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Question One (30 Marks)

Strategy is influenced by a number of factors some of which are of controllable nature while
others not of controllable nature. Discuss the various factors that influence the development of a
strategy in any business organization of your choice.
Question one answer
Controllable environment

Human Resource



The knowledge, experience and capability of an organisation's

workforce is a determining factor of success. For this reason,
organisations pay particular attention to the recruitment of staff and
also to engage in thetraining of staff and volunteers to build the
organisation's capability. In pursuing both recruitment and training
strategies, an organisation is often limited by its financial strength.
Nevertheless, training of staff is an essential aspect of good business
management, and even in difficult financial circumstances is an
achievable strategy.
The culture within the organisation is a very important factor in
business success. (see More about organisation culture). The attitudes
of staff and volunteers, and their ability to "go the extra mile" makes
a very significant difference. Negative attitudes can severely impact
on the organisation's ability to implement strategies for development
despite however thorough the planning processes. Positive attitudes
of staff and volunteers will not only make the management task
easier but also will be noticed and appreciated by customers of the
business or members of organisation.
Businesses and organisations may be impeded by their
structure,constitution and/or forms of governance. Organisation
structure is essentially the way that the work needed to carry out the
mission of the organisation is divided among its workforce. (see
about organisation
In a non-profit organisation, the organisation will include the
(i.e. President, Secretary, Treasurer and
Members), the salaried staff of the organisation and all the volunteers
that have roles as coordinators of various business functions (e.g.
Event Coordinator, Promotions Coordinator and Coaching
Coordinator).When an organisation is a for-profit business that
operates in a very competitive environment, its organisation structure

may help or hinder the ability of the organisation to react to change.

For example, when the organisation structure has many levels of
management, decision making can be slow as information is carried
up and down the hierarchy. For this reason, "flatter" organisation
structures are often preferred i.e. people who work "at the coal face"
and one level of management above. Volunteers are normal part of
the non-profit organisation but not the profit-business. Although it is
often hard to find volunteers, the organisation structure of the nonprofit organisation can be very flexible by appointing volunteers as


Financial Strength

The capability of the management team and the leadership styles

employed by managers will also have a major impact on the morale
of staff (and volunteers in a non-profit organisation) and organisation
culture. More contemporary forms of management involve workers
in decision making processes and trusting that, although managers
and workers have different viewpoints, they largely benefit by
working together to achieve the business objectives.
The internal environment of the organisation can be made richer or
poorer by its assets. For example, the organisation's premises can be
pleasant and uplifting, or demure and depressing. The availability of
equipment is another asset that can significantly impact on the
internal environment. If equipment is in short supply or not of the
expected standard, then staff may be hindered in the performance of
their duties, or if equipment is used by customers then customer
satisfaction will fall.
Financial strength is a factor in its own right that influences the
internal environment of the organisation. Despite however good
other internal factors may be, it is very difficult for an organisation
that is too short of cash to implement strategies within the strategic
plan. If the organisation struggles financially this can impact on staff
morale as budgets need to be excessively tight.

Uncontrollable environment


Prevailing economic conditions of the nation will have an effect on

the spending patterns of citizens. Increases in interest rates and/or a
high level of unemployment will depress consumption of nonessential goods and services. For example. when people experience
financial hardship, they will spend much less on sport and
recreation, holidays, new cars and luxury goods. Economic

conditions are global as well as national, and when there is a global

financial crisis as in 2007, changes in the external environment can
be dramatic.






The strength of business competition is a constantly changing factor

in the external business environment. Not only will competitors
come and go, but they will also change marketing strategies,
product lines and prices. Often such changes are not heralded and
business managers must be alert as to what competitors are doing.
Technological change has been rapid in the last 50 years and is a
factor in the external environment that constantly exerts pressure on
the business or organisation. If businesses do not adapt sufficiently
quickly to technological change, they risk losing market share. It's
not just that technological change affects the design of products, but
even the delivery of services can change.
Climate change is an insidious threat because the pace of change
may be recognisable only if considered on a decade-by-decade
basis. The effect of climate change will not fall equally on all
nations and all businesses. Businesses that depend directly on a
good supply of water e.g. agriculture, field sports will be adversely
effected if climate change results in reduced rainfall. However the
flow on affects of drought will eventually work their way through
to all businesses in the effected community.
Taxation is one of most obvious changes in law through legislation.
Sometimes taxation changes occur overnight with little warning and
sometimes there is plenty of time for the business to prepare. Other
law changes that commonly affect business include Workplace
Health and Safety, Industrial Relations, Consumer Protection and
Environmental Law,
The media is undergoing rapid and significant change. The main
driver of this change is technology and the rise of the internet.
Newspapers once carried many pages of job adverts but now this
business is conducted by online recruitment companies such as
Like law, changes in government policy can be well notified and
discussed, or without warning. As an example of how government
policy has an effect, is that many organisations depend on

government financial assistance. When there is a change of

government, such funding assistance can disappear in a short space
of time.

