STRATEGIC

MANAGEMENT
Prof JM Tembo
 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 an institution. Although
the focus is on a business organization, the principles and techniques covered in the course are
equally applicable to non-business organizations. The course offers the student an opportunity to
understand and appreciate the challenges of charting a direction for an institution in an ever-
changing environment.

Texts
Students are encouraged to read far and beyond the course material in order to deepen their
understanding of strategic management. At a minimum, however, the student is invited to consult
the books listed below.

1. Henry Mintzberg and James Quinn, The Strategy Process: Concepts, Contexts and
Cases [Englewood Cliffs, New Jersey: Prentice Hall]
2. Arthur A. Thompson, A J Strickland, John E. Gamble and Arun K. Jain, Crafting
and Executing Strategy: Concepts and Cases [New York: McGraw Hill, 2007]
3. Gerry Johnson and Kevin Scholes, Exploring Corporate Strategy [London: Prentice
Hall]
4. Kenneth R. Andrews, The Concept of Corporate Strategy, (Homewood, Illinois:
Dow Jones-Irwin, 1971).
5. Charles W. L. Hill & Gareth R. Jones, Strategic Management (Boston: Houghton
Mifflin Co.,2007)

Course Contents
Topic I: The Nature of Corporate Strategy

 Understanding the Nature of Strategy

 The Chief Executive and Strategy
 Benefits of Strategy
 The Limits of Strategy
 Case Study

Topic II: The Formulation of Strategy

 The company and its Environment

 A Company’s Resources and Competences
 Strategy and the Personal Values of te Strategist
 Strategy and Society’s Expectations

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  Case Study

Topic III: Strategic Alternatives

 No Change
 Business level Strategies
 Corporate level Strategies
 Strategies in Declining Industries

Topic IV: The Implementation of Strategy

 The role of Organizational Structure

 Organizational Processes and Behaviours
 Incentives and Motivation
 Organizational Culture
 Organizational Politics
 Management Development
 Top Leadership
 Case Study

Topic V: Strategy in Context

 Entrepreneurial Context
 The Mature Context
 The Professional Context
 The Innovation Context

Student Evaluation
The student evaluation will be based on Continuous Assessment and a Final Examination. The
Continuous Assessment will comprise two assignments and a test. The Continuous Assignment
will be assessed out of a total of 40 marks, and the final examination will be assessed out of 60
marks.

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 NATURE OF STRATEGIC MANAGEMENT

Introduction
All individuals and organizations strive toward success in the course of their life. It is such
success which gives meaning to lives of individuals or organizations. Success is ordinarily
measured by the extent to which objectives are achieved. Strategic management is concerned
with how organizations achieve their objectives. In profit-making business organizations,
strategy comprises those measured and conscious actions intended to simultaneously generate
and sustain profitability in order to maximize shareholder value.

The second element in the concept of strategy is circumstance – which bodes opportunity and
risk. The pursuit of a goal is epitomized by events which may either facilitate or constrain the
pursuit of the stated goal. Historically, competition has featured prominently in discussion and
analyses of issues related to strategic management of business firms that the term ‘competitive
advantage’ has become commonly associated with strategy. A strategy is about achieving
superior performance, but for most businesses achieving superior performance in reality means
outperforming rivals who also seek similar profitability. A company is said to have competitive
advantage when it deploys strategies that make it unique or different from its rivals, thus
ensuring that it will make greater profit than the average firm operating in the same industry for
the same customers. Strategy is also about identifying and exploiting opportunities which obtain
in a particular environment. This is not about a company having a lucky break; it is rather the
ability to recognize the opportunities which occur and having the sense of direction to effectively
exploit any such opportunity to advance the goal sought.

A final element in the conceptualization of strategy is an objective evaluation of one’s resources

and competences. Clearly, successful prosecution of a desired course of action is a function of
the availability, nature and scope of resources and competences.

The concept of strategy nevertheless cuts across human endeavor. Consider the following cases:

 A coach takes his sports team to a tournament. Upon winning the match, he joyfully
brags that the success of the team was due to “a strategy” he had worked out for his team.
To beat the opponents. The coach of the losing team would probably heap blame on a
strategy that did not produce the desired result, either because his team did not adhere to
it or because his adversary had a better strategy or because it is simply was not their day!
 Winning a war is never a random affair or a matter of chance. No war is won by luck.
Despite the vast combined military might of South Vietnam and the United States Army,
the Viet Cong, with troops largely unschooled in modern warfare, eventually achieved
military victory over their better endowed adversary. General Vo Nguyen Giap, military
leader of the Vietminh guerilla forces, stated that that his strategy for winning was ‘…to
wage a long-lasting battle…Only a long-term war could enable us to utilize to the
maximum our political trump cards, to overcome our material handicap, and to

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 transform our weakness into strength. To maintain and increase our forces was the
principle to which we adhered, contending ourselves with attacking when success was
certain, refusing to give battle likely to incur losses’ (Grant, 2008:8).
 There are many manifestations of success in people’s lives which can be associated with
strategy. Instances of rags-to-riches experiences exemplify a conscious, deliberate and
tenacious management of one’s affairs to overcome adversity in search of fortune. The
transition from a life of economic despair to one of prosperity is rooted in an initial
recognition and understanding of one’s circumstances, followed by a keen desire and
awareness of how to maneuver oneself into a position of advantage. As the late
management guru Peter Drucker once said: “we must learn to be the CEO of our own
careers” (Drucker, 1999).
 When a company is ailing and needs an overhaul, some kind of turnaround strategy is
called for to get it out of its economic woes. For instance, a company whose profitability
is threatened by the onset or presence of competition must craft some way of surviving
the quicksand of competition. For a firm to have a competitive advantage over its rivals,
it must seek strategic positioning. Similarly, a firm facing a market meltdown must seek
new ways of reviving its fortunes. This calls for a strategy to get it out of its economic
woes to a sound financial position.

In all these instances, there are four common factors which are characteristic of strategy:

There are goals that are clear, consistent and long term. In all three cases there is an implicit
single-minded commitment to a clearly identifiable goal that is pursued steadfastly over a period
of a lifetime. A coach of sports team dreads losing a competition and is quite clear about the
importance of winning a game. He will accordingly drum into his players the need to win; a war
is won when efforts are united and focused on the ultimate goal for which the war is being
fought; and a firm that is facing economic ruin is quite clear about the desire to get out of its
financial woes.

There must be a sound understanding of the environment. A coach of a sports team and his
players have a deep understanding of the popularity of the game and how their own stardoms
will be enhanced by winning a competition; a general directing his troops has an understanding
of the enemy and the conditions in which the war is being fought; and a firm attempting to revive
its fortunes will have a clear understanding of the opportunities and threats in the environment.

There must be an objective appraisal of resources and competences. The achievement of an

objective - be it to win a game or war, or to make profit - requires an effective exploitation of
resources and the protection of areas of weakness. Competitive sports are won by not just having
the talents, but by also by tactfully deploying those talents in a way which gives an advantage
over opponents. Resources are indeed necessary in order to win a war; but one must also not let

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the enemy exploit one’s weaknesses by leaving oneself open. Profitability is dependent on how
resources are deployed in order to give a firm a competitive advantage over its rivals.

There must be an effective implementation. Implementation is undoubtedly critical to the success

of a strategy. The effectiveness strategy implementation depends on the organization structure
which serves as a blueprint decisions regarding who is to perform what task; the design of an
effective incentive and reward system, the administration of an effective system of restraint and
control, and in providing the inspiration for others to work toward the accomplishment of
purpose. The tenure of a coach depends on the number of competitive wins recorded, and general
leading forces to war must be able to foster loyalty and commitment among his troops.

Strategy can thus be described simply as the process by which an organization charts a direction
for itself and establishes a means of getting there. By nature of its definition, strategy implies
progress toward some long-term goal. 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 circumstance which may be a threat or an opportunity. How well a firm navigates
through and around circumstance is what strategy is about! This may be depicted as follows:
 A stated wish to be somewhere: progress from position A position B

 A mobilization of capabilities and other measures to facilitate the movement from A

to B.
In essence, then, strategic management deals with three questions:

 Where are we?

 Where do we want to go?
 How do we get there?

The problems and issues studied affect the character and success of the entire company and
consequently preoccupy those charged with running an organization. The first question “Where
are we?” involves defining what needs to be done. By this is meant a specification of the nature
and scope of an organization’s activities. What activity characterizes the organization? Should
the organization concentrate on one activity or should it have a mix of activities? What is our
market standing? In short, what are the boundaries of the organization’s business in terms of its
products or services? As Andrews (1971) has argued, corporate strategy begins with defining the
company and its business in the present.

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The question “Where do we want to go?” refers to the direction in which the organization
wishes to be headed as a mark of progress. This is normally reflected in the stated objectives of
an organization. The act of establishing formal objectives entails converting the desired
direction into specific performance targets in order to guard against drift, aimless activity,
confusion over what to accomplish and loss of purpose. A realistic statement of an objective
implies an analysis of a firm’s external environment in order to discern the opportunities and
threats that affect the direction of a firm. The identification of opportunities and threats addresses
the concern of what strategic direction might or might not be pursued by an organization. In this
regard, strategy might be perceived as a search for strategic fit between the organization and its
environment

Further insight into understanding the nature of the business an organization is acquired by
looking at the external circumstances in which the firm operates. An understanding of the
external environment affords the firm an awareness of the opportunities and threats which might
affect the direction in which the organization wishes to go. strategy can be viewed as the
matching of the activities of an organization to its environment. This is what is generally referred
to strategic fit. Strategy also requires mobilization of and building on organization’s resources,
the organization’s resources and moulding of organisational capability and competences to create
or capitalize on opportunities, or mitigate threats that stand in the way.

The third question of “How will we get there?” involves formulating a detailed plan for
achieving the targeted results. As Thompson and Strickland (1987:7) have asserted, strategy is
“the blueprint of all important entrepreneurial, competitive, and functional area actions that are
to be taken in pursuing organizational objectives and positioning the organization for sustained
success.” It constitutes a statement of how the targeted results are to be accomplished. Critical to
this process is to detail what and how resources are going to be deployed to take advantage of the
opportunities and to minimize the threats in order to produce the desired result.

In essence, these three questions complement each other and collectively embody what strategic
management is about. The way an organization manages to reach a desired position in the light
of circumstance is what strategy is about. This is illustrated in Figure 1. To move from where an

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organization is to where it wishes to go necessarily means that an organization must develop
means of overcoming circumstance. How successfully it does this is what strategic management
is about.
Figure 1: The Three Strategic Questions

Where are we? Where do we want to go?

How do we get there?

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The Evolution of Strategy
To amplify this understanding of strategy, we can examine three contexts which describe our
strategy has evolved. These are the military context, the corporate context, the business
functional context, and formal definitions of strategy by scholars
(a) The Military Context
- The concepts and theories of business strategy have their antecedents in military strategy.
Indeed, the concept of strategy has its origins in the treatise on strategy by Sun Tzu’s
classic The Art of War, written about 500 BC.
- In warfare, a strategy is a plan used by any of the protagonists to establish a favourable
position over an opponent. Typically, the goal is to win a war but in order to do that,
resources have to be deployed in a way that will ensure that circumstance (the enemy) is
overcome. Thus strategy is the action taken to win. Although business strategy and
military strategy share common characteristics, it is important to draw the distinction
between strategy and tactics. Strategy is the overall plan for deploying resources to
establish a favourable position; a tactic is scheme for a specific action. Whereas tactics
are concerned with manoeuvres for winning battles, strategy is concerned with winning a
war.
(b) The Corporate Context
- Strategy as we know it today has its origins in corporate planning which was necessitated
by the rapid growth that was experienced in 1950-60s. As business grew in size and
complexity in response to growth opportunities, it was found necessary to develop a tool
or framework for controlling and coordinating the nature and scope of any anticipated
growth. Corporate planning was hence devised as a framework for guiding the long-term
growth of a firm. It was anchored on forecast whereby a five-year plan was generated in
which goals and objectives were set, key economic were forecast, and priorities were
established with regard to which products to grow and in which markets. This was the
genesis of formal corporate planning.

- The 1970 to 1980 decade was a milestone in the history of strategy. This era was known
as one of economic turbulence characterized by macroeconomic instability, shortages of
oil, and the birth of international competition from the emerging economies of Japan,

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 Europe and Southeast Asia. Corporate planning and diversification were found
inappropriate as they had been premised on growth which was no longer the case. Faced
with economic instability, firms could no longer embark on meaningful planning as they
found it difficult to make realistic forecasts. This realization resulted in a shift of
emphasis from corporate planning to strategic making, where the focus was more on
market positioning than on detailed management of growth. This re-orientation had
become necessary in order to maintain profitability which could be potentially eroded in
view of shortages and competition. This preoccupation with profit brought into sharp
focus the importance of competition as a central feature of the business environment, and
of competitive strategy as a primary aim of strategy.

- In the 1990s, there was yet another shift in emphasis regarding strategy. Instead of
looking for sources of profit in the external environment, emphasis now shifted to sources
of profit in the internal environment or within the firm. The view held was that a firm
could seek competitive advantage by looking at designing areas of difference from its
competitors in its own resources and capabilities. As Porter put it, strategy was being
different from others in the choice of activities used in delivering a unique mix of values
to customers. Thus, competitive advantage and resource capability became to be viewed
as essential ingredients in the formulation of strategy.

- In the 1990s, there was additionally a new thinking about strategic analysis prompted by
the technology boom or disruptive technologies. The 1990 technology was characterized
by digitalization, mobile telephony, and the internet. The new strategy, coined variously
as “strategy innovation” and “revolution” called for firms to seize on entrepreneurial
opportunities by reinventing themselves through finding new ways doing business or else
they would succumb to the threat of “disruptive technologies.” For example, the
technology revolution offered opportunities for new ways doing business through E-
commerce.

- Strategic thinking has also involved renewed thinking about ethics and corporate social
responsibility. This has been a reaction to cases of excessive greed and unbridled

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shareholder value maximization. This has been compounded by global disasters, unfair
competition between developed and undeveloped economies, and increasing disparities in
standards of living among nations. Figure 2 summarises this evolution of strategy: it
depicts circumstance and the action (strategy) put in place to move businesses forward.

Figure 2: The Evolution of Business Strategy

The era Circumstance Action(Strategy)
1950-1960 Growth opportunities Corporate planning to guide
and coordinate long-term
growth of a firm.

1970 to 1980 Economic turbulence A shift of emphasis from

characterized by corporate planning to
macroeconomic instability, strategic making, where the
shortages of oil, and the focus was more on market
emergence of international positioning than on detailed
competition. management of growth.

This re-orientation had

become necessary in order to
maintain profitability which
could be potentially eroded in
view of shortages and
competition.

This preoccupation with profit

brought into sharp focus the
importance of competition as a
central feature of the business
environment, and of
competitive strategy as a
primary aim of strategy.

This new found relationship

between strategy and
performance provided impetus
into the search for profitability
within the business
environment.
In the 1990s Reduced opportunities for The search for profitability
profit. Instead of looking for through competitive advantage
sources of profit in the by creating differences in own

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 external environment, resources and capabilities
emphasis now shifted to within the firm.
sources of profit in the internal
environment or within the
firm.
In the 1990-2000s Technology boom or Firms to seize on
disruptive technologies entrepreneurial opportunities
characterized by the by reinventing themselves
emergence of digitalization, through finding new ways
internet growth, electronic doing business.
mail and mobile phoning.
2000s Emergence and growth of Concern for the welfare of
excessive greed and unbridled Society (Corporate social
shareholder value Responsibility)
maximization, and incidences
of global disasters, unfair
competition between
developed and undeveloped
economies, and increasing
disparities in standards of
living among nations.

(c) The Development of SM as a discipline

- The primary functions of a firm – production, marketing, book-keeping and human
resource management gave impetus to the developments of corresponding disciplines in
production, marketing, accounting/finance and human resource. Conspicuously missing
was the top job: that of a manager of all these functions. Thus, while it was recognized
that there existed functional managers to carry out various functions, it was not explicit
what the person to whom functional managers reported did. This was the position
variously known as that of the General Manager, Managing Director, Executive Director,
Chairman and Chief Executive Officer or simply as The Manager.
- Strategic management was an attempt at understanding and harnessing into a discipline
the functions and responsibilities of the (general) manager. General management
considered here as the management of a total enterprise or an autonomous subunit.
- This prompted studies into what the General Manager did. These studies revealed the
following:

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 i. The General Manger dealt with issues that affected the character and
success of the entire company. These issues dealt with Definition of what
needs to be done; Understanding of the environment; Shifts of demand;
Competition; Impact of environmental forces, such as political/legal,
socio-cultural, economic and technological factors; and Scarcities of skill
or capital.
ii. The General Manager dealt with corporate Determination and Choice of
objectives
iii. The General manager was responsible for moulding of organisational
capability and competence
iv. The General manager was responsible for the mobilization of resources for
the attainment of specified goals, and
v. The General Manager was responsible for moving the organization toward
the successful realization of its goal/vision
- In short, the General Manager was ultimately responsible for the successful resolution of
the seeming disorder that faced his organization. This disorder comprised:
i. The jumble of environmental forces
ii. Intermixture of goals and purposes
iii. Obstacles
iv. Threats and opportunities
v. Resource availability and application
vi. Environmental information and misinformation
- It was the successful resolution of such disorder that became to be known as strategic
management!

(d) Some Select Definitions of Strategy

To recap, strategic management is simply the means by which individuals and organizations
achieve their objectives. In the previous section, the issue of direction setting has been
explored at some length and an elaboration has been offered about the means by which goals
and objectives are achieved. These themes run through the several definitions that are given,
a sample of which are the following:

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 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 fulfill 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”.

The following are, however, common salient features in these definitions:

 That strategy is a sense of direction, characterized by the setting of specified

objectives and certain goals.
 That strategy involves the allocation of resources by which objectives will be
achieved.
 That strategy implies consistency, cohesiveness or integration.

Corporate Strategy in the Real World

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. So, where do we go looking for a firm’s strategy? In the absence of
explicit statements, the observer may deduce from operations what the goals and policies are, on

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the assumption that all normal behaviour is purposeful. In most cases, however, strategy resides
primarily within the minds of top managers. In the case of an entrepreneurial start-up, strategy
will exist primarily within the minds of top managers or written down in the business plan that
was prepared to raise finance. In the case of established firms, strategy is communicated in
various ways:

 Vision is an inspirational view of what the organization will be like in the future.
It is an ideal picture of what the company could like to be if it fulfilled its
potential. Vision statements found in most companies tend to be too idealized to
offer clear guidance to their strategies.

 Mission is a statement of purpose; what the organization seeks to achieve over

the long-term. Like vision, mission does not provide a distinct statement of
strategy but offers a pointer to the overall direction in which strategy will take the
organization.

 Business model is a statement of the basis on which a business will generate

revenue and profit. A simple business model might run like this: “To supply a
product that meets a customer need and sell it at the price that exceeds the costs
of production”. A business model is a preliminary to a strategy: it is only
concerned with the viability of the basic business concept. Even if the model is
sound, a firm might still need a strategy to compete against firms with the same
model

 Strategic plans. This a statement that documents a firm’s strategy in terms

performance goals, approaches to achieving these goals, and planned resource
commitments over a specific time period.

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

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 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 of 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”.

