WELCOME TO THE

BUSINESS STRATEGY
(BRE3206) 2021

YOUR LECTURER:

MR B.P. FUZANE

1
PURPOSE OF THE MODULE
 The main aim of this module is to enable
candidates to have a strategic, ‘big
picture’ approach and understanding of
business management, and develop and
manage an appropriate strategic plan for
business organisations.
 This entails exposure to the Strategic
Planning/Management activities
summarised as follows:
 Current performance evaluation
 Internal and external situational analysis
 Strategy formulation, selection,
implementation and control
2
MODULE LEARNING OUTCOMES
 Critically evaluate the nature, scope and need
for systematic corporate strategic planning
 Assess the scope, uses and techniques of
analysis for corporate strategic planning
 Identify, consider and assess strategic options
and decisions
 Evaluate and decide between strategic options
 Make recommendations with regard to
implementing strategies and measuring and
controlling corporate strategic performance
 Identify and critically evaluate key
contemporary issues and future challenges
affecting business strategy.

3
 TOPIC 1
AN INTRODUCTION
TO
BUSINESS STRATEGY

4
 TOPIC 1 OBJECTIVES
The learner should be able to:
 explain the role of business strategy
and strategic management in modern
organisations and assess its
importance
 outline the key elements in the
process of corporate strategic planning
 explain the major patterns and
drivers of strategy development within
organisations
 THE TOPIC COVERS...
Definitions of strategy, strategic planning and
strategic management.
The hierarchy of strategies.
A model of the strategic planning management
process
Patterns of strategy development
Strategic management and business planning
Characteristics of strategic decisions
Benefits of strategic planning.
Limitations of strategic planning.
Strategic Management in different contexts 6
 BACKGROUND TO BUSINESS STRATEGY

 Organisations operate in changing environments

 Organisations are open systems which depend on their environments
for material, human, informational and physical resources.
 They combine these resources to produce goods and services which
they then sell to meet the needs of customers in that environment.
 Organisations are affected positively and/or negatively by their
environments, but they can also change or influence their
environments to increase their chances of survival.
 How well they do this depends on how well their managers plan,
organise, lead and control their resources and operations at different
levels – strategic, functional and tactical
 At CORPORATE STRATEGIC LEVEL, concern is with SURVIVING
IN A CHANGING ENVIRONMENT IN THE LONG RUN
 To do that successfully managers employ conceptual, human and
technical skills
12/25/2024 fuzanebp2021 7
 DEFINITION OF STRATEGY
 Corporate Strategy is derived from strategy, hence we
should start by clearly defining the term STRATEGY:

1. Strategy is any course of action for achieving an

organisation’s purpose(s) (de Wit and Meyer, 1998)

2. The determination of the basic , long term goals and

objectives of an enterprise and the adoption of courses
of action and the allocation of resources necessary for
those goals (Chandler, 1962)

3. A coordinated series of actions which involve the

deployment of resources to which one has access for
the achievement of a given purpose (White, 2004, p.5)8
 DEFINITION OF STRATEGY (cont.)
4. Strategy is the direction and scope of an
organisation over the long term which achieves
competitive advantage for the organisation through
its configuration of resources within a changing
environment to meet the needs of markets and to
fulfil stakeholder expectations.
(JOHNSON AND K.SCHOLES, 2002, p.10)

5. Strategy is the broad statement of the way in which

the organisation sets out to achieve its goals and
objectives. (Wilson and Gilligan, 2005) 9
 DEFINITION OF STRATEGY
(cont.)
6. Koontz and O'Donnell describe it
as
 a decision about how to
 use available resources
 to secure a major objective
 in the face of possible
obstructions…such as
competitors, public opinion, legal
 DEFINITION OF STRATEGY (cont.)

7. Strategy has the same meaning, whether used in a

corporate context, marketing context or even as a
strategy to expand the product mix – it is concerned
with how organisations might achieve their goals and
objectives. The only difference relates to the level at
which the strategy is developed, be it at top
management level, functional level or operational level.

11
 DEFINITION OF STRATEGY : KEY
ISSUES

Strategy implies therefore:

 action as well as
 decision-making and
 consideration of the
environment in which it
operates 12
 Are concerned with the long-term
direction of the organisation.
 Are future oriented and sustainable.
 Are concerned with the effective
positioning of the organisation to achieve
competitive advantage.
 Are concerned with the scope
(boundaries) of an organisation's activities.
 Are concerned with the matching of the
organisation’s activities to its environment
(strategic fit).

