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SCHOOL OF BUSINESS
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Acknowledgement
These notes are based and drawn from material in the following books:
4. Gerry Johnson and Kevin Scholes, Exploring Corporate Strategy [London: Prentice
Hall]
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Course Outline
Objectives
This course is intended to introduce the student to the nature and problems of strategic
management as seen from the perspective of those charged with running a business, and to
offer the student an opportunity to understand and appreciate the challenges of responding to
an ever-changing business environment. The student is expected to integrate knowledge and
skills gained in prior courses to enhance understanding and facilitate analysis of concepts,
formulation and implementation of corporate strategy.
Instruction Method
Although lectures will constitute the principal method of instruction, students are expected
and required to be actively involved in class discussions of the various topics to be covered.
Additionally, students are required to read widely and beyond what is covered in class and
make a contribution to the learning process through class participation.
Texts
Lectures and class discussions will largely be based on prescribed readings. However,
students are encouraged to source other relevant materials and bring up for discussion any
topical issue.
1. Henry Mintzberg and James Quinn, The Strategy Process: Concepts, Contexts
and Cases [Englewood Cliffs, New Jersey: Prentice Hall]
Evaluation
Test 1: 20%
Test 2: 20%
Exam : 60%
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Course Contents
Part Topic Time Allocation
I Nature of Corporate Strategy
• What the course is about
• Functions of a Chief
Executive
• The concept of corporate
strategy
• Overview of Corporate
strategy
• Justification for strategy
• Limitations of strategy
3 weeks
• Organization Processes
and Behavior
• Leadership 3 weeks
V Strategy in Context
• The Entrepreneurial
context
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Topic 1: Introduction
In this introduction to the course, we shall discuss in turn the following:
The study of business administration has historically developed along the traditional
functions of a business firm. In a typical business firm, the following functions are easily
discernible:
Production
A basic function of a business is to create a physical product which has a
stream of benefits a potential customer wants. Extractive, manufacturing,
farming, mining or construction firms typically bring out a physical product,
and the activities or tasks involved in creating a physical product are known as
production.
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Production also covers is service provision. Instead of creating a physical
product, a firm may provide a service whereby the stream of benefits offered
are intangible, in the sense that is what is offered does not take a physical form
and cannot be touched, felt smelt or seen. Examples of service provision are
insurance, telecommunications, transportation, hairdressing or entertainment.
The study of any activity or task that brings about a physical product or a
service embraces the discipline of production.
Marketing
Marketing is about managing demand for a firm’s product or service. A
product’s final destination is the consumer or user. Ideally, products are
produced because there is a need for them. Marketing consists of all those
activities associated with the identification of consumer need for a product and
the facilitation of need satisfaction.
As a discipline of study, marketing embraces marketing/consumer research,
and the enhancement of customer satisfaction through the manipulation of
variables of the elements of the marketing mix (Price, Product, Place and
Promotion).
Accounting
Accounting as a function has grown steadily in importance. The
“bookkeeping” activities of a generation ago have grown into information-
intelligence for the business. Accounting now encompasses devising,
installing, and maintenance of records of transactions, procedures, or
practices. It also includes what have been traditional finance functions, such
as, cash management and banking, credit administration, investment banking,
maintaining continuous relationships with the financial community and giving
advice and counsel to the board of directors and top management.
Human Resource management
The forerunner to what now has become to be known as human resource
management was the personnel function. Historically, the personnel function
has grown from the employment function. Today, as a discipline of study,
human resource management covers a much broader spectrum of activities
than mere hiring and firing. Additionally, it covers issues like training, wage
and salary administration, staff appraisal, labour negotiations, contract
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administration, safety, employee welfare, administration of retirement benefits
and pension schemes, etc.
Conspicuously missing for a long time were the functions of the person to whom functional
managers reported, that is, the manager of functional managers (or general manager). Thus,
while it was recognized that there existed functional managers to carry out these functions,
and that these functions could be moulded into programs of study to prepare people to carry
them out, it was not explicit or obvious what the person to whom they reported did. Strategic
management was an attempt at understanding and harnessing into a discipline the functions
and responsibilities of the (general) manager.
As leader of functional managers, the general manager is expected to give a sense of purpose
and meaning to the basic functions of an enterprise. He must articulate what business the firm
is in, what needs to be done now and in the future and build the organizational capacity to
enable the organization achieve its goal. The general manager is primarily responsible for
dealing with strategic three questions:
Where is the organization?
Where does it want to go?
How does it get there?
These concerns cannot be left to individual functional managers because they affect the
character and success of the entire company. More specifically, they revolve around
The choice of objectives
Moulding of organisational capability and character
Definition of what needs to be done
Mobilization of resources for the attainment of specified goals.
The urgency with which these issues and problems must be dealt with increases sharply amid
changing circumstances involving:
Shifts of demand
Competition
Impact of environmental forces, namely, political, legal, socio-cultural,
economic and technological factors
Scarcities of skill or capital.
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The successful resolution of this seeming disorder comprising:
The essence of Strategic Management is in moving from one position, say A, to another
position, say B. However, in the process of moving to B, a firm encounters threats and
opportunities: how well threats are avoided and the extent to which opportunities are
exploited to facilitate reaching position B is what is known as strategic management. This
may be depicted as follows:
Corporate Strategy
Business Policy
General Management
Top Management
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Or consider how critical and sceptical we sometimes are about our leadership. In politics, our
judgment of how successful political leaders may have been is reflected in how we vote for or
against them. A vote in their favour is an indication of the success of their program, and when
we vote them out of office, it is an indication of our desire for change because we are not
where we want to be.
Finally, consider the area of competitive sport. To win in a competitive sport, one must
overcome the opposition and success is often attributable to having used some strategy.
Before examining the nature of corporate strategy, let us first examine the peculiar functions
of the General Manager (GM). The first point to note is that this is the highest responsibility
in the hierarchy of management and yet there is little formal training for it. Heavy reliance is
placed on previous executive and technical experience and yet, in some circumstances, such
experience may be incapacitating. The second point to note is that the General Manager has
to rely for his principal support on a tier of functional managers, each more knowledgeable
than the General Manager within a particular area; each fortified by a pride in his own
expertise; each thus doubtful of the primacy of the “generalist” role played by the General
Manager; and each committed, and perhaps over-committed, to furthering the interest of his
own function.
Under these circumstances, the functional specialist must be regarded not only as a resource
but also as a problem in communication, direction and control and hence, the need to develop
some conceptual framework for dealing with problems that confront the General Manager.
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(a) The GM must supervise current operations
(b) The GM must preside over the process of making policy decisions
affecting future results.
He must plan for the future against known and unknown odds and
determine where he wants the firm to be in three, five or ten years from
now.
(c) The GM must develop and change the organization structure and deploy
its people in such a way as to permit both business success and individual
satisfaction and expression.
He must preside over systems of intended cooperation which produce
inevitable conflict.
If growth is planned, he must make painful decisions to remove or
reassign people.
He must make his company attractive to recruits; and
He must penalize as well as reward.
(d) The CEO is also expected to make a distinctive personal contribution by:
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Participating in matters of concern to his community, industry and
trade association and the nation at large
Being a good family man/woman and a role model to all and sundry.
Having looked at the functions of the General Manager or “generalist”, we now examine the
concept of corporate strategy by reviewing how a number of scholars have defined corporate
strategy.
Kenneth Andrews has defined corporate strategy as “the pattern of major objectives,
purposes or goals and essential policies and plans for achieving those goals, stated in
such a way as to define what business the company is in or is to be in and the kind of
company it is or is to be”.
H.I. Ansoff has defined strategy as “the positioning and relating of the firm or
organization to its environment in a way which will assure its continued success and
make it secure from surprises”.
Johnson and Scholes have defined strategy as “the direction and scope of an
organization over the long term which achieves advantage for the organization
through its configuration of resources within a changing environment, to meet the
needs of markets and to fulfil stakeholder expectations”.
J.L. Thompson has defined strategy as “the concern with the establishment of a clear
direction for the organization and a means of getting there … to create a strong
competitive position”.
Alfred Chandler has defined strategy as “… the determination of the basic long-term
goals and objectives of an enterprise, and the adoption of courses of action and
allocation of resources necessary for carrying out these goals”.
A number of elements can be gleaned from these definitions. The first is that strategic
management attempts to articulate an organization’s mission, that is, what it is the company
does. A definition of an organization’s business answers these questions: “What is our
business? What will it be? What should it be?” The second element is the articulation of
what the company would like to be, its desired future state. This is known as the vision of a
company. The third element is that a strategy is a purpose, goal or objective. It is this which
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gives a firm a sense of direction. For goals to be effective, they must be precise, measurable,
realistic and time-specific. Goals are based on a perceive opportunity or threat. Presumably,
the impetus to go in a particular direction is dependent on a firm’s ability to take advantage of
opportunities that come its way, and avoid or overcome threats that stand in its way. Finally,
is the notion that a strategy includes some means of achieving the stated goal. Together, these
themes embody the three questions which characterize strategic management:
Companies seldom formulate and publish as complete a statement about strategy as is often
illustrated in text books, usually because conscious planning is not carried far enough to
achieve agreement which publication presumes. Nevertheless, every company has a strategy,
imperfect and implicit as it may be. In the absence of explicit statements, the observer may
deduce from operations what the goals and policies are, on the assumption that all normal
behaviour is purposeful.
Another point to note is that various terms are used in describing or defining strategy, and
that some aspects of operations may be emphasized while others are not emphasized or not
mentioned at all. Students of strategy are cautioned to bear in mind the following regarding
the way strategy is expressed:
(a) Strategy may be stated by defining the product(s) in a more functional than
literal way, saying what the products will do rather than what they are made
of. For example, a watchmaker’s strategy might be “… to produce watches of
the highest quality” rather than dwell on technical specifications of the watch.
(b) Strategy might be stated in terms markets or market segments for which
products are now or will be designed, and the channels through which these
markets will be reached. For example, a strategy’s stated aim might be “to
distribute product(s) to all markets of the free world through exclusive
wholesale agents and carefully selected retailers”, or the company might state
that “developing countries to which the company’s products have already been
introduced are expected to be the company’s major growth opportunity”.
