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DEVELOPMENT OF STRATEGIC MANAGEMENT AS A MANAGEMENT

APPROACH
Page number

TABLE OF CONTENTS

1 INTRODUTION 1

2 THE EVOLUTION OF STRATEGIC MANAGEMENT DURING THE FIRST FIVE

DECADES
2.1 From military campaigns to strategic thinking.
2.2 From business policy to classical planning school in the 1960’s
2.3 The positioning school of strategic thinking in the 1970’s
2.4 Competitive advantage: industry structures and the resource-based view in 1980’s and
1990’s
2.5 Contemporary strategic thinking

3 THE ROLE AND IMPORTANCE OF STRATEGIC MANAGEMENT IN THE

CONTEMPORY BUSINESS ENVIRONMENT
3.1 Overview of what strategic management encompasses
3.2 Importance of strategic management
3.3 How strategic management fits into the contemporary business environment

4 Corporate citizenship in the contemporary business environment

4.1 WIPHOLD’s approach to social responsibility

5 CONCLUSION

6 REFLECTION

7 BIBLIOGRAPHY
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1 INTRODUTION

It is a commonplace executive observation that businesses exist to make

money, and the observation is usually allowed to go unchallenged. It is,
however, a very limited statement about the purpose of business. katz and
kahn (1996).

This assignment will aim to understand the true purpose of business in that it will
consider strategic management in the contemporary business environment. The
assignment will argue that strategic management goes beyond the maximization of
profit to that of wealth over the long term. The assignment consists of three parts,
namely: (1) the evolution of strategic management during the five decades, (2) an
overview of the role and importance of strategic management in the contemporary
business environment, (3) corporate citizenship in the cotemporary business
environment.

2 THE EVOLUTION OF STRATEGIC MANAGEMENT DURING THE FIRST

FIVE DECADES

2.1 From military campaigns to strategic thinking

Strategic management has had its origins in the military and dates back to 508BC.
The word “strategy” is derived from the ancient Athenian title “strategos”, denoting a
supreme commander of the Athenian armed forces. The position was created as
part of Cleisthenes’ sociopolitical reforms of Athens instigated in 508 BC and
combined the words stratus (“army”) and agein (“to lead”) (Cummings, 1995:23).

Strategy goes even further back than the ancient Greek civilization. One of the
greatest strategy texts of all time is The art of war, written by Sun Tzu, a military
strategist, in China more than 2500 years ago.

For centuries, strategy was used by military and leaders who had to make choices
about the direction and policy of the resources they possessed and how to best
distribute these resources in pursuit of there objectives-very much like managers
and leaders in today’s business world (Segal-Horn 204:1).Therefore evidence
shows that military and business strategy share similar concepts and principles,
particular strategy and tactics.

During the early 20th century, managers began to explore and define the
management task. They began to think about the survival and achieving success
through leadership mostly in war and sometimes in politics, after which slowly
started to gain popularity in the business world.

In late 19th century, the Second Industrial Revolution emerged first in the United
States and than in Europe. As we know today, small industrial and organization in
those days required little strategy as there was not severe competition. Then, a new
type of organization began to emerge- large, vertically integrated organizations that
invested heavily in manufacturing and marketing and had developed management
hierarchies to coordinate those functions (Ghemawat 1999:3).The top-level
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managers at these organisations were the first to emphasis the need for strategic
thinking. For example, Alfred Sloan from General Motors (1920-35), formulated a
successful strategy based on strengths and weaknesses that Ford had put in place.

Meanwhile, elite business schools were being established in the United States. In
1908 the Harvard Business School was established and it was one of the first
business schools to promote the idea that managers should be trained to think
strategically rather than merely acting as functional administrators, even though
strategy as a subject was only introduced in the 1960’s.Before the 1960’s ,
academic contributions to strategic thinking were made by economist.

