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STRATEGIC!PLANNING!
Seethiah!Dhuvandranand!

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Course!Name:!!! Strategic!Planning!
Course!Author:!! Seethiah!Dhuvandranand!
Commonwealth!of!Learning!!
Edition!1.0!
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Commonwealth!of!Learning©2012!

Any!part!of!this!document!may!be!reproduced!without!permission!but!with!attribution!to!
the!Commonwealth!of!Learning!using!the!CCKBYKSA!(share!alike!with!attribution).!

http://creativecommons.org/licenses/byKsa/3.0!
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Commonwealth!of!Learning!
1055!West!Hastings!Street,!Suite!1200!
Vancouver,!British!Columbia!
Canada!V6E!2E9!
Telephone:!+1!604!775!8200!
Fax:!+1!604!775!8210!
Web:!www.col.org!
EKmail:!info@col.org

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ACKNOWLEDGEMENTS)

The!leadership!of!the!Commonwealth!of!Learning!in!charting!the!development!of!
programmes!is!duly!acknowledged.!Acknowledgements!are!also!attributed!to!the!personnel!
of!the!Virtual!University!for!Small!States!of!the!Commonwealth!for!their!demonstration!of!
vision!in!creating!open!education!resources,!accessible!to!the!small!states.!All!this!has!been!
made!possible!by!the!cooperation!of!governments!of!the!small!states!who!have!generously!
made!monetary!contributions,!and!allowed!professionals!from!their!higher!institutions!of!
learning!to!take!part!in!the!Bootcamp!towards!the!crafting!of!study!materials!that!will!
remain!a!beacon!of!collaborative!intentions.!Writers!of!courses,!who!worked!assiduously!at!
the!Maseru!Bootcamp!are!duly!acknowledged.!Last!but!not!least,!acknowledgements!are!
extended!to!Lesotho,!one!of!the!small!states!for!commendably!hosting!the!threeKweek!
event!on!the!degree!programme.!

D.Seethiah!

University!of!Mauritius!
Staff!of!University!of!Lesotho!
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TABLE)OF)CONTENTS)
ACKNOWLEDGEMENTS!................................................................................................................................!2!
Table!of!Contents!........................................................................................................................................!3!
Course!Overview!..........................................................................................................................................!5!
Text

Introduction!...............................................................................................!Error!)Bookmark)not)defined.!
Course!Goals!............................................................................................................................................!5!
Description!...............................................................................................................................................!5!
Course!Structure!........................................................................................!Error!)Bookmark)not)defined.!
Required!Readings!.....................................................................................!Error!)Bookmark)not)defined.!
Assignments!and!Projects!..........................................................................!Error!)Bookmark)not)defined.!
Assessment!Methods!.................................................................................!Error!)Bookmark)not)defined.!
Course!Schedule!........................................................................................!Error!)Bookmark)not)defined.!
Student!Support!..........................................................................................................................................!8!
Academic!Support!....................................................................................................................................!8!
How!to!Submit!Assignments!....................................................................................................................!8!
Technical!Support!....................................................................................................................................!8!
Unit!One!K!Strategic!Vision!And!Planning!....................................................................................................!9!
Unit!Introduction!.....................................................................................................................................!9!
Unit!Objectives!........................................................................................................................................!9!
Unit!Readings!...........................................................................................................................................!9!
Assignments!and!Activities!......................................................................................................................!9!
Topic!1.1!–!The!strategic!management!concept,!evolution!and!importance!........................................!10!
Topic!1.2!–!Strategic!Planning!Levels!and!Models!.................................................................................!21!
Topic!1.3!–!A!Stepwise!Approach!to!Strategic!Management!.................................................................!30!
Unit!Four!–!Summary!.............................................................................................................................!42!
Unit!References!.....................................................................................................................................!42!
Unit!Two!–!Environment!Analysis!..............................................................................................................!44!
Unit!Introduction!...................................................................................................................................!44!
Unit!Objectives!......................................................................................................................................!44!
Topic!2.2!–Vision,!Mission!and!the!Competitive!Advantage!.................................................................!46!
Topic!2.2!–Internal!Environment!Analysis!.............................................................................................!61!

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Topic!2.3!–External!environment!scanning!...........................................................................................!72!
Unit!Two!–!Summary!.............................................................................................................................!86!
Unit!References!.....................................................................................................................................!86!
Unit!Introduction!...................................................................................................................................!88!
Unit!Objectives!......................................................................................................................................!88!
Topics!.........................................................................................................!Error!)Bookmark)not)defined.!
Topic!3.1!–!Strategy!Formulation!...........................................................................................................!89!
Topic!3.2!–!Strategy!Choice!.................................................................................................................!103!
Topic!3!K!Strategy!Implementation!......................................................................................................!118!
Unit!Three!–!Summary!.........................................................................................................................!132!
Unit!References!...................................................................................................................................!132!
Unit!FourK!Strategy!Controls!and!Limitations!..........................................................................................!134!
Unit!Introduction!.................................................................................................................................!134!
Topic!4.1!–!Strategy!Control!................................................................................................................!135!
Topic!4.2!–!Limitations!of!strategic!planning!and!Emergent!Strategies!..............................................!146!
Unit!Four!–!Summary!...........................................................................................................................!155!
Unit!References!...................................................................................................................................!155!
Final!Assignment/Major!Project!..............................................................................................................!157!
Course!Summary!......................................................................................................................................!161!
Lessons!Learned!...................................................................................................................................!161!
Application!of!Knowledge!and!Skill!............................................................!Error!)Bookmark)not)defined.!
Course!Evaluation!................................................................................................................................!161!
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COURSE)OVERVIEW)
The!aim!of!this!Strategic!Planning!Course!is!to!describe!to!entrepreneurs!how!to!plan!the!
activities!of!their!business!to!ensure!competitive!advantage!and!subsequent!sustained!
profitability.!!They!will!be!able!to!identify!strategies,!give!scope!and!direction!to!their!
business,!and!make!the!right!decisions!based!on!matching!strategies!with!available!
resources!and!capabilities.!!A!number!of!theories,!concepts,!tools!and!techniques!will!be!
described!and!applied!to!hypothetical!and!real!business!situations.!!Strategic!management!
tools!such!as!Porter’s!Five!Forces!model,!PESTEL!&!SWOT!analysis!will!be!operationalized!in!
a!practical,!handsKon!approach!to!learning.!!The!course!will!therefore!systematically!expose!
the!learner!to!a!number!of!concepts!and!tools!which!will!be!applied!to!the!context!of!the!
business!enterprise.!!The!common!thread!of!the!whole!course!will!be!the!strategic!
management!process.!!!!

COURSE)GOALS)
Upon!completion!of!this!course!you!will!be!able!to:!

1. Define!strategic!planning!and!distinguish!it!from!business!planning!
2. Describe!the!steps!in!the!strategic!management!process!as!comprising!the!steps!of!a!
strategic!plan!
3. Distinguish!between!Vision!and!Mission!
4. Complete!an!environmental!scan,!internal!and!external!
5. Perform!a!SWOT!analysis.!
6. Assess!and!choose!strategies!from!the!SWOT!!and!set!goals!ad!objectives!based!on!
resources!and!capabilities!
7. Examine!the!process!of!strategy!implementation!with!regards!to!human!resource!
issues,!structural!and!other!considerations!
8. Establish!performance!measures!to!asses!the!original!goals!and!objectives!
9. Evaluate!strategies!with!a!view!to!bring!any!corrective!action!following!changes!in!the!
business!environment.!!

DESCRIPTION)
The!course!is!organized!into!four!units.!

Unit)1:!Strategic!Vision!and!Planning!

Unit)2:)Environment!Analysis!

Unit)3:!Strategy!Formulation!and!Implementation!

Unit)4:!Strategy!Control!and!Limitations!of!Strategic!Planning!

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Each!unit!is!further!broken!down!into!related!topics.!Each!unit!and!many!topics!include!selfK
assessment!questions!to!ponder,!activities!to!complete!and!formal!assignments!to!
complete!and!send!to!your!instructor.!!

The!units!contain!a!number!of!references!that!learners!are!encouraged!to!review.!This!may!
require!that!you!have!access!to!a!computer!with!Internet!connection!to!download!the!
reference.!!Each!unit!should!take!between!two!and!three!weeks!to!complete.!

)ASSIGNMENTS)AND)PROJECTS)
A!series!of!activities!and!assignments!guide!you!through!concepts!in!this!course!and!ask!you!
to!demonstrate!that!you!can!apply!the!concepts!to!support!the!creation!of!your!business!
idea!and!business!model.!!A!summary!of!this!work!is!included!at!the!beginning!of!each!unit.!
The!major!assignment!in!this!course!is!found!in!Unit!Four,!where!you!will!write!a!business!
plan!for!your!new!venture.!Your!institution!/!tutor!will!help!you!through!this!material!and!
will!also!assign!additional!projects.!!

JOURNALING)REQUIREMENTS!!
To!capture!the!output!from!the!reflective!questions!and!activities!you!are!asked!to!keep!a!
personal!journal.!At!the!end!of!the!course!the!personal!journal!will!be!submitted!to!your!
instructor!for!feedback!and!grading.!!

ASSESSMENT)PROJECTS)
Assessment!takes!the!form!of!responding!to!activities,!as!well!as!written!assignments!and!
examinations!as!determined!from!timeKtime!by!the!institution.!In!cases!where!coursework!
assignments,!fieldwork!projects,!and!examinations!are!used!in!combination,!a!percentage!
rating!for!each!component!will!be!communicated!to!you!at!the!appropriate!time.!!

TIME)REQUIRED)
This!course!is!worth!16!credits,!or!a!credit!value!assigned!by!your!institution.!Each!credit!is!
equivalent!to!10!notional!hours.!You!are,!therefore!advised!to!spend!not!less!than!160!
hours!of!study!on!the!course.!This!notional!time!includes:!!

• going!over!activities!embedded!in!the!study!material;!!
• peer!group!interaction!(where!necessary);!!
• faceKtoKface!tutorials!(where!necessary);!!
• working!on!tutorKmarked!assignments;!and!!
• preparation!time!for!and!sitting!examinations!(where!that!is!a!requirement.)!!

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COURSE)SCHEDULE)
A!course!schedule!with!due!dates!and!additional!readings!will!be!supplied!to!you!by!your!
institution.! !

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STUDENT)SUPPORT)
Note:!!This!section!should!be!included!in!selfKpaced!or!paperKbased!courses!that!provide!
tutor/facilitator!support!and/or!web!and!email!support!for!the!students.!

ACADEMIC)SUPPORT)
<Insert!the!following!information!if!relevant>!

• How!to!contract!a!tutor/facilitator!(Phone!number,!email,!office!hours,!etc.).!
• Background!information!about!the!tutor/facilitator!if!he/she!does!not!change!
regularly.!!Alternatively!provide!a!separate!letter!with!the!package!describing!your!
tutor/facilitator’s!background.!
• Description!of!any!resources!that!they!may!need!to!procure!to!complete!the!course!
(e.g.!lab!kits,!etc.).!
• How!to!access!the!library!(either!in!person,!by!email!or!online).!

HOW)TO)SUBMIT)ASSIGNMENTS)
<If!the!course!requires!that!assignments!be!regularly!graded,!then!insert!a!description!of!
how!and!where!to!submit!assignments.!!Also!explain!how!the!learners!will!receive!!

TECHNICAL)SUPPORT)
<If!the!students!must!access!content!online!or!use!email!to!submit!assignments,!then!a!
technical!support!section!is!required.!!You!need!to!include!how!to!complete!basic!tasks!and!
a!phone!number!that!they!can!call!if!they!are!having!difficulty!getting!online>.!

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UNIT)ONE)N)STRATEGIC)PLANNING)–)AN)OVERVIEW))

UNIT)INTRODUCTION)
This!unit!will!enable!you!to!define!strategic!planning!followed!by!an!exploration!over!the!
possible!origins!of!strategic!management!concepts.!!These!are!thought!to!come!from!the!
military!as!exemplified!by!the!common!terms!used!in!both!areas.!The!evolution!of!the!
concept!of!strategic!planning!from!the!1950’s!to!the!2000’s!will!be!analyzed!based!on!
related!changes!in!the!business!environment,!followed!by!a!discussion!on!the!importance!of!
strategic!planning!for!businesses.!!A!distinction!will!be!made!between!corporate!level,!
business!level!and!functional!level!strategies.!!We!shall!eventually!distinguish!between!the!
related!but!different!concepts!of!business!model,!strategic!plan!and!business!plan.!
Furthermore,!the!strategic!management!process!will!be!described!in!some!detail!following!
a!stepwise!approach.!!

UNIT)OBJECTIVES)
Upon!completion!of!this!unit!you!will!be!able!to:!

1. Define!strategic!planning.!!
2. Explore!the!origins!of!strategic!management!concepts!from!the!1950’s!to!the!
2000’s.!
3. Analyze!the!importance!of!strategic!planning!
4. Distinguish!between!the!business!model,!strategic!plan!and!business!plan!
5. Understand!the!steps!in!the!strategic!management!process!and!the!strategic!plan.!

UNIT)READINGS)
As!you!complete!this!unit!you!are!required!to!read!the!following!chapters/articles:!

• Evan,!M.H.!!(nd.).!!Excellence!in!Financial!Management!–!Course!10:!Strategic!
Planning.!!Available!at:!!http://www.exinfm.com/training/pdfiles/course10.pdf!!

ASSIGNMENTS)AND)ACTIVITIES)
<Insert!a!description!of!the!unit!assignments,!activities!and!discussions!to!be!completed!as!
they!progress!through!the!unit.!!Detailed!instructions!can!be!attached!as!Appendices!to!the!
course!main!body.>!

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TOPIC)1.1)–)THE)STRATEGIC)MANAGEMENT)CONCEPT,)EVOLUTION)AND)IMPORTANCE)
INTRODUCTION)
The!idea!of!managing!a!business!strategically!seems!to!have!originated!with!the!military.!!
The!fact!that!it!is!quite!legitimate!for!business!persons!to!use!words!like!“we!have!won!the!
battle!of!market!leadership”!or!“we!have!been!successful!in!defending!our!market!
position’s,!may!suggest!that!a!link!exists!between!military!and!business!strategies.!!Using!a!
military!analogue,!the!battlefield!is!the!marketplace!and!your!enemy!is!your!industry!rivals.!

The!evolution!of!planning!from!periods!of!relatively!stable!business!environment!of!the!
1950’s!to!the!era!of!turbulent!change!of!the!2000’s!will!be!analyzed!as!well!as!the!
conceptual!changes!related!to!strategic!planning.!

The!nature,!the!roles!and!importance!of!strategic!planning!in!business!will!be!explained!in!a!
balanced!approach!that!considers!the!noKplanning!alternative.!

OBJECTIVES)
Upon!completion!of!this!topic!you!will!be!able!to:!

1. define!strategic!planning;!
2. explain!why!we!study!strategic!management;!
3. discuss!the!possible!origins!and!evolution!of!!strategic!management;!and!
4. analyze!the!importance!of!strategic!planning.!

CONTENT)
• Strategic!Planning!K!Definitions!
• Origins!of!strategic!management!concepts!
• Nature!and!importance!of!strategic!planning!!
• FreeKwheeling!opportunism,!the!nonKstrategic!alternative!!

STRATEGIC)PLANNING)–)DEFINITIONS)
Definitions!of!strategic!planning!(or!strategic!management)!generally!vary!from!author!to!
author,!based!on!the!focus!adopted,!for!example!the!short!to!long!term!perspective,!the!
resource!perspective!or!the!inward!and/or!outward!focus.!

WebNbased)Definition))

Wikipedia!defines!strategic!planning!as!an!organization’s!process!of!defining!its!
strategy!and!making!decisions!on!allocating!its!resources!to!pursue!this!strategy,!including!
its!capital!and!people.!

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In!order!to!achieve!the!above!process,!a!number!of!analytical!techniques!have!to!be!used,!
including!analysis!of!the!business!environment!to!assess!the!current!situation!and!forecast!
future!trends.!!!

!Strategic!planning!describes!strategy!or!direction!by!exploring!a!number!of!questions:!

1. What!does!the!business!do?!

This!may!refer!to!the!activity!or!scope!of!activities!of!the!organization.!!For!example,!a!
University’s!scope!of!activities!is!not!limited!to!offering!courses,!but!also!includes!research!
and!consultancy.!

2. For!whom!does!the!business!exist?!

We!may!tentatively!give!a!quick!response!to!the!above!by!considering!customers.!!
However,!in!a!broader!perspective,!the!organization!also!exists!for!other!stakeholders,!for!
example,!shareholders,!employees,!suppliers!and!the!general!community!(including!its!
social!and!environmental!responsibilities!to!community!members).!

3. How!does!the!business!excel!in!the!market!place?!

This!may!refer!to!how!the!organization!develops!and!maintains!an!edge!on!its!competitors.!!
In!business!organizations,!answering!the!above!questions!determines!the!strategies!that!
the!business!develops!for!the!short!to!medium!term,!typically!for!the!next!to!three!or!five!
years.!!

Activity:!Reflect!upon!the!pertinence!of!a!business!developing!strategies!for!the!next!
twenty!years.!!How!far!is!this!feasible!or!at!least!reasonable?!

Record!your!response!in!your!course!journal.!

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The!current!business!environment!is!dominated!by!rapid!continuous!change!(as!is!reflected!
by!changes!in!IS/IT,!which!is!by!itself!changing!the!way!business!is!actually!done,!re:!eK
commerce.!!This!often!results!in!shorter!term!planning.!!!

Business)Dictionary)Definition!

BusinessDictionary.com!(http://www.businessdictionary.com)!defines!strategic!planning!as!
“systematic!process!of!envisioning!a!desired!future,!and!translating!this!vision!into!broadly!
defined!goals!or!objectives!and!a!sequence!of!steps!to!achieve!them”.!

Let!us!now!examine!the!two!definitions!in!relation!to!the!rest!of!this!course!by!explaining!
the!key!words:!

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• Systematic)process!–!refers!to!an!orderly!process!made!up!of!a!series!of!activities!
that!can!be!clearly!identified!and!arranged!in!a!logical!order!of!occurrence.!!For!
example,!we!have!first!to!develop!a!vision!that!gives!us!direction!and!at!the!end!of!
the!process,!we!have!to!evaluate!our!course!of!action!so!as!to!take!(any)!corrective!
measures.!
• Envisioning)a)desired)future!–!projects!the!business!to!a!determined!point!in!time!
that!is!related!to!the!vision!that!may!belong!to!the!leader,!but!is!eventually!shared!
by!one!and!all!in!the!organization.!
• Goals)or)objectives!–!Goals!refer!to!broad!aspirations!and!expressions!of!intent!
while!objectives!refer!to!specific!measurable!ends.!!For!example!our!goal!may!be!to!
be!among!the!top!actors!on!the!market!while!one!objective!may!be!to!have!50%!
market!share.!!!
• Sequence)of)steps!–!A!strategic!plan!is!normally!made!up!of!a!number!of!steps!
which!acts!as!a!road!map!for!the!planner.!!!

The!above!definition!appears!to!be!silent!on!resources!that!may!enable!or!else!limit!the!
company’s!ability!to!implement!strategies.!!The!first!definition!did!mention!resources,!but!
did!not!emphasize!the!importance!of!such!resources!in!conferring!a!sustainable!advantage.!

The!next!definition!refers!to!the!resource!based!view!of!the!company!in!strategic!planning.!

Ohmae.!K,!1983!defines!strategy!as!“What!business!strategy!is!all!about!is,!in!a!word,!
competitive!advantage…..The!sole!purpose!of!strategic!planning!is!to!enable!a!company!to!
gain!as!efficiently!as!possible,!a!sustainable!edge!over!its!competitors.!

From!the!above,!it!would!seem!that!competitive!advantage!is!the!differentiating!factor!and!
possession!of!same!gives!an!edge!on!competitors.!Furthermore,!efficiency!appears!to!lie!at!
the!heart!of!competitive!advantage.!We!shall!have!a!closer!look!at!what!constitutes!
competitive!advantage!and!how!it!gives!a!sustainable!edge!to!the!company!in!Topic!3!of!the!
present!Unit.!

ORIGINS)OF)STRATEGIC)MANAGEMENT)CONCEPTS)
Strategic!planning!has!been!earlier!defined!as!the!process!of!identifying!future!states!and!
moving!towards!them.!!!Strategic!planning!is!thought!to!originate!from!military!strategy,!
now!adapted!to!business!activities.!!A!few!applications!in!business!include:!

• strategic!management!i.e.!providing!overall!direction!to!a!business;!
• creation!of!marketing!strategies,!e.g.!launching!a!new!product;!!and!
• developing!a!human!resource!strategy.!!One!example!is!a!the!training!and!
development!plan.!!!

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However,!the!use!of!strategic!planning!is!not!limited!to!the!military!and!business!
organizations,!but!can!also!be!used!to!plan!and!implement!electoral!campaigns,!sports!
competitions!and!other!agencies!who!are!seeking!a!systematic!method!of!management!and!
growth!based!on!defined!goals.!!!

Military)Origins)of)Strategic)Planning)

When!countries!are!at!war,!armies!have!recourse!to!military!strategies!to!give!direction!and!
purpose!to!utilize!resources!effectively!and!to!coordinate!decisions.!!This!is!well!exemplified!
by!the!strategies!adopted!by!General!Nguyen!Giap!in!the!Vietnam!wars!(1948K1975)!

“Our!strategy!was…to!wage!a!long!lasting!battle.!!Only!a!long!term!war!would!
enable!us!to!utilize!to!the!maximum!our!political!trump!cards,!to!overcome!our!
material!handicap,!and!to!transform!our!weakness!into!strengths…contenting!
ourselves!with!attacking!when!success!was!certain,!refusing!to!give!battle!likely!
to!inner!losses”!

Covey.!S,!1989!cited!in!Grant!Robert,!2005!

Activity:))From!the!above!quote,!analyze!how!Giap!used!his!resources!efficiently.!

Record!your!response!in!your!course!journal.!

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Based!on!business!and!military!literature,!there!is!a!clear!overlap!between!military!strategy!
and!business!strategy.!!They!share!a!number!of!similar!concepts!and!principles.!!The!
distinction!between!strategy!and!tactics!being:!

Strategy:!An!overall!plan!for!deploying!existing!resources!efficiently!to!achieve!a!favorable!
position!e.g.!winning!a!war.!

Tactic:!Developing!a!scheme!for!a!specific!action!having!a!relatively!limited!scope!within!the!
grand!strategy,!e.g.!winning!or!losing!a!battle.!

• Use!of!offensive!and!defensive!(or!passive)!strategies.!
• Offering!graduated!responses!to!overly!aggressive!initiatives!from!opponents.!
• Planning!to!reap!the!benefits!of!surprise.!

Subtle!differences!however!exist!between!war!situations!and!business.!!In!war,!the!goal!is!
to!defeat!the!enemy!whereas!in!business,!rather!than!seeking!to!defeat!competition,!one!
may!wish!to!coexist!and!even!cooperate!when!necessary.!!

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EVOLUTION)OF)STRATEGIC)PLANNING)
Grant.!R.!M,!2005!describes!the!evolution!of!the!planning/strategic!planning!concept!by!
referring!to!the!decades!following!World!War!II.!

1950N1960)

Corporations!growing!in!size!and!complexity!found!it!more!and!more!difficult!to!coordinate!
decisions!and!maintain!control!on!current!operations!and!growth.!!They!devised!financial!
planning!as!a!framework!for!coordinating!capital!investment!decisions!and!long!term!
planning!of!the!company!development!and!growth.!

At!that!time,!companies!would!schedule!five!(or!more)!year!plans,!setting!goals!and!
objectives,!forecasting!economic!trends!such!as!supply!and!demand,!market!share!etc.!and!
allocate!capital!expenditure!accordingly.!!The!focus!was!on!financial!controls.!

Capital!budgeting!and!operational!budgeting!were!the!main!mechanisms!of!coordination!
and!control.!!Finance!departments!and!accounting!personnel!were!key!decision!makers!at!
this!time.!

1960N1970)

In!this!decade,!strategy!was!centered!around!diversification,!for!example!expansion!into!
new!business!sectors!by!acquisition.!!Business!strategies!had!an!external!focus.!!The!focus!
then!changed!from!financial!planning!to!corporate!planning!and!growth,!especially!through!
diversification!strategies!and!portfolio!planning.!!!

One!proponent!of!strategic!diversification!was!Igor!Ansoff.!!This!author!typically!referred!to!
strategic!decisions!as!being!outward!focused!rather!than!internally!directed.!!Emphasis!was!
on!the!selection!of!the!product!mix!that!the!company!will!select!and!the!markets!they!
targeted.! !

This!decade!saw!the!creation!of!corporate!planning!departments!and!the!emergence!of!
mergers!and!acquisitions!processes!and!procedures.!

!1970N1985)

In!the!70’s,!it!was!realized!that!diversification!as!a!general!strategy!had!failed!to!produce!
that!anticipated!synergies.!!This!was!compounded!by!the!Oil!shocks!of!1974!and!1979!which!
resulted!in!macroeconomic!instability.!!The!business!environment!was!characterized!by!
fierce!competition!from!Japanese!and!European!companies.!

A!more!turbulent!business!environment!implied!required!a!targeted!planning!for!corporate!
investment,!new!product!development!and!Human!Resource!Planning!with!a!shorter!time!
perspective.!!Planning!was!no!more!the!3K5!year!period,!but!less!than!three!years.!

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“In!a!corporate!environment!that!has!become!increasingly!dynamic!and!complex,!strategy!is!
management’s!response!to!turbulence”!Clegg,!Kornberger!&!Pitsis!(2005:409)!

This!resulted!in!a!shift!from!corporate!planning!to!strategic!management.!!Companies!were!
positioned!in!markets!and!in!relation!to!competitors!in!order!to!maximize!profit!potential!
by!resorting!to!industry!analysis.!!Porter.!M,!1980,!of!Harvard!Business!School!made!a!major!
contribution!in!this!area!when!he!proposed!to!apply!industrial!organization!economics!in!
the!analysis!of!industry!attractiveness!(Five!Forces!Model!to!be!dealt!with!in!Unit!2).!

Earlier!in!1978,!the!Boston!Consulting!Group!(BCG)!pioneered!a!study!highlighting!the!
impact!of!market!share!and!leaning!on!costs!and!profits.!!BCG!also!propounded!portfolio!
planning!(BCG!Matrix!developed!for!General!Electric)!for!organizations!having!
multidimensional!and!multinational!structures.!

This!was!an!era!of!positioning!with!a!focus!on!industry!and!market!selectivity.!

1985N1995)

During!the!late!eighties,!the!focus!moved!from!external!profitability!to!sources!of!profit,!
centered!inside!the!company.!!Company!resources!(e.g.!HR)!and!capabilities!(e.g.!technical!
competencies)!were!considered!the!company’s!major!methods!for!gaining!the!advantage!
over!competitors!(the!related!notion!of!competitive)advantage!will!be!dealt!with!in!Topic!
3).!!This!developed!into!the!soKcalled!“resourceKbased!view”!of!the!company.!!!

Strategy!was!therefore!focused!on!sources!of!competitive!advantage!and!knowledge!
management!as!a!means!of!capturing!knowledge!and!storing!it!in!a!form!that!can!be!
retrieved!later.!!Information!technology!was!important!in!this!and!other!aspects,!for!
example!the!development!of!eKbusiness.!

Refocusing!on!the!core!competencies!allowed!companies!to!outsource!nonKcore!activities!
to!‘business!partners’.!

The!paradigm!was!slowly!changing!from!competition!to!collaboration.!!Furthermore,!
instead!of!basing!decisions!on!industry!analysis,!companies!now!looked!at!what!
differentiated!them!from!competitors!and!exploited!these!differences!in!order!to!establish!
a!sustainable!edge!on!them.!

1995N2000’s)

During!this!period!the!dominant!theme!was!strategic!and!organizational!innovation.!!It!was!
realized!that!larger!sized!companies!developed!inertia!and!could!not!respond!to!rapidly!
changing!market!demands.!!Companies!therefore!reconciled!size!with!flexibility!by!
developing!autonomous!divisions!that!would!operate!as!separate!profit!centers.!!This!
resulted!in!better!market!and!customer!responsiveness.!

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Confrontation!strategies!slowly!gave!place!to!cooperative!strategies,!making!use!of!
business!networks.!

Companies!started!realizing!their!corporate!social!responsibility,!in!particular!their!
responsibility!towards!the!broader!community!and!the!natural!environment.!

Company!structure!moved!from!the!traditional!pyramidal!one!to!more!flexible!team!
structures!(less!formal!and!more!entrepreneurial).!Leadership!was!less!directional!and!more!
entrepreneurial.!

Technology!based!businesses!flourished!on!the!fertile!bed!of!diminishing!internet!
connection!costs!and!on!innovation!as!a!must!for!survival!in!a!constantly!changing!business!
environment.!!During!this!period!there!has!been!less!reliance!on!direction!and!more!
emphasis!on!emergence!and!opportunity!centered!entrepreneurship.!

“A!key!aspect!of!this!quest!has!been!interest!in!new!business!modelsKfundamentally!new!
approaches!to!accessing!sources!of!value”!Grant.!M,!2005!

IMPORTANCE)OF)STRATEGIC)PLANNING))
Strategic!planning!is!a!process.!!The!managerial!roles!that!are!fulfilled!by!strategic!planning!
include!decision!support,!coordination,!business!implementation,!multiKyear!planning!and!
vision.!!However,!the!alternative!to!strategic!planning!is!no!strategic!planning!which!does!
not!mean!that!chaos!is!the!norm.!!It!rather!implies!a!different!approach!based!on!
opportunism!and!emergent!strategies.!!

Nature)of)Strategic)Planning))

In!times!of!war,!strategy!is!about!defeating!the!enemy.!!In!the!political!arena,!strategy!is!
about!getting!power!through!the!electoral!mechanism.!!In!business!strategy!is!about!
ensuring!survival!and!sustainable!growth!of!the!company.!

The!nature!of!strategy!depends!on!the!stability/instability!of!the!business!environment!and!
its!predictability.!!In!a!stable!environment!(as!in!the!60’s)!emphasis!was!on!long!term!
detailed!planning.!!Given!the!current!turbulent!environment!there!is!more!emphasis!on!
direction!than!on!specific!preKdetermined!actions.!!For!example,!in!a!rapidly!changing!
business!environment,!a!broad!array!of!opportunities!often!faces!a!growing!company.!!The!
use!of!a!coherent!set!of!principles!and!guidelines!can!enable!a!business!to!screen!such!
opportunities!and!give!consistency!to!the!decisions!made!to!capture!various!opportunities.!

Advantages)of)Planning))

Planning!your!growth!helps!you!picture!the!direction!the!business!is!moving.!!A!plan!
provides!a!path!down!which!a!company!can!move.!!A!flexible!planning!process!allows!

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companies!to!react!appropriately!to!changing!situations!other!reasons!to!creates!plans!
includes:!

1. Sense)of)Purpose!K!Strategic!planning!gives!a!sense!of!purpose!to!management!and!
personnel,!especially!when!they!all!participate!in!the!planning!process.!!Consistency!and!
clarity!of!direction!and!purpose!being!shared!by!organization!members’!results!in!
improved!management!decisions!and!employeeKemployer!relationships.!!Absence!of!a!
plan!may!result!in!managers!interpreting!their!own!tasks!and!roles!differently,!e.g.!
based!on!personal!preferences.!!Planning!also!results!in!coordination!and!cooperation!
among!individuals.!!!
!
2. Risk)Management!K!Planning!enables!the!company!to!identify!and!manage!risks.!!When!
a!company!increases!in!size!and!complexity,!the!business!environment!will!change!and!
the!company!becomes!exposed!to!both!internal!risks!and!external!threats.!!These!can!
be!managed!if!a!formal!planning!process!is!in!place.!!!
)
3. Accuracy!–!Accuracy!in!addressing!the!internal!and!external!factors!results!in!effective!
decision!making!and!better!management.!!Creation!of!set!objectives!that!are!specific!
and!measurable!provides!goals!to!be!moved!towards!and!commitment!to!the!plan.!
• Without!a!good!plan,!it!is!possible!that!the!manufacturing!department!will!produce!
more!goods!that!the!marketing!and!sales!function!can!sell,!resulting!in!costly!unsold!
inventory.!
• This!actually!happened!to!Cisco!Systems!in!year!2000!when!they!“had!$2!Billion!of!
unsold!inventory!because!of!a!combination!of!an!economic!recession!and!
customers’!demands!for!new!kinds!of!optical!routers!that!Cisco!did!not!have!in!
stock”.!!(Jones,!Hill!&!George!2003)!

Activity:!Reflect!on!how!the!above!changes!in!a!business!environment!could!have!been!
predicted!at!Cisco!using!a!strategic!planning!process.!!

Record!your!response!in!your!course!journal.!

4. Flexibility!–!One!of!the!tasks,!in!a!Strategic!Management!Process,!requires!business!
leaders!to!monitor!and!act!upon!changes!in!the!environment.!!Changes!in!the!political,!
economic,!social!and!technological!environments!often!question!strategies!and!cannot!
be!ignored.!!!Flexible!response!to!the!issues!will!ensure!the!plan!stays!on!target.!
!
5. Clarity)and)Consistency)N)When!strategic!plans!are!put!on!paper,!the!resulting!clarity!
makes!them!more!workable!and!effective.!!Written!plans!can!be!seen,!verified,!provide!
controls!and!ensure!they!are!understood!by!all!those!impacted!by!the!plan.!!Clarity!also!
ensures!that!the!decisions!are!available!to!everyone!impacted!by!the!plan.!!People!then!
can!understand!and!take!appropriate!decisions!when!assumptions!no!longer!hold.!

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ROLES)OF)STRATEGIC)MANAGEMENT))
According!to!Grant.!R.!M,!2005,!strategic!management!fulfills!three!major!roles,!namely:!!
Decision!Support,!Coordination!and!Vision!(strategy!as!target).!

1. Strategy)as)Target)N)Setting!ambitious!targets!takes!the!form!of!a!vision,!one!that!
not!only!gives!direction,!but!motivates!people!to!stretch!themselves!to!extreme!
limits,!in!rapidly!changing!business!environments.!!Ideally!the!vision!and!supporting!
strategic!plan!helps!the!organization!match!internal!resources!with!external!
opportunities.!!On!the!contrary,!unreasonable!ambitions!can!be!the!driving!force!
for!out!of!the!box!thinking,!subsequent!innovation!and!continuous!improvement.!!
Some!examples!of!a!vision!are:!
!
• Five!years!from!now,!Computer!Services!Ltd.!will!have!annual!revenues!of!over!
one!million!by!consistently!providing!timely,!reasonably!priced!repair!and!
instructional!services.!
• Within!the!next!five!years,!ZZZ!Tours!will!become!the!premier!ecoKtour!
company!in!________,!increasing!revenues!to!1!million!dollars!in!2015!by!
becoming!internationally!known!for!the!comfort!and!excitement!of!the!whaleK
watching!tours!it!offers.!
• Within!the!next!five!years,!the!Women's!Centre!will!have!helped!create!a!safer,!
more!harmonious!community!by!helping!women!acquire!the!education,!skills!
and!resources!necessary!to!build!selfKsufficient!prosperous!lives.!
!
2. Strategy)as)Decision)Support)N)Strategy!guides!decision!making!process!and!
enhances!the!quality!and!consistency!of!decisions.!!Strategies!simplify!decision!
making!by!constraining!the!range!of!alternatives,!thereby!reducing!the!search!
required!to!find!the!optimum!solution!to!a!given!problem.!!The!strategic!planning!
process!involves!the!application!of!analytical!tools,!for!example!in!industry!analysis,!
competitor!analysis,!SWOT!analysis,!value!chain!etc.!
!
3. Strategy)as)Coordinating)Device)–)As)a!company!grows!it!employs!more!people!at!
different!levels,!it!has!different!specializations!and!is!therefore!more!complex!to!
manage.!!Strategies!promotes!coordination!among!all!these!people’s!actions!in!a!
number!of!ways.!

First,!strategy!communicates!the!identity,!goals,!objectives!and!values!of!the!organization!
consistently!to!one!and!all!inside!the!company.!

Second,!strategy!brings!consensus.!!When!people!are!invited!to!a!forum!to!give!and!discuss!
their!views,!they!feel!they!have!had!input!in!the!process!and!this!employee!involvement!
subsequently!buys!in!their!commitment!to!the!goals!and!objectives.!!The!creation!of!
strategies!should!be!a!team!building!and!consensus!exercise.!!

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Finally,!strategic!planning!empowers!all!levels!of!an!organization.!!Sharing!the!conception!of!
the!strategy!also!shifts!responsibility!of!planning,!implementation!and!control!to!line!
managers,!supervisors!and!workers!,!i.e.!away!from!corporate!decision!makers!to!business!
level!and!finally!to!functional!level.!!!!

FREENWHEELING)OPPORTUNISM ,)THE)NONNSTRATEGIC)ALTERNATIVE))
But!is!strategic!planning!really!necessary.!!Let’s!discuss.!

What)is)FreeNWheeling)Opportunism?)

This!approach!suggests!that!companies!should!exploit!opportunities!as!they!arise.!!!
Opportunities!are!judged!on!their!individual!merits!and!not!within!the!rigid!structure!of!a!
planned!strategy.!!This!approach!presents!both!certain!advantages!and!major!
disadvantages.!!!

It!allows!opportunities!to!be!seized!almost!immediately!as!they!arise,!ahead!of!competitors.!!
A!rigid!planning!framework!cannot!impose!constraints!and!restrictions!that!may!result!in!
lost!opportunities.!!!Similarly,!a!freeKwheeling!approach!is!more!flexible!to!change!in!the!
business!environment.!

Furthermore,!the!approach!empowers!lower!level!managers,!who!are!closer!to!the!market,!
to!act!more!flexibly!in!face!of!change,!while!not!being!hampered!by!formal!plans!and!
procedures.!

The!disadvantage!with!this!approach,!however,!is!that!there!is!a!lack!of!coordination!and!
control.!!There!is!also!an!overKemphasis!on!the!profit!motive,!which!could!exclude!other!
laudable!considerations!such!as!the!company’s!social!responsibility!or!employee!
commitment.!!The!approach!has!also!been!criticized!as!being!reactive,!rather!than!being!
proactive!and!purposive.!!!

The!above!approach!further!highlights!the!importance!of!strategic!planning!although!it!
emphasizes!flexibility!to!overcome!the!pitfalls!of!a!rigid!planning!mechanism.!!Flexibility!
ensures!that!changes!in!the!business!environment!are!monitored,!identified!and!acted!
upon,!if!not!forecasted!in!a!scenario!planning!approach.!!

SelfNAssessment)

Based!on!what!you!have!learnt!on!the!nature,!roles!and!importance!of!strategic!planning,!
create!your!personal!definition!of!strategic!planning!and!provide!examples!of!why!strategic!
planning!should!be!an!essential!element!of!all!businesses.!

Record!your!response!in!your!course!journal.!

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SUMMARY)
In!this!topic!we!examined!definitions!of!strategic!planning!that!highlighted!some!differences!
in!perspectives!e.g.!goal!orientation!and!resource!orientation.!!The!possible!military!origins!
of!strategy!and!its!evolution!from!the!relatively!stable!1950’s!business!environment!to!the!
current!turbulent!times!have!been!explained.!!We!have!also!analyzed!the!importance!of!
employing!a!strategic!planning!process!for!the!business!as!well!as!its!nature!and!roles.!!Next!
we!will!examine!some!models!of!strategic!planning.!!!

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TOPIC)1.2)–)STRATEGIC)PLANNING)LEVELS)AND)MODELS)
INTRODUCTION)
In!the!previous!topic,!we!introduced!the!concept!of!planning!and!strategic!planning,!their!
nature,!importance!and!roles!in!relation!to!the!business!environment.!!Now,!we!want!to!
distinguish!between!the!different!hierarchical!levels!of!planning,!namely!corporate!level,!
business!level!and!functional!level.!!In!addition!we!will!examine!the!concepts!of!business!
model,!business!plan!and!strategic!planning.!!We!shall!then!explain!the!characteristics!of!
strategic!decisions,!i.e.!what!makes!a!decision!strategic,!namely:!scope,!environment,!
resources,!operational!issues!and!power!issues.!Two!models!of!the!strategic!management!
process!will!be!introduced!to!demonstrate!differences!in!approach!based!on!the!influences!
of!strategic!decisions.!!!

OBJECTIVES)
Upon!completion!of!this!topic!you!will!be!able!to:!

1. Differentiate!between!corporate!level,!business!level!and!functional!level!strategies.!
2. Distinguish!between!the!concepts!of!Business!Model,!Strategic!Plan!and!Business!Plan.!
3. Describe!the!characteristics!of!strategic!decisions.!
4. Compare!and!contrast!two!basic!models!of!the!strategic!planning!process.!

CONTENT)
• Strategic!Planning!Levels.!
• Business!Models.!
• Strategic!Plans!and!Business!Plans.!
• Strategic!Planning!Decision!Making!Process.!
• Strategic!Management!Process!Models.!

)STRATEGIC)PLANNING)LEVELS )
The!ultimate!goal!of!strategy!is!to!ensure!that!the!company!survives!and!prospers!on!the!
market.!!In!order!to!do!so,!the!company!must!invest!and!earn!a!return!that!exceeds!the!cost!
of!production.!!In!a!services,!retail!or!not!for!profit!environment!the!aim!is!to!support!
growth!and!ensure!financial!success!and!customer!satisfaction.!!All!this!is!embodied!in!the!
strategic!plan!which!declines!itself!in!three!steps,!namely:!a!declaration!of!the!
organization’s!overriding!purpose,!strategy!formulation!and!strategy!implementation.!

