Professional Documents
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Mng3701 Priscribed Textbook
Mng3701 Priscribed Textbook
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PRACTISING
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STR ATEGY
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A southern African context
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INTRODUCING THE
1 PRACTICE OF STRATEGY
Peet Venter
LEARNING After reading this chapter, you should be able to do the following:
■ Explain why strategic management is important to the
OUTCOMES organisation.
■ Define ‘strategy’ and ‘strategic management’.
■ Describe the nature of strategic decisions.
■ Explain what success means in strategic terms.
■ Differentiate between the different levels of strategy.
■ Differentiate between emergent and deliberate strategies.
■ Explain why a pure process perspective on strategy is not
appropriate.
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formulating strategy (planning), implementing strategy (organising and leading) with the help
of middle managers and the rest of the organisation, and ensuring that the strategic plans and
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implementation initiatives stay on track. Strategic management, from this perspective, can be
described as a rational approach that organisations use to achieve strategic competitiveness
and competitive advantage.7 A diagrammatic view of a generic strategic management process
is presented in Figure 1.1 and discussed below.
Strategy formulation (or strategic planning) is the focus area of most strategic management
textbooks and is generally regarded as the ‘thinking’ part of the strategic management process,
where top managers set the strategic direction of the organisation, analyse the internal and
external environment, set strategic goals, and choose the strategies that will help them to
achieve these strategic goals. The elements of strategy formulation are as follows:
■ The first step in the strategic management process is the establishment of strategic
direction. This usually consists of a vision and mission statement.
■ The strategic direction leads to more specific strategic objectives. These are typically long-
term in nature (typically a three- to five-year focus), and have measurable outcomes.
■ The purpose of the external environmental analysis is to identify opportunities and threats
outside of the organisation that may influence the ability of the organisation to achieve its
strategic objectives.
■ The focus of internal analysis is to identify and value the resources and capabilities of the
organisation to identify key strengths and weaknesses that may affect the ability of the
organisation to achieve its strategic objectives.
■ Strategic choice is the selection of specific robust strategies that will lead the organisation
to achieve its strategic objectives as effectively as possible.
If strategy formulation is the ‘thinking’ part of the strategic management process, strategy
implementation (or strategic execution) is the ‘doing’ part, where both human and non-
human factors in the organisation are applied to ensure that the strategy is executed in line
with the devised plans. While it is commonly accepted that most strategies fail because of
implementation problems, it is the most under-studied aspect of the strategic management
process. The following are the most important elements of strategy implementation:
■ Leadership and culture. Ensuring that the culture of the organisation is aligned with the
strategic choice is a time-consuming and complex task, since maintaining culture takes a
deliberate effort and changing it does not happen quickly.
■ Competencies. The organisation needs to ensure that individuals have the right mix of
knowledge, skills and attitudes to support the strategy.
■ Systems. The organisation has to put procedures (such as reward systems) in place to
support strategic direction.
■ Structure. The organisation needs an appropriate structure to successfully execute the
strategy.
■ Cascading. By cascading strategic objectives into short-term objectives, functional strategies
and policies, the organisation can ensure that functional objectives and strategies and
company policies support strategic direction.
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The managerial perspectives box below shows that although the process may differ across
organisations, the same basic steps occur in the application of the strategic management
process.
MANAGERIAL PERSPECTIVE
It is an annual process whereby we identify the strategic objectives for the year ahead
plus an additional four years. These strategic objectives are captured in a strategic
plan which is rolled out to the workforce annually. The objectives are also tracked
on a monthly basis per department to ensure that the plan is changed if there were
changes in conditions that require changes in the strategic plan. The previous strategic
plan is also regularly critically reviewed to understand where incorrect strategies were
identified, why they were incorrect and what changes must be made to ensure that
long-term profitability, growth, liquidity and people morale are achieved.
Before the strategic plan is finalised it is discussed with middle management to ensure
buy in and to ensure that management is aligned. At this stage changes are still made
if middle management has ideas that must be incorporated into the plan. The junior
management of the company is also consulted for inputs. The strategic plan is built
up from departmental plans. Once finalised, the plan is rolled out to all employees,
although in different ways to the various levels of employees.
Manager, manufacturing firm
The purpose of strategic control is to ensure that the formulated strategy remains valid and that
the implementation of strategy remains on track. It provides feedback to the formulation and
implementation phases, so that the organisation can adapt its strategic plans to its changing
environment or react to immediate threats or opportunities.
Considering the process above, there are a few distinct characteristics of the traditional
perspective on strategic management:
■ There is clear separation between the ‘thinking’ parts of strategy (strategy formulation) and
the ‘doing’ parts (strategy implementation).
■ There is also a clear separation of responsibility (e.g. top management is responsible for
formulation and middle management for implementation).
■ The strategic management process is portrayed as a neat, cognitive (rational), logical and
sequential process (e.g. thinking happens before doing).
■ The traditional perspective of strategy has its roots in microeconomics and accordingly is primarily
interested in understanding how competitive advantage can be established and maintained.
Flowing from this, the traditional perspective on strategic management is interested in
understanding how organisations can develop and maintain competitive advantage.
The traditional perspective of strategic management has attracted considerable criticism for
various reasons, such as the fact that it largely ignores the role of people. For this reason,
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changes are occurring in how we think about strategic management and these new perspectives
will be discussed in the next section.
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Choice of
strategy
Strategy
implementation
Strategic
control
MANAGERIAL PERSPECTIVES
external role players have been taken into consideration and then matched with market
conditions in order to come up with the best possible strategy.
Manager, commercial bank
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example strategy workshops and projects. Additionally, material systems can control or influence
key actions, as can presentations, written documents and information systems. Even technical
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designs (such as in the case of Apple) may be used by strategists or could even be ‘strategic
agents’ in their own right.
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Strategic goal
C
Strategy
A B
Business as usual
FIGURE 1.2 Strategy versus business as usual14
Consider Figure 1.2. Taking point A as where we are today, if we carry on doing what we are
doing (i.e. business as usual) and we are somewhat lucky, we may end up at point B, in a
somewhat better position than we are today and perhaps, if we are very lucky, in a position
where we are better off than our competitors. It is also quite possible that we will end up in
exactly the same or even in a worse position than where we are today. However, we can set
ourselves a long-term strategic goal (point C) that, if we achieve it, will take us considerably
beyond where we are today and possibly even beyond our competitors – in other words, it will
give us a competitive advantage. The difference between point B and point C is ‘strategy’, those
actions that will help us achieve our strategic goals. Strategic goals are also known as long-term
or strategic objectives. Being ‘strategic’ thus involves the following:
■ It is not ‘business as usual’ – we cannot simply keep doing what we have been doing for
years and years and describe it as ‘strategic’.
■ It reaches across all business functions, i.e. it is an organisation-wide issue.
■ It is not a quick-fix, or a small change. It requires a large, sustained change effort over a
long period of time.
■ It requires a large commitment of resources – it is not cheap or easy.
■ While it may not be the domain of top management only, and it may be influenced by many
other people, top management is ultimately responsible for achieving strategic goals (or for
failing to achieve them).
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Strategic management is ultimately about consistently aligning the organisation with its internal
and external environments, as shown in Figure 1.3. In this figure, 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.
External consistency refers to the extent to which the organisation’s strategy is aligned with
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the opportunities and threats in the external environment. Significant changes in the external
environment will most likely require some changes in strategy. Dynamic consistency measures
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the extent to which the strategy of the organisation is consistent with the key resources and
capabilities of the organisation. In other words, is the organisation making the best possible use
of its resources and capabilities to benefit from opportunities and to avoid or deal with threats?
Internal consistency addresses the extent to which the organisational architecture (such as
structure, systems, human resources, technology and processes) are aligned with the strategy.
It also considers whether planning at levels lower down in the organisation are broadly aligned
with strategy. In this view of strategic management, strategising can be seen as the efforts of
strategists to ensure consistency on all three levels and within the boundaries of the strategic
goals of the organisation. Strategising will require strategic decisions to be made, and that is
the focus of the next section.
Internal
Strategic
consistency
direction
Strategising
External Dynamic
consistency consistency
In environments where fast strategic decision making is required, the following recommendations
can aid strategists:22
■ Develop more than one alternative. This will help minimise the influence of politicking.
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Strategy simulations can be used to improve strategists’ ability to generate and evaluate
alternatives more quickly.
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■ Get real-time information. Instead of waiting for formal reports, fast decision makers
obtain the information they need from operational data and by informal discussions with
other managers and members of the organisation.
■ Rely on experience and trusted advisers. Do not depend on junior managers and
consultants for analyses.
■ Try to reach consensus, but not at all cost. There will be occasions when there is simply
not enough time to establish consensus, and the CEO or other senior manager should, at
some point, just make a decision.
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stakeholder theory.26
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The activities of strategists are influenced by external events, and strategists exert an influence
on the external environment in turn. The external environment consists of those customers,
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competitors and suppliers that are relatively close to the organisation and are more readily
influenced, but may also consist of those aspects in the environment that the organisation has
very little control over, such as natural disasters. It is ultimately the role of strategists to ensure
that the organisation is aligned, i.e. is consistent, with its external environment. This topic is the
focus of Chapter 8.
Ch 2 Strategic management in
AFRICAN CONTEXT the African context
Ch 3 Sustainable strategy
Ch 10 Aligning strategy and
INTERNAL CONSISTENCY organisational culture
(internal environment is Ch 11 Structure and strategy
aligned with strategy) Ch 12 Strategy deployment
Ch 13 Strategic control
Ch 4 Strategic management as
a process
STRATEGISING
Ch 5 Strategists and
(the process, people and strategising
tools of strategising) Ch 9 Choosing appropriate
strategies
management capabilities
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Discussion questions
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MANAGERIAL PERSPECTIVES
Learning activities
1. Interview a manager in your organisation, or any organisation of your choice. Determine
whether the organisation follows a process approach to strategic management or an
emergent approach (or perhaps a little bit of both).
2. Visit the website http://www.managementexchange.com/blog/gary-hamel-are-you-really-
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serious-about-innovation and watch the video ‘Are you really serious about innovation?’
by Gary Hamel. After watching it, what is your view on the role of innovation in strategic
management?
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Endnotes
1 Isaacson, W. 2011. Steve Jobs. New York, NY: Simon & Schuster; Oliver, S. 2011. ‘Steve Jobs left
designer Jony Ive more power than anyone at Apple’. Apple Insider, 21 October. Available online at:
http://appleinsider.com/articles/11/10/21/steve_jobs_left_designer_jony_ive_more_power_than_
anyone_at_apple (accessed 21 January 2013); Van Rooyen, F. 2011. ‘Steve Jobs: rus in vrede’. Beeld,
12 October 2011.
2 The Art of War by Sun Tzu (written about 500BC) is widely regarded as the first known treatise on
strategy.
3 Grant, R.M. 2013. Contemporary strategy analysis, 8th ed. West Sussex: Blackwell.
4 Porter, M. 1998. Competitive advantage: creating and sustaining superior performance. New York, NY:
The Free Press.
5 Grant (2013)
6 Ibid.
7 Ireland, R.D., Hoskisson, R.E. & Hitt, M.A. 2013. The management of strategy: concepts and cases, 10th
ed. Stamford, CT: Cengage Learning.
8 Grant (2013: 17–18)
9 Mintzberg, H., Lampel, J., Quinn, J.B. & Ghoshal, S. 2003. The strategy process, global 4th ed. Upper
Saddle River, N.J.: Prentice Hall.
10 Johnson, G., Whittington, R. & Scholes, K. 2011. Exploring strategy: text and cases, 9th ed. Essex:
Pearson Education.
11 Mintzberg et al. (2003)
12 Johnson et al. (2011: 517)
13 Ibid.
14 Adapted from an idea explained by strategy consultant Tony Manning in a presentation to a client
circa 2007 (details unknown)
15 Johnson et al. (2011)
16 Mintzberg et al. (2003)
17 Grant (2013: 15)
18 Porter (1998)
19 Thompson, A.A. Jr, Strickland, A.J. III & Gamble, J.E. 2010. Crafting and executing strategy, 17th ed.
New York, NY: McGraw-Hill.
20 Adapted from Grant (2013: 9)
21 Grant (2013: 219)
22 Adapted from Eisenhardt, K.M. 1990. ‘Speed and strategic choice: how managers accelerate decision
making’. California Management Review, 32(3): 39–54.
23 A quote by British philosopher Carveth Read, often wrongly attributed to economist John Maynard
Keynes
24 http://www.firstrand.co.za; Jansen van Rensburg, M. & Venter, P. 2012. ‘A longitudinal analysis of the
corporate strategic stance and actions employed by South African banks in response to the global
economic crisis’. African Journal of Business Management, 6 (34): 9634–9648.
25 Grant (2013: 36)
26 Grant (2013: 37)
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STRATEGIC MANAGEMENT
2 IN THE AFRICAN CONTEXT
Jan Meyer
LEARNING After reading this chapter, you should be able to do the following:
■ Identify the key issues that define strategy making in the African
OUTCOMES and southern African contexts.
■ Explain how the identified key issues will impact on the strategic
management process.
■ Give examples of how businesses are dealing with the complexity
of strategy in the African context.
■ Compare strategy making in the African context to that in the
developed world.
Market knowledge
Unlike in developed Western economies, market information in Africa is
not always available at the push of a button. Yet understanding market
conditions at a local level is very important. Because of their history
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Long-term commitment
While it is commonly accepted that business in Africa can be risky,
SC believes that staying power is important. African countries are
increasingly demanding from foreign companies to invest for the long
term. Part of the investment is to understand what value the business
brings to the country. In an independent study, it was reported that
Standard Chartered Bank directly and indirectly supports some 1.9
million jobs in sub-Saharan Africa, equivalent to around 0.6 per cent of
the region’s total workforce; contributes $10.7 billion to sub-Saharan
Africa’s economy, equivalent to 1.2 per cent of the region’s GDP; supports
sub-Saharan Africa trade worth $7.2 billion, equivalent to 1.2 per cent
of the region’s total international trade; and supports $1.8 billion of tax
payments to governments in sub-Saharan Africa, equivalent to 1.1 per
cent of total receipts of governments in the region.
‘Bringing something different is important if you are an international
institution. What is it that you bring, that a local business can’t? In some
cases that is skills, in some cases that is product. We have to be clear on
what we do. In our case it is being this bridge between the international
banking world and the local banking world,’ Layfield says.
Portfolio of investments
Different markets will perform differently at different times, so SC feels
that it is important to have a portfolio of operations that allows it to
absorb volatility. Understanding the risk of investing not only in the
region as a whole but also in specific countries is key to developing the
investment portfolio.
As the first chapter suggested, strategy is context specific. For this reason,
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strategies that work in the Western world or in Asia may not work in
ORIENTATION Africa. Furthermore, strategic management in Africa cannot be seen in
isolation. Because of the importance of the institutional environment in
facilitating conditions for investment and growth, both the government
and private sector are required to facilitate the management of resources
and wealth. The question then is: how can businesses here achieve
success? Standard Chartered Bank, discussed in the chapter case study,
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Africa today
STRENGTHS WEAKNESSES
■ Mandate and goodwill of 53 ■ Weak processes, systems and ITs
African states (continent-wide (information technologies) that are
organisation) neither accredited nor certified
■ High global profile ■ Inadequate and inflexible structural
■ Capacity to call agenda-setting arrangements
meetings ■ Inadequate physical infrastructure
■ Staff diversity in terms of culture, ■ Unsupportive organisational culture or
expertise and background attitudinal behaviour
■ Linkage to eight RECs (regional ■ Inadequate team work
economic communities) ■ Administration and leadership
■ Existing institutional arrangements to challenges
support mandate ■ Gaps in qualitative and quantitative
■ Leadership committed to change human resources, professionalism,
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OPPORTUNITIES THREATS
■ Transition of the international order ■ Pandemics
■ Need for Africa to speak with one ■ Climate change and desertification
voice on key international issues ■ Continued or new conflicts in Africa
■ Fatigue over crisis and conflict on the and globally
continent ■ Dependency on limited commodities
■ Possible development of new financial ■ Economies not diversified
architecture ■ High unemployment levels
■ Good governance through the APRM ■ Rising demand for energy and food
■ Potential in women’s empowerment ■ Exclusion from emerging financial or
■ Goodwill by development partners global order
■ New strategic partnerships for Africa ■ Further marginalisation
■ Shift in manufacturing from the West
to the East
It is clear from both the African Union and the SADC declarations of strategic intent that the
strategic objectives of the region can only be achieved if and when government and business
work together. 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. These are high
on the agenda of the African Union and are discussed below.
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pyramid’12 (see Figure 2.1). The bottom of the pyramid is those families surviving on less than
the international poverty line of $2 per day.
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Although Figure 2.1 suggests that South Africa is comparatively better off than some other
developing countries, the large gap between rich and poor (as indicated by the differences in
income between the various living standards measure or LSM groups13) is a major cause for
concern (see Figure 2.2).
85%
83%
82%
69%
India, 69%
Zambia, 83%
31%
Mozambique, 82%
Nigeria, 85%
South Africa, 31%
FIGURE 2.1 Percentage of the population living on less than $2 a day14
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. This forces them into a
cycle of poverty which is very hard to escape.
A large proportion of the South African population survive on welfare grants and other social
services funded by tax payers.16 This means that there is a massive expenditure on social welfare
that could be spent on other services or invested. While the welfare grants have increased the
spending power of the poor for now, this may not be a sustainable solution to the poverty
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2.1.5 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 per cent of African countries scored
below the ‘pass mark’ of 50. On average, Africa’s CPI score in 2012 was 33. Although a slight
improvement over the previous year’s average score of 29, corruption was still hampering
business and the provision of decent public services. It was not all bad news, though. For the
first time, Botswana entered the world’s top 30 countries perceived to be least corrupt, ahead of
some European countries such as Spain and Portugal.17 Transparency International points out
the danger of corruption as follows:18
Looking at the Corruption Perceptions Index 2012, it’s clear that corruption is a major
threat facing humanity. Corruption destroys lives and communities, and undermines
countries and institutions. It generates popular anger that threatens to further
destabilise societies and exacerbate violent conflicts.
MANAGERIAL PERSPECTIVE
The power utility industry and specifically generating power stations are critical to the
country’s development and this requires government financing. The more expensive
components in the network are the generating power stations, transmission and
distribution infrastructures. For a poor country like [Country X] we could not afford
to finance big projects so we focused on building interconnectors to other countries
that have capacity to export. Currently, other countries are also starting to have power
deficits so we cannot import on a sustainable basis. As a country, we need to take
initiative and secure funding to secure supply for current and future demand.
Manager, power utility
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2.1.8 In conclusion
The efforts of the AU to address the strategic issues discussed above are continuous, but meet
with little success. The treaty of Abuja adopted in 1991 expressed the need for a common
market with a common currency and the New Partnership for Africa’s Development (NEPAD)
confirmed this requirement.20 Although supported by the AU and NEPAD,21 some countries
have reservations about this creation as it appears to be aimed at survival rather than the SADC
and AU goals as stated in the respective manifestos.22 The Economic Commission for Africa II
also found that countries being members of more than one coalition impeded their strategic
management and impacted negatively on their development.23 The need for Africa to become a
region with strong technological competitiveness is yet to be realised.
On the positive side, Africa also presents a significant opportunity. Countries such as
Botswana, Lesotho and Namibia (all in the reported +4% growth group)24 have stable political
dispensations with high foreign direct investment, but with growth as the main objective for
their business. Thus all businesses are encouraged to formulate their strategies towards these
and other (e.g. poverty alleviation, education and health) objectives.
Although the overall African growth rate has been positive, it is deceptive. While it seems
to imply that the strategies followed by the various governments and business are working,
the reality is more stark. Many countries currently experiencing internal problems have only
their resources such as oil, diamonds or other minerals as leverage. In most cases, the local
businesses are SMEs and thus totally dependent on the government’s strategies. Multinationals
also dictate the strategies to be followed as they have shareholders to please. This then leads to
the point where African businesses have very little say in formulating strategic plans, let alone
their implementation and monitoring.
2013, 4.5
2010, 4.3
2012, 3.5
2011, 2.5
FIGURE 2.3 Africa’s GDP growth
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Analysts described the investment in Nigeria as a five-day cricket test rather than a
T20, referring to the fact that it takes most companies a few years to learn how to
operate in the Nigerian market. This point was underscored when Matlare described
how the company cut credit dramatically to a number of customers, a decision they
had to revise because of market conditions. In addition, the large market of 160
million people traded mostly through informal businesses. Getting the distribution
channel right was accordingly a big issue for Tiger Brands.
The 15 member states may also be grouped as east (Madagascar, Mauritius, Seychelles,
Mozambique and United Republic of Tanzania), central (Botswana, Lesotho, Malawi, South
Africa, Swaziland, Zambia and Zimbabwe) and west (Angola, Democratic Republic of Congo and
Namibia).
The SADC member countries are largely subject to the same strategic issues facing Africa as
a whole. For example, Mozambique and the DRC are suffering an armed resistance battle, while
Madagascar and Zimbabwe are facing internal challenges to the existing governments as well
as international scrutiny and sanctions. The Kingdom of Swaziland is also facing political and
social strife due to excessive spending by the king’s family whilst the country as a whole has a
GDP per capita growth of −2.5 per cent (2012) and a projected figure of 0.6 per cent for 2013.30
All the 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 in the region,
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continuous allegations of fraudulent and other illegal dealings mar the country’s status and
position in the global arena.
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Agenda (see Table 2.3) which supports regional integration based on key values and principles
in order to support the attainment of these goals.36
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In South Africa, the national government has aligned its strategy to these goals through its
national development initiatives.38 It also tries to encourage business to align with these goals.
There is a focus on economic growth (policy statement 1), the maintenance of democracy (policy
statement 2), health (policy statement 9), poverty eradication (policy statement 10) and gender
equality (policy statement 11).39,40
For comparison, the strategic objectives of the African Union41 are listed in Table 2.4.
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5. Formulate frameworks for developing and sharing Africa’s statistics and research
and development capacities
6. Enhance continental integration
7. Build and foster continental and global cooperation
8. Promote good governance, democracy and human rights
9. Strengthen the Africa-wide humanitarian response and action
10. Promote inter-African solidarity
11. Promote African Cultural Renaissance and the protection of Africa’s cultural
heritage
12. Promote the active participation and contribution of all segments of African
society in Africa’s development and integration
13. Promote the ratification and entry into force of all outstanding legal
instruments adopted by the Assembly of the Union
14. Promote gender equality
15. Strengthen the capacity and enhance the operational efficiency and
effectiveness of the African Union Commission
16. Promote synergies, linkages and good working relations with all AU organs
17. Promote effective cooperation and collaboration with member states and the
RECs
18. Promote strategic partnerships for leveraging sustainable sources of funding and
comparative advantages
These strategic objectives are stated to ensure ‘[a]n integrated, prosperous and peaceful
Africa, driven by its own citizens and representing a dynamic force in global arena’43 and
the expectation is for all participating countries to incorporate them into their own development
strategies. South Africa’s National Developmental Plan44 (strategy) (see Table 2.5) has taken
these into account, for example the reduction of inequality (RSA NDP objective 1, AU strategic
objective 14) and promotion of good governance (NDP objective 3 and AU strategic objective 8).
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Further key issues that guide and govern African strategic development are found in the various
documents of the AU and SADC.46,47 These relate primarily to economic growth, education,
health and regional integration and may be summarised as follows:48
■ Poverty alleviation
■ Improved political and military stability (on the continent)
■ Economic growth including the 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 the 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
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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 (all other minority race groups, people with
disabilities and women).
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 (cheaper) labour. This could lead to a drop in the experience level in
organisations (while the younger person will have all the required qualifications, he or she will
not have the practical know-how which can only be obtained through years of service).
In the case of the SADC countries, the two-fold approach is also applied. Strategic plans are
formulated to address the 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 African Union and the SADC communities, the strategic
process in Africa should by no means differ from the theoretical model, but at the same
time, Africa needs to strategise for its own future. Presently, armed conflict in the DRC is
resulting in zero strategic direction other than AU involvement in quashing the rebel forces.
Mozambique has of late seen the resurrection of the RENAMO forces, with conflict raising its
head in the northern areas of the country.51 All strategic planning previously aimed at economic
improvement through foreign investments is now on hold until it is safe to travel.52
MANAGERIAL PERSPECTIVE
I think in the last two years there’s been quite a radical change in the policy environment
towards supporting manufacturing and that’s had a major impact on us because we
were previously fighting a battle of trying to get attention and now we’re trying to
work out how to deal with the fact that there are five or six or seven different funding
mechanisms available. All of them are problematic because they’ve either been ill
conceived or nobody actually knows what the guidelines are or how it really worked.
We as a company have to try and work out how to take advantage of that and there’s
clearly a window of opportunity to do that. So we need to deal with that change as
well. It seems like a funny problem, but when you’re used to fighting a defensive battle
well and now you almost have to ... I don’t know what you call it, but fight a battle of
trying to get attention and suddenly your fight is actually about how to try and deal
with complexity in available funding and how that actually fits into companies that
you run and those which have their own complexities. We need to spend quite a lot
of time working out strategy on its own and how to fit everything together.
Manager, South African manufacturing firm
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■ The bottom of the pyramid (BOP) market is not critical for long-term growth and vitality
of MNCs.
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However, Prahalad’s research and many successful case examples later, it is now evident that
these beliefs are misplaced. BOP markets have adopted technology at a brisk rate and have
demonstrated that they have a need for good quality branded products, albeit perhaps not in
the form they are sold in developed markets. Furthermore, given the size of the BOP market and
the upward mobility of African consumers, it has become of critical importance for MNCs to
establish a presence in these markets as a source of future revenues and profits.
In order to do this successfully, Prahalad argues that multinationals, and for that matter all
organisations operating in BOP markets, face three key challenges, all stemming from the need
of BOP consumers for a maximum price–performance ratio:
■ Capital intensity. Serving BOP markets means that the organisations doing so must
minimise their capital tied up in plant, equipment and working capital (such as receivables).
This may require some innovative approaches to maximise the return on capital employed.
■ Sustainable development. Two thirds of the world’s population falls in the BOP segment.
If all of these consumers become mainstream similar to their counterparts in the developed
world, it could lead to an environmental disaster. Given the importance of ‘total cost
of ownership’ to BOP markets (rather than just price), this provides an opportunity for
experimentation in sustainable development, for example in sustainable energy and
environmentally friendly packaging.
■ Innovations for the BOP. Providing the price performance required by the BOP requires
innovation, both in product and in process. It may also require thinking out of the box to
solve typical BOP problems, as the practising strategy example below illustrates.
growing economies to be in Africa. Libya tops the list at 11.6 per cent, with Chad at 9.4 per cent
and Ghana at 8.4 per cent, albeit off a comparatively small base. This implies that the developed
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world sees the strategic development in these countries as an opportunity for future investment
and participation. Mergers and acquisitions in Africa are accordingly on the rise as investors
seek to capitalise on growth opportunities offered by African economies.62 However, there are
some key challenges that investors in Africa face when considering their options:
Legislation
There are many laws and regulations associated with doing business in Africa, often with the
aim of empowering their citizens or boosting their own economies. This may include laws
regarding ownership, labour legislation and securities exchange listing requirements.
Political considerations
Most businesses will find it a daunting task to set up local operations in an African country, due
to the complexity of the political situation. For that reason, it is important to partner with local
stakeholders – government, businesses and communities – to establish credibility and to assist
in navigating uncertain territory. For example, as a means to reduce the negative effects of illicit
alcohol consumption in Kenya, brewer Diageo won government support for a new product by
offering regulated beer in a sanitary keg. The government helped make the offering affordable
to consumers by providing reduced tax rates.64 As another example, in many African countries,
rationalising staff through retrenchments and lay-offs is frowned upon if not directly restricted,
so this needs to be avoided to maintain good relations with consumers.
■ Turning challenges into opportunities through product innovation. For example, Promasidor,
an African dairy, beverage and food enhancement company, produces a powdered long-life
milk product that counters the challenge of lack of refrigeration and clean water. African children
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pour the powdered milk directly on their tongues, a way to avoid concerns about finding fresh
water. As a result, Promasidor is now a leader in the powdered milk market in Nigeria.
■ Developing local suppliers to ensure a consistent supply of raw materials, or investing in
downstream or upstream activities (vertical integration) to ensure more control over the
supply chain
■ Developing channel strategies that are flexible enough to deal with formal wholesale and
retail channels, yet are also able to distribute though the traditional and informal retailers
which often make up the bulk of the distribution channel in African markets
Wherever in the world you do business, you have to be wise to politics, culture, and
economics; to the structure and character of whatever market you’re in; to customer
expectations and behaviour; and to what competitors are doing. But in developing
countries, three issues demand particular attention.
First, there’s the fact that ‘things don’t work’ – or at least not as they do in
developed nations. Companies are dogged by what Tarun Khanna and Krishna G.
Palepu have termed ‘institutional voids’: poor infrastructure, dodgy regulation, weak
capital markets, lousy services, a lack of skills, and much else. Unhelpful bureaucrats
make things worse. Corruption may be a huge problem (although it also occurs in
even the most advanced nations). Protecting intellectual property can be a nightmare.
Second, is the difficulty in connecting sellers and buyers. Informal trade is
probably the norm; business ecosystems are ill-formed. There’s little information about
customers or competitors. Promotions, logistics, and support all present hurdles.
Third, is the management of people. Individuals with appropriate capabilities and
experience are in short supply. Productivity, quality, and customer service are not
their priorities. They’re unfamiliar with sophisticated working methods. They have to
be introduced to a host of new ideas – roles and responsibilities, technical systems,
performance management, communication, disciplinary processes, and so on. So
foreign executives need to be firm and persistent in providing new direction, while at
the same time acutely conscious of local custom.
and African governments will need to create an environment suited to investment and job
creation. Africa will need to move away from what can only be described as a monocultural
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According to Rand Merchant Bank’s most recent research, Africa continues to show
an improvement in its attractiveness as an investment destination, with South Africa
remaining the most attractive country on the continent.
Rand Merchant Bank (RMB) uses three main factors to determine the investment
attractiveness of each country, namely market size as measured by the GDP; economic
growth as measured by GDP growth forecasts over the next five years, and an operating
environment index.
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Discussion questions
1. Describe the main environmental issues that influence strategic management in Africa.
2. Describe the main environmental issues that influence strategic management in southern
Africa.
3. What are the key differences, in your view, between the strategic issues of the continent as
a whole and the sub-region, southern Africa?
4. Using three examples, explain how businesses and politicians are dealing with these issues.
5. Explain how multinational corporations can succeed in Africa.
6. Referring to the Tiger Brands case (see http://www.moneyweb.co.za/moneyweb-industrials/
tiger-brands-dropped-some-catches-in-nigeria), what would you consider to be their key
challenges? What recommendations would you make to the management of Tiger Brands?
Learning activities
1. Visit the website http://www.howwemadeitinafrica.com/ and identify one example of a
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SUSTAINABLE
3 STRATEGY
Johan van Zyl
LEARNING After reading this chapter, you should be able to do the following:
■ Describe what sustainable strategies are.
OUTCOMES ■ Differentiate between profit and wealth maximisation as measures
of strategic success.
■ Explain the difference between a ‘shareholder perspective’ and a
‘stakeholder perspective’.
■ Explain the role of the board of directors.
■ Differentiate between the roles of the board of directors and top
managers in an organisation.
■ Explain the role of corporate governance frameworks in enabling
sustainable strategies.
■ Evaluate an organisation’s strategy from a sustainability perspective.
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Realising that maize and cotton were not yielding enough, some
local farmers had already taken up sorghum growing. Alex followed
suit and by 2004, he had given up on other crops and focused on
cultivating sorghum full time. Within three years, he had made
enough money to venture into commercial farming.
This is when Alex was able to benefit from the Local and Enterprise
Agriculture Programme (LEAP) set up by our business in Uganda, Nile
Breweries Ltd (NBL). “The exposure and partnership between NBL,
Enterprise Uganda and the International Fertilizer Development Center
went a great way in enhancing my venture,” he says.
His next step was to expand beyond his family land and hire other
fields. Within a few years, he was in such a strong financial position
that he was able to buy most of the land he had previously hired,
and now owns 55 acres. Alex is also chairman of a local umbrella
association for sorghum farmers, an NBL initiative that was set up in
2010 in conjunction with Enterprise Uganda. The association has 350
members, supports 3,000 famers and directly employs 40 people. Alex
is proud of what the association has achieved: “In just three years,
I’ve seen this association grow from one small rented room to owning
a building, warehouse, processing machine, two tractors and four
trucks.” With these shared resources, association members are able to
reduce labour and transport costs at harvest time.
Make beer Research from the Australian Institute of Health and Welfare has
the natural identified that those in the 18-24 age bracket are more likely to
choice for the drink irresponsibly than the average Australian. But changing young
moderate and adults’ behaviour is notoriously tricky; if a message is too ‘preachy’,
responsible it is likely to be ignored. This was the challenge facing DrinkWise
drinker Australia, an industry-funded organisation that promotes a more
responsible drinking culture, and which is supported by our business
in Australia, Carlton & United Breweries.
Research commissioned by DrinkWise investigated the attitudes
of young Australians towards alcohol consumption, and identified
that many could potentially be influenced by relevant and
impactful messages, provided that these were tailored to get their
attention and addressed the specific concerns of the age group –
such as maintaining a good reputation among their peers.
Using this research as its raw material, in February 2014
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emissions emissions generated by HFCs. The better energy efficiency of the new
equipment also reduces the cost of cooling for our retail partners.
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Corporate governance
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The global financial crisis, the after-effects of which all of us are still feeling today, is
commonly accepted to have started with the ‘credit crunch’ in the US in 2007, when
investors lost confidence in the value of sub-prime mortgages. In short, the crisis
was the result of profit-driven, reckless lending to individuals who found themselves
unable to repay their mortgages and whose properties were worth less than what they
owed to banks.
