five competitive forces have such significance for an industry’s profit potential, managers must remain alert to the changes most likely to affect the strength of the five forces. It is important to focus on the most powerful agents of change – those with the biggest influence in reshaping the industry landscape and altering competitive conditions.

Many drivers of change originate in the outer ring of the organisation’s external environment, but others originate in the organisation’s immediate industry and competitive environment. Some of the most common industry drivers are:

Changes in the industry’s long-term growth rate

Increasing globalisation

Changes in who buys the product and how they use it

Technological change

Emerging new internet capabilities and applications

Product and marketing innovation

Entry or exit of major firms

Regulatory influences and government policy changes

Changing societal concerns, attitudes and lifestyles

There are many potential drivers of change. The key questions are: What factors are driving industry change and what impact will they have on the organisation? The true analytical task is to evaluate the forces of industry and competitive change carefully enough to separate the major factors from the minor factors. Just identifying the drivers of industry change is not sufficient for strategic analysis; a more important step in dynamic industry analysis is to determine whether the prevailing change drivers, on the whole, are acting to make the industry environment more or less attractive. The real pay-off for strategy making comes when

managers draw some conclusions about what strategy adjustments will be needed to deal with the impacts of the changes in industry conditions. So, dynamic industry analysis is not to be taken lightly. It has practical value and is basic to the task of thinking strategically about where the industry is headed and how to prepare for the changes ahead.

Industry attractiveness

The most handy tool to analyse industry attractiveness would be Porter’s five forces model. Porter argues that the greater the collective strength of the five forces, the less profitable and attractive the industry is likely to be. The way an industry is defined will therefore hold implications for the way substitutes and competing products are treated. Also, the way an industry group is defined has implications for the analysis of customers, suppliers and entry barriers. It is important to define an industry’s barriers carefully before analysing the five forces:

1) Customers (power of buyers). Some customers exert greater economic power than others and have a greater ability to dictate prices and contract terms as they negotiate with sellers. As a result, powerful customers and buyers may actually reduce the profitability levels of industries from which they buy.

2) Power of suppliers. Since suppliers provide all the required inputs to the organisation, including materials, capital and labour, they have the power to influence pricing and profitability as well as create uncertainty in the buying industry.

3) Existing competitors (rivalry among firms). Competitive rivalry is characterised by strategic manoeuvring and retaliatory countermoves on the part of industry incumbents. This leads to increased competitive pressure resulting in profitability being affected. The degree of rivalry is dependent on industry growth rate as well as the number of players, their relative size and competitive abilities.

4) Potential competitors (threat of entry). Existing industry players want to retain their market share and positions and are weary of new entrants since these can increase the level of competition leading to reduced profits. Organisations therefore create entry barriers which are forces intent on keeping potential competitors out while offering protection to existing industry incumbents. There are six barriers to entry:

Capital required;

Access to distribution;

Cost disadvantages not related to size;

Economies of scale;

Government legislation and regulation; and

High switching costs.

5) Substitute providers (substitute products and services). Organisations providing products that serve as replacements, alternatives or substitutes to the products of an organisation in a specific industry could be regarded as indirect competitors.

c) Discuss the importance of performing a competitor analysis

The next and final stage in analysing the environment moves towards an understanding of the non-structural features. Critical to an effective competitor analysis is gathering data and information that can help the firm understand its competitors’ strategic intentions and the strategic implications resulting from them. Competitor analysis thus focuses on two main issues:

1) The identification of competitors

2) The prediction of competitors’ behaviour

In a competitor analysis it is important for an organisation to understand the future goals of competitors, their current strategies, what competitors believe about the industry and what their capabilities are. Intensity of rivalry between competitors determined by:

Numerous or equally balanced competitors

Slow industry growth

High fixed or storage costs

Lack of differentiation or low switching costs

High exit barriers

Intense rivalry creates a strong need to understand competitors and this competitive intelligence is the information about the four dimensions: objectives, strategies, assumptions and capabilities. The acquired intelligence helps the firm prepare an anticipated response profile for each competitor. If managers fail to do this, it may place the firm at a disadvantage. However, firms must follow laws and regulations as well as carefully articulated ethical guidelines when gathering competitor intelligence.

Competition vs Cooperation

Organisations can create cooperative strategies with these stakeholders or pursue a variety of other management techniques to enhance their competitive positions. There is thus a need to look at some of the factors likely to influence the actual process on interaction between individual organisations and the pressures that may exist to lead them to choose competition or cooperation, or some intermediate stage between the two extremes. Competition is often regarded as a ‘zero sum’ game or head-on conflict, where one party can only benefit at the expense of another. Collaboration however, is usually seen as a ‘non-zero sum’ game, where all parties to the collaboration may gain at least some benefit.

The benefits of collaboration have been recognised for some time and collaboration between competitors seem to be in fashion. No single firm possesses or has access to all the requisite resources to bring a product to fruition or to market. Each partner must contribute something distinctive such as basic research, product development skills, manufacturing capacity or access to distribution. The aim is to create advantage in relation to companies outside the alliance, while preventing a wholesale transfer of core skills to the partner. It is also important to note that coalitions are not static, they develop and evolve. Partners in the early stage of a product/market evolution frequently become competitors at a later stage. Cooperation is a good way to reduce uncertainty facing the firm stemming from economic or political power of certain stakeholders. Those stakeholders who can influence organisational outcomes are often identified as suitable candidates for cooperative relationships.

The competitive profile matrix

The competitive profile matrix (CPM) identifies a firm’s major competitors and its strategic strengths and weaknesses in relation to its competitors. Although this comparative analysis could use a combination of industry success factors and internal company strategic information, the numbers reveal the relative competitive strength of firms. However, the implied precision of number is an illusion since a quantification of strategic strength and weaknesses is not ‘magic’. The use of these tools must be accompanied by intuitive judgment rather than a robotic examination of weights and ratings. The aim is not to arrive at a single number, but rather to assimilate and evaluate information in a meaningful way that assists decision making.

QUESTION 4

a) Critically differentiate between resources, capabilities and competencies

Resources

Resources are the productive assets owned by an organisation and can be grouped into five primary categories:

1) Financial capital (e.g. the organisation’s ability to generate funds, internally or through loans and investments)

2) Physical capital (e.g. operational and manufacturing plant equipment, location and access to raw materials)

3) Human capital (e.g. knowledge, management and employee insight, intellect, relationships, training, experience and judgment)

4) Organisational capital (e.g. reporting structure and management, including planning, coordinating, controlling and networks)

5) Technological capital (e.g. ICT systems)

Resources that can contribute positively to an organisation’s strategy and lead to sustained competitive advantage need to be identified. Although resources of organisations in the same industry are typically similar, organisations themselves are never identical. They will therefore possess some resources that are differentiating, valuable, rare and inimitable, and will accordingly pursue different strategies and achieve different levels of success. This heterogeneity in resources can be acquired and sustained over a longer period within an industry as it may not be perfectly mobile across organisations.

Resources include individual, social and organisational factors. To determine the resources of an organisation, a comprehensive directory should be developed. The directory should differentiate between tangible and intangible resources and capabilities, and human resources (tacit knowledge). Tangible resources are physical, observable and quantifiable assets of the organisation and include physical things such as equipment, money, structures, sophistication and location of plant, formal reporting structures, and technology used, and patents. Intangible resources are a subset of the strategic resources of an organisation and the broad categories include knowledge, intellectual capital, human capital, structural capital, customer capital, organisational capital, innovation capital and process capital, and have a finite life. Intangible resources include the reputation of an organisation and that of its product, employee know-how, perception of quality, ability to manage change, ability to innovate, team-working ability and participative management style. Competitors find it difficult to understand, acquire, substitute or imitate intangible resources, therefore organisations often rely on intangible resources for their core competencies and capabilities. Consequently, more intangible and unobservable resources will lead to more sustainable competitive advantage.

There are three types of intangible resources:

1) Human resources (including knowledge, trust and managerial capabilities)

2) Innovation resources (including ideas, scientific capabilities and capacity to innovate)

3) Reputational resources (including brand name, reputation with customers, perceptions of product quality and reliability)

Not all knowledge is a source of competitive advantage as some knowledge is public. Private knowledge, however, can be valuable. Knowledge can be explicit or tacit:

Explicit knowledge can be taught of conveyed with ease.

Tacit knowledge is gained through experience, insight and intuition, and is difficult to share or record, making it virtually impossible to emulate or sell. Therefore tacit knowledge can be very valuable and can lead to competitive advantage.

Individual resources have limited worth and do not lead to competitive advantage, but a combination of resources, both tangible and intangible, can create valuable organisational capabilities.

Capabilities

Capabilities are the capacity of an organisation to deploy resources for a unique end result. They are organisation-specific clusters of activities developed through complex interactions between tangible and intangible resources over time and reflect what an organisation excels at compared to other organisations. They can also be information based.

Key characteristics of capabilities are that they are valuable across various products and markets, embedded in routines and tacit. Capabilities are what the organisation can do exceptionally well. Whereas resources are static and will generally deplete over time, capabilities will increase with use and become more valuable. Capabilities can be within business functions, can be linked to technologies or product design, can involve the ability of the organisation to manage linkages between elements of the value chain or refer to the capacity of the organisation to deploy resources through processes.

It is important to distinguish between capabilities and dynamic capabilities. Capabilities are ‘high level routines that, together with its implementing input flows, confers upon an organisation’s management a set of decision options for producing significant outputs of a particular type’. A capability is reflected in high-level activities (routines) that produce important outputs of significant value that contribute to an organisation’s competitive advantage.

Dynamic capabilities, on the other hand, are geared towards effecting and driving organisational change; they are essentially strategic in nature and accordingly define the firm’s path of evolution and development. Described in a different way, dynamic capabilities are those capabilities that help organisations to learn the new capabilities they require to adapt to environmental changes. Absorptive capacity (the ability to acquire, assimilate and use external information) is an example of a dynamic capability that drives organisational learning and change.

Carefully developed capabilities from the basis of competitive advantage and are therefore primary differentiators of organisations from their competitors. Building difficult-to-imitate capabilities is of great importance to an organisation as this ensure differentiation.

Core competencies

Capabilities or competencies are the same thing. However, core competencies (also referred to as distinctive capabilities) are those capabilities or competencies that distinguish an organisation from others in an industry and form the basis of its competitive advantage, strategy and performance. Core competencies make a disproportionate contribution to customer value and the efficiency of its delivery, and serve as a basis for market entry. Core competencies that are internal strengths of an organisation enable it to capitalise on opportunities that are identified in the environment.

Core competencies involve the combination of various resources and capabilities. The development of core competencies usually takes place over a period of time and is a process of accumulation and learning how to use a unique combination of resources and capabilities. It also often involves communication and an intense commitment to working across organisational boundaries. It can entail the coordination of diverse production skills and integration of multiple streams of technology.