) )

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Figure:)Types)of)Planning)

Corporate! Business! Funcxonal!

Plan! Plan! Dept!Plan!
Mission!and!
MulxKYear! Division! Department!
Goal)Sedng) Annual!Goals! Goals!
Goals!

Strategic) Corporate! Business! Department!

Formulaeon) Strategies! Strategies! Strategies!

Strategic) Corporate! Business!Unit! Department!

Implmentaeon) Controls! Controls! Controls!

Source:!Adapted!from!Jones.!G.!R!&!Jones.!J.!M,!2003!

The!above!steps!reflect!three!levels!of!planning!in!an!organization.!!These!are!the!corporate!
level,!the!business!level!and!the!functional!level.!!Typically,!at!the!corporate!level,!we!have!
the!CEO,!top!managers!and!any!corporate!support!staff.!!As!a!business!matures!there!may!
be!different!divisions!are!represented!by!the!divisional!managers,!e.g.!for!an!IT!company,!
these!may!be!Hardware!Division,!Software!Division,!After!Sales!Division!and!Business!
Consulting!Division.!!At!the!functional!level,!the!functional!manager,!e.g.!may!be!the!
Marketing!Manager!and!Sales!Supervisors.!

CORPORATE)LEVEL)STRATEGY)
The!corporate!level!plan!indicates!senior!management’s!decisions!pertaining!to!the!
company’s!overall!mission!and!goals,!corporate!level!strategy!and!structure.!!Corporate!
level!strategy!in!turn!defines!the!scope!of!the!company!in!terms!of!the!industries!and!
markets!in!which!it!intends!to!compete.!

For!example,!in!an!IT!company,!one!of!the!goals!in!its!strategic!plan!could!be!that!they!hold!
the!first!place!in!terms!of!market!share!for!each!division!they!have.!!Then!if!the!software!
division!cannot!achieve!this!position,!it!may!be!sold.!!Or!steps!may!be!taken!by!top!
management!to!acquire!another!company!so!as!to!increase!market!share.!!Therefore,!
corporate!strategies!can!include!diversification!decisions,!acquisitions/!divestments,!
implementation!of!new!ventures!or!reallocation!of!resources!between!business!units.!!!! !

! )

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BUSINESS)LEVEL)STRATEGY)
A!business!level!plan!details!the!long!term!goals!to!be!adopted!that!allow!the!business!unit!
(division)!to!achieve!corporate!goals.!!It!also!details!the!division’s!business!level!strategy!
and!structure.!!!In!other!words,!corporate!strategy!answers!the!question!“which!businesses!
should!we!be!in?!!While!Business!level!strategy!answers!the!question!“on!what!basis!should!
we!compete?”!

Business!level!strategy!therefore!details!the!methods!used!by!the!business!unit!to!compete!
against!industry!rivals.!!One!strategy!used!in!an!IT!Company’s!Hardware!Production!Division!
could!be!to!reduce!costs!of!manufacturing,!both!at!input!and!process!level!so!as!to!lower!
sales!prices!and!gain!more!market!share.!

For!this!competition!related!reason,!business!level!strategies!are!often!referred!to!as!
competitive!advantage.!!!!!!

FUNCTIONALNLEVEL)STRATEGIES)
The!functional!level!plan!normally!states!the!goals!that!the!department!has!to!pursue!in!
order!to!achieve!the!business!level!goals!which!in!turn!enable!the!corporate!level!goals.!

!The!functional!level!strategy!details!the!actions!that!managers!have!to!take!at!
departmental!level!e.g.!Marketing,!Human!Resource,!Finance,!Manufacturing!etc.!

For!example,!in!our!IT!Company,!the!Hardware!Division’s!manufacturing!department!might!
adopt!a!goal!“to!reduce!production!costs!by!30%!over!one!year.!!To!achieve!this!goal,!the!
functional!level!strategies!could!be!to:!

1. Mechanise!part!of!the!production!process.!
2. Develop!a!business!to!business!network!with!a!supplier!to!reduce!purchase!and!
inventory!costs!in!a!JustKinKTime!supply!mechanism.!

Activity:!Consider!how!a!JustKinKTime!partnership!can!reduce!costs!of!production.!!

Record!your!response!in!your!course!journal.!

!
WHAT)IS)A)BUSINESS)MODEL,)STRATEGIC)PLAN)AND)BUSINESS)PLAN?)
!
Business)Model)

A!business!model!is!the!concept!behind!a!business!in!terms!of!its!underlying!economic!logic:!
what!is!the!basis!on!which!profit!is!made.!!This!is!dependent!upon!the!ability!of!the!business!
to!create!value!for!its!customers!(that!exceeds!the!costs!entailed!in!providing!the!goods!or!
service)!e.g.!new!products,!new!services!or!new!ways!of!producing!and!delivering!existing!
goods.!

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Basically,!the!business!model!refers!to!the!underlying!business!concept!and!its!economic!
logic.!

Tests!for!the!viability!of!a!Business!Model:!

1. Does!the!idea!make!sense?!!i.e.!is!anyone!willing!to!pay!for!it?!
2. Can!the!business!cover!its!costs!and!yield!a!viable!return!on!capital?!

Activity:!Find!an!example!of!a!business!that!failed!based!on!a!faulty!business!model.!

Record!your!response!in!your!course!journal.!

!
Strategic)Plan)

While!business!models!are!concerned!with!describing!the!business!concept,!they!do!not!
normally!consider!the!competition,!the!environment,!potential!risk!and!strategies!to!
implement!the!business!model.!!Many!companies!may!have!similar!business!models,!but!!
only!those!will!succeed!if!they!employ!unique!strategies!in!order!to!create!a!competitive!
advantage!e.g.!a!customer!focus!or!sustainably!lower!costs!of!production.!

A!strategic!plan!is!concerned!with!medium!to!long!term!goal!setting,!analyzing!the!business!
environment!to!identify!strategies,!choose!strategies!based!on!a!strategic!analysis!and!the!
resources!and!capabilities!needed!to!implement!same!and!monitor!according!to!set!
objectives.!!

Business)Plan)

A!business!plan!is!a!document!that!describes!the!requirements!to!implement!a!business!
venture!in!accordance!with!the!strategic!plan.!!The!main!issues!dealt!with!in!a!business!plan!
can!be!generalized!as!those!needed!to!embrace!the!business!model!(how!the!company!
creates!value),!marketing,!operations!and!finances.!!!!

According!to!Schaper!&!Volery!(2004:144)!“the!Business!Plan!is!an!organising!tool!that!helps!
structure,!communicate!and!sell!an!entrepreneur!or!small!business!owner’s!idea!and!
convert!it!to!reality”.!!A!business!plan!provides!a!clear!statement!of!direction!and!purpose!
and!a!set!of!clearly!defined!goals!for!management!and!employees!as!they!implement!the!
plan.!

! !

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Activity:!!Based!on!the!brief!descriptions!of!a!business!model,!strategic!plan!and!
business!plan,!consider!if!a!business!plan!could!include!both!the!business!model!and!
the!business!strategy!for!a!new!company.!!What!do!believe!are!the!advantages!and!
disadvantages!of!combining!the!three!plans!into!one?!

Record!your!response!in!your!course!journal.!

)
CHARACTERISTICS)OF)STRATEGIC)DECISIONS)
Strategic!decisions!(or!strategies)!share!a!number!of!common!characteristics!which!are!
explained!below!through!examples:!

Strategic!decisions!are!concerned!with!the!scope!of!an!organization’s!activities.!

Examples!of!scope:!A!business!involved!in!detergents!may!manufacture!
soap!in!bars,!kitchen!liquid!soap,!hand!wash!powdered!soap!,machine!
wash!powdered!soap,!hand!sanitizer!gel!etc.!!This!company!may!have!a!
narrow!or!a!broad!scope!manufacturing!one!or!more!products.!

Has!to!do!with!the!matching!of!the!activities!of!an!organization!to!its!(changing)!
environment.!

Examples!of!environmental!conditions:!The!environment!of!a!business!
is!conveniently!classified!as!the!internal!and!external!environments.!!In!
this!classification,!internal!refers!to!the!internal!operation!of!a!
company,!like!management,!employees,!culture!etc.!while!external!
forces!that!impact!the!potential!success!of!a!company!refers!to!
political!(government!policy),!economic,!social,!competition!and!
technological!change!and!!other!factors!that!are!not!directly!controlled!
by!the!company.!

Internal!and!external!conditions!are!constantly!changing,!thus!a!company!needs!to!create!
flexible!plans!and!be!willing!to!react!appropriately!to!the!changes.!

Organizations!have!to!match!opportunities!with!their!resource!capabilities.!

Examples!of!resources:!Resources!may!be!more!or!less!tangible,!
including!finance,!infrastructure,!materials,!technology,!human!
resource!and!patents/copyrights.!

Strategies!created!during!the!strategic!planning!process!will!likely!to!affect!operational!
decisions.!

Examples!of!operational!decisions:!These!include!a!range!of!decisions!
at!functional!levels!e.g.!!Finance,!Marketing,!HRM,!Manufacturing!etc.!

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Strategies!created!by!an!organization!will!be!affected!by!values!and!expectations!of!those!in!
power!!

Who!are!those!in!power?!!The!answer!to!this!question!is!tricky.!!In!general!we!may!think!
that!the!Board!of!Directors!or!the!CEO!is!in!power.!!Then!the!values!and!expectations!of!
those!in!power!may!influence!decisions.!!However,!the!power!structure!may!vary!according!
to!relative!influence!of!stakeholders!e.g.!Trade!Unions,!Environment!Protection!Agencies,!
Consumer!Associations!etc.!!In!most!companies!there!is!also!an!informal!power!structure!to!
consider,!where!some!employees!are!better!able!to!influence!their!peers!and!their!
managers.!

Strategic!decisions!will!affect!the!long!term!direction!of!an!organization!

Why?!

Activity:!Based!on!your!learning!in!Topic!1.1,!discuss!how’!long’!is!long!term!in!terms!
of!goals!and!strategies!for!a!company!in!a!turbulent!business!environment!to!try!
and!plan.!

Record!your!response!in!your!course!journal.!

!!!!!!!!!!!!!!))
This!brings!us!to!a!comprehensive!definition!of!strategy:!!

“Strategy!is!the!direction!and!scope!of!an!organization!over!the!long!term:!ideally,!
which!matches!its!resources!to!its!changing!environment!and!in!particular!its!
markets!customers!or!clients!so!as!to!meet!stakeholder!expectations.!!

(Johnson.!G!&!Scholes.!K).!

STRATEGIC)MANAGEMENT)PROCESS)MODELS)
Authors!have!proposed!a!number!of!different!strategic!management!models.!!Three!
examples!will!be!described!and!compared,!the!third!model,!however!will!be!described!in!
more!detail!since!it!appears!more!comprehensive.!

A)Basic)Model)
The!strategic!management!process!according!to!Scholes!and!Johnson!consists!of!three!main!
elements.)

• Strategic!analysis!–!seeking!to!understand!the!strategic!positioning!of!the!business!
• Strategic!choice!–!evaluation!of!possible!courses!of!action!and!choice!
• Strategic!implementation!–!planning!to!put!the!strategy!into!practice!and!change!
management.!

) )

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Figure:!!Elements)Of)Strategic)Management!

•!Environment!
Strategic! •!Cultural!expectaxons!
•!Stakeholder!expectaxons!
Analysis! •!Resources!
•!Strategic!capability!

Strategic! •!Strategic!opxons!
•!Evaluaxng!opxons!
Choice! •!Selecxng!strategies!

•!Planning!resources!
Strategic! •!Allocaxng!resources!
Implmentaxon! •structure!
!Design!of!organizaxonal!

Source:!Scholes.!K!&!Johnson.!G!

!The!graphics!clearly!show!that!the!three!processes!are!a!continuous!one,!with!the!double!
arrows!indicating!that!feedback!permeates!the!whole!model.!However,!conceptually,!it!is!
not!clearly!indicated!where!the!process!begins!when!looking!at!the!diagram!alone.!!
Obviously,!strategic!analysis!is!the!start,!although!the!process!goes!on!continuously!
afterwards,!for!example,!based!on!changes!in!the!business!environment!or!based!on!
deviations!from!objectives!as!discovered!through!continuous!monitoring!after!
implementation!stage.!

It!should!be!pointed!out!that!this!strategy!control!stage!is!not!explicit!in!the!above!model,!
although!it!is!implicit!in!the!feedback!loop.))

! )

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MODEL)OF)THE)STRATEGIC)MANAGEMENT)PROCESS))

Source:!Hill!and!Jones!(1995)! ! ! ! ! ! ! !

Activity:!Consider!the!two!models.!!Who!would!be!the!stakeholders!in!these!models!and!at!
what!stage!would!they!be!interested!or!impacted!by!the!models?!

Record!your!response!in!your!course!journal.!

SelfNAssessment)Exercise)

With!reference!to!an!organization!you!are!familiar!with!describe!who!should!devise!goals!
and!strategies!at!each!level!and!describe!a!number!of!goals!and!strategies!that!could!be!
adopted!at!each!level,!starting!with!an!overall!corporate!goal.!!!

Record!your!response!in!your!course!journal.!

! )

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SUMMARY)
The!different!levels!of!strategic!planning!have!been!described,!namely,!corporate,!business!!
and!functional!level.!!A!comparison!of!the!concepts!of!business!model,!strategic!plan!and!
business!plan!has!been!made!to!enable!the!student!to!distinguish!between!these!similar!
but!not!identical!concepts.!!Finally!we!have!introduced!two!basic!models!of!strategic!
planning.!

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TOPIC)1.3)–)A)STEPWISE)APPROACH)TO)STRATEGIC)MANAGEMENT)
INTRODUCTION)
In!the!previous!topic,!we!introduced!two!models!of!strategic!planning!in!the!form!of!
processes.!!The!models,!though!similar,!were!not!identical.!!The!second!model!(Hill&!Jones)!
gave!consideration!to!the!role!of!power,!internal!politics!and!conflict!in!strategic!decision!
making.!!It!also!stressed!the!importance!of!adapting!an!organization’s!structure!to!strategy.!
The!nine!step!systematic!process!provides!a!comprehensive!and!methodical!development!
of!strategic!management!planning.!!The!model!takes!into!consideration!the!business!
environment,!the!internal!environment!as!conferring!sources!of!competitive!advantage!and!
the!external!environment!as!presenting!opportunities!and!threats!to!the!business.!!The!
practical!aspect!of!a!SWOT!analysis!will!be!explained!in!the!next!Unit.!!

OBJECTIVES)
Upon!completion!of!this!topic!you!will!be!able!to:!

1. Analyze!the!steps!in!the!strategic!management!process!according!to!Scarborough!et!
al.!
2. Understand!the!rationale!behind!a!stepwise!approach!and!the!order!of!steps.!
3. Grasp!the!importance!of!strategy!control!in!an!iterative!approach!to!strategic!
management.!

CONTENT)
• A!Comprehensive!Model!
• The!Strategic!Management!Process!

A)COMPREHENSIVE)MODEL)
(adapted!from!Scarborough.!M!et!al.))

One!of!the!most!important!tasks!an!entrepreneurial!manager!and!his/her!team!must!
perform!is!to!look!ahead!and!then!devise!achievable!strategies!for!meeting!the!challenges!
and!opportunities!facing!the!company.!!Strategic!management,!the!proposed!way!to!
accomplish!this!vital!task,!is!an!iterative!process!that!consists!of!nine!steps;!the!last!step!not!
being!an!end!in!itself,!but!a!continuous!process!of!feedback!and!action.!!The!stepwise!
approach!according!to!Scarborough!et!al!declines!as!follows:!

Step!1. Develop!a!clear!vision!and!translate!it!into!a!meaningful!mission!statement.!
Step!2. Assess!the!company’s!strengths!and!weaknesses.!
Step!3. Scan!the!environment!for!significant!opportunities!and!threats!facing!the!!!!!!
!!!!!!business.!
Step!4. Identify!the!key!factors!for!success!in!the!business.!
Step!5. Analyze!the!competition.!
Step!6. Create!company!goals!and!objectives.!

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Step!7. Formulate!strategic!options!and!select!the!appropriate!strategies.!
Step!8. Translate!strategic!plans!into!action!plans.!
Step!9. Establish!accurate!controls.!

(Adapted!from!Scarborough.!M!et!al.))

THE)STRATEGIC)MANAGEMENT)PROCESS)
Let’s!explore!the!nine!steps!described!above.!!The!following!is!a!modified!version!of!the!
strategic!management!model!proposed!by!Scarborough!et!al.!

Step)1:))Develop)a)Clear)Vision)and)Translate)It)into)a)Meaningful)Mission)Statement)

The!creation!of!a!vision!should!involve!everyone!associated!with!the!company,!including!
employees,!investors,!lenders,!customers,!and!community!members!impacted!by!the!
company.!

Management!decisions!must!be!aligned!with!the!corporate!compass.!!One!part!of!the!
compass!is!the!vision.!!It!is!like!the!North!Star!of!the!organization.!

Vision)statement!.A!vision!statement!addresses!the!following!questions:!

1. “What!do!we!stand!for?”!and!!
2. “What!do!we!want!to!become!in!future?”!

Some!examples!of!corporate!vision!statements!are:!

AnheuserNBusch))

Be!the!world's!beer!company.!Through!all!of!our!products,!services!and!relationships,!we!
will!add!to!life's!enjoyment.!!

Chevron))

At!the!heart!of!The!Chevron!Way!is!our!vision!…to!be!the!global!energy!company!most!
admired!for!its!people,!partnership!and!performance.!

Kraft)Foods))

Our!Vision...Helping!People!Around!the!World!Eat!and!Live!Better.!

Nike)

To be the number one athletic company in the world!

Mission)Statement:!!A!mission!statement!basically!addresses!the!first!question!for!any!
business!venture:!

1. “What!business!am!I!in?”!!

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2. What!type!of!products!and/or!services!do!I!provide?!
3. Who!are!my!customers?!

Some!examples!of!corporate!mission!statements!are:!

Barnes)&)Noble)Inc.)

Our!mission!is!to!operate!the!best!specialty!retail!business!in!America,!regardless!of!the!
product!we!sell.!Because!the!product!we!sell!is!books,!our!aspirations!must!be!consistent!
with!the!promise!and!the!ideals!of!the!volumes!which!line!our!shelves.!To!say!that!our!
mission!exists!independent!of!the!product!we!sell!is!to!demean!the!importance!and!the!
distinction!of!being!booksellers.!As!booksellers!we!are!determined!to!be!the!very!best!in!
our!business,!regardless!of!the!size,!pedigree!or!inclinations!of!our!competitors.!We!will!
continue!to!bring!our!industry!nuances!of!style!and!approaches!to!bookselling!which!are!
consistent!with!our!evolving!aspirations.!Above!all,!we!expect!to!be!a!credit!to!the!
communities!we!serve,!a!valuable!resource!to!our!customers,!and!a!place!where!our!
dedicated!booksellers!can!grow!and!prosper.!Toward!this!end!we!will!not!only!listen!to!our!
customers!and!booksellers!but!embrace!the!idea!that!the!Company!is!at!their!service.!

Citigroup)

Our!goal!for!Citigroup!is!to!be!the!most!respected!global!financial!services!company.!Like!
any!other!public!company,!we're!obligated!to!deliver!profits!and!growth!to!our!
shareholders.!Of!equal!importance!is!to!deliver!those!profits!and!generate!growth!
responsibly.)

Computer)Sciences)Corporation)

CSC's!mission!is!to!use!our!extensive!IT!experience!to!deliver!tangible!business!results!
enabling!our!clients!in!industry!and!government!to!profit!from!the!advanced!use!of!
technology.!We!strive!to!build!longKterm!client!relationships!based!on!mutual!trust!and!
respect.)

The!vision!and!mission!statements!help!to!create!a!strong!emotional!bond!between!an!
organization!and!its!major!stakeholders,!especially!its!employees!and!its!customers.!Vision!
and!Mission!will!be!dealt!with!in!detail!in!Unit!3.!

A!company!may!have!a!powerful!competitive!advantage,!but!it!!can!be!wasted!unless:!

• Management!has!communicated!the!vision!and!mission!to!workers,!who,!in!turn,!
are!working!relentlessly!towards!communicating!it!to!customers!(and!potential!
ones);!and!
• Customers!are!recommending!the!company’s!products/services!to!their!peers!
based!on!their!positive!experiences!of!the!benefits!they!are!getting!from!the!
company!that!they!could!not!get!from!competitors.!

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!Communication!is!therefore!the!real!power!of!a!mission!statement.!

Step)2:))Assess)the)Company’s)Strengths)and)Weaknesses)

In!order!to!compete!successfully!on!the!marketplace,!a!business!has!to!create!competitive!
strategies!that!are!built!on!and!effectively!exploit!its!strengths!and!overcomes!or!else!
develops!ways!and!means!to!compensate!for!its!weaknesses.!

Strengths!are!those!positive!internal!factors!that!enable!the!accomplishment!of!a!
company’s!mission,!goals!and!objectives.!!!Weaknesses!are!those!negative!internal!factors!
that!constrain!or!at!worse!inhibit!the!accomplishment!of!its!mission,!goals!and!objectives.!

Internal!factors!refer!to!the!internal!environment!of!the!business,!relating!both!to!the!
organization!itself!(management!talents,!employees’!competences,!culture!etc.)!and!to!the!
industry!environment!(customers,!suppliers,!competitors!etc.)!

An!organization’s!strengths!normally!originate!from!its!core!competencies.!They!are!
essential!to!maintain!it’s!competitive!edge!in!each!of!the!market!segments!in!which!it!is!
positioned.!

In!order!to!provide!managers!with!a!realistic!perspective!of!the!business,!an!effective!
technique!is!to!measure!a!strategic!inventory!is!by!preparing!a!balance!sheet!of!the!
company’s!strengths!and!weaknesses.!!This!balance!sheet!will!support!the!analysis!of!all!key!
performance!areas!of!the!business!–!human!resource!management,!financial!management,!
production,!the!marketing!function,!new!product!development,!organization!structure!etc.!!
This!strategic!analysis!should!give!entrepreneurs/!managers!a!more!realistic!perspective!
about!the!potential!of!their!business.!

Step)3:))Scan)the)Environment)for)Significant)Opportunities)and)Threats)Facing)the)
Business)

As!part!of!the!strategic!analysis!process!you!need!to!consider!the!business!from!an!internal!
and!external!perspective.!!To!do!this!you!must!first!consider!the!environment!that!the!
business!operates!in!and!the!opportunities!that!exist.!!!

Opportunities!are!those!positive!external!options!that!the!company!could!exploit!to!
accomplish!its!goals.!When!searching!for!opportunities,!entrepreneurs!must!pay!close!
attention!to!potential!markets:!

1. Are!current!competitors!overlooking!a!niche!in!the!market?!!
2. Is!there!a!better!way!to!reach!customers!that!has!not!been!exploited!yet?!!
3. Are!customers!requesting!new!products!or!product/service!mix!variations?!

But!not!only!does!a!business!explore!the!external!opportunities!that!it!can!pursue!it!must!
also!consider!the!external!threats!that!may!cause!the!business!to!fail.!!!

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Threats!are!those!negative!external!forces!that!constrain!or!inhibit!the!company’s!ability!to!
achieve!its!goals.!!Threats!to!the!business!can!take!a!variety!of!forms.!!New!competitors!
entering!the!local!market,!a!government!policy!in!favor!of!business,!an!economic!
boom/recession,!rising/falling!interest!rates,!technological!advances!making!a!company’s!
product/service!become!obsolete,!and!many!others.!

Activity:!Discuss!the!positioning!of!competitors!in!the!above!classification.!Can!
competitors!be!both!positive!and!negative!factors?!!Explain.!!

Record!your!response!in!your!course!journal.!

!
Step)4:))Identify)the)Key)Factors)for)Success)in)the)Business)

Key!success!factors!are!those!activities!within!the!company’s!environment!that!enable!it!to!
survive!and!prosper.!!In!order!to!survive!and!prosper!in!a!given!business!environment,!
companies!have!to!meet!two!basic!criteria.!First!it!must!supply!what!the!customer!wants!to!
buy.!!Second!it!must!surpass!its’!competition.!!Business!owners!must!identify!their!success!
factors!by!analyzing!the!potential!demand/need!for!their!products!and!services!and!
conducting!an!analysis!of!current!and!future!competition.!

One!author!has!made!an!analogy!between!entrepreneurs!striving!to!identify!and!
manipulate!key!success!factors!and!the!medieval!hunt!for!the!philosopher’s!stone!that!
would!transform!anything!it!touched!into!gold.!

These!factors!otherwise!allow!a!business!to!gain!a!competitive!advantage!in!its!market!
segment.!!Key!success!factors!may!be!more!or!less!tangible:!

• More!tangible!factors!include!cost!factors!such!as!manufacturing!cost!per!unit,!
distribution!cost!per!unit,!or!development!cost!per!unit.!!!
• Less!tangible!factors!include!product!quality,!customer!services!offered,!convenient!
store!locations!or!availability!of!customer!credit.!

Step)5:))Analyze)the)Competition)

Similar!to!the!military!strategies!mentioned!in!Topic!1.1,!the!primary!goal!of!a!business!
competitive!intelligence!program!should!encompass!the!following:!

• Avoidance:!Avoid!surprises!from!existing!competitors’!novel!strategies!and!tactics.!
• Farsightedness:!Identify!any!future!competitors.!
• Responsiveness:!Improve!reaction!time!to!counter!competitors’!moves.!
• Anticipation:!Try!and!predict!rivals’!next!strategic!move.!

) )

Strategic)Planning)) Page!|!34!!
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Competitor)Analysis!K!Competitors!may!be!conveniently!classified!as!Direct,!Significant!and!
Indirect:!

• Direct!competitors!offer!exactly!the!same!products!and!services!that!the!
organization!you!are!currently!offering.!!!
• Significant!competitors!offer!some!of!the!products!and!services!being!currently!
offered.!!!
• Indirect!competitors!may!offer!the!same!or!similar!products!or!services,!but!only!in!
a!small!number!of!geographical!areas,!their!target!customers!seldom!overlapping!
yours.!

A!competitive!analysis!enables!entrepreneurs!to!explore!their!current!competitors!by!
attempting!to!answer!the!following!questions:!

1. Who!are!the!major!(direct!and!significant)!competitors!and!where!are!they!located!
geographically?!

You!might!wish!to!consider!here!issues!of!relative!market!share!

2. What!distinctive!competencies!do!they!possess?!
!
You!need!to!identify!if!they!compete!on!cost,!quality,!innovation!or!customer!
responsiveness.!
!
3. Do!their!cost!structures!match!yours?!!

They!may!be!cost!leaders,!but!sacrifice!quality.!!You!have!to!otherwise!investigate!
what!gives!them!a!cost!advantage,!if!any.!

4. What!are!their!financial!resources?!
!
It!is!good!to!know!if!they!are!backed!by!considerable!financial!resources.!!This!
may!indicate!if!they!are!capable!of!sustaining!a!price!war.!
!
5. How!do!they!market!their!products/!services?!

Their!distribution!channel!may!be!short!(direct!selling)!or!they!may!have!recourse!to!
intermediaries.!!They!may!be!selling!onUline.!

6. What!do!their!customers!say!about!them?!!

For!example,!how!do!their!customers!describe!their!experience!of!products/!services,!
what!is!particular!about!their!way!of!doing!business,!and!what!are!the!distinctive!
additional!services!that!they!supply?!

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7. What!are!their!key!strategies?!!

Do!they!have!a!strategy!of!market!penetration!or!are!they!diversifying!in!new!
markets/new!products?!

8. What!are!their!current!strengths?!

You!need!to!find!creative!ways!as!to!how!your!company!can!surpass!their!strengths.!

9. What!are!their!main!weaknesses?!
!
You!need!to!opportunistically!find!out!how!your!company!can!capitalize!on!them.!
!
10. Are!new!competitors!entering!the!market?!
!
New!competitors!may!represent!a!threat!if!they!are!direct!competitors.!

COMPETITOR)INFORMATION)SEARCH) )
A!business!can!collect!a!great!deal!of!information!about!competitors!without!indulging!in!
costly!market!intelligence!research!e.g.!through!consultants.!!LowKcost!competitive!
intelligence!(CI)!methods!do!exist!and!can!be!relatively!cost!effective.!!The!following!simple!
methods!can!give!valuable!information:!

1. Read!industry!trade!publications!for!announcements!from!competitors.!
!
!You!may!acquire!useful!information!on!their!intentions!to!acquire!technology!about!
any!innovations.!
!
2. Ask!questions!to!customers!and!suppliers!on!what!they!hear!competitors!may!be!
doing.!
!
Suppliers!may!be!common!to!many!businesses!in!the!same!sector.!!They!are!a!
valuable!source!of!feedback,!as!are!customers.!
!
3. Review!competitor!web!sites.!
!
Often!web!sites!provide!considerable!information!about!products,!services,!
management,!processes,!etc.!
!
4. Visit!competitor!sites.!
!
If!you!competitor!is!providing!retail!services!and!products!a!visit!to!their!store!or!site!
can!provide!insight!into!what!they!are!doing!to!attract!customers.!

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5. Review!competitor!reports.!
!
Otherwise,!annual!reports!of!publically!traded!companies!provide!considerable!
information!about!their!budgets,!current!and!future!plans.!

6. Talk!to!your!employees,!especially!sales!representatives!and!purchasing!agents!
about!what!they!know!about!your!company.!
!
Your!people!in!sales!and!procurement!are!in!direct!contact!with!industry!
information!and!should!consciously!elicit!market!intelligence!feedback.!
!
7. Attend!trade!shows!and!collect!competitors’!sales!literature.!

Apart!from!annual!reports,!fairs!and!trade!shows!give!a!one!stop!shop!opportunity!
to!collect!trade!information!on!competitors!at!one!location.!!Systematic!collection!of!
brochures!and!requests!for!information!can!answer!many!of!the!questions!raised!
above!under!‘competitor!analysis’.!

8. Watch!for!employment!ads!from!competitors;!knowing!what!types!of!workers!they!
are!hiring!can!tell!you!a!great!deal!about!their!future!plans.!

!A!vacancy!notice!for!a!Systems!Analyst!might!indicate!that!they!are!computerizing!
their!operations!

9. If!appropriate,!buy!the!competitors’!products/services!and!assess!their!quality!and!
features!

At!one!extreme,!you!may!wish!to!disassemble!products!or!write!the!flow!diagram!of!
their!services!to!identify!their!key!product/service!attributes!

Step)6:))Create)Company)Goals)and)Objectives)

Business!goals!and!objectives!create!a!state!of!mind!in!a!company!that!drives/motivates!
individuals!or!teams!to!do!what!they!do.!!They!define!targets!to!aim!for!and!normally!
integrate!a!feedback!mechanism!for!evaluating!the!company’s!performance.!!Goals!and!
objectives!are!the!desired!outcomes!of!the!business!that!the!organization!must!work!
towards!achieving.!

For!example,!customer!satisfaction!is!a!goal,!but!satisfying!customers!and!keeping!them!
satisfied!is!a!continuous!process!that!can!be!evaluated!by!the!number!of!complaints!
received!over!a!period.!

In!order!to!measure/evaluate!performance!based!on!goals,!more!specific!targets!have!to!be!
proposed!that!are!measurable!quantitatively!on!a!time!scale.!!These!are!objectives.!

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Goals:!!Goals!can!be!defined!as!the!broad,!longKrange!business!targets!that!a!company!
seeks!to!achieve;!they!require!multiple!years!to!complete!and!take!considerable!time,!
resources!and!planning!to!fully!achieve.!

Objectives:!!Objectives!are!more!specific!performance!targets.!!Common!objectives!address!
resource!efficiency,!profitability,!employee!productivity,!business!growth,!!!employee!
welfare!and!corporate!social!responsibility.!!A!single!goal!consists!of!specific!objectives.!

WellKwritten!objectives!have!the!following!characteristics:!

• They!are!specific.!
• They!are!measurable.!
• They!are!achievable.!
• They!are!realistic,!yet!challenging.!
• They!are!timely.!
• They!are!written!down.!
• They!require!resources!and!planning!to!complete.!
• They!can!be!completed!in!less!than!a!(business)!year.!
• Multiple!objectives!must!be!completed!to!achieve!strategic!goals.!

Activity:))One!strategic!gaol!for!a!new!venture!could!be!to!achieve!50%!market!share!
by!the!end!of!the!second!year!of!operations.!!What!would!be!the!measurable!
objectives!to!complete!this!goal!over!the!two!year!period?!

Record!your!response!in!your!course!journal.!

!
Step)7:))Formulate)Strategic)Options)and)Select)the)Appropriate)Strategies)

Strategies!should!flow!from!the!vision!and!mission.!!When!building!strategic!goals!and!
objectives!companies!should!avoid!confronting!more!powerful!rivals,!choosing!instead!to!
be!the!dominant!player!in!a!new!or!more!specific!market!segments.!

After!analyzing!the!business!environment!to!identify!and!measure!Strengths,!Weaknesses,!
Opportunities!and!Threats,!the!management!team!should!complete!a!SWOT!analysis.!!A!
SWOT!analysis!lists!the!strengths,!weaknesses,!opportunities!and!threats!and!then!develops!
strategies!that!build!upon!the!strengths!and!opportunities!and!addresses!the!potential!risks!
and!issues!presented!by!the!weaknesses!and!threats.!!!

Three)Strategic)Options:!!In!his!classic!book,!Competitive!Strategy,!Michael!Porter!(1980)!
defines!these!strategies!commonly!known!as!Porter’s!Generic!Strategies:!

• Cost!leadership,!
• Differentiation,!and!
• Focus.!

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Cost)Leadership:!!A!company!pursuing!a!cost!leadership!strategy!strives!consistently!to!be!
the!lowestKcost!producer!in!the!industry.!!This!strategy!thrives!well!when!customers!are!
priceKsensitive!and!when!the!company!can!produce!and!sell!in!sufficiently!large!quantities!
to!benefit!from!economies!of!scale.!

Differentiation:!!A!company!pursuing!a!differentiation!strategy!strives!to!build!customer!
loyalty!by!positioning!its!goods!/!services!in!a!unique!fashion.!!The!primary!benefit!of!
successful!differentiation!is!the!ability!to!charge!a!premium!price!and!hence!generate!
higher!profit!margins!following!customers’!reduced!price!sensitivity!and!subsequent!brand!
loyalty.!

The!key!to!a!successful!differentiation!strategy!is!to!build!it!on!one!or!a!number!of!
distinctive!competencies!–!something!the!company!is!remarkably!good!at!doing!relative!to!
its!competitors.!!Common!bases!for!differentiation!may!include!the!following:!

• superior!customer!service,!!
• unique!product!features,!!
• complete!product!lines,!!
• a!customKtailored!product/service,!!
• instantaneous!spare!parts!availability,!and!!
• the!ability!to!create!and!manage!longKterm,!mutually!beneficial!relationships!with!
customers!(customer!relationship!management).!

Focus:!!A!focus!strategy!takes!advantage!on!the!fact!that!most!markets!are!not!
homogeneous.!!In!any!given!market,!there!exist!many!different!customer!segments,!each!
one!having!different!needs!and!wants!and!buyer!characteristics.!!The!principal!idea!behind!
this!strategy!is!to!select!one!(or!more)!segment(s);!identify!customers’!specific!needs!and!
wants!and!propose!them!an!offering!that!is!designed!to!excel!in!satisfying!these!needs,!
wants!and!interests.!

A!focus!strategy!specializes!in!serving!a!specific!market!segment!or!niche!that!larger!
companies!are!overlooking!or!underestimating!(or!simply!do!not!find!interesting!due!to!
limited!size!and!growth!prospects).!!

A!focus!strategy!is!ideally!suited!to!small!businesses,!which!at!the!beginning!lack!the!
resources!to!serve!a!national!market.!

Activity:!Identify!at!least!one!company!in!your!area/!country!that!employs!each!of!the!
three!strategic!options.!!Are!they!successful!and!if!so!why?!!!If!not,!what!must!they!do!
to!become!successful?!

Record!your!response!in!your!course!journal.!

!
Step)8:))Translate)Strategic)Plans)into)Action)Plans)

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 !
Implement)the)Strategy.!!To!actually!implement!a!strategic!plan,!businesses!will!be!
required!to!identify!the!following!information!for!each!strategy!that!has!been!included!in!
your!plan.!!This!information!will!eventually!result!in!the!development!of!a!comprehensive!
business!plan!to!guide!the!implementation!process.!

1. Purpose:!!What!is!the!strategy!specifically!designed!to!accomplish?!
2. Scope:!!Which!functional!areas!of!the!company!will!be!involved!in!implementing!the!
strategy?!
3. Contribution:!!How!does!the!strategy!relate!to!other!current!and!future!strategies!
and!to!the!overall!business!or!corporate!vision!and!mission?!
4. Resource!requirements:!!What!are!the!material,!human!and!financial!resources!
necessary!to!successfully!implement!the!strategy!as!per!set!objectives?!
5. Timing:!!According!to!which!schedules!and!deadlines!when!will!the!strategy!be!
brought!to!completion?!

When!operationalizing!strategic!plans,!companies!must!exploit!all!their!competitive!
advantage!by:!

• Responding!faster!than!competitors!to!customers’!changing!needs.!
• Remaining!flexible!and!prepared!to!change.!
• Continually!striving!to!identify!and!exploit!emerging!market!segments.!
• Consolidating!and!defending!market!niches.!
• Maintaining!an!entrepreneurial!mindset!and!willing!to!take!risks.!
• Constantly!innovating!on!product,!service,!product/service!mix!and!on!process.!

Activity:!Discuss!how!a!fast!food!business!can!innovate!on!the!above!dimensions.!

Record!your!response!in!your!course!journal.!

!
Step)9:))Establish)Accurate)Controls)

Planning!without!built!in!controls!and!measures!makes!little!strategic!sense.!!Strategies!
require!a!feedback!and!oversight!mechanism.!!Controlling!the!implementation!of!strategies!
and!remaining!focused!on!objectives,!the!budget!and!the!schedule!means!that!the!planners!
must!identify!and!monitor!key!performance!indicators.!

Accounting!records,!manufacturing!data,!sales!information,!inventory!status,!and!other!
operating!records!are!primary!sources!of!data/information!that!the!manager!can!use!for!
monitoring!and!controlling!activities.!!For!example,!on!a!production!line,!performance!
indicators!might!include!the!number!of!defects!per!run.!

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Strategic)Planning)) Page!|!40!!
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Feedback)

However,!the!strategic!planning!process!does!not!come!to!an!end!after!the!nine!steps!
outlined!above.!!It!is!an!ongoing!process!and!at!the!same!time!is!a!learning!process!for!the!
management!team.!With!each!round!of!feedback!and!action,!people!accumulate!
knowledge!and!gain!experience.!

The!strategic!management!creates!in!the!business!managers!a!degree!of!discipline!that!is!
crucial!to!their!company’s!survival.!!It!enables!them!to!continuously!learn!about!their!
business,!their!customers!and!their!competitors.!

One!major!assumption!made!above!all!through!the!strategic!management!process!was!that!
strategies!are!planned.!!However,!it!is!also!true!that!certain!strategies!may!emerge!
unexpectedly!and!the!system!should!normally!be!flexible!enough!to!attend!to!such!
occurrences!(which!may!be!opportunities).!

SelfNAssessment)Exercise)

Reflect!on!how!you!can!integrate!what!you!have!learned!from!the!first!two!models!
(described!in!the!previous!topic)!to!the!nine!step!model!described!above.!!How!do!these!
models!result!in!a!strategic!plan!using!the!nine!steps.!

Record!your!response!in!your!course!journal.!

SUMMARY)
In!this!topic,!we!have!presented!a!comprehensive!model!of!strategic!planning,!declined!in!
nine!major!steps.!!Starting!with!establishing!company!Vision,!Mission!and!Values,!we!have!
discussed!the!importance!of!environmental!analysis.!!We!have!then!shown!how!strategies!
are!chosen!and!then!implemented.!!Finally,!emphasis!was!laid!on!the!importance!of!
strategy!evaluation!as!a!feedback!approach!in!a!continuous!process.!!

) )

Strategic)Planning)) Page!|!41!!
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UNIT)ONE)–)SUMMARY)
SUMMARY)
This!unit!introduced!you!to!the!concepts!underlying!strategic!planning!and!the!models!that!
entrepreneurs!can!use!to!craft!a!strategic!plan.!

NEXT)STEPS)
In!the!remaining!units!we!will!build!upon!these!concepts!and!demonstrate!how!to!create!
your!own!strategic!plan.!!You!should!also!review!some!of!the!recommended!readings!listed!
below.!

UNIT)REFERENCES)
SUPPLEMENTARY)READINGS)
If!you!wish!to!learn!more!about!the!topics!covered!in!this!unit,!you!should!review!one!or!
more!of!the!books!and!articles!listed!below.)

Ansoff,!I.!(1985).!“Corporate!Strategy”,!!London!Penguin.!

Brunsson,!N.!(1995).!!“Managing!Organisational!Disorder”!pp83K87!cited!in!M.!Warglien!
and!M.!Massino(Eds).!!The!Logic!of!!Organisational!Disorder,!Berlin!de!Gnyter.!

Clegg,!S.!Kornberger.!M!and!Pitsis.T!(2005).!“Managing!Organisations”,!SAGE.!

Covey,!S.!(1989)!cited!in!Grant!Robert,!“Contemporary!Strategy!Analysis”,!Blackwell,!
2005.!

Grant,!R.!M.!(2005).!!“Contemporary!Strategy!Analysis”,!Blackwell.!!