(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 be defined in terms of where the firm is competing, or how it is
competing. For example: Coca-Cola competes in 200 countries; Coca-Cola purses
a differentiation strategy

(e) 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”.

Strategy and the Chief Executive Officer

Although strategy applies both to an individual and an organization, it is discussed here within
the context of business organizations and those charged with running such organizations in mind.
By its nature, strategy can be meaningfully undertaken by those charged with running an entire
organization; these persons are known by such titles as Chief Executive Officer, General
Manager, Managing Director, Executive Director, Chairman and Chief Executive Officer or

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simply as The Manager. General management considered here as the management of a total
enterprise or an autonomous subunit. The general manager is thus responsible for the success of
business as a whole. He is expected to make the kind of decisions that will fulfill the basic
functions of achieving results, setting direction, leading the organization and providing personal
leadership.
It is generally recognized that a person designated as General Manager (or any of the other
aforementioned titles) does not play the role of a functional specialist in the way those in charge
of production, finance, marketing or human resource do.
As leader of functional managers, the general manager provides a unifying theme that gives
coherence and direction to the actions and decisions of functional managers or the
organization. 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 thus primarily responsible for dealing with strategic three questions:

The functions of a General Manager

(a) The GM must supervise current operations

 The GM or CEO must achieve results in the present against continually

rising expectations of planned earnings per share and return on the
shareholders’ investment.
 The GM is expected to remain continually informed and be ready to
intervene in crises.
 The GM is also expected to take part in divisional or corporate ceremonial
activities, to receive visitors of his own stature, and to entertain important
customers.
 The GM will see in his own office far more people who want to see him
than he would even take the initiative to see.
 The GM will be expected to physically see and acquaint himself with
domestic and/or overseas operations.
 His reputation and rewards ride on current results that others may have
largely determined, purposefully or unwittingly, years before.

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 (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.

 He must position the firm to cope with competition and other

environmental factors.
(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:

 Excelling in some technical or social way

 Demonstrating that he deserves to be in the position he occupies
 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.

The Benefits of a Consciously Considered Strategy

There are a number of benefits that can accrue from investing time, energy and resources in
consciously working at strategy. The first is that, like in most human endeavors, organizations
and individuals see meaning in their life if they avoid drifting without purpose. Thus, strategy
helps organizations articulate their goals and direction in a way which helps them appreciate the
value of their existence.

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Secondly, strategy facilitates the mobilization of effort toward a defined and understood purpose.
The nature and kind of resource needed is a function of a clearly articulated strategy.

Thirdly, strategy helps in stating goals in other terms other than profit maximization. The
conventional goal of profit maximization has been found impractical and in the face of certain
unavoidable realities such as regulation and competition; in some situations, firms have found it
prudent to forego short-term profit maximization in order to pursue long-term growth.

Fourthly, it is necessary to plan ahead in undertakings with long lead times. Improvisation is not
enough in dealing with the complexities of modern business. Planning ahead helps a firm
cushion itself against negative effects of unforeseen events such as technological advances,
globalisation and new product development.

Fifthly, there may be need to influence rather than merely respond to environmental change. The
environments and circumstances in which businesses operate are dynamic and bear heavily on
firms. It is sometimes prudent for firms to be proactive and pre-empt undesirable consequences.
Merely adapting to developments may leave a company in a weak position to meet the challenge
of unforeseen events. 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.

Finally, strategy will be effectively implemented when strategy plays its role as the focus of
organizational effort, the purpose of commitment and the source of constructive motivation and
self-control in the organization itself. Moreover, a common understanding and acceptance of
goals potentially diffuses possible conflict among contending parties and may even hopefully
open up avenues of cooperation.

The Limitations of Strategy

The following arguments are sometimes presented (Andrews, 1971:44-46) to counter the
enthusiasm that arises from the perceived advantages of strategy:

(a) An argument that finds favour with non-enthusiasts of strategy is that in essence strategy
involves planning and that planning ahead is really not possible because the future is
difficult to understand in view of uncertainties associated with increasing complexity and
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 accelerate rate of change. An accurate understanding of the future is nigh impossible,
particularly in the case of long-range planning when the future portends unstable and
unpredictable developments characterized by social upheavals, economic instability or
political uncertainty.

A rejoinder to this point is that it is precisely when the future is uncertain that we should
attempt to study it in order to reduce the element of surprise. There is much to be said
about a person who prepares for an unknown future that the person caught unprepared by
the occurrence of a sudden and an unknown calamity!

(b) Strategy implies some commitment to a plan but over-dedication to a plan may result in
rigidity and lost opportunity. Later on in the course we shall propound the need for a
leader of an organization to be an initiator, promoter and defender of strategy, implying
that the leader must remain focused and keep the organization on course against the
tendency of organizations to veer off course in response to circumstance, special interest
or sudden opportunity.

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.

(c) The concept of strategy does not preclude the possibility of conflict between corporate
and departmental goals and between organizational and personal goals. Indeed,
departmentalization and specialization which are hallmarks of effective implementation
of strategy are inherently panacea for conflict and hence the need for effective
coordination of functions that can potentially go their separate ways in search of technical
excellence.
Ironically, the most articulate, specific and persuasive definition of strategy by the CEO,
ratified by the Board of Directors and even emulated or envied by competitors, may not
have the same meaning or appeal to all parts of the organization to which it is announced.

19
 It can be argued on the other hand that a difference of opinion can be used constructively
in promoting understanding of a different perspective of an issue.

What is to be gained by the student

The student of strategic management stands to realize a number of benefits from diligent study of
the discipline:

(a) It will provide the student with direct but distant preparation for performance as a
general manager.
(b) It will broaden the student’s provincial perspective of the specialist in any of the
functional areas to the larger picture of the firm as a whole.

(c) It will deepen the student’s understanding and knowledge of the concepts relating
to strategy and strategic planning.

(d) It will facilitate a reorientation of attitude and appreciation of decision-making by:

 Deepening understanding and realization that the task of a generalist can

be both satisfying and frustrating; a sense of satisfaction arises from the
experience of achievement of purpose, and frustration arises from failure
to achieve desired goals when success is dependent on many and diverse
factors.
 Being prepared to act in the face of incomplete information and to bear the
risk of being proved wrong by subsequent events.
 Developing a dislike for organizational drifting or individual hesitation in
the face of the managerial imperative to make direction-determining
decisions.
 Cherishing the values of creativity and innovation over the maintenance of
the status quo.

(e) It will help the student develop analytical skills to be applied to the examination
of the total situation of the firm by developing an understanding of how problems
of one functional area might have a bearing on other functional areas and the need
to apply a broader perspective in looking at issues rather than depend on a single
discipline. Second, it will help the student develop the ability to deal with

20
 problems that are less structured that those that might obtain in a specialized field
of activity. Third, it will sharpen skills for identifying significant trends in the
environment, appraising and developing in the continuous process of determining
the nature of the enterprise, and setting and revising the direction of the firm.

The Framework for Strategic Analysis

The structure of the study of corporate strategy is presented in Figure 2. The study is organized
along two activities: formulation (or deciding what to do) and implementation (or achieving
results). Although Figure 2 indicates a neat division in the consideration of strategy into aspects
of formulation and implementation, a caveat is entered that, in real life, the activities of strategy
formulation and strategy implementation may always occur in the proposed sequence. Activities
of formulation and implementation are often intertwined. Experience from implementing
strategy, for example, can be used to assess whether strategy needs to be modified to align it to
the circumstances of the day.

The proposed framework postulates that the formulation of strategy begins with an analysis of
the company’s external environment. The thrust of this analysis is to identify opportunities and
threats in the company’s environment, which in essence indicate what a firm might or might not
do. An understanding of the company’s political, economic, social/cultural and technological
factors-commonly known by the acronym of PEST analysis, and how such factors might affect
the firm enlightens an organization to the opportunities that can be exploited or threats that must
be avoided as it seeks a direction for itself. For instance, an economic boom can facilitate a firm
to seek business growth, while the existence of competition is a constraint to growth unless the
devises strategies which will give it a competitive advantage over its rivals.

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Figure 2: Components of Corporate Strategy

FORMULATION IMPLEMENTATION
(What to do) (Achieving results)

1. Identification of 1. Organization
Corporate
opportunity and structure and its
risk relationships
Strategy:
2. Determining 2. Organizational
competences process and
and resources behaviour
Pattern of purposes
3. Personal values 3. Top leadership
and aspirations
and policies
of senior defining the
managers company and its
4. Obligations to business
society other
than
stakeholders

Source: Kenneth R. Andrews, The Concept of Corporate Strategy, Homewood, Illinois:

Dow Jones-Irwin, 1971

A second variable that enters into the formulation of strategy is an examination of the firm’s
internal strengths and weaknesses. In the previous analysis, the aim was to identify which choice
the firm might consider in its direction setting. Once choices have been identified, the next step
is to validate the choice among the several opportunities by determining whether the
organization has the capacity to prosecute the preferred choice. This is done by assessing its
profile of resources and competences. Indeed, there are many occasions in which a firm

22
identifies certain opportunities and decides on exploiting the opportunity but, alas, fails to
prosecute their wish because of lack of, for instance, capital.
A third component in our conceptualization of strategy formulation is the determination of the
personal values and aspirations of the Chief Executive Officer and senior managers. We argue
here that the direction a firm chooses to take is also a function of personal wishes of those that
are formulating strategy. We readily see evidence of such value orientations from our national
political leaders whose professed national agenda, as articulated in their political campaigns, is
but a mirror of what they personally desire. Similarly, those who run business firms have
personal values which project into a preferred choice. It is such desire that conditions the order
of priority in their decision-making.
Finally, formulation of strategy might be dictated by a firm’s acknowledgement of its non-
economic responsibility to society. This is the realm of corporate social responsibility, which is
defined simply as the intelligent and objective concern for the welfare of society.

Once a strategic direction or purpose is determined, then the resources of a company must be
mobilized to accomplish it. Implementation of strategy is comprised of a series of sub-activities
that are primarily administrative. The first sub-activity of implementation is to design an
organizational structure and specify relationships within the structure that will ensure that the
strategy is carried out. An organizational structure is an arrangement of people and other
resources in such a way that tasks to be performed in pursuit of a strategy are identified and
assigned to individuals and groups to carry them out in a coordinated and efficient manner.
Additionally, information must be provided to heighten awareness of functions to be performed
and facilitate in the monitoring of performance. Once a structure is in place, the next sub-
activity is one of providing systems for prodding people to work towards accomplishment of
tasks, or discouraging them from engaging in behaviour which does not lead to the
accomplishment of purpose. These are known as systems of influence and comprise incentives
and rewards, and systems of restraint and control, organizational behaviour, organizational
politics and management development. Finally, implementation of strategy will include
determining and providing the kind of leadership that will inspire workers to desired levels of
performance. This will involve discussion of a leader as an architect of strategy, as an
organizational leader and as a personal leader.

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THE COMPANY AND ITS ENVIRONMENT

Introduction
The determination of a suitable strategy for a company begins with identifying the opportunities
and risks in its external environment. The major purpose of an environmental analysis is to
identify opportunities and threats which obtain in the environment. An external environment
comprises events, trends or any such factor as is not within the influence or manipulation of a
firm but has an effect on the way the firm moves forward. In this section, we will examine the
nature of such factors and how they constitute an opportunity or a threat to a firm.

Globalization
With few exceptions, businesses typically evolve from submarket within a national market, to a
national market, to a regional market, to a continental market and eventually to a global market,
viz.

Copperbelt Zambia Region Global

National Regional World

The concept of globalization has wider usage and application than the business context. It is, for
example, sometimes associated with politics, cultural affairs and trade. In this study of strategic
management, globalization will to the conceptualization of the countries of the world as
constituting the sphere of operations of a firm. 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. Thus
a firm may come across opportunities, or encounter threats, by operating beyond its immediate
environment.

The key influences toward globalization include the following:

 Convergence of needs and preferences between nations.

Business and consumer markets are anchored on needs and preferences of customers.
Increasingly, the various nations of the world are sharing the same needs and preferences
for most goods and services. For instance, the following goods have universal usage and
application:

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 i. Electric and electronic gadgets, e.g.
o computers
o hi-fi systems
o TV, cameras, video recorders
o Refrigerators, stoves
o Air conditioners and heaters
ii. Machinery and equipment used in industries such as
o Mining
o Agriculture
o Manufacturing
o Building and Construction
o fishing
iii. Professional and other services such as
o Accountancy or auditing
o Medicine
o Entertainment and sport
o Hospitality

 Acknowledged Route to Growth

It is generally accepted that the most obvious and direct route to growth is to operate
beyond one’s immediate border. International trade has historically provided the
traditional outlet against market saturation experienced in home markets. In the case of
developing countries, the growth of their economies depends to a great extent on the
number and diversity of overseas markets for their primary goods.

 Economies of scale (cost advantages)

Economies of scale in Research and Development, Manufacturing or Marketing can be
more easily achieved through globalization, thus leading to greater efficiency in these
functional areas. Polaroid Corporation has claimed that it has achieved economies of
scale by entering foreign markets (Jain, 1987).

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  International politics
The last twenty years have witnessed the easing of political tensions and a growing
tendency to accommodate different political views which in the past polarized nations. A
notable development has been the diffusion of East-West tensions that had had created
the great divide between communism and capitalism. Now many countries share
ideologies and values, such as, democracy, liberalization, privatization and market-driven
economies vis-à-vis state-driven economies, although there are practiced differently.

The strategic impact of globalization is two-fold. One is that it creates opportunities of doing
business in new markets. Examples of this are many but the ones which have had a great impact
on Zambia is the current political understanding, as opposed to the era when South Africa was
ruled by a white minority racist regime, between Zambia and the Republic of South Africa which
has led to new opportunities for both nations. The second development has been the trade that
now flourishes between China and Zambia which has made Zambia one of the preferred
destinations for Chinese investment in mining, construction and consumer goods industry. The
upside of globalization is that it creates competition. Globalization is premised on a policy of
liberalization where nations remove barriers and openly trade with each other. This invariably
creates competition, and business that lack a competitive advantage fall by the wayside.

The Technological Environment/Advances

Technological advances comprise the discoveries of science in new products, the related product
improvements and the progress from mechanization and automation. Together, technological
developments are unfolding at such a fast pace that new ones are introduced before we have fully
assimilated the changes before us. It is in their appeal that they have a far-reaching impact in
creating or contracting opportunity for both potential entrants and established firms. A new
discovery opens up a business opportunity where none existed and may be a threat to established
firms if the new discovery has quality features which are superior to those obtaining in the
market.

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Bright (1963) pointed out the following areas of technological change:

(a) Increased transportation capability

Products and services are seldom produced and consumed in the same place. One of
the principal functions of a business is to make a product available to a would-be
consumer or user. Increased transportation capabilities have added value to products
though the following:
 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.
(b) Increased masterly of energy
The ability of a firm to manufacture a product is undoubtedly a function of the nature
and kind of energy it has available for the operation. Industrialization is associated
with energy with which to run plants and factories. Increased masterly of energy
have been characterized by the following:

 Availability of greater magnitude and intensity of power

 Availability of minute quantities of energy, controlled with increased precision.
 Generation and distribution of power from new sources and by new devices.
 Advances in the storage of power
 New technologies for large scale transportation of fuels and electric power.

(c) Increased ability to extend and control life and serviceability

New opportunities for increasing the efficiency of business operations have been
created by advances in the following areas:

 Longer life for living things

 Tolerance for extremes of climates
 Control of growth
 Greater resistance to accident and illness
 Longer life for perishable foods and other organic products

27
  Reduced deterioration of physical goods

(d) Increased ability to alter characteristics of material

New and enhanced attributes 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
The capabilities of the human resource have been strengthened through increased
sensory capability in the following:

 vision
 hearing
 touch
 memory
(f) Growing mechanization of physical activity :
Mechanization has made it possible to attain efficiency in the following functional
areas:

 Production
- direct labour
- materials handling
- assembly
- packaging
- testing and inspection
 Distribution
- shipping and receiving
- warehousing
- loading
 Communication and Control
- Movement of paper and mail
- Recording
- Assembly of data
 Extractive industries and construction

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 - Earth moving
- Mining
- Lumbering
- Agriculture
(g) Growing mechanization of intellectual processes
- Information processing
- Problem solving

The Political Environment

Politics is a dominant and pervasive feature of any society of human beings. This is evident
when one considers that the following:
 The most powerful and influential office in a nation, that of a Head of State, is
controlled/occupied by a politician
 Politicians control the most important organs of governance, namely, the legislature, the
executive and the judiciary
 Major national and international events are initiated, presided over or controlled by
politicians, such as
- a nation’s stability
- national disasters
- war/peace
- sports events
- major contracts: airports, roads, telecommunications, bridges,
infrastructure of towns, cities, buildings

From a micro perspective, a firm will be affected by politics in any of the following ways:

Government Role in the economy

A government can play any of three roles which will potentially have strategic implications. The
first role is participatory. This refers to the nature and scope of its participation in business.
Active participation will manifest itself in ownership and running of business enterprises. The
form of business which ultimately emerges is one which is wholly owned by the government or
one it shares ownership with another institution.

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  Participatory ownership state enterprise
Joint venture

The strategic direction and stance of a state enterprise is dominated more by public interest than
by private interest. For example, state enterprises do not usually seek profit maximizations as an
objective, nor is their behaviour in the market place characteristic of an institution driven by a
desire to maximize economic earnings for their shareholders. Public interest articulated and
promoted by the political establishment, will lean toward maximizing social value rather than
maximizing the economic value. In terms of opportunity and threat, state-owned enterprises are
in a privileged position of accessing unsolicited business from government, and of being largely
insulated from competition in their line of business that may emanate from established firms or
potential new entrants. For these reasons, active participation in business by government may
potentially limit business opportunities for the private sector.

Governments also play a regulatory role in an economy. Governments take it upon themselves to
prescribe laws, rules or regulations by which any business will be conducted. These regulations
range from what business is permitted; how business will be conducted; and when or where
business will be conducted. Some regulations provide opportunities, while others constrain
firms. The precise impact on strategy will depend on the nature of the regulation and the
circumstances in which it is enacted.

The third role is that of a client. Governments purchase numerous goods and services from
business. Because of its nature and size, the purchasing behaviour of government calls for
strategic poisoning on the part of a firm that is going to supply goods or services to government.
A point to bear in mind when dealing with government is that a government usually has
bargaining power over its suppliers for a number of reasons. One is that for certain lines of
business; it is the only institution that can be a market or client. As an example, it is only
government that may initiate, finance, authorize or even own major infrastructure and capital
projects, such as, airports, roads, bridges, dams or even some major buildings. The other reason
is simply that government-related business is all too often lucrative because of its scale-hence the
prevalence of bribery and corruption.

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Political Ideology and Economic System

A country’s political ideology and economic system can pose various opportunities and threats to
business. It is politics that drive the choice between capitalism and socialism and these systems
affect business in various ways. In Zambia, for instance, the transition to a multi-party
democracy also brought in tow privatization and liberalization which opened new opportunities
for starting business or conducting business in a way which allowed firms to make or maximize
profit.