During World War II strategic thinking developed further as scarce resources

needed to be allocated accordingly across the entire economy. Matloff and Snell
(1953) states that during that time, the United States began to stress planning for
large-scale coalitions as the giant forces of World War II developed. Increasingly,
formal strategic thinking became the guideline for formal management decisions as
well as the development of strategic planning systems and the use of analytical
patterns of strategic thinking.

2.2 From business policy to classical planning school in the 1960’s

By the 1950’s strategic management began to be taught in universities in courses

named Business Policy. Kenneth Andrew from the Harvard Business School
contributed to the development of strategic management and introduced the
concept that everyone in the organisation; including employees and managers
throughout the organisation need to strive for common goals and objectives. If no
strategic direction is set, no one will know what the organisation is striving to
accomplish or have any idea of what to work towards. This strategic direction should
be communicated to all stakeholders inside and outside the organisation. He also
said that the primary function of a general manager was to supervise the continuous
process of determining the nature of the organisation and setting, revising and
achieving its goals (Ghemawat 1999:5).

By the 1960’s, the syllabus of business schools started focusing on matching an

organisation’s internal strengths and weaknesses with the opportunities and threats
that is faced in the external environment (Ghemawat 1999:5-6), bringing the idea of
competitive thinking into Business Policy modules and strategic thinking. Other
important contributions to the development of strategic management can be credited
to Igor Ansoff and Alfred Chandler.Ansoff, a professor at Carnegie Institute of
Technology in the United States, published his best-known book corporate strategy-
an analytical approach to business policy for growth and expansion in
1965.According to Ansoff, an organisation needs to consider four categories for
defining the common pattern in its business to enable the organisation to maintain
its strategic focus. These categories includes it’s the product/mission matrix and
growth vectors, which are still widely taught and used today.

Chandler (1962:13) defined strategy as “the determination of the basic long-term

goals and objectives of an organisation, and the adoption of courses of action and
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the allocation of resources necessary for those goals”. This represented a view of
strategy as planning. His work focused on the organizational structures that would
enable managerial hierarchies to work efficiently by allowing top managers to
allocate resources as required to achieve strategic objectives. Chandler, Ansoff,
Sloan and Andrews established a perspective on strategy that is called the
‘classical’ school of strategic thinking or planning approach to strategic
management and assumed that strategy was a deliberate, rational process where
organisations were efficient and rational resource-allocating mechanisms.

2.3 The positioning school of strategic thinking in the 1970’s

During the 1970s there was a shift away from the strategy-as-planning approach
also known as the classical planning school. The approach followed by corporate
planning departments which entailed focusing on long-term planning, cost reduction,
minimizing financial risk and using quantitative analyses as the basis for strategic
decision making started to break down as a more complex reality appeared. Too
many organisations across all industries made use of the same strategic
techniques. In the late 1970s there was an economic instability which triggered high
oil prices and increased internal competition which was not accommodated by the
strategy-as-planning approach. The concepts of competition and competitiveness
between organisations, within industries and between different countries gained
importance and strategic thinking and strategic management, with its emphasis on
the competitive environment and sources of competitive advantage, became the
latest thing. Strategy now focused on performance and the search for profitability
(Segal-Horn 2004:3)

2.4 Competitive advantage: industry structures and the resource-based

view in 1980’s and 1990’s

With this shift to performance, competitive advantage and profitability, strategists

now wanted to answer two questions: “What is the source of competitive
advantage?” and how should organisations compete?” Leading the way in the early
1980 with his successful book, Michael Porter emphasized his research on the
external environment and especially the analyses of industry structures to determine
levels of industry attractiveness and comparative levels of potential industry
profitability. This school of thought often referred to as the positioning school of
strategic management thinking, which found that the key drivers of competitive
advantage were the structure of the industry, the overall attractiveness of an
industry and an organisation’s market positioning.

