Chapter 1

Defining strategic management:

Is the process whereby all the organisational functions and resources are integrated and coordinated to
implement formulated strategies which are aligned with the environment, in order to achieve the long
term goals of the organisation and therefore gain a competitive advantage through adding value for the
stakeholders.

Defining competitive advantage:

Competitive advantage is the edge that an organisation has over others and outperforms them by
uniquely combining their resources and capital.

Defining strategy:

As an effort or deliberate action that an organisation implements to outperform rivals.

Views on strategy:

Traditional view Emerging view

View Strategy as fit with resource Strategy as stretch and leverage
Industry space Strategy as positioning in Strategy as creating new
existing industry space industry space
Responsibility Strategy as a top management Strategy as a total and
activity continuous organisational
process
Exercise As an analytical exercise As an analytical and
organisational exercise
Direction Strategy as extrapolating from Strategy as creating the future
the past

3 step Strategic planning process

Strategic planning -It is the first stage in SPP and focuses on the organisations strategic direction.
Involves the formulation or review of a company’s vision, mission and long term goals. It also evaluates
the environments in which the organisation operates to identify SWOT.

Strategy implementation- Once an organisation has decided on the destination and the strategy it will
take to get there, it obviously needs to move towards that specific destination. Is the action stage on
strategic management process and requires input from everyone in the organisation.

Strategic control- Aims to assess the progress made towards achieving the desired outcome. Gives
feedback and alerts top management to problems before a situation becomes critical.

Benefits of strategic management

Higher profitability

• Higher productivity
• Improved communication across the different functions in the organisation
• Empowerment
• Discipline and a sense of responsibility to the management of the organisation
• More effective time management
• More effective resource management
• Strategic management

Risks of strategic management

• Time
• Unrealistic expectations from managers and employees
• The uncertain chain of implementation
• Negative perception of strategic management
• No specific goals and measurable outcomes
• Culture change
• Success groove

Diagrammatically depict the strategic planning process. (7)

NB: During exam we may ask this differently, for example: Diagrammatically
depict the position of Long term goals in the strategic planning process.

Strategic direction: vision,

mission, strategic intent

Internal External
environmental environmental
analysis analysis

Strengths & Opportunities &

weaknesses threats

Formulation of
Shade the required part
long-term goals

Strategy selection

Generic strategies & grand

strategies
Refer to Page 36 in E&L

Chapter 2

Components of strategic leadership

• Determining the company’s purpose or vision

• Exploiting and maintaining core competencies
• Developing human capital
• Sustaining an effective organisational culture
• Emphasising ethical practises
• Establishing balanced organisational controls

Leadership tasks

• Recognise the dual nature of strategy ( short term as well as long term)
• Start with vision, mission and distinctive profile
• Replace “resource based” strategy with a new basis of strategy
• Focus on strategy as being the alignment between the external and the internal worlds of the
company
• Competing through business systems, not through businesses
• Recognise that there is a growing decentralisation of strategy making and leadership

Strategic direction:

Before selecting a strategy, a company needs to determine the strategic direction. Setting strategic
direction is the first step in strategic management process. Can set strategic direction with vision,
mission statement and strategic intent.

Vision statement

what do we want to become?

Serves as a road map. A vision statement is a dream that focuses on a desirable future.

1) Input from many managers

2) Should be achieveable in the long term or won’t motivate
3) Once achieved it has to be redeveloped

Functions:
 1) Provides a way to integrate a wide variety of goals, dreams, challenges and ideas into one theme
2) Provides focus and direction
3) Form the foundation for mission statement, long term goals and strategy selection decisions.
4) Inspiring vision can be a motivational tool

Must communicate vision to all. Will break down resistance to new strategic direction. If not
communicated, could be a barrier to strategic decision making and implementation

Strategic intent

Envisions a desired leadership position and establishies the criterion the organisation will use to chart its
progress.

Creates a sense of urgency by setting an overarching ambitious goal stretches organisations resources.
Provides basis for resource allocation.