Nationalism

Nationalism is used here to refer to the belief among individuals of one nation that they are
different from and /or better than individuals of other nations. This may manifest itself in either
patriotism – love for one’s country- or in chauvinism – arrogance or unreasonable attitude
toward other nations. The positive aspect of nationalism is that it may promote domestic trade
when national purchase locally made products out of a sense of nationalism. On the negative
side, it tends to create a “we” vs. “they” mentality in international relations, and may lead to
unfavorable terms of trade when a country is stereotyped as inferior in its dealings with another
country.

A nation’s stability

This refers to a desire for change to be gradual and non-violent. Recall that strategy is about a
(long-term) direction. It is therefore desirable the future can be predicted from the present. It is
desirable that strategy reflects progress from the present into some predictable future. Strategy
cannot be sustainable when there exist any of the following indicators of instability:

 frequency of changes in regime

- Long-serving political leaders tend to attract investment because
the longevity is often associated with political stability, and hence
continuity and consistency of major government policies.
Additionally, even though Western-style democracies are
frequently associated with changes of government (Israel, Italy, or
Japan) changes of government do not necessarily result in radical
changes of policy. In contrast, change regime in many developing

31
 countries is a cause of anxiety for an investor because regime
change often results in major shift of policy, sometimes including
realigning the civil service to the political ideology of the new
rulers.
 incidences of public unrest, such as, civil disobedience, violence,
demonstrations, riots, looting do not augur well for stability because of
their disruptive effects
 armed attacks, both internal and external
 civil war
 politically motivated assassinations
 irregular (and violet) change of government and/or government leaders
 various cultural divisions in the country
- tribal differences
- linguistic differences
 religious diversity
- Hindu vs. Moslem
- Christian vs. Moslem/Hindu
- Protestant vs. Catholic

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:

 rebuke of the foreign owned business for perceived transgressions

 (punitive) taxes

 foreign exchange controls and remittance of profit

 domestication or indigenization

o gradual transfer of ownership to nationals

o nationals in top level jobs

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 o more products produced locally for
manufacturing/assembly

 expropriation or nationalization – seizure of foreign owned property

by a host country supposedly in the public interest

Corporations can craft strategies against seizure, such as:

 seeking joint ventures with host government or nationals

 holding back in home countries critical elements in
o research
o process technology (formula)
 seeking open political alliance with government through
o friendships
o donations
o invitations to prominent citizens to sit on board
 supporting and financing social programs like
o sport, entertainment
o education, health
o support in times of national disasters

The legal environment

This comprises a nation’s laws and regulations, at both domestic and international level,
pertaining to business. Such laws and regulations can be at two levels:

Domestic or Home country’s laws are laws whose jurisdiction is confined to a country national
borders. These laws are enacted, applicable and enforceable within a country. For instance, a
country may enact laws directed at business operating within its borders with respect to:

 Which foreign countries a firm is allowed to trade with?

 Which products a firm is allowed to trade in, manufacture or export.
 What business practices are forbidden or permissible?

33
International laws refer to collection of treaties, conventions and agreements between nations
which apply to, and are enforceable within the countries that are a party to the law(s). Examples
of such laws are:
Patents – these laws prevent others other than the patent holder from selling the patented product
wherever the patent is registered. The protection offered to a patent holder constitutes a
monopoly in the manufacture and marketing of the patented product.
Trademark –these laws are intended to offer protection of a brand, word, symbol, device, colour
or combination of any of these which helps to distinguish/recognize the product.

The Cultural Environment

Business operations cannot be explained only in economic terms. Many other non-economic
factors impinge, affect or influence business practice and conduct. For example, the demand for
food cannot be explained away in only economic terms. The preference for certain foods may be
determined by non-economic factors such as family background, religious beliefs or social
status. In the field of marketing strategy, there is increasing attention to and recognition of the
influence of cultural and social factors in an attempt to understand the complexities of consumer
behaviour. There is equally some acknowledgment of the influence of cultural and social factors
on corporate strategy.

What is Culture?
The current understanding of culture in business is based on definitions of culture from early
studies of societies in the field of sociology. Edward Taylor (1871:1) 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”.

Adamson Hoebel (1960:168) defined culture as:

“The integrated sum of learned behavioural traits that is manifest and shared by
members of a society”.

34
Two important features of culture are discernible from these definitions. The first is that culture
is man-made and that it is not genetic. It is acquired or learned from a society in which one lives.
The second feature it is communal rather than individualistic in that an individual subordinates
himself to the distinctive personality of the community by subscribing to the beliefs and values
collectively shared by members of a society. It is in this respect that culture can be said to
influence on the behaviour of an individual member of a society.

ELEMENTS OF CULTURE
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.

Material culture relates to the way of life of a people, that is, the way a society organizes its
economic activities. A way of life is a function of techniques and physical things that have been
produced by a society. 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, in human ability
to produce and enjoy the good things of life, such as a house, car, television, fridge or other
things and services which are indicative of a good life style.

The impact of materialism on strategy is readily recognized in the philosophy of a business – to

make and market goods for a profit. This philosophy is premised on human need and want for
goods, and it is this need that provides an opportunity for business to exploit and make a profit.
Thus, unless this craving for material things is sustainable, business will flounder. 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 other forms of transportation, such as road and air
transportation. In failing to recognize the different dimensions of need for transportation, the

35
railway industry dismally failed to devise strategies that would enable it to exploit the advantages
that customers perceived in other forms of transportation, such as road and air transportation.
This loss of ground by 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.

Language

Language is the most obvious distinguishing characteristic between cultures. It constitutes a way
members of a community communicate with each other. Western culture is credited with having
had a big influence on the development of commerce because of the richness of the vocabulary
in the conduct of commerce. Consider, for instance, the versatility of the English language in
conceptualizing and application of:

 Advertisement and sales promotion

 Research and Development
 Product differentiation
 Branding
 Concessions and discounts

More specifically, language has an impact in facilitating communication with suppliers, dealers,
customers and markets. In international marketing, the language barrier may hinder entry into
potential markets. Further, language facilitates access to technological advances, and promotes
efficiency through economies of scale in having to advertise in a common language.

Aesthetics

Aesthetics refers to a community’s conceptualization of beauty and good taste as might be

expressed in a design, color or anything associated with the image or product of a firm. The
appeal in a design, colour or name of a product is rooted in the beauty or good taste customers

36
see in the design, colour or name. Aesthetics constitutes a major determinant of demand for
automobiles, clothing, houses and home furnishings, eye glasses, music and so on.

Education

Education in the broader sense is the process of transmitting skills, ideas and attitudes as well as
training in particular disciplines. In the narrower sense, it is the pursuit of formal education. The
type and level of education have an impact on business in several ways. As an illustration, the
level of a country’s development is a function of the effort put in research and development.
Innovation and product development are products of science and technology. Backward
economies are often associated with low and elementary levels of education. Further, with the
onset of development, more technically complex products are coming on the market. Thus,
education enriches the quality of markets.

Religion
Religions have doctrines which prescribe expected behaviour from their believers. A
number of such dogmas can constrain business by assigning days for prayer and fasting to
restricting consumption in the name of salvation:
Animism: the religion and philosophy of primitive people, based on traitional 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.
 Hinduism is largely prevalent in India and is based on a caste system in
which heredity casts specific occupational and social roles. Its major features
are the veneration of the cow and restrictions on women.

The reverence for the cow closes any opportunity for business in beef; instead,
it may indirectly create an opportunity for vegetarian diets. As for restrictions
placed on women, this has the potential of denying firms capabilities and
competencies associated with women.

37
 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 Japanese
patriotism.

The Japanese are renowned for their love and pride in being to Japanese, to
the point being almost fanatical about their patriotism. This has translated into
a sovereignty that is manifest in pride of Japanese-made products and a strong
base of domestic trade. In international trade, the United States of America
quite often lamented the terms of trade which tended to favor Japan. Contrast
this with the Zambians’ appetite for foreign-made products and the impact this
continues to have on locally-made products!

 Christianity
Although there are many sects which fall under Christianity, the prominent
Christian religions have historically been associated with economic
emancipation.

Catholicism-The major characteristic of Catholicism is the centrality of the

Church as an intermediary in salvation. The sacraments and priests are the
intermediary between God and man, and without Church, there is no
salvation.

Church laws prescribe certain forms of abstinence, fasting or outright

prohibition of use or consumption of certain good and services. Countries in
which Catholicism is dominant-Ireland, Portugal, Spain- are not viable
markets for products and services (condoms, contraceptives, abortions)
prohibited by the church.

38
 The Protestant Reformation-A major point of departure from Catholicism is
that, under Protestantism, the Church and its sacrament are not essential to
salvation. Rather the individual is enjoined to seek salvation on the basis by
personally relating to God. Salvation is more of an individual matter and that
each person has a “calling.” The virtues of hard work, thrift, achievement and
wealth accumulation are pleasing to God and should be practiced to glorify
God. These values and the centrality of the individualism and family have
provided the basis for the growth capitalism.

 Islam
It is followed and practiced 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. It is 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 prohibits the
consumption of alcohol, and imposes restrictions on the participation of
women in business.

It does not promote secularism and hence tends to dominate all aspects of life.
Further, the long spells of time believers are required to spend in prayer and
fasting reduces productive time at work places.

Social Organization

A cultural phenomenon that is common in African societies is the tradition of the extended
family. This tradition holds that a family unit extends beyond one’s immediate biological family
and includes all relations, and that one has as much a responsibility to other family members as
to one’s first family. In situations where individuals have to look after their family and
dependents under one roof, this will inevitably increase the size of the household as an economic
unit but materially erode the per capita income of the bread winner. Individual standards of

39
 living might very well fall at the expense given the imperative to spread resources to family
members who are not able to fend for themselves.

The Economic Environment

Profitability is one of the criteria by which the success of strategy is measured. An identification
of opportunities and threats that derive from economic circumstances are accordingly pertinent in
charting the direction of a firm. Some of these economic-related variables are:

Economic System

An economic system can be associated with certain benefits depending on the chosen ideology.
Entrepreneurship and economic efficiency thrive better in an economy in which liberation and
competition are cherished; socialism is generally preferred when perceptions of public interest
are of concern. It is generally the case that most economies operate on a continuum of some sort,
albeit with dominance of either capitalism or socialism. Zambia is moving toward a market-
driven economic system although the major industries are foreign-owned.

Level of Economic Development

The level of economic development of a country is a reflection of the stage and extent of
economic advancement of a country. The following are some of the salient features which
characterize the four levels of economic development:

Subsistence economies:

 The majority of the people subsist on agriculture output

 There is limited income from agriculture
 The manufacturing sector is usually underdeveloped and consequently there
are simple goods and services
 There is a lot of potential in agriculture, but limited income for consumer
goods.

Raw-material-exporting economies:

 An endowment in one or two natural resources but poor in others.

 The major economic activity is the export of the natural resource(s)
 Revenue is mostly earned from exporting the endowed resource

40
  Opportunities obtain in the extractive industry and in industries allied to the
extraction of the natural resources, such as, extractive equipment and tools,
materials handling equipment, and transportation of equipment and the raw
material
 Captive market for consumer goods restricted to foreigners and pockets of
locals in regular employment.

These two types of economies represent what are generally known as underdeveloped
economies. The state of underdevelopment offers an opportunity for growth, as is being
witnessed by the influx of investors in fields like mining, agriculture and oil exploration. In
this regard, developing countries that are rich in one or two resources have historically
been regarded as producers of primary goods and consumers of manufactured goods.
Additionally, underdeveloped countries are also perceived as sources of cheap labour.
However, these economies are risky destinations on account of generally high levels of
poverty, inflation and monetary instability and poor infrastructure.

Industrializing economies:

 A viable manufacturing sector begins to emerge

 There is reliance on imports to sustain the developing manufacturing sector.
 There is also a growing rich and middle class with a hybrid of needs and
wants for all sorts of goods
 Economies of South Africa, Brazil, India and Southeast Asia are examples
of industrializing economies.

Industrial economies:

 These are the major exporters of manufactured goods and investment funds
 They have a rich class which feeds and gives impetus to the manufacturing
sector
 Economies of the U.S., West Germany, Britain, France, Japan, Russia and
other members of the G8 Club are examples of this advanced level of
development.

Size of the Market

Population can be indicative of opportunity or threat to a firm. Other things being equal, the
greater the populations the better the market (potential), especially for essentials or necessities
such as staple foods or health care items. A head count may however exaggerate the opportunity

41
inherent in size of the market. Instead, distribution of the population 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, even though there are more inhabitants in rural areas than in urban areas.

A population growth rate may also be used to measure the size of a market. On the positive side,
a high population growth rate may indicate buoyancy in the economy – healthy appetites, a
healthy people, and new households-which tend to increase demand for goods and services. On
the negative side, high population growth rates can hinder modernization and development of the
economy by holding back per capita income.

Income distribution
Ultimately, income distribution in a population is the best indicator of market opportunity.
Markets require not only people, but people with disposable income. It is the availability of
money and the willingness to spend it which determines demand for goods and services. This is
what makes markets viable. How people and nations spend their income is a measure of
prosperity. Indicators of economic prosperity include:

- A boom in housing and other construction.

- Amount, diversity and quality of personal possessions, e.g. automobile, homes,
clothing, furnishings
- A life style pursued as indicated by leisure, sports, hobbies, entertainment or
eating habits.

Nature of the economy

This refers to any of the following: a nation’s physical endowments, e.g. its natural resources; a
country’s topography, that is, a country’s surface features such as land, rivers, lakes, forests,
deserts, mountains; a country’s climate; and 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

42
  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

On the other hand, nature may also constrain economic and business developments. Mountains
and deserts hinder infrastructural development and make access to markets difficult; tourism,
agriculture and fishing can take place only under selective climatic conditions, etc.

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 a firm’s 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.

43
What is competition?

At first glance, answering the question “who are we competing against?” appears simple and
straightforward. Yet the range of actual and potential competitors faced by a firm is often much
broader than meets the eye. History is full of examples of companies that went down because
they failed to recognize competition in time. It is advisable to understand not only current
competitors whose marketing behaviour is predictable, but also latent competition whose pattern
of behaviour may not be explicit, obvious or predictable.

Industry Concept of Competition

The industry perception of competition is implicit in the majority of discussions of marketing
strategy. An industry is defined “as a group of firms that offer a product or class of products that
are close substitutes of each other” (Kotler, 2002). A close substitute is seen to be a product for
which there is a high cross-elasticity of demand. An example of this would be butter, where if
the price rises a proportion of consumers might switch to margarine.

The variables that have been used to define/classify competition have been the structure of
the industry (number of sellers, relative market shares) and the degree of differentiation that
exists between the competing companies and products. The types of competition that emerge in
using these two variables are illustrated in Figure 3.

Figure 3: Types of competition by Industry

Differentiation

Differentiated Undifferentiated

One (i) Pure monopoly

Number of Sellers
Few (ii) Differentiated oligopoly (iii) Pure oligopoly

Many (iv) Monopolistic competition (v) Pure competition

Source: Richard Wilson and Colin Gilligan, Strategic Marketing Management, (Oxford: Butterworth
Heinemann, 2009)

44
 (i) Pure monopoly
 Only one firm provides the product or service
 The monopoly may arise because of patents, licences, scale of
economics or regulation.
(ii) Differentiated oligopoly
 Few firms provide the product or service
 The products are partially differentiated
(iii) Pure oligopoly
 Few firms produce the product
 The product is largely the same and undifferentiated
(iv) Monopolistic competition
 Many firms provide the product
 Product or service differentiated

(v) Pure competition

 Numerous firms
 The product/service is broadly the same

The market perspective of competition

In the industry perspective of competition, the focus is on companies making the same product or
offering the same service. In contrast, in the market perspective of competition, the focus is on
companies that try to satisfy the same customer needs or that serve the same customer groups. A
classic example is that of the railway companies that viewed competition as fighting against each
other when customers were in fact looking for transport – such as planes, buses or cars. This is
what has become known as marketing myopia.

Porter’s Model of Five Competitive Forces

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

45
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 4.

Figure 4: Porter’s Model of Five Competitive Forces

Threat of New
Entrants

Bargaining Power Industry Bargaining Power of

of Suppliers Rivalry Buyers

of Suppliers Rivalry of Buyers

Threat of
Substitutes

Source: Michael Porter, How Competitive Forces Shape Strategy, Harvard Business
Review, March/April, 1979

(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.

46
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 over
large 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
 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
- more investment 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.

47
 - 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.

(ii) The Bargaining Power of Suppliers

Suppliers refer to providers of inputs to an industry. Inputs include raw materials,
components, services or labour.

Powerful suppliers exert bargaining power on industry participants to the extent that
they are able to raise prices of inputs or raise costs by providing poor quality inputs
or poor services. This has the effect of reducing profits of buyers.

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 the 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.

48
  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

(iii) Bargaining Power of Buyers

Buyers consist of consumers, users or distributors of a product. Bargaining power of
buyers refers to the ability of buyers to bargain down prices or to raise the costs of
suppliers by demanding better quality and service. This has the effect of squeezing
the profits of the supplier.

The power of buyers manifests itself when:

 The buyers are few, concentrated and buy in large volumes.

 The products bought are standard or undifferentiated.
 The industry’s product is unimportant to the quality of the buyer’s
products or services
 The supply industry depends on buyers for a large percentage of its
business
 Buyers can threaten to enter the supplier’s industry and pose a credible
threat of backward integration to make the industry’s product.
 Switching costs are low to the buyer such that the buyer is in a position to
play off supplying companies against each other in order to force down
prices.
In Zambia, examples of powerful buyers are Shoprite and the mining companies (Mopani and
Konkola) and Government.

(iv) The Threat of Substitutes

Substitutes are products of different industries or businesses that can potentially
satisfy similar customer needs. Firms in one industry are quite often in close
competition with firms in another industry when their respective products are good

49
 substitutes. Johnson and Scholes (1997) suggest that the threat of substitution can
take the following forms:

 Product-for-product substitution, as is the case of the fax and postal

service, and the e-mail and the fax.
 Substitution of need by a new product making an existing product
superfluous, as is the case with maize-meal and cassava, rice and
potatoes; pain killers (Panado, Aspirin, Aspro); or soft drinks (Coke,
Fanta, Sprite, Orange).
 Generic substitution occurs when different products compete for need;
for example furniture manufacturers and retailers compete with
suppliers of television sets, cars and holidays for household
expenditure.
 Doing without, as might be the case with abandoning smoking,
drinking or when one goes on diet.
The competitive force of closely related substitute products can affect the
profitability of a firm. The price and availability of an acceptable substitutes for
product X will place a ceiling on the price which the producer of product for product
X can charge; at the same time, the ceiling price places a limit on the profit potential
for product X.

(v) Industry Rivalry

This refers to rivalry among existing firms in the same industry for stronger market
position through:

 price competition
 after sales service
 product design
 product differentiation, innovation
 advertising and sales promotion
Intense rivalry flourishes or intensifies under the following situations:

 when competitors are numerous, and are of about equal size and power

50
  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.