In the early 1990s strategic thinking moved again from the search for optimal
marketing positioning to the resource-based view (RBV) .The core idea of the RBV
is that organisations differ in fundamental ways because each organisation
possesses a resource that is unique resources, made up of the organisation’s
distinct combination of assets, skills, capabilities and intangibles ( Pearce
&Robinson 2007:164). The source of an organisation’s competitive advantage is
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therefore not to be found in its industry structure or market positioning, but I its
combination of resources and capabilities.

2.5 Contemporary strategic thinking

Another perspective on strategy is the process approach to strategy, which sees

strategy making as a process within which a strategy emerges from a combination
of influences within the organisation (Segal-Horn 2004:6). An important concept of
this strategy thinking school is that strategy is emergent, in other words, it emerges
gradually in response to a range of views within the organisation, rather than a
deliberate, rational and top-down approach as suggested by the classical planning
school. Strategy as a process therefore not only reflects the views of top
management, but represents compromises between various stakeholders of an
organisation. The process approach to strategy also emphasizes that strategic
management is not a series of once-off activities but rather continuous and
interactive activities.

Another perspective comes from the systems thinkers who argue that strategies
will reflect the social, political or cultural systems within which the strategist is set in.
The practice of strategy as well as strategic thinking will therefore be different in
different social, economic and religious contexts.

The most recent developments in the concept of strategy is the dynamic strategy.
Due to the globalization-commerce and the internet during the 1990s, organisations
were no longer able to plan for the long-term future, because the environment was
changing too quickly and it increasingly became unpredictable. Game theory and
the idea of co-operation, where competitors both compete and cooperate with each
other for example strategic alliances have gained importance.

Today there is no one single approach to strategy that is guaranteed to provide all
the answers. Strategists are still investigating new theories and practices that would
be applicable to the complex cotemporary environment in which organisation
operate in.

3 THE ROLE AND IMPORTANCE OF STRATEGIC MANAGEMENT IN THE

CONTEMPORY BUSINESS ENVIRONMENT

3.1 Overview of what strategic management encompasses

Even though various schools or approaches or perspectives apply to strategic

management, academics and practitioners agree that strategic management is
concerned with good strategies and good strategy implementation.

According to Ehlers and Lazenby (2007:2), “strategic management can be defined

as the process whereby all the organizational functions and resources are
integrated and coordinated to implement formulated strategies which are aligned
with the environment. In order to achieve the long-term objectives of the
organisation and therefore gain a competitive advantage through adding value for
the stakeholders”. In addition, Thompson and Martin (2006) highlight the fact that
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strategic management involves awareness of how successful and strong the

organisation and its strategies are as well as an awareness of changing
circumstances. Strategic management is indeed concerned with the overall
effectiveness and choice of direction within a dynamic, complex and ambiguous
environment. Therefore, strategic management encompasses more than the
management of strategic decision making process and should also ensure that
strategies are successfully implemented (Louw & Venter, 2007).

Considering the preceding definitions it can be summarized that strategic

management refers to a structured process. This process includes strategic
planning (an analysis of the internal and external environments), followed by the
strategy formulation (selecting strategies that align with the company’s strengths
and weaknesses and taking advantage of the external opportunities while
confronting the external threats). These strategies are then implemented and
monitored to ensure successful execution.

Strategic management essentially focuses on two questions, namely: where are we

going? And how are we going to get there? Therefore strategic management
provides a framework for organisations to identify all the tasks required to perform
all these tasks in such a way that success is achieved.