The crisis caused stock markets worldwide to crash, financial institutions to topple
due to a liquidity crisis and consumer confidence to plummet, leading to a slowdown
in the global economy.
by embracing opportunities in the macro- and market environments and managing risks derived
from environmental and social developments.5
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The key, then, is to combine the two and strive for sustainable competitive advantage.
the organisation must, as far as possible, develop strategies that balance the demands of
multiple stakeholders.
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■ 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.
Ecological impacts
Creditors Environmental
Shareholders awareness
Directors Quality local environments
Managers Adhering to environmental
Employees legislations and regulations
Strategic
Economic fit
there is no access to water for SABMiller, they cease to exist. Their interest in preserving water
can, therefore, be described as enlightened self-interest – if they do not take a long-term view,
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their sustainability will be threatened. Unfortunately, all too often organisations are willing to
endanger the environment in exchange for short-term gains. In the case of the Chrissiesmeer
wetlands (see the practising strategy box below), mining would have led to water shortages and
ultimately to negative outcomes for many of the farmers and communities dependent on the
water and tourism generated by this area. However, the mines could also have provided much-
needed jobs for the communities living there.
In December 2011, it became apparent that the future of the largest natural lake
in South Africa, as well as a 20 million-year-old ecosystem, lay in the balance due
to several applications for coal-mining activities in the area. A group of community
activists, with the support of local farmers and the Mpumalanga Tourism and Parks
Agency (MTPA), launched a campaign two and a half years ago to request that the
so-called lake district of Mpumalanga be protected against inappropriate development.
The area is protected for 30 years, which can be extended to another 30 if landowners
wish to do so.
This momentous achievement was made possible through the collaborative
efforts of the MTPA, the Endangered Wildlife Trust (EWT), the South African National
Biodiversity Institute’s Grasslands Programme, World Wide Fund for Nature (WWF SA)
and BirdLife South Africa (BLSA).
‘It is the result of long and fruitful partnerships that began as early as 2006 and
formed part of the Mpumalanga Biodiversity Stewardship Programme, which aims to
secure privately owned land within formal protected areas,’ a joint media statement by
private landowners and NGOs reads. ‘I must say, without the support and involvement
of the 60 odd farmers, we would never have reached this point,’ an activist added.
A management plan to render farming in the area more friendly in terms of
biodiversity will be launched soon.
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.
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Therefore, a sustainable business will use some CSR practices to help the business to create
long-term sustainability.
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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 utmost importance because if
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 Mangaung, 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.
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After more than seven weeks of striking, the labour dispute on the platinum belt has
passed the point at which most strikes are broken. In most labour disputes in South
Africa, where unions do not have strike funds to help workers through periods of no
pay, six weeks is a marker. Indeed, workers are usually ready to settle after two weeks.
But this is not a typical wage dispute. Unlike most strikes, it is taking place without
reference to the normal issues of affordability and sustainability of the companies
involved. A R12,500 basic wage, which Amcu has now said could be reached in four
years instead of one, would amount to a compound increase of 30%, still unthinkable
for the industry given the pressures it faces.
Union Amcu’s frame of reference is how little of the share of wealth mineworkers
have gained over the past 20 years.
So what should platinum producers Lonmin, Impala and Anglo American Platinum
do? They say they are now keenly aware the strike could be very long, an impression
formed from interactions with stakeholders including traditional leaders. Right now,
their balance sheets don’t look that bad as stockpiles are being converted into cash
and they are saving on wages. The pain will come later, when workers return and the
companies face back pay for the entire workforce dated from July 2013. The longer
the strike, the greater the damage to shafts and operations, which will need a start-up
period of at least as long as the strike, say the producers.
These companies are under immense pressure. The simplest way of testing their
claim that large wage hikes are unaffordable is to look at their cash flow, says Noah
Capital platinum analyst Michael Kavanagh. In most cases cash flow from operations
doesn’t exceed investing cash flow. As mining is a depleting resource, ensuring there are
jobs tomorrow requires continual opening of new areas and shafts. From a big-picture
perspective, the poor return on capital of all three miners is another clear sign of a
lack of sustainability. Although the markets continue to lend to them, ‘theoretically,
they shouldn’t be as the return on capital is definitely less than the cost‘, he says.
As the strike grinds on, workers and producers are bound together in a fateful
relationship determined not just by the present but by an unjust and exploitative
history. Making reparations for the past — which is really what Amcu is asking — is
going to be difficult in a framework suited only to bargaining in wage increments.
needs to draw on key strengths and address key weaknesses in order to succeed. There are also
other specific elements to an organisation that will affect its ability to develop and execute
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sustainable strategies (see Chapter 11 for more detail on these elements and the importance of
business architecture):
■ Governance structures are the rules, procedures, processes and structures that ensure
that the organisation is managed in a sustainable way. Processes like operational risk
management and enterprise risk management will form part of this element. Corporate
accountability (being answerable to the stakeholders of an organisation) is an important
element of governance.
■ Structure refers to the extent to which different elements of the organisation are suited
to the strategy selected and that positions are filled with people with the competencies
required.
■ Leadership and culture determine to a large degree the capacity for change and the shared
values that are required for executing strategies.
■ Technology refers to the equipment required for daily operation and production of products
and services. Lack of access to appropriate technologies or choosing the wrong technologies
can lead to an inability to perform optimally.
Organisational factors led to the withdrawal of Telkom from its Nigerian investment (see the
practising strategy box below). Weak governance and poor technology choices led to the failure
of the venture and resulted in financial losses.
complicit in efforts to skew the agreement between APS and Multi-Links in Blue
Label’s favour and to Telkom’s disadvantage.
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3.2.6 Stakeholders
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 (and its agencies),
owners (shareholders), 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 layoffs, for example, 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 its 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
Power
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 Stakeholder
key stakeholders. In determining the salience
relative importance of stakeholders,
the organisation needs to weigh up the
claims of stakeholders and the relative
power and influence of stakeholders. Legitimacy Urgency
In the case of a strike, a union may
demand a substantial increase in their
pay, which the employers usually claim
FIGURE 3.3 The drivers of stakeholder salience
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 companies.
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This example illustrates that the practical use of a stakeholder perspective to guide decision
making is problematic.
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The stakeholder salience model11 can assist managers in determining the relative importance
S
of stakeholders to the organisation. It should be noted that the importance of stakeholders will
differ from firm to firm and from industry to industry.
We can use these attributes to classify stakeholders into three broad classes:12
■ 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 of the three attributes. For example, the government may
have power (through legislation) and urgency, but may not have a high level of legitimacy
(as they may not be directly affected by the organisation’s decisions).
■ Salient stakeholders have the strongest claim, and will be most important to the organisation.
For example, unions (as in the case of platinum mining in the practicing strategy box on page 52),
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.
In a previous section we argued that profits have to be earned in an ethical and legal manner
to be sustainable.
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It should go without saying (we hope!) that businesses should at all times comply with the laws
and regulations of the land and the industry in which they operate. This guideline is relatively
easy to measure, as we can simply consider the behaviour of the business and compare it to
the laws and regulations that it is bound to uphold. For example, evading taxes, dumping toxic
waste, colluding with competitors to fix prices and paying bribes are all relatively clearly illegal
and subsequently unethical behaviours that could lead to legal action and the appropriate legal
sanctions.
It is in the grey area between clearly illegal and clearly legal that the difficulties lie 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 is not only dangerous but clearly illegal.
■ Discriminatory and unfair practices, for example in the appointment of employees.
Discrimination on the basis of gender, race or religion is still a relatively common occurrence
in many countries and industries.
■ Misleading stakeholders deliberately, for example failing to disclose harmful ingredients in
a product to customers.
■ Deliberately behaving in ways that are detrimental to stakeholders. For example, failing to
recall known faulty products quickly may lead to the death of automotive customers.
■ Being unduly influenced in, for example, purchasing and recruitment practices, like accepting
favours in return for a contract.
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 for conducting business ethically
and sustainably.
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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
(and other entities) to attain sustainability.
In South Africa, the King Code of Corporate Governance of 200914 (widely known as King
III) is widely regarded as a state-of-the-art code for corporate governance. Although some
aspects of governance are legislated (e.g. auditing and reporting in the case of listed entities)
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. In the Managerial Perspectives below, some examples of governance
actions are provided.
The Public Finance Management Act (PFMA) of 199915 is a 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:16
■ 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.
MANAGERIAL PERSPECTIVES
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My work encompasses this message [of governance] in many ways, including but
not limited to, audits ... processes are measured and audited to ensure compliance against
a benchmark. This means the branches are required to be compliant in a number of line
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items that are predetermined in an audit pack, set up by a service excellence team that
was given the defined standard operating procedure with input from management,
staff, clients etc.
Manager, public sector
This is done quarterly so that there is continuity and understanding throughout the
year. These results are then posted on the national intranet as well as part of the
manager’s management by objectives or management by performance measurement
record.
Manager, service firm
Another example is the consolidation of various business units in our regional towns
who have separate facilities. New facilities were identified and developed so that there
was a consolidation of spend through a shared facility and staff. Staff members have
been up-skilled to handle multiple business unit tasks and clients.
Manager, manufacturing firm
chapter, we argue that sustainable business can be viewed as being supported by six ‘pillars’, as
outlined in Figure 3.4.
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STAKEHOLDER RELATIONSHIPS
SOCIAL, ENVIRONMENTAL)
ETHICAL BUSINESS
ORGANISATION
STRATEGIC FIT
FIGURE 3.4 The pillars of sustainable business
In addition to the classical elements of sustainable development (namely the triple bottom
line of economic, environmental and social contribution), corporate social responsibility, ethical
business and stakeholder relationships, a sound strategy (in terms of a good fit between the
strategy and the environment) and a well-functioning organisation are also indispensable to
sustainability.
Discussion questions
1. Explain the difference between sustainability and competitive advantage.
2. Define ‘sustainability’ and ‘sustainable strategies’.
3. Describe the elements that impact on the sustainable strategies of a business.
4. Explain the difference between stakeholders and shareholders and the impact of both of
them on sustainability.
5. Explain how the sustainability of a strategy can be evaluated.
6. Explain the role of business ethics in strategic management.
7. Describe the role of corporate governance and the board of directors in organisations.
8. Identify the key differences between sustainability in the private sector and sustainability in
the public sector.
Learning activities
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1. Visit the website of the Institute of Directors (http://www.iodsa.co.za/) and download the
King III report. What are the implications of the King III report for a director of a business?
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Endnotes
1 ‘Managing sustainable development’. Available online at: http://www.sabmiller.com/index.
asp?pageid=103 (accessed 15 March 2014)
2 Compiled from information on http://www.sabmiller.com/sustainability/shared-imperatives
3 ‘Managing sustainable development’. Available online at: http://www.sabmiller.com/index.
asp?pageid=103 (accessed 7 July 2014)
4 http://www.sapsustainabilityreport.com/ (accessed 11 June 2014)
5 Ibid.
6 Shintaku, J. 2005. ‘Sustainability of competitive advantage: accumulated experience and
discontinuous technological change’. Annals of Business Administrative Science, 4(1): 1–8.
7 Oosthuysen, S. 2014. ‘Chrissiesmeer now protected against mining’. Lowvelder, 30 January. Available
online at: http://lowvelder.co.za/47127/chrissiesmeer-now-protected-against-mining/ (accessed 14
March 2014).
8 http://www.mallenbaker.net/csr/definition.php (accessed 15 July 2014)
9 Adapted from Paton, C. 2014. ‘Platinum strike is no run-of-the-mill wage dispute’. Business Day, 17
March. Available online at: http://www.bdlive.co.za/national/labour/2014/03/17/platinum-strike-is-
no-run-of-the-mill-wage-dispute (accessed 18 March 2014).
10 Adapted from http://www.moneyweb.co.za/moneyweb-ict/telkoms-multilinks-disaster and http://
www.techcentral.co.za/telkom-goes-after-former-boss/41205/ (accessed 14 March 2014)
11 Mitchell, R.K., Agle, B.R. & Wood, D.J. 1997. ‘Towards a theory of stakeholder identification and
salience: defining the principle of who and what really counts’. The Academy of Management Review,
22(4): 853–886.
12 Ibid.
13 Adapted from OECD. ‘Principles of corporate governance’. Available online at: http://www.oecd.org/
daf/ca/oecdprinciplesofcorporategovernance.htm (accessed 17 March 2014).
14 http://c.ymcdn.com/sites/www.iodsa.co.za/resource/collection/94445006-4F18-4335-B7FB-
7F5A8B23FB3F/King_Code_of_Governance_for_SA_2009_Updated_June_2012.pdf (accessed 7 July
2014)
15 http://www.treasury.gov.za/legislation/pfma/ (accessed 7 July 2014)
16 Ibid.
17 http://www.iodsa.co.za/?page=CDSA (accessed 10 July 2014)
18 This article was first published in MISC digital magazine by Idea Couture. Available online at: http://
www.miscmagazine.com/ (accessed 17 March 2014)
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A PROCESS PERSPECTIVE
4 OF STRATEGIC
MANAGEMENT
Annemarie Davis
LEARNING After reading this chapter, you should be able to do the following:
■ Depict strategic management as a logical flow of activities.
OUTCOMES ■ Differentiate between the main phases of strategic management.
■ Criticise the process approach to strategy.
■ Explain the roles of different layers of managers in strategic
management.
■ Explain the role of assumptions in strategic management.
■ Explain what a ‘vision statement’ is and why it is important.
■ Explain what a ‘mission statement’ is and why it is important.
■ Differentiate between a vision and mission statement.
■ Evaluate both a vision statement and mission statement.
■ Explain what ‘strategic goals’ are.
■ Evaluate strategic goals.
■ Differentiate between strategic goals and other expressions of
strategic direction.
■ Explain the role of the balanced scorecard in setting strategic
goals.
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Strategy formulation
Strategy implementation
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Strategy formulation
Strategy implementation
Strategic control
The third stage in the strategic management process and also referred
to as the control or monitoring phase. The strategy review phase is
aimed at monitoring progress and providing feedback.
The strategy formulation stage is often also referred to as strategy crafting or the strategic
planning stage. The strategy implementation stage is also referred to as strategy execution and
strategic control is also referred to as the strategy review stage. The following section offers a
more detailed explanation of each of these stages.
The practising strategy box below provides a description of Bayer’s overall direction that guides
the entire organisation. Bayer is a global organisation in health care, nutrition and high-tech
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materials, and uses the slogan ‘Science for a better life’2 to indicate their overall direction and
S
purpose.
In addition to a company slogan, a range of management tools can be used to set strategic
direction, such as a vision statement, a purpose or mission statement, or a statement of strategic
intent. Some organisations also include a value statement. Looking at Bayer again, their slogan
can be translated into a mission and values statement that provides more detail on their key
products, their markets, the technologies they use to apply science to create a better life, and
their commitment to their stakeholders. Taken together, the slogan, mission statement and
values statement of Bayer guide the overall direction of the organisation.
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. For example, Old Mutual, an international long-term savings, protection, banking and
investment group, has developed a strategy to drive growth, focusing on expansion in South
Africa, Africa and other selected emerging markets.4 This deliberate decision to focus on the
emerging markets is a result of an environmental analysis that identified the opportunities
in these markets. Once the strategies to take the organisation towards the achievement of
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its objectives have been selected, the next stage of the strategic management process starts:
strategy implementation.
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Finally, leaders and managers in the organisation need to empower and enable the employees
and organisation members to carry out the tasks to implement the strategies. This requires the
appropriate allocation of financial, human, physical and informational resources. When the
resources are lacking, the implementation efforts will surely fail.
Although monitoring the implementation of the strategies takes place continuously, the
process perspective on strategic management considers it as the third stage.
MANAGERIAL PERSPECTIVE
I ensure that the managers reporting directly to me understand the vision, mission
and core purpose of a particular strategy that the organisation strives to achieve.
This is achieved through good communication and workshops. We make the platform
elaborate why such strategy needs to be implemented and what we would like to
achieve as an organisation.
Manager, public sector
MANAGERIAL PERSPECTIVE
■ The strategic cycle begins in the fourth quarter of the financial year.
■ Exco sequester themselves for a few days to study economic, social, political
and consumer trends in order to determine the strategic thrusts of the next three
years.
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■ Each division provides input into the Exco group regarding expectations and risks.
These are weighed up against shareholder and analyst expectations to derive the
business objectives for the next three years.
■ Based on the decisions made, the executives filter the objectives down to the
businesses requesting plans and financial projections that will meet the objectives
whilst taking into account the ability to meet the targets.
■ Business prepares plans based on key indicators from economic division, finance
and the objectives communicated by Exco.
■ A consolidation of the financial plans is done at business, area, regional, business
unit and divisional level. This includes operational expenses, revenues, assets,
liabilities, infrastructure and capital expenditure.
■ The Exco meets once again to discuss and ratify the submissions.
Manager, commercial bank
becomes more involved once again during the strategy review process. Chapter 5 offers a more
detailed discussion of strategists.
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MANAGERIAL PERSPECTIVE
Annually the board of directors have a break-away to determine the strategic direction
of the business. Thereafter this is cascaded and each functional area must align their
department’s strategy with that of the business. The ultimate aim is generally to
maximise profits and manage expenses. We operate in a highly competitive external
environment, which is a locus of control outside of what we can manage, our focus
is therefore very strictly on internal controls and we have been highly successful in
doing this, as a business.
Manager, retailing
Having sound strategic direction is a powerful contributor to strategic success as it forms the
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starting point for carefully planned and implemented strategy. It also provides focus and directs
all actions towards achieving the same goal. The practicing strategy box on Katlego Global
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Logistics offers a description of the business and includes their vision and mission statement
which guides all the activities in the organisation.
Table 4.1 offers a summary of the advantages of having clear strategic direction, expressed
through vision and mission statements.
1. It provides direction.
2. It guides all the organisational efforts towards achieving the same goals.
3. It binds the organisation members to work together towards achieving the
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Copyright © 1996 by the Harvard Business School Publishing Corporation; All rights reserved
Some organisations do not have separate vision and mission statements, while others have
only mission statements. Organisations are diverse and varied, just like the people who work
in them, and this creates room for a range of different practices. The strategic direction can be
expressed through a vision, a mission or both. What is crucial is that the entire organisation and
its members know where they are going and what they are working towards.
Ultimately, the vision is not just a statement on a piece of paper, but rather galvanises and
directs people in the organisation.
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The three core components of a mission statement are product, market and technology. A mission
statement should indicate the product or service that the organisation offers, the market that
it hopes to serve as well as the method (technology) used to deliver this product or service. In
addition, a well-formulated mission statement could also contain the following components:
■ Often organisations give an indication of their commitment to stakeholders by including
how important their customers are, or how the organisation invests in its employees or
builds relationships with business partners. A good example is City Lodge Hotels:7 ‘We will
be recognised as the preferred Southern African hotel group. Through dedicated leadership,
teamwork and kindness we will demonstrate our consistent commitment to delivering caring
service with style and grace. We will constantly enhance our Guest experience through
our passionate people, ongoing innovation and leading edge technology. Our integrity,
values and ongoing investment in our people and hotels will provide exceptional returns
to stakeholders and ensure continued, sustainable growth. Through acts of kindness we
will make a positive difference to our guests, our colleagues, our communities and our
environment’.
■ The organisation’s orientation towards survival and growth is often expressed through
stating their commitment towards economic objectives. For example, ADvTECH states: ‘We
will realise our vision through: Growing great establishments of education and recruitment
that are widely recognised as South African leaders in their field; Conducting our operations
as an innovative and entrepreneurial listed company with outstanding value to our
customers and superior returns to shareholders; Nurturing an employment environment
with an inclusive, caring and responsible culture of development, performance and reward,
and Promoting excellence, quality and customer focus in all our activities’.8
■ Organisational values offer an indication of how the organisation plans to do business.
An example of a mission statement that includes the organisation’s values is Virgin Money:
‘Our mission is to give you: 1. A great deal, 2. Straightforward financial products, 3. Brilliant
service’.9
■ The organisational philosophy offers an indication of how the organisation plans to do
business, for example Grindrod Financial: ‘To leverage a well capitalised balance sheet with
human intellect and energy. To have a niche product focus. To have a strong client franchise.
To be strategically nimble to react to the evolving landscape’.10
The value of setting clear strategic direction, whether through a vision or mission statement or
both, is an important contributor to organisational success.
Although there is no one agreed method for drafting a mission statement, most agree
that it should involve as many people as possible because this contributes towards acceptance.
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External consultants may also be called in, but it is very important that the strategic direction
be created internally.
In the case of a start-up business, it is easier for a management team to compile the strategic
direction. For established organisations, however, the management team will need to maintain
the business operations while the process to amend or redesign the strategic direction is
under way.
Strategic goals
Flowing directly from the mission statement is the need to translate the overarching direction
of the organisation into goals. The strategic goals have a shorter time frame than the vision and
mission statements (five to 10 years) because they are determined by the nature and the level
of complexity and rate of change in an industry.
To be of value, strategic goals need to be measurable in terms of time, money and units.
Table 4.2 compares well-formulated and poorly formulated goals.
Our goal is to increase our market share. Our goal is to increase our market share
by 3% by the end of 2017.
The goal for 2016 is to expand our The goal for 2016 is to expand our
product range. product range by introducing two new
products in the baby clothing division.
For 2018, we will open new stores. By 2018, we will open one new store in
Mahikeng, Northwest and one new store
in Kimberley, Northern Cape.
Goals should be specific and measurable so that people know exactly what it is that will be
expected of them. Goals must be considered attainable by those who need to work towards
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achieving them (if they seem impossible to reach, people will see no point in even trying
or quickly become discouraged). The goals should be realistic, yet aimed at a level that will
motivate people (on the other hand, if they are too easy to reach, people will not be inspired to
work harder). Finally, a well-formulated goal is linked to a specific time period so people have a
deadline to work towards (an open-ended goal will impart no sense of urgency and could take
years to complete).
Over and above being SMART, strategic goals should also be congruent with the mission
statement components and the overall strategic direction.
Each of these four perspectives is linked to a specific question which guides the setting of the
goals, the measures (or metrics), the targets and the initiatives. Figure 4.3 provides the guiding
questions for each perspective. These four questions are used to select the most important
strategic business goals. A successful application of the balanced scorecard may include two or
three to five goals in each perspective and each goal should be joined by a performance target
that indicates whether the goal is achieved, as part of the review process.
Goals Goals
Metrics Metrics
Business process perspective
Targets Financial perspective Targets
To satisfy our shareholders and
To succeed financially, how should
Initiatives customers, what business Initiatives
we appear to our shareholders?
processes must we excel at?
Strategic
direction
Learning and growth
Customer perspective
perspective
Goals To achieve our vision, how Goals
To achieve our vision, how will we
Metrics should we appear to our Metrics
sustain our ability to change and
customers?
Targets improve? Targets
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The scorecard is balanced in that it includes strategic goals and measures (metrics) for all four
perspectives. The purpose is to ‘balance’ the strategic goals by ensuring that one business area
(such as finance) does not dominate the strategic direction of the organisation, while at the
same time ensuring focus on a few key metrics that could serve as a ‘scorecard’ for the whole
organisation.
In Table 4.3 we provide an example of goals, metrics, targets and initiatives for each of the
four categories.
TABLE 4.3 Examples of goals, metrics, targets and initiatives for a balanced scorecard
areas where other cellular services are unreliable and often interrupted.
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If CellMobile uses the balanced scorecard, their starting point will be the vision and
strategy which is aimed at growth. In each of the perspectives, they will set objectives,
measures, targets and initiatives that contribute to being the preferred supplier and
growing their market. For example, in terms of the customer perspective, a goal
might be to increase the retention of existing customers by five per cent per annum
for the next three years. The targets to be achieved, then, would be ’five per cent
retention’ and ‘within a three-year period’. The initiatives to achieve this could now
be devised, such as improvement in customer service by enhancing the CellMobile
website services, or by making pre-paid vouchers more readily available. In terms of
the business process perspective, CellMobile could set a goal to expand the cellular
phone towers to ensure a better service delivery and thereby be in a position to recruit
more customers and thus grow their business. The goal could be to expand by two new
towers every three months over the next two years. For this goal, the targets would
be ‘two towers’, ‘every three months’ and ‘over the next two years’, and the initiatives
could then be formulated.
The balanced scorecard offers a valuable framework for setting these goals.
Once the strategic goals have been formulated, the strategy selection process starts. This is
discussed in Chapter 9. In sections 4.5 and 4.6 we provide a brief overview of the strategy
implementation and strategy review processes, which are covered in detail in chapters 10, 11, 12
and 13.
The purpose of strategy implementation is to align the internal environment with the
chosen strategy.
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It is important that the entire workforce knows not only the overall direction of the
organisation, but also what needs to be done on a daily, weekly and monthly basis in order to
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achieve the strategic goals. The middle management cadre will take the lead in this process by
translating the strategic goals into specific, measurable, achievable, realistic goals to be achieved
within a year or less. Although the strategic goals are specific and measurable, their focus is on
the long term. In order to ensure that these strategic goals are operationalised, they need to
be translated and adapted for the shorter term. The same criteria required for setting strategic
goals is important here. When the middle managers (such as the section heads, departmental
leaders and site managers) involve the supervisory level in this process, the acceptance of these
short-term goals is ensured. Shorter-term goals are typically set for the functional areas in
the organisation, such as the marketing, operations, human resources, finance and purchasing
departments. The balanced scorecard also assists in this process. As we have explained earlier,
the balanced scorecard has four perspectives and the organisation’s vision and strategy forms
the starting point. Within each perspective, the balanced scorecard is used to specify the goals,
measures, targets and initiatives. Each business unit in the organisation will have its own,
focused and specific balanced scorecard.
In addition to the short-term goals, the functional tactics also need to be developed.
Functional tactics provide even more detail to ensure the daily operationalisation of the
organisation’s strategies. A functional tactic is developed in support of the short-term goals.
Functional tactics are even more specific and require wider participation. The focus of the
functional tactics is the tasks and activities required to operationalise the strategy and indicate
what needs to be done immediately and on a daily basis.
Finally, the organisational actions to operationalise the strategy are guided by the
organisational policies. Policies are often referred to as ‘red tape’, but form an important part
of the fair and justified actions of the organisation and its workers. Policies provide the detailed
and specific guidelines and rules that direct the organisational activities – the framework and
specific ‘do’s and don’ts’. Policies are often referred to as standard operating procedures. It
is important that the organisational policies are documented and recorded in written format
and made available to all the organisational members. In line with fair business practices, the
policies should also be made available to the customers and other stakeholders. Policies guide
the organisational managers in the control and coordination of the organisational activities.
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four of these methodologies will be employed, but at different stages of the implementation
process. When the strategies are devised, a number of assumptions or premises are made. Premise
control is aimed at reviewing these assumptions in a focused way. If any of the assumptions are
no longer valid, a change in the strategy is required. This type of control is very specific. With
its exclusive focus, it is possible that other factors, that may also bear an impact on the success
of the strategy, are overlooked. Hence the need for the strategic surveillance type of control.
Strategic surveillance is also referred to as environmental scanning and is not focused, but
rather opens the opportunity for managers to consider a whole range of factors. As organisations
operate in a changing environment, some changes may occur that were not predicted. Despite
the proactive nature of the strategic management process, it is impossible to predict and
plan for all changes, especially unexpected changes that lead to a total reconsideration of the
strategies. This type of control is often also referred to as implementation control or execution
control. It takes place during the strategy execution process and comprises four steps: set the
standard, measure the actual, identify deviations and take corrective measures. The functional
managers are responsible for this type of control, with inputs from the supervisory level.
Chapter 13 provides a detailed discussion of the different types of strategic review and control
methodologies.
Discussion questions
1. Depict the strategic management process diagrammatically.
2. Differentiate between the stages in the strategic management process.
3. Explain what vision and mission statements entail.
4. Discuss the requirements for strategic goals.
5. Explain the use of the balanced scorecard in setting strategic goals.
6. Critically examine the strategic management process in an organisation of your choice and
make recommendations on how the process can be improved.
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Learning activities
1. Visit the website of strategist Tony Manning and read the blog at http://www.tonymanning.
com/stratblog/. What are the implications of this perspective for strategic management as
a process?
2. Interview two managers in any two organisations of your choice about their perception
of the value of the strategic management process. What did you learn about strategic
management from these interviews?
Endnotes
1 Adapted from http://www.gautengonline.gov.za/Publications%20and%20Reports/Treasury_Strategic_
Plan_2009-2014.pdf (accessed 18 January 2014)
2 http://www.bayer.co.za/ebbsc/cms/en/about_bayer/missionandvalues.html (accessed 18 January
2014)
3 Ibid.
4 http://www.oldmutual.co.za/about-us/about-the-old-mutual-group.aspx (accessed 18 January 2014)
5 Adapted from http://www.katlegoint.co.za/index.php?id=2&/About%20Us/#top (accessed 18 January
2014)
6 http://www.grindrod.co.za/Pages/About-Us-Overview (accessed 18 January 2014)
7 https://clhg.com/company-profile (accessed 19 June 2014)
8 http://www.advtech.co.za/about/vision-mission-statement (accessed 14 January 2014)
9 http://www.virginmoney.co.za/about-us.php (accessed 18 January 2014)
10 http://www.grindrod.co.za/Pages/About-Us-Overview (accessed 18 January 2014)
11 Adapted from Kaplan, R.S. & Norton, D.P. 1996. ‘Using the balanced scorecard as a strategic
management system’. Harvard Business Review (Jan–Feb): 76.
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5 STRATEGISTS
Annemarie Davis
LEARNING After reading this chapter, you should be able to do the following:
■ Differentiate between a process perspective and a practice
OUTCOMES perspective of strategy.
■ Differentiate between emergent and deliberate strategies.
■ Describe a ‘strategist’.
■ Describe ‘strategising’.
■ Explain the role of top managers as strategists.
■ Explain the role of the board of directors as strategists.
■ Explain the role of middle managers as strategists.
■ Explain the role of consultants as strategists.
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process perspective is limited and out of touch with the complexities of strategy in practice, or
in reality. It tends to regard strategies as being formulated through relatively formal structures
and systems, with not much attention given to the effects of interpersonal relations and political
processes.3 Practice research and a practice-oriented perspective of strategic management, on
the other hand, takes this into account and aims to understand the messy realities of developing
strategy.
The process perspective has its origins in the 1980s and processes are considered as
sequences of individual and collective events, actions and activities developed over time.
Although the process perspective initially gained support from many scholars, it was later
criticised as an approach that did not go far enough in attending to the actual micro-practices
(the acts of strategists) and everyday routines of strategy crafting. Scholars and practitioners
around the world called for a perspective on strategy that was more in touch with reality
and the various strategic actors. While the process research made important steps forward in
humanising strategy research and generating more dynamic theories, the practice perspective
takes it further. The practice approach is seen as necessary to researching the fundamental
details of strategy making.
The practice perspective in strategic management is known as the strategy-as-practice
perspective. The key insight of strategy-as-practice studies is that strategy work (strategising)
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 process itself. The practice perspective focuses on
social practices as the basis for explaining strategy emergence. It seeks to identify the strategic
activities reiterated in time by the diverse actors interacting in an organisational context.4
The strategy-as-practice perspective is concerned with the detailed aspects of strategising –
how strategists think, talk, reflect, act, interact, emote, embellish, politicise, which tools and
technologies they use, and the implications of different forms of strategising 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.5 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 that 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 strategy-as-practice perspective distinguishes between strategy praxis (the work),
strategy practitioners (the workers) and strategy practices (the tools). Figure 5.1 depicts the
conceptual framework that forms the foundation of the strategy-as-practice perspective.
The three elements of praxis, practices and practitioners, depicted in Figure 5.1, are discrete
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but interrelated social phenomena. It is thus not possible to study one without also drawing on
aspects of the others.
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Praxis
Situated, socially accomplished flows of
activity that are strategically consequential
for the direction and survival of the group,
Strategising organisation or industry
A
B C
Practices
Practitioners
Cognitive, behavioural,
Actors who shape the
procedural, discursive,
construction of practice
motivational and physical
through who they are, how
practices that are combined,
they act and which resources
coordinated and adapted to
they draw upon
construct practice
Strategising occurs at the nexus between praxis, practices and practitioners. A, B and C
represent stronger foci on one of these interconnections depending on the research problem
to be addressed.7
Praxis is linked to human action and encompasses ‘all the various activities involved in
the deliberate formulation and implementation of strategy’8. In everyday terms, praxis refers
to the flow of activities such as meeting, consulting, talking, calculating, writing, presenting,
communicating, filling in forms, and so on, that are employed to constitute strategies.9
Practices are the social, symbolic and material tools through which strategy work is done. They
are combined, coordinated and adapted to construct strategy practice, and include theoretically and
practically derived tools such as Porter’s five forces, SWOT analysis, resource-based view analysis
and value chains as well as material artefacts and technologies such as PowerPoint, flipcharts
and spreadsheets.10 Because of the unique characteristics of organisations, their managers and
employees and the underlying organisational culture, practices are diverse and variable, which
means that no one approach to strategy formulation and implementation is correct for all
organisations. Organisations customise their strategising practices to suit their circumstances.
Practitioners, or strategists, are the actors – the individuals who draw upon practices to
act. In this book, we prefer to use the term ‘strategists’. Practitioners/strategists are interrelated
with practices and praxis. They derive agency through their use of the practices, namely ways
of behaving, thinking, emoting, knowing and acting prevalent within their society, combining,
coordinating and adapting the practices to suit their needs in order to act within and influence
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that society.11
Aligned with the practice perspective on who strategists are, we accept that strategy is not
only a deliberate, top-down process. As indicated earlier, middle managers and operational-level
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employees are also important strategic actors. While their actions and influence on strategy
may be unintended at organisation level, middle managers and operational-level employees are
significant for organisation survival and competitive advantage. In this book, we identify and
discuss a wider range of actors as strategists, going beyond top managers to include other levels
of employees as well as the board of directors and consultants.