Strategic Implications of Competition

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:
Strategy and Cost Advantage
Cost advantage has historically been considered as an appropriate response to competition
because firms have traditionally competed on the basis of price. In seeking cost efficiencies,
firms can gain a competitive edge over their rivals by passing on to customers cost savings
through price reductions. Cost analysis enables firms to identify factors that determine a firm’s
cost position and hence provide guidance to areas in which costs might be reduced. There are
five determinants of a firm’s unit costs relative to competitors:

 Diseconomies of Scale – these occur when increases in the amount of inputs

used in the production process result in a disproportionate increase in the unit
cost of the input. Scale economies can be achieved by (i) seeking technologies
that increase output without requiring a proportionate increase in output; (ii)
using resources which do not allow for divisibility, thus allowing the attendant

51
 cost of a ‘lumpy’ activity to be spread over larger volumes of output; and (iii)
engaging in mass production through specialization.
Economies of scale are associated with large-sized companies. Small and
medium-sized companies can match this advantage of larger firms by using
their small size to offer a more differentiated product and exploit flexibility
which is more difficult to achieve in larger firms.
 Process Technology and Process Design – where alternative technologies do
not exist which allow a unit of output to use less input than being used in the
current production of goods.
 High input costs – these may arise from location cost disadvantages; non-
ownership or inaccessibility to low-cost sources; and bargaining power of
suppliers of inputs
 Capacity underutilization – this tends to raise unit costs because fixed costs
must be covered despite the limited or fewer units of production.
 Excess costs – these are costs accumulated over time and are attributable to
operational and managerial inefficiency. such costs are common where the
organizational culture and leadership are indifferent or condone
‘organizational slack”

Strategic Cost Analysis can be used to analyze and reduce costs as appropriate in the value
chain activities of a firm. This is illustrated in Table 2. It involves the following steps:
 Disaggregate the firm into separate activities on the basis of similarity or
importance of the activities.
 Determine the relative importance of different activities in the total cost of the
product.
 Compare cost by activity and benchmark unit cost for each activity against
those of competitots
 Identify the cost determinants for each activity
 Identify possible linkages with other activities and draw out the significance of
any such linkage
 Identify the opportunity for cost reduction.

52
Table 2: Areas for possible cost reductions across the value added chain

Supply related Manufacturing-related activities Forward channel

activities Production Marketing Wholesale/Distribution

Raw materials Processing Sales force Dealer/distributor

Component parts Labour Advertising Management and

relations
Energy Maintenance Marketing
research
In-bound transportation Process design

In-bound materials Quality and inspection

handling
Inventory management
Inspection/warehousing

Adapted from: Thompson and Strickland (1987)

Thomson and Strickland (1987) propose a number of ways of reducing costs. If the firm is of the
belief that its cost disadvantage lies in supply-related activities, it can explore the possibility of
reduce costs through:
- Negotiating more favourabe terms with suppliers.
- Integrating backward to gain more control over material costs
- Using lower-priced substitute inputs
- Searching out lower costs in transportation

If the cost disadvantage lies in manufacturing –related activities, it can seek lower costs by:
- Investing in cost-saving technologies
- Initiating internal cost-saving measure
- Redesign the product to achieve cost reductions
- Innovate around the troublesome cost components

53
 - Seek internal cost savings in the backward and forward sections of the cost chain

And if the cost advantage is identified in the forward-related activities, it may look reduce costs
by:
- Seeking more favorable terms with its customers, such as distributors and other
forward allied allies
- Explore the possibility of integration in its logistic operations

Strategic cost analysis is a useful tool in competitive environmental analysis because, in

examining a firm’s own cost make-up, it will shed light on how the firm compares to its rivals
in salient cost components in the cost chain.

Competitor Analysis: This involves a deep and careful understanding of the competitor: who
are the competitors, what strategies they are using, their relative strengths and weaknesses and
what it might take to outmaneuver them in the market place. A firm must therefore assess its its
competitive standing particularly in the following areas:
 product design – convenience, comfort
 product innovation
 pricing strategies
 distribution network
 advertising/sales promotion
 customer service
 personal relationship
 after sales service
 overall customer acceptance of product
The objective of this analysis is to explore ways in which the firm might retain or improve its
standing on the competitive ladder. The rungs on the ladder can be broadly categorized by:

 Dominant leader-who usually has the largest market share and is

therefore the acknowledged leader in innovation and sales

54
  One of the industry’s top leaders-this is characterized by a few
firms dominating the industry
 A follower in which a firm is in the middle-of-the-pack. This
category comprises a large group of firms who are basically
followers
 A fringe firm characterized by being resigned to one’s position
because the firm is convinced it cannot realistically do any better.
Typically a fringe firm has a small and insignificant market share.

These market positions on the competitive ladder call for different competitive response to the
competition:
Market Leader
 A firm that is the acknowledged leader typically has the largest market share and
determines the nature, space and bases of competition by virtue of its pricing,
advertising intensity, distribution coverage and technological advance. However,
it must be wary of followers exploiting any weakness it might show.
 A market leader must aim at protecting and expanding its current share of the
market.
 In protecting its market share, it can assume any number of defensive profile:
o Position defence – where the company builds an impregnable fortification
around its market;
o Mobile defence – where the organization concentrates on broadening and
diversifying its market. The rationale for this is to cover new territories
that might in future serve as focal points both for offence and defence;
o Flanking defence-where a firm erects outposts to protect a weak front or
possibly serve as an invasion base for a counter attack;
o Contraction defence-where a firm opts for a withdrawal from those
segments and geographical areas in which it is most vulnerable;
o Pre-emptive defence-where a firm opts to strike first by behaving
aggressively; and

55
 o Counter-offensive defence-where a firm can attack the competitor head-on
in the hope that the competitor will withdraw.

Strategies pursued by market leaders to expand their overall market share include:

o Heavy advertising
o Improved distribution
o Mergers and acquisitions
o price incentives
o increasing the number of users,
o identifying new uses for the product, and
o increasing usage rates.

Market Challengers

 These are firms that trail a leader by occupying second, third and lower ranks to a
leader.
 Challengers must choose between attacking the market leader, attacking firms of
similar size to themselves, or attacking smaller regional firms.
 Porter advises caution in the strategy of attacking a market leader because of the
latter’s ability to retaliate in a way which can hurt the challenger. He advises that
a successful attack against a market leader must meet three basic conditions:
o The assailant must have a sustainable competitive advantage.
o The challenger must be able to neutralize the leader’s other advantages
o There must be impediment to the leader’s retaliating.
 It has long been established that market challengers rarely succeed by using just
one element of strategy. Instead, success depends on designing a strategy made up
of several strands that, by their cumulative effect, give the challenger a
competitive advantage. The strands most commonly used are:
o cheaper goods
o prestige goods
o price discounts
o improved services
56
 o product proliferation
o innovation
o distribution innovation.
o cost reduction
o intensive advertising
o prestige image

Market followers

 These are firms that prefer to follow rather than challenge the leader. In accepting
the status quo, followers pursue a course of action that avoids the risk of
confrontation and retaliation and opt for a “me-to” strategy by copying the market
leaders through innovation, imitation, or adaptation. Three possible postures for
followers are:
o To follow closely, with as similar a marketing mix and market
segmentation combination as possible
o To follow at a distance, so that, areas of differentiation are emphasized
even though there might be similarities
o To follow selectively, in order to avoid direct competition with the leader

Market nicher

 This is an attempt to be a leader in a small market, or niche, where large firms

have little or no interest.
 A successful niche must meet the following conditions:
o Must be profitable on the basis of purchasing power and size
o Must have scope for growth
o Must not be of immediate interest to the major competitors
o The firm must have the capability to defend itself if need be
o The firm must be able to serve the nice effectively
 Niches can be developed by specialization in any of the following:
o Location
o Product

57
 o Quality
o Price
o Service
o Size of customer or
o Product feature.

Product differentiation – This involves creating a difference from rivals and the difference
being valued by customers. The difference could be in the procurement of materials; production
process and product design; marketing process and overall improved quality. Perceived value in
the difference created can entail any of the following:
 Greater convenience and ease in use of product
 Adding features to products that lower the price of the products or result
in overall reduction in the cost of using the products.
 Improved performance of the product.
 The design and availability of extras to meet occasional needs, e.g.
packaging for picnics and outdoor recreation
 Competitive capabilities that outpace rivals in reaching market
 Buyer satisfaction in non-economic wants such as
 status
 prestige
 image
 comfort

However, differentiation has a number of pitfalls among which are the following:
 Buyers must quickly see the intended value implicit in the difference
 The danger of competitors copying new features/innovation, including
pricing
 The risk of over-differentiation, that is, the resultant quality being
needlessly superfluous or the investment being too high for the perceived
value.

58
  The risk of customers shifting their preference away from the
differentiated product.

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.
Segmentation of the market may be based on:
 demographic/socioeconomic characteristics
 Age, such as in the case of entertainment or toys for
children
 Gender, in the case of perfumes
 Education, in the case books
 Economic and social status, in the case of tourism, cars
 purchase
 size
 application
Risks of using a focus approach

 Buyers may shift their preferences away from the focuser’s special
product attributes
 The possibility that broad-range competitors will find effective ways of
serving the narrow target markets
 The risk that competitors will find smaller segments within the target
segment and thus “out-focus” the focuser. This often happens in the
electronics industry where an imitation turns out to be a better in quality
that the original product.

Table 3: An overview of generic competitive strategies

Type of strategy Ways to achieve Benefits Possible problems

strategy

59
Cost leadership Economies of scale The ability to Difficulty of sustaining
outperform rivals it in the long term
Globalization
The ability to erect The danger of rivals
Relocating to low-cost outperforming firm by
barriers to entry
parts of the world achieving lower costs
The ability to resist
Cheaper sources of Possibility of price
the five forces
supply wars
Strategic alliances

Greater effectiveness
in managing labour &
operational costs

Focus Concentrating on one A more detailed and Limited opportunity

or a small number of better understanding for sector growth
segments of unique or
particular segments The decline of the
The creation of a segment
strong and specialist The creation of
reputation barriers to entry The possibility of
outgrowing the sector
The ability to
concentrate effort

A reputation for
specialization

Differentiation The creation of strong A distancing from Possibility of higher

brands fellow competitors costs

Focused relationship Flexibility Difficulties of

building sustaining bases of
Creation of a
differentiation
Pursuit of those competitive
factors customers advantage Dangers of others
consider important imitating the
differences
Better after sales
service The danger of
developing

60
Innovation in design, differences which add
packaging and little or no value
distribution
The difficulty of
Superior financing developing true and
deals for customers meaningful
differences
Higher service levels

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 DETERMINING CORPORATE COMPETENCE AND RESOURCES

Introduction
Analysing and understanding the external environment in which an organization
operates facilitates the process of identification of opportunities and threats. Once
opportunities have been identified, the next step is to validate the choice among
the several opportunities by determining whether the organization has the capacity
to prosecute the preferred choice.

The capability of an organization is its demonstrated or potential ability to

accomplish, against competition and circumstance, whatever it sets out to do. The
examination of the components of strategic capability and techniques consists of:

1. Resource Audit

A resource audit must seek answers to two questions:

 What is the nature of the resources available?
 What is the inherent strength of these resources in terms of age,
condition, location or capability?
This analysis should extend to the following types of resources:
1.1 Physical resources
 plants
 machinery
 land
1.2 Human resources
 number and types of skills

62
  adaptability
1.3 Financial resources
 the ease of obtaining capital
 control of debtors and creditors
 managing cash
1.4 Intangibles
 name and reputation
 image
 contact network of distributors, suppliers or customers

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:
 The unique capability it gives an organization in capitalizing on a
particular opportunity, and
 The competitive edge it may give a firm in the market place.

2.1. FORMS OF DISTINCTIVE COMPETENCE:

 Quality as Excellence and Reliability

A product is defined as a bundle of attributes. For a physical
product, the attribute include their form, features, performance,
durability, reliability, style and design.

63
 A product is said to be of superior quality when customers perceive
that its attributes provide them with higher utility (value,
usefulness, convenience, function) than the attributes of products
sold by rivals. For example, a Mercedes Benz has attributes-design,
performance, and reliability-that customers perceive as being
superior to the same attributes in many other cars. Thus we can
refer to a Mercedes Benz as a high-quality product. Consequently,
the manufacture of quality products is a competence.
Reliability as a quality refers to consistency of the product in doing
the job it was designed for.
 Innovation
This refers to the act of creating new products or processes. Product
innovation is the development of products that are new to the world
or have superior attributes to existing products. Process innovation
is the development of a new process for producing products and
delivering them to customers.
Innovativeness includes:
 Finding innovative ways to achieve low-cost production
efficiency and then offering customers the attractiveness of
a lower price
 Excelling at developing innovative products that
customers consider a step ahead of a rival’s product
 Designing clever, exciting and persuasive advertising and
sales promotion techniques
 Offering the customer superior service after sale; this would entail
for example
 the quality of delivery service
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  repairs and maintenance
 warranties and guarantees
 The policy on returns and/or refunds.
 The network of dealers and distributors.
 Management Capabilities
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 Quality of Coordination of individual and group effort.

Competences in coordination project themselves in separate
activities that can inherently be a potential source of conflict
through pursuit of individual enterprise or initiative (sometimes
referred to as expertise or intellectual arrogance. For example:
 in a case of brain surgeon at a hospital
 outstanding and reputable lawyer in a law firm
 a customer-driven account executive
 a member of a choir with an excellent voice

65
Relationship of resources and capability in generating a distinctive competency
 A company may have a firm-specific and valuable resource, but it has to
have the capability to use that resource effectively, in order to create a
distinctive competency.
 It is also important to recognize that a company may not need firm-specific
and valuable resources to establish a distinctive competence if it does have
capabilities that no competitor possesses.

Thus, for a firm to have a distinctive competence it must have either

 The resources and the capabilities (skills) necessary to take advantage of
that resource; or
 The capability to manage the resources.

2.2. TECHNIQUES FOR ANALYZING STRATEGIC CAPABILITY

2.2.1. Value added analysis

 A business system is conceived as a series of
activities which add perceived value to the product or
service
 Value for the customer is the perceived stream of
benefits that accrue from obtaining the product or
service
 Price is what the customer is willing to pay for that
stream of benefits
 At the same time, each activity in the business is
performed at a cost.
 The value created by a company is measured by the
difference between the value to a customer (V) and
66
 the costs of production. This can be illustrated as
follows:

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).

67
  Each activity can therefore be performed to maximize the perceived
value, or to minimize the delivered cost.

2.2.2. 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.

Additionally, efficiency can be attained at corporate level by

striving toward economies of scale in production, distribution and
advertising or sales promotion.

2.2.3. Historical Analysis

This is an assessment of the deployment of resources of an

organization over time, e.g.
2000 2001 2002

Sales ………. ………. ……….

Sales ………. ………. ……….

expenses

Profit

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2.2.4. Comparison with industry norms
This involves comparing a company with other companies in the same
industry. This is a measure of competitive positioning or advantage
by using, for example, the “market share” concept.\

2.2.5. Benchmarking
What is “best” is stretched to similar activities in a different industry,
e.g. market share or innovation.

2.2.6. 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 can 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:

2.2.6.1. Profit Ratios

Profit ratios measure the efficiency with which the company
uses its resources. The more efficient a company is in
managing its resources, the greater will be its profitability. The
most commonly used profit ratios are as follows:

 Gross profit margin (GPM)

GPM = Sales Revenue – Cost of Goods Sold
Sales Revenue

69
  Net profit margin = Net Income
Sales Revenue

 Return on total assets

= Net income available to common stockholders

Total assets

 Return on stockholders’ equity

= Net income available to common stockholders
Stockholders’ equity

2.2.6.2. Liquidity Ratios

A company’s liquidity is a measure to its ability to meet short-
term obligations. An asset is deemed liquid if it can be readily
converted into cash. Liquid assets are current assets such as
cash, marketable securities, accounts receivable, and so on.
2.2.6.2.1. Current Ratio
= Current Assets
Current Liabilities
2.2.6.2.2. Quick Ratio
= Current Assets – Inventory

Current Liabilities

2.2.6.3. Activity Ratios

Activity ratios indicate how effectively a company is managing
its assets.

2.2.6.3.1. Inventory Turnover

= Cost of Goods Sold
Inventory

70
 This measures the number of times inventory is turned over. It
is useful in determining whether a firm is carrying excess stock
in its inventory.
2.2.6.3.2. Days sales outstanding (DSO), or average collection
period
This ratio is the average time a company has to wait to
receive its cash after making a sale.

DSO = Accounts Receivable

Total Sales/360

2.2.6.4. Leverage Ratios

A company is said to be highly leveraged if it uses debt rather
than equity, including stock and retained earnings.

2.2.6.4.1. Debt-to-assets ratio

= Total Debt

Total Assets
This measures the extent to which borrowed funds have been
used to finance a company’s investment.

2.2.6.4.2. Debt-to-equity ratio

This indicates the balance between debt and equity
Debt-to-equity Ratio = Total Debt

Total Equity

2.2.6.5. Times-covered Ration (TCR)

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.
71
 TCR = Profit Before Interest and Tax
Total Interest Charges

2.2.6.6. Shareholder-Return Ratios

Shareholder-return ratios measure the return earned by
shareholders by holding stock in the company.

2.2.6.6.1. Total shareholder returns (TSR)

This measurers the returns earned by time( t + 1) on an investment in a
company’s stock made at time t. {Time t is the time at which the initial
investment is made}
TSR = Stock Price (t + 1) – Stock Price (t) + Sum of annual
dividends per share

Stock Price (t)

Thus, given:
 shareholder invests K2 at time t
 at time t + 1 the share is worth K3
 the sum of annual dividends for the period t to t + 1 has
amounted to K0.2

TSR = (3 – 2 + 0.2) = 0.6

which is 60% return on initial investment of K2 made at time t.

2.2.6.6.2. Price-earnings ratio

This measures the amount investors are willing to pay per
Kwacha of profit.

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 Price-earnings ratio = Market price per share
Earnings per share

2.2.6.6.3. Dividend yield

This measures the return to shareholders received in form
of dividends
Dividend yield = Dividend per share

Market price per share

2.2.6.7. Cash Flow

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.

2.2.6.8. Product Portfolio Analysis

This is an analytical tool, developed by the Boston Consulting
Group, for classifying a company’s business by its profit
potential. It uses two variables: market growth rate and
relative market share.
Question mark:
 A company tries to enter a high-growth rate in which
there is already a market leader.

 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-

73
 growing market, and because it wants to overtake the
market leader.

Star

 This represents a market leader in a high-growth

market

 The company must spend substantial sums of money

to keep up with the high market growth and fight off
competitors’ attacks

Cash Cow

 A company produces a lot of cash.

 The company does not have to finance capacity
expansion because the market growth rate has slowed
down.
 Because it is a market leader, it enjoys economies of
scale and higher profit margins.

Dog
 Typically generates low profits or incurs losses.
 An appropriate strategy here might be to sell or
liquidate the business.

The Boston Group’s Growth-Share Matrix

High Low

Question
Star
High Mark

74
 Market

Growth

Rate

Cash Cow Dog

Low

Relative Market Share

2.2.6.9. SWOT Analysis

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:

 Is the company in an overall strong competitive position?

 Can it continue to pursue its strategic profitability?

 What can the company do to turn its weaknesses into strengths
and threats into opportunities?
 Can it develop new corporate strategies to accomplish this
change?

2.2.6.10. Critical Success Factors

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.