Hills,!C.!&!Jones,!G.)(1998).)“Strategic!Management!Theory”,!4th!Edition.!

Johnson,!G.!&!Scholes,!K.!(2005).!“Exploring!Corporate!Strategy”!Sixth!Edition.!!Pearson!
Edition.!

Jones,!G.!R,!Mc!Evans,!H.!&!George,!J.!M.!(2003).!“Contemporary!Management”.!

Mintzberg,!H.!&!Waters,!J.!(1985).)!“Of!strategies!Deliberate!and!Emergent”,!Strategic!
Management!School,!Vol.6,!257K272.!

Ohmae,!K.!(1983).!“The!mind!of!the!strategist”,!Penguin!Books.!

Peters,!T.!&!Waterman,!R.!()!“In!Search!of!Excellence”.!

Porter,!M.!(1983).!“Competitive!Strategy”,!Freepress.!

Schaper!&!Volery!(2004).!!

Strategic)Planning)) Page!|!42!!
!
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Weick,!K.!(1979).!“The!Social!Psychology!of!Organising”!2nd!Ed,!Reading,!MA:!
Addison.wesley.!

http://www.businessdictionary.com.!

BIBLIOGRAPHY)
Below!is!a!list!of!references!described!in!the!topics!presented!in!this!unit.!!You!may!wish!to!
review!them!to!learn!more!about!the!information!presented!in!the!topics.!

CIMA!Study!Text!(1998)!–!“Strategic!Management!Accountancy!and!Marketing”,!BPP!
Publishing.!

Thompson,!A.!et!al.!(2006).!“Crafting!and!Executing!Strategy”,14th!Edition,!Data!Mc!
Growhill.!

Pearce,!J.A.!&!Robinson,!R.!(2005).!“Strategic!Management”,!Ninth!Edition,!Mc!GrowKHill!
Companies.!

Fred,!D.!(2005).!“Strategic!Management,!Concepts!and!Cases”,!Tenth!Edition,!Eastern,!
Economy!Edition.!!

Glueck,)“Business!Policy!and!Strategy”.!

Craven!&!David!W.,!(2009).!“Strategic!Management”,!Mc!GrowKHill,!2009.!

Wilson,!R.M.,!“Strategic!Marketing!Management”,!2nd!Edition.!!Oxford!1997,!Boston!
Publication.!

Nelson,!J.,!(1998).The!Journal!of!Business!Strategy.!

Cummings!&!Wirley,!(1985).!“Organisation!Change”.!

Strategic)Planning)) Page!|!43!!
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UNIT)TWO)–)ENVIRONMENT)ANALYSIS))

UNIT)INTRODUCTION)
In!order!to!analyze!a!business!environment,!companies!need!to!perform!an!audit!of!their!
internal!strengths!and!weaknesses!and!external!opportunities!and!threats.!!Eventually,!the!
audit!will!culminate!in!the!completion!of!a!SWOT!analysis!and!the!creation!of!appropriate!
strategic!goals!and!objectives.!!Prahalad!&!Hamel!(1990)!analyzed!internal!strengths!and!
weaknesses!by!placing!emphasis!on!the!internal!competencies!possessed!by!a!company.!!
These!include!its!culture,!products!and!services!reputation,!distribution!network,!marketing!
skills,!status!of!R!&!D,!HR!talents!etc.!!Analysis!of!internal!factors!focuses!on!sources!of!
competitive!advantage!which!can!give!the!organization!a!unique!position!in!the!market.!

The!external!environment!can!be!divided!into!the!industry!environment!and!the!mega!
environment.!!The!industry!environment!was!described!by!Michael!Porter!(1980)!in!his!Five!
Forces!Model!which!measures!industry!attractiveness!with!reference!to!the!relative!power!
of!Buyers,!Suppliers,!Competitors,!New!Entrants!and!Threat!from!Substitutes.!!!

The!mega!environment,!on!the!other!hand!refers!to!the!trends!in!the!external!environment!
such!as!Political,!Economic,!Social!and!Technological!factors!giving!rise!to!opportunities!or!
threats.!!Some!authors!add!the!international!environment!to!the!above!PEST!approach.!!

We!will!explore!these!factors!as!we!complete!this!unit.!!

UNIT)OBJECTIVES)
Upon!completion!of!this!unit!you!will!be!able!to:!

1. Create!a!Vision!and!Mission!Statement.!
2. Describe!the!notion!of!competitive!advantage!based!on!its!characteristics.!
3. Distinguish!between!core!values,!core!purpose!and!visionary!goals.!
4. Analyze!the!importance!of!resources!and!capabilities!in!conferring!competitive!
advantage.!
5. Identify!strengths!and!weaknesses!arising!from!the!internal!environment.!
6. Apply!Porter’s!Five!Forces!Model!to!analyze!industry!attractiveness.!
7. Analyze!the!external!environment!using!the!PEST!model.!
8. Identify!opportunities!and!threats!from!the!external!environment.!

UNIT)READINGS)
As!you!complete!this!unit!you!are!required!to!read!the!following!chapters/articles:!

Collins,!J.C.!&!Porras,!J.I.!!(1996).!!Building!Your!Company’s!Vision.!!Harvard!Business!
Review,!SeptemberKOctober!1996.!!Available!at:!!http://air.rocketK
dev.com/img/site_specific/uploads/knowledge_items/53/Building_a_Vision.pdf!!

Strategic)Planning)) Page!|!44!!
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Entrepeneur.com.!!(2003).!!How!to!Write!Your!Mission!Statement.!!Web!Page.!!Available!
at:!!http://www.entrepreneur.com/article/65230.!

MyStrategicPlan.com.!!(n.d.).!!Internal!and!External!Analysis.!!Web!Page.!!Available!at:!!
http://mystrategicplan.com/resources/internalKandKexternalKanalysis/!!

ASSIGNMENTS)AND)ACTIVITIES)
There!are!selfKreflective!activities!included!throughout!the!unit!and!topics.!You!must!
consider!these!activities!and!record!your!response!in!your!course!journal.!!In!addition!you!
will!be!required!to!complete!a!unit!assignment!described!at!the!end!of!this!unit.!!!

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TOPIC)2.1)–VISION,)MISSION)AND)THE)COMPETITIVE)ADVANTAGE)
INTRODUCTION)
Stakeholders!and!potential!customers!learn!a!great!deal!about!a!company!by!reviewing!its!
vision!and!mission.!!A!vision!and!mission!statement!inform!the!readers!about!what!the!
company!currently!is,!what!it!seeks!to!accomplish!in!a!defined!period!of!time!and!whom!it!
seeks!to!serve!in!the!market.!!Vision,)taken!apart,!is!a!picture!of!what!the!company!
ultimately!wants!to!be!and!gives!shape!to!its!intended!future.!!The!vision!statement!points!
in!the!direction!of!where!it!would!like!to!be!in!the!coming!years.!!The!vision!is!an!emotive!
concept!in!that!helps!people!feel!with!passion!what!they!are!supposed!to!be!doing.!!!A!
vision!stretches!and!challenges!people!to!achieve!their!shared!dreams.!!Vision!statements!
provides!a!foundation!for!a!company’s!values!and!aspirations.!!It!is!intended!to!capture!the!
heart!and!mind!of!each!employee!and!other!stakeholders.!!A!company’s!vision!tends!to!last!
longer!while!its!mission!may!change!based!on!environmental!conditions.!!A!vision!
statement!tends!to!be!relatively!short!and!concise,!so!that!it!is!easily!remembered!and!
communicated.!!

!The!vision!is!in!effect!the!foundation!of!the!company’s!mission.!!A!mission)specifies!the!
scope!of!a!business!in!which!the!company!intends!to!compete!and!the!customers!
(segments)!it!intends!to!serve.!!The!probability!of!!devising!an!effective!mission!increases!if!
employees!at!all!levels!of!the!company!have!a!strong!sense!of!the!standards!and!values!that!
will!guide!their!behaviors!as!they!work!together!to!accomplish!its!vision.!!!As!with!the!vision!
the!CEO!and!other!topKlevel!managers!should!involve!a!larger!number!of!people!in!devising!
the!mission.!!

In!this!topic,!we!shall!explain!in!detail!the!concept!of!competitive!advantage!which!was!
introduced!earlier!and!expand!upon!our!understanding!of!a!corporate!vision!and!mission.!!
We!shall!identify!the!building!blocks!required!to!gain!the!competitive!advantage!and!discuss!
its!main!characteristics,!namely:!rarity,!nonKimitability!and!nonKsubstitutability.!

OBJECTIVES)
Upon!completion!of!this!topic!you!will!be!able!to:!

1. Define!the!concepts!of!Vision,!Mission!and!Values.!
2. Understand!how!Vision!and!Mission!Statements!are!devised.!
3. Critically!analyze!the!nature!and!usefulness!of!Vision!and!Mission.!
4. Explain!the!notions!of!core!values,!core!purpose!and!visionary!goals.!
5. Analyze!the!concept!of!competitive!advantage.!

CONTENT)
• Vision,!Mission!and!Values.!
• Mission!Statements.!
• Core!Values,!Core!Purpose!and!Visionary!Goals.!

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• Competitive!Advantage!of!NationsKPorter’s!Diamond.!

VISION,)MISSION)AND)VALUES)
The!strategic!direction!of!an!organization!is!embedded!in!its!vision,!mission!and!values.!!
These!statements!guide!the!completion!of!a!SWOT!analysis!and!the!creation!of!strategic!
goals!and!objectives!to!guide!the!implementation!of!the!vision,!mission!and!values.!

• Vision!is!a!shared!ideal!of!a!desired!future!state.!!!
• Mission!is!defined!as!the!fundamental!purpose!of!an!organization!or!an!enterprise!
i.e.!why!it!exists!and!what!it!does!to!achieve!its!Vision!(vision!can!therefore!be!an!
end!and!mission!a!means!to!that!end).!
• Values!are!beliefs!that!are!shared!among!the!stakeholders!of!an!organization,!
including!management,!employees!and!customers.!Along!with!company!norms!and!
beliefs,!values!drive!an!organization's!culture!and!provide!a!framework!within!
which!decisions!are!made.!!

THE)VISION)STATEMENT)
Vision!is!defined!by!Wikipedia!as!the!desired!or!intended!future!state!of!an!organization!or!
enterprise!in!terms!of!its!fundamental!objective!and/or!strategic!direction.!It!is!a!longKterm!
view!of!how!the!organization!would!like!the!world!in!which!it!operates!to!be.!!For!example,!
your!Ministry!of!Health!could!have!as!Vision:!“A!disease!free!population”.!!!As!a!leadership!
attribute,!vision!is!that!natural!quality!that!is!inspirational!and!charismatic.!!A!good!vision!
motivates!management!and!people.!!Visions!can!be!internally!focused,!e.g.!to!continuously!
innovate!or!it!can!be!extrinsic,!e.g.!to!consistently!beat!the!competition.!!

A!Vision!statement!communicates!what!the!organization!wants!to!be,!and!how!it!wants!the!
world!in!which!it!operates!to!be.!It!focuses!on!the!future.!It!acts!as!a!source!of!inspiration!
for!stakeholders,!especially!employees!to!motivate!them.!It!provides!clear!decisionKmaking!
criteria!based!on!company!core!values.!!

THE)MISSION)STATEMENT)
Organizations!sometimes!use!the!notions!of!Vision!and!Mission!interchangeably!and!
summarize!them!into!a!Mission!Statement.!!Others!begin!with!a!company!vision!and!
mission!and,!from!them,!formulate!goals!and!objectives.!

A!Mission!statement!communicates!the!fundamental!purpose!of!an!organization.!It!defines!
who!the!customer!is!and!the!critical!processes!to!serve!that!customer.!It!informs!people!of!
the!desired!level!of!performance!required!to!satisfy!customer!needs.!!

) )

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Company)Example)N)easyJet)Mission)Statement)

To!provide!our!customers!with!safe,!good!value,!pointUtoUpoint!air!services.!!To!
effect!and!to!offer!a!consistent!and!reliable!product!and!fares!to!leisure!and!
business!markets!on!a!range!of!European!routes.!!To!achieve!this,!we!will!
develop!our!people!and!establish!lasting!relationships!with!our!suppliers.!

Activity):)Analyze!easyJet’s!Mission!Statement!and!identify!elements!of!both!a!Vision!and!
Mission!statement!as!defined!above.!!How!does!the!Mission!of!easyKJet!support!its!
Vision?!!Could!you!write!two!separate!but!related!statements!for!the!vision!and!mission?!

Record!your!response!in!your!course!journal.!

!
A!Mission!Statement!normally!includes!reference!to!the!core!competencies,!values,!
product/service,!customer!groups!and!customer!benefits.!!A!generic!format!has!been!
proposed!by!Wickham,!2001.!

(The!company)!aims!to!use!its!(competitive!advantage)!to!achieve/maintain!
(aspirations)!in!providing!(product!scope)!which!offers!(benefits)!to!satisfy!the!
(needs)!of!(customer!scope).!!In!doing!this!the!company!will!at!all!times!strive!
to!uphold!(values).!

Activity:!Using!the!above!generic!format,!attempt!to!write!the!Mission!Statement!for!an!
organization!of!your!choice,!existing!or!fictitious,!as!you!would!view!it.!

Record!your!response!in!your!course!journal.!

!
It!is!not!sufficient!for!a!company!to!devise!just!a!vision!statement.!!It!is!the!role!of!leaders!to!
communicate!their!vision!for!the!business!to!management!and!employees!first!and!then!to!
all!stakeholders.!!When!they!sell!the!vision!to!their!people,!they!will!generate!a!gap!
between!existing!reality!and!the!envisioned!perspective!which!in!turn!results!in!a!“creative!
tension”!at!all!levels!of!the!organization.!!!

Birley.!S!&!Muzyka.!D!(2000)!refer!to!Colin!Marshall!of!British!Airways!who!never!lost!sight!
of!the!vision!and!never!got!dismayed!by!the!gap!between!where!he!wanted!the!company!to!
be!and!where!it!really!was.!

Successful!leaders!possess!a!clear!strategic!vision,!nurture!a!strong!passion!for!their!
company!and!have!an!intrinsic!ability!to!communicate!with!others.!!“They!have!many!of!the!
characteristics!of!transformational!leaders!–!that!is,!leaders!who!provide!change!and!
movement!in!an!organization!by!providing!vision!for!that!change”.!!Burns.!J!&!Bass.!B,!
(1990:59)!

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CHARACTERISTICS)OF)VISION)&)MISSION)STATEMENTS)
Vision!and!mission!statements!share!a!few!common!characteristics.!!When!completed!they!
are!published!in!official!documents!(annual!reports,!web!sites,!etc.)!and!displayed!in!
common!work!spaces!(reception!areas,!Chairman’s!office).!!Although!there!is!no!standard!
format,!they!may!share!the!following!characteristics.!

Brevity!K!They!are!normally!easy!to!understand!and!recall.!!The!briefer!they!are,!the!easier!
they!can!be!memorized!and!communicated.!

! Examples:!

Very!brief!Vision!statement!U!To!make!the!automobile!accessible!to!every!
American!(Ford!Motor!Company’s!vision!when!established!by!Henry!Ford)!

Less!brief!Mission!Statement!U!We!always!focus!on!the!activities!customers!
desire;!we!are!highly!motivated!and!strive!to!advance!our!technical!knowledge!
in!the!areas!of!material,!part!design!and!fabrication!technology!(LNP,!a!GE!
Plastics!Company)!

Flexibility!K!Mission!statements!should!remain!flexible!so!as!to!give!recognition!to!change,!
else!it!would!lose!touch!with!reality.!!Flexibility!also!means!that!there!is!a!willingness!to!
make!compromises,!even!if!this!means!that!certain!objectives!will!not!be!met!and/or!have!
to!be!changed.!!Flexibility!can!also!be!built!into!a!vision!statement.!

Activity:!!Study!the!vision!statement!of!Mc!Donald’s!(international!fast!food!outlets)!
below!and!determine!if!there!any!elements!of!flexibility!in!the!statement.!!Is!this!a!good!
vision!statement?!!Does!it!do!what!!vision!statement!is!supposed!to!do?!

Vision:!!Be!the!best!employer!for!our!people!in!each!community!around!the!world!and!
deliver!operational!excellence!to!our!customers!in!each!of!our!restaurants!(McDonald’s).!

Record!your!response!in!your!course!journal.!

!
Distinctiveness!–!Distinctiveness!helps!to!distinguish!your!company!from!other!companies.!!
For!example,!there!appears!to!be!little!innovation!in!designing!your!vision!statement!as!
wanting!to!be!the!best,!especially!if!your!rival!has!already!used!same.!Therefore!apart!from!
new!product/service!development,!innovation!may!start!at!the!Visionor!the!Mission!
statement.!

Example:!!!

Dan!Rosensweig,!chief!operating!officer!(COO)!for!Yahoo!,“With!a!clear!vision!
and!strong!leadership,!you!can!make!almost!anything!happen.”!

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In!general,!vision!statements!are!rather!brief!and!Mission!Statements!tend!to!provide!more!
detail!about!the!business!enterprise.!

CRITICISMS)OF)VISION)AND)MISSION)STATEMENTS)
A!number!of!criticisms!have!been!leveled!against!creating!corporate!Vision!and!Mission!
Statements.!!Some!of!the!criticism!is!described!below.!

Only)a)PR)Activity)

Some!would!argue!that!companies!create!vision!and!mission!statements!as!a!purely!public!
relations!exercise.!!In!so!doing!they!do!not!wish!to!benefit!from!the!far!reaching!positive!
consequences!mentioned!above.!!While!there!may!be!nothing!wrong!with!such!an!attitude,!
companies!have!everything!to!gain!by!broadening!their!scope!of!intentions!(and!
advantages)!when!devising!a!Mission!Statement.!

Companies!who!treat!this!as!a!PR!exercise!often!“outsource”!the!vision!and!mission!job!to!a!
management!consultant!who!will!draft!an!attractive!document!without!necessarily!having!
input!from!people!in!the!organization.!

Activity:!If!the!company!treated!these!statements!as!a!PR!activity!what!could!be!the!
eventual!consequences!on!customers!and!employees?!

Record!your!response!in!your!course!journal.!

!
Vacuous)

We!often!find!a!lack!of!innovation!and!research!in!mission!statements.!!These!statements!
can!be!mere!generalizations!of!the!type!“we!want!to!be!the!best”,!”highest!quality”,!”best!
value”!etc.,!while!consciously!!having!neither!the!resources!nor!the!capabilities!to!do!so.!

Ignored)in)Practice)

We!mentioned!earlier!that!a!vision!is!useless!if!it!is!not!communicated!to!stakeholders.!!It!
may!happen!that!those!responsible!of!formulating!and!implementing!the!strategy!fail!to!
integrate!the!required!passion!spelt!out!in!the!vision!in!their!work.!!One!of!the!reasons!
might!be!that!they!were!not!involved!in!devising!the!statement!and!therefore!do!not!feel!
committed.!!!

Rationalizing)

Instead!of!being!future!oriented,!the!emphasis!may!be!on!rationalizing!what!is!being!done!
already.!!There!is!therefore!no!element!of!achieving!the!full!potential,!of!stretching!the!
mind!and!muscle!towards!realizing!objectives.!!There!is!rather!an!attempt!to!describe!and!
justify!what!is!currently!being!done,!which!defeats!the!purpose!of!the!concept!of!vision!and!
mission.!

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VALUES,)PURPOSE)AND)GOALS)
Research!evidence!shows!that!“linking!strategy!to!the!broader!pursuit!of!social!and!moral!
purpose!may!facilitate!rather!than!impede!profit!performance!over!the!long!term”!Grant!
(2005:59).!!Adhering!to!values!may!even!be!consistent!with!the!pursuit!of!profit,!values!
being!principles!held!by!companies!that!they!deem!to!be!important!in!guiding!their!
professional!behavior.!

A!company’s!values!should!be!integrated!into!their!perception!of!its!identity,!i.e.!who!they!
are,!what!they!represent!in!the!community,!what!they!want!to!achieve!for!themselves,!how!
they!treat!their!workforce!and!for!their!stakeholders!and!how!they!want!to!achieve!it.!
These!values!may!at!times!appear!to!constrain!profitability,!but!may!also!transcend!it!in!the!
long!run!to!sustain!the!business.!!For!example,!providing!for!employee!development,!work!
life!balance,!support!to!the!community,!environment!protection!etc.!may!constrain!profit!at!
first.!!However,!in!the!long!run,!these!values!do!enhance!the!sustainability!of!the!business!in!
terms!of!corporate!image,!branding!and!workforce!productivity.!!Financial!performance!
coupled!with!social!and!environmental!performance!(the!so!–called!triple!bottom!line)!can!
make!more!business!sense!than!a!frantic!pursuit!of!profit!only.!

Company!Example:!

The!Royal!Dutch/Shell!describes!its!values!as!being!based!on!honesty,!integrity!and!
respect!for!people,!openness,!trust,!professionalism!etc.!

They!claim!that!while!upholding!such!values,!they!take!pride!in!what!they!do,!they!can!take!
clear!decisions!(because!based!on!principles),!their!staff!is!motivated!(through!respect!and!
trust).They!also!think!that!as!a!result,!society!will!measure!their!performance!beyond!the!
profit!perspective.!

According!to!Collins!and!Porras!(1996),!a!company!must!continually!adapt!to!its!competitive!
environment.!!However,!there!are!certain!core!ideals!that!remain!relatively!steady!and!
provide!guidance!in!the!process!of!strategic!decision!making.!!The!business!Vision!
expressed!in!the!Company!Mission!Statement!embodies!these!core!ideals.!

A!mission!statement!communicates!the!company’s!ideology!and!goals!to!stakeholders.!!It!
consists!of!three!components,!namely!its:!

• Core!values;!
• Core!purpose;!!and!
• Visionary!goals.!

!The!core!values!and!the!core!purpose!are!normally!subject!to!change!being!independent!of!
industry!structure!or!of!the!product!life!cycle.!!Core!values!can!also!be!listed!separately!to!
ensure!they!are!not!overlooked!when!reviewing!the!mission!statement.!

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Core)Values!

Usually!the!core!values!are!a!few!values!that!are!deeply!held!by!a!company!and!can!
embraced!even!when!it!expands!into!other!markets.!!!Some!core!values!that!companies!
may!adapt!are!superior!customer!service,!quality,!innovation,!social!responsibility!and!
environmental!responsibility.!

Activity:!!What!can!companies!do!if!their!core!values!are!no!more!appreciated!on!
the!market?!!For!example,!if!their!customers!think!that!continuously!improved!
Quality!carries!a!price!they!are!not!willing!to!pay?!

Record!your!response!in!your!course!journal.!

!
Core)Purpose)

This!represents!the!reason!why!the!company!exists.!!It!differentiates!the!company!from!the!
competition!and!dictates!the!direction!the!company!should!take.!!The!core!purpose!is!
relatively!unchanging!and!may!last!for!decades.!

The!core!purpose!is!normally!imbedded!in!a!mission!Statement.!!While!companies!do!exist!
to!earn!a!profit,!the!profit!motive!is!not!explicitly!in!the!mission!statement!as!a!core!
purpose.!!How!the!company!will!actually!earn!its!profit!implicitly!includes!the!profit!motive.!

The!core!purpose!and!values!are!what!the!management!and!people!of!the!company!
actually!are.!!It!portrays!the!company!as!it!really!is.!!It!is!discovered!as!it!exists!and!not!
selected!to!come!into!existence.!!

Visionary)Goals)

Visionary!goals!on!the!other!hand!are!selected!and!represent!a!milestone!that!the!company!
plans!to!reach!in!future.!!Visionary!goals!evolve!from!the!SWOT!and!are!influenced!by!the!
mission!and!vision!statements.!!Visionary!goals!are!ambitious!and!often!hard!to!achieve.!!
They!often!prove!challenging!to!complete!motivating!employees!to!stretch!to!their!full!
potential.!!!!Goals!can!be!either:!

• quantitative,!e.g.!achieving!75%!Market!Share;!or!
• qualitative,!!e.g.!Henry!Ford’s!goal!to!make!the!automobile!affordable!to!the!
common!American.!!

Unlike!core!values!and!core!purpose,!visionary!goals!need!to!be!replaced!once!achieved.!!
For!example,!the!National!Foundation!for!Infantile!Paralysis!achieved!its!goal!of!eradicating!
polio!(U.S)!and!then!broadened!scope!of!its!mission!and!creating!new!goals!to!embrace!
child!health!in!general.!

! )

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COMPETITIVE)ADVANTAGE)
!Hill!&!Jones!(1995)!define!competitive!advantage!as!a!company’s!ability!to!outperform!its!
competitors.!!Porter!(1985)!refers!to!competitive!advantage!as!the!capability!of!a!company!
to!create!value!for!its!customers.!!Put!together,!these!two!definitions!tell!us!that!companies!
gain!a!competitive!advantage!by!creating!value!for!customers!which!in!turn!allows!them!to!
surpass!their!competitors.!

A!competitive!advantage!should!be!distinguished!from!a!temporary!advantage.!!The!latter!
may!be!enjoyed!by!a!company!today,!but!can!be!soon!copied!by!industry!rivals.!!Conversely,!
a!competitive!advantage!refers!to!an!advantage!which!lasts!(but!not!indefinitely)!whereby!
the!need!to!innovate!continuously!becomes!a!moving!target!for!industry!rivals.!!!

Web)Definition:!http:wwww.Investopedia.com!defines!competitive!advantage!as!an!
advantage!that!a!company!has!over!its!competitors,!allowing!it!to!generate!greater!sales!or!
margins!and/or!retains!more!customers!than!its!competition.!There!can!be!many!types!of!
competitive!advantages!including!the!company's!cost!structure,!product!
offerings,!distribution!network,!product!quality!and!customer!support.!!

A!competitive!advantage!gives!a!company!an!edge!over!its!competitors!and!enables!it!to!
generate!greater!value!for!its!shareholders.!Competitors!will!find!it!more!difficult!to!
neutralize!the!advantage!the!more!the!company!can!sustain!it.!

There!exist!two!main!forms!of!competitive!advantage:!comparative!advantage!and!
differential!advantage.!

1. Comparative!advantage!(or!cost!advantage),!is!a!company's!capability!to!produce!a!
good!/!service!at!a!consistently!lower!cost!than!its!industry!rivals.!!This!enables!the!
company!to!sell!its!goods!/!services!at!a!lower!price!than!its!rivals!and!to!generate!a!
better!margin!on!sales.!
2. Differential!advantage!is!created!when!a!company's!products/!services!differ!from!
that!of!its!industry!rivals!and!are!perceived!by!customers!as!being!better!than!the!
competition.!!

BUILDING)BLOCKS)OF)A)COMPETITIVE)ADVANTAGE)
According!to!Jones!&!George!(2003),!the!four!building!blocks!of!a!competitive!advantage!
are:!

• Efficiency;!
• Flexibility/Speed/Innovation;!
• Quality;!and!!
• Customer!Responsiveness.!

To!maintain!and!enhance!a!competitive!advantage,!companies!can!consciously!consolidate!
these!building!blocks.!

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Superior)Efficiency)

Companies!increase!efficiency!when!they!are!able!to!optimize!resources!(human!and!
material)!they!use!to!produce!goods/services.!!Low!labor!cost!countries!thus!have!an!
advantage!over!other!countries.!!A!company!can!overcome!this!disadvantage!by!increasing!
labor!productivity!to!reduce!the!overall!cost!of!production.!

Activity:!!Propose!other!ways!in!which!these!countries!can!overcome!off!shore!
production!and!labour!costs!while!maintaining!the!production!capability!in!their!home!
state.!

Record!your!response!in!your!course!journal.!

!
Superior)Quality)

Introducing!Total!Quality!Management!(TQM)!in!organizations!is!a!major!thrust!to!improve!
product!and/or!service!quality!in!companies.!!TQM!refers!to!quality!enhancing!techniques!
that!not!only!monitor!defects,!but!also!endeavours!to!prevent!them!through!an!unending!
process!of!quality!improvement.!!People!are!trained!to!perfect!their!skills!and!abilities!so!as!
to!do!things!right!first!time.!!TQM!concerns!manufacturing!processes!as!well!as!
management!processes.!

Superior)Flexibility/Speed/Innovation)

Flexibility!in!the!market!place!refers!to!adaptability!to!changes!and!how!fast!a!company!can!
innovate!and!present!new!products!on!the!market!in!advance!of!industry!rivals.!!Such!
companies!have!managers!with!superior!leadership!abilities,!who!can!think!ahead,!find!
opportunities!and!rapidly!mobilize!resources!and!motivate!employees.!

Company!Example:!

“The!Zara!chain!of!retail!clothing!stores!owned!by!the!Spanish!company,!Inditex,!has!
a!tightly!integrated!vertical!structure!that!cuts!the!time!between!a!garments!design!
and!retail!delivery!to!less!than!three!weeksUthe!industry!norm!is!six!to!nine!months.!!
This!allows!Zara!to!identify!emerging!fashion!trends!and!launch!new!styles!on!the!
market!faster!than!its!massUmarket!competitors”!(Grant,2005:227U228)!

Superior)Customer)Responsiveness)

While!organizations!compete!to!obtain!new!customers!and!then!to!retain!them,!they!have!
to!remain!attentive!to!their!customers’!changing!needs.!!In!service!organizations,!the!
company!is!vitally!dependent!on!front!line!employees!to!deliver!the!service!right!the!first!
time!and!to!detect!any!changes!in!customer!requirements.!!These!employees!must!be!

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empowered!to!take!a!leadership!role!in!designing!and!providing!high!quality!customer!
service!without!management!interference.!!

To!create!this!entrepreneurial!culture,!companies!must!encourage!risk!taking!and!reward!
success!while!not!punishing!failures!(to!be!viewed!as!a!learning!opportunity).!

Company!Example:!

WalUMart!is!reported!to!be!able!to!consistently!outperform!Kmart!and!other!
discount!retailers.!!This!superiority!is!based!on!a!business!system!that!responds!
quickly!and!effectively!to!changes!in!demand!(driven!by!pointUofU!sale!data).!!
However,!at!the!heart!of!WalUMart’s!fast!response!capability!is!the!
encouragement!and!rewarding!of!initiative!at!all!levels!of!the!company!(Ortega,!
2000!cited!in!Grant,!2005).!

WHAT)CONSTITUTES)COMPETITIVE)ADVANTAGE)
Competitive!advantage!does!not!last!forever.!!Once!it!is!established,!sooner!or!later,!it!will!
be!subject!to!erosion!by!current!or!new!competitors.!!How!fast!the!company!will!lose!its!
edge!will!depend!on!how!fast!competitors!imitate!it!or!surpass!it!with!an!innovation.!

The!following!characteristics!refer!to!what!actually!constitutes!competitive!advantage,!
namely:!resource!scarcity,!nonKimitability!and!nonKsubstitutability.!

Resource)Scarcity)

Unique!resources,!i.e.!not!possessed!by!other!organizations!can!give!rise!to!competitive!
advantage.!!What!is!rare!happens!to!be!more!valuable.!!For!example,!a!product!can!be!
backed!by!unique!brand!while!a!service!organization!can!have!highly!talented!people!in!its!
midst.!Another!organization!could!also!hold!an!advantage!through!a!unique!process!
developed!inKhouse,!e.g.!in!manufacturing!or!customer!relationships.!

While!rarity!certainly!confers!competitive!advantage,!it!can!have!certain!dangers.!!In!certain!
cases,!managers!may!perceive!the!basis!of!their!former!success!as!being!eternal!and!may!
not!be!willing!to!change!when!circumstances!so!demand.!!This!has!been!termed!‘core!
rigidity’.!

NonNImitability)

This!refers!to!capabilities!that!are!likely!to!be!durable!and!which!competitors!cannot!
copy/replicate!easily.!!It!is!normally!easier!to!copy!tangible!resources!than!intangible!
resources.!

Resources!are!imitable!with!more!difficulty!if!they!are!of!a!complex!nature,!if!they!relate!to!
some!elements!of!culture!or!unique!history!or!if!they!are!perceived!to!be!ambiguous.!!The!
more!one!cannot!describe!something,!the!more!difficult!it!is!to!copy.!

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One!source!of!complexity!is!being!a!member!of!a!network!of!internal!or!external!linkages!
e.g.!developing!software!for!clients!with!specific!application!needs.!

Some!organizations!may!possess!a!very!strong!culture!that!is!embedded!in!what!its!people!
think!and!do!and!finally!determines!its!reputation!on!the!market.!!For!example!a!customer!
responsiveness!culture!can!stem!from!efficient!internal!processes!that!have!developed!and!
been!perfected!over!years!of!successes!and!failures!(experience)..!!!

Non)Substitutability)

Substitution!can!arise!from!advances!in!technology!e.g.!eKmail!replacing!postal!services,!or!
machines/robots!replacing!skilled!craftsman.!!Managers!therefore!have!to!be!careful!about!
the!extent!to!which!their!product/service!is!substitutable.!!This!can!be!done!in!the!case!of!
technology!by!operating!a!technology!watch!i.e.!keeping!a!close!watch!on!new!
developments!related!to!your!scope!of!product/service,!especially!new!things!that!can!give!
the!same!utility!as!yours.!!Specialist!publications!in!specific!areas!can!be!useful!for!this!
purpose.!

The!above!characteristics!of!competitive!advantage!will!be!discussed!further!in!the!next!
Unit!within!the!VRIN!framework!of!the!ResourceKBasedKView!of!the!company.!

NATIONS)ANALYSIS)N)PORTER’S)DIAMOND)COMPETITIVE)ADVANTAGE)STUDY)
Having!studied!competitive!strategy!at!a!company!level,!it!is!instructive!to!discover!how!the!
same!and!other!concepts!apply!at!the!national!level.!!The!concept!was!pioneered!by!
Michael!Porter!(1990).!!In!fact,!when!in!the!70’s!and!80’s!the!U.S!was!faced!by!the!rise!of!
Japan!as!an!economic!power,!threatening!U.S!consumer!electronics!and!carKmaking!
companies!(Ford,!General!Motors,!etc.)!President!Ronald!Reagan!commissioned!the!study!
on!success!factors!of!Nations.!!!The!Study!covered!twelve!nations!and!was!led!by!Michael!
Porter.!!!!

The!multinational!team!led!by!Porter!analyzed!the!successes!and!failures!of!nations.!!For!
example,!why!did!France!not!produce!very!successful!pop!and!rock!music!while!a!town!like!
Manchester!in!the!U.K!has!produced!so!many!pop!and!rock!bands?!!According!to!Porter’s!
Study,!the!answer!lies!in!the!“Home!Base”!characteristics.!!Just!like!Hollywood!and!
Bollywood!are!home!for!filmKmaking.!

The!study!came!forward!with!qualifying!a!Nation!as!having!six!components,!four!of!which!
are!primary!components!and!two!of!which!are!secondary.!!!

Primary)Components)

• Factor!Conditions!–!refers!to!the!nation’s!competitive!position!in!terms!of!
production.!!This!may!include!any!skilled!labour!and!infrastructure!(road,!electricity!
and!water!supply,!communications,!internet!connectivity!etc.)!

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• Demand!Conditions!–!refers!to!the!“pull!factor”!from!any!sophisticated!customers!
in!the!home!market,!e.g.!applying!a!pressure!on!Quality.!
• Related!and!Supporting!Industries!–!whether!the!country!has!industries,!e.g.!supply!
intranets!or!distributing!finished!products!and!any!value!addition.!
• Company’s!Strategy,!Structure!and!Rivalry!–!basically!whether!local!companies!are!
strategy!oriented!and!the!status!of!rivalry!based!on!industry!structure!(oligopoly?,!
open!competition?!)!

Secondary)Components)

• Government!–!what!extent!the!State!provides!the!right!policy!and!legal!
environment!for!businesses.!
• Chance!–!the!role!of!luck!(or!forced!luck)!and!unintended!opportunities.!

Porter’s)Diamond))

Source:)Clegg,!S.!Kornberger.!M!and!Pitsis.T,!An!Introduction!to!Theory!and!Practice,!2005!

Factor)Conditions)

Referring!to!factor!conditions,!Porter!downplays!naturally!‘inherited’!endowments!such!as!
land!and!raw!materials.!!He!instead!stresses!on!‘created’!factors!such!as!education,!

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research,!health!services.!!For!example,!a!country!providing!free!education!at!all!levels!can!
eventually!create!a!highly!competitive!labour!force!ready!for!the!knowledge,!service!
oriented!economy.!!Countries!having!a!long!tradition!of!research!related!to!a!particular!
industry!will!eventually!develop!an!edge!through!continuous!innovation!in!that!sector!(wine!
producers!of!the!soKcalled!New!World).!!Contrary!to!conventional!wisdom,!abundance!of!
any!resource!may!not!necessarily!give!advantage!because!abundance!may!breed!
complacency!and!waste!while!scarcity!can!lead!to!vigilance!and!an!innovative!mindset.!!
Singapore!is!a!country!with!little!natural!resources,!but!is!quite!successful!in!service!
industries.!!If!the!stock!of!factors!at!a!given!time!may!be!less!important!than!the!care!taken!
to!strategically!upgrade!and!display!same!(dynamic!advantage)!for!the!future.!

Demand))

When!customers!‘pull’!for!quality!in!products!and!service,!the!industry!is!forced!to!stretch!
itself!to!provide!the!same!consistently.!!Innovation!generally!follows.!!The!Nation’s!
reputation!as!highly!exigent!on!Quality!will!then!cross!frontiers!to!create!the!required!
image,!e.g.!Quality!and!Reliability!of!Japanese!cars.!!However,!home!demand!should!
ultimately!reflect!international!demand.!!If!the!world!was!not!interested!in!“smaller!is!
better”!regarding!customer!electronics,!the!Sony!Walkman!would!not!have!been!successful!
outside!Japan.!!!

A!strong!local!market!that!sets!trends!can!empower!local!companies!to!anticipate!global!
trends.!

Related)and)Supporting)Industries)

The!example!of!Silicon!Valley!for!software!development!is!often!cited!as!excellence!in!a!
clustered!environment!comprising!supplier!and!other!related!industries,!competitors!and!
service!providers,!all!operating!in!synergy.!

A!region!(cluster)!that!provides!rapid!knowledge!diffusion!at!best!results!in!(or!else!attracts)!
a!pool!of!knowledgeable!and!talented!employees.!!Ultimately,!consumers!will!associate!a!
region!with!a!high!Quality!product!–!leather!products!from!Italy,!fine!cuisine!(gastronomic)!
for!France!and!cuisine!for!France!historically,!just!recently!for!Australia,!traditional!watch!
making!for!Switzerland!etc.!!Porter’s!Diamond!promotes!clustering!as!a!source!of!natural!
competitive!advantage.!!!

Activity:!Reflect!upon!why!companies!in!support!industries!will!join!a!Cluster!and!how!
this!can!improve!overall!efficiency!of!the!cluster.!

Record!your!response!in!your!course!journal.!

!
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Strategy,)Structure)and)Rivalry))

In!an!open!competition!context!(as!opposed!to!monopoly)!rival!companies!compete!and!
develop!efficiency!while!the!pressure!on!costs!of!production!increases.!!Rivalry!spurs!
innovation!and!continuous!improvement.!!While!locally,!more!rivalry!in!an!industry!
(Porter’s!Five!Forces!Model!in!next!Topic)!is!considered!a!threat!to!the!company,!at!an!
international!level,!more!local!rivalry!makes!the!local!industry!become!more!competitive.!!
For!example,!the!Japanese!automobile!industry!comprises!more!than!nine!major!
competitors,!providing!intense!competition!in!the!domestic!market.!

Government)

Government!action!influences!all!companies!primary!components!through!providing!direct!
subsidies!to!certain!targeted!industries,!building!infrastructure,!offering!tax!incentives,!
controlling!industry!standards!(e.g.!BS!K!British!Standards)!and!through!policies!in!education!
(both!academic,!vocational!and!research).!!Government!can!also!stimulate!rivalry!by!
enforcing!!

Antitrust!regulations!(prevent!direct!cooperation!between!components).!

Chance))

Chance!is!a!passive!concept!of!waiting!for!luck!to!happen!while!serendipity!is!an!active!
process!of!search!for!one’s!own!luck.!

QuickMBA.com!refers!to!the!Japanese!Fax!Machine!Industry!as!an!application!of!Porter’s!
Diamond!of!National!Advantage.!!Japanese!industry!was!thought!to!achieve!dominance!in!
this!industry!for!the!following!reasons:!

• Factor!conditions:!!Japan!has!a!relatively!high!number!of!electrical!engineers!per!
capita.!
• Demand!conditions!:!!Complexity!of!the!written!language!creates!strong!local!
demand.!
• Supporting!Industries:!!The!pressure!in!space!in!Japan!led!to!the!development!of!an!
electronic!miniaturization!industry.!
• Rivalry:!!Domestic!rivalry!pushed!innovation!and!competitive!pressure!on!cost.!
• Government:!!Approval!requirements!were!facilitated!by!the!State!owned!Telecom!
Company.!!

The!concept!has!been!criticized!on!the!basis!of!its!assumptions.!!For!example,!it!has!been!
observed!that!America!as!a!model!does!not!reflect!Third!World!or!Developing!Nations!
realities!in!terms!of!Factor!Conditions!and!Demand.!!Furthermore,!a!number!of!countries!
have!achieved!prosperity!without!being!innovation!driven.!

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SelfNAssessment)Exercise)

Engage!in!a!group!discussion!among!your!peers!on!the!applicability!of!Porter’s!Diamond!of!
National!competitive!advantage!to!your!country.!!You!may!have!to!explain!the!concept!to!
your!peers!first!and!then!try!to!discuss!the!status!of!each!component!of!the!Diamond!in!
your!country!or!if!any!factor!can!be!‘created’,!e.g.!by!Government!intervention.!!!Try!to!
come!out!with!a!‘proposition’,!even!if!no!such!strategy!already!exists.!