CHARACTERISTICS OF STRATEGIC
DECISIONS 13
May require major resource changes for an
organisation.
They affect operational decisions.
They are integrative, interactive and complex.
Are made in situations of change and
uncertainty.
 Reflect the values, attitudes and expectations
of key stakeholders of the organisations

Therefore the decisions are complex in nature, are made

under risky situations, demand an integrated
approach, may change relationships and networks
and often involve change.
CHARACTERISTICS OF STRATEGIC
DECISIONS 14
 Strategic Vs Tactical Decisions
• Strategic Decisions and Tactical ones differ in the
following respects:
– Scope/detail
– Reflecting environmental and competitive factors
– Implications for resource allocations
– Planning Horizons
– Complexity/uncertainty
– Need for integration

– OWN YOUR OWN: In tabular form, elaborate on the

above differences between strategic and tactical
decisions
 Levels of strategy
• Organisations are hierarchical in
nature; in other words they are made
up of several different authority levels
at which strategic decisions are made
or where the strategy process occurs.
• These levels could be the
top management level,
functional level or
operational level.
The following definition captures this:
 Levels of strategy
“Strategy has the same meaning,
whether used in a corporate context,
marketing context or even as a strategy
to expand the product mix – it is
concerned with how organisations might
achieve their goals and objectives. The
only difference relates to the level at
which the strategy is developed, be it at
top management level, functional level or
operational level.”
 LEVELS OF STRATEGY

Corporate Strategy
Business Strategy
Functional
Strategy

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 LEVELS OF STRATEGY
CORPORATE CORPORATE
HEADQUARTERS STRATEGY

BUSINESS
STRATEGIC STRATEGIC STRATEGIC (DIVISION
BUSINESS BUSINESS BUSINESS LEVEL)
UNIT UNIT UNIT STRATEGY

RESEARCH AND HUMAN FUNCTIONAL

MANUFACTURING FINANCE MARKETING RESOURCES STRATEGY
DEVELOPMENT

19
 LEVELS OF STRATEGY
CORPORATE STRATEGY
• Corporate Strategy deals with the organisation’s
reason for being: its sense of purpose.
• It defines the future direction and scope of the
organisation by answering the question: WHAT
BUSINESS(ES) ARE WE IN AND SHOULD WE
BE IN THEM AT ALL?
• It deals with:
 entry and exit from different businesses,
 management of business portfolio and
 value creation through diversification
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 Parenting strategy
Key Issues in corporate strategy
• Making the moves to accomplish diversification
• Initiating actions to boost the combined
performance of the business the firm has
diversified into
• Finding ways to capture the synergy among
related business units and turn it into competitive
advantage
• Establishing investment priorities and steering
corporate resources into the most attractive
business units.
Key Issues in corporate strategy

• CO R PO R AT E ST RAT EG Y

D IR E C T ION AL POR T IFOLIO PAR E N T IN G

S T R AT E G Y S T R AT E G Y S T R AT E G Y

G row th BC G M a trix

S ta bility G E Busine ss S c re e n

R e tre nc hm e nt S he ll D ire c tiona l

Polic y M a trix
 LEVELS OF STRATEGY
BUSINESS STRATEGY
 Also called the business unit strategy or competitive
strategy
 Business level strategy deals with creating and
maintaining a competitive advantage for a company’s
offerings in a particular industry.
 It can be seen as an action plan developed by
organisations to indicate how they will compete in their
selected industry or market segment on a day to day
basis and in the process attain competitive advantage.
 It therefore answers the question: “HOW SHOULD WE
COMPETE IN A GIVEN BUSINESS OR INDUSTRY?”
12/25/2024 fuzanebp2013 23
 Key issues in business strategy
 Forming responses to changes underway in
the industry, the economy at large, the
regulatory and political arena and other
relevant areas;
Crafting competitive moves and market
approaches that can lead to sustainable
competitive advantage;
Uniting the strategic initiatives of functional
departments;
Addressing specific strategic issues facing
the company’s business.
Porter’s Generic Strategies for
competing
 LEVELS OF STRATEGY
FUNCTIONAL STRATEGY
 Is the managerial game plan for a particular department
or key functional activity within a business
 Functional level strategy answers the question: “HOW
DO WE SUPPORT THE BUSINESS LEVEL
STRATEGY?”
 deals with development, deployment and
coordination of resources and functions for
implementation of business unit level strategies.
 It supports the business level strategy by implementing
business strategies through the functional areas such
as marketing, human resources management,
production, finance, engineering,
12/25/2024 fuzanebp2021
procurement, etc. 26
THE STRATEGIC MANAGEMENT PROCESS

1. It is the process whereby all the

organisational functions and resources are
integrated and coordinated to implement
formulated strategies which are aligned to
the environment, in order to achieve the
long-term goals of the organisation and
therefore gain a competitive advantage
through adding value for the stakeholders.
(Elhers and Lazenby, 2013)
12/25/2024 fuzanebp2013 27
 CORPORATE STRATEGIC
MANAGEMENT DEFINED
2. Strategic Management includes understanding the
strategic position of an organisation, strategic choices
for the future and turning strategy into action to help
achieve corporate objectives (Adapted from Johnson &
Scholes, 2002, p.16).
3. Strategic management is defined as the set of
decisions and actions resulting in formulation and
implementation of strategies designed to achieve the
objectives of an organisation (Pearce & Robinson, 2005,
p.6).
4. The strategic management process is one of
continuously relating the organisational objectives and
resources to opportunities in the environment.