5.2 Strategising
Strategising 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. Strategising and strategy making are often used
interchangeably and include strategising activities. Strategising not only involves those inside
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.12
The chapter case study on Big Media describes their deliberate strategy as a growth strategy.
The next level of strategies may be more emergent in nature as an organisation’s strategy is
partly proactive and partly reactive. The following section describes strategising from a deliberate
strategy and emergent strategy perspective.
The managerial perspectives box below offers descriptions of deliberate strategising by three
middle managers.
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MANAGERIAL PERSPECTIVES
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.14 Emergent strategies are actions taken by middle managers
within the organisation. Middle managers are more involved with the operations of the
organisation and are in a position to make changes to the strategies when required. This means
that some strategic initiatives may arise without the awareness of the senior management
team. Emergent strategy implies learning what works – taking one action at a time in search of
that viable pattern or consistency. It is also frequently the means by which deliberate strategies
change. This does not mean that the senior management team loses control, but rather that
strategies are open, flexible and responsive to allow the organisation to learn and adapt to
its environment. Emergent strategising enables management to act before everything is fully
understood. It enables the senior management team, who cannot be close enough to a situation
or who cannot know enough about the varied activities of its organisation, to surrender control
to those middle level managers who have the information current and detailed enough to
shape realistic strategies. Whereas the more deliberate strategies tend to emphasise central
direction and hierarchy, the more emergent strategies open the way for collective action and
convergent behaviour. The approach of this book is that strategic and strategising decisions
are not only a way of making sense of an emergent pattern of activity, but also a way of
creating sense in the absence of any such patterns, as a response to the anxieties of the human
condition or to the uncertainties with which managers are characteristically faced.15 Strategic
decisions cannot always await consensus, commitment or visible action. When strategies cease
to carry conviction, the decision complexes associated with them cease to be effective carriers
of meaning, and new rationalisations of the world in the form of new decisions, however
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MANAGERIAL PERSPECTIVE
All management levels and employees have specific roles to fulfil in ensuring successful
strategising. Often, a disconnect exists between the perspectives of the various role players.
For example, the senior management team of the organisation decides, after a strategic review,
to launch a new strategy. This new strategy involves a range of commitments, most of which
have already been made, either in anticipation of the decision or in reactive response to market
pressures (deliberate strategising). Many of the commitments agreed upon are modified along
the way (emergent strategy) and at least one major part of the strategy is never implemented at
all (unrealised strategy). Accordingly, the strategy of the organisation changes and the change
is reflected both in management thinking and in the organisation’s actions and behaviours.
5.4 Strategists
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 objects (artefacts) can also be
strategists is gaining ground. Any individual or group in the organisation that controls key or
precedent-setting actions16 (e.g. middle managers and strategy consultants) 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.
Hodgkinson and Clarke17 found that individual strategists will, cognitively speaking, fall into
one of four broad types: detail-conscious, big-picture conscious, non-discerning and cognitively
versatile. These are described in Table 5.1.
STRATEGISTS DESCRIPTION
Detail-conscious Practitioners who are detail conscious are highly analytic and
strategy workers 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- Practitioners who are big-picture conscious can become
conscious preoccupied with gaining an overview of the problem at the
strategy workers expense of the details. They are highly intuitive in orientation,
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STRATEGISTS DESCRIPTION
Non-discerning Non-discerning practitioners deploy minimal cognitive resources
strategy workers in order to derive strategic insight, being disinclined 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 These practitioners possess in equal abundance the inclination
versatile strategy to attend to analytical detail and cut through that detail, as and
workers when required. This type of practitioner is able to switch more
readily between analytic and intuitive processing strategies.
Various strategists, both internal and external, that influence organisational performance and
strategic success are discussed below.
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■ The known stranger ensures a balance between distance and closeness in the interaction
between strategists and other parties to maintain objectivity while at the same time
cultivating trust.
The senior or top management team needs to have sufficient detail of the organisation to ensure
that the strategising is sound and be able to allocate scarce resources to put the strategies in place.
As the highest paid banking CEO in South Africa, FirstRand’s Sizwe Nxasana has
had an illustrious career that has seen him occupying two of the most powerful
corporate positions in South Africa. As CEO of Telkom, Nxasana was responsible for
driving improved efficiencies and overhauling the former state monopoly, while his
appointment at FirstRand has also seen him take the banking and financial services
group to new heights.
Like his mentor Laurie Dippenaar, founder of FirstRand, Nxasana is described as
‘soft on people, hard on numbers’, appointing competent people and letting them get
on with the job. In a world of often questionable BEE practices, he chose to follow
the professional route, and in the process, has become a different and perhaps more
inspirational role model.
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meetings and an annual Board conference is held at which senior managers present
the various aspects of the Capitec Bank business to directors. Senior managers are also
invited from time to time to make short presentations on key issues in their respective
business areas at board meetings. This approach facilitates access by directors to
Capitec Bank information, records, documents and property.
The Board, chaired by an independent non-executive director, is responsible for
the strategic direction of Capitec Bank and annually approves a detailed budget,
supported by a business plan and a written exposition of the strategy of Capitec Bank.
The Board has established various Board Committees to monitor the implementation
of the Board’s plans and strategies.
MANAGERIAL PERSPECTIVE
My role is to ensure that the strategy formulation of our division is aligned with the
overall strategy for the business unit, and that this is aligned with our revenue growth
targets as set by the firm.
The second part of my role involvement is to operationalise the plan. This involves
the setting of detailed operational plans with measurements, milestones and deadlines.
Business unit manager in the financial services industry
information down to subordinates, which can reduce uncertainty and resistance to change.
This flow of information forms a valuable foundation for management decision making.
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Middle managers are considered linking pins, equipped with the ability to combine strategic
macro-information and hands-on micro-information.
MANAGERIAL PERSPECTIVE
My role is to sit in on meetings with the top managers as they explain the strategies
they want to implement. Top managers are open to suggestions due to the fact that
they are aware that I have the knowledge about how the company works. I am active
in the workers’ processes and sometimes oversee the actual production. They are aware
that I can detect threats and opportunities in the company more easily than they can
because we middle managers and frontline managers understand what goes into the
physical work for the workers.
Middle manager, manufacturing industry
MANAGERIAL PERSPECTIVE
I have a long-term vision of what should change in my portfolio to make a difference. The
big challenge is to sensitise all stakeholders before you sell a strategy or idea to them. Top
management must support your vision as without them all efforts are hopeless.
Manager, mining industry
MANAGERIAL PERSPECTIVES
disturbances.
Middle manager, retail industry
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Middle managers contribute in various ways to strategising. Middle managers should be clear
thinkers and be good at identifying what needs to be done and then guiding their subordinates
to get it done.
5.4.5 In conclusion
Strategic success is enhanced by the collective efforts of all the strategists. Success is enhanced,
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or limited, by the quality of the strategists and the degree to which they work together in
sharing information, debate ways to make strategic and operating improvements, and join
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forces to solve problems. Strategists differ in their management styles, skills, values, attitudes,
willingness to take risks, perception of success, concern for social responsibility, short-term
versus long-term orientation and ethics.
Discussion questions
1. Explain what the strategy-as-practice perspective entails.
2. Differentiate between deliberate and emergent strategies.
3. Identify the different kinds of strategists and explain their role in strategising.
4. As a middle manager, my role is to implement and follow through as I am the link between
the employees and senior management. Critically evaluate this statement in light of the
perspective offered in this chapter.
5. Analyse the managerial perspectives included in this chapter and identify five reasons why
middle managers are important as strategists.
Learning activities
1. Interview a middle manager in your organisation, or any organisation of your choice.
Determine the role that this manager plays in the development and execution of strategy.
2. Use the information in Table 5.1 to determine what type of strategist you have interviewed.
Motivate your answer.
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Endnotes
1 Adapted from http://www.naspers.com/about-naspers.php; http://www.naspers.com/strategy.php
(accessed 9 January 2014).
2 Ireland, R.D., Hoskisson, R.E. & Hitt, M.A. 2013. The management of strategy: concepts and cases, 10th
ed. Mason, OH: South-Western Cengage Learning.
3 Johnson, G., Langley, A., Melin, L. & Whittington, R. 2007. Strategy as practice: research directions and
resources. Cambridge: Cambridge University Press.
4 Corradi, G., Gherardi, S. & Verzelloni, L. 2010. ‘Through the practice lens: where is the bandwagon of
practice-based studies heading?’ Management Learning, 41(3): 265–283.
5 Johnson et al. (2007)
6 Jarzabkowski, P., Balogun, J. & Seidl, D. 2007. ‘Strategizing: the challenges of a practice perspective’.
Human Relations, 60(1): 5.
7 Ibid., p. 11
8 Whittington, R. 2006. ‘Completing the practice turn in strategy research’. Organization Studies, 27(5):
619.
9 Jarzabkowski, P. & Whittington, R. 2008. ‘A strategy-as-practice approach to strategy research and
education’. Journal of Management Inquiry, 17(4): 282–286.
10 Jarzabkowski, P., Balogun, J. & Seidl, D. 2007. ‘Strategizing: the challenges of a practice perspective’.
Human Relations, 60(1): 5.
11 Reckwitz, A. 2002. ‘Toward a theory of social practices: a development in culturalist theorizing’.
European Journal of Social Theory, 5(2): 243–263.
12 Whittington, R. 2007. ‘Strategy practice and strategy process: family differences and the sociological
eye’. Organization Studies, 28(10): 1580.
13 Mintzberg, H. & Waters, J.A. 1985. ‘Of strategies, deliberate and emergent’. Strategic Management
Journal, 6(3): 257–272.
14 Maritz, R. 2008. Strategy-making approaches followed in South African organisations. Unpublished
PhD thesis. Pretoria: University of Pretoria.
15 Spender, J.C. 1996. ‘Organizational knowledge, learning and memory: three concepts in search of a
theory’. Journal of Organizational Change Management, 9(1): 63–78.
16 Mintzberg, H., Lampel, J.B., Quinn, J.B. & Gjoshal, S. 2003. The strategy process: concepts, context,
cases, 4th ed. Upper Saddle River, NJ: Pearson.
17 Hodgkinson, G.P. & Clarke, I. 2007. ‘Conceptual note: exploring the cognitive significance of
organizational strategizing – a dual-process framework and research agenda’. Human Relations,
60(1): 243–255.
18 Nordqvist, M. & Melin, L. 2008. ‘Strategic planning champions: social craftspersons, artful
interpreters and known strangers’. Long Range Planning, 41(3): 326–344.
19 Adapted from Williams, D. 2013. ‘The habits of … Sizwe Nxasana’. Acumen, 3(1): 80–81.
20 The King III Report and King III Practice Notes are available online from the Institute of Directors at:
https://iodsa.site-ym.com (accessed 7 July 2014)
21 https://www.capitecbank.co.za/resources/12_Description_of_the_Issuer.pdf (accessed 9 January
2014)
22 Floyd, S.W. & Wooldridge, B. 1992. ‘Middle management involvement in strategy and its association
with strategic type: a research note’. Strategic Management Journal, 13(S1): 153–167.
23 Ibid.
24 Dutton, J.E., Ashford, S.J., O’Neill, R.M., Hayes, E. & Wierba, E.E. 1997. ‘Reading the wind: how middle
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managers assess the context for selling issues to top managers’. Strategic Management Journal,
18(5): 407–423.
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THE LEARNING
6 ORGANISATION
Peet Venter
LEARNING After reading this chapter, you should be able to do the following:
■ Explain why organisational learning is important.
OUTCOMES ■ Explain what a learning organisation is.
■ Explain the link between organisational learning and knowledge
management.
■ Explain how organisational learning takes place.
■ Explain how organisations can become learning organisations.
■ Evaluate the learning processes in an organisation.
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One of the bold steps taken by HCLT was to position itself as a value-centric
company, and to reduce its focus on sales volumes. This focus on value
Case study at meant giving up $35 million in revenues, but it allowed HCLT to focus on the
http://www. customers that were aligned with its strategy. In addition, HCLT successfully
managementlab.org/ searched to create market spaces that were essentially uncontested (‘blue
files/u2/pdf/case%20 oceans’, where margins are high and there are no direct competitors).
studies/HCLCaseStudy. However, a clever new strategy means little if the organisation cannot
pdf deliver on its promises and in this area HCLT introduced some very innovative
new approaches to management. A few of these are discussed below:
■ One of the key changes was the decision to place employees
first and customers second. Nayar’s reasoning was that the scarce
resources were employees, and not customers. If employees were
happy and felt that HCLT was a great place to work, they would
deliver value to customers and to the company.
■ Open evaluations was another innovation introduced by Nayar.
Many organisations do 360° evaluations, but few make them
available to everyone in the company like HCLT does. This
emphasised the ‘employee first’ ethic, as managers were seen to be
accountable to their employees.
■ Employee first councils were created to help employees connect
with other team members with similar interests. A number of
communities were established, covering such diverse topics as
cultural, recreational and job-related issues, and in addition 32 issue-
specific councils (e.g. one on cloud computing) were introduced by
the CEO’s team. Each council elected its own leader, and by 2010,
2,500 employees were in council leadership roles. The councils are
today an important source of new ideas and innovations.
■ Any employee with a question, problem or gripe could open a
‘service ticket’ with the relevant department. Again, this was not
a new idea, but what was unusual was that the only person that
could ‘close’ the ticket was the employee who opened it in the
first place. Service departments were measured on their ability to
resolve such tickets, and outstanding tickets (along with the time
that they had been outstanding) were listed on daily reports with
the result that there was a great focus on getting tickets resolved.
Apart from the benefits for employees, this has been a great source
of information to improve processes and policies.
■ Innovation is an important part of any ICT company, and in
the case of HCLT, they decided to make customers the judges
of whether innovations were valuable to them. If an employee
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much they valued the employee’s action, and at the end of the
quarter the ‘innovation points’ were tallied for each employee.
Innovation points could be exchanged for gifts, but to avoid game
playing, this was not linked to the reward system.
While being a management innovator does not guarantee HCLT long-
term success, it has certainly helped the organisation to achieve its goals
of improving growth and financial performance. From a turnover of $762
million in 2005, the company grew to revenues of $4.7 billion in 2013 – a
more than six-fold increase. However, despite this success, the company will
have to keep on innovating in order to maintain its performance.
South African Breweries started out as a small brewery in the gold mining
CHAPTER
town of Johannesburg in 1895 with Castle Lager as its only brand. In 1902,
ORIENTATION the company first expanded internationally when it established Rhodesian
Breweries in Rhodesia (now Zimbabwe). In 1917, the company first expanded
in terms of scope when it acquired Union Glass, a strategic move to ensure a
supply of glass during a time when there was an acute shortage. These strategic
moves were early signs of a series of strategic decisions over many years that
saw the company grow into a multi-business corporation through mergers,
acquisitions and investments in new regions and companies, becoming first
a dominant regional competitor in southern Africa and eventually, after
acquiring Miller in the US, a global brewing company (SABMiller), one of
the largest in the world.2 Today, SABMiller’s quest for competitive advantage
continues as it strives to achieve success in emerging markets like China and
India.
What is clear from this example is that an organisation like SABMiller would
not have been as successful without its ability to adapt to changing conditions
and stakeholder requirements. Sources of competitive advantage will alter
over time and the ability to learn and adapt is arguably the only sustainable
competitive advantage. In this chapter we explore the idea of learning
organisations and the importance of organisational learning.
Barriers to learning
Individual learning
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3. Being able to apply newly acquired knowledge to business problems and opportunities,
leading to innovation.
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organisation, so that some have a higher absorptive capacity that others, and would accordingly
be able to learn much faster and to adapt more quickly to their environments, or to innovate.5
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There are four dimensions that determine the absorptive capacity of an organisation. They are
depicted in Figure 6.2 and briefly discussed below:6
1. Acquisition of external information. This refers to the ability of the organisation to
acquire relevant information from its external environment. This may be limited by their
dominant management logic, as the search for information will generally be restricted to
what managers think is relevant. Speed is an important element of acquiring information
– the better the quality of the information and the sooner it is obtained, the better the
organisation’s chances of developing some sort of advantage from it.
2. Assimilation of acquired information. Assimilation of information refers to the ability of
the organisation to analyse and make sense of the acquired information. Interpreting and
understanding the implications of new information are crucial, as is the ability to share the
information and knowledge across the organisation.
3. Transformation of knowledge. This refers to the abilities of the organisation to combine
new knowledge with existing knowledge and to develop new insights.
4. Applying new knowledge. The real benefit of absorptive capacity occurs when organisations
use the transformed knowledge and new insights to improve their business operations and
to develop new innovations and business ventures.
Ultimately, organisations with a high level of absorptive capacity will be able to develop
competitive advantage, as they will be able to be more dynamic within their context.
However, we have also seen that organisational learning hinges on the ability of individuals
in the organisation to learn, and it is on this element that we focus next.
a lecturer may hear that using case studies is an effective way of teaching strategic
management, so he presents his class with one.)
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2. The concrete experience is followed by a process of thinking and reflecting on the experience.
(The lecturer considers what worked and what did not work in using the case study.)
3. Abstract conceptualisation occurs when certain ideas or theories are extrapolated from the
reflection. (The lecturer forms certain ideas about how case studies could be used, and about
what works and what does not work.)
4. Active experimentation occurs when the new ideas or concepts are deliberately tried in
other similar settings to see what the results are. This leads to the cycle being repeated. (The
lecturer tries out different ways of using case studies in class, and in each case this will lead
to further learning.)
Individual learning styles differ according to the emphasis that individuals place on various
phases of the learning cycle.8 For example, engineers and researchers may place a lot of emphasis
on abstract conceptualisation, while salespeople and marketers may place much more emphasis
on concrete experience and experimentation. Accordingly, not everyone will approach a problem
in the same way. For example, the lecturer mentioned above may have started with the abstract
conceptualisation process by reading a book on how to use case studies in class, followed by
experimentation and concrete experience.
It is unlikely that managers or other members of an organisation will act without any prior
consideration, and hearing stories related to management and popular accounts by other
successful managers (e.g. Richard Branson’s autobiography or a seminar by Tom Peters) have
been shown to be effective sources of knowledge, even more so than scientific or theoretical
descriptions of management.9
However learning takes place, in an organisation it is the transfer of knowledge to other
individuals that will ultimately lead to organisational learning, and that is the focus of the next
section.
Concrete
experience
Active Reflective
experimentation observation
Abstract
conceptualisation
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Tacit knowledge
Explicit knowledge
Nonaka differentiated between four basic types of knowledge transfer, namely socialisation,
combination, internalisation and articulation. These types of knowledge transfer are discussed
below. Most types of knowledge are quite complex, and more than one type of transfer
mechanism may be involved in conveying the full set of knowledge, skills and attitudes needed
for a certain task:
1. Socialisation (tacit ➞ tacit). This takes place when tacit knowledge is transferred from one
person to another, but remains tacit. Behaviour is often learned by observing and imitating
other people (think, for example, of a child mimicking her mother’s behaviour), and in the
same way managers and employees can learn certain behaviours when exposed to more
experienced colleagues. For instance, a junior manager may learn by observing the CEO,
finance director and legal representatives in action during merger negotiations.
2. Combination (explicit ➞ explicit). This takes place when explicit knowledge is mixed and
shared. For example, when experienced machine operators decide to write a how-to manual
for younger and more inexperienced employees to avoid having to tell them again and again
what to do, they are combining and transferring their explicit knowledge to their colleagues.
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3. Internalisation (explicit ➞ tacit). When explicit knowledge is used so often that it becomes
part of the being of the person using it, it has become tacit knowledge. For example, when
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learning to drive, a person needs to be instructed on what to do and how to do it, but after
a while, driving becomes almost automatic, in other words it becomes an internalised skill.
4. Articulation (tacit ➞ explicit). When an attempt is made to convert tacit knowledge to
explicit knowledge in order to share it with colleagues, articulation is used. For example, a
course in strategic management is an effort to teach a skill that is often tacit rather than
explicit.
MANAGERIAL PERSPECTIVE
The process starts with the executive committee (exco) team defining what process to
follow. The next step is to bring in more management levels and after an environment
(external/internal) screening process, identify the areas of concern and give input into
the company values and strategies. The exco team uses this information to derive the
value and strategic focus areas like growth and efficiencies.
This info is brought back to the separate business areas to help design their action
plan. This action plan is presented and a group strategy is finalised. The group strategy
is brought back to the business area to define the detailed plans to achieve the group
strategy. A financial plan is attached to this action plan per business area. The group
strategy plus the action plan and financial plan is presented to the group board for
approval. After approval, the strategy plan is the basis for the budget.
Business integration manager, ICT services organisation
Leaders need to develop genuine visions (not just pieces of paper) that can inspire employees.
Visions cannot be dictated to employees; employees have to believe and buy into them. Genuine
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shared visions will inspire employees in good times and bad, and have the power to bind an
organisation together for the long term.13
It is also important to empower people towards a collective vision, not only by involving
them in setting the vision, but also by distributing responsibility in such a way that people are
motivated to learn toward what they are being accountable to achieve.14 In the case of Vineet
Nayar, the company repositioned itself as a value-centric company. Because employees took
part in the process of developing the vision, they also bought into it.
MANAGERIAL PERSPECTIVE
If all managers were yes men, then there would be no need for them. One does not
always agree with strategies and the striving for excellence should be predominant. We
are employed at our organisation to think and react in a positive manner. Questions
as to why something is like it is are welcome as we have an open door policy with
management. If the answer is not satisfactory, then a degree of work needs to be
done to counter-argue the strategy and to debate it further – sometimes you have to
accept that you may not know the whole picture and reasons why, but you can have
a say. We have a staff survey where that opinion can be formulated and reviewed by
independent sources without fear of recourse. Our organisation also has a dedicated
email address for suggestions which is monitored daily.
Manager, telecommunications firm
Challenging existing mental models is critical to being a learning organisation, since our
mental models can prevent new powerful insights and organisational practices from becoming
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a reality. The process of unlearning mental models begins with self-reflection to develop an
understanding of our deeply held beliefs and generalisations, and how they influence the way
we do things.17 Until we are prepared to challenge our own mental models, real change cannot
take place. In the case of HCLT, double-loop learning was evident when the CEO challenged
the long-held belief that customers were the most important resource to the organisation,
suggesting that employees were instead.
Few people learn how to ride a bicycle without falling off a number of times. In fact, falling and
getting back up is an important part of the process, and in organisations, it is no different. Without
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failure, there is no learning. For this reason, it is important to encourage experimentation and
to see the failures for what they are – learning opportunities. Prahalad and Bettis suggest that
the economic evaluation of the organisation should be separated from managerial evaluation,
so that managers can be rewarded for experimenting even when projects are unsuccessful.25
It is important for organisations to understand the role that CoPs can play in a learning
organisation.
6.5.10 Collaboration
Collaboration with suppliers, customers and even competitors is becoming a more and more
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common means of fostering learning in organisations.29 However it does require a specific mind-
set – organisations than cannot or will not trust their collaboration partners or share openly
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will not be able to learn. In the case of HCLT, they made customers their innovation partners
by asking them if proposed innovations would be valuable to them. Rather than just tolerating
collaboration, collaboration should be valued and rewarded.30
The process of knowledge management consists of the following four different phases:34
1. The discovery of knowledge in the organisation
2. Capturing the knowledge in a way that enables it to be shared across departments
3. Sharing knowledge throughout the organisation
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Knowledge acquisition
■ Internal and external scanning
■ New employees
■ Training and development
Knowledge
(new and
existing)
Using Capturing
Knowledge
knowledge knowledge
management
systems
Sharing Organising
knowledge knowledge
Knowledge acquisition
Existing knowledge in an organisation is constantly supplemented by knowledge obtained
through external and internal scanning, and the addition of new employees with new knowledge.
It can also be expanded through training and development.
Capturing knowledge
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Some knowledge may be explicit and easy to capture, such as training or product manuals, but
much of the strategically useful knowledge may be much harder to capture. It could be argued
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that it will be impossible to capture all of the tacit knowledge associated with a project. For
example, a consulting project team may capture the steps they took in a complicated client
project, describing the tools they used, the steps they followed and the presentations they made.
However, it will be virtually impossible to describe exactly how they dealt with the negotiation
process, difficult clients and internal politics on the client site.
Organising knowledge
The purpose of this phase is to consolidate the knowledge and to capture it in a format and
language that will be usable throughout the organisation.
Sharing knowledge
Knowledge is of little value unless it is shared across different teams and departments, as a
precursor to using the knowledge.
Using knowledge
The crux of knowledge management is to enable the organisation and its members to use the
knowledge in a business setting to solve problems, improve business performance and deal
effectively with opportunities and threats in the external environment.
MANAGERIAL PERSPECTIVE
Staff members were finally being recognised for work through the new reward and
recognition management programmes, the talent management department was created
to search for exciting new prospects of people who could add value to the business
and a higher calibre of people filtered into the organisation. Knowledge management
was launched on the intranet, so that successes or experiences could be shared and
learned from. While all this was happening, a new total quality management system
was created and rolled out. The value chain of the business was relooked at and
re-engineered so that service excellence became the norm and not the exception. This
involved people from all levels of the business and not just management. The people
who understood what was going on at floor level helped identify problem hotspots
that could be detrimental to the organisation’s image. Training has been crucial to
the success of [Company A] and the continuity of its service excellence programme.
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LEARNING ORGANISATION
REINFORCES LEARNING
CONCRETE LEARNING
LEADERSHIP THAT
PRACTICES AND
ENVIRONMENT
PROCESSES
LEARNING
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What we see from this chapter is that organisational learning is not a simple process to effect
in an organisation. It may lead to success, but the journey will not be easy. A lot of thinking is
required by management to instil a culture of learning. Even then it may fail, but if it works,
the effects may be spectacular. In the case of HCLT, the chapter case study, they increased
their revenues and competitive advantage sharply by applying the principles of organisational
learning.
Discussion questions
1. Explain what a learning organisation is.
2. Explain why organisational learning is important.
3. Discuss three barriers to organisational learning.
4. Describe the nature of individual learning and why it is important in organisational learning.
5. Describe five mechanisms that organisations can use to become learning organisations.
6. Explain why communities of practice are important in organisational learning.
7. Explain what knowledge management is and identify the components of knowledge
management.
8. Give an example of organisational learning in the case of HCL Technologies.
9. Identify an organisation of your choice and interview two managers. In your view, is this a
learning organisation? Why or why not?
Learning activities
1. Visit the Management Lab (http://www.managementlab.org/) and identify another example
(besides HCL Technologies) of organisational learning.
2. Visit the Management Innovation Exchange (http://www.managementexchange.com/story)
and find three examples of what organisations are doing to encourage organisational
learning.
Endnotes
1 Compiled from Hamel, G. 2010. ‘HCL: Extreme management makeover’. Management Innovation
Exchange. Available online at: http://www.managementexchange.com/blog/hcl-extreme-
management-makeover (accessed 30 November 2013); MLab. (n.d.). ‘HCL Technologies’. Available
online at: http://www.managementlab.org/files/u2/pdf/case%20studies/HCLCaseStudy.pdf (accessed
30 November 2013); http://www.hcltech.com/investors (accessed 30 November 2013).
2 Compiled from http://www.sabmiller.com/about-us/history (accessed 12 November 2013).
3 Prahalad, C.K. & Bettis, R.A. 1986. ‘The dominant logic: a new linkage between diversity and
performance’. Strategic Management Journal, 7: 485–501; Bettis, R.A. & Prahalad, C.K. 1994. ‘The
dominant logic: retrospective and extension’. Strategic Management Journal, 16: 5–14.
4 Clegg, S., Kornberger, M. & Pitsis, T. 2010. Managing and organisations: an introduction to theory and
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6 Adapted from Zahra, S.A. & George, G. 2012. ‘Absorptive capacity: a review, reconceptualization and
extension’. Academy of Management Review, 17(2): 185–203.
7 Daft, R.L. 2006. The new era of management, Int. ed. Mason, Ohio: Thompson South-Western, 642.
8 Ibid.
9 Clegg et al. (2010)
10 Daft (2006: 643)
11 Nonaka, I. & Takeuchi, H. 1995. The knowledge-creating company: how Japanese companies create
the dynamics of innovation. New York NY: Oxford University Press.
12 Marsick, V.J. & Watkins, K.E. 2003. ‘Demonstrating the value of an organization’s learning culture:
the dimensions of the learning organization questionnaire’. Advances in Developing Human
Resources, 5: 132–151.
13 Senge, P. 1990. The fifth discipline. New York, NY: Currency Doubleday.
14 Marsick & Watkins (2003)
15 Prahalad & Bettis (1986)
16 Clegg et al. (2010)
17 Senge (1990)
18 Ibid.
19 Marsick & Watkins (2003)
20 Ibid.
21 Senge (1990)
22 Prahalad & Bettis (1986)
23 Senge (1990)
24 Prahalad & Bettis (1986)
25 Ibid.
26 Senge (1990)
27 Wenger, E. 2004. ‘Knowledge management as a doughnut: shaping your knowledge strategy
through communities of practice’. Ivey Business Journal, January/February. Available online at: http://
iveybusinessjournal.com/topics/leadership/knowledge-management-as-a-doughnut (accessed 16 July
2014).
28 Clegg et al. (2010)
29 Ibid.
30 Marsick & Watkins (2003)
31 Blatt, R. 2014. ‘Bruce Springsteen and Tom Morello’s creative collaboration: why it worked’. Forbes,
14 January. Available online at: http://www.forbes.com/sites/ruthblatt/2014/01/14/bruce-springsteen-
and-tom-morellos-creative-collaboration-why-it-worked (accessed 20 January 2014).
32 Graff, G. 2014. ‘Tom Morello to record first solo rock album after Bruce Springsteen tour’. Billboard,
10 January. Available online at: http://www.billboard.com/articles/news/5869510/tom-morello-solo-
rock-album-bruce-springsteen-high-hopes-tour (accessed 20 January 2014).
33 Darroch, J. & McNaughton, R. 2002. ‘Examining the link between knowledge management principles
and the types of innovation’. Journal of Intellectual Capital, 3(3): 210–222.
34 Becerra-Fernandez, I. & Sabherwal, R. 2008. ‘Individual, group and organizational learning – a
knowledge management perspective’. In Becerra-Fernandez, I. & Leidner, D. (Eds), Knowledge
management: an evolutionary view. Armonk, NY: ME Sharpe/AMIS, 13–39.
35 Hansen, M.T., Noria, N. & Tierney, T. 1999. ‘What’s your strategy for managing knowledge?’ Harvard
Business Review, March–April: 106–116.
36 Garvin, D.A., Edmondson, A.C. & Gino, F. 2008. ‘Is yours a learning organization?’ Harvard Business
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7 CAPABILITIES
Cecile Nieuwenhuizen
LEARNING After reading this chapter, you should be able to do the following:
■ Explain why strategic resources and capabilities are important in
OUTCOMES strategic management
■ Describe strategic resources and capabilities
■ Relate the resource-based view to the role of resources and
capabilities in strategising
■ Identify strategic resources and capabilities of the organisation
■ Differentiate between the main approaches to internal assessment
■ Evaluate strategic resources and capabilities of the organisation
■ Explain how strategic resources and capabilities influence the
strategy of the organisation
■ Explain how strategic capabilities are created
■ Explain what internal assessment is and why it is important in
strategic management
■ Critically evaluate the strategy of an organisation from a
resource-based perspective.
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7.1 Introduction
Strategy is the link between the organisation and its environment. This means that there should
be consistency between the external industry environment of the organisation (including
competitors, customers and suppliers) with its opportunities and threats, and its internal
environment (including its mission, goals, values, resources, capabilities, structure and systems)
with its strengths and weaknesses.2
Matching resources and capabilities with opportunities in the environment is essential for
successful strategy. Resources and capabilities have been identified as the primary source of
competitive advantage and also a basis for the formulation of a strategy for an organisation.
Resources and capabilities enable organisations to differentiate themselves from competitors
and develop a strategy to benefit from it.
In this chapter, the focus is on the role of the organisation’s resources and capabilities in the
development and implementation of strategy to achieve the goals of the organisation.
7.2.1 Resources
Resources are the productive assets owned by the organisation3 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 judgement)
4. Organisational capital (e.g. reporting structure and management, including planning,
coordinating, controlling and networks)
5. Technological capital (e.g. ICT systems)
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Resources can be used as basis for the formulation and implementation of strategies, but not
all are strategically relevant. Some have little or even a negative impact on the performance of
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an organisation. 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 (cannot be imitated), 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.4
Resources include individual, social and organisational factors. To determine the resources
of an organisation, a comprehensive inventory should be developed. The inventory should
differentiate between tangible and intangible resources and capabilities, and human resources
(or tacit knowledge). See the managerial perspective below for an indication of the value of
resources and capabilities.
MANAGERIAL PERSPECTIVE
Tangible resources
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. Tangible resources can
fall into any of the five categories of resources identified above, i.e. financial, physical, human,
organisational and technological capital.
Intangible resources
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
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Intangibles are strategic firm resources that enable an organisation to create sustainable
value, but are not available to a large number of firms (rarity). They lead to potential
future benefits which cannot be taken by others (appropriability), and are not imitable
by competitors, or substitutable using other resources. They are not tradeable or
transferable on factor markets (immobility) due to corporate control. Because of their
intangible nature, they are non-physical, non-financial, are not included in financial
statements, and have finite life. In order to become an intangible asset included in
financial statements, these resources need to be clearly linked to a company’s products and
services, identifiable from other resources, and become traceable results of past transactions.
Intangible resources are not so easy to identify, but are usually much more valuable and superior
to tangible resources. 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 and 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.7
The human resources (people owning, managing and working in an organisation) are the source
of knowledge and this can be a valuable and even primary contributor to competitive advantage
as knowledge can contribute to the uniqueness of an organisation. The ability to use information
makes knowledge a resource. When data and information are used to do things such as decide
on how to solve a management problem, train the sales team or improve operational processes,
knowledge is created.