Capture!the!essence!of!your!discussion!in!your!course!journal.!

SUMMARY
In!this!topic!we!have!explained!the!concepts!of!vision!and!mission.!!We!noted!that!they!are!
a!powerful!tool!in!the!hands!of!management.!!A!wellKcrafted!vision!and!mission!should!
involve!and!commit!employees!and!stakeholders!to!move!toward!the!accomplishment!of!
the!organization!goals!and!objectives!while!upholding!shared!values.!The!term!competitive!
advantage!was!described!in!some!detail!and!it!was!made!clear!how!it!can!give!an!edge!on!
competitors.!!!

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TOPIC)2.2)–INTERNAL)ENVIRONMENT)ANALYSIS))
INTRODUCTION)
The!operating!environment!of!a!business!is!controlled!by!internal!factors!that!managers!can!
influence,!while!the!external!environment!cannot!be!easily!influenced,!but!must!be!
considered!when!making!business!decisions.!!At!one!extreme!we!have!internal!factors!such!
as!skills!development!and!retention,!which!are!HR!functions!andon!the!other!end!of!the!
continuum,!we!must!consider!the!impact!of!an!economic!down!turn!open!which!an!
individual!company!has!almost!no!control!over.!

In!between!these!two!extremes!practitioners!often!disagree!on!what!exactly!constitutes!the!
internal!and!external!environments!of!a!business.!!For!example,!many!books!categorize!
Porter’s!Five!Forces!(power!of!buyers,!power!of!suppliers,!competitors!etc.)!!as!the!external!
environment.!!However,!in!certain!circumstances,!management!may!be!able!to!influence!
the!above.!!For!example!in!a!context!of!collaboration!among!competitors!working!in!a!
network,!a!strong!supplierKcompany!relationship!(JustKInKTime!supplies)!the!paradigm!may!
change!and!bring!a!new!balance!to!“forces”.!

In!this!topic,!we!shall!study!the!internal!factors,!including!resources,!capabilities!and!culture!
that!are!responsible!for!strengths!and!weaknesses.!!We!shall!explore!the!rationale!is!to!
support!such!strengths!to!further!organization!objectives.!!Similarly,!we!shall!identify!and!
measure!weaknesses!in!order!to!find!ways!and!means!to!overcome!them.!!!

OBJECTIVES)
Upon!completion!of!this!topic!you!will!be!able!to:!

1. Define!the!resource!based!View!of!a!company.!
2. Distinguish!between!resources!and!capabilities.!
3. Assess!the!importance!of!culture!as!a!company!intangible!asset.!
4. Identify!the!internal!factors!responsible!for!competitive!advantage.!
5. Structure!the!internal!environment!for!ease!of!analysis.!
6. Perform!an!internal!position!audit!for!a!company!

CONTENT)
The!Resource!–Based!View!of!a!Company.!!

• Resources!and!Capabilities.!
• Internal!Environment!Analysis.!!
• Company!Capabilities.!
• Internal!Environment!Scanning.!
• Strengths!and!Weaknesses!of!SWOT.!

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THE)RESOURCE)BASED)VIEW)OF)A)COMPANY)
This!discussion!follows!the!one!made!earlier!under!“competitive!advantage”,!in!the!context!
that!resources!and!capabilities!may!give!rise!to!a!competitive!advantage.!!In!this!topic,!a!
more!in!depth!analysis!of!resources!is!undertaken!to!explore!a!company’s!strengths!and!
weaknesses.!!

The!resourceKbased!view!(RPV)!of!the!company!was!originally!proposed!by!Penrose!(1959)!
as!a!way!to!manage!resources!and!capabilities!through!strategic!planning.!!Penrose!stated!
that!when!a!company!grows!to!a!specific!size!success!is!best!gauged!by!some!measure!of!
the!productive!resources!it!employs.!

According!to!Clegg,!Kornberger!and!Pitsis!(2005),!resources!come!in!four!types,!namely:!

1. Financial!capital!e.g.!strong!equity!capital!or!preferential!access!to!loans.!
2. Physical!capital!e.g.!land,!equipment,!infrastructure.!
3. Human!capital!e.g.!knowledge,!skills,!experience.!
4. Organizational!capital!e.g.!culture.!

Before!we!explain!Porter’s!Five!Forces!Model!(PFF),!it!is!interesting!to!point!out!that!unlike!
the!PFF!Model!which!assumes!that!industry!forces!are!determinants!in!the!RBV,!it!is!
company’s!factors!that!are!vital.!

RESOURCES)AND)CAPABILITIES)
It!is!important!to!distinguish!between!resources!and!capabilities.!!While!resources!
represent!the!assets!possessed!by!the!company,!capabilities!refer!to!what!the!company!can!
actually!do!(with!a!combination!of!these!resources!and!other!industry!factors).!

Resources!refer!to!inputs!to!a!company’s!production!process.!!They!may!be!tangible!or!
intangible!in!nature,!e.g.!capital,!equipment,!knowledge!and!HR.!individual!resources!by!
themselves!may!not!result!in!competitive!advantage.!!!For!example,!capital,!equipment,!
knowledge!and!HR!can!minimize!the!learning!curve!in!the!use!of!new!equipment!by!
investing!in!training!programmes!to!rapidly!develop!new!skills.!

Capability!refers!to!the!capacity!for!a!set!of!resources!to!perform!a!complex!task.!!The!
learning!curve!experience!sharpens!capabilities.!!However,!capabilities!cannot!be!so!
complex!that!it!defies!internal!management!and!control.!!For!example,!such!a!capability!can!
go!out!of!the!company!when!the!knowledgeable!staff!leave!or!retire.!!!

COMPANY)RESOURCES))
Resources!refer!to!the!financial,!physical,!human,!technological!and!organizational!
resources!of!a!company.!!You!should!note!that!a!company’s!balance!sheet!is!often!limited!in!
displaying!its!investment!in!resources.!!In!fact!it!displays!only!financial!and!physical!
resources.!!It!is!useful!to!categorize!resources!in!terms!of!tangible,!intangible!and!human!
resources.!

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Tangible)Resources)

These!refer!to!financial!and!physical!resources.!!Being!pure!balance!sheet!items,!these!are!
the!easiest!to!identify,!evaluate!and!monitor.!!However,!valuation!methods!used!in!balance!
sheet!might!as!well!obscure!or!mislead!on!the!potential!of!financial!and!other!physical!
assets!to!create!value.!!For!example,!a!company’s!debt!or!equity!alone!does!not!give!as!
much!information!as!its!debt/equity!ratio.!!The!latter!may!show!borrowing!capacity!as!a!
resource!that!a!rival!company!may!not!possess.!!Similarly,!possible!alternative!uses!of!land!
and!buildings!may!give!flexibility!of!fixed!assets!as!a!source!of!advantage.!!!

The!above!perspective!on!resource!analysis!is!one!of!valuing.!!However,!they!also!possess!
potential!as!new!sources!towards!your!competitive!advantage.!!For!example,!employing!
cheaper!resources!can!reduce!the!cost!of!producing!goods/services!and!thus!enhance!the!
competitive!advantage!mix!in!the!VRIN!framework.!!Better!control!of!cash!receivables!and!
management!of!cash!flow!in!general!can!reduce!the!need!to!take!short!term!expensive!
loans.!!Similarly,!certain!assets!can!be!used!more!profitably!or!some!land!can!be!sold!for!
residential!purposes!while!less!costly!industrial!land!can!be!purchased!for!expansion.!

Intangible)Resources)

Intangible!resources!refer!to!issues!like!reputation,!intellectual!property!and!innovation!
capabilities.!!Pharmaceutical!companies!normally!hold!a!number!of!patents!for!drug!
development.!!Other!companies!may!be!able!to!derive!revenue!from!licensing!patents!
other!companies.!!Investment!in!R!&!D!may!give!an!innovation!edge!over!companies!lacking!
the!R!&!D!function.!

Based!on!ownership!of!brands,!companies!may!have!developed!a!strong!emotional!
relationship!with!customers!who!look!for!quality!and!reliability.!!This!results!in!the!
advantage!of!repeat!buying!and!word!of!mouth!marketing.!

Brand!names!form!part!of!the!assets!of!a!company!that!is!generally!absent!or!undervalued!
on!a!balance!sheet.!!A!gold!brand!means!that!customers!are!prepared!to!pay!a!premium!
price.!!“Harley!Davidson’s!brand!strength!has!not!only!permitted!the!company!to!obtain!a!
premium!price!of!about!40!percent!above!that!of!comparable!motorcycles,!but!also!to!
license!its!name!to!the!manufacturers!of!clothing,!coffee!mugs,!cigarettes,!and!
restaurants”.!Grant!(2005:142)!

Human)Resources)

Employees!offer!to!their!companies!a!range!of!knowledge,!skills!and!decision!making!
abilities!that!can!make!a!difference,!both!at!the!individual!level!and!at!a!team!level.!!People!
cannot!be!owned!and!therefore!do!not!appear!on!a!balance!sheet.!!However,!a!contractual!
agreement!with!David!Beckham!has!tremendous!asset!value!for!a!soccer!team.!!!

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The!value!of!HR!is!measured!at!recruitment!and!at!annual!performance!appraisal!reviews.!!
While!personal!management!refers!to!the!appraisal!of!current!performance,!Strategic!HRM!
refers!to!the!measurement!of!human!potential!performance.!!For!example,!the!yardstick!is!
no!more!qualifications!and!experience!only,!but!also!includes!flexible!skills,!learning!
potential!(trainability)!and!team!skills.!!!

Employees!may!have!individual!skills,!but!may!not!be!able!to!integrate!individual!skills!into!
complex!skills!required!to!support!the!competitive!advantage.!!Social!(interpersonal)!skills!
are!necessary!for!such!synergy!and!“emotional”!intelligence!is!required!of!managers!to!
enable!and!motivate!employees!to!act!as!a!collective!entity!and!to!synergize.!!The!
organizational!context!for!this!and!other!behaviors!is!determined!by!a!key!organizational!
resource!culture.!!!

The!presence!(or!absence)!of!resources!and!their!effective!utilization!can!give!rise!to!the!
internal!strengths!and!weaknesses!as!shown!above.!

INTERNAL)ENVIRONMENT)ANALYSIS))
The!internal!environment!of!the!company!consists!of!a!number!of!factors!that!may!be!more!
or!less!favorable!to!the!company.!!More!favorable!factors!give!rise!to!strengths!while!less!
favorable!factors!result!in!weaknesses.!!!

Some!of!the!internal!factors!that!you!should!consider!are!listed!below:!

• Company!culture.! ! ! ! !
• Organizational!culture.!
• Company!image.! ! ! ! ! !
• Brand!awareness.!
• Original!structure.! ! ! ! !
• Market!share.!
• Key!staff.! ! ! ! ! !
• Financial!share.!
• Access!to!natural!resources!.! ! !
• Exclusive!contacts.!
• Position!on!the!experience!curve.! ! !
• Patents!&!Trade!Secrets.!
• R&D!and!commitment!to!innovate.!
• Operational!efficiency.!

ORGANIZATION)CULTURE)
Culture!is!a!system!of!shared!values,!norms!and!beliefs!that!unifies!members!of!an!
organization.!!People!then!hold!common!views!on!how!things!are!done!in!the!organization.!!
The!notion!of!culture!is!part!of!the!internal!environment!of!a!business.!

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Corporate!culture!should!have!a!positive!impact!on!the!business.!!It!is!a!strength!when!it!is!
broadly!shared!among!members,!is!deeply!internalized!in!attitude!and!behavior!of!people!
and!when!it!supports!organizational!goals.!!For!example,!a!consistent!and!shared!emphasis!
on!creativity!and!innovation!is!reflected!in!the!company’s!capacity!to!bring!to!the!market!a!
steady!stream!of!new!products.!

An!entrepreneurial!culture!is!required!to!promote!innovation.!!It!does!so!by!enabling!
members!to!view!growth!and!change!as!feasible!and!empowering!them!to!influence!the!
competitive!environment!to!their!advantage.!!Companies!with!such!an!entrepreneurial!
culture!are!more!likely!to!have!a!strategic!approach!aimed!at!identifying!and!exploiting!
opportunities!that!arise!from!changes!in!the!environment.!!They!are!more!likely!to!commit!
resources!to!maintain!flexibility!(e.g.!through!outsourcing).!!Such!organizations!have!fewer!
levels!of!middle!management!and!emphasize!informal!communication.!!Such!factors!give!
rise!to!strengths!that!are!difficult!to!hold!in!bureaucratic!organizations.!!!!

Organizations!need!to!have!internal!strategic!capability!in!order!to!be!successful.!!
Companies!may!even!have!to!change!such!internal!capabilities!to!fit!opportunities!in!the!
external!environment.!!!

Understanding!the!strategic!capability!of!an!organization!can!lead!to!identification!of!a!
competitive!edge!that!allows!it!to!exploit!new!market!opportunities!and!to!keep!a!sustained!
advantage!over!competitors.!

COMPANY)CAPABILITIES)
Capabilities:!refer!to!a!company’s!skills!at!coordinating!its!resources!and!putting!them!to!
productive!use!(Hill!&!Jones).!!Capabilities!are,!by!definition,!intangible.!!!They!don’t!reside!
in!individuals,!but!in!the!ways!individuals!interact.!

Before!attempting!to!describe!capabilities!as!sources!of!competitive!advantage,!it!is!
necessary!to!distinguish!the!different!synonymous!words!used!in!the!literature.!!For!
example,!authors!often!use!capabilities,!distinctive!competencies!and!core!competencies!
interchangeably.!!These!terms!mean!more!or!less!the!same!things.!!!

• Hamel!&!Prahalad!(1990)!K!core!competence:!those!capabilities!fundamental!to!a!
company’s!performance!and!strategy.!
• Selznick!(1957)!K!distinctive!competence:!those!things!that!an!organization!does!
particularly!well!relative!to!its!competitors.!
• Grant!(2005)!K!organizational!capability:!a!company’s!capacity!to!undertake!a!
particular!productive!activity.!

The!focus!on!capabilities!instead!of!on!product!is!vital!for!a!company’s!survival!and!growth.!!!
A!product!may!fail!on!the!market,!but!the!company!capabilities!can!keep!it!alive!and!give!it!
future!progress.!!One!example!is!Sony,!which!despite!the!failure!of!the!Betamax!video!
system!they!continued!to!use!its!capabilities!in!video!technology!to!bring!to!the!market!a!

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string!of!innovations!including!Camcorders,!digital!cameras!and!the!PlayStation.!!
Capabilities!can!be!classified!as!being!functional!or!value!chain!activities.!!!!

• Functional)Activities!refer!to!organizational!capabilities!pertaining!to!each!function!
of!the!company!e.g.!Finance,!HRM,!Marketing,!Sales,!etc.!One!example!is!Singapore!
Airline’s!capability!in!Service!Quality!in!the!functional!area!of!Sales.!
• Value)Chain)Activities!refer!to!broad!activities!which!can!be!disaggregated!to!
unravel!a!chain!of!value!adding!activities,!each!activity!representing!a!capability.!!
For!example,!Production!is!a!function!of!logistics!management!(inbound!and!
outbound).!!Operations!and!Marketing!as!primary!activities!and!HRM,!technology!
and!infrastructure!procurement!as!support!activities.!

Relationship)between)Resources)and)Capabilities)

It!is!not!the!resource!base!that!actually!creates!the!competitive!advantage,!but!how!the!
company!leverages!its!resources!to!build!capability.!!According!to!Grant!(2005)!resources!
can!be!leveraged!in!the!following!ways:!

• Concentration!i.e.!focusing!the!efforts!of!each!functional!unit!on!targeting!activities!
to!respond!to!customer!needs.!
• Accumulation!of!resources,!e.g.!through!strategic!alliances!with!other!companies!to!
access!their!resources.!
• Complementary!resources!mean!that,!for!example,!product!design!capabilities!are!
blended!with!marketing!capabilities!to!communicate!product!value!to!the!market.!
• Conservation!means!e.g.!recycling!resources!and!capabilities!through!different!
products/markets!(Example!of!Sony!earlier).!

)INTERNAL)ENVIRONMENT)SCANNING )
The!internal!environment!of!a!company!consists!of!a!number!of!factors!that!may!be!more!
or!less!favorable.!!More!favorable!factors!give!rise!to!strengths!while!less!favorable!internal!
factors!result!in!weaknesses.!!Some!of!these!internal!factors!are!listed!below!in!a!random!
order.!!

To!make!business!sense,!companies!have!to!categorize!these!factors!for!ease!of!analysis!
and!priorities!them!in!order!of!critical/strategic!importance:!

• Company!culture.!
• Organizational!culture.!
• Company!image.! !
• Brand!awareness.!
• Original!structure.! ! !
• Market!share.!
• Key!staff.! ! ! !

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• Financial!share.!
• Access!to!natural!resources!.!
• Exclusive!contacts.!
• Position!on!the!experience!curve.!
• Patents!&!Trade!Secrets.!!!!!!!!!!!!
• Operational!efficiency.!!!!
• Research!&!Development.!
• Industrial!relations.!!!!!!!!!!!!!!!!!!

The!above!list!is!not!exhaustive!but!represents!a!number!of!factors!that!must!be!considered!
when!completing!an!environmental!analysis!of!your!company.!

Organizations!need!to!have!internal!strategic!capabilities!in!order!to!be!successful.!!
Companies!may!even!have!to!change!such!internal!capabilities!to!fit!opportunities!in!the!
external!environment.!!!

)Strengths)and)Weaknesses))

According!to!Jauch!&!Glueck!(1998),!management!performs!an!internal!analysis!to!identify!
the!current!strengths!and!weaknesses!of!the!company.!!Management!also!examines!the!
most!probable!future!strengths!and!weaknesses!during!completion!of!the!analysis!process.!!
Some!of!the!pertinent!issues!to!be!considered!in!internal!scanning!are:!

• Strengths!and!weaknesses!are!always!measured!in!relation!to!competitors!and!not!
in!absolute!terms.!
• Issues!are!prioritized!based!on!those!that!are!most!likely!to!affect!strategic!
capability!of!the!company.!
• Strengths!may!not!always!fit!opportunities!and!weaknesses!may!not!always!be!
critical!for!market!competitiveness.!
• The!organization!may!need!to!stretch!further!and!enhance!existing!strengths!or!else!
acquire!other!strengths!in!order!to!fit!opportunities!arising!from!the!external!
environment.!

An!internal!environment!scan!is!made!for!the!purpose!of!uncovering!strengths!and!
weaknesses.!!Identifications!of!weaknesses!or!shortcomings!in!skills!can!lead!to!a!need!to!
recrui!people!with!specific!skills.!!Similarly,!the!company!can!seek!to!exploit!strengths!to!tap!
opportunities.!!Such!a!position!audit!is!tedious!and!can!become!quite!cumbersome!if!not!
structured.!!Based!on!the!internal!factors!mentioned!earlier,!the!following!structure!is!
proposed,!but!should!be!adapted!to!fit!particular!types!of!companies,!e.g.!based!on!
whether!manufacturing!or!service.!!!

) )

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Internal)Audit))

AREA) FIELD)UNDER)SCRUTINY) CURRENT)STATUS)

Marketing) New!Product!launches! Successful!or!Not?!

Objectives)
Advertising! Effectiveness?!

Market!Share!! As!per!objectives?!

Position!on!Growth!Curve! Growth?!Maturity?!Decline?!

Customer!Service! ?!Level!of!complaints!

Products)and) Sales!by!segment! As!per!objectives?!

Services)
Profit!Margin! Compared!to!Industry!
Standards?!
Product/Service!Quality!
Any!benchmarking?!
Brand!reputation!
Customer!loyalty?!
Price!elasticity!of!demand!!
Good!or!poor?!

Distribution) Standards!of!delivery!lead! Industry!Standards?!

time!
!
Delivery!Capacity!v/s!Demand! Any!gaps?!

Distribution!network! Adequate!or!poor?!

R)&)D) Relevance!for!future!demand! Going!in!the!right!direction?!

Cost!v/s!Benefit! Does!R!&!D!make!business!
sense?!
Innovation!culture!
Nurtured?!

Finance) Borrowing!capacity! Gearing!ratio?!

) Cash!flow! Liquidity!ratio?!

Differential!contribution!of!! Performers?!!Laggards?!

each!product! !

Return!on!Investment! Industry!standards?!

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AREA) FIELD)UNDER)SCRUTINY) CURRENT)STATUS)

Production) Age!of!equipment! Obsolescence!level?!

) Value!&!Use!of!any!Land!! Dormant!assets?!

and!Buildings! !

Economies!of!scale! Or!Diseconomies!of!scale?!

People) Age!spread! Ageing!population?!

) Skills! Any!upgrading?!

Attitudes! Mission!driven?!

Industrial!Relations! Level!of!cooperation?!

Horizontal!Communications! Effective?!

Motivation!level! Or!Demotivated?!!

Organization) Structure! Flexibility!&!Adaptability?!

Leadership!Style! Matching!context?!

Vertical!Communications! Top!down!&!BottomKUp!

Management!Information!! In!place?!

Systems! !

Talented!Staff!Retention! Or!high!turnover?!

Culture!! Supportive!of!Goals?!

Inventory) Suppliers! Level!of!stock?!Inventory!cost?!

Management)
Turnover!periods! Too!long?!

Storage!capacity! Spare!capacity?!

Deterioration! Stock!management!in!place?!

!
The!purpose!of!the!above!audit!is!to!measure!in!which!areas!the!business!has!strength!and!
in!which!areas!there!are!shortcomings!requiring!improvement.!!The!above!table!is!quite!
comprehensive.!!In!practice,!only!the!critical!areas!need!to!be!investigated,!e.g.!areas!that!
add!values!and!responsible!for!significant!strengths!and!weaknesses.!

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Example)of)Audit)Results))

Strengths!!

• Marketing/Products/Markets!
o Product!A,!D!&!E!are!market!leaders!in!their!categories!and!show!good!
brand!image.!
o Good!advertising!response.!
o Good!marketing!with!suppliers!and!distributors.!
• Production!
o New!product!facility!near!the!Port!Area.!
o ISO!certification.!
• Finance!
o Financial!resources!available!for!future!investment.!!
o Good!borrowing!capacity.!
• People!
o Good!skills!in!Finance!and!Marketing.!
o Excellent!industrial!relations.!

Weaknesses!

• Marketing/Products/Markets!
o Products!B!&!C!show!consistently!declining!sales!
o No!new!product!launch!since!two!years.!
• R!&!D!
o Little!control!on!R!&!D!budget.!
o R!&!D!lacks!strategic!orientation.!
• Production!
o Equipment!age!averages!8!years.!
o Defects!rate!relatively!high.!
o Average!productivity!of!labor.!
• Management/People!
o Succession!plan!for!top!management!not!in!place.!
o Low!investment!in!Training!and!Development.!

Strong!areas!as!identified!and!measured!are!to!be!exploited!to!full!potential!while!weak!
areas!require!“defensive”!planning!for!improvement!or!divestment.!

) )

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SelfNAssessment)Exercise)

Perform!a!position!audit!for!the!internal!environment!of!a!business!organization!you!know!
well.!!You!may!otherwise!do!the!exercise!for!your!current!educational!institution,!even!if!
not!profitKmaking.!!You!should!use!the!table!above,!but!you!have!to!select/arrange!internal!
factors!in!order!of!strategic!criticality!for!maximum!company!performance.!

At!the!end!of!the!exercise,!produce!a!list!of!strengths!and!weaknesses!in!order!of!
importance,!with!justifications.!

Record!your!response!in!your!course!journal.!

SUMMARY)
In!this!topic,!we!have!defined!the!resource!based!view!of!the!company!and!explained!its!
importance!in!internal!analysis!of!the!business.!!The!role!of!resources!and!capabilities!in!
conferring!competitive!advantage!was!discussed!in!some!detail!in!the!context!of!internal!
environment!scanning.!!Finally,!you!have!been!given!the!opportunity!to!apply!the!
knowledge!acquired!on!how!to!identify!and!measure!strengths!and!weaknesses!to!a!real!life!
example.!

) )

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TOPIC)2.3)–EXTERNAL)ENVIRONMENT)SCANNING)
INTRODUCTION)
The!external!environment!refers!broadly!to!the!industry!environment!in!which!the!business!
operates!(buyers,!suppliers,!potential!customers,!current!&!potential!competitors!and!
substitutes).!!In!addition!the!environment!can!be!divided!into!the!micro!(or!industry!
specific)!environment!and!the!macro!environment.!!The!macro!environment!addresses!the!
Political,!Economic,!Social!and!Technological!(PEST)!factors!

Based!on!an!analysis!of!the!external!factors,!Opportunities!and!Threats!will!be!identified!
and!measured.!!The!output!is!to!see!how!the!company!can!capitalize!on!its!strengths!to!tap!
opportunities!identified!and!how!to!circumvent!threats.!!Business!managers!should!be!able!
to!apply!these!models!to!analyze!a!real!life!situation!with!a!view!to!uncovering!
opportunities!and!threats!in!support!of!a!completed!SWOT!analysis.!!

OBJECTIVES)
Upon!completion!of!this!topic!you!will!be!able!to:!

1. Delimit!the!boundaries!of!the!external!environment.!
2. Explain!Porter’s!Five!Forces!Model!as!a!tool!for!analysis!of!the!microKenvironment.!
3. Distinguish!between!the!P,!E,!S!and!T!factors!affecting!the!megaKenvironment.!
4. Identify!and!measure!Opportunities!and!Threats.!
5. Apply!the!above!models!to!a!real!life!situation.!

CONTENT)
• Industry!Environment!–!Porter’s!Five!Forces!
• Analysis!of!the!External!Environment!K!The!Macro!environment!
• SWOT!Opportunities!and!Threats! !

PORTER’S)FIVE)FORCES)MODEL)
The)Microenvironment!!

The!micro!environment!is!best!described!by!the!Porter’s!Five!Forces!Model.!!The!model!
measures!Industry!attractiveness!by!analyzing!the!relative!power!of!buyers,!suppliers,!
competitors!(current!and!potential)!and!threat!from!substitutes.!

In!this!model!the!term!industry!refers!to!a!group!of!companies!offering!products!or!services!
that!are!perceived!to!be!close!similar!to!each!other.))The)company)in)a)given)industry)use)a)
particular)competence,)technology,!product)or)service)to)satisfy)customer)needs.)))

According!to!Porter!(1980),!the!stronger!any!of!the!forces!mentioned!above!are,!the!more!
limited!is!the!ability!of!the!company!to!reap!greater!profit!or!achieve!a!better!market!share.!!
Therefore!a!strong!competitive!force!can!be!regarded!as!a!Threat.!!Conversely,!a!weak!
competitive!force!can!be!viewed!as!an!Opportunity.!

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Industry)Analysis)N)Porter’s)Five)Forces)Model)

Also!termed!the!task!environment,!the!industry!environment!refers!to!that!segment!of!the!
external!environment!which!is!made!up!of!the!elements!outside!the!business!it!can!control!
or!influence.!!It!depends!largely!on!the!products!and!services!offered!by!an!organization!
and!the!location!chosen!to!conduct!the!business.!

An!organization,!acting!alone!may!have!difficulties!influencing!the!external!environment,!
but!may!be!able!to!influence!its!task!environment.!!(This!is!why!some!authors!prefer!to!
include!the!task!environment!in!the!internal!environment!and!based!on!that!the!PEST!
factors!that!cannot!be!easily!influenced!are!included!in!the!external!environment).!

The!major!elements!in!the!task!environment!typically!include!buyers!(customers!and!
clients),!suppliers!of!goods!and!services,!competitors!(actual!rivals!and!new!entrants)!and!
any!substitutes.!

The)PPF)Model

Risk!of!entry!
by!potenxal!
compextors!

Revalry!
Bargaining! among! Bargaining!
power!of! power!of!
suppliers! established! buyers!
firms!

Threat!of!
subsitute!
products!

Source:)Hill.!C.!W.!L.!&!Jones.!G.!R,!Strategic!Management!Theory,!1995!

Grant!(2005)!added!a!sixth!element!to!the!PFF!Model;!namely!the!suppliers!of!
complementary!products.!!An!example!is!the!Nintendo!Console!as!the!basic!product!and!
independent!game!developers!as!complements.!

From!the!same!model,!it!follows!that!managers!need!to!continuously!follow!changes!in!the!
aboveKmentioned!competitive!forces!and,!if!possible,!to!proactively!alter!any!of!them!to!
their!advantage.!!We!did!mention!earlier!that!managers!can!influence!internal!factors!

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easily,!but!not!external!factors!(especially!the!PEST!factors).!The!five!forces!fall!in!between!
and!depending!on!levels!of!collaboration,!managers!may!be!able!to!influence!them!also.!!
The!five!forces!will!now!be!discussed!in!detail.!

Potential)Competitors)

These!companies!that!are!not!currently!competing!in!the!industry!but!have!the!potential!or!
capabilities!to!do!so!in!future.!Companies!have!to!consider!the!probability!of!entry!by!
potential!competitors!because!this!will!eventually!affect!the!capacity!of!the!company!to!
maintain!and!grow!market!share!and!generate!profits.!!Think!of!the!iPhone.!!Two!years!ago!
it!has!no!real!competitors,!but!today!there!are!a!number!of!companies!competing!for!same!
market!share.!!In!2012!Samsung!surpassed!Apple!in!cell!phone!sales.!

Rate!potential!competitors!as:!!!

• High!risk!of!entry:!Threat!
• Low!risk!of!entry:!Opportunity!

When!potential!competitors!are!perceived!as!a!threat,!managers!can!develop!the!following!
tactics:!!

1. Erect!Barriers!to!Entry:!
• Erecting!Entry!Barriers!in!the!industry!implies!that!if!any!company!wishes!to!
compete!in!the!same!market,!it!will!need!to!incur!significant!costs.!
• One!examples!of!a!Barrier!to!Entry!is!R!&!D!costs.!It!is!currently!difficult!to!
surpass!Swiss!companies!in!the!pharmaceutical!industry!based!on!their!
advances!in!R&D.!
2. Establish!Brand!Loyalty:!
• Brand!loyalty!refers!to!the!buyers’!preference!for!the!products/services!of!
certain!select!companies.!!Any!competitor!will!find!it!either!too!difficult!or!too!
costly!to!break!down!such!well!anchored!consumer!preferences.!
• Soft!drink!manufacturers!like!Pepsi!and!CocaKCola!have!over!the!years!
established!such!a!level!of!loyalty!among!their!customers!that!many!new!
competitors!have!found!it!almost!impossible!to!get!any!significant!share.!
3. Develop!absolute!Cost!Advantages:!
• Cost!advantages!can!be!developed!from!optimally!engineered!production!
techniques!or!from!supplier!relationships.!!These!include!tight!control!on!costs!
of!rawKmaterials,!labor,!debt!finance!(e.g.!competitively!negotiated!interest!
rates)!etc.!Some!companies!may!be!able!to!source!their!rawKmaterials!directly!
(absence!of!intermediary)!or!produce!them!inKhouse.!
4. Benefit!from!Economies!of!Scale:!!
• These!are!also!cost!advantages!but!associated!with!the!company’s!size!and!
mass!production!capabilities.!Companies!in!this!situation!can!benefit!from!bulk!

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discount!in!purchase!of!inputs.!!They!may!be!in!a!position!to!spread!their!fixed!
costs!over!a!larger!volume.!!

Rivalry)Among)Established)Companies)

If!rivalry!in!the!industry!is!strong,!this!can!affect!the!profitability!of!the!industry!as!a!whole.!!
Competitive!actions!may!take!the!form!of!price!wars,!advertising!battles,!aggressive!sales!
promotion!campaigns!and!providing!warranties.!!!

The!extent!of!rivalry!in!an!industry!depends!on!a!number!of!factors:!

1. Industry)Structure:!When!there!is!a!large!number!of!powerful!competitors,!
competition!is!likely!to!be!intense.!When!only!two!or!three!large!companies!
dominate!the!market,!then!competition!is!restricted!in!nature.!!In!this!case!it!is!
easier!to!form!cartels!and!set!the!price!collaboratively.!!Unfortunately!this!a!
detriment!of!the!customer.!
2. Growth)Rate)of)the)Market:!!When!the!market!grows!continuously,!all!competitors!
may!benefit!from!growth!in!total!demand.!!However,!in!the!absence!of!growth,!
companies!will!grow!market!share!by!snatching!market!share!from!other!
competitors.!
3. Exit)Barriers:))Some!companies!insist!on!remaining!in!the!industry!even!when!
returns!are!declining.!!This!can!be!due!to!a!number!of!factors!e.g.!emotional!
attachments,!economic,!ineffective!management!or!strategic!reasons.!!Exit!Barriers!
include:!
• Fixed!assets!with!a!low!breakKup!value.!
• High!costs!of!closing!down!e.g.!redundancy!payments!to!employees!or!the!high!
cost!of!retraining!or!relocating!those!who!will!be!dismissed.!
• Emotional!reasons!e.g.!family!businesses!that!persist!despite!rational!reasons!to!
close!down.!
• Government!pressures!on!employers!not!to!close!down!due!to!economic!and!
social!reasons.!

Power)of)Buyers)

Buyers!(i.e.!businesses!that!purchase!resources!from!other!businesses!to!build!their!
products!or!support!their!services)!typically!want!better!quality!products/services!at!a!
lower!price.!!They!show!bargaining!power!by!threatening!to!shift!to!another!supplier.!If!
they!can!get!what!they!want,!they!will!force!down!profitability!in!the!industry.!

The!power!of!buyers!will!depend!on!a!number!of!factors:!

• There!may!be!only!few!institutional!buyers!who!buy!in!large!quantities!and!demand!
bulk!discounts.!(e.g.!Walmart))

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• Supply!industries!have!developed!dependence!on!buyers!by!producing!customized!
products!that!other!manufacturers!will!not!buy.)
• When!barriers!to!entry!are!low,!companies!may!easily!switch!between!buyers,!
especially!when!they!are!price!sensitive.)
• The!threat!that!a!business!may!acquire!their!own!sources!of!supply!(this!is!called!
backward!vertical!integrationKto!be!discussed!later!in!the!next!Unit)!

Power)of)Suppliers)

Suppliers!can!influence!company!profitability!by!exerting!pressure!for!higher!prices.!!They!
are!still!more!powerful!if!they!can!unilaterally!increase!their!prices!and!impose!their!quality!
on!the!company.!

Porter!proposes!the!following!situations!where!suppliers!are!powerful:!

• When!the!supplier’s!product!is!of!vital!importance!for!the!company!and!cannot!be!
better!sourced!elsewhere!or!substituted!for.!
• When!your!company!is!not!an!important!customer!for!the!supplier.!
• When!you!company!depends!on!the!supplier!for!a!customized!input,!for!example!a!
personally!designed!component.!!
• When!suppliers!can!easily!resort!to!vertical!integration!and!become!competitors.!!!

!Threat)of)Substitute)Products)

The!products/services!of!an!industry!are!likely!to!have!substitutes!produced!by!a!different!
industry!and!that!happen!to!satisfy!the!same!customer!needs.!!To!become!a!serious!threat,!
however,!they!must!provide!better!value!for!a!lower!price.!

Example:!The!London!–Paris!axis!is!a!very!busy!route!and!is!used!extensively!by!tourists!and!
business!persons!every!day.!It!has!been!traditionally!run!by!the!airlines.!With!the!advent!of!
the!Eurostar!rapid!rail!route!(a!substitute!service),!prices!on!the!air!route!fell!and!some!
airlines!have!reduced!the!number!of!trips.!

Close!substitutes!can!therefore!present!a!threat,!limiting!the!price!your!company!can!
charge!and!hence!its!overall!profitability.!

The!Five!Forces!Model!has!demonstrated!that!the!stronger!the!force,!the!less!attractive!the!
industry!becomes.!!Strong!industry!forces!relative!to!your!company!represent!threats,!while!
weak!industry!forces!represent!opportunities.!

Despite!the!clarity!it!brings!to!industry!analysis,!the!Model!has!been!criticized!over!the!
recent!years.!!Marsden!(1998)!made!the!following!observations:!

• The!Model!relies!on!a!static!picture!of!the!competition!and!therefore!downplays!
innovation.!

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• There!is!an!overemphasis!on!the!wider!environment!which!downplays!the!
significance!of!specific!company!advantages!arising!from!resources!and!capabilities.!

A!company!can!overcome!apparent!weaknesses!of!the!Model!by!keeping!track!of!changes!
in!its!competitive!environment!(e.g.!any!innovation!from!rivals)!and!adjusting!accordingly.!!
Based!on!the!second!criticism,!companies!should!not!rely!on!just!one!model!to!analyze!their!
business!environment,!but!employ!a!wide!array!of!strategic!management!tools!that!are!
complementary!(resources!and!capabilities!were!discussed!earlier!as!sources!of!competitive!
advantage).!

Activity:!!In!relation!to!the!previous!end!of!topic!assessment!in!Topic!2.1,!analyse!the!
same!organization!using!Porter’s!Five!Forces!Model.!!Identify!and!list!the!Opportunities!
and!Threats!in!order!of!priority.!

Record!your!response!in!your!course!journal.!(Reserve!your!findings!for!the!final!SWOT!
analysis)!

)
ANALYSIS)OF)THE)EXTERNAL)ENVIRONMENT)N)THE)MACRO)ENVIRONMENT)
We!earlier!discussed!the!micro!environment!of!a!company!(sometimes!also!called!the!Task!
Environment!because!relating!to!customers!and!suppliers!etc.).!!Beyond!this!dimension,!
companies!also!exist!within!a!broader!environment!that!strongly!influences!its!capacity!to!
survive!and!grow,!both!nationally!and!internationally.!!Managers!have!to!account!for!this!
external!environment!in!their!planning!to!ensure!that,!beyond!reasonable!uncertainty,!
plans!are!realistic!and!achievable.!!The!purpose!of!studying!the!environment!is!to!achieve!a!
fit!between!the!company’s!internal!resources!and!capabilities!and!its!external!environment.!

Earlier!it!was!described!as!the!PEST!Model.!!The!model!describes!how!the!macro!
environment!is!divided!into!a!series!of!influencing!factors.!!Unlike!the!internal!environment,!
the!organization!has!little!or!no!control!over!these!strictly!external!factors.!

THE)PEST)FRAMEWORK)
Let!us!now!consider!the!external!business!environment!within!the!PEST!framework.!!The!
other!elements!in!the!model!will!also!be!dealt!with,!the!legal!aspects!being!treated!in!the!
Political!and!the!Natural!Environment!(Ecology)!aspects!will!be!dealt!with!as!they!arise!in!
the!other!areas!of!the!PEST!framework.!!For!example,!environmental!protection!laws!in!
P(political)!and!ecology!awareness!in!S(social).!!We!also!recognize!that!the!framework!
provides!convenience!of!analysis,!but!does!not!exclude!that!the!PEST!factors!may!overlap,!
e.g.!Laws!can!be!passed!that!affect!economic!indicators!and!even!social!behavior.!

Our!study!of!the!external!environment!will!show!that!changes!in!the!PEST!framework!can!
result!in!Opportunities!and/or!Threats.!!External!forces!can!be!broadly!categorized!as:!

• Political!(government!policy!related!and!legal!forces).!

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• Economic!(mainly!macroeconomic)!forces.!
• Social,!cultural!and!environmental!forces.!
• Technological!forces.!

In!order!to!survive!and!grow,!organizations!have!to!recognize!and!take!advantage!of!
external!opportunities!as!well!as!identify!and!consider!threats!when!developing!strategies.!!!

To!perform!an!external!scan,!companies!must!gather!information!pertaining!to!the!socioK
cultural,!economic,!politicoKlegal!and!technological!trends!impacting!the!industry.!The!
sources!of!such!information!may!include!local!and!international!newspapers,!specialist!
magazines!&!trade!journals,!academic!publications!and!on!line!sources.!!

Political,)Government)and)Legal)Forces)

The!political!environment!refers!to!the!existing!legal!framework,!government!policies!(both!
in!its!regulatory!and!interventionist!roles)!and!the!political!environment!(especially!
following!elections).!

When!companies!depend!heavily!on!government!contracts,!political!forecasts!are!going!to!
be!a!major!variable!in!an!external!scan.!!Issues!such!as!genetic!engineering,!animal!testing,!
euthanasia,!oil!pipelines!and!other!issues!are!often!highly!politicized!and!divide!public!
opinion.!Such!political!issues!have!a!profound!influence!on!industries!e.g.!pharmaceutical!
industry,!oil!and!gas!industry!and!other!companies!that!support!these!industries..!

At!an!national!policies!and!international!treaties!may!move!support!deregulation!(Airlines,!
telecommunications,!Electricity/Water!Distribution!etc.)!or!open!new!economic!markets.!!
This!has!opened!numerous!opportunities!for!new!industries,!although!the!entry!investment!
may!sometimes!be!unrealistically!high.!

Rising!public!concerns!about!the!impacts!of!business!on!the!natural!environment!have!also!
prompted!national!and!international!(e.g.!E.U)!Parliaments!to!pass!laws!to!protect!the!
environment!e.g.!preservation!of!the!ozone!layer,!marine!ecosystems!and!other!water!
bodies!(e.g.!wetlands)!and!!more!recently!climate!change!issues.!

Managers!need!to!be!aware!of!and!even!anticipate!regulations!and!take!prompt!action!so!
as!to!convert!possible!threats!into!opportunities.!

