THE COPPERBELT UNIVERSITY

SCHOOL OF BUSINESS
DEPARTMENT OF POSTGRADUATE STUDIES

GBS 750: STRATEGIC MANAGEMENT

The Copperbelt University

School of Business

STAGE III

DEPARTMENT OF POSTGRADUATE STUDIES

Subject Outline

2007 Academic Year

GBS750: STRATEGIC MANAGEMENT

Subject Name

Strategic Management

Subject Code

GBS750

Study Level

Postgraduate

Pre-requisite Subjects

None

Prior Assumed

Bachelors Degree

Study Load (Tuition ClassLusaka)

Three credit hours/week for 24 weeks

Study Requirements

Self study

Passing Grade
Requirements

A student will normally be expected to obtain a minimum of overall

mark of 50\% to gain a passing grade in this subject.

Hurdle Requirements

In addition to the Passing Grade Requirements, students must also

achieve 50% or higher in the continuous assessment to pass this subject.

Progression

Students should aim at obtaining a minimum average GPA of 2.5 for all
stage 1 units.

Exemption Status

No Exemption

Acknowledgement
These notes are based and drawn from material in the following books:

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

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

Course Outline
Objectives
This course is intended to introduce the student to the nature and problems of strategic
management as seen from the perspective of those charged with running a business, and to
offer the student an opportunity to understand and appreciate the challenges of responding to
an ever-changing business environment. The student is expected to integrate knowledge and
skills gained in prior courses to enhance understanding and facilitate analysis of concepts,
formulation and implementation of corporate strategy.
Instruction Method
Although lectures will constitute the principal method of instruction, students are expected
and required to be actively involved in class discussions of the various topics to be covered.
Additionally, students are required to read widely and beyond what is covered in class and
make a contribution to the learning process through class participation.
Texts
Lectures and class discussions will largely be based on prescribed readings. However,
students are encouraged to source other relevant materials and bring up for discussion any
topical issue.

1.

Henry Mintzberg and James Quinn, The Strategy Process: Concepts, Contexts
and Cases [Englewood Cliffs, New Jersey: Prentice Hall]

2.

Arthur A. Thompson and A J Strickland, Strategic Management: Concepts and

Cases [Homewood, Illinois: Irwin]

3.

Gerry Johnson and Kevin Scholes, Exploring Corporate Strategy [London:

Prentice Hall]

4.

Kenneth R. Andrews, The Concept of Corporate Strategy, (Homewood,

Illinois: Dow Jones-Irwin, 1971).

5.

Charles W. L. Hill & Gareth R. Jones, Strategic Management (Boston:

Houghton Mifflin Co.,2007)

Evaluation

Test 1: 20%
Test 2: 20%
Exam : 60%

Part
I

II

III
IV

VI

Course Contents
Time Allocation
Topic
Nature of Corporate Strategy

What the course is about

Functions of a Chief
Executive

The concept of corporate

strategy

Overview of Corporate
strategy

Justification for strategy

Limitations of strategy
3 weeks
Formulation of Corporate Strategy

PEST and SWOT

Analyses
Strategic Alternatives
TEST
Implementation of Strategy

Organization Structure
and Relationships

Organization Processes
and Behavior

Culture and Power

5weeks
1 week

3 weeks

Leadership

Strategy in Context

The Entrepreneurial
context

The Mature context

The Diversified context

The Professional context

The Innovation context

The Change context

TEST
Strategy Evaluation

3 weeks
1 week

Topic 1: Introduction
In this introduction to the course, we shall discuss in turn the following:

What the course is about

The functions of a Chief Executive Officer

The nature of corporate strategy

Components of corporate strategy

The benefits of a consciously considered strategy

Limitations of strategy

What the student should gain from the course

1. What the course is about

Strategic management is the study of the functions and responsibilities of those charged
with running a business or a multifunctional entity within it. An example of a multifunctional
entity of a business is the concept of a profit centre. The people who run such businesses are
variously known by titles like:


Chairman or Executive Chairman

Chief Executive Officer

Managing Director

General Manager

Executive Director

Manager

The study of business administration has historically developed along the traditional
functions of a business firm. In a typical business firm, the following functions are easily
discernible:
Production
A basic function of a business is to create a physical product which has a
stream of benefits a potential customer wants. Extractive, manufacturing,
farming, mining or construction firms typically bring out a physical product,
and the activities or tasks involved in creating a physical product are known as
production.