Not all knowledge is a source of competitive advantage as some knowledge is public. Private
knowledge, however, can be valuable. Examples of private knowledge are an organisation’s
intellectual property rights, systems, procedures and processes, or recipes. Knowledge can be
explicit or tacit (see Chapter 6 for a discussion on knowledge and organisational learning):
■ Explicit knowledge is knowledge that can be taught or 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
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combination of resources, both tangible and intangible, can create valuable organisational
capabilities.8
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7.2.2 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.9 Whereas resources are static and will generally deplete over time, capabilities
increase with use and become more valuable. Figure 7.1 illustrates how resources combine to
become capabilities within an organisation.
Marketing and
branding capability
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.10
It is important to distinguish between capabilities and dynamic capabilities. Capabilities
are ‘… high level routine[s] that, together with its implementing input flows, confers upon
an organization’s management a set of decision options for producing significant outputs
of a particular type‘.11 A capability is reflected in high-level activities (routines) that produce
important outputs of significant value that contribute to the organisation’s competitive
advantage. Examples of capabilities are SABMiller’s ability to develop strong brands and mobile
operator MTN’s ability to operate cellular businesses in developing countries.12
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.13 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 – see Chapter 6) is an example of a dynamic capability that drives organisational
learning and change.
Carefully developed capabilities form the basis of competitive advantage and are therefore
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Competitive
Capabilities advantage
Value creation
Excellent
profitability
FIGURE 7.2 Link between resources, capabilities, strategy and competitive advantage16
Core competencies make a disproportionate contribution to customer value and the efficiency
of its delivery, and serve as a basis for market entry.17 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 intensive 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 service.18 Most successful organisations will have only one or two
core competencies, while many average organisations will have no distinguishing core
competencies at all. In the example of SABMiller (see the Chapter 3 case study and the
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box on the next page), we can see that their capabilities and core competencies are their
strategic priorities, meaning that the organisation attracts a lot of resources to develop and
expand those important strategic resources.
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7.3.1 Value
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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 consumer. Capabilities are valuable when
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they enable an organisation to implement a strategy that improves efficiency and effectiveness.
To be valuable, the capability 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 (the luxury hotels in the Protea hotel group) may require
different capabilities.
7.3.2 Rarity
A valuable resource and/or capability that an organisation owns that other organisations do not
have, and that is not generally available in the open market, is rare (R).
7.3.3 Inimitability
Inimitable capabilities (l) 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)20 that
make it difficult for competitors to copy what an organisation is doing, resulting in sustained
competitive advantage. If it is easy to copy something valuable that an organisation started
doing first, its competitors will soon follow and in the process erode any competitive advantage.
7.3.4 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
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little value. Managerial awareness, of both the potential competitive advantage and the action
required to realise it, is essential.22
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In 2008, the Joule, an electric car developed in South Africa, was launched with great
fanfare in Paris. The car, a first for South Africa, was designed by South African-born
automotive designer Keith Helfet, chief stylist at Jaguar, and it certainly seemed set
to shake up the motoring world.
However, the dream was not to be. In 2012, Optimal Energy, the company behind
the Joule, announced that it was shutting down, with the loss of 60 jobs and the
R300 million (largely funded by the government through the Industrial Development
Corporation, or IDC) that was invested to develop the vehicle.
The reason for winding down Optimal Energy was that it could not attract the R7
billion required to industrialise the Joule, and the IDC and other investors decided against
providing further funding for the project. Efforts to find manufacturing partners or
facilities had also been fruitless, with Optimal Energy exploring the options of taking over
the then-defunct Hummer production line at the General Motors plant in Port Elizabeth
or joining forces with other manufacturers. Another option was to develop an electric bus
using the intellectual property developed by Optimal Energy for the Joule.
While one could argue that the Joule was a good design and idea, the company
simply could not meet the requirement of organisation, meaning that it could not
attract the required funding and manufacturing expertise to commercialise its idea.
However, the intellectual property is still a valuable resource that could be used to
generate revenues for its owners.
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Key resources
Tangible assets Intangible assets Capabilities
Value Value recognised in the Value results from Value is embodied in the
balance sheet reputation and client trust culture of the firm and
the knowledge and skills
of employees
Barriers to Easy for rivals to identify Unique and complex Tacitness and causal
duplication and duplicate resources create ambiguity create
inimitability inimitability
Superior performance
Market performance – rate of return relative to competitors
FIGURE 7.3 A resource-based view of customer value and its relationship to sustainable
competitive advantage24
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:
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■ It has not yet been tested and proved empirically.25 Daellenbach and Rouse suggest that
an important requirement is that the RBV be measured and analysed at the resource level,
implying longitudinal data.26
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■ It does not address how to increase profitability and/or how to develop further competitive
advantages or create new ones.27
■ The lack of future orientation and the inability to differentiate between valuable and less
valuable resources and capabilities result in a lack of predictability.28
The next section discusses how to identify capabilities and core competencies in an organisation.
An organisation’s resources, capabilities and core competencies can be identified, classified and
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analysed either (1) according to its functional areas, or (2) through an analysis of its value chain.
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Procurement
Procure-
rgin
Primary activities
External environment
FIGURE 7.4 The value chain32
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2. It can produce products or services at a significantly lower cost than its competitors (cost
leadership), enabling it to leverage higher profit margins.
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MANAGERIAL PERSPECTIVE
and capabilities and how inimitable they are. Durability refers to the length of time over which
a capability is relevant and can contribute to the competitive advantage of the organisation.
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For example, a strongly ingrained durable culture is extremely durable and long-lasting, while a
technical competence is of much shorter duration. Imitability refers to how easy or difficult it
is for competitors to copy the competitive advantage and is determined by transferability and
how replicable a capability is. Transferability is how easy or difficult it is to acquire or buy a
resource. For example, raw materials, component, machines and human resources are all easily
transferable, while immobile and intangible resources, such as organisational culture, are not
easy to transfer. The latter are more valuable because they may be specific to the organisation
or lose worth when transferred. Replicability refers to the ability to use the resource in other
settings. For example, mobile operator MTN was able to replicate its capability to start up and
manage a mobile operator in South Africa in 20 countries in Africa and the Middle-East.
unmet (U) need of customers. Unmet needs are defined as those needs of customers that
are high in importance and insufficiently satisfied.35
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These additions extend the VRIO framework of resources and capabilities to VRIOLU. The
extended framework involves evaluation of resources and capabilities along three important
dimensions:36
■ From the company perspective, it evaluates the value (V) to the organisation and the ability
of the organisation (O) to exploit the resources and capabilities.
■ From the perspective of competitiveness, it considers the rareness (R) and inimitability (I)
and the availability of resources and capabilities to competitors.
■ From the perspective of customers, it evaluates the size of the market and determines
whether it is large (L) enough to cover the fixed costs of the organisation. It also evaluates
the extent to which resources and capabilities allow the organisation to address unmet (U)
customer needs.
and weaknesses in terms of resources and capabilities, and to find ways of developing dynamic
capabilities.
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Discussion questions
1. Explain what resources and capabilities of an organisation are and how they are linked.
2. Discuss tangible and intangible resources and how each contributes to the performance of
an organisation.
3. Describe what core competencies are.
4. Identify and describe the four conditions that capabilities have to meet.
5. Explain what the RBV is and describe it.
6. Name and explain two methods to identify the capabilities of an organisation.
7. Discuss and explain competitive advantage and sustainable competitive advantage.
8. Explain when resources and capabilities are valuable with special reference to creating value
for the organisation.
9. Consider the chapter case study of the Boeing Black at the beginning of this chapter. What
are the core competencies of Boeing? How valuable will these core competencies be in the
cellular industry?
10. Read the story on Apple by Gary Hamel on Management Innovation Exchange (http://www.
managementexchange.com/blog/what-makes-apple-apple) and identify the core capabilities
of Apple that led to their success.
Learning activities
1. Watch the video on the resource-based view by Jay Barney on YouTube (http://www.youtube.
com/watch?v=-KN81_oYl1s). What did you learn about the notion of differential resources
in this video?
2. Interview a manager in any organisation of your choice about his or her organisation’s key
strengths and weaknesses. What did you learn about the idea of resources and capabilities
in this interview?
Endnotes
1 Adapted from Scott, A. 2014. ‘Boeing Black: this cellphone will self-destruct …’. Reuters, 26
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2 Grant, R.M. & Jordan, J. 2012. Foundations of strategy. West Sussex, UK: John Wiley & Sons, 36.
3 Ibid., p. 114
4 Barney, J. 1991. ‘Firm resources and sustained competitive advantage’. Journal of Management, 17(1):
101.
5 Kristandl, G. & Bontis, N. 2007. ‘Constructing a definition for intangibles using the resource-based
view of the firm’. Management Decision, 45(9): 1517.
6 Ibid., p. 1518
7 Hoskisson, R.E., Hitt, M.A., Ireland, R.D. & Harrison, J.S. 2008. Competing for advantage, 2nd ed.
Canada: Thomson South Western, 73.
8 Grant & Jordan (2012: 114)
9 Ibid.
10 Jacquier, B. 2003. ‘The resource-based view of the firm (RBV)’. Available online at: http://www.ecofine.
com/strategy/RBV of the firm.htm (accessed 17 October 2012).
11 Adapted from Winter, S. 2000. ‘The satisficing principle in capability learning’. Strategic Management
Journal, 21: 981–996.
12 Ibid.
13 Zahra, S.A. & George, G. 2012. ‘Absorptive capacity: a review, reconceptualization and extension’.
Academy of Management Review, 17(2): 185–203.
14 Grant & Jordan (2012: 122)
15 Prahalad, C.K. & Hamel, G. 1990. ‘The core competence of the corporation’. Harvard Business Review,
May–June: 79–91.
16 Adapted from Grant & Jordan (2012: 114); Hill, C.W.L., Jones, G.R. & Galvin, P. 2004. Strategic
management: an integrated approach. Milton, Queensland: John Wiley, 115.
17 Prahalad & Hamel (1990)
18 Jacquier (2003: 4)
19 Available from http://www.sabmiller.com/index.asp?pageid=18
20 Clulow, V. & Gerstman, J. 2007. ‘The resource-based view and value: the customer-based view of the
firm’. Journal of European Industrial Training, 31(1): 19–35.
21 Hoskisson et al. (2008: 79)
22 Harrison, J.S. & St John, C.H. 2014. Foundations in strategic management, 6th ed. Mason, OH: South-
Western Cengage Learning, 48.
23 Partly based on Cokayne, R. 2012. ‘Optimal; Energy closes its doors’. IOL Motoring (online). 27
June. Available online at: http://www.iol.co.za/motoring/industry-news/optimal-energy-closes-its-
doors-1.1328648 (accessed 19 February 2014).
24 Adapted from Barney (1991: 100); Clulow & Gerstman (2007: 21)
25 Arend, R.J. 2006. ‘Tests of the resource-based view: do the empirics have any clothes?’ Strategic
Organisation, 4(4): 418.
26 Daellenbach, U.S. & Rouse, M.J. 2007. ‘Ten years after: some suggestions for future resource-based
view research’. Research Methodology in Strategy and Management, 4: 14.
27 Sheehan, N. & Foss, N. 2007. ‘Enhancing the prescriptiveness of the resource-based view through
Porterian activity analysis’. Management Decision, 45(3): 450–461.
28 Hinterhuber, A. 2013. ‘Can competitive advantage be predicted? Towards a predictive definition of
competitive advantage in the resource-based view of the firm’. Management Decision, 51(4): 796.
29 Hoskisson et al. (2008: 71)
30 Dess, G.G., Lumpkin, G.T. & Eisner, A.B. 2008. Strategic management creating competitive advantage,
4th ed. New York: McGraw-Hill, 466.
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LEARNING After reading this chapter, you should be able to do the following:
■ Define the external environment in strategic management terms.
OUTCOMES ■ Explain why the external environment is important to the
organisation.
■ Identify external role players, trends and possible events relevant
to the organisation.
■ Explain how external role players, trends and events influence
strategy making in an organisation.
■ Evaluate relevant external role players, trends and events.
■ Explain what scenario planning is and why it is important to
strategic management.
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only in scaring the birds. So the birds take flight briefly, then settle again
and continue as if nothing has happened. The cat goes away and practises
and gains some more experience at hunting. Over time, he develops into a
finely tuned hunting machine. He returns and mounts an attack. This time,
the attack is executed with greater agility and much more skill, and the
results are far better as he manages to get a paw on a bird.
This analogy sheds light on the behaviour of industries and
organisations in the face of competition and uncertainty. The early
Japanese motorcycle models made few inroads into the traditional
British motorcycle markets and, with their heads down, confident in
a good product and process which had always been successful, the
[British] industry ignored the threat of the Japanese. However, like the
older, wiser cat, the Japanese returned, pounced and dealt wounding
blows to their competitors. Thus, the entrenched competitors in the
British motorcycle industry paid the price for not changing in the face
of developing technologies as its competitors forged ahead.
A similar story exists in the music recording industry, where outsider
Apple with its industry-leading iTunes left the industry reeling when it
became the dominant force in music sales. The scenario is no different
among prominent industry leaders such as Kodak, who failed to respond
quickly enough to digital technology applications and its influence
on the photographic industry. After numerous attempts to catch up,
it was eventually forced into bankruptcy in 2013. In contrast, Canon
successfully made the transition and became the global market leader.
Introduction
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8.1 Introduction
No business exists within a vacuum, and organisations should always be viewed as open
systems in relation to their environment and competitors. Developing trends in technology,
nature and society are slowly revolutionising the business environment on a global and
unprecedented scale, much like the earth’s tectonics are shifting the ground beneath our feet.2
This ‘globality’ which is characterised by greater interconnectedness and interdependencies
between countries is leading to phenomenal economic growth, states of hyper-competition,
rapid innovation and increased cooperative strategies. These forces emanating from the external
environment exert an enormous amount of influence on organisations. Strategic managers in
organisations are therefore required to respond appropriately by adapting or actively changing
their environments to enhance their competitive positions and survive.3
‘Going green’, ‘eco-friendly’ and ‘sustainable practices’ are now commonly accepted and
more than just buzz words or jargon. A growing number of customers, employees, investors and
other stakeholders are demanding that companies behave ‘responsibly’ in terms of the natural
environment. As such, a new compact4 between business and society is being advocated where
‘business as usual’ is no longer an option.
Historically, the business world has always primarily considered direct stakeholders (such
as shareholders, employees and other internal stakeholders) in developing strategy, but it is
now increasingly under pressure to deal comprehensively with external stakeholders as well.
Therefore, a profound understanding of the external environment gained through knowledge
of the interests and influence of key external stakeholders is paramount to strategic decision
making and planning, and recognised as a source of strategic value.5
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There are three levels of analysis which will influence the organisation’s strategic direction
(vision and mission) and strategic actions:
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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:8
■ Strengths are internal organisational resources and capabilities that can lead to a competitive
advantage.
■ Weaknesses are internal resources and capabilities that a firm may not possess yet but are
necessary, resulting in competitive disadvantage until the firms 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.9
MANAGERIAL PERSPECTIVE
[Company A] have made calls to strengthen their business, and have focused on what
they are good at, and have moved away from certain markets that bring in little
profits and have major costs. Project teams help identify new revenue streams, and
planning departments systematically work out whether businesses are viable or not.
The balanced scorecard is part of this process, but other tools are also used – centre of
gravity studies are done, profitability models are analysed, the competition is reviewed
and understood and the call is made.
Manager, global logistics company
Strategic direction is an outcome of melding the desires of key organisational stakeholders with
environmental realities.11 Therefore, a profound understanding of the external environment,
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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.
Government Unions
agencies and
administrators Customers
The Organisation
Local Owners/Board of directors Industry Legal
Economic forces
forces communities Managers
Employees
Competitors
Financial
intermediaries
Suppliers
Activist
groups G
ca
l fo loba
l iti ces rc l
es
Po for
Organisations to a large extent can only respond to the fundamental forces arising from the broad
environment. While individual firms can influence their task environments, they rarely have the
ability to influence the broad environment (except, for example, through radical technological
innovation, as in the case of Intel or Microsoft in the microprocessor, microcomputer and
software industries).
The most important elements and components of the broad environment can be identified using
the traditional PEST framework and comprise the following factors:13 political, economic, social
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and technological. The traditional PEST model can be extended to include a consideration of
legal (L) and environmental (E) factors to yield PESTLE.
Analysing these environmental forces and trends at both a domestic and global level is
important because they can have a tremendous impact on an organisation and its task
environment. Below are just a few examples of the implications they hold for industries and
organisations:14
1. Political legal forces (e.g. governments, political parties, legislation and competitive policies).
No organisation is fully exempted from government legislation and regulations. However,
not all laws and regulations apply equally to all organisations. Some pertain only to specific
industries (such as smoking laws and the tobacco industry), whereas other legislation (such
as occupational health and safety, labour relations, affirmative action and employment
equity, in South Africa) cuts across entire industries.
2. Economic forces (e.g. economic growth, inflation, interest rates and employment). Economic
forces impact largely on the demand for products and services, so it is important for
managers to monitor and forecast events in the domestic and global economies. Economic
forces are often interdependent with sociocultural forces, for example an ageing population
can impact significantly on unemployment figures and salaries of a younger workforce. To
assess the effect of these interdependent forces, organisations should model their business
environments by proposing and evaluating different scenarios to help managers make better
decisions.
3. Sociocultural forces (e.g. social values, culture, lifestyles and demographics). Stakeholder
groups are products of society. Their values, morals, beliefs and subsequent behaviours and
lifestyles are therefore influenced by society at large. Developing social trends may also
offer business opportunities. For example, health and fitness lifestyle trends have created
opportunities in the home fitness, nutritional supplement, low carbohydrate food and even
bicycle industries. Organisations therefore stand to gain if managers can identify and assess
the effects and opportunities presented by sociocultural forces as well as managing and
sustaining their relations and reputation with stakeholder groups.
4. Technological forces (e.g. research and development, new products and processes, and
new technologies). The innovation and technology fields have grown exponentially in
recent years. They are continuously driving the development of new products and services,
thereby even creating new industries. They also have the power to transform society and
revolutionise the way business is conducted. This is evidenced in the rise of the internet as
well as in the communication and computing industries. Innovation and technology can
spill over from one industry to another, especially if they are closely related. Organisations
should therefore monitor developments in innovation and technology in neighbouring or
related industries. Managers need to evaluate the consequences for their own products and
services, creating strategies that could take advantage of the changes.
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
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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.
Companies attuned to these challenges, which prepare for them and respond appropriately, will
likely thrive; those that ignore them will do so at their own peril.
With increasing globalisation, interconnectedness and interdependencies between countries
is increasing and current global competition is intensifying. Two phenomena have already
created seismic shifts in global economic activity:
1. The centre of gravity of economic activity is shifting with global business growth coming
from the developing world. The emergence of the BRICS countries (Brazil, Russia, India, China
and South Africa) has already significantly changed global competition. The emergence of
MINT countries (Mexico, Indonesia, Nigeria and Turkey) is on the horizon.
2. The economic winners are not the organisations that control natural resources and physical
capital, but rather those organisations that have mastered ideas and technology – resources
that are not bound by ownership or geography, or governed by traditional rules of scarcity
and scale economics.
This phase of ‘globality’ is creating huge opportunity as well as threats for developed-world
multinationals and new champions from developing countries alike.
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,
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TABLE 8.1 Example of an external factor evaluation (EFE) matrix for a holiday resort17
IMPACT PROBABILITY
Opportunities
diving)
Total 1.0 2.2
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Notes
1. The most strategically significant and relevant factors would be based on priority
i.e. numbers (3), (1) and (6) and the least significant are (4), (5) and (2)
2. The weight of the factor indicates importance and the sum of weights assigned to
all factors must equal 1.0
3. The rating values indicate how effectively the firm’s current strategies are
responding to the factors, as follows:
1 = response is poor, 2 = response is average, 3 = response is above average,
4 = the response is superior
4. A total weighted score of 4 indicates that the company is responding in an
outstanding way to the existing opportunities and threats
5. The weighted score for the company is 2.2 indicating that the company’s strategic
response is only average
6. The six key external factors in this example have been randomly selected for
illustrative purposes and not subject to analysis
The EFE matrix can therefore assist in summarising and evaluating PESTLE/G information and
subsequently indicate an assessment of the organisation’s strategic response to the identified
individual factors in the environment and as a whole. It also reveals whether the organisation’s
current strategy is seizing external opportunities and minimising the potential effects of external
threats. Such an analysis can inform managers in devising alternate strategies.
associated with their rights; labour can display economic power by withholding their services;
while government can influence organisational behaviour through political power.
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These ‘laws’ will increasingly play a role in strategic management in the years to come. With
increasing global competition and technological complexity, organisations are more dependent
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than ever on the trust of their stakeholders. Many successful organisations have learned that
productive and mutually beneficial relationships with stakeholders can lead to a competitive
edge. Therefore organisations who understand, embrace and commit to these imperatives will
find that they actually enhance business success. In the long run, organisations will realise that
being a ‘good citizen’ has significant strategic value.21
group of companies offering products and services that are close substitutes for each other, i.e.
products or services that satisfy the same basic customer needs.23 The basic customer needs
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that are served by a market define an industry’s boundary. For instance, Coca-Cola long saw
itself as part of the soda (carbonated soft drinks) industry, whereas it actually was part of the
soft drinks industry (which includes non-carbonated soft drinks). In the mid 1990s, the rise of
customer demand for bottled water and fruit drinks began to cut into the demand for sodas,
which caught Coca-Cola by surprise. Coca-Cola moved quickly to respond to these threats by
introducing its own brand of water and acquired orange juice maker Minute Maid. By defining
its industry too narrowly, Coke almost missed the rapid rise of non-carbonated soft drinks
within the soft drinks market.
Porter argues that the greater the collective strength of the five forces, the less profitable and
less attractive the industry is likely to be, as shown in Figure 8.2.
Regulators
Ability to raise prices or Suppliers
reduce quality or availability Govern Regulate
of goods/services competition market entry
Competitors
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As pointed out earlier, the way an industry is defined will therefore hold implications for
the way substitutes and competing products/services are treated. Also, the way an industry
group is defined (refer to section 8.5.5 on strategic groups) has implications for the analysis
of customers, suppliers and entry barriers. Consequently, it is important to define an industry’s
barrier carefully prior to commencing with an analysis of 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 other 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. The power of buyers is high when: (a) they are
few in number and/or when they have the ability to buy in bulk; (b) the product or service
being offered is similar, making it easier to switch to alternate suppliers; (c) the value of the
buyers’ purchases is a significant portion of the sellers’ total income; and (d) the buyers can
move backwards into the supply chain by acquiring or developing the ability to produce the
products or services themselves.
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. Supplier power is high when:
(a) there are only a few major suppliers and they are highly concentrated in relation to the
industry they serve; (b) supplies to the industry are not similar, thereby making it difficult for
incumbents to switch to alternate suppliers; (c) few or no alternative or substitute products
or services exist; (d) the suppliers can move forward into the supply chain; and (e) the value
of the industry’s purchases represents but a small portion of the suppliers’ total income (i.e.
suppliers’ income is derived from serving other or multiple industries).
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. Competitive rivalry is high when: (a) there are a large number
of rivals who are relatively equal in size and power; (b) the industry is growing slower
and incumbents are vying for the support of existing customers rather than seeking new
customers; (c) incumbents carry huge fixed costs; (d) rivals have excess capacity; and (e)
existing players are unable to exit the industry either due to the high costs associated with
ceasing operations or high exit barriers.
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, namely: (a) capital required; (b)
access to distribution; (c) cost disadvantages not related to size; (d) economies of scale; (e)
government legislation and regulation, and (f) high switching costs.
5. Substitute providers (substitute products or services). Organisations providing products
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The basic steps to follow when using the five forces model are as follows:27
1. For each of the five forces, identify the different parties involved, and the specific factors
that bring about competitive pressures.
2. Evaluate how strong the pressures stemming from each of the five forces are (strong,
moderate to normal, or weak).
3. Determine whether the collective strength of the five competitive forces (overall), is
conducive to earning attractive profits in the industry.
However, for the purposes of strategic analysis, the central challenge is not applying the model
and assessing the strength of the five forces, but in extracting the strategic implications for the
firm concerned. Managers should not only consider the influence of the five forces but should
seek out ways of manipulating these forces to the advantage of the organisation, for example
by blocking distribution channels to prevent a potential competitor from obtaining shelf space
and ultimately, market share. A firm may also alter its competitive environment by creating
partnerships with powerful stakeholders. Finally, the results of such analyses should not only
guide organisations in making strategic decisions pertaining to industry (un)attractiveness
and (un)profitability, but could also assist in identifying forces relevant to opportunities and
threats.28
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In October 2013, mobile operator Cell C lodged an antitrust complaint against MTN
and Vodacom, charging its bigger rivals with ‘discriminatory pricing’. Cell C said in a
statement it had lodged the complaint with the competition watchdog over the rates
MTN and Vodacom charge their own customers for calling users of other networks:
MTN and Vodacom offer discounts when customers call subscribers on the same
network, but charge a premium for calls to other networks. Cell C CEO Alan Knott-
Craig said in a statement: ‘This amounts to discriminatory pricing and is without a
doubt anti-competitive when adopted by dominant operators.’
The Independent Communications Authority of South Africa (Icasa) on Friday said
it planned to cut by 75% the fees mobile companies can charge rivals to use their
networks, a move that would severely reduce the call-by-call profit margins of the
larger cellular operators and has prompted threats of legal action against the regulator
by MTN and Vodacom.
services
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Features One firm where Few firms Many firms Large number
high entry and where of similar of identical
exit barriers significant size where firms with no
exist. entry and exit significant barriers to
Low degree of barriers exist barriers to entry and exit
competition Moderate entry and exit High degree of
Market is stable degree of exists competition
and predictable competition Moderate to Low degree of
and market is high degree of market stability
stable competition
Low to
moderate
degree of
market stability
Using Table 8.2 to examine the principle features of an industry, it is possible to predict the type
of competitive behaviour likely to emerge and the resulting level of profitability:
1. A monopoly player such as a state-owned enterprise, serving in a closed domestic market,
will have a total advantage while it retains government support. There will be virtually
no legitimate competition. The organisation’s market will be stable and predictable, and
the managers will typically adopt a defensive approach to strategy to maintain barriers to
prevent entry to the market.
2. Oligopolistic structures are characterised by a few large organisations with substantial
shares of the market. They try to maintain their own long-term competitive advantage
through crafting largely defensive strategies.
3. Monopolistic competition has more rivals of a similar size that can result in less stability
and short-term competitive advantage. This leads to aggressive strategic approaches and
more intense competition.
4. As the industry nears perfect competition, it is likely that an aggressive strategic approach
would be required. The market would be volatile with frequent entry and exit of players.
Extreme industry structures such as oligopoly (industry characterised by sellers) and monopoly
(an industry with a single seller), have a direct effect on the nature of, or lack of competition
in, the industry. The general principle is that ‘the greater the number of firms (as in perfect
competition), the greater the level of competition’.32
and structural changes. Traditional industry boundaries are blurring as many industries converge
and overlap, especially in information-based industries. While Porter’s five forces model identifies
the main drivers at the industry level, it is not able to distinguish other characteristics that may
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Industry evolution34
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 life cycle curve outlined in Table 8.3.
shake-out)
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*Note: Shake-out defines a period of intense rivalry precipitated by declining growth rates
and new entrants that are intent on capturing the profits of a rapidly growing industry.
This results in the exit of many industry pioneers and the weakest of the entrants.
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 shown in Table 8.3
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 in 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.
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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.
MANAGERIAL PERSPECTIVE
An industry analysis (which is still ongoing) has been conducted to identify the
opportunities and threats within the industry; part of this has been a detailed
competitor analysis. A stakeholder analysis was undertaken to determine the effect
the company had as a result of its interaction with the stakeholders identified –
employees, suppliers and customers. Analysis of our findings from the internal and
external environmental analysis helped us identify the improvements we could make
immediately and those that would take time and resources to change and has assisted
us in formulating medium- and long-term goals to effect these changes. The process
is iterative, as we implement changes we need to manage the change that those
changes bring to the business and have found that many initiatives need tweaking in
the process of implementing them. We monitor the effects and results of the changes
made, and constantly review our plans, policies and procedures to ensure we move
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International
National carriers
e.g. South African Airways,
Geographic coverage
Strategic
British Airways space
Regional
Charter
Low-cost airlines
e.g. Skyclass,
e.g. Kulula.com,
UCS
Mango, FastJet
Domestic
FIGURE 8.3 Example of a strategic group map for the local airline industry
A strategic group map is a three-dimensional diagram like the one for the local airline industry
illustrated in Figure 8.3. The first two dimensions are the axes representing two good variables
or any of the competitive dimensions (such as geographic coverage and service scope in this
case). The third dimension is depicted by size of the circles which is proportional to the combined
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sales or market share of the firms in each group. This allows the map to reveal the position and
relative size of each strategic group.
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It is not always relevant to undertake a strategic group analysis. It is a useful tool where strategic
groups might exist, where organisations share similar strategic similarities and where groups of
firms compete in different ways within the same industry. In this situation it is complementary
to industry level analysis and more useful in identifying relevant sets of competitors.
hence are those elements considered important by customers. Some key success factors will
be sector and industry specific. For example, low-cost airlines need high velocity and quick
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turnaround times on flights, consumer goods manufacturers need good brand management
skills. Effective strategic positioning must ensure that strategic organisational resources meet
and satisfy key success factors for customers and markets.40
As in the case of Coca-Cola and PepsiCo, these competitors are keenly interested in understanding
each other’s objectives, strategies, assumptions and capabilities. Intense rivalry creates a strong
need to understand competitors and this competitive intelligence is the information about these
four dimensions.41 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.
MANAGERIAL PERSPECTIVE
The overall strategic goal of the company is to become the leading manufacturer of
non-wovens in South Africa and southern Africa. The process to assess whether we are
moving in the right direction with respect to achieving this goal starts at the end of each
financial year with a review of the past year’s financial performance. This review is based
on consolidated financial statements of the past year. The key aspects that we look at are
sales growth, gross profit margin, containing of operational costs, profitability, production
output and productivity. These elements are evaluated according to the budget and what
was actually achieved. The review cuts across all of the five market segments we operate in,
i.e. bedding, filtration, insulation, automotive and upholstery, and also involves assessing
customer growth, especially our top ten customers as 90 per cent of our revenues are
derived from them, and also the contribution of each market to overall sales. This process
is then followed by an analysis of how our competitors fared compared to us and the rest
of the market. It will also involve assessing whether there have been any new entrants or
new products that have entered the market. An eagle’s eye view of the current economy
is taken and we extrapolate the economic growth we can expect.
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Following this, we consider the impact of this growth on the sector and also how much
of this growth we think we can capture given our past year’s performance. Projections are
then drawn up for the next year and reviewed against current resources. Any additional
resources would have to be budgeted for. While organic growth is our main focus, we are
always in the market seeking possible takeover targets; case in point was the acquisition of
a small competitor earlier this year to prevent any other entrant into the Gauteng region.
Manager, textile industry
Competition vs cooperation42
While an organisation is largely unable to influence those elements stemming from the broad
environment, it can exert considerable influence on those elements (such as stakeholders)
in its task environment. In fact, organisations can create cooperative strategies with these
stakeholders or pursue a variety of other management techniques to enhance their competitive
positions.43 There is thus a need to look at some of the factors likely to influence the actual
process of 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 seems 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. As an example, Sony and
Philips collaborated in the development of the audio CD, and then later competed vigorously
for market share in the market for CD players. Cooperation is also 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.44
weaknesses is not ‘magic’. The use of these tools must be accompanied by intuitive judgement
rather than robotic examination of weights and ratings. The aim is not to arrive at a single
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number, but rather to assimilate and evaluate information in a meaningful way that aids
decision making.
the lack of predictability, decision-making situations are often described along a continuum of
states ranging from certainty to risk to uncertainty:
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The terms ‘strategic posture’ (a company’s strategic intent) and ‘strategic moves’ are used
to construct a generic framework for formulating strategy in uncertain environments. In
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characterising how firms deal with uncertainty, it is also important to distinguish between
shapers, adapters, and companies reserving the right to play:
1. Shapers drive the industry towards a structure that is to their benefit. They are out to
change the rules of the competitive game and try to control the direction of the market.
2. Adapters are companies that exhibit a more reactive posture. They take the industry
structure as given and often bet on gradual, evolutionary change.
3. Reserving the right to play is also a reactive posture. Companies pursuing this posture
often make incremental investments to preserve their options until the strategic environment
becomes easier to read and less uncertain.
At level 1 strategic environments (a clear enough future), most companies are adapters. This
state of relative tranquility is maintained until a shaper upsets the apple cart. While shapers
at level 1 raise the level of uncertainty by challenging the existing order, at higher levels their
objective is to reduce uncertainty through determined action.
At level 2 (alternate futures), a shaping strategy is designed to tilt the probabilities toward
a specific outcome. Adapting or reserving the right to play is easier at this level than at higher
levels of uncertainty because the forces of change are known and only a few scenarios are
thought to occur.
At level 3 (a range of futures) no discrete outcomes can be identified. As a result, at this level
of uncertainty, shapers focus on limiting the range of possible outcomes to a smaller set of more
desirable futures. Adapters and reserving the right to play are also common at this level since
both are aimed at keeping the company’s options open: adapters will be more aggressive and
craft a strategy in real time, whereas reserving the right to play postures will often wait until a
more definitive strategy can be adopted.
At level 4 environments (true ambiguity), extreme uncertainty exists. However, when true
ambiguity prevails, the situation invites new rules and a sense of order. This may represent
enormous opportunity to shapers who can exploit it. As a consequence, shaping strategies may
be less risky at this level. Alternatively, adaptive strategies and reserve the right to play postures
may represent opportunities lost.