Activity:!!Assume!you!are!in!the!fast!food!business!and!that!a!law!is!passed!forcing!the!
industry!to!adopt!strict!food!safety!regulations!(e.g.!HACCPKHazards!Analysis!and!Critical!
Control!Point).!!Explain!how!you!can!tackle!this!apparent!threat.!!Complying!with!this!
regulation!will!obviously!cost!your!company!some!money.!!What!other!issues!must!you!
consider?!

Record!your!response!in!your!course!journal.!

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Conversely,!companies!may!have!to!change!or!abandon!strategies!because!of!governmental!
actions.!

The!following!are!some!examples!of!Political!changes:!

• Legal)framework:)
o ImportKExport!regulations!
o This!can!relate!to!duty!imposition!and!quotas!!
o Contract!law!
o In!case!of!trade!dispute,!provision!should!be!made!as!to!what!laws!apply,!
especially!between!different!countries.!
o Criminal!Law!
o Laws!against!fraud,!consumer!protection!etc.!etc.!
o Environmental!protection!regulations!
• Government)Policy:)
o Competition!K!Government!can!wish!to!prevent!market!share!to!be!
concentrated!with!a!few!traders!only.!
o Protectionism!K!Governments!may!prohibit!foreign!companies!from!
competing!with!local!companies!by!imposing!tariffs!or!other!trade!barriers.!
However,!the!World!Trade!Organization!increasingly!urges!member!
countries!against!protectionism.!
o Demand!K!The!government!can!influence!demand!by!subsidizing!or!else!
taxing!certain!targeted!products/services.!!Heavily!taxing!vehicles!can!
reduce!the!demand!for!same!in!countries!with!already!congested!traffic.!
o Emerging!industries!K!Conversely,!subsidies!can!encourage!emerging!
industries.!A!government!can!allow!Business!Process!Outsourcing!
companies!to!emerge!if!it!subsidizes!internet!connectivity!rates.!
• Politics:)
o Political!risk!refers!to!changes!in!previously!negotiated!deals!following!a!
change!in!government.!!The!new!government!may!wish!to!get!a!better!deal!
with!independent!power!producers!or!industries!leasing!government!
property.!
o Based!on!this,!planners!ought!to!develop!awareness!of!the!probability!of!
changes,!the!impact!of!these!changes,!how!the!organization!can!cope!etc.!
o Despite!what!was!stated!earlier!concerning!the!inability!of!companies!to!
influence!the!external!environment,!exceptions!do!exist.!!In!some!
countries,!it!is!possible!to!lobby!politicians!or!influence!public!opinion!(or!
pressure!groups)!in!order!to!prevent!or!reverse!changes.!!For!example,!
traditional!power!producers!may!lobby!against!nuclear!power!based!on!the!
risks!highlighted!by!the!recent!tsunami!in!Japan!(March!2011)!
o As!seen!in!the!examples!above,!political!forces!may!present!opportunities!
as!well!as!apparent!threats.!!The!role!of!the!strategist!is!to!keep!a!watch!on!

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changes!and!anticipate!the!possible!effects!so!as!to!devise!strategies!to!
either!ride!the!wave!of!opportunities!or!circumvent!the!threats.!

)ECONOMIC)FORCES )
The!state!of!the!economy,!both!national!and!regional!(sometimes!global)!affects!businesses!
and!industries.!In!times!of!boom,!there!is!increased!demand!and!consumption.!!In!times!of!
recession,!there!is!more!emphasis!on!cost!effectiveness!and!survival,!although!some!
businesses!thrive!in!a!recession.!

Activity:)Identify!a!few!examples!of!businesses!that!thrive!during!an!economic!recession.!

Record!your!response!in!your!course!journal.!

!
Common)Economic)variables/indicators)

Some!economic!variables!that!impact!a!business!environment!are!given!below:!

• Inflation!Rates!
• Corporate!Tax!Rates!
• Government!Spending!
• Globalization!
• Shifts!in!National!Economies!(agricultural!to!industrial!to!knowledgeKbased)!
• Unemployment!rates!
• Availability!of!credit!!
• Worker!productivity!levels!
• Foreign!currency!rates! !

Activity:!Explain!how!each!one!of!the!above!can!present!opportunities!and/or!threats!
to!your!chosen!organization.!

Record!your!response!in!your!course!journal.!

!
Economic!factors!can!have!dramatic!impacts!on!business!strategies.!!One!example!is!
interest!rates!as!influenced!by!Central!Banks.!!If!interest!rates!rise,!debt!funding!needed!for!
capital!expenditure!becomes!more!expensive,!discretionary!income!declines!(you!spend!
more!for!your!loan!repayments)!and!as!a!result,!demand!for!discretionary!goods!falls.!

Trends!in!the!exchange!rate!of!foreign!currency!have!significant!effects!on!exports!and!
imports!(and!tourism).!!Governments!often!proceed!with!overt!or!covert!“devaluation”!of!
local!currency!to!boost!revenue!from!exports!or!Tourism.!!Government!spending!on!the!
other!hand!has!both!direct!and!indirect!effects!on!business.!!Companies!that!are!major!
suppliers!of!the!government!e.g.!infrastructure!builders!(road!builders,!hardware!providers,!
etc.)!have!direct!opportunities.!!Other!companies!benefit!from!the!“knock!on!“effect,!e.g.!

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construction!jobs!are!created,!the!above!companies!need!supplies!(goods!and!services)!
provided!by!other!companies!and!so!on.!

In!certain!situations,!job!loss!during!recession!can!be!considered!as!a!blessing!in!disguise.!!
Laid!off!workers!can!be!encouraged!(and!empowered)!to!become!entrepreneurs,!whereby!
they!take!charge!of!themselves!and!may!even!be!able!to!create!new!employment.!

SOCIONCULTURAL,)DEMOGRAPHIC)AND)ENVIRONMENTAL)FORCES)
Social!change!refers!to!changes!in!the!nature,!attitudes!and!behaviors!of!people!in!a!given!
community.!!In!a!developing!country,!it!is!hoped!that!the!population!will!become!better!
educated,!have!access!to!good!health!care!and!better!manage!other!social!ills.!!As!the!social!
culture!matures!there!will!be!more!awareness!on!the!need!to!preserve!the!natural!
environment!and!more!women!will!enter!the!workplace!and!eventually!seek!top!positions!
in!organizations.!

Ageing!populations!could!trigger!opportunities!in!the!elder!service!sector!e.g.!in!the!form!of!
seniors!apartment!complexes!with!served!meals.!!An!elderly!population!is!a!potential!
market!for!business!initiatives!like!private!geriatric!health!care,!specialist!financial!
services(investment!funds),Crime!prevention,!local!and!overseas!air!travel,!sea!cruising!and!
leisure!in!general.”!!In!Germany,!for!example,!the!percentage!of!the!population!over!age!65!
is!expected!to!rise!to!20.7!percent!in!2010!from!15.4!percent!in!1990”Jones!&George!
(2003:166)!

SocioKcultural!variables!include:!

1. Demography)

Demography!is!the!analysis!of!statistics!related!to!birth!and!death!rates,!structure!
of!populations,!ethnic!group!considerations!etc.!!Demography!is!important!to!a!
business!because!labor!is!a!factor!of!production.!!It!is!people!who!create!demand!
for!goods/services!and!a!relationship!exists!between!population!growth,!living!
standards!and!buying!habits.!

Examples!of!demographic!variables!include:!

• Birth!rates! !
• Ageing!population!
• Ethnicity!
• Sex!distribution!
• Age!structure!of!the!population!
• Family!and!household!structure!
• Social!structure!(class!considerations)!
• Human!resource!considerations!
!

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2. Culture)

Culture!is!referred!to!as!the!shared!values,!beliefs!and!norms!that!impact!the!
attitudes!and!behavior!of!people!in!a!given!group.!!Knowledge!of!culture!is!
important!for!a!business!because!marketers!can!adapt!their!products!and!appeals!
according!to!the!cultural!dimensions!mentioned!above.!In!addition,!the!human!
resource!function!has!to!tackle!such!cultural!differences!in!recruitment!and!training!
of!staff!for!working!abroad!and!exporters!have!to!learn!the!characteristics!of!
foreign!markets.!

Examples!of!cultural!considerations!include:! ! !

• Attitudes!towards!product!quality!
• Ethical!concerns!!
• Social!responsibility!
• Buying!patterns!
• General!environmental!protection!issues!
• Ozone!depletion!
• Climate!change!
• Endangered!species!
• Knowledge!of!culture!

Ignorance!of!culture!can!be!costly!in!business.!Two!companies!may!have!very!good!
rational!reasons!to!merge,!based!on!financial!considerations!(on!paper)!however!
cultural!incompatibilities!between!people!and!companies!may!make!the!merger!
become!unworkable!in!practice.!

TECHNOLOGICAL)FORCES)
In!business,!technology!does!not!refer!to!mere!“”gadgets”.!!It!concerns!three!main!things!
and!their!interactions,!namely:!equipment,!use!of!that!equipment!in!conjunction!with!other!
equipment!and!the!organization!of!people/teams!to!make!productive!use!of!the!
equipment.!!The!strategic!importance!of!technology!therefore!does!not!only!lie!in!the!
equipment!solely,!but!on!the!existing!infrastructure!and!the!people.!!Technology!is!about!
information,!data,!communications!and!collaboration.!

Business!operations!are!being!revolutionized!almost!daily!by!new!technology!innovations!
such!as!robotics,!fiber!optics,!wireless!internet!connectivity,!smart!software!and!satellite!
communications!etc.!!Technology!is!an!integral!part!of!eKmarketing,!eKcommerce,!electronic!
funds!transfer,!space!communications,!telemedicine!etc.!

Technology!innovations!can!dramatically!influence!the!way!products/services!are!designed!
and!manufactured!(computer!aided!design)!and!the!way!they!are!distributed!and!sold!(eK
marketing!and!eKcommerce).!!They!can!‘create’!new!markets!and!change!competitive!cost!
positions!in!an!industry,!sometimes!in!a!disruptive!manner.!!Internet!for!example!has!

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changed!the!way!we!control!fixed!and!variable!costs!in!communications!whether!voice!or!
paper!communications.!!Mobile!phone!communications!is,!however,!a!new!item!on!
communications!costs!in!business.!!Technology!can!therefore!present!numerous!business!
opportunities!but!also!sometimes!create!additional!weaknesses!or!threats.!!!

Activity:!Explain!how!new!technology!can!present!a!threat!to!an!established!industry.!

Record!your!response!in!your!course!journal.!

!
Technology!changes!so!rapidly!that!a!company!must!continuously!operate!a!technology!
watch!in!order!to!keep!pace!with!changes.!!One!way!of!forecasting!is!called!futurology.!!It!is!
basically!planning!the!future!via!a!study!of!sociological!and!technological!developments,!
values!and!trends.!!Others!use!a!Delphi!model!which!involves!a!panel!of!experts!who!
provide!views!about!future!happenings,!e.g.!inventions,!technological!breakthroughs!and!
other!changes.!!Otherwise!a!simple!but!careful!technology!watch!will!suffice,!e.g.!by!reading!
specialist!magazines!and!scientific!academic!publications!and!research!papers.!

Technology!can!greatly!affect!barriers!of!entry!and!exit!and!can!therefore!reshape!a!whole!
industry.!For!example,!wireless!communications!technology!has!lowered!barriers!to!entry!in!
telephony,!companies!no!more!needing!to!build!a!physical!network!of!poles!and!wires!to!
connect!people.!

Based!on!the!above,!technology!can!present!many!opportunities.!!However,!technological!
obsolescence!can!also!present!threats.!

ADDITIONAL)CONSIDERATIONS)
At!this!point!of!our!analysis,!we!can!complement!the!discussion!by!mentioning!a!few!
additional!issues!apart!from!the!strict!PEST!model.!!Some!authors!include!two!more!
dimensions!to!analyze:!pressure!groups!and!ecology.!

Pressure!groups!are!formed!to!fight!for!a!cause!(Protection!of!Animals)!or!for!protecting!
particular!interests!(e.g.!Trade!Unions!and!Chambers!of!Commerce).!!Such!pressure!groups!
influence!business!in!a!number!of!ways.!!They!may!force!business!to!comply!with!certain!
principles!(“Smoking!damages!your!health”!campaigns!on!cigarette!boxes).!!Alternately,!
companies!may!themselves!promote!pressure!or!interest!in!a!spirit!of!social!responsibility,!a!
powerful!image!building!tool.!!Therefore,!ecology!can!be!both!a!threat!and!an!opportunity!
for!the!company.!!“Shell!became!the!focus!of!criticisms!of!oil!industry!practice!in!Nigeria,!
but!is!now,!thanks!mainly!to!external!pressure!rather!than!corporate!initiative,!one!of!only!
three!companies!highlighted!by!Amnesty!International!for!having!explicitly!committed!
themselves!to!human!rights!in!their!code!of!conduct!”CIMA!Study!Text!(1998)!

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Shell!has!in!the!past!had!to!face!aggressive!mobilization!of!public!opinion!against!its!
practices!from!Greenpeace.!!Also!think!of!BP!and!its!reaction!to!the!oil!spill!in!the!Gulf!of!
Mexico.!

OPPORTUNITIES)AND)THREATS)
An!external!audit!identifies!opportunities!with!profit!potential!which!could!match!the!
company’s!strengths.!!Environmental!threats!were!anticipated!e.g.!from!a!declining!
economy!or!from!competitors’!actions,!against!which!the!company!must!protect!itself.!

Opportunities!can!be!assessed!and!placed!in!order!of!priority!based!on!the!following:!

• Identification!of!opportunities.!!
• Measurement!of!their!profitKmaking!potential.!
• Assessment!of!competitors’!capability!to!exploit!opportunities.!
• Assessment!of!the!company’s!potential!performance!in!the!opportunity.!

Activity:!Using!your!original!organization!as!an!example,!assess!whether!an!opportunity!
for!market!penetration!would!be!appropriate.!

Record!your!response!in!your!course!journal.!

!
Threats!

To!analyze!potential!threats!consider!the!following:!

1. Identify!threats!to!the!company!or!the!industry.!
2. Assess!how!competitors!will!be!affected.!
3. Assess!how!the!company!will!be!affected.!!!
• Is!the!company!strong!enough!to!deal!with!the!threat?!!!
• Does!the!company!have!to!overcome!any!of!its!weaknesses!in!order!to!survive!
the!threat?!!
• Do!we!have!to!plan!any!contingency!strategy?!
4. Finally,!other!aspects!of!Opportunities!and!Threats!that!should!be!considered!are:!
• Future!changes!(apart!from!current!changes)!in!the!competition!and!in!the!
business!environment.!
• Market!response!to!any!of!the!above!changes!should!they!occur.!

For!example,!the!government!may!impose!taxes!on!alcoholic!drinks!in!order!to!limit!
consumption/and!increase!tax!revenue.!!The!question!is!whether!consumers!will!effectively!
reduce!consumption!or!maintain!it!while!reducing!expenditure!on!other!products!or!
services!e.g.!leisure.!!If!it!is!anticipated!that!consumers!will!maintain!consumption!patterns,!
status!quo!is!better.!!If!on!the!other!hand,!it!is!anticipated!that!consumers!will!reduce!
consumption,!then!the!strategy!could!be!to!sell!in!smaller!volumes.!

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SelfNAssessment)Exercise)

Using!your!original!example!from!the!first!exercise!on!business!environment,!apply!the!PEST!
framework!to!identify!any!opportunities!and!threats.!!You!should!prioritize!your!findings!in!
order!of!importance!and!justify!your!list.!

Save!your!data!for!the!coming!SWOT!analysis.!!Record!your!data!and!response!in!your!
course!journal!

SUMMARY)
In!this!topic!we!introduced!you!to!some!strategic!planning!tools!like!the!Porter’s!Five!Forces!
Model.!!The!model!will!help!you!analyze!the!micro!environment!of!business!and!the!PEST!
model!to!study!the!political,!economic,!social!and!technological!environments!of!business.!!
Both!these!tools!enable!the!strategist!to!identify!the!Opportunities!and!Threats!facing!the!
company.!!This!and!previously!dealt!with!analysis!of!the!internal!environment!will!enable!us!
to!complete!the!SWOT!analysis!in!the!next!Unit.!

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UNIT)TWO)–)SUMMARY)
ASSIGNMENTS)AND)ACTIVITIES)
Complete!the!activities!and!selfKassessment!exercise!described!in!the!topics.!!Send!a!copy!of!
your!journal!entries!to!your!instructor!for!review!and!feedback.!

SUMMARY)
In!this!unit!we!explored!Porters!Five!Forces!Model!and!how!to!use!it!to!analyze!the!threats!
and!opportunities!to!your!business.!!Entrepreneurs!and!business!managers!must!be!
constantly!looking!to!expand!their!business.!!New!opportunities!must!be!systematically!
investigated!and!threats!to!your!existing!or!future!business!must!be!identified!and!
appropriate!measures!taken!to!eliminate!or!reduce!the!impact!of!the!threat.!!!

UNIT)REFERENCES)
SUPPLEMENTARY)READINGS)
If!you!wish!to!learn!more!about!the!topics!covered!in!this!unit,!you!should!review!one!or!
more!of!the!books!and!articles!listed!below.)

Barney,!J.!B.!!(1983).!“Strategic!Factor!Markets,!Expectations,!Luck!and!Business!
Strategy”,!Management!Science,!32(10),!pp1231K1241!

Bhagwati,!J.!(1988).!“Protectionism”,!Cambridge,!MIT!Press!!

Clegg,!S.!Kornberger.!M!and!Pitsis.T!(2005).!“Managing!Organisations”,!SAGE!

Collins,!J.!and!Porras,!J.!(1996).!!“Building!your!Company’s!Vision”!

Goleman,!D.!(1995).!“Emotional!Intelligence”,!New!York!

Henry,!!(),!“Understanding!Strategic!Management”,!Oxford!University!Press!

Makinsey,!J.!T.!&!!&!Pandian,!J.!R.!(1992).!“The!Resource!Based!View!within!the!
conversation!of!Strategic!Management”,!S.M!Journal15,(5),!pp363K380!

Marsden,!A.!(1998).!“Management!Accounting”!Jan!1998!

Penrose,!E.!(1959),!“The!Theory!of!the!Growth!of!the!Company”,!Oxford!University!Press!

Prahalad,!C.!&!Hamel,!G.!(1990),!“The!Core!Competence!of!the!Corporation”,!Harvard!
Business!Review,!MayKJune!94:103!

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Porter,!M.!(1980),!“Competitive!Strategy:!Techniques!for!analysing!industries!and!
competitors”,!New!York!Free!Press!

Rumelt,!D.!P.!!(1984).!“Towards!a!Strategic!Theory!of!the!Company”,!Elgar!Reference!
Collection!

http:wwww.Investopedia.com!(retrieved!on!18/03/2011)!

http://www.whatmakesagoodleader.com/InternalKAnalysis.html!(retrieved!on!
19/03/2011)!!

http://www.oup.com/uk/orc/bin/9780199288304/henry_ch05.pdf!(retrieved!on!
19/03/2011)!

BIBLIOGRAPHY)
Below!is!a!list!of!references!described!in!the!topics!presented!in!this!unit.!!You!may!wish!to!
review!them!to!learn!more!about!the!information!presented!in!the!topics.!

Tadelis,!(2007).!“The!Innovation!Organization:!Creating!value!through!outsourcing”,!
California!Management!Review,!50(1),!261K277.!
!
Hall,!J.!(2006).!“A!passage!from!India”,!Telegraph,!17!June!2006.!!“Understanding!
supply!chain!risk”:!A!McKinsey!Global!Survey,!October!2006.!
!
Haberberg,!A.!&!Rieple,!A.!(2007).!“Strategic!Management:!Theory!and!
Application”,!Oxford!University!Press!(Chapter!3).!
!
Lasserre,!P.!(2007).!“Global!Strategic!Management”,!second!edition,!PalgraveKMacmillan!
(chapter!9).!

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UNIT)3)–)STRATEGY)FORMULATION)&)IMPLEMENTATION)

UNIT)INTRODUCTION)
In!this!unit!we!explore!how!to!put!all!the!pieces!together!and!formulate!strategy!to!address!
the!issues.!!Once!strategies!are!created!they!must!be!implemented.!!During!strategy!
formulation!managers!must!match!the!identified!SWOT!issues!with!other!product/market!
elements!such!as!new!and!existing!product/markets,!market!growth,!market!share,!industry!
effectiveness!etc.!!This!matching!exercise!ideally!uncovers!other!feasible!strategies!such!as!
cost!leadership,!market!penetration,!horizontal/vertical!integration!or!ultimately!
divestment!or!sells!out.!!Finally,!we!shall!examine!the!implementation!issues!and!their!
impact!on!creating!functional!level!plans,!e.g.!HRM,!Marketing,!Finance,!Production!etc.!

UNIT)OBJECTIVES)
Upon!completion!of!this!unit!you!will!be!able!to:!

5. Explain!how!strategies!are!formulated!using!strategic!management!tools.!
6. Examine!the!portfolio!approach!as!a!decision!making!tool.!
7. Match!product/market!elements!to!devise!strategies.!!!
8. Evaluate!and!choose!strategies!based!on!resources!&!capabilities!appropriate!
criteria.!
9. Analyse!the!role!of!functional!level!planning!in!strategy!implementation.!

TOPICS)
Topic!3.1!K!Strategy!Formulation.!

Topic!3.2!K!Strategy!Evaluation!and!Choice.)

Topic!3.3.!K!Strategy!Implementation.!

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TOPIC)3.1)–)STRATEGY)FORMULATION)
INTRODUCTION)
An!internal!and!external!analysis!identifies!the!company’s!Strengths,!Weaknesses,!
Opportunities!and!Threats.!!Cross!matching!these!elements,!e.g.!matching!strengths!with!
opportunities!enables!managers!to!formulate!strategies!based!on!how!internal!strengths!
can!be!used!to!exploit!environmental!opportunities.!!A!number!of!matrixKtype!models,!
using!different!pairs!of!attribute!(e.g.!market!growth!and!share,!the!product/market!couple!
market!growth!and!competitors’!position!etc.)!!are!used!to!demonstrate!how!strategies!are!
formulated!by!managers!prior!to!choice.!

OBJECTIVES)
Upon!completion!of!this!topic!you!will!be!able!to:!

1. Perform!a!SWOT!analysis.!
2. Formulate!strategies!based!on!the!TOWS!Matrix.!
3. Product/market!share!coupled!in!statutory!using!Ansoff!Matrix.!
4. Use!market!share!and!growth!as!determinants!of!position!in!the!matrix.!
5. Formulate!Grand!Strategies!for!Market!growth!rates!and!strategic!position.!

CONTENT)
• SWOT!Analysis!
• TOWS!Matrix.!
• ProductK!Market!Strategy!Formulation!–!Ansoff!Matrix.!!!
• Business!Portfolio!(Growth/Share!Matrix).!
• Porter’s!Generic!Strategies.!
• Grand!Strategy!Formulation.!

SWOT)ANALYSIS)
As!disussed!in!the!last!unit,!analysis!of!the!internal!environment!and!external!environment!
presents!the!strategist!with!a!number!of!Strengths!and!Weaknesses!&!Opportunities!and!
Threats.!

“A!SWOT!analysis!explores!the!relationship!between!the!environmental!influences!and!the!
strategic!capabilities!of!an!organisation!compared!to!its!competitors”!Johnson,!Scholes!&!
Whittington,!2005.!!Overall,!a!SWOT!focuses!discussion!on!future!choices!and!the!extent!to!
which!an!organisation!is!capable!of!supporting!these!strategies.!

The!SWOT!analysis!method!is!widely!used!by!managers!to!gauge!an!organisation's!strategic!
situation.!!Using!SWOT!to!create!effective!strategies!is!done!by!matching!a!company's!
internal!resources!with!its!external!environment.!!Simply!put,!maximising!strengths!and!
opportunities!and!minimising!weaknesses!and!threats!creates!a!good!fit.!!After!arranging!
these!in!the!matrix,!a!matching!exercise!can!take!place.!!For!example,!an!organisation!

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whose!strength!is!to!possess!excess!working!capital!can!capture!an!opportunity!to!invest!in!
a!growing!business!e.g.!through!an!acquisition!in!the!supplier!chain.!

Example)of)a)SWOT)Matrix)

Tesco!is!one!of!the!largest!U.K!food!retailers.!Over!the!years,!it!has!diversified!in!financial!
services!and!petrol!retail!amongst!others.!Its!main!competitor!is!the!ASDA!group.!

Strengths) Weaknesses)

• Increasing!market!share! • Reliance!upon!the!UK!market!
• Insurance! • Debt!reduction!
• Tesco!online! • Signs!point!to!serial!acquisition!
• Brand!value!
)
• UK!market!leadership!
reinforced!

Opportunities) Threats)

• NonKfood!retail! • UK!structural!change!could!spark!a!
• Health!and!Beauty! price!war!
• Further!international!growth!! • Overseas!return!could!fall!
• WalKMart/ASDA!challenge!
• International!expansion)

!
One!way!to!operationalize!the!SWOT!is!by!converting!the!2!x!2!matrix!into!a!3!x!3!Matrix,!
making!the!matching!of!the!internal!resources!with!the!external!environment!simpler.!!The!
3!x!3!Matrix!is!also!known!as!TOWS!Matrix.!!See!below.!

THE)TOWS)MATRIX)
! STRENGTHS!–!S! WEAKNESSES!–!W!
! 1.! 1.!
! 2.! 2.!
! 3.! 3.!
Always!leave!blank! 4.! 4.!
5.!!!!!List!strengths! 5.!!!!List!weaknesses!
6.! 6.!
7.! 7.!
8.! 8.!
9.! 9.!
10.! 10.!

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!!!!OPPORTUNITIES! !!!SO!STRATEGIES! !!!WO!STRATEGIES!
1.! 1.! 1.!
2.! 2.! 2.!
3.! 3.! 3.!
4.! 4.! 4.!
5.!!!List!opportunities! 5.!!Use!strengths!to!take!! 5.!!Overcome!weaknesses!by!
6.! 6.!!!advantage!of! 6.!!!taking!advantage!of!!
7.! opportunities! 7.!!!opportunities!
8.! 7.! 8.!
9.! 8.! 9.!
10.! 9.! 10.!
10.!
!!!!!!THREATS!K!T! !!!!!ST!STRATEGIES! !!!!WT!STRATEGIES!
1.! 1.! 1.!
2.! 2.! 2.!
3.! 3.! 3.!
4.! 4.! 4.!
5.!!!!!List!threats! 5.!!Use!strengths!to!avoid!! 5.!!Minimise!weaknesses!
6.! 6.!!!threats! and!
7.! 7.! 6.!!!avoid!threats!!
8.! 8.! 7.!!!!!!!!!!!
9.! 9.! 8.!
10.! 10.! 9.!
10.!
!
Source:!‘Strategic!Management!–!Concepts!&!Cases’,!!F.R.!David,!1998!

From!the!Matrix,!strategies!are!formulated!by!matching,!e.g.!Strengths!with!opportunities.!!
Thus,!in!an!Island!State,!one!can!match!a!strength!“Multilingual!Workforce”!with!an!
opportunity!“open!access”!to!develop!a!strategy!“targeting!the!Chinese,!Indian!and!African!
markets”.!!The!assumption!is!that!this!Island!has!a!population!of!immigrants!from!the!
abovementioned!countries.!

What!follows!is!a!TOWS!Matrix!for!an!entertainment!company,!Cineplex!Odeon!specialising!
in!the!Cinema!viewing!business.!!!

! )

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Example)N)Cineplex)Odeon)TOWS)Matrix)

! STRENGTHS!–!S! WEAKNESSES!–!W!
! 1. Located!in!large! 1. Poor!labour!relations.!
! population!centers.! 2. Current!ratio!of!0.25.!
! 2. Positive!cash!flow!3!years! 3. Flat!operating!cost!
! running.! through!falling!revenue.!
3. Double!the!industry! 4. Triple!the!G!&!A!expenses!
concession!sales!rate.! of!Carmike.!
4. Many!costKcutting! 5. Significant!losses!in!the!
measures!in!place.! US.!
5. Upgraded!audio!in!many! 6. Management!
places! concentrating!on!market!
6. Profitable!in!Canada.! share.!
7. Restrictive!covenants!set!
by!Tenders!
!!!!OPPORTUNITIES! !!!SO!!!STRATEGIES! !!!WO!!!STRATEGIES!
! ! !
1. Approached!by!most! 1. Open!theatres!in!Eastern! 1. Pursue!merger!with!!
major!Chains!for! Europe!(S1,!O2,!O3)! American!Cinemas!(O1,!
potential!merger.! O2,W3,!W4,!W5,!W6)!
2. Opening!economies!in! !
Eastern!Europe.!
3. Rebounding!attendance!
(up!6.4%).!
4. Videotape!industry!worth!
estimated!$18!billion!vs.!
$6.4!billion!for!movie!
theaters.!
5. Foreign!per!capita!income!
growth!outpacing!the!US!
!!!!!!THREATS!–!T! !!!!!ST!STRATEGIES! !!!!WT!STRATEGIES!
! ! !
1. 80%!of!all!households! 1. Open!50!video!rental! 1. Reduce!corporate!
own!VCRs.! stores!in!10!markets!(S1,! overhead!(W3,!W4,!T3,T5,!
2. Ageing!population.! S6,!T1,T3,!T5,!O4)! T6)!
3. Dependence!on! 2. Construct!20! 2. Divest!U.S!operations!(T6,!
successful!movies.! multidimensional! W2,!W3,!W4,!W5,!W6)!
4. Switch!from!bid!to! entertainment! !
allocation.! complexes(S1,T3,!T5,!T6)!
5. Seasonality!for!movie! !
releases.!
6. Increased!competition!in!
Exhibition.!
!
Source:!‘Strategic!Management!–!Concepts!&!Cases’,!!F.R.!David,!1998!

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Activity:!!Based!on!the!organization!you!analyzed!in!the!last!unit!create!a!TOWS!matrix!that!
identifies!the!SWOT!and!its!supporting!strategies.!!!

Record!your!response!in!your!course!journal.)

PRODUCT)MARKET)STRATEGY)FORMULATION)N)ANSOFF)MATRIX)
Igor!Ansoff!proposed!a!vector!growth!matrix,!describing!how!growth!strategies!can!be!
formulated!by!combining!a!company’s!activities!in!current!and!new!markets,!using!new!or!
existing!products.!

)) )

The!matrix!enables!are!to!formulate!growth!vectors!in!four!main!directions!based!on!the!
product!market!couple.!!Diversification!can!be!related!or!unrelated.!!These!will!be!discussed!
later!in!the!unit!to!help!you!choose!a!strategy!based!upon!growth!potential!barriers!to!entry!
etc.!!Unlike!Porter’s!prescription!to!follow!only!one!generic!strategy,!Ansoff’s!vectors!can!be!
pursued!all!at!once!if!needed.!

Ansoff’s)Matrix)Strategies)

Market)Penetration)N)A!company!seeks!to:!

• Maintain!or!increase!market!share,!e.g.!through!competitive!pricing!or!promotion.!
• Secure!dominance!in!growth!markets.!
• Driving!out!competitors!(e.g.!a!price!war)!
• Increase!customer!usage!e.g.!loyalty!programmes.!
• The!above!strategic!choice!is!made!if!the!market!has!growth!potential.!

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Market)Development)N)Some!approaches!are:!

• Exploit!new!geographical!areas.!
• Use!new!distribution!channels.!
• Apply!differential!pricing!policies!for!different!segments.!

Product)Development)N)The!advantages!of!choosing!product!development!are:!

• The!company!can!exploit!existing!low!cost!promotional!methods!and!distribution!
channels.!
• The!company!exploits!existing!customer!knowledge.!
• Barriers!to!entry!are!high.!

Diversification)N)The!gains!and!risks!of!choosing!diversification!are:!

• Growth!prospects!better!than!the!existing!productKmarket!mix.!
• High!risk!strategy!similar!to!a!startKup.!!But!returns!also!can!be!high.!

BUSINESS)PORTFOLIO)MATRIX)
The!Boston!Consulting!Group!product!portfolio!matrix!is!one!of!the!best!known!techniques!
to!help!managers!formulate!effective!business!strategies.!!!

The!Portfolio!approaches!provide!managers!with!considerable!amounts!of!information!in!a!
structured!and!simplified!format.!!!It!provides!a!common!vocabulary!for!managers!to!use!
their!skills!across!an!array!of!related!and!unrelated!business,!thereby!facilitating!decision!
making.!!!Consequently,!sharing!of!resources!across!business!units!can!be!done!in!a!more!
sustainable!way.!!It!guides!the!sharing!of!resources!using!a!matrix!described!below.!!!

Portfolio)Matrix)Explained)

The!essence!of!the!strategic!portfolio!matrix!is!that!businesses,!products,!and!markets!can!
be!categorized!along!variants!of!two!fundamental!dimensions:!market!attractiveness!and!
relative!business!strength!.!!For!example,!the!pioneering!BCG!matrix!categorizes!businesses!
based!on!relative!market!share!(a!proxy!for!business!strength)!and!market!growth!(a!
selective!measure!of!market!attractiveness).!!The!popular!GE!/!McKinsey!matrix!sorts!by!
multiKfactor!consolidated!measures!of!business!strength!and!market!attractiveness.!

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!Ultimately,!market!attractiveness!is!a!calibration!of!the!size!of!the!prospective!profit!pool!
available!in!the!market.!!!In!effect,!it!is!an!analytical!assessment!of!the!industry's!aggregate!
PLC!profit!peak.!

Competitive!strength!is!a!measure!of!the!likelihood!that!a!company!can!win!a!substantial!
share!of!the!industry!profits.!These!odds!are,!of!course,!based!on!current!or!emerging!
competencies!that!the!company!may!have.!

!The!portfolio!framework!can!be!reduced!to!a!very!simple!resource!allocation!principle:!
companies)should)invest)in)products)that)have)large)prospective)profit)pools!(the!ultimate!
measure!of!market!attractiveness),!and)for)which)the)company)has)an)existing)or)potential)
competitive)advantage!that!enables!it!to!capture!a!meaningful!share!of!the!profit!pool.!

!Accordingly,!the!most!desirable!products!are!in!attractive!markets!(big!prospective!profit!
pools)!where!the!company!has!relevant!competencies!that!can!translate!to!a!high!share!of!
the!industry!profits.!!These!are!potential!growth!businesses!that!typically!merit!investment!
support.!

!At!the!opposite!end!of!the!continuum!are!unattractive!markets!where!a!company!has!no!
particular!competitive!strength.!!These!are!small!or!declining!markets!that!should!be!
avoided.!!If!the!company!has!legacy!products!in!this!category,!they!should!be!harvested!(i.e.!
cut!costs!and!raise!prices!to!maximize!profit)!or,!if!unprofitable,!divested.!

!The!most!questionable!products!are!in!attractive!markets!where!the!company!has!a!weak!
or!unKestablished!competitive!position.!!Action!must!be!taken!to!strengthen!(develop)!the!
competitive!position!(moving!the!business!to!the!invest!/!grow!quadrant)!or!the!company!
should!cut!its!losses!and!withdraw.!!!

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!The!fourth!category!is!comprised!of!markets!where!the!company!is!competitively!strong!
but!the!market!is!unattractive.!!In!these!cases,!"attractive"!may!be!in!the!eyes!of!the!
beholder.!!The!aggregate!markets!may!be!mature!or!declining,!discouraging!participation!by!
most!companies.!!But,!the!markets!may!still!be!profitable,!especially!for!companies!with!
strong!established!positions!(i.e.!high!share,!low!costs).!!These!companies!should!maintain!
their!positions!and!protect!the!profits!and!cash!flow!generated!by!the!businesses.!

!The!portfolio!matrix!provides!directional!guidance!for!allocating!investment!resources!and!
differentially!managing!businesses.!Importantly,!the!guidance!is!not!a!set!of!hard!rules,!and!
is!directional,!not!specific!to!any!particular!business,!product!or!market.!!So,!care!must!be!
taken!to!tailor!the!guidance!to!specific!cases.!

!Further,!the!initial!sorting!and!categorization!is!a!static!representation.!!But,!markets!and!
competitive!positions!are!dynamic.!!Markets!are!always!changing!(e.g.!growing!or!declining,!
becoming!more!or!less!profitable),!and!competitive!positions!can!be!changed!via!strategic!
and!tactical!initiatives.!!Projecting!these!dynamics!is!fundamental!to!effective!portfolio!
management.!

)Matrix)Weakness)

Some!of!the!criticisms!of!this!approach!include:!

• Despite!apparent!clarity!in!measurement!(e.g.!market!share!and!growth),!it!is!not!
obvious!how!these!can!be!measured!with!adequate!accuracy!and!precision.!
• The!focus!on!market!share!and!growth!as!the!only!measures!of!company!
performance!was!limited!in!scope.!!Other!soft!factors!such!as!ethical!stances!do!
matter!nowadays.!
• The!matrix!relates!business!units!based!on!cash!consideration!without!reference!to!
common!value!creation.!!In!effect,!business!units!do!synergise!and!can!be!
interdependent!to!a!large!extent.!!They!are!level!stand!alone.!
• The!usefulness!of!the!matrix!depends!on!above!average!market!share!and!growth!
rates.!!Average!businesses!cannot!use!the!matrix!for!decisionKmaking.!!
• The!portfolio!approach!downplays!the!fact!that!“empires”!having!several!SBU’s!
under!corporate!control!end!up!developing!inertia.!!The!trend!is!to!make!them!
become!autonomous!and!function!as!SME’s.!

PORTER’S)GENERIC)COMPETITIVE)STRATEGIES)
Porter’s!Generic!Strategies!were!described!earlier!in!Unit!1!in!the!context!of!the!Strategic!
Management!Process.!!In!this!unit,!we!demonstrate!how!the!generic!strategies!are!
formulated!as!a!part!of!the!creation!of!a!competitive!advantage!and!competitive!scope.!

The!matrix!formulates!two!types!of!focus,!namely!differentiation!focus!and!cost!focus.!!
Choice!of!a!generic!strategy!will!depend!on!resources!and!capabilities!as!to!discussed!in!the!
next!Topic.!

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! Source:!The!Competitive!Advantage!of!Nations,!Michael!Porter,!1998!

Cost)Leadership)

In!cost!leadership,!a!firm!sets!out!to!become!the!low!cost!producer!in!its!industry.!The!
sources!of!cost!advantage!are!varied!and!depend!on!the!structure!of!the!industry.!They!may!
include!the!pursuit!of!economies!of!scale,!proprietary!technology,!preferential!access!to!
raw!materials!and!other!factors.!A!low!cost!producer!must!find!and!exploit!all!sources!of!
cost!advantage.!if!a!firm!can!achieve!and!sustain!overall!cost!leadership,!then!it!will!be!an!
above!average!performer!in!its!industry,!provided!it!can!command!prices!at!or!near!the!
industry!average.!

Differentiation)

In!a!differentiation!strategy!a!firm!seeks!to!be!unique!in!its!industry!along!some!dimensions!
that!are!widely!valued!by!buyers.!It!selects!one!or!more!attributes!that!many!buyers!in!an!
industry!perceive!as!important,!and!uniquely!positions!itself!to!meet!those!needs.!It!is!
rewarded!for!its!uniqueness!with!a!premium!price.!

Focus)

The!generic!strategy!of!focus!rests!on!the!choice!of!a!narrow!competitive!scope!within!an!
industry.!The!focuser!selects!a!segment!or!group!of!segments!in!the!industry!and!tailors!its!
strategy!to!serving!them!to!the!exclusion!of!others.!

The!focus!strategy!has!two!variants.!!In!cost!focus!a!firm!seeks!a!cost!advantage!in!its!target!
segment,!while!in!differentiation!focus!a!firm!seeks!differentiation!in!its!target!segment.!
Both!variants!of!the!focus!strategy!rest!on!differences!between!a!focuser's!target!segment!

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and!other!segments!in!the!industry.!The!target!segments!must!either!have!buyers!with!
unusual!needs!or!else!the!production!and!delivery!system!that!best!serves!the!target!
segment!must!differ!from!that!of!other!industry!segments.!Cost!focus!exploits!differences!in!
cost!behaviour!in!some!segments,!while!differentiation!focus!exploits!the!special!needs!of!
buyers!in!certain!segments.!

GRAND)STRATEGY)FORMULATION)
One!way!to!select!a!grand!strategy!is!through!a!matrix!relating!growth!rate!of!the!general!
market!and!the!company’s!competitive!position!in!that!market.!!!

The!four!quadrants!categorise!companies!as!being!in:!

A:!Strong!competitive!position!in!a!rapidly!growing!market.!

B:!Weak!position!in!a!rapidly!growing!market.!

C:!Weak!position!in!a!slowKgrowth!market.!

D:!Strong!position!in!a!slow!growth!market.!

Source:!Adapted!from!Pearce.J!&!Robinson.!R,!2007!

HORIZONTAL)INTEGRATION)(QUADRANT)B))
This!refers!to!a!company’s!long!term!strategy!being!based!on!growth!through!the!
acquisition!of!similar!companies.!!This!strategy!reduces!number!of!competitors!and!
provides!the!company!with!access!to!new!markets.!!For!example,!one!telecom!provider!

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may!acquire!another!telecom!provider!selling!similar!services!to!increase!market!share!and!
reduce!competition.!

VERTICAL)INTEGRATION)(QUADRANT)A))
Companies!may!acquire!other!companies!that!supply!them!with!inputs,!e.g.!raw!materials.!!
They!may!likewise!acquire!companies!that!are!customers!for!its!outputs,!e.g.!manufacturer!
acquiring!warehouses.!!!