Their complex coordination, integration and harmonisation across production skills, technologies and capabilities make core competencies difficult to imitate. They enable access to a variety of markets and significantly contribute to perceived customer benefits from products and services. Most successful organisations will have only one or two core competencies, while many average organisations will have no distinguishing core competencies at all.

b) Explain the role of the resource-based view in the internal analysis

Strategy formulation originally included a market-focused mission statement addressing what the organisation was about, its business, the market and needs it served, and its customers. In a volatile and ever-changing environment, this external focus became risky and in the 90s, attention shifted towards internal strengths, resources and capabilities of organisations. The resource-based view (RBV) is a model for analysing the internal strengths and weaknesses of the organisation in terms of its resources and linking them to opportunities in the external environment. It determines where the organisation can build competitive advantage, superior performance and customer value.

An assessment of the organisation starts with a general internal evaluation to determine its strengths, specifically as related to the industry in which it operates. Important considerations for assessment are:

the strategic direction as conveyed in the vision, mission, purpose and values the key internal stakeholders, including managers, their experience, strength, weaknesses and

management style the owners of the organisation operational issues such as sales, assets and location the type and level of employees and culture of the organisation

Resources and capabilities are determined by the value chain activities of the organisation, including:

supply chain and operational management financial management research and development people management marketing management Intangible resources, such as reputation, patents, brand names, networks etc.

This unique combination of resources, capabilities and core competencies is then used to develop a strategy to address the needs of customers and also contribute to competitive advantage.

Although the RBV is a widely accepted and valuable framework for strategy formulation, some limitations have been identified, as follows:

It has not yet been tested and proved empirically. An important requirement is that the RBV be measured and analysed at the resource level, implying longitudinal data.

It does not address how to increase profitability and/or how to develop further competitive advantages or create new ones.

The lack of future orientation and the inability to differentiate between valuable and less valuable resources and capabilities result in a lack of predictability.

c) Critically discuss the concepts of competitive advantage and sustainable competitive advantage. Explain the requirements for a sustainable competitive advantage

Competitive advantage

The purpose of strategy is to attain a competitive advantage. A competitive advantage occurs when an attractive number of buyers prefer the company's products or services over those of its competitors, when the basis for this preference is durable over the long term. Apart from the organisation’s unique, rare and valuable resources, capabilities and distinctive or core competencies, the following competitive business level strategies could also be important sources of competitive advantage:

Cost leadership strategy. This strategy involves becoming the lowest cost organisation in a domain of activity by a significant margin. The strategy will normally target a broad spectrum of buyers. It is

important to note that cost leadership does not necessarily imply low price – in fact, having low production cost and low price will result in average returns, and no real competitive advantage.

A differentiation strategy. This strategy involves uniqueness along some dimension that is sufficiently valued by consumers to allow a price premium. This strategy may focus on either a broad section of buyers or a narrow buyer segment.

A focus strategy. This strategy involves targeting a narrow segment or domain of activity and tailors its products or services to the needs of that specific segment to the exclusion of others.

A best cost provider strategy. This hybrid strategy involves giving customers more value for their money by offering upscale product attributes at a lower production cost than rivals.

Sustainable competitive advantage

While we know that a competitive advantage occurs when an organisation is more profitable than its competitors, a sustainable competitive advantage implies capabilities and core competencies that are durable over a long period, that are difficult to imitate or replicate and that are transferable whenever necessary in order to create superior value. For competitive advantages to be sustainable, they must be valuable, rare, too difficult or costly to imitate, non-tradable, durable and based on the exceptional deployment of organisational resources, capabilities and distinctive or core competencies in satisfying customer needs and market demands better than the competitors do.

Sustainable competitive advantage is determined by the durability of the relevant resources and capabilities and how inimitable they are. Durability refers to the length of time over which a capability is relevant and can contribute to competitive advantage of the organisation. Imitability refers to how easy or difficult it is for competitors to copy the competitive advantage and is determined by transferability and how replicable the capability is. Transferability is how easy or difficult it is to buy or acquire a resources. Replicability refers to the ability to use the resource in other settings.

d) Explain the role of value chain and resource based view in internal analysis

The main function of an organisation is to add value successfully in the process of producing products and/or delivering services, i.e. the activities of an organisation are effectively combined to create customer value. Activities are divided into five primary and four support categories.

Primary activities and related capabilities include the following:

Inbound logistics: receiving, storing and distributing inputs for the manufacturing of products by the organisation. Capabilities: purchasing; material and inventory control systems

Operations: activities that transform inputs into final products, i.e. facility operations, machines and assembly. Capabilities: design and product development, quality control, component manufacture and assembly

Outbound logistics: collecting, storing and distributing of products and services to customers. Capabilities: distribution coordination, processes related to warehousing of products and dealer relationships

Marketing and sales: marketing, sales and purchasing of products and services of an organisation. Capabilities: innovative promotion and advertising, and a motivate sales force

Customer service: everything involved in improving and maintaining the value of a product for the customer. Capabilities: parts, warranty and servicing arrangements, and the quality and training of employees

Support activities include the following:

Administration and infrastructure support the entire value chain and include general management, planning, financial management, information systems, legal issues and quality management. Capabilities: risk management and integration of the value chain

Human resource management involves the appointment, development and retention of employees at all levels, their compensation and all matters relating to their employment. Capabilities: training, skills development, staff recruitment and retention

Procurement is the purchasing function. Capabilities: inventory and database management

Technology development involves all technology related to the operations and management of the organisation. Capabilities: integrated management information systems and technology-management design and manufacturing

The objective of capabilities based competition is to build difficult-to-imitate organisational capabilities that distinguish a company from its competitors. Capabilities are valuable when they enable an organisation to implement strategies that improve efficiency and effectiveness. The type of strategy also determines the value, for example low-cost of differentiator strategies.

QUESTION 5

a) Critically discuss the obstacles and drawbacks in doing business in Africa.

There are some key strategic issues facing Africa as a whole, and Sub-Saharan Africa in particular, which present challenges to investors and business in Africa:

Lack of infrastructure

The lack of infrastructure is a significant damper on investment and business in Africa. For businesses, the lack of infrastructure may translate into a supply chain and distribution system that is inadequate and disorganised, with much of retail sales occurring through informal channels. Good infrastructure is crucial if Africa is to become competitive.

Lack of industrial development

What has also been identified by the African Union is the need to improve and increase manufacturing capability. Most of the member countries apply primary resource development and then export the raw product for secondary and tertiary economic processing. This results in extensive imports as the final products then need to be brought back into these countries for local consumption. Development in secondary and tertiary industrial activities would negate this and result in greater creation of wealth and greater independence from imports.

Political instability

From a business perspective, political instability in Africa takes the form of unpredictable government decision making that leads to volatility or armed conflict, making foreign investment extremely risky at best. Armed conflict and its effects are also prevalent on the continent. Of the 53 African countries, 15 are involved in war or are experiencing post-war tension or conflict. These wars are generally over natural resources such as land, oil or diamonds.

High levels of poverty

In most African countries, a significant portion of the population fall in the ‘the bottom of the pyramid’ economic bracket. The bottom of the pyramid is those families surviving on less than the international poverty line of $2 per day. Although South Africa is comparatively better off than some other developing countries, the large gap between rich and poor is a major cause for concern. While the causes of poverty are many and varied, it is the

impact of poverty that should be of serious concern to strategists. Those living at the bottom of the pyramid often endure poor living conditions. They are susceptible to diseases such as malnutrition, cholera and tuberculosis, yet do not have access to good healthcare. They are also unable to obtain an adequate education.

Corruption

While levels of corruption may differ from country to country, the cumulative effect of endemic corruption on business and the African economy is massive. According to Transparency International’s 2012 Corruption Perception Index (CPI), 90% of African countries scored below the ‘pass mark’. On average, Africa’s CPI score in 2012 was 33. Corruption destroys lives and communities, and undermines countries and institutions. It generates popular anger that threatens to further destabilise societies and exacerbate violent conflicts.

An inefficient public sector

In 2013, economic growth for the African economy was negative (-1.5%). This dismal failure to alleviate poverty in sub-Saharan Africa, where per capita income is now less than it was in 1994, can be attributed to an inefficient public sector.

Lack of key skills

Due to limited access to education at various levels, African markets often present investors with lack of people with key business skills and an oversupply of semi-skilled and unskilled workers.

b) Critically assess the role of government in enhancing business conditions in Africa.

Governments are enablers of economic growth through their policy and investment decisions, and African governments will need to create an environment suited for investment and job creation. Africa will need to move away from what can only be described as a mono-cultural economy (being dependent on a single agricultural source) to a multicultural one in order to become more competitive in the international trade. Current African strategies do not address this aspect, although it is a stated objective in the AU manifesto.

African countries will need to become more assertive in their international trade terms. Too much is moving out of Africa or across borders. As mentioned earlier, African countries’ strategies should be focused on improvement of infrastructures in order to initiate competitiveness on a tertiary economic front. Foreign direct investment (FDI) should be aimed at the improvement of infrastructure to become self-sufficient and not serve as a bail out. African countries have long been following a strategy of primary purpose with FDI being used as a stopgap rather than focusing on sustainability.

Strategic management in Africa should also address the current weak infrastructure as per the AU and SADC manifestos as it inhibits the growth and especially the competitiveness of a region. Infrastructure is needed to distribute both imports and exports. Through an improved infrastructure, the mono-cultural economies of the African region could be turned into an advantage by applying complementarities to the production of goods and services. This will have to be done through strong strategic management under the auspices of the AU and SADC executive councils.

For Africa to grow and not only comply with the AU and SADC strategic objectives, countries in Africa will need to be more focused on improvement and growth, with maintenance of the infrastructure paramount in their development strategies. Africa has sufficient resources, but lack skills at various levels which implies that a concerted effort needs to be made to up-skill the human resource component. Poverty alleviation will then be a de factor spin-off. Nkrumah is of the opinion that a united African economy, therefore strategy, is the only option to address the current shortfalls in growth, poverty alleviation, lack of education and health issues. It could prove more successful to adopt a geographically united approach, although problems could arise surrounding religious beliefs. African countries should also start thinking beyond their normal product and mineral exports and consider products which African is rich in and the international community requires. Even more focus should be on renewable energy.

QUESTION 6

a) Critically distinguish between the different types of business level strategies for creating and sustaining competitive advantage.

Corporate level strategies essentially deal with the number of products and services that the company will offer and the markets which they will pursue. Business-level, or competitive, strategies consider how to compete successfully in these markets. In other words, these strategies focus on how to position a company within an industry in such a way that it has competitive advantage.