MANAGERIAL PERSPECTIVE
Being from both a technical and financial background, I engage in a lot of analysis and
scenario planning. Understanding and having access to most of the IT systems in the
business affords me the opportunity to have access to most of the information needed
in analysis. In this regard I identify risks and opportunities as part of the continuous
monitoring of the business financial and market position. From this, recommendations
are made to the directors for a final decision before implementation.
Manager, financial services provider
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In 1874, Western Union turned down Alexander Graham Bell’s prototype telephone.
3. Multiple scenarios being explored and held as real possibilities.
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The type of scenario approach used depends on the organisation’s purpose in using scenarios
to explore its future and its degree of foresight readiness. The different types of scenarios that
can be developed are as follows (see Figure 8.4):
1. Inductive scenarios emerge from the discussion and exploration of drivers and trends.
2. Deductive scenarios choose two or more of those drivers to structure scenario worlds.
This is illustrated in the practising strategy box on the three futures for South Africa on the
facing page.
3. Incremental scenarios are similar to the official future – the one written in the strategic
plans of organisations – but different enough to move the organisation in a different
direction and requiring new thinking.
4. Normative scenarios are the realm of visioning – these are the futures that we believe
‘should’ happen.
Scenario 1
Scenario 2
Scenario 1 Scenario 2
Scenario 3
Scenario 3 Scenario 4
Inductive Deductive
Vision
Alternative scenario
Official
future
Incremental Normative
accuracy. In fact, most future predictions will in all likelihood prove to be wrong. The real test
of scenario planning is whether or not it changes how people manage their businesses, not
whether the predictions are right or wrong. The great virtue of scenario analysis in strategic
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planning is that it forces managers to anticipate what they would do in different situations and
to think outside the box.
What will South Africa look like in 2020? The Dinokeng Scenario Team, a diverse group
of 35 South Africans, came together in 2008 and mapped three possible scenarios for
the future of the country. Each scenario was based on two key drivers. Each key driver
was governed by a great deal of uncertainty. The first key driver was the capacity of
the state – quality of leadership in government and in society as a whole. The second
was the character of civil society – quality of the relationship between citizens and
the government. It was the up sides and the down sides of these key drivers that
defined the following three scenarios:
■ Walk Apart scenario proposes that if we continue on the same path that we are on
today, our pressing problems of unemployment, poverty, safety and security, poor
public health and poor education delivery will worsen. We will experience rapid
disintegration and decline.
■ Walk Behind envisages a scenario where the state decides to actively lead the
process of development. State-led development cannot succeed if state capacity is
weak and if private sector and civil society is pushed aside. The state will end up
spending beyond its means and compromise our democracy.
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■ Walk Together is the third scenario where our challenges are addressed through
active citizen engagement, a capable state, and strong leadership across all sectors.
Good governance, competent delivery and active citizen involvement become the
key to fixing the most serious social problems that pose a grave danger to the
country.
Through these three scenarios, the Dinokeng Scenario Team highlights a space that all
South Africans must occupy. The important question posed to all citizens is: what can
each of us do – in our homes, communities and workplaces – to help build a future
that lives up to the promise of 1994?
TABLE 8.5 Suitable concepts and tools for external environmental analysis59
society
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There are four important techniques which can be employed when analysing the external
environment:
1. Scanning involves detecting and identifying early signals of potential environmental changes
and trends. It entails studying all segments in the broad environment and often reveals
ambiguous, incomplete or unconnected data. Many firms use special software to help them
identify current events and trends using public sources on the internet, like news bulletins
and Twitter. 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 South Africa may plan to add diverse ethnic
cuisine to its food 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 timing 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 trends 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 organising of 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.
has been able to acquire market information, which helps it with risk mitigation as well
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the formal processes and structure of organisations are designed to control people, decisions
and actions, successful agile organisations do not follow these rigid models. They are effective
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Discussion questions
1. Explain how an understanding of the external environment can provide managers with a
foundation for formulating strategies.
2. Differentiate between the various layers and segments of the environment.
3. Explain how effective external stakeholder relations can add strategic value to an organisation.
4. Differentiate between substitutes and complements.
5. If you were to compile a toolkit for external environmental analysis, which tools would you
select and why?
6. Explain why organisations on occasion would choose to cooperate rather than compete with
their rivals.
7. What are the limitations of using models for industry analysis?
8. Differentiate between uncertainty analysis and scenario analysis.
9. Explain strategic agility and organisational ambidexterity as responses to environmental
change.
Learning activities
1. Visit the website of the Dinokeng Scenarios http://www.dinokengscenarios.co.za/ and review
the scenarios. Do you agree with the scenarios? What is the value of such scenarios to
business and society leaders?
2. Visit the SABMiller website and download the annual report for 2013 at http://www.sabmiller.
com/investors/reports. Read the chairman’s report in the annual report and identify three
opportunities and three threats from the perspective of SABMiller.
Endnotes
1 Adapted from Senior, B. 2002. Organisational change, 2nd ed. Essex: Pearson Education; Harrison, J.S.
& St John, C.H. 2014. Foundations in strategic management, 6th int. ed. Mason, OH: South-Western
Cengage Learning.
2 De Kluyver, C.A. & Pearce II, J.A. 2012. Strategy: a view from the top (an executive perspective), 4th ed.
New Jersey: Prentice Hall, 39
3 Harrison, J.S. & St John, C.H. 2014. Foundations in strategic management, 6th int. ed. Mason, OH:
South-Western Cengage Learning.
4 The term ‘compact’ used here refers to an agreement between two parties. In this particular context
the agreement is the decision, approval and acceptance of a new arrangement/relationship (whether
formal or informal) which is being advocated between business and society in general.
5 Harrison & St John (2014: 12)
6 Ireland, R.D., Hoskisson, R.E. & Hitt, M.A. 2013. The management of strategy: concepts and cases, 10th
int. ed. Mason, OH: South-Western Cengage Learning, 35
7 Open University. 2006. Strategy: analysing the external environment, Unit 2: B820. Walton Hall: The
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OU Business School, 5
8 Harrison & St John (2014: 6)
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9 Bateman, T.S. & Snell, S.A. 2011. Management: leading & collaborating in a competitive world, 9th int.
ed. New York: McGraw-Hill, 63
10 Grant, R.M. 2010. Contemporary strategy analysis, 7th ed. West Sussex: Wiley & Son, 64
11 Harrison & St John (2014: 6)
12 Adapted from Harrison & St. John (2014: 24)
13 Open University (2006: 9)
14 Harrison & St John (2014: 25)
15 De Kluyver & Pearce II (2012: 36)
16 Harrison & St John (2014: 24)
17 Adapted from David, A.R. 2013. Strategic management: concepts and cases, 14th ed. Essex: Pearson
Education, 111.
18 This section draws heavily from Harrison & St John (2014: 24–30).
19 Ireland et al. (2013: 9)
20 De Kluyver & Pearce II (2012: 39)
21 Harrison & St John (2014: 12)
22 De Kluyver & Pearce II (2012: 55)
23 Jones, G.R. & Hill, C.W.L. 2013. Theory of strategic management with cases, 10th int. ed. Mason, OH:
South-Western Cengage Learning, 47.
24 This section is based on and draws heavily on concepts from Harrison & St John (2014: 30–35) and
De Kluyver & Pearce II (2012: 55–56).
25 Adapted from Louw, L. & Venter, P. 2013. Strategic management: developing sustainability in
southern Africa, 3rd ed. Cape Town: Oxford University Press, 210.
26 Thompson, A.A., Peteraf, M., Gamble, J.E., Strickland III, A.J., Janes, A. & Sutton, C. 2013. Crafting and
executing strategy: the quest for competitive advantage, Euro. ed. Berkshire: McGraw-Hill, 76.
27 Thompson, A.A., Peteraf, M., Gamble, J.E. & Strickland III, A.J. 2012. Crafting and executing strategy:
the quest for competitive advantage, 18th int. ed. Berkshire: McGraw-Hill.
28 Harrison & St John (2014: 36)
29 ‘Cell C lodges competition complaint against Vodacom and MTN’. Available online at: http://www.
cellc.co.za/explore/newsroom/cell-c-lodges-competition-complaint-against-vodacom-and-mtn
(accessed 15 July 2014).
30 Thompson et al. (2013: 68)
31 Open University (2006: 19)
32 Adapted from Thompson et al. (2013: 28)
33 Jones & Hill (2013: 64)
34 Adapted from Johnson, G., Whittington, R. & Scholes, K. 2011. Exploring strategy, 9th ed. Essex:
Pearson Education, 65; De Kluyver & Pearce II (2012: 61).
35 Thompson et al. (2013: 80–83)
36 Jones & Hill (2013: 70)
37 Thompson et al. (2013: 83)
38 Jones & Hill (2013: 63)
39 Open University (2006: 59)
40 Thompson, J. & Martin, F. 2010. Strategic management: awareness and change, 6th ed. Mason, OH:
South-Western Cengage Learning, 103.
41 Ireland et al. (2013: 57)
42 Open University (2006: 75)
43 Harrison & St John (2014: 24)
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44 Ibid., 37
45 David, F.R. 2013. Strategic management: concepts and cases, 14th ed. Essex: Pearson.
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CHOOSING APPROPRIATE
9 STRATEGIES
Mari Jansen van Rensburg
LEARNING After reading this chapter, you should be able to do the following:
■ Understand the nature and use of strategic goals to provide
OUTCOMES strategic direction.
■ Differentiate between the strategic options available to the
organisation.
■ Understand how different strategic choices can contribute to
building competitive advantage and delivering superior value to
customers.
■ Explain the process for developing and choosing strategies in
pursuit of strategic goals.
■ Evaluate the choice of a strategy in light of the internal and
external context of the organisation.
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This is not a difficult choice if we are familiar with the terrain, but
it becomes trickier when we are first-time visitors. Not only will the
road conditions impact on our experience, but so too will the weather,
the time of day we use the road, the traffic congestion and behaviour
of our fellow passengers and road users. Although maps, compasses or
technological devices are essential to navigation, finding our way often
requires more than just coordinates. It also involves working out which
route would serve our needs best. It furthermore requires an alternative
game plan should our phone’s battery die or a massive solar flare knock
out the GPS network.
They say that you’re never really lost, only temporarily displaced …
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respective markets and industries with a view to establishing competitive advantage as a means
of creating competitive advantage for their corporate owners.
THROUGH COMPETITIVE
VALUE CREATED
ADVANTAGE
STRATEGIC BUSINESS UNIT
FIGURE 9.1 The relationship between the corporate centre and strategic business units
In this chapter, we will review different corporate and business strategic options that could
be employed to create strategic success based on the company’s proposed strategic direction,
its strengths and weaknesses, and the opportunities and threats presented in the environment
in which it operates. The complexity of strategic choice lies in the alignment between choices
and the realities found in the operating environment in which it operates as the managerial
perspective below illustrates.
MANAGERIAL PERSPECTIVE
[Company A] has a defined global strategy that all business units have taken down to
their level, so that they are aligned accordingly. Our initial five-year strategy of first
leap was mergers and acquisitions. The second five-year strategy of next leap was about
consolidations. The next strategy of client-as-one was about service excellence and
customer understanding. Because of the amount of re-engineering of our processes
and with the new tools that became available, it was decided to lengthen the strategy
by another five years as the value that was being added to clients was phenomenal
and earned the company recognition in the logistics and supply chain fields.
Manager, global logistics firm
the growth path of the organisation. On a corporate level, executives on the highest level need
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to make decisions about the overall purpose, scope, range and diversity of the organisation. In
short, the corporate-level strategies deal with the number of products and services that the
company will offer and the markets which will be pursued.
In the practising strategy box on Kaiser Chiefs below, we see how the company started
as a soccer club and operated as a single business unit. To leverage the success of the brand,
the club diversified its product offerings to reach out to its supporters through activities that
consolidated its presence and pulling power. In doing so, it expanded its products and service
offerings to its existing markets (supporters). Although not indicated in the case example, it
should be noted that these new products and services increased its market scope. In fact, fans
from all over the world buy its retail apparel online and in 2012 the club registered a rugby
team for the Sevens Premier League tournament, expanding the fan base (and market) even
further.2 Today, the club is a very successful business brand and has been recognised widely for
its achievement in its original industry as well as its expansions into new industries.
PRACTISING STRATEGY: KAIZER CHIEFS: FROM SOCCER CLUB TO HOUSEHOLD BRAND NAME
Kaizer Chiefs is a South African football (soccer) club based in Johannesburg. The club
was founded on 7 January 1970 shortly after the return of Kaizer ‘Chincha Guluva’
Motaung from the US where he played as a striker for the Atlanta Chiefs in the North
American Soccer League (NASL). He combined his own first name with the Atlanta
Chiefs to create the name of Kaizer Chiefs. The team is nicknamed Amakhosi which
means ‘lords’ or ‘chiefs’ in Zulu and Phefeni Glamour Boys. The club is arguably the
biggest football club in the country in terms of success. It is also the most supported
club in South Africa and the neighbouring countries of Botswana, Zimbabwe, Zambia
etc. It has been estimated that the club has over 16 million supporters.3 In recognition
of the club’s achievements, President Jacob Zuma conferred the Order of Ikhamanga
upon Mr Motaung during 2013. The Black Business Executive Circle also honoured
him for developing the club into one of the most recognisable and profitable business
brands in the country.4
The number of supporters and various awards are testament of the hype that
surrounds this football brand. Chiefs have more followers (907 044 likes on 10 February
2014) than the Springboks on Facebook and are the only South African soccer club
featured on Facebook’s top 10 most-followed list. The Chiefs’ mobile site averages
about 2.2 million hits a month, while the club’s 88 200 followers make it the most
popular South African soccer team on Twitter. Chiefs’ bitter Soweto rivals, Orlando
Pirates, are the second most followed on Twitter, with 41 600 followers.5
To leverage the success of the brand, the club diversified its product offerings
to reach out to its supporters through activities that consolidated its presence and
pulling power. At present, the club offers financial services, such as funeral plans. In
addition, the company engages in the online retail of apparel, as well as accessories,
such as flags, footwear, headwear, off-field fashion clothing, ladies’ wear, and men’s
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wear.6
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The club furthermore entered into various alliances with strategic partners to expand
its market exposure. For example, in 2001, Standard Bank and Kaizer Chiefs signed a
multi-million rand partnership which involved Amakhosi supporters being offered a
range of co-branded payment, savings and investment products. Under this five-year
agreement, Standard Bank became the sole provider of financial services to Kaizer
Chiefs and the official banker to Amakhosi. In 2007, Indigo Brands obtained the rights
to produce and sell Kaizer Chiefs branded toiletries. In 2013, GloCell announced that
they were honoured and very excited to be the exclusive distributor for the Kaizer
Chiefs starter packs.7 During 2014, the company announced a joint initiative with
North-West University to construct the ‘Kaizer Chiefs Centre of Innovation’ on the
NWU Vaal Triangle campus, situated in Vanderbijlpark, Gauteng. ‘This pioneering
initiative is a first for both sport and higher education in the country and will see the
establishment of a multi-purpose, Kaizer Chiefs dedicated walk-in centre on the Vaal
campus of one of South Africa’s leading and largest educational institutions.’8
From a soccer club to a household brand … today, Kaizer Chiefs is one of the most
recognisable and profitable business brands in the country.
Each of these broad categories can be achieved by employing different strategic options.
The choice of the most appropriate strategy is dependent on the strategic fit between the
organisation’s internal strengths, capabilities and resources, and the opportunities available in
the external environment. Table 9.1 provides a summary of the corporate strategic options that
will be discussed in this chapter.
development
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As can be observed from the Woolworths example, choices made on the basis of products and
markets have successfully contributed to the company achieving its growth objectives. Read
more about the company’s growth objectives in the practising strategy box below.
‘If we want to perform, it has to be based on growth,’ says Ian Moir, CEO of Woolworths.
Although he acknowledges that there are exciting growth opportunities, he also
cautions that conventional retailers need to face various threats. Most notably, he says
the single biggest change is coming from the massive growth of the online channel.
‘Four years ago, online was minute with 1% share of sales and today it contributes 7%.
Online is changing the face of retail and it will never be the same retail that we have
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loved for decades. Physical retailers should be frightened. Yet they have to embrace it
instead of fighting against it.’
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According to Moir, Woolworths has set out to secure its future growth and position in
the market in six major objectives, namely:
■ Enhance customer loyalty
■ Become a big food business
■ Become the leading fashion retailer of the southern hemisphere
■ Continue to build its business in the rest of Africa
■ Become an omni-channel business
■ Offer customers simple, convenient and effective financial services
Woolworths currently has three million active cardholders, enabling the group to track
67% of all sales and WRewards. This allows the company to better understand and
communicate with its customer base. The group holds a 20% share in national fresh
produce sales, 20% of prepared food sales and 2% of grocery sales. However, it is
an objective to increase market share in this sector by growing its range in order to
offer customers more options and products. In addition, Woolworths will bring in
more brand products, increase SKUs and continue to increase bulk. Woolworths is also
working hard at changing its image as being largely too expensive. In the long-term,
store formats will become bigger and prices more competitive. Existing stores are to be
extended and new stores will mostly be larger format stores. The company also aspires
to become a leading fashion retailer in the southern hemisphere. This will be achieved
by quick reactions to market trends, offering better value by investing in price and
expanding the targeted segments to include a ‘classic, older customer base’. Moir also
indicated that the group will continue to drive sales across the southern hemisphere
and continue to serve its three key markets (Botswana, Namibia and Kenya) outside
SA. ‘Unlike Shoprite, we don’t believe in expanding into north Africa at this time –
instead we focus on sub-Saharan Africa.’
Diversification strategies
Diversification strategies are driven by two key objectives, namely growth and risk reduction.
However, diversification that only seeks growth or risk reduction is likely to destroy value.
Conversely, if these objectives are supplemented by an intention to exploit economies of
scope in resources and capabilities, it has the potential to create shareholder value.13 Once
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an organisation decides to diversify, it faces the choice of whether to diversify into related or
unrelated businesses.
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Businesses are said to be related when there is a close resemblances between how they perform
key value chain activities. Pursuing this strategic option allows the organisation to build
shareholder value by leveraging synergies between the two businesses enabling the organisation
to perform better as a whole than just the sum of its individual businesses.14 An example of
a company that employed this strategy successfully is VJO Attorneys. This boutique legal firm
expanded their legal services and conveyance practice during 2011 to include a debt counselling
practices, taking advantage of the opportunities created by the down-turn in the economy.15
Debt counselling requires a strong legal background and there were many synergies between
the resources and capabilities required by both the legal practice and debt counselling practice.
An unrelated diversification strategy discounts the merits of pursuing cross-business strategic
fit. Instead, it focuses on entering and operating businesses in industries with opportunities to
realise consistently good financial results.16 An example of a company that achieved growth
through unrelated diversification is the Virgin Group. Virgin first came to South Africa in 1996
when it launched Virgin Atlantic. Today it operates six core companies: Virgin Active, Virgin
Mobile, Virgin Money, Virgin Atlantic, Virgin Life Care and Virgin Limited Edition.17
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Integration strategies
Organisations often acquire other businesses similar to their own. Companies pursuing this
strategic option aim to achieve growth through acquisitions of and/or mergers with competitors
(horizontal integration) or suppliers or distributors (vertical integration).18 A recent publication
by the business analysis group Mergermarket, in collaboration with Nedbank and Ecobank,
outlines the scope of these mergers and acquisitions on the African continent. A summary of
findings is presented in Figure 9.2.19
Strategic alliances
‘A strategic alliance is a formal agreement between two or more separate companies in which
there is strategically relevant collaboration of some sort, joint contributions of resources, shared
risk, shared control and mutual dependence.’21 An accepted practice in the aviation industry,
for example, is code-share agreements, where two or more airlines share the same flight. A
seat can be purchased on one airline but is actually operated by a cooperative airline under a
different flight number. This agreement allows greater access to more destinations through a
given airline’s network without having to offer extra flights. It also makes connections simpler
by allowing single bookings across multiple planes.22
Joint ventures
A strategic alliance which involves ownership ties is called joint venture. In this agreement, a
new corporate entity is formed and is jointly owned by two or more companies that agree to
share in the revenues, expenses and control of the newly formed entity.23 During 2013, South
Africa’s Imperial Logistics announced that they entered into a joint venture with international
advisory and procurement firm The Beijing Axis. The partnership enabled Imperial to improve its
international supply chain management in Asia, and its clients to benefit from increasing trade
between Africa and Asia.24
the core objective. In order to effect a turnaround, executives need to acknowledge problems
and consider strategic options that could yield immediate returns. Unfortunately, sometimes
there is no other option than to cut losses and exit the industry.
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In this section, we will review a few strategic options available to organisations facing this
scenario. The practising strategy box on South African Airways’ turnaround strategy below
reviews a combination of turnaround strategies and also illustrates that turnaround can be
phased in over a longer time period compared to general perspective that turnaround strategies
only offer short-term solutions.
In the shorter term, the most successful turnaround strategies focus on reducing direct
operational cost and improving productivity gains. Three strategic options that can be used to
achieve these objectives are retrenchment, recovery and revenue growth:
■ Retrenchment strategies are typically used to reduce the size or diversity of the organisation.
This strategy takes two forms, namely cost cutting and reducing non-core assets. In the SAA
practising strategy example, the minister listed ‘managing the airline’s high-cost structure’
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as a key priority. You will also notice several references to consolidation to cut cost and
share resources.
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■ Recovery is used to stabilise the business. This strategy is often employed in response to
externally induced problems and a recovery strategy aims to introduce new entrepreneurial
blood in the form of turnaround specialists or a new leadership team.
■ Revenue growth strategies aim to grow sales by dropping prices, increasing promotions,
product modification, more sales staff and attentive customer service. Turnaround can
also be achieved through divesture. SAA, for example, decided to suspend some routes and
minimise loss-making international networks.
If none of these options are viable, the organisation would have no other choice but to exit the
industry. In order to exit, executives may sell the business, liquidate the assets of the business
or declare bankruptcy.26
High
Long-term market attractiveness
Medium Size of
market
SBU
Market
Low share
SBU strength
Strong Medium Weak
FIGURE 9.3 Directional policy matrix28
The directional policy matrix positions strategic business units (SBUs) according to (1) the long-
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term attractiveness of the relevant market in which they operate, and (2) the competitive strength
of the SBU in the market. The matrix further allows analysts to illustrate the relative size of the
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market as well as the market share of the SBU. This snapshot then serves to inform portfolio
strategies to guide corporate decision making in terms of financial investment and divestment.
Investment would be appropriate where the market is attractive and the SBU displays a relative
strength in that industry. Divestment would be considered in unattractive markets where the
SBU display a competitive weakness. These decisions also need to consider the organisation’s
strategic direction, potential for growth elsewhere and possible synergies among SBUs.
With this in mind, it is clear that these matrices only provide a simplistic view and should
be supported by sound business intelligence. Each matrix gives more or less attention to one
of three criteria:29
■ the balance of the portfolio, for example in relation to its markets and the needs of the
corporation
■ the attractiveness of the business units in terms of their individual competitive positioning
and how profitable their markets or industries are likely to be in future
■ the ‘fit’ that the business units have with each other in terms of potential synergies or the
extent to which the corporate parent will be good at managing them and assisting them in
creating value in the corporate portfolio
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 choices. Although these are very broad generalisations, important
implications which represent the generic strategic options for achieving competitive advantage
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flow from them. Four distinct generic competitive strategy approaches stand out:31 32
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1. A cost leadership strategy. This strategy involves becoming the lowest cost organisation
(with regard to production cost) in a domain of activity by a significant margin. This strategy
will typically 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 a 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 customers 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.
Each of these four generic competitive approaches stakes out a different market position as
illustrated in Figure 9.4.
Best cost
provider strategy
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. Some companies choose to
focus strategic effort to build leadership in one type of competitive advantage. A good example
of such a company is PEP Stores who are known for overall cost leadership in all the product
categories they offer. Other companies, such as Unilever, aim to serve several market segments
by offering different products to different markets. Consider the information in the practising
strategy box overleaf and reflect on the different business-level strategies employed by this
company in the washing powder product range.
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BRAND POSITIONING34
We at SKIP believe that you get the cleanest
wash with our product. The proof – state of the
art technology that makes the laundry process
simpler and faster for you.
SKIP washing powder was the first automatic
washing powder in South Africa. It was launched
in the 1960s – when the first washing machines
Competitive strategy: broad were introduced in South Africa.
differentiation strategy
SKIP is the leading garment care expert and as
such, consumers have not only come to trust SKIP
and be loyal consumers, they also expect SKIP
to continually offer them the most up-to-date,
technologically advanced products on the market,
Price:* R44.99 to care for their clothes.
Weight: 1Kg SKIP is a premium brand with a premium
Product: Skip Intelligent flexi offering, not only does SKIP offer cleaning power,
washing powder but it also specialises in caring for clothes. SKIP
*Price obtained from Pick n is the technology expert whom prides itself in its
Pay on 14 February 2014 ability to help clothes last longer.
BRAND POSITIONING35
Remember when you were a child? How you
were free to explore, returning home covered
in dirt and other stains that you wore like the
badges of an intrepid discoverer?
More significantly, the idea that dirt is good isn’t
simply a catchphrase for OMO. It lies at the core
of our brand, supported by patent-protected
Competitive strategy: best technology that gives your kids the freedom to
cost provider strategy get dirty, safe in the knowledge that OMO will
remove those awkward stains. Omo’s superior
Price:* R33.99 formulation offers South Africa’s best ever stain
Weight: 1Kg removal, which cleans deep inside pockets, where
Product: Omo Multiactive kids often store their little discoveries.
flexi washing powder
To ensure that everyone, everywhere, can share
*Price obtained from Pick n in this initiative, we’re investing heavily in
Pay on 14 February 2014 developing a range of products that suits the
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BRAND POSITIONING36
SURF washing powder is one of the oldest
washing powders on the market in South Africa.
It was launched in the 1950s. SURF washing
powder is known for its super whitening power.
It has been used and trusted by many people
over the years, because of its reputation for
maintaining the whiteness of white garments.
SURF is a handwashing powder. Because of its
Competitive strategy: overall high foaming, it is not suitable for washing
low cost provider strategy machines – twintubs, top loaders and front
loaders.
Price:* R25.99
Weight: 1Kg
Product: Surf regular washing
powder flexi bag
*Price obtained from Pick n
Pay on 14 February 2014
Once an organisation has selected potential strategies, it needs to evaluate these options to
choose the most appropriate strategy or combination of strategies.
such as sensitivity analysis, financial ratios, and break-even analysis are useful to evaluate risks.
The second consideration is return, i.e. the financial benefits which stakeholders are expected
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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.
Finally, a strategy is feasible when the organisation has, or can obtain, the capabilities
required to deliver a strategy. To assess feasibility, strategists need to address two key questions:
1. Do the resources and competencies currently exist to implement a strategy effectively?
2. If not, can they be obtained?
The answers should be informed by considering financial and human resource requirements as
well as resource integration.37
Although the criteria seem to be quite straight forward, the reality is that each criterion can
only be assessed if key strategic issues dealing with it were identified through comprehensive
environmental analysis.
MANAGERIAL PERSPECTIVE
A strategic decision we made in our company was not to work in the Chinese market
as we have too much interest in the American market. The Americans are holding some
strategic supply elements to the product we manufacture and could cut us off at any
time as they would not like us to look for short-term gain in the Chinese market and
thereby bring them up to the same standard as the US. The US market is also huge and
we would still like to tap and get into the American market. So tough choices have to
be made not to go into the Chinese market, although it’s the frenzy of the day to be
involved in the Chinese market.
Manager, manufacturing firm
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Discussion questions
1. Distinguish between corporate- and business-level strategies.
2. Motivate why the Virgin Group followed a successful diversification strategy.
3. How can an organisation build a competitive advantage?
4. Discuss three strategic options that companies can employ to grow from within.
5. Evaluate South African Airlines’ turnaround strategy.
Learning activities
1. Watch the interview with Michael Porter on YouTube (http://www.youtube.com/
watch?v=mYF2_FBCvXw) on the five competitive forces. How do these forces shape
strategy?
2. Read the article available at http://www.whatifyourstrategy.com/wp-content/uploads/
2008/08/with-all-this-intelligence1.pdf. What are the implications, in your view, for
strategists?
Endnotes
1 Witcher, B.J. & Chau, V.S. 2010. Strategic management principles and practice. Hampshire: South-
Western Cengage Learning.
2 Sport24. 2012. ‘Kaizer Chiefs get rugby team’. Available online at: http://www.sport24.co.za/Rugby/
Sevens/Kaizer-Chiefs-get-rugby-team-20121028 (accessed 10 February 2014).
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4 Moyo, F. 2013. ‘Kaizer Chiefs still have a point to prove’. Mail&Guardian, 17 May. Available online
at: http://mg.co.za/article/2013-05-17-00-kaizer-chiefs-still-have-a-point-to-prove (accessed 10
February 2014).
5 Ntloko, M. 2013. ‘Amakhosi roll out ambitious brand expansion plan’. BDlive, 19 February. Available
online at: http://www.bdlive.co.za/sport/soccer/2013/02/19/amakhosi-roll-out-ambitious-brand-
expansion-plan (accessed 10 February 2014).
6 Bloomberg Businessweek. 2014. ‘Company overview of Kaizer Chiefs Football Club’. Available online
at: http://www.bdlive.co.za/sport/soccer/2013/02/19/amakhosi-roll-out-ambitious-brand-expansion-
plan; http://investing.businessweek.com/research/stocks/private/snapshot.asp?privcapId=113817958
(accessed 10 February 2014).
7 GloCell. 2013. ‘Kaizer Chiefs starter pack – new & exclusive through GloCell stores’. Available online
at: http://www.glocell.co.za/kaizer-chiefs-starter-pack/ (accessed 10 February 2014).
8 Maphosa, V. 2013. ‘The AmaKhosi's new initiative with the North-West University is a first for the
South African tertiary educational sector and will boost football development from mid 2014’.
Available online at: http://www.goal.com/en-za/news/4671/sa-junior-soccer/2013/10/19/4343457/
kaizer-chiefs-to-open-centre-of-innovation (accessed 10 February 2014).
9 Woolworths. 2013. ‘WRewards exclusively for cardholders’. Available online at: https://m.woolworths.
co.za/store/loyalty/tieredrewards.jsp (accessed 12 February 2014).
10 Magwaza, N. 2013. ‘Woolworths rolls out more Foodstops at petrol stations’. Business Report, 29
November. Available online at: http://www.iol.co.za/business/news/woolworths-rolls-out-more-
foodstops-at-petrol-stations-1.1614144 (accessed February 2013).
11 Mack, M. 2013. ‘A sneak peek into Woolworths’ strategy’. African Focus, 21 August. Available online
at: http://www.supermarket.co.za/SR_Downloads/S&R%202013-9%20September%20Africa%20
focus.pdf (accessed 12 February 2014).
12 Louw, L. & Venter, P. 2013. Strategic management: developing sustainability in southern Africa, 3rd
ed. Cape Town: Oxford.
13 Grant, R.M. 2013. Contemporary strategy analysis, 8th ed. West Sussex: Blackwell.
14 Thompson, A.A., Strictland, A.J., Gamble, J.E., Peteraf, M.A., Janes, A. & Sutton, C. 2013. Crafting and
executing strategy: the quest for competitive advantage. Berkshire: McGraw-Hill.
15 VJO Attorneys. 2014. ‘VJO Van Rensburg, Jordaan & Olivier Attorneys/Prokureurs’. Available online at:
http://www.vjo.co.za/ (accessed 12 February 2014).
16 Thompson et al. (2013)
17 Marketing News. 2011. ‘South Africa on new Virgin group chief marketing officer’s radar’.
BizCommunity.com, 8 September. Available online at: http://www.bizcommunity.com/
Article/223/423/63845.html (accessed February 2014).
18 Louw & Venter (2013)
19 Holmes, T. 2013. ‘Surge in mergers and acquisitions proves Africa’s allure’. Mail&Guardian, 06
December. Available online at: http://mg.co.za/article/2013-12-06-00-surge-in-mergers-and-
acquisitions-proves-africas-allure (accessed 12 February 2014).
20 Louw & Venter (2013)
21 Thompson et al. (2013: 206)
22 Wikipedia. 2014. ‘Codeshare agreement’. Available online at: http://en.wikipedia.org/wiki/Codeshare_
agreement (accessed 12 February 2014).
23 Thompson et al. (2013: 206)
24 allAfrica. 2013. ‘South Africa: Imperial SA in Asian Joint Venture’, 16 August. Available online at:
http://allafrica.com/stories/201308180016.html (accessed 12 February 2014).
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25 CAPA. 2013. ‘South African Airways’ turnaround strategy announced’. CAPA Centre for Aviation,
11 September. Available online at: http://centreforaviation.com/news/south-african-airways-
turnaround-strategy-announced-263272 (accessed 14 February 2014).
26 Louw & Venter (2013)
27 Johnson, G., Whittington, R. & Scholes, K. 2011. Exploring strategy: text & cases, 9th ed. Harlow: FT
Prentice Hall.
28 Adapted from Johnson et al. (2011: 253).
29 Johnson et al. (2011)
30 Louw & Venter (2013)
31 Johnson et al. (2011)
32 Thompson et al. (2013)
33 Adapted from Thompson et al. (2013: 145)
34 http://www.unilever.co.za/brands-in-action/detail/Skip/294801/?WT.contenttype=view%20brands
(accessed 13 February 2014)
35 http://www.unilever.co.za/brands-in-action/detail/Omo/294798/ (accessed 13 February 2014)
36 http://www.unilever.co.za/brands-in-action/detail/Surf/294811/?WT.contenttype=view%20brands
(accessed 13 February 2014)
37 Johnson et al. (2011)
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ALIGNING STRATEGY
10 AND ORGANISATIONAL
CULTURE
Mari Jansen van Rensburg
LEARNING After reading this chapter, you should be able to do the following:
■ Describe what organisational culture encompasses.