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(c) Strategy might be stated in terms of the means by which the operations are to
be financed might be specified, such as financing operations through, say,
retained earnings.
(d) Strategy might also be described in terms of the size and kind of organization
desired. For example:
“the firm aims to maintain a stable organization of highly skilled, fully trained
workers and a management organization of some breadth, but also wishes to
retain personal direction over marketing and a clear familiarity with the whole
organization”; or
“the organization will reward drive, energy and accomplishment and accept
rapid turnover in management ranks whenever results fall below
expectations”.
We will structure the study of corporate strategy along two activities: formulation (or
deciding what to do) and implementation (or achieving results). Figure 1 illustrates the sub-
activities that comprise formulation of strategy and implementation of strategy. Although our
approach will involve a neat division in the consideration of strategy into aspects of
formulation and implementation, this is a matter of convenience from the point of view of
orderly study of the subject. In real life, the processes of formulating and implementing
strategy are intertwined: feedback from operations gives notice of changing environmental
factors to which strategy must be adjusted.
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Figure1: Components of Corporate Strategy
FORMULATION IMPLEMENTATION
(What to do) (Achieving results)
2. Identification 1. Organization
Corporate
of opportunity structure and its
and risk Strategy: relationships
3. Determining 2. Organizational
competences process and
Pattern of purposes
and resources behaviour
and policies
4. Personal values 3. Top leadership
defining the
and aspirations
company and its
of senior
managers business
5. Obligations to
society other
than
stakeholders
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• Determining the kind and role of personal leadership
(c) The need to influence rather than merely respond to environmental change.
The environments and circumstances in which businesses operate are
dynamic. Merely adapting to developments may leave a company in a weaker
position against its rivals. In contrast, planned purpose can affect and change
the character of future developments that might otherwise endanger even the
healthiest organization. Planned innovation and creativity can enable a
company to carve out its own future rather than depend on chance or
favourable circumstances.
(d) From the point of view of implementation, the most important function of
strategy is to serve as the focus of organizational effort, the object of
commitment and the source of constructive motivation and self-control in the
organization itself.
Moreover, a common understanding and acceptance of goals potentially
minimizes possible conflict among contending parties and may even hopefully
open up avenues of cooperation.
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detailed precisely and quantitatively with much confidence in unstable
environments characterized by social upheavals, economic instability or
political uncertainty.
The rejoinder to this argument is that the more uncertain the future, the more
necessary it is to contemplate what can happen and to assign probabilities to
the imaginable possibilities in order to reduce the possibility of surprise and
total subjugation to an unforeseen event.
(b) Over-dedication to plan may result in lost opportunity. That is, by implication
one must stick to a plan, but such dedication to a chosen plan necessarily
implies closing one’s mind to other alternative plans. There is thus an
opportunity cost to commitment to a plan to the exclusion of other plans.
The rejoinder to this is that commitment to fixed plans, yes, provides a needed
focus of approach and effort. However, realistic planning calls for some room
for accommodating uncertainty through reasoned flexibility. This calls for
development of the concept of a “moving balance” among considerations on
which strategy is based, by a careful and informed balancing act of a
company’s resources and the opportunities in its environment.
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(c) It will deepen the student’s understanding and knowledge of the concepts
relating to strategy and strategic planning.
(e) It will help the student develop analytical skills. Administrative skills rely
heavily on work experience; what is to be emphasized in the course however
are analytical skills to be applied to the total situation of a firm as follows:
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An ability to identify significant trends in the environment and
to estimate future opportunity and risk given varying resources
and competence
An ability to appraise the capability of the company, to
determine the strengths it must develop, to predict the impact of
the decision maker’s own action on that of his competitors.
the supervision of the continuous process of determining the
nature of the enterprise, and setting and revising and attempting
to achieve the firm’s goals.
Admittedly, the skills involved in successful strategic decision-making are rare but they are
worth pursuing. Hence the need to identify, study and systematically develop them in a
course like this.
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ANALYZING A CASE STUDY
The purpose of the case study is to let the student apply the concepts of strategic management
to a real or hypothesized situation facing a specific company. To analyze a case study,
therefore, you must examine closely the issues with which the company is confronted. Most
often you will need to read the case several times – once to grasp the overall picture of what
is happening to the company and then several times more to discover and grasp the specific
problems.
To analyze a case, you need to apply the concepts taught in this course to each of these areas.
To help you further, we next offer a summary of some of the steps you can take to analyse the
case material for each of the eight points we have just noted.
2. Identify the company’s internal strengths and weaknesses. Once the historical profile
is completed, you can begin the SWOT analysis. Use all the incidents you have charted
to develop an account of the company’s strengths and weaknesses as they have
emerged historically. Examine each of the value creation functions of the company,
and identify the functions in which the company is currently strong and currently weak.
Some companies might be weak in marketing; some might be strong in research and
development. Make lists of these strengths and weaknesses.
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(for instance, demographic factors) to see whether it is relevant for the company in
question.
Having done this analysis, you will have generated both an analysis of the company’s
environment and a list of opportunities and threats.
4. Evaluate the SWOT analysis. Having identified the company’s external opportunities
and threats as well as its internal strengths and weaknesses, you need to consider what
your findings mean. That is, you need to balance strengths and weaknesses against
opportunities and threats. Is the company in an overall strong competitive position?
What can the company do to turn weaknesses into strengths and threats into
opportunities? Can it develop new functional, business, or corporate strategies to
accomplish this change? Never merely generate the SWOT analysis and then put it
aside. Because it provides a succinct summary of the company’s conditions, a good
SWOT analysis is the key to all the analyses that follow.
Other issues should be considered as well. How and why has the company’s strategy
changed over time? What is the claimed rationale for any changes? Often it is a good
idea to analyze the company’s businesses or products to assess its situation and identify
which divisions contribute the most to or detract from its competitive advantage. It is
also useful to explore how the company has built its portfolio over time. Did it acquire
new businesses, or did it internally venture its own? All these factors provide clues
about the company and indicate ways of improving its future performance.
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of differentiated products. Be sure to give a full account of a company’s business-level
strategy to show how it competes.
The SWOT analysis is especially important at this point if the industry analysis,
particularly Porter’s model, has revealed the threats to the company from the
environment. Can the company deal with these threats? How should it change its
business-level strategy to counter them? To evaluate the potential of a company’s
business-level strategy, you must first perform a thorough SWOT analysis that captures
the essence of its problems.
Once you complete this analysis, you will have a full picture of the way the company is
operating and be in a position to evaluate the potential of its strategy. Thus, you will be
able to make recommendations concerning the pattern of its future actions. However,
first you need to consider strategy implementation, or the way the company tries to
achieve its strategy.
7. Analyze structure and control systems. The aim of this analysis is to identify what
structure and control systems the company is using to implement its strategy and to
evaluate whether that structure is the appropriate one for the company. Different
corporate and business strategies require different structures. What is the degree of fit
between the company’s strategy and structure? For example, does the company
have the right level of vertical differentiation (for instance, does it have the appropriate
number of levels in the hierarchy or decentralized control?) or horizontal differentiation
(does it use a functional structure when it should be using a product structure?)?
Similarly, is the company using the right integration or control systems to manage its
operations? Are managers being appropriately rewarded? Are the right rewards in
place for encouraging cooperation among divisions? These are all issues that should be
considered.
In some cases there will be little information on these issues, whereas in others there
will be a lot. Obviously, in writing each case you should gear the analysis toward its
most salient issues. For example, organizational conflict, power and politics will be
important issues for some companies. Try to analyze which problems in these areas are
occurring. Do they occur because of bad strategy formulation or because of bad
strategy implementation?
Organizational change is an issue in most of the cases because the companies are
attempting to alter their strategies or structures to solve strategic problems. Thus, as a
part of the analysis, you might suggest an action plan that the company in question
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could use to achieve its goals. For example, you might list in a logical sequence the
steps the company would need to follow to alter its business-level strategy from
differentiation to focus.
8. Make recommendations. The last part of the case analysis process involves making
recommendations based on your analysis. Obviously the quality of your
recommendations is a direct result of the thoroughness with which you prepared the
case analysis. The work you put into the case analysis will be obvious to the instructor
from the nature of your recommendations. Recommendations are directed at solving
whatever strategic problem the company is facing and at increasing its future
profitability. Your recommendations should be` in line with your analysis; that is, they
should follow logically from the previous discussion. For example, your
recommendations generally will centre on the specific ways of changing functions
business, and corporate strategy and organizational structure and control to improve
business performance. The set of recommendations will be specific to each case, and
so it is difficult to discuss these recommendations here. Such recommendations might
include an increase in spending on specific research and development projects, the
divesting of certain businesses, a change from a strategy of unrelated to related
diversification, an increase in the level of integration among divisions by using task
forces and teams, or a move to a different kind of structure to implement a new
business-level strategy. Again, make sure your recommendations are mutually
consistent and are written in the form of an action plan. The plan might contain a
timetable that sequences the actions for changing the company’s strategy and a
description of how changes at the corporate level will necessitate changes at the
business level and subsequently at the functional level.
After following all these stages, you will have performed a thorough analysis of the
case and will be in a position to join in class discussion or present your ideas to the
class, depending on the format used by your instructor. Remember that you must tailor
your analysis to suit the specific issue discussed in your case. In some cases, you might
completely omit one of the steps in the analysis because it is not relevant to the
situation you are considering. You must be sensitive to the needs of the case and not
apply the framework we have discussed in this section blindly. The framework is
meant only as a guide and not as an outline that you must use to do successful
analysis.
Source: Charles W.L. Hill & Gareth R. Jones, Cases in Strategic Management,
Houghton Mifflin Company, New York, 1999.
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Trials and Tribulations of a Chief Executive
In the end, Zambia National Commercial Bank could not keep up the pretence any longer. The
bank’s Chief Executive, Robert Tusheni, who came from Citibank in 1998, and its Chairman, Mr
Patrick Kunda, an old hand, were at each other’s throats and one of them had to go. It was the
young, well-regarded Zambian MBA graduate who was ousted last week, rather than Mr Kunda,
who is 67 years old and due to retire in 2005.