There are many variations in business-level strategies, but if one strips away the detail to get to the real substance, the biggest and most significant differences among competitive strategies are reduced to the following:

Whether an organisation’s target market is broad or narrow

Whether an organisation is pursuing a competitive advantage linked to low cost or product differentiation

A combination of the above

Four distinct generic competitive strategy approaches stand out:

1) Cost leadership strategy. This strategy involves becoming the lowest cost organisation in a domain of activity by a significant margin. The strategy will normally target a broad spectrum of buyers. It is important to note that cost leadership does not necessarily imply low price – in fact, having low production cost and low price will result in average returns, and no real competitive advantage.

2) A differentiation strategy. This strategy involves uniqueness along some dimension that is sufficiently valued by consumers to allow a price premium. This strategy may focus on either a broad section of buyers or a narrow buyer segment.

3) A focus strategy. This strategy involves targeting a narrow segment or domain of activity and tailors its products or services to the needs of that specific segment to the exclusion of others.

4) A best cost provider strategy. This hybrid strategy involves giving customers more value for their money by offering upscale product attributes at a lower production cost than rivals.

These strategies relate to the organisation’s deliberate decisions on how to meet its customers’ needs, how to counter the competitive efforts of its rivals, how to cope with the existing market conditions, and how to sustain or build its competitive advantage. Once an organisation has selected potential strategies, it needs to evaluate these options to choose the most appropriate strategy or combination of strategies.

b) Describe the four pillars of corporate sustainability.

Corporate sustainability has four pillars:

1) Sustainable development

The notion of sustainable development had its roots in economics, ecology and social justice, what we refer to today as the triple bottom line of economics, environment and society. Sustainable business hinges on three main factors, namely ethical profits (economic bottom line), a healthy physical environment (environmental bottom line) and healthy communities (social bottom line).

However, a holistic model of a sustainable business includes the following six elements:

environmental context

social context

economic context

organisational context

stakeholders

strategic fit

2) Corporate social responsibility (CSR)

CSR is a broad concept that refers to the role of business in society. It is based on the principle that managers have an ethical obligation to consider and address the needs of society, not merely to act solely in the interests of the shareholders or their own self-interest.

3) Stakeholder management

Stakeholders are those entities that can affect or be affected by the organisation's actions. Not all stakeholders have the same effect on the organisation and are entitled to the same consideration. Thus, the purpose of a stakeholder management approach is to help the organisation to prioritise and develop strategies for dealing with stakeholders

4) Business ethics (corporate accountability theory)

Ethical business is an essential element of corporate accountability. It is ultimately up to every organisation to define what ethical business means in its context and how it will deal with it. It is the grey area between clearly illegal and clearly legal that the difficulty lies with defining what ethical business means, and it may be heavily influenced by a variety of factors such as national and organisational culture. Because of this influence, it is in fact almost impossible to determine a universal code of business conduct. However, there are some obvious guidelines as to what would constitute unethical business practices:

Behaviours that are illegal or in contravention of regulations or legal contracts. For example, deliberately disposing of toxic waste in rivers.

Discriminatory and unfair practices. For example, in the appointment of employees.

Misleading stakeholders deliberately. For example, failing to disclose harmful ingredients in a product to consumers.

Deliberately behaving in ways that are detrimental to stakeholders. For example, failing to recall known faulty products that could lead to death or injury.

Being unduly influenced in, for example, purchasing and recruitment practices, like accepting favours in return for contracts.

In strategic management it is important to have a code of conduct that will guide the actions of management and will help the organisation to avoid ethical pitfalls. The corporate governance process attempts to create such a code of conduct.

c) Explain what sustainable strategies are and why they are important.

Any business operates with the basic underlying goal of surviving and perhaps prospering in the long-term – in other words, being sustainable. However, achieving this goal is much easier said than done. It requires the organisation to take a long-term view in its decision making rather than a short-term one, which may require giving up profits in the short term in exchange for survival and wealth creation in the long term. This is the

foundation of sustainability, although it should be said that profitability as such is not evil or wrong. Rather, pursuing profit at the expense of surviving in the long-term is the problem.

Business sustainability is commonly accepted to mean balancing economic objectives with the welfare of the communities in which the organisation operates and protecting the environment in which the organisation physically exists. Sustainable strategies, therefore, are strategies that consider all three elements and strike the right balance between them. It is important to note that profits should be generated legally and ethically in order to be regarded as sustainable.

Unlike corporate social responsibility (CSR), which retroactively addresses issues, sustainability implies a forward trajectory. In other words, CSR looks to the past actions of a company while sustainability looks forward by changing the nature of the company to be more successful in the long run. The purpose of sustainable strategy is to generate a maximum increase in the outputs, turnover and other aspects of a company, the consumers of the company, and employee value by embracing opportunities in the macro- and market environments and managing risks derived from environmental and social developments.

The following six elements are important in developing sustainable strategies:

1) Environmental context – For strategies to be sustainable, they should not harm the physical environment in which the organisation operates.

2) Social context – Sustainable strategies contribute positively to the communities in which they operate.

3) Economic context – This aspect relates to the economic success and contribution of the organisation, typically measured by financial measures such as profits, return on equity and economic value added.

4) Organisational context – The internal functioning of the organisation is critical to sustainable strategies. This may relate to strategy implementation processes as well as internal role players such as the board of directors, management, employee effectiveness, corporate governance, and so on.

5) Stakeholders – Key stakeholders are creditors, directors, employees, government, owners, suppliers, unions and the community from which the business draws its resources. While it is impossible to satisfy the demands of all stakeholders, the organisation must, as far as possible, develop strategies that balance the demands of multiple stakeholders.

6) Strategic fit – Long-term strategic success is only possible if the strategies of the organisation are aligned with the internal and external environments, and if processes and capabilities exist to adapt to changes in the environment.

d) Discuss the “triple-bottom line” and explain why it is important.

We are increasingly seeing large corporations embracing the concept and reporting not only on their financial results, but also their social and environmental contributions (Triple bottom line reporting). The notion of sustainable development had its roots in economics, ecology and social justice, what we refer to today as the triple bottom line of economics, environment and society. Business hinges on three main factors, namely ethical profits (economic bottom line), a healthy physical environment (environmental bottom line) and healthy communities (social bottom line).

The triple bottom line consists of social equity, economic, and environmental factors. "People, planet and profit" succinctly describes the triple bottom lines and the goal of sustainability. "People" pertains to fair and beneficial business practices toward labour and the community and region in which a corporation conducts its business. "Planet" refers to sustainable environmental practices. "Profit" is the economic value created by the organization after deducting the cost of all inputs.

Successful 21st century organisations must consider how they are going to actively engage in each of the Triple Bottom Line components, and this requires many organisations to adopt a more innovative approach to business

while constantly communicating with current and potential customers. Why should any of us care about incorporating a Triple Bottom Line approach to business? Consumer demands combined with the world’s rising population, unstable economic situation and environmental struggles have created a new global climate that no organization can afford to ignore.

e) Explain what is meant by corporate social responsibility (CSR) is and give examples of CSR activities

What is corporate social responsibility? One definition follows:

‘It is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large.’

Businesses use CSR as a tool to address societal and environmental issues. Sustainability incorporates societal and environmental issues as building blocks within a business model. Therefore, a sustainable business will use some CSR practices to help the business to create long-term sustainability. It is important for a company to know all the details as well as the specific environment of a CSR project in order to ensure that it will be successful. Planning is of the utmost importance because of a project fails to deliver, it will not only reflect negatively on the company’s reputation, but will also be detrimental to the company’s long-term sustainability.

Benefits of CSR can vary significantly from one project to another depending on the following aspects: Design of the project Outcomes of what the CSR department wants How the project will fit in locally with the needs of the community Support from different role players

CSR projects are more successful when the above-mentioned aspects are taken into account. Project success is also location specific. A project that is successful in one community can be a failure in another because of different needs and community characteristics. For example, a vegetable project is more likely to be successful in Qwaqwa, where freshly produced vegetables are not always available, than in Manguang, where many local farmers next to the Modder River are already producing enough fresh vegetables for local needs. Projects may also be successful in the long run after a series of failures and write-ups of lessons learnt in a process of trial and error. For these reasons, successful projects are usually designed in participation with all role players and beneficiaries, who then feel connected to these projects and believe that the projects address their most important needs.

f) Explain the role of corporate governance in corporate sustainability .

Whereas sustainability examines the strategic decisions of an organisation, corporate governance refers to the frameworks provided for governing sustainability. Corporate governance is described as the system by which corporations are directed and controlled, and it performs the following functions:

It specifies the distribution of rights and responsibilities among different participants in the corporation.

It specifies the rules and procedures for making decisions in corporate affairs.

It provides a structure through which corporations set and pursue their objectives, while reflecting the context of the social, regulatory and market environments.

It is a mechanism for monitoring actions, policies and decisions of corporations.

It is a mechanism for aligning the interests of different stakeholders.

In most countries, corporate governance frameworks have been adopted to provide corporations with specific guidelines on how to implement and manage corporate governance procedures. Ultimately the role of governance frameworks is to provide mechanisms to help corporations to attain sustainability.

In SA, the King Code (King III) is widely regarded as a state-of-the-art code for corporate governance. Although some aspects of governance are legislated, the governance guidelines are mostly for voluntary compliance, described as ‘comply or explain’. It provides guidelines on boards and directors, accounting and auditing, risk management, internal auditing, integrated sustainability reporting, compliance and stakeholder relationships, business rescue, fundamental and affected transactions, IT governance, and alternative dispute resolution mechanisms.

The Pubic Finance Management Act (PFMA) of 1999 is regulatory framework that regulates the governance of public sector institutions. It is like the King Code for public sector entities, with the difference that it is legislation and thus legally enforceable. The objectives of the PFMA are to:

Modernise the system of financial management in the public sector

Enable public sector managers to manage, but at the same time be held more accountable

Ensure the timely provision of quality information

Eliminate waste and corruption in the use of public assets

QUESTION 7

a) Critically distinguish between the levels of strategy in organisations.

Strategic management and decision making occur at different hierarchical levels in an organisation. The organisational structure of a multi-business organisation or corporation differs from that of a single business organisation. Corporate entities have four levels of strategy, with corporate strategy at the corporate level, business level strategies at the business unit level and tactical or functional strategies at lower levels. Single business organisations have no corporate level strategies. They only have three levels of strategy, with business level strategies at the top, followed by the other two types of strategies lower down. Note that single business organisations and the business units of corporations both use business level strategies to compete in their respective industries.

The levels of strategy in both corporations and single businesses must be aligned, and organisational members at all levels in the organisation should understand the overall strategy of their organisation as well as its implications at their respective levels. This requires extremely effective communication throughout the entire organisation.

