Mng3701 Priscribed Textbook

S
•฀
PRACTISING
•฀
STR ATEGY
•฀
A southern African context
•฀
•฀
PEET VENTER ( EDITOR )
E S E S S
S S
S
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.
KEY TERMS ■ strategy ■ strategy implementation

■ competitive advantage ■ strategic control
■ strategic management ■ strategising
■ strategy formulation ■ strategists
CASE Steve Jobs1

STUDY Behind the phenomenal success of Apple Inc. is the late Steve Jobs, one
of the most admired business leaders of all time. Phrases and words like
‘the rock star of technology’, ‘irreplaceable’, ‘visionary’ and ‘the best CEO
that ever lived’ have been used to describe Jobs. Yet above all, Steve
Jobs was also fallible. As his biographer Walter Isaacson noted, ‘He was
not a model boss or human being, tidily packaged for emulation. Driven
by demons, he could drive those around him to fury and despair. But
his personality and passions and products were all interrelated, just as
Apple’s hardware and software tended to be, as if part of an integrated
system.’
Jonathan Ive, VP of industrial design at Apple, worked closely
with Jobs and was the design wizard behind the iPhone and other
successful Apple products. He was named top designer in technology
©
by FORTUNE and was described by Jobs as follows:
E S E S S
S S
S
‘He understands what we do at our core better than anyone … if I had

a spiritual partner at Apple, it’s Jony.’ Yet this successful and productive
relationship was not always plain sailing. Ive would be particularly
displeased when Jobs presented design ideas as his own: ‘[Jobs] will go
through a process of looking at my ideas and say, “That’s no good. That’s
not very good. I like that one.” And later I will be sitting in the audience and
he will be talking about it as if it was his idea. I pay maniacal attention to where
an idea comes from, and I even keep notebooks filled with my ideas. So it hurts
when he takes credit for one of my designs.’
Despite the occasional friction, however, Ive held Jobs in high regard,
crediting him with providing the motivation and drive to turn ideas into
reality. In turn, Jobs claimed to have entrusted Ive with more freedom
and operational power than anyone else at Apple. The partnership
certainly was very productive, with Jobs and Ive sharing credit for over
200 patents.
Organisations generally have an imperative to survive and to perform

CHAPTER
above the average. The study of strategic management focuses on how
ORIENTATION organisations achieve this competitive advantage, in other words how
they achieve superior performance and sustainability in the long run.
However, as the case study on Steve Jobs suggests, the role of people in
influencing strategy in the organisation cannot be underestimated.
In this chapter, we review the origins of strategic management, explain
the traditional process perspective of strategic management, discuss the
new perspectives on strategy that influence our thinking about strategic
management, describe strategic management as we see it today, and
introduce our approach to this book.
The origins of strategic management
The traditional strategic management process
New perspectives on strategic management
Strategic management today

©
A contemporary strategic management framework
E S E S S
S S
CHAPTER 1: INTRODUCING THE PRACTICE OF STRATEGY
S
1.1 The origins of strategic management

While strategy is an ancient concept,2 strategic management as we know it today originated in
the late 1970s with a move away from corporate planning to a more externally focused process.
Strategic management was characterised by a focus on competition as the key driving force
in the business environment and profit maximisation as the primary goal of the organisation.3
The process of strategic management accordingly focused on the selection of markets and the
positioning of the organisation in its chosen markets relative to its competitors as a source of
competitive advantage. Initially, the focus of strategic management was to determine how the
organisation could tap into sources of profit in an industry by virtue of its industry positioning.
For example, by creating clear differentiation from its competitors, organisations could be in a
position to charge higher prices for the perceived higher quality. This view, with Michael Porter4
as its main proponent, was predominant until the 1990s, and is still prominent in strategy texts
to this day.
In the 1990s, the resource-based view (RBV) emerged as the dominant perspective on how
organisations could achieve competitive advantage. The RBV proposed that an organisation’s
internal resources and capabilities were the most important sources of profit and competitive
advantage. The focus of strategic management accordingly shifted to understanding how
organisations differed from their competitors (in terms of what capabilities they possessed)
and how these differences could be leveraged for competitive advantage.5
Our understanding of how organisations practise strategic management and how they
develop competitive advantage and sustainability is shaped by our environment and is constantly
evolving. For example, in the aftermath of a string of corporate scandals (such as Enron and
Fidentia) and the global financial crisis of 2008 and 2009, there is a strong current focus on
responsible and ethical corporate behaviour.6
In this book, we emphasise the importance of the environment, and the resources and
capabilities of the organisation. At the same time, we recognise that strategic management is a
dynamic discipline and that its key influences and debates change over time. However, while our
understanding of the focus of strategic management and competitive advantage has evolved,
the strategic management process itself has not always enjoyed the same attention. In this
book, we argue that the strategic management process is also a fluid and changing concept. In
the next section we review the traditional strategic management process.
1.2 The traditional strategic management

process
Despite being presented in several different guises by different authors, strategic management
traditionally draws on the perspective that the management tasks consist of planning, organising,
leading and controlling. Building on this view, the strategic tasks of top management consist of
©
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
E S E S S
S S
PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
S
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.
©
E S E S S
S S
S
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,
©
changes are occurring in how we think about strategic management and these new perspectives
will be discussed in the next section.
E S E S S
S S
S
Vision STRATEGY FORMULATION

STRATEGIC
DIRECTION
Mission
Identify opportunities Strategic Identify strengths and

and threats goals weaknesses
Choice of
strategy
Strategy
implementation
Strategic
control
FIGURE 1.1 The traditional strategic management process
MANAGERIAL PERSPECTIVES
Strategic management processes work in silos in our company. Strategic meetings

are held and plans are put in place with no tangible results expected. After strategic
planning meetings which are held biannually, it seems to be back to business as usual.
Decisions being made do not involve all role players, and when goals and plans are put
in place, continuous monitoring and stumbling blocks are not actioned and discussed,
and roles and responsibilities are not clearly defined, which leads to confusion,
overlapping of strategic goals and plans left for unknown parties to complete.
Manager, public sector
I think the current strategic management process within our organisation is very effective.
The new business bank executive spent the right amount of time consulting with staff on
all levels and external international business consultancy agencies, and then only did they
commence with constructing the new strategy which is currently being implemented.
Each executive has taken full responsibility for his or her particular area of responsibility
and has gone as far as communicating in group sessions right down to the lowest ranked
staff members. This is proving to be very effective as it displays the fact that leadership
has listened to the staff, brought in outside expertise to balance it and then implemented
a strategy that is applicable to our particular organisation. In summary, all internal and
©
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
E S E S S
S S
S
1.3 New perspectives on strategic management

Most lecturers involved in teaching strategic management have experienced a situation where
students complain that the way strategic management is taught is different to the way it
actually happens in their organisation. This could be seen as a sign of the theory/practice divide.
More recently, the study of strategic management has started catching up to the practice of
strategic management. This new direction has led to some new insights and realisations about
strategy, some of which we discuss below. These insights have strongly influenced the way we
think about strategy and how we present it in this book.
1.3.1 Strategy is what people do, not what

organisations have
We often consider strategy as something abstract, as something that an organisation possesses,
for example ‘the strategy of company X is cost leadership’. However, there is increasing recognition
that strategising is a human activity, something that people do in organisations every day.
Robert Grant suggests that strategy exists in three places: the heads of managers, in the talk
and documents they produce and in their actions. Only the latter two are observable.8 This
perspective implies that, if we are to understand strategy and strategic management, we have
to understand how and why people make decisions and do what they do (i.e. their practices)
rather than focusing on strategy at an abstract level. We will almost always find that people do
not act like rational robots, but that their strategic acts (and by implication strategy) are fuelled
by who and what they are, as well as by cognition (rationality) and politics, the quest for power.
In the opening case study, it is clear that Steve Jobs aligned himself very closely with his chief
designer, and that that relationship played a considerable role in Jobs being recognised as the
genius behind Apple.
1.3.2 Strategy is not solely the domain of top

management
While top managers undoubtedly play a key role in the success of strategic management,
emerging perspectives support the idea that not only top managers are strategists. Any
individual or group in the organisation that controls key or precedent-setting actions9 can
be regarded as a strategist. Accordingly we can extend our perspective of strategists to
include non-executive directors, strategic planners, middle managers and consultants.10
Through their own interpretations of strategy, or their own strategising activities, sometimes
in the absence of strategic direction from top managers, these role players can influence the
allocation of resources. It is, therefore, important to consider their role. In the strategising
process, certain methodologies and systems can also be used to facilitate the process, for
©
example strategy workshops and projects. Additionally, material systems can control or influence
key actions, as can presentations, written documents and information systems. Even technical
E S E S S
S S
S
designs (such as in the case of Apple) may be used by strategists or could even be ‘strategic
agents’ in their own right.
1.3.3 Strategic management is not a neat and

rational process
The process perspectives of strategy often present it as orderly, analytical, rational and neat,
and also as deliberate – a path that is chosen and pursued efficiently. In fact, there is much
evidence to the contrary. Our experience of strategic management suggests that strategy is often
emergent rather than deliberate,11 messy rather than neat,12 and experimental and fraught with
failure rather than efficient and effective from the start. So, while there are elements of the
strategy process that are designed to be rational and cognitive (e.g. strategy workshops), there
are a myriad social interactions inside and outside of the workplace that influence the activities
and decisions of strategists.
1.3.4 Strategy is a conversation

Strategy work is primarily about verbal and written communication. It is about ideas and choices
that are fuelled by both cognitive and political processes. The idea of strategy as discourse
and strategy work as communication suggests that separating ‘thinking’ from ‘doing’ (as in
separating formulation from implementation) is rather outdated. It also has certain important
implications for managers. If strategy is a discourse, it means that strategists will need political
acumen in their network of contacts. They will need to be able to use persuasive language and
arguments, and be able to build a coherent story of strategy from the snippets of conversation
taking place all over the organisation.13 In other words, new perspectives on strategy emphasise
the importance of conceptual and verbal skills. In addition, documents such as strategic plans,
operational plans and strategy presentations are important forms of discourse that can influence
the strategy discourse and strategic decision making.
These new perspectives have some important implications for how we teach and learn about
strategy. In the next section we discuss our perspective of strategy as it exists today.
1.4 Strategic management today

As a first step in our exploration of a new perspective on strategic management, we have to
consider some key aspects and describe what we mean by strategy as seen from our perspective.
1.4.1 What does it mean to be ‘strategic’?

©
Not all actions and decisions can be considered ‘strategic’.
E S E S S
S S
S
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).
1.4.2 The importance of strategy

Strategy is a coherent narrative about the future direction of the organisation. It provides
members of the organisation with a framework to guide their decision making.
The strategic management process combines the views and thinking of many members of
the organisation and communicates the outcome back to the organisation so that everyone
follows the same strategy.
Strategy is, in a sense, the verbalisation of the organisation’s aspirations and accordingly
provides an inspirational element that may be far removed from the realities of the present. In
that sense, a good strategy can inspire, unite and motivate members of the organisation.
©
E S E S S
S S
S
1.4.3 Defining strategy

Strategy has been described variously as the long-term direction of the organisation,15 a pattern
in a stream of decisions,16 the means by which organisations achieve their objectives17 and the
deliberate choice of a set of activities to achieve competitive advantage.18 These definitions make
provision for both deliberate choices and for unplanned and emerging strategies. However, if we
accept the idea that strategy is a conversation or discourse, then we can imagine that strategy
is shaped by ongoing discourse about the future of the organisation, and that strategy may
simply be a believable story about the future of the organisation. What all of these definitions
have in common is the notion of a direction for the future, whether it is a ‘pattern’ that can be
recognised from the activities and decisions of the organisation, a deliberate choice of a set of
activities, or the steps taken to achieve strategic goals.
Building on these definitions, and accepting that strategy is primarily a human activity, we
define strategy as the direction provided by the actions and decisions of strategists in pursuit of
organisational goals.
1.4.4 Strategic management

Traditionally, strategic management has been defined as setting strategic direction, setting goals,
crafting a strategy, implementing and executing the strategy, and then over time initiating
whatever corrective adjustments are deemed appropriate.19 However, more recent research has
suggested that strategy is not this sequential and discrete, but is rather more messy, overlapping
and iterative. Nevertheless, the overarching purpose of a strategy remains the attainment of a
long-term position of advantage.
The purpose of strategic management is to ensure that the organisation applies the following
four key elements of a successful strategy:20
1. Clear and consistent long-term strategic direction in terms of what the organisation wants
to achieve in the future
2. A profound understanding of the competitive environment to ensure that the organisation
is able to align itself with opportunities and to deal with threats as effectively as possible
3. An objective knowledge of the key resources and capabilities the organisation possesses
as well as their value to allow the organisation to build on these and develop a distinct
competitive advantage.
4. The proper alignment of organisation structure, systems, culture, and functional and
operational management to ensure the effective implementation of strategic plans, projects
and initiatives
Strategic management is ultimately about consistently aligning the organisation with its internal
and external environments, 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
©
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
10
E S E S S
S S
S
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
FIGURE 1.3 Successful strategic management: striving for consistency
1.4.5 Strategic decisions

Strategic decisions are influenced by two factors:
■ Cognitive and rational aspects. Strategists adopt a logical approach and try to be as
objective as possible. While strongly emphasised in the prevailing views of strategy, it has
been recognised that managers are generally restricted by their own information processing
capabilities, i.e. ‘bounded rationality’.21
■ Political processes. Strategists will not necessarily agree on the best course of action to
achieve strategic goals and may use their sphere of influence or persuasive (or dissuasive)
language to sway others towards their preference. Strategists are ultimately, like all human
beings, social and political beings, influenced by their background (e.g. education, culture
and religion) and personality in their quest for status and power. It is, therefore, almost
impossible to expect strategic decisions to be entirely objective and rational.
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.
©
Strategy simulations can be used to improve strategists’ ability to generate and evaluate
alternatives more quickly.
11
E S E S S
S S
S
■ 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.
In strategic decision making, it is sometimes important to remember that it is ‘better to be

vaguely right than exactly wrong’,23 meaning that the time and cost associated with more
accurate information will not always be of equal benefit in the decision-making process.
1.4.6 The levels of strategy

Strategic management and decision making takes place at different levels in the organisation
(see Table 1.1).
At the highest level, decisions about the growth path of the corporation are made by the
board of directors or other governing bodies. This level of strategy is known as corporate-level
strategy and the focus is on creating shareholder value. It is at this level that decisions are made
about, for example, mergers, acquisitions, divestments and internationalisation.
Business-level strategy takes place at the level of the single business or business unit (e.g.
a subsidiary) and the focus is for it to achieve competitive advantage within its own market. It
supports corporate-level strategy by ensuring that it is successful in its markets, and draws on
the corporate centre to provide it with the means to compete successfully.
Functional strategies, such as human resource or marketing strategies, are developed to
support the implementation of business strategies.
TABLE 1.1 The different levels of strategy
CORPORATE LEVEL BUSINESS-LEVEL FUNCTIONAL

STRATEGY STRATEGY STRATEGY
Where Corporate centre Business unit Functional

management
Scope The multibusiness Markets in which it Functional area
corporation is competing (e.g. marketing)
Who is responsible Board of directors Business unit Functional
manager manager
Goal Shareholder value Competitive Executing business
©
advantage unit strategy
12
E S E S S
S S
S
PRACTISING STRATEGY: THE FIRSTRAND GROUP24

As one of the ‘big four’ banks, FirstRand describe their business model as a federal model
of managing a diverse portfolio of businesses through the life cycle. Their strategic
stance is characterised by an owner-manager culture, in which entrepreneurship and
innovation is emphasised. Unbundling and restructuring of successful businesses such
as Momentum and Discovery are part of the life cycle, and provide an example of
corporate-level strategic decisions. FirstRand have a strong focus on Africa with an
active interest in selected emerging markets in Africa, Brazil, India and China, and a
strong preference for greenfield or accelerated greenfield operations (‘grow new-age
businesses from scratch’) rather than acquisitions of mature businesses.
FirstRand’s growth philosophy has its roots in our entrepreneurial culture. The
Group believes that every expansion initiative it pursues must make business sense.
A FirstRand business will only enter a new market if we believe its core competencies,
that have proved successful in South Africa, can provide a sustainable competitive
advantage in the new market and that they suit the structure and economics of the
new market.
FirstRand has many successful businesses (‘leading franchises’) in its stable, among
them its franchises in Africa and India, Wesbank and Rand Merchant Bank. It also
holds significant investments in well-positioned businesses such as Outsurance and
Tracker.
1.4.7 How do we measure the success of strategy?

Throughout this chapter we have mentioned competitive advantage and sustainability in the
same context. However, the measure of strategic success is not always a simple matter. On the
one hand, there are proponents of shareholder capitalism, who suggest that the creation of
shareholder wealth through profitability is and should remain the only measure of strategic
success.25 However, shareholder capitalism and the drive for ‘profit at all cost’ have been heavily
implicated as a leading cause of the 2008–2009 global economic crisis, with detractors suggesting
that an excessive focus on profits (and especially short-term profits) is not sustainable.
On the other hand, the stakeholder approach requires a focus on balancing the often
conflicting needs of multiple stakeholders such as employees, shareholders, the environment and
local communities. While we are increasingly seeing large corporations embracing the concept
and reporting not only on their financial results, but also on their social and environmental
contributions (so-called ‘triple bottom line’ reporting), the stakeholder approach is criticised for
vastly increasing the complexity of strategic decision making and diluting the strategic goals
of the organisation.
Michael Jensen proposes that the two approaches should meet somewhere in the middle, and
that ultimately enlightened shareholder value maximisation is exactly the same as enlightened
©
stakeholder theory.26
13
E S E S S
S S
S
1.5 A contemporary strategic management

framework
Although we acknowledge the contribution of traditional strategic management perspectives
to our understanding of this important field, we also acknowledge that we need to incorporate
newer thinking in our perspective of strategic management. To this end, we have devised the
contemporary perspective of strategic management (Figure 1.4) which serves as the framework
for this book. This model and the outline of the book are discussed in more detail below.
1.5.1 The context of strategy

Strategy is a situated activity. This means where it is taking place can influence how it takes place.
The focus of this book is on the African context, and accordingly the purpose of this chapter is to
provide some of the key issues that define strategy making in Africa as well as some examples of how
businesses are dealing with these challenges. Chapter 2 provides some background to this.
Chapter 3 provides an overview of what is meant by sustainable strategy and how we can
measure if strategies are sustainable. It also deals with the organisational mechanisms and
processes for managing for sustainability.
1.5.2 Strategists and strategising

People bring with them their own personalities and backgrounds in the form of culture,
education, politics and religious beliefs. Strategising is therefore not only a cognitive activity,
but is fuelled by the individual’s quest for personal power. Chapter 4 focuses on the more
conventional strategic management process, while Chapter 5 discusses the human element,
namely strategists and their strategising. Chapter 9 deals with the choice of strategies, and is a
view of the more deliberate processes in strategic decision making.
1.5.3 Dynamic consistency

Dynamic consistency occurs when an organisation aligns its strategy with its key resources and
capabilities. In other words, the organisation leverages valuable internal sources of competitive
advantage with the strategy. However, capabilities may be required to change over time, and it
is under these conditions that the ability of the organisation to learn and adapt will be of critical
importance. For this reason, we address the learning organisation in Chapter 6, while the focus
of Chapter 7 is on the creation of valuable capabilities.
1.5.4 External consistency

©
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,
14
E S E S S
S S
S
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.
1.5.5 Internal consistency

Strategists do their strategising in the context of an organisation (the internal environmental
context) which is made up of a number of different elements. Through their actions, strategists
will attempt to align the internal environment with the strategy of the organisation, so that all
of the elements of the organisational architecture support the strategic direction.
Chapter 10 focuses on the alignment of strategy and organisational culture, while Chapter
11 deals with the alignment of strategy with organisation structure. Chapter 12 considers the
issue of strategy deployment (cascading of the strategy to the lower levels of the organisation)
so that it becomes part of everyday life in the organisation. Chapter 13 examines strategic
control as a key mechanism to ensure that strategy remains relevant, on track and consistent
with the internal and external environments.
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
EXTERNAL CONSISTENCY DYNAMIC CONSISTENCY

(strategy is aligned with (strategy is aligned with
external environment) organisational
capabilities)
Ch 8 The effect of the external Ch 6 The learning organisation
environment on strategic Ch 7 Creating valuable
©
management capabilities
FIGURE 1.4 A contemporary perspective of strategic management
15
E S E S S
S S
S
The big picture

In this chapter, we proposed that strategy is generally a messier process with more participants
than conventional perspectives would suggest. In developing our perspective, we suggested
that a variety of strategists contribute, through their strategising activities, to ensuring that the
organisation is continually aligned (through its strategic choices) with its external and internal
environment. In examining strategy, we also adopted the perspective that the context of Africa
is a critical influence on strategising and strategy, and suggested that sustainability (the ability
to survive and outperform rivals in the long run) is a key goal of any organisation. Table 1.2 is a
summary comparison of the conventional approach to strategic management and our approach
in this book.
TABLE 1.2 A comparison of a conventional approach to strategic management and our

approach
CONVENTIONAL STRATEGIC OUR APPROACH

MANAGEMENT
Central focus Understanding how Understanding what strategists

organisations develop do to achieve and maintain
and maintain competitive competitive advantage
advantage
View of strategy Abstract – a characteristic of The strategic acts, talk and
the organisation documents that strategists
produce
Responsibility Top management formulates, Wide range of strategists are
middle management involved and influence the
implements process
Process Logical and rational Messy, experimental and

iterative
Process flow Thinking before doing No clear separation between

thinking and doing
Key influences Cognition, microeconomic Cognition and politics,
microeconomics and sociology
Goal Competitive advantage and Competitive advantage and
sustainability sustainability
Discussion questions
©
1. Explain why strategic management is important to the organisation.

2. Define ‘strategy’ and ‘strategic management’.
16
E S E S S
S S
S
3. Describe the nature of strategic decisions.

4. Explain what success means in strategic terms.
5. Differentiate between the different levels of strategy.
6. Explain what is meant by internal consistency, external consistency and dynamic consistency.
7. Would you describe the decision by Tiger Brands to invest in Nigeria as a strategic decision?
Motivate your answer. (See http://www.fin24.com/Companies/Retail/Tiger-brands-profit-
hit-by-Nigeria-20131120 for more information on the decision.)
8. Compare the two perspectives below and indicate five (5) key points of difference between
the strategic management processes in the two organisations.
Strategic management processes work in silos in our company. Strategic meetings

are held and plans are put in place with no tangible results expected. After strategic
planning meetings, which are held biannually, it seems to be back to business as
usual. Decisions being made do not involve all role players, and when goals and plans
are put in place, continuous monitoring and stumbling blocks are not actioned and
discussed. Roles and responsibilities are not clearly defined, which leads to confusion,
overlapping of strategic goals and plans left for unknown parties to complete.
I think the current strategic management process within our organisation is very
effective. The new business bank executive spent the right amount of time consulting
with staff on all levels and external international business consultancy agencies, and
then only did they commence with constructing the new strategy which is currently
being implemented. Each executive has taken full responsibility for his or her particular
area of responsibility and has gone as far as communicating in group sessions right
down to the lowest ranked staff members. This is proving to be very effective as it
displays the fact that leadership has listened to the staff, brought in outside expertise
to balance it and then implemented a strategy that is applicable to our particular
organisation. In summary, all internal and external role players have been taken into
consideration and then matched with market conditions in order to come up with the
best possible strategy.
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-
©
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?
17
E S E S S
S S
S
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)
©
18
E S E S S
S S
S
STRATEGIC MANAGEMENT
2 IN THE AFRICAN CONTEXT
Jan Meyer
■ 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.
KEY TERMS ■ strategy ■ African Union

■ strategic management ■ National Development Plan
■ strategy formulation 2030
■ strategy implementation ■ Bottom of the pyramid
■ strategic control
■ Southern African
Development Community
CASE Standard Chartered in Africa1

STUDY Standard Chartered is a UK-based banking group with a strong focus
on emerging markets in Asia, Africa and the Middle East. Standard
Chartered has been present in sub-Saharan Africa since 1863, with a
presence in 15 African countries.
Standard Chartered CEO for Africa, Diana Layfield, ascribes
Standard Chartered’s success in Africa to four main reasons.
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
©
in Africa, the company has built up a strong basis of market information

in a region where information is not perfectly transmitted.
E S E S S
S S
S
Operating as a local player

Each of the local banks in the SC group operates as a local player. Of the
15 national operations, 13 are headed up by African CEOs, and 97 per
cent of the African staff contingent is locals.
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,
CHAPTER
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,
©
believes that superior market knowledge, the ability to operate as a local

player, long-term focus and a strongly diversified portfolio of investments
20
E S E S S
S S
CHAPTER 2: STRATEGIC MANAGEMENT IN THE AFRICAN CONTEXT
S
have been critical to its success in Africa. In this chapter, we consider

the challenges facing Africa and the Southern African Development
Community (SADC), and the strategic options available to organisations
operating in Africa.
Africa today
The Southern African Development Community
The impact on strategy and strategic management in businesses
2.1 Africa today

When considering the African situation and the drive for a Pan-African approach, it is important
to bear in mind that African nations have been cooperating with regard to a strategy for the
continent as a whole. Wealth creation (and the resultant poverty reduction) has been identified
as a key goal and to this end, African nations need to become technologically competitive.2
The African Union (AU) has identified key performance areas which its member countries
are expected to incorporate into their own respective strategies and this may in turn impact
on the strategies of individual businesses. The AU’s SWOT (strengths, weaknesses, opportunities,
threats) analysis, as published in their Strategic Plan 2009–2012, is reflected in Table 2.1.
TABLE 2.1 African Union SWOT analysis3
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,
©
commitment and motivation
21
E S E S S
S S
S
■ Sense of Pan-Africanism and ■ Weak reputation, presence and reach

philosophy in the continent
■ Inadequate sources of funds
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.
2.1.1 Lack of infrastructure

The lack of infrastructure (such as roads, harbours, electricity, ICT networks and railways) is a
significant damper on investment and business in Africa. For example, rural Africa has only
34 per cent road access, compared to 90 per cent in the rest of the world.4 In addition,
the state of the infrastructure that does exist is generally poor, with many governments
unwilling or unable to spend the amount of money required to keep roads in basic repair.
The lack of infrastructure compounds the high poverty and low food security levels in
sub-Saharan Africa, as it hampers the distribution of food and food aid, and information.
Only 17 per cent of sub-Saharan roads are paved, something which does not bode well for
growth, whichever strategy is being implemented.5 For businesses, this lack of infrastructure
may translate into a supply chain and distribution system that is inadequate and disorganised,
with much of retail sales occurring though informal channels. Good infrastructure is crucial if
Africa is to become competitive.6
©
22
E S E S S
S S
S
2.1.2 Lack of industrial development

What has also been identified by the African Union is the need to improve and increase
manufacturing capability. Most of the member countries apply primary resource development
(e.g. mining or harvesting) and then export the raw product for secondary and tertiary economic
processing. This results in extensive imports as the final products (tertiary economic products)
then need to be brought back into these countries for local consumption. Development in
secondary and tertiary industrial activities would negate this and result in greater creation of
wealth (the strategic goal) and greater independence of imports.7 Should the African Union
member countries be successful in meeting this strategic objective, it could lead to greater
production capabilities which in turn would stimulate exports, thus creating not only jobs but
also wealth.
However, as long as self-interest and political issues remain prevalent, no development will
occur. This is evident from the countries fighting civil wars based on religion and ethnic grounds,
which brings us to another strategic issue facing Africa, namely political instability.
2.1.3 Political instability

From a business perspective, political instability in Africa takes the form of unpredictable
government decision making that leads to volatility or armed conflict, making foreign investment
extremely risky at best.
As an example, in Zimbabwe, the government has been enforcing their 2007 Act requiring
that all foreign businesses have a local 51 per cent partner.8 The Zimbabwean government gave
all foreign small and medium enterprises (SMEs) which did not comply until January 2014 to
close and vacate their premises or face arrest. To date, no implementation of this threat has
been confirmed. This is not in line with the strategic goal of stimulating the micro-economy and
will only weaken the overall strategic position of Zimbabwe. Added to this, the radical approach
to land reform has led to a failed agricultural strategy9 at the same time as most Western
countries are placing economic embargos on the country, resulting in a focus on emergency
planning and the distribution of limited resources to support the ever-dwindling economy,
rather than economic growth. Uncontrolled exploitation of the wealth of the country (‘blood
diamonds’) is not contributing to the standing of the country either.10
Armed conflict and its effects are also prevalent on the continent. Of the 53 African countries,
15 are involved in war or are experiencing post-war tension or conflict. These wars are generally
over natural resources such as land, oil or diamonds.11
2.1.4 High levels of poverty

In most African countries (and many other developing countries), a significant proportion of
the population fall in the economic bracket that C.K. Prahalad has termed the ‘bottom of the
©
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.
23
E S E S S
S S
S
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
35,000 Rands per month R30,323

30,000 Income per month
25,000
R20,028
20,000
15,000 R14,470
R10,824
10,000 R6,398
R2,052 R2,829 R3,832
5,000 R1,493 R1,732
0
LSM 1, LSM 2, LSM 3, LSM 4, LSM 5, LSM 6, LSM 7, LSM 8, LSM 9, LSM 10,
716,513 1,934,012 2,225,429 4,450,328 5,750,130 7,128,155 3,746,714 2,787,804 3,110,465 2,170,119
adults adults adults adults adults adults adults adults adults adults
FIGURE 2.2 The gap between rich and poor15
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
©
problem in the long run
24
E S E S S
S S
S
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.
2.1.6 An inefficient public sector

In 2013, economic growth for the African economy was negative (−1.5%). This dismal failure to
alleviate poverty in sub-Saharan Africa, where per capita income now is less than what it was
in 1994, can be attributed to an inefficient public sector.19
2.1.7 Lack of key skills

Due to limited access to education at various levels, African markets often present investors
with a lack of people with key business skills and an oversupply of semi-skilled and unskilled
workers.
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
©
25
E S E S S
S S
S
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
PRACTISING STRATEGY: TIGER BRANDS DROP SOME CATCHES IN NIGERIA25

In November 2013, South Africa’s biggest food producer, Tiger Brands, surprised the
market with an earnings miss when it reported a R389m loss at its Dangote Flour
Mills business in Nigeria. CEO Peter Matlare ascribed the loss to two major factors.
Firstly, political events in the north of Nigeria and the resulting government clamp-
down caused a sharp reduction in sales in their biggest domestic market. Secondly,
©
a reduction in headcount by 1200 employees resulted in major costs associated with

severances.
26
E S E S S
S S
S
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.
2.2 The Southern African Development

Community
Of particular interest to our understanding of strategic management in the African context
is the sub-Saharan region, and specifically the Southern African Development Community
(SADC)26 group of countries within the African Union.27 The SADC countries have existing trade
and other political assistance treaties in place between them as well as a strategic alliance from
which individual countries compile policies.28 The SADC member states are listed in Table 2.2.
TABLE 2.2 SADC member countries29
Angola Malawi South Africa

Botswana Mauritius Swaziland
Democratic Republic of Congo Mozambique United Republic of Tanzania
Lesotho Namibia Zambia
Madagascar Seychelles Zimbabwe
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,
©
continuous allegations of fraudulent and other illegal dealings mar the country’s status and
position in the global arena.
27
E S E S S
S S
S
FIGURE 2.4 The SADC countries
2.2.1 Background to strategy in the SADC

Africa in the pre-SADC and AU days (pre-1960) had a fragmented and isolated approach to
strategy. Nevertheless, the basic goals were economic growth and political stability. For numerous
reasons, including de-colonisation (Angola and Mozambique), these were not realised.
South Africa had its own political instability during this period, with the apartheid regime in
power and strategies focused on eradicating all anti-government forces.31 With the democratic
election in South Africa in 1994, focus changed to improving the conditions of the previously
marginalised majority and other oppressed minorities. Closer cooperation with neighbouring
countries became a strategic objective and inclusion in regional affairs a priority.32
Strategy in Africa (and specifically the AU and SADC strategies) is aimed at eradicating
poverty and achieving regional integration.33 In all SADC member states, strategies are attuned
to further socio-economic cooperation, growth and integration whilst ensuring political, security
and military stability in and amongst member states.34 The key issues are defined by the basic
human needs as derived from the AU declaration: economic development, peace and security,
growth and the alleviation of poverty.35 These needs are further governed by the SADC Common
©
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
28
E S E S S
S S
TABLE 2.3 SADC Common Agenda items37

S
1. Promote sustainable and equitable economic growth and socio-economic

development that will ensure poverty alleviation with the ultimate objective of its
eradication, enhance the standard and quality of life of the people of southern
Africa and support the socially disadvantaged through regional integration
2. Promote common political values, systems and other shared values which are
transmitted through institutions that are democratic, legitimate and effective
3. Consolidate, defend and maintain democracy, peace, security and stability
4. Promote self-sustaining development on the basis of collective self-reliance, and

the interdependence of member states
5. Achieve complementarity between national and regional strategies and
programmes
6. Promote and maximise productive employment and utilisation of the resources
of the region
7. Achieve sustainable utilisation of natural resources and effective protection of
the environment
8. Strengthen and consolidate the long-standing historical, social and cultural
affinities and links among the people of the region
9. Combat HIV and AIDS and other deadly or communicable diseases
10. Ensure that poverty eradication is addressed in all SADC activities and programmes
11. Mainstream gender in the process of community building
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.
TABLE 2.4 AU strategic objectives42
1. Reduce conflicts to achieve continental security and stability

2. Achieve the necessary continental security and stability as a prerequisite for
Africa’s development and integration
3. Promote sustainable economic development
©
4. Promote sustainable social and human development
29
E S E S S
S S
S
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).
TABLE 2.5 Critical actions (NDP South Africa)45
1. A social compact (agreement between parties) to reduce poverty and inequality,

and raise employment and investment
2. A strategy to address poverty and its impacts by broadening access to
employment, strengthening the social wage, improving public transport and
©
raising rural incomes
30
E S E S S
S S
S
3. Steps by the state to professionalise the public service, strengthen

accountability, improve coordination and prosecute corruption
4. Boost private investment in labour-intensive areas, competitiveness and exports,
with adjustments to lower the risk of hiring younger workers
5. An education accountability chain, with lines of responsibility from state to

classroom
6. Phase in national health insurance, with a focus on upgrading public health
facilities, producing more health professionals and reducing the relative cost of
private health care
7. Public infrastructure investment at 10 per cent of gross domestic product (GDP),
financed through tariffs, public−private partnerships, taxes and loans, and
focused on transport, energy and water
8. Interventions to ensure environmental sustainability and resilience to future
shocks
9. New spatial norms and standards – densifying cities, improving transport,
locating jobs where people live, upgrading informal settlements and fixing
housing market gaps
10. Reduce crime by strengthening criminal justice and improving community
environments
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
©
with judicial and legislative restrictions as laid out by the National Department of Trade and
Industry).49,50
31
E S E S S
S S
S
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
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
©
32
E S E S S
S S
S
2.3 The impact on strategy and strategic

management in businesses
Businesses in Africa have to be more attuned to accommodating the continental strategic
approach as this will also benefit their bottom line. In South Africa, businesses adopted the
national government’s employment equity drives by skilling and appointing staff from the
previously disadvantaged groups at all levels. South African businesses continue to expand and
invest, both of which are criteria for growth and development, thus meeting not only the NDP
2030 goals but also the African Union and SADC goals. Businesses such as BMW, Mercedes
Benz and MassMart developed strategies which embody the Batho Pele concept. Organisations
also need to consider the challenges of doing business in Africa, such as problems with labour,
which nearly cost the South African economy a very lucrative BMW manufacturing contract.
Business strategies cannot be considered without taking into account a country’s economic
disposition. In Africa, this holds especially true as most business are IMF or multinationally funded
and thus bound by conditions of the funding authority. In many of these cases, whilst conflict
is under way, the country reflects positive growth as the investors and therefore the businesses
continue to exploit the mineral wealth (e.g. diamonds in the DRC). Locally, the state often partners
with businesses that are mostly centred around imports and exports. These will obviously be
negatively impacted when conflict disrupts the infrastructure which is already at its limits.
In terms of the continent as a whole, while some foreign investment is happening in countries
such as Nigeria, religious conflicts53 which sporadically flare up tend to inhibit large outlays.
In the DRC, investments are in diamond mining with virtually no growth in any other sector.
Businesses therefore try to remain afloat with what comes their way. The government actively
assists businesses to obtain foreign investment.54 Mozambique has been well supported in its
construction (infrastructure development),55 agricultural56 as well as the tourism industries.57
Until the advent of the renewed conflict, Mozambique had a bright future, with multinational
corporations displaying interest in investment in the country.58
Given the high percentage of the African population living on less than $2 a day, Africa
presents an opportunity for addressing the needs of the ‘bottom of the pyramid’. Investors in
African businesses and the African economy also need to consider the specific requirements for
success in Africa. These two issues are discussed below.
2.3.1 Strategy at the bottom of the pyramid

Prahalad argues that the greatest disservice done by multinational corporations (MNCs) to the
poor is that they simply ignore them, and do not produce products that are suitable to their
market. Multinationals incorrectly assume the following:59
■ The poor cannot afford their products or services.
■ The poor do not have a use for products sold in developed countries.
■ Only developed countries appreciate and pay for technological innovations.
©
■ The bottom of the pyramid (BOP) market is not critical for long-term growth and vitality
of MNCs.
33
E S E S S
S S
S
■ Intellectual excitement consists only in developed markets; it is hard to recruit managers

for BOP markets.
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.
PRACTISING STRATEGY: THE LIGHTIE60

In developing countries, many people do not have access to electricity and are forced
to use candles or paraffin lamps to provide light. The burden of these dirty sources
of energy is enormous. Not only do two million people die from using them annually,
but they also cost households 25 per cent of their income, a cumulative total of R380
billion per year.
In response to this problem, 27-year-old Michael Suttner invented the Lightie, a
solar powered lamp that screws into the top of a standard soda bottle. It provides 12
times more light than a paraffin lamp, and uses a long-life lithium battery that will
last for four to five years. At less than $10 per unit, the Lightie is a product that will
provide an ideal energy solution for the BOP market.
2.3.2 Investing in Africa

According to Business Day (12 August 2013),61 the developed world considers the fastest
©
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
34
E S E S S
S S
S
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:
Local customs and customer preferences

The rising African consumer market presents businesses locally and abroad with a significant
opportunity. However, Africa is a diverse continent in its own right, and one global strategy for
Africa may simply not be feasible. For example, in 2013, Shoprite sold more of luxury champagne
brand Moët & Chandon through its seven Lagos stores than though its whole network of 600
South African stores. In Ghana, consumers emphasise image, while Kenyans tend to favour
value for money. Similarly, West Africans prefer foreign brands, and perceive local products as
inferior, while Kenyans prefer to buy brands that are perceived as local.63 Despite the importance
of these differences, lack of market knowledge is an acute problem in most African countries,
which means that organisations willing to invest in developing their local market knowledge
may end up having a competitive advantage.
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.
Creative supply chain management

Given the infrastructure problems in Africa, innovative supply chain solutions are required to
ensure that the business is able to meet and sustain supply to its key markets. Some solutions
may include the following:65
■ Investing in own infrastructure, such as installing generators to counter the effects of power outages
©
■ 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
35
E S E S S
S S
S
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
Invest heavily in talent

The African brain drain and lack of key skills in African countries mean that organisations that
want to be successful will need to invest heavily in attracting, developing and retaining top
talent, especially in the management ranks.
PRACTISING STRATEGY: DOING BUSINESS IN EMERGING MARKETS66
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.
2.3.3 The role of government in African strategy

Governments are enablers of economic growth through their policy and investment decisions,
©
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
36
E S E S S
S S
S
economy (being dependant on a single agricultural source) to a multicultural one in order to

become more competitive in the international trade. Current African strategies do not address
this aspect, although it is a stated objective in the AU manifesto.67
African countries will need to become more assertive in their international trade terms. Too
much is moving out of Africa or across borders. As was mentioned earlier, African countries’
strategies should be focused on improving manufacturing infrastructures in order to initiate
competitiveness on a tertiary economic front. Foreign direct investment (FDI) should be aimed
at the improvement of infrastructure to become more self-sufficient and not serve as a bail-out.
African countries have long been following a strategy of primary purpose with FDI being used
as a stopgap rather than focusing on sustainability.
Strategic management in Africa should also address the current weak infrastructure as per
the AU and SADC manifestos as it inhibits the growth and especially the competitiveness of a
region. Infrastructure is needed to distribute both imported and exported goods. Through an
improved infrastructure, the monocultural economies of the African region could be turned
into an advantage by applying complementarities to the production of goods and services.68
This will have to be done through strong strategic management under the auspices of the AU
or SADC executive councils.
For Africa to grow and not only comply with the AU and SADC strategic objectives, countries
in Africa will need to be more focused on improvement and growth, with maintenance of
infrastructure paramount in their development strategies. Africa has sufficient resources, but
lacks skills at various levels which implies that a concerted effort needs to be made to up-skill
the human resource component. Poverty alleviation will then be a de facto spin-off. Nkrumah is
of the opinion that a united African economy, therefore strategy, is the only option to address
the current shortfalls in growth, poverty alleviation, lack of education and health issues.69
It could prove more successful to adopt a geographically united approach, although
problems could arise surrounding religious beliefs. African countries should also start thinking
beyond their normal product and mineral exports and consider products which Africa is rich
in and the international community requires (e.g. solar energy and the Square Kilometre Array
(SKA), a radio telescope in development in South Africa and Australia). Even more focus in terms
of strategy formulation should be on renewable energy sources.
PRACTISING STRATEGY: NIGERIA MOVES TO SECOND PLACE AS AFRICA’S MOST ATTRACTIVE

INVESTMENT DESTINATION70
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.
©
One of the most notable conclusions is that Nigeria’s investment attractiveness is

growing. It has moved into second place and is close on the heels of South Africa.
37
E S E S S
S S
S
Depending on Nigeria’s economic growth, it could overtake South Africa as the

most attractive investment destination in Africa in the next two to four years.
Another notable movement is Ghana, ranked 10th in 2007, which has moved up to
fourth place despite being only a fifth of the economic size of the three continental
giants (South Africa, Egypt and Nigeria).
Although Egypt is ranked third, for now its continued political discord has
detracted from its positive characteristics such as its sizeable market, large population
and decent operating environment.
In comparison with the rest of the world, African countries still have some way to
go. Out of all the countries ranked globally, China and the US are placed at the top
of the list with only two African countries making it into the top 40, namely South
Africa at number 33 and Nigeria at number 38.
The big picture