As soon as Mr Tusheni arrived at the bank, he made the bank’s top managers face some
uncomfortable truths. In the late 1970s, he reminded them, Zambia National Commercial Bank
and the other commercial banks in Zambia, had roughly similar geographical reach, balance
sheets, market capitalisations, profits and staff numbers. Why was it, he asked, that Zambia
National Commercial Bank had so dismally under performed its rival banks ever since? If it was
not to lose even more ground, Mr Tusheni told them, its culture and strategy would have to
change.
Under his leadership, Zambia National Commercial Bank made three biggish acquisitions, worth
ZMK3 billion in all: Chase Manhattan’s consumer-banking business in Congo, Grindlays Bank
in Zimbabwe and Nakonda Bank in Malawi. Thanks to these, and to the disposal of Chartered
Trust, its Zambian consumer-finance and contract-hire business, the share of the bank’s profit that
came from the region rose sharply. Last year Mr Tusheni started to back away at the bank’s cost
base, to investors’ approval. He promoted local fellow Zambians and Africans from neighbouring
countries as managers to run the bank’s operations in the large towns and overseas, traditionally a
role reserved for British expatriates.
Forcing the pace of change at Zambia National Commercial Bank, half of which dates from the
colonial era, was a hard task, and Mr Tusheni made enemies along the way. Critically, he failed
to keep in with the bank’s non-executive board members, viewed in the city of Lusaka as clubby
lot. It was these folk who turned on Mr Tusheni last week, despite his support from the executive
managers. Most recently, differences between Mr Tusheni and his Chairman had been
aggravated by informal approaches from Barclays Bank and Lloyds Bank of London, both
interested in acquiring Zambia National Commercial Bank under the privatization programme.
While Mr Kunda was adamant that his bank should remain independent, Mr Tusheni was willing
to consider a deal at the right price.
Its growing business in high-margin consumer finance in the region makes Zambia National
Commercial Bank a tempting bite for another bank and other investors. In market share for credit
cards, it ranks among the top three banks in the Comesa region. In Congo, Kabuza wa Kabuza of
Congo Investments reckons Zambia National Commercial Bank now has more than a quarter of
the 3.8 million or so of credit cards issued. The bank rates highly its chances in Kenya. Both
Lloyds Bank and Barclays Bank are keen to reach outside their domestic British market.
Citibank, from where Mr Tusheni once sized up Zambia National Commercial Bank as a target,
would also be interested. Now that investors know that there has been dissent within the bank
over its future, they may try harder to persuade Khoo Teck Puat, a Malaysian based in Singapore
who is Zambia National Commercial Bank minority shareholder, to part with his 14.5% stake.
Fending off predators will now be the job of Mukela Mundia, Zambia National Commercial
Bank’s former Operations Manager, who was promoted to Managing Director last week. Mr
Mundia says that if the bank is to stay independent, it must translate its position in emerging
markets into higher shareholder returns, and “not just talk about the future all the time.” There
will be no shift from Mr Tusheni’s focus on consumer finance, and Mr Mundia will also carry on
his predecessor’s efforts to trim lending to less profitable corporate borrowers and politicians. So
Mr Tusheni’s ideas, if not his management style, will continue.
Source: Adapted from The Economist, December 8-14, 2001, p.72
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TOPIC 2
THE COMPANY AND ITS ENVIRONMENT
Introduction
Determination of a suitable strategy for a company begins with identifying the
opportunities and risks in its environment.
We will examine the nature, complexity and variety of the environmental forces which
must be considered.
What are these forces and what is their precise impact on strategy formulation?
The major purpose of an environmental analysis is to identify opportunities and threats which
obtain in the environment. Whatever factors or events exist in the environment are regarded
as external influences on the firm.
1. Globalization
A market typically evolves from submarket within a national market, to a national market, to
a regional market, to a continental market and to a global market, viz.
The concept of globalization lies in looking at the whole world (globe) as constituting a
firm’s sphere of operations rather than any part of it. The key influences toward globalisation
include:
Convergence of needs and preferences across nations. The functional utility
of most goods tend to be universal. Such goods and services include:
i. Electric/electronic gadgets, e.g.
o computers
o hi-fi systems
o TV, cameras, video recorders
o soft drink (Coca-cola)
ii. Machinery and equipment used in the following industries:
o mining
o extractive
o building and construction
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o fishing
o agriculture
iii. Professional and other services offered across national
boundaries:
o accountancy or auditing,
o medicine
o entertainment and sport
It is generally accepted that the most obvious and direct route to growth is
to operate beyond one’s immediate border. Among the many reasons why
firms seek external growth are:
- To find a new market for a product in the
maturity or declining stage in their life
- To spreading risk of operating in one market
- To seek tax relief abroad
market-driven economies
liberalization
privatisation
The strategic impact of globalization is two-fold. One is that it creates opportunities of doing
business in new markets. Second and paradoxically, in as much as opportunities for new
markets overseas are created through economic liberalization, national economies also
become exposed to foreign competition by way of imports and entry of foreign investment.
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2. Political, Economic, Social, Technological (PEST) Analysis
Technological developments are not only the fastest unfolding but the most
far-reaching in extending or contracting opportunity for an established
company. They include:
the discoveries of science
the impact of related product development, and
the progress of automation
Besides, science gives the impetus to change not only in technology but
also in all other aspects of business activity
Some major areas of technological change:
(a) Increased transportation capability
masterly of greater distances in less time and cost
movement and operations in space, under seas, and otherwise inaccessible
areas
Consider for a moment the impact and opportunities offered by the
following modes of transportation.
Bicycle - Confined to basic elementary
business transactions
- Advances have created
opportunities for leisure and sport
Motor cars - A big and significant improvement
over bicycles, even in the delivery
of mail
- Has created opportunities for
passenger transport (taxi) and car
hire
- The haulage business has created
immense opportunities in the
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haulage business, even overtaking
rail transportation
Aeroplanes - The aviation industry is big
business because of the advantages
of time and speed over road
transportation.
- Travel by air has made it possible to
reach and conduct business with
otherwise inaccessible areas.
- The tourism industry has thrived in
part because of technological
advances in this area.
- There is also an opportunity for the
oil industry to supply aviation fuel.
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(d) Increased ability to alter characteristics of materials
New opportunities have emerged by advances of creating
New properties from old materials
Combination of materials to provide new and unique characteristics
(e) Extension of man’s sensory capabilities in the following areas have made man
more productive
vision
hearing
touch
memory
(f) Growing mechanization of physical activity has made business more efficient
Examples of mechanization abound:
Production
- direct labour
- materials handling
- packaging
- testing and inspection
Distribution
- shipping and receiving
- warehousing
- loading
Communication
- messenger
- postal services
- fax
- electronic mail
Extractive industries and construction
- earthmoving
- mining
- lumbering and agriculture
29
(g) Growing mechanization of intellectual processes has revolutionalized the way
business is conducted, particularly in:
30
Joint ventures
Regulatory by - taxes investment
- rules of the game standards
- policies permits
Bargaining Power of as major or sole buyer
• may initiate, finance or even own major infrastructure and
capital projects - airports, roads, buildings
• may be a key account, e.g. for a bank
• may be a big buyer for motor vehicles
• only client/purchaser of military goods
• may own and run institutions such as hospitals, schools
and strategic facilities, such as airports, oil installations,
bridges.
Nationalism
31
Recall that strategy is about (long-term) direction. It is therefore desirable
that government programmes have some continuity in cases where they
have an impact on business.
Indicators of instability:
32
Political sovereignty
This refers to a nation’s desire to assert its authority and complete power to
govern over foreign businesses which operate within its confines,
sometimes bordering on hostility toward foreign owned businesses. The
desire for political sovereignty may manifest itself in any of the following:
(punitive) taxes
domestication or indigenisation
33
o support in times of national disasters
Economic System
The economic system of a country is conditioned by many factors:
34
What economic philosophy or ideology drives economic
aid and foreign investment?
Level of Economic Development
Underdeveloped countries (UDC) have historically been
regarded as producers of primary goods and consumers of
manufactured goods. Where is the comparative advantage
for a firm?
UDCs are often perceived as sources of cheap labour. Can
labour be exploited to advantage?
UDCs associated with poor physical infrastructure. Is this a
constraint for a firm?
UDCs offer greater scope for business since they are
relatively less industrialized and thus offer potential for
growth, as is the case with investors coming into Zambia.
Limitation of income presents opportunities for market
segmentation. For instance, niches for the following can be
pursued:
o military ware
o education supplies, books
o health care
o insurance
UDCs often experience high levels of poverty, inflation
and monetary instability.
Size of the Market
Population – other things being equal, the greater the
population the better the market (potential), especially for
essentials or necessities such as food or health care items.
Population growth rate
- on the positive side, a high population growth rate may
indicate buoyancy in the economy – healthy appetites, a
healthy people, new households-which tend to increase
demand for goods and services.
35
- on the negative side, high population growth rates can
hinder modernization and development of the economy by
holding back per capita income.
Distribution of the population –this variable can be used
to qualify the size of the market by taking into account the
economically active population. For example, new foreign
investment in Zambia tends to be slanted toward the urban
sector as opposed to the rural sector.
Income distribution
Markets require not only people, but people with
disposable income. It is the availability of money and the
willingness to spend it which makes markets viable. With
income, people are able to buy goods of their choice. Per
capita income is a measure of economic prosperity for it is
a determinant of what standard of living people enjoy.
Botswana is economically more attractive than Zambia and
therefore tends to attract more investment and migrant
labour.
Indicators of economic prosperity include:
- A boom in housing and other construction
- Personal possessions
car
home
furnishings
- Life style
holiday
entertainment
clothing
- Eating habits
Nature of the economy
This refers to any of the following:
A nation’s physical endowments, e.g. its natural resources
Minerals and foreign exchange earnings
36
Sources of inputs/raw materials
Future economic prospects
A country’s topography, that is, a country’s surface
features such as land, rivers, lakes, forests, deserts,
mountains.
A country’s climate
A country’s infrastructure
The nature of the economy may present opportunities of all sorts. For
instance, a country’s endowments may define what business a firm
may engage in:
Timber where there are forests
Fishing where there are rivers, oceans or seas
Agriculture where there is arable land, or
Tourism where there is wild game and a good
climate
Extreme climates may also give rise for
technological developments intended to control
climatic conditions, e.g. refrigeration, air
conditioning, heating.