Gives a sense of direction an purpose

Forces managers to be innovative and inventive in using limited resources.

Has 3 attributes: sense of direction, discovery and destiny

Mission statement

Mission answers question of “what is our business?” derived from vision or strategic intent.

Role of mission statement in strategic management:

Is an enduring statement of purpose that distinguishes an organisation from other similar ones. It
identifies the scope of the operations, market and technology. Indicates a reason for being. Embodies
the philosophy, character and identity of an organisation and also reflects the image it wants to project.
It is a statement of intent, attitude, outlook and orientation.

4 focus areas:

1) Purpose
2) Identifies the organisation strategy in terms of the nature of the business
3) Refers to the organisations behaviour standards and culture in terms of the way it does business
4) 4 focus areas are the values, beliefs and moral principles that support the behavioural
standards.

Components of mission statement:

• Product/service, market and technology

• Survival, growth and profitability
• Philosophy of the organisation
• Public image
 • Self concept of the organisation
• Customers and quality

Stakeholders and the mission statement

The inclusive approach, as applied by the king 3 report, recognises that the interests of stakeholders
should be considered when formulating strategy. Mission statement forms the basis from which
strategies are chosen and therefore it is very important for organisations to recognise the legitimate
claims of their stakeholders when formulating a mission statement. Inclusive approach also requires the
organisation to communicate its purpose and values to all stakeholders.

Chapter 3

Success in strategic management terms

Strategic management is about surviving in a changing environment and not simply about increasing
profits every year. To survive in this changing environment, strategic managers need to make decisions
that will enable the company to remain strategically competitive. And achieve above average returns.
By exploiting its competitive advantage and realising above average returns, an organisation should be
able to accomplish its primary objective: wealth maximisation.

Responsible leadership

Organisation has to be responsible towards its stakeholders in ensuring sustainable success.

Defined as “exercise of ethical, value based leadership in the pursuit of economic and societal progress
and sustainable development”

Take ownership of the consequences of their business activities on an economic, social and
environmental level. Act ethically within a set of guiding principles enshrining values associated with
responsible leadership.

All stakeholders are important. Inclusive mindset.

Corporate governance

Ties down the principles of responsible leadership, sustainability and corporate citizenship into concrete
governance of organisations.

Concerned with “holding the balance between economic, social goals and between individual and
communal goals… the aim is to align as nearly as possible the interests of individuals, corporations and
society”
Corporate governance refers to the formal system of accountability of the board of directors to
shareholders. Furthermore, it is about the formal and informal relationships between the corporate sector
and its stakeholders and the impact of the corporate sector on society in general. Corporate governance
is important during all stages of the strategic management process.

More specifically, during the formulation stage corporate governance is critical in terms of the following:

• Strategies should be considered that take into account economic, social and environmental
performance.
• The vision and mission should be reflected in the strategy, as well as in practices and general
conduct.
• Organisational risks should be considered when determining strategic goals.
• Clear, transparent, attainable and measureable goals should be set.
• Strategies should be developed that benefit all stakeholders.
• The role of the board of directors should be clarified in the formulation stage.

Corporate governance and ethics

Signs of ethical collapse:

Pressure to meet numbers; far away and silent; iconic CEO; a weak board; conflicts of interests;
overconfidence; social responsibility being the only measure of goodness.

King 2 report:

7 characteristics of good governance: discipline, transparency, independence, accountability,

responsibility, fairness and social responsibility.

King 3 report:

Key points:

• Risk based approach to be adopted as opposed to pure legal compliance

• Integrated reporting
• An explanation of the financial crisis
• Sustainability , ethics and new era risks are fundamental.
• Executive remuneration fixed by stakeholders
• Internal audit to have a role in assessing the controls to be adopted.