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 PERSONAL VALUES AND ASPIRATIONS OF SENIOR MANAGERS

Introduction
 An analysis of the environment is intended to facilitate understanding of
what a company might do as revealed by the opportunities or threats
obtaining in the environment.
 The identification and analysis of corporate competence addressed the
question of what the company can do in terms of its state of preparedness
and capability to prosecute what it might do.
 A suitable combination of a company’s strengths and its opportunities will
result in a reasonable and well informed choice of alternatives that will
assure the highest possible profit.
 Strategy formulation also depends on the personal values and aspirations of
the chief executive and his senior managers. The proposition being put
forward is that strategy is also a function of what management wishes to do.
 Chief Executive officers in charge of the destiny of a company do not
look exclusively at what a company might do and can do. They
sometimes seem heavily influenced by what they personally want to do.
o Maximum profits in the short run versus investment through research
and development
o Profitability versus immediate employee satisfaction through
improved salaries and better conditions of service
o Economy versus consumer preferences
o Voluntary liquidation versus perseverance in unfavorable
circumstances.
o Preferences over what investment to make and where.

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WHAT ARE PERSONAL VALUES AND ASPIRATIONS?
W.D. Guth and R. Tagiuri defined a value as “a conception, explicit or implicit,
distinctive of an individual or characteristic of a group, of 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.

TYPES OF VALUE ORIENTATIONS

(a) The theoretical orientation – characterized by intellectual interest in an
empirical, critical, rational approach to issues.

(b) The economic orientation – characterized by a materialistic approach to practical affairs,

such as the production and consumption of goods and creation and acquisition of wealth.

(c) The aesthetic orientation – manifested by interest in the artistic, in 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.

STAKEHOLDERS AND THEIR VALUE ORIENTATIONS


W.D. Guth and R. Tagiuri, Personal Values and Corporate Strategy, Harvard Business Review, Sept-Oct 1965,
pp 123-32

77
1. Stakeholders

 Have equity interest in the firm.

 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.

2. The Board of Directors

 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.

 Constitute the policy making and governing body of a firm

 It is at this level that strategic decisions are presented, discussed, approved or

rejected.

 Their power and influence are derived from their principals or those they represent.

3. The Chief Executive Officer

 Responsible for the day-to-day running of the firm.

 Accountable to the Board for the implementation of strategy.

 Is chief strategist; and as such, expected to initiate, defend and implement strategy.

 Guides the Board in the selection, evaluation and implementation of strategy.

 Has the greatest opportunity to influence the direction of the firm.

 Power and influence derive from the mandate received from the Board.

4. Senior (Top) Management

 Directly assist CEO in initiating and implementation of strategy.

 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

5. Other employees

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 This group comprises employees other than the Chief Executive Officer and
immediate functional managers to the CEO.

 They contribute directly or indirectly principally to the implementation of strategy

under the supervision of their superiors.

 Their power and influence derive from the way they are organized into labour unions
or pressure groups.

 They are interested in monetary benefits and non-monetary benefits, such as good
working conditions.

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 TOPIC 5

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.

WHAT IS SOCIAL RESPONSIBILITY?

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

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 must additionally lead firms to making a positive contribution to human
betterment.

THE CASE AGAINST VOLUNTARY ASSUMPTION OF SOCIAL RESPONSIBILITY

(The Economic Isolationist’s Argument)
The case of the economic isolationist rests on the following principles:
1. That the primary purpose of business is economic, that is, to maximize
revenue.

 Deviation from this principle is self-defeating and can lead to

economic inefficiency.
 Moreover, the pursuit of the economic motive results in good for
society as a whole.

2. The undesirable social consequences of business activity should be left to

government to regulate or correct.

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.

PROPONENTS OF THE ECONOMIC ISOLATIONIST VIEW

(a) Adam Smith’s Wealth of Nations

In his work, The Wealth of Nations, Adam Smith argued that perfect
competition, as characterized by atomized 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

81
 against each other, from harming the public. The general good can be
attained by the self-centered drive for survival and efficiency of the
entrepreneur or small firm. In a famous quote, Adam Smith asserted that:

‘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 idealized form as envisaged by Smith:
in reality, what obtains is imperfect competition characterized by few large
suppliers who control markets and incomplete knowledge on the part of the
buyers of sources of supply and prices.

(b) Theodore Levitt & Reavis Cox argue that:

 The only responsibility of business is to make profit.

 The need to make profit in the present is so great and so pressing that
self-interest necessarily excludes public service.
 It is government’s role to check abuse, prescribe rules and codify
public aspirations.

(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.

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  Direct intervention or the doctrine of social responsibility is
“fundamentally subversive” in a free society.

THE CASE FOR INVOLVEMENT(The Social Interventionist)

The case for the social interventionists rests on the following arguments:

(a) 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.

(b) 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.

(c) 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

83
 constantly expects and demands that businesses behave not only legally but
within visible regard for the rights of competitors, customers and the general
public.

(d) 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.

(e) Corporate executives of the caliber, integrity, intelligence and humanity

required to run modern companies cannot be expected to confine themselves
to their narrow economic activity and to ignore its social programs.
Communities, societies and nations are increasingly becoming less divisive
and more accommodating as evidenced by positive developments in
resolving cultural, religious and ethnic differences, the appeal of
globalization and international tourism.

(f) 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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THE CATEGORIES OF CONCERN OR SCOPE FOR CORPORATE SOCIAL RESPONSIBILITY

(a) The problems of the world society:

 the opportunity to contribute to industrialization in underdeveloped
countries;
 the willingness to undertake joint ventures rather than insist on full
ownership;
 the willingness to share management and profits in terms not
immediately related to the actual contributions of other partners;
 the training of nationals for skilled jobs;
 the willingness to enter business to meet social as well as material
needs;
 Cooperation in matters of taxes, bribery or corruption.

(b) The problems within a country’s borders:

 Occasional disasters such as floods, earthquakes, drought or civil
strife.
 Environmental consequences of manufacturing processes.
 Promotion of underprivileged groups.

(c) The problems of the community in which the company operates:

 Impact of new investments on existing cultures and traditions

 The need for social amenities offered to the community
 Employment opportunities to the local community

(d) Industry-specific problems:

 environmental concerns arising from disposable products;
85
  road maintenance in the case of heavy users of roads;
 ethical and moral issues in the provision of services

(e) The quality of life within a company:

 the welfare of employees;

 the quality of goods and services being offered to the public – the
active role played or disinterest or indifferences shown;
 the impact upon the individual of the control systems and other
organizational processes installed to secure results, e.g. the pressures
which lead executives to offer bribes; the failure or reluctance to
acknowledge and recognize the efforts which do not have a direct
bearing on visible profits;
 the freedom afforded to the individual employee to participate in
social causes beyond the corporate effort.

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

(iii) the threat of regulation that will be ultimately forthcoming if business

behaviour does not meet the standards applied to it by society.

86
 National Bank of Zambia (NBZ)
In the end, National Bank of Zambia (NBZ) could not keep up the pretence any longer. The
bank’s Chief Executive, Robert Tusheni, who came from Barclays Bank in 1997, and its
Chairman, Mr. Patrick Kunda, an old hand, were at each other’s throats and one of them had to
go. It was Mr. Tusheni, 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 2009.
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, NBZ and the other commercial banks
in Zambia, had roughly similar geographical reach, balance sheets, market capitalizations, profits
and staff numbers. Why was it, he asked, that NBZ had so dismally underperformed 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, NBZ increased the number of branches countrywide. In the urban area, the
bank still faced competition from the private banks, notably, Barclays Bank, Stanbic, Standard
Chartered, Finance Bank, Indo-Zambia Bank and Investrust. NBZ nevertheless had an edge on
the private banks because of its unquestionably privileged relationship with the government. This
special business relationship with the government was rooted in the fact that the bank was a joint
venture between the governments of India and Zambia, and the Zambian government deemed it
financially prudent to channel all its business through NBZ. In the case of rural areas, the
vacuum created by the withdrawal of private commercial banks was an added bonus for NBZ.
The bank’s market share standing was also boosted by its liberal credit policy and affordable
minimum balance requirement. The bank thus became a natural and automatic attraction to low
income groups and, more importantly, to rural dwellers who included government civil servants,
peasant farmers and an assortment of retirees who had opted to settle away from the hustle and
bustle of urban life. The turn in fortunes of the bank under Mr. Tusheni’s stewardship was also
manifested by an increase in business in the region attributed to the decision to headquarter
Comesa in Lusaka. The share of the bank’s profit that came from the region rose sharply.
Last year Mr. Tusheni started to back away from the unspoken tradition of granting soft loans
and advances to old political hands, whose default rate on repayments was becoming a matter of
concern. This did not however please Mr Kunda who drew his support from the political
establishment of the ruling party. Moreover, so Mr Kunda argued, NBZ was a “national and
people’s bank.” On his part, Mr. Tusheni made no secret of his disdain for what he considered
Mr. Kunda’s “archaic banking practices.” Mr. Tusheni also riled the expatriate staff who felt
insecure by Mr Tusheni’s slant toward indigenization of the bank. A firm believer in the
“African way of doing things,” Mr. Tusheni had, in the last two years, began promoting local
fellow Zambians and Africans from COMESA member states to managerial positions,
traditionally a role reserved for British and Asian expatriates.
Forcing the pace of change at NBZ, half of which dates from the 1980s, was a hard task, and Mr.
Tusheni made enemies along the way. Critically, he failed to keep in with the bank’s non-
87
executive board members, viewed in the City of Lusaka as a conservative lot, and hopelessly
locked and steeped in English tradition. 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 Mr. Tusheni’s open enthusiasm for a proposal
from advocates of privatization for the government of Zambia to sell its shares in the bank to
ordinary citizens. Mr. Kunda is known to be passionately opposed to any “watering down” of
government ownership.
.
How the bank charts its course in the post-Tusheni era will now be the job of Mukela Mundia,
NBZ’s former Operations Manager, who was promoted to Managing Director last week. Mr.
Mundia is known to be a close confidant of Mr. Tusheni and reliable sources believe there will
be no major shift from Mr Tusheni’s stance. So Mr. Tusheni’s ideas, if not his management
style, will continue.
Source: Adapted from The Economist, December 8-14, 2001, p.72

Required:

Identify the strategies manifest in this case and analyze the circumstances that have prompted the
choice of the strategic options.

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 SMART ATTIRE ENTERPRISES

When Smart Attire Enterprises and other retailers began in the 1990s, they were small operations with
little purchasing power. To generate store traffic, they depended in large part on stocking nationally
branded merchandise from well-known companies. Since the retailers did not have high sales volume,
the nationally branded companies set the price. This meant that the retailers had to look for other ways to
cut costs, which they typically did by emphasizing self-service in stripped-down stores located in the
suburbs where land was cheaper.

Retailers such as Smart Attire Enterprises purchased their merchandise through wholesalers, who in turn
bought from manufacturers. The wholesaler would come into a store and write an order, and when the
merchandise arrived, the wholesaler would come in and stock the shelves, saving the retailer labour costs.
However, Smart Attire Enterprises placed its stores in the Western Province, a region considered rural,
poor and out-of-the-way. Wholesalers were not particularly interested in serving a company that built its
stores in such places. They would do it only if Smart Attire Enterprises paid higher prices.

The founder of Smart Attire Enterprises, Mwiko Nawa, refused to pay higher prices. Instead he took his
fledgling company public and used the capital raised to build a distribution center to stock merchandise.
The distribution center would serve all stores within a 300-kilometre radius, with trucks leaving the
distribution center daily to restock the stores. Because the distribution center was serving a collection of
stores and thus buying in larger volumes, Nawa found that he was able to cut the wholesalers out of the
equation and order directly from manufacturers. The cost savings generated by not having to pay profits
to wholesalers were then passed on to consumers in the form of lower prices which helped Smart Attire
Enterprises continue growing. This growth increased its buying power and thus its ability to demand
deeper discounts from manufacturers.

Today Smart Attire Enterprises has turned its buying process into an art form. Since 8 percent of all retail
sales in Zambia are made in a Smart Attire Enterprises store, the company has enormous bargaining
power over its suppliers. Suppliers of nationally branded products are no longer in a position to demand
high prices. Instead, Smart Attire Enterprises is now so important to its suppliers that it is able to demand
deep discounts from them. Moreover, Smart Attire Enterprises has itself become a brand that is more
powerful than the brands of manufacturers. People don’t go to Smart Attire Enterprises to buy branded
goods; they go to Smart Attire Enterprises for the low prices. This simple fact has enabled Smart Attire
Enterprises to bargain down the prices it pays, always passing on cost savings to consumers in the form of
lower prices.

Since 2001 Smart Attire Enterprises has provided suppliers with real-time information on store sales in
Western Province and other parts of Zambia. These have allowed suppliers to optimize their own
production processes, matching output to the demands of Smart Attire Enterprises and other stores in
Zambia and avoiding under or overproduction and the need to store inventory.

Source: Charles W. L. Hill & Gareth R. Jones, Strategic Management (Boston: Houghton Mifflin Co.,
2007)

89
DETERMINING CORPORATE COMPETENCE AND
RESOURCES
Analysing and understanding the external environment in which an organization operates
facilitates the process of identification of opportunities and threats. Once opportunities have
been identified, the next step is to validate the choice among the several opportunities by
determining whether the organization has the capacity to prosecute the preferred choice.
The capability of an organization is its demonstrated or potential ability to accomplish, against
competition and circumstance, whatever it sets out to do. The examination of the components of
strategic capability and techniques consists of:

1. Resource Audit

A resource audit must seek answers to two questions:

 What is the nature of the resources available?
 What is the inherent strength of these resources in terms of age, condition, location or
capability?
This analysis should extend to the following types of resources:
1.5 Physical resources
 plants
 machinery
 land
1.6 Human resources
 number and types of skills
 adaptability
1.7 Financial resources
 the ease of obtaining capital
 control of debtors and creditors
 managing cash
1.8 Intangibles
 name and reputation
 image

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  contact network of distributors, suppliers or customers
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:
 The unique capability it gives an organization in capitalizing on a particular
opportunity, and
 The competitive edge it may give a firm in the market place.

3. FORMS OF DISTINCTIVE COMPETENCE:

 Excelling in the manufacture of quality products or provision of a service
 Offering the customer superior service after sale; this would entail for example
 the quality of delivery service
 repairs and maintenance
 warranties and guarantees
 the policy on returns and/or refunds.
 Finding innovative ways to achieve low-cost production efficiency and then
offering customers the attractiveness of a lower price
 Excelling at developing innovative products that customers consider a step
ahead of a rival’s product
 Designing more clever advertising and sales promotion techniques
 Having the best technological expertise
 Having the best network of dealers and distributors.

2.3. TECHNIQUES FOR ANALYZING STRATEGIC CAPABILITY

2.3.1. Value added analysis

 A business system is conceived as a series of activities which add
perceived value to the product or service
 Value for the customer is the perceived stream of benefits that
accrue from obtaining the product or service

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  Price is what the customer is willing to pay for that stream of
benefits
 At the same time, each activity in the business is performed at a cost.
 The value created by a company is measured by the difference
between the value to a customer (V) and the costs of production.
This can be illustrated as follows:

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.

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 2.3.2. 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.

Additionally, efficiency can be attained at corporate level by striving toward

economies of scale in production, distribution and advertising or sales promotion.

2.3.3. Historical Analysis

This is an assessment of the deployment of resources of an organization over

time, e.g.
2000 2001 2002

Profit ………. ………. ……….

Sales ………. ………. ……….

2.3.4. Comparison with industry norms

This involves comparing a company with other companies in the same industry.
This is a measure of competitive positioning or advantage by using, for example,
the “market share” concept.\

2.3.5. Benchmarking
What is “best” is stretched to similar activities in a different industry, e.g. market
share or innovation.

2.3.6. 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 can be determined through the use of ratio analysis. Financial

93
 performance ratios can be calculated from the balance sheet and income
statement. These ratios can be classified into five different subgroups:

2.3.6.1. Profit Ratios

Profit ratios measure the efficiency with which the company uses its
resources. The more efficient a company is, the greater will be its
profitability. The most commonly used profit ratios are as follows:

 Gross profit margin (GPM)

GPM = Sales Revenue – Cost of Goods Sold

Sales Revenue

 Net profit margin = Net Income

Sales Revenue

 Return on total assets

= Net income available to common stockholders

Total assets

 Return on stockholders’ equity

= Net income available to common stockholders

Stockholders’ equity

2.3.6.2. Liquidity Ratios

A company’s liquidity is a measure to its ability to meet short-term
obligations. An asset is deemed liquid if it can be readily converted into
cash. Liquid assets are current assets such as cash, marketable securities,
accounts receivable, and so on.
2.3.6.2.1. Current Ratio
= Current Assets

Current Liabilities

2.3.6.2.2. Quick Ratio

= Current Assets – Inventory

Current Liabilities

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2.3.6.3. Activity Ratios
Activity ratios indicate how effectively a company is managing its assets.

2.3.6.3.1. Inventory Turnover

= Cost of Goods Sold

Inventory

This measures the number of times inventory is turned over. It is useful in

determining whether a firm is carrying excess stock in its inventory.
2.3.6.3.2. Days sales outstanding (DSO), or average collection period
This ratio is the average time a company has to wait to receive its
cash after making a sale.

DSO = Accounts Receivable

Total Sales/360

2.3.6.4. Leverage Ratios

A company is said to be highly leveraged if it uses debt rather than equity,
including stock and retained earnings.

2.3.6.4.1. Debt-to-assets ratio

This measures the extent to which borrowed funds have been used to
finance a company’s investment.

= Total Debt

Total Assets

2.3.6.4.2. Debt-to-equity ratio

This indicates the balance between debt and equity

Debt-to-equity Ratio = Total Debt

Total Equity

2.3.6.5. Times-covered Ration (TCR)

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.

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 TCR = Profit Before Interest and Tax

Total Interest Charges

2.3.6.6. Shareholder-Return Ratios

Shareholder-return ratios measure the return earned by shareholders by
holding stock in the company.

2.3.6.6.1. Total shareholder returns (TSR)

This measurers the returns earned by time( t + 1) on an investment in a company’s
stock made at time t. {Time t is the time at which the initial investment is made}
TSR = Stock Price (t + 1) – Stock Price (t) + Sum of annual dividends per
share

Stock Price (t)

Thus, given:

 shareholder invests K2 at time t

 at time t + 1 the share is worth K3

 the sum of annual dividends for the period t to t + 1 has amounted to

K0.2

TSR = (3 – 2 + 0.2) = 0.6

which is 60% return on initial investment of K2 made at time t.

2.3.6.6.2. Price-earnings ratio

This measures the amount investors are willing to pay per Kwacha
of profit.

Price-earnings ratio = Market price per share

Earnings per share

2.3.6.6.3. Dividend yield

This measures the return to shareholders received in form of
dividends

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 Dividend yield = Dividend per share

Market price per share

2.3.6.7. Cash Flow

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.

2.3.6.8. Product Portfolio Analysis

This is an analytical tool, developed by the Boston Consulting Group, for
classifying a company’s business by its profit potential. It uses two
variables: market growth rate and relative market share.
Question mark:

 A company tries to enter a high-growth rate in which there is already

a market leader.

 Its earnings are typically low and it has a negative cash flow

 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.

Star

 This represents a market leader in a high-growth market

 Its earnings are high and growing, and the cash flow is neutral

 The company must spend substantial sums of money to keep up with

the high market growth and fight off competitors’ attacks

Cash Cow
 A company enjoys a high market share in a low-growth market
 Its earnings are stable to high and its cash flow is high.