When!operating!at!an!earlier!stage!of!the!production!–marketing!process,!the!strategy!is!
termed!backward!vertical!integration.!!Conversely,!when!operating!at!the!next!stage!nearer!
to!the!ultimate!customer,!it!is!termed!forward!vertical!integration.!

One!example!is!Ford:!“The!manufacturing!process!was!integrated!to!the!point!that!iron!are!
entered!one!end!of!the!long!plant,!and!finished!automobiles!rolled!out!at!the!other!end”!
Whelan!T!&!Hunger.!J,!2008!

CONGLOMERATE)DIVERSIFICATION)(QUADRANT)D))
Seeking!financial!synergy,!companies!seek!a!balance!in!their!portfolio.!!They!may!balance!
their!existing!businesses!having!their!existing!businesses!having!a!cyclical!(seasonal)!sales!
with!businesses!having!counter!cyclical!sales!or!balance!between!high!debit!businesses!and!
high!leverage!ratio!businesses.!!Companies!may!transfer!their!own!stateKofKtheKart!
management!systems!t!less!well!managed!acquired!companies.!!!

Choosing!the!right!acquisition!to!become!successful!involves!avoiding!a!few!errors:!

• Choosing!the!wrong!target.!!This!can!be!addressed!by!checking!vision!and!goals!and!
ensuring!that!the!acquisition!concerns!with!the!former.!
• Wrong!price.!
• Correct!pricing!depends!on!the!valuation!model(s)!ability!to!internalize!market!
trends!and!growth!patterns.!
• Non!price!issues!disregarded.!
• Apart!from!price,!one!has!to!look!at!the!legal!aspects!and!relational!issues.!!One!
example!is!cultural!mismatch.!
• Hasty!change.!

Change!must!be!managed!carefully!taking!into!consideration!aspects!of!resistance!at!
organizational!and!individual!levels,!rewards!issues!and!other!operational!issues.!

Turnaround)

Declining!profits!can!result!from!economic!reasons,!inefficiencies!or!competition.!!In!this!
situation,!one!solution!is!to!take!measures!to!improve!distinctive!competencies!over!time.!!
This!can!be!done!by!one!or!two!measures,!namely:!

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1. Cost)Reduction:!!One!strategy!is!to!reduce!the!workforce!and!operations!as!far!as!
possible.!

Example!Cost!Reduction!Strategies!

• Delayering!–!removal!of!layers!of!middle!management.!
• Downsizing!–!attribution!at!lower!levels.!!!
• Another!measure!is!using!lease!to!acquire!equipment!instead!of!
purchasing,!refurbishing!machinery!instead!of!renewing!etc.!
!
2. Asset)Reduction:))Sale!of!unused!land,!buildings!and!unused!obsolete!equipment!
and!reduction!of!managerial!benefits!such!as!luxury!card!etc.)

Divestiture/Sell)out/Bankruptcy/Liquidation)

If!a!company!is!in!such!a!weak!competitive!position!that!it!cannot!become!afloat!neither!by!
selling!assets!nor!by!finding!a!financial!partner,!it!has!little!other!choice!than!to!sell!out.!!
The!best!sellingKout!process!is!where!a!buyer!preserves!the!jobs!of!employees!and!has!the!
necessary!resources!and!capabilities!to!return!the!company!to!sustained!profitability.!

The!other!case!is!when!a!company!has!a!number!of!!divisions!and!it!decides!to!sell!one!or!
more!(but!not!all)!divisions!!having!low!performance!potential.!!This!is!termed!divestment.!

The!third!situation!is!when!a!company!is!in!a!weak!position!and!little!growth!prospects.!!In!
this!case,!no!one!would!be!interested!to!buy!the!company.!!It!may!then!either!go!bankrupt!
or!face!liquidation.!

In!bankruptcy,!the!Courts!take!up!management!of!the!company.!!A!receiverKmanager!
decides!on!the!claims!on!the!company!and!settles!obligations.!!A!new!management!team!
may!then!take!over!to!restructure!to!make!it!competitive!again!(sold!as!a!going!concern).!!!

Liquidation!on!the!other!hand,!is!more!drastic.!!Here!the!company!is!terminated!and!assets!
are!sold!for!cash!which!is!then!distributed!to!employees!(dues)!shareholders!and!creditors!
as!in!the!order!of!priority!that!law!prescribes.!

Quite!often,!companies!arrive!to!the!above!situations!following!unwillingness!of!
management!to!admit!foreseeable!decline.!!They!may!do!so!for!fear!of!blame!or!lack!of!
foresight!(or!hoping!for!a!miracle).!!A!strong!Board!of!Directors!can!prevent!this!by!boldly!
asking!the!management!team!to!quit.!

Note:!Joint!Ventures!(Quadrant!C)!discussed!in!Topic!3.3.!

) )

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SelfNAssessment)Exercise)

Using!the!template!below!perform!a!SWOT!analysis!for!a!company!you!have!knowledge!of,!
work!for!or!are!creating.!!Once!you!have!completed!your!SWOT!then!create!a!TOWS!matrix!
to!illustrate!your!analysis!findings!and!strategy!creation.!!See!template!below.!

Record!your!response!in!your!course!journal.!

) STRENGTHS)–)S) WEAKNESSES)–)W)
) ) )
) ) )
) ) )
) ) )
) )
) )
) )
) )
) )
) )
) )
) )
)
))))OPPORTUNITIES) )))SO)))STRATEGIES) )))WO)))STRATEGIES)
) ) )
) ) )
)
)
)
)
)
)
)
)
)
)
))))))THREATS)–)T) )))))ST)STRATEGIES) ))))WT)STRATEGIES)
) ) )
) ) )
)
)
)
)
)
)
)
)
SUMMARY)
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In!this!topic,!we!explored!a!variety!of!methods!used!to!formulate!strategies,!namely!the!
TOWS!matrix,!the!BCG!matrix,!Ansoff’!s!matrix,!Porter’s!Generic!Strategies!and!the!Grand!
Strategy!Matrix.!!As!demonstrated!strategies!can!be!formulated!based!on!a!number!of!
matching!characteristics!such!as!market!share,!growth,!product,!market,!competitive!
advantage!etc.!!In!the!next!topic!we!will!provide!additional!guidance!on!how!to!select!
appropriate!strategies.!

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TOPIC)3.2)–)STRATEGY)CHOICE))
INTRODUCTION)
In!the!previous!topic,!a!number!of!strategic!management!tools!were!introduced.!!Based!on!
parameters!such!as!market!growth!and!share,!product/market!couple,!competitive!
advantage!and!competitive!position,!it!was!seen!that!managers!could!match!the!issues!and!
items!using!different!matrixes!to!formulate!strategies.!

Once!matching!is!complete!managers!have!to!choose!the!strategies!that!are!suitable!based!
on!strategic!fit,!which!ones!are!feasible!regarding!resources!available!and!whether!they!are!
acceptable,!considering!the!values!culture!of!the!organisation.!!A!company!cannot!adopt!a!
strategy!if!it!cannot!deploy!resources!to!support!creative!marketing!capabilities.!!Similarly,!a!
company!would!not!use!a!portfolio!matrix!(BCG)!for!decision!making!if!its!SBU’s!do!not!
display!valuable!growth!rates!of!a!considerable!magnitude!(0%!–!20!%).!

Some!overlapping!of!models!between!Topic!3.1!and!Topic!3.2!will!be!apparent,!but!is!
necessary!to!explain!formulation!using!these!models!and!referring!to!the!same!models!
when!choosing!strategies!

OBJECTIVES)
Upon!completion!of!this!topic!you!will!be!able!to:!

1. Understand!how!managers!employ!portfolio!matrices!to!make!decisions.!
2. Analyse!the!relative!usefulness!of!matrices!based!on!number!of!parameters!
analysed.!
3. Identify!reasons!for!choice!of!strategies!with!respect!to!resources!and!capabilities.!!
4. Assess!strategies!by!evaluating!suitability,!acceptability!and!feasibility.!
5. Choose!strategies!while!considering!the!assumptions!and!limitations!of!underlying!
models.!

CONTENT)
• Business!Portfolio!(or!growth!share)!Matrix!
• The!Industry!AttractivenessKBusiness!Strength!Matrix!
• Porter’s!Generic!Competitive!Strategies!
• Cooperative!Strategies!
• Choice!based!upon!the!market/product!couple!(Ansoff’s!Matrix)!
• The!Value!Chain!Concept!

BUSINESS)PORTFOLIO)MATRIX)
The!Boston!Consulting!Group!product!portfolio!matrix!is!one!of!the!best!known!techniques!
to!assist!managers!in!making!strategic!choices.!!In!the!last!unit!we!described!one!application!
of!the!BCG!Portfolio!Matrix.!!Below!is!another!interpretation!of!the!matrix.!

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!

Stars!are!products!(or!SBUs)!which:!

• are!currently!growing!rapidly;!!
• need!large!amounts!of!cash!to!maintain!their!position!and!are!leaders!in!their!
segments;!!and!
• generate!large!amounts!of!cash.!!!

They!represent!the!best!opportunities!for!expansion.!!Stars!are!to!be!developed!by!injecting!
fresh!capital!to!increase!market!share.!!They!!

Cash!Cows!are!products!which:!

• are!yow!growth!products!or!business!units;!
• have!high!market!share;!!!
• have!a!low!cost!of!production!and!reinvestment;!and/or!
• generate!cash.!!!

Cash!Cows!provide!funds!for!dividends!and!investment!for!the!rest!of!the!company.!!They!
are!the!foundations!of!the!company!and!should!be!stabilised.!

Dogs!are!products!which!have!low!growth!coupled!with!a!low!market!share.!!They!therefore!
generate!poor!profits!and!need!cash!to!survive.!!The!strategic!move!is!to!minimise!through!
divestment!or!liquidation.!

! !

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Question!Marks!are!products!which:!

• are!high!growth!but!low!market!share!products!or!business!units.!!!
• have!high!cash!needs!but!generate!little!cash;!and!
• Since!growth!is!high,!they!have!to!get!market!share!quickly.!!!

The!strategy!would!be!to!convert!Question!Marks!into!Stars!and!later!into!Cash!Cows.!!!If!
this!is!not!possible,!then!divestment!should!be!considered.!

Business)Portfolio)(Quadrant)Objectives)based)on)strategic)choice))

STAR) PROBLEM)CHILD)
Objective:!Invest!for!growth! Objective:!Develop!opportunities!
• Penetrate!market! • Be!critical!of!prospects!
• Expand!geographically! • Invest!selectively!in!products!or!
• Sell!and!promote!aggressively! services!
• Differentiate! • Specialise!in!strengths!!
• Promote!brand,!if!possible! • Shore!up!weaknesses!
• Accept!moderate!shortKterm!profits! !
• Extend!product!range!
!
CASH)COW! DOG)
Objective:!Maintain!market!position! Objective:!Either!kill!off!or!maintain!and!
and!manage!for!earnings! monitor!carefully!
• Maintain!market!position!with! • Minimise!expenditure!
successful!products!or!services! • Improve!productivity!
• Prune!less!successful!products!in! • Maximise!cash!flow!
range! • Live!with!declining!sales!until!the!
• Differentiate! best!time!to!kill!off!product!
• Promote!brand,!if!possible! • Promote!brand,!if!possible!
• Stabilise!prices,!except!where! • Accept!moderate!shortKterm!profits!
temporary!aggressive!pricing!in!the! • Extend!product!range!
face!of!competition! !
!
!
Assumptions)of)BCG)Matrix)

When!using!the!BCG!matrix,!managers!should!keep!in!mind!the!assumptions!behind!the!
construct.!For!example,!a!company!may!aggressively!price!its!products!so!as!to!gain!market!
share!and!establish!itself!on!the!market.!!However,!low!prices!do!not!carry!high!profitability.!!
Furthermore,!in!order!to!build!a!complete!matrix,!a!growth!of!2K20%!at!least!is!assumed,!
which!is!not!necessarily!the!case!in!many!industries.!

• A!high!market!share!leads!to!better!profitability!(low!price!strategy).!
• A!high!market!share!is!also!synonymous!of!competitive!stability!(a!low!cost!
producer!can!set!in).!

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• For!slow!growing!companies,!increasing!market!share!is!costly!and!cash!is!needed!
(a!cash!cow!is!necessary).!
• Technique!applies!to!multiple!SBU!companies!(large!companies).!
• The!matrix!assumes!mature!industries!(a!sizeable!market!and!a!dynamic!industry).!

Limitations)of)BCG)Matrix)

The!technique!applies!only!to!companies!with!a!diversified!portfolio,!each!having!a!
differential!in!market!share!and!growth!rate.!!A!company!will!normally!choose!a!strategy!
based!on!a!number!of!criteria!e.g.!competitive!strength,!available!resources,!funds,!cost!
benefit!analysis!and!not!only!as!prescribed!by!the!matrix.!

• Some!BCG!prescriptions!can!lead!to!a!lack!of!innovative!new!product!introduction!
(many!innovations!starts!as!Dogs!or!Question!Marks).!!
• BCG!matrix!inadequately!represents!new!businesses!that!are!just!starting!to!grow!in!
new!industries.!
• Financial!analysis!is!downplayed!e.g.!what!is!the!financial!value!added!of!a!given!
alternative.!

THE)INDUSTRY)ATTRACTIVENESSNBUSINESS)STRENGTH)MATRIX)
Given!the!limitations!of!the!growthKshare!matrix,!McKinsey!&!Co!developed!a!matrix!with!a!
broader!focus!for!General!Electric.!!Unlike!the!BCG!matrix!described!earlier!the!Industry!
Attractiveness!Business!Strength!uses!multiple!factors!to!assess!industry!attractiveness!and!
business!strength.!!The!matrix!has!nine!cells!as!opposed!to!four!in!the!BCG!matrix.!

Depending!on!the!location!of!a!business!within!the!matrix,!one!of!the!following!strategies!is!
suggested:!

• Invest!to!grow.!
• Invest!selectively!and!manage!for!earnings.!
• Harvest!or!divest!for!resources.!!

! ! Industry)Attractiveness)

! ! High) Medium) Low)

Selective!
High) Invest! Grow!or!Let!Go!
Business)Strength)

Growth!

Selective!
Medium) Grow!or!Let!Go! Harvest!
Growth!

Low) Grow!or!Let!Go! Harvest! Divest!

Source:!Pearce!J!A.!!&!Robinson!R!B,!Strategic!Management!Theory,!2007!

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Within!each!axis,!the!company’s!businesses!are!rated!on!multiple!strategic!factors.!!Some!of!
the!factors!are!reflected!in!the!below.!

• Industry!attractiveness! !
• Business!strength!
• Nature!of!Rivalry! !
• Cost!Position!
• Bargaining!power!of!Suppliers! !
• Level!of!differentiation!
• Bargaining!power!of!Buyers!!
• Response!Time!
• Threat!of!New!Entrants! !
• Human!Assets!
• Threat!of!Substitute!Products! !
• Financial!Strength!
• Economic!Factors! !
• Public!Approval!
• SocioKpolitical!considerations! !

Companies!have!found!the!McKinsey!GE!Matrix!preferable!to!the!BCG!Matrix!for!three!main!
reasons:!

• The!terminology!associated!with!the!matrix!is!less!offensive!and!more!
understandable.!
• The!multiple!measures!take!into!consideration!more!factors!which!are!relevant!to!
business!strength!and!market!attractiveness!(besides!growth!and!market!share).!
• It!enables!broader!assessment!during!the!planning!process.!

Industry!attractiveness!and!business!unit!strength!are!calculated!by!first!identifying!criteria!
for!each,!determining!the!value!of!each!parameter!in!the!criteria,!and!multiplying!that!value!
by!a!weighting!factor.!The!result!is!a!quantitative!measure!of!industry!attractiveness!and!
the!business!unit's!relative!performance!in!that!industry.!

Industry)Attractiveness)

The!vertical!axis!of!the!GE!/!McKinsey!matrix!is!industry!attractiveness,!which!is!determined!
by!factors!such!as!the!following:!

• Market!growth!rate!
• Market!size!
• Demand!variability!
• Industry!profitability!
• Industry!rivalry!

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• Global!opportunities!
• Macroenvironmental!factors!(PEST)!

Each!factor!is!assigned!a!weighting!that!is!appropriate!for!the!industry.!!
Business)Unit)Strength)

The!horizontal!axis!of!the!GE!/!McKinsey!matrix!is!the!strength!of!the!business!unit.!Some!
factors!that!can!be!used!to!determine!business!unit!strength!include:!

• Market!share!
• Growth!in!market!share!
• Brand!equity!
• Distribution!channel!access!
• Production!capacity!
• Profit!margins!relative!to!competitors!

The!business!unit!strength!index!can!be!calculated!by!multiplying!the!estimated!value!of!
each!factor!by!the!factor's!weighting,!as!done!for!industry!attractiveness.!

Plotting)the)Information)

Each!business!unit!can!be!portrayed!as!a!circle!plotted!on!the!matrix,!with!the!information!
conveyed!as!follows:!

• Market!size!is!represented!by!the!size!of!the!circle.!
• Market!share!is!shown!by!using!the!circle!as!a!pie!chart.!

The!expected!future!position!of!the!circle!is!portrayed!by!means!of!an!arrow.!The!following!
is!an!example!of!such!a!representation:!

The!shading!of!the!above!circle!indicates!a!38%!market!share!for!the!strategic!business!unit.!
The!arrow!in!the!upward!left!direction!indicates!that!the!business!unit!is!projected!to!gain!
strength!relative!to!competitors,!and!that!the!business!unit!is!in!an!industry!that!is!
projected!to!become!more!attractive.!The!tip!of!the!arrow!indicates!the!future!position!of!
the!center!point!of!the!circle.!

Strategic)Implications)

Resource!allocation!recommendations!can!be!made!to!grow,!hold,!or!harvest!a!strategic!
business!unit!based!on!its!position!on!the!matrix!as!follows:!

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• Grow strong!business!units!in!attractive!industries,!average!business!units!in!
attractive!industries,!and!strong!business!units!in!average!industries.!
• Hold average!businesses!in!average!industries,!strong!businesses!in!weak!
industries,!and!weak!business!in!attractive!industries.!
• Harvest weak!business!units!in!unattractive!industries,!average!business!units!in!
unattractive!industries,!and!weak!business!units!in!average!industries.!

There!are!strategy!variations!within!these!three!groups.!For!example,!within!the!harvest!
group!the!firm!would!be!inclined!to!quickly!divest!itself!of!a!weak!business!in!an!
unattractive!industry,!whereas!it!might!perform!a!phased!harvest!of!an!average!business!
unit!in!the!same!industry.!

While!the!GE!business!screen!represents!an!improvement!over!the!more!simple!BCG!
growthKshare!matrix,!it!still!presents!a!somewhat!limited!view!by!not!considering!
interactions!among!the!business!units!and!by!neglecting!to!address!the!core!competencies!
leading!to!value!creation.!Rather!than!serving!as!the!primary!tool!for!resource!allocation,!
portfolio!matrices!are!better!suited!to!displaying!a!quick!synopsis!of!the!strategic!business!
units.!

PORTER’S)GENERIC)COMPETITIVE)STRATEGIES)
Michael!Porter!proposed!two!generic!strategies,!namely!low!cost!and!differentiation.!!!
These!two!strategies!apply!to!companies!of!any!size,!product!or!service.!!Low!cost!refers!to!
the!ability!of!a!company!to!design,!produce!and!sell!a!given!product/service!with!
consistently!more!efficiency!than!competitors.!!Differentiation!is!the!capacity!of!a!company!
to!provide!unique,!superior!value!to!customers/market!segments.!!Differentiation!factors!
may!include!quality!or!after!sales!service.!

Porter!proposed!that!a!company’s!competitive!advantage!is!a!result!of!its!competitive!
scope!i.e.!the!company’s!target!market!breadth!(company’s!mass!market!to!market!niche).!!
Matching!generic!strategies!and!competitive!scope!gives!rise!to!four!generic!competitive!
strategies!as!shown!earlier!in!the!model!described!in!Unit!3,!Topic!3.1.!

))Cost)Leadership)

Cost!leaders!choose!a!low!cost!competitive!strategy!that!broadly!aims!at!a!mass!
market.!!They!use!efficient!large!scale!facilities,!benefit!from!experience!with!cost!
reductions!and!apply!tight!control!on!costs!and!overheads.!!As!a!result,!they!may!
provide!lower!prices!than!competitors!while!still!earning!profits.!!A!lower!cost!
structure!also!erects!a!barrier!to!entry!and!relative!suppliers’!power.!

Examples!of!cost!leaders!are!Southwest!Airlines!and!Dell!Computers.!

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Differentiation)

Differentiation!creates!a!product/service!that!is!unique!and!aims!at!the!broad!mass!
market.!!The!company!may!target!different!segments!with!different!offerings.!!
Differentiated!products!normally!carry!a!premium!price!which!is!associated!with!
quality!features,!design,!and!brand!image!or!customer!service!among!others.!

The!above!attributes!enable!a!premium!pricing!because!of!their!ability!to!foster!
customer!loyalty!and!hence!lower!price!sensitivity.!!In!this!case,!customer!loyalty!
becomes!the!barrier!to!entry.!

Nike!and!MercedesKBenz!are!examples!of!differentiators.!

Cost)Focus)

A!cost!focus!strategy!targets!a!narrow!market!segment!with!a!low!cost!structure.!!
Cost!can!be!controlled!by!saving!on!advertising!and!R!&!D.!!For!example,!a!
manufacturer!of!tissue!paper!may!“copy”!an!existing!mature!technology!and!
produce,!but!not!advertise/brand!its!product.!!It!is!then!sold!to!distributors!who!
brand!it!themselves!(e.g.!generic!supermarket!chain!products,!like!Corn!Flakes,!
toilet!paper,!etc.).!!!!

Differentiation)Focus)

Similar!to!cost!focus,!here!the!target!is!on!a!particular!customer!group!for!
geographic!segments.!!The!company!chooses!to!compete!on!the!basis!of!its!ability!
to!offer!a!product!that!satisfies!the!specific!needs!of!a!narrow!market!segment!than!
competitors.!!For!example,!a!T.V!Channel!may!propose!programmes!for!children!
only.!

WHAT)IS)THE)RISK)IN)COMPETITIVE)STRATEGIES?)
According!to!Porter,!in!order!for!companies!to!be!successful,!they!must!follow!at!least!one!
of!the!generic!competitive!strategies.!!Failure!to!do!so!can!result!in!a!“struck!in!the!middle”!
situation.!!Upon!acquiring!Compaq!in!2002,!HP!was!stuck!between!a!cost!leadership!
strategy!and!a!differentiation!strategy!(Dell!and!IBM)!thus!causing!a!loss!of!market!share.!

Dell!pursued!a!cost!leadership!strategy!achieved!through!manufacturing!PC’s!upon!order!
and!paid!in!advance!with!parts!sourced!as!and!when!required!(no!inventory!costs)!and!
direct!sales!online.!!IBM!differentiated!its!product!based!on!service!quality!by!providing!
interrelated!customer!solutions.!

HP!tried!to!be!everything!at!the!same!time!providing!all!things!to!everyone!thus!rendering!
the!market!more!and!more!concerned!about!its!expectations.!Generic!strategies!present!a!
number!of!risks.!!Cost!Leadership!strategies!are!constrained!when!competitors!imitate!
them,!when!technology!changes!or!where!bases!for!cost!leadership!erode.!

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Differentiation!is!also!at!risk!when!faced!with!imitators.!!Furthermore,!the!basis!of!
differentiation!may!lose!importance!in!the!eyes!of!buyers!(short!term!travellers!may!
become!insensitive!to!inflight!services!when!lowKcost!airlines!set!a!new!trend).!!

Focus!strategies!can!be!imitated!and!the!market!can!slowly!erode!(when!new!focusers!subK
segment)!or!suddenly!the!market!disappear!(e.g.!threats!from!substitutes).!

COOPERATIVE)STRATEGIES)
Apart!from!competitive!strategies,!companies!may!rather!achieve!success!by!choosing!to!
work!in!collaboration!with!other!companies.!!Cooperative!strategies!may!be!either!tacit!or!
explicit.!!Some!are!explored!below.!

Collusion)

Explicit!collusion!between!competitors!to!reduce!output!and!raise!prices!artificially!can!be!
illegal.!!OPEC!may!control!prices!of!petroleum!products!by!asking!its!numbers!to!either!
reduce!or!increase!output.!!There!are!many!resounding!cases!where!Competition!
Commissions!in!certain!countries!have!fined!companies!for!collusion.!

Tacit!collusion!is!possible!given!a!number!of!conditions:!there!is!a!small!number!of!known!
competitors,!cost!structures!are!similar,!there!exist!high!entry!barriers!and!there!is!a!culture!
of!cooperation!rather!than!fierce!competition.!!In!this!case!collusion!occurs!in!the!absence!
of!explicit!communication!between!competitors.!!However,!the!question!that!arises!is!
whether!absolute!non!communication!can!exist!when!companies!naturally!“advertise”!
some!of!their!strategies!which!can!be!copied!by!competitors,!resulting,!for!example,!in!price!
stability.!!!

Collusion!can!also!occur!if!competitors!agree!to!share!the!same!market!space,!by!agreeing!
to!restrict!themselves!to!specific!geographic!locations!or!to!support!each!other’s!products.!!!

Strategic)Alliances)

Strategic!alliances!occur!when!partnership!between!two!or!more!companies!is!undertaken!
to!achieve!mutual!benefits.!!These!type!of!alliances!are!often!shortKlived!due!to!conflicts!
arising!from!different!cultural!practices!that!clash!(although!on!paper,!such!alliances!make!
strong!financial!sense).!!Strategic!alliances!that!have!a!cultural!infinity!may!however!last!
long!and!provide!mutual!benefits!to!all!strategic!partners.!!Forming!and!successfully!
managing!an!alliance!is!a!complex!task!that!is!achieved!not!without!difficulty,!but!can!
represent!a!source!of!competitive!advantage.!

Reasons!to!engage!in!strategic!alliances!include!the!following:!

• Access!to!technology!which!is!pocessed!by!another!company!with!a!strong!R!&!D!
function.!

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• Access!to!markets.!!Instead!of!investing!in!a!new!market!place!(foreign!country),!
one!may!partner!with!a!local!provider!to!sell!your!products!and!services.!
• Reduce!risks.!!In!order!to!compete!with!Boeing,!aeronautics!companies!in!France,!
U.K,!Spain!&!Germany!joined!to!form!Airbus!Industries.!!Companies!may!also!form!
alliances!with!counterparts!in!foreign!countries!to!circumvent!political!barriers!to!
trade.!!Restrictive!countries!may!force!foreign!investors!to!partner!with!local!
companies!as!a!condition!to!gain!access!to!the!country’s!markets.!

Joint)Ventures)

Strategic!alliances!may!end!up!in!a!new!industry!destination!from!the!original!partners!or!
may!end!up!in!joint!ventures!creating!an!independent!business!entity!sharing!
responsibilities,!risks!and!rewards!while!keeping!individual!autonomy!and!identity.!!An!
example!is!the!partnership!between!a!manufacturer!and!a!distributor.!

Companies!in!a!joint!venture!do!not!merge!permanently.!!One!reason!may!be!a!legal!
constraint!(unfair!competition!issues)!or!simply!that!they!do!not!wish!to!do!so.!!One!
example!is!when!a!manufacturer!of!spare!parts!partners!with!an!established!online!
distributor!like!Amazon.com!to!combine!their!strengths!to!create!value!for!the!customer.!

Joint!ventures!can!fail!following!conflicts!based!on!loss!of!control!and!unwillingness!to!
transfer!technological!advantage.!!Joint!venture!success!can!be!more!sustainable!if!both!
partners!share!equal!ownership!and!are!interdependent!all!along!the!way.!!(If!in!the!
meantime,!one!of!the!partners!can!acquire!the!missing!technology!and!become!
independent,!the!venture!could!be!at!risk).!

Licensing)Agreements)

This!is!a!contractual!agreement!whereby!the!licenser!company!grants!a!legal!right!to!
another!foreign!company!to!produce/market!a!product.!!Service!licensing!and!franchising!is!
occurs!when!the!licenser!company’s!brand!is!internationally!known!and!the!company!does!
not!have!sufficient!funds!to!enter!the!foreign!country!directly!(or!is!restricted!by!local!
“protective”!legislation).!

Similar!to!joint!ventures,!a!licensing!agreement!may!be!at!risk!if!core!competencies!are!
copied.!!Success!of!strategic!partnerships!largely!depend!on!a!clear!shared!strategic!
purpose,!cultural!compatibility,!trust!mutual!awareness!of!risks,!long!term!perspective!and!
an!agreed!planned!exit!strategy.!!!

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THE)VALUE)CHAIN)CONCEPT)
The!Value!Chain!concept!refers!to!“a!way!of!looking!at!the!business!as!a!Chain!of!activities!
that!transforms!inputs!into!outputs!that!your!customers!value”.!!Pearce!&!Robinson,!2008!

Customer!value!can!be!created!in!three!different!ways:!

1. Activities!that!lower!cost.!
2. Activities!that!differentiate!the!product.!
3. Activities!that!enhance!customer!responsiveness.!

Value!chain!analysis!distinguishes!between!the!activities!that!occur!within!the!business!and!
those!that!are!related!to!after!sales!services.!!The!aim!is!to!identify!areas!where!cost!
advantages!and!customer!value!lie!in!the!chain!of!activities,!rather!than!along!traditional!
organisation!structure!lines!or!accounting!protocols.!!For!example,!instead!of!analysing!
labour!costs!and!other!charges,!the!value!chain!analysis!should!concentrate!on!evaluating!
supplier!capabilities,!internal!administration!and!problem!resolution!by!the!personnel.!

According!to!Pearce!&!Robinson,!2008,!a!value!chain!analysis!is!conducted!in!the!following!
steps:!

Step!1. Organize!activities!into!categories!and!discrete!activities!within!each!category.!
Step!2. Allocate!costs!and!asset!values!to!each!activity.!
Step!3. Adopt!an!activity!based!cost!accounting!method.!
Step!4. Identify!activities!that!differentiate!the!company!(differentiation!factors!that!are!
responsible!for!customer!value).!
Step!5. Examine!the!Value!Chain!to!identify!the!activities!that!are!critical!to!buyer!
satisfaction!and!customer!success.!!
Step!6. Distinguish!between!value!chain!strengths!and!weaknesses!(SWOT!analysis!
helpful!here).!

Organisations!need!to!understand!how!value!is!created!or!lost!if!they!wish!to!achieve!a!
competitive!advantage!by!delivering!value.!!Let’s!examine!the!chain!in!more!detail.!

The)Value)Chain)–)Primary)and)Support)Activities)

The!diagram!below!describes!the!activities!that!takes!place!inside!and!outside!the!
organisation!to!create!a!product/service.!!The!relative!cost!of!these!activities!is!a!
determinant!of!value!creation.!

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As!illustrated!above!the!value!chain!within!a!company!consists!of!a!number!of!support!
activities!and!primary!activities.!!The!support!activities!contribute!to!improving!the!
effectiveness!and!efficiency!of!the!primary!activities.!

Primary)Activities)

Primary!activities!are!involved!in!the!creation!of!a!product/service!or!to!its!delivery.!!It!may!
be!different!for!different!products!and!services.!!For!example,!the!service!component!may!
be!less!prominent!in!manufacturing.!!Most!businesses!employ!the!following!primary!
activities:!

1. Inbound!Logistics:!receiving,!storing!and!distributing!inputs!like!raw!materials.!
2. Operations:!the!process!of!building!the!product!or!providing!the!service.!!
3. Outbound!Logistics:!storing!the!final!product!and!distributing!it!to!customers!(or!
distributors).!!For!a!product!it!includes!warehousing!and!distribution!while!for!a!
hotel,!it!is!about!the!arrangements!made!to!bring/attract!tourists!to!the!resort.!
4. Marketing!and!Sales:!how!customers!are!made!aware!of!product/service!and!selling!
it!to!them.!
5. Service:!For!a!product,!this!refers!to!installation!and!repairs!or,!in!general,!after!
sales!service!or!customer!service.!

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Support)Activities)

These!support!primary!activities!e.g.!by!enabling!innovation!to!take!place!or!by!providing!
resources!like!HR.!

1. Procurement:!Refers!to!the!processes!involved!in!the!acquisition!of!inputs!and!
materials!to!support!production.!!!
2. Technology!Development:!Technology!can!refer!to!both!output!(product/service)!or!
processes!(transformation)!or!inputs!(refinements!in!raw!materials).!!Creativity!and!
innovation!can!be!enabled!here.!
3. Human!Resource!Management:!It!refers!to!the!HRM!activities!like!recruiting,!
selection,!training,!performance!management,!compensation!and!benefits,!reward!
management!etc.!
4. Infrastructure:!Apart!from!the!physical!infrastructure!(building,!networks),!
infrastructure!also!refers!to!planning!systems!e.g.!in!finance,!knowledge!
management,!quality!management!etc.!

Applications)of)the)Value)Chain)

In!a!value!chain,!the!activities!are!mapped!in!an!activity!system!where!a!percentage!value!is!
given!to!each!activity!according!to!its!particular!value!chain!potential.!!As!from!this,!the!
manager!can!identify!the!activities!or!groups!of!activities!that!are!providing!superior!benefit!
to!customers!and!those!that!are!not.!

Following!the!above!analysis!management!can!make!informed!decisions!on!the!activities!it!
should!focus!upon!or!if!found!difficult!to!improve,!better!to!outsource!to!a!partner!
organisation.!For!example,!if!inbound!logistics!and!operations!give!much!more!value!than!
marketing!and!sales,!a!company!may!choose!to!specialise!in!the!former!and!outsource!the!
latter.!

This!then!gives!rise!to!a!value!network!whereby!excellence!is!generated!by!linking!a!number!
of!product/service!providers!in!a!value!creating!network!where!each!one!specialises!in!a!
number!of!activities!in!which!it!excels.!!A!complementary!synergy!can!therefore!be!
developed.!!Think!of!the!creation!of!a!cell!phone!and!the!number!of!companies!that!must!
provide!support!to!its!creation.!!!!!

Ignorance!of!the!quantitative!aspects!of!value!creation!in!a!company!can!result!in!low!value!
activities!nullifying!high!value.!!Otherwise!an!organisation!can!simply!seek!to!improve!lower!
value!activities!e.g.!investing!in!training!and!development!of!HR!or!implementing!a!reward!
management!scheme.!

Identifying!profit!potential!through!value!analysis!does!not!mean!that!the!organisation!
necessarily!has!the!competencies!to!benefit!from!the!area!identified.!!For!example,!car!

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manufacturers!have!since!long!found!that!there!is!a!greater!profit!potential!in!car!hire!and!
lease!financing!for!purchase!vice!the!actual!manufacturing!function!itself.!!!

The!aim!of!a!value!chain!analysis!is!therefore!to!identify!where!the!organisation!should!
concentrate!its!efforts!and!investment!and!what!activities!they!should!outsource!to!
specialists.!!Choosing!the!right!outsourcing!partners!should!be!based!on!an!analysis!of!their!
value!chain.!

The!Value!Chain!concept!should!be!used!in!strategy!formulation!and!evaluation!of!proposed!
strategies.!!!Take!for!example!a!Cost!Leadership!Strategy.!In!order!to!choose!such!a!
strategy,!the!following!value!chain!resources!and!skills!are!required:!

• Access!to!capital!with!sustained!capital!investment.!
• Intense!supervision!of!labour.!
• LowKcost!distribution!system.!
• Tight!cost!controls!at!all!levels!of!the!organisation.!
• Continuous!improvement!(e.g!!through!benchmarking).!
• Incentives!mainly!based!on!quantitative!targets.!

Conversely,!a!differentiation!strategy!is!chosen!in!presence!of!the!following!requirements:!

• Strong!marketing!abilities.!
• Product!reengineering!through!innovation.!
• Creativity!of!HR.!
• Research!&!Development!capabilities.!
• Strong!cooperation!from!distributors!&!suppliers.!
• Strong!coordination!between!functional!areas!(R!&!D,!Marketing,!HR!etc.!in!new!
product!development).!
• Closeness!to!key!customers!(for!feedback).!

Absence!of!or!weaknesses!in!relation!to!the!above!can!disqualify!a!company!from!choosing!
any!of!the!above!strategies.!

SelfNAssessment)Exercise)

Compare!and!Contrast!the!BCG!Matrix!with!the!McKinsey!GE!Matrix,!stating!relative!merits!
of!each.!!

Record!your!response!in!your!course!journal.!

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SUMMARY)
In!this!topic,!we!discussed!how!strategies!were!chosen!following!formulation.!!Choice!can!
be!based!on!certain!difficulties!as!feasibility,!acceptability!and!suitability.!

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TOPIC)3.3)N)STRATEGY)IMPLEMENTATION)
INTRODUCTION)
Once!managers!agree!upon!strategies!to!be!adopted!the!focus!changes!to!implementation.!!
A!number!of!steps!are!to!be!followed!in!the!implementation!process!including!identifying!
the!short!term!or!annual!business!objectives!defining!the!functional!tactics,!communicating!
policies!for!empowerment!of!people!and!designing!rewards!that!align!with!company!goals.!

Strategies!tend!to!be!structure!specific!therefore!managers!may!have!to!design!and!develop!
new!organisation!structures!that!fit!the!chosen!strategies.!!For!example,!a!cost!reduction!
strategy!will!not!fit!a!tall!hierarchical!structure.!!However,!changing!structures!requires!a!
cultural!change,!without!which!the!structural!changes!cannot!be!sustained.!

Change!is!operated!in!a!planned!manner!in!a!number!of!steps.!!The!Cummins!and!Worley!
five!step!model!will!be!described!in!this!topic.!

OBJECTIVES)
Upon!completion!of!this!topic!you!should!be!able!to:!

1. Complete!the!steps!in!an!implementation!process.!
2. Apply!specific!structural!designs!to!fit!different!strategies.!
3. Discuss!the!role!of!leadership!clarifying!strategic!intent!and!shaping!organisational!
culture.!
4. Apply!a!five!step!Model!of!Change!to!overcome!resistance!to!change.!

CONTENT)
• Steps!in!Strategy!Implementation.!
• Structuring!an!effective!organisation.!
• Organisational!Leadership!and!Strategy.!
• Organisational!Culture!and!Strategy.!

STRATEGIC)IMPLEMENTATION)
Once!strategies!have!been!crafted,!the!strategic!management!process!moves!into!a!critical!
phase!–!organisation!action,!i.e.!moving!from!“planning!the!work”!to!“working!the!plan”.!!
Managers!at!this!stage!have!to!do!the!following:!

• Identify!short!term!objectives!e.g.!the!current!year’s!targets.!
• Initiate!specific!functional!tactics!e.g.!marketing,!HR!and!Finance!strategies.!
• Communicate!policies!that!empower!people!in!the!organisation,!thereby!reducing!
the!time!to!decide!and!act.!
• Design!effective!rewards!that!align!management!and!employee!priorities!with!
organisational!objectives.!!

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Short)Term)Objectives!K!Short!term!objectives!help!implement!strategy!in!three!ways:!

1. They!operationalize!long!term!objectives!e.g.!if!we!commit!ourselves!to!increase!
sales!by!100%!in!3!years,!what!is!our!specific!target!for!the!current!and!coming!
years!to!indicate!we!are!making!appropriate!progress.!
2. Short!term!objectives!help!raise!issues!over!potential!conflicts!that!require!
coordination!to!avoid.!!For!example,!marketing!may!pursue!prompt!customer!
service!while!transportation!may!be!opting!for!lowest!cost!routing.!!For!the!same!
motive,!marketing!may!be!for!frequent!short!runs!of!production!while!
manufacturing!would!prefer!long!runs!for!economies!of!scale.!
3. They!are!accompanied!by!action!plans!which!specify!exactly!what!is!to!be!done,!
propose!a!clear!time!frame!for!completion!and!identify!who!is!responsible!for!
accountability.!

In!addition,!managers!have!to!state!clearly!how!the!objectives!will!be!measured!(what,!
when,!who,!how).!!In!order!to!link!with!long!term!objectives,!short!term!objectives!should!
be!implemented!in!series!that!must!be!accomplished!each!year.!!Criteria!for!good!objectives!
also!apply!here.!

FUNCTIONAL)STRATEGIES)TO)SUPPORT)BUSINESS)STRATEGIES)
Functional!tactics!are!the!tasks!that!must!be!undertaken!in!each!functional!area!e.g.!POM,!
marketing,!finance,!HRM!and!manufacturing;!to!implement!the!strategic!goals.!!

Functional)Tactics)in)Production)and)Operations)

Production!and!Operations!Management!(POM)!converts!inputs!into!value!added!output.!!
POM!planning!and!control!tactics!involve!the!management!of!ongoing!production!
operations!and!match!production!and!operations!resources!with!overall!demand.!!!!!

JIT!(Just!in!Time)!Delivery!is!a!way!to!coordinate!with!suppliers!to!reduce!inventory!costs.!!
Some!organisations!use!this!supplierKcustomer!relationship!as!a!source!of!competitive!
advantage.!!JIT!makes!quality!checking!more!efficient!by!empowering!client!staff!to!ensure!
quality!at!supplier!premises.!

Outsourcing!refers!to!the!use!of!external!capacity!to!accomplish!some!task!or!process.!!Core!
competencies!that!add!the!most!value!in!the!value!chain!are!kept!in!the!company!while!
functions!or!activities!that!add!little!value!or!cannot!be!done!cost!effectively!inKhouse!are!
outsourced.!!!!Outsourcing!requires!intense!Quality!Control!by!the!buyer,!whereby!the!
outsourcing!company!can!end!up!providing!superior!quality!at!lower!cost!than!the!provider!
company.!