There is constant change in the make-up of the population. Some of

these changes include an increasing proportion of elderly citizens,
increasing number of two-income families, the age at which people
marry is increasing, increasing ethnic diversity, suburbs which were
once dominated by young families now have few. These
demographic changes can have a significant effect locally. For
example, a sport club which once prospered can begin to decline as
the local area has less and less children.
Question Four (20 Marks)

Differentiate between the three levels of strategy, showing

the relevance of each to business organizations in Kenya.
(10 Marks)


Identify and explain the characteristics of strategic

decisions, showing how organizations can address each.

question four answer part A

ifference between 3 Levels of Strategy: Corporate, Business and Operational Levels!

Strategy is all encompassing and function specific. Organizational structure and design, whether
hierarchical or non-hierarchical, has three levels, that is, corporate, business, and operational.
The corporate level is also known as the top level or strategic level. The corporate level is
considered a strategic level because at this level the senior management formulates the over-all
organizational strategies.
Corporate-level strategies focus on:
(i) Overall scope of an organizations activities,
(ii) Structural and financial aspects, and
(iii) Resource allocation.

Corporate-level strategies emanate from the organizational mission. The business level is also
known as the competitive, middle, or tactical level. Strategies formulated at the corporate level
are translated into specific action plans at this middle level.
Also, middle-level managers frame intermediate strategies, specific to their functions or
Strategies framed at this level deal with issues such as:
(i) Market competition strategies,
(ii) Product or service development strategies matching with market requirements,
(iii) Strategies for meeting and satisfying customer needs, and
(iv) Strategies for achievement of organizational objectives such as long-term profitability, sales
growth, efficiency, etc.
The operational level is also known as the first level or the execution level. The operational-level
managers frame strategies that are necessary for routine day-to-day activities.
Operational-level strategies include strategies on:
(i) Inventory,
(ii) Quality, and
(iii) Production planning, etc.
Even though the corporate level largely frames strategies for the overall organization, the
business and operational-level managers are also required to frame their specific strategies and
action plans within the ambit of corporate- level strategies. Thus, at every level, we frame
strategies, but the nature and purpose of strategies are different
question four answer part B

In corporate practice it is possible to observe discussions concerning the nature of strategic

decisions and strategic activities. In some case terms like strategic or strategy will be
employed to emphasize the long term benefits (in detail) and / or to convince others to transfer

budgets and resources to specific measures and activities. However I have also observed
situations were these terms have been used simply to outline potential, but unclear benefits.
Basically I recommend being very analytical when someone starts to employ such term in his or
her justification.
Since this is a very popular post on Eddielogic, I wrote a follow-up which provides more detailed
information, a comparison between strategic, tactical and operational decisions, and a practical
illustration: Nature and characteristics of strategic decisions
Of course, strategic decisions are part of corporate management. HAMBRICK and
FREDRICKSON, two important strategic thinkers, (2001) argue that the strategy should be a
central and integrated concept of how the business will achieve its objectives. Such a concept
needs to include activities and measures; since resources are limited in most cases or most
organizations, a concept needs to include decisions. Major strategic decisions will focus on
financial resources (i.e. investments), corporate culture or HR related areas. LOMBRISER and
ABLANALP explain that it could be possible within each step of strategy implementation to
return to a previous process step (in strategic planning) or even to decide about an unclear step in
advance. To implement strategic management the following set of attributes should be taken into
Legal, political and social limitations
Ethical issues
Stakeholders expectations
Values, experiences, skills and goals of managers
Corporate culture
Financial room for maneuver
For all these attributes the management team needs to make long-lasting decisions. According
to JOHNSON and SCHOLES strategic decisions name four key characteristics.
Those decisions are likely to be linked with or influence the long term direction of an
Strategic decisions are normally concerned with attempting to achieve some advantage for the
organization, e.g. over the competition.
Furthermore, strategic decisions are likely to be concerned with the scope of activities and
address the question, whether the organization should concentrate on one area of activity, or
should it have many? This is a fundamental issue to strategic decisions.
The scope of activities defines the way in which managers understand the boundaries of the
Hence strategic decisions are very likely to have an impact on operational decisions.