Levels of strategy and decision-making roles in multi-business and single business organisations:

Level of strategy Corporate entity Single business entity

Corporate level strategy

CEO, board of directors and corporate staff No corporate strategy exists

Business level strategy

Divisional managers and staff of separate business units

Executive manager and senior staff of single business

Functional level strategy

Functional level managers and staff in each functional area in a business unit

Functional managers and staff for each functional area in the single business

Operational strategyFrontline managers in operations departments

Frontline managers in operations departments

b) Differentiate between the different types of business level strategies. Give an example of an organisation, product or service in each business level strategy discussed.

Corporate level strategies essentially deal with the number of products and services that the company will offer and the markets which they will pursue. Business-level, or competitive, strategies consider how to compete successfully in these markets. In other words, these strategies focus on how to position a company within an industry in such a way that it has competitive advantage.

There are many variations in business-level strategies, but if one strips away the detail to get to the real substance, the biggest and most significant differences among competitive strategies are reduced to the following:

Whether an organisation’s target market is broad or narrow

Whether an organisation is pursuing a competitive advantage linked to low cost or product differentiation

A combination of the above

Four distinct generic competitive strategy approaches stand out:

1) Cost leadership strategy. This strategy involves becoming the lowest cost organisation in a domain of activity by a significant margin. The strategy will normally target a broad spectrum of buyers. It is important to note that cost leadership does not necessarily imply low price – in fact, having low production cost and low price will result in average returns, and no real competitive advantage.

2) A differentiation strategy. This strategy involves uniqueness along some dimension that is sufficiently valued by consumers to allow a price premium. This strategy may focus on either a broad section of buyers or a narrow buyer segment.

3) A focus strategy. This strategy involves targeting a narrow segment or domain of activity and tailors its products or services to the needs of that specific segment to the exclusion of others.

4) A best cost provider strategy. This hybrid strategy involves giving customers more value for their money by offering upscale product attributes at a lower production cost than rivals.

These strategies relate to the organisation’s deliberate decisions on how to meet its customers’ needs, how to counter the competitive efforts of its rivals, how to cope with the existing market conditions, and how to sustain or build its competitive advantage.

c) Critically discuss the advantages and disadvantages of each business level strategy.

Cost leadership strategy

The advantages of cost leadership strategies include the following:

an increase in competitiveness and market share through sustainable cost advantages

protection for the organisation against competition as a result of its durable cost advantage

protection against powerful suppliers because of large-scale purchases and resultant discounts

protection against the power of buyers because of the low-cost advantage and competitive pricing possibilities

durable cost advantages serving as barriers to imitation, barriers to the threat of substitute products and barriers to the threat of new entrants to the market, which should be evident from analysis of the organisation's competitors

The potential disadvantages of cost leadership strategies include the following:

not keeping up with changes in the external environment, for example, where core competencies relate to and are sensitive to changes in technology which are not recognised

not being aware of changing consumer needs and preferences with regard to products and services in the low-cost market sector that could seriously affect competitive market position

not being aware of industry dynamics, changing industry competitive forces, and the actions of competitors as far as imitating, or even worse, improving on an organisation's low-cost core competencies, is concerned − the so-called "curse of complacency".

Differentiation strategy

The advantages of differentiation strategies include the following:

They could safeguard an organisation against competition as a result of brand loyalty.

They could enhance profit margins by slightly higher pricing than their competitors.

Powerful suppliers are rarely a problem.

Differentiators are unlikely to experience problems with powerful buyers.

Threats of substitute products really depend on competitors' products to meet or exceed customer needs before customers would be willing to switch products.

Effective differentiation and brand loyalty could act as barriers to entry.

The disadvantages of differentiation strategies relate to the organisation's inability to maintain uniqueness from a customer perspective − not fully responding to the durability challenge of competitive advantage. Another danger stems from the design or physical features of a product, which are much easier to imitate than uniqueness, which stems from intangible sources like innovation, quality of service, reliability, brand and prestige.

Focus low-cost leadership and differentiation strategies

The advantages of focus strategies include the following:

protection from competitive rivals owing to the uniqueness of product(s) or service(s)

power over buyers because of significant uniqueness and exclusivity

passing supplier price increases on to customers

customer loyalty as a protection against substitute products as well as new entrants

The disadvantages of focus strategies include the following:

high production costs, basically because of the inability to realise economies of scale

not being aware of changing technology and consumer preferences

not being able to effectively ward off an attack by rival differentiators

Best-cost provider strategy:

The advantages of a best-cost provider strategy are seen to essentially stem from the implications of Porter's five forces model for industry analysis. To recap, the five forces are threats from competitors, powerful suppliers, powerful buyers, and the threat of substitute products and new entrants. An organisation that is a cost leader is protected from industry competitors by its cost advantage, and is relatively safe as long as it can maintain this

advantage because low prices are important for consumers. Differentiation strategies will be successful when the variety of products offered meets customer needs better than those of competitors in a sustainable way. As stated above, the distinguishing feature of a best-cost provider strategy is that it uniquely combines low cost and differentiation, while maintaining quality and providing good value at a reasonable price compared to competitors.

The disadvantages of a hybrid best-cost provider could result from not being aware of a changing competitive industry environment, and the risk that the cost leadership and/or differentiation features that underlie this strategy do not measure up to market expectations, leaving this strategy "stuck in the middle", and therefore uncompetitive.

d) Explain how organisations can evaluate business level strategies.

Once a number of feasible strategy options have been formulated, these strategy options have to be evaluated, and the most appropriate strategy or combination of strategies selected for implementation. Strategies can be evaluated in terms of their suitability, acceptability and feasibility.

Suitability. Suitability considers whether the proposed strategies address the key issues related to the opportunities and threats the organisation faces. Suitable strategies need to take advantage of external opportunities and internal strengths, whilst overcoming external threats and internal weaknesses. In order to identify whether a strategy is suitable, the strategist should have a good understanding of the internal environment of the organisation, as well as the external environment in which the organisation operates. In practice it often happens that more than one strategy may be suitable, but that limited resources necessitate the screening of options to select the most appropriate strategy. Suitability is the degree to which an organisation's strategy deploys its core competencies to exploit external opportunities and overcome external threats and internal weaknesses. Methods that are available to test suitability include SWOT analysis, the five forces industry analysis, and scenario analysis and planning.

Acceptability. Strategies are acceptable if the expected performance outcome of the strategy meets the expectation of stakeholders. Since the acceptability of a strategy option is determined by expected performance outcomes, this criterion requires strategists to consider risk, return and stakeholder reaction. We find that companies, regardless of the industry in which they operate, mostly engage in formal risk assessment if strategic options require substantial investments. Tools such as sensitivity analysis, financial ratios, and break-even analysis are useful to evaluate risks. The second consideration is return, i.e. financial benefits which stakeholders are expected to receive from a strategy. To assess return, strategists can use different measurements such as financial analysis, shareholder value analysis, cost-benefit evaluations and the real option approach. To assess the final consideration, which is the reaction of stakeholders, strategists can make use of stakeholder mapping. This requirement relates to the ability of the strategy to produce the expected results over both the short and the long term in line with stakeholder expectations.

Feasibility. Finally, a strategy is feasible when the organisation has, or can obtain, the capabilities required to deliver a strategy. Feasibility implies that the organisation is capable of executing the strategy. The following questions need to be answered:

Can the strategy achieve the set objectives?

Can the strategy be implemented effectively and efficiently?

Are the required resources and capabilities available for implementation of the strategy?

For the feasibility measure, the organisation’s financial and human resources as well as resource integration need to be evaluated.

Once formulated, strategies need to be evaluated according to the above-mentioned measures discussed in this section if they are to be deemed "fit for purpose".

MNG3701 OUTCOMES

EXPLAIN STRATEGIC MANAGEMENTAS AN INNOVATIVE APPROACH TO MANAGING ORGANISATIONS

a) Define strategy, strategic planning and strategic management.

Strategy:

Strategy can be described as the long-term direction of the organisation, a pattern in a stream of decisions, the means by which organisations achieve their objectives and the deliberate choice of a set of activities to achieve competitive advantage.

Strategic planning:

Strategic planning is the first phase of an integrated strategic management process, based on the concepts of strategic thinking and strategy, and comprises the following three main decision stages:

(1) Deciding on the future of the organisation

(2) Analysing the organisation's external and internal environments

(3) Selecting appropriate competitive strategies – strategic choice

Strategic management:

Strategic management involves managers from all parts of the organisation in the formulation and implementation of strategies. It integrates strategic planning and management into a single process.

b) Illustrate and explain the strategic management process.

The structure of the traditional process approach to strategic management is as follows:

1) Strategic planning or strategy formulation

Deciding on the organisation's strategic direction and its long-term objectives

Analysing the organisation's external and internal environments

Selecting appropriate competitive strategies – strategic choice

2) Strategy implementation or execution requirements

Leadership and culture

Implementation competencies

Learning organisation

Systems, policies and procedures

Organisational architecture and structure

3) Strategy review, feedback and control

Control measures ensuring that strategies are on track

Traditionally the strategic management process is portrayed as a neat, cognitive (rational), logical and sequential process. This is evident from above structure. The traditional approach stems from microeconomics, and is

widely criticised for its lack of consideration of the role of people at all levels in the organisation and changes in the environment.

c) Explain the rationale for new perspectives on strategy.

Traditionally, strategic management has been defined as setting strategic direction, setting goals, crafting a strategy, implementing and executing the strategy, and then over time initiating whatever corrective adjustments are deemed appropriate. However, more recent research has suggested strategy is not this sequential and discrete, but is rather more messy, overlapping and iterative. Due to shortcomings, such as these, identified in the traditional approach to the strategic management process, the view on this process has started to change and new perspectives has come to light that highlights the importance of strategists throughout the organisation, as well as dynamic environments.

All strategies were originally assumed to be formally planned, these are now referred to as “intended strategies”. However, strategies are also now categorised as “deliberate”, which is when an intended strategy is realised. They may be referred to as either “unrealised” or “abandoned strategies” when they are not realised. Another category that came to light through the new perspective, was “emergent strategy”. Emergent strategies are not planned and emerge over time. Emergent strategy is the true reality of strategy, as it adapts to the changing environment and can keep up with a messy strategic environment that is fraught with failure.

d) Explain the nature of strategic decisions.