28
 KEY BUSINESS STRATEGIC
QUESTIONS
1. Where are we now? (situational analysis /
environmental auditing)
2. Where do we want to go from here?
(strategic direction)
3. How do we get there? (strategy formulation /
development)
4. Which way is best? (strategy evaluation and
selection)
5. How do we ensure arrival? (strategy
implementation and control) 29
 THE STRATEGY-MAKING,
STRATEGY-EXECUTING PROCESS
Phase 1 Phase 2 Phase 3 Phase 4 Phase 5

Develop a Monitor,
Craft a Implement
Strategic Evaluate,
Set Strategy and
Vision and Take
Objectives to Achieve Execute
and Corrective
Objectives Strategy
Mission Action

Revise as Revise as Improve/ Improve/ Recycle

Needed Needed Change Change as Needed

30
Source: Adapted from Thompson et al, 2004, p.18
 SCOPE OF CORPORATE STRATEGY

Strategic management therefore entails the following :

• It is about integration and coordination
• It is about strategy formulation and implementation
• It is about alignment to a changing environment
• It is about achieving long-term goals
• It is about gaining competitive advantage
• It is about value creation for stakeholders
The process consists of three distinct sequential and continuous
phases:
 strategy formulation,
 strategy implementation,
12/25/2024 fuzanebp2021 31
 strategy evaluation and control
 BASIC ELEMENTS OF THE
STRATEGIC MANAGEMENT PROCESS

EVALUATI
ENVIRONMENTAL STRATEGY STRATEGY ON
SCANNING FORMULATION IMPLEMENTATION AND
CONTRO
L

32
 A SUMMARY MODEL OF THE ELEMENTS OF
STRATEGIC MANAGEMENT

EXPECTATIONS
AND PURPOSES

RESOURCES,
THE
COMPETENCES
ENVIRONMENT AND CAPABILITY

BASES OF STRATEGIC ORGANISATION

STRATEGIC ANALYSIS STRUCTURE
CHOICE AND DESIGN

STRATEGY
STRATEGIC
IMPLEMENTATI
CHOICE ON

RESOURCE
STRATEGIC ALLOCATION
OPTIONS AND
STRATEGY CONTROL
EVALUATION MANAGING
AND STRATEGIC
SELECTION CHANGE

FROM : G.JOHNSON AND K.SCHOLES,

EXPLORING CORPORATE STRATEGY, 4TH EDITION 33
 THE STRATEGIC MANAGEMENT /
PLANNING PROCESS
The strategic management process:
1a) PLANNING: Environmental Analysis and Strategic
Direction
• The first step in the process is defining a strategic
direction
• This consists of a vision statement and mission statement
which guide the organisation into the future
• The vision and mission statements help all in the
organisation to focus on HOW AND WHY THEY ARE IN
BUSINESS
• Environmental analysis involves scanning the inside of the
organisation (micro-environment) for strengths and
weaknesses, and the outside
12/25/2024 of the organisation (market
fuzanebp2013 34
and macro-environment) for opportunities and threats
 THE STRATEGIC MANAGEMENT /
PLANNING PROCESS
The strategic management process:
1b) PLANNING: Strategy Formulation
1. Involves development of long-term goals which are more
quantifiable than the vision and mission statements.
• These goals are derived from the mission statement: the goals
would relate to such key result/performance areas as market
standing, financial resources, physical resources, productivity,
innovation, social responsibility, human resources, profit
requirements.
2. From the goals, generic strategies (cost leadership,
differentiation, or focus) are then chosen.
3. More specific strategies called grand strategies can then be
formulated and they broadly fall into growth strategies, decline
strategies
12/25/2024
and corporate combinations.
fuzanebp2013 35
• The planning stage is also called the thinking stage
 THE STRATEGIC MANAGEMENT /
PLANNING PROCESS

2) STRATEGY IMPLEMENTATION
• Translates the strategic plans into action, which is why it is
also called the action stage. Various drivers and
instruments are used to implement the chosen strategy,
including
• Leadership
• Culture
• Reward systems
• Organisational structures / Cross-functional coordination
• Allocation of resources
• Short-term goals, functional tactics and policies (for strategy
deployment)