While Africa and southern Africa present many challenges to investors and business owners,
they also present a number of opportunities. In this chapter, we explored the ways in which
organisations can overcome these challenges and exploit the opportunities offered by the
African continent. What we have seen is that firms with an innovative and entrepreneurial mindset
and a willingness to invest long term and contribute to the success of Africa and Africans, are
generally more inclined to be successful than those firms out to make a ‘quick buck’.
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
©
strategy that you feel is particularly well suited to Africa.
38
E S E S S
S S
S
SUSTAINABLE
3 STRATEGY
Johan van Zyl
■ 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.
KEY TERMS ■ competitive advantage ■ business ethics

■ wealth maximisation ■ governance
■ sustainability ■ corporate governance
■ stakeholders
CASE Sustainable development: SABMiller at the nexus1

STUDY According to the World Bank, by 2050 the world will need to grow
and process 70% more food in order to feed a global population of
nine billion. 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 addressing this nexus, SABMiller

has identified five shared sustainability imperatives that provide a
consistent framework for managing the most significant social,
E S E S S
S S
CHAPTER 3: SUSTAINABLE STRATEGY
S
environmental and economic impacts. They help SABMIller to deal

effectively with risks and to identify opportunities for the business and
the local communities to whom their success is linked. They support
the strategic objective of constantly raising the profitability of local
businesses, sustainably. The Sustainable Development Way is at the heart
of our approach to sustainable development (SD), providing a consistent
framework for managing SD and focusing all of our operations’ efforts
and resource priorities. The SD Way is supported by a suite of policies
and position papers, as well as guidelines, training, and tools for building
capability and sharing best practice globally.
It is up to SABMiller’s local operations to decide how they invest their
resources, depending on their own particular issues and challenges. The five
imperatives provide them with a clear framework for managing these issues
and articulate what sustainable development means to SABMiller. At a global
level SABMiller focuses on three priorities material to all their operations –
combating alcohol abuse; making more beer using less water; and encouraging
enterprise development in their value chains. Individual operations are
ultimately held accountable for their own performance, which often forms
part of the senior managers’ performance objectives and remuneration.
The bespoke management system, the Sustainability Assessment Matrix
(SAM), enables SABMiller to monitor their performance against each of
these priorities. Every country is assessed against five levels of performance
from a minimum standard (level one) to leading edge (level five). In the
table below, the fived imperatives are outlined, each supported by one
example from one of SABMiller’s local operations.2
TABLE 3.1 SABMiller’s sustainable development priorities3
SUSTAINABLE EXAMPLES FROM LOCAL OPERATIONS

DEVELOPMENT
PRIORITIES
Accelerate Alex Isiagi’s early years were spent like those of so
growth many others from subsistence farming families in
and social Uganda – living in a small, grass-thatched house
development shared by his entire family. His parents, farmers in
in our value the Bukedea District, were able to eke out only a
chains low income and Alex had to leave school early. “I
joined my parents in agriculture,” he says. “We used
to grow cotton and maize on the family land. But
we earned so little from the small produce we were
realising from my parents’ acreage.” But that was
©
all about to change: “A friend, a local businessman,

encouraged me to try sorghum farming,” Alex, now
aged 45, recalls.
43
E S E S S
S S
S

DEVELOPMENT
PRIORITIES
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
©
DrinkWise created the first phase of a long-term campaign to shape

attitudes towards drinking in moderation. Employing a stylish graphic
44
E S E S S
S S
S

DEVELOPMENT
PRIORITIES
treatment, humour and very blunt language, the “How to Drink

Properly” campaign makes full use of social media to reach its target
audience with the core message that irresponsible drinking can make
a good night out end badly.
Secure India has long been known as the world’s largest democracy, and its
shared water population is forecast to rise from 1.2 billion people today to 1.5
resources for billion by 2030 – a point at which it may even overtake China as the
our business world’s most populous nation.
and local A rising population is one of the principal reasons why water
communities stress has become an important issue in India. Government census
figures indicate that by 2011 each Indian citizen had on average 15%
less water available to them than a decade before.
As significant users of water to brew beer, our Indian breweries
have a responsibility to their local communities to do what they
can to mitigate water risk. Apart from addressing water efficiency
within the breweries themselves – which on average improved by
32% between 2008 and 2011 – we undertook detailed hydrological
risk assessments for the areas in which we operate, and found that a
number were under various levels of threat.
For example, at Neemrana we have partnered with the Confederation
of Indian Industry (CII) and Humana People to People, and developed
water capture and diversion structures that aim to increase the amount
of water being recharged to underground aquifers. At the same time we
are reducing the demand on water by encouraging more water-efficient
farming practices, such as ‘smart irrigation’ techniques; a series of
special agriculture training camps have attracted more than 5,000 local
farmers. Tackled in combination we have been able to increase ground
water levels in the project area by around 23%, and reduce the amount
of water lost to run-off by up to 40%. In addition, over the past three
years, farmers engaged with the project have on average increased their
productivity per hectare by between 17% and 34%, and raised their
disposable incomes by an average 18%.
Create value In many markets we are investing in energy-saving devices and LED
through lighting, which is reducing the energy consumption of older fridges by
reducing up to 40%. In Poland, our local business Kompania Piwowarska (KP)
waste and has gone a step further, buying 8,000 new fridges for its retail network,
carbon all equipped with a natural refrigerant that eliminates the harmful
©
emissions emissions generated by HFCs. The better energy efficiency of the new
equipment also reduces the cost of cooling for our retail partners.
45
E S E S S
S S
S

DEVELOPMENT
PRIORITIES
KP is also taking steps to reduce the environmental impact of
delivering its beers to these new fridges. The company has launched a
programme to renew its truck fleet, with the oldest trucks first to be
removed in favour of new models that can carry greater loads while using
less fuel. These new trucks are around 800 kilos lighter than the vehicles
they replaced, with engines that produce substantially lower emissions.
Support For many years our Zambian business, Zambian Breweries plc, sourced
responsible, supplies of malting barley from neighbouring Zimbabwe. But by 2009,
sustainable the problems inherent in Zimbabwean farming had seen this vital
use of land supply line cut off, forcing our breweries to turn to European barley,
for brewing which kept the beer flowing but saw raw material costs double.
crops The warm, dry Zambian winter is ideal for growing grains, and
wheat was established two decades ago as an irrigated winter crop.
Barley and wheat have similar requirements for successful cultivation;
could a solution to our barley sourcing needs be found closer to
home? We turned to Zambia’s major commercial wheat growers,
many of whom had formerly farmed in Zimbabwe, to see if they were
interested in developing a complementary revenue stream that would
also help mitigate the risk of wheat price fluctuations.
The results were spectacular, encouraging us to boost the
programme over the next two years to 4,500 hectares, achieving
24,000 tonnes of prime quality malting barley.
CHAPTER Any company wanting to do good business by starting something new

or different has two challenges: opportunity and risk. Governments,
ORIENTATION companies, communities and people have to justify the change: the upside
(opportunity) and the downside (risk). These two components are the main
focus of how to plan strategically to be sustainable in doing business.
In this chapter we consider what sustainability means, why stakeholders
and wealth maximisation should be the focus of organisations, the role
of corporate governance in ensuring sustainability, and the aspects for
evaluating strategic sustainability.
What is sustainable strategy?
Sustainability and competitive advantage
Business ethics and strategic management

©
Corporate governance
46
E S E S S
S S
S
3.1 What is sustainable strategy?

Any business operates with the basic underlying goal of surviving and perhaps prospering in
the long term – in other words, being sustainable. However, achieving this goal is much easier
said than done. It requires the organisation to take a long-term view in its decision making
rather than a short-term one, which may require giving up profits in the short term in exchange
for survival and wealth creation in the long term. This is the foundation of sustainability (as
illustrated in the SABMiller case study above), although it should be said that profitability as
such is not evil or wrong. Rather, pursuing profit at the expense of surviving in the long term is
the problem, as the example below illustrates.
PRACTISING STRATEGY: THE GLOBAL FINANCIAL CRISIS
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.
Business sustainability is commonly accepted

to mean balancing economic objectives (such
as profit) with the welfare of the communities
in which the organisation operates (a social Ethical profits
dimension) and protecting the environment
in which the organisation physically exists.
This interrelationship is depicted in Figure 3.1. Healthy Healthy
Sustainable strategies, therefore, are environment communities
strategies that consider all three elements
and strike the right balance between them.
It is important to note that profits should be
generated legally and ethically in order to be
FIGURE 3.1 Business sustainability
regarded as sustainable.
Unlike corporate social responsibility (CSR), which retroactively addresses issues, sustainability
implies a forward trajectory. In other words, CSR looks to the past actions of a company while
sustainability looks forward by changing the nature of the company to be more successful in
the long run.4
The purpose of sustainable strategy is to generate a maximum increase in the outputs,
turnover and other aspects of a company, the consumers of the company, and employee value
©
by embracing opportunities in the macro- and market environments and managing risks derived
from environmental and social developments.5
47
E S E S S
S S
S
3.2 Sustainability and competitive advantage

Most organisations constantly strive for competitive advantage, which is to be more successful
than their competitors. However, sustainability is a much broader concept. While competitive
advantage is largely focused on profitability, sustainability is focused on survival in the long
term. Having competitive advantage does not necessarily guarantee sustainability.
It is important to give a holistic view of sustainability strategies to bring these into
perspective for management. In response to the question: what are the greatest benefits to your
organisation in addressing sustainability issues?, managers identified the following:6
■ Company or brand image
■ Cost savings
■ Competitive advantage
■ Employee satisfaction, morale or retention
■ Product, service or market innovation
■ Business model or process innovation
■ New sources of revenue or cash flow
■ Effective risk management
■ Enhanced stakeholder relations.
The key, then, is to combine the two and strive for sustainable competitive advantage.
3.2.1 Evaluating the sustainability of strategies

In addition to the three elements of sustainability identified in section 3.1, a sustainable business
model must also consider its internal operations, and internal and external stakeholders. The
following six elements are therefore important in developing sustainable strategies (see Figure
3.2 and further discussion below):
■ Environmental context. For strategies to be sustainable, they should not harm the physical
environment in which the organisation operates.
■ Social context. Sustainable strategies contribute positively to the communities in which
they operate.
■ Economic context. This aspect relates to the economic success and contribution of the
organisation, typically measured by financial measures such as profits, return on equity and
economic value added.
■ Organisational context. The internal functioning of the organisation is critical to sustainable
strategies. This may relate to strategy implementation processes as well as internal role
players such as the board of directors, management, employee effectiveness, corporate
governance and so on.
■ Stakeholders. Key stakeholders are creditors, directors, employees, government (and its
agencies), owners (shareholders), suppliers, unions and the community from which the
business draws its resources. While it is impossible to satisfy the demands of all stakeholders,
©
the organisation must, as far as possible, develop strategies that balance the demands of
multiple stakeholders.
48
E S E S S
S S
S
■ 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
Stakeholders Environmental New standards

and behaviours
Community
Governance involvement
Structure Organi- Sustainable Social Social inclusion and
Leadership and culture sational Strategies community safety
Technology
Strategic
Economic fit
Fit between strategy and

Profit generation external environment
Wealth creation
Fit between strategy and
Ethical and legal
profitability internal environment
FIGURE 3.2 Holistic business model for sustainable strategies
3.2.2 Environmental context

While we could argue that all of us have a broader responsibility towards the planet and
our natural environment, we are generally restricted to doing what we can in our immediate
environment. In much the same way, businesses tend to operate in a specific environment, and
will need to do what they can to sustain their physical environment. In the case of SABMiller,
our opening case study, they need to focus on the water-food-energy nexus. Quite simply, if
©
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,
49
E S E S S
S S
S
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.
PRACTISING STRATEGY: PROTECTING THE CHRISSIESMEER WETLANDS7
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.
3.2.3 Social context

The social context focuses on the contribution the organisation makes to the general welfare of
the communities and the broader society in which it operates. One mechanism that addresses
this aspect directly is the corporate social responsibility (CSR) programme of every business.
But what is corporate social responsibility? One definition is as follows:8

It is the continuing commitment by business to behave ethically and contribute to
economic development while improving the quality of life of the workforce and their
families as well as of the local community and society at large.
Businesses use CSR as a tool to address societal and environmental issues. Sustainability
incorporates societal and environmental issues as building blocks within a business model.
©
Therefore, a sustainable business will use some CSR practices to help the business to create
long-term sustainability.
50
E S E S S
S S
S
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.
3.2.4 Economic context

The economic context refers to the economic contribution of the organisation in terms of its
profit and wealth creation. For example, through its profits, the organisation potentially creates
an advantage for managers and employees in the form of bonuses and possibly higher salaries,
dividends for shareholders and funds for investment which may lead to the creation of new
jobs. By increasing the value of the organisation (e.g. where the value of shares increase over
time), the organisation creates wealth for its shareholders, who can in turn invest their wealth
in other ventures, to the benefit of other stakeholders such as employees. This discussion of
course raises the issues of profit versus wealth creation – which is best? It is often difficult to
balance these two aspects, as many stakeholders also have an interest in short-term returns
(see the practising strategy box on the next page). Employees may want short-term profits
because it means that they can demand higher wages, but a focus on the short term may
reduce the sustainability of the organisation in the long term. In general, there should be a
balance between the two broader goals, as without profitability there is no wealth creation, and
without wealth creation, profits will dry up as investors withdraw their funding and move to
other investment opportunities.
©
51
E S E S S
S S
S
PRACTISING STRATEGY: THE PLATINUM MINING STRIKE9
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.
3.2.5 Organisational context

Organisational context is all the internal aspects that can have an influence on the sustainable
planning process. This involves looking at the internal strengths and weaknesses of the business
(see Chapter 7 for more detail).
The organisation requires certain resources and capabilities to execute its strategy, and
©
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
52
E S E S S
S S
S
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.
PRACTISING STRATEGY: TELKOM MULTI-LINKS IN NIGERIA10

Telkom’s effort to increase its presence across Africa via its Multi-Links investment
has turned out to be more of a liability than an asset. With all the telecoms growth
opportunities that are available in Nigeria, some may wonder where and how such a
promising venture proved to be fruitless. Some industry observers believe that poor
market research, over-eager investing and weak leadership might have led to the
downward spiral of Multi-Links.
Frost and Sullivan ICT analyst, Vitalis Ozianyi, believes that poor due diligence and
market and technology research into the Nigerian market led to the company’s poor
performance. ‘Telkom invested in a CDMA (Code Division Multiple Access) network,
that doesn’t have much of a future in Africa.’
In a more recent development, Telkom alleges that MD of its international business
unit, Thami Msimango, and well-known businessman, Mthunzi Mdwaba, violated
South Africa’s anticorruption laws over an agreement involving former subsidiary
Multi-Links and JSE-listed Blue Label Telecoms.
According to the court papers, which TechCentral retrieved from the courthouse,
Mdwaba and Blue Label conspired to work with Msimango and possibly other senior
Telkom and Multi-Links employees, to ensure the agreement between Multi-Links and
Blue Label was to the ‘substantial commercial disadvantage of Telkom’. The company
also names Blue Label Telecoms chief operating officer, Mark Pamensky, as being
©
complicit in efforts to skew the agreement between APS and Multi-Links in Blue
Label’s favour and to Telkom’s disadvantage.
53
E S E S S
S S
S
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.
©
This example illustrates that the practical use of a stakeholder perspective to guide decision
making is problematic.
54
E S E S S
S S
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.
The determining factors are as follows (see Figure 3.3):

■ Stakeholder power is determined by the extent to which stakeholders control the resources
required by the organisation. The more resources and the higher the degree of control, the
more powerful the stakeholders. Employees and unions, for example, have direct control
over the human resources of the organisation, whereas the community does not always
have similar control.
■ Stakeholder legitimacy is determined by the extent to which the stakeholders are affected
by the decision of the organisation, and the more affected, the higher the legitimacy. Once
again, the employees of the organisation are directly affected by the organisation’s decisions,
and therefore have a high level of legitimacy.
■ Stakeholder urgency is determined by the time sensitivity of the stakeholder’s claim, and
the level of importance to the stakeholder. The more urgent and important the claim, the
higher the level of urgency.
We can use these attributes to classify stakeholders into three broad classes: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.
3.2.7 Strategic fit

The organisation needs to develop strategies that are aligned with the internal and external
environment of the organisation, in other words that fit. If this does not occur, strategies are
unlikely to succeed in the longer run. Furthermore, the ability of the organisation to adapt to
environmental changes is critical. Strategic fit should be dynamic – as the environment changes,
the organisation needs to adapt and to develop new sources of competitive advantage.
3.3 Business ethics and strategic management

©
In a previous section we argued that profits have to be earned in an ethical and legal manner
to be sustainable.
55
E S E S S
S S
S
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.
3.4 Corporate governance

Whereas sustainability examines the strategic decisions of an organisation, corporate governance
refers to the frameworks provided for governing sustainably.
Corporate governance is described as the system by which corporations are directed and
controlled, and it performs the following functions:13
■ It specifies the distribution of rights and responsibilities among different participants in
the corporation (such as the board of directors, managers, shareholders, creditors, auditors,
regulators, and other stakeholders).
■ It specifies the rules and procedures for making decisions in corporate affairs.
■ It provides a structure through which corporations set and pursue their objectives, while
reflecting the context of the social, regulatory and market environments.
©
■ It is a mechanism for monitoring the actions, policies and decisions of corporations.

■ It is a mechanism for aligning the interests of different stakeholders.
56
E S E S S
S S
S
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.
3.4.1 The role of the board of directors and top

management in governance
The board of directors is appointed by the shareholders of the organisation to represent them
in the strategic decisions made by the company. The board is the focal point of corporate
governance and should provide effective and ethical leadership to direct and safeguard
relationships between the board itself, management, shareholders and other stakeholders.17
One of the recommendations of the King Code is that there should be a majority of independent
non-executive directors on the board, in other words directors that are not also employees of
the corporation or of the shareholders.
While directors are appointed by shareholders, the top management of the organisation is
essentially appointed by the board of directors. Agency theory maintains that top managers are
agents of the shareholder, and that agents may sometimes act in their own best interest rather
than acting in the best interest of the principals (the owners of the company). Top management
is presented on the board of the directors, although the King Code recommends that the CEO
should not also be the chairman of the board of directors, as it may lead to a conflict of interest.
©
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
57
E S E S S
S S
S
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.
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.
PRACTISING STRATEGY: UNILEVER18

When Paul Polman, Unilever’s CEO, announced the company’s Sustainable Living Plan,
he committed Unilever to a new business model. The Sustainable Living Plan aims to
double Unilever’s revenue while halving its environmental footprint. Inherent in the
Plan are two changes to conventional business thinking. The first is the explicit marriage
of sustainability – in this case, environmental sustainability – with profitability. The
second is perhaps less obvious, but no less critical. It is impossible for Unilever to
achieve its goal through its actions alone. Growth while shrinking is analogous with
doubling one’s consumption of ice cream while losing half one’s body weight. The
math simply does not make sense without an additional variable.
Unilever will need to collaborate with its suppliers, consumers, potentially even its
rivals, to achieve its public commitments. This explicit reliance on the resources and
know-how of non-affiliated organisations is a grand departure from conventional
business strategy. Time will tell how Unilever and its Sustainable Living Plan alter the
rules of competition, but it clearly has started down this path toward interconnected
relationships throughout its business model.
The big picture

Business sustainability is a business approach that creates long-term consumer and employee
value by not only creating a ‘green’ strategy aimed towards the natural environment, but taking
into consideration every dimension of how a business operates in the macro-, market- and
micro-environments, as Unilever has done in the example above. Based on our discussion in this
©
chapter, we argue that sustainable business can be viewed as being supported by six ‘pillars’, as
outlined in Figure 3.4.
58
E S E S S
S S
S
SUSTAINABLE DEVELOPMENT (ECONOMIC,
CORPORATE SOCIAL RESPONSIBILITYTY
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.
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
©
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?
59
E S E S S
S S
S
2. Visit the website of the National Treasury (http://www.treasury.gov.za/legislation/pfma/) and

download the PFMA. Identify five key differences between King III and the PFMA.
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)
©
60
E S E S S
S S
S
A PROCESS PERSPECTIVE
4 OF STRATEGIC
MANAGEMENT
Annemarie Davis
■ 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.
■ strategic management process ■ strategy implementation

KEY TERMS
■ vision ■ strategic control
■ mission ■ balanced scorecard
■ strategy formulation ■ strategic goals
■ strategic planning ■ strategy review
CASE GAUTENG PROVINCIAL GOVERNMENT1

STUDY The Gauteng provincial government regularly undertakes strategy
reviews and updates to ensure that their planning and budgeting
processes for the province and municipalities are aligned with those
©
set on national level by the government. The Gauteng Treasury is

used as an example to illustrate this.
E S E S S
S S
S
The Gauteng Treasury was established as a separate department in 2006.

Its strategic planning cycle is five years and during its first cycle, 2006–
2009, strategy centred mainly on the creation and operationalising
of the new department. The period 2009–2014 is now its second
five-year cycle. From June–August 2008, the senior management of
the department embarked on a comprehensive process to review and
update the strategic plan for the new 2009−2014 period, and to develop
medium-term tactical plans and one-year operational plans (annual
performance plans) for all programmes and units.
The process entailed the following:
■ An initial four-day workshop with senior management and the
extended management team to review, update and develop the
2009–2014 strategic and tactical plan of the department (head of
department (HOD) level)
■ A one-day workshop session with the senior managers of each
of the three programmes (administration, sustainable resource
management and financial governance) to review, update and
develop their 2009–2014 tactical plans and their 2009–2010
annual performance plans (DDG Level)
■ A one-day workshop session with each of the chief directorates to
review, update and develop the 2009–2010 annual performance
plans of each of the chief directorates, aligned to the revised
programmes and Gauteng Treasury’s strategic and tactical plans
■ A final one-day workshop session to check the alignment and
quality of data, sign off the plans developed at all levels, and
ensure integration and accuracy. This concluded with the allocation
of resources (human resources and budget), aligned to the strategic
objectives and tactical and operational targets and milestones.
As part of this review process, the mandate and purpose, vision and
mission of the department had to be revisited, and it had to be confirmed
if they did indeed reflect the intent and future goals of the department.
The programme objectives were also studied, with changes suggested
and accepted for all programmes.
Inherent to the review process of the Gauteng provincial government
is an underlying commitment by the management team to conducting
regular performance evaluation against the strategy, ensuring that the
strategy becomes and remains a living document.
Chapter 1 explained that strategic management is about ensuring that an

CHAPTER
©
organisation not only achieves competitive advantage, but also sustains

ORIENTATION its competitive edge over competitors. Also, strategic management helps
62
E S E S S
S S
CHAPTER 4: A PROCESS PERSPECTIVE OF STRATEGIC MANAGEMENT
S
organisations to achieve superior performance and sustainability in the

long run. Although there are many different approaches to strategic
management, the ultimate aim of any strategic management activity
is survival and goal achievement in a changing environment. Strategic
management is not only aimed at improving the long-term survival of
profit-oriented organisations, but it adds value to non-profit organisations,
public organisations, governments, sport societies and schools. In fact, the
principles of strategic management are such that it can help and guide
any organisation, institution and individual towards achieving their goals
despite changes in the environment.
The chapter case study above describes the strategic planning and
review process of the Gauteng Treasury that forms part of the Gauteng
provincial government. The case describes the process followed not only
to review the existing five-year strategic plan, but also to develop and
revise strategies and tactics to deal with the changes in the environment.
The management team of the Gauteng Treasury uses workshops to review,
analyse and develop their plans, and then shares them with the rest of
the organisation.
The original approaches to strategic management were grounded in
business policies and planning approaches. Strategic management then
evolved into a process consisting of definite stages or phases. Later, and
most recently, strategic management is being considered from a practice
perspective, where the impetus is on the ‘doing’ part.
This chapter focuses on the process perspective, which can be described
as a rational approach to achieving strategic competitiveness and
competitive advantage. Detailed explanations of the various components
are also provided.
A process perspective of strategic management
The new competitive realities – criticising the process perspective of

strategic management
The management levels involved in strategy
Strategy formulation
Strategy implementation
©
Strategy review and control
63
E S E S S
S S
S
4.1 A process perspective of strategic

management
The traditional view of strategic management is that it is a process with distinct stages or
phases. The approach adopted in this book is that strategic management is a complex and
dynamic discipline and that a static, linear process does not consider the complexity or the
environment in which the organisation operates. However, an understanding of the process
perspective of strategic management is a valuable starting point.
The three stages or phases of the process perspective of strategic management are depicted
in Figure 4.1.
Strategy formulation
The first stage in the strategic management process.

This stage is a conceptual process that consists of environmental
analyses and formulation of strategies.
Strategy implementation
The second stage in the strategic management process and referred

to as the action phase. All staff in the organisation are tasked with
implementing the formulated strategies.
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.
FIGURE 4.1 The process perspective of strategic management
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.
4.1.1 Strategy formulation

The strategy formulation stage is the starting point. This is the stage where the top management
team decides what to do. Typically, this stage involves mostly senior management, who
conduct various analyses of the organisation itself as well as the environment in which it
operates. Part of this phase is the setting of strategic direction, in other words, deciding
on the future of the organisation and setting the overarching goals of the organisation.
©
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
64
E S E S S
S S
materials, and uses the slogan ‘Science for a better life’2 to indicate their overall direction and
S
purpose.
PRACTISING STRATEGY: BAYER3

Bayer is an inventor company with a long tradition of research. By applying science
to the major global challenges, we deliver innovations that address unmet customer
and market needs.
Our focus on innovation is the key to maintaining or gaining a leading position in
every market in which we operate. It is also the foundation for improving the lives of
many millions of people:
■ We help patients around the world by preventing, alleviating and curing diseases
as well as improving diagnosis.
■ We ensure a sufficient supply of high-quality food, feed and fibre.
■ We make significant contributions in the fields of energy and resource efficiency,
mobility and home living – to name just a few.
By working sustainably and accepting our role as a socially and ethically responsible
corporate citizen – and by committing to our Bayer values – we create benefits for
the communities in which we live.
Science For A Better Life: this is the promise we all give to our stakeholders.
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
©
its objectives have been selected, the next stage of the strategic management process starts:
strategy implementation.
65
E S E S S
S S
S
4.1.2 Strategy implementation

The second stage of the strategic management process is referred to as the strategy
implementation stage and is considered the most challenging stage in any strategic
management process.
Once the strategies of the organisation have been selected by the senior management team,
they need to be put into action. This requires the involvement of everyone in the organisation.
The strategies, and the senior management team’s rationale for selecting them, need to be
communicated to all parties. Not only should the organisation members be told what the
strategies and overarching objectives of the organisation are, but the senior management team
also needs to ensure that there is understanding and buy-in because the wider the organisational
support, the greater the chances of successful implementation. Members must be motivated and
energised towards achieving these goals.
Operationalising strategies entails the translation of the overarching and strategic objectives
into specific tasks and activities. The middle and lower management levels in the organisation
are responsible for this as well as for overseeing it, so they must be empowered to do so. By
translating the strategic goals or long-term objectives into shorter-term goals and activities, the
organisation members become aware of their roles in the strategic success of the organisation.
At its most basic level, strategy implementation is the action (‘doing’) stage of the process
perspective of strategic management. Actions to successfully implement strategies are ensured
through certain drivers such as leadership, management and culture. Organisational culture is
commonly referred to as ‘the way we do things around here’ and how things are done will impact
on success. For example, if the organisational culture is negative and there is little support for
the strategies, then the strategy implementation process becomes more challenging and can
actually fail. But when the organisational culture is positive and there is wide buy-in, the
efforts to implement the strategies are more coordinated and have a greater chance of
success.
The middle and supervisory level of managers can use rewards to drive the strategy
implementation. By rewarding the actions, tasks and behaviour that contribute towards
successful implementation of strategies, managers enhance the chances of strategy success.
Managers should thus devise reward strategies and systems that are aligned with the overall
strategic direction of the organisation.
The way that the organisation is structured also impacts on the strategy implementation
process. If the strategy requires quick decision making, then a bureaucratic structure that entails
time-consuming red tape may hamper efforts. The organisational structure not only indicates
the lines of authority and reporting, but also the process and lines for strategy implementation.
Coupled with the structure of the organisation are the inherent systems and policies inside the
organisation. Organisational systems, processes and policies are used to direct the execution
efforts. Again, the systems, processes and policies should be aligned with the overall strategic
direction of the organisation.
©
66
E S E S S
S S
S
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.
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.
4.1.3 Strategy review and control

The chapter case study on the Gauteng Treasury offered a description of their strategy review
process which is aligned to their five-year strategic planning cycle. Strategy review and
control involves monitoring the progress of strategy implementation, identifying problems and
instituting any necessary corrective actions. Although given as the third and final stage, it is a
continuous process. As strategies are implemented, the strategy review takes place.
Different methods of strategy review exist. Continuous environmental scanning can be
considered a review method as it provides feedback on changes in the environment that may
impact strategic choices and their execution. Another form of strategy review is implementation
control. Similar to operational control, this is where deviations from the plans are identified
and addressed as they occur. This implies that corrective measures are taken during the
strategy implementation process to ensure that the strategic management process continues
successfully. The balanced scorecard can also be used to review strategies.
It is mostly senior and middle managers who are involved in the strategy review process.
Most important is the feedback from the review that needs to serve as input in the amendment
of existing strategies and goals, or the possible total reconsideration of the strategies and goals.
Continuous feedback forms the foundation of the strategic management process.
■ 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.
©
67
E S E S S
S S
S
■ 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.
4.2 The new competitive realities – criticising the

process perspective of strategic management
The biggest critique of the process perspective is that, in being a linear process, the complexity
of the environment is not considered and dealt with sufficiently. Also, the process perspective
supports the notion that it is only the top management team or senior managers who craft
or formulate strategies while other levels of management merely implement those strategies.
In practice, strategic management is much more complex and dynamic than is portrayed
in the process perspective. Strategy is not something that an organisation has, but is rather
something that an organisation, and the people in the organisation, does. The reality of strategic
management in the contemporary business environment is that it is a messy and complex
process. Strategy is crafted through a process of conversation and input from all levels in the
organisation.
In Chapter 5 we take a closer look at who does strategy in organisations.
4.3 The management levels involved in strategy

There are three levels of management in an organisation: top management, middle management
and supervisory or functional management. Top management comprises the CEO, board of
directors and senior managers. As described above, the top management team will set the
organisation’s strategic direction and analyse the environment. The information they gather will
then be used to formulate the strategies.
It is mostly the middle and supervisory managers who are responsible for the execution
of the strategies through the managing of employees. The top managers rely on the middle
managers to ensure that their planned strategies are implemented. Top management then
©
becomes more involved once again during the strategy review process. Chapter 5 offers a more
detailed discussion of strategists.
68
E S E S S
S S
S
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
4.4 Strategy formulation

The following section discusses in more detail the process of strategy formulation.
4.4.1 The strategic direction of the organisation

The organisation’s management and employees need to know the reasons for the organisation’s
existence. The strategic direction clarifies the overarching purpose and goals of the organisation
as well as indicating to external stakeholders what the organisation is about. Several management
tools are used to set the strategic direction. The following section explains how the vision
statement, the mission statement and the strategic goals are used to direct the actions and
strategic efforts of the organisation over the long term.
Not only does the strategic direction provide the organisation and its members with a
primary direction, but it also helps bind the organisation members as a cohesive unit. Figure 4.2
depicts the benefit of strategic direction. The diagram on the left indicates the multiple different
directions in which the organisation and its members are working. The other one shows how the
overall stated strategic direction (represented by the blue arrow) aligns the efforts of the entire
organisation and its members in one direction.
An organisation without strategic direction An organisation with strategic direction
FIGURE 4.2 The benefit of strategic direction
Having sound strategic direction is a powerful contributor to strategic success as it forms the
©
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
69
E S E S S
S S
S
Logistics offers a description of the business and includes their vision and mission statement
which guides all the activities in the organisation.
PRACTISING STRATEGY: KATLEGO GLOBAL LOGISTICS5

Katlego Global Logistics (Pty) Ltd was founded in 1998 by Moses Maboi and borne
out of his drive and enthusiasm for attaining efficient and dependable service in
the freight logistics industry. From the onset, Moses was motivated by his passion
for his country and his dream to contribute to South Africa’s economic potential by
partnering with stakeholders to contribute to the development and value add for
black-owned and -managed companies. Given his years of experience in the industry,
Moses also set out not only to render quality and professional services in all freight-
and trade-related services, but also to develop skills of employees through training
and exposure.
Katlego Global Logistics offers solutions in the areas of clearing and forwarding, air
freighting and cargoing, supply chain and inventory management, logistics, customs
broking and project shipments.
Katlego Global Logistics adds the value of time and place utility as it offers
integrated services and tailored, customer-focused solutions for managing and
transporting documents, goods and information. This involves the integration of
information, transportation, inventory, warehousing, material handling and packaging,
and occasionally security.
The company has become recognised as a freight and courier industry expert,
supply chain innovator and a business partner. It does not use contractors within
the boundaries of South Africa, assuring customers that it is tracking and keeping
their precious cargo safe. With a dedicated national fleet of vehicles ranging from
small, utility one-ton vans to large, eight-ton trucks, Katlego Global Logistics is well
represented nationally.
The vision of Katlego Global Logistics is to be the preferred supplier in the freight
logistics industry known for excellent service delivery. Their mission is:
To lead with insight and innovation, constantly strengthening the company’s
resilience and ensuring that our customers’ needs are addressed with the utmost
efficiency.
Table 4.1 offers a summary of the advantages of having clear strategic direction, expressed
through vision and mission statements.
TABLE 4.1 Advantages of having clear strategic direction
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
©
overarching goal of the organisation.

4. It communicates to internal and external stakeholders what the organisation
wants to achieve in the long run.
70
E S E S S
S S
S
5. It guides decision making.

6. It distinguishes the organisation from other organisations.
7. It promotes a sense of shared expectations.
8. It contributes to synergy among managers and employees.
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.
The vision statement

The vision statement is often referred to as the dream of the organisation. It is used as an
indicator of the desired future position of the organisation. It is often not realistic in literal
terms, for example the vision of Katlego Global Logistics (see the practising strategy box
above) is to be ‘the preferred supplier in the freight logistics industry known for excellent
service delivery’. This may seem overly ambitious, but it is a powerful statement designed to
motivate the entire organisation. Another example is that of the freight division of Grindrod
Limited. Their vision is ‘to be a dominant and profitable freight services provider focusing on
infrastructural development on the African continent’.6 The delineation of ‘African continent’
clarifies their playing field. A good vision statement should identify the direction and future of
the organisation. As the entire organisation and its members need to work towards reaching this
future destination, it should be persuasive and credible, and easily understood.
There is no standard format for a vision statement. Some organisations may opt for short
and punchy vision statements, while others may opt for more descriptive versions. However,
there are certain guidelines about what a vision statement should be:
■ It should present a clear picture of a desirable future, something to which the organisation
and its members (and other stakeholders) can aspire.
■ It should guide decision making, yet be flexible enough to allow the organisation to respond
to changes in the environment.
■ It should be easy to communicate, to explain and to understand.
Ultimately, the vision is not just a statement on a piece of paper, but rather galvanises and
directs people in the organisation.
The mission statement

The mission statement is also called the purpose statement of the organisation. At a minimum,
the mission statement states what the organisation does and why it exists. The mission
©
statement builds on the vision statement and is as much an internal statement as it is an

external statement.
71
E S E S S
S S
S
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.
The process of formulating a mission statement

Strategic direction is long term and ought to remain unchanged for an extended period.
Organisations that change their strategic direction on an annual basis send a message that
they are not sure where they are going. As the vision and mission statements are an expression
of the strategic direction, these should also remain largely unchanged except perhaps for minor
amendments to the wording.
©
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.
72
E S E S S
S S
S
External consultants may also be called in, but it is very important that the strategic direction
be created internally.
One way to proceed is as follows:

1. Orient those involved as to what constitutes a well formulated mission statement.
2. Do a brainstorming exercise to generate ideas.
3. Collate all the draft ideas and distribute them to the rest of the team for comment.
4. Continue this process until there is agreement on what the mission should be.
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.
TABLE 4.2 A comparison of well and poorly formulated goals
POORLY FORMULATED STRATEGIC GOALS WELL FORMULATED STRATEGIC 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.
The SMART principles can be used to formulate good strategic goals:

S – specific
M – measurable
A – achievable
R – realistic
T – time
©
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
73
E S E S S
S S
S
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.
Using the balanced scorecard to set strategic goals

The balanced scorecard is a strategic management tool that was developed by Kaplan and
Norton. When used in the strategic planning stage, it guides the organisation and management
team to translate the strategic direction into strategic goals. It consists of four perspectives:
financial, customer, learning and growth, and business processes. At the centre of these is the
strategic direction, which will include the vision, mission and other statements.
For each perspective, strategic goals need to be formulated that will contribute to the achievement
of the strategic direction. The four perspectives of the balanced scorecard are as follows:
■ The financial perspective, with a focus on the financial performance of the organisation
■ The customer perspective, with a focus on how the organisation’s customers perceive it
■ The learning and growth perspective, with a focus on sustainable growth, value creation
and innovation
■ The business process perspective, with a focus on the core capabilities at which the
organisation must excel in order to be competitive
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
©
Initiatives Initiatives
FIGURE 4.3 The balanced scorecard11
74
E S E S S
S S
S
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
PERSPECTIVE GOAL METRIC TARGET INITIATIVE

Financial Consistently Return on 25% ROE per Cost reduction
achieving equity (ROE) annum for the
above-average next 5 years
return on
shareholders’
investment
Business More New product Increase Introduce a
process innovative revenue as new product new product
product percentage of revenue to development
development revenue 30% of total process
revenue by
2020
Customer Retaining Customer Improve Implement
valuable retention rate customer a loyalty
customers retention rate programme
by 20% over
the next 5
years
Learning and Reducing Waste as a Reduce waste Introduce a
growth waste in percentage by 50% over total quality
manufacturing of total the next 5 management
process manufacturing years programme
cost
PRACTISING STRATEGY: AN EXAMPLE OF THE APPLICATION OF THE BALANCED SCORECARD

CellMobile is a (fictitious) organisation in the South African cellular telephone industry.
Their vision is to be the preferred supplier of pre-paid cellular services. Their growth
strategy is aimed at developing their market through targeting customers in rural
©
areas where other cellular services are unreliable and often interrupted.
75
E S E S S
S S
S
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.
4.4.2 The role of environmental analysis in the

strategic management process
The strategic management process is supported by continuous scanning of the external
and internal environments. The purpose of scanning the external environment is to identify
opportunities that may be exploited, or threats that may prevent the organisation from
attaining its strategic objectives. External environmental analysis is dealt with in more detail in
Chapter 8.
Internal analysis is done for the purpose of understanding the organisation’s key strengths
and key weaknesses, so that it can build on key strengths and counter or mitigate key
weaknesses. The role of resources and capabilities is discussed in Chapter 7.
While many organisations do environmental scanning periodically (e.g. at an annual
strategic planning workshop) it should really be an ongoing process that forms part of strategic
evaluation and control (see Chapter 13).
4.5 Strategy implementation

©
The purpose of strategy implementation is to align the internal environment with the
chosen strategy.
76
E S E S S
S S
S
4.5.1 Strategic programmes and projects

Strategic initiatives should be managed as special programmes and projects with a view to
eventually becoming part of the day-to-day operations of the organisation. This principle is
expanded on in Chapter 12.
4.5.2 Key drivers for implementing strategy

Once a strategy has been selected, it needs to be communicated to the entire organisation and those
who are tasked with implementing it need to know exactly what is required. Leadership, which is not
necessarily linked to a specific position in the organisation, is a vital contributor to the success
of any strategy. The leaders in the organisation are responsible not only for communicating
the strategy but also for guiding the actions required to execute it. Simply informing staff and
stakeholders is not enough. A general understanding of the rationale behind the strategy and the
alleviation of any uncertainties are both vital to ensure agreement and support.
Strategy execution and renewal is a continuous process with specific targets to be reached
at specific points in time, and organisational leadership is responsible for keeping members
motivated. Because change goes hand in hand with uncertainty and resistance, leaders will need
to help members come to terms with the change and empower them to guide others to do the
same. Behaviour, actions and tactics will need to be adapted. Involving people in the change
process and ensuring that they understand the reasons for the change will ease the transition.
There should be a fine balance between driving the change and giving people time to adjust.
Strategy implementation deals with the ‘doing’ part of the strategy and organisational
culture plays an important role in success or failure. An unhealthy and negative culture can cause
undue resistance to change which seriously hampers progress. This is something management
and leadership will have to tackle as it can undermine the entire strategic management process.
Organisational culture can help or hinder the strategy execution process. Chapter 10 deals with
the role of strategic leaders and organisational culture in more detail.
Resource allocation is also integral to strategy implementation. Resources comprise human
resources, physical resources, information resources and time. Coupled with the allocation of
resources is the need for structure. Organisational structure indicates the lines of authority and
responsibilities in the organisation. It forms the backbone of the organisation and helps to direct
the various actions required to implement the strategies. The organisational structure needs
to support the implementation of the strategies. A more detailed discussion of organisational
structure and business architecture is included in Chapter 11.
4.5.3 Operationalising strategy

Below is a brief explanation of the functional tactics (i.e. short-term goals) to explain how
strategy is translated into operationalised actions.
©
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
77
E S E S S
S S
S
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.
4.6 Strategy review and control

This chapter started with an explanation of the strategic management process. We indicated
earlier that the process begins with the formulation of the organisation’s strategies, followed
by their implementation. The third phase is the review and control phase. In this phase, the
management uses a range of different measures and processes to check on the progress of the
implementation process and monitors the need for changes to some of the previously developed
plans. As organisations operate in changing environments, the need for regular and continuous
monitoring and review is important. Different methods to review the strategy implementation
process exist and although the focus of each methodology is different, the aims remain the
©
same: review and control.