Strategic decisions are those decisions that affect the long-term performance of an organisation and which relate directly to its vision, mission and objectives. Strategic decisions are generally ill-structured and characterised by uncertainty, risk and conflict. However, managers are expected to make effective decisions in the face of these challenges. Regarding their characteristics, strategic decisions:

• Are typically taken at higher organisational levels

• Contribute to and are directed by the organisation's vision

• Impact directly on an organisation's long-term direction

• Performance and sustainable success optimally exploit the links between the organisation's internal and external environments

• Require large amounts of the organisation's resources

• Are usually irreversible once made

• Are entirely future oriented and likely to affect the whole organisation

• Are shaped by the values and expectations of stakeholders

• Usually have multifunctional or multi-business consequences

Tactical decisions at middle management level, unlike long-term strategic decisions at higher levels, have an impact in the medium term, and tactics tend to be more changeable than strategies. Operational decisions occur on a daily basis at the lowest organisational levels. These decisions support the achievement of tactical and functional strategies at middle management level, which in turn support the organisation’s overall strategy to realise its long-term objectives.

HAVE A SOUND UNDERSTANDING OF AND INSIGHT INTO THE TRADITIONAL PROCESS PERSPECTIVE AS WELL AS THE MORE RECENT STRATEGY-AS-PRACTICE APPROACH TO STRATEGIC MANAGEMENT, STRATEGISING, AND THE ROLE OF STRATEGISTS

a) Explain the traditional process perspective on strategic management.

The traditional view of strategic management is that it is a process with distinct stages or phases. The three stages or phases of the process perspective of strategic management are:

1. Strategy formulation:

The strategy formulation stage is the starting point. This is the stage where top management decides what to do. Part of this phase is the setting of strategic direction, in other words, deciding on the future of the organisation and setting the overarching goals of the organisation. In addition to a slogan, a range of management tools can be used to set strategic direction, such as a vision, a purpose or mission statement, or statement of strategic intent. During the strategy formulation stage, various analyses take place and the senior managers gather information about the operations, resources and capabilities of the organisation. The senior management team also scans the environment to identify potential opportunities and threats, as well as to evaluate the market or industry in which the organisation operates and collect information on competitors. Once all the information has been collected and analysed, the senior management team then considers the various strategic options and chooses those strategies where the fit between what the organisation can do with the opportunities is the strongest.

2. Strategy implementation:

The strategy implementation stage and is considered the most challenging stage in any strategic management process. Once the strategies of the organisation have been selected, they need to be put into action (‘doing’). This requires the involvement of everyone in the organisation. Not only should the organisation members be told what the strategies and overarching objectives of the organisation are, but the senior management team also need to ensure that there is understanding and buy-in, because the wider the organisational support, the greater the chances of successful implementation. Operationalising strategies entails the translation of overarching and strategic objectives into specific tasks and activities. The middle and lower management levels in the organisation are responsible for this. By translating the strategic goals or long-term objectives into shorter-term goals and activities, the organisation members become aware of their roles in the strategic success of the organisation. Actions to successfully implement strategies are ensured through certain drivers such as leadership, culture and management. By rewarding the actions, tasks and behaviour that contributes towards successful implementation of strategies, middle managers can enhance the chances of strategy success. The way that the organisation is structured also impacts on the strategy implementation process. The organisational structure not only indicates the line of authority and reporting, but also the process and lines for strategy implementation. Coupled with the structure of the organisation are the inherent systems and policies inside the organisation. Organisational systems, processes and policies are used to direct the execution efforts, which should be aligned with the overall strategic direction of the organisation. Leaders and managers in the organisation need to empower the organisation members to carry out tasks to implement the strategies. This requires the appropriate allocation of financial, human, physical and informational resources.

3. Strategic control:

Strategy review and control involves monitoring the progress of strategy implementation, identifying problems and instituting any corrective actions. Although give as a third and final stage, it is a continuous process. Different methods of strategy review exist. Continuous environmental scanning can be considered a review method as it provides feedback on changes in the environment that may impact strategic choices and their execution. Another form of strategy review is implementation control. Similar to operational control, this is where deviations from the plans are identified and addressed as they occur. This implies that corrective measures are taken during the strategy implementation process to ensure that the strategic management process continues successfully. The balanced scorecard can also be used to review strategies. It is mostly senior and middle managers who are involved in the strategy review process. Most important is the feedback from the review that needs to serve as input in the amendment of existing strategies and goals, or the possible total

reconsideration of the strategies and goals. Continuous feedback forms the foundation of the strategic management process.

b) Explain the importance of strategic thinking and strategic direction setting in strategic planning and strategic management.

The importance of strategic thinking relates to the conceptual nature of strategy and strategy formulation, which is referred to as the thinking part of strategic management. Strategic thinking is, in fact, the starting point of strategizing, strategy formulation and strategic management. At the top level of the organisation, strategic thinking is the ability to see the total enterprise, to spot the trends and understand the competitive landscape, to see where the business needs to go and to lead it into the future. Strategic thinking may occur at the following three successive hierarchical levels in organisations:

Lower level: self-awareness, critical thinking, intellectual curiosity and openness

Intermediate level: exercising good judgement and understanding the business – problem solving, decision making, business acumen and customer focus

Higher level: successfully creating ”new and different” – dealing with ambiguity, innovative management and perspective taking

Self-awareness at the lower level arises from the ability to think critically, in conjunction with intellectual openness. These, in turn, provide the basic business skills required at the intermediate level. The higher one rises in the organisation, the more these skills are needed, and as they are developed, they build the next layer up – the ability to embrace change and ambiguity – and in so-doing, creating something new.

Strategic direction refers to the long-term goals of the organisation which can be expressed as, for example, vision and mission statements. It is the key element against which all strategic decisions should be measured. It is also the very first step in the strategic management process and means that all plans will be formulated in line with it. All strategies must be formulated with the strategic direction in mind, as such one could see it as the backbone of the process. Here are some advantages of having clear strategic direction:

It provides direction

It guides all the organisational efforts towards achieving the same goals

It binds the organisation members to work together towards achieving the overarching goal of the organisation

It communicates to internal and external stakeholders what the organisation wants to achieve in the long run

It guides decision making

It distinguishes the organisation from other organisations

It promotes a sense of shared expectations

It contributes to synergy among managers and employees

c) Criticise the traditional process perspective on strategic management.

The major criticisms of the process perspective include the following:

It is viewed as a rational and linear process, comprises consecutive phases and does not effectively embrace new competitive realities.

Because it is a linear process, the effects of the complex and dynamic nature of the external environment are not fully considered.

Strategy formulation and strategy implementation are seen as separate phases.

It supports the notion that it is only the top management team or senior managers who develop strategy, thus ignoring potentially valuable contributions by all levels of staff.

It essentially ignores the development of strategy through dialogue, conversation and inputs from all organisational levels, and on occasion, external expertise.

Although the traditional process perspective had merit in earlier ears, when business environments were less dynamic, it has become outdated in almost every sense due to its rigidity. Strategic management has been found to have become as dynamic a discipline as the environments organisations have to operate in, as such it has become necessary to move away from the traditional approach to something more suited to the modern business. The traditional approach, however, remains a valuable basis to work from, for any person wishing to understand strategy and strategic management.

EXPLAIN THE ROLE AND STRATEGIC IMPORTANCE OF ANALYSING AN ORGANISATION’S BROAD AND MACRO-ENVIRONMENT AND ITS TASK OR INDUSTRY ENVIRONMENT AS PART OF ITS STRATEGIC PLANNIGN PROCESS

a) Explain the structure of the external environment that organisations have to deal with.

The structure of the external environment includes the following:

The macro-environment (at both the global and the country levels) over which the organisation has virtually no control

• The industry environment which may be influenced by organisations to a degree

• The organisation's internal environment which is typically controllable by organisations as such

All businesses operate in the macro-environment − comprising the political, legal, economic, sociocultural, technological and natural environments, as well as population demographics. The competitive industry environment and its components are, however, of more immediate interest to organisations mainly for reasons relating to the competitive nature of industry involvement. Executives and strategic managers should be able to respond appropriately to these factors and forces by adapting to or managing important macro-environmental trends and, where possible, influence their industry environments to enhance the competitiveness, profitability and growth of their businesses.

b) Explain the strategic importance of analysing the external environment.

The boundaries and interfaces that exist between organisations and their external environments are relatively fluid and cannot be easily or clearly defined. As a result, the external environment will spring surprises on organisations from time to time, and managers need to be prepared to react. Under such conditions, timely and accurate information about the environment is critical for strategic decision making and planning. For example, if organisations know very little about the likes and dislikes of their customers and future trends, they will have difficulty designing new products or services, setting up a production schedule, or developing marketing and strategic plans. Ideally, for strategic decision making and planning to work, managers must not only understand the context of their competitive environments, but also the context of their future competitive environment.

The business environment of the organisation consists of all the external influences that affect its decision making and performance. The general idea is that, when undertaking a study of the organisation in relation to its environment and key role players, strategic decision making and planning should

Take advantage of internal strengths and identified opportunities arising from the external environment

Overcome weaknesses, or neutralise identified threats found in the external environment

Ensure the strategic ‘fit’ or consistency between its internal and external environments

Strategic direction is an outcome of melding the desires of key organisational stakeholders with environmental realities. Therefore, a profound understanding of the external environment, coupled with an understanding of its key role players, is paramount to charting an organisation’s road to success. This understanding should lead to the identification of strategic alternatives and provide a basis for formulating strategies as well as providing the organisation with a foundation for all other tasks of strategic management.

c) Explain the need for macro-environmental analysis in strategy formulation.

A company’s performance and success is to a certain extent determined by the characteristics of the industry in which it exists and competes. Furthermore, different industries are characterised by different competitive conditions and dynamics. Hence, when viewed in relation to competitors as well as competitive threats and opportunities existing in the external environment, all organisations have inherent strengths and weaknesses.

Strengths are internal organisational resources and capabilities that can lead to a competitive advantage.

Weakness are internal resources and capabilities that a firm may not possess yet but are necessary, resulting in competitive disadvantage until the firm acquires them.

Opportunities are conditions in the external environment that allow a firm to take advantage of organisational strengths, overcome weaknesses, and/or neutralise environmental threats.

Threats are conditions in the external environment that may stand in the way of organisational competitiveness or achievement of stakeholder satisfaction.

Therefore, if managers do not understand how the environment affects their organisations, or cannot identify significant opportunities or threats, their ability to make decisions and execute plans will be severely limited.

d) Explain the various methods for macro-environmental analysis.

There are four important techniques which can be employed when analysing the external environment:

1. Scanning involves detecting and identifying early signs of potential environmental changes and trends. It entails studying all segments in the broad environment and often reveals ambiguous, incomplete and or unconnected data. Many firms use special software to help them identify current events and trends using public sources on the internet. For instance, Amazon.com records information about individuals visiting its website. Environmental scanning will enable managers to forecast changes in the expected profitability of the industry and to adjust their strategies accordingly.