OUTCOMES ■ Explain how organisational culture is shaped.
■ Evaluate whether an organisational culture would support a
chosen strategy.
■ Understand organisational cultural assumptions and practices.
■ Explain the relationship between strategic leadership and
organisational culture.
■ Explain the seven principles of strategic leadership.
■ Explain how strategic leaders should lead change to implement a
chosen strategy.
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entrepre- mental
neurship challenges
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CHAPTER Can you recall a situation where you got into an argument with someone
and upon reflecting on the somewhat heated discussion, you still find it
ORIENTATION hard to understand how your opponent could take such an unreasonable
position? In the role of student, researcher or employee, you may find it
even more difficult to comprehend how a person in a position of authority,
especially our immediate bosses or those we consider our leaders, can do
‘such dumb things’. These different opinions, or ways of doing things, are
often explained by different cultural backgrounds.2
Extending the concept of culture beyond differences found on a
national or ethnic level, this chapter will argue that every organisation
has its own unique culture. We will furthermore propose that the essence
of an organisation’s work climate is a product of the core values and
business principles that executives espouse, the standards of what is
ethically acceptable, the work practices and norms of behaviour that
define ‘how we do things around here’, and the approach to people
management. These values and standards are expressed in the style of
operating, the ‘chemistry’ and the ‘personality’ that permeates the work
environment and the stories that get told over and over to illustrate and
reinforce the organisation’s values, business practices and traditions. It is
important to understand and assess organisational culture as it influences
the organisation’s actions and approaches to conducting business and the
way in which strategy is implemented. In a very real sense, organisational
culture is the organisation’s automatic, self-replicating ‘operating system’
and can be thought of as organisational DNA.3
This chapter examines how managers can best implement their
strategies through aligning the strategic plan with organisational culture,
change management and leadership. A well-considered business model
becomes profitable only if it can be implemented successfully. In practice,
however, we often encounter resistance to change and observe that some
colleagues seem to be more interested in fighting with each other than
getting the job done. To understand the forces operating in these cases,
we will examine different types of strategic changes and review tactics to
overcome the barriers to changes.
The chapter case study on Discovery illustrates how a company can
use culture to create an appropriate combination of skills to meet its
business requirements to achieve its strategic intent.
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Organisational culture
Cultural assessment
Strategic leadership
primary benefits, secondary benefits and working conditions, training and development, career
development and culture management. Unilever was named as the Top Employer in South Africa
for 2014 with Nestlé and EY (formally Ernst & Young) following close on its heels.7 If we review
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the descriptions of these organisations’ culture, we get an idea of how they try to conduct their
businesses and the behaviour to which they expect employees to adhere.
In an organisational context, we are interested in the collective rather than individual reactions.12
See if you can identify elements of these layers in the different examples provided in Table 10.1.
TABLE 10.1 Organisational culture in practice
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Nestlé South Nestlé South Africa offers its employees outstanding working
Africa Pty conditions and looks after its employees exceptionally well. They
Ltd14 firmly believe that their success is based on people. They treat each
other with respect and dignity and expect everyone to promote a
sense of personal responsibility. The company recruits competent
and motivated people who respect their values, provide equal
opportunities for their development and advancement, protect
their privacy and do not tolerate any form of harassment or
discrimination.
The Nestlé Corporate Business Principles are the basis of the
company’s culture, which has developed over the span of 140
years. While the business principles are firmly established, they also
continue to evolve and adapt to a changing world. As Nestlé is a
principle-based company, the Nestlé Corporate Business Principles
form the foundation of all they do. Compliance with these
principles, and with specific policies related to each principle, is non-
negotiable for all employees and their application is monitored and
regularly audited. The principles are illustrated in the diagram on the
next page.
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Creating
shared value
Nutrition, water,
rural development
Sustainability
Protect the future
Compliance
with Nestlé business principles,
laws, codes of conduct
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Organisational culture varies widely. Although the organisational culture reviewed in Table 10.1
contains different values, beliefs, principles and behavioural norms, all companies aim to create
a culture that attracts and retains outstanding people (EY). Each of these companies furthermore
recognises the importance of people and culture as a way to achieve sustainable growth and
the creation of long-term values (Unilever). Compliance is also emphasised, i.e. compliance with
these principles, and with specific policies related to each principle, is non-negotiable for all
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employees and their application is monitored and regularly audited (Nestlé). In the next section
we will review how organisations can instil an organisational culture that would support good
strategy implementation.
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MANAGERIAL PERSPECTIVE
It is important to note that with our strategy at the moment, the word ‘innovation’
has been removed from our values as we adopt this more consolidated conservative
approach as the world markets go through turmoil. Safety first … it seems.
Manager, manufacturing firm
strategy execution can energise employees, deepen their commitment and enhance worker
productivity.
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MANAGERIAL PERSPECTIVES19
The culture at Unilever is very people oriented. It’s very vibrant, very fast paced and
enjoyable.
Keagan Sloman, customer development Unilever future leader
The most exciting thing about working at Unilever is that there is never a boring day.
People are always highly energised and busy around the office.
Jade Wright, HR Unilever future leader
The culture is informal and people are approachable, but at the same time we are also
competitive and results driven.
Nandi Strachan, R&D Unilever future leader
A strong and supportive organisational culture can thus promote good performance as almost
all managers share a set of relatively consistent values and methods of doing business. New
employees adopt these values very quickly and the shared values and institutionalised practices
can positively affect goal alignment, motivation and control.
MANAGERIAL PERSPECTIVE
Our organisation is a young organisation which is hardly two years old. For an
organisation as young as this, it is understandable that so many meetings will be held
to ensure that we manage plans closely so as not to stray from the overall corporate
strategy. Going forward, some of the meetings will need to be much more lean and
mean, for example other competencies have no direct or even indirect bearing on my
operations and yet one has to share the same meeting with them. For the very same
reason I think the shareholders are also much more hands-on than should be. This
keeps the executive so busy that they cannot focus on some of their duties such as
ensuring that the business grows rather than be focused on the current operations
only, which in my opinion is running well.
Manager, service firm
The elements of the cultural web are illustrated in Figure 10.1 and will be discussed in more
detail next.
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to notions of male dominance, it creates challenges for gender integration. One woman
officer responded as follows to the question, ‘Is the navy still a man’s world?’: ‘No, but more
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than 50% of the men still think so’. Another symbol used in the navy is found in the way
officers are addressed.24
■ Power is defined as ‘the ability of individuals or groups to persuade, induce or coerce others
into following certain courses of actions’.25 Power is not always associated with formal
positions on the organisational structure but tends to belong to those closely associated
with the paradigm. Chapters 4 and 5 discuss this concept in more detail.
■ Organisational structures are the formal roles and reporting relationships in an organisation.
This is discussed in more detail in Chapter 11.
■ Control systems are the formal and informal ways of monitoring and supporting people
within an organisation. These systems and structures are reviewed in chapters 12 and 13.
It is important to note that the substance within the elements contained in the cultural web
can come from anywhere in the organisational hierarchy. Key influencers can be founders,
strong leaders or staff members. Indeed, a healthy organisational culture is characterised
by willingness on the part of all organisational members to accept change and take on the
challenge of introducing and executing new strategies. However, ‘the single most visible
factor that distinguishes successful culture-change efforts from failed attempts is competent
leadership at the top’.26
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To provide insights into the attributes of South African leaders, Table 10.2 reviews the most
admired attributes of the title holder and finalists of the Boss of the Year® 2013 award. The Boss
of the Year® award is dedicated to seeking out the leaders of the South African workplace: ‘It
identifies the many unsung heroes and heroines who use their positions of power to empower
others in achieving career success’.31
FINALISTS
Duncan Stewart: Managing Director of Lima Rural Development Foundation
Attributes most admired: ‘Duncan is a fair and energetic boss. He is open-minded,
approachable and always ready to listen, support and guide. He is sympathetic towards
his staff through their times of difficulty, but at the same time maintains a level of
respect and professionalism. Duncan is a very optimistic person with an amazing sense
of determination which is infectious’.
with everyone’.
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resilient, flexible, reliable and resourceful. ‘Fit leaders’ are those who can be relied upon in times
of high pressure and when problems need to be solved. Being ‘fit to lead’ is also about being
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mentally prepared to exploit opportunities which arise unexpectedly, to cope with uncertainty
and ‘make things happen’ with limited resources.
within the current culture with the aim to realign strategy. This type of change is most
common in organisations and occurs incrementally.
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2. Reconstruction is change that does not fundamentally alter the culture, but it may involve
a good deal of disruption in an organisation. It may be rapid and could be related to a
turnaround situation where there is a need for a major structural adjustment or a major
cost-cutting programme in reaction to declining financial performance or changing market
conditions.
3. Revolution is classified as a type of change that requires rapid and major strategic and
cultural transformation. This may occur in circumstances where pressures for change
are extreme such as a potential takeover that threatens the continued existence of an
organisation.
4. Evolution is change in strategy that requires cultural change, but it happens over time. Since
there is no pressing need for it, this type of change is often the most difficult to manage.
Contextual factors are important as they express the circumstances, or the existing external
and internal conditions, that have been shown to influence organisational effectiveness.
These factors should thus be considered as part of change initiatives. Change almost always
engenders confusion and concern on the part of employees because initiatives may impact
policies, procedures, resource allocation, future workplace exchanges as well as the potential
for job losses. Before, as well as after, the introduction of a change initiative, justifying a
change can go far in mitigating possible negative reactions to and increasing support for an
organisational change. If strategic leaders can demonstrate the necessity of introducing the
change and its contextual appropriateness, it will affect staff members’ willingness to embrace
change initiatives.42
Regardless of the type of or reasons for change, reinforcing a new culture requires effective
communication and problem solving. It is furthermore important to establish and measure
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performance towards goals that fit with the new core values. Most important, though, is that
cultural changes only succeed when the CEO and his or her management team actively support
them.
Team members will manage strategic changes differently.43 There is no one best style of
strategic leadership as successful strategic leaders are able to adjust their style of leadership
to the context they face.44 Essentially, two broad skill categories are required to lead change:
■ Task-oriented skills are those related to organisational structure, design and control and to
establishing routines to attain organisational goals and objectives.
■ Person-oriented skills include behaviours that promote collaborative interaction between
organisational members, establish a supportive social climate and promote management
practices that ensure equitable treatment of organisation members. These interpersonal
skills are critical to planned organisational change implementation because they enable
leaders to motivate and direct followers.
There are three key activities involved in planned organisational change implementation:46
1. Communicating the need for organisational change. In order to change the status quo
and paint a picture of the desired outcome, change leaders need to communicate with
followers. Organisational members need to understand the reason for change, the nature
of the change as well as the potential impact on their behaviour and routines. Effective
communication can reduce organisation members’ confusion and uncertainty, and guide
their thinking and actions. Leaders who are more effective at person-oriented behaviours
will typically focus on activities associated with communicating the need for change. In
contrast, those who are more task oriented will be more likely to concentrate their energies
on developing procedures, processes and systems required to implement the change.
2. Mobilising others to accept change. During implementation, leaders need to mobilise staff
members to accept and adopt proposed change initiatives into their daily routines. This can
be challenging as those who have something to gain will usually rally around a change
initiative whilst those who have something to lose will resist it. Leaders therefore need
to create a coalition to support the change project. Creating such a coalition is a political
process that entails both appealing to organisation members’ cooperation (person-oriented
skills) and initiating organisational processes and systems (task-oriented skills) that enable
that cooperation.
3. Evaluating change project implementation. As champions of the organisation’s strategic
direction, leaders have a role in evaluating the content of change initiatives. To do this, they
need to step back to assess both the new processes and procedures that have been proposed
and their impact on the organisation’s performance. They then need to evaluate the extent to
which organisation members are performing the routines, practices or behaviours targeted
in the planned change initiatives. Person-oriented leaders have been shown to be reluctant
to place too much emphasis on methods, productivity and on the imposition of impersonal
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standards. As a result, they might be less likely to engage in the evaluating activities involved
in change implementation and to pursue them. Task-oriented leaders, on the other hand,
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tend naturally to focus on tasks that must be performed to achieve the targeted performance
improvements. Their attention to structure and performance objectives attunes them to
the attainment of these objectives. They are both aware of the need to analyse goals and
achievements, and comfortable with the need to refine processes following evaluation.
At first glance, these activities may appear to be straightforward tasks. However, genuine shifts
in strategy and culture imply significant changes throughout the organisations. Not every
manager would be willing to embark upon new initiatives as it could undermine established
organisational practices. Managers therefore need to prepare carefully for implementation and
adopt a mindset which will enable them to succeed as illustrated in the practising strategy
example – six necessary mind shifts for implementing strategy.
change programme. In doing so, they prepare a continuous stream of proposals and reports.
New committees, sub-committees and task teams are constituted to examine potential
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problems and achieve buy-in. Meetings may also become forums for debate and political
game playing. The result is ‘analysis paralysis’ and the focus is on discourse instead of the
actual delivery of change.
■ Loss of focus. Often change is incremental and constitutes a series of initiatives over many
years. The risk is that these initiatives are seen as change rituals with little significance
as the original intention (and significance) of the change programme was never clearly
communicated or understood.
■ Reinterpretation. It may be that the existing paradigm of the organisation is so strong that
change initiatives are reinterpreted according to the old paradigm to fit within the expected
norms of behaviour and conduct.
■ Disconnectedness. Organisational members (both executives and staff members) affected
by change may not see the change programme as relevant to their realities.
■ Behavioural compliance. Some people may comply with the changes despite the fact
that they do not buy into the change programme. Such compliance is superficial and not
sustainable.
■ Misreading scrutiny and resistance. Change agents often consider resistance to change
or critical scrutiny as negative or destructive behaviour. However, if concerns are ignored,
it could increase resistance and should rather be addressed and used as a basis for further
engagement.
■ Broken agreements and violations of trust. If strategic leaders fail to honour undertakings
to employees, they will lose the trust and respect of employees and increase the resistance
to change.
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STRUCTURE AND
11 STRATEGY
Tersia Brevis
LEARNING After reading this chapter, you should be able to do the following:
■ Define business architecture and explain its role in strategic
OUTCOMES management.
■ Explain the principles of successful business architecture.
■ Explain the ‘strategy ➞ structure’ vs ‘structure ➞ strategy’ principle.
■ Discuss the various structural alternatives.
■ Discuss the various structural forms.
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aviation hub. During the next year, SAA took over all Rand–Cape Town
services from Imperial Airways and again expanded its fleet.
The period 1946 to 1952 was a period of extreme growth. The
first intercontinental service was introduced and there was a spike in
passengers and cargo carried as well as an increase in fleet and staff. Air
hostesses were first introduced in 1946. In 1948, Palmietfontein Airport
became SAA’s hub, taking over from Rand Airport. This year witnessed
a host of changes for the airline in terms of its operations and services,
and the introduction of films onboard its Skymaster aircraft.
The period 1953 to 1973 is known as the jet age in aviation. SAA’s
first jet arrived on 3 May 1952 in Palmietfontein after a 24 hour journey,
with five refuelling stops en route. In the 1980s, SAA acquired 23 brand
new Jumbo jets, including the long-range Boeing 747SP, which was
especially acquired to overcome many countries prohibiting SAA from
using their airspace due to the countries’ political environment at the
time. International condemnation of the apartheid regime in South Africa
during the 1980s also posed many difficulties for SAA. For example, the
airline itself faced hostility, with their local and foreign offices being
attacked. The US banned all flights by South African-owned carriers,
including SAA. SAA’s flights to Perth and Sydney in Australia were ended.
With the demise of apartheid in the early 1990s, SAA was able to
restore its services to former destinations, introduce new destinations
and expand into the rest of Africa and also Asia. 1 June 1990 was an
important date for SAA, as South African companies signed a domestic
air travel deregulation act. Flights to New York’s JFK International Airport
resumed in November 1991 after the US dropped economic sanctions
imposed on South Africa in 1986, and South Africa’s planes were able
to fly for the first time over Egypt and Sudan. Flights to Milan were
introduced for the first time and services to Athens were re-introduced.
During 1992, the airline entered the Miami market and re-entered
Australia, flying directly to Perth. During the same year, codesharing
agreements were signed with American Airlines and Air Tanzania. 1997
saw the birth of the airline Alliance, which was a partnership between
SAA, Uganda Airlines and Air Tanzania.
In 1991, South African Express (SA Express) was granted its operating
licence as regional airline and began its preparation process. It began
operating in 1994 as a feeder airline service for SAA, taking over some
of SAA’s low-density domestic flights. SAA initially held a 20% share in
SA Express.
1997 marked a new image for SAA. The springbok emblem was
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dropped and the old national colours of orange, white and blue were
replaced with a new livery, based upon the new national flag, with a sun.
The airline’s name on its aircraft was changed to South African,
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CHAPTER The brief history of South African Airways (SAA) given in the chapter
case study highlights various changes (internally as well as externally)
ORIENTATION that impacted directly on the organisation and organisational structure
of the airline, starting with the South African government’s acquisition
of Union Airways in 1934.
All of SAA’s structural adjustments were the result of changes in its
internal and external environments. Internally, SAA made a number of
acquisitions, formed alliances and agreements with external companies,
and expanded its fleet of aircraft a number of times. Externally, it was
influenced by the political situation, especially various decisions made by
the South African government. Environmental changes led to changes in
strategy, and changes in strategy led to restructuring.
In this chapter, we explore organisational structure and its role and
place in the strategic management process. We highlight the concepts
strategic architecture and business architecture, the principles of successful
business architecture, structural alternatives and structural forms.
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Structural alternatives
Structural forms
while earning a profit and increasing the wealth of its owners. Businesses persevere and
prosper because they make a fair profit and sustain a competitive advantage. Improving
performance is imperative for the business to grow and expand.
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By putting the two terms together, we can now define ‘business architecture’. In its simplest
form, business architecture can be defined as a blueprint of the organisation using architectural
disciplines to improve performance. It is a definition of what the organisation must produce to
satisfy its customers, compete in a market, deal with its suppliers, sustain operations and care
for its employees. Business architecture is a disciplined approach to realise an organisation’s
vision and mission, and it serves as a foundation to enhance accountability and improve decision
making. The value contributed by business architecture is to increase the effectiveness of the
various functions in the organisation, by mapping and modelling the organisation to its vision
and strategic goals. Business architecture is the foundation of subsequent architectures, where it is
detailed into various functions and disciplines. It gives direction to all organisational aspects, such
as the organisational structure (in which all the responsibilities and tasks of the organisation
are assigned to departments and individuals in the organisational chart) and the administrative
functions of the organisation (for example, describing the financial reconciliation mechanisms
between various functional departments). Assigning the various business functions to their
managers enhances the further development of other architectures, such as the information
architecture, technical architecture, functional architecture and so on. The various parts of the
business architecture act as a compulsory starting point for all subsequent architectures. It is a
helpful prestructuring tool for the development, acceptance and implementation of subsequent
architectures. It sheds light on the relationship between organisational strategy and design.
Figure 11.1 illustrates the role of business architecture in the strategic management process.
■ Internal architecture
Business
■ External architecture
architecture
■ Organisational structure
Architectural
■ Subsequent architectures
execution
FIGURE 11.1 The role of business architecture in the strategic management process
The first phase indicated in Figure 11.1 (strategic architecture) focuses on the entire organisation
and answers the questions: where are we? and where are we going? This stage is conceptual and
takes place in high levels of an organisation. It involves the formulation of a vision, a mission
statement and an analysis of the environment, and determination of strategic objectives as
strategies. The construction of the business architecture (internally and externally) follows in
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phase 2.
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During stage 2, the process moves out of the high-level and conceptual phase and is developed
at a level of detail that could be used to inform high-level estimates of cost, time and resources.
Additional components typically used within this stage include business processes, business
data, metrics and key performance indicators.
Stage 3 is the architectural execution, in which the business architecture becomes
‘physicalised’. It answers the question: what should each individual’s effort in the organisation
look like? and involves the determination of organisational structure and all subsequent business
architectures, such as technology architecture, information architecture and so on.
MANAGERIAL PERSPECTIVE
The organisation is large with multiple business units in various locations having a
strategic drive in an organisation that is seen as being one in the sight of our clients,
staff and shareholders. Each business unit formulates a strategy that jointly links to
the group vision and strategy. Each of the sub business units have objectives, projects,
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initiatives, actions and tasks that contribute to meeting the group strategy. Based on
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the level of importance, customer impact and organisational impact each strategic
objective is given a weighting that determines the level of focus required by each
business unit or support service area. Each business unit team has a set of performance
areas that are documented, contracted and measured through a set of operational
and financial metrics. These measurements are tracked at various intervals and are
the scorecards that provide evidence towards the delivery of the strategic goals of
the organisation.
Manager, global logistics company
External context
Internal context
Governance
Leadership Capabilities
Culture
Technology Structure
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Business architecture helps us to understand the building blocks of organisations and how these
building blocks interact with one another.
External context
The organisation operates in a certain context that brings with it stakeholders with certain
claims and influences, as well as certain opportunities and threats offered by the macro- and
task environments (see Chapter 8 for a more detailed discussion of the external environment).
Internal context
The internal context consists of the internal stakeholders (e.g. shareholders) and their claims and
influences, as well as the strategic purpose and direction of the organisation in their effort to
address the internal and external context.
Culture
Culture refers to the shared values and mindset of employees, and to a large degree determines
an organisation’s capacity to change and adapt to its external environment. Culture is often
described as the way things are done in an organisation. (See Chapter 10.)
Leadership
Leadership and management are critical to the shaping of culture, and for that reason the
leadership and management styles are an integral part of the business architecture.
Governance
Governance is the sum total of the mechanisms for governing the organisation formally and
informally – rules, procedures, policies, control systems and reward systems are all part of this
element.
Structure
At one level, structure in an organisation refers to the definition of departments and their
interrelationships with each other. At another level, it refers to the placement of people with the
appropriate knowledge, skills and attitudes (competence) in the right positions.
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Technology
In the sense of business architecture, technology refers to the technical elements that facilitate
day-to-day functioning, service delivery to customers and manufacturing processes.
Capabilities
Processes are normally combinations of people and technology that will ultimately lead to
the development of organisational capabilities – those things that the organisation does really
well. Capabilities are important in order to facilitate certain strategic decisions and to establish
competitive advantage.
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MANAGERIAL PERSPECTIVE
The only hindrance still being experienced is the rigidness of being a global company.
The speed of decision making is longer and often corporate governance is slow in
allowing accountability and ownership that could have been taken. This leads to
opportunities being missed. Old school hats often fight new systems and prefer tested
systems, and the new breed of management styles have to endure the contradicting
conservative approach of a ‘wannabe’ dynamic company. Less risk is being taken.
Manager, global services company
■ Skills and maturity of lower-level managers. If lower-level managers are not in a position
to make sound decisions and do not illustrate maturity in executing their responsibilities,
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decision making in the organisation will probably be centralised. If lower-level managers are
well qualified, top management can make the most of their skills by decentralising.
■ Size and growth rate of the organisation. It is impossible to manage a very large organisation
without decentralising. The larger and more complex an organisation, the greater the need
for decentralisation will be. In an organisation that is growing rapidly, management will
have to bear the burden of an increasing workload, and therefore be obliged to shift some
of the decision-making authority to lower levels, and thus to decentralise.
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The shift towards decentralisation in organisations in South Africa and abroad does not come
without its challenges. More individual authority at middle and lower management levels requires
thorough management training and development. The challenge for most organisations is to
find the appropriate degree of decentralisation and centralisation, to enable them to maintain
control while innovating and managing change in a dynamic and turbulent environment.
It is not unusual for an organisation to be centralised when it first starts up. After start up,
as limited power and responsibility are devolved to identifiable lower levels of management, the
organisational structure becomes more formalised, but the central power of the strategic leader
remains strong. As the organisation grows beyond a stage where one person can really remain
in effective control, the switch is to decentralise with formal controls through organisational
policies, procedures and formal reporting relationships. This process is clearly illustrated by
the chapter case study case on SAA. When SAA was founded in 1934, it had only 40 members
of staff and eight aircraft, all under the control of the South African Railways and Harbours
Administration. By 2007, SAA was operating as an independent organisation and had grown
to such an extent that in a major restructuring, it was divided into seven subsidiaries, with the
accompanying decentralisation of decision making and authority.
Various organisational frameworks and structural designs are explored in the next section.
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Most organisations will not have a ‘pure’ structure, but will most often use a combination of
different structural elements or a ‘hybrid’ structure.
Owner-manager
Employee Employee
The entrepreneurial structure is entirely centralised and there is no division of responsibility. All
strategic decisions are made by the owner-manager and employees refer everything significant
back to the owner-manager. All power, responsibility and authority lie with the owner-manager
of the organisation.
The advantage of such a structure during the start-up stage of a new organisation is that it
enables the founder, who understands the business, to control its early growth and development.
However, there are also limitations, such as the owner not having sufficient knowledge in certain
areas. For instance, an attorney starting a new practice may not have sufficient knowledge of
the financial side of his or her practice.
Such a structure will only be appropriate up to a certain size, and will then develop into
other more appropriate structures.
to build competitive advantage in their products or services, such organisations require well-
defined skills and areas of specialisation. Dividing tasks into specialist areas enables personnel
to focus on their area of expertise only. However, this structure poses major challenges in terms
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of coordination of the specialist functions. Specialists may view the organisation solely from
their own perspective. The marketing manager, for instance, may see an opportunity or threat
exclusively from a marketing perspective, whereas the financial manager may approach the
same issue from a purely financial perspective. To overcome potential conflict between the
different departments, the chief executive must ensure that proper coordination mechanisms
are in place.
Figure 11.4 illustrates an example of the functional structure.
Strategic leaders
Human
Marketing Production Finance
resources
department department department
department
Decision making in a functional structure is centralised. Advantages of this structure are that
control resides with the strategic leaders of the organisation. This structure is also associated
with relatively low overhead costs, clearly defined relationships, and relatively simple lines of
authority and control. Such a structure can also promote competitive advantage through the
various functions.
However, there are also limitations attached to this structure. The organisation may
experience succession problems since specialists are created – not generalists. Specialised
functions are unlikely to become entrepreneurial and the organisation may also experience
coordination problems between the various functions.
Once an organisation has gone through the entrepreneurial stage and thereafter the
functional stage, its choice of future corporate growth strategies will have a major impact on
further structural developments.
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Strategic leaders
Centralised services
International
(e.g. Human resources,
division
Finance, Procurement)
Figure 11.5 illustrates a combination of product and geographical divisions. In this structure,
divisions are likely to be seen as individual profit centres and strategic business units for planning
and control purposes. Decision making is decentralised. This divisional structure is appropriate
when an organisation grows in size and complexities, operates in a turbulent environment, offers
a diverse range of products and/or services, and employs a variety of production processes. It is
also appropriate when an organisation performs business internationally.
The main advantage of the divisional structure is that profit responsibility is decentralised.
This enables an organisation to assess the effectiveness and efficiency of various activities and
functions. It also enables an organisation to adapt to changes more effectively and foster an
entrepreneurial climate.
Such a structure also comes with limitations. Conflict may develop between various divisions
in their competition for limited resources, efforts and resources may be duplicated, and the
evaluation of the relative performance of the divisions may be difficult.
As organisations grow and expand their business globally, structural changes may be
necessary again.
Strategic leaders
Centralised services
(e.g. Legal, Finance)
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In the holding company structure, the headquarters of the organisation or the corporate centre
largely acts as an investment company. The operations of the various individual companies
(companies A, B and C in Figure 11.6) are largely independent. This structure is appropriate for
organisations pursuing a restructuring strategy, buying, selling or taking over other organisations.
It is usually effective in the case of diverse independent businesses in a conglomerate.
There are financial advantages attached to the holding company structure. It usually
involves relatively low central overhead costs and the holding company is thus able to finance
subsidiaries at a favourable cost of capital (cost of capital is discussed in more detail in
Chapter 13). Other advantages associated with this structure are that risks are spread between
companies, it allows for cross-subsidisation between profitable and less profitable companies,
and it facilitates acquisition, divestment and decentralisation.
The main limitation associated with this structure is that there are no centralised skills
to support the organisation. Furthermore, there is no synergy and also a possible lack of
organisational culture and strategic control.
Strategic leaders
According to Figure 11.7, the finance specialist reports to both the financial manager and project
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manager. The HR specialist reports to the human resources manager and the project manager.
It shows the permanent and dual control of operating units. Authority and accountability are
defined in terms of particular decisions.
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Designer
Human
Central
resources Manufacturing
hub
agency
Marketer
the virtual organisation is that the levels of reciprocal and sequential interdependence are much
higher than those of the network organisation. They tend to be instantaneous – that is, any
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time and any place – for the networked employees, teams, departments and subcontractors.
The boundaries of the virtual organisation are also more open than in a network organisation
because of the use of advanced information technologies that seamlessly knit all partners
together.
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For example, if the government bans labour brokers, it may mean that the organisation will
not be able to use part-time workers and may have to hire more salaried employees, which
may impact on its structure. In another example, technology that enables remote working
may enable a more dispersed structure.
■ The structure’s influence on business architecture, strategy and even the external
environment. The structure specifies how the organisation deals with role players in the
external environment.
Business
architecture
Structure
External
Strategy
environment
From this discussion we can see that developing an organisational structure is a complex matter.
In fact, there are very few organisations that would claim that they have an ideal structure.
Structure is always a work in progress, and is, therefore, always evolving,
Discussion questions
1. Explain the basic principles pertaining to successful business architecture.
2. Defend the ‘structure follows strategy’ principle.
3. Identify the drivers of organisational structure.
4. Discuss the advantages and disadvantages of centralisation and decentralisation.
5. Explain the various structural alternatives and structural forms, and list the advantages and
disadvantages of each.
6. The CEO of the company you are working for tells you that he is considering some changes
to the organisation structure, but he is not sure where to begin and how to do it. What
would your advice to the CEO be?
7. A friend’s small business in the IT services industry operating in a simple entrepreneurial
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structure has been growing very quickly and he wants to expand by opening two additional
branches in other regions. What are his options with regard to an organisation structure?
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STRATEGY
12 DEPLOYMENT
Hannelize Jacobs
LEARNING After reading this chapter, you should be able to do the following:
■ Differentiate between ‘strategic implementation’ and ‘strategic
OUTCOMES deployment’.
■ Explain what strategy deployment entails.
■ Explain the Strategic Execution Framework® (SEF).
■ Explain the role of programme and project management in
strategy deployment.
■ List and briefly discuss the steps in the strategic initiative
management process.
■ Discuss strategic initiative reporting and process management as
the final step in strategic initiative management.
■ Describe the barriers to strategy deployment.
■ Critically evaluate strategy deployment in a practical setting.
CASE Lion Manufacturing Pty Ltd: can the CEO make strategy happen?
STUDY The CEO of Lion Manufacturing is disappointed. He spent months
with his executive team to develop a new organisational strategy.
He then spent months flying around the country on a road show
to communicate the strategy. He set up a number of projects to
implement the strategy. Strategic objectives were put into each of
his executive’s key performance areas (KPAs).
But now, five months later, he feels frustrated. When he speaks to
people who are not his direct subordinates, they say that they need
direction. They say that they are bewildered by the many projects
that are being implemented. As they focus on one project, they
forget the strategy, the company values and other projects. His people
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are also working at cross purposes to one another. His people simply
cannot see the bigger picture and how everything fits together. The
CEO feels quite alone in driving the corporate strategy. He wishes his
team would realise that they are in it together and that they take
responsibility for playing a leadership role in implementing the strategy.
The CEO is desperately seeking a solution and organises a two-day
workshop with his executive team and their direct subordinates. He is
adamant that he does not want a theoretical talk shop. He wants his
team to come up with a practical and detailed plan for implementing
the strategy. One that is simple and clear. One they will take ownership
of as a team. One that will excite them. One that will give direction
throughout the organisation. And one that could be used to manage
their progress.
Strategy deployment
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Succesful
implementation of
strategic initiatives
This is necessary so that someone at the lowest level in any function can answer the question:
what is the plan for the business over the next few years? as well as: what am I doing to contribute
to this plan that will make a difference? This represents a development from ‘making strategy
happen’ to embodying strategy, and from traditional strategy implementation (the translation
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an organisation’s functions and activities with its strategic goals and objectives). Strategy
deployment can therefore be seen to consist of three key elements that should be considered
an integrated whole (see Figure 12.1).
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planning at one end and more open and fluid process approaches at the other.7 Prescriptive
planning involves moving from strategies to action planning, through the process of setting
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objectives and performance controls, allocating resources and motivating employees.8,9 This
S
approach uses ‘hard’ management practices (such as reward systems) and focuses on systems
or practices which are analytical in nature. In contrast, process approaches emphasise that
successful deployment ultimately depends on people changing their behaviour.10 These
approaches use ‘soft’ management practices which are people oriented, cognitive or behavioural
in nature. They focus on changing the assumptions and routines of people in the organisation,
including those of managers.11
MANAGERIAL PERSPECTIVE
The current strategic management process has included the senior managers of
[Company A] and they gave input in [Company A]’s new strategic direction. The good
thing is thus that it was not only the board’s decisions in terms of strategic direction.
In addition, every [Company A] employee can comment on our CEO’s blog in terms of
what they think of the new strategic direction of [Company A] and make suggestions
and recommendations. This time around, there has certainly been more involvement
from employees in general regarding the new strategic direction of [Company A]. There
have also been a number of road shows whereby the CEO and other board members
have shared the strategic process and implementation progress with employees. In
addition, there are also on email almost daily updates of new system enhancements
and implementation progress of the strategic review. Employees are thus aware of the
progress made. There is still, however, a journey to travel in terms of new structures
and eventual full implementation of the strategic review.