3.2 Importance of strategic management

The importance of strategic management and why organisations choose to follow a

strategic management approach lies in the following concepts:

Clear strategic direction and insight of the industry

The strategic management approach provides direction to all levels of the

organisation and drives decisions and actions. When it is communicated and
implemented effectively, it enables employees to articulate and share in the
organisation’s vision and overall strategic direction. In addition, the strategic
management approach provides various tools such as the five forces model, PEST
analysis, strategic group maps etc… to analyze the market. These analyses
provides organizations with important indication on how the industry is evolving, how
competitors are changing positions and where an organisation’s sources of
competitive advantage lie Barrows, 2009).More importantly, these analyses also
alert the organization to new opportunities and threats (Thompson & Strickland,
2003).Thompson and Strickland (2001:28) state that strategic management
provides better guidance to the entire organisation on the crucial point of “ what it is
that we are trying to do”. It also makes managers and subordinates more alert to
new opportunities and threatening developments, which leads to a more proactive
management approach

More effective usage of resources and stakeholder management

Strategic management is essential to ensure that the appropriate resources are

available when and where they are needed for the pursuit of objectives (Thompson
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& Martin, 2006:27). Furthermore, it also helps companies to balance the varied
interests of key stakeholders (Palmatier, 2008)

Rapid response to change

Strategic management creates a proactive position to change (Thompson &

Strickland, 2003) and ensures that decision makers have a good understanding i.e.:
its strategy. This understanding of strategic management enables executives to take
rapid strategic decision when the company is faced with new challenges and
opportunities. Strategic management approach also allows companies to be more
vigilant by constantly coming up with new idea when faced with challenges; it makes
managers and employees more alert to new opportunities and threats.

Higher productivity through increased performance

Falshaw, Glaister and Tatoglu (2006:13) assert have an effective strategic planning
system will link long-term strategic goals with both mid-term goals and operational
plans. Planners collect data and forecast future events and plan on how to deal with
them when they occur. These activities of planning allow organizations to
outperform other firms which do not engage in planning. According to Pearce and
Robinson (2007:10), strategic management enhances the organisations ability to
prevent problems. The strategic management process results in better decisions,
because group interaction generates a greater variety of strategies. When
employees are involved in the strategic management process, their understanding
of productivity-reward relationship is improved and this increases their motivation.
This adds clarification of each individual input in strategy formulation process and
decreases each individual resistance to change when a new strategy comes into
existence.

Higher productivity by delivering unique value

Strategic competitiveness can be a achieved by formulating and implementing

value-creating strategies. When an organization implements value-creating
strategies that other competitors are unable to duplicate or which are too costly to
imitate, it has achieved a competitive advantage. Strategic management is the
manner in which the organisation competes to deliver unique value. An organization
will only achieve competitive advantage when its returns are above-average by
offering value to customers.

Personnel advantages

Next Greenley (1986) indentified personnel advantages associated with strategic

management. These advantages include indentifying each individual role in the
organization, which stimulates each person’s cooperation and the effort contributed
is noticed. This encourages favourable attitude to change. Furthermore, it gives a
degree of discipline and formality to each management function that would not exist
without planning. Strategic planning also ensures that managers and employees at
all levels of the organisation work towards the same goal.
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Process advantages

Greenley (1986) highlighted the fact that strategic management could lead to
several process advantages. Strategic management can help the organisation to
identify and exploit future marketing opportunities, while providing objective view of
management problems. In addition it provides a framework to review how the plan
will be executed and on how activities will be controlled. The process leads to
minimization of unfavourable conditions and changes. It also ensures that major
decisions in establishing objectives and allocating resources are in line with
identified opportunities.

3.3 How strategic management fits into the contemporary business

environment

Organisations do not operate in isolation. They operate in open systems which

consist of events in the external environment. These events have a strong influence
on the way organizations operate. There are various attributes of the contemporary
business environment that impact on organisations and strategic management in
organisations. These contemporary issues include change, globalization, emerging
markets, corporate citizenship and corporate governance.

Change

The environment in which organisations operate in the 21st century is characterized

by the revolutionary and unpredictable change. Whenever change becomes
revolutionary, old ways of living is replaced by new ones. Revolutionary changes
has transformed human society fundamentally and shifted the agricultural age to the
industrial age; to the computer age in the 1950s to the information age in 1990s to
the knowledge age between the 1990s-2000s.It is believed that the world is shifting
again: from the knowledge age to the conceptual age. This change affects the way
in which organisations operate and the top management team needs to be aware of
the environmental forces and environmental change and manage the organisation’s
resources to take advantage of opportunities and counter threats.