Our book recommendations on strategic decision making

by Mikael
Krogerus and Roman
This book presents fifty models for better structuring, and subsequently understanding, lifes
steady challenges. Interactive and thought-provoking, this illustrated workbook offers succinct
summaries of popular strategies.
The Strategy Book: How To Think and Act Strategically to Deliver Outstanding Results
by Max

Thinking strategically is what separates managers and leaders. Learn the fundamentals about
how to create winning strategy and lead your team to deliver it.
The Sustainability Mindset: Using the Matrix Map to Make Strategic Decisions
by Steve
Zimmerman and Jeanne
Drawing ontheir in-depth experience, the authors provide an easy-to-follow process complete
with tools and templates to help organizationsvisualize their business model and engage in
strategic inquiry.
Question Five (20 Marks)
Most firms will opt for diversification as a growth strategy at some point:

Differentiate between the two major types of diversification, giving examples in each
(5 Marks)


What are the major reasons for diversification in modern business organizations in
(15 Marks)

Question Five (20 Marks Part A answer

Horizontal Diversification
acquiring or developing new products or offering new services that could appeal to the company
s current customer groups. In this case the company relies on sales and technological relations to
the existing product lines. For example a dairy, producing cheese adds a new type of cheese to its
Vertical Diversification
occurs when the company goes back to previous stages of its production cycle or moves forward
to subsequent stages of the same cycle - production of raw materials or distribution of the final
product. For example, if you have a company that does reconstruction of houses and offices and
you start selling paints and other construction materials for use in this business. This kind of
diversification may also guarantee a regular supply of materials with better quality and lower
Concentric Diversification
enlarging the production portfolio by adding new products with the aim of fully utilising the
potential of the existing technologies and marketing system. The concentric diversification can
be a lot more financially efficient as a strategy, since the business may benefit from some
synergies in this diversification model. It may enforce some investments related to modernizing
or upgrading the existing processes or systems. This type of diversification is often used by small
producers of consumer goods, e.g. a bakery starts producing pastries or dough products.
Heterogeneous (conglomerate) diversification
is moving to new products or services that have no technological or commercial relation with
current products, equipment, distribution channels, but which may appeal to new groups of
customers. The major motive behind this kind of diversification is the high return on investments
in the new industry. Furthermore, the decision to go for this kind of diversification can lead to

additional opportunities indirectly related to further developing the main company business access to new technologies, opportunities for strategic partnerships, etc.
Corporate Diversification
involves production of unrelated but definitely profitable goods. It is often tied to large
investments where there may also be high returns.
Question Five (20 Marks Part B answer
Avoiding Downturns
A conservative reason to diversify is to avoid major repercussions when an industry or sector
suffers a downturn. Some single-business or single-product organizations couldn't survive a
lengthy decline in their industry. A fashion retailer often sells in multiple product categories, for
instance, because fashion is so trendy and unpredictable. Being diversified protects the company
against changes. Many fashion retailers also expand into new store formats, such as for children
or babies, to diversify.
Competitive Defense
Another reason to diversify is that under-served locations or customers have available revenue
for somebody in your industry to take advantage of. If your company doesn't diversity and
expand to fill the additional demand, competitors are likely to do so. If you get in first, you can
often increase your customer base or establish yourself as a top provider. Movie rental provider
Blockbuster dissolved, in part, because it failed to protect against competitors moving into new
DVD-by-mail and online-streaming formats.
Stabilizing Influence
Diversity also helps your company build stability. If you concentrate too heavily on a single
industry or product, you risk volatility in revenue and resources as demand rises and falls. If your
business stretches across many industries or categories, you may have more predictability.
Advertising agencies often diversify clients to avoid major drops in revenue and having to cut
significant staff if a single industry falters. Losing a client here or there isn't as destabilizing if
the company is diversified.
Company Risks
As important and valuable as diversification is, it does have drawbacks and risks. When you
expand, you potentially lose focus on what your best products or offerings are. You also have to
spread out your business investments and costs, which may prevent you from putting enough
money in cash-cow sectors or products. If you expand, you need experts to work for you or
partner with you to achieve success in newer, unproven areas.