12/25/2024 fuzanebp2013 36
 THE STRATEGIC MANAGEMENT /
PLANNING PROCESS
CONTROL
• There is need for strategic control through continuous
improvement to ensure everything remains on course. This
is called the checking stage.
• Actual results are monitored against planned results
• In operational management terms control involves the
following activities
• Setting action standards
• Measuring performance
• Evaluating deviations
• Taking corrective action
• Tools available for strategic control include total quality
management and balanced scorecards (BSCs)
12/25/2024 fuzanebp2013 37
BENEFITS OF STRATEGIC MANAGEMENT

Also called the functional aspects of strategic

management, they can be
• financial
• non-financial

12/25/2024 fuzanebp2013 38
 BENEFITS OF STRATEGIC MANAGEMENT
TYPICAL EXAMINATION QUESTIONS ON THIS ASPECT:
 Comment on arguments for the use of strategic management in the
contemporary business environment.
OR

 Discuss the value of strategic management in a contemporary

organisation by referring to the benefits of strategic management

• Higher profitability, better improvement in turnover and profits.

• Higher Productivity, better planning of resources and material to improve
productivity.
• Improved communication across different functions in the organisation.
• Empowerment of employees, they take direct control and ownership of
certain strategies and commit to implement it successfully.
• Discipline and a sense of responsibility to the management of the
organisation. Management takes full responsibility for its strategic plans and
implementation.
12/25/2024 fuzanebp2013 39
 BENEFITS OF STRATEGIC MANAGEMENT

• Better time management because the strategic process is

broken down into more specific time frames, giving
employees a better idea of their own time management.
• Better allocation of resource because resources are
allocated according to the strategic due to implement.
• Encourage proactive thinking and breaks down
resistance to change. Employees can see in which phase
the strategic process is moving.
• Provide a framework in which every employee can see
and understand in which phase the strategy process is.

12/25/2024 fuzanebp2013 40
BENEFITS OF STRATEGIC MANAGEMENT

ALSO, YOU COULD BE ASKED:

What is the single major benefit of using a Strategic
Management approach to decision making?

Suggested approach
• It ensures that managers and employees at all levels of the
organisation work towards the same goal.
• It also indicates where the organisation is going and how it
is going to get there.
• This will ensure that the long term objective of an
organisation is achieved.
• It will add value to the stakeholders and reach
competitive advantages.
12/25/2024 fuzanebp2013 41
 RISKS OF STRATEGIC MANAGEMENT
TYPICAL EXAMINATION QUESTION
Comment on arguments against the use of strategic
management in the contemporary business environment.

• Too much time spent on planning and not enough on

implementing the strategy.
• Unrealistic expectations from managers and employees.
Involvement is important.
• The uncertainty of implementation. If not clear till by the
lower level.
• Negative perceptions of strategic management. If
everyone, especially top management doesn’t support the
importance of strategic management.
12/25/2024 fuzanebp2013 42
 RISKS OF STRATEGIC MANAGEMENT

• No specific objectives and measurable outcomes. Don’t

know if strategy was implemented successfully or not.
• Culture of change, strategic management and
organizational change go hand and hand.
• Success grove, if strategy successful they do not foresee
any difficulties in the future.
• If strategic management is executed incorrectly it could
negatively affect an organisation’s productivity, profitability
and competitive advantages.

12/25/2024 fuzanebp2013 43
WHERE ARE WE NOW?

Scanning the
Management
Environment
(Revision of broad
concepts)
12/25/2024 44
 Learning Outcomes

Learners should be able to:

1. Define the concept of a business environment
2. Explain why it is important to scan and
understand the business environment
3. Identify and describe the three main
components of the business environment
4. Identify the specific elements making up each
component and show how each affects the
organisation

12/25/2024 45
Introduction
The business environment consists, according to
Kotler (2012, p. 90) of “actors and forces outside
marketing that affect management’s ability to
build and maintain successful relationships with
target customers”.
• Companies have to track environmental tends
and developments in order to adapt their
strategies to new challenges and opportunities.
• This is called environmental scanning.
• This they do through internal records analysis,
intelligence gathering and research in customer
and competitor environments.
12/25/2024 46
 Definitions of Environmental
Scanning

 Environmental scanning - is the

monitoring, evaluating and
disseminating of information from the
external and internal environments to
key people within the corporation.
(Wheelen and Hunger, 2008)
 The aim is to identify an organisation’s
strengths, weaknesses and
opportunities and threats in the
12/25/2024 47
 Importance of Environmental
Scanning
 Tomatch the organisation’s distinctive competencies
(strengths) to opportunities in the environment.
 To hedge’s the firm’s vulnerable positions against
environmental threats.
 Helps an organisation capitalise on early
opportunities rather than lose these to competitors.
 Provides an early signal of impending problems
which can be diffused if recognised well in advance
 It sensitises an organisation to the changing needs
and wishes of its customers.
 Provides a base of objective qualitative information
about the environment that strategists can utilise.