2. Monitoring concerns the detection of meaning through ongoing observations of environmental changes and trends. Analysts observe environmental changes when monitoring to see if an important trend is emerging from among those spotted through scanning. For example, a large food retailer in SA may plan to add diverse ethnic cuisine to its offering. In order to do that, it will monitor growing demand for various foods from ethnic groups settling in urban areas. The food retailer will also need to identify important stakeholders and to understand its reputation among these stakeholders as the foundation for serving their unique needs. Scanning and monitoring are particularly important in industries with high technological uncertainty.

3. Forecasting comprises developing feasible projections of what might happen, and how quickly as a result of the changes and trends identified through scanning and monitoring. For example, analysts may want to forecast the time that will be required for a new technology to reach the marketplace because this will give an organisation an idea of how much time will be available to train employees to deal with the anticipated changes. Forecasting events and outcomes accurately is nevertheless a challenging task for most organisations.

4. Assessing is about determining the time and importance as well as the implications of environmental changes and trends for organisations’ strategies and their management. Through scanning, monitoring and forecasting, analysts are able to understand the general environment and assess the implications of trend and changes. Without assessment, the firm is left with data that may be interesting but of unknown competitive relevance. In other words, although the gathering and ordering the information is important, the appropriate interpretation of that intelligence to determine if an identified trend, change or event in the external environment is an opportunity or a threat should be paramount.

e) Explain the term “industry” in the context of the external environment.

An industry is not merely defined as a market or composed of companies competing with each other. A distinction should be made between an organisation’s industry it belongs to and a market it serves. As an example, a company could exist in the automobile industry, but may choose to compete in the commercial vehicle market. An industry is therefore defined as a group of companies offering products and services that are close substitutes for each other. The basic customer needs that are served by a market define an industry’s boundaries.

h) Identify the impact of industry forces on profitability.

Customers. Note the four requirements for powerful customer buying power that would increase industry competitiveness and reduce industry profitability.

Power of suppliers. Note the five requirements for powerful suppliers that can increase industry competitiveness and reduce industry profitability.

Existing industry members and rivalry. Note the five requirements for intense rivalry and their effect of increasing industry competitiveness and reducing profitability where they prevail.

Potential competitors and threat of entry. Note the numerous underlying elements that could potentially influence this factor, the critical question being the ease of entry, or stated otherwise, the industry's “barriers to entry”. Familiarise yourself with the six barriers to entry referred to and the fact that ease of entry will increase industry competitiveness and adversely affect profitability.

Providers of substitute products and services. Note the meaning of substitute products. It is possible that an increase of substitutes coming from outside the immediate industry but which could replace industry products would increase competitiveness and reduce industry profitability.

Government intervention. Note that government intervention could be enhancing (e.g. deregulation) or constraining (e.g. nationalisation, competition policy). It could affect the structure, competitiveness and profitability of industries, especially where interventions are industry specific (e.g. telecommunications, energy and licensing in the retail liquor sector).

Complementors as additional forces. Complementors are products that enhance an industry member's own products (e.g. lease financing that enhances the sale of cars; or handsets to use the service provided by mobile communication providers such as MTN, Vodacom and CellC).

To summarise, where the original five factors all have high ratings, industry competition increases and profitability decreases, and vice versa.

HAVE A SOUND UNDERSTANDING OF THE INTERNAL ANALYSIS OF AN ORGANISATION’S STRENGTHS AND WEAKNESSES, ITS RESOURCES, CAPABILITIES AND COMPETENCIES AS SOURCES OF COMPETITIVE ADVANTAGE, AND THE RELATIONSHIP BETWEEN ITS COMPETITIVE ADVANTAGE AND ITS STRATEGY

a) Describe the importance of internal analysis in identifying organisational strengths and weaknesses for strategy formulation.

Analysing an organisation's internal environment serves to identify its main sources of competitive advantage and to explain the important relationships between an organisation's resources, capabilities and competencies, its competitive advantage and its strategy.

An organisation has a competitive advantage over its rivals when its profitability is greater than the average of all the organisations in its industry. It has a sustainable competitive advantage when it is able to maintain this above-average profitability over time. Note that internal analysis therefore aims at identifying the sources of an organisation's competitive advantage that should enable it to build a sustainable competitive advantage.

Based on an organisation's vision, mission and long-term objectives, the outcomes of internal analysis combined with those of the organisation's external analysis largely provide managers with the information they need to devise and select the competitive business level strategies that will enable them to attain a sustainable competitive advantage in pursuing their long-term objectives. Notwithstanding some differences in the approach to internal analysis, this typically requires the following three steps:

Managers need to understand the process by which organisations create value for customers and profit for the organisation, and the role of resources, capabilities and competencies in this regard.

Managers need to understand the importance of superior effectiveness, efficiency, innovation, quality and customer responsiveness in the process of creating value and generating above-average profitability.

Managers must be able to identify and analyse their organisation's sources of competitive advantage to know what drives the profitability of the organisation and where opportunities for further improvement might lie.

Essentially, from a strategy perspective, managers should ask two critical questions: “What are the sources of competitive advantage?” and “What is the link between competitive advantage, strategy and profitability?”

b) Explain how the value of resources, capabilities and competencies is appraised.

Capabilities and resources have the potential to become core competencies and these core competencies can result in competitive advantage, but only if they meet certain conditions. A resource-based framework for analysis of an organisation will determine the resources and capabilities that will result in core competencies.

For resources and capabilities to become the core competencies, they should be valuable (V), rare (R), inimitable and non-substitutable (I), and exploitable by the organisation (O), (VRIO). These measures can be used to test the strategic value of resources and capabilities.

Value:

Valuable (V) implies the ability of the organisation to transform a resource into a product or service at a lower cost or with a higher value to the customer. Capabilities are valuable when they enable an organisation to implement a strategy that improves efficiency and effectiveness. To be valuable, the capabilities must either increase efficiency with regard to outputs or inputs or increase the revenue of an organisation. For example, an information system could reduce customer service agents required or increase the number of calls that the same number of agents can answer. Alternatively, effectiveness must increase, meaning that some new sources of revenue not previously held should be enabled. For example, the opening of a new regional campus that will access the student market. Value is dependent on the type of strategy, for example a low-cost strategy such as Kulula.com or a differentiator strategy that enhances features such as African Pride hotels may require different capabilities.

Rarity:

A valuable resource and/or capability that an organisation owns that other organisations do not have, and that is not generally availability in the open market, is rare (R).

Inimitability:

Inimitable capabilities (I) and core competencies are valuable, unique and complex resources, including intangible resources (such as reputation, networks, client trust and intellectual property) and capabilities (such as knowledge, the culture of the organisation, skills and experience) that make it difficult for competitors to copy what an organisation is doing, resulting in sustained competitive advantage. It is easy copying something valuable that an organisation started doing first, its competitors will soon follow and in the process erode any competitive advantage.

Imitation by competitors is prevented if:

they do not understand the reason for success

they do not have the same unique historical conditions

the cause of the effectiveness is uncertain due to social complexity (for example, trust, teamwork and informal relationships)

Non-substitutability is also part of inimitability of resources and capabilities and means that there are no equivalent resources, duplicates, substitutes or imitations that can be exploited to implement the same strategies. The strategic value of a capability or core competency of an organisation increases when it is difficult for competitors to substitute it and also when it is difficult for them to identify, discern or observe it. Specific knowledge of the organisation and trust relationships are not easily observable and therefore difficult to copy.

Organisation:

The organisation’s structure and systems (O) should be suitable for a specific competitive advantage. If an organisation cannot be geared to exploit a resource or capability, it will have little value. Managerial awareness, of both the potential competitive advantage and the action required to realise it, is essential.

HAVE AN UNDERSTANDING OF THE PREVAILING INSTITUTIONAL AND EXTERNAL ENVIRONMENTS FOR BUSINESS IN AFRICA AS WELL AS OF THE STRATEGIES FOR EMERGING MARKETS IN GENERAL AND MARKETS IN AFRICA IN PARTICULAR

a) Explain the structure of the external environment that organisations have to deal with and the institutional environment of Africa in broad terms, with specific reference to the African Union (AU) and the Southern African Development Community (SADC).

Of particular interest to our understanding of strategic management in the African context in the sub-Saharan region, and specifically in the Southern African Development Community (SADC) group of countries within the AU. The SADC countries have existing trade and other political assistance treaties in place between them as well as strategic alliance from which individual countries compile policies. The SADC member countries are largely subjected to the same strategic issues facing Africa as a whole. All current governments of the SADC community have some form of strife underlying the governance process. In cases such as South Africa, considered to be the leader of the region, continuous allegations of fraudulent and other illegal dealings mar the country’s status and position in the global arena.

Further key issues that guide and govern African strategic development are found in the various documents of the AU and SADC. These relate primarily to economic growth, education, health and regional integration and may be summarised as follows:

• Poverty alleviation

• Improved political and military stability (on the continent)

• Economic growth including increase in exports (on the continent)

• Improved education and health service and service delivery

• Improved public-private partnerships (on national and international levels)

• Improved infrastructure development

All of these need to be done against a backdrop of environmental conservation and sustainability. In the South African context, the business strategic planning cycle is further complicated by employment equity ratios. The impact of these ratios on the HR component of a business in turn reflects on the organisational disposition in that cross-skilling is required. Whereas in the past businesses only had to plan for strategic development in the economic sense, they now need to plan for an internal process of development within the time horizon of the implementation (leading) cycle. Control has to be both internally based (maintaining economic stature in order to remain competitive and contribute to the economy) and externally based (having to comply with judicial and legislative restrictions as laid out by the National Department of Trade and Industry).

In other words, strategy formulation for both state and private enterprise needs to reflect not only the government’s goals for 2030, but also legislation in terms of human resource management, social development and growth expectations. Companies are required to conform to the broad-based black economic empowerment (BBBEE) plans as well as equal employment opportunity for all previously marginalised groups.

Special incentives are being offered to organisations employing young workers, for example the skills levy. These incentives will influence the way organisations adopt and adapt their strategies for the future. They may start considering early retirement for older (skilled) workers in order to employ younger and cheaper labour. This could lead to a drop in the experience level in organisations.

In the case of the SADC countries, the two-fold approach is applied. Strategic plans are formulated to address growth, health and education of not only the organisation and its employees, but the nation as a whole. Water shortages and conflict are often issues that also need to be addressed.

Based on the manifestos of the AU and SADC communities, the strategic process in Africa should by no means differ from the theoretical model, but at the same time, Africa needs to strategize for its own future.

b) Explain the external environment relating to Africa as a frame of reference for doing business in Africa.

By 2014, some of the fastest-growing economies in the world were in Africa, presenting new opportunities for multinationals from developed countries as well as other organisations, including those from South Africa, to invest in Africa.