Chapter 4

Importance and challenge of internal analysis

Organisation cannot decide on a specific strategic direction to follow if it does not know what it can and
cannot do, and what assets it has and does not have. When it can match what it can do with what it
might do, this allows it to develop its visions, pursue its strategic mission and select and implement its
strategies. In order to devise an efficient and effective strategy it needs to know its strengths and
weaknesses. View the organisation as a bundle of resources, capabilities and core competencies that
can be used to create an exclusive position in the market. Must select core competencies that create a
competitive advantage.

Resource based view

Holds that an organisations resources are more important than the industry structure in gaining and
keeping its competitive advantage. The argument is that it is the resources and capabilities that will
determine how efficiently and effectively the organisation is functioning.

There are 3 types of resources: tangible assets, intangible assets and organisational capabilities.

What makes a resource valuable?

Value; superior resources; scarcity; limitability; capacity to exploit the resource.

Value chain analysis

VCA is a systematic method of determining how the organisations various activities contribute to
creating value for the customer. It’s a value-creating activity. Identifies where most value is added and
where you can add more value.

Primary activities

• Input logistics – receiving, storing and distributing of inputs to the product.

• Operations – include all those that are associated with the transformation of the inputs into the
final product.
• Output logistics – refers to all the issues related to the distribution of the products to customers.
• Marketing –refers to the method used to persuade customers to make the purchases.
• Customer service – installation, repair, training, the supply of parts and perhaps product
adjustment.

Support activities

• Procurement - refers to the function of purchasing the inputs.

• Technological development – what is the level and quality of technological development?
• Human resource management - deals with recruitment, selection, training and remuneration of
employees and how it will affect all levels of the organisation
• General administration and infrastructure – important to reach overall goals. That why this in
place.
• Financial management – important to have sound financial practice and placed throughout the
value chain.
Steps in value chain analysis

1) Identify and classify activities – first step in performing a value chain analysis is to identify the
various primary and secondary activities carried out by organisation
2) Allocate costs – the next step is to try and allocate costs to every activity, as each activity
occurs.
3) Identify the activities that differentiate the organisation from its competitors - this will serve
as competitive advantage
4) Examine the value chain – the last step is to scrutinise the results and to classify the various
activities as strengths or weaknesses of the organisation.

Functional approach

An effective and simple approach to internal environmental analysis is to conduct an internal audit using
a functional approach. premise is that it can conduct an analysis of the organisations functional
activities. Assessment of the various functional areas. Determine how well or poorly a function is
performing and what resources these functional areas actually need to perform effectively.

It focuses on functional areas and performance but does not analyse if the function makes an important
contribution to the competitive advantage.

Making meaningful comparisons in an internal analysis

Strategic planners use financial ratio analysis: compared with organisations own past results,
competitors results, the results of industry leaders and the industry average.

Following yardsticks can be used to make meaningful comparisons:

• The organisations past performance

• Results of a previous internal environmental analysis
• Industry ratios or norms
• Benchmarks
• Performance of the organisations competitors

Compiling an organisational profile

The organisation’s profile is the end results of an internal environmental analysis:it is a diagrammatical
depiction of the organisations strength and weakness using critical success factors. Arrows used to
indicate depth of strength or weakness.
Chapter 5

A continuous process of external environmental analysis is important and includes 4 interrelated

activities: scanning, monitoring, forecasting and assessing

External environment consists of global, macro, market/industry and micro

Macro environment

Political

Government is a regulator, deregulator, subsidiser, employer and customer of an organisation.

Government aims:

Enhance the progress of social and economic transformation; emphasis effectiveness and efficiency of
delivery in respect of government actions and initiatives; stimulate job creation; dealing with law and
order and enhance the process of African renaissance.

Economic

Health of economy affects organisation. Economic factors have a direct impact on the potential
attractiveness of various strategies and consumption patterns in the economy. Inflation, recession,
interest rates influence the demand for goods because consumers are forced to reconsider their
consumption priorities.

Sociocultural

Concerned with a society’s attitudes and cultural values. These variables shape the way people live ,
work, produce and consume.