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  The company does not have to finance capacity expansion because
the market growth rate has slowed down.
 Its strategy must be to milk
Dog
 A company operates in a low-growth market and has a low market
share
 Its earnings are low and unstable and its cash flow is neutral to
negative
 Its strategy must be to divest.
 An appropriate strategy here might be to divest by selling or
liquidating the business.

The Boston Group’s Growth-Share Matrix

High Low

High
Star Question Mark

Market

Growth

Rate

Cash Cow Dog

Low

Relative Market Share

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2.3.6.9. SWOT Analysis
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:

 Is the company in an overall strong competitive position?

 Can it continue to pursue its strategic profitability?

 What can the company do to turn its weaknesses into strengths

and threats into opportunities?

 Can it develop new corporate strategies to accomplish this

change?

2.3.6.10. Critical Success Factors

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.

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 PERSONAL VALUES AND ASPIRATIONS OF SENIOR MANAGERS

Introduction
 An analysis of the environment is intended to facilitate understanding of
what a company might do as revealed by the opportunities or threats
obtaining in the environment.
 The identification and analysis of corporate competence addressed the
question of what the company can do in terms of its state of preparedness
and capability to prosecute what it might do.
 Strategy formulation also depends on the personal values and aspirations of
the chief executive and his senior managers. The proposition being put
forward is that strategy is also a function of what management wishes to do.
 To recap, then, environmental analysis addressed the question of what a
company might do; an analysis of corporate competence and resources
addressed the question of what a company can do; and an examination of
personal values and aspirations will address the question of what a company
wishes to do.

WHAT ARE PERSONAL VALUES AND ASPIRATIONS?

W.D. Guth and R. Tagiuri defined a value as “a conception, explicit or implicit,
distinctive of an individual or characteristic of a group, of 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.


W.D. Guth and R. Tagiuri, Personal Values and Corporate Strategy, Harvard Business Review, Sept-Oct 1965,
pp 123-32

100
  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.

TYPES OF VALUE ORIENTATIONS

(g) The theoretical orientation – characterized by intellectual interest in an empirical, critical,
rational approach to issues.

(h) The economic orientation – characterized by a materialistic approach to practical affairs,

such as the production and consumption of goods and creation and use of wealth.

(i) The aesthetic orientation – manifested by interest in the artistic, form, symmetry, harmony
and fine taste.

(j) The social orientation – characterized by love of people, the welfare of humans and
warmth of human relationships.

(k) The political orientation – manifested by the love for power, influence and recognition.

(l) The religious orientation – manifested by fascination with unity, mystery, and the creation
of satisfying and meaningful relationship with the universe, moral and ethical issues.

STAKEHOLDERS AND THEIR VALUE ORIENTATIONS

1. Stakeholders

 Have equity interest in the firm.

 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.

2. The Board of Directors

 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.

 Constitute the policy making and governing body of a firm

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  It is at this level that strategic decisions are presented, discussed, approved or
rejected.

 Their power and influence are derived from their principals or those they represent.

3. The Chief Executive Officer

 Responsible for the day-to-day running of the firm.

 Accountable to the Board for the implementation of strategy.

 Is chief strategist; and as such, expected to initiate, defend and implement strategy.

 Guides the Board in the selection, evaluation and implementation of strategy.

 Has the greatest opportunity to influence the direction of the firm.

 Power and influence derive from the mandate received from the Board.

4. Senior (Top) Management

 Directly assist CEO in initiating and implementation of strategy.

 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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 ETHICS and SOCIAL RESPONSIBILITIES: RELATING CORPORATE STRATEGY TO THE
NEEDS OF SOCIETY

INTRODUCTION
To recap, in our consideration of strategic choices, we have moved from what the strategist
might do, to what he can do, and to what he/she wants to do. The issues covered in this section
are about what the strategist ought to do – from the point of view of what society expects. The
expectations of society boil down to whether in the pursuit of profit the company should be held
to some standard of ethical conduct, or be obliged to contribute to the betterment of the
community from the profit it makes.

In free societies, a company has responsibility to make profit for the shareholders. But should a
company observe norms of right or wrong in the pursuit of profit, or should it voluntarily set
some of this profit aside for the welfare of society? Should strategic direction be therefore
influenced by these considerations?

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. This
dichotomy is captured in the observations the subject by a number of renowned scholars:

“There is one and only one social responsibility of business – to use its resources and
engage in activities designed to increase its profits so long as it stays within the rules of
the game, which is to engage in free and open competition, without deception or fraud”-
by Milton Friedman

“Corporations are economic entities, to be sure, but they are also social institutions that
must justify their existence by their overall contribution to society” – by Henry
Mintzberg, Robert Simons and Kunal Basu

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What is Business ethics?
Business ethics is a critical and structured application of how individuals and society should
behave in the world of commerce. This involves an examination of what is right and wrong, fair
and unfair, moral and immoral. To be sure, general ethical principles and standards derive from
society: the values of honesty, fairness, or moral uprightness are embedded in an individual from
early childhood through interactions with family and society at large. It is this sense of right and
wrong which transcends to the organization through individual behaviour by those who work in
the organization. If dishonesty is considered wrong by society, then it will be equally wrong for
business to engage in dishonest behaviour toward its employyes, suppliers or customers. If
society values fairness, then it would be unethical for firms to bribe engage in acts of bribery and
corruption. Hence, beliefs about what is ethical serve as a moral compass in guiding the actions
and behaviours of individuals and organizations (Thompson et. al. 2007).

Management morality or ethics can fall into any three types. The first is the moral manager. This
kind of manager is typically committed to high standards of ethical behaviour both in his own
actions and in his expectations of how his company conducts its business. Although he will have
a powerful urge to succeed, he will strive for any such success within the confines of the law.
The second type is the immoral manager who is driven by the goal of making money in the spirit
of capitalism to the extent that he is opposed to laws and ethics standing in his way in the pursuit
of this goal. All he is interested in is pursuing his economic interest and that of his organization
and is of the belief that good business demands this anyway and he will therefore do whatever it
takes to make a profit even if this should mean trampling on others. The third type is the amoral
manager, who sees his mandate as to operate within the law and is entirely satisfied to do so, and
sees little or no justification to do more that is circumscribed by law in the belief that the
interests of society are taken care of by the law. Thus, in operating within the law, business will
satisfy its own needs and those of society.

Thompson et.al (2007) give three reasons why managers are driven to unethical strategies in
running their business. The first is their own greed and unbridled self-interest to attain personal
wealth, power status and glory. Such managers may even go to the extent of ripping off the
organizations they work for and have no qualms about driving the organization into the ground.
In recent years , some executives have run afoul of the law and been sent to prison for swindling

104
their companies and clients of large sums of money to build personal financial empires. Second
is the pressure on business executive to perform well financially for their companies. This
pressure may come from shareholders and investors who judge a company by financial earnings.
This is fueled by tying executive compensation to the financial performance attained. As such
pressure builds, it leads executives to make profit by stretching the rules in order to make profit
for the organization. Third is when the organization itself deliberately develops a culture of
putting profit and good behaviour before ethical behaviour. Executives are then led to believe
that unethical behaviour is acceptable or tolerable so long as it brings in money into the
organization. This is exemplified by the world-wide and increasing practice of paying bribes and
kickbacks in order to win contracts or to get business done in a particular that enhances the
profitability of a firm. Table 3 shows the extent to which companies in exporting countries are
engaged in bribery in when doing business abroad based on bribe payers index ranging from 0 to
10.

Table 3: The Degree to which Companies in Some Major Exporting Countries are
perceived to be Paying Bribes

Country Index

Belgium 8.8

Canada 8.8

Netherlands 8.7

Switzerland 8.7

Germany 8.6

Japan 8.6

United Kingdom 8.6

Australia 8.5

105
 France 8.1

Singapore 8.1

United States 8.1

Source: Transparency International, 2006 Bribe Perception Report,

www.globalcorruptionreport.org

WHAT IS SOCIAL RESPONSIBILITY?

Social responsibility is the intelligent and objective concern for the welfare of society. This
concern can be of two types; on one hand it imposes an obligation on the part of individuals and
organizations to restrain themselves from behaviour and activities that are ultimately destructive
or harmful to society no matter how immediately profitable such behaviour or activities might
be; on the other hand.it calls on individuals and organizations to make a positive contribution to
human betterment. However, there is a school of thought – known as the economic isolationist –
view which opposes the concept of corporate social responsibility.

THE CASE AGAINST VOLUNTARY ASSUMPTION OF SOCIAL RESPONSIBILITY

(The Economic Isolationist’s Argument)
The case of the economic isolationist rests on the following principles:
1. That the primary purpose of business is economic, that is, to maximize revenue.

 Deviation from this principle is self-defeating and can lead to economic

inefficiency.
 Moreover, the pursuit of the economic motive results in good for society as a
whole.

2. The undesirable social consequences of business activity should be left to government to

regulate or correct.

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.

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PROPONENTS OF THE ECONOMIC ISOLATIONIST VIEW
(a) Adam Smith’s Wealth of Nations
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-centered drive for survival and
efficiency of the entrepreneur or small firm. In a famous quote, Adam Smith asserted
that:

‘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.

(b) Theodore Levitt & Reavis Cox argue that:

a. The only responsibility of business is to make profit.

b. The need to make profit in the present is so great and so pressing that self-interest
necessarily excludes public service.
c. It is government’s role to check abuse, prescribe rules and codify public
aspirations.

(c) Milton Friedman (in Capitalism and Freedom)

a. 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.
b. Direct intervention or the doctrine of social responsibility is “fundamentally
subversive” in a free society.

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 The Case For Involvement in Social Responsibility
(The Social Interventionist)

The case for the social interventionists rests on the following arguments:

(a) 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.

(b) 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.

(c) 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.

(d) 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.

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(e) Corporate executives of the caliber, integrity, intelligence and humanity required to run
modern companies cannot be expected to confine themselves to their narrow economic
activity and to ignore its social programs. Communities, societies and nations are
increasingly becoming less divisive and more accommodating as evidenced by positive
developments in resolving cultural, religious and ethnic differences, the appeal of
globalization and international tourism.

(f) 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.

The Categories of Concern / Scope for Corporate Social Responsibility

(a) The problems of the world society:
 the opportunity to contribute to industrialization in underdeveloped countries;
 the willingness to undertake joint ventures rather than insist on full ownership;
 the willingness to share management and profits in terms not immediately related
to the actual contributions of other partners;
 the training of nationals for skilled jobs;
 the willingness to enter business to meet social as well as material needs;
 Cooperation in matters of taxes, bribery or corruption.

(b) The problems within a country’s borders:

 Occasional disasters such as floods, earthquakes, drought or civil strife.
 Environmental consequences of manufacturing processes.
 Promotion of underprivileged groups.

(c) The problems of the community in which the company operates:

 Impact of new investments on existing cultures and traditions
 The need for social amenities offered to the community
 Employment opportunities to the local community

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(d) Industry-specific problems:
 environmental concerns arising from disposable products;
 road maintenance in the case of heavy users of roads;
 ethical and moral issues in the provision of services

(e) The quality of life within a company:

 the welfare of employees;
 the quality of goods and services being offered to the public – the active role
played or disinterest or indifferences shown;
 the impact upon the individual of the control systems and other organizational
processes installed to secure results, e.g. the pressures which lead executives to
offer bribes; the failure or reluctance to acknowledge and recognize the efforts
which do not have a direct bearing on visible profits;
 the freedom afforded to the individual employee to participate in social causes
beyond the corporate effort.

SUMMARY
In summary, there are three reasons for a strategist to examine the impact of his policy choices
upon the public good:

 His professional concern for legality, fairness and decency; his professional
contempt for returns improperly or unfairly secured;

 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

 The threat of regulation that will be ultimately forthcoming if business behaviour

does not meet the standards applied to it by society.

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 STRATEGIC ALTERNATIVES

INTRODUCTION

The last section involved a discussion of issues that need to be taken onto account in the
formulation of strategy. This section turns to a discussion of the options that are available
regarding the direction a firm might follow. Understandably, not all the strategic options will be
available to an organization at the same time. Realistically, what can be applied at any time will
depend on the objectives of the organization and the costs involved. The strategies discussed fall
into two general types. A Corporate strategy is concerned with the industries and markets in
which a firm operates. Corporate strategy decisions include investment in acquisitions, mergers,
diversification, new ventures and divestments. According to Bourgeois (1980), the thrust of
corporate strategy is one of domain selection. A Business strategy on the other hand refers to
how a firm competes within a particular market or industry. Competitive strategies are typically
business strategies because they involve establishing a competitive advantage over rivals within
an industry. Bourgeois (1980) has referred to business strategy as domain navigation.

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 strategy can be justified in
the short-term but is certainly not prudent in the long term because changing circumstances
will most likely call for change.

2. BUSINESS-LEVEL STRATEGIES IN COMPETITIVE INDUSTRIES

In our earlier discussion of strategic responses to competition, we observed that a company
must craft strategies that give it a competitive advantage over its rivals. The three generic
responses to competition were:

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Product differentiation: this refers to the process of obtaining a competitive advantage
over rivals by making, creating, and selling a product in a way that satisfies customers
differently and better than rivals. A company can devise strategies to differentiate a product
by
 Innovation
 Excellent quality
 Responsiveness to customers.

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:

 Where a product is targeted at a typical customer; in this instance, a company

chooses to ignore the existence of differences among market segments.
 Where a product is offered to one or a few market segments.
 Where a different product is offered to each market segment.

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:

 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.
 Where a company offers its product at a lower price because of its lower cost
structure and attracts customers away from its rivals.

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3. BUSINESS LEVEL (INTERNAL GROWTH) STRATEGIES
These strategies are similar to the competitive strategies in that they are also aimed at
improving efficiency in current markets. However, they are not focused on seeking
competitive advantage per se, but on seeking internal growth at company level. The
following are some of the strategies that could be embarked on:

(a) Concentration or specialization

This involves concentrating on doing better what one is already going well. This
strategy is appropriate to small businesses whose potential for growth depends on how
effectively their specific niche markets are satisfied. It involves directing resources
toward the continued and profitable growth of a “single” product in a “single” market,
using a “single” technology. This strategy is premised on known skills which can be
specifically applied to specialized products or services in satisfying specific needs of a
niche market.

Successful implementation of this strategy can be evidenced in any of the following

ways:

 The extent to which a firm attracts new users or customers

 The rate of increase in the consumption or usage of a product by existing users

Specialization or concentration strategies have been used successfully by Coca-cola,

Apple computer and Polaroid.

Advantages of single-business concentration:

 A company can build a distinctive competence 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 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

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  production technology
 product innovation
 meeting customer needs
 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
 This strategy involves substantial modification or additions to present products
in order to increase their market penetration within existing customer groups.
 It is 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.
 Innovation provides growth by increasing market share, revenues, growth and
profit.
 Joseph Schumpeter1 has identified, among others, the following as constituting
innovation:
 The introduction of a good product, which is new to consumers, or one of
higher quality than was available in the past.
 New methods of production, which are new to a particular industry

1
Schumpeter, J. A., The Theory of Economic Development (Boston: Harvard University Press,1934)

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  New sources of competition, that leads to the restructuring of an industry
 Michael Porter2 defined innovation to include both improvements in
technology and better methods or ways of doing things. It can be manifested in:
 Product changes
 Process changes
 New approaches to marketing
 New forms of distribution
 The drivers of innovation are
 Technological advances
 Changing customers and needs
 Intensified competition
 Changing business environment

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. Hill and Jones (2007) have argued that the severity of the decline can be
exacerbated by the intensity of competition and that competition will tend to intensify if
exit barriers are high, fixed costs are high or the product is undifferentiated. They propose
the four strategies that companies can use in dealing with a decline as illustrated in Figure
2. The strategies are based on the intensity of competition in the declining industry and the
company’s strength relative to demand in the industry.

(i) Leadership Strategy

This is aimed at making a firm a dominant player in the 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 market 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.

2
Porter, M.E., The Competitive Advantage of Nations, London, Macmillan,1990)

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(ii) Niche Strategy
This strategy is targeted at market segments where demand is stable or the rate
of decline is less than the industry average. It is additionally premised on the
firm having the strength to pursue and 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. The downside of this strategy is that the
company will eventually lose market share at the cost of preserving cash.

Table 4: 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

Source: Charles W. Hill & Gareth R. Jones (2007) op. cit., p.223

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 (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 consolidation and repositioning. The basic assumption is
that the firm can survive but seeks to improve efficiency and concentrate on
those activities in which it has a distinctive competence. Divestment can be
achieved by:

 Cost reduction, e.g. through redundancies

 Leasing rather than outright purchases
 Asset reduction
A divestment strategy may be applicable in any of the following instances:

 where a firm is overextended in a particular market: sale or closure

 where a firm experiences an economic reversal because of competitor
pressure
 where demand declines
 when resources can be better deployed elsewhere.
Divestment can be accomplished through retrenchment.

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.

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Horizontal Integration
This occurs 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. Assume that A and B both buy

Ranch Meat Processing Supermarkets/

Butcheries

animals from ranchers which, they in turn, process into fresh meat for sale to
supermarkets and butcheries. A merger between then them would be considered
horizontal integration. Another case of horizontal integration might be an acquisition of
Schweppes (a soft drink company) by a company that makes and markets liquor.

Vertical Integration
This involves 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. In the case of
Ranch
meat Meat Processing Supermarkets

A B C

Backward Integration 118 Forward integration

 production and marketing, backward vertical integration would occur if B acquired A, and
forward vertical integration would occur if A acquired B or B acquired C. Backward
vertical integration is intended to achieve competitive advantage by securing supplies at a
lower cost than rivals. Forward vertical integration is intended to achieve competitive
advantage by securing cheaper markets for a firm’s products or services.

6. DIVERSIFICATION
Strategy begins by defining the core business of an organization. Yet the strategy of
diversification represents a departure from the core business a company is in by seeking
new investment opportunities. It involves adding new businesses to the company that is
distinct from that offered by addressing the question “Where are we?” Diversification
decision must address two questions:

 How attractive is the industry to which a firm seeks entry? This implies that the
decision to diversify must result in more profit.
 What competitive advantage must be established within the new industry? This
implies the diversification strategy company will add value by using its distinctive
competence in a new industry.

Reasons for Diversification

By seeking investment in other areas away from the industry in which a firm currently
operates, a firm may achieve growth if the current industry is in decline or if the new
investment is in high-growth areas. The growth that is sought by looking for opportunities
outside the existing industry must, however, be justified by the potential profit that will be
attracted by the new investment. A strategy will lose some of its attractiveness if
shareholder value is compromised by risky or low-yielding projects.

7. DISINVESTMENT STRATEGY
This refers to the company closing or selling one or more parts of its business in order to
recover most of its investment, or consolidate and reposition itself in the face of a looming
crunch. Disinvestment strategies can be accomplished through retrenchment, liquidation,
or turnaround strategies.

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  Retrenchment means concentrating on those activities in which the
company has a competence and scaling down on, or cutting off altogether,
those activities in which it has a competitive disadvantage. This generally
involves cost and/or asset reduction.
 Liquidation involves the sale of a complete business. This is never a
popular strategy but it is often considered to be in the long-term interest of
the company.
 Turnaround strategies involve the adoption of one or more new strategies
intended to achieve a different or new position for a product, and typically
will entail the re-allocation of resources and greater focus to the new
areas.