Our focus is on the four main strategic control methodologies, namely, premise control,
strategic surveillance, special alert control and implementation/execution control. Typically, all
78
E S E S S
S S
S
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.
The big picture

The process perspective of strategic management advocates that strategic management
comprises three stages, namely strategic planning, strategy implementation and strategy review.
The process perspective supports a linear approach to managing organisations strategically and
is also referred to as the traditional approach (see Figure 1.1 in Chapter 1). Yet, as organisations
and management thinking evolve, new perspectives and approaches to strategic management
have emerged. These perspectives do not replace the traditional perspective, but rather open
opportunities for managing organisations in new competitive realities.
The focus of this chapter was to introduce different perspectives and to provide specific
details on the process perspective of strategic management.
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.
©
79
E S E S S
S S
S
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.
©
80
E S E S S
S S
S
STRATEGISING AND
5 STRATEGISTS
Annemarie Davis
■ 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.
■ emergent strategies ■ strategy-as-process perspective

KEY TERMS
■ middle management ■ strategising
■ practices ■ strategist
■ practitioner ■ strategy-as-practice perspective
■ praxis ■ top management
CASE The Big Media group1

STUDY Since its incorporation in 1945 as a printer and publisher of news-
papers and magazines, Big Media has grown and expanded to become
a multinational group of media and e-commerce platforms that
provide entertainment, trading opportunities, information and access
to friends, wherever their users may be. The group’s principal opera-
tions are in internet platforms (focusing on commerce, communities,
content, communication and games), pay television and the provi-
sion of related technologies and print media (including publishing,
distribution and printing of magazines, newspapers and books). Most
of the company’s businesses hold leading market positions.
The strategy is aimed at attaining sustainable market positions in
©
growing emerging markets. Despite the competition in pay television,

regulation and concerns about consumer spending levels,
E S E S S
S S
S
Big Media will continue their growth strategy. Rigorous evaluation

processes are applied when new investments are considered. Their aim
remains to deliver value to their shareholders over the medium and longer
term.
In support of their growth strategy, Big Media developed six key
objectives:
1. Focus on investment and technology

Big Media has made substantial investments in recent years to upgrade
and improve its subscriber and user platforms, and intends to continue
with these investments in order to consolidate the leading positions it
holds in many markets and to expand into new ones.
2. Grow internet businesses

Big Media intends to develop its range of internet services that include
e-commerce, communication and networking services, in the territories
in which it operates (Japan, Africa, North America, Central Eastern Europe
and India). It also intends expanding into new developing territories.
3. Build a digital subscriber base

Big Media seeks to continue to expand the digital pay television subscriber
base, by converting its current analogue customers to the digital service
and by gaining new digital customers. The digital pay product offers
its subscribers premium movie and sports programming and constantly
adds interactive services to its bouquets (the term used to describe the
channels offered on the different programming packages).
4. Attract innovative and motivated employees

Big Media places a high priority on attracting quality employees and
encourages them to improve on cutting-edge technology and come
up with new ideas. Employees are motivated by being provided with
on-going training opportunities and being made owners in the business
through share incentive schemes.
5. Maintain local approach

Big Media has a successful track record of establishing, acquiring and
growing businesses in emerging markets. It believes that a component of
its success in these markets is its emphasis on a local approach, involving
local partners and management teams, and incorporating linguistically
and culturally tailored local content in its service offerings. Big Media
©
intends to continue with this strategy as it expands its pay television

and internet businesses.
82
E S E S S
S S
CHAPTER 5: STRATEGISING AND STRATEGISTS
S
6. Provide quality service

Big Media views its subscriber platform business primarily as a service
business and places emphasis on the importance of providing customer
service. It believes that this helps to build customer loyalty and reduce
‘churn’ (a term used to describe subscriber loss). Big Media will continue
to provide quality customer service by operating service centres using
advanced computer systems.
Chapter 4 explained the process perspective of strategic management.

CHAPTER
The chapter also described the three stages in the strategic management
ORIENTATION process. This chapter will describe strategy making or strategising from a
practice perspective. The chapter will also discuss who the strategic actors
are in strategic management according to the process perspective and the
practice perspective.
The chapter case study above describes Big Media’s mission and
strategy that were formulated by a team of managers and practitioners.
Formulating strategies can be deliberate or emergent. The purpose of
Chapter 5 is to describe the people involved in strategy formulation,
implementation and review. There are a range of actors that participate
and influence the strategic activities in the organisation. The traditional
approach to strategic management assigned specific roles to specific
actors, but more contemporary approaches indicate that the roles are not
as clear cut as traditionally proclaimed.
Process vs practice perspective
Strategising
Deliberate and emergent strategising
Strategists
5.1 Process vs practice perspective

Section 1.2 in Chapter 1 provided an explanation of the traditional process perspective. In that
section, we explained that strategic management, from this perspective, can be described as
a rational process with clearly delineated phases that organisations use to achieve strategic
©
competitiveness and competitive advantage.2 The traditional perspective of strategic

management has attracted considerable criticism for various reasons. One of these is that the
83
E S E S S
S S
S
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
©
but interrelated social phenomena. It is thus not possible to study one without also drawing on
aspects of the others.
84
E S E S S
S S
S
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
FIGURE 5.1 A conceptual framework for analysing strategy as practice6
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
©
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
85
E S E S S
S S
S
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.
5.3 Deliberate and emergent strategising

As explained in earlier chapters, strategy deals with what the organisation plans to do and achieve
in the future. Strategic thinking entails an analytic and logical approach to establish the future
direction of the organisation and the action plans to achieve it. In Chapter 4, we explained that
the process of strategic management comprises three distinct stages: planning, implementation
and review. This implies that before a strategy can be implemented, it needs to be crafted.
However, often, organisations find themselves in a situation where so much change has taken
place between formulating and implementation, that the strategy needs reconsideration and/
or alteration. Despite basing strategic decisions on a range of assumptions that were logically
and conceptually developed, change can render the strategies obsolete, or force organisations
to formulate strategies during the implementation process.
Deliberate strategies are implemented and realised as intended. In order for this to happen,
three conditions need to be satisfied:
1. The management team must know precisely what they wish to achieve and what they intend
for the future of the organisation before any actions are taken.
2. Organisation means collective action. All members of the organisation must believe in the
strategy and work towards it.
3. The strategy must be realised exactly as intended, with no external interference.13 This is
difficult given the pace of change in the contemporary business environment.
©
The managerial perspectives box below offers descriptions of deliberate strategising by three
middle managers.
86
E S E S S
S S
S
As a middle manager my role is to implement and follow through as I am the link

between the employees and senior management.
Business manager, insurance industry
I am deeply involved in implementing the chosen strategy and making it work as
planned. I understand the internal requirements for successful strategy implementation
and insist that careful attention be paid to the details required for first rate execution
of the chosen strategy.
Manager, construction industry
As a middle manager I am not very involved in setting out the strategy of the business.
By the time I get to see the strategy it is generally already decided and the wheels are
in motion. My role is implementing the strategy and ensuring that actions are planned
and developed to ensure this implementation happens.
Middle manager, public sector
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
©
provisional, must be constructed in their place.
87
E S E S S
S S
S
As a leader, my main drive is being a change agent as change can be guaranteed to

take place on an ongoing basis as organisations make continuous improvements to
enhance their internal (systems/processes) and external (new products or service-level
improvements and/or improved product features) offerings and to make them better.
Middle manager, wholesale and retail trade
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.
TABLE 5.1 Categories of strategists
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,
©
with little or no regard for analytic approaches to problem solving

and decision making.
88
E S E S S
S S
S
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.
5.4.1 Top managers as strategists

The role of the top management team is to set the overall strategic direction of the organisation
by formulating the strategy, allocating the resources and reviewing the strategic success. They
are responsible for gathering information from both the internal and external environment,
and choosing strategies and actions to help the organisation gain a sustainable competitive
advantage. They then communicate this to middle level management, explaining the rationale
behind their strategic choices so that middle managers can link the strategies and strategic
goals to implementation efforts.
The top managers are also responsible for the review of strategies. They reflect upon their
decisions and actions and this may lead to changes or new decisions and actions. Sensing or
sense making may also lead to new insights or realisations and may affect current or future
decisions.
A strategist who is responsible for guiding the strategic planning in an organisation is often
referred to as a ‘strategic planning champion’18 (SPC). An SPC is an expert in strategic thinking
with specific analytical and technical skills, including the ability and knowledge to apply strategic
management concepts to the organisation and use management tools and planning models for
strategic practices. There are three roles that SPCs must perform to work effectively:
■ The social craftsperson integrates different expectations from groups and individuals to
ensure buy-in to the overall strategic direction, creating a positive and common ground
from which to plan the strategic future of the organisation. He or she deals with tensions
and conflicts, and changes a volatile situation into a positive one.
■ The artful interpreter adjusts general strategic planning practices to align them with the
local routines and norms. He or she contextualises the strategy so that others can identify
©
their own roles in it.
89
E S E S S
S S
S
■ 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.
PRACTISING STRATEGY: SIZWE NXASANA, FIRSTRAND GROUP19
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.
5.4.2 Board of directors as strategists

Boards of directors of companies influence strategising in organisations, being the focal point
and custodians for corporate governance. Although strategic decision making is done by
senior management, the board of directors influences the overall direction and monitors the
relationship between management and other stakeholders to ensure that the organisation is
sustainable in the long term.
In South Africa, the King III Report on Corporate Governance20 offers principles to oversee
the functions and role of the board of directors. One of these principles requires the board to
ensure that strategy is aligned with the purpose of the organisation. The board is also responsible
for the appointment of a chief executive officer. It provides leadership through endorsing the
chief executive officer to lead the process of strategy crafting. The role of the board is more
aligned to monitoring and reviewing strategies than crafting them.
PRACTISING STRATEGY: THE CAPITEC BOARD OF DIRECTORS21
Board functioning and effectiveness

The Board meets six times per annum. The Board operates in terms of an approved
charter which, apart from detailing the powers, duties and responsibilities of the
Board, also specifies the reserved powers of the Board.
©
To allow non-executive directors the opportunity to familiarise themselves with

the Capitec Bank business outside of Board meetings, they are invited to executive
90
E S E S S
S S
S
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.
5.4.3 Middle managers as strategists

Traditionally, the role of middle managers was limited to implementation. However, in the
flattened, delayered organisational structure of the 21st century, middle management is now
much closer to the strategic apex and makes a variety of contributions to the formulation,
implementation, review and success of the strategies. Consequently, the new model of the
middle manager is one that has a more strategic focus.
Four strategic roles of middle managers have been identified:22

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

middle managers understand and share information influences the success or failure of
the organisational strategies. Not only do middle managers provide information concerning
internal and external events to top managers, but they are also responsible for passing
©
information down to subordinates, which can reduce uncertainty and resistance to change.
This flow of information forms a valuable foundation for management decision making.
91
E S E S S
S S
S
Middle managers are considered linking pins, equipped with the ability to combine strategic
macro-information and hands-on micro-information.
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
3. Reshaping the strategic thinking of top management by selling to them strategic

initiatives that diverge from their current conception of strategy. This role links with
emergent strategising. Middle managers frequently become organisational champions for
initiatives developed at the operating level. This role is distinct from product championing
as it centres on influencing corporate management to adjust their current concept of
strategy. It is defined as the persistent and persuasive communication of strategic options
to top management.23 By proposing and defining issues for top managers, middle managers
provide important contributions to an organisation’s strategic direction and thereby
influence organisational effectiveness.24
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
4. Managing change and facilitating adaptability. Middle managers have downward

influence and need to support, guide and alleviate the concerns and fears of subordinates.
Formulating and implementing strategies go hand in hand with change, and middle managers
play an important role in managing these change processes by adapting and amending work
practices to align them to the changing environment. Middle managers are also required
to deal with conflict in their operational units. Within their areas of responsibility, middle
managers have the authority and responsibility to facilitate change.
I am responsible for corrective action when my branch faces important or unplanned

©
disturbances.
Middle manager, retail industry
92
E S E S S
S S
S
I need to be innovative within the boundaries of the strategy.

Manager, provincial government
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.
5.4.4 Consultants as strategists

The management consulting industry is considered to be one of the most powerful forces
shaping organisational strategy.25 Management consultants are practitioners who are
considered knowledgeable about the business environment and organisations. They have a
wealth of industry contacts and a good reputation based on experience. The practising strategy
box below describes Deloitte Consulting’s philosophy to help organisations craft and execute
strategies.
Guidance from outside the organisation is often sought, especially when managers inside
the organisation lack expertise in a specific area, or when decision making has come to a
standstill. Furthermore, when an organisation experiences short- to medium-term staffing
issues, consultants can fill the role of full-time employees. Most importantly, management
consulting firms pool their resources, knowledge and experiences across industries and are
authoritative forces in advising on best practices.
PRACTISING STRATEGY: DELOITTE CONSULTING26

Bold strategic decisions and precise execution matter more now than ever before
in today’s rapidly changing global economy. Whether it is pursuing new growth,
delivering the latest innovations or managing risk more effectively, companies have
to be ready to see these as unique moments that will define future success and failure,
and perhaps even survival.
That is where Monitor Deloitte excels. Our strategy practice takes a 21st century
approach to strategy that combined with our deep industry experience positions us to
collaborate with you to create executable strategies. Unlike our competitors, we can
see strategy through to implementation and as a result, increase our impact. It is an
approach that can help organizations move more quickly and pragmatically to take
advantage of new opportunities while helping to mitigate risks along the way. And it
can work for your business.
5.4.5 In conclusion
Strategic success is enhanced by the collective efforts of all the strategists. Success is enhanced,
©
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
93
E S E S S
S S
S
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.
The big picture

The process perspective of strategic management considers strategy as a process with specific
management roles and tasks assigned to each stage in the process. The practice perspective
offers a broader view of strategic management that not only considers a wider range of
strategists (such as the board of directors, top managers, middle managers and consultants),
but also allows for the messy realities of doing strategy in practice.
Within the strategy-as-practice perspective, strategising is the result of the interaction
between strategy praxis, strategy practices and strategists. Formulating and implementing
strategies should be proactive in nature, but due to the changing business environment, some
strategies are reactive. Deliberate and emergent strategising is influenced by the business
environment and the strategy practices and strategists. Deliberate strategies tend to emphasise
central direction and hierarchy, while the more emergent ones open the way for collective
action and convergent behaviour.
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.
©
94
E S E S S
S S
S
Endnotes
1 Adapted from http://www.naspers.com/about-naspers.php; http://www.naspers.com/strategy.php
(accessed 9 January 2014).
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.
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
©
managers assess the context for selling issues to top managers’. Strategic Management Journal,
18(5): 407–423.
95
E S E S S
S S
S
25 Oosthuizen, H. 2003. ‘The management consulting industry in South African – a strategic

assessment’. South African Journal of Business Management, 34(4): 15–26.
26 http://www.deloitte.com/view/en_US/us/Services/consulting/Strategy-Operations/strategy-consulting/
index.htm (accessed 9 February 2014)
©
96
E S E S S
S S
S
THE LEARNING
6 ORGANISATION
Peet Venter
■ 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.
KEY TERMS ■ learning organisations ■ knowledge management

■ sense making ■ dominant general
■ absorptive capacity management logic
■ organisational learning
CASE HCL Technologies1

STUDY Indian company HCL Technologies ($4.7 billion in revenues and
more than 87,000 employees by the end of 2013) has been hailed
by leading management thinkers (such as Gary Hamel and Fortune
Blog post by Gary editor David Kirkpatrick) as a new model of management. The success
Hamel at http://www. of former CEO Vineet Nayar (currently vice-chairman) has been
managementexchange. achieved partly through big and bold decisions, but also through
com/blog/hcl-extreme- small but revolutionary changes to everyday management problems.
management- When Vineet took over as CEO, his first priority was to identify
makeover. Author the reasons for HCLT’s low growth at the time. He engaged in
Gary Hamel, the a series of discussions with HCLT’s employees in groups both
Management large and small. As the frank and open discussions progressed,
Innovation Exchange
Vineet came to two important conclusions. First, in a service
(MIX)
business like HCLT, frontline employees played the most critical
role in creating value for customers. Second, HCLT’s top-down
management model was more attuned to serving control-
©
obsessed executives than those of frontline employees servicing

customers. These conclusions led Vineet to make some ground-
breaking decisions.
E S E S S
S S
S
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
©
thought he or she had done something of value to the customer,

above and beyond the contract, it was logged in a value portal
which notified the customer. The customer was then asked how
98
E S E S S
S S
CHAPTER 6: THE LEARNING ORGANISATION
S
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.
The importance of organisational learning
Barriers to learning
Individual learning
Transferring knowledge to others

©
Becoming a learning organisation
99
E S E S S
S S
S
6.1 The importance of organisational learning

While we can agree that knowledge
and organisational learning are
important concepts for the success Individual
and survival of organisations, it is learning
also important to think about how
organisational learning takes place.
Firstly, we should understand that
individuals learn, not organisations. Applying Transferring
The process thus starts with acquired knowledge to
individuals learning. The next phase knowledge in other members
in the process is where learning management of the
is shared with other members in practice organisation
the organisation until it becomes
commonly accepted practice or FIGURE 6.1 Organisational learning
knowledge.
Perhaps the most important phase is when the learning is applied to strategic decisions and
management practices in the organisation. At this point, it starts becoming an organisational
capability, and as we will see from the next chapter, organisational capabilities are important
building blocks of competitive advantage. Application of knowledge also creates new learning
opportunities, and once again the assimilation of this learning in the organisation will lead to
the further development of knowledge and capabilities. This process is depicted in Figure 6.1
From Figure 6.1 we can see that organisational learning is continuous (all members of
an organisation should be learning and adapting every day in a never-ending cycle) and
experimental, because the acquisition of knowledge is no guarantee that mistakes will not be
made. Making mistakes or figuring out what works or does not work in different situations is
an important part of learning.
While we can agree that organisational learning is conceptually important, can we see the
evidence of organisational learning leading to organisational success? In the case of HCLT, we
can see that the organisation managed to increase its revenues and profits substantially, but
it is difficult to isolate being a learning organisation as the only driver for its success. Perhaps
we should ask the question the other way around: what would happen if organisations did
not learn and adapt? Clearly, many organisations would fail if they were unable to adjust to
environmental changes, which occur often, as we will see in the next section. In addition, such
organisations would simply not be able to benefit from innovation because there would be
none. So we can argue that being a learning organisation could lead to at least three benefits:
1. Being able to adapt more quickly to environmental changes through more flexible and agile
strategic responses
2. Being able to benefit from opportunities and sensing and reacting to threats earlier than
competitors, leading to superior performance
©
3. Being able to apply newly acquired knowledge to business problems and opportunities,
leading to innovation.
100
E S E S S
S S
S
Alone or in combination, these benefits would result in a competitive advantage to any

learning organisation. However, becoming a learning organisation is not easy. Several barriers
to organisational learning exist, as discussed below.
6.2 Barriers to learning

If organisational learning is so important to the success and survival of organisations, why are
so few organisations truly good at it? Some of the reasons are discussed below.
6.2.1 Dominant general management logic

Dominant general management logic stems from the way managers conceptualise their
business. It is a set of broad (often flawed) assumptions that can be thought of as a structure
(in the case of diversified businesses, there may be multiple dominant logics). Managers make
critical decisions about the strategy and allocation of resources based on this, and the more
‘dominant’ the logic, the more it acts as a barrier to learning and change. In effect, the dominant
management logic acts as a filter, meaning that executives will only see or focus on data from
the environment that is deemed relevant by the dominant management logic. Unlearning must
take place in order to pave the way for new learning and new mental models, and allow new
dominant logic(s) to be established.
Ironically, the more successful an organisation is, the more difficult it often is to change its
dominant logic, as one of the dangers of dominant management logic is that executives in an
organisation will assume that the future is essentially an extension of the past, and will ignore
any information to the contrary.3
For example, very few of the leading film camera manufacturers such as Polaroid are
also market leaders in the digital camera age. One could argue that their dominant logic
prevented them from making the transition to a fundamentally new technology and type of
dominant logic.
6.2.2 Management ignorance

Quite often managers in an organisation assume that they know all there is to know about
their business and the industry in which they operate, and there is accordingly no need to learn
anymore. In this instance, ignorance and arrogance present a barrier to learning.4
6.2.3 Absorptive capacity

Absorptive capacity refers to the ability of an organisation to recognise the value of new, external
information, to assimilate it and to use it to address business problems. Absorptive capacity is a
strategic capability, and as with all resources and capabilities, it differs from organisation to
©
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
101
E S E S S
S S
S
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.
Acquisition Assimilation Application

Transformation Competitive
of external of acquired of new
of knowledge advantage
information information knowledge
FIGURE 6.2 The elements of absorptive capacity
6.3 Individual learning

In the context of this discussion, learning is a change in behaviour or performance as a result of
experience.7 The learning process can be seen as a cycle, with four different activities as follows
(see Figure 6.3):
1. Concrete experience, which occurs when a person acts in a certain way. (For example,
©
a lecturer may hear that using case studies is an effective way of teaching strategic
management, so he presents his class with one.)
102
E S E S S
S S
S
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
©
FIGURE 6.3 The experiential learning cycle 10
103
E S E S S
S S
S
6.4 Transferring knowledge to others

Knowledge is broadly categorised as being explicit or tacit.11 Explicit knowledge is knowledge
that can be written down or told to someone, for example you can explain to someone how to
get on a bicycle, how the pedals work and how the brakes work (although this will not necessarily
mean that the person can then ride the bicycle). Tacit knowledge consists of personal beliefs,
values and perspectives that people take for granted and that may be much more difficult to
communicate.
While the two are quite often thought of as separate categories, it is perhaps more accurate
to think of them as a continuum because often knowledge has aspects of both. Sometimes the
explicit aspect may be a much bigger component than the tacit, and other times the reverse
may be true. For example, complex tasks such as negotiating a merger between companies may
consist mostly of tacit knowledge, while simpler tasks, such as operating a cash register, may
consist mainly of explicit knowledge. This is illustrated in Figure 6.4.
Tacit knowledge
Explicit knowledge
Operating a Negotiating a merger

cash register between companies
FIGURE 6.4 The knowledge continuum
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.
©
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
104
E S E S S
S S
S
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.
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
6.5 Becoming a learning organisation

Organisational learning is not as easy as putting in place a few people, processes and technologies.
It requires a deep-seated change in the way the organisation and its leaders view the world.
The following mechanisms, to be used in combination, are proposed to assist an organisation
to become a learning one:
6.5.1 Leadership commitment to learning

Problems within an organisation generally begin with top management and filter down, as
does success. Thus, in order to generate a culture of organisational learning, leaders should
demonstrate their own commitment by being models of learning, championing learning and
using learning strategically for business results.12 In the case of HCLT in the chapter case study,
the change was led by the CEO, Vineet Nayar.
6.5.2 Building shared visions

©
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
105
E S E S S
S S
S
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.
6.5.3 Encouraging diversity

People from similar backgrounds, for example similar cultural groups and similar education,
tend to see things in a similar way. Quite often, if the top management team is too similar in
their backgrounds, it is easier for them to get caught up in a dominant management logic, and
much more difficult to change. For this reason, diversity in the organisation and specifically in
the top management team should be encouraged.15 The more people have divergent views, the
more they are likely to influence each other’s mental models and effect change.
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
6.5.4 Encouraging double-loop learning

Single-loop learning occurs when individuals or organisations strive to achieve a goal and when
they do not succeed, evaluate what went wrong. They may then try a different strategy, fail
again, evaluate again, and so on until they run out of ideas. This persisting failure may push
the individual or the organisation into a situation where the fundamental elements or rules
governing the situation are questioned, leading them to re-evaluate their own mental models
– the goals, values and beliefs they hold.16 This questioning of the fundamental underlying
assumptions is known as double-loop learning.
©
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
106
E S E S S
S S
S
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.
6.5.5 Developing systems thinking abilities

Systems thinking refers to the ability to see the ‘big picture’, and to see patterns rather than
isolated events. Systems thinking means that as an organisation, we understand how we are
connected to the world, how we fit into our environment, how we are influenced by it and how
we can influence it in turn.18
Another element of systems thinking requires people to be assisted to see the effect of their
work on the entire enterprise.19
6.5.6 Encouraging individual and team learning

Being committed to lifelong learning is an important element of a learning organisation.
Learning should be designed into work so that people can be trained on the job, while ample
opportunities should be provided for ongoing education and growth.20 Peter Senge promotes
the idea of personal mastery as focusing on becoming the best person possible and striving
for a sense of commitment and excitement in our careers to facilitate the realisation of our
potential.21 Encouraging top managers to enrich their experience bases through sabbaticals
and educational experiences, and rehearsing as a management team for a broad range of future
industry scenarios are examples of such individual learning opportunities.22
Peter Senge also emphasises the importance of team learning. Modern organisations operate
on the basis of teamwork, which means that organisations cannot learn if team members do
not come together and learn. This process requires teams to develop the ability to create desired
results, to have a goal in mind and to work together to attain it.23
6.5.7 Legitimising dissent

Thinking is not the exclusive domain of top managers. In learning organisations, everybody
should think and contribute ideas, and to this end, employees should be encouraged to question
key business practices and assumptions. A culture of dialogue and debate is very important in a
learning organisation.24 It is also important to double-loop learning, since it allows employees
to challenge the mental models that organisations use in their decision making.
6.5.8 Encouraging experimentation

©
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
107
E S E S S
S S
S
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
6.5.9 Establishing communities of practice

Communities of practice (CoPs) are the building blocks of learning systems. In our opening
case study about HCLT, we saw how they used the idea of communities of practice to create
employee first councils on a range of topics that were not only work related. The idea of CoPs
closely fits Peter Senge’s notion of ‘team learning’.26 CoPs can also exist across organisational
boundaries. For example, a CoP on procurement practices may include suppliers and academics
from outside the organisation.
One of the key roles of a CoP is to define what competence entails in its context, and there
are three elements:27
There must be a sense of joint enterprise, meaning that members of the CoP need to have
a shared understanding of what their community is about and how they can contribute to
it. Members must be accepted and trusted, and able to interact with other members of the
community, in other words there should be relationships of mutuality. The community will, over
time, develop a shared repertoire of stories, language, routines, rituals and processes, and the
knowledge of how to use these appropriately. The value of CoP for organisations occurs when
sharing of information takes place across the boundaries of the CoPs, either between individuals
or with other CoPs as a whole. This can happen in the following ways:28
■ People may form part of more than one community or be in a position to act as brokers
between CoPs. For example, a manager in an organisation may be a part-time student at a
leading business school, and accordingly may be in a position to act as a bridge between
CoPs.
■ Artifacts, such as documents, tools, processes and discourses, may act as bridges between
CoPs. For example, the findings of a research project conducted by academics at a university
may be used by a CoP in an organisation.
■ Interaction can be a means of exchanging information directly between CoPs. For example,
a conference on a specialised topic may attract business managers, consultants and
academics representing several CoPs.
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
©
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
108
E S E S S
S S
S
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
PRACTISING STRATEGY: BRUCE SPRINGSTEEN AND TOM MORELLO

For Bruce Springsteen fans, the rock superstar’s collaboration with Tom Morello seemed
rather unlikely. After all, Morello came from a very different musical background
as former guitarist for rap metal group Rage Against the Machine. When the two
musicians met, they hit it off and the collaboration started slowly, with Morello
joining Springsteen on stage in 2008 to play one song. The collaboration culminated
in Morello joining the famous E-Street Band (Springsteen’s long-time backing band)
on tour and recording their latest album, High Hopes, with them.
As time passed, the two musicians discovered common musical and ideological
ground, becoming fans of each other’s music in the process. They were both passionate
about folk music and songs about things not being right with the world. This is
known as ‘induction’, where group members interact to figure out their approach for
collaboration.31
In the process of collaboration, learning is essential. Springsteen and Morello
realised that they could do something together that they could not each do on their
own. ‘He took that music and jolted it into the now,’ Springsteen said of Morello.
Morello came out of the process inspired to create his own solo album: ‘The first time
I ever sang with an electric guitar in my hands was “The Ghost of Tom Joad” at the
Anaheim Pond in 2008. Until then I’d kept my folk singing career and my electric
guitar shredding career completely separate.’32
By finding common ground, Springsteen and Morello developed their personal and
professional relationships and both grew as artists.
6.5.11 Knowledge management

Knowledge management is ‘[t]he management function that creates or locates knowledge,
manages the flow of knowledge within the organisation and ensures that the knowledge is
used effectively and efficiently for the long-term benefit of the organisation’.33 In other words,
it is a management system to share organisational knowledge and to support organisational
learning. The creation of an efficient knowledge management system can contribute towards
the creation of a learning organisation.
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
©
4. Applying knowledge to solve business problems and make decisions.
109
E S E S S
S S
S
The nature of a basic knowledge management system is depicted in Figure 6.5.
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
FIGURE 6.5 A knowledge management system
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.
Knowledge (new and existing)

Knowledge is the sum total of information in the organisation, consisting of both existing
knowledge and new knowledge which is constantly being added by environmental scanning
and recruitment activities.
Capturing knowledge
©
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
110
E S E S S
S S
S
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.
Knowledge management systems

Information technology plays an increasingly important role in knowledge management systems
as it enables their processes, while in turn being populated and enabled by them. There is a
myriad of different technologies that may be useful during each of the phases of the knowledge
management process.
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.
©
Manager, global logistics firm
111
E S E S S
S S
S
PRACTISING STRATEGY: CODIFY OR PERSONALISE? DIFFERENT STRATEGIES FOR MANAGING KNOWLEDGE

Because of the need to capture the methodologies they use in different projects,
consulting firms have traditionally been at the forefront of knowledge management.
In a Harvard Business Review article, Morten Hansen, Nitin Noria and Thomas Tierney35
found that there were two distinct models for knowledge management in consulting
firms. In one model, the consulting team captured the knowledge in a document
format, which was then shared with the rest of the firm through electronic means. This
approach was described as the ‘codification’ approach. The other approach was based
more on personal contact, with consultants finding and interviewing other consultants
with relevant experience in order to devise a new methodology. This was described as
the ‘personalisation’ approach. The authors suggested that the two approaches could
not be easily combined, and that care should be taken in selecting the best approach.
The big picture

Strategic innovation and change is the ultimate goal of organisational learning. Without the
ability to learn, these goals would not be achievable. However, organisational learning begins
with the individual and his or her own ability to learn and change. From the individual, it moves
to teams as individuals share their knowledge and insights and their teams apply the new
insights to business problems. As teams apply new knowledge successfully, they may have to
share the knowledge with the rest of the organisation for wider application.
From our discussion above, we may argue that there are three building blocks for a learning
organisation36 (see Figure 6.6). The first building block is an environment that supports and
encourages learning. For example, legitimising dissent and encouraging experimentation are
actions that create an organisational pace where learning is not only tolerated, but actively
encouraged. However, the organisation also needs to establish formal processes to share
knowledge systematically. Communities-of-practice and knowledge management systems are
examples of activities that will form this building block. The third building block is leadership
that actively stimulates dialogue and debate and encourages learning.
LEARNING ORGANISATION
REINFORCES LEARNING
CONCRETE LEARNING
LEADERSHIP THAT
PRACTICES AND
ENVIRONMENT
PROCESSES
LEARNING
©
FIGURE 6.6 Building blocks of a learning organisation

112
E S E S S
S S
S
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.
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
©
practice. London: SAGE.

5 Adapted from Cohen, W.M. & Levinthal, D.A. 1990. ‘Absorptive capacity: a new perspective on
learning and innovation’. Administrative Science Quarterly, March 1990.
113
E S E S S
S S
S
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)
17 Senge (1990)
18 Ibid.
20 Ibid.
21 Senge (1990)
23 Senge (1990)
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).
29 Ibid.
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
©
Review, March: 109–116.
114
E S E S S
S S
S
CREATING VALUABLE
7 CAPABILITIES
Cecile Nieuwenhuizen
■ 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.
KEY TERMS ■ resource-based view ■ rare

■ resources ■ inimitable
■ tangible resources ■ exploitable
■ intangible resources ■ non-substitutable
■ capabilities ■ competitive advantage
■ core competencies ■ key success factors
■ appropriability
CASE Boeing BlackTM 1

STUDY In February 2014, Boeing made a public filing related to its Boeing
Black smartphone with the United States Federal Communications
Commission that generated a significant amount of publicity.
The smartphone is an extension of the communications division
©
of the well-known aerospace and defense contractor that is generally
E S E S S
S S
S
better known for its aircraft. It is directed specifically at the market

for secure communications, which includes government agencies and
contractors. The phone has the ability to encrypt calls, and any attempt
to open the casing of the phone will delete data and disable the device.
It can be configured to connect with biometric sensors or satellites, and
other attachments can extend battery life or harness solar power.
The device is made in the US and runs on the AndroidTM operating
system. It is equipped with dual SIM cards to enable access to multiple
cellular networks. Due to the security features, Boeing is releasing few
details about its network and manufacturing partners, and although it
has started offering the device to potential customers, little is yet know
about the pricing.
While one is initially surprised at Boeing entering this very competitive
industry, closer examination suggests that the technical expertise of
Boeing in the area of secure mobile communications, the Boeing
brand name and the company’s relationships with governments and
the defense industry places it in a very strong position in a potentially
lucrative niche market.
This chapter uses the resource-based view of strategic management

CHAPTER
to introduce and ensure an understanding of the key resources and
ORIENTATION capabilities of an organisation, how these create value for customers
and the organisation, how they contribute to the development of a
competitive advantage and their role in strategy. As the chapter case study
on Boeing Black illustrates, organisations can leverage their resources and
capabilities to achieve competitive advantage and to exploit opportunities
in other strategic spaces.
Introduction
Resources and capabilities
Appraising the value of resources and capabilities
The resource-based view
Identification of capabilities and core competencies to create value

©
The contribution of resources and capabilities towards competitive

advantage
116
E S E S S
S S
CHAPTER 7: CREATING VALUABLE CAPABILITIES
S
Sustainable competitive advantage
Capturing the value generated by resources and capabilities
The development of capabilities
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 Resources and capabilities

This section introduces and explains the meaning and contribution of resources and capabilities,
the internal environment, internal assessment, how it relates to strategic management and
other relevant concepts.
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)
©
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
117
E S E S S
S S
S
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.
We have a relatively formal strategic management process. Our business is a family

business that has been in existence for over 100 years. The industry we are in has
undergone a number of significant changes of late which has forced us to relook
our business and the strategies we employ. We started with looking at what our
purpose is, what we want the business to become and what we believe it embodies.
This process helped us to set our strategic direction. At the same time and as part of
the process of defining ourselves, we conducted a detailed internal analysis using the
resource-based view, value chain analysis and the viable systems model which helped
us to identify, define and detail our core competencies, the areas of the business
that added value to our market offering, the areas of the business that are critical to
long-term sustainability and the areas of the business which needed investment and
improvement.
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
©
capital, organisational capital, innovation capital and process capital.5
118
E S E S S
S S
Kristandl and Bontis define intangible resources as follows:6

S
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
There are three types of intangible resources:

1. Human resources (including knowledge, trust and managerial capabilities)
2. Innovation resources (including ideas, scientific capabilities and capacity to innovate)
3. Reputational resources (including brand name, reputation with customers, perceptions of
product quality and reliability)
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
©
combination of resources, both tangible and intangible, can create valuable organisational
capabilities.8
119
E S E S S
S S
S
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
Marketing budget Marketing experts Brand (intellectual

(financial resources) (human resources) property)
FIGURE 7.1 The link between resources and capabilities
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
©
primary differentiators of organisations from their competitors. Building difficult-to-imitate

capabilities is of great importance to an organisation as this ensures differentiation.
120
E S E S S
S S
S
7.2.3 Core competencies

According to Grant and Jordan14 and other authors,15 capabilities or competencies are the
same thing. However, core competencies (also referred to as distinctive capabilities) are those
capabilities or competencies that distinguish an organisation from others in an industry and
form the basis of its competitive advantage, strategy and performance. In Figure 7.2, the
link between resources (tangible and intangible), capabilities, strategy, core competencies,
competitive advantage, value creation and organisational performance is illustrated.
Tangible and intangible Core competencies Strategy

resources Differentiation/
low cost
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
©
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.
121
E S E S S
S S
S
PRACTISING STRATEGY: SABMILLER’S CORE COMPETENCIES19
Creating a balanced and attractive global spread of businesses

The wide geographic spread of our operations allows us to benefit from growth
in volumes and value in beer markets around the world. We continue to look for
opportunities to strengthen our geographic footprint in both developing and developed
markets through greenfield entries, alliances, mergers and acquisitions.
Developing strong, relevant brand portfolios that win in the local market
We seek to develop attractive brand portfolios that meet consumers’ needs in each
of our markets. This includes expanding our offerings to address new consumer
segments and drinking occasions, strengthening our mainstream brands, building a
differentiated portfolio of global and local premium brands and channelling the right
brands to the right outlets at the right time and price.
Constantly raising the profitability of local businesses, sustainably
Our aim is to keep enhancing our operational performance through top-line growth
and continuous improvement in costs and productivity. It’s also important that we
maintain and advance our reputation, protect our licence to trade and develop our
businesses sustainably for the benefit of our stakeholders.
Leveraging our skills and global scale
Our global spread presents increasing opportunities to gain value from the scale and skills
of the group, not least by leveraging our scale and expertise in procurement, standardising
our back-office functions and integrating our front-office systems. We are also benefiting
from ongoing collaboration and the sharing of skills between our businesses.
7.3 Appraising the value of resources and

capabilities
Capabilities and resources have the potential to become core competencies and these core
competencies can result in competitive advantage, but only if they meet certain conditions.
A resource-based framework for analysis of an organisation will determine the resources and
capabilities that will result in core competencies.
For resources and capabilities to become the core competencies, they should be valuable
(V), rare (R), inimitable and non-substitutable (I), and exploitable by the organisation (O) (VRIO).
These measures can be used to test the strategic value of resources and capabilities and are
discussed further below.
7.3.1 Value
©
Valuable (V) implies the ability of the organisation to transform a resource into a product or
service at a lower cost or with a higher value to the consumer. Capabilities are valuable when
122
E S E S S
S S
S
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.
Imitation by competitors is prevented if

■ they do not understand the reason for the success
■ they do not have the same unique historical conditions
■ the cause of effectiveness is uncertain due to social complexity (for example, trust, teamwork
and informal relationships).
Non-substitutability is also part of inimitability of resources and capabilities and means that
there are no equivalent resources, duplicates, substitutes or imitations that can be exploited to
implement the same strategies. The strategic value of a capability or core competency of an
organisation increases when it is difficult for competitors to substitute it and also when it is
difficult for them to identify, discern or observe it. Specific knowledge of the organisation and
trust relationships are not easily observable and therefore difficult to copy.21
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
©
little value. Managerial awareness, of both the potential competitive advantage and the action
required to realise it, is essential.22
123
E S E S S
S S
S
PRACTISING STRATEGY: THE JOULE ELECTRIC CAR RUNS OUT OF CURRENT23
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.
7.4 The resource-based view

Strategy formulation originally included a market-focused mission statement addressing what
the organisation was about, its business, the market and needs it served, and its customers. In
a volatile and ever-changing environment, this external focus became risky and in the 1990s,
attention shifted towards the internal strengths, resources and capabilities of organisations.
The resource-based view (RBV) is a model for analysing the internal strengths and weaknesses
of the organisation in terms of its resources and linking them to opportunities in the external
environment. It determines where the organisation can build competitive advantage, superior
performance and customer value.
An assessment of the organisation starts with a general internal evaluation to determine its
strengths, specifically as related to the industry in which it operates. Important considerations
for assessment are
■ the strategic direction as conveyed in the vision, mission, purpose and values
■ the key internal stakeholders, including managers, their experience, strengths, weaknesses
and management style
■ the owners of the organisation
©
■ operational issues such as sales, assets and location

■ the type and level of employees and culture of the organisation.
124
E S E S S
S S
S
Management’s strategic role

■ Key resources identification
■ Key resources development and protection
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
Appropriability Fully appropriated by the Value remains within Ownership structure

firm the firm due to resource reinforces inimitability
inimitability and success enabling the firm to
in retaining key personnel appropriate value
Sustainable competitive advantage

Value to client – consistently high performance
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:
©
■ 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
125
E S E S S
S S
S
■ 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.
7.5 Identification of capabilities and core

competencies to create value
Through the exploitation of capabilities and core competencies, organisations create products
and services with value which customers are willing to acquire. Those that are superior to
what is being offered by competitors contribute to competitive advantage. Value is determined
through lower production cost and/or differentiation from products and services of competitors.
The identification and assessment of capabilities and core competencies is challenging
but essential as it forms the basis of an effective organisational strategy.29 A value-chain
analysis or a resource-based approach can be used. Both involve determining the strengths and
weaknesses of an organisation and how the strengths contribute to its competitive advantage.
The performance of an organisation can also be evaluated and compared to the performance
of competitors.
Identifying and assessing capabilities and core competencies will enable the organisation to
determine the following:
■ How the components of its value chain add worth to its performance
■ How resources and capabilities contribute to competitive advantage
■ How good its financial performance is compared to competitors
■ How customers and employees benefit from it.
Intellectual assets should also be assessed as human capital is an important resource.30

As discussed in the previous section, the resource-based view of strategy focuses on the
internal environment. Internal resources and capabilities determine strategic decision making
as these are key factors that determine the performance of an organisation. The five stages of
strategy formulation according to Grant and Jordan31 and the resource-based view of strategy
are as follows:
■ The identification and classification of the organisations’ resources
■ Identification of the capabilities of the organisation
■ Appraisal of the rent-generating potential (the value) of resources and capabilities
■ Selection of a strategy that optimally exploits the resources and capabilities of the
organisation relative to the opportunities in the external environment
■ Identification of resource gaps.
An organisation’s resources, capabilities and core competencies can be identified, classified and
©
analysed either (1) according to its functional areas, or (2) through an analysis of its value chain.
126
E S E S S
S S
S
7.5.1 Classification of capabilities and core

competencies according to the functional areas
of an organisation
A functional analysis identifies capabilities and core competencies according to the functional
areas in the organisation. For example:
■ marketing function, including brand management and reputation for quality
■ sales and distribution function, including customer service and after-sales service, sales
promotion and speed of order processing
■ corporate functions, including financial control, management development and international
management
■ management information function, including linking of a comprehensive, integrated
management information system with managerial decision making
■ operations function, including continuous improvement in manufacturing and speed of response
■ research and development function, including innovative new product development.
7.5.2 Classification of capabilities and core

competencies through value chain analysis
The main function of an organisation is to add value successfully in the process of producing
products and/or delivering services, i.e. the activities of an organisation are effectively combined
to create customer value. Activities are divided into five primary and four support categories
(see Figure 7.4).
External environment
Administration and infrastructure