Technological

Affects many aspects of society. These effects occur primarily through new products, processes and
materials, and to avoid obsolescence and to promote innovation, an organisation must be aware of
technological changes. Creates new markets,

Ecological

Refers to the relationship between human beings and organisations. Deals with air, water and
environmental pollution. Use of natural resources

Industry / market environment

A group of organisations that produces products which are close substitutes for one another, or which
customers perceive to be substitutable for one another and which influence one another in the course
of competition, is known as an industry.
Organisation needs to know which industry it is competing in, the structure of the industry and what the
major determinants of competition are and which organisations are competitors.

Industry structure characteristics

Concentration; economies of scale; product differentiation; barriers to entry.

Porter’s 5 forces model

Threats of new entrants

The extent to which new entrants are a threat depend on the existence and level of barriers to entry
into the industry, where barriers to entry give existing companies an advantage over new entrants.
Barriers to entry are many and varied including, the level of capital requirements, economies of scale,
absolute cost benefits, product differentiation, access to distribution channels, regulatory barriers and
the likelihood of retaliation by competitors.

Rivalry between existing organisations

The level of competitive rivalry or competition between firms in an industry is affected by a number of
factors, including the underlying market structure ( type of competition, degree of concentration), the
maturity of the industry, the degree to which the product is differentiated and the size of exit barriers.

In a competitor analysis it is important for an organisation to understand: the future goals of

competitors, their current strategies, what competitors believe about the industry and what their
capabilities are.

Intensity of rivalry between competitors determined by:

• Numerous or equally balanced competitors

• Slow industry growth
• High fixed or storage costs
• Lack of differentiation or low switching costs
• High exit barriers

The bargaining power of buyer

Buyer power is the relative power of buyers with regard to their suppliers, is affected by the bargaining
ability of buyers and their price sensitivity. Buying power is affected by the size and concentration of
buyers, the level of information buyers possess and the ability of buyers to integrate backwards.

The bargaining power of suppliers

Suppliers bargaining power, that is, the relative power of suppliers with regard to their buyers increases
according to the following:
 • The greater the concentration of suppliers relative to the concentration of buyers
• The few the number of substitute products for the suppliers goods
• The more differentiated the suppliers product
• The greater the interdependence of buyers and suppliers

Substitutes

The threat of substitutes, or alternative products, tend to increase in respect of their relative price and
performance.

Limitations of porters 5 force model

• The model aims to assess the profitability of the industry. Strong evidence suggests that
organisation specific factors are more important to the individual organisations success than
industry factors
• The model implies that the 5 forces apply equally to all competitors in an industry. The truth is
the strength of the forces may differ from organisation to organisation.
• Product and resource markets are not adequately covered by the model.
• The model can never be applied in isolation. Application of model only relevant while the macro
environment was stable.
• Model assumes that the relationship between competitors is always hostile, but it is more
complex than the model suggest.

Chapter 6

Long term goals

Long term goals are determined in line with the organisations vision. These goals are more strategic in
nature and reflect the organisations specific direction on a high level. Strategic goals are the basis for
more specific tactical goals.

Difference between long and short term goals

Long term goals Short term goals

Strategic importance High Lower
Nature Strategic ( provides strategic Operational
direction
Time frame 1-5 years Short term ( weekly, monthly)
Management involvement high level manager Lower level managers and
supervisors
Specificity Low High
Quantity Few high level goals Numerous low level goals
associated with long term goals
Using the balanced scorecard to set long term goals – learn diagram on page 153 of study guide

The balanced scorecard is a set of measures that are linked directly to the organisations visions, mission
and strategy.

It balances short term and long term measures financial and non financial measures and internal and
external performance objectives.

4 perspectives

The financial perspective; internal business perspective; the innovation and learning perspective and the
customer perspective.

Generic strategies

Generic strategies provide focus and direct organisational activities.