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Functional)Tactics)in)Marketing)

Marketing!tactics!guide!sales!and!marketing!managers!on!who!will!sell!what,!where,!to!
whom,!in!what!quantity!and!how.!!Marketing!tactics!normally!address!the!Marketing!MixK
product,!price,!place!and!promotion.!

Marketing)Mix) Questions)the)functional)tactics)should)address:)
Component)

Product/Service! Which!products!contribute!most!to!profitability?!

Which!service!image!do!we!need!to!project?!

What!charges!in!customer!orientation!can!be!predicted?!

Price! Are!we!competing!on!price?!

What!is!the!gross!profit!margin?!

What!is!our!pricing!policy?!

Can!we!offer!discounts?!

Place! Do!we!have!to!cover!the!market?!

Do!we!segment!geographically?!

What!are!the!channel!objectives?!

How!is!the!sales!force!organised?!!!

Marketing!Mix! Questions!the!functional!tactics!should!address!
Component!

Promotion! What!are!the!key!promotion!priorities?!

Which!media!could!be!more!consistent?!

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Functional)Tactics)in)HR)

Porter’s)Generic)Strategies)and)HR)

Organisational) Strategic)Focus) HR)Strategy) HR)Activities)

Strategy)

Cost!Leadership! Efficiency! • Long!HR!planning! • Promote!from!

horizon! within!
Stability!
• Build!skills!in!existing! • Extensive!training!
Cost!Control! employee! • Hire!and!train!for!
• Job!and!employee! specific!capabilities!
specialization!
efficiency!
Differentiation! Growth! • Shorter!HR!planning! • External!staffing!
horizon! • Less!training!
Innovation!
• Hire!the!HR! • Hire!and!train!for!
Decentralisation! capabilities!needed! broad!capabilities!
• Broader,!more!
flexible!jobs!and!
employees!
!
POLICIES)FOR)EMPOWERING)PERSONNEL)
Line!managers!are!responsible!for!ensuring!that!the!company!delivers!customer!value.!!
Managers!must!empower!line!personnel!to!make!decisions!to!fulfil!customer!needs!e.g.!
Federal!Express!couriers!make!decision!on!package!handling!and!routing!themselves!while!
the!U.S!Postal!Service!involves!five!management!levels!in!this!task.!!Empowerment!can!be!
operated!in!a!number!of!ways:!training,!delayering,!selfKmanaged!work!groups!etc.!

Policies!are!instructions!designed!to!guide!the!thinking,!decision!making!and!actions!of!
people!in!implementing!company!strategy.!!Policies!should!increase!managerial!
effectiveness!by!standardising!routine!decisions!while!still!allowing!for!employee!
empowerment.!!Policies!achieve!this!in!a!number!of!ways.!!When!crafting!polices!ensure!
they:!

• Establish!indirect!control!over!independent!action.!
• Promote!uniform!handling!of!similar!activities.!
• Support!quicker!decisions.!
• Institutionalise!basic!organisation!behaviour.!
• Reduce!uncertainty!in!day!to!day!decision!making.!
• Counteract!resistance!of!members!to!strategies.!
• Be!both!written!&!formal!and!unwritten!&!informal.!

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Policies!should!empower!people!to!act.!!Theoretically!rewards!compensate!people!for!that!
as!well.!!Let’s!examine!some!typical!reward!strategies.!

INCENTIVE)PROGRAMMES)
It!has!become!strategically!necessary!to!link!compensation!plans!with!the!successful!
implementation!of!strategies.!!Apart!from!normal!reward!policies!for!employees,!much!
attention!is!now!given!to!executive!bonus!compensation!plans.!

Executive)Bonus)Plans))

The!purpose!of!an!executive!compensation!and!performance!bonus!plan!is!to!motivate!
executives!to!maximize!shareholder!wealth!–!which!is!the!underlying!goal!of!all!private!for!
profit!companies.!!An!executive!compensation!plan!can!be!instrumental!towards!orienting!
managers!in!the!direction!of!corporate!strategy.!!The!success!of!such!a!compensation!plan!
depends!therefore!on!the!match!between!the!executive!bonus!plan!and!the!company’s!
strategic!objectives.!

Stock!options!are!often!a!common!method!of!rewarding!senior!executives.!!The!executive!
receives!a!bonus!only!if!the!company’s!share!price!appreciates.!!(If!the!share!price!drops!
below!the!option!price,!the!options!become!worthless).!

In!1997,!Disney!CEO!Michael.!D.!Eisner!sold!his!options!on!his!stock!(obtained!in!1989)!for!
$400!million.!!The!risks!are!that!the!executive!can!become!so!wealthy!in!a!given!company!
that!he/she!may!contemplate!leaving!the!company!before!the!stock!drops.!

Restricted)Options)

An!executive!is!given!a!number!of!shares!which!he/she!is!prohibited!to!sell!within!a!defined!
period!of!time.!!If!the!executive!leaves!before!this!time,!the!shares!are!forfeited.!

Golden)Handcuffs)

When!companies!consider!their!executives’!skills!and!talents!to!be!valuable!assets,!
departure!of!these!executives!leaves!those!companies!unsettled!and!disrupts!strategic!plan!
implementation.!!Many!companies!defer!compensation!for!a!number!of!years!after!the!
executive!leaves.!!This!is!called!‘golden!handcuffs’.!!Many!compensation!plans!provide!for!
generous!compensation!in!the!form!of!cash!payment!only!after!a!period!of!service!of,!say,!
five!years.!

Cash)

Normal!cash!bonuses!are!paid!based!on!performance!measures!such!as!return!on!equity.!!
This!is!often!reflected!in!annual!performance!objectives!for!selected!members!of!the!
company.!!One!disadvantage!is!that!annual!earnings!do!not!capture!future!impacts!of!
current!decisions.!(Pearce!&!Robinson,!2000).!!As!seen!earlier,!the!level!of!strategic!risk!is!

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incorporated!in!executives’!compensation!plans.!!Executives!are!therefore!motivated!to!
pursue!goals!of!a!balanced!riskKreturn!level.!

STRUCTURING)AN)EFFECTIVE)ORGANISATION)
The!objective!of!these!types!of!changes!is!to!match!structure!with!strategic!direction.!!Some!
examples!of!different!types!of!organizational!structures!are!functional,!divisional,!
geographic!and!matrix.!!Each!structure!has!advantages!and!disadvantages!that!managers!
must!consider!before!adopting!an!organisational!form.!

Functional)Structure)

The!business!is!hierarchical!in!
nature!and!the!major!functions! CEO)
of!the!business!are!assigned!to!
different!individual!managers.!!
Business)
In!the!example!to!the!left!this! Course)Design) Course)Delivery) Services)
Manager) Manager)
is!a!small!training!design!and! Manager)

delivery!business!consisting!of!
a!CEO!and!three!functional! Instruceonal)
Designers) Instructors) Web)Master)
managers.!!Each!manager!has!a!
number!of!personnel!in!his!or!
her!group!that!can!be!either! Mulemedia) Moodle) Markeeng)and)
Authors) Technicians) Sales)Peronnnel)
full!or!partKtime!employees!
and/!or!contractors.!!!
IT)Personnel) Accountant)
The!Functional!Structure!is!
normally!adopted!when!a!
business!grows!beyond!the!ability!of!one!manager!to!oversee!all!of!the!business!activities.!!
Additional!managers!or!supervisors!are!recruited!and!assigned!functional!responsibilities!
for!different!parts!of!the!business.!!This!is!the!first!step!in!the!growth!of!a!new!business.!!It!
is!suitable!for!small!to!medium!sized!companies!who!don’t!want!to!grow!and!have!a!stable!
business!environment.!!Some!of!the!advantages!and!disadvantages!of!this!structure!are:!!

Strategic)Advantages) Strategic)Disadvantages)

Efficiency!through!specialisation! Promotes!functional!rivalry!

Develops!functional!expertise! Difficult!functional!coordination!

Retains!centralised!capital! Limits!development!of!general!managers!

Differentiates!operating!decisions! Priority!on!function,!not!business!

!
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Divisional)Structure))

This!structure!organises!
products/services!into! CEO/COO)
divisions!based!on!
commonality!of!products,!
services!or!markets!(e.g.! Chief)Financial)
national,!regional,! Officer)
international!markets).!!For!a!
computer!company,!the! Hardware) Sooware) Markeeng)and)
structure!would!be!as!below.! Division) Division) Sales)Divsion)

The!divisional!structure!is!
adopted!when!functions! Operaeng)
Desktop)Dept) Systems)Dept) Sales)Dept)
require!multiple!managers!to!
plan!and!coordinate!the!
assigned!functions;!product! Applicaeon)
Laptop)Dept) Sooware)Dept) Markeeng)Dept)
quality!must!be!closely!
managed;!there!is!a!need!to!
manage!costs;!and! Customer)
Tablets)Dept) Services)Dept)
decentralization!of!decision!
making!will!result!in!a!more!
efficient!operation.!!Divisions!often!operate!as!separate!profit!centres.!

Strategic)Advantages) ) Strategic)Disadvantages)

Forces!coordination! Fosters!potentially!dysfunctional!competition!

Frees!CEO!for!broader!decision!making! Potential!for!policy!inconsistencies!among!
SBU’s!

Focuses!accountability! Increased!costs!through!potential!duplication!

Good!training!grounds!for!strategic! Difficult!to!maintain!an!overall!corporate!
manager! image!

Enables!quick!response!to!market! !
changes!

!
) )

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Geographic)Structure)

The!geographic!structure!is!a!variant!of!the!divisional!structure.!!When!a!company!becomes!
national!or!international!in!scope!serving!different!markets!in!different!locations!than!it!
may!be!necessary!to!create!similar!divisions!or!departments!in!multiple!locations.!!The!need!!!!
GeographicalK!based!divisions!organises!by!geographical!markets!e.g.!for!a!given!MNC.!! !

! !
CEO/COO)
!

! Chief)Financial)
Officer)
!
European)
Corporate)HQ) US)Company) Company)
!

!Hardware)))) US)Retail)
Sooware)))))) Markeeng)&) Outlets) US)Markeeng) EU)Retail) EU)Markeeng)
Div.) Div.) Sales)Div.) &)Sales)Div.) Outlets)Div.) &)Sales)Div.)
Division)
!
Operaeng) Direct)Sales) Direct)Sales)
Desktop)Dept) Systems)Dept) Sales)Dept) Dept) Dept)
!

! Laptop)Dept)
Applicaeon)
Markeeng)Dept) Markeeng)Dept) Markeeng)Dept)
Sooware)Dept)

!
Customer) Customer)
Tablets)Dept) Services)Dept) Services)Dept)
!
Strategic)Advantages) Strategic)Disadvantages)

Strategy!tailored!to!meet!market!needs! !Problems!of!geographic!diversity!v/s!
uniformity!

Advantages!of!economies!of!local! !!Image!consistency!difficult!
exploitation!

Excellent!training!grounds!for!high!level! !!Duplication!of!staff!services!
managers!

!
Matrix)Structure))

The!matrix!structure!superimposes!a!divisional!structure!over!a!functional!structure.!!It!
combines!the!efficiency!of!the!functional!approach!with!the!responsiveness!of!the!divisional!
approach.!!It!is!often!used!in!organizations!that!support!multiple!projects!requiring!the!
same!type!of!expertise.!!Functional!departments!provide!partKtime!support!and!expertise!to!

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support!the!project!managers.!!Each!employee!in!the!matrix!often!has!two!supervisors!–!a!
functional!manager!and!a!product!(or!project)!manager.!!

Two!chains!of!command!coKexist.!!A!vertical!chain!of!command!for!the!functions!of!finance,!
operations!etc.!!and!a!horizontal!chain!of!command!for!each!Project!Manager.!!Therefore!
an!engineer!who!is!assigned!to!work!on!project!A!will!report!to!both!Project!Manager!and!
Finance!Manager.!

The!Matrix!Structure!originated!in!U.S!defence!companies.!!The!Project!Manager!
coordinates!budgets!and!resources!to!ensure!success!of!his/her!project!while!the!functional!
manager!allocates!specialists!to!projects!to!ensure!the!right!skills!to!the!given!projects!e.g.!
NASA!uses!matrix!structures!to!assign!space!scientists!to!projects!as!diverse!as!weather!
satellites!and!space!shuttle!programmes.!

Strategic)Advantages) Strategic)Disadvantages)

Accommodates!variety! May!result!in!confusion!on!policies!!

Good!training!ground!for!strategy! A!high!level!of!combination!necessary!
managers!

Efficient!use!of!functional!managers! Can!result!in!loss!of!accountability!

Fosters!creativity! !

!
Being!given!that!structure!follows!strategy,!companies!may!be!required!to!restructure!so!as!
to!align!with!the!company’s!strategy.!!e.g.!!A!single!product!company!should!employ!a!

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functional!structure.!!This!allows!an!emphasis!on!specialisation!and!efficiency,!while!
providing!for!centralised!control!and!decision!making.!!!

A!company!having!several!lines!of!related!customers!should!employ!a!multidimensional!
structure.!!A!company!involved!in!several!unrelated!lines!of!businesses!should!adopt!a!
structure!with!SBU’s.!

Competitive!advantage!is!achieved!by!being!the!first!among!competitors!to!adopt!an!
appropriate!structure!–!structure!fit.!!Other!innovative!organisation!structures!exist,!most!
being!combinations!of!the!above!structures,!designed!to!give!flexibility!and!fitness!to!
purpose.!

ORGANISATIONAL)LEADERSHIP)AND)STRATEGY))
Management!and!leadership!can!be!identified!as!two!different!elements.!!In!short!
management!is!identified!with!stability!and!measurement!while!leadership!is!characterised!
by!vision!and!motivation.!!In!response!to!the!increasing!complexity!of!a!growing!business,!
management!must!bring!practices!and!procedures!that!give!order!and!consistency!in!the!
day!to!day!operation!of!the!business.!!!!Leadership,!on!the!other!hand!is!about!guiding!
change!in!a!competitive!and!volatile!business!environment.!!In!the!face!of!change,!the!
challenge!of!leadership!is!to!ensure!people!commitment!and!to!communicate!and!guide!the!
strategic!direction!of!the!organization.!!Leaders!do!this!through!three!activities:!

• Clarification!of!strategic!intent.!
• Building!the!organisation.!
• Shaping!organisation!culture.!

Clarifying)the)Vision)(Strategic)Intent))

Leaders!articulate!clearly!the!vision!of!where!the!business!strategies!want!to!take!the!
organisation.!!For!example!the!merging!of!IT!and!telecoms!technologies!have!given!an!
opportunity!to!redefine!the!product/market!couple!from!which!leaders!in!the!“networkK
centric!computing”!area!will!emerge.!!Leaders!need!to!be!very!effective!in!shaping!and!
clarifying!strategic!intent!in!a!way!that!enables!stakeholders!understand!their!roles!in!
achieving!that!objective.!!They!must!ensure!managers!and!employees!remain!true!to!the!
vision!and!the!mission!of!the!company!and!embrace!the!values!embraced!by!the!culture.!!
Moving!the!company!towards!the!vision!is!a!leader’s!role.!

A!manager’s!role!is!to!control!the!finances!and!personnel!of!the!organization.!!They!create!
polices,!measure!quality!and!improve!performance.!!They!must!ensure!the!business!is!
operating!efficiently.!

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Building)an)Organisation))

Leaders!rebuild!their!organisations!to!adapt!with!change!and!the!resultant!changes!in!
strategy.!!In!so!doing!leaders!address!resistance!to!change!and!related!issues!like:!

• Communicating!a!common!understanding!of!the!organisation’s!priorities.!
• Clarifying!and!assigning!responsibilities.!
• Empowering!people!and!getting!commitment.!
• Anticipating!communication!and!coordination!problems.!
• Keeping!a!close!connection!with!internal!and!external!customers.!
• Bill!Gates!usually!spent!two!hours!a!day!reading!and!answering!eKmails!from!his!
staff.!

Shaping)Organisational)Culture)

As!noted!earlier!in!the!course,!culture!is!defined!as!the!set!of!values,!beliefs!and!
assumptions!that!people!share!in!a!given!group,!organisation!or!community.!!Each!
organisation!has!a!distinct!culture.!Jeff!Kagan,!president!of!Kagan!Telecom,!USA!said:!

“Over!at!AT!&!T,!people!are!afraid!to!make!mistakes.!!At!MCI,!people!are!afraid!
not!to!make!mistakes”!(Kagan!comparing!cultures!of!AT!&!T!and!MCI,!another!
U.S!Telecom!company).!

It!appears!that!MCI!had!a!risk!taking!culture!in!an!environment!of!continuous!change.!!
Leaders!use!reward!systems!and!symbols!among!other!means!to!shape!the!culture!of!their!
organisations.!!Leaders!treat!failure!as!a!learning!experience!upon!which!to!improve.!

Leaders!achieve!their!objectives!by!creating!a!management!team!that!has!mature!managers!
who!are!willing!to!grow.!!Key!managers!become!a!leadership!tool!when!they!possess!the!
characteristics!needed!to!execute!the!critical!strategies!of!the!organisation.!

Leaders!shape!culture,!managers!work!within!the!culture.!

Organisational)Culture)and)Strategy)

The!culture!of!an!organisation!is!analogous!to!what!personality!is!to!an!individual.!!
Organizational!culture!provides!meaning,!direction!and!the!basis!for!action!for!an!
organisation.!The!shared!values,!assumptions!and!beliefs!influence!members’!actions!within!
the!company.!!!!

However,!an!employee!can!simply!be!aware!of!the!organisation’s!culture!without!
necessarily!sharing!it.!!The!organisational!culture!only!has!meaning!when!the!employees!
views!it!as!a!guide!for!behaviour.!!The!role!of!leaders!is!to!make!people!embrace!the!culture!
of!the!organisation!and!make!it!theirs.!!!

Leaders!manage!and!create!distinct!cultures!in!a!number!of!ways.!

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1. Emphasising!key!values!or!themes:!e.g.!sources!of!competitive!advantage!like!Cost!
Leadership!and!Quality.!!These!may!be!reflected!in!advertisement!or!image!building!
e.g.!at!Procter!&!Gamble,!the!key!value!is!product!quality.!!McDonalds!lays!
emphasis!on!QSCV:!quality,!service,!cleanliness!and!value.!!
2. Disseminating!corporate!stories!and!legends.!!3M!tells!innovation!stories!e.g.!PostKIt!
Notes.!
3. Institutionalising!practices!that!reinforce!desired!beliefs!and!behaviours.!!e.g.!
McDonalds!has!a!yearly!contest!for!the!best!hamburger!cooker,!locally!and!
nationally.!
4. Adapting!common!themes!in!unique!ways!e.g.!
• Being!the!best.!
• Having!the!best!quality.!
• Being!employee!champions.!
• Being!customer!champions.!

Reformulating)the)Strategies)and)the)Culture)

Values!and!norms!usually!get!so!entrenched!in!organisations!that!they!ultimately!resist!
change!e.g.!when!strategy!changes.!!For!change!to!sustain,!culture!change!must!be!
achieved.!!Otherwise!the!organisation!will!quickly!revert!back!to!the!original!culture.!!A!
planned!approach!to!culture!change!is!a!stepwise!approach!that!takes!into!account!
overcoming!resistance!to!change.!!One!example!is!he!Cummings!&!Worley’s!change!model.!!!

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Cummings)&)Worley’s)FiveNStep)Model)for)Cultural)Change)

•!!Creaxng!Readiness!for!Change!
Moxvaxng! •!!Overcoming!Resistance!to!Change!

Change!

•!!Mission!
Creaxng!a!

Effective)Change)Management)
•!!Valued!Outcomes!

Vision! •!!Valued!Condixons!
•!!Midpoint!Goals!

•!!Assessing!Change!Agent!Power!
Developing! •!!Idenxfying!Key!Stakeholders!

Polixca!Support! •!!Influencing!Stakeholders!

•!!Acxvity!Planning!
Managing!the! •!!Commitment!Planning!

Transixon! •!!Management!

•!!Providing!Resources!for!Change!
Sustaining! •!!Building!a!Support!System!for!Change!Agents!

Momentum! •!!Developing!New!Competencies!and!Skills!
•!!Reinforcing!New!Behaviours!

!
Source:!Cummings!and!Worley!Organisation!Development!and!Change!

Activity:!!Explain!in!detail!how!you!would!operationalize!a!change!to!a!team!approach!in!an!
organization!using!the!above!model.!

Record!your!response!in!your!course!journal.!

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SelfNAssessment)

Following!a!change!in!Preferential!Agreements,!the!Lomé!Convention!between!ACP!
countries!an!the!EU!has!lapsed!in!the!year!2004K2005!and!has!not!been!renewed.!!As!a!
result!ACP!sugar!producing!countries!have!had!to!adopt!a!low!cost!strategy!in!order!to!
compete!on!the!world!market!(originally,!they!had!a!preferential!price!and!quota!for!sugar!
exports).!!!

What!strategies!could!these!ACP!countries!follow!in!order!to!ensure!their!Sugar!Industries!
survive?!

Record!your!response!in!your!course!journal.!

SUMMARY)
In!this!topic,!the!implementation!aspects!of!strategy!have!been!presented!and!analysed.!!
Functional!issues!such!as!HR!&!Marketing!have!been!analysed!as!well!as!new!organization!
structure!as!a!result!of!strategy!choice.!!Change!management!has!been!addressed!using!a!
planned!change!model.!!!

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UNIT)THREE)–)SUMMARY)
ASSIGNMENTS)AND)ACTIVITIES)
Building!upon!the!SWOT!assignment!you!completed!in!the!last!unit!you!should!now!
produce!a!list!of!strategies!that!you!would!include!in!a!strategic!plan!to!guide!the!growth!of!
your!company.!!Once!you!have!completed!the!assignment!record!it!in!your!course!journal!
and!then!send!the!journal!to!your!instructor!for!review!and!comment.!

SUMMARY)
During!completion!of!this!unit!you!explored!the!external!business!environment!and!
creation!of!strategies!to!address!the!SWOT!analysis!results.!!In!addition!we!explored!the!
issues!you!need!to!consider!when!implementing!your!strategic!goals.!

UNIT)REFERENCES)
SUPPLEMENTARY)READINGS)
If!you!wish!to!learn!more!about!the!topics!covered!in!this!unit,!you!should!review!one!or!
more!of!the!books!and!articles!listed!below.)

Ansoff,!I.!(1985).!“Corporate!Strategy”,!!London!Penguin!

Brunsson,!N.!(1995).!!“Managing!Organisational!Disorder”!pp83K87!cited!in!M.!Warglien!
and!M.!Massino(Eds).!!The!Logic!of!!Organisational!Disorder,!Berlin!de!Gnyter!

Clegg,!S.!Kornberger.!M!and!Pitsis.T!(2005).!“Managing!Organisations”,!SAGE!

Covey,!S.!(1989)!cited!in!Grant!Robert,!“Contemporary!Strategy!Analysis”,!Blackwell,!
2005!

Grant,!R.!M.!(2005).!!“Contemporary!Strategy!Analysis”,!Blackwell!!

Hills,!C.!&!Jones,!G.)(1998).)“Strategic!Management!Theory”,!4th!Edition,.!

Johnson,!G.!&!Scholes,!K.!(2005).!“Exploring!Corporate!Strategy”!Sixth!Edition.!!Pearson!
Edition!

Jones,!G.!R,!Mc!Evans,!H.!&!George,!J.!M.!(2003).!“Contemporary!Management”!

Mintzberg,!H.!&!Waters,!J.!(1985).)!“Of!strategies!Deliberate!and!Emergent”,!Strategic!
Management!School,!Vol.6,!257K272!!

Ohmae,!K.!(1983).!“The!mind!of!the!strategist”,!Penguin!Books!

Peters,!T.!&!Waterman,!R.!()!“In!Search!of!Excellence”!!

Porter,!M.!(1983).!“Competitive!Strategy”,!Freepress!

Strategic)Planning)) Page!|!132!!
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Schaper!&!Volery!(2004).!!

Weick,!K.!(1979).!“The!Social!Psychology!of!Organising”!2nd!Ed,!Reading,!MA:!Addison!
Wesley.!

http://www.businessdictionary.com!

BIBLIOGRAPHY)
Below!is!a!list!of!references!described!in!the!topics!presented!in!this!unit.!!You!may!wish!to!
review!them!to!learn!more!about!the!information!presented!in!the!topics.!

CIMA!Study!Text!(1998)!–!“Strategic!Management!Accountancy!and!Marketing”,!BPP!
Publishing!

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UNIT)FOURN)CONTROLS)AND)PERFORMANCE)MEASURES)

UNIT)INTRODUCTION)
Quite!often!confused!as!being!the!last!stage!in!the!Strategic!Management!Process,!the!
Control!Stage!is!in!fact!the!beginning!of!feedback!–!action!loop.!!This!unit!will!explore!basic!
system!controls!and!performance!measures!like!the!Balanced!Score!Card.!!Using!key!
performance!indicators!and!critical!success!factors,!managers!can!evaluate!strategies!as!to!
whether!they!are!meeting!the!defined!business!objectives.!Positive!or!negative!deviations!
are!identified!and!corrective!action!should!be!taken.!

The!second!part!of!the!unit!will!address!the!limitations!of!Strategic!Planning!based!on!the!
underlying!assumptions!that!may!not!hold!in!practice.!!The!concept!of!‘emergence’!in!
Strategic!Planning!is!explained!in!the!context!of!complementarity!between!‘designs'!and!
‘emergence’.!

UNIT)OBJECTIVES)
Upon!completion!of!this!unit!you!will!be!able!to:!

1. Explain!the!control!stage!of!strategic!planning.!
2. Develop!performance!measures.!
3. Employ!a!balanced!scorecard.!
4. Explore!emergence!and!its!impact!on!the!strategic!planning!process.!

UNIT)READINGS)
As!you!complete!this!unit!you!are!required!to!read!the!following!chapters/articles:!

Barnat,!R.!!(2005).!The!Evaluation!and!Control!of!Organizational!Strategy.!!Web!Site.!!
Available!at:!!http://www.strategicKcontrol.24xls.com/en101.!!

Balanced!Scorecard!Institute.!!(n.d.).!!What!is!the!Balanced!Scorecard.!!Web!Page.!!
Available!at:!!
http://www.balancedscorecard.org/BSCResources/AbouttheBalancedScorecard/tabid/5
5/Default.aspx!!

ASSIGNMENTS)AND)ACTIVITIES)
There!are!selfKreflective!activities!included!throughout!the!unit!and!topics.!You!must!
consider!these!activities!and!record!your!response!in!your!course!journal.!!In!addition!you!
will!be!required!to!complete!a!unit!assignment!described!at!the!end!of!this!unit.!!!

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TOPIC)4.1)–)STRATEGY)CONTROL)
INTRODUCTION)
Control!of!strategy!is!an!integral!part!of!the!strategy!implementation!process.!!
Organisations!have!been!seen!to!adopt!specific!structures!in!order!to!implement!their!
chosen!strategies.!!To!make!these!structures!work!efficiently!and!effectively,!a!number!of!
strategic!control!systems!need!to!be!put!in!place.!!“Strategic!Control!is!concerned!with!
tracking!a!strategy!as!it!is!being!implemented,!detecting!problems!or!changes!in!its!
underlying!premises,!and!making!necessary!adjustments”!Pearce!&!Robinson,2006)

As!opposed!to!postKaction!control,!strategic!control!guides!action!while!the!strategy!is!being!
implemented!and!the!end!results!being!expected!months!or!years!forward.!!It!could!mean!
asking!the!question!whether!the!organization!is!on!target!to!achieve!its!set!objectives!or!if!
specific!action!is!needed!to!turn!it!around.!

A!number!of!a!strategic!control!systems!exist,!some!very!formal!ones!and!some!
informal.!!We!shall!look!at!some!basic!types!of!strategic!control!such!as!Premise!
Control!and!Special!Alert!Control!and!a!few!more!complex!ones!such!as!the!Balanced!
Scorecard!which!integrates!different!measures!of!performance.!!The!role!of!critical!
success!factors!(CSF’s)!and!key!performance!indicators!(KPI’s)!will!be!highlighted.!

OBJECTIVES)
Upon!completion!of!this!topic!you!will!be!able!to:!

1. Define!Strategic!Control!Systems.!
2. Explain!basic!control!systems.!
3. Discuss!the!role!of!key!performance!indicators!in!strategy!evaluation!and!control.!
4. Analyse!the!Balanced!Scorecard!as!a!Control!tool.!
5. Comprehend!the!Agency!Theory.!

CONTENT)
• Approaches!to!Strategic!Control!
• A!Formal!System!for!Strategic!Control!
• Strategic!Performance!Measures!for!Controlling!Strategy!
• Agency!Theory!and!Control!
• Organisation!Culture!as!a!Control!

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APPROACHES)TO)STRATEGIC)CONTROL)
Strategic!Control!Systems!are!the!formal!target!setting,!monitoring,!evaluation!and!
feedback!systems!that!provide!management!with!information!about!whether!the!
organisation’s!strategy!and!structure!are!meeting!strategic!performance!objectives.!!

Hill!&!Jones,!1995!

The!above!definition!clearly!emphasizes!formality,!measurement!and!feedback.!!The!
primary!function!of!strategic!control!is!to!provide!managers!with!the!information!required!
to!control!its!strategy!and!structure!via!performance!measurements.!!In!practice,!a!
company!pursuing!a!cost!leadership!strategy!needs!to!monitor!information!and!feedback!
on!costs!(relative!to!major!competitors),!changes!in!production!costs,!price!of!inputs!
(inflation!effects)!etc.!

Hill!&!Jones!(1995)!propose!a!four!step!general!approach!to!an!effective!strategic!control!
system.!

Step!1. Establish!standards!and!targets!against!which!performance!is!to!be!measured.!
Standards!may!derive!from!goals!of!achieving!superior!efficiency,!quality,!
innovation!or!customer!responsiveness.!
Step!2. Create!the!measuring!or!monitoring!system!that!indicates!whether!the!targets!
are!being!reached.!!Since!the!organisation!may!be!involved!in!complex,!
integrated!activities,!monitoring!can!be!a!difficult!task.!!A!larger!number!and!
variety!of!controls!can!be!used!to!overcome!this.!
Step!3. Compare!actual!performance!against!the!established!targets.!!The!company!
may!also!over!perform!or!under!perform.!!In!both!cases,!corrective!measures!
are!required!following!measurement!against,!e.g.,!Key!Performance!Indicator.!
Step!4. Initiate!corrective!action!when!it!is!decided!that!the!target!is!not!being!
achieved.!!Corrective!action!may!entail!reviewing!structure!and!strategy.!!!

SYSTEM)OF)STRATEGIC)CONTROL)
A!stepwise!approach!to!a!formal!system!of!strategic!control!normally!requires!a!preliminary!
review!of!the!strategy!during!implement.!!We!must!control!its!progress!and!monitor!the!
strategic!objectives!using!qualitative!and!quantitative!measures.!!The!control!system!then!
needs!to!set!the!targets!for!the!given!period!(say!the!first!year!of!a!3!year!plan)!and!monitor!
the!strategic!process!based!on!those!targets.!!Reporting!on!these!may!lead!to!the!need!for!
corrective!action.!

The!following!approach!has!been!adapted!from!the!Institute!of!Chartered!Accountants!
(Business!Strategy!Study!Manual,!2008).!!Steps!in!setting!up!a!formal!systems!of!Strategic!
Control!include:!

Step!1. Review!the!progress!of!your!strategies!based!on!the!original!strategic!plan.!

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Step!2. Identify!strategic!objectives,!both!qualitative!and!quantitative!(e.g.!innovation,!
market!share.!!Strategic!objectives!may!take!the!form!of!milestones!based!on!
critical!success!factors!or!key!performance!indicators!(e.g.!customer!
satisfaction!and!product!quality).!!These!milestones!should!enable!managers!to!
monitor!actions!(e.g.!employee!retention!measures!and!subsequent!staff!
turnover!levels).!
Step!3. Set!qualitative!and!quantitative!target!achievement!levels.!!Such!targets!ought!
to!be!reasonably!precise!while!at!the!same!time!suggesting!strategies!and!
operational!level!tactics.!!Targets!can!include!competitive!benchmarks!set!
relative!to!the!competition.!
Step!4. Using!the!abovementioned!targets,!corrective!actions!are!taken.!!Some!
companies!may!use!measures!of!strategic!performance!to!relate!to!a!rewards!
scheme.!
Step!5. Based!on!the!reports,!corrective!actions!are!taken.!!Some!companies!may!use!
measures!of!strategic!performance!to!relate!to!a!rewards!scheme.!

Activity:!Rewrite!the!above!steps!with!appropriate!milestones!and!targets!for!a!small!island!
tourist!destination!wishing!to!have!the!equal!of!the!size!of!its!population!(1.2!million)!of!
visitors!in!seven!years’!time.!

Record!your!response!in!your!course!journal.!

The!balance!between!formality!and!informality!is!struck!based!on!the!degree!of!
diversification!in!the!strategic!business!units!SBUs),!a!linkage!between!SBU’s,!criticality!of!
the!strategic!decision!and!environmental!turbulence!amongst!others.!

Linkages:!!If!SBU’s!in!a!business!group!are!closely!interlinked!(e.g.!sharing!resources!
extensively!and!otherwise!collaborating),!these!should!be!less!formal!control!as!this!may!
undermine!cooperation.!

Diversity:!!If!C.S.F’s!of!each!SBU!are!different,!an!overall!strategic!control!system!may!
not!make!sense!(tailor!made!for!each!could!be!more!effective).!

Criticality:!!When!the!strategic!move!is!critical!for!company!survival,!then!formal!
systems!will!require!a!larger!number!of!milestones!for!frequent!and!accurate!
monitoring.!

Change:!!Quick!reaction!is!necessary!in!areas!of!turbulent!change,!for!example!the!
fashion!textile!sector.!

In!this!case,!low!formality!is!required!for!quick!feedback!and!action.!

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BASIC)STRATEGIC)CONTROL)SYSTEMS)
Managers!dealing!with!strategic!control!are!typically!concerned!with!questions!related!to!
the!Vision!and!Mission!statements.!!!

• Are!we!heading!in!the!right!direction?!
• Are!our!assumptions/forecasts!about!major!trends!and!changes!correct?!
• Should!we!adjust!the!strategy!or!turn!it!around?!
• How!are!we!performing!based!on!targets!and!schedules?!
• Are!we!achieving!out!budgets!and!marketing!projections?!
• Do!we!need!to!bring!about!operational!changes?!

Activity:!Discuss!how!a!company!Vision!and!Mission!can!change!following!legislation!
regulating!competition!(Competition!Commission!in!Mauritius!and!India!e.g.)!

Record!your!response!in!your!course!journal.!

TYPES)OF)STRATEGIC)CONTROLS)
Pearce!&!Robinson!(2006)!propose!four!basic!types!of!strategic!control.!

1. Premise!Control.!
2. Strategic!Surveillance.!!
3. Special!Alert!Control.!
4. Implementation!Control.!!

From!the!above!control!types,!Strategic!surveillance!and!premise!control!are!operational!all!
along!from!start!of!strategy!formulation!through!strategy!implementation!steps!in!the!
Strategic!Management!Process.!!However,!Special!Alert!Control!and!Implementation!
Control!take!place!through!the!Implementation!step.!

)PREMISE)CONTROL )
During!the!strategy!formulation!and!implementation!stages,!managers!have!to!check!
whether!the!premises!on!which!assumptions!and!forecasts!were!made!are!still!valid!in!the!
changing!context.!!When!a!vital!premise!is!questioned,!the!strategy!may!have!to!be!altered.!!
Premise!control!is!mainly!concerned!with!(external)!environmental!and!industry!factors.!

)Environmental)Factors)

External!environmental!factors!like!inflation!rates!and!foreign!exchange!rates!can!vary!
considerably!in!the!local!and!global!business!contexts.!!Local!laws!about!Health!&!Safety!at!
work!are!often!implemented!as!a!result!of!the!country!ratifying!an!International!Treaty!
(International!Labour!Organisation),!in!this!case!an!ILO!Convention.!!!Such!laws!then!bring!
some!regulatory!control!over!company!operations!and!may!require!changes!as!human!
resource!strategies.!

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As!mentioned!earlier!in!the!business!environment!analysis,!the!company!may!not!be!able!to!
influence!external!environment!factors.!!However,!strategies!are!based!on!key!premises!
about!them,!such!as!trends!in!economic!indicators,!presumptions!about!forthcoming!
government!policy!and!socioKcultural!and!demographic!changes.!

Industry)Factors)

It!was!seen!earlier!in!the!Porter’s!Five!Forces!Model!that!certain!factors!such!as!buyer!
power!and!supplier!power!affect!an!industry’s!attractiveness.!!During!the!analysis!of!the!
microenvironment!of!the!business,!certain!assumptions!and!predictions!were!made!
concerning!the!relative!influences!of!these!in!future.!

However,!a!number!of!unexpected!changes!can!take!place,!e.g.!sudden!competitor!moves!
that!change!the!competitive!structure!of!the!industry.!

STRATEGIC)SURVEILLANCE)
Strategic!surveillance!is!designed!to!monitor!a!broader!range!of!activities!and!events,!both!
internal!environment!and!external!environment!that!are!most!likely!to!affect!strategy.!!
General!monitoring!can!uncover!important!information!from!multiple!feedback!
mechanisms.!!The!“loose”!environment!scanning!process!may!include!followKup!of!related!
articles!in!Trade!Magazines,!attending!trade!conferences!and!informal!conversations!with!
stakeholders.!

Although!quite!broad!and!loose!in!perspective,!strategic!surveillance!provides!vigilance!to!
overcome!complacency.!!One!form!of!surveillance!of!political!environment!can!be!to!
perform!a!review!of!speeches!of!politicians!(ministers!etc.),!Budget!speeches!and!party!
political!manifestos,!where!vital!intentions!and!strategies!can!be!uncovered.!

)SPECIAL)ALERT)CONTROL )
While!premise!control!and!strategic!surveillance!operate!over!strategy!formulation!and!
strategy!implementation!steps,!special!alert!control!operates!at!implementation!stage.!

“A!special!alert!control!is!the!thorough,!and!often!rapid,!reconsideration!of!the!company’s!
strategy!because!of!a!sudden,!unexpected!event”!Pearce!&!Robinson,!2006.!Events!like!a!
severe!impact!by!the!company’s!operations!on!the!Natural!Environment!would!trigger!an!
immediate!response!and!an!overall!reassessment!of!the!company’s!strategy.!!Companies!
often!have!a!contingency!plan!for!such!events!so!long!that!they!can!be!anticipated.!!
Otherwise,!a!wellKtrained!and!empowered!crisis!team!can!take!over!at!these!critical!
incidents.!

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IMPLEMENTATION)CONTROL)
Strategy!implementation!takes!place!as!a!number!of!steps!in!functional!areas!such!as!
Marketing,!Finance!and!HR.!!Managers!(functional)!implement!corporate!strategy!by!
committing!it!into!functional!strategies!and!objectives,!i.e.!concrete!plans!and!actions!that!
support!the!company’s!strategy.!!!

As!those!actions!and!events!unfold,!the!role!of!implementation!control!is!to!assess!whether!
the!overall!strategy!need!to!be!reviewed!based!on!the!results!and!feedback!from!the!
incremental!actions!taken!by!the!different!departments!(or!functions).!

Implementation!control!can!be!decided!into!two!types:!strategic!and!operational!
(milestones).!

1. Monitoring)Strategic)Thrusts)

Managers!can,!during!the!earlier!planning!process,!agree!on!which!strategic!thrusts!
(or!phases!of!same)!are!critical!to!the!accomplishment!of!the!overall!strategy.!!They!
can!then!single!them!out!and!track!them!for!inconsistencies.!!Examples!are!time!
targets!(Gantt!Chart)!and!budget!targets.!

2. Milestones)Reviews)

Milestones!may!be!associated!with!critical!events!(e.g.!launch!of!a!new!product),!
major!resource!allocations!(e.g.!end!of!financial!year!&!budget!preparation)!or!
simply!a!period!(one!year!or!a!semester).!!At!a!milestone,!a!fullKscale!assessment!of!
the!strategy!takes!place.!!Feedback!enables!decisionKmaking!on!whether!to!
continue,!refocus!or!abandon!the!overall!strategy.!

Implementation!control!is!therefore!operationalized!through!control!systems!like!budgets,!
schedules!and!key!success!factors!(KSF’s)!

STRATEGIC)PERFORMANCE)MEASURES)FOR)CONTROLLING)STRATEGY)
!
Critical)Success)Factors)(CSF’s))

CSF’s!refer!to!the!areas!in!which!the!company!must!excel!so!as!to!achieve!sustainable!
competitive!advantage.!!The!Massachusetts!institute!of!Technology!(MIT)!proposed!five!
areas!to!identify!CSF’s:!

1. The)Industry)Structure)

This!can!refer!to!Porter’s!Five!Forces!as!the!factors!which!shape!the!attractiveness!
of!the!industry!and!eventually!its!success.!!For!example,!when!customers!massively!
adopt!bioKlabelled!products,!the!industry!can!consider!this!as!a!CSF.!!Similarly,!

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industry!success!is!also!based!on!supplier!power!and!the!extent!of!competitive!
rivalry.!

2. Competitive)Strategy)and)Market)Position)

One!element!of!the!competitive!strategy!could!be!the!market!growth!rate!coupled!
with!the!percentage!coverage!of!the!target!market.!

3. Environmental)Factors)

Environmental!factors!may!fall!outside!the!influence!of!the!company!(external!
environment)!but!they!must!nevertheless!be!monitored!to!follow!the!trend!that!
was!anticipated!in!the!business!environment!analysis.!!For!example,!if!the!inflation!
rate!rises!beyond!expectations,!the!company!needs!to!control!costs!so!as!to!honour!
contractual!agreements!on!customer!prices.!