Globalization

Globalization is the shift in the world economy away from national economies and
distinct national markets to an interdependent and interlinked global economic
system (Louw & Venter 2007:276). Organisations nowadays use strategic
management to expand their market by searching other markets to increase their
profit margin. Due to the rapid information and communication technology such as
the growth of the internet and World Wide Web have greatly increased the speed
and reach of international business. Thompson and Martin (2005) suggest different
reasons for an organisation to internationalize their business. It is possible that
organisation will take advantage of technological initiatives/innovations in another
county .Another possible reason may be to take advantage of strengths in targeted
economic sectors in foreign countries allowing the organisation to enter new
markets. It can also be to develop synenergies with oversees operations or to
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exploit strategic capabilities. When an organization chooses to internationalize their

business, it is important for strategic managers to match its chosen strategy to the
environment, the values, resources and overall strategic direction of the
organisation congruently.

Emerging markets

Emerging markets or emerging market countries can be broadly defined as

countries making an effort to change and improve their economies with the aim of
improving performance relative to that of more advanced nations or developed
countries (Hough, Thompson & Strickland 2007). Emerging market countries have a
significant impact on the countries around them. Their economic success can aid
the development in those countries at the same time if they experience an economic
crisis, it can have a negative impact on the surrounding countries

Emerging market countries include china, India, South Africa and may others. The
most significant of those are considered to be Russia, Brazil, India and especially
china. Economic growth in China has had a tremendous impact on the world
economic growth in recent years.

The importance of emerging markets is that they are seen as the markets of
tomorrow. As populations in developed countries age and decline, companies in
these countries search for new markets for their products and services. Therefore,
they look at the emerging market countries, which with their large populations will
become the largest groups of customers in the world.

Corporate governance

In South Africa, the King III Report provides a code of good corporate governance. It
deals with the aspects of boards and directors, corporate citizenship, and audit
committees, risk management, internal audit, risk management, internal audit,
integrated sustainability reporting, compliance with laws, regulation, rules and
standards, managing stakeholder relationship, fundamental and affected
transactions and business rescue ( Visser, 2009).

Corporate governance is important because it provides ethical boundaries in order

to prevent malpractices. The Corporate governance regulation demands that top
executives act transparently with due care and skills in the best interest of the
organisation and not in a reckless or fraudulent manner. Unfortunately, many
organisations in the pat have experienced corporate downfall in form of directors
attempting to dominate corporate decision making and to influence the company’s
profitability for their own personal benefit and not the shareowners. These corporate
failures are visible through examples such as Enron, WorldCom and many others.
These examples confirmed that any directors put their own interest before those of
shareholders.

According to Carcello (2009) corporate governance plays an important role to

ensure reliable financial reporting by senior management, the board of directors and
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various board committees. Investors consider corporate governance an important

consideration in making investment decisions. South African listed companies (listed
on the Johannesburg Stock Exchange), for example, are regarded by foreign
institutional investors as being among the best governed in the world’s emerging
economies, therefore offering good investment opportunities (Visser, 2009).
Corporate governance also ensures that directors act without bias. This is because
stock exchange listing rules require that a majority of board members should be
independent (Carcello, 2009). Good corporate governance therefore creates an
efficient, transparent and fair system of decision making.