1) By being more cost effective that its competitors – cost leadership

2) By adding value to the product or service through differentiation and commanding higher prices
– differentiation
3) By narrowing its focus to a special product market segment which it can monopolise – focus
4) By offering the lowest prices compared with rivals offering products with comparable attributes
– best cost strategy

Cost leadership

Organisations pursuing a cost leadership strategy usually sell a product or service that appeals to a
broad market. Highly standardised. To achieve a cost advantage, organisations cumulative costs across
its overall value chain must be lower than its competitors cumulative costs. 2 ways to do this: better
efficiency in value chain and revamping the value chain by eliminating some cost producing activities.

Some cost drivers that need managing are:

• Economies of scale.
• Experience learning curve
• The percentage of capacity utilisation
• Technological advances
• Improved efficiencies and effectiveness through supply chain management.

Pitfalls of cost leadership

 • Overly aggressive with pricing and end up with lower profitablilty.
• Value creating activities that form the basis of this strategy can be imitated
• A degree of differentiation is still needed.

Differentiation

Differentiation consists of creating differences in the organisations product or service by creating

something that is perceived to be unique and is valued by customers.

Differentiation can take many forms:

Prestige or brand image, technology, innovation, features, customer service, product reliability, unique
taste, speed and rapid response through activities such as prompt customer complaints, speedy delivery

Most appealing approaches those that competitors find difficult to imitate. Sustainable differentiation
linked to core competencies and superior management of value chain which competitors cannot match.

Important by product of differentiation strategy is customer retention and loyalty.

Pitfalls of a differentiation strategy

• Uniqueness is not valuable

• Too much differentiation
• Charging too high a premium
• A uniqueness that is easily imitated
• Dilution of brand identification through product line extensions

Focus strategy

Is based on the choice of a narrow competitive scope within an industry. Targets a specifc customer
segment or group of segments to which it provides products or services. Essence is exploiting a niche
market.

A focus strategy based on cost leadership aims at securing a competitive advantage by serving buyers at
a lower cost and price than its competitors.

A focus strategy based on differentiation aims at securing a competitive advantage by offering buyers of
a product they perceive as well suited to their own unique taste and preferences.

Pitfalls of focus strategy

• The needs, expectation and characteristics of the market may gradually shift towards attributes
desired by the majority of buyers in the broader market.
• Competitors may develop technologies or innovative products that may redefine the
preferences of the niche that the organisation has been concentrating on
 • The segment may become so attractive that it is inundated with competitors, intensifying rivalry
and eroding profits.

Best cost strategy

Organisations that successfully integrate cost leadership and differentiation strategies find that their
competitive advantage is often more difficult for competitors to imitate. An integrated strategy enables
an organisation to provide value in terms of differentiated attributes as well as lower prices. Aim is to
provide unique products and services more efficiently than competitors do.

Pitfalls of a best cost strategy

• Organisations fail to create both competitive advantages simultaneously may end up with
neither and become stuck in the middle.
• May underestimate the challenges and expenses associated with providing low prices and
differentiating at the same time
• May miscalculate the sources of revenue within the industry and fail to achieve expected
profitability

Criticism against the generic strategy framework

• An organisation can employ a successful hybrid strategy without being stuck in the middle
• Low cost strategy does not in itself sell products
• Prices can sometimes be used to differentiate