12/25/2024 48
Components of the Business Environment
The business environment consists of
• an internal environment – forces inside the company
which the organisation has complete control over – the
company’ vision and mission, resources, structure,
culture, management, employees, etc
• a market/industry/task environment – forces and
actors close to the company that affect its ability to
serve its customers - customers, competitors, suppliers,
intermediaries and publics. The company can actively
influence these, and has to build relationships with
them in order to deliver value to customers.
• a macro-environment – larger societal forces that
affect the micro- and internal environments – political,
economic, social, technological, demographic and
physical environmental factors. The company cannot
control these. 12/25/2024 49
12/25/2024 50
The Internal Environment
• All departments have to work with other company
groups in designing their plans and strategies – top
management, finance, R&D, purchasing, operations and
accounting.
• Top management define the direction of the
organisation through the vision, mission, long term
goals, strategies and policies, and provide the
resources for execution of marketing plans
• Other departments act as the internal customers and
suppliers of other departments– no one department can
effectively serve customers without the cooperation and
teamwork of these departments.
• Also important are the resources, culture,
technology, talent and structure of the organisation
• Approaches for analysis are the resource-based view
(RBV), the functional view, McKinsey’s 7Ss
12/25/2024 51
Framework and value chain analysis (VCA)
The Market Environment

Suppliers
• These are actors who provide the resources (physical,
financial, human and informational) needed by the company
to produce its goods and services.
• They can affect the business in serious ways:
• Supply availability – any shortages or delays, labour
strikes etc., on the supplier side can cost sales in the
short run and damage customer satisfaction in the
long run
• Supply costs – rising supplier costs may force a firm
to increase its prices, which can hurt sales volume; if
it cannot raise its prices, the result would be squeezed
profit margins
• Supply quality – poor quality of resources provided
can in turn negatively affect quality of goods and
services produced 12/25/2024 52
The Market Environment
Intermediaries
• These are actors who help the company to promote,
sell, and distribute its products to final buyers
• They include wholesalers, retailers, brokers,
physical distribution firms, and providers of
commercial services
• They can, if they have strong bargaining power,
dictate terms and shut weak or small manufacturers
out of big markets
• Organisations must partner and network with these
organisations to effectively create and deliver value
to their customers
• Exclusive relationships with and access to
intermediaries can be a strong base for building
competitive advantage 12/25/2024 53
The Market Environment
Competitors
• These are actors who provide similar goods and
services or benefits to, or satisfy the same
needs in the market.
• Competitors impose limitations on the prices
a firm can charge, the sales volumes it can
command and the strategies it can pursue
• The organisation should aim not just to satisfy
customers, but delight them by providing
greater and superior value than competition.
• This it can do by clearly differentiating its
offering and strongly positioning itself in the
minds of the customers as being a superior
offering. 12/25/2024 54
The Market Environment
Publics
• These are groups with actual or potential interests in or impacts on an
organisation’s ability to achieve its objectives.
• Can be:
• Financial publics – who affect a firm’s ability to obtain funds
• Media publics – who carry positive or negative communication
about the firm
• Local publics – neighbourhood residents and community
organisations who support the company by buying
• General publics – whose attitudes towards products and
activities are important
• Internal publics – workers, managers, BoD all of whom have
different needs and expectations from the organisation
• Citizen action publics – consumer organisations, environmental
groups with whom the organisation has to create and maintain
cordial mutually beneficial relations
• Government publics – government departments and regulatory
bodies and agencies that deal with safety, taxation,
environmental conservations, 12/25/2024
ethics, etc. 55
The Market Environment
Consumers
• These are by far the most important actors in the
firm’s market environment
• They are the reason for the existence of any
organisation
• Everything that the firm does is aimed at serving
target customers, delivering superior value and
creating strong lasting relationships with them
• There is therefore need for the business to
study and understand their buying behaviour -
the type of customers, their activities, their
roles and the influences on their activities or
behaviour
• They can be consumer markets, business markets,
reseller markets, government markets or international
markets. 12/25/2024 56
The Macro Environment
Demographic Environment
• This is the environment consisting of the human population and its
characteristics such as size, growth rate, density, location, age, gender,
race, nationality, occupation, family structure, educational levels, etc.
• It is important because it involves people, and people are the markets
that organisations serve.
• population size generally affects the size of the customer base.
• Age structure affects demand patterns for particular products
• Growth rate affects the future attractiveness of the market
• Race, nationality and ethnic mix affect particular preferences for
products
• Occupation affects purchasing power or disposable income of the
population
• Educational levels affect consumer sophistication and
expectations
• Overall composition of the population helps with segmentation of
the market for effective targeting and positioning