Manager, state-owned enterprise
important enablers, namely communication of the strategy, the ability of the organisation to
learn and adapt, and the allocation of adequate resources.
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In most cases, simply enforcing a strategy will elicit resistance to change. For that reason,
one of the key objectives of the communication process may be to ‘sell’ the strategy to the
organisation, and to ensure that everyone understands why the decision was made and why it
was the best decision under the circumstances.
The communication of the strategy may comprise of formal communication initiatives,
such as presentations by management, ‘roadshows’ throughout the organisation detailing the
strategy, and the use of company newsletters and intranets to provide the required information.
However, it is also important for managers to ensure that they adopt the new strategy in their
everyday language and in informal communication with their peers and subordinates, and even
other stakeholders, such as customers.
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MANAGERIAL PERSPECTIVE
To methodically pursue all three steps requires a great deal of discipline. Most organisations
are stuck in the plan/act mode and consequently devote little time to reflection, analysis and
self-learning. However, when the learning is done right, it is a highly effective process that adds
immeasurably to an organisation’s effectiveness.
Although successful organisations are, by definition, organisations that do things right, not
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making mistakes can stifle learning. To learn from experimentation requires a mistake-friendly,
knowledge-sharing culture and should be part of every strategy deployment process.
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Resource allocation
All organisations have limited resources, so it logically follows that resources should be
allocated first to those projects or activities that contribute most to the strategic success of the
organisation. In considering requests for funding and in the budgeting process, organisations
should take the following into account:13
■ The extent to which the proposed resources contribute towards the organisation’s mission
and long-term objectives
■ The extent to which they support the strategic direction and key strategic initiatives
■ The level of risk associated with the proposal
The proposals that most contribute towards the strategic success of the organisation and best
fits its risk profile should enjoy preference.
Individual
Standards, policies Individual
performance
and procedures tasks
metrics
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However, we should remember that it is not simply a matter of cascading objectives, metrics
and strategies. The process is much more complex than that, and communication, resource
allocation, managing strategic initiatives and change are all part of it. However, at the most
basic level, strategy deployment is about ensuring that all of the business unit goals, metrics and
strategies are aligned with the corporate goals, metrics and strategies; that functional goals,
metrics and plans support the business units, and that the functional level plans and tactics
translate into individual measurements and tasks. The balanced scorecard is an example of a
tool that can be used to align goals and metrics across the whole organisation.
In this example, we try to illustrate how the cascading and alignment process may
work in a retailing group focused on providing high-quality goods (think of a retailer
like Woolworths). For such a retailer, the ability to buy and sell excellent quality
products is a key element of their success.
At the same time, they may be looking to expand into new areas and shopping
formats, for example Woolworths have outlets in certain Engen forecourts. At
the corporate level, the focus may to grow by increasing revenue. The return on
shareholders’ equity may be an example of a metric related to this goal. As a strategy,
the group may be looking to expand their investment into new shopping formats and
geographical areas (e.g. moving into more countries in Africa).
At the business level, the focus may be on differentiation – providing high quality
at a relatively high price. The objective may, therefore, be to increase profitability. An
example of a metric may be the gross profit margin (the difference between sales
revenue and the cost of sales).
The strategy for achieving this may be through innovation and quality management
to provide higher quality products that contribute to environmental sustainability.
At the functional level, one area of focus may be to increase the percentage of
products with environmentally friendly packaging. The strategy may be to work with
and incentivise producers (suppliers) for ‘greening’ their packaging.
At the individual level, buyers may be required to actively source new environmentally
friendly forms of packaging to use. There may be certain standards or policies, for
example that certain types of packaging may not be used. They may be measured, for
instance, on the number of new innovations they introduce in this regard.
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deployment is the area where a strategy is most likely to fail, so a more coherent framework for
strategy deployment should be of considerable value.
The Strategic Execution Framework® (SEF)16 is an innovative strategy deployment framework
that helps to align an organisation’s projects and programmes with its strategies. As we have
argued already, strategy deployment is in essence project-based work (rather than merely the
day-to-day operations) which requires the selection of and investment in specific engagements,
portfolios, programmes and projects, which we refer to as strategic initiatives.
The purpose of the SEF is to help organisations to align activities and strategic direction
better. According to this framework, there are six key aspects of an organisation that must
harmonise in strategy deployment.17 These are outlined in Table 12.1.
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Transition When the programmes and projects results in outcomes that then
become part of the operations, i.e. the day-to-day activities of the
organisation. For example, a project may result in the development
of a new product range, which is then absorbed in the organisation’s
value chain of production, sales and after-sales support.
All six of the domains outlined above are critical to the deployment process. Quite appropriately
the six essential domains – ideation, nature, vision, engagement, synthesis and transition –
combine to form the acronym INVEST. However, since the aspects of ideation, nature and vision
were discussed in other chapters in this book (see Table 12.1), we will focus on the aspects most
closely related to deployment, namely engagement, synthesis and transition.
‘The Strategic Execution Framework is described in detail in the book Executing your strategy: how to
break it down and get it done authored by Michael Morgan, Raymond E. Levitt and William A. Malek.
Boston Harvard Business School Press 2007. The SEF is used in the Stanford Advanced Project Management
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Program, a partnership of IPS Learning, LCC, and the Stanford Center for Professional Development’
FIGURE 12.3 The Strategic Execution Framework® (SEF) 18
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12.2.1 Engagement
The engagement phase is where the organisation decides how it is going to spend its money
in support of its strategy and in pursuit of attaining its vision. This process requires a lot of
discipline, as there are generally always too many projects and too few resources. The allocation
of resources is always in danger of being ‘hijacked’ by powerful executives or board members
with pet projects, and to avoid this, vigorous debate and clear decision criteria are required.
In the first instance, the organisation must understand what needs to be done as part of
the roll-out of the strategy. In the engagement domain, strategy consists of understanding
where we are (R), where we want to be (2B) and the path we need to follow to get to where we
want to be (PATH). This can be expressed as R + 2B + PATH. ‘Knowing where we are’ requires
the organisation to understand its current ideation, current nature and current progress
towards vision (for example, understanding progress towards key metrics). On the ‘2B’ side,
the organisation needs to understand what structural changes should be made, what change
is required to align culture and what gaps exist between current and desired performance. The
PATH is expressed through the specific initiatives that the organisation needs to implement to
ensure alignment of strategy with nature and performance.
At this point, organisations may have a whole potential portfolio of investments, but due
to limited resources, it cannot invest in all of them, and will have to make tough choices. One
element that may help to make this process more rigorous (rather than just guesswork) is for the
organisation to have clear criteria for making decisions. Some of the following elements may be
useful as decision criteria (there may of course be many more, depending on the organisation):
■ Alignment with strategy and strategic capabilities
■ Financial measures (such as payback periods or return on investment)
■ Contribution towards achievement of long-term objectives
■ Level of risk the organisation is prepared to accept (also known as risk appetite)
The purpose of the engagement process is to translate strategy into action, and to prioritise
actions in a way that eliminates guesswork and power play in the allocation of resources. The
clearer the link between the funding decision and the strategy, the better the level of alignment
between strategy and deployment.
12.2.2 Synthesis
The investment portfolio of the organisation funds those activities that are strategic initiatives
and not part of the normal day-to-day operation of the organisation. For that reason, it is
managed by means of programme and project management, with a view to ultimately absorb
it into the operations of the organisation. The synthesis domain (see Figure 12.3) has three key
performance areas:19
■ A process methodology for managing project-based work at the strategic level
■ Process maturity for these process methodologies
■ Executive sponsorship of project-based work
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Process methodology
In the process methodology for programme and project management, there are two key
concepts:
1. Programme management is the process for managing multiple but interrelated projects.
For example, in a large merger there may be many different projects — some to integrate
IT systems, others to harmonise the human resource processes and still others to identify
opportunities for cost reduction. The role of programme management will be to oversee all
of the different projects, to track progress and to identify potential barriers to successful
completion.
2. Project management requires a project team to set the scope for a project, to develop a
project schedule, to obtain project resources, to implement the project phases and to track
progress.
Project and portfolio management are almost universally regarded as core skills in today’s
organisations.
Process maturity
Many organisations do programme or project management at the tactical level, for example it
is a common approach to the development and implementation of IT (information technology)
systems. However, not many organisations do it successfully at the level of strategy deployment.
Maturity is best viewed on a scale where ‘no formal approach’ is the bottom of the scale and
‘best-in-class performance’ is at the top.20 The lower the level of maturity, the less the chance of
successfully using programme and project management in strategy deployment and the more
work the organisation needs to do to develop maturity in these critical skills.
Executive sponsorship
Without an executive sponsor to champion a project, it has little chance of succeeding. The role
of the executive sponsor is to help overcome obstacles, to maintain visibility for the project and
to help with investing in opportunities.21
12.2.3 Transition
The outcomes of programme and project management will ultimately become part of the day-to-
day activities (operations) of the organisation. The transition domain is where the organisation’s
strategic efforts succeed or fail and result in achievement of metrics or not.
There are two types of transitional arrangement that have to be balanced by the
organisation. On the one hand, existing systems and processes have to be maintained and
continuously improved upon in order to reap the benefits from them. At the same time, the
strategy deployment process is about finding those breakthrough changes that will really alter
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the game and ensure a step-up in performance. For example, when South African Breweries
(SAB) acquired Miller Breweries in the US, it was important for SAB to maintain and improve
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its existing business while integrating Miller into the SAB fold. When the new organisation
(SABMiller) emerged, it was a breakthrough change – SABMiller was now a global instead of
just a regional player in the beer industry.
In the transition process, control (see Chapter 13) is an important function to ensure that the
strategic metrics of the organisation are being achieved. Metrics throughout the organisation
must be aligned and working towards the same ultimate goal.
The complexity of the deployment process means that managers are simply unable to
have a view of all strategic aspects continually and at the same time. For this reason, this
framework provides a means for directing the attention of managers to key focus areas of
strategy deployment to be addressed and managed.
The next section will focus on management practices and tools in strategy deployment,
specifically in managing strategic initiatives.
The role of management, on the other hand, is required in the strategy deployment process for
planning and directing activities, and monitoring and taking corrective action where necessary.
Management involved carry out this process by developing and communicating with people and
managing and organising/prioritising resources. As Graeme Cocks states: ‘Strategy formulation
is usually regarded as the exclusive domain of senior management … [and] by comparison,
effective implementation of strategy rarely attracts as much kudos or respect. Yet experienced
leaders know that the most creative and well-crafted visions and strategic plans are useless if
they cannot be translated into action’.23
Leadership and management are therefore emphasised differently in strategy deployment
(see Figure 12.4). The former is strategic and the latter operational. The focus in this section is on
operational management, specifically the management of strategic initiatives and the process
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Leadership
The process of managing strategic initiatives consists of the following (see Figure 12.5):
■ Developing strategic initiatives by translating strategic goals into strategic initiatives
■ Prioritising strategic initiatives
■ Defining and approving strategic initiatives
■ Aligning individual behaviour
■ Strategic initiative reporting and management
This process and some handy tools for managing each step are discussed next.
Aligning individual
behaviour
Reporting and
management
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FIGURE 12.6 Example of successful strategy deployment from strategic initiatives developed 26
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The recommended method is to develop goals, define performance measures, set performance
targets and then identify strategic initiatives. The goals outline the 10–15 key strategic goals
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for the next three to five years, the measures are how progress will be tracked, and the initiatives
are the projects that will result in positive changes in key measures.27
Successful strategy execution or deployment is achieved when the strategic initiatives
realise the set improvement targets, the set improvement targets meet the set measures, and
the set measures result in the attainment of the set objectives to achieve the strategy (Figure 12.6).
Misalignment between strategic initiatives and measures may result in wasted resources with
no clear improvement in performance.
Initiatives, the major efforts required to make progress toward strategic goals, must
be clearly described during the implementation process. To do this, we recommend
defining the following elements for each initiative:
■ Deliverables: What will be the results of the initiative? How will “success” be
measured?
■ Initiative leader and team: Who is responsible and involved in the work?
■ Key activities: What action steps need to be undertaken to achieve the deliverable?
■ Resource requirements: What investments (people, equipment, time, finances) will
be needed to carry out the initiative?
■ Interdependencies: How will the initiative impact other functions or areas of the
organization? How will it affect other initiatives?
■ Milestones: What are the major events, accomplishments, or key decision points
that are anticipated? How will you know when and if your initiative is on or off
track?
■ Performance metrics: What will you measure to gauge progress on your initiative?
How will you utilize these performance metrics to tell if your initiative is on or off
track?
■ Timeline: When will the initiative begin and end? At what milestone will you judge
if your initial timeline is correct?
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STEP 1: TRANSLATE
INITIATIVE OVERVIEW TEMPLATE
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HOW TO USE THIS TEMPLATE
Why would you use this template? Use this template to translate your strategic priorities into detailed, 12-18-month initiatives and
concisely view their high-level characteristics, resources required, and timelines
When would you use this template? When you are translating strategic goals into actionable initiatives
STRATEGIC RESOURCES START END
INITIATIVE OUTCOMES LEAD TEAM MEMBERS INTERDEPENDENCIES
PRIORITY REQUIRED DATE DATE
List names of Briefly explain Explain dependencies
Define major List the Designate Estimate general
List priorities people who financial and other on organizational
initiatives (may be anticipated person who timeline for the
from are responsible resources needed support functions (i.e.,
multiple for each outcomes for will own project
strategic plan for driving the to implement HR, IT, finance, other)
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strategic priority) each initiative initiative (Quarter/Month)/YYYY
initiative forward initiative or other initiatives
■ Each state is
placed into four ■ New IT system:
EXAMPLE: Assess categories ■ Sally O $TBD
S
■ Human Resources
and segment ■ Decision made ■ Billy C
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■ George W ■ Full-time to realign site staff Q1 2011 Q2 2001
Strategic sites into four on which sites ■ Hillary J manager ■ IT to implement
Priority 1 categories to exit; and ■ Danny K ■ Staff support at new performance
these sites are sites management
EXAMPLE: exited ■ Time spent system
Grow to EXAMPLE:
■ Jenny C on planning ■ Finance to shift
scale with Assemble support
■ Support teams ■ Sally O ■ Mark N and imple- resources and
programs teams and prepare Q1 2011 Q3 2011
are estab-lished ■ Hillary J ■ Michelle K mentation budgets
in selected
CHAPTER
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EXAMPLE: Engage ■ Katie G high-priority developments
■ First long- term
in long-term stra- ■ Billy C ■ Duncan A sites
strategic plan is Q2 2011 Q2 2012
tegic planning with ■ Danny K ■ Lucas P
complete
high priority sites ■ Mark D
Strategic 2.1
Priority 2 2.2
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Strategic
3
Priority 3
FIGURE 12.7 Strategic initiative overview template30 (All sample data in the template is provided by the authors.)
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The two templates (on the previous pages), to be used in tandem, offer guidance on developing
strategic initiatives that will help the organisation to manage deployment.32 The strategic
initiative overview template (Figure 12.7) provides a summary of all strategic initiatives in the
organisation. The purpose of this document is to enable the management team to see, at a
glance, the scope of the work to be done and critical interdependencies between initiatives.
The strategic initiative action plan (Figure 12.8) provides detail for each initiative, so that team
members have clear direction and accountability.
The process to identify strategic priorities is as follows (see Figure 12.7 for a template, which
includes an example):
1. Identify the potential strategic initiatives associated with each strategic goal. There may be
multiple strategic initiatives for each goal, and certain initiatives may address more than one
goal. See Figure 12.8 for a template and example that can be used to describe each initiative
in more detail.
2. Explain what the outcome of each initiative will be, in other words, how it will contribute to
attaining the strategic goal.
3. Identify the key people (leader and team members) that will be responsible for each initiative.
4. Identify resources that will be required to complete the initiative.
5. Identify interdependencies with other organisational units and support functions.
6. Specify a project duration (start and end date).
It is the process of describing strategic initiatives and creating mechanisms for tracking progress
that is important, not the template used.
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Based on the briefings and documentation provided, projects can be prioritised. For example, a
simple process for rating initiatives can be as follows:
Category A initiatives = committed
Category B initiatives = high strategic impact
Category C initiatives = medium strategic impact
Category D initiatives = low strategic impact
As we have seen in the preceding discussions, strategy deployment is a complex process, and
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there are many potential barriers that may impede deployment. We discuss these barriers in the
next section.
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MANAGERIAL PERSPECTIVE
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will not believe in the strategy and will see it as someone else’s problem. They may refuse
to cooperate, or do things simply because they are told to, while not believing in any of it.
Participation and open communication are the most important tools that the organisation
has at its disposal to prevent resistance to change. At the same time, most managers are also
not taught how to manage change, and will accordingly find it hard to deal with resistance
to change.
■ Bounded rationality. In practice, managers can deal with only a limited number of options,
which means that managers will tend to reduce the overall task to a number of small steps
or tasks that are easier to manage, but may not be optimal. The bounded rationality of
managers may accordingly be a barrier to strategy deployment.37
■ Lack of resources. To implement strategic change is a resource-intensive process. Not
having access to key resources such as money or key skills can act as a severe barrier to
implementation.
■ Misalignment of goals and strategic initiatives. In some instances, the strategic initiatives
identified by the organisation may take up time and resources without having any effect on
performance. The reason is most likely that the initiatives identified are not properly aligned
with the goals. This is akin to being treated for flu when you have malaria – the medicine is
not going to have the desired effect and your condition will most likely not improve.
■ Underestimating the implementation process. Strategy formulation may take a few weeks
or perhaps a few months at the extreme and involve a relatively small team. By comparison,
strategy implementation may take a very long time (years, rather than weeks) and will
involve a large number of people.38 In that sense, it is a much more complex process to
manage and keep track of, and managers may lose steam if they fail to see short-term
results.
■ Lack of communication. Given the duration and complexity of the strategy implementation
process, it is not surprising that quite often lower levels in the organisation have no idea
what the organisation is trying to achieve. This is most often a communication failure, as the
strategy is not communicated to everyone in the organisation in a way that makes sense to
them and that helps them to understand what they need to do differently.
■ A participative process for strategy development. Rather than being seen as the domain
of a few top managers developing a strategy in their ivory tower, strategy should be an
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organisation-wide discussion to ensure that those who are involved in the implementation
and deployment participate in the development of strategies. The value is that any potential
implementation problems will be identified early on in the process, and the greater the
participation, the less the resistance to change.
■ Developing a clear process for strategy deployment. While the process for strategy
deployment is not the same for every organisation, it is important that the organisation
spend some time thinking about how it will manage the implementation process. Questions
that will need to be answered and addressed by the process include (but are not limited to)
the following:
❏ How do we identify strategic initiatives from a formulated strategy?
❏ How do we evaluate competing initiatives to decide which initiatives are worth investing in?
❏ How do we manage the selected strategic initiatives?
❏ How do we make strategic initiatives part of our day-to-day activities once they have
been implemented?
Discussion questions
1. Differentiate between ‘projects’ and ‘strategic initiatives’.
2. Differentiate between ‘strategic implementation’ and ‘strategic deployment’.
3. Explain the components and enablers of strategy deployment.
4. Explain the Strategic Execution Framework® (SEF).
5. Explain the role of programme and project management in strategy deployment.
6. List and briefly discuss the steps in the strategic initiative management process.
7. Identify the barriers to strategy deployment.
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STRATEGIC CONTROL
13 Tersia Brevis
LEARNING After reading this chapter, you should be able to do the following:
■ Define strategic control.
OUTCOMES ■ Explain the importance of strategic control.
■ Explain the steps in the strategic control process in an
organisation.
■ Distinguish between the various areas of strategic control.
■ Discuss the balanced scorecard as a strategic control tool.
■ Discuss the organisational maturity model and explain it as a
strategic control tool.
■ Explain the characteristics of an effective strategic control system.
■ Critically evaluate strategic control in an organisation.
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Furthermore, J&J is the world’s largest and most diverse medical devices and diagnostics
company, the world’s fifth largest biologics company and the world’s eighth largest
pharmaceutical company. Currently, J&J has more than 250 operating companies in 60
countries, employing about 116 000 people.
J&J was founded in 1886 by three brothers, Robert Wood Johnson, James Wood
Johnson and Edward Mead Johnson in New Brunswick, New Jersey, US. Since 1886, the
company has played a huge role in helping millions of people around the globe be well
and stay well through more than a century of change. Some of its contributions are
highlighted below.
As early as 1888, J&J published Modern methods of antiseptic wound treatment which
quickly became one of the standard teaching texts for antiseptic surgery. The company
spread the practice of sterile surgery in the US and around the world. In the same year,
the company pioneered the first commercial first aid kits. The initial kits were designed to
help railroad workers, but soon they became standard equipment for treating injuries. In
1920, J&J employee Earle Dickson invented BAND-AID® Adhesive Bandages, which went
on the market in 1921. They were the first commercial dressings for small wounds that
consumers could apply themselves. In 1954, JOHNSON’S® Baby Shampoo with NO MORE
TEARS® formula entered the market as the first mild and soap-free shampoo specifically
designed to be gentle enough to clean babies’ hair but not irritate their eyes.
In 1959, the company acquired McNeil Laboratories in the US and Cilag Chemie,
AG in Europe, giving J&J a significant presence in the growing field of pharmaceutical
medicines. One McNeil product, TYLENOL® (acetaminophen) elixir for children was the first
prescription aspirin-free pain reliever. A year later, it became available without prescription
and earned status as the preferred pain reliever of doctors and paediatricians. In the
period 1976 to 1989, J&J entered new areas of healthcare, such as vision care, mechanical
wound closure and diabetes management. In 1987, the company introduced ACUVUE®
Contact Lenses, the first disposable contact lenses that could be worn for up to a week,
thrown away and replaced with a new pair. In 1994, the PALMAZ-SCHATZ® stent, the first
coronary stent, revolutionised cardiology (coronary stents keep vessels open so that blood
can flow to the heart). During 2002, the company entered new therapeutic areas such as
HIV and AIDS treatment. In 2011, J&J celebrated 125 years of caring.
highly respected consumer company, but also saved the Tylenol brand. At no point did he try
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to back off from the company’s responsibility in the incident, even though it was later
proven that the tampering had occurred at the retail level. ‘When those people died,’ said
Burke, ‘I realised there were some things we hadn’t done right. Responsibility for that
incident had to be, in part, ours. It wasn’t easy to take responsibility ... but it was clear to
us, to me especially, that whether we could be blamed for the deaths or not, we certainly
could have helped to prevent them. How? Through packaging. The fact is that the package
was easily invaded. You could take the capsule out, open it up, put the poison in and
then put the capsule back together. It was easy to do. I felt, and still feel, that it was our
responsibility to fix it.’
Burke’s conviction, and his total commitment to the safety of the customer, led the
company to spend $100 million on the recall of 31 million bottles of Tylenol, which before
the tampering, had been the country’s best selling over-the-counter pain reliever. The
recall decision was a highly controversial one because it was so expensive. There were
plenty of people within the company who felt there was no possible way to save the
brand, that it was the end of Tylenol. Many press reports said the same thing. But Burke
had confidence in J&J and its reputation, and also confidence in the public to respond
to what was right. It helped turned Tylenol into a billion dollar business. Within eight
months of the recall, Tylenol had regained 85% of its original market share and a year
later, 100%. The person who tampered with the Tylenol was never found. In 1984, J&J
replaced capsules with caplets, and in 1988, the company introduced gel caps, which look
like capsules but cannot be taken apart.
As is evident from the information above, product safety, ingredient safety and product
quality and safety are high on J&J’s priority list.
Product safety
Every product that the company sells must meet their high standards of quality, safety
and efficacy. Safety professionals at J&J companies conduct thorough assessments before
any new product is introduced to the market. They first evaluate each raw material to
identify safe and effective ingredients, and then the finished product, to ensure it works
the way that it is intended to work. J&J also assess their products after they have reached
their market in order to identify any safety issue that may occur. Should an event, such
as the product tampering, occur, J&J has procedures in place for immediate action, for
example the withdrawal of products and the informing of patients, doctors, consumers
and government agencies that will help protect people.
All medicines have some side effects. Although their products undergo years of
scientific tests before they are approved to determine whether they are safe and effective
in treating a particular disorder, some safety issues cannot be identified during drug
development. Rare adverse reactions may not be detected because the number of patients
that participate in clinical tests is much smaller than the number of people who take the
drug once it is on the market. For this reason, J&J maintain dedicated staffs of medical
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professionals tasked to monitor reports of adverse events that are made to regulatory
agencies around the world.
Ingredient safety
The J&J companies buy and manufacture an array of raw materials, active ingredients,
packaging components and other supplies to make their products. They also use advanced
technologies to deliver products with superior performance features. The safety and
quality of these materials and technologies is critical to the success and safety of their
final products.
Before J&J uses raw materials, their pharmacists, toxicologists, laboratory analysts
and other health scientists conduct thorough evaluations in their laboratories. They view
their suppliers as important partners in their business and require them to provide raw
materials, packaging and other supplies that meet J&J’s high standards of material safety
and quality. Their companies are expected to comply with regulations on ingredients in all
countries where their products are sold. Wherever authorities have set limits on certain
ingredients, they require that their product formulations are within those limits. They also
work with regulatory authorities around the world to ensure that their ingredients are safe
for patients and consumers as well as the environment.
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individual or group in the organisation that controls key or precedent-setting actions. The
modern view on strategic management also does not describe it as a neat and rational process.
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■ Vision Strategy
■ Mission implementation ■ Efficiency
■ Desired outcomes and ■ Resource ■ Effectiveness
evaluation criteria management ■ Organisational
■ Choosing appropriate ■ Leadership, culture, maturity
strategies business architecture,
strategy Strategic
Strategy control
formulation
Looking at Figure 13.1, the vision, mission and overall purpose are the formulation of the
organisation’s ultimate end point and provide the basis of the strategic management process.
The desired outcomes for the organisation and the evaluation criteria are derived from the
organisation’s overall purpose.
Strategies are then formulated, for business units and for individuals within the organisation,
which specify ways in which the organisation intends to achieve its overall purpose. Once intended
strategies have been determined, the organisation plans their implementation. Resources are
made available when and where they are required. Implementing chosen strategies also demands
appropriate leadership, organisational culture, business architecture and organisational structure.
Strategic control is the regulatory task of top management and any individual or group that
controls key actions of the organisation. It determines whether or not there have been any deviations
from the overall plan or key changes in the environment that require corrective measures. Without
strategic control, organisations have no indication of how well they are performing in relation to
their ultimate end point and desired outcomes. Strategic control keeps the organisation moving
in its intended direction and ensures ongoing consistency between the organisation and its
environment. At any point in time, strategic control compares where the organisation is in terms
of performance (for example, productivity) to where it is supposed (or had planned) to be. It provides
an organisation with a mechanism for adjusting its overall course if its overall performance falls
outside acceptable boundaries, or if key events in the environment force it to change.
An organisation without effective strategic control procedures is not likely to reach its overall
purpose – or, if it does reach them, to know that it has. As already stated above, it is a continuous
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process and should be interwoven with strategic planning and strategy implementation.
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Strategic control
■ provides a coordinating mechanism
■ ensures that resources are deployed in such a way that an organisation attains its
overall objectives
■ enables management to cope with environmental change and uncertainty
■ ensures that costly mistakes are avoided
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Strategic control can be broadly classified into two categories, namely backward looking and
forward looking. Backward-looking strategic control is broadly the same as the operational
control process and consists of setting performance standards, measuring performance and
addressing deviations. It commonly focuses on tracking the implementation of strategy. The
strategic control process, organisational maturity model and the balanced scorecard are all
examples of backward-looking forms of strategic control. On the other hand, due to the
complexity and long time frames of strategic management, control cannot be solely backward
looking. It also needs to consider key events in the environment and how that will influence
the strategic direction, strategic plans and implementation efforts of the organisation going
forward. This will be discussed as environmental scanning in section 13.7.
MANAGERIAL PERSPECTIVE
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Compare the best-in-class practices with the organisation’s own methods, specifying any
and all differences.
3. Develop a strategy for adopting best practices and improving the organisation’s own
processes and performance.
A benchmarking process such as the one described above should be established. At this stage, a
best-in-class measure and superior performance should also be established.
Step 1
Establish performance benchmarks
Step 2
Establish desired outcomes/baseline performance
Step 3
Measure actual performance
Step 4
Establish and evaluate deviations
Step 5
Take corrective action
Step 6
Recognise and reward organisational performance
The starting point of this process would be the strategic goals of the organisation. Flowing
from strategic goals, desired outcomes and baseline performance should be communicated with
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departments, individuals and all other relevant stakeholders (such as suppliers, labour unions,
and so on).
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MANAGERIAL PERSPECTIVES
The good thing about this [strategic control] is that you are able to see where you
want to be in five years. This allows you to map the way forward as to how to get
there, for example the achievements of year 1. When monitoring progress you are
then able to see early warning signs when you are not able to meet the desired
target at the period of assessment, for example quarterly. This process then allows
you to effect corrective measures or adjust your target depending on the current
environment. This has allowed us to improve on collection because measures were
effected before it was too late.
Manager, telecommunications operator
I am also responsible to ensure that each employee is issued with performance work
plans which complement operational plans. Bi-monthly I am required to sit down and
assess my subordinates’ performance in line with the operational plan, and where
there is a deviation, remedial steps are taken to assist the employee to perform to
a required standard. [The public sector organisation] does not really align incentives
directly to strategic direction, but mostly to individual performance. Only 25 per cent
of staff is rewarded by means of merit awards regardless of whether more than that
deserve to be rewarded. This is as a result of financial constraints. Monetary incentives
are currently utilised as the only form of incentive, no other form of incentive for
good performance is being used.
Manager, public sector
Annually there is a standstill where we measure our performance against the KPIs set
on the balanced scorecard. Where we are on track, we continue as per normal; where
we are not, we do adjustments to get back on track. Overall the process works well.
There is also a process where employees feed back into the process and leadership is
able to take the feedback and use it as input into strategy formulation.
Manager, services firm
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Measures of effectiveness
Organisational External focus ■ Stakeholder satisfaction
effectiveness of control ■ Competitive success
■ Excellence
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Ultimately, the best measure of competitive success is the ability to generate profits (or
performance, in the case of not-for-profit organisations) that are consistently and sustainably
higher than the industry or sector average.
Measures of excellence
The term ‘excellence’ originates from the Latin excellentia which means ‘surpass’, the quality of
being outstanding or extremely good. Measures of organisational excellence are
■ the morale and motivation of the workforce
■ the commitment of the workforce towards the attainment of the organisational vision,
mission and goals
■ evidence of leadership qualities
■ the ability of the organisation to recognise the need for change and to implement change
processes successfully
■ the organisation’s ability to establish a service-oriented culture.
Figure 13.5 summarises the measures of organisational efficiency. These seven measures are
discussed in detail in the sections that follow.
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Measures of efficiency
Organisational Internal focus ■ Marketing
efficiency of control ■ Operations
■ Supply chain
■ Research and development
■ Information
■ Finance
■ Human resources
total marketing cost structure, as it appears in the organisation’s income statement for
a particular financial period. Operating expenses include advertising and promotion costs
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and other marketing expenses. These costs should be tied back to a particular product or
service, customer or sales territory. The actual costs for a specific financial year should
be measured against the budgeted amount. This is a useful instrument for strategists in
order to determine whether the current marketing activities should be continued along the
present lines, expanded, reduced or eliminated.
6. New patents registered. The number of new patents registered during a specific financial year,
compared to previous years and compared to main competitors, provides an indication of the
efficiency of the organisation, especially the efficiency of its research and development efforts.
7. Strength of sales force. Various ratios can be used to measure the effectiveness of an
organisation’s sales force, namely the efficiency of sales representatives, the average cost
per visit, sales per square metres of sales space, advertising effectiveness, delivery costs per
order and the handling costs as a percentage of sales.
8. Strength of distribution channel. The sales, market share and marketing efficiency of an
organisation are not only influenced by the efficiency of its own sales force, but also the
efficiency of its distribution channel. Sales and marketing costs should also be measured on
the basis of various distribution channels employed by the organisation.
to promote employee participation and catch problems early in the overall transformation
process.
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In the case of J&J, many of the company’s businesses and facilities have been certified
to meet International Organization for Standardization (ISO) requirements for quality
management. ISO certification means that a quality management system has been through
a thorough review process by an outside audit committee and found to satisfy rigorous
standards. J&J’s commitment to compliance also extends to its external manufacturers.
The J&J Responsibility Standards for Suppliers assists them to identify and select business
partners that operate in a manner that is consistent with its values, quality standards and
quality requirements.
3. Rework control. This focuses on the outputs of the organisation after the transformation
process is complete. Final products are inspected before they are sold. Although rework
control alone may not be as effective as preliminary or concurrent control, it can provide
management with information for future planning. For example, if a quality check of finished
products indicates an unacceptably high defect rate, the production manager knows that he
or she must identify the causes and take steps to eliminate them. Rework control can provide
a basis for rewarding employees. Recognising that an employee has exceeded personal sales
goals by a wide margin, for example, may alert the manager that a bonus or merit is in order.
4. Damage control. Damage control focuses on customer or stakeholder satisfaction and
means that action is taken to minimise the negative impact of faulty outputs on customers
or stakeholders. One form of damage control is warranties, which requires refunding the
purchase price, fixing the product or replacing the product. J&J also conducts damage control.
Should an event such as product tampering occur, it has procedures in place for immediate
action, for example the withdrawal of products, and informing doctors, consumers and
government agencies about safety issues that will help protect people.
5. Feedback control. Feedback from customers and stakeholders is used to ensure continuous
improvement in products. J&J makes use of feedback control. All medicines have some side
effects. Although all its medicines undergo years of scientific tests before being approved to
determine whether they are safe and effective in treating a particular disorder, some safety
issues cannot be identified during drug development. Rare adverse reactions may not be
detected because the number of patients that participate in clinical tests is much smaller
than the number of people who take the drug once it is on the market. For this reason, J&J
maintain dedicated staffs of medical professionals who study the safety and efficacy of its
medicines after they have reached the market. It also monitors reports of adverse events
that are made to regulatory agencies around the world. Most organisations, such as J&J, use
more than one form of operations control.