Support activities
Human resource management

Ma
rgin
Procurement
Technology and information management
Procure-
rgin
ment and Production/ Outbound Marketing Customer

Ma
inbound operations logistics and sales service

logistics
©
Primary activities
External environment
FIGURE 7.4 The value chain32
127
E S E S S
S S
S
Primary activities and related capabilities include the following:

■ Inbound logistics: receiving, storing and distributing inputs for the manufacturing of
products by the organisation. Capabilities: purchasing; material and inventory control
systems
■ Operations: activities that transform inputs into final products, i.e. facility operations,
machines and assembly. Capabilities: design and product development, quality control,
component manufacture and assembly
■ Outbound logistics: collecting, storing and distributing of products and services to
customers. Capabilities: distribution coordination, processes related to warehousing of
products and dealer relationships
■ Marketing and sales: marketing, sales and purchasing of products and services of an
organisation. Capabilities: innovative promotion and advertising, and a motivated sales force
■ Customer services: everything involved in improving and maintaining the value of a product
for the customer. Capabilities: parts, warranty and servicing arrangements, and the quality
and training of employees
Support activities include the following:33

■ Administration and infrastructure support the entire value chain and include general
management, planning, financial management, information systems, legal issues and quality
management. Capabilities: risk management and integration of the value chain
■ Human resource management involves the appointment, development and retention of
employees at all levels, their compensation and all matters relating to their employment.
Capabilities: training, skills development, staff recruitment and retention
■ Procurement is the purchasing function. Capabilities: inventory and database management
■ Technology development involves all technology related to the operations and management
of the organisation. Capabilities: integrated management information systems and
technology-managed design and manufacturing
The objective of capabilities based competition is to build difficult-to-imitate organisational

capabilities that distinguish a company from its competitors. Capabilities are valuable when
they enable an organisation to implement strategies that improve efficiency and effectiveness.
The type of strategy also determines the value, i.e. low cost or differentiator strategies.
7.6 The contribution of resources and

capabilities towards competitive advantage
Competitive advantage exists when an organisation is more profitable than its competitors.
There are two ways to achieve this:
1. It can produce products and services that are superior in value to those of competitors, and
that allow it to charge premium prices or to retain customers for a longer period of time.
©
Apple Inc. is an example of a company that is a differentiator, as it charges a premium price

for its products, and has a very loyal customer base.
128
E S E S S
S S
S
2. It can produce products or services at a significantly lower cost than its competitors (cost
leadership), enabling it to leverage higher profit margins.
For differentiators, competitive advantage is achieved through combining resources, capabilities

and core competencies to produce products and services of superior quality. For cost leaders,
production efficiency is important. Either of these positions can be achieved through different
capabilities, as follows:
■ The ability to produce high quality products. Products are perceived as superior to those
of competitors when they have a high brand value or are more reliable and durable. For
example, the appeal of Harley Davidson motorcycles lies specifically in the American heritage
of the product, and customers are willing to pay a premium for this.
■ The ability to innovate. Innovation is experimentation and creative processes aimed at
developing new products, services or processes for commercialisation and introduction to
the market or potential users. In order to innovate, organisations will typically have to spend
more than their competitors on research and development. It can involve technological
improvements to products, services or processes; the design of new products; new marketing
strategies, or improved administrative and organisational systems and techniques. By
ensuring uniqueness through innovation and the ownership of patents, trademarks or
brands that cannot be imitated by competitors, organisations can achieve competitive
advantage. Apple Inc. has built a large loyal customer base with its innovative products and
stylish product designs, leading to Apple becoming the most valued brand in the world in
2013, worth $98.3 billion.34
■ Responsiveness to customers. This is the ability of an organisation to identify and satisfy
the needs and wants of customers. To contribute to competitive advantage, customer
responsiveness should be superior compared to competitors. By providing unique and
innovative services, organisations may be in a position to charge premium prices or to
retain customers. For example, Discovery Insure’s Vitalitydrive programme is a car insurance
product that rewards drivers for responsible driving.
■ Efficiency. This involves the transformation of inputs (raw materials, production methods,
labour, knowledge, expertise, technology) into outputs (products and services produced). The
level of efficiency is determined by quantity of inputs needed to produce output:
Output
Efficiency =
Input
An efficient organisation will require less input to produce a desired output. Efficiency is
often determined by the productivity of the employees of an organisation. The ability to
produce products or services at a cost significantly lower than competitors rests on the
ability of the organisation to leverage production efficiencies. Production efficiencies can
be achieved through various means, as follows:
❏ Economies of scale – producing larger quantities at lower prices
❏ Economies of learning – as organisations gain more experience, the cost of production
will go down
©
❏ Designing products for more economical production

❏ Designing production lines in a way that allows cheaper production, or using new
technologies as means of reducing costs
129
E S E S S
S S
S
❏ Reducing unnecessary costs

❏ Leveraging location advantages, for example by locating productive assets in areas
where the costs are lower
As a result of the complexity of the petrochemical market, strategic management is

critical. We make use of the following tools:
■ Benchmarking – we use benchmarking against our competitors as well as industry
in general to determine our strengths and weaknesses. This helps a lot in deciding
on our future direction.
■ Core competencies – to service this market effectively, we have identified some
core competencies required for our sales staff but also our lubricants business as
a whole.
■ Customer relationship management – we have identified this as being key to our
sector, and key account strategies are comprehensively covered in the strategies.
We see this in such a serious light that it is included in every sales person’s
performance contract.
■ Customer segmentation – we have segmented our customers into sectors of
importance. Therefore we have a strategy for every sector, and key accounts are
handed over to our agents to be serviced.
■ Knowledge management – we have a formal talent management process in place
whereby the skills and knowledge of our staff are evaluated annually and training
plans are implemented accordingly.
■ Vision statement – we have a clear, agreed vision statement in place for the team.
■ Outsourcing – in one specific area of the industrial business, namely [subsidiary
A], we make use of outsourcing to ensure that we get the correct skills to serve
this business. There is, however, a clear strategy in place to manage [subsidiary A].
■ Price optimisation models – we make use of the price waterfall model to take
the customer into consideration. This includes the cost of product, storage and
handling, credit, capital investment, service level, overheads, rebate and margin.
■ Shared service centres – we do have a customer service centre where orders are
placed, queries are handled and maintenance calls are logged.
■ Strategic alliances – we have strategic alliance customers. Once again, we have a
clear strategy document for each of these customers.
Manager, petrochemical company
7.7 Sustainable competitive advantage

Sustainable competitive advantage is determined by the durability of the relevant resources
©
and capabilities and how inimitable they are. Durability refers to the length of time over which
a capability is relevant and can contribute to the competitive advantage of the organisation.
130
E S E S S
S S
S
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.
7.8 Capturing the value generated by resources

and capabilities
Even when resources are inherently valuable and comply with the VRIO principles, it does
not necessarily mean that the organisation will have the capacity to take advantage of and
benefit from them. If the organisation cannot capture sufficient value to justify its investment
in developing unique resources and capabilities, it will not be able to achieve competitive
advantage. This is known as appropriability.
Dynamic capabilities involve the ability to integrate, build and reconfigure internal and
external processes and competencies to address a rapidly changing environment. It is the ability
to adapt capabilities that is the ultimate basis of sustainable competitive advantage.
Resources and capabilities are valuable when they enable organisations to deliver products
and services to customers at a price they are willing to pay. The value of resources and capabilities
is indirectly determined by the following:
■ The external environment, including demand and the potential of the market
■ Changes in the external environment, including technology, the structure of an industry and
preferences of customers
■ Differences in resources of organisations
■ Value as determined by either lower production cost than rivals or increased revenues, or a
combination of the two.
Although competitive advantage is important to an organisation, on its own it does not

necessarily lead to superior financial performance. For resources and capabilities to be the basis
of competitive advantage as well as ensuring superior profitability, the following are important:
■ The resources and capabilities should be inherently valuable, as determined by the VRIO
framework.
■ The resources and capabilities should enable the organisation to address market segments
that are large enough (L) to allow the organisation to generate sufficient financial returns.
■ The resources and capabilities should enable the organisation to identify and address an
©
unmet (U) need of customers. Unmet needs are defined as those needs of customers that
are high in importance and insufficiently satisfied.35
131
E S E S S
S S
S
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.
7.9 The development of capabilities

The development of capabilities is highly dependent on human beings and their store of
knowledge. As Robert Grant explains, organisational capability is a function of knowledge
integration.37 In other words, competitive advantage begins with individual knowledge, but
individual knowledge on its own is not worth very much. It is really in the extent to which it is
shared, assimilated and transformed that its true value will be realised, and this will ultimately
determine the development of capabilities and core competencies. For that reason, this section
should be read in conjunction with Chapter 6, which explores the learning organisation, and the
individual and organisational learning process.
The big picture

In this chapter, we introduced four key concepts, which are depicted in Figure 7.5. First,
we explored the idea of strategic resources, as the tangible and intangible assets of the
organisation. On their own, resources are valuable, but will reduce in value over time. It is only
when resources are combined to develop capabilities that they become a revenue-generating
asset. Unlike resources, capabilities will become more valuable with use and over time, leading
to the generation and accumulation of more resources.
We also explored the importance of dynamic capabilities, those capabilities that allow the
organisation to sense opportunities for renewing itself and developing new capabilities.
Core competencies (also known as distinctive capabilities) are the few very important
capabilities that the organisation does differently and better than its competitors and provides
the organisation with a competitive advantage.
In the resource-based view, history matters, and the more resources an organisation begins
with, the more likely it is to succeed and to add to its resources, increasing the foundations
of its success. For this reason, it is important for organisations to think about their strengths
©
and weaknesses in terms of resources and capabilities, and to find ways of developing dynamic
capabilities.
132
E S E S S
S S
S
Dynamic New sources of

capabilities competitive advantage
Resource Core competencies Current competitive

base and capabilities advantage
FIGURE 7.5 Resources and capabilities in action
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
©
February. Available online at: http://www.reuters.com/article/2014/02/27/us-boeing-phone-

idUSBREA1Q04K20140227 (accessed 18 March 2014); http://www.boeing.com/assets/pdf/defense-
space/ic/black/boeing_black_smartphone_product_card.pdf
133
E S E S S
S S
S
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.
©
31 Grant & Jordan (2012: 114)
134
E S E S S
S S
S
THE EFFECT OF THE

8 EXTERNAL ENVIRONMENT
ON STRATEGIC
MANAGEMENT
Clifton Singh
■ 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.
KEY TERMS ■ external environment ■ external stakeholders

■ strategy formulation ■ environmental change
■ strategic decision making ■ environmental uncertainty
■ broad environment ■ scenario planning
■ task environment ■ organisational agility
■ external environmental ■ organisational ambidexterity
analysis
CASE A clever cat1

STUDY Picture a group of birds pecking away trying to find worms. With
some confidence in safety of numbers, their heads are down, busying
themselves about their own immediate purpose. A young cat,
noticing the abundance of prey, stakes out his area. Using relatively
©
new skills, he pounces in an attempt to catch one or more birds. But,

although intelligent at hunting, he is still inexperienced and succeeds
E S E S S
S S
CHAPTER 8: THE EFFECT OF THE EXTERNAL ENVIRONMENT ON STRATEGIC MANAGEMENT
S
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.
The environment is what gives organisations their means of survival. As

CHAPTER
our chapter case study on ‘a clever cat’ suggests, the world of business is
ORIENTATION characterised by competition and unpredictability, and it is essential for
managers, organisations and industries not to be caught with their heads
down, confident in their successes of the past. The consequences will be
devastating and have far-reaching implications.
The effect of the environment on organisations and their strategic
choices should not be underestimated or considered lightly. Instead,
organisations and industries must be able to respond quickly to
changing circumstances posing as threats and opportunities, and alter
their strategies accordingly as they strive for strategic fit between their
organisations and the environment.
Introduction
©
The importance of understanding the external environment in

strategic planning and decision making
137
E S E S S
S S
S
Analysing the broad environment
Role players in the external environment and their effects on strategy
Analysing the task environment
The changing and uncertain environment
Scenario planning in understanding the external environment
Tools and techniques for analysing the external environment
Responding to the external environment
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
©
There are three levels of analysis which will influence the organisation’s strategic direction
(vision and mission) and strategic actions:
138
E S E S S
S S
S
1. Analysis of the broad environment (environmental trends)

2. Analysis of the task environment (key role players, along with the factors and conditions
influencing an industry’s profit potential)
3. Analysis of strategic groups and competitors (predicting competitors’ actions, responses and
intentions)
Although these will be discussed separately in this chapter, performance is likely to improve
when the organisation integrates the results of all of them.6
Central to our approach in studying the external environment is an appreciation of its
dynamic context and complexity. Recent history suggests that the pace of environmental
change facing organisations has given rise to conditions where stability is being replaced by
inherent change, uncertainty and ambiguity.7 The pace of this change is also accelerating. There
is therefore a need in strategic thinking and analysis for tools that can assist in providing
managers with a dynamic view, rather than just a current picture of the environment. This
has led to an increasing emphasis away from traditional planning and forecasting, to scenario
planning and the use of suitable instruments and techniques for analysing uncertainty.
8.2 The importance of understanding the

external environment in strategic planning
and decision making
The boundaries and interfaces that exist between organisations and their external environments
are relatively fluid and cannot be easily or clearly defined. As a result, the external environment
will spring surprises on organisations from time to time, and managers need to be prepared
to react. Under such conditions, timely and accurate information about the environment is
critical for strategic decision making and planning. For example, if organisations know very
little about the likes and dislikes of their customers and future trends, they will have difficulty
designing new products or services, setting up a production schedule, or developing marketing
and strategic plans.
However, the reality is that managers often do not have sufficient information about
the external environment readily available. Managers operating in turbulent or high-velocity
industries can be challenged even further when they have to operate under conditions of rapid
change and uncertainty. Managers are not only constrained by a lack of information about the
environment, but also a limited ability to understand or predict the future.
Ideally, for strategic decision making and planning to work, managers must not only
understand the context of their current competitive environments, but also the context of their
future competitive environments.
8.2.1 The need for identifying opportunities and

threats originating from the environment
©
A company’s performance and success is to a certain extent determined by the characteristics of

the industry in which it exists and competes. Furthermore, different industries are characterised
139
E S E S S
S S
S
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
[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
8.2.2 Understanding of the external environment

provides a foundation for strategic direction
and management
The business environment of the organisation consists of all the external influences that affect
its decision making and performance.10 The general idea is that, when undertaking a study of
the organisation in relation to its environment and key role players, strategic decision making
and planning should
■ take advantage of internal strengths and identified opportunities arising from the external
environment
■ overcome weaknesses, or neutralise identified threats found in the external environment
■ ensure the strategic ‘fit’ or consistency between its external and internal environments.
©
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,
140
E S E S S
S S
S
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.
8.3 Analysing the broad environment

The context within which organisations exist is defined by its broad environment and task
environment, as illustrated in Figure 8.1.
The broad environment

So
cio l
fo cul ica
rc tu The task environment l og s
es ra no ce
l ch or
Te f
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
FIGURE 8.1 The organisation and its environment12
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).
8.3.1 The identification of broad environmental

forces and the implications they hold for
industries and organisations
©
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
141
E S E S S
S S
S
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.
8.3.2 ‘Global tectonics’15

©
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
142
E S E S S
S S
S
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.
8.3.3 Evaluating an organisation’s strategic response

to external factors in the broad environment
The list of factors that constitute an environment is almost endless. While changes in the broad
(macro) environment may affect a cross-section of industries, some factors (PESTLE/G) are more
important than others as drivers of change in different industries. Factors are context specific
©
and vary from industry to industry, even from business to business, and can be operating at
a national, regional or even a global level. Therefore, when analysing the broad environment,
143
E S E S S
S S
S
managers are required to go beyond a mere description of change in the environment to an

assessment of the forces driving it in order to prioritise it so that the organisation can focus
its resources on the most strategically important issues. How companies respond to these
influences can have important competitive implications.16
An organisation can buffer itself against threats and take advantage of opportunities through
firstly identifying and evaluating these forces. A useful tool for identifying the strategically
relevant and significant factors in the broad environment is the external factor evaluation (EFE)
matrix illustrated in Table 8.1.
TABLE 8.1 Example of an external factor evaluation (EFE) matrix for a holiday resort17
KEY EXTERNAL PRIORITY MATRIX PRIORITY WEIGHT RATING WEIGHTED

FACTORS (LOW / MED / HIGH) SCORE
IMPACT PROBABILITY
Opportunities
1. New water med high 2 0.2 1 0.2

park being
developed
within 4 km
2. No. of foreign low med 6 0.1 4 0.4
tourists
growing 8%
annually
3. Major high high 1 0.3 3 0.9
competitor
in province
ceased
operations
Threats
4. New health high med 4 0.1 2 0.2

and safety
regulations
5. Technology med low 5 0.1 1 0.1
infrastructure
6. Customer high med 3 0.2 2 0.4
base changing
(golf, deep-sea
©
diving)
Total 1.0 2.2
144
E S E S S
S S
S
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.
8.4 Role players in the external environment

and their effects on strategy18
The next level of external environmental analysis looks at the role players in the task environment.
Figure 8.1 shows the stakeholders that have a potential to be most important. ‘Stakeholders’ are
the individuals, groups and organisations who can affect the firm’s vision and mission; they are
affected by the strategic outcomes achieved; and have enforceable claims on the company’s
performance. Examples of external stakeholders include customers, suppliers, competitors,
government agencies and administrators, and a variety of other external groups that have
a stake in the organisation. All of the stakeholders should be analysed at both a global and
domestic level.
Stakeholders are important to organisations because of the stake they can claim and the
influence they can exert. Various stakeholders can lay claim to different stakes as follows:
shareholders and directors can claim an ownership stake; suppliers, creditors, customers and
employees can claim an economic stake; while regulators, activist groups and local communities
can claim a social stake. In addition, various stakeholders possess and wield different types
of power and can influence organisations as follows: shareholders exercise formal power
©
associated with their rights; labour can display economic power by withholding their services;
while government can influence organisational behaviour through political power.
145
E S E S S
S S
S
8.4.1 How external stakeholders affect strategy

Every organisation involves a system of primary stakeholder groups with whom the company
establishes and manages relationships. While an organisation’s internal stakeholders are
important, the management of external stakeholder relations is becoming increasingly critical
to value creation and future organisational success. Stakeholder relationships can therefore be
managed to be a source of competitive advantage.19
In recent years, business has increasingly come under fire and been criticised for failing
to align organisational activities with social, economic and environmental expectations of its
broader stakeholders. These societal considerations are now forcing companies to rethink their
approach to core strategy and business model design. Traditional plans and strategies for a
business to survive, grow, cut costs, innovate, differentiate and globalise are now subject to a
new set of rules defining its relationship to society:20
1. Size means scrutiny. The bigger a company is and the more dominance it has in the
marketplace, the more attention and demand it faces for exemplary performance in ethical
behaviour, good governance, environmental management, support for communities, honest
marketing, and so on.
2. Cutting costs raises compliance risks. The more a company uses traditional means to
cut costs, the more potential there is for crises related to non-compliant ethical practices.
Benefits from good treatment of all stakeholders might well outweigh the benefits accrued
from such cost savings.
3. Strategy must involve society. For forward thinking companies, social and environmental
problems represent the growth opportunities of the future.
4. Reducing risks means building trusts. Classic risk management strategies must expand
above and beyond financial and currency analysis to include destabilising events arising
from society.
5. Satisfying shareholders means satisfying stakeholders. In the long run, the company that
pays attention to the business–society relationship ultimately serves its investors’ interests.
6. Productivity requires sustainability. Companies have seen that commitment to
environmental management and safety has been a driver of lower costs and greater
productivity. A commitment to corporate citizenship by constraining behaviour leads to
new incentives to innovate to compete. The more companies innovate, the more productive
and sustainable they become.
7. Differentiation relies on reputation. A ‘lifestyles of health and sustainability’ consumer base
is emerging globally. As this group of activist consumers grows, so too will their influence
and their demand from companies to demonstrate sterling reputations and commitment to
society.
8. Good governance needs good representation. The recent wake of corporate scandals is
generating strict reforms and controls in governance. But behind the reforms and changes is
a deeper revolution calling for greater inclusion of stakeholders in governance in companies.
©
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
146
E S E S S
S S
S
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
8.5 Analysing the task environment

In seeking to devise a strategy, we have to progress from the broad environmental analysis to
analysis of the task environment and its constituent stakeholders with whom the organisation
interacts regularly, as illustrated in Figure 8.1.
The analysis of the task environment focuses on the scrutiny of the three major layers,
namely the industry, strategic group and customer segments. It is important to understand
these environments and specifically what is to happen in the product or services environment
in which the organisation operates:
■ A good point of departure in industry analysis is firstly to understand what an industry is
(section 8.5.1).
■ Following a proper understanding of the industry, is an understanding of its attractiveness.
A useful tool to employ in this regard is Michael Porter’s five forces model. It requires a
consideration and evaluation of the economic influence that underlies each of these forces
and other key stakeholders (section 8.5.2).
■ There is a growing need to recognise that the structure of an industry can change and we
therefore address the issue of industry dynamics (section 8.5.3).
■ The nature of industry competition in terms of non-structural characteristics and features
will also be explored (section 8.5.6).
8.5.1 Defining an industry

A sector is a group of closely related industries. For example, the computer sector comprises
the computer component industries (e.g. disk drive industry, semiconductor industry, modem
industry), the computer hardware industries (e.g. the personal computer industry, hand-held
computer industry, mainframe computer industry), and the computer software industries.
Industries within a specific sector may be involved with one another in many different ways. For
example, companies in the computer software industries may provide important complements
to the computer hardware industries.
An industry is not merely defined as a market or composed of companies competing with
each other. A distinction should be made between an organisation’s industry it belongs to and
a market it serves.22 As an example, a company could exist in the automobile industry, but may
choose to compete in the commercial vehicle market. An industry is therefore defined as a
©
group of companies offering products and services that are close substitutes for each other, i.e.
products or services that satisfy the same basic customer needs.23 The basic customer needs
147
E S E S S
S S
S
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.
8.5.2 Analysing industry attractiveness24

According to Porter, customers, suppliers and competitors are the primary determinants of
industry competition. Competitors in turn, are comprised of existing competitors (incumbent
rivals), potential competitors (new entrants to the industry) and substitute providers (providers
of alternate products and services from other industries). This results in five forces that are
primarily responsible for industry attractiveness (in terms of both the nature of competition in
an industry and its profitability):
■ Customers
■ Suppliers
■ Existing competitors
■ Potential competitors
■ Substitute providers
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
Providers of Existing Potential

substitutes competitors competitors
Add industry value Ability to dictate prices paid,

Increase services provided and/or other
Complementors willingness Customers contract terms
to pay
©
FIGURE 8.2 Model of industry stakeholders and competitive forces25
148
E S E S S
S S
S
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
©
that serve as replacements, alternatives or substitutes to the products of an organisation
149
E S E S S
S S
S
in a specific industry could be regarded as indirect competitors. For example, sucralose

contained in artificial sweeteners is a substitute for sucrose in cane sugar. Substitute goods
and services pose enormous threats to most industries and often place a cap on a particular
industry’s pricing. They definitely affect its profitability. However, a large part of what
constitutes a substitute is a matter of personal judgement. Managers should be vigilant and
closely monitor neighbouring sectors, industries and markets for any changes in technology
or cost structures. From a strategic perspective, substitutes that show improvements in
price performance relative to industry averages should be closely scrutinised, especially if
produced by substitute providers who have huge financial resources.
6. A sixth force?26 Since the business environment is not static and continuously changes, it
is easy to see why the five forces model has come under criticism in recent times. One of
the most frequent suggestions is that industry regulation is growing and should be added as
a sixth force. There is ample evidence that regulators or government intervention can have
a significant impact on industry structure (see the practising strategy box on Cell C below).
Another contender for the sixth force is that of complementors. Products and services are
becoming increasingly more complex and involve a wider range of organisations in making
and delivering them. Firms develop relationships not just with suppliers and competitors,
but with other organisations whose products enhance their own (refer to the subsection on
cooperation contained in section 8.5.6). For example, apps on a smart phone could be seen
as a complementary product because customers value their device more with apps than
without them.
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
©
150
E S E S S
S S
S
PRACTISING STRATEGY: CELL C BATTLES THE MOBILE GIANTS29
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.
How industry structure relates to competition and profitability 30

According to the ‘market position’ school of strategy (of which Michael Porter is the leading
exponent), the first and fundamental determinant of an organisation’s profitability is industry
structure.31 The general types and features of an industry are depicted in Table 8.2. The industry
structures are generic, so real industries may not conform exactly to the descriptions. However,
they offer managers a good insight of the likely features of each type of industry.
TABLE 8.2 Types and features of industry structure
INDUSTRY TYPE/ MONOPOLY OLIGOPOLY MONOPOLISTIC PERFECT

FEATURES COMPETITION COMPETITION
Example The electrical The South The South Although

energy sector African mobile African hypothetical,
where Eskom, market with banking service two examples
a utility Vodacom, MTN, industry where of markets
company holds Cell C and five major that display
a monopoly Virgin Mobile as commercial characteristics
over supply and the dominant banks (ABSA, of perfect
distribution of mobile virtual FNB, Standard, competition
electricity in network Nedbank would be
South Africa operators and Capitec) currency
offer largely markets and
differentiated the internet
products and
©
services
151
E S E S S
S S
S
INDUSTRY TYPE/ MONOPOLY OLIGOPOLY MONOPOLISTIC PERFECT

FEATURES COMPETITION COMPETITION
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
8.5.3 Industry dynamics

Industry dynamics means the rate of change in industries over time, in particular the competitive
©
and structural changes. Traditional industry boundaries are blurring as many industries converge
and overlap, especially in information-based industries. While Porter’s five forces model identifies
the main drivers at the industry level, it is not able to distinguish other characteristics that may
152
E S E S S
S S
S
be important to competing in certain types of industries. A static snapshot of an industry is not

an adequate means for formulating strategy. At the same time, it is important to understand
some of the underlying trends that are affecting the structure of industries.
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.
TABLE 8.3 Conditions over the life cycle of a service firm34
CONDITION INTRODUCTION GROWTH MATURITY DECLINE

Sales/
market size/
demand
Barriers to low moderate to high low

entry high (capital (for niche
requirements) players)
Barriers to low increasing high high
exit (correlated with (inversely
size) related to
asset conver-
tibility)
Power of high moderate low low
suppliers
Rivalry low rapidly increases stable increases to
(few to high (stabilises (at moderate to extreme
competitors) at moderate low) (as industry
after shake-out*) sales decline)
Profits very low increasing high to low
(except during moderate
©
shake-out)
153
E S E S S
S S
S
CONDITION INTRODUCTION GROWTH MATURITY DECLINE
Strategic high growth ability high many exits

implications differentiation, is key, standardisation and price
innovation is (managerial and low growth, competition,
key and financial market share cost and
strength is key and cost is key commitment
during shake-out) is key
*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.
Industry drivers of change35

All industries are affected by new developments and ongoing trends that alter industry
conditions, some more speedily than others. Many of these changes are important enough to
require a strategic response. Since the five competitive forces have such significance for an
industry’s profit potential, managers must remain alert to the changes most likely to affect the
strength of the five forces. It is important to focus on the most powerful agents of change –
those with the biggest influence in reshaping the industry landscape and altering competitive
conditions.
Many drivers of change originate in the outer ring of the organisation’s external environment
as previously shown in Figure 8.1, but others originate in the organisation’s more immediate
industry and competitive environment. Some of the most common industry drivers are, amongst
others:
■ changes in the industry’s long-term growth rate
■ increasing globalisation
■ changes in who buys the product and how they use it
■ technological change
■ emerging new internet capabilities and applications
■ product and marketing innovation
©
■ entry or exit of major firms
154
E S E S S
S S
S
■ regulatory influences and government policy changes

■ changing societal concerns, attitudes and lifestyles.
There are many potential drivers of change. The key questions are: what factors are driving
industry change and what impact will they have on the organisation? The true analytical task
is to evaluate the forces of industry and competitive change carefully enough to separate
the major factors from the minor factors. Just identifying the drivers of industry change is
not sufficient for strategic analysis; a more important step in dynamic industry analysis is
to determine whether the prevailing change drivers, on the whole, are acting to make the
industry environment more or less attractive. The real pay-off for strategy making comes when
managers draw some conclusions about what strategy adjustments will be needed to deal with
the impacts of the changes in industry conditions. So, dynamic industry analysis is not to be
taken lightly. It has practical value and is basic to the task of thinking strategically about where
the industry is headed and how to prepare for the changes ahead.
8.5.4 Limitations of models for industry analysis

It is important to remember that the industry life cycle model is a generalisation. In practice,
industry life cycles do not follow the pattern illustrated. Some industries re-invent themselves,
such as the music recording industry. Other industries are revived, for example the health boom
brought the bicycle industry back to life after a long period of decline. The time spans of these
stages vary significantly from industry to industry. Furthermore, some industries stay in the
maturity phase if their products become basic necessities of life, such as the motor vehicle
industry. Other industries skip the mature stage and go straight into decline. One other criticism
of industry models is that they emphasise the importance of industry structure as a determinant
of company performance and underemphasise the importance of variations or differences
among companies within an industry or a strategic group.36
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
©
closer towards the goals we set.

Manager, manufacturing company
155
E S E S S
S S
S
8.5.5 Strategic group analysis

In the preceding section, we examined the external environment at the industry level. While it is
important to define the boundaries of the industry in which an organisation is competing, it is
becoming increasingly difficult to do so. In this section, we go one step further and examine the
external environment at the level of the strategic group. It is used for the purpose of providing
an intermediary level of analysis, different from that of either the industry or the firm. Our
focus is on how strategic group analysis can be used to explain the current behaviour as well as
predict the future behaviour of groups and hence the organisations within them.
The strategic group concept looks at the groupings of firms within an industry. Organisations
can adopt very different competing strategies within an industry. A strategic group consists
of those industry members with similar competitive approaches and positions in the market.
Organisations in the same strategic group can therefore resemble one another along certain
similar strategic dimensions. The best position for revealing strategic groups and market
positions of industry competitors is strategic group mapping,37 similar to the one illustrated in
Figure 8.3.
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
No frills Full house

Service offering
Note: This example is purely for illustrative purposes. The dimensions are randomly selected and
not based on analysis.
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
©
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.
156
E S E S S
S S
S
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.
Strategic group analysis as a predictive tool

The important aspect of strategic group map analysis always entails drawing conclusions
about where the best place on the map is and why. Not all positions on the map are equally
attractive. Strategic group maps are useful in identifying which industry members are close
rivals and which are distant. Often firms that are far apart on the map hardly compete at
all. The reason for this is that prevailing competitive pressures in the industry and drivers of
change favour some strategic groups and hurt others. Thus a company’s closest competitors
and threat to its profitability are those in its own strategic group, not necessarily those in
other strategic groups in the industry. Therefore, profit prospects vary from strategic group to
strategic group. Since companies in a specific strategic group are pursuing a similar business
model, customers therefore tend to view the products of such businesses as direct substitutes
for each other. Another competitive implication is that different strategic groups can have
different relationships to each of the competitive forces, thus each strategic group may face a
different set of opportunities and threats.38
Strategic space and industry dynamics39

Over time, both the number and type of strategic groups and their composition are not static.
Strategic groups may change because organisations proactively alter their strategy or because
of other changes in the industry such as the impact of technology. This dynamic underlies the
notion of strategic space. Strategic space captures open areas of opportunity within an industry
as indicated on the strategic group map. What Figure 8.3 is telling us is which space in the
local airline industry is occupied and which is empty. Each space represents a possible strategy.
The task is to determine which of the empty spaces can be occupied and provide the basis for
a competing strategy, given the changes in industry conditions. These open areas have the
potential to become viable under developing conditions. However, not all potential strategies
will be viable. Therefore to assess the viability of strategic spaces, it is necessary to understand
the key success factors (discussed in the next section) that satisfy buyer demand in any market
space.
Key success factors

A company will have to produce high and consistent quality levels and meet delivery promises
to customers. These stakeholder requirements represent key success factors, those things (the
competitive dimensions) that a firm must do well if it is to be an effective competitor and thrive.
They can also be considered to be the minimum entry requirements of a particular market, and
©
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
157
E S E S S
S S
S
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
8.5.6 Competitor analysis

In previous sections, we have considered the broad environment and the industry and strategic
groups within the task environment. The next and final stage in analysing the environment
moves toward an understanding of the non-structural features (strategies being adopted by
individual firms and their direct competitors, for example Coca-Cola and PepsiCo).
Critical to an effective competitor analysis is gathering data and information that can help
the firm understand its competitors’ strategic intentions and the strategic implications resulting
from them. Competitor analysis thus focuses on two main issues:
1. The identification of competitors
2. The prediction of competitors’ behaviour
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.
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.
©
158
E S E S S
S S
S
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
The competitive profile matrix 45

The competitive profile matrix (CPM) identifies a firm’s major competitors and its strategic
strengths and weaknesses in relation to its competitors. Although this comparative analysis
could use a combination of industry success factors and internal company strategic information,
the numbers reveal the relative competitive strength of firms as shown in Table 8.4. However,
the implied precision of numbers is an illusion since a quantification of strategic strength and
©
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
159
E S E S S
S S
S
number, but rather to assimilate and evaluate information in a meaningful way that aids
decision making.
TABLE 8.4 Example of a competitor profile matrix46
COMPANY X COMPANY Y COMPANY Z

Key success factors Weight Rating Score Rating Score Rating Score
Product quality 0.2 1 0.2 2 0.4 3 0.6
Customer service 0.4 3 1.2 1 0.4 2 0.8
Brand management 0.1 2 0.2 3 0.3 4 0.4
Cost management 0.3 4 1.2 2 0.6 1 0.3
Total 1.0 2.8 1.7 2.1
Notes:
1. The weight of the factor indicates its relative importance and sum of weights
assigned to all factors must equal 1.0
2. The rating values are as follows: 1 = major weakness, 2 = minor weakness,
3 = minor strength, 4 = major strength
3. As indicated by total weighted scores, Company X is competitively the strongest
and Company Y is the weakest
4. The four key success factors in this example have been randomly selected for
illustrative purposes
8.6 The changing and uncertain environment47

There are changes such as the sudden collapse of foreign governments, outbreaks of war or
even major technological discoveries that are inherently random in nature and cannot be easily
foreseen. When crises of such magnitude strike, the influence on economic conditions around
the globe is evident because of the economic interconnections and interdependencies between
countries.48 For instance, the huge earthquake that struck Japan in 2011 caused chaos in its
world-leading automobile industry. Months after the earthquake, major auto manufacturers like
Nissan, Toyota and Honda were still running well below capacity. The impact of this catastrophe
had rippling effects across the world and was also felt by other companies that buy parts from
Japan. Many of these companies had to look elsewhere for supplies.
8.6.1 Difference between certainty and uncertainty

Many strategic choices involve future events that are difficult to predict such as the credit
crunch and economic recession of 2008 (which most forecasters underestimated). To capture
©
the lack of predictability, decision-making situations are often described along a continuum of
states ranging from certainty to risk to uncertainty:
160
E S E S S
S S
S
1. Under conditions of certainty, accurate, measurable information is available about the

outcome of each alternative being considered. Conditions of certainty lend themselves to
formal analysis.
2. When an event is risky, we cannot predict its outcome with certainty, but we have enough
information to assess its probability.
3. Under conditions of uncertainty, little is known about the alternatives or their outcomes.
Uncertainty presents unique problems and challenges in terms of analysis.
8.6.2 Analysing uncertainty49

To make analysis of the strategic environment actionable, we must be able to assess the degree
of uncertainty associated with relevant events, the speed with which changes are likely to occur,
and the possible outcomes they foreshadow. It has been noted that dealing with uncertainty
in which the future is either known or unknown can be dangerous. Likewise, forcing precise
predictions in inherently uncertain situations can lead to deficient strategic thinking. Instead,
it has been suggested that the focus should be on the degree of residual uncertainty present
in the strategic environment, i.e. the uncertainty that remains after all knowable change forces
have been analysed. There are four levels of uncertainty:
1. Level 1: a clear-enough future. Some environments are sufficiently transparent and stable
so that a single forecast of the future can be made with a reasonable degree of confidence.
Situations characterised by this level of uncertainty lend themselves to conventional analysis
such as simple trend and standard techniques of industry and competitor analysis.
2. Level 2: alternate futures. At times, the future can be seen in terms of a small number
of discrete scenarios. In such cases, it will not be possible to forecast with precision which
outcome will occur, but the set of outcomes will be fully understood. Standard techniques
can be used for analysing each discrete outcome, but a different analysis may be needed for
different scenarios, making them difficult to compare.
3. Level 3: a range of futures. This is a higher level of uncertainty in which we can only identify
key variables that are likely to shape the future, but we cannot reduce this knowledge to a few
discrete, plausible outcomes. Instead, a range of continuous outcomes is possible. Situations at
this level of uncertainty are prime candidates for techniques such as scenario planning.
4. Level 4: true ambiguity. Here, even the driving forces that are likely to shape the future are
hard to identify. As a consequence, no discrete scenarios can be predicted. While level four
situations are rare, they do exist. Every aspect of the strategic environment is fraught with
uncertainty. In such situations, traditional analysis techniques and forecasting tools are of
little value. At best a qualitative analysis can be performed where it may be useful to analyse
comparable, past environments and extract the strategic lessons learned.
8.6.3 Strategic implications of uncertainty

©
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
161
E S E S S
S S
S
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.
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
©
162
E S E S S
S S
S
8.7 Scenario planning in understanding the

external environment50
Traditional methods such as those based on extrapolation from the past, are unlikely to produce
reliable forecasts in either the medium or long term. As Clem Sunter noted: ‘Don’t try to
eliminate uncertainty … embrace it. Despite overwhelming evidence to the contrary many of us
still view the future as an extension of the past’.51 However, implicit in the scenario approach
is the assumption that the past is no guide to the future and therefore it avoids the pitfalls of
traditional planning methods. The rationale behind scenario planning attempts to compensate
for two common errors in decision making: the underprediction and overprediction of change.52
8.7.1 The strategic value of scenario planning

External events and competitor activities often trigger a chain reaction of responses and new
scenarios. Consequently, organisations must attempt to stay strategically aware. Scenario
planning, with its emphasis on alternative possible futures and long-term developments, can
assist organisations in understanding the implications of industry and competitor dynamics for
future strategies. It can therefore also be helpful for conceptualising possible new competitive
paradigms. In more complex and unpredictable environments, it even affords a means whereby
the organisation’s strategy can be tested.54 When managers engage in the consideration and
evaluation of future possibilities, it places organisations in positions where they may be able
to deal better with unpredictable challenges of the future. So, apart from its predictive value,
scenario planning can also help strategic decision making by providing managers with insights
so that they will be less shocked and can react better when things happen or change.
8.7.2 Building scenarios54

In strategic management, scenarios are used for exploring future possibilities. The approach was
first used by Shell 40 years ago, however it still remains a fringe activity in most organisations
today. For scenario planning to be meaningful, it should embrace the possibility of real and
dramatic change. Possible happenings and events are considered by looking at potential
outcomes from particular causes and seeking to explain why things might occur. It asks and
attempts to answer ‘what if’ questions.
The anticipation and creativity embedded in scenario planning always results in slight
variations in the way organisations approach it, although the generalised process may share
many commonalities. Nevertheless, three central themes underpin effective scenario planning:
1. Clarification of what a business can and cannot change. For example, farmers cannot affect
the climate, but they can within reason improve the soil and change their crops.
2. The realisation that what seems trivial or a pipe dream today could be crucial in the future.
©
In 1874, Western Union turned down Alexander Graham Bell’s prototype telephone.
3. Multiple scenarios being explored and held as real possibilities.
163
E S E S S
S S
S
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
FIGURE 8.4 A classification of the different types of scenarios55
8.7.3 The real test of scenario planning

When doing scenario planning, the idea is not to predict which one scenario will prevail over the
others. Nor should any relative probabilities be allocated to the different scenarios. Prediction
would close managers’ minds to alternatives, while probability would imply a false sense of
©
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
164
E S E S S
S S
S
planning is that it forces managers to anticipate what they would do in different situations and
to think outside the box.
8.7.4 Limitations of scenario planning

Scenario planning has limitations: it is an exhaustive, expensive and time-consuming exercise.56
While it may be critical for organisations involved in long-term strategic capital investments
(like oil companies and utilities), it is not a process that all organisations can follow. In industries
with more stable structures, and less dynamic environments, a single forecast may be sufficient
for making the necessary strategic decisions. As an alternative, organisations can use the
identification of drivers of change (previously discussed) and assess whether these drivers
(individually or collectively) make the industry more or less attractive. Strategic changes can
then be made to prepare for the impacts of the anticipated change.
PRACTISING STRATEGY: 3 FUTURES FOR SOUTH AFRICA57
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:
Effective capacity Ineffective capacity

of the state of the state
Engaged character of WALK
civil society TOGETHER
Disengaged character WALK WALK
of civil society BEHIND APART
■ 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.
©
165
E S E S S
S S
S
■ 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?
8.8 Tools and techniques for analysing the

external environment58
This chapter and this section in particular address the different analytical tools and techniques
required for enhancing understanding of the various layers of the external environment, but
not all layers of analysis may be relevant to every situation. It will be necessary to be selective,
depending on the organisational context and the strategic issues at hand. Applying and
evaluating the frameworks discussed will become easier and more skilful with experience. The
suitability of the various methods and analytical tools used for this purpose are summarised in
Table 8.5.
TABLE 8.5 Suitable concepts and tools for external environmental analysis59
ENVIRONMENTAL CONCEPT FIGURE/ HELPS WITH SUITABLE