Mining where there are minerals
A country’s infrastructure (telecommunications,
available modes of transportation) facilitates
economic activity
37
In recent years, in the field of marketing strategy, there has been an increasing recognition of
the influence of cultural and social factors on consumer behaviour. Accordingly,
opportunities and barriers in the market place may be a function of cultural and social factors.
What is Culture?
Adamson Hoebel (1960:168) in his book Man, Culture and Society (New York: Oxford
University Press,) defined culture as:
“The integrated sum of learned behavioural traits that
are manifest and shared by members of a society”. p.168
Edward Taylor (1871:1) in Primitive Culture (London: John Murray, 1871) defined culture
as:
“that complex whole which includes knowledge, belief, art, morals, law, custom
and any other capabilities and habits acquired by individual members of a
society”.
Two important features of culture are that, first, is man-made in that it is learned or acquired
behaviour. Examples of learned behaviour are what Taylor op.cit. observed as including
knowledge, customs, tradition and capabilities. Second, culture is a distinct way of life of a
people.
Elements of Culture
1. MATERIAL CULTURE
This involves techniques and physical things made and fashioned by man, such as tools,
artifacts and technology, as opposed to those found in nature.
Materials culture relates to the way of life of a people – the way that society organizes its
economic activities. A fruit tree per se is not part of a culture, but an orchard is part of a
culture. The concept of a “technology gap” among nations reflects culture. Thus, references
to nations being “backward”, “in the space age”, “industrialized” or “underdeveloped” refer
to how a particular society has organized its economic way of life as distinct from other
nations. The “American Way of Life” reflects a culture steeped in materialism, that is, the
good things of life, such as a house, car, TV, fridge or general life style.
Production of goods is responsive to and conditioned by need for those goods. In other
words, the craving for material things inherently creates an opportunity for those goods to be
38
produced so that they can be consumed or used to satisfy need. Materialism flourishes when
consumption goes beyond satisfying basic needs. The fashion industry, real estate and the
food industry are not just about satisfying the basic needs for clothing, shelter or hunger;
rather they thrive because of the craving for a good life implicit in the desire to wear designer
clothes, to live in a mansion, or eat at a restaurant.
A classic example of the impact of materialism has been the demise of the railway system
against the ever growing popularity of road transportation over rail transportation. The loss of
ground to road transportation by the railway transportation has been attributed to marketing
myopia: a failure by the railway industry to realize that they were in the transportation
business and not in the railway business, and as such the industry failed to adapt to the
emerging preferences for speed and comfort that the trucking business exploited.
Convenience and comfort have influenced developments in shopping from corner shops to
supermarkets and department stores where shopping can be done under one roof.
2. LANGUAGE
39
3. AESTHETICS refers to a community’s conceptualization of beauty and good taste
as expressed in fine arts, music, art, drama, dancing or colour.
Impact of Aesthetics
The type and level of education have an impact on business in several ways, for
example:
40
5. RELIGION
Religion has an impact on business to the extent that it accentuates or restricts
consumption or participation. Here are some examples:
Animism: the religion and philosophy of primitive people founded or based
on traditional witchcraft, ancestor worship, taboos and fatalism.
It tends to promote a traditionalist and conservative attitude and may result in
slow acceptance, or rejection, of innovation.
Shinto is the national religion of Japan. Its major feature is reverence for the
special or divine origin of the Japanese people, and reverence for the Japanese
nation and the imperial family as head of the nation. Its major impact is the
patriotism of the Japanese people and their love and pride in Japanese-made
products. In international trade, this has manifested itself in Japan exporting
more than it imports. Contrast this with the Zambians’ near disdain for locally
made products in preference for foreign-made products.
Christianity
The values underlying modern capitalism and free trade have their origin in
Christianity. Missionary works and colonization in Africa - especially by the
Portuguese, Spaniards, French-moved in tandem, and tended to promote a
non-secularalism. The major Christian churches have an impact in other more
specific ways:
Catholicism
The major characteristic of Catholicism is the centrality
of the Church as an intermediary in salvation. The
41
sacraments and priests are the intermediary between God
and man, and without Church, there is no salvation.
Islam
It is followed and practised by those known as Moslems
in most parts of Africa, the Middle East and Asia and is
growing rapidly in other parts of the world. Based on a
fatalistic belief that everything, which happens, whether
good or evil, proceeds directly from the Divine Will and
is preordained. The Sharia prescribes what man should do
and believers must religiously follow and obey Sharia law
in whatever they do.
It promotes non-secularalism and hence tends to dominate
all aspects of life.
42
- Saturday for Seventh Day Adventists
- Ramadan for Moslems
Contraction of opportunity by restricting demand or consumption p
- Beef, in the case of Hinduism
- Alcohol, in the case if Islam and to some extent Christianity
Religious intolerance and instability
SOCIAL ORGANIZATION
Another aspect of culture is for the individual relates to other members of the community.
Of particular interest are the following issues and questions:
The extended family concept- with its implicit obligation toward
other members-and thrift.
What constitutes an economic unit-is it the household or the
immediate family?
What is the impact of the family on business?
How does gender impact on business?
How do family values affect business?
What is the envisaged role of minority groups?
43
2.6. THE COMPETITIVE ENVIRONMENT
Competition is yet another factor in a company’s environment that can present an opportunity
or a threat to a firm. Competition is an opportunity when a company has a competitive
advantage over its rivals. A company is said to have a competitive edge over its rivals when
its profitability is greater than the average profitability of all companies in its industry.
Competition is a threat to a firm when its rivals have the ability to erode a firm’s profitability
base.
Competitive advantage leads to superior profitability. Profitability in turn depends on three
factors:
(a) The value customers place on a product or service
(b) The price that a company charges for its product, and
(c) The costs of creating the product
A firm can be said to be at a competitive disadvantage when its profitability is reduced either
because rivals offer better value for a product, offer a product at lower price or create a
product at lower cost.
Competition is viewed in the narrower sense as the existence of rivalry among firms. Michael
Porter identified five forces that constitute competitive forces to the extent that they can
potentially or actually reduce a company’s profitability. These have become to be known as
Porter’s Five Competitive Forces and are illustrated in Figure 8.
Threat of
New Entrants
Threat of
Substitutes
44
(i) The Threat of New Entrants
The threat of new entrants refers to the risk of entry posed by companies that are
not currently in the industry but have the capability to enter the industry if they
should choose to do so. Potential entrants to an industry pose threat by seeking to
gain market share, or by bringing into the industry better valued or lower priced
products. This has the effect of shifting customers and profitability away from
firms in the industry to the new comer. For example, when Shoprite Checkers
entered the Zambian market, they took away customers from existing
supermarkets by providing services that customers highly valued, such as:
- A wider range of goods
- Lower prices
- Opportunity to purchase many and diverse
goods under one roof.
It is in the interest of established firms already operating in the industry to
protect their share of the market and profits by discouraging potential entrants
from entering the industry. How successful a new entrant is consequently
depends on his ability to overcome barriers erected by established firms
operating in an industry. Conversely, the success of established firms will
depend on their ability to erect barriers that make it costly for a potential entrant
to enter the industry. Some of these barriers are:
Economies of scale – these are determined by the cost structure of
the industry. They refer to unit costs of a firm falling as volume
increases. Economies of scale may be realized through cost
reductions gained by mass-production of a standardized product;
quantity discounts on purchases of raw materials; or the ability to
spread fixed costs overlarge volumes of output. When such costs
are realizable by established firms, a new firm will be at a cost
disadvantage.
The capital requirements of entry-these refer to investment needed
to set up the requisite plants, machinery or distribution outlets.
- set up plants/purchase
- establish distribution outlets
45
Access to distribution channels-this refers to the ease or difficulty
of establishing customer contacts, either directly or through
intermediaries.
Expected retaliation from existing firms through
- price cuts
- clout with customers/distributors
- advertising
- investing more in the business.
Government policy-this refers to measures and policies enacted by
government that may facilitate or inhibit entry into the industry.
Examples include:
- Regulations governing investment, that is,
specifying who may invest in what, where and
how much.
- licence requirements
- work permits
- regulations relating to taxation, remittance of
profits
- pressure for protection of local industry
- access to raw materials and labour
Brand loyalty-this refers to the extent to which consumers have a
preference for the products of established firms. Customer loyalty
to an existing brand will compel new entrant to spend heavily on
advertising, customer service and product differentiation.
Customer switching costs-this refers to the time, money and energy
spent by a customer in switching from products offered by
established firms to the products offered by a new entrant.
46
Suppliers may become powerful under the following circumstances:
When the product that suppliers sell is unique and vital to the buyers
such that switching costs to the buyer are high
The profitability of suppliers is not significantly affected by rthe
purchases of buyers in the industry, that is, the buyers are not
important customers to the supplier.
When buyers are likely to incur significant switching costs if they
moved their patronage to a different supplier because they depend on
the supplier’s product.
When suppliers can threaten to enter the buyers’ industry and use their
inputs to produce products that would compete with products of their
buyers.
When buyers cannot threaten to enter their supplier’s industry and
make their own inputs.
When the supplier’s customers are highly fragmented
47
In Zambia, examples of powerful buyers are Shoprite and the
mining companies (Mopani and Konkola).
48
industry growth is slow, stagnant or declining and hence the fight for
market share
when the product is perishable, thus creating strong temptation to cut
prices
when fixed costs are high, thus exerting pressure on increasing sales
volume
when there are exit barriers; such barriers may be economic, strategic
or emotional.
In coping with competition, a firm must search out a market position and a competitive
approach that will:
insulate it as much as possible from forces of competition;
influence the industry’s competition rules in its favour; and
give it a strong position from which to “play the game” of competition.
Strategic Responses:
49
Negotiate favour Internal cost- Negotiate
able terms with saving measures favourable terms
suppliers with distributors
50
Firms on the fringe-these are firms whose individual market
share is small and insignificant.
51
(d) Market Focus-This entails concentrating on catering to a narrower and
limited segment (or niche) of the market rather than going after the whole
market with a “something-for-everyone” approach.
52
The Competition and Fair Trading Act of 1995
(The Zambia Competition Commission)
53
2. Promotion of Consumer Welfare and Protection
It is prohibited to:
2.1. Withhold or destroy producer or consumer goods, render unserviceable or destroy
means of production and distribution of such goods, with the aim of bringing
about a price increase.