• Local customs and customer preferences

Investors, as well as organisations exporting to countries in Africa, should bear in mind that countries are diverse and differ in terms of the following: their political stability; legal system; size of their economy as indicated by GDP and GNP levels; level of economic development; rate of economic growth; size of the country; population size; levels of disposable and discretionary income; sophistication of infrastructure; industry characteristics; market size and consumer needs; and culture, as well as customs and especially religious traditions. These are but a few determinants that business leaders need to contemplate as a start. Comprehensive country analysis would, for example, further involve country risk analysis and taking into account information derived from the Human Development Index and information made available by organisations such as Transparency International.

The rationale for this brief overview is to reaffirm that an organisation's international or global strategy which is successful in its home country in most cases will not work in Africa. The message is clear − deciding on business

involvement in Africa must be preceded by extensive research and strategic analysis, most importantly about the actual market needs and customer preferences.

• Legislation

Investors and business leaders should be aware of the legal dispensation of the country they are involved in or contemplating becoming involved in. An intimate knowledge of a country's legal system, laws and regulations as well as the extent to which the rule of law and effective law enforcement prevail is indispensable. Relevant issues would include those relating to ownership, labour relations, taxation, customs and excise, direct investment, securities exchange and listing requirements, repatriation of profits and dividends to parent organisations in the home country, foreign exchange controls and transfer pricing rules.

• Political considerations

Owing to the political complexities that organisations face when setting up business in African countries, ways that could be considered to circumvent or overcome such complexities include the following:

partnering with local stakeholders for a number of reasons, including ease of entry into the country, shared ownership (international joint ventures) or involvement by agreement (strategic alliances) as a source of local market knowledge, potentially favourable government relations, and sharing risks, especially in the early stages of a venture where uncertainty is high

responding positively to an awareness of community, cultural and social needs in terms of customised products; certain human resource management practices and an awareness of political events and national priorities could enhance organisation-government relations. See the experience of SABMiller below.

• Creative supply chain management

Owing to underdeveloped infrastructure in many of the countries in Africa, organisations have to devise their own, innovative supply chain solutions, especially in terms of logistics relating to procurement and inbound transportation and the distribution of products to markets. Study the following ways in which these challenges can be addressed:

investing in own infrastructure

product innovation to meet specific market needs

developing local suppliers to ensure consistent supply of raw materials

developing distribution channel strategies that are sufficiently flexible to cope with both formal and informal distribution via wholesalers and retailers to serve their markets effectively

In the case of land-locked countries, logistics could present a nightmare. Not only could customs clearance at a country's nearest port take relatively long, but cross-border customs clearance en route could cause further delays, while poor infrastructure, especially roads and ineffective rail transport, add to already existing time delays that all translate into higher costs, potential production delays and getting products to market.

• Investing heavily in talent

The lack of skills, and especially key managerial skills, remains a drawback in African countries. Organisations doing business in Africa need to identify, attract and retain talent, but also invest in training and development, including mentorship.

c) Compare the approach to strategy and strategic management in emerging economies to the approach in the developed world.

The obvious point of departure when doing business in Africa, or contemplating doing business, is the need to consider the relevant challenges. In order to formulate relevant strategies for emerging markets, managers need to at least consider the economic, political, legal, sociocultural, technological, ecological, infrastructural and demographic dispositions of the country or countries in which their organisations are already involved or if they are planning such involvement. Suffice it to say that conflict, as well as the general underdeveloped infrastructure in SSA, generally poses serious challenges in many African countries, and this has an adverse effect on foreign investment and business. Note that emerging markets have become popular business destinations in recent decades for the following reasons:

1. They present increasingly attractive market opportunities to international companies wishing to expand business and operations to foreign markets.

2. They currently reflect the potential for increasing levels of demand for internationally recognised brands and relatively more sophisticated products and services.

3. They could serve as manufacturing bases and destinations for outsourcing activities.

4. They serve as destinations for sourcing strategic materials and commodities. Benefits for developing economies invariably include higher economic growth and higher income levels, a better quality of life, improved skills, increased technology transfer and more competitive consumer markets.

Despite their attractive growth prospects, emerging economies typically involve high inherent risks, which apply even more so to Africa and SSA, the latter a vast "developing" region. According to Parker, SSA has been plagued by perennial problems such as self-serving governments, weak institutions, ethnic and religion induced civil wars, weak property rights, low productivity, the scourge of bureaucratic red tape and corruption.

According to Prahalad, the poor can be the engine of the next round of global trade and prosperity. However, this untapped source is virtually uncharted territory in terms of multinational corporations' understanding of the strategies required to capture this opportunity, an observation that has particular relevance for doing business in SSA. A critical fact, however, is that a high percentage of the population in Africa lives on less than 2$ a day, the people at the so-called “BOP”, which suggests that business in Africa needs to be approached differently when compared to business practices in developed economies. MNCs therefore need to develop specific strategies to meet the needs of the different consumer classes that make up the national markets in emerging economies, including the countries in SSA. This is especially relevant for those potential consumers at the BOP.

d) Describe suitable approaches for strategies in emerging markets in general and markets in Africa and sub-Saharan Africa in particular.

In recent decades, many multinational companies from developed countries have approached emerging and especially Bottom Of Pyramid markets in developing countries based on flawed analyses, inappropriate strategies, and with existing portfolios of products and services developed and priced for Western markets. Such products are often out of reach of both existing and potential customers in BOP markets.

It is imperative that MNCs understand the structure and needs of markets in emerging economies in general, and SSA market structures and market needs in particular. While these requirements obviously also apply to local companies in developing countries, it is of even greater importance for foreign MNCs wanting to compete in these economies. While there could be other strategic approaches to serve BOP markets, and acknowledging the fact that circumstances are bound to differ from one country to the next, the approach below proposed by Khanna and Palepu to strategically structure country or regional markets into various levels or tiers, including the BOP level, should not be seen as being prescriptive, or the only way in which to approach emerging and BOP markets. In fact, it should rather be seen as a valuable basis for thinking about and contemplating other strategic options for emerging markets in general and SSA markets in particular. The following market structures proposed by Khanna and Palepu reveal strategically important considerations.

Khanna and Palepu maintain that most product markets in emerging economies, and arguably also in SSA markets, comprise the following four distinct tiers:

A "global" customer segment that wants products of global quality and with global features – offerings with the same qualities and attributes that goods in developed countries have – and customers willing to pay global prices for them

A "glocal" segment that demands products of global quality but with local features at less-than-global prices

A "local" segment that wants local products with local features at local prices.

A BOP segment that can afford to buy only the most inexpensive products

This four-tiered structure of markets in emerging economies poses significant challenges for local organisations, but significantly more so for rival foreign organisations. From the perspective of foreign MNCs, which would include South African companies venturing into emerging markets and SSA country markets in particular, the first imperative is to realise that emerging markets differ in structure compared to developed country markets, and require MNCs to decide where and how to compete. Owing to "institutional voids" in most emerging economies − a general lack of specialised intermediaries such as regulatory systems, adequate distribution systems, skilled market research firms and pools of skilled managerial talent − foreign MNCs find it difficult, at least initially, to serve anything but the global tier in emerging product markets as a result of the following:

A general lack of market research organisations and absence of reliable market intelligence which make it difficult for MNCs to identify and understand local customers’ preferences and tastes

The generally poor distribution networks that make it largely impossible to serve customers in rural areas effectively

The MNC’s deficient knowledge about the local talent pool (at least initially) and inability to attract competent local employees at the four different market levels, which poses an enormous challenge

According to Khanna and Palepu, MNCs typically rush into the global tier, while local companies dominate the local tier and, to a certain extent, the BOP tiers. However, opportunities exist at the BOP tier, but MNCs, both local and foreign, need different competitive and marketing strategies to compete successfully at this level. Over time, the glocal tier becomes the battleground between local and foreign rivals.

With their superior knowledge of local conditions, local companies tend to serve glocal customers better than their foreign counterparts. Companies depend on the extent of their competitive advantage for their success. For local firms, being able to circumvent institutional voids, tailoring their strategies to local markets better than foreign MNCs and being able to tap into capital and talent markets in developed countries, often give them the competitive edge in serving the glocal, local and BOP market tiers. Note that the basic requirements for cost leadership and differentiation business level strategies still apply, but that the approach to reconfiguration of products and services and their execution may need to be adapted. An example is the provision by MTN of prepaid mobile phone subscriptions costing a few dollars only, so that BOP customers could afford airtime, which increased their sales dramatically. Key success factors to successfully engage in emerging markets and, accordingly, SSA markets, appear to be critical for any degree of success. Despite the large proportion of consumers at the BOP level in most African countries, there is evidence that a number of unfavourable perceptions of the BOP segment have prevailed partly because of multinationals' misconceptions about these markets. These misconceptions include the following:

• The poor cannot afford their products and services.

• The poor do not have use for the products sold in developed countries.

• Only developed country customers appreciate and pay for innovations.

• Because of low income levels, BOP markets are not critical for the long-term growth of MNCs.

• It is difficult to recruit managers for BOP markets.

In recent years, the situation in countries in Africa has shown improvement in a number of areas, including the quality of life and buying power of the people, the availability of good quality products and services, and, in particular, advancement in and use of information and communications technology (ICT). By June 2012, there were 167 million internet users in Africa representing around 15% of the total population of about one billion people. Also significant at the macro level is that by mid-2010, private capital flows to SSA − primarily from BRICS countries, private sector investment portfolios and remittances − exceeded official development assistance (ODA) for the first time ever.

EXPLAIN WHAT SUSTAINABLE ORGANISATIONS ARE AND EVALUATE STRATEGIC DECISIONS TO DETERMINE HOW THEY CONTRIBUTE TO SUSTAINABILITY

a) Explain why corporate sustainability is important.

If we talk about business or organisational sustainability, we are referring to the ability of the organisation to endure and survive in the long run. However, for every successful organisation that is sustainable, there are many more that do not manage to survive in the long term. These include businesses that fold (and as a result are declared bankrupt or liquidated), but may also include public organisations, such as state-owned enterprises (SOEs) that continually perform poorly, but are “bailed out” by government with taxpayers money, such as South African Airways (SAA).

Any business operates with the basic underlying goal of surviving and perhaps prospering in the long-term – in other words, being sustainable. However, achieving this goal is much easier said than done. It requires the organisation to take a long-term view in its decision making rather than a short-term one, which may require giving up profits in the short term in exchange for survival and wealth creation in the long term.

b) Explain the importance of stakeholders and stakeholder management for sustainable business.