12/25/2024 57
The Macro Environment
Economic Environment
• The focus of this is on consumer purchasing
power and spending patterns
• Companies must pay attention to factors such
as the levels and distribution of income of
different nations
• The stage of the economy on the business
cycle
• Income distribution
• Savings debt, and credit availability
• Outsourcing and free trade
• interest rates and inflation rate
12/25/2024 58
The Macro Environment
Economic Environment – cont...d
• The stage of the economy on the business cycle – i.e.,
whether the economy is in growth, recession, or recovery. Growth
creates new opportunities for marketers; recession creates the
opposite
• Income distribution – affects disposable incomes. Nations can be
raw material economies/developing economies with very few
opportunities from a marketing viewpoint because people in such
economies have little disposable incomes, or industrialized
/developed economies (e.g., Japan, United States and Britain)
where citizens have considerable incomes that they can spend on
the goods being marketed by the business.
• Savings, debt and credit availability – savings and availability
of credit lines enable customers to afford and spend more on
goods and services; high levels of debt reduce demand
• Interest rates and inflation rate – interest rates are the cost of
borrowing. If interest rates are low, it costs less to borrow then it
follows that consumers can borrow and spend. Inflation is the rate
at which prices rise; higher inflation reduces consumer spending
12/25/2024 59
power, and demand.
The Macro Environment
Natural Environment
• Consists of the natural resources that are needed as
inputs by the marketers or that are affected by marketing
activities.
• Marketers should pay close attention to the following trends
in the natural environment:
• Growing shortage of raw materials, especially non-
renewable ones – oil, coal, minerals. The costs of
these will increase in the future
• Increased air and water pollution - organisations
have to ensure they produce products that are
environmentally friendly
• Increased government intervention in natural
resource management to control and reduce pollution
• Environmental concerns have also led to the growth of the
green movement which support the conservation and
preservation of the environment
12/25/2024 60
The Macro Environment
Technological Environment
• Technology improves the efficiency of the manufacturing
process. This will result in reduced prices to consumers as the
costs of production are reduced. This will enable a firm to sell its
products at affordable prices.
• It enables a firm to position its products well in the market.
• Technology is also seen as a major force for organizational
change.
• New technologies bring about new ways of doing things.
• New technologies may also require new skills development for
a firm’s workforce.
• Controlling state of the art technologies gives a firm a
competitive advantage over competitors who are relying on
redundant technologies. New technologies may result in
development of new products or the improvement on the quality
of existing ones.
• Innovation thrives where a firm is able to invest new technologies.
Leading edge technologies enable a firm to improve its business
processes and come up with new ways of doing business.
12/25/2024 61
The Macro Environment
Political Environment
• Consists of laws, government agencies, and
pressure that influence or limit various
individuals and organisations in a society
• Factors includes the government’s ideology
towards business, stability of the political
environment, and taxation levels
• Too much government control, high levels of
taxation, political instability and improperly
handled nationalisation of business entities can
discourage investment in a country by making
it difficult to business

12/25/2024 62
The Macro Environment
Socio-Cultural Environment

ON YOUR OWN
Identify the factors that make up the socio-
cultural environment and explain how they
affect business organisations

12/25/2024 63
TECHNIQUES FOR
INTERNAL
ENVIRONMENTAL
SCANNING

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 TOPIC COVERS...
 Structural forms of
organisations
 Organisation culture

 Resources appraisal

 Value chain analysis

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 METHODS OF
INTERNAL SCAN
The main methods are as follows:
• The McKinsey 7S Framework
• Profit Impact of Marketing Strategy (PIMS)
• Functional Analysis Via Structure, Culture
Resources/Capabilities
• The Value Chain Analysis
(We Concentrate on the last two)

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THE PROCESS OF INTERNAL
APPRAISAL

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 RESOURCE BASED VIEW OF
ORGANISATIONS
 “A resource is an asset, competency, process,
skill, or knowledge controlled by the corporation”
(Wheelen & Hunger, 2008,).
 It (resource) is a strength if it provides the firm
with a competitive advantage.
 It becomes a weakness if the firm does not possess
the resource that other competitors do possess
(putting the company at a competitive
disadvantage), or is necessary for survival in the
industry
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 LOGIC OF RESOURCE BASED
VIEW
 The resource-based view sees resources as more
important than industry structure in determining
the competitiveness of an organisation
 It sees organisations as different collections of
resources, with resources being key sources of
competitive advantage for organisations.
 Thus, what differentiates organisations is the
bundles of resources they possess