2.2. Disclaim liability for defective goods
2.3. Limit any warranty to a particular geographic area or sales point
2.4. Falsely represent that goods are of a particular style, model or origin
2.5. Falsely represent that goods are new or of a specified age
2.6. Represent that goods have any sponsorship, approval, performance and quality
characteristics, components, accessories, uses or benefits which they do not have
2.7. Engage in conduct that is likely to mislead the public as to the nature, price,
availability, characteristics, suitability, quantity or quality of a product
2.8. Supply any product which is likely to cause injury to health or physical harm to
consumers, when properly used, or which does not comply with the consumer
safety standard which has been prescribed under any law
54
TOPIC 3
DETERMINING CORPORATE COMPETENCE AND
RESOURCES
1. Resource Audit
55
2. Distinctive Competences
This refers to firm-specific strengths that allow a company to deploy its resources in a unique
or special way to sustain excellent performance. The primary objective of strategy is to
achieve a sustained competitive advantage, which in turn will result in profitability.
Accordingly, the importance of distinctive competence to strategy formulation rests with:
56
Capabilities refer to a company’s skills at coordinating its resources together and putting
them to productive use. These skills reside in an organization’s style or manner through
which it makes decisions and manages its internal processes to achieve organizational
objectives. Coordination involves harnessing individual talents and balancing them against
the effort of others so that there is organizational harmony and symmetry in total
organizational effort. The management of linkages of otherwise separate activities can
provide leverage and levels of performance which may be difficult to match. Strategic
coordination demands that separate units should not pull in opposite directions.
The resources and the capabilities (skills) necessary to take advantage of that
resource; or
The capability to manage the resources.
57
V-P
V
P-C
P
C C
V = Value to customer
P = Price
C = Costs of Production
V – P = Consumer surplus
P – C = Profit margin
Value creation
A company creates value by converting inputs that cost C into a product on
which customers place a value of V.
A company can create more value for its customers either by
lowering C, or
making the product more attractive through superior design,
functionality, quality, etc. so that consumers place a greater value on
it and, consequently, are willing to pay a high price (V increases).
Each activity can therefore be performed to maximize the perceived value,
or to minimize the delivered cost.
2. Cost efficiency
Efficiency is the ratio of inputs to outputs
E = Outputs
Inputs
The more efficient a company is , the lower or fewer its inputs required to
produce a given output should be.
The most important component of efficiency for many companies is employee
productivity, which is usually measured by output per employee.
58
3. Historical Analysis
This is an assessment of the deployment of resources of an organization over time, e.g.
2000 2001 2002
5. Benchmarking
What is “best” is stretched to similar activities in a different industry, e.g. market share
or innovation.
6. Financial Analyses
This involves an analysis of the company’s financial condition. Although analysing
financial statements can be quite complex, in general a company’s financial position ca
be determined through the use of ratio analysis. Financial performance ratios can be
calculated from the balance sheet and income statement. These ratios can be classified
into five different subgroups:
1.1 Profit Ratios
Profit ratios measure the efficiency with which the company uses its resources.
The more efficient the company, the greater its profitability. The most commonly
used profit ratios are as follows:
Sales Revenue
= Net Income
Sales Revenue
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1.1.3 Return on total assets
Total assets
Stockholders’ equity
= Current Assets
Current Liabilities
Current Liabilities
Inventory
This ratio is the average time a company has to wait to receive its cash
after making a sale.
60
DSO = Accounts Receivable
Total Sales/360
= Total Debt
Total Assets
This measures the extent to which borrowed funds have been used to finance a
company’s investment.
1.4.2 Debt-to-equity ratio
Total Equity
This measures the extent to which a company’s gross profit covers its annual
interest payments. If it declines to less than 1, then the company is unable to
meet its interest costs and is technically insolvent.
TCR = Profit Before Interest and Tax
61
Thus, given:
This measures the amount investors are willing to pay per Kwacha of
profit.
This is simply cash received minus cash distributed. A positive cash flow enables
a company to fund future investments without having to borrow money from
bankers or investors. A weak or negative cash flow means that a company has to
turn to external sources to fund future investments.
1.7 Product Portfolio Analysis
62
There are however opportunities for growth characterized by a high
growth rate
The company must target growth and may therefore require a lot of cash
to spend money on plant, equipment and personnel to keep up with the
fast-growing market, and because it wants to overtake the market leader.
High Low
High
Star Question Mark
Market
Growth
Rate
Low
Star
The company must spend substantial sums of money to keep up with the
high market growth and fight off competitors’ attacks
Cash Cow
The company does not have to finance capacity expansion because the
market growth rate has slowed down.
63
Dog
This involves scanning the environment for opportunities and threats and to
balance these against the company’s strengths and weaknesses. The following
questions are essential to the analysis:
What can the company do to turn its weaknesses into strengths and
threats into opportunities?
These are aspects of strategy in which the organization must excel to outperform
competition. These must be underpinned by core competences in specific
activities or in managing linkages between activities.
64
TOPIC 3
PERSONAL VALUES AND ASPIRATIONS OF
SENIOR MANAGERS
We now turn to an examination of the personal values and aspirations of senior executives
and their impact on the formulation of strategy.
W.D. Guth and R. Tagiuri∗ defined a value as “a conception, explicit or implicit, distinctive of
an individual or characteristic of a group, or the desirable which influences the selection of
available modes, means and ends of action”.
Individuals or groups form ideas about what they desire and direct their efforts towards
attaining the desirable. Values are acquired early in life as a result of the interplay of what the
individual learns from those who bring him up, the times and circumstances of his upbringing
and his particular individuality.
A person’s basic values are a relatively stable feature of his personality, although they may
change somewhat with his level of knowledge and analytical skill.
∗
W.D. Guth and R. Tagiuri, Personal Values and Corporate Strategy, Harvard Business Review, Sept-Oct
1965, pp 123-32
65
TYPES OF VALUE ORIENTATIONS
(c) The aesthetic orientation – manifested by interest in the artistic, form, symmetry,
harmony and fine taste.
(d) The social orientation – characterized by love of people, the welfare of humans and
warmth of human relationships.
(e) The political orientation – manifested by the love for power, influence and recognition.
(f) The religious orientation – manifested by fascination with unity, mystery, and the
creation of satisfying and meaningful relationship with the universe, moral and ethical
issues.
1. Stakeholders
Their power and influence derive from ownership and control of strategic
resources, such as capital or a patent.
Their orientation is economic because they are strongly motivated by the return
on their investment.
Represent those who have an equity interest in the firm or those who own
strategic resources being used by the firm, e.g. Banks that might have loaned
funds to a firm.
Their power and influence are derived from their principals or those they
represent.
66
Accountable to the Board for the implementation of strategy.
Power and influence derive from the mandate received from the Board.
They are the embodiment of the expertise, knowledge and capability necessary
for the search, analysis, selection and implementation of strategy.
Their power and influence derives from the perceived value of their contribution
to the formulation and implementation of strategy.
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TOPIC 4
THE COMPANY AND ITS SOCIAL
RESPONSIBILITIES: RELATING CORPORATE
STRATEGY TO THE NEEDS OF SOCIETY
INTRODUCTION
In our consideration of strategic choices, we have so far moved from what the strategist
might, to what he can do, and to what he/she wants to do. We now turn to what he/she
ought to do – from the point of view of disinterested observers in society and his/her
standards of right and wrong. Our task is to recommend that strategic choice should meet
ever rising moral and ethical standards. This requires an examination of the inherent conflict
between the economic isolationists, who argue that business serves society best if it
concentrates solely upon its economic function, and the social interventionists, who maintain
that management of business should and ought to concern itself with the problems of its
physical and social environment.
Social responsibility is the intelligent and objective concern for the welfare of society. This
concern should restrain individuals and corporations from behaviour and activities that are
ultimately destructive, no matter how immediately profitable such behaviour or activities
might be. Such concern must additionally lead firms to making a positive contribution to
human betterment.
1. That the primary purpose of business is economic, that is, to maximise revenue.
68
• Moreover, the pursuit of the economic motive results in good for society as a
whole.
3. Business should however live up to its legal obligations, such as paying taxes or bills,
keeping honest expense accounts and labelling and weighing its products accurately.
In his work, The Wealth of Nations, Adam Smith argued that perfect competition, as
characterised by atomised markets, produces not only the optimum allocation of
resources, but also satisfaction of the general interest. The “invisible hand” of
competition keeps the self-seeking men, striving against each other, from harming the
public. The general good can be attained by the self-centred drive for survival and
efficiency of the entrepreneur or small firm. In a famous quote, Adam Smith asserted
‘It is not from the benevolence of the butcher, the brewer, or the baker that we
expect our dinner, but from their regard for their own interest’
The counter argument against Adam Smith’s proposition is that perfect competition
does not exist in its pure idealised form as envisaged by Smith: in reality, what
obtains is imperfect competition characterised by few large suppliers who control
markets and incomplete knowledge on the part of the buyers of sources of supply and
prices.
69
(c) Milton Friedman (in Capitalism and Freedom)
• In a free society, there is one and only one social responsibility of business
and that is to use its resources and engage in activities designed to increase its
profits, so long as it stays within the rules of the game.
• Direct intervention or the doctrine of social responsibility is “fundamentally
subversive” in a free society.
The case for the social interventionists rests on the following arguments:
1. Government regulation, certainly essential for the provision of ground rules for
competition and prohibition of grossly improper and dishonest behaviour, is neither a
subtle instrument for reconciling private and public interests, nor an effective
substitute for knowledgeable self restraint.
2. If businessmen are to be freed from the need for self-restraint, then government
regulation ought to be sufficiently specific and knowledgeable and timely to check or
forestall abuse. This is often not the case: Laws are invariably not specific enough to
cover every case; neither are all affected persons sufficiently knowledgeable about the
provisions of the law; nor are laws enacted on time. Secondly, regulation cannot
possibly design the ideal relationship between corporation and society. A regulation
or law is premised on preventing some anticipated errant behaviour. This implies
some divergence of interest to necessity conformity to accepted norms of behaviour.