Any organization is the sum of its stakeholders. While all have a common interest in the organisation’s success, stakeholders have different perspectives on the organisation, each looking to take something out of it and all have an ability to influence that success. To achieve a competitive advantage an organisation needs to meet the needs of the stakeholders which means adding value. Adding value can be defined as adding certain characteristics to the product/services that the competitor and customer (or other stakeholders) cannot do for themselves. Anyone who is directly influenced by the acts of the organization is seen as a stakeholder. Stakeholders usually have divergent goals and are driven not only by profit or other financial aspects. To ensure sustainability and long term survival of the organization it is important to ensure that the claims of the stakeholders are met. In the event of their claims not being met, organisations will lose their competitive advantage and ultimately losing their sustainability over the long run.

Stakeholders are those entities that can affect or be affected by the organisation’s actions. Some examples of key stakeholders are creditors, directors, employees, government, owners, suppliers, unions, the environment and the community from which the business draws its resources. Not all stakeholders are equal. For example, customers are entitled to fair trading practices, but they are not entitled to the same consideration as the company’s employees.

Any strategic decision taken by an organisation is likely to have positive and negative consequences for different stakeholders. When a company needs to cut costs and plans a round of lay-offs, this negatively affects the community of workers in the area and therefore the local economy. Shareholders, however, may be positively affected, as the company may return to profitability after this decision. The extent to which organisations should consider stakeholders in their decision making is thus a point of contention.

The shareholder view argues that the claims of shareholders, the owners of the business, are paramount to any business. Without this focus on shareholders, the organisation would not attract investors and this would affect sustainability. Supporters of this view argue that in the long run, profit benefits all stakeholders.

On the other hand, the stakeholder perspective argues that shareholders cannot be the sole focus – if they are, other stakeholders may withdraw their support for the organisation to its detriment. Supporters of this view accordingly argue that all stakeholders should be considered in the strategic decision-making processes of the organisation.

As a middle ground, some observers have argued that there should not be a great chasm between the two views, as an enlightened shareholder perspective is really no different to an enlightened stakeholder perspective. In terms of sustainable strategy, the organisation should thus try to balance the needs and claims of its key stakeholders. In determining the relative importance of stakeholders, the organisation needs to weigh up the claims of stakeholders and the relative power and influence of stakeholders. In the case of a strike, a union may demand a substantial increase in their pay, which the employers usually claim they cannot afford. Whether the demand constitutes a legitimate claim is an issue of debate, but in the meantime the workers are exerting their power by withholding labour, to the detriment of the company.

The stakeholder salience model can assist managers in determining the relative importance of stakeholders of the organisation. It should be noted that the importance of stakeholders will differ from firm to firm and from industry to industry.

The determining factors are as follows:

Stakeholder power is determined by the extent to which stakeholders control the resources required by the organisation. The more resources and the higher the degree of control, the more powerful the stakeholders. Employees and unions, for example, have direct control over the human resources of the organisation, whereas the community does not always have similar control.

Stakeholder legitimacy is determined by the extent to which the stakeholders are affected by the decision of the organisation, and the more affected, the higher the legitimacy. Once again, the employees of the organisation are directly affected by the organisation’s decisions, and therefore have a high level of legitimacy.

Stakeholder urgency is determined by the time sensitivity of the stakeholder’s claim, and the level of importance to the stakeholder. The more urgent and important the claim, the higher the level of urgency.

We can use these attributes to classify stakeholders into three broad classes:

Latent stakeholders have only one attribute, either power, or legitimacy or urgency. For example, for many organisations the environment may be such a stakeholder. It has legitimacy, as it is affected by the decisions of the organisation, but may not have power or urgency.

Expectant stakeholders have two or three attributes. For example, the government may have power and urgency, but may not have a high level of legitimacy.

Salient stakeholders have the strongest claim, and will be most important to the organisation. For example, unions have high power, high legitimacy and high urgency. However, it could be said that shareholders in this case are also salient stakeholders, which may help to explain the deadlock between management and labour regarding the remuneration claims of the union.

c) Conduct an analysis of stakeholder salience and make recommendations based on your analysis.

To assist managers, the stakeholder salience model can be used for prioritising stakeholder claims based on their relative importance. The stakeholder salience model includes three determining factors, namely stakeholder

power, stakeholder legitimacy and stakeholder urgency. These factors are used to categorise stakeholders into 3 broad classes: latent stakeholders, expectant stakeholders and salient stakeholders.

It is essential for the organisation to understand the claims of stakeholders and to be aware of the salience of each stakeholder’s claim. For this purpose, in the table below the claim of each stakeholder is stated as an example, and its salience assessed by rating its power, legitimacy and urgency as high (H), moderate (M) and low (L). Higher ratings suggest higher salience (importance) and thus more attention from union management.

Table 6.2: Stakeholder salience in the platinum strike: an AMCU perspective

STAKEHOLDER CLAIM POWER LEGITIMACY URGENCY

Union members Higher wages H H H

Non-union employees

Right to work L H H

Government Peaceful strike; settlement as soon as possible L M L

Community Peaceful strike; settlement as soon as possible L H H

Union management

Higher wages for members L H H

Competing unions

Right to work L H H

Political parties Exposure due to affiliation with the union L L L

Shareholders of mines

Settlement as soon as possible at lower wage increase than demanded

H H H

EmployersSettlement as soon as possible at lower wage increase than demanded

H H H

In this analysis it seems that the union members, employers and mine shareholders are the salient stakeholders, suggesting that their claims should enjoy preference. However, since the claims were almost opposites, the result was a deadlock and the longest strike in South African mining history. The community, competing unions and non-union employees are examples of expectant stakeholders. They lack the power to influence AMCU, but have legitimate and urgent claims which were evident in the economic devastation that followed the strike in the Rustenburg area. Government and political parties are examples of latent stakeholders with relatively little power and control over resources, low legitimacy with regard to their claims and low levels of urgency. Their claims are accordingly the least important to deal with from an AMCU perspective.

d) Explain the importance of ethical business and give examples of what organisations can do to promote it.

In strategic management it is important to have a code of conduct that will guide the actions of management and will help the organisation to avoid ethical pitfalls. The corporate governance process attempts to create such a code of conduct.

In the final pillar of corporate sustainability we address the issue of ethical business, an essential element of corporate accountability. While everyone can give examples of unethical or ethical business, it is a concept that

is quite difficult to define and apply in practice. It is ultimately up to every organisation to define what ethical business means in its context and how it will deal with it. What we do know is that when ethics fail, there may be far-reaching and serious consequences for the organisation and all of its stakeholders.

• Guidelines for the ethical behaviour of executives

Be honest in all communications and actions. Ethical executives are, above all, worthy of trust and honesty is the cornerstone of trust.

Maintain personal integrity. Ethical executives earn the trust of others through personal integrity. Integrity refers to a wholeness of character demonstrated by consistency between thoughts, words and actions.

Keep promises and fulfil commitments. Ethical executives can be trusted because they make every reasonable effort to fulfil the letter and spirit of their promises and commitments.

Be loyal within the framework of other ethical principles. Ethical executives justify trust by being loyal to their organisation and the people they work with.

Strive to be fair and just in all dealings. Ethical executives are fundamentally committed to fairness.

Demonstrate compassion and a genuine concern for the well-being of others.

Treat everyone with respect.

Obey the law.

Pursue excellence all the time in all things.

Ethical executives are conscious of the responsibilities and opportunities of their position of leadership and seek to be positive ethical role models.

Build and protect the organisation’s good reputation and the morale of its employees.

Be accountable. Ethical executives acknowledge and accept personal accountability for the ethical quality of their decisions and omissions.

e) Explain the role of corporate governance in corporate sustainability.

Whereas sustainability examines the strategic decisions of an organisation, corporate governance refers to the frameworks provided for governing sustainability. Corporate governance is described as the system by which corporations are directed and controlled, and it performs the following functions:

It specifies the distribution of rights and responsibilities among different participants in the corporation.

It specifies the rules and procedures for making decisions in corporate affairs.

It provides a structure through which corporations set and pursue their objectives, while reflecting the context of the social, regulatory and market environments.

It is a mechanism for monitoring actions, policies and decisions of corporations.

It is a mechanism for aligning the interests of different stakeholders.

In most countries, corporate governance frameworks have been adopted to provide corporations with specific guidelines on how to implement and manage corporate governance procedures. Ultimately the role of governance frameworks is to provide mechanisms to help corporations to attain sustainability.

In SA, the King Code (King III) is widely regarded as a state-of-the-art code for corporate governance. Although some aspects of governance are legislated, the governance guidelines are mostly for voluntary compliance,

described as ‘comply or explain’. It provides guidelines on boards and directors, accounting and auditing, risk management, internal auditing, integrated sustainability reporting, compliance and stakeholder relationships, business rescue, fundamental and affected transactions, IT governance, and alternative dispute resolution mechanisms.

The Pubic Finance Management Act (PFMA) of 1999 is regulatory framework that regulates the governance of public sector institutions. It is like the King Code for public sector entities, with the difference that it is legislation and thus legally enforceable. The objectives of the PFMA are to:

• Modernise the system of financial management in the public sector

• Enable public sector managers to manage, but at the same time be held more accountable

• Ensure the timely provision of quality information

• Eliminate waste and corruption in the use of public assets

f) Make recommendations on how organisations can improve their sustainability.

Sustainability is the ability of an organisation to survive in the long-term, therefore recommendations made would be to improve to the point where the following is achieved in daily practice:

not harm the physical environment in which the organisation operates

contribute positively to the communities in which they operate

economic success and contribution of the organisation, typically measured by financial measures such as profits, return on equity and economic value added

strategy implementation processes as well as internal role players such as the board of directors, management, employee effectiveness, corporate governance, and so on (what is a measure here?)

the organisation must, as far as possible, develop strategies that balance the demands of multiple stakeholders

strategies of the organisation are aligned with the internal and external environments, and processes and capabilities exist to adapt to changes in the environment.

EXAMINE THE VARIOUS GENERIS COMPETITIVE BUSINESS LEVEL STRATEGIES AVAILABLE TO ORGANISATIONS AND EXPLAIN THEIR APPROPRIATENESS IN SPECIFIC SITUATIONS

a) Explain the importance of choosing appropriate business level strategies.

Corporate level strategies essentially deal with the number of products and services that the company will offer and the markets which they will pursue. Business-level, or competitive, strategies consider how to compete successfully in these markets. In other words, these strategies focus on how to position a company within an industry in such a way that it has competitive advantage.

There are many variations in business-level strategies, but if one strips away the detail to get to the real substance, the biggest and most significant differences among competitive strategies are reduced to the following:

• Whether an organisation’s target market is broad or narrow

• Whether an organisation is pursuing a competitive advantage linked to low cost or product differentiation

• A combination of the above

When you ask customers why they buy a specific product or service, they will tell you that it is because the product is cheaper than, different from or provides a better value proposition than competing alternative options.