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 TYPES OF RESOURCES

A resource audit identifies and classifies the resources that

an organisation owns or can access
They may be :

 Tangible : E.G. Financial

Physical

 Intangible : E.G. Reputation/goodwill

Technology
Culture

 Human : E.G. Skills and Knowledge

Adaptability
Communication And Interactive Abilities
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Motivation
Firms ideally should seek unique resources which are difficult for
competitors to imitate and thus offer potential competitive 70
advantage
 E.G.s OF RESOURCES AND THEIR
INDICATORS
RESOURCE CHARACTERISTICS INDICATORS

Financial Borrowing Capacity Debt/Equity

Resources Internal Funds / Credit Rating
Generation Net Cash Flow
Physical Plant And Equipment : Market Value Of
Resources Size, Location, Fixed Assets
Technology, Flexibility Scale Of Plants
Land And Buildings Alternatives
For
Raw Materials Fixed Assets

Human Training, Experience, Employee

Resources Adaptability,
Qualifications, pay
Commitment And Rates,
Turnover
Loyalty Of Employees

Technological Patents, Copyrights, No. Of

Patents
Resources Know How, Owned
R & D Facilities Royalty Income
Technical And Scientific R & D Expenditure
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Employees R & D Staff
WHAT DETERMINES THE SUSTAINABILITY OF A
RESOURCE/COMPETITIVE ADVANTAGE?
The following are the four important characteristics:
 Durability: the time it takes before the
resource/advantage becomes obsolete.
 Transparency: the rate at which competitors can learn
the relationship of resources and capabilities in
supporting a firm’s successful strategy.
 Transferability: the rate at which competitors are able to
acquire resources and capabilities necessary for imitating
another firm’s strategy.
 Replicabilty: the ability of competitors to duplicate
resources and capabilities of a firm to imitate its
successful strategy.
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 SUSTAINABILITY OF A
RESOURCE/COMPETITIVE ADVANTAGE

Christopher B Bingham, Kathelene M

Eisenhardt & Nathan R Furr (2011.p72) say
the most strategically important resources
are:
• Valuable – useful in your industry.
• Rare – possessed by only a few.
• Inimitable – difficult to copy.
• Non-substitutable – lacking in functional
equivalents
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 Resource Based-View

sustainable competitive
advantage

rare Imperfectly Non- valuable

imitable substitutable

1. The resource or the 1. The resource bundle 1. The resources or 1. Analyze cost,
resource bundle is is heterogene from resource bundle can revenue or value
not freely available. other resource not be substituted by contriubtion
2. Competitors can not bundles other resources 2. Benchmark against
buy the resources 2. Heterogenity cannot competitors,
immediately be rebuild in the short 3. Determine
3. Direct competitors to medium time frame competitve
do not deploy advantage
identical
resources/resource
bundle
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Levels of Ease of Resource
Imitation

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Resources: Capabilities & Competencies
Capabilities: refer to an organisation`s ability to exploit its resources
through organizational processes & routines that manage the
interactions among the resources to turn inputs into outputs.

Competency: is cross functional integration & coordination of

capabilities e.g. a competency in NPD in a division may be as a result
of integrating HR, marketing, R&D & production capabilities in that
division.

Core Competence: Collection of core competencies that cross divisional

boundaries, is widespread within the corporation & is something the
corporation does exceedingly well.

Distinctive Competencies: core competencies that are superior to those

of competition.
• E.g, FNB is known for its distinctive competence in introducing cutting
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edge technological solutions in banking.
VALUE-CHAIN ANALYSIS
 Views an organisation as a chain, linkage or
sequence of value-creating activities.
 Organisations differ in terms of their value-creating
abilities according to how well their value-creating
activities are linked and integrated.
 Activities where the organisation is creating most of
its value are potential strengths.
 Those where it is creating the least value or even
losing value are potential weaknesses.

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 THE VALUE CHAIN

FIRM INFRASTRUCTURE
(general mgt, accounting, finance, strategic planning)
HUMAN RESOURCE MANAGEMENT MARGIN
(recruitment, training, development)
SUPPORT
ACTIVITIES TECHNOLOGY DEVELOPMENT
(R&D, product & process improvement)

PROCUREMENT
(purchasing of raw materials, machines, supplies)

INBOUND OUTBOUND SERVICE

LOGISTICS LOGISTICS (installation
(raw (warehousing MARKETING repair
materials OPERATIONS AND SALES
and parts)
handling (machining,
and ware
Distribution (advertising
assembling, promotion
housing of MARGIN
testing) pricing
finished
products) channel
relations)

PRIMARY ACTIVITIES

SOURCE: M.E PORTER, COMPETITIVE ADVANTAGE, FREE PRESS, 1985.