8. 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.
The following disadvantages are associated with outsourcing:

 The risk of the company becoming too dependent on the specialist

company, and hence losing bargaining power over the price it has to pay
to the specialist company.
 Possible loss of competitive information with respect to the outsourced
activity.

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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.
By implementation, we simply refer to performance of activities which involve the
accomplishment of purpose. The proposition that we are making is that successful
implementation of strategy will depend on:

 Designing an organizational structure in which tasks to be performed are identified and

assigned to individuals and/or groups to carry them out;
 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.
 Providing for effective leadership to inspire performance.

A Word of Caution:
 The structure of the analysis of corporate strategy will involve a neat division in of the
discussion into aspects of Formulation and Implementation. 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.
 This structure for analysis corporate strategy is therefore a matter of convenience
intended to render order to the study of the subject.

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STRATEGY AND ORGANIZATIONAL STRUCTURE AND RELATIONSHIPS
An organization structure is a collection of people arranged in a way that is intended to
accomplish a purpose. An organization is both an articulated purpose and an established
mechanism for achieving that purpose. As a mechanism, an organizational structure is the sum of
the ways in which work is divided into distinct tasks and the specification of how the different
tasks are to be coordinated and integrated. In a small and newly-established firm there is little
reason to divide work-everyone does the same thing and everything. However, as the
organization grows, the number and diversity of issues to be dealt with begin to grow and there is
therefore need to divide the work and coordinate it. The form of an organizational structure will
influence how resources – such as labor, knowledge and competences – are allocated to tasks and
how information will be channeled in order to bring about the efficiency in individual
performance.

An organizational structure is the reflection of the company’s past history, reporting relationship
and internal politics. Every organization has a unique structure, aligned to the environment and
the chosen objectives of the firm. If structure is going to facilitate the implementation of strategy,
it must be evaluated if it indeed supports strategy. Some of the points to bear in mind are:

 Identify activities that are critical and those that are not in the organization’s
value chain. It is important to establish what processes must be performed well in
order for the firm to achieve its objectives. Conversely, the firm must identify
what areas in the firm’s business will be hurt if the firm fares badly.
 Determine which of the activities will be performed internally and which will be
outsourced. Noncritical activities should ordinarily be outsourced.
 Build the organizational structure around the identified noncritical activities.
Matching structure to strategy involves making core activities the main building
blocks in the organization’s structure.
 Decide on the authority for each manager and employee. In general, employees
who are familiar with the work situation should have decision making freedom.
Centralized and authoritarian management styles are not well suited in today’s

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 internet era where a large proportion of organizational assets are in the form of
intellectual capital of the employee.
 Cultivate relationship between managers and employees and between the
organization and its external partners. There should be enough sharing of
pertinent information.

The Process of Designing an Organization Structure

1. Determine strategy or the company’s distinctive purpose
Whatever is to be undertaken is for a purpose. It is therefore important to define and
understand the strategy which brings people together. Purpose gives focus and meaning to
organizational activity.

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?

3. Assign responsibility for accomplishing these tasks to individuals or groups

A Chief Executive Officer is ultimately responsible for the accomplishment of each and
every task. If the organization grows beyond his capability to carry out each and every
task, he must then decide:
 When and to whom should he delegate?
 What authority is commensurate with delegation?

FORMATS FOR ASSIGNING RESPONSIBILITY:

The Simple Structure

 The owner assumes most of the management responsibilities
 There is no clear delineation or division of responsibility. There may be an assistant
whose role is not clearly spelt out who can therefore be assigned any task at the
personal whim of the principal
 The organization is driven by the sheer force of the personality and drive of the CEO.

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The Mature or Machine Organization
The simple organization eventually matures or evolves into the machine organization. The
characteristics of a mature organization are:

 Operating work is routine, rather simple and often repetitive;

 Because operating work is simple, routine and repetitive, it is amenable to
standardization.
 Unlike the simple structure, a mature organization usually has an elaborate
administrative structure, with a centralized power base at the top.
 The following organizational structures may obtain in a mature or machine structure:
 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.

Manufacture and Sell Trading

Production Finance Marketing Buying Inventory Selling

Control

People who perform similar or related tasks are grouped together in a unit under a
functional head.
 Product Structure
In this type, the tasks are centred on a product. An example of a product structure
might be at a farm where activities might be grouped around poultry, crop, dairy
and orchard products being produced. All tasks to be performed revolve around a
product.

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 Farm Manager

Poultry Crop Dairy Orchard

Maize Tobacco Potatoes

 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.

Customer-based

Account Holders Non-Account Holders

Government Business Individuals Individuals Institutions Other

Market-based

Consumer Market Industrial Market

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 Geographic area based

Domestic or local market Overseas market

4. Provide for coordination of inherent divided responsibility through:

 Hierarchy of supervision

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

Finance Manufacturing Marketing

 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
stakeholders. Similarly, a management committee is a point of coordination of the
views if the different managers who comprise its membership.

 Project form of organization

Coordination may also be accomplished when people work together on a project.

5. Design of an Information System

 This is intended to provide members with information needed to perform their tasks
and relate their work to that of others. It is important for the organization’s strategy
to be clearly understood and for every employee to understand how they contribute
to the achievement of strategy. A good information system should provide for:
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  Red-flag information – alerts one to things that are not going well or emerging
threats.
 Progress information – monitors progress by comparing actual performance to
desired performance.
 Awareness Information – creates awareness of what is happening and
connects employees to changing business challenges and hence facilitates
quicker adjustments to changing business conditions.

PRINCIPAL REQUIREMENTS OF STRUCTURE

 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.

 There is no typical or universal organizational structure. An organizational structure

must be tailor-made for an organization; avoid choosing or adopting a “typical”
pattern of organization

 Decide on whether to have a flat or tall organization structure. Many different levels
or ranks, within the total, may result in a long hierarchical and psychological distance
between top and bottom, and this may impair performance. Flat structures are
characterized by few hierarchical levels between the top and bottom. Tall structures
are characterized by many hierarchical levels between the top and bottom. Tall
structures are appropriate where product and service delivery are capital intensive,
requiring few but often expert staff at the 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

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 flat structures is that decision making is faster. However, span of control can be
problematic

 Determine whether you will have a centralised or decentralised structure.

Centralisation is an authority relationship between those in overall control of the
organization and the rest of its staff. The tighter the control exercised at the centre,
the greater the degree of centralization. Decentralization is when there is relatively
more control at the lower or operational levels. The advantage of centralization is
that top managers remain fully aware of operational as well as strategic issues and
concerns. On the other hand, the advantages of decentralization include:
responsiveness to local conditions, speed of operational decisions and greater
motivation and morale to lower placed staff.

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 ORGANIZATIONAL PROCESSES AND BEHAVIOUR

1. INTRODUCTION

In the implementation of strategy we have thus far looked at organizational structure and
relationships, specifically at identification of tasks to be performed, assignment of
responsibility for accomplishing these tasks; provision for the coordination of divided
responsibility; and design of an appropriate information system. We now turn to the
second element of implementation – organizational processes and behaviour.

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:

(i) Standards for measuring performance

(ii) The measurement of performance
(iii) Incentives for inducing desired performance
(iv) Rewards for satisfactory performance
(v) Penalties for unsatisfactory or undesirable performance
(vi) Systems of restraint and controls

1.1. THE ESTABLISHMENT OF STANDARDS AND MEASUREMENT OF

PERFORMANCE

 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.

 Measurement in this case implies that there is some idea of where an

organization is compared to where it ought to be.

 To state where an organization ought to be is to set a standard.

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The following are some of the criteria used to measure performance:

(a) Profitability

 Profitability represents a return on investment and is a reflection of how

economically efficient operations have been conducted.

 Profitability can be monitored on a periodic basis, such as quarterly, half-

yearly or annually.
 As observed earlier, the perspectives of profitability will vary and oscillate
between gross profit, net profit, return of total assets, and return on total
equity.

(b) Competitive Position

 This attempts to assess a firm’s position in the market place given a

competitive situation.

 A firm’s market share is used to determine the standing of a firm relative

to its competitors.

 Is the firm the dominant or acknowledge leader?

 Is the firm a follower, or in the middle of the pack?

 Is the firm on the fringe of the market?

 Is the firm among the top 5% of 10% in the industry?

(c) Non-economic Expectations

 Performance can also be measured by the extent to which an organization

meets non-economic expectations. For instance, to what extent are the
company’s operations conducted in accordance with legal and ethical
requirements? Is the behaviour of individuals or firms socially acceptable,
in bad taste or against good judgment? To what extent should profitability
be subordinated to matters of public concern? What is the social cost of
profitability?

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 (d) Budget

A budget is a projection of hoped-for performance. Positive or negative variances

reflect differences between budgeted and actual performance. An analysis of
management accounts for example is a way of measuring expected performance
against actual performance across activity lines.

In setting standards and measurement of performance, the following cautions should be

borne in mind:

 The evaluation program should not encourage performance which detracts from
overall strategy; rather it should support the overall strategy.

 In some instances it may be better to base measurement of performance on

multiple criteria as opposed to a single criterion, such as profitability.

 All levels of management, subordinate and superior, must agree on achievements

which must be accomplished during a specified period

1.2. MOTIVATION AND INCENTIVE SYSTEMS

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.

1.2.1. THE POSITIVE ELEMENTS

The positive elements largely comprise compensation of executives. In

determining the compensation of executives, it is important to bear in mind
the following:

(a) Characteristics of the work

 Complexity of the work, such as:

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  overseas versus domestic operations
 nature and intensity of competition
 size of the organization

 General education required

 MBA versus other qualifications
 technical versus non-technical sills

(b) Responsibility of job-incumbent for people and property

 nature and number of decisions to be made

 the risks involved

(c) Quality of performance

 individual versus organizational performance

(d) Logical relationship to rewards paid to others in the same

organization.

(e) The relevance of the following:

 Age?
 Length of service?
 Potential?
 Materials needs?

(f) External influencing factors

 regional difference in the cost of living

 regional hardships to individual and his family

 market price of qualification, in order to pre-empt raid by

competitors

 level of local taxation.

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Forms of compensation

 Financial rewards, including executive basic salary and allowances such as

housing, transport, entertainment.
 Monetary Incentives for individual performance
 profit sharing
 stock options
 executive bonuses
 pension/savings plans

 Non-monetary incentive systems including:

 pride in or sense of accomplishment

 climate for free expression and innovation

 good/pleasant environment

- able and honest associates

- pleasant surroundings – clean and quiet
- office location, size and furnishings

 satisfaction deriving from doing work

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 ORGANIZATIONAL CULTURE

THE NEGATIVE ELEMENT: SYSTEMS OF RESTRAINT AND CONTROL

Introduction

 A system of incentive and rewards is not necessarily sufficient to achieve

organizational goals.

 A system of controls and restraint is further needed to supplement the positive

aspects of incentives and rewards.

 Systems of restraint are aimed at deterring behaviour which does not advance
strategy.

 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 constitute the accepted way of doing things

 they define the limits of proper behaviour and the type of action that will
meet with approval from the group

Culture Revisited

 As earlier defined, culture comprises a system of man-made behavioral traits to which

members of a society subscribe and which influences their choice of modes or decisions.
 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

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 2 + 2 = 4

the systems theory, on which organizational culture is based, holds that

2 + 2 = 5

That is, an organization working as a system, can entice from its 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”.

To recap then, culture can be described as a system of shared beliefs, values and norms. It
provides the cognitive scheme by which meaning, order and value are assigned to experience. It
therefore provides prescriptions about what to do when things happen, how to behave under
certain circumstances and what to value. The unifying power builds coherence and loyalty to a
common cause. This loyalty discourages behaviour which is not in conformity with values and
tradition shared by members of a society. In so doing, it constitutes a system of restraint and
control. Examples where csuch cultural influence is manifested include political party cdres and
members of a church

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The development of an ideology proceeds in three stages:

Stage 1: The rooting of ideology in a sense of mission

 An organization is usually founded when a single prime mover identifies a
mission. This mission is identified as either a product or service.

 The individual then collects a group around him or her to accomplish that
mission.

 The individuals who come together do not do so at random, but coalesce

because they share the values associated with prime mover and the
fledgling organization. An example of this might professionals coming
together to start a firm in order to create something unusual or exciting.

When people come together in this fashion, they can be said to share a
common sense of purpose.

Another example of shared sense of mission might be a situation where a

new CEO recruits and brings together old associates to come and work
with him.

Factors which facilitate this sense of mission:

 The new organization is perceived to offer wide latitude for

manoeuvre and not constrained by procedure and tradition.
 New organizations tend to be small, enabling members to establish
personal relationships where it is easy to seek advice 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

Stage 2: Development of ideology through traditions and sagas

 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:

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  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.

Stage 3: Reinforcement of ideology through identifications

 At this stage, the organization is a living system with its own

culture.
 Membership of the organization becomes cardinal through
identification. This process of identification with and loyalty to the
organization is manifested through the following:
 New members find the culture attractive and rich and want
to be identified with the organization.
 New members may be subjected to a selection process, to
see whether they “fit in” with the existing beliefs
 For existing members, promotion to higher positions is
made on the basis of strength of loyalty to those beliefs and
values of the organization.
 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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 Organizational Politics

Non-performance or poor implementation of strategy can at times be attributed to organizational

politics, especially when it results in conflict. An organization may be described as functioning
on the basis of a number of systems of influence:

Authority: This is based on legally sanctioned power, e.g. a directive from a

superior/boss.

Ideology: This is based on widely accepted beliefs, e.g. adherence to a Church’s

doctrine or a political party’s manifesto.

Expertise: This is based on power that is officially certified

These systems can be considered as legitimate. The system of politics, in contrast, reflects
power that is technically illegitimate because it is not formally authorized, widely accepted or
officially certified. The result is that political activity is usually divisive and conflictive, pitting
individuals or groups against more legitimate systems of influence.

Forms of Political Activity (Games)

(a) Insurgency Game
 Usually played to resist authority, ideology or expertise, or to effect
change in the organization outside established procedure
 It can range from “protest” to open rebellion
 Usually played by “lower participants” who feel the greatest weight of
formal authority

(b) Counterinsurgency Game

 Played by those with legitimate power who fight back with political as
well as legitimate means, e.g. suspension, dismissals or excommunication
from a church.
 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.

(c) Sponsorship Game

 It is played to build a power base by invoking superiors

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  It originates in an individual attaching self to someone with legitimate
power, in authority, or of higher status, professing loyalty in return.
 It is played by special assistants to CEO or family members in a family
company.

(d) Alliance-building Game

 It is played among peers, such as line managers or experts
 It is aimed at negotiating implicit contracts of support for each other in
order to build a power base to advance selves in the organization

(e) Empire-building Game

 It is played by line managers or even CEO
 It is played individually with select subordinates to foster a unique sense
of loyalty to the boss

(f) Expertise Game

 It involves non-sanctioned use of expertise to build a power base either by
flaunting it or feigning it
 It is manifested by exploiting one’s technical skills and knowledge,
emphasizing the uniqueness, criticality and irreplaceability of one’s
expertise
 It is reinforced by keeping skills from being programmed or by keeping
knowledge to self.

(g) Line versus Staff Game

 This is like a sibling-type rivalry
 It is played not just to defeat a rival, but also to enhance personal power.
 It pits line managers with formal decision-making authority against staff
advisers with specialized expertise e.g. Consultants in an organization.

(h) Rival Camps Game

 This is played to defeat a rival
 It occurs when two major power blocs emerge from other games
 It takes the form of conflict between functional units or between rival
personalities.

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(i) Whistle-blowing Game
 It is typically brief and simple
 It is played an insider, usually a lower participant, to “blow the whistle” to
an influential outsider on questionable or illegal behaviour by the
organization by revealing privileged information
 The information is given to an outsider in order to effect change in the
organization

(j) Young Turks Game

 It is played by a small group of “young Turks” who are close to but not at
the centre of power.
 It is aimed at questioning legitimate power, perhaps even to overthrow it,
and thereby reorient organization’s basic strategy, displace a major body
of its expertise, replace its ideology or rid it of its leadership.

Functional Role of Politics in Organizations

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.

 In ensuring that the strongest members of an organization are brought into

positions of leadership. It may be argued that effective leaders have an inclination
toward power and being assertive. Political games can serve as a testing ground or
one to demonstrate potential for leadership.

 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 status

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 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.

 Politics can stimulate change that is blocked by legitimate systems of influence.

Resistance to change comes from who those who feel secure in maintaining the
status quo and political games are often played to overcome such resistance
particularly when an organization is either too slow or unwilling to embrace
change. Many reforms undertaken by organizations can be attributed resistance to
legitimate systems of influence.

 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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 RECRUITMENT AND DEVELOPMENT OF MANAGERS

 System of incentive and rewards and restraint and controls must be supplemented by
management for better implementation of strategy.
 Implicit in effective performance is that managers have appropriate skills for the realization
of organizational goals.
 Management development is a recognition that such skills may overtime become stale and
there is therefore need to sharpen them to make them appropriate for the challenges of the
day.
 Management development is aimed at creating an individual who has the disposition and
commitment to give his best to the organization, and who has a clear idea of right and wrong,
a consistent policy for himself and the organizations and the strength to stand the gaff when
results suffer because he stands firm.
 This kind of person is different from the human animal that grasps at every preferred reward
and flinches at every punishment.
 Although management development is cardinal in the successful implementation of strategy,
it is at times faulted with the following by its detractors:.
 The critique of manpower development rests on the following arguments.

 Good management is instinct in action. A number of men and women are

born with qualities of energy, shrewdness of judgement, ambition and
capacity for responsibility. These become leaders of business. It is argued
that this, for instance, explains some people of humble education can
become quite successful at business, or why certain ethnic groups – such
as Jews, Asians, and West Africans – seem to 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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 Basic instincts may be necessary for effective performance in lesser and
lower jobs. But different and additional skills are required for one to
successfully exploit the opportunities and challenges of the dynamics of
the corporate world. Manpower development adds value to the state of
preparedness for higher responsibility. The development or growth of
corner shop in a township to a modern supermarket cannot be entirely
attributable to basic instinct.

 A man prepares himself for advancement by performing well in his

present job. In other words, experience on the job is the best teacher: it is
indeed the man or woman who does best among peers who is best
qualified to lead them.
People naturally want somebody they can look up to be their leader - a
foreman, head of department, manager or indeed general manager - for
inspiration and guidance

A rejoinder to this argument is that advances in technology, the

internationalisation of markets, and the progress of research in science
and information processing and organizational behaviour easily challenge
the notion that one can naturally have such knowledge and naturally
adapt to these changing times, or that a man will learn all he needs to
know from what he is currently doing.

 If an organization does not have adequate numbers of men with innate

qualities of leadership who are equal to higher responsibilities, it may
bring in such persons from other companies.

Experiences in human resource management reveal that there are

advantages and disadvantages to hiring from within and outside. It is
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

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 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.

The realistic approach is to be open and objective and hire as

circumstances dictate.

 Men with proper amount of ambition to do not need to be “motivated”

through training in order for them to show their personal qualities which
qualify them for advancement. Such people are successful because they
are internally driven.
The counter argument to this is that ambition is not a recipe for success in
each and every circumstance. Indeed, ambition can be misplaced.
Ambition must be nurtured through a realistic assessment of opportunities
and constraints. Freedom to make mistakes and achieve success
through a process of learning is more productive in developing executive
skills than the practice of following detailed how-to-do-it instructions
designed by superiors or specialists.