Chapter 7

3 types of grand strategies: growth, decline and corporate combinations

Growth

There is internal growth and external growth

Internal growth strategies

• Concentrated growth strategy

o Also referred to as market penetration
o Seeks to increase market share through concentrated marketing efforts
o Stays focused on present market and present product and services
o Aims to increase usage rate, attract non users and attract competitors users.
o Effective if following conditions prevail
 Market Specific product or service is not saturated
  Room to increase usage rate
 Competitor market share decreasing while industry is showing growth
 Economies of scale can provide cost benefit to organisation
• Market development
o Involves expanding the portfolio of markets that the organisation serves
o Present products introduced to new geographical areas
o Effective if following conditions prevail
 Has access to reliable and affordable distribution channels
 Cultural barrier and lack of insight provide challenge. Form strategic partnership
• Product development
o Improving and modifying the products and services in order to increase sales
o Product development is effective when product reaches maturity stage in PLC
o Effective if following conditions prevail
 Industry is charactersised by rapid technological developments
 When capital is available for capital investment in R&D
• Innovation
o Organisations have distinct technological competencies and capital reserves to invest in
R&D may find it profitable to make innovation their grand strategy.
o Endeavour to create new product and thus new product life cycle
o Effective if following condition prevail
 Customers demand differentiation
 Industry is characterised by rapid changes and advances in technology
 The organisation has R&D skills
 Organisation culture fosters innovativeness

External growth strategies

• Diversification
o Adding new but related products to the product line is called related or concentric
diversification. Objective is to expand the market share of an organisation in existing
market, or alternatively enters a new market.
 Will prevail if following is present
• In industries with slow growth
• Current products are in the declining stage of PLC
• Potential to use core competency developed through experience
o Unrelated diversification involves adding new, unrelated products in an effort to reach
and penetrate new markets.
• Integration
o Vertical integration extends to the scope and operations of an organisation to other
activities within the same industry. Expansion into other parts of the value chain.
Objective is to strengthen the hold of the organisation on the resources it deems critical
to its competitive advantage.
 Forward vertical integration entails gaining ownership over distributors or
retailers. Attractive when retailers are unreliable, have high profit margins or
incapable of servicing the consumers of the organisation
 Backward vertical integration – involves gaining ownership or increased control
of an organisations suppliers. Common in industries where low cost and
certainty of supply are vital to maintaining the competitive advantage of the
organisation in its market. Appropriate when current suppliers are unreliable.
Need adequate capital and human resources to pursue this strategy.
o Horizontal integration – this takes place when an organisation seeks ownership or
increased control over certain value chain activities of its competitors. Occurs through
mergers, acquisitions and takeovers. Difficult to integrate the culture between various
organisations.

Declining strategies

Referred to as defensive strategies. Pursued when organisation finds itself in a vulnerable situation.

• Retrenchment or turnaround
o A turnaround strategy focuses on strengthening the distinctive competencies of the
organisation in order to break the downward spiral with regards to sales and profits.
o Activities focus on ways to reduce costs and ways to recovery.
o Activities including selling assets, outsourcing activities that are not core competencies,
the reduction of staff and curtailment of bonuses.
o Appropriate for organisations that have poorly managed their distinctive competencies
• Divestiture
o Involves selling a division or part of the organisation to raise capital for further
acquisitions or investments.
o Part of overall retrenchment strategy to get rid of unprofitable business units
• Liquidation
o Entails selling all the assets of an organisation in an attempt to avoid bankruptcy.
o Pursued when efforts to turn an organisation around through retrenchment and
divesture have been unsuccessful, and ceasing operations is the only alternative to
bankruptcy.
o Planned and orderly way of converting assets into cash in an attempt to minimise losses,
• Bankruptcy
o An organisation that has no hope of turning its activities around may decide to close its
doors and declare bankruptcy. Creditors are compensated to the extent to which cash
resources allow and the rest of the debt is written off.

Corporate combination strategy

3 types of combinations

• Joint ventures
 o Temporary partnership formed by 2 or more organisations for the purpose of
capitalising on a particular opportunity.
o Usually enter joint venture to seek some degree of vertical integration, to acquire or
learn a partners distinctive skills in some value creating activity.
• Strategic alliances
o Differ from joint ventures in that the organisations involved do not share ownership in a
specific business venture. Share skills and expertise.
• Consortia
o Are large interlocking relationships between organisations in a particular industry.
o These relationships represent the most sophisticated for of strategic alliance as they
involve multipartner alliances and highly complex linkages between groups of
organisations.

Risks of combination strategies

• Partners become incompatible over time

• Become too dependent on each other
• Run the risk of providing too much insight regarding their knowledge and skills.
• Can be cost intensive