SEGMENT TABLE/ UNDERSTANDING STRATEGIES
ILLUSTRATION OF … ADDRESS
(EXAMPLES) OF …
Broad PESTLE/G Figure 8.1 Key Major
environmental environmental
drivers changes
Changes Industry cycle
in industry dynamics
structure
Task Stakeholders Figure 8.1 Influence and Stakeholder
stake of major relations
external role New compact
players between
business and
©
society
166
E S E S S
S S
S
Industry Industry Table 8.2 Degree of Defensive or

structure competition aggressive
Marketplace stance
stability Sustainability
Profit potential of competitive
advantage
Industry Porter’s five Figure 8.2 Competitive Reducing
forces forces competitive
Industry intensity
profitability Developing
Industry barriers to new
attractiveness entrants
Industry Industry life Table 8.3 Effects of Levels of
cycle industry competition at
evolution on different stages
competitive of industry
forces evolution
Strategic group Strategic Figure 8.3 Key success Strategic
group factors positioning to
mapping Attractiveness more attractive
of competitor groups or spaces
groups Mobility barriers
Strategic spaces
Competitor Competitor Table 8.4 Competitive Competitive
profile intelligence strengths and
matrix Competitor weaknesses
(CPM) analysis
Broad and task External Table 8.1 Strategically Seizing potential

factor significant opportunities
evaluation environmental Diminishing
(EFE) matrix factors potential threats
Broad and task Scenarios Figure 8.4 Industry and Alternate
competitor possible futures
dynamics for Long-term
future strategies development
and investments
New competitive
paradigms
©
167
E S E S S
S S
S
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.
PRACTISING STRATEGY: ENVIRONMENTAL SCANNING/MONITORING IN STANDARD CHARTERED60

In explaining Standard Chartered’s success in Africa, executive Diana Layfield attributes
much of it to their knowledge of the complex African market. Market information on
Africa is often not easily accessible. ‘Not everything is available on-screen through different
agencies, as it is in much of Western Europe and the USA. It is a very, very different world
where actually understanding at a deep local level is critically important.’
She said that because Standard Chartered has been active in Africa for so long, it
©
has been able to acquire market information, which helps it with risk mitigation as well
168
E S E S S
S S
S
as to identify opportunities. ‘[It] gives us a depth of knowledge and understanding in

a region where information is not perfectly transmitted.’ This knowledge has translated
into a competitive advantage. Professor Ethan Kapstein, lead author of a report on
Standard Chartered’s economic impact in Africa, said: ‘Recent years have seen an
increase in foreign and domestic investment in many African countries along with
rising levels of trade, particularly intra-African trade. Standard Chartered has played
a significant role in facilitating these investments and trade flows, because of its
longstanding presence and unique knowledge of African markets.’
8.9 Responding to the external environment

It is essential for managers and organisations operating in an unpredictable world to be able to
respond quickly to changing circumstances and alter their strategies accordingly. The dramatic
rise of Google with its new business model is a good example.61 Google’s business model is
based on revenues earned from advertising links associated with search results (the so-called
‘pay per click’ business model). When introduced, the impact was disruptive to the business
models of other companies that made money from online advertising. Companies with strong
online advertising like Yahoo.com and Microsoft’s MSN network had to rapidly change their
strategies to adapt to the threat Google posed. Nobody could see this development coming and
neither could they plan for it. But companies had to respond to it, and rapidly.
8.9.1 Limitations of the traditional planning process

The traditional planning process rests on an implicit assumption that an organisation’s
strategies need only be reviewed during the annual strategic planning exercise.62 However,
according to critics of formal planning systems, a flexible approach to strategy making is not
possible within such a framework. The argument is that we live in a world where small chance
events can have a large and unpredictable impact on outcomes. In such circumstances, even
the most carefully thought out strategic plans are prone to being rendered useless by rapid
unforeseen change. Therefore, today’s successful companies cannot afford to stand still and rest
on previous accomplishments. If they do, they can easily become vulnerable to a competitor’s
new product, shifts in customer preferences or other changes in the environment. Instead they
should focus on building sustainable competitive advantage for the future by seeking out new
ways to remain flexible, innovative, efficient and responsive.
8.9.2 Strategic agility

Firms, like organisms, must therefore be ‘adept at adapting’ or they will not survive.63 While
©
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
169
E S E S S
S S
S
at managing change, continuously adapting their organisational bureaucracies, systems,

products and cultures to survive the shocks and prosper from the forces that often decimate
the competition. Agility (quickness, responsiveness, the ability to adapt to changing demands) is
therefore more vital than ever to a firm’s survival. Managers and organisations have a number
of options which may involve adapting to the environment, influencing the environment or
selecting a new environment.64
8.9.3 Strategic ambidexterity

Early in the development of the strategic management field, the external environment was
considered the primary determinant of which strategies would likely be successful.65 This
idea of environmental determinism suggested that good management is associated with
determining which strategy will best fit environmental forces at a particular point in time, and
then executing it. From a deterministic perspective, the most successful organisation will be
the one that best adapts to existing forces in the external environment (adapters). However,
environmental determinism is no longer accepted as an absolute or the primary guide for
formulating strategies. The notion of adaptation has been supplemented by the principle of
enactment, which assumes that organisations do not have to submit to existing forces in the
environment and can, to a certain extent, actively shape their environments through strategic
actions (shapers). In reality, the best run organisations will not opt for adaptation or enactment.
They will engage in processes of adaptation and enactment simultaneously.
Ambidexterity is the ability of an organisation to behave as two different companies at
once66 and so get the ‘best of both worlds’. This form of structural arrangement will position
and allow the organisation the ability to influence those parts of the environment over which
it can exercise some control, while adapting to environmental circumstances that are beyond
control or too costly to influence.
The big picture

A profound understanding of the business environment is a prerequisite for the successful
management and practise of strategy. In order for businesses to survive, strategic managers
need to know how to assess the various layers of the broad and task environments in relation to
key stakeholders and, more specifically, to identify and evaluate the extent to which key factors
provide an opportunity or a threat for the organisation concerned.
However, the main objective of external environmental analysis is not only to determine
opportunities and threats, but also to provide managers with a solid foundation for decision
making and planning. A major shortcoming is often the inability to move beyond mere accurate
identification and description of forces driving change. What is required is an appropriate
interpretation and assessment of what important strategic and competitive implications these
©
forces hold for organisations charting a future direction.
170
E S E S S
S S
S
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)
int. ed. Mason, OH: South-Western Cengage Learning, 35
7 Open University. 2006. Strategy: analysing the external environment, Unit 2: B820. Walton Hall: The
©
OU Business School, 5
171
E S E S S
S S
S
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
12 Adapted from Harrison & St. John (2014: 24)
13 Open University (2006: 9)
15 De Kluyver & Pearce II (2012: 36)
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)
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.
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)
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)
38 Jones & Hill (2013: 63)
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)
©
44 Ibid., 37
45 David, F.R. 2013. Strategic management: concepts and cases, 14th ed. Essex: Pearson.
172
E S E S S
S S
S
CHOOSING APPROPRIATE
9 STRATEGIES
Mari Jansen van Rensburg
■ 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.
KEY TERMS ■ cost leadership ■ turnaround strategies

■ differentiation ■ suitability
■ internal growth strategies ■ feasibility
■ external growth strategies ■ acceptability
■ cooperative strategies ■ strategic business units
CASE In approximately 800 metres, you need to turn left …

STUDY When was the last time you asked someone for directions? Worse
yet, can you recall that feeling when you realised that you were lost
and that there was no one to ask for help?
Many people now rely on their GPS devices or smartphones to find
their way around. Although technology seldom fails us, technology
on its own is not sufficient. At a minimum, our devices require a
point of departure as well as an end destination. These coordinates
are, however, just the starting point to selecting the route to our
endpoint. The route, and ultimately the travel experience, will be
©
determined by the optimal choice of route selected: will it be the

shortest route between the two points? Will it be the toll route? Will
it be road used by most travellers? Or is there enough time to enjoy
the ride and take the scenic route?
E S E S S
S S
CHAPTER 9: CHOOSING APPROPRIATE STRATEGIES
S
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 …
The key to many successful road trips is well-planned route selections.

CHAPTER
The same applies to strategic management. In order to plan our route,
ORIENTATION we need to know our starting point. In management, this coordinate is
typically determined by understanding the internal environment in which
we operate. Such an understanding is gained by embracing the concept of
an organisation as a learning organisation (Chapter 6) and having insight
into the organisation’s resources and capabilities (Chapter 7).
After we have determined where we are, we need to familiarise ourselves
with the road conditions (the external environment discussed in Chapter
8). Then we need to evaluate the needs of our passengers (stakeholders)
and anticipate the reactions of our fellow road users (competitive forces).
With this information, we are in a position to select the best route to our
destination. This route is determined by the end destination (strategic goals)
and the travel experience best suited to our needs (strategic choices).
This chapter deals with setting strategic goals and distinguishing
between the different strategic options available to industry participants.
It ends with a discussion on how to evaluate if choices are suitable,
feasible and acceptable.
Strategic goals and strategic choices
Corporate level strategic options: creating corporate value and

synergy
Business-level strategic options: creating and sustaining competitive

advantage
©
Evaluating strategic choices
175
E S E S S
S S
S
9.1 Strategic goals and strategic choices

In Chapter 4, we examined techniques to create and communicate a strategic direction for the
organisation. Techniques reviewed included vision and mission statements as well as criteria
for setting long-term goals. We also considered how value statements can be used to direct all
staff members’ behaviour in line with organisational expectations. We established that every
organisation is part of a larger system and that interactions within this system are determined
by various role players, referred to as stakeholders, present in the organisation’s operating
environment. The first part of any strategy formulation process is thus to assess the current
situation. The findings of such an assessment will inform the goals of the organisation with
the overall goal of creating strategic fit between the organisational resources and capabilities
and the opportunities present in the external environment. We noted that strategic goals are
statements that express specific outcomes to be achieved. We also acknowledged that goals
form the basis of a common language for understanding the wider context for any part of work
as it contains realistic measures of progress and achievement.1
These measures of progress are set to support and achieve the strategic direction of the
organisation. However, as explained in Chapter 1, the primary objective of business strategy is
to achieve a sustainable competitive advantage that leads to above-average returns. To achieve
this objective, strategic managers and key employees need to make decisions at three levels:
1. Decisions are taken about the overall purpose, scope, range and diversity of the organisation.
These decisions are typically orchestrated by the CEO or MD, the board of directors and other
senior executives. The outcome of these decisions is corporate strategies, and the purpose of
corporate strategy should be to maximise shareholder value in the long term by managing
a portfolio of businesses.
2. General managers of each line of business or strategic business unit (e.g. a subsidiary)
determine which business (or competitive) strategies would be most suitable to achieve
sustainable competitive advantage. These decisions constitute business level strategies.
3. Managers lower down in the organisation (such as the heads of functional or operational
sections) make decisions about how to best support business-level strategies by performing
strategy-critical activities.
In this chapter we focus on corporate and business-level strategies.

The corporate centre is typically the head office of a multi-business organisation (see
Figure 9.1) and manages a portfolio of businesses with a view to maximise the value of the
portfolio for the benefit of shareholders. The corporate head office will typically add value to
strategic business units (SBUs) by means of specific capabilities or shared corporate services.
SBUs are organisational units that exercise control over most of the resources they require to
be successful (i.e. they are autonomous). They have their own set of competitors, and can be
internal to the organisation (e.g. Telkom Mobile is an integral part of Telkom SA) or external
(e.g. ABSA is a subsidiary of Barclays PLC in the UK). These SBUs, in turn, compete in their
©
176
E S E S S
S S
S
respective markets and industries with a view to establishing competitive advantage as a means
of creating competitive advantage for their corporate owners.
VALUE ADDED BY THE CORPORATE HEAD OFFICE

CORPORATE CENTRE
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.
[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
9.2 Corporate level strategic options: creating

corporate value and synergy
In order to create value for the organisation as a whole, executives need to make decisions about
©
the growth path of the organisation. On a corporate level, executives on the highest level need
177
E S E S S
S S
S
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
©
wear.6
178
E S E S S
S S
S
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.
Whether an organisation operates as a multi-business or not, organisations have the option to

pursue any, or a combination of, corporate strategies. We can broadly classify these strategies
into the following:
■ Internal growth strategies
■ External growth strategies
■ Corporate combination strategies
■ Turnaround or exit strategies
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.
TABLE 9.1 Corporate strategic options
INTERNAL EXTERNAL COMBINATION TURNAROUND/

GROWTH GROWTH STRATEGIES DECLINE
STRATEGIES
Corporate Market Integration Strategic Retrenchments

strategies penetration ■ Acquisitions alliances Recovery
Market ■ Mergers Joint Divesture
development Diversification ventures Liquidation
Product
©
development
179
E S E S S
S S
S
9.2.1 Internal growth strategies

Often the least risky option for organisations is to grow from within. This type of strategy
aims to leverage the organisation’s current range of products (or services) and the markets it
serves and propose growth strategies which combine new and/or existing products and markets.
Depending on whether products and markets are new or not, three internal growth strategies
are possible, namely market penetration, market development and product development. We
will use Woolworths Holding Limited as an example to illustrate how it successfully employed
each of these strategies:
■ Market penetration. This strategic option aims to increase market share by selling more
of the organisation’s existing products and/or services to its existing markets. An example
of such a strategy is the Woolworths loyalty programme. Customers who participate in
this programme earn rewards based on a tiered system determined by their annual spend
at the retailer. In order to participate in and benefit from this programme, customers need
to accept marketing material. This offers the company the opportunity to direct carefully
selected promotions to market segments based on customer history. Effective database
marketing campaigns have successfully increased market spend per customer.9
■ Market development. The aim of this strategy is to grow turnover by selling the organisation’s
existing products and/or services into new markets. For example, Woolworths expanded its
footprint in areas where it had a low density of stores or no stores by opening stores at petrol
station forecourts. This strategy is so successful that the company opened its 50th Engen
forecourt store in 2013 and plans to open an additional 45 forecourt stores by June 2016. ‘The
group expects Foodstops’ turnover to grow from about R600 million to more than R1 billion in 2016.’10
■ Product development. This strategy aims to grow turnover by selling new products or
services to the organisation’s existing market. Moving beyond retailing of quality food and
fashion, Woolworths Financial Services was launched in 1993 in order to provide Woolworths
customers with an in-store card and access to credit facilities. Over the years, its product
range has grown and today it offers a suite of financial products, including in-store credit,
credit cards, personal loans and a range of insurance products.
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.
PRACTISING STRATEGY: INSIGHT INTO WOOLWORTHS STRATEGIC FOCUS11
‘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
©
loved for decades. Physical retailers should be frightened. Yet they have to embrace it
instead of fighting against it.’
180
E S E S S
S S
S
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.’
9.2.2 External growth strategies

Some organisations choose to grow by adding new businesses to their current portfolio. These
external growth strategies create diversification by means of new products or markets or
integration when organisations acquire an enterprise similar to the current business.12 Strategic
options to achieve external growth can be broadly classified as diversification and integration.
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
©
an organisation decides to diversify, it faces the choice of whether to diversify into related or
unrelated businesses.
181
E S E S S
S S
S
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
FIGURE 9.2 Merger and acquisition activity in Africa

©
182
E S E S S
S S
S
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
9.2.3 Cooperative or corporate combination strategies

Cooperative strategies allow different organisations to form partnerships to share resources,
capabilities or technical know-how (i.e. to ‘combine’) to build a competitive advantage.20 We
will briefly review two popular strategic options in this category, namely strategic alliances and
joint ventures.
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
9.2.4 Turnaround and exit strategies

Operational realities and fierce competition often result in companies performing poorly for an
extended time. These organisations are not in a position to grow and for them, survival becomes
©
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.
183
E S E S S
S S
S
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.
PRACTISING STRATEGY: SOUTH AFRICAN AIRWAYS’ TURNAROUND STRATEGY25
On 10 September 2013, Malusi Gigaba, South Africa’s Minister of Public Enterprises,

announced South African Airways’ (SAA) long-term turnaround strategy. ‘The strategy
focuses on managing the airline’s high-cost structure, improving yield, making better
use of its assets, optimising operational efficiencies of strategic routes, prioritising
fleet renewal and strategic fleet acquisitions to grow revenues and implementing
cost-saving measures.’ Although many of these strategic initiatives were implemented
with immediate effect, the strategic plan spanned a period of 12 years. In the first
18 months the priority was to consolidate the carrier’s network, to minimise its loss-
making international network and to suspend routes in order to reduce operational
losses. Focus also shifted to profitable domestic and African regional networks. In
addition, the airline focused on cost containment and improvement of its debt-to-
equity ratio. On a longer-term, the company will, in conjunction with the National
Treasury, review capitalisation requirements. The strategy includes the following aims:
■ Instil a group vision and mission to support the country’s development agenda,
achieve and maintain commercial sustainability and foster performance excellence;
■ Create an integrated airline group, SAA Group Holdings, incorporating SAA,
Mango and SA Express under a single holding company structure to improve asset
utilisation, operational efficiency and capital allocation;
■ Implement a new network, alliance and fleet strategy to develop SAA as a full-
service premium carrier, Mango as a low cost carrier and SA Express as a regional
feeder airline. This plan will allow the group to meet current and projected demand,
produce capacity through alliances and implement integrated fleet planning;
■ Develop a ‘Whole of State Aviation Framework’ to ensure consolidated policy
approach to aviation in South Africa to maximise the growth potential of its
airlines;
■ Implement new human capital development and business structure interventions.
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’
©
as a key priority. You will also notice several references to consolidation to cut cost and
share resources.
184
E S E S S
S S
S
■ 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
9.2.5 Managing the multi-business organisation

To manage a sometimes diverse group of businesses requires action that is tailored to the
circumstances facing each business unit with due consideration to the resultant impact on the
entire operation. A useful management tool to provide a snapshot view of an organisation’s
investments is two-dimensional matrices. Executives can use various adaptations of well-
established portfolio matrices such as the Boston Consulting Group (BCG) matrix, the directional
policy matrix (General Electric–McKinsey), the SPACE or the parenting matrix.27 For purposes of
illustration, we will consider the directional policy matrix as illustrated in Figure 9.3.
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-
©
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
185
E S E S S
S S
S
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
An understanding of where we want to go should be followed by an agreement of how to

compete in order to get there.
9.3 Business-level strategic options: creating

and sustaining competitive advantage
Corporate-level strategies essentially deal with the number of products and services that the
company will offer and the markets which they will pursue. Business-level, or competitive,
strategies consider how to compete successfully in these markets. In other words, these
strategies focus on how to position a company within an industry in such a way that it has
There are many variations in business-level strategies, but if one strips away the details
to get at the real substance, the biggest and most significant differences among competitive
strategies are reduced to the following:
■ Whether an organisation’s target market is broad or narrow
■ Whether the organisation is pursuing a competitive advantage linked to low cost or product
differentiation
■ A combination of the above30
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
©
flow from them. Four distinct generic competitive strategy approaches stand out:31 32
186
E S E S S
S S
S
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.
Cost leadership strategy Broad differentiation strategy

Target market
Best cost
provider strategy
Focused low-cost strategy Focused/niche differentiation
Lower cost Differentiation

Competitive advantage
FIGURE 9.4 Business-level strategies33
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.
©
187
E S E S S
S S
S
PRACTISING STRATEGY: UNILEVER: POSITION STRATEGIES
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
©
pockets of all income groups.
188
E S E S S
S S
S
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.
9.4 Evaluating strategic choices

Strategies can be evaluated against three key evaluation criteria, namely suitability, acceptability
and feasibility. Suitability considers whether the proposed strategies address the key issues
related to the opportunities and threats the organisation faces. Suitable strategies need to take
advantage of external opportunities and internal strengths whilst, at the same time, overcoming
external threats and internal weaknesses. In order to identify whether a strategy is suitable,
the strategist should have a good understanding of internal environment of the organisation
as well as the external environment in which the organisation operates. In practice, it often
happens that more than one strategy may be suitable, but that limited resources necessitate
the screening of options to select the most appropriate strategy.
Strategies are acceptable if the expected performance outcome of the strategy meets the
expectation of stakeholders. Since the acceptability of a strategy option is determined by expected
performance outcomes, this criterion requires strategists to consider risk, return and stakeholder
reaction. We find that companies, regardless of the industry in which they operate, mostly
engage in formal risk assessment if strategic options require substantial investments. Tools
©
such as sensitivity analysis, financial ratios, and break-even analysis are useful to evaluate risks.
The second consideration is return, i.e. the financial benefits which stakeholders are expected
189
E S E S S
S S
S
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.
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.
The big picture

Choosing appropriate strategies is not possible unless they are aligned with organisational
resources and capabilities and the opportunities available in the external environment. As a
result, strategy selection is a dynamic process that is subject to change. We need to realise
that there is not a ‘one size fits all’ option. Organisations are different in terms of their overall
purpose, scope, range and diversity of products and/or services as well as the markets they
serve. On a corporate level, portfolios need to be managed in such a way that the corporate
parent creates value for the SBUs. Each SBU needs to be positioned within an industry in which
it has a competitive advantage (see Figure 9.5). There are various strategic options available
to companies to achieve this, but each organisation has unique needs and application of
options will differ accordingly. Finally, strategic options need to be evaluated to determine their
suitability, acceptability and feasibility. The outcome of this evaluation will indicate whether the
©
strategy selected has a strategic fit within the operating environment.
190
E S E S S
S S
S
■ Internal growth strategies

Corporate-level strategy ■ External growth strategies
How do we create value for ■ Cooperative strategies
the corporation as a whole? ■ Turnaround/stability strategies
■ Exit/divestment strategies
Business-level strategy ■ Overall cost leadership

How do we create ■ Differentiation
competitive advantage in ■ Focus
each business unit? ■ Combination strategies
FIGURE 9.5 Corporate- and business-level strategy
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).
©
3 Wikipedia. 2014. ‘Kaizer Chiefs F.C.’. Available online at: http://en.wikipedia.org/wiki/Kaizer_Chiefs_F.C.

(accessed 10 February 2014).
191
E S E S S
S S
S
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).
22 Wikipedia. 2014. ‘Codeshare agreement’. Available online at: http://en.wikipedia.org/wiki/Codeshare_
agreement (accessed 12 February 2014).
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).
©
192
E S E S S
S S
S
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).
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).
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)
©
193
E S E S S
S S
S
ALIGNING STRATEGY
10 AND ORGANISATIONAL
CULTURE
Mari Jansen van Rensburg
■ 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.
KEY TERMS ■ organisational culture ■ strategic change

■ cultural web ■ change tactics
■ leadership
CASE Discovery – building a sustainable business that benefits

STUDY future generations1
In support of Discovery’s ambition to be the best insurance
organisation in the world, the company recognises the need to
develop its employees and leaders. In fact, one of the basic premises
that informs the culture at Discovery is that while products and
technologies can be replicated, unique and talented people enable a
company to innovate, differentiate its product offerings and succeed
in a globalised business environment. Talent management is thus a
high priority at Discovery to ensure that the company has the most
appropriate combination of skills to meet its business requirement.
This entails
■ aligning the company’s vision, values and strategy with how
©
they manage their employees

■ identifying critical skills needed to meet both current and
future business needs
E S E S S
S S
CHAPTER 10: ALIGNING STRATEGY AND ORGANISATIONAL CULTURE
S
■ recruiting, developing and retaining talent, particularly in core capability areas

■ integrating the key components of its talent management programmes so they form
a coherent whole.
At Discovery, organisational culture is strategically linked to the core business and seen to
be material to the organisation.
This is clearly displayed in Discovery’s sustainable developmental framework
Discovery’s sustainable developmental framework
A values- Strengthen Improve the Use the Promote a Our environ-

Focus area
based the financial science thriving mental

culture of healthcare security of of beha- society respon-
opportunity system clients vioural sibility
and and expand through economics
innovation access innovative to drive
to care products and positive
services behaviour
change in
society
To motivate To work with To enhance To leverage To ensure To achieve a
Strategic intent
our people to government the our accoun- meaningful

develop their in support of financial experience table, decrease
full potential universal security of in beha- transparent in our
through a healthcare our clients in vioural- and ethical environ-
culture of coverage order to based business mental
innovation and with ensure the insurance practices footprint
and healthcare sustainable to bring within our and enhance
performance, providers to development about value chain our under-
which develop of our positive and standing and
embraces the capacity society and beha- broader respon-
diversity to deliver it economy vioural stakeholder siveness
and transfor- change network to climate
mation in society and to change
encourage and other
a culture pressing
of environ-
©
entrepre- mental
neurship challenges
195
E S E S S
S S
S
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.
©
196
E S E S S
S S
S
Organisational culture
Instilling an organisational culture that supports good strategy

implementation
Cultural assessment
Strategic leadership
Leading change to implement a chosen strategy
Why change programmes fail
10.1 Organisational culture

There are many definitions of culture. Most definitions refer to the taken-for-granted
assumptions and beliefs that are shared by members of an organisation, often expressed as the
way we do things around here. It is these assumptions that determine how groups of people
respond and behave in relation to issues they face.4 More formally, culture is defined as ‘a
pattern of shared basic assumptions learned by a group as it solved its problems of external
adaptation and internal integration, which has worked well enough to be considered valid and,
therefore, to be taught to new members as the correct way to perceive, think and feel in relation
to those problems’.5
In an organisational context, culture refers to a collection of values and norms shared by
people and groups who work together. These values and norms are often contained in value
statements which outline the organisational values (beliefs and ideas about what kinds of
goals the members of an organisation should pursue) and the appropriate kinds or standards
of behaviour organisational members should use to achieve these goals.6 Such values and
behaviour have an important influence on strategy formulation and implementation as they
govern how groups of people will respond to envisaged changes.
Table 10.1 considers organisational cultures from top South African employers. These
companies were certified as the top three South African employers for 2014 by the Top Employers
Institute. The Top Employers Institute certifies excellence in the conditions that employers create
for their people to grow and develop. The certification programme is the result of months of
rigorous research and its findings are independently audited by Grant Thornton. To achieve
the Top Employer certification, organisations are researched and audited on five dimensions:
©
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
197
E S E S S
S S
S
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.
Culture can be conceived by different layers:

■ Values. The values of an organisation are the beliefs, traits and behavioural norms that
management has determined should guide the pursuit of its vision and mission.8 In many
organisations, these values are explicit and written down in value statements. See for
example the values of EY contained in Table 10.1.
■ Beliefs. Beliefs reflect someone’s sense of what ought to be and can typically be discerned
in how people talk about issues the organisation faces,9 i.e. a belief not to trade with certain
countries who are known to demand bribes in exchange for local contracts.
■ Behaviours. Behaviours are the day-to-day ways in which an organisation operates, including
work routines, and how the organisation is structured and controlled. These behaviours may
become taken-for-granted ‘ways we do things around here’ that are potentially the basis for
inimitable strategic capabilities. However, such behaviours also have the potential to create
significant barriers to achieving strategic change.10
■ Taken-for-granted assumptions. When a solution to a problem works repeatedly, it
becomes taken for granted. Such assumptions then become the core of an organisation’s
culture as they define what to pay attention to, what things mean, how to react emotionally
to what is going on, and what actions to take in various kinds of situations.11
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
COMPANY CULTURE DESCRIPTION
Unilever13 Unilever South Africa’s corporate culture is best described by its

purpose and principles statement.
Purpose and principles
Unilever’s corporate purpose states that the only way to achieve
sustainable growth and long-term value creation is to adopt
the highest standards of corporate behaviour towards all its
stakeholders.
A code by which we live and work
The aspirations set out in the corporate purpose are underpinned
by a code of business principles. This code describes the operational
standards for all employees worldwide. The commitments in the
code drive the company’s approach to governance and corporate
responsibility. Principles to which it prescribes include the following:
■ Always working with integrity: Conducting our operations with
©
integrity and with respect for the many people, organisations

and environments our business touches has always been at the
heart of our corporate responsibility.
198
E S E S S
S S
S
■ Positive impact: We aim to make a positive impact in many

ways: through our brands, our commercial operations and
relationships, through voluntary contributions, and through the
various other ways in which we engage with society.
■ Continuous commitment: We’re also committed to continuously
improving the way we manage our environmental impacts and
are working towards our longer-term goal of developing a
sustainable business.
■ Setting out our aspirations: Our Corporate Purpose sets out our
aspirations in running our business. It’s underpinned by our Code
of Business Principles which describes the operational standards
that everyone at Unilever follows, wherever they are in the
world. The Code also supports our approach to governance and
corporate responsibility.
■ Working with others: We want to work with suppliers who
have values similar to our own and work to the same standards
we do. Our Supplier Code, aligned to our own Code of Business
Principles, comprises eleven principles covering business integrity
and responsibilities relating to employees, consumers and the
environment.
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.
©
199
E S E S S
S S
S
Creating
shared value
Nutrition, water,
rural development
Sustainability
Protect the future
Compliance
with Nestlé business principles,
laws, codes of conduct
Their Management and Leadership Principles describe the culture

and basic values employees are expected to uphold, as well as the
attributes needed to be successful in management and leadership.
Nestlé Code of Business Conduct specifies certain non-negotiable
minimum standards in key areas of employee behaviour, including
compliance with laws, conflicts of interests, anti-trust and fair
dealing, bribery, corruption (UNGC Principle 10), discrimination and
harassment, and integrity.
The Human Resources Policy specifies attitudes such as mutual
respect, trust and transparency in relating to one another and
encourages open communication and cooperation.
The Policy on Safety and Health at Work establishes safety as a non-
negotiable priority of their culture
You can read more about these policies at http://www.nestle.com/
policies.
EY15 EY is a global leader in assurance, tax, transaction and advisory
services. This company aspires to have a leading people culture
everywhere in the world. It further aims to create a culture that
attracts and retains outstanding people.
It is investing in three key elements of culture that enhance what is
©
important to its clients and employees:
200
E S E S S
S S
S
■ Inclusiveness – Recruiting outstanding people is just the start.

Inclusiveness means making sure all our people’s voices are
heard and valued. This not only helps attract and retain the best
people, but also it helps get better answers for our clients and
our organization.
■ Development – Our approach to development involves offering
the learning, experiences and coaching all our people need to
enrich their careers and deliver the best results for clients, as well
as offering additional programs for current and future leaders of
our organization.
■ Engagement – We want all our people to feel enthused by
their work and their colleagues and to be comfortable in an
organization that gives them the flexibility to achieve their
professional and personal aspirations. We engage our people in
countless ways, from selecting the right people to lead major
change, to taking an interest in our people as individuals, to
being sure to say thank you for a job well done.
This culture is illustrated in its values, which indicate:

Who we are
People who demonstrate integrity, respect, and teaming.
People with energy, enthusiasm, and the courage to lead.
People who build relationships based on doing the right thing.
These values define who its people are and encapsulate the
fundamental beliefs of this global organization. They guide actions
and behavior and influence the way they work with each other –
and the way they serve their clients and engage with communities.
Values are celebrated annually through the organization’s Chairman’s
Values Award which gives staff members the opportunity to
recognise their colleagues who are bringing values to life every day.
This is an important way in which the organization builds shared
culture, founded on strong commitment to values.
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
©
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.
201
E S E S S
S S
S
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.
10.2 Instilling an organisational culture that

supports good strategy implementation
Organisational cultures vary widely in strength and influence. Some companies, such as Nestlé
South Africa, have deeply rooted values, behavioural norms and operating approaches that
are widely shared. These standards are then used to regulate the conduct of employees and
compliance is a key consideration during the strategic planning and implementation phases.
In the case of Nestlé, this culture has emerged over a period of 140 years and managers and
leaders are required to make a conscious effort to display the agreed principles in their own
actions and behaviour. Not only do they ‘walk the talk’, but leaders insist that organisational
values and business principles are reflected in the decisions and actions taken by all employees.
In strong-culture companies, values and behavioural norms are so ingrained that they can
endure leadership changes and are key considerations in strategic choices and implementation
guidelines.16
In direct contrast to strong-culture companies, weak-culture companies lack values and
principles that are consistently preached or widely shared. While individual employees may have
some bond or loyalty towards the company, colleagues and/or managers, there is typically no
clear employee allegiance to what the organisation stands for or a good understanding about
how things are done. In such a company, employees often view the organisation merely as a place
to work and their job as just a way to make a living. As a consequence, there are no traditions,
beliefs, values or norms that management can use as leverage to mobilise commitment to the
execution of the strategy. Without a supporting work climate, managers are often left with
no other option but to use compensation incentives or other motivational devices. In these
circumstances, a strong emphasis on controlling behaviour is often used to manage the lack of
individual commitment.17
Key considerations of culture that are grounded in actions, agreed behaviours and work
practices and that are beneficial to strategy implementation include the following:18
■ Matching the organisational culture with the requirements of the strategy execution effort.
This action can focus the attention of employees on what is most important to successfully
implement the strategy.
■ Using strong group norms to create culture-induced peer pressure which can shape employee
behaviour to do things in a manner that aids the cause of good strategy implementation.
■ Accepting that an organisational culture that is consistent with the requirements for good
©
strategy execution can energise employees, deepen their commitment and enhance worker
productivity.
202
E S E S S
S S
S
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.
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
10.3 Cultural assessment

Despite the fact that organisational culture can be elusive, various approaches have been
developed to help us look at it in a systematic way. Better understanding of cultural assumptions
and practices can contribute to formulating strategy as well as implementing strategic actions.20
A well-accepted approach to analyse an organisation’s culture is the cultural web: ‘The cultural
web shows the behavioural, physical and symbolic manifestations of a culture that inform
and are informed by taken-for-granted assumptions, or paradigm, of an organisation.’21
©
The elements of the cultural web are illustrated in Figure 10.1 and will be discussed in more
detail next.
203
E S E S S
S S
S
The elements of the cultural web are as follows:

■ The paradigm forms
the core of the cultural
web as it represents all Stories
the assumptions taken
for granted in the
organisation. At the
most basic level, the Ritual and
Symbols
paradigm represents routines
the way of doing
Paradigm
business. For example,
much of FNB’s success
is attributed to an Control Power
ingrained culture systems structures
based on innovation.
This culture permeates
Organisational
through all staff
structures
members, encouraging
them to explore new
ways to offer and
support financial
FIGURE 10.1 The cultural web of an organisation
services.22
■ Routines are the ways things are done on a day-to-day basis within an organisation. Site
inspectors at a construction company may, for example, inspect construction sites every morning
before work commences in order to assess quality workmanship and evaluate the site’s safety. In
contrast, rituals refer to activities or special events that reinforce what is important in the culture.
For example, through the Chairman’s Values Award at EY, staff members have the opportunity to
recognise those colleagues who are making a difference every day.
■ Stories typically centre on important events and personalities. Similar to any good storyline,
these stories include heroes, villains, mavericks, successes and disasters. Most importantly,
each story has a lesson and is told to let people know what is conventionally important
in an organisation. For example, stories often told in the Shoprite group have to do with
the challenges they had to overcome on the African continent. Whitey Basson, the CEO
of the group, relates how when they needed to send a consignment of goods from South
Africa to Maputo, they had to fill in 1 600 forms. To deal with this enormous challenge of
bureaucratic red tape, the organisation adopted an approach of being ‘Afro-optimists’ as
opposed to ‘Afro-pessimists’.23
■ Symbols refer to objects, metaphors, events, acts or people that convey a meaning over and
above their functional purpose. In the navy, for example, a metaphor often used is ‘the navy
is a man’s world’. This refers to both identity (where people do masculine things) and to
space (a place for males only) and has manifested as part of the culture. As it is closely linked
©
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
204
E S E S S
S S
S
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
10.4 Strategic leadership

Organisational culture is closely aligned to the strategic leadership provided by an organisation’s
founder and top managers. ‘The organisation’s founder is particularly important in determining
culture because the founder imprints his or her values and management style on the
organisation.’27 As can be expected, we often find that the leadership style established by the
founder is transmitted to the company’s managers. As the company grows, it typically attracts
like-minded new managers and employees who share the same values. The company’s culture
then becomes more and more entrenched and distinct as its members become more similar.
‘The virtue of these shared values and common culture is that they increase integration and
improve coordination among organisational members.’28 When people share the same beliefs
and values, they share a common language and intuitively know what acceptable conduct is.
When organisational members buy into cultural norms and values, it facilitates coordination
between different layers of management. Similarly, rules, procedures and direct supervision
are less important as organisational members feel a bond with the organisation and are more
committed to finding new ways to help it succeed.29
There are a number of key characteristics associated with good strategic leaders that lead to
high performance. The most acknowledged characteristics include the following:30
■ Vision, eloquence and consistency
■ Articulation of the business model
■ Commitment
■ Being well informed
©
■ Willingness to delegate and empower

■ Astute use of power
■ Emotional intelligence.
205
E S E S S
S S
S
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
TABLE 10.2 Boss of the Year 201332
2013 TITLE HOLDER

Ayanda Nakedi: Senior Manager at Eskom
Attributes most admired: ‘Ayanda Nakedi provides a nurturing, bottom-up approach to
her leadership ensuring people are driven by a common vision. She creates an environment
that is conducive to learning and exposes the team to a diverse set of global external
business environments which has facilitated growth of individual team members’.
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’.
Erik Venter: CEO of Comair

Attributes most admired: ‘Mr Venter is innovative and ensures that our company is a
market leader in our respective industry. He is an honest and transparent leader and
when the aviation industry wasn’t doing well, due to global recession, he advised
us about the situation and how it is going to impact on us – we got out of the dry
season and we were rewarded with bonus incentives for a very successful year’.
Jo-Ann Pohl: CFO Africa at Standard Chartered Bank

Attributes most admired: ‘Jo-Ann is an inspiration; she is passionate about what she
does which motivates us to want to do more. She leads by example; she delivers on
her promises, and takes time to listen and talk to people across all levels. Jo believes
that the most important resource in a company are people – She her [sic] team knows
that they can count on her support at any time’.
Stefan Boll: General Manager at Abbott Laboratories

Attributes most admired: ‘Stefan’s transparency and honesty. His open door policy
which encourages good relations at work. He is a very determined individual and
achieves great results. Steffan [sic] recognises the team’s input with great incentives;
he has [a great] sense of humour and is a people’s person, able to communicate well
©
with everyone’.
206
E S E S S
S S
S
Theo Vincent Bensch: Managing Executive: Sales & Marketing at Telkom/

Cybernest
Attributes most admired: ‘Theo has a natural charisma – with infectious enthusiasm.
He visits all his staff every morning and greets each one, making all feel special. Theo
started a Thursday ‘Star Bucks’ Coffee & Muffin Session, where the staff meet in the
lounge area and air their views and speaks [sic] openly. He’s a fair and honest leader’.
Xolile George: CEO of the South African Local Government (SALGA)

Attributes most admired: ‘Mr George is a humble leader but with a
remarkable intelligence and judgement, and most critically, an immense capacity to
care. Because he gives recognition unselfishly and sincerely to others and leads by
example, he deserves to be recognized for the impact he has made on so many lives,
directly and indirectly’.
10.4.1 Strategic leaders

Various studies have been undertaken to gain a better understanding of the skills required to be
a strategic leader and how these skills can be mastered in a way that allows strategic leaders to
think strategically and navigate the unknown effectively. Their findings have been captured in
the principles which will be discussed next.33,34
Principle 1: Strategic leaders are future oriented and anticipate

change
A strategic leader needs to look ‘beyond the present’ and anticipate change to help them see
opportunities before competitors do or employ strategies to protect their business interests.
Effective leaders are constantly scanning the environment and are vigilant to uncover
opportunities inside and outside the organisation. In doing so, they consider the complex and
unpredictable nature of the future and develop broader networks to gain insights into the
perspectives of customers, competitors and partners. These leaders furthermore encourage
‘future thinking’ through ‘future dialogue’ and scenario planning to prepare for the unexpected.
In this process, a set of learning skills can be developed to identify and take advantage of
opportunities rather than be the victim of unforeseen changes and events.
Although gut feel plays an important role, strategic leaders understand the importance of
formalising the collection, analysis, interpretation and dissemination of market and business
intelligence. These leaders allocate sufficient budget to resource research projects and
reward employees to come up with new ideas or innovative ways to improve practice. Active
participation and leadership is furthermore required to find out ‘what works’ and to recognise
achievements of performers. Best practice is communicated to all staff members and used to
©
bring about improved outcomes.
207
E S E S S
S S
S
Principle 2: Strategic leaders get things done

Strategic leaders do not just question the status quo; instead they implement the best solutions
to make a difference. They do not just talk about what they might do, they actually do it.
However, actions are based on careful reflection and examination of a problem through many
lenses and although they are known for their decisive actions, their ‘feet are firmly on the
ground’ as they can distinguish between practical solutions and ambitious dreams.
Principle 3: Strategic leaders open new horizons

Leaders who challenge existing work practice and strategy invariable elicit complex and
conflicting information. So, in order to uncover possibilities beyond the mundane and open
new horizons and directions for their organisations, they are expected to look beyond the
obvious to recognise patterns, interpret different events and synthesise various outputs to gain
new insight. ‘Finland’s former president J.K. Paasikivi was fond of saying that wisdom begins
by recognizing the facts and then ”re-cognizing,” or rethinking, them to expose their hidden
implications.’35 Strategic leaders also work effectively with all stakeholders and understand
how their work interweaves with that of their colleagues and relevant stakeholders to create
opportunities for innovative practice. It is therefore important to find common ground among
stakeholders who have disparate views and agendas. Opening new horizons does not mean
thoughtlessly discarding what the organisation currently values or neglecting the routines
needed for the organisation to run smoothly. Rather, it means helping others see beyond
established orthodoxy to experiment with new, exciting and more effective ways of meeting the
needs of their clients.
Principle 4: Strategic leaders reach out to stakeholders

As strategic leaders value the input of stakeholders and understand the importance of these
parties when it comes to implementing new strategies, they use proactive communication and
frequent engagements to build trust and get their support. They are sensitive to different cultures
and cross-cultural issues, and they respectfully confront issues and articulate perspectives that
may differ from prevailing or dominant thinking. Strategic leaders therefore need to be skilled at
managing conflict positively and at framing dynamic relationships in ways that are productive.
Together with stakeholders, they create a compatible view of the future.
Principle 5: Strategic leaders are fit to lead