6. Capacity control. Capacity decisions are strategic and critical to the success of the
organisation because they impact on the organisation’s ability to meet demands for
products and services. Ideally, an organisation would like to have the capacity to satisfy
demand. Capacity should be measured in terms of output and there are two types, design
capacity and effective capacity. Design capacity is the maximum output rate that an
operation, process or facility is designed for, under ideal circumstances and conditions. It
is a specified rate of output that the operation, process or facility is theoretically capable
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of producing. Effective capacity is the achievable rate of output that is usually less than
design capacity due to allowances that should be made for personal time, set-up time
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and maintenance. The efficiency of capacity can then be calculated by dividing the actual
output of the operations function during a specific period of time by the effective capacity
(expressed as a percentage). Efficient capacity is influenced by numerous variables including
facilities factors (such as the design of facilities, ergonomic issues and location issues);
process factors (such as output quantity and quality and specification that must be met);
human factors (such as the level of skills and proficiency of operators, absenteeism,
motivation and competency); external factors (such as product standards, legislation, safety
regulations and control standards); supply chain factors (such as the availability of inputs
and requirements in terms of machinery and equipment); operational factors (such as the
scheduling necessary for effective operation); and product and service design (such as the
standardisation of materials, methods and procedures and the product/services mix).
7. Quality control. Product and service quality has become a global competitive issue, and is
imperative for all organisations to enable them to become or remain competitive. Product
and service quality management and control should lead to improved performance and
competitiveness of an organisation. In order to achieve product quality, the quality of design,
conformance and performance should be measured. Quality of design refers to the stringent
conditions that the product must possess to satisfy customer needs. Quality of conformance
refers to the extent to which the product complies with specifications, standards and
criteria imposed upon its manufacture. Quality of performance basically revolves around
the product’s performance when it is used and it measures customer satisfaction. Various
quality management systems can be implemented to control quality in an organisation, such
as ISO 9000, ISO 14001, ISO 18001, ISO 16001 and the hygiene management system,4 to
mention only a few.
or ratings of satisfaction; the appropriateness and quality of the product or service; and the
customer experiences with specific aspects of interaction with the organisation such as
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timely delivery, rapid and accurate response to questions, and employee professionalism.
Personal interviews with important customers can also be used to determine what they are
really thinking. Insights gained from customers should be used to align an organisation’s
value-added processes and commensurate measurement practices to those of key customers.
2. Process costing. Making good process decisions requires that costs be measured and
compared across activities, departments or even organisations. Two costing methods are
particularly important: (1) total costing, and (2) activity-based costing. Total costs are the
sum of all relevant costs for a given decision. Activity-based costing (ABC) links costs directly
to the activities that drive them, helping managers to understand the nature of important
processes. ABC costing enables managers to evaluate the profitability of specific products,
channels or customers.
3. Supply chain measures. The following supply chain metrics are useful in determining and
evaluating supply chain efficiency:5
■ Supply chain days of supply: the total number of days of inventory required to support
the supply chain – from raw materials to the final customer acquisition
■ Cash-to-cash cycle time: the time that is required to convert a rand spent to acquire raw
materials into a rand collected for finished product
■ Inventory idle time: the ratio of days that inventory is idle to days that inventory is being
productively used
■ Customer inquiry response time: the average time between receipt of a customer call and
connection with the appropriate representative from the organisation
■ Customer inquiry resolution time: the average time required to resolve a customer
enquiry
■ Order fulfilment cycle time: the average actual lead times consistently achieved, in days,
from customer order to customer delivery
■ On-shelf-in-stock percentage: the percentage of time that products are available on the
shelf or where the customer expects to find them
■ Perfect order fulfilment: the percentage of orders that are delivered complete, on time,
in perfect condition and with accurate and perfect documentation
■ Source/make cycle time: the cumulative time to build a shippable product from scratch
(should an organisation start with no inventory on hand or on order)
■ Supply chain response time: the theoretical number of days required to recognise a
major shift in market demand and make the necessary changes
■ Total supply chain cost: the sum of all the costs incurred in planning, designing, sourcing,
making and delivering a product broken down for each member of the supply chain
■ Value-added productivity: total revenues generated less the value of externally sourced
materials, expressed as a ratio of total organisational headcount
4. Scorecards. The balanced scorecard (see section 13.5) was introduced in the early 1990s in
response to the shortcomings of traditional measures of organisational efficiency. Scorecards
create balance by featuring a set of qualitative measures in the formal measurement
system. Over time, they have become a strategic management tool as objectives, measures,
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targets and action plans have been incorporated into the development process. They are
widely used in supply chain management to promote higher performance and strategically
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focused relationships. The typical supply chain scorecard includes measures of five critical
dimensions – cost, quality, delivery, responsiveness and innovation.
5. Benchmarking. Benchmarking can be implemented successfully by supply chain managers
actively seeking to identify progressive supply chain processes and then learning as much as
they can about them. The quest is to find better ways to perform key supply chain activities.
■ relevant
■ reliable
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■ secure
■ simple
■ timely
■ verifiable.
3. Disaster recovery planning. To prepare for mishaps, either malicious or natural, organisations
need to ensure that they have well-planned programmes in place, called business or disaster
recovery plans. Strategists need to ensure that these plans detail what should be done and
by whom if critical systems go down.
4. Decision-making and problem-solving capabilities and procedures. Strategists should
ensure that information and information systems assist with programmed and non-
programmed decisions under conditions of risk and uncertainty. Various types of information
systems can be developed and implemented in order to support all kinds of managers in
solving problems and making effective and efficient decisions.
5. Information system security. The development, implementation and maintenance of
information systems constitute a large and growing part of the cost of doing business.
As such, the protection of these resources is a primary concern for strategic managers. In
measuring the effectiveness of information system security, strategists should ensure that
information security systems
■ reduce the risk of systems and organisations ceasing operations
■ maintain information confidentiality
■ ensure integrity and reliability of data resources
■ ensure the uninterrupted availability of data, resources and operations
■ ensure compliance with policies and laws regarding security and privacy.
6. Ethics. Strategists need to ensure that a code of ethics is in place, which states the principles
and core values that are essential to the management of information and information
systems in their organisation. Many information systems professionals believe that their
profession offers many opportunities for unethical behaviour. Unethical behaviour can be
reduced by developing, discussing, enforcing and controlling codes of ethics.
measures of liquidity can be used, for example the current ratio (which measures the
organisation’s ability to meet short-term obligations), and the acid test ratio (also
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called the quick ratio) which measures the organisation’s ability to pay off short-term
obligations without relying on the sale of inventories.
■ Asset management ratios. This group of ratios measures how effectively the organisation
is managing its assets. Four measures can be used for this purpose: (1) the inventory
turnover ratio measures the number of times that an organisation’s inventory is sold out
and restocked per year, (2) the average collection period is used to appraise accounts
receivable, and measures the number of days’ sales that are tied up in receivables, (3) the
fixed assets turnover ratio measures how efficiently the organisation uses its plant and
equipment (the ratio of sales to net fixed assets), and (4) the total assets turnover ratio
measures the turnover of all the organisation’s assets (the ratio of sales to total assets).
■ Debt management ratios. This group of ratios measures the extent to which the
organisation uses debt financing. Two measures are commonly used for this purpose: (1)
the total liabilities to total assets ratio, which is called the debt ratio and measures the
percentage of funds provided by sources other than equity, and (2) the times-interest-
earned ratio (TIE), which measures the extent to which the operating income of the
organisation can decline before it is unable to meet its annual interest costs.
■ Profitability ratios. An organisation’s profitability is the net result of a number of
decisions, actions, policies and procedures. The financial ratios that we have examined
thus far (liquidity, asset management and debt management ratios) provide useful clues
as to the efficiency of an organisation’s operations. The profitability ratios go further
and give an indication of the combined effects of liquidity, asset management and
debt on an organisation’s operating results. Four measures can be used to assess an
organisation’s profitability: (1) an organisation’s profit margin on sales gives the profit
per rand of sales, (2) the basic earning power (BEP) shows the raw earning power of the
organisation’s assets, before the influence of taxes and leverage, (3) the return on total
assets measures the return on total assets (ROA) (see below) after interest and taxes,
and (4) the most important, or ‘bottom line’ accounting ratio, is the return on common
equity (ROE), which is the ratio of net income to common equity.
■ Market value ratios. Anoter group of financial ratios, the market value ratios, relates
the organisation’s stock price to its earning, cash flow and book value per share. These
ratios gives management an indication of what investors think of the company’s past
performance and future prospects. If the liquidity, asset management, debt management
and profitability ratios all look good, then the market value ratios will be high, and the
stock price will be as high as can be expected. Three measures can be used: (1) the
price/earnings ratio (P/E ratio) shows how much investors are willing to pay per rand of
reported profits, (2) the price/cash flow ratio shows how much investors are willing to
pay per rand cash flow, and (3) market/book ratio gives an indication of a stock’s market
price to its book value, and also shows how investors regard the organisation.
The rate of return on assets (ROA) ratio (also called the Du Pont equation) ties all the above
mentioned ratios together. It measures the percentage earned on total assets employed in the
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organisation.
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In the strategic control process, ratio analysis should be used for comparisons: (1) to compare
an organisation’s current ratios with its historic ratios in order to identify trends and make
forecasts, (2) to compare an organisation’s ratios with those of other organisations in the
same industry, i.e. with industry average figures, and (3) to compare an organisation’s ratios
with those of a smaller set of leading organisations in the industry, called benchmarking. We
discussed the benchmarking process in section 13.3. However, in this instance, benchmark
metrics are appropriate.
2. Capital structure. One of the primary functions of financial management is to manage
the organisation’s operating cash flows as efficiently as possible. A key element of this
management process is the capital structure decision, i.e. deciding what mix of debt and
equity securities the organisation should issue to finance its operations. In addition, finance
staff are also expected to ensure that the organisation has adequate working capital
available to operate smoothly on a day-to-day basis. Each organisation has an optimal
capital structure, defined as that mix of debt, preferred and common equity that causes its
stock price to be maximised. Therefore, an organisation that wants to maximise stakeholders’
value will establish a target (or optimal) capital structure and then raise capital in a manner
that will keep the actual capital structure on target over time. This will form the essence
of strategic control as far as the capital structure of an organisation in concerned. It may
happen that an organisation, over time, needs to adjust its capital structure due to changing
circumstances. Therefore, various measures of the adequacy of an organisation’s capital
structure can be used in strategic control. For instance, the market-to-book ratio can be
calculated (i.e. the market value of the organisation divided by the book value of its assets)
and compared to industry average figures. Research has proved that growth companies use
little or no debt. The variability of an organisation’s earnings over time can also be used as a
measurement. The more volatile an organisation’s cash flows, the greater the likelihood that
earnings will fail to cover debt payments. Organisations that experience wildly fluctuating
sales and profits tend to issue less debt than organisations with low-volatile revenue
streams and fixed-cost production streams. Another measure is the effective marginal tax
rate of an organisation which indicates the tax rate charged on the next rand of pre-tax
corporate income. Organisations facing high marginal tax rates should use more debt than
other organisations.
3. Weighted average cost of capital. Should an organisation identify its optimal capital
structure and use this optimum as a target and finances so as to remain constantly on
the target, it can calculate its weighted average cost of capital. The target proportions of
debt, preferred stock and common equity, along with its component costs of capital, are
used to calculate weighted average cost of capital. An important point to note here is that
the current weighted average cost of capital is the weighted average cost the organisation
would face for a new, or marginal, rand of capital – it is not the average cost of rands raised
in the past. The cost of capital is a marginal cost, since it depends upon current market rates,
which are the rates the organisation would pay on any new capital. For this reason, it is a
valuable measure in strategic control.
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4. Share price against stock market indices. Some organisations are so small that their
common stocks are not actively traded, they are owned by a few people. Such organisations
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are said to be privately owned. In contrast, the stocks of most larger organisations are owned
by a considerable number of investors, most of whom are not active in the management of
the organisation. Such companies are publicly owned, and their stock is publicly held. Prices
of this type of stock are grouped into various categories and reflected in share price indices.
It is therefore useful to compare an organisation’s share price against stock market indices
to determine the finance efficiency of the organisation.
5. Cash flow. Most business is conducted by large organisations, many of which operate
regionally, nationally or even globally. They collect cash from many sources and make
payments from a number of different sources or bank accounts. A system must be in place
to transfer funds from where they come in to where they are needed, to arrange loans to
cover net corporate shortfalls and to invest net corporate surpluses without delay. As far
as strategic control is concerned, strategists need to ensure that cash is provided when it
is needed and thus enable the organisation to reduce the cash balances needed to support
operations.
these targets should be determined and strategic managers will need to incorporate these
into the next planning cycle.
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It will be difficult for any organisation to focus on all of the efficiency measures described
above. Each organisation will have to decide which measures it considers most important. These
will be determined to a large degree by the type of organisation, its strategic direction, its key
performance indicators (e.g. strategic goals) and the preferences of key stakeholders.
efficient by reducing costs and not wasting resources. Too much emphasis on effectiveness will
mean that the job gets done, but limited resources are wasted. Too much emphasis on efficiency
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will mean that the job does not get done because available resources are underutilised. The
answer lies in the middle: the job needs to get done and limited resources must not be wasted.
Figure 13.6 illustrates the balancing act between organisational effectiveness and efficiency.
In all decision areas (marketing, finance, human resources, research and development, operations,
supply chain and information), doing the right things and doing things right should always be
in equilibrium.
Decision areas
Marketing
Finance
Operations
Supply chain
Research and development
Information
Human resources
Effectiveness Efficiency
Doing the right things Doing things right
The next two sections focus on tools that can be used in the strategic control process, namely
the balanced scorecard and the organisational maturity model.
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US$ 25,042m US$ 8,901m US$ 2,492m US$ 2,886m US$ 6,438m US$ 38m US$ 4,288m
a This table is constructed based on data contained in the SABMiller 2013 Annual Report and follows
guidance recommended by the Global Reporting Initiative (GRI EC1).
b Excludes share option charges, includes employer taxes and social security contributions.
c Excludes VAT indirect taxes and taxes borne by employees.
d Includes cash donations, value of gifts in kind and time donated, and management costs of CSI activity.
Engaging with stakeholders to combat the harmful use of alcohol and ensuring
strong, transparent commercial governance.
We know that most consumers enjoy beer in moderation, with friends and families.
However, there is a minority who drink too much, putting themselves and people
around them at risk of harm. Combating the harmful use of alcohol and related issues,
such as drink-driving, underage drinking and the effect on consumer health is a core
priority for SABMiller. We work closely with our stakeholders to understand the key
issues in our local markets and develop tailored programmes to address them.
Measuring the success of such programmes is important to SABMiller. For example,
in Peru, the Sólo + 18 (‘Only 18+’) campaign run by Backus used a combination of
celebrity endorsement, advertising, social media and point-of-sale materials to
reach over 12 000 young people. It was recognised as the most effective marketing
communications campaign for non-commercial purposes at the Peruvian Effie Awards.
The water-food-energy nexus
By 2050, the world will need to grow and process 70% more food in order to feed
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consumption today and by 2030 demand for water is predicted to outstrip supply by
approximately 40%. In a world with a finite amount of land and water and a changing
climate, it’s clear that businesses must adapt, and soon. Water, food and energy are
interconnected. We need water to grow food and to generate energy; we need energy to
grow food and to treat and move water; and we need land (and in the case of biofuels,
crops) for energy production. We cannot manage these three resources in isolation as
the availability of each affects the availability of the others. This interconnectedness is
often called the water-food-energy nexus. In response to this challenge, 10 sustainable
development priorities were identified, providing a framework for measuring and
responding to challenges in this area:
■ Discouraging irresponsible drinking
■ Making more beer using less water
■ Reducing our energy and carbon footprint
■ Packaging, reuse and recycling
■ Working towards zero-waste operations
■ Encouraging enterprise development in our value chains
■ Benefiting communities
■ Contributing to the reduction of HIV/AIDS
■ Respecting human rights
■ Transparency and ethics
extent to which it attains its mission and goals and the way in which it has been done. The
balanced scorecard (BSC) is one of the most highly touted management tools today, which
serves as both a strategic planning and control mechanism.
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All four dimensions of the BSC are equally important. The model contends that long-term
organisational excellence and quality can be achieved only by taking a broad approach, and not
by solely focusing on financial performance. Furthermore, the model is future oriented and not
primarily a review mirror of performance, as is often portrayed in traditional financial reports
such as income statements, balance sheets and cash flow statements.
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against the baselined status so that management can evaluate any deviations.
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■ Benchmark current performance. Quantified assessments allow the current status of the
organisation’s measured performance to be gauged against accepted industry norms and
standards. The greatest benefit is achieved in the observation of best-in-class processes
rather than just the comparison of business metrics.
■ Set intermediate and future targets to achieve. Assessment of business practices should
be succeeded by root cause analysis to expose required breakthrough and continuous
improvements which will aid the setting of intermediate and future business performance
targets.
■ Plan for organisational improvement. The required breakthrough and continuous
improvements should be planned for by developing business improvement projects that will
require funding, resource allocation and management approval.
■ Measure investment impact. Liquid and intellectual asset investment required to improve
the organisation’s maturity or performance can be measured through conducting and
comparing annual maturity assessments.
■ Contract leadership and management performance. Continuous organisational assessment
allows for quantifiable leadership and performance management which at the best of times
remains an emotive issue in most organisations.
■ Recognise and reward organisational performance. Annual assessment, if quantified,
serves to facilitate and motivate team-based reward and recognition.
The objective of striving toward maturity is to improve the organisation’s ability to achieve
strategic objectives through effective management and leadership principles, and effective
processes and systems, with a stable and competent workforce.
3. Management skills and competence. These are crucial contributing factors to the success
of an organisation. In terms of organisational maturity, they refer to the behaviour and
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actions of the managerial team and leaders, and their inspiration, support and promotion of
a culture of performance and success.
4. Functional skills and competence. The organisational maturity model does not only
highlight the important role played by top managers, it also stresses the importance of the
skills and competency of functional management and subordinates.
5. Resource and information management systems. The last business practice focuses on the
effective and efficient utilisation of organisational resources and information.
Stage 4:
Stage 1: Stage 2: Stage 3: Sustain
Minimise Industry Industry industry
mistakes positioning leader leadership
position
■ Resource and information management systems. Systems are stand-alone with very
limited interfacing; handovers are manual and lead times are consistently long.
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are in place to measure process performance; risk and competence contribute greatly
towards resource optimisation; quality is not negotiable and the focus is shifting towards
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adding value to the external environment; backward and forward vertical integration may
be achieved with little effort; benchmarking of processes is undertaken and forms part of
the organisation’s learning initiatives.
■ Skills and competence. Development plans for teams and employees are aligned and
fully support achieving the organisation’s strategy; management and functional maturity
is evident in all areas of the business environment; competence focus is shifting to the
external environment with development plans including external interfaces.
■ Resource and information management systems. All systems are fully integrated and
proactive systems learning takes place; no manual handovers exist with lead times on
complex work exceeding customer expectations.
The characteristics of the business practices in each of the above four phases of the OMM will
provide an indication of the maturity of the organisation. Ideally, an organisation will aim to
have the characteristics associated with stage 4 of the model, in order to sustain its industry
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Considering the organisational maturity journey together with the stages of learning, it is
evident that strong and mature leadership is required to facilitate the journey. It is said that it
takes a big man to do introspection and admit to his shortcomings, and organisations are no
different. To further emphasise strong leadership, the organisational maturity model should not
be seen as a quick fix. Depending on the size of the organisation, it could take as long as seven
years to achieve the highest level of maturity. Innovation and rapid skills development therefore
are of the essence.
The World Economic Forum produces an annual report on the competitiveness ranking of
148 countries. Maturity in a country’s organisations in general is reflected in the criteria on
which this report is based. Table 13.1 provides a summary of South Africa’s ranking (out of the
148 countries), based on certain criteria as listed in column 1 of the table. South Africa’s overall
ranking of 53 is very positive. Business sophistication and business innovation’s rankings of 35
and 39 respectively are also an indication of the efficiency and effectiveness of South African
businesses. However, South Africa’s labour market efficiency and tension in the labour market
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TABLE 13.1 The Global Competitiveness Index 2013–2014 (South African rankings)9
S
Overall 53
Quality of institutions 41
Intellectual property protection 18
Property rights 20
Legal efficiency (challenging and settling disputes) 13
Accountability of private institutions 2
Financial market development 3
Efficient market for goods and services 28
Business sophistication 35
Business innovation 39
Macroeconomic environment 95
Diversion of public funds 99
Perceived wasteful government spending 79
General lack of public trust in politicians 98
Security (public) 109
Health of workforce (medical) 133
Quality of education system 146
Labour market efficiency 116
Rigid hiring and firing practices 147
Flexibility of wage setting 144
Tension in labour market 148
Unemployment 20%
Youth unemployment 50%
measure their outputs objectively using a structured process. In other words, strategic control
is imperative in an organisation’s effort to reach maturity. Traditionally in the application of
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quality control, quality audits were done to check compliance against set standards. Generally
trained quality specialists or independent contractors performed these audits. The output tended
towards the negative by fault-finding and highlighting non-conformance which more often
than not resulted in demotivation of the workforce. Very few business improvement projects
have seen the light as result of a statistical auditing process.
In measuring organisational maturity, facilitated self-assessment is proposed as the
structured measurement process used to identify strengths and weaknesses. With the aim of
motivating breakthrough and continuous improvement, this should be accomplished by the
workforce themselves with specialist facilitation. The greatest benefit derived from a self-
assessment process is that it is the organisation’s own opinion of its health.
Using the assessment criteria from the OMM, the six main steps in carrying out a self-
assessment are very similar to the strategic control process that we discussed in section 13.3.
First, an organisation needs to plan and prepare itself for a self-assessment, followed by
the collection of views, data and information on the current situation. This will enable the
organisation to identify its own strengths and weaknesses. Opportunities should now be
prioritised, followed by the implementation of action plans. This process should continuously be
reviewed and repeated. Such a process provides an organisation with a rigorous and structured
approach to business improvement. The model also provides an objective assessment of the
organisation, based on facts and not individual perception. Furthermore, the model provides a
shared vision of what needs to be done, and what training initiatives are necessary to educate
the workforce on effectiveness and efficiency. Lastly, the model provides the organisation with
a powerful diagnostic tool and an opportunity to reward progress and achievement.
The OMM should not be viewed as an alternative to the balanced scorecard. Where the balanced
scorecard provides a dashboard with dynamic updates on chosen business metrics, the organisational
maturity model provides the means to control the organisation’s achievement of strategic objectives.
Putting all of this in context with the chapter case study on J&J, we find the maturity of
their leadership refreshing. Had they acted differently in the crisis that happened with Tylenol,
it would have sounded the death knell not only for the drug, but for the entire organisation. It
all came down to taking responsibility, acting fast and not trying to apportion blame.
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for collecting and processing environmental data. Informal environmental scanning activities
are varied and may take place when employees of an organisation interact with media (e.g.
newspaper or television news reports), interact with employees or managers from another
organisation, or attend industry association meetings or conferences. It is important that
employees should be primed to share the information they uncover with the organisation so
that it can be assessed and appropriate actions can be determined.
The events identified by the organisation can range from macro-environmental factors such
as government legislation and natural disasters, to competitive action and even internal aspects
(such as the unexpected failure of a key plant). Chapters 7 and 8 deal with the internal and
external environmental issues, and identify the important elements on which environmental
scanning should focus.
responses to the key risks it faces. Strategic risks can generally not be addressed by
operational or tactical responses. They require a strategic response.
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As in the case of strategic control, the business architecture (e.g. leadership and culture,
technology and skills) can play a role in determining how effective strategic risk management
will be.
Risk
identification
Risk Risk
responses analysis
Risk
evaluation
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Organisational maturity
Strategic control
opportunities or threats to the organisation. These are mostly forward looking as they try to
pre-empt environmental events that may affect the organisation in future.
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It should be said that all managers (if not all employees) of the organisation should constantly
be scanning the internal and external environment to identify aspects that either threaten or
improve the effectiveness and efficiency of the organisation.
Ultimately the best type of control is the prevention of mistakes. In this regard, the
function of strategic control is also influenced by organisational maturity. The more mature
the organisation, the more likely it is to be able to plan ahead to the extent that it minimises
mistakes and prevents disastrous decisions.
Discussion questions
1. Define the term ‘strategic control’ and explain its role in the strategic management process.
2. Defend the importance of strategic control in the management of an organisation.
3. Describe the steps in the strategic control process.
4. Explain the various areas of strategic control.
6. Discuss the balanced scorecard and organisational maturity model as tools to exercise
strategic control.
7. Explain the characteristics of an effective strategic control system.
8. Explain the role of environmental scanning in a strategic control system.
9. Consider the case of Telkom’s investment in Multi-Links in Nigeria (http://www.moneyweb.
co.za/moneyweb-ict/telkoms-multilinks-disaster). How would proper strategic control have
assisted Telkom to avoid their costly mistake?
10. How would strategic control differ between a mining company and a retailer? Identify at
least 10 key differences.
Learning activities
1. Find the annual report of any organisation of your choice online. Can you identify five
measures of strategic control in the annual report?
2. Read the article on strategic risk management at http://www.markfrigo.com/What_is_
Strategic_Risk_Management_-_Strategic_Finance_-_April_2011.pdf In your view, what is
the relationship between strategic control and strategic risk management?
Endnotes
1 Adapted from http://www.jnj.com (accessed 12 August 2014)
2 From the 1970 conference of The Church of Jesus Christ of Latter-day Saints (Mormon Church)
3 Fawcett, S.E., Ellram, L.M. & Ogden, J.A. 2007. Supply chain management. Upper Saddle River, New
Jersey: Pearson Prentice Hall, 408.
4 See, for example, http://www.iso.org/iso/home/standards/management-standards/iso_9000.htm for
more information on the ISO 9000 series (accessed 13 April 2014).
5 Megginson, W.L., Smart, S.B. & Gitman, L.J. 2007. Corporate finance, 2nd ed. Mason: Thomson South
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resources for a unique end result. The strategic Crafting strategy (see strategy formulation)
value of capabilities is determined by its ability
to generate revenue, its rarity, how difficult it
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Strategic control (also referred to as strategy messy realities of doing strategy in practice. The
review) strategy-as-practice perspective is built on three
The purpose of strategic control is to ensure that components, namely strategy practices, strategic
the formulated strategy remains valid and that praxis and strategists.
the implementation of strategy remains on track.
Strategy deployment
Strategic decision making The process for managing the strategy
The choices regarding the actions of the implementation process and to make it part of
organisation in pursuit of its strategic goals. the organisation.
Strategic goals (also referred to as long-term Strategy execution (see strategy
objectives or strategic objectives) implementation)
Strategic goals are specific desired outcomes
Strategy formulation (also referred to as
with a long-term focus (typically 3–5 years).
crafting strategy or strategic planning)
To be of value, strategic goals need to be
The process of setting the strategic direction
measurable in terms of time, money and units.
of the organisation, analysing the internal and
Strategic initiatives external environment, setting strategic goals,
Those key projects or programmes focused and developing and choosing the strategies that
on achieving a specific objective or improving will help them attain strategic goals.
performance in order to achieve a performance
Strategy implementation (also referred to as
target, and ultimately a strategic goal (or goals).
strategy execution)
Strategic management The process during which the organisation
The process for planning, implementing and draws on both human and non-human factors
controlling strategy for the organisation. in the organisation to ensure that the strategy
is executed in line with the plans devised during
Strategic objectives (see strategic goals)
the strategic planning phase.
Strategic planning (see strategy formulation)
Strategy practitioner (see strategists)
Strategising
Strategy review (see strategic control)
Strategising is essentially what strategists do,
and can be described as devising or influencing Sustainability
strategies. The ability of the organisation to survive and
outperform rivals in the long run. Sustainable
Strategists
development is commonly accepted to mean
Any individual or group in the organisation that
balancing economic objectives (such as profit)
controls key or precedent-setting actions can be
with the welfare of the communities in which
regarded as strategists.
the organisation operates (a social dimension)
Strategy and protecting the environment in which the
The direction provided by the actions organisation physically exists.
and decisions of strategists in pursuit of
Task environment
organisational goals.
The environment immediately surrounding
Strategy-as-process perspective the organisation, consisting of the industry
The process perspective of strategic environment and other external stakeholders.
management considers strategy as a process
Top management
with specific management roles and tasks
Top management comprises the top layer of
assigned to each stage in the process.
managers in the organisation, including the CEO.
Strategy-as-practice perspective
Turnaround strategy
The practice perspective of strategic
Where organisations perform poorly for an
management offers a wider view of strategic
extended time, turnaround strategies may be
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BBBEE 32
Index beer 42-46, 49, 99
cassava-based 44-45
A in Kenya 35
Abbott Laboratories 206 benchmarking 130, 271-272, 282, 293, 306
absenteeism 286 Bensch, Theo Vincent 207
absorptive capacity 101-102, 306 best cost provider strategies 187
abstract conceptualisation 103 bicycle industry 155
accuracy 12, 302 big picture 238
adaptability 92-93 -conscious strategists 88
adaptation 209, 244 Biodiversity Institute 50
adapters 162 biofuels 42
administration 128 BirdLife South Africa 50
advisers 12 black economic empowerment see BBBEE
aeroplanes 216-218 Blue Label 53
Africa 15-16, 20 board see directors
cultural renaissance 30 Boeing Black 115
development issues 22-24 Boll, Stefan 206
impact of strategic management on business Bontis, N 119
in 33-38 Boss of the Year 206-207
African Union (AU) 26, 32, 37 Boston Consulting Group (BCG) matrix 185
goals 33 Botswana 26, 27, 43, 45
strategic objectives 29 bottom of the pyramid (BOP) 23-24, 306
SWOT analysis 21-22, 23 strategy at 33-34
agility 169-170, 308 bounded rationality 260
agriculture 33 brand portfolios 122
Aids see HIV/Aids Branson, Richard 103
airline industry 156 Brazil 143
airports 216-218 BRICS 143
alcohol abuse and external stakeholders 289 broad environment 159, 306
alliances 130 Burke, James E 265-266
alternatives, developing 11 business architecture 218, 219-224, 220, 222,
ambidexterity 170 234, 306
ambiguity vs uncertainty 162 context 223
Amcu 52 principles of 221-222
Anglo American 52, 243 business as usual
Angola 27 vs strategy 9, 242
Apple 1-2, 137 vs sustainability 138
appraisals 287 business definition 219
appropriability 131 business ethics see ethics
artful interpreters 89 business process perspective see process
articulation 105 perspective
assertiveness in strategy 37 business spread 122
assessing see also external environment business-level strategies 12, 176, 186-189, 187
analysis 168
asset management ratios 284 C
assumptions 198 cameras, film vs digital 101, 137
awkwardness 297 capabilities 117, 121, 120, 224, 306
and competitive advantage 128-130
B classification of 127-128
balanced scorecard 74-76, 75, 140, 254, 281- creating value from 126-128
282, 299, 306 development of 132
dimensions 290-291
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control 280
perfect order fulfilment 281 management system, integrated 292
performance evaluation 273, 280, 287, 292 products 129
PEST and PESTLE/G frameworks 141-142, 145 quick buck vs strategy 38
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R rituals 204
Rand Merchant Bank 37-38 Rouse, MJ 125
rarity 123 routines 204
rate of return on assets (ROA) 284-285 Russia 143
ratio analyses see financial ratios
RBV see resource-based view S
ready, aim, fire vs ready, aim, steer 244 SAB Zenzele 45
real-time information 12 SABMiller 42-46, 49, 99, 121, 122, 250-251,
recalling unsafe products 266 288-290
recession see financial crisis risk management 301-302
recognition see reward and recognition SADC 21, 27-32, 37
reconstruction, change as 210 Common Agenda 28-31, 29
recovery strategies 185 goals 33
recycling 44 member countries 27
refunding 279 strategic intent 22
regulators 150 sales 128
reinterpretation, change 213 analysis 277
religion 33, 37 force evaluating 278
remote working 234 sanctions see embargos
RENAMO 32 scanning see also external environment and
replicability 131 analysis 67, 168
reporting 258-259 as strategic control measure 299-300
reputation 119, 282 scenario planning 163-166, 164, 165, 308
research and development 282-283 Science for a Better Life 65
quality of 282 scorecards see also balanced scorecard 281-282
reserving the right to play 162 segmentation 130
reshaping strategic thinking 92 self-appraisal 287
resource-based view (RBV) 3, 116, 124-126, 125, self-assessment 299
308 Senge, Peter 107
resource/s 117-119, 121, 308 service-oriented culture 276
allocation 245 Seychelles 27
and capabilities 120 shapers 162
and competitive advantage 128-130 share price against stock market indices 285-286
and efficiency and effectiveness 287-288 shareholders vs stakeholders 145, 146
deployment 270 short-term goals vs strategy 77-78
extraction vs manufacturing 23 silos 17
lack of 260 simplicity 302
management systems 294, 295 skills 36, 293-296
requirements 254 and globalisation 122
tangible vs intangible 118-119 and strategic direction 241
value of 122-123 developing management 260
responsibility, taking 266 lack of in Africa 25
retrenchment strategies 184 levy 32
revenue growth strategies 185 lower-level managers 225-226
revolution, change as 210 task-oriented vs people-oriented 211
reward and recognition 111, 293 training expenditure 287
and strategic control 173 vs knowledge 105
and strategic direction 241 small, medium and micro enterprises see SMMEs
rework control 279 SMART principle 73-74, 78
Rhodesian Breweries 99 SMMEs 26
rightness 297 soap powder 188-189
risk 225 soccer 178
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