A law is thus an imposition on aberrant behaviour and is not itself sufficient to fight
off the inclination toward bad behaviour. Moreover, even in matters where the law is
intended to promote public interest, such as taxation, there is considerable contention
regarding the nature and scope of taxation.
3. In this day and age, it is wanton irresponsibility to argue that a businessman should
knowingly ignore the consequences of his company’s impact upon its physical and
social environment until new laws are put in place. The public constantly expects and
demands that businesses behave not only legally but within visible regard for the
rights of competitors, customers and the general public.
70
4. In an industrial society, corporate power – vast in its potential strength – must be
brought to bear on certain social problems if they are to be solved at all.
Governments in most developing nations do not have the capacity to solve the vast
and diverse social and economic problems which beset them.
6. The dangers and problems of corporate participation in public affairs can be dealt
with through research, education, government control and self-regulation. The
voluntary participation in working towards a common good is preferable to a standoff
between government and business.
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(c) The problems of the community in which the company operates:
SUMMARY
In summary, there are three reasons for a strategist to examine the impact of his policy
choices upon the public good:
(i) his professional concern for legality, fairness and decency; his professional
contempt for returns improperly or unfairly secured;
(ii) his humane concern for the progress of society and his perception of the
proper uses of corporate power in dealing with problems not directly related to
his present business; and
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TOPIC 5
STRATEGIC ALTERNATIVES
INTRODUCTION
We have previously observed that strategic management basically deals with three questions:
What has been covered so far has dealt with the first question. The second question – where
do we want to go – is the subject of this topic. In it, we examine the strategic options
available to a firm once it has determined what might be done, what can be done, what it
wishes to do and what it ought to do.
The following are some of the options of strategic direction a firm could follow.
1. NO CHANGE strategy
This strategy is followed when a firm is satisfied with its current corporate or
competitive strategies and therefore sees no justification for change of course. A “No
Change” strategy thus entails a continuation of the existing strategies, whatever these
strategies might be.
Strategic management does not, therefore, mean change for its own sake. If a strategy
that is being followed is sound and effective, and is producing results that management
is satisfied with, it is sensible to continue with the strategy. This certainly can be
justified in the short-term but not be prudent in the long term because changing
circumstances might call for change.
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Market Focus is the process of deciding which kind of product(s) to offer to which
customer segment(s). Customer segments are the sets of people who share a similar
need for a particular product. However, a particular product may satisfy different
kinds of needs. Within each group, there are subgroups that may have a more
specific need for a product. Market focus aims at targeting these needs more
narrowly. How responsive a company is to needs of market segments can range
from (a) where a product is targeted at a typical customer; in this instance, a
company chooses to ignore the existence of differences among market segments; (b)
where a different product is offered to each market segment; and (c) where a product
is offered to one or a few market segments.
A low cost strategy is based on a company lowering its cost structure so that it can
make and sell its product(s) at a lower cost than its rivals. This offers a competitive
advantage in two ways: First, where firms charge similar prices for their products,
the company with a lower cost structure will be more profitable than its competitors
because of its lower costs. Second, because of its lower cost structure a company
may attract customers away from its rivals because it will be able to offer its product
at a lower price than its competitors.
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Advantages of single-business concentration:
By utilizing the full force of organizational resources and managerial know-
how in order to become proficient at doing one thing very well and
efficiently, a company can build a distinctive competence.
A firm can then use and translate the firm’s distinctive competence and
ability into a reputation for leadership/excellence
A firm can use its accumulated experience and distinctive expertise to
pioneer fresh approaches in
production technology
meeting customer needs
product innovation
value creation in any of its activity/cost chain
Disadvantage of single-business concentration:
- A firm may run the risk of putting all of its eggs in one basket,
especially if the industry stagnates, declines or otherwise becomes
unattractive.
(b) Market development
This strategy is closely related to concentration because it entails building
on existing strengths, skills and capabilities.
Market development focuses on positioning a product in markets by
extending into new markets that are not served, or developing new uses for
existing products. These may require some modification of the product.
(c) Product development
Involves substantial modification or additions to present products in order
to increase their market penetration within existing customer groups.
Intended to prolong or extend the product life cycle, e.g. revised edition of a
book, restyling of an engine.
(d) Innovation
Implies significant changes to a product or service. It involves replacing
existing products with new ones as opposed to modifying them.
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4. STRATEGIES IN DECLINING INDUSTRIES
Many industries experience sooner or later a decline, whereby the size of the total market
starts to contract. The decline stage can be attributed to many causes, including technological
changes, emergence of substitutes, shifts in tastes and preferences and falling incomes. The
severity of the decline can be exacerbated by the intensity of competition.
Hill and Jones have developed a framework of strategic options in a declining industry as
illustrated in Figure 2. Note that the options are determined by the intensity of competition
and a company’s strengths relative to the remaining pockets of demand.
(i) Leadership Strategy
This aims at growing in a declining industry by picking up the market share of
companies that are leaving the industry. This strategy is appropriate when (a)
the company has distinctive strengths that allow it to capture the remaining
share and (b) the rate of decline is slow and intensity of competition is not
severe. The tactical steps may include aggressive marketing and making new
investments.
Figure 2: A Framework of Options in a Declining industry
Few Many
High
Niche or
Divest
Harvest
Intensity of
Competition
Leadership or
Harvest or divest
Niche
Low
Company’s strength
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This calls for a company to focus on pockets of demand in which demand is
stable or declining slowly. This strategy is appropriate when a company has
strengths to exploit the pockets of demand.
(iii) Harvest Strategy
This is used when a company wishes to get out but would like in the process
to optimize cash flow. This strategy entails cutting all new investments and
reducing costs wherever possible.
(iv) Divestment Strategy
Represent strategic alternatives where money is not invested for growth
purposes, but rather money raised may be reinvested to develop a
competitive advantage and enhance consolidated and repositioning.
They are applicable in any of the following:
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5. EXTERNAL GROWTH STRATEGIES
• These are often implemented through acquisition, merger or joint venture.
• They involve the purchase of, or an arrangement with, firms that are behind or
ahead of a business in the added value channel.
Can also involve firms or activities that are indirectly related through
technology or markets, or even unrelated businesses.
The key objective is to increase market share and find new opportunities
that can generate synergy.
Horizontal integration
– when a firm acquires or merges with a major competitor, or at least another firm
operating at the same stage in the added value chain.
Vertical integration
– Acquisition of a company which supplies a firm with inputs (raw materials or
components) or serves as a customer for the firm’s products or services.
Ranch Meat Processing Supermarkets/
Butcheries
B B C
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6. DIVERSIFICATION
This involves departure from existing products or services and engaging in new
investment opportunities. It involves adding new businesses to the company that are
distinct fro its core industry. Diversification means operating in two or more industries.
As a strategy, a company attempts to add value by using its distinctive competence in a
new industry.
7. STRATEGIC OUTSOURCING
This involves a company allowing any of a company’s value chain activities or
functions to be performed by an independent specialist company. The principal reason
for outsourcing is that the company may not have a distinctive competence, or
competitive advantage, in the activity or function to be outsourced.
Outsourcing may result in the following advantages:
Increased profitability if the cost of outsourcing is lower than that
incurred by the company if it performed the function.
Enhanced differentiation of a company’s final product through better
quality coming from outsourcing.
Enhancement of core competence by allowing a company to focus its
energies and resources on core activities.
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IMPLEMENTATION OF CORPORATE STRATEGY:
ACCOMPLISHMENT OF PURPOSE
Introduction
The formation of corporate strategy called for analytical and conceptual ability to:
(a) examine the environment for opportunity and risk;
(b) assess corporate strengths and weaknesses;
(c) identify and weight personal values; and
(d) clarify public responsibilities.
We now turn our attention to the concepts and skills essential to the implementation of
strategy which, like was the case in the formulation of strategy, can be divided into the
following sub-activities for examination:
(a) the design of organizational structure and relationships;
(b) the effective administration of organizational processes and behaviour; and
(c) the development of effective personal leadership.
A word of caution is in order here. Our approach has involved a neat division in the
consideration of corporate strategy into aspects of Formulation and Implementation. This is a
matter of convenience from the point of view of orderly study of the subject. In real life, the
processes formulation and implementation of strategy are interdependent and intertwined:
feedback from operations will serve notice of changing environmental factors, which might
require an adjustment of strategy.
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of issues that must be dealt with begins to grow, necessitating the structuring and designing
of system(s) of how to manage and coordinate the numerous and diverse issues relating to
recruitment, assignment of task, monitoring performance, training and retention of the
workforce. To cap it all, there must be some leadership to inspire, direct and control human
effort.
Our treatment of the implementation of strategy is premised on the proposition that
successful implementation of strategy depends on, first, designing an organizational structure
in which tasks to be performed are identified and assigned to individuals and/or groups to
carry them out; second, designing systems of encouraging the individuals and groups to work
toward the accomplishment of purpose, or discouraging them from behaviour that does not
advance strategy; and third, to provide for effective leadership to inspire performance.
TOPIC 6
STRATEGY AND ORGANIZATIONAL STRUCTURE
AND RELATIONSHIPS
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2. Identify the tasks to be performed
Once the strategy or purpose is clearly understood, the identification of the tasks to be
performed will follow. Pertinent questions to ask are:
Does the strategy call for new or additional tasks?
Will old tasks be deleted or retained from current portfolio?
Will personnel have to be retrenched or retrained?
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Functional Structure
In this format, the organization is structured on the basis of functions to be
performed. Thus, in a typical manufacturing firm, activities are organized
along the basic functions of production, marketing and finance. In a trading
firm, the functions might be grouped along the functions of buying, inventory
control and selling.
Farm Manager
Customer/Market/Geographic
Tasks are centred on the Customer, Market or Geographic area. The tasks may
be varied in nature but are grouped together on account of facilitating service
delivery to a customer, market or geographic area.
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Customer-based
Market-based
The basis for division is its relationship to corporate purpose. The grouping of
tasks must advance strategy or purpose.
The design should be flexible and allow for a more complex structure as the
organization grows in size.
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front line. Banking or travel service characterize tall structures. However, there
are a number of disadvantages associated with tall structures. The first is that
decision making processes become long, convoluted and ultimately ineffective.