It is easy to overlook the importance of health, but strategic leaders need to manage their
physical and mental wellbeing. Consider the Indian proverb: ‘A healthy person has many
wishes, but a sick person has only one’. Strategic leaders are confronted by various obstacles
and unexpected environmental changes that pose threats and risks for the organisation. Such
change creates increased levels of anxiety and stress and to deal with this, leaders need to be
©
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
208
E S E S S
S S
S
mentally prepared to exploit opportunities which arise unexpectedly, to cope with uncertainty
and ‘make things happen’ with limited resources.
Principle 6: Strategic leaders do the ‘next’ right thing and learn

from past experiences
Strategic leadership is about ‘doing the next right thing’, which is about ethical leadership.
Although it is not always possible, strategic thinkers need to insist on multiple options and
should not get prematurely locked into simplistic go/no-go choices. They do not ‘shoot from
the hip’ and recognise the importance of balancing rigour with speed, consider the trade-off
involved and take both short- and long-term goals into account. Fortunately, people who are
egotistic, openly ambitious, autocratic, manipulative or plain dishonest and who put self-interest
first usually do not keep their positions for long. In comparison, successful leaders are described
as those who consistently apply the ethics of justice and caring. Strategic leaders also recognise
the value of organisational learning. They consider lessons learned from both successful and
unsuccessful goals to be important inputs into future strategic considerations.
10.5 Leading change to implement a chosen

strategy
‘Management is about coping with complexity … [and] without good management complex
enterprises tend to become chaotic … Leadership, by contrast is about coping with change.’36
One of the defining challenges for leaders is to take their organisations into the future by
implementing planned organisational changes in order to execute intended strategies. Change
implementation involves different activities in which leadership competencies might play
different roles.37 How change is managed will depend on the magnitude of the challenge faced
in trying to effect strategic change.38 It is therefore useful to consider the type of change
required and the context in which change occurs. We will now consider the management
activities required to deal with change and how to overcome barriers of change.
10.5.1 Types of strategic change

Changing an organisation’s culture is more difficult than maintaining it. Nevertheless, effective
strategic leaders recognise when change is needed. In most companies, change occurs
incrementally to align the organisational culture with the implemented strategies. However, in
some cases more significant and sometimes even radical changes to the organisational culture
are required to support selected strategies. These strategies would typically differ from those the
firm has implemented historically.39 Four types of changes are listed below:40
1. Adaptation is change that can be accommodated within the current business model and
©
within the current culture with the aim to realign strategy. This type of change is most
common in organisations and occurs incrementally.
209
E S E S S
S S
S
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.
10.5.2 The context in which change occurs

Leading change in a small legal firm with two like-minded practising attorneys would be quite
different from trying to do so in a public sector organisation with established routines, formal
structures and perhaps a great deal of resistance to it. Context matters and it is dangerous to
assume that the same rules would apply in every organisation. Clear consideration of contextual
elements thus needs to precede the formulation of management strategies which will deal with
change. Some examples of contextual elements include the following:41
■ Time: How quickly is change needed?
■ Scope: How much change is required?
■ Preservation: What organisational resources and characteristics need to be maintained?
■ Diversity: How homogeneous are the staff groups and divisions within the organisation?
■ Capability: What is the managerial and personal capability to implement change?
■ Capacity: What change resources are available?
■ Readiness: How ready for change is the workforce?
■ Power: What power does the change leader have to impose change?
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
10.5.3 Managing strategic change

©
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
210
E S E S S
S S
S
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.
These skills are essential to the activities required to implement change.45
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
©
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,
211
E S E S S
S S
S
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.
PRACTISING STRATEGY: SIX NECESSARY MIND SHIFTS FOR IMPLEMENTING STRATEGY47
According to Robin Speculand, CEO at Bridges Business Consultation International,

managers need to ask themselves what they should be doing differently to
successfully implement strategies. After interviewing more than 300 leaders about
the implementation of their strategies, Speculand’s company identified flaws in
leaders’ thinking and their approach to implementation. He realised that success in
implementation starts with thinking differently and then doing things differently.
‘After all, if we always do what we have always done, then we will always get what
we have always got.’ He identified six mind shifts necessary to implement strategies
successfully:
■ Mind shift no. 1 – ‘When crafting strategy is complete, the hardest part is over.’ No,
implementation is twice as difficult as creating strategy.
■ Mind shift no. 2 – ‘Most people resist change.’ No, most people are open to change
when it is communicated in the right ways.
■ Mind shift no. 3 – ‘It’s all about taking actions.’ No, it is about taking the right
actions.
■ Mind shift no. 4 – ‘Communication is all about making sure people understand the
strategy.’ No, staff members also must know exactly what actions they need to take.
■ Mind shift no. 5 – ‘What worked yesterday will work tomorrow.’ No, new strategies
are needed every two or three years.
■ Mind shift no. 6 – ‘Strategy must be reviewed twice a year.’ No, it must be reviewed
twice a month at least!
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.
10.6 Why change programmes fail

Research into why change programmes fail can also provide lessons on the pitfalls to avoid. This
chapter concludes with a summary of the main findings:48
■ Death by planning. Some executives spend most of their time on the planning stage of the
©
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
212
E S E S S
S S
S
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.
The big picture

This chapter extended the concept of culture beyond differences found on a national or ethnic
level to consider cultures unique to organisations. Organisational culture explains how the
taken-for-granted assumptions (or paradigm) shape the acting, sensing and sense making done
by organisational members within the internal environmental context. Each organisation builds
its own culture by adopting unique values, beliefs, principles and behavioural norms.
The chapter furthermore recognised the important role of strategic leaders in creating
and maintaining organisational culture. However, it was found that effective strategic leaders
recognise when change is needed to align the organisational culture with new strategies. It
was concluded that it is more difficult to change organisational culture than to maintain it.
When change is required, it is important to identify the type of change and to acknowledge
that context matters. Moreover, regardless of the type of or reasons for change, reinforcing a
new culture requires effective communication and problem solving. It is important to establish
and measure performance towards goals that fit with the new core values. Most important is
that cultural changes only succeed when the CEO and his or her management team actively
support them.
©
213
E S E S S
S S
S
STRUCTURE AND
11 STRATEGY
Tersia Brevis
■ 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.
■ business architecture ■ global structure

KEY TERMS
■ centralisation ■ holding company structure
■ decentralisation ■ matrix structure
■ divisional structure ■ network structure
■ entrepreneurial structure ■ new venture units
■ functional structure ■ virtual network structure
CASE South African Airways1

STUDY South African Airways (SAA) is South Africa’s national carrier and largest
airline. Its headquarters are in Airways Park on the grounds of the OR
Tambo International Airport in Kempton Park, Gauteng. Currently, SAA
flies to 35 destinations worldwide from its hub at the same airport,
using a fleet of 54 aircraft. A brief history, highlighting major changes
and advances impacting the structure of the airline, is given below.
South African Airways was founded on 1 February 1934 with the
South African government’s acquisition of Union Airways. Forty staff
members, one de Havilland DH.60 Gypsy Moth, one de Havilland 80A
Puss Moth, three Junkers F13s and a leased Junkers F13 and Junkers
A50 were acquired to form SAA, under the control of the South African
Railways and Harbours Administration (now Transnet). SAA started
charter operations in the same year. In 1935, the carrier acquired South
West African Airways and also expanded its fleet of aircraft. In the
©
same year, SAA moved its operations to Rand Airport as it became

obvious that Johannesburg would become South Africa’s
E S E S S
S S
CHAPTER 11: STRUCTURE AND STRATEGY
S
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
©
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,
217
E S E S S
S S
S
with the Afrikaans name Suid-Afrikaanse Lugdiens, dropped. The airline

also started online ticket sales and formed an alliance with SA Airlink
and SA Express.
In March 2004, SAA announced its application to join Star Alliance.
The alliance accepted the application in June, with SAA joining as a full
member in April 2006. SAA was the first African airline to join Star Alliance
and fulfilled 53 requirements during the joining process.
In 2003, media reports started appearing about the South African
government’s plan to restructure and overhaul the state-owned enterprise
Transnet (SAA’s parent company), due to dismal financial performance. This
included splitting SAA from the company to operate under a separate identity.
During May 2007, SAA launched an 18-month comprehensive
restructuring programme. The main purpose was to ensure that the
airline became profitable. SAA’s business was streamlined and employees
were reskilled in a bid to improve worker morale and management/
worker relations. SAA’s business was divided into seven subsidiaries,
allowing SAA to concentrate on its core business of passenger and
cargo transport; rationalising international routes (for example, Paris
was dropped); cutting 30% of the airline’s managers as well as other
employee retrenchments. The restructuring programme was expected
to save SAA R2.7 billion. By June 2009, R2.5 billion was saved.
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.
Business architecture: definition and role in strategic management

©
Principles of successful business architecture
218
E S E S S
S S
S
‘Strategy ➞ structure’ or ‘structure ➞ strategy’?
Structural alternatives
Structural forms
11.1 Business architecture: definition and role

in strategic management
The term ‘business architecture’ has many definitions in theory and also in practice. Our
approach will be to break it down and then define it as a complete term and identify its fit into
the strategic management process.
■ First, what is meant by ‘architecture’? The Oxford dictionary defines the term as ‘the complex
or carefully designed structure of something’.2 In conversational terms, ‘architecture’ is usually
associated with the construction industry and refers to blueprints, models and drawings. A
blueprint is drawn up by the architect to meet the need of his or her client, for example a
future homeowner. It is drawn up in such a way that it is understood by all stakeholders,
such as the client, suppliers of building materials, contractors and financiers. All stakeholders
can visualise the home’s structure, the relationships between various living areas and the
integration with the surrounding environment to meet the needs of the client within the
boundaries of the rules and regulations pertaining to the building industry. The visualisation
of the future home is most important to the client to ensure that his or her needs are
satisfied. The same visualisations cannot be achieved by viewing only one part, for instance the
classification of the building materials. Putting the bricks, cement, plumbing, wiring, roofing
materials and appliances in neatly defined categories does not enable the same visualisation
and analysis afforded by the blueprint. While both blueprints and classifications of building
materials are important, each has a different purpose and benefit to the homeowner.
In terms of the management of organisations, the same principle applies, giving architecture
two important themes. First, it has an internal theme (or internal architecture) that refers to
the way managers and other employees cooperate within the organisation, in order to realise
organisational goals. Communications and cooperation should be designed horizontally
and vertically, which should lead to synergy between the various functions, departments,
sections and individuals. Second, it has an external theme (or external architecture) which
refers to the linkages between the organisation and its external stakeholders. Suppliers,
other organisations, distributors, final customers and consumers should all work together
to create and support a value chain which builds and provides value for all participants.
■ Second, what is meant by ‘business’? A business (also called an organisation, firm or enterprise)
is a legally recognised entity, designed to provide products and/or services to consumers
©
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.
219
E S E S S
S S
S
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.
■ Vision ■ Strategic objectives

Strategic
■ Mission ■ Business strategy
architecture
■ Environmental analysis
■ 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
©
phase 2.
220
E S E S S
S S
S
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.
11.2 Principles of successful business

architecture
Business architecture is based on a number of core principles, all crucial in its development,
understanding and use to solve organisational problems and to increase organisational
effectiveness and efficiency.
The core principles of successful business architecture are as follows:

■ Business architecture is about the entire business. It therefore should not focus only on
specific parts. Using the construction metaphor from section 11.1, future homeowners need
to visualise their home (and not the various categories of building materials) in order to
ensure that their needs are met.
■ Business architecture is not prescriptive. Every organisation is unique. The same business
architecture deliverables and techniques cannot be employed in every situation.
■ Business architecture is an ongoing process. It is not a once-off analysis of the management
environment. It provides the foundation for future analyses, decision making and problem
solving. The existing business architecture should be used as the premise of subsequent
architectures.
■ Multiple components make up business architecture. It is about putting the pieces of a
puzzle together, where the pieces are organisational: (i) rules; (ii) processes; (iii) capabilities;
(iv) context; (v) concepts; (vi) data; and (vii) departments and their role. Creating synergy
between these components should be the main focus.
■ Multiple stages make up business architecture. Its development has three distinct stages
(as illustrated in Figure 11.1 and described above), namely strategic architecture, business
architecture and architectural execution.
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,
©
initiatives, actions and tasks that contribute to meeting the group strategy. Based on
221
E S E S S
S S
S
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
11.2.1 Example of a business architecture

There are many different models of organisational architecture, for example the well-known
McKinsey 7S model. However, these models all have some common elements, and these elements
are depicted in Figure 11.2. All of the elements are in interaction and all elements are influenced
by, and in turn influence, all other elements.
External context
Sensing and sense making
Internal context
Governance
Leadership Capabilities
Culture
Technology Structure
©
FIGURE 11.2 A model of business architecture
222
E S E S S
S S
S
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).
Sensing and sense making

One of the most important elements in any organisation is its mechanisms and abilities for
sensing developments and changes in the external environment and making sense of these for
the benefit of the organisation. This element is not generally depicted as part of the business
architecture, but plays an important role as a boundary-spanning function between the internal
and 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.
©
223
E S E S S
S S
S
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
11.3 ‘Strategy ➞ structure’ or ‘structure ➞

strategy’?
Organisational structure is an important building block of strategy implementation. Strategic
leaders are responsible for the development and implementation of organisational strategies.
Strategic leaders establish organisational structures and they secure and allocate resources
that ensure that intended goals and strategies are achieved, and that the organisation retains
its competitive advantage and long-term sustainability. Departments and individuals then
use the resources, within the organisational structure, to carry out the tasks that they have
been allocated. Their actions should be monitored and evaluated to ensure that goals are
being achieved. Organisational structures are designed to ensure that determined or intended
strategies can be implemented. This supports Alfred Chandler’s dictum that ‘structure follows
strategy’ and it also reinforces the principle that strategic management is an ongoing and
circular process.
The success of the organisation will depend on various aspects:

■ The direction provided by the strategic leader (within the boundaries of the internal and
external environment).
■ The culture of the organisation (discussed in detail in Chapter 10).
■ The degree of ‘buy-in’. Managers throughout the organisation should understand, support
and own the vision, mission and strategy. They should also appreciate and understand the
significance of their individual contribution as well as the contribution of their department
or function.
■ The ability of managers (enabled with the necessary resources, power and influence) to be
innovative, add value and take measured risks to deal with environmental changes.
■ The strategic leaders’ ability to ensure cooperation, coordination and synergy between the
various organisational departments and functions. All actions (even at the lowest levels)
need to work towards the achievement of the organisational mission and objectives.
■ Effective sharing, monitoring and controlling of relevant, timely and accurate information.
©
224
E S E S S
S S
S
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
11.4 Structural alternatives

Organisational structure provides the framework through which strategies are implemented.
By dividing up tasks and grouping them into work units, the organisational structure places
people in certain roles with certain responsibilities and expectations. The extent of people’s
roles and responsibilities is determined by the structural form of the organisation, for instance
the decision of strategic leaders to centralise or decentralise decision making. In the case of
centralisation, all major strategic decisions are made by top management. In decentralised
authority, important decisions are also made by middle and lower management. Decentralisation
has become very popular in South African organisations as a method of empowering employees.
By decentralising power and authority, a more democratic organisation is created in which
managers at the lower levels can decide on issues such as the allocation of resources in their
departments, differentiated salaries for employees, flexible work hours, and so on.
In deciding whether to centralise or decentralise authority, the following factors should
be considered:
■ External environment. The more complex and volatile the environment and the higher
the level of uncertainty, the greater the tendency is to decentralise authority and decision
making.
■ History of the organisation. Organisations tend to do whatever they have done in the past.
Hence there will be a tendency to follow the history of the organisation when it comes to
centralisation or decentralisation. In some instances, it may be necessary to re-engineer the
entire organisation, abandoning even what has been successful in the past.
■ Nature of the decision. The riskier the decision, the higher the costs involved with the
decision, and the higher the potential impact of the decision, the more pressure there will
be to centralise decision making.
■ Strategy of the organisation. The strategy of the organisation determines the types of market,
technological development and competition. Alfred Chandler found that large organisations
which obtained new products through a strategy of research and development advocated
product diversification and therefore utilised decentralised structures. Organisations that
did business in more predictable industries became increasingly centralised.
©
■ 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,
225
E S E S S
S S
S
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.
PRACTISING STRATEGY: CENTRALISATION VS DECENTRALISATION IN BUSINESS COMPUTING3

The decision whether to centralise or decentralise not only concerns the locus of
authority, but managers also need to decide on the centralisation or decentralisation
of other important activities such as business computing. Organisations favouring
the centralised approach to business computing have benefited from a lower cost of
ownership, given that centralised computing architectures require fewer information
technology staff for support than decentralised architectures do. As a result,
decentralised business computing has failed to become the dominant computing
architecture because it is too expensive and difficult to manage hundreds or even
thousands of servers spread across the organisation.
In the aftermath of the 11 September 2001 attacks in New York, however, the
conventional wisdom about what constitutes an expense is changing. Centralised
operations in today’s global environment are a liability. Organisations with centralised
computing architectures that were affected by the attacks are having a harder time
recovering compared to organisations with decentralised computing. Decentralisation
has enabled them to move their business functions more easily to other locations.
In theory, organisations that build some form of decentralised computing will carry
a higher cost of doing business compared to organisations that rely primarily on
massive data centres. But in the case of a catastrophic event, the cost now seems
minimal compared to the amount of time it would take to recover from an attack
that destroyed your computing resources’ location. At the same time, many of
those managers affected will take a harder look at decentralising their own business
functions to make sure that major elements of the business are not all concentrated
in one single location.
Decentralisation has the following advantages for an organisation:

■ By decentralising, the workload of top management is reduced, enabling them to devote
more attention to strategies.
■ Decision making improves because decisions are closer to the core of action and time is not
wasted by first referring the matter to a higher authority.
■ There should be improved morale and initiative at the lower levels of management. These
managers feel that they participate in managing the organisation and are prepared for
©
greater responsibilities. They should experience a great deal of job satisfaction.

■ Decentralisation of decision making renders it faster and more flexible, which is imperative
in a rapidly changing environment.
226
E S E S S
S S
S
■ Decentralised authority also fosters a competitive climate in the organisation. Managers

are motivated to participate in this competition because their performance is constantly
compared with that of their colleagues.
Decentralisation has the following disadvantages for an organisation:

■ There is the danger of loss of control. Too much decentralisation will result in sub-units or
departments moving away from the centres of decision making.
■ There is the danger of duplicating tasks. For example, there could be HR sections in the
decentralised sub-units that keep personnel records, while these records are also being kept
up to date at head office.
■ Decentralisation of authority requires more expensive and more intensive management
training and development to enable managers to execute delegated tasks.
■ Decentralisation also demands sophisticated planning and reporting methods. Even if there
is delegation, top managers are and will always be accountable for attaining the goals of the
organisation, and they must continually receive feedback on the situation.
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.
11.5 Structural forms

A number of structural forms can be adapted by an organisation in order for it to satisfy its
particular needs. Organisational structure involves more than simply charting where businesses,
products, services, people and other resources fit in relation to each other. Organisational
structures are dynamic and also involve behaviour patterns. The following forms are discussed:
©
■ Entrepreneurial structure ■ Holding company structure

■ Functional structure ■ Matrix structure
■ Divisional structure ■ Global structure
227
E S E S S
S S
S
■ Network structure ■ Virtual network structure

■ New venture units
Most organisations will not have a ‘pure’ structure, but will most often use a combination of
different structural elements or a ‘hybrid’ structure.
11.5.1 The entrepreneurial structure

The entrepreneurial structure is typically built around the owner-manager. This form is usually
utilised by small organisations in the start-up stages of their development. Figure 11.3 illustrates
the entrepreneurial structure.
Owner-manager
Employee Employee
FIGURE 11.3 The entrepreneurial structure
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.
11.5.2 The functional structure

In this form of departmentalisation, the activities belonging to each management function
are grouped together into a unit, department or function. One set of activities, for example,
comprises advertising, marketing research and sales, which belong together under the marketing
function. Another set of activities, for example debtors and creditors, is grouped under the
financial function.
A functional structure is often used by organisations with a single product focus. In order
©
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
228
E S E S S
S S
S
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
Advertising Personal sales Recruitment
FIGURE 11.4 The functional structure
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.
11.5.3 The divisional structure

An organisation that decides on a divisional structure can use product groups or geographic
regions as a means of divisionalising, or even a combination of product and geographic
divisionalisation. Figure 11.5 illustrates the divisional structure.
©
229
E S E S S
S S
S
Strategic leaders
Centralised services
International
(e.g. Human resources,
division
Finance, Procurement)
Product Product Product

division A division B division C
FIGURE 11.5 The divisional structure
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.
11.5.4 The holding company structure

An example of a holding company structure is illustrated in Figure 11.6.
Strategic leaders
Centralised services
(e.g. Legal, Finance)
Company A Company B Company C

©
FIGURE 11.6 The holding company structure
230
E S E S S
S S
S
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.
11.5.5 The matrix structure

The matrix structure combines the advantages of decentralisation with those of coordination.
This structure requires dual reporting by managers. One manager can, for instance, report to a
functional manager (such as finance) and a project manager. Figure 11.7 illustrates an example
of a matrix structure.
Strategic leaders
Programme Manager: Manager: Manager: Manager:

management Design Finance Marketing HR
Project Finance Marketing HR

Designer
manager specialist specialist specialists
Project Finance Marketing

Designer
manager specialist specialist
Project Finance Marketing

Designer
manager specialist specialist
FIGURE 11.7 The matrix structure
According to Figure 11.7, the finance specialist reports to both the financial manager and project
©
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.
231
E S E S S
S S
S
This structure is appropriate in large, multiproduct and multinational organisations with

significant interrelationships and interdependencies. The advantages associated with a matrix
structure are first and foremost that decisions can be decentralised within a large organisation
which might otherwise be very bureaucratic. The structure makes optimal use of scarce skills
and resources, and it enables control over growth and increasing complexity normally associated
with growth. It also offers an opportunity for managers to develop and reach a certain level of
maturity.
Like all other structures, the matrix structure also has certain limitations. It is difficult to
implement and the dual reporting lines may create confusion among employees. Potential
conflict exists between various managers, it has high overhead costs and decision making can
be very slow. It is, nonetheless, a power structure to implement in organisations with more than
one profit centre.
11.5.6 The global structure

Becoming a global organisation is usually associated with multiple strategies. Multiple strategies
need to be backed by a global structure that will enable the global organisation to sustain and
maintain its competitive advantage. There are essentially five possible global structures:
1. A globally centralised organisation, remote from its global markets, but relying on
exporting. This is likely to be a cost-effective structure, but possibly too out of touch for
contemporary global entities.
2. Manufacturing plants that are located close to the organisation’s markets in order
to satisfy local needs and preferences. This structure is known as an international and
multi-domestic structure, and can be controlled centrally. Another option would be to fully
decentralise it into fully autonomous business units. The costs associated with this structure
will be higher, but it will enable the global entity to offer higher levels of service.
3. Centralisation of the manufacturing of key components. This is possible in a country of
low wages, with the final assembly nearer to the market.
4. An integrated global structure with production locations chosen on resource or cost
grounds. In this case, finished products are transported to markets.
5. A global network through strategic alliances. This structure can be very effective, but
it can also be difficult to control and may have costly overheads. The network structure is
discussed in the following section in more detail.
11.5.7 The network structure

The network structure involves an interrelationship between different organisations. A network
organisation usually performs the core activities itself, but subcontracts some or many of its
non-core operations to other organisations. One of the big challenges for a network organisation
is to coordinate its network partners’ activities to ensure that they contribute to the network
©
organisation’s mission and goals. Figure 11.8 illustrates a network structure.
232
E S E S S
S S
S
Designer
Human
Central
resources Manufacturing
hub
agency
Marketer
FIGURE 11.8 The network structure
11.5.8 New venture units

New venture units consist of groups of employees who volunteer to develop new products or
ventures for the organisation. These groups use a form of matrix structure. When the project is
complete, it can be adopted into any of the following organisational structures:
■ The new products or ventures become a part of traditional structure, such as functional or
product structure.
■ The products are developed into a totally new department.
■ The new products grow into divisions.
11.5.9 The virtual network structure

The virtual network structure builds on the features of the network structure. It is no longer
necessary for the organisation to have all its employees, teams, departments and subcontractors
in one office or facility. Information technologies enable the organisation to integrate its internal
employees, teams and departments with its external network of subcontractors in order to
achieve specific goals. In the virtual organisation, people who are spread out in remote locations
work as though they were in one place.
The virtual organisation is a streamlined model that fits the rapidly changing environment.
It provides flexibility and efficiency because partnerships and relationships with other
organisations can be formed or disbanded as needed. However, a disadvantage associated with
©
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
233
E S E S S
S S
S
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.
PRACTISING STRATEGY: Remote control4

Remote working is rapidly spreading beyond its traditional heartland of sales teams and
field engineers. But what are the benefits of remote working and how can managers
manage e-workers effectively?
Employees and employers can both benefit from remote working. For employers,
cost savings are very attractive (fewer desks mean smaller offices and lower overhead
costs). Also, there is growing evidence of improved productivity and improved job
satisfaction for remote-working staff. Fast, reliable broadband connections, remote
security systems and web-accessible applications and network systems have never
been cheaper and more available, making the practicalities of remote working easier
than ever for employers and employees. For many employees, remote working provides
them with flexibility, greater fulfilment, high levels of job satisfaction and a better
work/life balance. On the downside, remote working can cause remote workers to
struggle with work/no-work boundaries, so switching off can be an issue for employees.
The big unanswered question about remote working is whether remote workers can
wave goodbye to promotion. Despite enthusiasm for remote working, some managers
confess that visibility is important, as is being able to coach and mentor and influence
decisions. It seems that managers need to understand that it is about output of their
employees and not about presenteeism, to take full advantage of remote working.
The big picture

It is important that there should be alignment between the strategy of the organisation and
the organisational structure it follows. However, it is also naïve to think that there will be a
pure and direct relationship between strategy and structure and that changes in strategy will
unconditionally lead to structural changes.
Figure 11.9 depicts the influences on the decision of how to structure the organisation. In
this decision, the following factors are important:
■ The current business architecture of the organisation (see section 11.2). Organisations
are generally inert until there are forces that necessitate change, and if these forces are not
perceived as strong enough, large scale structural changes are not likely to occur.
■ The strategy of the organisation. This is its plan for the future, and implementing these
plans may necessitate changes. Sometimes this may involve large scale changes; for example,
when a small entrepreneurial business decides to expand nationally, a simple entrepreneurial
©
structure may not be sufficient anymore.

■ External driving forces for change. Sometimes there may be forces that necessitate changes.
234
E S E S S
S S
S
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
FIGURE 11.9 Developing an organisation structure
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,
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
©
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?
235
E S E S S
S S
S
STRATEGY
12 DEPLOYMENT
Hannelize Jacobs
■ 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.
KEY TERMS ■ strategic initiatives ■ programme management

■ strategy implementation ■ project management
■ strategy deployment
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
©
are confused. Not only is work being duplicated, different projects
E S E S S
S S
S
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.
CHAPTER Strategy implementation is about ensuring that all of the components

of the organisation (structure, culture and systems) are aligned with
ORIENTATION the chosen strategy (see chapters 10 and 11). However, in addition to
this alignment process, there is the question: how do we make strategy
happen?
Typically, in strategy implementation, strategies are translated into
projects that need to be completed as part of the organisation’s day-to-
day operational activities. Projects usually address a particular task or a
problem, have outcomes that are clearly stated, and have well-defined
boundaries, including a specific start and finish date.1 However, in
practice, most projects are not actively managed by the leadership team
for maximum strategic impact. In a dynamic and complex environment, a
new way to translate strategies is needed, such as by means of strategic
initiatives.
Strategy deployment is a very complex matter, and there is no ‘recipe’
or simple formula to follow that will result in successful implementation.
So we can argue that strategy deployment is more art than science and
the efforts of the organisation may be rather messy and based on trial
and error as much as on rational decision making.
In this chapter we briefly explore the evolution in management
perspectives that led to the strategy deployment concept. We look at an
effective framework for strategy deployment and thereafter at various
practical steps and tools practitioners can use for strategy deployment.
Strategy deployment
©
A project-based framework for strategy deployment
238
E S E S S
S S
CHAPTER 12: STRATEGY DEPLOYMENT
S
Managing strategic initiatives
Barriers to strategy deployment
Creating an environment for effective strategy deployment
12.1 Strategy deployment

The transformation from the industrial to the information age has been accompanied by increasingly
sophisticated customers, escalating globalisation, more prevalent and subtle product differentiation,
and an emphasis on intellectual capital and enhanced employee empowerment. In this new world
order, management perspectives and practices are evolving in order to meet contemporary needs.
Successful strategy implementation has become ever more important and new frameworks are
being developed to fill the gap between strategy planning and operational activities.
The business environment today also demands new and integrated management approaches
for strategic implementation other than the standard ‘top-down’ and silo-treated approaches
such as project manage-ment and performance management on their own.
Succesful
implementation of
strategic initiatives
Successful alignment Succesful alignment

of individual of organisational
behaviour with units with strategic
strategic direction direction
FIGURE 12.1 The components of strategy deployment
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
©
of a chosen strategy into organisational action so as to achieve strategic goals and

objectives) to strategy deployment (a process that aligns — both vertically and horizontally —
239
E S E S S
S S
S
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).
12.1.1 Aligning organisational units with strategic

direction
Most large organisations will consist of several organisational units, such as strategic business
units or departments. For successful strategy deployment, all three dimensions in the hierarchy
of strategy, namely corporate, business and functional, should be aligned and should support
one another.2
Traditionally, the relationship has been seen as vertical, and specifically top-down, where
the business units are subordinated to the corporate head office, and functional units serve the
needs of both. This view represents a vertical relation of subordination and superordination,3
which poses the danger of one-dimensional, monological thinking which is ill suited to a
multilogical world and complex organisations.
Rather than being a simplistic top-down or bottom-up process, it is more meaningful to
view the relationship between corporation, businesses and functions as an iterative one. In
matching the corporate dimension to the business dimension and the business dimension to
the functional dimension, it is useful to think of their alignment in terms of mobilisation.4
Mobilisation refers to the process by which the corporate, business and functional dimensions
are awakened and kept moving until they find their place in strategy deployment. The objective
is to link all dimensions to their most strategic roles to deploy the strategy successfully, whatever
that role may be. To provide an analogy: a strategic plan is like a cup that provides structure.
Strategy deployment is the act of filling the cup with whatever is needed to make the envisaged
cup of tea. This is only possible if the corporate, business and functional dimensions work
together in different, non-linear ways as well.
PRACTISING STRATEGY: WOOLWORTHS5

South African retailer Woolworths is well known for its high quality products, and it
clearly follows a differentiation strategy. To align the organisation with the strategy,
all of the organisational and functional units must support and interact with the
strategy. For example:
■ The marketing strategy and marketing communications (e.g. advertising) have to
convey the concept of quality.
■ Store locations will typically be in shopping centres or areas where they are within
easy reach of their more upmarket clientele.
■ Store layout and merchandising will support the concept of quality products and
an upmarket shopping experience.
■ There will be innovation to bring customers exciting new products.
©
■ There will be a strong focus on responsible sourcing and sustainable business.
240
E S E S S
S S
S
12.1.2 Aligning individual behaviour with strategic

direction
One key element of strategy deployment is to ensure that the behaviour and work of every
employee is aligned with the strategy. In addition to the communication of the strategy, there
are five tools that organisations can use to achieve this:
1. The process of alignment starts with the recruitment process. Organisations should recruit
individuals that support their strategic direction.
2. Training and development may be required to ensure that the knowledge, skills and
attitudes of employees match the strategic direction of the organisation.
3. Policies and procedures can be used to guide behaviours of individuals. Changes may
require old policies and procedures to be reviewed or new policies and procedures to be
introduced.
4. The process of cascading objectives can be used as a framework for setting objectives lower
down in the organisation, for example by using the balanced scorecard in conjunction with a
performance management system. In using this approach, strategic objectives will typically
be used to derive annual objectives, which will in turn be used to define the actions and
required performance levels of individual employees.
5. Reward systems that are tailored to reward behaviours and achievements that are in line
with the strategy may encourage individuals to behave and actively support the strategic
direction (see the First National Bank practising strategy box below).
PRACTISING STRATEGY: FOSTERING AN INNOVATIVE CULTURE AT FIRST NATIONAL BANK (FNB)6

Innovation is a big focus at FNB, as its commercial success due to product and service
innovations and rewards for innovation testify. But innovation does not simply happen
by itself – the bank actively fosters and rewards innovation.
‘We have had hundreds of innovations over the years that have benefited our
customers and made us a better organisation,’ said Sizwe Nxasana, Chairman of
FirstRand, the holding company of FNB.
Management at FirstRand and FNB is always encouraged to start new businesses,
both large and small, in their business units. Some of the new businesses initiated by
the current generation of managers include investment firm Ashburton and various
African businesses. Ashburton has been assembled as a new business that includes the
about R44bn of wealth assets currently under management and its new offerings in
alternative investments – such as RMB-originated infrastructure and private equity
investments – that will be offered for co-investment to institutional clients. Managers
get to share in their innovations by, for example, being allowed to become owners in
successful businesses.
Management practices in strategy deployment can be seen as a continuum with prescriptive

©
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
241
E S E S S
S S
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
12.1.3 Strategic initiatives

As we pointed out in Chapter 1, strategy is not about business as usual. It is rather about
those chosen courses of action that will lead to positive changes in the performance of the
organisation. In order to achieve these changes, the organisation will need to implement strategic
initiatives successfully. Strategic initiatives refer to those key projects or programmes (multiple
independent projects managed as a single unit) focused on achieving a specific objective or
improving performance in order to achieve a performance target. The role of projects in strategy
deployment is discussed in more detail in the sections below.
If we consider the chapter case study again, the CEO of Lion Manufacturing Pty Ltd and his
team should, as the first step in finding a solution, consider identifying and pursuing strategic
initiatives instead of projects.
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
12.1.4 Enablers of strategy deployment

Strategy deployment is a challenging and complex process, and it is underpinned by three
©
important enablers, namely communication of the strategy, the ability of the organisation to
learn and adapt, and the allocation of adequate resources.
242
E S E S S
S S
S
Communicating the strategy

The most obvious way to deploy a strategy is to ensure that everyone in the organisation
understands the strategy and what it means to him or her individually. This is necessary because
not everyone can be equally involved in making strategic choices, but all employees do need to
be aware of what the strategy entails and how it affects them. There are four main objectives
for the communication of strategy:12
1. To ensure that everyone in the organisation understands what the strategy is and how it will
affect them
2. To resolve ambiguity and uncertainty about the strategy (for example, by allowing employees
to ask questions and to clarify)
3. To explain the assumptions and judgements that were made during the analysis process and
to explain the decisions that were made and backup plans
4. To ensure coordination across all organisational units
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.
PRACTISING STRATEGY: KUMBA IRON ORE

Kumba Iron Ore, a member of the Anglo American PLC group, is a leading value-
adding supplier of high-quality iron ore to the global steel industry. Like any business
their landscape is altered due to things such as operational challenges, legal matters
and changes in leadership. They therefore constantly have to re-assess their business
and more clearly define where they want to go and how to get there. They believe
that an essential part of strategy implementation is to ensure that every member of
the company understands the strategy and their role in it. This is often more tricky
than it sounds, since a large proportion of the Kumba workforce are relatively low-
level blue collar workers (such as miners). To explain the strategy to the lower levels
of the organisation, Kumba utilises colourful process diagrams with pictures to make
it as easy as possible for all employees to understand what the strategy is and how
they can contribute to its success.
©
243
E S E S S
S S
S
The last recommendation is to communicate the strategy widely throughout the

company; I have often been informed that a company’s strategy has little value if
competitors gain information on the strategy. However I am of the opinion that
strategy is unique to each company. Whilst there is a considerable disadvantage
to the competitors gaining access to your strategy, I feel that this disadvantage is
far outweighed by the disadvantage gained by your employees not being able to
understand, and thereby execute, the strategy.
Manager, service organisation
Organisational learning and adaptation

In the industrial era, the creation and implementation of strategy was a kind of ‘ready, aim,
fire’ process. This approach worked reasonably well in a relatively linear, stable and predictable
environment. But today’s discontinuous environment rather requires a ‘ready, fire, steer’
approach. In other words, the organisation’s strategic direction is developed, implemented, and
then repeatedly and continuously modified in response to changes in the environment and in the
organisation’s own realities. Knowing when to change the strategic direction is the difference
between success and failure. Successful organisations are those that have the discipline
necessary to change when it is not working; to change the strategy without abandoning the
whole vision. The changed strategies are deployed through adapting the organisation’s existing
strategic initiatives or creating new ones.
Experimentation offers one key to making these adjustments successfully. A readiness
to experiment, to learn from the results, and to adjust accordingly is a hallmark of adaptive
organisations (see Chapter 6 for a discussion on organisational learning). It helps stamp out the
complacent ‘if it ain’t broke, don’t fix it’ attitude and is an intellectual voyage of discovery. Odds
can be improved by learning from both mistakes and successes. After all, many of the greatest
moves in business history were the result not of artful strategic planning, but of trial-and-
error experimentation. It has proven to be more tangible, accurate and quicker than traditional
business planning.
Learning through experimenting has three basic components:

1. Conducting the experiment
2. Studying the success and failure of the experiment
3. Transferring the lessons learned throughout the organisation
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
©
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.
244
E S E S S
S S
S
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.
12.1.5 Strategy deployment: aligning strategy with

the internal environment
In summary, we can see strategy deployment as a process for aligning all organisational units
and employees with the formulated strategies. This alignment is depicted in Figure 12.2.
Corporate-level Corporate-level Corporate-level

strategic goal key metrics strategy
Business-level Business-level Business-level

strategic goal key metrics strategy
Annual Functional key Functional-level

objectives metrics plans and tactics
Individual
Standards, policies Individual
performance
and procedures tasks
metrics
©
FIGURE 12.2 Aligning strategy internally
245
E S E S S
S S
S
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.
PRACTISING STRATEGY: STRATEGY DEPLOYMENT IN A LOW-COST RETAILER
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.
12.2 A project-based framework for strategy

deployment
Much of the focus in traditional strategy literature has been on strategy formulation, while
relatively few models widely accepted by practitioners have been developed for strategy
©
implementation or deployment.14 Early frameworks of strategy implementation typically

simply listed and described implementation factors.15 However, strategy implementation and
246
E S E S S
S S
S
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.
TABLE 12.1 The domains of strategy deployment
Ideation An organisation’s identity, how it sees itself and how it wants to

appear to the world. This is expressed though statements of vision,
mission, values and strategic goals. Companies with weak ideation will
typically be reactive and focused on the short term. The basic elements
of ideation were discussed in Chapter 4.
Nature The physical and psychological manifestation of the organisation
in the form of its culture, its structure and its strategy. Together
these elements create the internal context of the organisation. It is
important that there is a good fit between these three elements.
For example, if an organisation is dependent on innovation and
quick response times, having a very hierarchical structure with rigid
functional silos will not support its strategy. These elements were
discussed in chapters 9, 10 and 11.
Vision Where the organisation wants to be in the future. In this case, ‘vision’
refers to more than just a vision statement (which is an expression
of ideation), it refers to the organisation’s key goals and measures
(metrics) that drive its strategy. Again it is important to ensure that
there is a good fit between the goals the organisation wants to
achieve, and the key metrics it will need to measure progress. These
aspects were also addressed in Chapter 4.
Engagement Essentially the bridge between the thinking process (of which strategy
is the outcome) and the deployment process, where the portfolio
of investments (an outcome of the resource allocation process)
interconnects. The decision on the portfolio of investments is part of
the resource allocation process outlined above.
Synthesis Where the portfolio culminates in specific strategic initiatives in the
form of programmes or projects. Our view of programme and project
©
management in this instance refers to the strategic role of projects,

rather than the tactical role normally assigned to it.
247
E S E S S
S S
S
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
©
Program, a partnership of IPS Learning, LCC, and the Stanford Center for Professional Development’
FIGURE 12.3 The Strategic Execution Framework® (SEF) 18
248
E S E S S
S S
S
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
©
249
E S E S S
S S
S
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
©
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
250
E S E S S
S S
S
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.
12.3 Managing strategic initiatives

Determining a strategic direction for the organisation is the strategic leadership action that is
perceived to play one of the most important roles in effective strategy deployment. Strategic
leadership is multifunctional, involves managing through others, and helps organisations
cope with change that seems to be increasing exponentially in today’s globalised business
environment.
Strategic leadership requires the ability to accommodate and integrate both the internal
and external business environments of the organisation, and to manage and engage in complex
information processing. Leadership practices (see Chapter 10 for a discussion on strategic
leadership) for boards of directors in strategy deployment include the following:22
■ Ensuring a steady flow of strategic initiatives and projects to achieve the strategic objectives
■ Developing decision frameworks for selecting strategic portfolio investments and for
terminating unsuccessful initiatives
■ Regular evaluation of the progress of strategy deployment
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
©
of making strategy part of everyone’s job.
251
E S E S S
S S
S
Leadership
Nature Vision ‘The Strategic Execution

Framework is described in
detail in the book Executing
your strategy: how to break it
Engagement down and get it done authored
by Michael Morgan, Raymond
E. Levitt and William A. Malek.
Synthesis Boston Harvard Business
School Press 2007. The SEF is
used in the Stanford Advanced
Project Management Program,
Transition
a partnership of IPS Learning,
LCC, and the Stanford Center
Management for Professional Development’
FIGURE 12.4 Leading and managing for strategy deployment24
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.
Translating goals into potential strategic initatives
Prioritising strategic initiatives
Defining and approving strategic initiatives
Aligning individual
behaviour
Reporting and
management
©
FIGURE 12.5 A summary of the strategic initiative management process
252
E S E S S
S S
S
12.3.1 Translating goals into strategic initiatives

In transitioning from strategic decisions to strategy deployment, the first task is to translate
strategic goals into specific initiatives that the organisation will undertake in near futures.25 The
purpose is to create a detailed roadmap that aligns the day-to-day activities of the organisation
with the strategic direction.
The balanced scorecard is a handy mechanism in the process of developing strategic
initiatives. The third-generation balanced scorecards take their starting point as a shared and
clearly articulated description of how the organisation has to look at some future date (the
‘destination’). Priority strategic goals (and associated measures and targets) are then selected
by looking at the key activities on which the management team needs to focus if the future
described is to be realised.
PRACTISING STRATEGY: AIRPORTS COMPANY SOUTH AFRICA (ACSA)

Airports Company South Africa (ACSA) has a vision to be a world-leading airport
business. To move closer to its vision, it has set a strategy to build an efficient and
customer-focused business. ACSA uses the balanced scorecard methodology as a
strategic implementation tool as it believes that every element of its operations and
every person, organisation and institution that touches ACSA and is touched by ACSA,
plays a part in its success or failure.
Strategy Successful strategy

implementation
■ What are the few essential Achieve sustainable

goals that must be met to Objectives
profitability
achieve our strategy?
■ How do we define success
in the attainment of our Measures Revenue
goals?
■ How far and how fast do we