4. Temporary)Factors)

Refers!to!internal!short!term!projects/initiatives!that!impact!on!overall!
performance!of!the!business,!e.g.!cost!cutting!strategies.!

5. Functional)Managerial)Position)

Each!function!(Marketing,!HR,!Finance!etc.)!will!normally!have!specific!CSF’s!related!
to!the!functional!managers!correctly!performing!their!respective!roles.!

Activity:!Discuss!the!CSF’s!for!a!five!star!hotel!currently!operating!in!a!small!Island!State.!!
Consider!the!elements!of!the!business!environment!in!your!discussion.!

Record!your!response!in!your!course!journal.!

CSF’s!are!important!for!control!for!a!number!of!reasons:!

• They!can!be!used!for!competitor!benchmarking!in!addition!to!internal!
benchmarking.!
• As!proposed!by!MIT,!they!can!be!used!as!a!device!for!aligning!information!
generated!by!the!company’s!information!systems!to!its!business!needs.!
• The!process!of!identifying!CSF’s!in!itself!can!focus!managers!on!vital!control!factors!
(they!can!then!reduce!attention!on!less!important!factors).!
• CSF’s!can!be!converted!into!Key!Performances!Indicators!(KPI’s)!–!see!next!heading.!!

! )

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KEY)PERFORMANCES)INDICATORS)(KPI’S)))
KPIs!are!commonly!used!by!an!organization!to!evaluate!its!success!or!the!success!of!a!
particular!activity!in!which!it!is!engaged.!Sometimes!success!is!defined!in!terms!of!making!
progress!toward!strategic!goals,!but!often!success!is!simply!the!repeated!achievement!of!
some!level!of!operational!goal!(for!example,!zero!defects,!10/10!customer!satisfaction,!
etc.).!Accordingly,!choosing!the!right!KPIs!is!reliant!upon!having!a!good!understanding!of!
what!is!important!to!the!organization.!

Examples)of)KPI’s)by)Activity))

• Marketing!K!Market!share,!Sales!Volume,!Margin!
• Production!K!Quality!targets,!%!Capacity!wage!
• Advertising!K!Costs,!Awareness!levels!
• Pricing!K!!Elasticity!of!demand,!Industry!average!comparison!
• MIS!K!Accuracy,!Timeliness,!Reliability!

Activity:!Compare!KPI’s!for!two!companies!following!different!Porter’s!Generic!Strategies,!
namely!cost!leadership!and!Differentiation.!

Record!your!response!in!your!course!journal.!

BALANCED)SCORECARD)
The!Balanced!Scorecard!is!an!approach!proposed!originally!by!Kaplan!and!Norton!in!the!
early!1990’s.!It!attempts!to!integrate!the!different!measures!of!performance!by!including!
four!different!and!complementary!perspectives!namely:!

• Financial!
• Customer!
• Innovation!and!Learning!
• Internal!Business!Processes!

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Originally!designed!for!the!IT!industries!in!Silicon!Valley,!the!scorecard!has!been!modified!
later!into!the!second!generation!which!includes!linkages!with!the!overall!organisation!
objectives!and!crossKlinkages!between!the!abovementioned!perspectives!(causality!issues).!

At!the!third!generation,!the!BSC!(as!described!above)!may!even!be!used!to!drive!strategy.!!
Operationally,!once!the!KPI’s!have!been!identified,!performance!targets!are!set!and!a!
monthly!report!is!produced.!!The!Scorecard!claims!to!be!balanced!because!managers!think!
in!terms!of!all!your!perspectives!concurrently,!thereby!preventing!situations!where!
improvements!in!one!area!could!impact!negatively!on!another!area.!!For!example,!a!focus!
on!market!share!can!reduce!profitably!to!unbeatable!levels.!

Developing)a)Balanced)Scorecard)

Perspective)) Question) Explanation) Core)Outcome)

Measures)
CUSTOMER) What!do!customers! Uncovers!customer! Market!Share!
value!in!our!offering?! oriented!targets:! Customer!retention!
Quality,!Cost,! New!customers!
Responsiveness!
INTERNAL) In!what!areas/! Improves!vital!internal! Cycle!time!
BUSINESS) processes!do!we!have! processes!and! Optimal!capacity!
to!excel!to!achieve! managerial!decision! utilisation!
customer!&!financial! making! Quality!
objectives?!

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INNOVATION) Can!the!company! Refers!to!the!business’s! New!product!
&)LEARNING) continue!to!improve! capacity!to!sustain! development!cycle!
through!continuous! competitive!advantage! Employee!
learning!and! through!new!skills!and! satisfaction!
innovation?! new!products.! Employee!
productivity!
Talent!retention!
FINANCIAL) Shareholder!value?! Measures!for!growth,! ROI,!
profitability,!New!Asset! Profitability!
Value.! Cash!flow!
Cost!control!
!
The!scorecard!is!by!no!means!a!rigid!measurement!and!control!tool.!!It!should!be!used!
flexibly!to!adapt!to!industries!and!circumstances.!!!

Control!systems!provide!shareholders!and!successive!levels!of!management!with!
information!(overcoming!the!information!disadvantage),!they!can!use!to!identify!
shortcomings,!make!appropriate!decisions!to!review!performance!and!allocate!resources!
thereto.!

AGENCY)THEORY)AND)CONTROL)
An!agency!relationship!is!created!when!one!party!delegated!decisionKmaking!authority!or!
control!over!resources!to!an!Agent.!!In!a!company!the!Agency!relationship!operates!when!
shareholders!(Board)!delegate!authority!to!Top!Management!to!utilise!organisational!
resources!(capital,!HR,!fixed!assets)!effectively!and!efficiently!for!the!shareholder’s!benefit.!!!!

Managers!controlling!resources!have!the!responsibility!of!ensuring!the!best!advantage!of!
the!organisation.!!However,!delegation!of!authority!also!entails!determining!accountability!
for!the!utilisation!of!(scarce)!resources.!!Based!on!conflicts!of!interest!and!“information!
advantages”!–!i.e.!people!higher!in!the!hierarchy!may!lack!information!to!assess!the!
performance!of!people!in!lower!positions!(e.g.!top!management,!middle!management,!line!
management!etc.).!!Based!on!the!above,!managers!may!be!tempted!to!pursue!their!own!
goals!at!the!expense!of!stockholder!goals.!!For!example,!one!top!manager!may!prefer!to!
grow!the!company!with!a!view!to!an!enhanced!salary!package!rather!than!focusing!on!
profitability!(and!dividends).!!Lower!level!managers!may!wish!to!increase!staffing!and!
related!budget!so!as!to!build!their!own!empires!(at!the!expense!of!sustaining!competitive!
advantage).!!In!cases!like!the!above,!an!“agency!problem”!exists.!

The!challenge!of!the!Board!is!to:!

• overcome!the!information!disadvantage;!and!
• shape!and!control!the!behaviour!of!agents!so!that!they!achieve!the!goals!set!by!the!
Board.!

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The!central!issue!in!the!Agency!Theory!is!to!“overcome!the!agency!problem!by!developing!
control!systems!to!align!the!interests!of!shareholders!and!managers!at!different!levels”!!Hill!
&!Jones,!1995.!!!

ORGANISATION)CULTURE)AS)CONTROL)
As!noted!earlier,!culture!was!broadly!defined!as!the!norms,!values!and!beliefs!that!are!
shared!by!organization!members.!!By!“internalising”!these!norms!and!beliefs!and!making!
them!part!of!their!own!value!systems,!employees’!behaviour!is!under!a!form!of!selfKcontrol.!!
There!is!less!need!for!direct!supervision!or!regular!output!measurement.!!Culture!may!also!
guide!behaviour!consistently!so!as!to!solve!the!“Agency!problem”!(Unit!4,!Topic!4.1).!

One!way!new!employees!learn!about!the!organization!culture!is!through!socialization.!!By!
socialising!with!existing!employees!(during!induction!and!beyond),!new!employees!slowly!
internalise!the!values,!company!standards!and!beliefs!shared!by!people!in!the!organization.!!
Culture!is!often!transmitted!through!legends,!myths!and!common!language!used!in!the!
organization.!!Similarly,!rituals,!ceremonies!and!rewards!(for!example,!best!employee!of!the!
Month)!tend!to!reinforce!and!perpetuate!desirable!behaviours.!!Charismatic!leaders!and!
founders!also!leave!“imprints”!based!on!their!values!and!management!style.!!“……Bill!Gates!
has!had!a!major!influence!on!creating!Microsoft’s!free!wheeling!workaholic!entrepreneurial!
culture”.!!Hill!&!Jones.!

Culture!is!considered!to!be!a!powerful!form!of!control!because!“internalisation”!is!both!
effective!and!sustainable!over!time.!!!

Although!culture!is!an!effective!control!system,!strong!corporate!cultures!may!cause!
strategic!problems.!!For!example,!when!norms!and!values!are!deeply!embedded!in!an!
organisation,!employees!as!well!as!managers!may!later!find!it!difficult!to!steer!the!
company’s!strategy!in!a!different!direction.!!Strong!cultures!can!thus!create!inertia!
especially!if!people!start!finding!comfort!in!existing!structures,!which!they!may!resist!
dismantling.!!The!difficulty!is!to!establish!a!fairly!strong!culture!that!directs!behaviour!
consistently!and!yet!is!flexible!enough!to!recognise!and!accept!change.!

SelfNAssessment)Exercise)

Create!a!BSC!for!the!company!that!you!earlier!described!in!the!SWOT!analysis.!!!

Record!your!response!in!your!course!journal.!

SUMMARY)
In!this!topic,!we!have!presented!different!approaches/models!of!strategic!control,!starting!
with!a!basic!model!according!to!Hill!&!Jones!and!cultivating!into!Norton!and!Kaplan’s!
Balanced!Score!Card.!!The!Agency!relationship!was!proposed!as!an!indirect!form!of!control!
by!the!Board.!

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TOPIC)4.2)–)STRATEGIC)PLANNING)LIMITATIONS)AND)EMERGENT)STRATEGIES)
INTRODUCTION)
No!organisation!is!a!closed!system!and!therefore!is!inevitably!influenced!by!its!
environment,!be!it!internal!and!external.!!This!means!that!strategies!are!always!subject!to!
change!in!face!of!emergent!phenomena.!!This!does!not!however,!question!the!fundamental!
existence!of!strategy.!!On!the!contrary,!a!critical!yet!constructive!approach!could!be!to!view!
strategy!design!and!emergence!as!complementary!concepts.!!In!this!Topic,!we!shall!analyse!
the!limitations!of!the!formal!strategic!planning!based!on!the!reality!of!the!emergent!
strategies.!!The!theories!put!forward!by!Mintzberg!will!be!analysed!with!a!view!that!what!
strategy!is!finally!realized!is!a!product!of!the!original!intended!strategy!and!any!emergent!
strategies.!!At!the!end!of!the!topic,!the!reader!will!be!able!to!apply!the!concepts!learned!to!
a!real!life!Case!Study.!

OBJECTIVES)
Upon!completion!of!this!topic!you!will!be!able!to:!

1. Understand!the!assumptions!behind!the!strategic!planning!concept.!!
2. Analyse!the!limitations!of!strategic!planning.!
3. Critically!examine!strategic!design!based!on!emergent!strategies.!
4. Conceptualise!realised!strategy!as!a!product!of!intended!and!emergent!!
!strategies.!
5. View!design!and!emergence!as!complementary!concepts.!
6. Apply!the!concepts!of!emergence!to!a!real!case!situation.!!!

CONTENT)
• Limitations!of!the!Strategic!Management!Process.!
• Emergent!Strategies.!
• Design!and!Emergence!as!Complementary!Concepts.!

LIMITATIONS)OF)THE)STRATEGIC)MANAGEMENT)PROCESS)
It!is!unrealistic!to!assume!that!everything!that!is!planned!will!be!done.!!It!may!even!be!
argued!that,!in!practice,!planning!and!doing!may!not!necessarily!be!dissociated!in!two!steps!
but!can!go!altogether.!!We!all!know!that!when!we!start!a!task,!we!can!get!clues!on!how!to!
do!it!better!while!actually!implementing!the!task,!i.e.!there!are!things!that!we!don’t!“see”!
during!the!planning!process.!

Strategic!planning!process!models!are!very!often!“fit!models”!of!strategy!formulation!and!
implementation,!i.e.!they!conveniently!select!strategies!that!match!an!organisation’s!
resources!and!capabilities!to!the!demands!of!the!environment.!!In!their!book!“In!Search!of!
Excellence”,!Peters!and!Waterman!raised!doubts!about!the!usefulness!of!formal!planning!
systems.!!Similarly,!Henry!Mintzberg!!(1987)!suggests!that!emergent!strategies!may!be!just!
as!successful!as!intended!strategies.!

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Taking!a!balanced!approach!to!the!concept!of!strategic!planning!requires!you!to!be!
appraised!of!the!assumptions!and!limitations!behind!strategic!planning.!Strategy!is!not!a!
panacea!for!all!the!ills!of!the!organisation,!nor!is!it!a!faultless!tool.!!However,!the!numerous!
criticisms!levelled!against!formal!strategic!planning!do!not!disqualify!it!as!a!valuable!tool!in!
the!hands!of!management.!!Knowledge!of!its!limitations!just!makes!it!more!useful!than!
ignorance!of!same.!

STRATEGY)AS)“MANAGEMENT)BY)WALKING)AWAY”)))
Brunsson.!N!(1995)!purports!that!when!strategies!are!made!up!by!top!management!and!
employees!it!creates!a!distance!between!management!and!employees.!!Management!can!
then!use!this!distance!to!its!advantage.!!It!can!reduce!the!risks!that!management!is!
controlled!by!employees!and!make!it!easier!for!management!to!“justify”!the!inconsistency!
between!talk,!decisions!and!action.!

This!distance!also!reduces!liability!of!management!whereby!it!reduces!its!risk!of!obstructing!
action!or!of!having!to!impose!its!rationality!on!the!action.!Otherwise!that!would!undermine!
management,!especially!if!things!go!wrong.!

The!above!pitfalls!of!“distance”!are!normally!overcome!by!involving!employees!at!all!levels!
in!the!strategy!making!process.!

Activity:!If!management!does!not!wish!to!share!liabilities!of!failure!by!keeping!the!
distance!mentioned!above,!why!should!they!at!all!indulge!in!crafting!vision/mission!
statements!and!strategic!goals?!

Record!your!response!in!your!course!journal.!

!
Planning)Under)Uncertainty)))

One!major!criticism!of!strategic!planning!is!that!people!can!hardly!devise!clear!and!
unambiguous!goals!in!an!uncertain!environment.))

Executives!often!lose!sight!of!the!fact!that!the!future!is!unpredictable!and!that!unforeseen!
contingencies!may!occur.!In!fact!external!threats!and!opportunities!are!far!from!being!
predictable.!!Many!computer!manufacturers!(including!IBM)!failed!at!first!to!see!the!
potential!market!for!personal!(home)!computers.!!They!saw!it!mainly!as!a!business!tool.!!
They!failed!to!see!the!opportunity,!not!because!they!lacked!management!competences,!but!
simply!because!they!could!not!predict!the!electronic!revolution!to!come.!!Similarly,!few!
managers,!even!economists,!could!predict!the!recent!world!financial!crisis.!

The!solution!may!be!to!forecast!possible!scenarios!and!to!devise!strategies!to!cope!with!
them!(scenario!planning).!

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Activity:!Give!examples!of!possible!contingencies!in!the!agricultural!sector!of!a!small!
island!economy!in!the!Indian!Ocean.!

Record!your!response!in!your!course!journal.!

!
Planning)Equilibrium)

If!we!think!of!strategic!planning!skills!as!being!a!source!of!competitive!advantage,!it!must!be!
possessed!by!one!company!and!not!the!others.!However,!once!all!companies!indulge!in!
strategic!management,!it!levels!the!playing!field.!!Then!the!question!arises:!If!all!of!them!
can!strategize!on!the!same!lines,!then!what!makes!them!different?!

Obviously,!all!of!them!do!not!possess!the!same!resources!and!capabilities.!!Also,!they!do!
not!“see!with!the!same!eyes”,!is!a!matter!of!perception.!!Given!the!same!environmental!
conditions,!all!experts!do!not!come!with!the!same!conclusions!(or!predictions).!

Following!this!reasoning,!it!is!clear!that,!if!all!companies!apply!strategic!management!and!
one!does!not,!then!the!latter!is!at!competitive!disadvantage.!!To!plan!is!better!than!not!to!
plan.!

Ivory)Tower)Planning)

Planning!is!sometimes!treated!as!an!exclusively!top!management!function,!while!it!is!known!
that,!quite!often,!top!management!tends!to!have!little!understanding!of!the!operating/line!
realities.!

The!ivory!tower!approach!to!planning!implies!that,!in!order!to!succeed,!strategic!planning!
must!comprise!managers!at!all!levels!of!the!corporation.!!Strategists!then!take!the!role!of!
facilitators!who!help!managers!do!the!planning.!

When!plans!fail!the!blame!is!often!conveniently!assigned!on!implementation.!!However,!the!
main!cause!of!failure!might!be!the!top!down!approach!in!strategic!planning!did!not!work.!!
The!assumption!that!managers!have!access!to!the!right!information!in!order!to!act!
strategically!is!not!always!true.!!In!fact,!it!is!employees!at!the!front!line!and!line!managers!
who!have!valuable!market!information!and!feedback!from!stakeholders.!!Second,!
organisations!rarely!make!sure!that!their!employees!possess!the!knowledge!and!skills!
required!to!implement!the!sophisticated!strategies!that!managers!craft!in!their!ivory!
towers.!!!

Strategic)Intent)versus)Strategic)Fit)

The!“fit!model”!of!strategy!focuses!too!much!on!the!degree!of!fit!between!the!existing!
resources!of!the!company!and!the!current!environmental!opportunities.!!Strategic!intent!is!
not!concerned!with!building!new!resources!and!capabilities.!

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In!fact,!they!should!be!equally!take!into!consideration.!!There!is!a!need!for!the!building!of!
new!resources!and!capabilities!to!create!and!exploit!future!opportunities.!!Football!teams!
acquire!talented!players!to!achieve!promotion!of!their!teams!to!the!higher!division!league!

ETHICAL)CONSIDERATIONS)
When!companies!develop!predetermined!goals!that!have!to!be!implemented!“at!all!costs”,!
one!may!lose!sight!of!ethical!and!moral!considerations.!!Strategies!may!be!rational!and!
efficient,!but!at!the!same!time,!they!may!be!inhuman!or!at!least!discriminatory.!!Many!
international!companies!outsource!their!activities!in!the!name!of!production!efficiency.!!
However,!by!the!standards!of!their!own!customers,!the!strategy!of!employing!cheap!labour!
is!unethical.!!Cheap!labour!is!often!under!the!legal!age!for!employment,!poorly!paid,!often!
oppressed.!!Of!course,!one!may!argue!that!a!poorly!paid!job!in!a!third!world!country!is!
equivalent!to!survival.!!In!certain!cases,!based!on!local!standards,!they!may!even!appear!
privileged!(especially!in!areas!of!high!unemployment).!

Activity:!Reflect!on!how!companies!can!solve!this!ethical!dilemma.!

Record!your!response!in!your!course!journal.!

!
EMERGENT)STRATEGIES)
For!a!strategy!to!be!realized!exactly!as!intended,!Mintzberg!&!Waters!(1985)!claim!at!least!
three!conditions:!

1. There!must!have!existed!precise!intentions!in!the!organisation,!articulated!in!detail!
so!that!there!was!no!doubt!about!what!was!desired!well!before!the!action!was!
taken.!
2. The!decisions!must!have!been!proved!to!be!organisational,!whether!from!leaders,!
management!or!the!whole!organisation.!
3. The!intentions!must!have!been!realized!exactly!as!planned,!with!no!external!forces!
interfering.!

Satisfying!all!the!above!conditions!does!not!appear!realistic!unless!the!environment!has!
been!stable!or!highly!predictable!or!at!best!under!control,!which!is!rarely!the!case,!
especially!nowadays.!

Thus,!what!can!be!more!realistically!expected!are!tendencies!in!the!directions!of!both!
deliberate!and!emergent!strategies.!!Based!on!the!above!three!conditions,!reality!therefore!
lies!in!leadership!intentions!being!more!or!less!precise!and!more!or!less!shared,!control!
over!organisational!actions!being!more!or!less!stable!and!more!or!less!predictable.!!

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There!are!some!dangers,!however!in!following!an!emergent!strategy:!

1. Managers!may!not!like!it!because!they!may!perceive!it!entails!risks!or!it!may!
interfere!with!other!strategies.!
2. It!will!need!to!be!managed!and!may!involve!using!unplanned!resources!and!
committing!the!organisation!elsewhere!than!predicted.!

The!planning!approach!rather!incorrectly!assumes!that!a!company’s!strategy!is!always!the!
outcome!of!a!rational!strategic!planning!process.!In!practice,!strategies!may!emerge!from!
the!organisation!without!any!formal!plan!e.g.!following!to!unexpected!opportunities.)

At!this!stage,!it!would!appear!more!reasonable!to!adopt!a!more!balanced!approach!to!
strategic!planning!whereby!taking!the!stance!that!strategic!planning!can!be!both!planned!
and!emergent.!!Such!emergent!strategies!may!arise!from!time!to!time!based!on!unexpected!
changes!in!the!business!environment,!both!internal!and!external.!

!“Henry!Mintzberg!and!his!colleagues!at!Mc!Gill!University!distinguish!intended,!realized!
and!emergent!strategies.”(Grant:2005:24).!!Intended!strategy!being!formal!strategy!as!
developed!by!the!top!management!team,!realized!strategy!–the!actual!strategy!that!is!
finally!implemented!and!emergent!strategy!–the!resultant!strategy!that!is!adopted!based!
on!adaptation!of!the!intended!strategy!to!changing!external!circumstances.!

According!to!Henry!Minztzberg,!strategy!is!therefore!a!pattern!in!a!stream!of!decisions!or!
actions,!whereby!the!pattern!is!a!product!of!“intended’!and!“emergent”!strategies,!i.e.!a!
blend!of!what!the!company!intends!to!do!at!the!beginning!and!what!it!actually!does!in!the!
end.!

EMERGENT,)OPPORTUNISTIC)AND)IMPOSED)STRATEGIES)
The!above!can!be!further!extended!to!include!opportunistic!strategy,!imposed!strategy!and!
unrealized!strategy!as!depicted!below:!

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Emergent)Strategy) Opportuniesec)Strategy) Imposed)Strategy)

Planned)Intended)
Strategy)

Unrealized) Realized)
Strategy) Strategy)

Activity:!Give!examples!of!each!of!the!above!types!of!strategy!within!a!given!industry.!

• Planned!intended!strategy!
• Emergent!strategy!
• Opportunistic!strategy!
• Imposed!strategy!
• Realised!strategy!
• Unrealised!strategy!

Record!your!response!in!your!course!journal.)

!
Design)and)Emergence)as)Complementary)Concepts)

Strategic!design!does!not!necessarily!exist!in!opposition!to!emergence.!!They!may!rather!be!
complementary!and!even!beneficial!to!the!organisation.!

Despite!being!a!rather!“inexact!science”,!strategic!planning!in!its!imperfect!form!
nevertheless!has!important!functions.!!Weick!(1979:10K11)!reports!an!author!to!have!said!
that!to!plan!is!to!“bother!about!the!best!method!of!accomplishing!an!accidental!result”.!
Despite!that,!strategic!planning:!

• brings!people!together!for!a!shared!purpose;!

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• makes!them!take!into!account!where!they!are;!
• makes!them!decide!where!they!want!to!go;!
• prepares!them!to!address!the!future!with!visions!and!missions,!opportunities!and!
threats!(or!more!humanly!–!hopes!and!fears);!
• motivates!and!animates!them!to!achieve!goals;!!and!
• may!act!as!a!selfKfulfilling!prophecy,!i.e.!make!things!happen!when!desired.!

(The!above!has!to!be!read!in!the!present!context!of!emergence!but!in!conjunction!with!the!
Roles!of!strategic!planning!described!in!Topic!4.2)!

Commenting!on!the!Honda!Motorcycle!case!(5.0),!Mintzberg!(1987:50)!stated:!“Brillant!as!
its!strategy!may!have!looked!after!the!fact,!Honda’s!managers!made!almost!every!
conceivable!mistake!until!the!market!finally!hit!them!over!the!head!with!the!right!formula”.!

The!above!severe!critique!of!Mintzberg!on!planned!strategy!is!not!a!reason!for!disqualifying!
strategy!outright.!!On!the!contrary,!both!views!can!complement!to!give!us!a!richer!
perspective!of!strategy!making.!

A!balance!has!to!be!struck!between!design!and!emergence!whereby!the!strategic!planning!
process!incorporates,!the!element!of!emergence.!!For!example,!top!management!can!set!
guidelines!in!the!form!of!Mission!Statements,!performance!targets!and!budgets.!!However,!
within!these!guidelines,!business!level!managers!and!line!managers!have!freedom!to!adjust,!
adapt!or!even!experiment!entrepreneurially.!!In!this!way,!emergence!can!be!“tamed”!and!
even!managed.!

Although!decentralised!responses!by!managers!from!all!levels!of!the!organisation!may!
appear!chaotic,!their!overall!effectiveness!is!still!guided!by!the!guidelines!mentioned!above.!!
These!guidelines!also!ensure!coordination.!

FLEXIBILITY)AS)THE)ANSWER)TO)EMERGENCE))
Companies!can!“plan”!for!emergence!by!making!allowance!for!the!possible!need!to!make!
changes.!!Those!who!fail!to!do!so!can!render!their!plan!invalidated!by!changing!
circumstances.!!Allowance!to!change!can!be!achieved!by!establishing:!!!!

• enough!flexibility!to!recognize!and!adopt!change;!
• appropriate!controls!to!measure!performance;!!and!
• objectives!that!allow!initiative!and!flexibility!in!taking!decisions.!

At!an!extreme,!an!organisation!may!find!itself!in!a!position!that!dramatic!change!is!
required.!!When!such!unforeseen!change!becomes!unavoidable,!management!may!respond!
to!change!with!some!form!of!opportunism!(See!Honda!Case!Study!in!Section!4.0).!

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In!the!wake!of!uncertainty!and!emergence,!Mintzberg!(cited!in!CIMA!Study!Text,!1998)!
prescribes!the!following:!

• Manage)Stability!K!Managers!do!this!by!effectively!implementing!strategies!while!
not!being!obsessed!with!change.!!Knowing!when!to!change!is!more!important!than!
the!change!itself.!
• Detect)Discontinuity!K!Managers!should!be!alert!to!changes,!but!not!all!changes!are!
significant.!!Strategists!know!that!in!some!instances,!even!small!changes!may!have!
far!reaching!consequences,!e.g.!certain!technological!changes.!

Activity:!!Reflect!upon!how!the!introduction!of!the!digital!camera!and!how!it!disrupted!
the!photography!industry.!

Record!your!response!in!your!course!journal.!

KNOW)THE)BUSINESS)
Strategists!need!to!have!a!“feel”!for!the!business.!!In!other!words,!they!have!to!be!aware!
and!understand!all!the!intricacies!of!the!operations!going!on!in!the!business.!

• Manage)Patterns!K!Managing!strategy!also!means!that!one!has!to!develop!the!
ability!to!at!least!detect!any!patterns!or!at!best!shape!these!patterns!and!nurture!
them.!(Refer!again!to!the!Honda!Case!Study!in!Section!5.0!for!application!of!the!
above).!
• Reconcile)Change)and)Continuity!K!The!strategy!is!to!adopt!change!instead!of!
fearing!or!resisting!it.!!This!is!done!by!reconciling!the!present!with!the!past!and!the!
future,!i.e.!deciding!now!for!the!future!based!on!past!experience.!

SelfNAssessment)Exercise)

Case!Study:!Honda!

Honda!is!now!one!of!the!leading!manufacturers!of!motorbikes.!!The!company!is!credited!
with!identifying!and!targeting!an!untapped!market!for!small!50!cc!bikes!in!the!US,!which!
enabled!it!to!expand,!trounce!European!competition!and!severely!damaged!indigenous!US!
bike!manufacturers.!!Honda!had!63%!of!the!US!market.!!But!this!occurred!by!accident.!

On!entering!the!US!market,!Honda!had!wanted!to!compete!with!the!larger!European!and!
US!bikes!of!250ccs!and!over.!!These!bikes!had!a!defined!market,!and!were!sold!through!
dedicated!motorbike!dealerships.!!Disaster!struck!when!Honda’s!larger!machines!developed!
faults!–!they!had!not!been!designed!for!the!hard!wear!and!tear!imposed!by!US!
motorcyclists.!!Honda!had!to!recall!the!larger!machines.!

Honda!had!made!little!effort!to!sell!its!small!50cc!motorbikes!–its!staff!rode!them!on!
errands!around!Los!Angeles.!!Sports!goods!shops,!ordinary!bicycle!and!department!stores!

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had!expressed!an!interest,!but!Honda!did!not!want!to!confuse!its!image!in!its!‘target’!
market!of!men!who!bought!the!larger!bikes.!

The!faults!in!Honda’s!larger!machines!meant!that!reluctantly,!Honda!had!to!sell!the!small!
50cc!bikes!just!to!raise!money.!!They!proved!very!popular!with!people!who!would!never!
have!bought!motorbikes!before.!!Eventually,!the!company!adopted!this!new!market!with!
enthusiasm!with!the!slogan!“You!meet!the!nicest!people!on!Honda”.!!The!strategy!had!
emerged,!against!managers’!conscious!intentions,!but!they!eventually!responded!to!the!
new!situation.!

Questions:!

1. Identify!any!realised,!intended,!emergent,!imposed,!unrealised!and!opportunistic!
strategies!in!the!above!case.!
2. Did!Honda!‘create’!the!market!for!smaller!motorcycles?!!
3. Discuss!how!intended!and!emergent!strategies!complemented!each!other!in!the!Case.!
4. Applying!Mintzberg’s!prescriptions!in!topic!3.1,!advise!Honda!on!how!to!prevent!a!
similar!situation!in!future.!

Record!your!response!in!your!course!journal!and!then!submit!your!responses!to!your!
instructor!for!review!and!feedback.!

SUMMARY)
This!topic!presented!a!balanced!approach!to!strategic!planning!by!highlighting!the!
limitations!of!formal!planning.!!It!was!seen!that!strategic!design!and!emergence!were!not!
opposing!concepts,!but!rather!complemented!each!other.!!The!solution!is!to!incorporate!
some!flexibility!in!the!planning!process!so!as!to!adopt!change!as!an!opportunity!instead!of!
resisting!it.!

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UNIT)FOUR)–)SUMMARY)
ASSIGNMENTS)AND)ACTIVITIES)
You!should!now!complete!the!final!assignment!of!the!course!based!on!the!instructions!
provided!by!your!instructor.!

SUMMARY)
In!this!unit!we!learned!that!not!all!strategies!are!constant!and!that!companies!must!be!
willing!to!adapt!new!or!revised!strategies!to!address!any!emergent!activities!that!influence!
the!strategic!direction!of!the!organization.!

UNIT)REFERENCES)
SUPPLEMENTARY)READINGS)
If!you!wish!to!learn!more!about!the!topics!covered!in!this!unit,!you!should!review!one!or!
more!of!the!books!and!articles!listed!below.)

Ansoff,!I.!(1985).!“Corporate!Strategy”,!!London!Penguin!

Brunsson,!N.!(1995).!!“Managing!Organisational!Disorder”!pp83K87!cited!in!M.!Warglien!
and!M.!Massino(Eds).!!The!Logic!of!!Organisational!Disorder,!Berlin!de!Gnyter!

Clegg,!S.!Kornberger.!M!and!Pitsis.T!(2005).!“Managing!Organisations”,!SAGE!

Covey,!S.!(1989)!cited!in!Grant!Robert,!“Contemporary!Strategy!Analysis”,!Blackwell,!
2005.!

Grant,!R.!M.!(2005).!!“Contemporary!Strategy!Analysis”,!Blackwell!!

Hills,!C.!&!Jones,!G.)(1998).)“Strategic!Management!Theory”,!4th!Edition,.!

Johnson,!G.!&!Scholes,!K.!(2005).!“Exploring!Corporate!Strategy”!Sixth!Edition.!!Pearson!
Edition!

Jones,!G.!R,!Mc!Evans,!H.!&!George,!J.!M.!(2003).!“Contemporary!Management”!

Kinicki,!A!&!Williams,!B!(2006).!“Management!–!A!practical!introduction”,!pp192!

Lingle,!J.!&!Schieman,!W!(1996).!“”!

Mintzberg,!H.!&!Waters,!J.!(1985).)!“Of!strategies!Deliberate!and!Emergent”,!Strategic!
Management!School,!Vol.6,!257K272!!

Ohmae,!K.!(1983).!“The!mind!of!the!strategist”,!Penguin!Books!

Peters,!T.!&!Waterman,!R.!()!“In!Search!of!Excellence”!!

Strategic)Planning)) Page!|!155!!
!
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Porter,!M.!(1983).!“Competitive!Strategy”,!Freepress!

Weick,!K.!(1979).!“The!Social!Psychology!of!Organising”!2nd!Ed,!Reading,!MA:!
Addison.wesley!

http://www.businessdictionary.com!

BIBLIOGRAPHY)
Below!is!a!list!of!references!described!in!the!topics!presented!in!this!unit.!!You!may!wish!to!
review!them!to!learn!more!about!the!information!presented!in!the!topics.!

CIMA!Study!Text!(1998)!–!“Strategic!Management!Accountancy!and!Marketing”,!BPP!
Publishing!

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FINAL)ASSIGNMENT/MAJOR)PROJECT)
NOTE:!!This!is!a!potential!major!project.!!Instructors!may!use!this!one!or!create!a!different!
project!for!their!learners!to!complete.!

Description)
!
The!aim!of!this!assignment!is!to!have!participants!to!complete!a!draft!strategic!plan!for!a!
company!they!wish!to!create!or!grow.!!The!plan!will!include:!

1. a!vision!and!mission!statement;!
2. organizational!value!statements!with!descriptions!of!how!they!will!be!
demonstrated;!!
3. a!SWOT!analysis!that!identifies!the!potential!risks!to!the!proposed!business;!and!
4. multiKyear!strategic!goals!and!objectives!that!reflect!the!results!of!the!planning!
process!and!address!the!risks!identified!in!the!SWOT.!

Assignment)Activities)
!
To!produce!the!assignment!learners!should!identify!a!current!or!future!business!
opportunity!that!you!have!some!knowledge!of.!!Some!guidelines!to!consider!when!selecting!
an!opportunity:!

1. Collect!the!data!and!information!needed!to!complete!the!assignment.!
2. Complete!the!assignment!using!the!Strategic!Planning!Template!and!the!feedback!
you!have!received.!
3. Have!a!group!of!peers!review!your!draft!Strategic!Plan!to!provide!feedback!on!its!
wording!and!viability.!
4. Review!the!course!grading!criteria!to!ensure!that!the!assignment!conforms!to!the!
direction!contained!in!this!student!guide,!and!any!additional!guidelines!provided!by!
the!course!instructor.!!

Assignment)Deliverable)
!
1. The!assignment!should!be!produced!on!8!½!by!11!paper.!!Layout,!grammar!and!
tone!should!be!appropriate!for!a!business!document.!!!
2. As!a!minimum!the!assignment!content!should!include!those!items!reflected!on!the!
Strategic!Planning!Template.!
3. The!assignment!will!be!based!on!the!Strategic!Planning!Template.!
4. The!assignment!must!be!submitted!to!your!course!instructor!for!review!and!
feedback.!

!
) )

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Assignment)Rubric)
!
The!Strategic!Plan!will!be!assessed!based!on!the!following!criteria:!
!
1. The!strategic!plan!clearly!reflects!the!direction!the!company!will!take!over!the!next!
three!to!five!years.!
2. The!SWOT!analysis!describes!and!provides!evidence!of!the!strengths,!weaknesses,!
opportunities!and!threats.!
3. The!SWOT!analysis!identifies!all!of!the!risks!that!are!facing!the!company,!now!and!in!
the!future.!!
4. The!vision!and!mission!are!in!sync!and!conform!to!the!guidelines!provided!in!the!
course.!
5. The!value!statements!are!supported!with!guidance!on!how!the!values!should!
impact!the!company’s!approach!to!its!employees,!customers!and!other!
stakeholders.!
6. MultiKyear!strategic!goals!address!the!risks!identified!in!the!SWOT!and!the!major!
activities!that!need!to!be!completed!to!successfully!implement!and!grow!the!
business.!
7. MultiKyear!strategic!goals!are!broken!down!into!two!or!more!strategic!objectives.!
8. A!detailed!list!of!resources!are!provided!that!evolve!from!the!strategic!goals!and!
objectives.!
9. A!next!step/implementation!task!list!is!provided.!

Grading)Criteria:)
!
30)N)27) 26)N)23) 22)N)19) Below)19)
• Exceeds!in!one!or! • Meets!all!criteria.! • One!or!more!criteria! • The!majority!of!the!
more!criteria.! • Written!in!clear!and! not!met.! criteria!have!not!
• Meets!all!criteria.! concise!business! • Language!and!format! been!met.!
• Written!in!clear!and! language.! of!report!is! • The!report!is!
concise!business! • The!report!flows! somewhat!confusing.! confusing!and!lacks!
language.! well!and!is!divided! • Some!references!are! focus.!
• Report!presented!in! into!sections!for! provided.! • The!report!does!not!
a!format!that! each!discussion.! flow.!
demonstrates!the! • Provides!a!list!of! • Very!few!if!any!
professionalism!of! references!and! references!have!
the!new! URLs.! been!provided.!
organization.!
• Provides!a!detailed!
list!of!references!and!
URLs.!
!
!
!
! !

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MAJOR)ASSIGNMENT)TEMPLATE)

Business Strategic Plan

Prepared by: !
Date: !

Business Name:!

Executive Summary:!

Overview of Business Opportunity: !

Vision:!!Provide!an!organization!vision!statement!based!on!proposed!business.!

Mission:!!Insert!an!organization!mission!statement.!

Organizational Values!–!Insert!a!list!of!organizational!value!statements.!!Ensure!they!
address!the!human!side!of!the!business!and!are!written!in!a!way.!!Explain!how!the!
organization!will!demonstrate!these!values.!

SWOT Analysis - Describe!the!results!of!SWOT!Analysis.!

Strengths!(Internal)! Weaknesses!(Internal)!

Opportunities!(External)! Threats!(External)!

Note:!!The!SWOT!should!be!a!summary!of!the!issues,!data!and!risks!described!in!the!
Business!Opportunity,!Market!Potential!and!Competition.!

SWOT Analysis Summary!–!Group!and!describe!the!major!risks!and!issues!facing!the!new!

company.!!This!list!will!help!the!organization!produce!appropriate!strategic!goals!and!
objectives!to!reduce!risk.!

TOWS Analysis – Identify strategic goals based on SWOT results.

! STRENGTHS!–!S! WEAKNESSES!–!W!
Always!leave!blank! List!Strengths! List!Weaknesses!
!!!!OPPORTUNITIES! !!!SO!STRATEGIES! !!!WO!STRATEGIES!
List!opportunities! ! !
!
!!!!!!THREATS!K!T! !!!!!ST!STRATEGIES! !!!!WT!STRATEGIES!
List!threats! .! !
!
!

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Multi-Year Strategic Goals!–!Describe!strategies!(goals!and!objectives)!to!counter!the!
SWOT!results!and!address!the!market!opportunities!and!increase!the!competitive!
advantage.!!Make!sure!you!consider!all!aspects!of!your!future!business.!!Strategies!should!
exist!for!marketing,!product!development,!sales,!finances,!human!resources.!

Strategic!Goals! Related!Strategic!Objectives!

!! !!

Goal!1! Objective!1.1!
Objective!1.2!
Objective!1.3!

Goal!2! Objective!2.1!
Objective!2.2!

Goal!XX! Objective!XX.1!
Objective!XX.2!
Objective!XX.3!

Resource Requirements!–!Describe!the!resource!requirements!to!implement!the!strategic!
plan.!!

Planning Requirements!–!Identify!the!major!issues/tasks!that!should!be!considered!to!
implement!the!strategic!plan!and!create!an!effective!business!plan.!!Identify!next!steps.!

! )

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COURSE)SUMMARY)

LESSONS)LEARNED)
During!this!course!you!learned!about!the!concepts!of!strategic!planning!and!its!impact!on!a!
business.!!Strategic!planning,!be!it!formal!or!informal,!is!an!essential!part!of!business.!!You!
explored!how!to!assess!your!strategic!position!within!your!industry!using!a!variety!of!
different!tools!and!techniques.!!You!examined!the!different!types!of!strategic!goals!and!
how!to!implement!the!goals!that!have!defined!your!strategic!direction.!!Finally!you!
examined!the!impact!of!changing!business!environments!and!their!impact!on!your!business!
goals.!

Entrepreneurs!must!embrace!the!ideas!presented!in!this!course.!!They!must!actively!and!
continuously!practice!the!strategic!planning!process.!!They!must!craft!strategic!goals!and!
measure!their!success.!They!must!be!willing!and!able!to!change!direction!based!on!
changing!circumstances.!

Good!luck!in!the!future.!

COURSE)EVALUATION)
Your!institution!should!forward!an!endKcourse!evaluation!for!you!to!complete.!!It!is!
important!that!you!fill!this!form!out!since!it!will!help!the!course!designers!and!your!
instructor!adjust!the!course!for!future!graduates.!

Job!well!done!and!thank!you!for!participating.!!!

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