4 Corporate citizenship in the contemporary business environment

Companies nowadays are globally confronted on how they address pressing local
and global challenges. Corporate citizenship takes into account the issues that are
negatively affecting the environment and enforced regulations that organizations
have to abide. It addresses issues such as combating poverty, disease and
environmental degradation through equitable and sustainable development, fighting
the threat of global climate change, and building durable and equitable pace and
security and a respect for universal human rights. Many organisations have
responded to calls for action with programmes and activities under banners such as
corporate citizenship, corporate responsibility and corporate accountability
(Gitsham, 2007:31).According to Louw and Venter (2007), companies that are
managed to the benefit of all stakeholders, display ethical behavior and are
committed to reducing its environment impact, adhere to good corporate citizenship
criteria. Corporate citizenship is important not only because it makes financial sense
but because it also reduces the risk of companies running into trouble. Failure to
adhere to corporate citizenship requirements can result in the following (Louw &
Venter, 2007:328):
 Damage to the brand and reputation of the organisation
 Losing a licence to operate or not being able to obtain or renew licences
 Customer dissatisfaction
 Demotivated employees, which can result in productivity declines
 Community anger, which could lead to boycotts and demonstrations
 Loss of shareholder confidence
 Closure of the business

Abiding to the requirements of corporate citizenship listed above could result in

inverse consequences.

4.1 WIPHOLD’s approach to social responsibility

Women's Investment Portfolio Holdings (WIPHOLD) adheres to its corporate

citizenship religiously. WIPHOLD is an investment and operating group owned by
black women, and dedicated to the economic empowerment of black women.
Established in 1994 with starting capital of R500 000, in 1999 WIPHOLD became
the first women’s group to be listed on the Johannesburg Stock Exchange (JSE).

WIPHOLD has developed various approaches to social development in South

Africa, by making donations to organisations that focuses on the empowerment and
development of women and children. One such initiative is the development of
Project Imbizo – an initiative by WIPHOLD with the collaboration of its partners Old
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Mutual, Nedbank and Mutual & Federal. The four companies focused on poor rural
community, the Mnquma district in the Eastern Cape, and in two urban
communities, Khayelitsha and Kliptown.

They spent time with these communities, analyzing what their financial services
needs were and delivered packages which they saw fitted their needs, and in
return ,in the longer term believe will deliver sustainable business for their
companies.

WIPHOLD, Old Mutual, Nedbank and Mutual & Federal have built banks and
installed ATMs into the towns of the Mnquma district, as well as organized micro
lending for productive purposes and commercial agricultural initiatives in partnership
with the Mnquma community and with public-sector institutions which they believe
will establish wealth creation in the rural business sector. They have also employed
and trained people from the community to operate “Green Shops” — branches of a
different sort. They are focused in providing a place of gathering and respond to the
community’s needs to be able to engage to their financial services representatives.
In some areas they have introducing new products such as Old Mutual’s funeral
cover.

WIPHOLD also offers bursaries to Math’s and Science students, and to those who
are pursuing their career as Chartered Accountants and Engineers. Through these
foundations it’s evident that these companies are working towards and are providing
higher-income segments around the country.

5 CONCLUSION

When Strategic Management is approached and conducted properly it generates

great rewards. This assignment considered strategic management as practiced
within the contemporary business environment. It is established that strategic
management is multidimensional and that different interpretations and approaches
have contributed to the evolution of strategic management as we know today.
Through various models and approaches one thing that they agree upon is that
strategic management is a process consisting of various phases and building
blocks. Strategic managers are also responsible to ensure that the company
adheres to the requirements of good corporate governance and citizenship

6 REFLECTION

I was well prepared for this assignment, as I had previously studied this module last
year. I found the assignment to be challenging and stimulating. Having a
background in strategic management has been highly beneficial in writing this
assignment. Although I must add that as I continued, I had difficulties in
understanding what exactly was required for question 2, but through patients and
research with other peers, the concepts and the requirement that is expected
became apparent and clear. This assignment has given me a better understanding
on the building blocks. I have also learned that the strategic management process
can not only be used in a business perspective but can also be applied in all areas
of one’s day to day life.
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Suggested websites references

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Books.google.co.za/books ( Strategic Management: Creating Competitive advantage by

Gregory G. Dess, G.T. Lumpkin, Marilyn L.Taylor-2004- Business & Economics