Improvement
need to go in attaining our 2008 – $26.8m
targets
goals?
■ What are the few critical

Strategic “RuralNet
things we need to do to
realize our targets? initiatives commercialization”
FIGURE 12.6 Example of successful strategy deployment from strategic initiatives developed 26
©
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
253
E S E S S
S S
S
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.
PRACTISING STRATEGY: SOUTH AFRICAN NATIONAL PARKS (SANPARKS)28

Effective custodianship of South Africa’s biodiversity heritage is the primary mandate
of South African National Parks (SANParks).
SANParks identified three strategic directions: biodiversity custodianship, tourism
development and constituency building, and embarked on an initiative to develop and
implement a strategic plan. The development of this framework followed a consultative
process, using workshops and eliciting the inputs of a variety of participants across
SANParks. This process sought to rationalise and integrate existing policy that was
considered to be applicable to the strategy process. SANParks used the balanced
scorecard as a tool to translate the vision and strategy into objectives and performance
measures that can gauge the success of SANParks in meeting their overall aims.
TABLE 12.2 Defining Initiatives 29
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?
©
254
E S E S S
S S
© S
STEP 1: TRANSLATE
INITIATIVE OVERVIEW TEMPLATE
E S
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)
S
E S
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
255
■ 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
supports for each ■ Additional ■ Communica-tions

high priority ■ Kirk W
category resources for to announce
states
S
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
12: STRATEGY DEPLOYMENT
Strategic
3
Priority 3
FIGURE 12.7 Strategic initiative overview template30 (All sample data in the template is provided by the authors.)
STEP 1: TRANSLATE
S
INITIATIVE ACTION PLAN TEMPLATE

HOW TO USE THIS TEMPLATE
Why would you use For each initiative, use this action plan template to describe
this template? the context for the initiative, assign staff roles, and estimate
anticipated outcomes, milestones, resources required, and
interdependencies with other departments/functions
When would you use After strategic priorities have been translated into initiatives,
this template? as you detail what each initiative will entail
INITIATIVE #: NAME OF INITIATIVE HERE
1. RELATED STRATEGIC PRIORITY
Select the organizational priority or priorities that this initiative will help to achieve
■ SP #:
■ SP #:
■ SP #:
2. INITIATIVE CONTEXT AND EXPECTED RESULTS
Describe the project, why it was developed, expected results, and how its success will be
assessed.
3. TEAM
Initiative lead: Name, Title, Department/Region
Name, Title, Department/Region
Team members: Name, Title, Department/Region
Name, Title, Department/Region
Proposed start date: MM/DD/YY
Proposed end date: MM/DD/YY
4. RESOURCES REQUIRED
Financial and other Describe additional hires or other major costs associated
resource implications: with implementing initiative
5. INITIATIVE WORK PLANS AND INTERDEPENDENCIES
Due Date /
Objectives Outcomes Lead Interdependencies
Milestones
List by
objectives List the Designate List requirements from
for initiative expected the person departments/ functions within
in chrono- outcomes who will MM/YYYY the organization (i.e., fundraising,
logical order for each own training, HR, evaluation, etc.)
of estimated objective initiative needed to achieve each objective
completion
©
(All sample data in the template is

FIGURE 12.8 Strategic initiative action plan template31 provided by the authors.)
256
E S E S S
S S
S
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.
12.3.2 Prioritising strategic initiatives

In the context of the planning process, organisations must identify strategic initiative candidates
and prioritise them based on strategic impact. There will most likely be numerous initiatives
competing for funding. Rather than depending on individuals or a small group of individuals to
make the decision, it is better to put together a multidisciplinary workshop or panel using clear
selection criteria. Qualitative and quantitative information on each potential initiative should be
distributed to workshop/panel members to enable productive discussions and decision making.
Good descriptions of the impacts of the initiatives will assist in understanding the trade-offs in
the prioritisation process.
To ensure that everyone has an understanding of each of the initiatives, strategic initiative
leaders should provide an overview of the proposed initiative. The briefing should include the
following information:
■ Description of the initiative
■ How it supports the strategic agenda
■ Expected impact or outcome (if possible this should be linked to strategic goals and metrics)
■ Capital and resource requirements
©
■ HR requirements – people and skills

■ Revenues and expenses
257
E S E S S
S S
S
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
12.3.3 Defining and approving strategic initiatives

Ultimately only a few important projects should be selected, most likely only from categories
A and B. The selected strategic initiatives should be considered holistically to ensure that they
address the vision of the organisation and to give different executives an outline of how their
work connects to the work of others in the organisation. The purpose of this step is to get a
bird’s eye view of the selected initiatives in order to get a sense of how they interconnect and
to integrate them into a strategic programme and project management framework.
12.3.4 Communicating strategic initiatives

The purpose of this phase is to ensure that all employees are aware of the strategy and strategic
initiatives that will be deployed. Deployment may require that employees have to do things
differently in future, and to get them on board for this change requires that they understand
why the change was required and what they need to do differently.
It is also important to link strategic initiatives with individual performance agreements, so
that there is an explicit relation between individual behaviour and strategic initiatives. In most
organisations, this process will be part of the performance management system.
12.3.5 Strategic initiative reporting and management

Organisations that are effective at strategy deployment have effective processes in place for
systematically measuring and evaluating progress towards their strategic goals. These processes
help them to remain focused as they execute their strategies, all the time learning and adjusting
as they go. As we have argued in the previous section, programme and project management
processes are important tools for achieving this outcome.
There may also be a need to report to the board and senior management specifically on
progress, and in this regard executive dashboards that provide a quick summary of progress will
be most useful. Dashboards can take a variety of formats, but the format is less important than
the content. Ultimately, when it comes to executive level reporting, fewer measures are better.
As we have seen in the preceding discussions, strategy deployment is a complex process, and
©
there are many potential barriers that may impede deployment. We discuss these barriers in the
next section.
258
E S E S S
S S
S
In order to effect implementation, the strategy is carefully broken down into

manageable chunks called strategic focus areas from which clear and measurable
objectives are derived. The objectives will in turn inform the programmes of the
various directorates … the programmes are further broken down into projects. All
projects must be endorsed at the highest level, i.e. by council, before they can be rolled
out and only then can financial resources (capital and operating) be allocated to same.
For purpose of measurement, the objectives are transformed into key performance
indicators with explicit targets, for example spend 95 per cent of the capital budget,
acquire land for the regional landfill site by 30 June 2012 and so on. Controls are then
built into the implementation plan and reviews are conducted quarterly and annually
to determine progress and overall performance respectively.
Manager, local government
12.4 Barriers to strategy deployment

Strategy implementation and deployment is the area where strategies most often fail. There are
many possible barriers to strategy deployment and strategy implementation:
■ Managers are trained to plan, not to execute.33 Most strategy textbooks and strategy
training focus on strategic analysis and planning, rather than on execution. In line with
this, most managers are better trained to analyse and plan than they are to manage the
implementation of a strategy.
■ Poor or vague strategy.34 The old adage of ‘garbage in, garbage out’ applies to strategy
implementation. If the strategy is not clearly formulated and understandable, the
implementation efforts are not likely to succeed.
■ Lack of a clear framework for implementation. The components of strategy implementation
are well known, but what is often lacking is a clear framework for strategy implementation.
This results in confusion about who is responsible for what and limited sharing of
information. In this environment, where there is no clear path for strategy implementation,
there is bound to be confusion and managers will most likely just stick to what they have
always done.
■ The separation of ‘thinking’ and ‘doing’. The separation of the ‘thinking’ part of strategy
(strategy formulation) and the ‘doing’ (strategy implementation) has the effect that strategy
implementation is seen as the work of the lower levels in the organisation, while strategy
formulation is the work of the higher levels.35 At the same time, such a clear separation
means that the interdependencies between strategic planning and strategy implementation
may not be realised, leading to obstacles in implementation. Even while planning,
implementation should be considered, and those doing the implementation should have a
view of what the planners had in mind during the formulation phase.36
©
■ Resistance to change. If employees are not considered in the process of strategy

development, resistance to change may be the result. Where employees resist change, they
259
E S E S S
S S
S
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.
12.5 Creating an environment for effective

strategy deployment
While strategy implementation will always be a complex process fraught with difficulties, there
are some steps that an organisation can take to improve strategy implementation:
■ Management development. Most managers will spend a much greater deal of time on
the implementation and deployment of strategy than they do on planning. Yet this is
the area where they most often lack skills. Managers need to learn the skills of strategy
implementation (such as project management and performance management), managing
change and communication.
©
■ 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
260
E S E S S
S S
S
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?
The big picture

The deployment of strategies is a complex and unpredictable process that occurs in a complex
and dynamic environment. These realities demand the evolution of management perspectives
and new complementary management approaches.
In this chapter, we considered the requirements for successful strategy deployment. We
examined the interaction of strategy and strategy deployment using the Strategic Execution
Framework®, through which the complexities of the current business environment and the
importance of programme and project management in strategy deployment may be better
understood. Leading practices for managing strategic initiatives for effective strategy deployment
were identified. We also focused on the potential barriers to strategy deployment.
To come full circle, strategy deployment must be supplemented and supported by strategy
control activities. In the next chapter, we will look at the final step in strategy making, namely
strategic control.
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.
©
261
E S E S S
S S
S
STRATEGIC CONTROL
13 Tersia Brevis
■ 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.
KEY TERMS ■ strategist ■ stakeholder satisfaction

■ strategy formulation ■ competitive success
■ strategy implementation ■ excellence
■ strategic control ■ marketing efficiency
■ efficiency ■ operations efficiency
■ effectiveness ■ supply chain efficiency
■ desired outcome ■ research and development
■ baseline performance efficiency
■ benchmarking ■ information management
■ best-in-class measure efficiency
■ superior performance ■ finance efficiency
■ root cause analysis ■ human resources efficiency
■ breakthrough improvement ■ balanced scorecard
■ continuous improvement ■ organisational maturity
■ stakeholder needs model
CASE Johnson & Johnson1

STUDY History
Johnson & Johnson (J&J) and its family of companies are the world’s
©
sixth largest consumer health company, celebrating 125 years in the

industry.
E S E S S
S S
CHAPTER 13: STRATEGIC CONTROL
S
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.
The Tylenol crisis

J&J’s Tylenol pain reliever has certainly been one of the most successful products in its
125 years. However, it also posed one of the biggest challenges to the company in 1982,
when James E. Burke was chairman and CEO, when seven people died in the Chicago area
after taking cyanide-laced, extra-strength Tylenol capsules.
The most prominent, and by now legendary, example of good strategic control in a crisis
remains J&J’s handling of the Tylenol disaster. As soon as the first death was reported on 30
September 1982, Burke took control and in doing so, not only preserved the reputation of his
©
highly respected consumer company, but also saved the Tylenol brand. At no point did he try
265
E S E S S
S S
S
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
©
266
E S E S S
S S
S
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.
Product quality and safety compliance

As the J&J companies evolve to operate under a single quality framework with a common
set of quality and compliance elements, these actions help to ensure the highest quality
products upon which their customers have relied for more than 125 years. Each J&J
operating company is expected to ensure that
■ products meet safety and quality requirements, and perform as required throughout
their shelf life
■ all products and ingredients that they purchase from suppliers meet their
requirements
■ changes to materials, product labelling, packaging, processes, systems, facilities,
methods and equipment are reviewed and approved before they are made
■ procedures are in place to prevent diversion of their products from their intended
distribution channels and to protect them from counterfeiting.
Many of the J&J 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 their 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 their values, quality standards and quality
requirements.
©
267
E S E S S
S S
S
CHAPTER In the traditional strategic management process, strategic control is the

final function, although we could argue that it takes place throughout. It
ORIENTATION is vital as it provides constant feedback with regard to strategic planning
and implementation. The chapter case study illustrates its importance in a
health and pharmaceutical company such as Johnson & Johnson.
This chapter defines strategic control and gives an overview of its value
and importance. It describes the steps of the strategic control process and
distinguishes between the various areas involved. Lastly, the characteristics
of an effective strategic control system are explained.
A definition of strategic control
The importance of strategic control
The strategic control process
Areas of strategic control
The balanced scorecard
The organisational maturity model
Environmental scanning as a strategic control measure
Strategic risk management
Characteristics of an effective strategic control system
13.1 A definition of strategic control

In Chapter 1, the traditional process perspective to strategic management was discussed. This
perspective is based on the principle that strategic management is mainly the responsibility of top
management and that it consists of certain steps, namely strategy formulation, implementation
and control (see Figure 13.1). Chapter 1 also highlighted the modern approach to strategic
management that considers it not only the domain of top management, but also that of any
©
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.
268
E S E S S
S S
S
Regardless of the view on strategic management, its process or responsibility, strategic

control is a vital function in the management of all organisations. Strategy formulation and
implementation processes run over multiple years, and for that reason, strategic control cannot
wait until implementation is completed, but is rather an ongoing process embedded in many
different functions in the organisation.
■ 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
FIGURE 13.1 Strategy formulation, implementation and control
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
©
process and should be interwoven with strategic planning and strategy implementation.
269
E S E S S
S S
S
13.2 The importance of strategic control

Strategic control is necessary in any organisation for the following reasons:
■ It provides a coordinating mechanism that links the strategic planning, implementation and
control processes of an organisation.
■ It ensures that the organisation’s resources are deployed in such a way that it attains its
overall objectives. Resources, including capital, machinery and equipment, human resources
and finance, need to be allocated to different managers, functions and businesses, and
then coordinated and controlled to generate synergy. Strategic control also ensures that
organisational resources match key success factors and the development of sustainable
■ It enables management to cope with environmental change and uncertainty. Between the
time that goals and objectives are formulated and the time they are attained, many things
can (and do) happen in the organisation and its environment to disrupt movement towards
the goal – or even change the goal itself. A properly designed strategic control system can
help managers anticipate, monitor and respond to changing circumstances. An improperly
designed strategic control system can result in organisational performance that falls far
below acceptable levels, and may even lead to the downfall of the organisation.
■ Complex organisations need strategic control measures to ensure that costly mistakes are
avoided. Small mistakes and errors do not often seriously damage the financial health of
an organisation, however over time, they may accumulate and become very serious if not
properly monitored.
■ It ensures a balance between organisational effectiveness and efficiency. Effectiveness is
achieved when the organisation formulates, pursues and achieves appropriate goals, for
example reaching the annual sales objective. Effectiveness in essence means ‘doing the
right things’. Given the reality of limited resources, effectiveness alone is not enough. An
organisation also needs to be efficient. Efficiency enters the picture when the resources
required to achieve an objective are weighed against what was actually accomplished.
The organisation will be more efficient the more favourable the ratio between benefits
(outputs or performance) and costs (inputs or resources) is. Efficiency essentially means
‘doing things right’. Efficiency is achieved by using the fewest inputs (such as the number of
people employed or the amount of capital utilised during the financial year) to generate a
maximum amount of output (such as the number of products produced or the profit realised
within a financial year).
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
©
■ ensures a balance between organisational effectiveness and efficiency.
270
E S E S S
S S
S
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.
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 closer towards the goals we set. Communication is central to the
management ethos of the company and employees are consulted regularly to get their
input on various initiatives and to communicate to them where they fit in, and what
is expected of them. Employees are encouraged to express their ideas and views, and
are invited to present any initiatives that they believe will bring improvement, be they
quality, productivity or morale.
13.3 The strategic control process

Strategic control is the process which ensures that the organisation’s overall goals or desired
outcomes are realised or that the organisation’s actual performance ties in with predetermined
outcomes. Figure 13.2 (on the next page) summarises the strategic control process and each
step is then discussed in more detail below.
Step 1: Establish performance benchmarks

The first step in the strategic control process is to determine the desired level of performance,
and benchmarking provides a tool for comparing the organisation to its best competitors or to
the best competitors in other industries to determine what is possible. Benchmarking is defined
as the formal process of comparing the attributes of one organisation to those of another.
A generic benchmarking process consists of three steps:
1. Define the attribute to be benchmarked and identify a best-in-class comparison organisation.
©
2. Document the comparison organisation’s process at strategic and operational levels.
271
E S E S S
S S
S
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
FIGURE 13.2 The strategic control process
Step 2: Establish desired outcomes/baseline

performance
The second step in the strategic control process is to establish the desired outcomes or baseline
performance of the organisation. This is the target against which subsequent organisational
performance will be compared, and it should meet the following criteria:
■ It should be expressed in measurable terms.
■ It should be realistic.
■ It should address the key performance indicators for the organisation.
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
©
departments, individuals and all other relevant stakeholders (such as suppliers, labour unions,
and so on).
272
E S E S S
S S
S
Step 3: Measure actual performance

The third step in the strategic control process is to measure the actual performance of the
organisation. This step involves collecting information and reporting on actual performance.
The variables should be reliable and quantifiable to make meaningful comparison possible.
Observation and measurement should be in accordance with the control system, i.e. they should
occur at the strategic points and according to the desired outcomes and baseline performance
as determined by step 1 of the strategic control process. Because of the long-term nature of
strategic planning, this may require the identification of certain key achievements (‘milestones’)
as interim measures, and ensuring that these milestones are achieved on time and within
required performance parameters.
Step 4: Establish and evaluate deviations

The fourth step in the strategic control process involves (a) comparing measured performance
against desired outcomes and baseline performance, and (b) comparing measured performance
against best-in-class performance. Actual performance may be higher than, lower than or
identical to these measures. If actual performance is higher, it may mean that the desired
outcome could have been determined too low and should be higher in future. If actual
performance is lower than the desired outcome, the question is how much deviation from the
desired outcome to allow before taking remedial action. Strategic managers usually react to
exceptional differences between actual and planned performance (this is known as ‘control by
exception’), whereas subordinates deal with less significant deviations.
Step 5: Take corrective action

The fifth step in the strategic control process is to determine the need for corrective action.
This step is aimed at achieving or bettering the overall performance standard and ensuring
that differences do not recur in future. This step involves identifying the symptoms of poor
performance, identifying the root causes for poor performance and determining and executing
the necessary improvements. Lastly, a continuous improvement project should be launched to
ensure that incremental improvements become a permanent part of the process.
Step 6: Recognise and reward organisational

performance
The purpose of strategic control is not only to identify and rectify poor performance, but also
to recognise and reward good and exceptional organisational performance.
©
273
E S E S S
S S
S
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.
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
13.4 Areas of strategic control

Strategic control entails a close study and measurement of various performance areas of an
organisation. The power and value of performance measurement can never be overstated.
Thomas Monson, leader of The Church of Jesus Christ of Latter-day Saints, described the
power of performance measurement as follows: ‘Where performance is measured, performance
improves. Where performance is measured and reported, the rate of improvement accelerates’.2
The organisation’s performance measurement should revolve around the measurement of
organisational effectiveness and efficiency.
The various measures of performance (effectiveness, efficiency and maturity) should be
©
designed to leverage the following roles of measurement:3

■ Measurement creates understanding.
274
E S E S S
S S
S
■ Measurement drives behaviour.

■ Measurement leads to results.
Below we will focus on the measurement of an organisation’s performance in each of these

areas.
13.4.1 Measuring organisational effectiveness

Organisational effectiveness was defined in section 13.2 as ‘doing the right things’. Doing the
right things implies that the organisation has a strategic perspective which is (a) right for the
present, (b) developed in line with future needs and trends, and (c) linked to a clear vision, mission
and overall purpose and goals which are communicated to and understood at all levels in the
organisation. In other words, strategic effectiveness means that the organisation’s strategic
choices are aligned with the internal and external environment. Doing the right things also
implies that the organisation provides quality products and/or services that address customer
needs. Organisational effectiveness has an external focus of control. The question that now
arises is: how can we measure total effectiveness? Measures of organisational effectiveness
can be grouped into three categories, namely stakeholder needs and satisfaction; competitive
success and excellence. Figure 13.3 summarises these measures.
Measures of effectiveness
Organisational External focus ■ Stakeholder satisfaction
effectiveness of control ■ Competitive success
■ Excellence
FIGURE 13.3 Measures of organisational effectiveness
Measures of stakeholder needs and stakeholder satisfaction

Stakeholders are those individuals and groups, both internal and external, who have a stake
in and influence over the organisation. The organisation should have the ability to identify
stakeholder needs correctly, satisfy these needs as far as possible and sustain it over time and
in changing circumstances.
Possible measures of an organisation’s ability to identify the needs of stakeholders are

■ the number of need-satisfying products and/or services offered
■ the number of new products and/or services developed
■ the number of new markets entered by the organisation.
Stakeholder satisfaction can be measured by the organisation’s

■ service levels and service level agreements with stakeholders
■ image, trustworthiness, loyalty and reputation with all stakeholders
©
■ ability to forecast and react to a changing environment and changing opportunities.
275
E S E S S
S S
S
Measures of competitive success

Strategists need to measure the organisation’s ability to add more value for its customers than
its rivals, and thus attain a position of relative advantage. However, the challenge is to sustain
competitive advantage once achieved.
Measures of competitive success are an organisation’s

■ market share
■ ability to exploit new suppliers in order to add value and improve competitive position
■ ability to provide total quality
■ innovation/intrapreneurship efforts
■ ability to utilise capital for competitive advantage
■ ability to use capital to fund most profitable investment opportunities
■ ability to harness information technology.
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.
13.4.2 Measuring organisational efficiency

Efficiency was described in section 13.2 as ‘doing things right’ and refers to the sound and
optimal management of organisational resources to maximise the returns from it. Efficiency has
an internal focus of control and should start with the development of a profile, consisting of
the principal skills and resources of the organisation. Thereafter, a comparison should be made
between this resource base and the requirements for competitive success in the industry. The
last step should be a comparison with rivals to determine relative strengths and weaknesses and
any significant comparative advantage.
Figure 13.4 illustrates the measurement of organisational efficiency as a process. Measuring
overall organisational efficiency is rather complex and takes place mainly at the functional level.
©
Figure 13.5 summarises the measures of organisational efficiency. These seven measures are
discussed in detail in the sections that follow.
276
E S E S S
S S
S
Develop Compare organisational Compare with rivals

organisational resources and skills to determine relative
profile to with the requirements strength, weaknesses
determine principal for competitive success and relative competitive
resources and skills in the industry advantages
FIGURE 13.4 Measuring organisational efficiency as a process
Measures of efficiency
Organisational Internal focus ■ Marketing
efficiency of control ■ Operations
■ Supply chain
■ Research and development
■ Information
■ Finance
■ Human resources
FIGURE 13.5 Measures of organisational efficiency
Measures of marketing efficiency

The marketing function of an organisation mainly revolves around the conception, pricing,
promotion and distribution of ideas, products and services. The efficiency of these activities can
be measured by the following:
1. Sales analysis. Sales analysis entails a study of the composition of the organisation’s sales
as they appear in the organisation’s income statement. This is an important measure of
marketing efficiency as it determines whether actual sales correspond with planned sales.
Different bases can be used for sales analysis, such as sales per geographic area, product
range, customers and distribution channel.
2. Market share. An organisation’s relative market share has a decisive influence on its overall
efficiency. The higher an organisation’s relative market share, the higher its rate of return.
3. Customer retention. Customer retention can be described as the number of customers
doing business with an organisation at the end of its financial year, shown as a percentage
of those customers who were active customers at the beginning of the same year. Customer
retention plays a huge role in the efficiency of the organisation. Small increases in customer
retention can produce dramatic changes in organisational profitability.
4. Customer value analysis. The value that the organisation provides to its customers should
also be analysed. Maintaining customer value has a significant long-term impact on an
organisation’s service orientation and efficiency.
5. Marketing costs analysis. This entails a comprehensive examination of the organisation’s
©
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
277
E S E S S
S S
S
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.
Measures of operations efficiency

Measures of operations efficiency are concerned with the transforming of resources into products
and services. Operations efficiency is determined at different stages in the transformation
process, namely when inputs are made, when transformation takes place, and when outputs
are produced. Different types of control are needed at different stages of the process:
1. Preliminary control. Preliminary control concentrates on the resources or inputs (i.e.
financial, human, information, entrepreneurial and physical) that the organisation gets
from the external environment. Preliminary control is designed to anticipate and prevent
possible problems. Planning and organising are the keys to preliminary control. In functional
departments, preliminary control plays an important role. For example, in the operations
department, machines should be serviced to prevent breakdowns that would cause problems
later on.
In the chapter case study, safety professionals at J&J companies make assessments of each
raw material to identify safe and effective ingredients. J&J views its suppliers as important
partners in its business and requires them to provide raw materials, packaging and other
supplies that meet J&J’s high standards of material safety and quality. Its companies are
expected to comply with regulations on ingredients in all countries where the products are
sold. J&J also works with regulatory authorities around the world to ensure that ingredients
are safe for patients and consumers as well as the environment.
2. Concurrent control. Concurrent control involves taking action as inputs are transformed
into outputs to ensure that standards are met. The aim of concurrent control is to meet
standards for product or service quality and quantity. It relies heavily on feedback. More
and more organisations are adopting concurrent controls because these are an effective way
©
to promote employee participation and catch problems early in the overall transformation
process.
278
E S E S S
S S
S
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
©
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
279
E S E S S
S S
S
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.
Measures of supply chain efficiency

Measures of supply chain efficiency should be developed and implemented in such a way that it
creates understanding of supply chain processes and guides an organisation’s progress towards
real performance and collaboration. Of the utmost importance is to establish whether supply
chain measures are aligned with the strategic intent of the organisation. Secondly, measures
of supply chain efficiency should be aligned between different members of the supply chain.
Inconsistent, counterproductive, nonaligned, non-supportive and conflicting measures should
be avoided. The following can be regarded as the most important measures of supply chain
efficiency:
1. Customer satisfaction. To meet customers’ real needs, strategic managers should understand
what those needs are and have a clear view from the customer’s vantage point of how
efficiently the organisation is performing. Traditionally, organisations relied on internally
generated statistics regarding measures such as fill rates, on-time delivery and response
time to enquiries. These measures are not sufficient in providing a clear understanding of
customer expectations and satisfaction levels. Customer surveys are the method most used
to obtain direct customer feedback. Surveys typically ask questions regarding overall feelings
©
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
280
E S E S S
S S
S
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,
©
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
281
E S E S S
S S
S
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.
Measures of research and development efficiency

The measurement of research and development efficiency mainly revolves around the
monitoring of newly developed products and/or services and the improvement of old products.
The following measurements can be used:
1. The number of newly registered patents. New patents are particularly important in fast-
changing industries, such as information technology, communications and pharmaceutical
industries.
2. Quality of researchers. The quality of researchers will have an influence on the success of
newly developed products and services, and may lead to more patents being registered.
3. Reputation of the organisation as a leader in its industry and its national and
international standing. An organisation’s reputation as a leader in its industry is clearly an
indication of its research and development efficiency.
4. Relative amount spent on research and development activities. The amount that the
organisation spends on research and development activities in relation to the industry norm
can also be used as a measurement of efficiency.
Measures of information management efficiency

Information and information systems are used in almost every imaginable profession and
functional area of management. From a small or micro business enterprise to huge multinational
companies, businesses cannot survive without information and information systems. Therefore,
measurement of the efficiency of information systems is imperative for any kind of organisation.
The following measures can be implemented:
1. Organisational knowledge and the extent of information sharing. Organisational
knowledge can be defined as the awareness and understanding of a set of data and the
ways in which this information can be made useful in an organisational function, activity
or decision. Organisational knowledge is only useful when it is shared between departments
and individuals in an organisation.
2. Usefulness of information and information systems. Information and information
systems are useful when they are
■ accessible
■ accurate
■ complete
■ economical
■ flexible
©
■ relevant
■ reliable
282
E S E S S
S S
S
■ 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 financial efficiency

Measuring financial efficiency is probably the most widely used measurement of organisational
success:
1. Financial ratio analysis. The commonly used measure of financial efficiency is ratio analysis.
Financial statements report on the organisation’s financial position at a specific point in
time, and on its operations over a past period. The real value of financial statements lies
in the fact that they can be used to measure financial efficiency (through the calculation
of financial ratios) and can help predict future earnings, dividends and cash flow. Financial
ratios can be grouped into six categories:
■ Liquidity ratios. These deal with the question: will the organisation be able to pay off
its debts as they come due over the next period of time (for example, a year)? Various
©
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
283
E S E S S
S S
S
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
©
organisation.
284
E S E S S
S S
S
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.
©
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
285
E S E S S
S S
S
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.
Measures of human resources efficiency

Measuring human resources efficiency is probably one of the most challenging tasks of any
manager. Various measures can be employed in the strategic control process:
1. Absenteeism and employee turnover. Absenteeism and employee turnover rates should
be calculated and used in order to improve labour planning and to avoid intermittent
redundancies. Furthermore, the reasons for turnover and absenteeism should be determined
by means of questionnaires and exit interviews.
2. Labour productivity. Productivity can be defined as the relationship between products and
services (outputs) and the resources (inputs) used to generate those outputs in an effort to
provide an indication of the effectiveness with which the organisation’s resources are being
deployed. Labour productivity measures the relationship between outputs and the labour
resources used to generate the output. An improvement or increase in productivity from
one period to the next is represented in an increase in the output–input ratio in the second
period compared to the first.
Labour productivity can be increased in five basic ways:
1. A greater output is made with fewer inputs.
2. A greater output is made with the same inputs.
3. The same output is made with fewer inputs.
4. A smaller output is made with even fewer inputs.
5. A greater output is made with more inputs, but the increase in output is greater than
the increase in inputs.
According to the concept of productivity, an improvement in quality is also regarded as an
improvement in productivity, even if a particular output–input ratio remains constant.
3. Achievement of agreed targets. The achievement of targets for the human resources
function of an organisation should be measured and analysed. Reasons for failure to meet
©
these targets should be determined and strategic managers will need to incorporate these
into the next planning cycle.
286
E S E S S
S S
S
4. Training expenditure per employee. Organisations regard training expenditure as an

investment on which they expect a return. They expect that the skills learned will improve
the productivity in employment. The training expenditure per employee is one measure
of the effectiveness of human resources only if it is used in conjunction with the labour
productivity measurements.
5. Competencies, capacities and creativity. The measurement of the competency, capacity
and creativity of an organisation’s workforce is largely a subjective exercise, although some
elements can be objectively measured, for example creativity may lead to new products and/
or services, new markets, new patents registered, and so on.
6. Performance evaluation. In terms of strategic control, various performance evaluations are
important to consider. The most popular is to have supervisors evaluate the performance of
their individual subordinates, and determine and report the combined performance rating
of the total workforce to top management. Peers can also be used to evaluate performance
of individuals, although even with objective criteria, the judgement of peers often provides
a perspective on performance that is different from that of immediate supervisors. Again,
the combined performance rating of the workforce can be reported to top management.
The so-called ‘reverse appraisals’ can be useful input for all levels of management, and
involve subordinates evaluating the performance of the superiors. Self-appraisal can also
be used, which provides individuals with the opportunity to participate in the performance
management process, particularly if appraisal is combined with goal setting and the
chance to add value to the organisation. In many situations, strategists can also use the
organisation’s customers to provide them with a unique perspective on the performance
of its workforce. Over the past decade, 360-degree feedback, or the multi-rater system of
carrying out employee and workforce evaluation, has revolutionised performance evaluation.
It is a questionnaire that asks many people (superiors, subordinates, peers and internal and
external customers) to respond to questions on how well a specific individual performs in a
number of behavioural areas. The combination of these multiple perspectives offers a more
balanced point of view on individual performances as well as the combined performance of
the organisation’s workforce.
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.
13.4.3 Balancing organisational effectiveness and

efficiency
Strategic managers are responsible for balancing effectiveness and efficiency. On the one hand,
managers must be effective by getting the job done. On the other hand, managers need to be
©
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
287
E S E S S
S S
S
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
FIGURE 13.6 Balancing organisational effectiveness and efficiency
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.
PRACTISING STRATEGY: STRATEGIC CONTROL IN SABMILLER6

SABMiller focuses its strategic efforts on three key areas, each with a set of measures
that tracks SABMiller’s progress. Some examples of these measures are provided below
(please note that this does not represent the full range of strategic priorities for
SABMiller).
Building value chains that drive economic growth and stimulate social development
Building value chains that drive economic growth and stimulate social development
not only generates long-term returns for our business but also creates wealth for the
countries and communities in which we work.
©
288
E S E S S
S S
S
Direct Economic Economic

economic value value
value distributed retained
generateda
Revenue plus Operating Employee Payments Payments Commu- Value

interest and costs remune- to to tax nity retained for
dividend
Cost of rationb providers autho- invest- corporate and
receipts, royalty
materials, Cost of of rities mentsd operational
income and
services and employees’ capitalc Tax paid, Voluntary
purposes,
proceeds of including
facilities salaries and All financial including contri-
sales of assets funding
benefits payments remittance butions and
future capital
made to the taxes and investment
expenditure
providers excise taxes of funds in
and
of the the broader
acquisitions
company’s economy
capital
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
©
a global population of nine billion. Agriculture accounts for 70% of freshwater
289
E S E S S
S S
S
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
Our 10 sustainable development (SD) priorities provide a consistent framework for

managing our most significant social, environmental and economic impacts. They help
us to deal effectively with risks and to identify opportunities for our business and the
local communities to whom our success is linked. They support our strategic objective
of constantly raising the profitability of local businesses, sustainably.
It is up to our local operations to decide how they invest their resources, depending
on their own particular issues and challenges. The 10 priorities provide them with
a clear framework for managing these issues and articulate what SD means to
SABMiller. At a global level we focus on three priorities material to all our operations
– combating alcohol abuse; making more beer using less water; and encouraging
enterprise development in our value chains.
Our bespoke management system, the Sustainability Assessment Matrix (SAM),
enables us to monitor our performance against each of these priorities. Every country
is assessed against five levels of performance from a minimum standard (level one) to
leading edge (level five).
13.5 The balanced scorecard

The chief concern when examining an organisation’s total effectiveness is determining the
©
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.
290
E S E S S
S S
S
As a control mechanism, the BSC measures an organisation’s attainment of its mission by

considering four dimensions, namely finance, customer service, internal business performance,
and learning and growth performance. The intent is to link and balance the goals and related
measures for each perspective to one another. The financial and customer perspectives are
viewed as focusing on outcomes, whereas the internal and learning and growth perspectives
are viewed as focusing on activities. Examples of the factors and questions addressed in each
of these four dimensions include the following:
■ Financial dimension. Answers the question: to succeed financially, how should we appear
to our shareholders? Measures of the financial dimension include profitability, growth in
profits and the market value of the organisation.
■ Customer dimension. Answers the question: to achieve our vision, how should we appear to
our customers? Measures of the customer dimension include perceptions of service quality,
trustworthiness and loyalty.
■ Internal business processes dimension. Answers the question: to satisfy our shareholders
and customers, what business processes must we excel in? Measures of this dimension include
productivity, employee motivation, organisational competencies, employee competencies,
employee rate of defects and/or errors, and safety records.
■ Learning and growth dimension. Answers the question: to achieve our vision, how will we
sustain our ability to change and improve? Measures of this dimension include knowledge
management, creativity, development of new products and services, employee training and
development.
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.
Implementation of the BSC benefits an organisation in the following ways:

■ It helps align key performance goals and measures with strategy at all levels of an
organisation.
■ The model provides management with a comprehensive picture of business operations.
■ It facilitates communication and understanding of business goals and strategies at all levels
of an organisation.
■ The model provides strategic feedback and learning to management.
13.6 The organisational maturity model7

The Oxford dictionary describes maturity in broad terms as wisdom, sophistication, shrewdness,
progress and coming of age. The definition of maturity in the context of this book would be the
measuring of the organisation’s ability to model performance and life cycle cost given a set of
©
predetermined criteria representing industry standards of excellence. If an organisation is not

capable of doing this, it is in all probability busy with research and development. A maturity
291
E S E S S
S S
S
model should then provide a measure or classification of progressive levels of sophistication at

which organisations function.
Maturity models have been developed in numerous areas such as software development,
systems engineering, software acquisition, workforce development and project management.
These models are associated with the capability maturity model (CMM)-based appraisal methods
that allow organisations to evaluate their existing practices against the guidance provided in
a CMM. The original CMM was developed by the Software Engineering Institute (SEI) to ensure
consistent delivery of programmed lines of code. It paid very little attention to people issues and
ignored the fact that the programmers delivering the code were people. Later models attempted
to improve on this and the CMMi was born. The organisational maturity measure provides a
practical assessment of the organisational climate with regard to strategic control.
In sections 13.4.1 and 13.4.2 we discussed various measures of organisational effectiveness
(external focus) and efficiency (internal focus). In terms of organisational maturity, all the terms
in the Oxford dictionary apply to the organisation’s ability to perform (as determined by the
measures discussed in the previous section) against set norms, standards and benchmarks.
An organisational maturity model provides the organisation with a tool against which these
measures of effectiveness and efficiency can be measured. It allows the organisation to do the
following:
■ Institute an integrated quality management system. This system allows management to
integrate key business performance measures that are interrelated and provides the ability
to manage these performance measures within a structured and well-defined business-
oriented quality management system.
■ Assess current performance. The process of defining the organisation’s vision and mission
may be preceded or succeeded by the assessment of key business practices. The outcome
of a preceding assessment can be used as a reality check as well as a guideline in scoping
future plans. As a succeeding activity, it serves to assess organisational health and to scope
resource investments required to make the organisation ‘future ready’.
■ Set baseline measures for future reference. Baselining is the practice of defining the
point of departure against which progress should be measured. Current and possible future
measurements are agreed and contracted with management.
■ Plan for organisational development. Assessment of current business practices should
expose shortcomings and weaknesses within the business environment. Investment in the
exposed business environment should be planned for and implemented as organisational
development projects.
■ Quantify levels of performance. The organisational maturity model, through assessment of
key business practices, provides a means of quantifying performance measures.
■ Classify level of performance. The progressive nature of the organisational maturity model
classifies classes of performance, ranging from ad hoc to superior, against which current
organisational performance can be classified.
■ Evaluate deviation from the plan. Assuming organisational plans have been baselined
(agreed and contracted), subsequent assessment allows verification of the current status
©
against the baselined status so that management can evaluate any deviations.
292
E S E S S
S S
S
■ 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.
13.6.1 The five key business areas to address

Organisational maturity can further be defined as a process or evolutionary improvement
path from ad hoc, inconsistently performed practices, to a mature, disciplined development of
the knowledge, skills and motivation of the workforce. A maturity model should facilitate the
organisation’s ability to achieve strategic objectives consistently through effective management
and leadership principles, with a stable and competent workforce.
The organisational maturity model (OMM) has been developed in order to assess an
organisation’s progress towards performance excellence. In order to achieve performance
excellence, an organisation needs to address five key business areas:
1. Organisational strategy, structure and support. Organisational strategy and structure
were discussed in Chapter 11. Within the organisational maturity context, it refers to the
formulation, deployment and review of an organisation’s overall strategy and plans, and the
organisational structure needed to support its strategies and plans.
2. Workflow processes. All organisational processes need to be identified, measured, reviewed
and improved (where necessary).
©
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
293
E S E S S
S S
S
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.
These business practices must be addressed simultaneously in order to achieve performance

excellence. These practices are interrelated and all impact directly on other practices and
therefore contribute to their respective efficiency improvement or deterioration.
13.6.2 The four stages of maturity

The OMM identifies four stages of organisational maturity, which are summarised in Figure 13.7
and discussed in further detail in the sections below.
Stage 4:
Stage 1: Stage 2: Stage 3: Sustain
Minimise Industry Industry industry
mistakes positioning leader leadership
position
FIGURE 13.7 Stages of organisational maturity
Stage 1: Minimise mistakes

This is the lowest stage of maturity and can be broken down by department, section or unit
(which is perceived as adding very little value to the organisation). The road towards improvement
within the department, unit or section begins with the realisation of non-performance which
needs to lead to immediate action. Immediate action involves the establishment of a culture
of minimising costly mistakes in order to stimulate an environment where calculated risks are
encouraged. An improvement project can be launched to address breakthrough upgrades in
business practices, which may look as follows at this stage:
■ Organisational strategy, structure and support. Business plans, programmes and projects
are not aligned with strategy; organisational structure is not conducive to the free flow of
information; although project management is well recognised, the organisation does not
support or place priority on project activities.
■ Workflow processes. Processes are ad hoc and not well documented; no differentiation is
made with regard to complexity, risk or competence. Quality happens by accident.
■ Skills and competence. Development plans for employees are not a priority; not much
opportunity is created with regard to team competence or individual specialisation.
©
■ Resource and information management systems. Systems are stand-alone with very
limited interfacing; handovers are manual and lead times are consistently long.
294
E S E S S
S S
S
Stage 2: Industry positioning

During the second phase, emphasis is placed on adding value to the internal environment and
driving efficiencies. Management seeks to gain some advantage from their resource allocation in
order to create a measure of competitive advantage. All development projects are linked to the
organisation’s strategic intent. The organisational culture evolves to being recognised as ‘being
amongst the best’ in its industry. Business practices may have the following characteristics
during this phase:
■ Organisational strategy, structure and support. Projects and programmes are aligned with
strategy; the organisational structure is conducive to the free flow of information; project
management is not only well recognised, but the organisation actually places a premium
on all project activities.
■ Workflow processes. Processes are well documented and followed; quality happens
consistently, but is internally focused (efficiencies); the organisation recognises the power
of benchmarking.
■ Skills and competence. Development plans for employees are in place and opportunity is
created with regard to team competence and individual specialisation; competence is still
internally focused, with skills development aimed at improving internal efficiencies.
■ Resource and information management systems. A workflow management system is in
place and interfaces with critical resource management systems; manual handovers are
minimised and lead times are considerably improved; the workflow management system
takes care of change management and configuration management.
Stage 3: Industry leader

The third phase represents a much more progressive perception of the organisation. Management
expects the organisation to support and significantly strengthen its competitive position
actively to become a competitive leader in its industry. All contributions are derived from and
are dictated by the organisational strategy. Organisations often arrive at this stage as a natural
consequence of both their success in developing an effective business strategy based on formal
planning processes, and their wish to support that strategy in all functional areas. In this stage,
the organisational culture has evolved to being recognised as ‘being the best’ in its industry,
thereby finding an optimal mix in efficiency and effectiveness. Business practices have the
following characteristics during this phase:
■ Organisational strategy, structure and support. Long- and short-term strategies are
optimised and critical performance indices are used to measure variances between
actual and planned performance; all projects and programmes are initiated from strategy
development; the organisational structure fully supports the free flow of information; early
warning systems are in place for critical business areas; the organisation has successfully
shifted to a manage-by-project or programme culture.
■ Workflow processes. Processes are streamlined, bottlenecks have been removed and metrics
©
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
295
E S E S S
S S
S
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.
Stage 4: Sustain industry leadership position