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 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 attitudes and values of a leader

 The roles of a leader
 Traits and characteristics of a leader
 Types of leader
 Leadership styles
 Succession and continuity

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.

1. Attitudes and values

All those who aspire to leadership, senior and key positions must have a distinctive and
powerful set of attitudes and values involving:

(i) A generalist orientation

 Looking at issues in a broader rather than a narrow perspective

 It involves having a breadth and depth of expertise and approach

 This will lead to a frame of mind necessary to adapt and influence a

different, versatile and challenging circumstances.

 It helps to explain why those who have specific and tried expertise in one
area often fall short of full success when faced with in familiar situations.

(ii) A practitioner orientation

 This refers to the delivery of expertise in particular sets of circumstances

requiring demonstrable achievement to the satisfaction of customers,
suppliers, financial interests and backers.

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  It implies a willingness to act on the basis of incomplete information,
related past experiences and the present and envisaged state of the social,
political and economic environment

 It also means a willingness to be seen in action in different sets of

circumstances and, where necessary, to accept responsibility for failure.

(iii) A professional orientation

This refers to:

 A personal and occupational commitment to the development of

leadership expertise and applying this to a particular set of circumstances,
and the extent to which he/she acts in the best interests of the organisation.

 A frame of mind necessary to adapt and influence thinking in particular

directions.

(iv) An innovation orientation

 The capability and willingness to look at the present state of activities,

products, services and processes as being a vehicle for further
development.

 The ability to develop new products and services, which may or may not
succeed

(v) A positive orientation

 This requires a leader taking an optimistic and buoyant approach to

whatever presents itself.

 This should apply to products and services, marketing campaigns and

activities, staff, expertise and technology, communities and clients, as well
as crises and emergencies.

 A positive attitude is a reflection of the legitimate pride, confidence and

commitment in the organisation and its products, services and staff.

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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
- The champion role- this involves enthusiastically supporting, promoting,
defending or fighting for the strategy in question. Championing the
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 cheerleader role: this is carried out by a combination of visibility,
presentation, charisma and accessibility possessed by those in leadership
positions. The absence of cheerleading always gives rise to perceptions of
lack of faith, belief or commitment.
- The enthusiast role: this is reflected by the extent to which a leader
projects interest and passion in the way he or she carries out their duties
and by the way a leader relates to staff, shareholders, backers, suppliers,
customers and clients.
- Hero or heroine role: this is distinguished from others by virtue of
exceptional courage, achievement and superior qualities.
- Role model: this is demonstrated by management’s ability to set the
standard for others to follow. Others in the organisation take their cue in
terms of required, desired and demanded standards of performance from
those in overall charge.
- The wanderer role: this 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
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 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.

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

- The surgeon role- this involves cutting functions, products, services or

processes when it is deemed they are no longer required.

3. Traits and Characteristics

Research studies have revealed a long and comprehensive list of desirable attributes of a
“leader” as contrasted to a “non-leader.

LEADER NON-LEADER
 Carries water for  Presides over the mess
people
 Open door problem  Invisible, gives orders to staff,
solver, advice giver, expects them to be carried out
cheer leader
 Comfortable with  Uncomfortable with people
people in their
workplaces
 Manages by walking  Invisible
about
 Arrives early, leaves  In late, usually leaves on time
late

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  Good listener
 Available
 Decisive
 Humble
 Tough, confronts nasty
problems
 Often takes the blame
 Gives credit to others
 Gives honest, frequent
feedback
 Knows when and how
to discipline people
 Prefers discussion
rather than written
reports
 Sees mistakes as
learning opportunities
and the opportunity to
develop
 Good talker
 Hard to reach
 Uses committees
 Arrogant
 Elusive, the artful dodger
 Looks for scapegoats
 Takes credit
 Amasses information
 Ducks unpleasant tasks
 Prefers long reports
 Sees mistakes as punishable offences
and 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:

a) 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

b) The known leader is one whose position as a leader is secure by the fact that
everyone understands their position, e.g. kings are known to be leaders by
their subjects and priests are known to be leaders by the congregation.

c) The bureaucratic leader is one whose position is legitimised by the position

held.

d) 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.

e) The functional or expert leader is one whose position is secured by virtue of

expertise, command of technology or resources.

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 f) The charismatic leader is one whose position is secured by the sheer force
of known or understood personality

g) 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.

Boss-centred leadership Subordinate-centred

leadership

Use of authority by the manager

Area of freedom for the subordinate

6. Succession and Continuity

The final main element of strategic leadership is to ensure continuity of priorities, direction,
policy and culture. The keys to this are:

 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.

 The development of leadership and strategic expertise in all those in senior

positions and all those who aspire to such positions.

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  The identification of a range of individuals from within the organisation who
show promise, capability and willingness to be developed into strategic
positions.

 The identification of sources of expertise from outside the organisation so that

as and when fresh talent and thinking are required, these sources can be
accessed quite quickly.

 The integration of strategic thinking, awareness and expertise into all

management development programmes. This includes action learning, project
work, secondments and MBA and other organisation leadership programmes.

IN SUMMARY, Strategic leadership can therefore be considered at three levels:

1. General Manager as the Architect of Strategy

As architect of strategy, the GM is required to possess the following skills:

 analytical ability
 searching out and analysing strategic alternatives beyond advice
received from functional managers
 making or ratifying decisions among competing choices
 creativity (role of innovator)
 ability to find strategic choices which are not routine
 ability to determine strategy uniquely adapted to external
opportunities and internal strengths of his organization
 a sense of personal purpose
 a sense of social responsibility

2. General Manager as Organization Leader

 GM must act as promoter and defender of strategy

 A leader must remain focused and keep the organization on course
against the tendency of organizations to veer off course in response
to circumstances, special interest and sudden opportunity

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  GM must act as mediator and integrator
 A leader must deal with conflict among special interest groups
 A leader must balance the need for present profitability against the
need to invest in future success
 A leader must balance the desirability for uniformity against the
requirements for flexibility.
 GM is responsible for creating a conducive climate in his organization
 A leader must ensure an absence of political manoeuvring for
position or attention
 A leader must reject preferment on grounds other than merit
 A leader must create interpersonal amity and tolerance of
individual differences
 A leader must instil high standards of moral integrity

3. General Manager as a Personal Leader

Business leaders generally are characterized by such personal qualities as:

 drive
 intellectual ability
 initiative
 creativeness
 social ability
 flexibility
In reality, there is considerable variation in leadership styles. On one extreme end
is the petty tyrant who uses power to abuse those whom he considers offenders,
and uses reports to find some discrepancy with which to needle a subordinate.
He/she thus 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 inquiring objectively and calmly into reasons for failure, without
unnecessary fuss, establishing a new schedule to match new conditions, or
working through intermediaries in calling attention to lapses from standards.

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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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 Sam Walton’s Approach to Implementing Wal-Mart’s Strategy

Wal-Mart, headquartered in Bentonville, Arkansas, is the largest retailer in the world, with sales
of over $80 billion in 2004. Its success rests on the way that its founder, the late Sam Walton,
decided to implement the company’s business model. Walton wanted all his managers and
workers to have a hands-on approach to their jobs and to be totally committed to Wal-Mart’s
main goal, which he defined as total customer satisfaction. To motivate his employees, Walton
created a sophisticated control system and a culture that gave employees at all levels continuous
feedback about their own and the company’s performance.

First, Walton developed a financial control system that provided managers with day-to-day
feedback about the performance of all aspects of the business. Through a sophisticated
companywide satellite system, corporate managers at its Bentonville headquarters can evaluate
the performance of each store, and even of each department in each store. Information about
store profits and the rate of turnover of goods is provided to store managers daily, and store
managers in turn communicate this information to Wal-Mart’s 625,000 employees (who are
called associates). Through such information sharing, Walton’s method encourages all
associates to learn the fundamentals of the retailing business so they can work to improve it.

If any store seems to be underperforming, managers and associates meet to probe the reasons and
to find solutions to help raise performance. Wal-Mart’s top managers routinely visit stores that
are having problems to lend their expertise, and each month top managers use the company’s
aircraft to fly to various Wal-Mart stores so they can keep their fingers on the pulse of the
business. It is also customary for Wal-Mart’s top managers to spend their Saturdays meeting
together to discuss the week’s financial results and their implications for the future.

Walton insisted on linking performance to rewards. Each manager’s individual performance,

measured by his or her ability to meet specific goals or output targets, is reflected in pay raises
and chances for promotion (promotion to bigger stores in the company’s 3,000-store empire and
even to corporate headquarters, because Wal-Mart routinely promotes from within the company
rather than hire managers from other companies). Top managers receive large stock options
linked to the company’s performance targets and stock price, and even ordinary associates
receive stock in the company. An associate who started with Walton in the 1970s would by now
have accumulated more than $250,000 in stock because of the appreciation of Wal-Mart’s stock
over time.

Walton instituted an elaborate system of controls, such as rules and budgets, to shape employees’
behaviour. Each store performs the same activities in the same way, and all employees receive
the same king of training so they know how to behave toward customers. In this way, Wal-Mart
is able to standardize its operations, which leads to major cost savings and allows managers to
make storewide changes easily.

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Finally, Walton was not content just to use output and behaviour controls and monetary rewards
to motivate his associates. To involve associates in the business and encourage them to develop
work behaviors focused on providing quality customer service, he established strong cultural
values and norms for his company. Some norms that associates are expected to follow include
the ten-foot attitude, which developed when Walton, during his visits to the stores, encouraged
associates to “promise that whenever you come within 10 feet of a customer you will look him in
the eye, greet him, and ask him if you can help him”, the sundown rule, which states that
employees should strive to answer customers’ requests buy sundown on the day they receive
them; and the Wal-Mart cheer (“Give me a W, give me an A,” and so on), which is used in all its
stores.

The strong customer-oriented values that Walton created are exemplified in the stories its
members tell one another about the company’s concern for its customers. They include stories
such as the one about Sheila, who risked her own safety when she jumped in front of a car to
prevent a little boy from being struck; about Phyllis, who administered CPR to a customer who
had suffered a heart attack in her store; and about Annette, who gave up the Power Ranger she
had on layaway for her own son so a customer’s son could have his birthday wish. The strong
Wal-Mart culture also helps to control and motivate its employees and helps associates to
achieve the stringent output and financial targets the company has set for itself.’

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 STRATEGY IN CONTEXT

In this section, we explore how the concepts we have analyzed under formulation and
implementation of strategy combine and interact in specific situations (Mintzberg 1991: 601-
663). We take note of the caution offered by Mintzberg that although many organizations will fit
into one context or another, the fit might not be perfect and in some instances, the organization
may not fit into any of these contexts.

1. The Entrepreneurial Context

1.1. Features of an entrepreneurial organization include the following:

 It has no established formal structure

 Where a structure exists, it is a simple, basic structure
- It has few or no staff
- It has a small managerial hierarchy
- The relationships tend to be informal and rather flexible rather than
formal and rigid.
 Power is focused on the chief executive, who exercises a high personal
profile
 It is fostered by an external environment, which is simple and dynamic
 It is typically found in young organizations
1.2. Examples of entrepreneurial organizations

 Management Consultants
 Guest Houses
 Restaurant
 Clinic, Law firm, Architectural firm (Professional)
 Trading, Hair saloon, Garage

1.3. How strategy is formulated

 Its vision, policies and operations are bounded and determined by the
Chief Executive Officer

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  The chief executive takes personal charge, and the organization is driven
by the sheer force of the personality of the CEO through the vision,
charisma or style of leadership.
 The industries in which entrepreneurial organizations are started and
operate are often characterized by economic bust-and-boom cycles. It is
in such environments that the entrepreneurial firm searches for
opportunity and encounters risk. Thus, a PEST analysis is cardinal, in
which economic considerations are paramount.
 The ideology of the entrepreneur is usually rooted in the deep knowledge
of product/service in question, and places heavy reliance is placed on the
intuition, knowledge, experience, energy and ambition of the
entrepreneur.
 There is heavy reliance on the competence of the leader although the
resource capability is all too often limited.
 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.

1.4. How strategy is implemented

 The importance of structure in the implementation of strategy is limited

by the nature and kind of organization. Decisions concerning strategy and
operations tend to be centralised in the person of the founder: usually
everyone reports to the chief executive; decision making is flexible and
the chief exercises control over performance. Its performance is largely
determined and bounded by the limitations of the founder
 Systems of incentives and rewards may be characterized by informality
or formality but will hardly be politicized.

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  The strong sense of mission rather than guidelines, procedures, rules or
formal controls are the driving force in the implementation of strategy.
 Politics will be not so dominant, but culture may play a strong influence
through a sense of mission and employees tend to develop a sense of
identification with the organization.
 Leadership is critical to the successful implementation of strategy.
Empirical work suggests that the personal leader does not necessarily
take a back role, but through his intimate knowledge of specifics, he is
able to closely monitor the implementation of strategy and reformulate
his vision for the company if necessary.

2. The Mature/Machine Context

2.1. Features of the machine organization

 A mature or machine organization will ordinarily have evolved from an

entrepreneurial organization over time.
 Characterized by relative centralization of decision making.
 There is an elaborate organization and administrative structure
characterized by:
 specialization of tasks
 departmentalisation by function, product, customer or territory
 sharp distinction between line and staff
 distinction between the administrative structure and the operating
core
 Operating work tends to be simple and repetitive and eventually develops
into routine, thus facilitating standardization and automation of work
processes. It for this reason that the context is also known as a ‘machine’
organization.
 Control is pervasive through the hierarchical level of the organization

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2.2. Examples of a machine operation

 A large financial institution such as Zambia National Commercial Bank,

Zambia State Insurance Company, National Pensions Authority.
 A mining company – Mopani, Konkola or Lumwana
 Supermarket chain – Shoprite, Pay and Pick
 Government/Public Enterprises
 Service companies, such as, Airlines, hotels, transport companies,
hospitals.
 Often characterized by an external dominant influencer, e.g.
shareholder/Board of Directors, Government

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
 Will usually have easier access to resources and competences than an
entrepreneurial organization; competencies are not individualized and are
usually replaceable.
 Personal values and aspirations are moderated by the external influencer
 Issues of corporate social responsibility may feature in the formulation of
strategy

2.4. Strategy implementation

 The elaborate structure and inherent control feature 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

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 - 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
 Organizational culture, as an influence of performance is often difficult
to apply; there is greater reliance on formal systems of control and
restraint.
 The influence of leadership will vary depending on the organization, the
circumstances and the individual.
 The machine organization does not easily adapt to changes in strategy
and may in fact influence leadership and environment because of its
procedures, its planning and its bureaucratic momentum. Compounding
this is the desire for machine-driven outputs, such as inexpensive and
standardized goods and services.

3. The Professional Context

3.1. Features of a professional organization

 The operating core are the professionals themselves

 Administrative structures tend to be flat and democratic, characterized
by elective, rotational or honorary leadership, and collective decision-
making as opposed to directives.
 The CEO’s roles are largely of being
- fire extinguisher/fighting
- liaising officer with external bodies
- buffer and defender of against “external” forces
 Power and influence are expertise-based and need not tied to formal
position

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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

3.2. Examples of a professional organization

 Doctors in a hospital
 Academic staff in a university
 Lawyers in a law firm
 Engineers in a construction firm
 Accountants/Auditors

3.3. Strategy Determination

This can be done at any of the levels or using a combination of any of these levels:
o Professional Judgement by Individual: Based on individual values and
professional needs as dictated by clients, professional affiliations and funding
agencies.
o Administrative Fiat (Administrator/Managing or Senior Partner): this involves
articulations from Government, donors, public, business concerns
o 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.

3.4. Strategy implementation

o Professionals largely apply individual discretion in their work as no two

professionals ever apply their knowledge/skills in exactly the same way, hence it
is difficult to standardize their work, and there is need for wider consultation and
team work the more complex the task.
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 o Self-discipline and externally determined standards and a code of conduct by the
professional body ensure quality assurance in performance.

o Tends to breed high levels of productivity because effort is based on

- individual skill/professionalism
- work is regarded as a calling
- Autonomy and democratic principles.
o May breed problems of coordination attributable to the professional individualism
and arrogance

4. The Innovation Context

4.1. Features

o The tasks are highly specialized and complex, often requiring expert training
o The environment is dynamic, complex and unpredictable.

4.2. Example of Innovation Context

o High-tech research industries, such as information technology, electronics

industry and drug manufacturing
o Entertainment industry, such as music, advertising or the movie industry
o Work of arts, such as painting
o Fashion designers
o Universities
o Research Centres
o Space agencies

4.3. Strategy Determination

o It cannot rely on deliberate strategy because if must respond continuously to a

complex and unpredictable environment. Its actions are decided upon
individually, according to the needs of the moment.

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 o Decisions are serial and incremental. Strategy is formed rather than formulated
because it derives from the series of actions and is not predetermined.

4.4. Strategy implementation

o To innovate is to break away from established patterns. Accordingly, the

innovative organization cannot rely on any form of standardization of the work
processes. There is therefore minimum division of labour and formalized
behaviours.
o Information and decision processes are allowed to flow flexibly and informally,
wherever they must go, in order to promote innovation.
o Different specialists must join forces in multidisciplinary teams, each formed
around a specific project of innovation.
o Because of the fluid nature of their structures, there is a high cost associated with
communication.
o Top managers do not spend much time formulating explicit strategies; rather they
spend time in the battles that ensue over the selection among strategic choices and
in handling disturbances which arise from the environmental forces
o Top managers additionally spend time in monitoring projects and liaising with the
external environment.

5. The Diversified Context

5.1. Features

o A diversified organization consists of a sets of semiautonomous units (known as

divisions) linked together by a central unit (known as headquarters).
o The divisions are created to serve distinct markets and given control over
operating functions of manufacturing, marketing or engineering. The divisions are
mainly based on market basis – the product, client and region.
o The roles of headquarters are, first, to coordinate the divisions and to develop the
overall corporate strategy, that is, determine in which markets to operate through
acquisitions, mergers or closures; second, to manage funds between the divisions;

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 third, to design and operate the performance control systems; fourth, to make
appointments of divisional heads; and fifth, to provide common support services,
such as, public relations, audit and legal services

5.2. Example of Innovation Context

o Insurance companies in Zambia

o Supermarket chains
o Zambia National Breweries

5.3. Strategic Issues

o There are four basic advantages of diversified configuration:

 It facilitates optimum allocation of resources
 Divisions offer good training ground for general managers;
 The corporation is able to spread risks by giving support to an ailing
division, provided the ailing division is not shielded from bankruptcy
 It facilitates strategic responsiveness subject to the needed control by
headquarters.
o On the downside, a number of disadvantages are associated with this
organizational context:
 It may render the corporate board of directors ineffective as the divisions
grow in size
 There is a tendency to lean toward quantitative controls of performance –
profit, sales growth, return on investment, or market share at the expense
of social goals – product quality, pride in one’s work, customer service
level – which are rather difficult to measure.
 Diversified organizations in the public and not-for-profit sectors do not
lend themselves to performance control measures.

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5. Grant Robert M., Contemporary Strategic Management, Sixth Edition (Malden, MA:
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