Secondly, the different administrative and support functions become the domain
of powerful and dominant interests. Thirdly, tall structures tend to lead to rigidity
and entrenched authority. Fourthly, specific responsibility at a hierarchical level
may not always be apparent. The advantage of flat structures is that decision
making is faster. However, span of control can be problematic
Functions at one level typically are accountable to a higher level, which serves as
point of coordination. Thus, the diagram below shows that a Chief Executive
Officer coordinates the functions of finance, manufacturing and marketing. In
turn, the sub activities falling under any of the functional managers are
coordinated by the respective functional manager.
Managing Director
Establishment/use of Committees
Committees provide a forum at which diverse views, or people from different
departments, are brought together in an attempt to reach consensus on an issue. A
planning committee typically draws its membership from a cross-section of
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stakeholders. Similarly, a management committee is a point of coordination of the
views if the different managers who comprise its membership.
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TOPIC 7
ORGANIZATIONAL PROCESSES AND BEHAVIOUR
1. INTRODUCTION
Organizational performance does not depend only on the structure put in place. It
depends also on the extent to which individual energy is successfully directed toward
organizational goals.
Man-made and natural systems and processes are available for individual
development and performance. In any organization, the system which influences
behaviour consists of six elements:
Strategy by nature of its definition implies some progress toward some long-
term goal.
Progress toward some goal implies that one is able to observe and measure
that progress.
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To state where an organization ought to be is to set a standard.
(a) Profitability
(d) Budget
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In setting standards and measurement of performance, the following cautions should
be exercised:
The influences upon behaviour in any organization are visible and invisible; planned
and unplanned; or formal and informal. If the executive does not wish to leave the
implementation of strategy to chance, he has a number of options of encouraging
behaviour which advances strategy and deterring behaviour which does not.
Motivation and incentive systems are positive elements of encouraging desired
performance, while systems of restraint and control are considered as negative
elements. Whatever systems are in place, they must be visible, planned and known.
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nature and number of decisions to be made
• Age?
• Length of service?
• Potential?
• Materials needs?
Forms of compensation
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• climate for free expression and innovation
• good/pleasant environment
Controls may be formal or informal. Formal controls derive from accounting, where
we attempt to quantify performance, e.g. the principle of budgetary variances, or
accounting controls; codes of conduct; or systems of discipline. Informal controls
derive from the behavioural sciences and thus tend to be subjective. They can be
regarded as social controls. They are basically norms to which individuals are
responsive if not obedient:
they define the limits of proper behaviour and the type of action that will meet
with approval from the group
Our interest in organizational culture rests on the premise that group effort or
influence can positively affect performance. It draws heavily on general systems
theory where, through synergy, parts of a system produce more in working together
than they can if they worked apart. Stated simply, it is the proposition that while
2 + 2 = 4
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2 + 2 = 5
That is, an organization working as a system, can entice from is members more than
the individuals would produce if they worked apart. This is attributable to a
motivational element which obtains when people work in groups. Groups, as working
system, are said to have a mood, atmosphere or chemistry, intangible yet real, which
induces effort over and above the ordinary. This mood, atmosphere or chemistry is
the driving or influencing force of collective behaviour and is rooted in an ideology.
Ideology or organizational culture is taken here to mean a rich system of values and
beliefs about an organization, shared by its members, that distinguishes it from other
organizations.
The key feature of such an ideology is its unifying power. It ties the individual to the
organization, generating a “sense of mission”. The development of an ideology
proceeds in three stages:
The individual then collects a group around him or her to accomplish that
mission.
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and guidance and to assess the impact of one’s actions on
others.
The founders of new organizations are often “charismatic”
individuals, and so energize the followers and knit them
together
As the new organization establishes itself, or an existing one establishes a new set of
beliefs, it makes decisions and takes actions that serve as commitments and establish
precedent:
these decisions and actions are repeated over time and lead to
reinforced behaviour
reinforced behaviour in turn translates itself into tradition - a
way of doing things which members share
the organization transcends the individual and becomes a self,
distinctive personality or identity
this distinctive personality captures the allegiance and
commitment of members of the organization.
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Identification may also be evoked through the use of
socialization and indoctrination to reinforce natural or
selected commitment to the system of beliefs.
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It is all too often manifested by subordinates who make comments
about their company but refuse to disclose their identity for fear of
reprisals from their superiors.
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It occurs when two major power blocs emerge from other games
It takes the form of conflict between functional units or between rival
personalities.
Politics can have both a positive and negative effect on organizational performance.
The dysfunctional influence of politics in organizations manifests itself when politics
is divisive and costly, burns up energies that could instead go into operations and
leads into all sorts of aberrations whose ultimate result is paralysis of the organization
to a point where its effective functioning comes to a halt and nobody benefits. On the
other hand, politics can serve a functional role under the following conditions:
Where it is necessary to correct certain deficiencies in an organization’s
legitimate systems of influence. Above all where it is expedient to provide for
certain forms of flexibility discouraged by the legitimate systems.
Politics provides a forum for that all sides of an issue are to be fully debated,
whereas other systems of influence seek at best to solicit adherence to the
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status quo or at worst blind subservience to legitimate systems of influence.
For instance, the system of authority defers open discussion to a central
hierarchy, and this is often favoured one by those in authority; the system of
ideology imposes restraint through a system of common beliefs; and the
system of expertise gives deference to the expert or experience. In contrast, the
system of politics encourages a broader and researched articulation of issues
which challenges the status quo.
The system of politics can ease the path for the execution of duties. That is,
once people are convinced about he merits of a strategic option, they are more
likely to implement the decision with renewed vigour and commitment.
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education can become quite successful at business, or why certain
ethnic groups – such as Jews, Asians, West Africans – seem o have a
natural flair for business.
The rejoinder to this is that men are, of course, born with different
innate characteristics, but none of these precludes the necessity to
acquire knowledge, skills and attitudes which fill the gap between an
identifiable trait and executive action.
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therefore naïve to be rigid about a hiring and promotion policy. It is
both risky and expensive to prefer hiring from outside instead of
having a deliberate manpower development scheme within the
organization. For one, it is difficult to appraise the quality of outsiders;
secondly, it is questionable whether outsiders can effectively transfer
to another organization their technical effectiveness, knowledge and
experience which blossomed and matured in a different organization;
thirdly, hiring from outside inevitably impacts negatively on natural
internal motivation and incentive systems.
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TOPIC 7
TOP LEADERSHIP AND ACHIEVEMENT OF
PURPOSE
Our proposition here is that leadership affects performance. Consequently, we will
examine those factors in leadership that are determinants of effective leadership. The
issues to be discussed are:
The key functions of a leader are to achieve results, inspire others, and work
hard and effectively. A leader must also be honest and responsible. The variables
listed above that affect performance will be examined in this context.
It helps to explain why those who have specific and tried expertise in
one area often fall short of full success when further development is
required.
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It also means a willingness to be seen in action in different sets of
circumstances and, where necessary, to accept responsibility for
failure.
2. Roles of a leader
A leader needs expertise to fill a range of different roles. The nature of these
roles and the frequency with which they are required varies between and
within organisations. However, these roles include:
The visionary role: the ability to see the future of the organisation, and to
translate this vision into language that engages the support of all stakeholders
and constituents
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organisation and its activities, products and services is not always easy
because other people in the organization may hold the view that the CEO and
his top managers are overcompensated given the results.
The enthusiast role-reflects the fact that if leaders are not enthusiastic, they
cannot, and should not, expect enthusiasm from staff shareholders, backers
suppliers, customers and clients
The wanderer role-refers to the need for visibility among staff and gaining the
broadest possible perspective on the effectiveness of organisation
performance. The primary purpose of wandering is so that the leader sees for
himself or herself what is happening within his domain rather than relying
solely on what is reported back to him. Wandering may also involve visiting
other organizations with a view to learning new lessons and seeing different
ways of doing things. The best leaders also take time out to attend courses,
conferences or professional association meetings in order to meet with others
with similar problems and learn from them.
The coach role-this refers to guidance and steerage provided. This reinforces
the need for visibility, capability and clarity in all those in leadership
positions. If those in leadership positions are going to translate their ideas into
practice, then those in other executive positions need to know how this should
be done and the required outcomes; in many cases, they need guiding through
this by the person in charge.
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The other key feature of this role is to take corrective action wherever it is
required. Managers whose behaviour, attitudes, standards and performance
slip must be called into line immediately
LEADER NON-LEADER
Carries water for people Presides over the mess
Open door problem solver, advice giver, Invisible, gives orders to staff, expects
cheer leader them to be carried out
Comfortable with people in their Uncomfortable with people
workplaces
Manages by walking about Invisible
Arrives early, leaves late In late, usually leaves on time
Good listener Good talker
Available Hard to reach
Decisive Uses committees
Humble Arrogant
Tough, confronts nasty problems Elusive, the artful dodger
Often takes the blame Looks for scapegoats
Gives credit to others Takes credit
Gives honest, frequent feedback Amasses information
Knows when and how to discipline Ducks unpleasant tasks
people
Prefers discussion rather than written Prefers long reports
reports
Sees mistakes as learning opportunities Sees mistakes as punishable offences and
and the opportunity to develop the means of scapegoating
4. Types of leader
A key characteristic of the leadership position relates to the type of leader that
a particular individual is. The following types of leader may be distinguished:
(i) The traditional leader is one whose position as a leader is assured by birth
and heredity, e.g. kings and family businesses whereby the child succeeds
the parent as CEO
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(ii) The known leader is one whose position as a leader is secure by the fact
that everyone understands their position, e.g. kings priest are known to be
leaders by their subjects and priests are known to be leaders by the
congregation
(iv) The appointed leader is one whose position is legitimised by virtue of the
fact that he or she has gone through a selection, assessment and
appointment process
(v) The functional or expert leader is one whose position is secured by virtue
of expertise, command of technology or resources.
(vi) The charismatic leader is one whose position is secured by the sheer force
of known or understood personality
(vii) The informal leader is one whose position is secured also by virtue of
personality, charisma, expertise, command of resources, and who is
therefore the de facto leader in a particular situation
5. Leadership Styles
It is usual to classify leadership styles on an autocratic-democratic continuum
as illustrated below: in a boss-centred leadership, the leader makes all
decisions relating to the work of the subordinate; in a subordinate-centred
leadership, the subordinate has relative freedom in decision that affect his
work..