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The Value Chain – Factors To Consider In Assessing Primary Activities

Inbound Logistics:
 Location of distribution facilities to minimise
shipping times.
 Excellent material and inventory control
systems.
 Systems to reduce time to send “returns” to
suppliers.
 Warehouse layout and designs to increase
efficiency of operations for incoming
materials.

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The Value Chain – Factors To Consider In Assessing Primary Activities

Operations:
Efficient plant operations to minimise
costs.
Appropriate level of automation in
manufacturing.
Quality production control systems to
reduce costs and enhance quality.
Efficient plant layout and workflow
design.

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The Value Chain – Factors To Consider In Assessing Primary Activities

Outbound Logistics:
Effective shipping process to provide
quick delivery and minimise damages.
Efficient finished goods warehousing
process.
Shipping of goods in large lot sizes to
minimise transportations costs.
Quality material handling equipment
to increase order picking.

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The Value Chain – Factors To Consider In Assessing Primary Activities

Marketing and Sales:

Highly motivated and competent
sales force.
Innovative approaches to promotion
and advertising.
Selection of most appropriate
distribution channels.
Proper identification of customer
segments.
Effective pricing strategies.
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The Value Chain – Factors To Consider In Assessing Primary Activities

Service:
Effective use of procedures to solicit customer
feedback and to act on information.
Quick response to customer needs and
emergencies.
Ability to furnish replacement parts as required.
Effective management of parts and equipment
inventory.
Quality of service and personnel and ongoing
training.
Appropriate warranty and guarantee policies.

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The Value Chain – Factors To Consider In Assessing Secondary Activities

General Administration:
•Effective planning systems to attain overall goals and
objectives.
•Ability of top management to anticipate and act on
key environmental trends and events.
•Ability to obtain low cost funds for capital
expenditures and working capital.
•Excellent relationships with diverse stakeholder
groups.
•Ability to coordinate and integrate activities across
the “value system”.
•Highly visible to inculcate organisational culture,
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reputation and values.
The Value Chain – Factors To Consider In Assessing Secondary Activities

Human Resource Management:

•Effective recruiting, development and retention
mechanisms for employees.
•Quality relations with trade unions.
•Quality work environment to maximise overall
employee performance and minimise
absenteeism.
•Reward and incentive programmes to motivate
all employees.

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The Value Chain – Factors To Consider In Assessing Secondary Activities

Technology Development:
•Effective research and development activities
for process and product initiatives.
•Positive collaborative relationships between
R&D and other departments.
•State-of-the art activities and equipment.
•Culture to enhance creativity and innovation.
•Excellent professional qualifications of
personnel.
•Ability to meet critical deadlines.
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The Value Chain – Factors To Consider In Assessing Secondary Activities

Procurement:
•Procurement of raw material inputs to optimise
quality, and speed and to minimise the associated
costs.
•Development of collaborative “win-win” relationships
with suppliers.
•Effective procedures to purchase advertising and
media services.
•Analysis and selection of alternate sources of inputs
to minimise dependence on one supplier.
•Ability to make proper lease versus buy decisions.

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THE McKINSEY 7 - S MODEL

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Assessing the Company’s Present
Strategy
Involves looking at;-
Whether the company is achieving its stated financial and
strategic objectives
Whether the company is an above average industry performer
Specifically this will involve looking at;-
Whether the organisation’s sales are growing or declining
Whether market share is rising, falling or remaining stable
Whether the company is acquiring new customers at an
attractive rate and retaining new ones.
Whether the company’s profit margins are increasing or
decreasing
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Structure:
What is the hierarchy of the organisation
like?
What are the pros and cons associated with
the structure?
Is decision making and controlling centralized
or decentralized? Is this as it should be, given
the mandate of the organisation?
How are the lines of communication? Open or
otherwise

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Systems:
What form of database management systems are in
place to run the organisation? Are they adequate?
What are the internal rules, policies, procedures and
controls used to keep the organisation on track?
Are the systems in place adequate for the needs of
the organisation?
 However it is important to note that too many
policies can be as unproductive as having wrong
policies or as chaotic as having no policies.

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Shared Values/Culture:
What are the fundamental values, beliefs and
traditions that the organisation is built on?
What is the overriding corporate culture?
What are the strengths and weaknesses of the
existing culture?
Is there any code of conduct/ethics that bind the
behaviour of members and how effective is it?

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Style
How participative is the
management/leadership style?
How effective is that leadership?
Do members tend to be competitive or
cooperative within the organisation?
How is the relationship among the different
units of the organisation?

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Staff/Human resources
What positions need to be filled?
Are there gaps in required competencies?
Is there a succession plan in place?
What training and development programmes are in
place?
Skills
Are there any skills gaps within the
organisation?
How are skills monitored and assessed?
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