The final stage is the most progressive of the four stages. During this phase, the organisation is
expected to provide significant support to the desired competitive advantage. The organisational
culture has evolved to continuous improvement as well as the continuous seeking for new
opportunities. Business practices have the following characteristics:
■ Organisational strategy, structure and support. The organisation collaborates and
relies on its relationship with the external environment; critical performance indices are
used to measure variances; external projects and programmes are initiated from strategy
development; external structures are fully supportive of the free flow of information, with
early warning systems in place for critical business areas; the organisation has successfully
shifted to a manage-by-project culture.
■ Workflow processes. Stonewalls and bottlenecks have been removed from external
processes; metrics are in place to measure overall process performance; external and
internal quality in terms of workflow processes is not negotiable, and external entities are
encouraged to participate in benchmarking initiatives.
■ Skills and competence. Development plans for external and internal teams and employees
are aligned and fully support the overall strategy; a premium is placed on management
and functional maturity in all areas of the external and internal management environment;
training plans fully support the development of the subject matter science, before addressing
the art of execution; industry certification completes the quality perspective and is seen as
a competitive advantage with commercial value for the person as well as the organisation.
■ Resource and information management systems. All external information systems
are fully interfaced with internal systems and proactive system learning takes place; no
external manual handovers exists with lead times on all complex work exceeding customer
expectations; communication and risk management extends to social media.
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
©
leadership position over the long term.
296
E S E S S
S S
S
13.6.3 Organisational maturity in practice

Organisational improvement initiatives can only be driven from the top of the organisation
with strong sponsorship. The ‘stages of learning’ of an individual as well as an organisation’s
progressive journey toward becoming skilled in a particular discipline are as follows:
■ Stage 1: Blissful. The organisation (or individual) is ignorant about shortcomings or needs.
Davis8 refers to this stage as being blissful.
■ Stage 2: Frustrated. The journey starts when an awareness of shortcomings or needs
manifests, taking the organisation to the next stage of being frustrated. Here the organisation
finds itself consciously unskilled.
■ Stage 3: Awkward. At the onset of acquiring the skills, the organisation will experience
awkwardness.
■ Stage 4: Natural. Awkwardness in any application only makes way for confidence through
continued application or practice. At the natural stage, the organisation finds itself
consciously skilled.
■ Stage 5: Confident. Achieving confidence in applying a skillset is only acquired through
the integration of all facets of a specific discipline. Organisational management, as an
example, requires integration of financial, organising, planning, control, communication
and presentation skills, to name a few. At the confident stage, the organisation finds itself
unconsciously skilled. Apart from being confident, leadership in mature organisations such
as J&J in the chapter case study will also be characterised by being self-assured, decisive,
bold (when called for) and assertive.
■ Stage 6: Right. Progress to ‘right’ can only be achieved if the work undertaken is in alignment
with personal values and beliefs. The sense of elevated achievement is reinforced by the
belief that individuals in the organisation find themselves in their right work. Individuals
align to leaders whose personal values are congruent with that of the organisation.
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
©
(ranked 116 and 148 respectively) are reasons for concern.
297
E S E S S
S S
TABLE 13.1 The Global Competitiveness Index 2013–2014 (South African rankings)9
S
CRITERIA RANK (OUT OF 148

COUNTRIES)
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%
13.6.4 Working towards maturity

In the practical application of striving towards achieving maturity, organisations need to
©
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
298
E S E S S
S S
S
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.
13.7 Environmental scanning as a strategic

control measure
Strategic control processes cannot always be reactive and measure performance after the fact,
and in addition they are always relatively narrow, focusing on a few key performance indicators.
For a strategic control system to be effective, it should also have a broader forward-looking
element, and environmental scanning is a mechanism to achieve this.
Environmental scanning refers to the activities of the organisation (e.g. through a market
intelligence function) and individual employees to monitor the external and internal environment
constantly to identify issues that may impact on the organisation’s ability to achieve its
©
strategic objectives. Environmental scanning can be formal or informal. Formal environmental

scanning activities may take the form of organisational departments or individuals responsible
299
E S E S S
S S
S
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.
The purpose of environmental scanning is to:

■ constantly evaluate the assumptions on which the strategic plan rests, to determine if they
are still valid or should be re-assessed
■ pre-empt disastrous events or at least react as speedily and appropriately as possible after
the event occurred
■ track if there are any events or trends that may threaten the successful execution of a
strategic plan
■ identify opportunities that may emerge from the environment.
13.8 Strategic risk management

Strategic risk management is becoming increasingly important, especially since corporate
governance frameworks place a strong emphasis on the role of the directors in managing risk.
Public companies are also required to report on their risk management processes. The strategic
risk management process entails four steps:
■ Step 1: Risk identification. Corporate risks are identified in terms of the potential losses
or gains (opportunities or threats). Through the internal and external strategic control
processes, strategic risks can be identified. Strategic risk differs from operational risk in the
sense that the latter can cause temporary setbacks that can be insured against (e.g. fire
damage), whereas the former can lead to the organisation failing to meet its strategic goals
or even its total demise.
■ Step 2: Risk analysis. Any organisation faces many different risks, and the role of risk
analysis is to assist the organisation in prioritising them to ensure that efforts in dealing
with risks are well spent. Techniques like scenario planning can assist in the risk analysis
process. The techniques discussed in Chapter 8 will be especially important during this phase.
■ Step 3: Risk evaluation. During this phase, the risks are evaluated in terms of their
likelihood of occurring and the impact they will have on the organisation. This will help the
organisation to further focus its efforts in dealing with risks.
■ Step 4: Risk responses. During this phase, the organisation strives to identify appropriate
©
responses to the key risks it faces. Strategic risks can generally not be addressed by
operational or tactical responses. They require a strategic response.
300
E S E S S
S S
S
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
FIGURE 13.8 Key components in an integrated risk management framework10
PRACTISING STRATEGY: STRATEGIC RISK MANAGEMENT IN SABMILLER11

In the previous practising strategy box, we examined strategic control measures in
SABMiller. We now explore the strategic risk management process in SABMiller.
Strategic risk management begins right at the top with the Board of Directors, who
are ultimately responsible for the group’s risk management system and for regularly
reviewing its effectiveness. The risk management system is designed to manage,
rather than eliminate, the risk of failure to achieve business objectives and there is
a continuous process in place for identifying, assessing, managing, monitoring and
reporting on the significant risks faced by individual group companies and by the
group as a whole.
The Executive Committee (Excom) also has specific responsibility as the risk
management committee for the group’s system of risk management. Excom reviews
significant risks and subsequently reports to the board on material changes and the
associated mitigating actions.
SABMiller views the careful and appropriate management of risk as a key
management role. Managing business risk to deliver opportunities is a key element
of all business activities, and is undertaken using a practical and flexible framework
which provides a consistent and sustained approach to risk evaluation.
Business risks, which may be strategic, operational, financial or environmental,
or concern the group’s reputation, are understood and visible. The business context
determines in each situation the level of acceptable risk and controls. We continue to
seek improvement in the management of risk and during the year we have refreshed
our guidance on risk management and revised our internal protocols, and we continue
©
to seek to share best practice throughout our organisation.
301
E S E S S
S S
S
Key features of the SABMiller risk management system are:

■ group statements on strategic direction, ethics and values;
■ clear business objectives and business principles;
■ an established risk policy;
■ a continuous process for identification and evaluation of significant risks to the
achievement of business objectives;
■ management processes in place to mitigate significant risks to an acceptable level;
■ continuing monitoring of significant risks and internal and external environmental
factors that may change our risk profile; and
■ a regular review of both the type and amount of external insurance purchased,
bearing in mind the availability of cover, its cost and the likelihood and magnitude
of the risks involved.
In addition to Excom’s bi-annual reports to the board on key risks, there is a process
of regular reporting to the board through the audit committee on the status of the
risk management process. Strategic planning, internal audit and other risk control
specialist processes are integrated into line management’s risk processes and simplified
risk reporting.
13.9 Characteristics of an effective strategic

control system
For a strategic control system to be effective, it should have the following characteristics:
■ Integrated with strategic planning. A strategic control system is effective only when it is
integrated with strategic planning. Control complements planning because, when deviations
are encountered, it shows that plans and even goals need to be revised. Control therefore
renders the necessary inputs in the planning process. The narrower the interface between
strategic planning and control, the better the strategic control system.
■ Flexibility. An effective strategic control system should be able to accommodate change. The
management environment is changing constantly, which necessitates timely adjustments in
goals and performance targets.
■ Accuracy. A strategic control system should be designed in such a way that it provides a
goal-oriented and accurate picture of the situation. Errors and deviations should not be
concealed in the control process.
■ Timeliness. Timely control data are supplied regularly and as needed.
■ Objectivity. The strategic control system should provide control data that are as objective
as possible.
■ Simplicity. Lastly, the strategic control system should not be too complex, because complex
systems can have a negative influence on the sound judgement of competent managers.
©
302
E S E S S
S S
S
An effective strategic control system is:

■ integrated with strategic planning
■ flexible
■ accurate
■ timely
■ objective
■ simple.
The big picture

Strategic control is not simply a process at the end of the implementation phase to ascertain
whether strategic goals were attained. The time and investment required for strategy
implementation is simply too great to take this risk. For that reason, strategic control is weaved
in throughout the strategy formulation and implementation processes, with the goal of
identifying strategic issues as soon as possible and dealing with them as effectively as possible.
Organisational maturity
Strategic control
Internal focus External focus
Formal Informal Formal

control environmental environmental
activities scanning activities scanning activities
FIGURE 13.9 A summary of the strategic control function
Strategic control consists of two elements (see Figure 13.9):

1. Internal control elements, which consist of all the functions and other departments or
individuals (most likely all managers in the organisation) that play a role in measuring
the efficiency and effectiveness of the organisation in its operations and especially, from
a strategic control perspective, in its execution of strategic initiatives. The internal control
functions are mostly backward looking, in other words they consider the results and then
take corrective action.
2. External control elements, which are those functions that monitor the external environment
formally or informally with a view to identifying key environmental changes that may offer
©
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.
303
E S E S S
S S
S
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.
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
©
Western, 504–508.
304
E S E S S
S S
S
GLOSSARY OF KEY TERMS

Absorptive capacity is for competitors to imitate or copy, and the
Absorptive capacity refers to the ability of an extent to which the organisation is able to
organisation to recognise the value of new, organise itself in order to exploit its capabilities.
external information, to assimilate it and to use
Centralisation
it to address business problems.
In the case of centralisation, power is retained
Balanced Scorecard close to the top of the organisation and all
The balanced scorecard (BSC) is a strategic major strategic decisions are made by top
management tool developed by Kaplan management.
and Norton to guide the organisation and
Competitive advantage
management team to translate the strategic
Organisations have competitive advantage when
direction into a set of balanced strategic goals.
they achieve superior performance (in other
It consists of four perspectives, namely financial,
words, performance consistently better than the
customer, learning and growth, and business
market average) in the markets they compete in.
processes.
Continuous improvement
Benchmarking
The small, incremental positive changes that
Benchmarking is defined as the formal process
occur continuously and increase organisational
of comparing the attributes of one organisation
performance slowly but steadily.
to those of another.
Cooperative strategies
Bottom of the pyramid
Cooperative strategies allow different
The ‘bottom of the pyramid’ market (as defined
organisations to form partnerships to share
by C.K. Prahalad) is those families surviving on
resources, capabilities or technical know-
less than the international poverty line of $2
how (i.e. to ‘combine’) to build a competitive
per day.
advantage. Organisations may cooperate even
Breakthrough improvements while still competing in other areas.
Game-changing improvements that radically
Core competencies (also known as distinctive
increase the performance of the organisation.
capabilities)
Broad environment (also known as the macro Those capabilities or competencies that
environment or remote environment) distinguish an organisation from others in an
The relevant environmental factors in the industry and form the basis of its competitive
environment that fall outside of the control and advantage.
boundaries of the organisation.
Corporate governance
Business architecture (also known as Corporate governance is described as the
organisational architecture) system by which corporations are directed and
Business architecture can be defined as a controlled. In South Africa the King Code of
blueprint of the organisation and all of its major Corporate Governance and the Public Finance
components (internally and externally). Management Act (for the Public Sector) are the
two primary corporate governance frameworks.
Business ethics
The set of moral rules that govern how Cost leadership strategy
businesses operate, how business decisions are When an organisation achieves competitive
made and how people are treated.1 advantage by producing its products or services
at a significantly lower cost than the market
Capabilities
average production cost.
The capacity of an organisation to deploy
©
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
306
E S E S S
S S
S
Decentralisation Ethical business

In decentralised authority, power is disseminated Business that is conducted legally and in line
to the lower levels of the organisation and with a set of moral guidelines.
important decisions are also made by middle and
Excellence
lower management.
The quality of being outstanding or extremely
Deliberate strategies good. In a strategy context we refer to
Deliberate strategies are planned, executed and organisational excellence – where the
realised as intended. organisation as a whole surpasses its peers.
Differentiation strategy Governance (see Corporate governance)
When an organisation achieves competitive
Industry
advantage by selling its products or services
A group of organisations supplying products and
at a significantly higher price than the market
services that satisfy the same basic customer
average (a premium price).
needs.
Distinctive capabilities (see core
Knowledge management
competencies)
Knowledge management is ‘[t]he management
Dominant general management logic function that creates or locates knowledge,
The notion of dominant general management manages the flow of knowledge within the
logic suggests that managers conceptualise organisation and ensures that the knowledge is
their business in a certain way and make critical used effectively and efficiently for the long-term
decisions about the strategy and allocation of benefit of the organisation’.2
resources on the basis of this dominant logic.
Leadership
The dominant logic exists as a set of broad
A process of influence in which one person (or
(often flawed) assumptions about the business
a group of persons) can enlist the support of
and can be thought of as a structure (in the case
others in the accomplishment of a task. In the
of diversified businesses there may be multiple
context of strategy, strategic leadership refers to
dominant logics).
the ability of somebody (typically a top manager
Dynamic capabilities or group of top managers) to motivate and
Those capabilities that help organisations to organise the organisation to achieve its strategic
learn the capabilities they require to adapt to goals.
environmental changes.
Learning organisation
Effectiveness An organisation that enables and facilitates the
Is achieved when the organisation formulates, continual learning of its members, and uses
pursues and achieves appropriate goals. In learning and knowledge to continually adapt
essence it means ‘doing the right things’. to its environment as a means of remaining
competitive.
Efficiency
When the resources required to achieve an Long-term objectives (see strategic goals)
objective are weighed against what was actually
Macro-environment (see broad environment)
accomplished. The organisation will be more
efficient the more favourable the ratio between Middle managers
benefits (outputs or performance) and costs Middle managers report to managers and have
(inputs or resources). Efficiency essentially managers reporting to them.
means ‘doing things right’.
Mission (or mission statement)
Emergent strategy The mission statement is also called the purpose
Emergent strategy implies doing and learning statement of the organisation. At a minimum,
what works – taking one action at a time in the mission statement states what the
search of that viable pattern or consistency. It is
©
organisation does and why it exists.

also frequently the means by which deliberate
strategies change.
307
E S E S S
S S
S
Organisational architecture (see business Project management

architecture) In the context of strategy implementation,
project management refers to the planning,
Organisational culture
control, monitoring, and review of strategic
The taken-for-granted assumptions and beliefs
initiatives (projects).
that are shared by members of an organisation,
often expressed as the way we do things around Remote environment (see broad environment)
here. It is these assumptions that determine how
Resources
groups of people respond and behave in relation
Resources are the productive assets owned by
to issues they face.3
the organisation, and can be tangible (such as
Organisational design land or money) or intangible (such as intellectual
The process of creating a suitable organisational capital).
structure.
Resource-based view (or resource-based
Organisational learning theory)
The organisational processes of learning and The resource-based view (RBV) holds that
adapting. competitive advantage of an organisation
primarily stems from its unique resources and
Organisational Maturity Model
capabilities rather than its positioning in the
The definition of maturity in the context of
market.
this book would be the measuring of the
organisation’s ability to model performance Scenario planning
and life-cycle cost given a set of predetermined Scenario planning is an analysis and planning
criteria representing industry standards of support technique that identifies alternative
excellence. possible futures and long-term developments,
and can assist organisations in understanding
Organisational structure
the implications of industry and competitor
By dividing up tasks and grouping them in work
dynamics for future strategies.
units, the organisational structure places people
in certain roles with certain responsibilities and Sense making
expectations. A collaborative process of creating shared
awareness and understanding out of different
Practices (or strategic practices)
individuals’ perspectives and varied interests.5
Practices are the social, symbolic and material
tools through which strategy work is done. Stakeholders
Stakeholders are those entities that can affect or
Praxis (or strategy praxis)
be affected by the organisation’s actions.
Praxis is linked to human action and
encompasses ‘all the various activities Strategic agility
involved in the deliberate formulation and The ability to effectively manage change and to
implementation of strategy’. In everyday terms, adapt quickly and continuously to changes in
praxis refers to the work that comprises strategy the environment.
as illustrated by the flow of activities such as
Strategic Business Unit (SBU)
meeting, consulting, talking, calculating, writing,
A SBU is an organisational unit that exercises
presenting, communicating, form filling and
control over most of the resources it requires
other related activities that are employed to
to be successful (i.e. it is autonomous). It has its
constitute strategies.4
own set of competitors, and can be internal to
Programme management the organisation or external.
A programme is a set of multiple independent
Strategic change
projects managed as a single unit, and
Implementing planned organisational changes in
programme management is the management of
order to execute intended strategies and to align
such a unit.
©
the internal environment with the strategy.
308
E S E S S
S S
S
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
©
management that not only considers a wider

implemented with survival as the core objective.
range of strategists, but also allows for the
309
E S E S S
S S
S
Vision (or vision statement)

The vision statement is often referred to as the
Endnotes
dream of the organisation. It is used as an 1 http://www.yourdictionary.com/business-
indicator of the desired future position of the ethics
organisation. 2 Darroch, J. & McNaughton, R. 2002.
Wealth maximisation ‘Examining the link between knowledge
The pursuit of long-term value maximisation management principles and the types of
in order to create wealth for shareholders. innovation’, Journal of Intellectual Capital,
Synonymous with a long-term perspective on 3(3): 210–222.
financial success. 3 Johnson, G., Whittington, R. & Scholes, K.
2010. Exploring Strategy: Text and Cases. 9th
Edition. Harlow: Financial Times Prentice
Hall.
4 Jarzabkowski, P. & Whittington, R. 2008.
‘A strategy-as-practice approach to
strategy research and education’. Journal of
Management Inquiry, 17(4):282–286.
5 Weick, K. 1995. Sensemaking in
Organisations. London: Sage.
©
310
E S E S S
S S
S
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
©
maturity model 291

Band-Aid 265 value of 122-123
baseline performance measures 292, 272 capacity 287
Bayer 64-65 control 279-280
311
E S E S S
S S
S
capital 285 community benefit 45

intensity at BOP 34 compact discs 159
types of 117-119 competencies 4, 287, 293-296
weighted average cost of 285 classification of 127-128
Capitec Bank 90-91 competition 158
capturing knowledge 110-111 monopolistic vs perfect 152
cascading objectives 4, 241, 246 types of 151-152
cash flow 286 vs cooperation 159
cash-to-cash cycle 281 competitive advantage 4, 116, 121, 125, 128-
Castle Lager 99 130, 131, 186-189, 187, 224, 295, 306
cat, hunting see clever cat and sustainability 48-50, 130-131
Cell C 151 competitive profile matrix 159-160
cell phone case study 75-76 competitive success, measuring 276
centralisation 226, 306 competitiveness index 297-298
of decision making 229 competitors analysis 158-160
centre of gravity studies 140 competitors power of 148, 149
Chad 34 complementors 150
Champagne 35 compliance 146
champions 89, 250 superficial 213
Chandler, Alfred 224 concurrent control 278-279
change 92-93, 107, 160, 308 confidence 297
anticipating 207-209 conflict 23, 27, 29, 32, 143
as evolution 210 religious 33
communicating the need for 211 consensus 12
coping with 270 consistency see also internal consistency 11,
evaluating 211-212 14-15
external drivers for 234 consultants as strategists 93
managing strategic 210-211 contact lenses, disposable 265
mobilising for 211 context 14
reasons for failure to 212-213 continuous improvement 273, 279, 306
as reconstruction 210 control 5, 15, 64, 67-68, 78-79, 268-269, 309
resistance to 213, 259-260 and formulation and implementation 269
types of strategic 209-210 areas of 274-275
channel strategies 36 backward-looking nature of 271
Chibuku Products 44 effective systems for 302-302
China 38,143 importance of 270
choices 176-177, 258 internal and external elements of 303
evaluating 189-190 process 271-274, 272
Chrissiesmeer 50 systems 205
clever cat 136-137 types of 278-280
climate change 42 cooperative strategies 182-183, 224, 306
clinical tests 279 core competencies 121,130, 306
Coca-Cola 148 creating value from 126-128
vs PepsiCo 158 corporate governance 53, 56-58, 143, 223, 306
Cocks, Graeme 251 and representation 146
Code Division Multiple Access 53 corporate social responsibility see CSR
codes of conduct 56 corporate-level strategies 12, 176, 179
cognitive aspects 11-12 creating value 177-186
cognitively versatile strategists 89 corruption 25, 27, 36
collaboration 108-109 cost-leadership strategies 187, 306
collective action 273 costs 146
Comair 206 creativity 287
©
commitment 20 credit crunch 47, 160

common ground 109 CSR 47, 50-51
communication 245, 258, 260 cultural
communities of practice 108 assessment 203-205, 204
312
E S E S S
S S
INDEX
S
differences 196 direction, strategic 4, 69 -76, 70, 71, 241-242

web 203-205, 204 individual 241-242
culture 4, 53, 197, 223, 224 internal 73
layers of 198 organisational 240
cup of tea analogy 240 directional policy matrix 185-186
current performance assessment 292 directors
customer/s as strategists 90
inquiry response time 281 determining strategy 69
perspective 74 role of in governance 57-58
power of 148, 149 disaster recovery planning 283
preferences 35 disconnectedness 213
relationship management 129, 130 Discovery Group 194-195
retention and value analysis 277 dissent 107
satisfaction 280-281 distribution channels 278
services 128 diversification strategies 181-182
cybercommuting see remote working diversity see also cultural differences 106
Cybernest 207 divestment 186
divisional structure 227, 229-230
D
dominant general management logic 101, 307
Daellenbach, US 125
DRC 27, 33
damage control 279
war 32
data 125
Du Pont equation 284-285
vs information 158
Dutch Agricultural Development and Trading
debt management ratios 284
Company 45
decentralisation see also centralisation 225, 307
dynamic capabilities 120, 131, 307
advantages and disadvantages 226-227
dynamic consistency 14
vs centralisation 226
decision making 11-12, 309 E
and procedures 283 earnings over time 285
centralised 229, 230, 232 Economic Commission for Africa II 26
decline phase 153-154 economic forces 142
deductive scenarios 164 economic integration 143
deliberate strategies 86, 88, 91, 307 economics and sustainability 48, 49, 51-52
deliverables 254 economies of scale 129
Deloitte Consulting 93 effective capacity 279-280
Delta Corporation 44 effective marginal tax rate 285
Democratic Republic of Congo see DRC effectiveness 307
deployment 239-246, 247, 249, 252, 253, 309 measuring 275
clear processes for 261 vs efficiency 270, 287-290, 288
creating environment for 260-261 efficiency 129, 307
domains of 247-248 measuring 276-287, 277
project-based framework for 246-248 of capacity 280
vs implementation 238, 239 vs effectiveness 270, 287-290, 288
design Egypt 38
and efficiency 129 embargos/sanctions 23, 27
capacity 279 embargos/sanctions and SAA 217
quality 280 emergent strategising 87-88, 307
detail-conscious strategists 88 emerging markets 36
deviation 273, 292 employees
diamond mining, DRC 33 attracting quality 83
Dickson, Earle 265 empowerment 66, 225
differentiation 117, 118, 120, 126, 129, 307 evaluation 287
©
and reputation 146 first 98

strategies 187 turnover 286
Dinokeng Scenario Team 165 enablers 242-245
Dippenaar, Laurie 90 Endangered Wildlife Trust 50
313
E S E S S
S S
S
energy efficiency 44 vs implementation 5, 260

engagement, INVEST 247, 249 freight 70
entrepreneurial structure 227, 228 frustration 297
entrepreneurship 45-46 functional
environment see also sustainability 48 areas 127
and sustainability 49-50 skills 294
degradation 143 strategy 12
Environment Africa 44 structure 227, 228-229
environments 225 tactics vs strategy 77-78
analysis 76, 141-145 funding 32, 33
external see external environment future orientation 207-209
internal and external 218
internal see internal environment G
scanning see scanning Gauteng Provincial Government 61-63
Eskom 206 Gauteng Treasury 67
ethics 46, 55-56, 65, 283, 306, 307 gender issues 29, 30
evolution, change as 210 General Motors 124
excellence 276, 307 George, Xolile 207
exit strategies 179, 183-185 getting things done 208
experiential learning 102, 209 Ghana 35, 38, 44-45
experimental learning 100,103, 244 global positioning system (GPS) 174
experimentation 107-108 global structure 227, 232
explicit knowledge 104-105 global tectonics 142-143
external consistency 14-15 goals see also short-term goals 73-76, 77-78,
external environment 225 175, 309
analysis 4, 166-169, 167 and strategic initiatives 253-257
importance of 139-141 misalignment of 260
responding to 169-170 governance see corporate governance
external factor evaluation matrix 144-145 governments 150
external growth strategies 179, 181-183 role of in African strategy 36-38
EY 197, 200-201, 204 Grant, Robert 132
growth 226
F economic 288-289
Facebook 178 phase 153-154
feedback control 279 strategies 179-183
financial
capital 117, 118 H
crisis 2008 3, 13, 47, 160 Hansen, Morten 112
efficiency measurement 283-286 HCL Technologies 97-99, 107, 109
perspective 74 Helfet, Keith 124
ratios 283-284, 285 history, organisational 225
First National Bank 204, 240 HIV/Aids 45
FirstRand Group 13, 90, 241 holding company structure 227, 230-231
fit to lead, being 208-209 human capital 117, 118
five forces model 150 human resources 119
flexibility 302 and strategic direction 241
focus efficiency measurement 286-287
areas 259 management 128
loss of 213 human rights 45-46
strategies 187 I
food security 42, 49 ideation, INVEST 247
forecasting see also external environment Impala Platinum 52
©
analysis 168 implementation 1, 4, 5, 64, 66-67, 76-78, 91, 209

formulation 1, 4-5, 64-65, 69-76 and control 269
and control 269 and organisational culture 202-203
need for framework for 259
314
E S E S S
S S
INDEX
S
vs deployment 238, 239 introduction phase 153-154

vs formulation 5, 260 introspection 297
improvement, organisational 293 inventory idle time 281
incremental scenarios 164 INVEST framework 247-251, 248
India 97, 143 investing/investment 20
Indonesia 143 and technology 82
inductive scenarios 164 impact 293
Industrial Development Corporation 124 in Africa 34-36
industry/ies 147-148, 307 ISO certification 267, 279
analysing attractiveness 148-149 iTunes 137
analysis models for limitations of 155 Ive, Jonathan 1-2
as drivers of change 154-155
dynamics 152-155, 157 J
leadership 294, 296 Jobs, Steve 1-2
life cycle 153-154, 155 Johnson & Johnson 264-267, 278, 299
positioning 294, 295 Responsibility Standards for Suppliers 279
structure of 151-152 founding brothers 265
vs sectors 147-148 joint ventures 108, 183
inefficiency 25 Joule electric car 124
information 102 K
management systems 294, 296 Kaiser Chiefs 178-179
sharing 282 Kavanach, Michael 52
systems security 283 Kenya 35
technology centralised vs decentralised 226 key drivers 77
usefulness of 282-282 key performance areas 237, 249
infrastructure 128 key performance indicators 259
lack of in Africa 22, 35 key success factors 157-158
inimitable capabilities 123 Kgalagadi Breweries 43
initiatives 242, 253-257, 309 King Code of Corporate Governance 57, 90
communicating 258 knowledge 102
elements of 254 acquiring 110
managing 251-252, 258-259 dissemination 143
overview 255, 257-258 explicit vs tacit 104, 119
prioritising 257-258 management 109-111, 110, 112, 130, 307
reporting 258-259 measuring organisational 282
scorecard 75 transfer 104-105
selecting 258 known strangers 90
template for 255-257, 256 Kompania Piwowarska 46
innovation 34, 65, 98, 112, 129 Kristandl, G 119
and resources 119 Kumba Iron Ore 243
and strategic direction 241
intangible resources see resources L
integration 302 labour productivity 286
strategies 183 law vs ethics 56
intellectual property 119, 124 leadership 4, 53, 205-209, 223, 307
interdependencies 254 and learning 105
internal key characteristics of 205
analysis 4 performance 293
consistency 11, 15 vs management 251-252
environment 218 learning 100
environment and strategy deployment 245-245 and adaptation 244
growth strategies 179, 180-181 and economies of scale 129
©
International Organisation for Standardization and growth perspective 74

see ISO certification and leadership 105
internet 82 barriers to 101-102
continuous 100
315
E S E S S
S S
S
cycle 100, 102-103 marketing 128

double-loop 106-107 costs analysis 277-278
experiential 102 efficiency 277-278
experimental 100,103, 244 matrix structure 227, 231-232
from past experiences 209 maturity see also organisational maturity 291-299
individual 102-103, 107 model 291-299, 308
organisational 100-101, 105-112, 244, 307, 308 phase 153-154
team 107 process 250
legislation in Africa 35 stages of 294-296
Lesotho 26, 27, 45-46 working towards 298-299
Libya 34 Mauritius 27
life cycle, industry or product 153-154, 155 measuring 13, 272-273
lightie solar LED light 34 mental models, challenging 107
Lima Rural Development Foundation 206 metrics 75, 246, 254
Lion Manufacturing Company 237-238 Mexico 143
liquidity ratios 283-284 middle management 307
living standards measure see LSM as strategists 91-93
local approach 82 milestones 254
location advantages 130 milk, powdered 35-36
logical approach 11-12 Miller Breweries see SABMiller
logistics inbound and outbound 128 mind shifts 212
longitudinal data 125 MINT 143
long-term objectives see goals mission see also vision and mission 307
Lonmin 52 attainment of 291
LSM 24 mistakes minimising 294
monitoring see also external environment
M
analysis 168
Maboi, Moses 70
monopolies 152
Madagascar 27
Morello, Tom 109
Malawi 27
Motaung, Kaiser 178
Maluti Mountain Brewery 45
motorcycle market 137
management 1, 7, 10-11, 309
Mozambique 27, 33
African context 15-16
war 32
approaches to 16
Mpumalang Tourism and Parks 50
buy-in 224
Msimango, Ghami 53
complexity of 68
Mswaba, Mthunzi 53
contemporary framework 14-15
multi-business organisations 185-186
efficiency measurement 282-283
multinational organisations 33, 232
experimental nature of 8
mutuality 108
ignorance 101
origins 3 N
performance 293 Nakedi, Ayanda 206
process 3-6 Namibia 26, 27
role in governance 57-58 Naspers 81-82
stages of 79 National Development Plan (NDP) 30-31, 33
vs leadership 251-252 natural resources, pressure on 143
vs strategy 10-11 naturalness 297
manufacturing 23 nature, INVEST 247
Marikana 52 navy, symbolism in 204-205
market/s Nayar, Vineet 97
development 180 NEPAD 26
knowledge in African context 19-20 Nestlé 197, 199-200, 202
©
penetration 180 network structure 228, 232-233, 234

share 277 New Partnership for Africa’s Development see
value ratios 284 NEPAD
vs industries 147-148 new venture units 228, 233
316
E S E S S
S S
INDEX
S
New York 11 September 226 Peters, Tom 103

Nigeria 33, 37-38, 53, 143 Philips 159
Nkrumah, K 37 philosophy, organisational 72
Noah Capital 52 physical capital 117, 118
Nonaka, I 104 planning 175
non-discerning strategists 89 excessive 212-213
non-substitutability 123 limitations of 169
Noria, Nitin 112 vs execution 259
normative scenarios 164 Platinum mining strike 52
Nxasana, Sizwe 90, 241 Poland 46
policies and strategic direction 241
O politics/political 27
objectives 4 forces 142
objectivity 302 instability 23
Old Mutual 65 issues 35
oligopolies 152 Polman, Paul 58
on-shelf-in-stock percentage 281 population increase 143
open evaluations 98 Porter, ME 148
operationalising strategy 77-78 Porter, Michael 3
operations 128, 251 portfolio balance 186
efficiency 278-280 positioning 187, 188-189
opportunities see also SWOT 139-140, 144 poverty 23-24, 28, 29
order fulfilment time 281 power 205, 148, 149-150
organisations size and growth of 226 practice see also communities of practice 308
organisational perspective 84-86, 85, 309
capital 117, 118 Prahalad, CK 23-24, 34
culture/DNA 196, 197-202, 198-201, 308 praxis 84-85, 308
development 292 pre-empting disasters 300
learning see learning preliminary control 278
maturity model 291-299, 308 price optimisation models 130
paradigm 204 proactive vs reactive, strategic control 299-300
strategy 225, 293, 294, 295 problem solving 283
structures 4, 123-124, 205, 225-227, 234, process costing 281
235, 293, 294, 295, 308 process maturity and methodology 250
support 293, 294, 295 process perspective 64-68, 74, 309
survival 72 vs practice perspective 83-84
systems 4 procurement 128
units 240 product development 180
Orlando Pirates 178 product safety 266-267, 278
outcomes 272 profitability 122
vs activities 291 ratios 284
outsourcing 130 programmes, strategic 77, 308
over-planning 212-213 project/s 238
Ozianyi, Vitalis 53 champions 250
P strategic 77, 308
Pamensky, Mark 53 Promasidor 35-36
pan-Africanism 21, 22 Public Finance Management Act (PFMA) 57
participatory strategy development 260-261 public sector inefficiency 25
patent registration 278, 282 pyramid see bottom of the pyramid
peer appraisal 287 Q
people-oriented skills 211 quality 82, 278
PEP Stores 187
©
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
317
E S E S S
S S
S
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
©
and uncertainty 160-161 social craftspersons 89

management 300-302, 301 social development 288-289
vs trust 146 social issues and sustainability 48, 49, 50-51
social media and sport 178
318
E S E S S
S S
INDEX
S
socialisation 104 tasks 3-4

sociocultural forces 142 thinking 92
Software Engineering Institute 292 Strategic Execution Framework 247-248
solar LED lights 34 strategies 176
Sony 159 strategising 1, 14, 85, 86-88, 309
source-make-cycle time 281 strategists 1, 14, 85-86, 88-94, 309
South Africa 27 categories of 88-89
1994 elections 28 identifying 7-8
development issues 24 non-discerning 89
membership of BRICS 143 strategy/ies 1, 10, 121
South African Airways 184, 216-218, 227 and management levels 68-69
South African Local Government 207 and mind shifts 212
South African National Parks (SANParks) 254 as a conversation 8
Southern African Development Community see as a human activity 7
SADC as-practice see practice perspective
specialisation of tasks 228-229 as-process see process perspective
sponsorship see champions communicating 243
Springsteen, Bruce 109 context-specific 20
staff see employees control see control
stakeholders 145, 308 deployment see deployment
and competitive forces 148 formulation see formulation
and sustainability 48, 49, 54-55 implementation see implementation
direct vs indirect 138 importance of 9
external 146-147, 289-290 levels of 12-13
measuring needs and satisfaction of 275 organisational see organisational strategy
reaching out to 208 participation in development of 260-261
relative importance of 54-55 review 67, 78-79
types of 145 turnaround 179, 183-185, 309
Standard Chartered Bank 19-20, 168-169 vs strategic management 10-11
Star Alliance 218 vs structure 224-225
Stewart, Duncan 206 strengths see also SWOT 140
stock market 285-286 structure 53, 223
stories, as part of organisational culture 204 alternative 225-226
strategic and strategy 66
agility see agility elements and forms 218
alliances 183 forms of 227-234
architecture 218 vs strategy 224-225
business units 176-177, 185-186, 308 substitute providers, power of 148, 149-150
choices see choices suppliers, power of 148, 149
cycle 67 supply chain 281
direction see direction efficiency measurement 280-282
fit and sustainability 49, 55 management in Africa 35
goals see goals power structures in 148-150
group analysis 156, 157 response time 281
initiatives see initiatives survival 72
intent 295 sustainability 37, 42, 47-50, 49, 54, 59, 65, 138-
leadership see leadership 139, 224, 309
management see management and BOP 34
maps 156 and organisations 48, 49, 52-53
moves 161-162 and productivity 146
operations see operations strategy 47
planning champions 89 vs CSR 47
©
posture 161-162 Sustainability Assessment Matrix 43

risk management see risk sustainable development 290
space 157 Sustainable Living Plan 58
319
E S E S S
S S
S
Suttner, Michael 34 Union Glass 99

Swaziland 27 unrealised strategy 88
SWOT analysis 76 urbanisation 143
symbols, cultural 204-205 Uys, Ashley 45
synthesis, INVEST 247, 249-250
synthesising information 91-92 V
value 122-123, 125, 126
T value chains see also supply chain 288-289
tacit knowledge 104-105 analysis 126-128, 127
talent see skills value-added productivity 281
tangible resources see resources value-centric position 98
Tanzania 27 values, organisational 72
targets 75 Venter, Erik 206
achieving 286 versatility 89
setting 292 vertical integration 36
task environment 145, 147, 309 Virgin Group 182
task specialisation 228-229 virtual network structure 228, 233-234
task-oriented skills 211 vision 130, 310
tax 285 and mission 70, 220
technology/technological 53, 82, 143, 174, 224 and mission statement 71-73, 130
capital 117, 118 and mission, Gauteng Government 62
development 128 building a shared 105-106
forces 142 INVEST 247, 251
Telkom 207 visualisation 219
in Nigeria 53 VJO attorneys 182
thinking, strategic 92 VRIO framework 122, 131-132
thinking vs doing 259 VRIOLU framework 131-132
threats see also SWOT 139-140, 144
Tierney, Thomas 112 W
Tiger Brands 26-27 walk apart/behind/together 165-166
timelines 254, 302 war see conflict
top management 309 warranties 279
as strategists 89-90 Water Futures 43-44
tourism 33 water-food-energy nexus 289-290
toxic waste 56 water-food-nexus 49
tracking events 300 weaknesses see also SWOT 140
transferability 131 wealth creation/maximisation 21, 23, 310
transformation 278 welfare 24
transition, INVEST 248, 250-251 Women’s Empowerment Day 45-46
Transnet 218 Woolworths 180-181, 240, 246
Transparency International, Corruption workflow processes 293-296
Perception Index 25 World Bank 42
transparency see ethics World Economic Forum competitiveness index
trust and change 213 297-298
trust vs risk 146 World Wide Fund for Nature (WFF) 50
Turkey 143 X
turnaround strategies 179, 183-185, 309
Tylenol 265-266 Y
yes men 106
U
uncertainty 139, 160, 270 Z
strategic implications of 161-162 Zambia 27, 43-44
unfair practices 56 zero sum game 159
©
Unilever 58, 187,188-189,198-199, 203 zero-waste 44

Zimbabwe 23, 27, 44
320
E S E S S
S S

Mng3701 Priscribed Textbook

Uploaded by

Copyright:

Available Formats

Mng3701 Priscribed Textbook

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Mng3701 Priscribed Textbook

Uploaded by

Copyright:

Available Formats

S

PEET VENTER ( EDITOR )

KEY TERMS ■ strategy ■ strategy implementation

CASE Steve Jobs1

by FORTUNE and was described by Jobs as follows:

‘He understands what we do at our core better than anyone … if I had

Organisations generally have an imperative to survive and to perform

The origins of strategic management

The traditional strategic management process

New perspectives on strategic management

Strategic management today

A contemporary strategic management framework

1.1 The origins of strategic management

1.2 The traditional strategic management

Vision STRATEGY FORMULATION

Identify opportunities Strategic Identify strengths and

FIGURE 1.1 The traditional strategic management process

Strategic management processes work in silos in our company. Strategic meetings

1.3 New perspectives on strategic management

1.3.1 Strategy is what people do, not what

1.3.2 Strategy is not solely the domain of top

1.3.3 Strategic management is not a neat and

1.3.4 Strategy is a conversation

1.4 Strategic management today

1.4.1 What does it mean to be ‘strategic’?

Not all actions and decisions can be considered ‘strategic’.

1.4.2 The importance of strategy

1.4.3 Defining strategy

1.4.4 Strategic management

FIGURE 1.3 Successful strategic management: striving for consistency

1.4.5 Strategic decisions

In strategic decision making, it is sometimes important to remember that it is ‘better to be

1.4.6 The levels of strategy

TABLE 1.1 The different levels of strategy

CORPORATE LEVEL BUSINESS-LEVEL FUNCTIONAL

Where Corporate centre Business unit Functional

advantage unit strategy

PRACTISING STRATEGY: THE FIRSTRAND GROUP24

1.4.7 How do we measure the success of strategy?

1.5 A contemporary strategic management

1.5.1 The context of strategy

1.5.2 Strategists and strategising

1.5.3 Dynamic consistency

1.5.4 External consistency

1.5.5 Internal consistency

EXTERNAL CONSISTENCY DYNAMIC CONSISTENCY

FIGURE 1.4 A contemporary perspective of strategic management

The big picture

TABLE 1.2 A comparison of a conventional approach to strategic management and our

CONVENTIONAL STRATEGIC OUR APPROACH

Central focus Understanding how Understanding what strategists

Process Logical and rational Messy, experimental and

Process flow Thinking before doing No clear separation between

1. Explain why strategic management is important to the organisation.

3. Describe the nature of strategic decisions.

Strategic management processes work in silos in our company. Strategic meetings

KEY TERMS ■ strategy ■ African Union

CASE Standard Chartered in Africa1

in Africa, the company has built up a strong basis of market information