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Full communication between the CEO and the top management team and
fully integrating communications with the rest of the organisation.
The ability to integrate the management of crises and emergencies into the
overall direction and purpose of the organisation.
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2. General Manager as Organization Leader
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lacks the level-headedness to inquire objectively into reasons for failure without
raising his voice. On the other end, a leadership style may be characterized by:
Within these extremes and possibilities, he must carve out a distinctive style which
will characterize his performance and his expectations of others.
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TOPIC 5 - STRATEGY IN CONTEXT
In this section we explore how the formulation and implementation of strategy is conditioned
by the context in which organizations operate.
Management Consultants
Guest Houses
Restaurant
Clinic, Law firm, Architectural firm (Professional)
Trading, Hair saloon, Garage
The industries in which entrepreneurial organizations are started and operate are often
characterized by bust-and-boom cycles. It is this characteristic that forms the basis of
opportunity and risk. Thus, a PEST analysis is cardinal.
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The entrepreneur usually has a deep knowledge of product/service in question, and
places heavy reliance on intuition drawn from knowledge, experience, energy and
ambition
The personal aspirations and value of the entrepreneur are an important aspect in the
formulation of strategy as the organization is founded on the basis of some inspiration
(strong idea) and championed by an aggressive and energetic risk taker
Issues of corporate social responsibility are insignificant and are not likely to prevail
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Service companies, such as Zambia State Insurance Corporation,
Zambian Airways, Zambia Railways
2.3. How strategy is formed:
Strategy originates from the top of the hierarchy, where the perspective is broadest
and the power most focused.
Decisions tend to be rational and objective, based on PEST/SWOT analyses
Issues of corporate social responsibility feature in the formulation of strategy
Elaborate structure provides for supervision and the monitoring of assigned task to
ensure performance of task
Operations tend to be more efficiently run through
- standardization
- automation, and
- elaborate control systems
There are usually problems of motivation and job satisfaction
- routine, little thinking involved
- breeds boredom, absenteeism and sabotage, undermining
- sloppy workmanship
The organization tends to breed conflict, and political games tend to be pervasive
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Work tends to be project-based, as for example
- engineers in construction
- surgeons on an operation
- researchers in a university
- lawyers as a defence team
- auditors in an audit team
- Doctors in a hospital
- Academic staff in a university
- Lawyers in a law firm
- Engineers in a construction firm
- Accountants/Auditors
This can be done at any of the levels or using a combination of any of these levels:
Professional Judgement by Individual: Based on individual values
and professional needs as dictated by clients, professional
affiliations and funding agencies.
Administrative Fiat (Administrator/Managing or Senior Partner):
this involves articulations from Government, donors, public,
business concerns
Collective Choice: This involves interactive process that
deliberately seeks out a combination of professionals and non-
professionals/administrators from a variety of levels and units.
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Self-discipline and externally determined standards and a code of conduct by the
professional body ensure quality assurance in performance.
4.1. Features
The tasks are highly specialized and complex, often requiring expert training
The environment is dynamic, complex and unpredictable.
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4.4. Strategy implementation
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TOPIC 6 - STRATEGY EVALUATION
CRITERIA FOR EVALUATION*1
The attempt to identify the actual or optimal strategy for a business firm raises at once the
question of how the actual or proposed strategy is to be judged. How are we to know that one
strategy is better than another in advance of validation by experience? As is already evident,
no infallible indicators are available. A number of important questions can regularly be
asked. With practice they will lead to intuitive determinations.
1. Is the strategy identifiable and has it been made clear either in words or in practice?
The degree to which attention has been given to the strategic alternatives available to a
company is likely to be basic to the soundness if its strategic decision. To cover in empty
phrases (“our policy is planned profitable growth in any market we can serve well”) an
absence of analysis of opportunity or actual determination of corporate strength is worse than
to remain silent, for it conveys the illusion of a commitment when none has been made. The
unstated strategy cannot be tested or contested and is likely therefore to be weak. If it is
implicit in the intuition of a strong leader, his organization is likely to be weak and demands
his strategy makes upon it are likely to remain unmet. A strategy must be explicit to be
effective and specific enough to require some actions and exclude others.
2. Does the strategy fully exploit domestic and international environmental opportunity?
An unqualified yes answer is likely to be rare, even in the instance of global giants like
General Motors. But the present and future dimensions of markets can be analyzed without
forgetting the limited resources of the planning company in order to outline the requirements
of balanced growth and the need for environmental information. The relation between market
opportunity and organizational development is a critical one in the design of future plans.
Unless growth is incompatible with the resources of an organization or the aspirations of its
management, it is likely that a strategy does not purport to make full use of market
opportunity will be weak also in other respects. Vulnerability to competition is increased by
lack of interest in market share.
3. Is the strategy with corporate competence and resources, both present and projected?
Although additional resources, both financial and managerial, are available to companies
with genuine opportunity, the availability of each must be fully determined and programmed
1
Source: Kenneth R. Andrews, The Concept of Corporate Strategy (Homewood, Illinois: Dow Jones, Inc,
1971)
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along a practicable time scale. The decision of the Wilkinson Sword Company to distribute
stainless steel razor blades in the United States must have raised the question whether the
company could in effect take yes for an answer from this market-that is, whether its
productive capacity could be increased fast enough to fend off the countermoves of large
competitors.
4. Are the major provisions of the strategy and the program of major policies of which it
is comprised internally consistent?
A foolish consistency is the hobgoblin of little minds, and consistency of any kind is certainly
not the first qualification of successful corporation presidents. Nonetheless, one advantage of
making as specific a statement of strategy as is practicable is the resultant availability of a
careful check on coherence, compatibility, and strategy-the state in which the whole can be
viewed as greater than the sum of its parts. For example, a manufacturer of chocolate candy
who depends for most of his business upon wholesalers should not follow a policy of
ignoring them or of dropping all support of their activities and all attention to their
complaints. Similarly, two engineers who found a new firm expressly to do development
work should not follow a policy of accepting orders that, though highly profitable, in effect
turn their company into a large job shop, with the result that unanticipated financial and
production problems take all the time that might have gone into development. An
examination of any substantial firm will reveal at least some details in which policies pursued
by different departments tend to go in different directions. When inconsistency threatens
concerted effort to achieve budgeted results within a planned time period, then consistency
becomes a vital rather than merely an aesthetic problem.
5. Is the chosen level of risk feasible in economic and personal terms?
Strategies vary in the degree of risk willingly undertaken by their designers. For example, the
Midway Foods Company, in pursuit of its marketing strategy, deliberately courted disaster in
production slowdowns and in erratic behaviour of cocoa futures. But the choice was made
knowingly and the return, if success were achieved, was likely to be corresponding great.
Temperamentally, the president was willing to live under the pressure and presumably had
resources if disaster were to strike. At the other extreme, a company may have such modest
growth aspirations that the junior members of its management are unhappy. A more
aggressive and ambitious company would be their choice. Although risk cannot always be
assessed scientifically, the level at which it is set is, within limits, optional. The riskiness of
any future plan should be compatible with the economic resources of the organization and the
temperament of the managers concerned.
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6. Is the strategy appropriate to the personal values and aspirations of the key
managers?
Until we consider the relationship of personal values to the choice of strategy, it is not useful
to dwell long upon this criterion. But, to cite an extreme case, the deliberate falsification of
warehouse receipts to conceal the absence of soybean oil from the tanks which are supposed
to contain it would not be an element of competitive strategy to which most of us would like
to be committed. A strong attraction to leisure, to cite a less extreme example, is inconsistent
with a strategy requiring all-out effort from the senior members of the company. Or if, for
example, the president abhors conflict and competition then it can be predicted that the hard-
driving firm of an earlier day will have to change its strategy. Conflict between the personal
preferences, aspirations, and goals of the key members of an organization and the plan for the
future is a sign of danger and a harbinger of mediocre performance or failure.
7. Is the strategy appropriate to the desired level of contribution to society?
Closely allied to the value criterion is the ethical criterion. As the professional obligations of
business are acknowledged by an increasing number of senior managers, it grows more and
more appropriate to ask whether the current strategy of a firm is as socially responsible as it
might be. Although it can be argued that filling any economic need contributes to the social
good, it is clear that a manufacturer of cigarettes might well consider diversification on
grounds other than his fear of future legislation. These days all manufacturers discharging
pollutants to air and water and offering offence to eye and ear must rest uneasy.
8. Does the strategy constitute a clear stimulus to organizational effort and
commitment?
For organizations which aspire not merely to survive but to lead and to generate productive
performance in a climate that will encourage the development of competence and the
satisfaction of individual needs, the strategy selected should be examined for its inherent
attractiveness to the organization. Some undertakings are inherently more likely to gain the
commitment of able men of goodwill than others. Given the variety of human preferences, it
is risky to illustrate this difference briefly. But currently a company that is vigorously
expanding its overseas operations finds that several of its socially conscious young men
exhibit more zeal in connection with its work in developing countries than in Europe.
Generally speaking, the bolder the choice of goals and the wider the range of human needs
they reflect, the more successfully they will appear to the capable membership of a healthy
and energetic organization.
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9. Are there early indications of the responsiveness markets and market segments to the
strategy?
Results, no matter how long postponed by necessary preparations, are, of course, the most
telling indicators of soundness, so long as they are read correctly at the proper time. A
strategy may pass with flying colours all the tests so far proposed, and may be in internal
consistency and uniqueness an admirable work of art. But if, within a time period made
reasonable by the company’s resources and the original plan, the strategy does not work, then
it must be weak in some way that has escaped attention. Bad luck, faulty implementation, and
competitive countermoves may be more to blame for unsatisfactory results than flaws in
design, but the possibility of the latter should not be unduly discounted. Conceiving a strategy
that will win the company a unique place in the business community that will give it an
enduring concept of itself, which will harmonize its diverse activities and that will provide a
fit between environmental opportunity and present or potential company strength is an
extremely complicated task. We cannot, therefore, except simple tests of soundness to tell the
whole story. But an analytical examination of any company’s strategy against the several
criteria here suggested will nonetheless give anyone concerned with making, proving, or
contributing to corporate planning a good deal to think about.
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