Production also covers is service provision. Instead of creating a physical

product, a firm may provide a service whereby the stream of benefits offered
are intangible, in the sense that is what is offered does not take a physical form
and cannot be touched, felt smelt or seen. Examples of service provision are
insurance, telecommunications, transportation, hairdressing or entertainment.

The study of any activity or task that brings about a physical product or a
service embraces the discipline of production.
Marketing
Marketing is about managing demand for a firms product or service. A
products final destination is the consumer or user. Ideally, products are
produced because there is a need for them. Marketing consists of all those
activities associated with the identification of consumer need for a product and
the facilitation of need satisfaction.
As a discipline of study, marketing embraces marketing/consumer research,
and the enhancement of customer satisfaction through the manipulation of
variables of the elements of the marketing mix (Price, Product, Place and
Promotion).
Accounting
Accounting as a function has grown steadily in importance. The
bookkeeping activities of a generation ago have grown into informationintelligence for the business. Accounting now encompasses devising,
installing, and maintenance of records of transactions, procedures, or
practices. It also includes what have been traditional finance functions, such
as, cash management and banking, credit administration, investment banking,
maintaining continuous relationships with the financial community and giving
advice and counsel to the board of directors and top management.
Human Resource management
The forerunner to what now has become to be known as human resource
management was the personnel function. Historically, the personnel function
has grown from the employment function. Today, as a discipline of study,
human resource management covers a much broader spectrum of activities
than mere hiring and firing. Additionally, it covers issues like training, wage
and salary administration, staff appraisal, labour negotiations, contract
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administration, safety, employee welfare, administration of retirement benefits

and pension schemes, etc.

Conspicuously missing for a long time were the functions of the person to whom functional
managers reported, that is, the manager of functional managers (or general manager). Thus,
while it was recognized that there existed functional managers to carry out these functions,
and that these functions could be moulded into programs of study to prepare people to carry
them out, it was not explicit or obvious what the person to whom they reported did. Strategic
management was an attempt at understanding and harnessing into a discipline the functions
and responsibilities of the (general) manager.

As leader of functional managers, the general manager is expected to give a sense of purpose
and meaning to the basic functions of an enterprise. He must articulate what business the firm
is in, what needs to be done now and in the future and build the organizational capacity to
enable the organization achieve its goal. The general manager is primarily responsible for
dealing with strategic three questions:

Where is the organization?

Where does it want to go?

How does it get there?

These concerns cannot be left to individual functional managers because they affect the
character and success of the entire company. More specifically, they revolve around

The choice of objectives

Moulding of organisational capability and character

Definition of what needs to be done

Mobilization of resources for the attainment of specified goals.

The urgency with which these issues and problems must be dealt with increases sharply amid
changing circumstances involving:

Shifts of demand

Competition

Impact of environmental forces, namely, political, legal, socio-cultural,

economic and technological factors

Scarcities of skill or capital.

The successful resolution of this seeming disorder comprising:



The jumble of environmental forces

Intermixture of goals and purposes

Obstacles

Threats and opportunities

Resource availability and application

Environmental information and misinformation

is what Strategic Management or Policy Formulation is all about!

The essence of Strategic Management is in moving from one position, say A, to another
position, say B. However, in the process of moving to B, a firm encounters threats and
opportunities: how well threats are avoided and the extent to which opportunities are
exploited to facilitate reaching position B is what is known as strategic management. This
may be depicted as follows:


A stated wish to be somewhere: progress from position A

A mobilization of capabilities and other measures to facilitate the movement

position B

from A to B.
As a field of professional study, it is an integrative capstone course, devoted to the problems
of the firm as a whole as seen from the perspective of the Chief Executive. It is variously
known by such names as:


Corporate Strategy

Business Policy

General Management

Top Management

COMMON NOTIONS OF STRATEGIC THINKING:

Many experiences point to the fact that strategic thinking is a pervasive feature in our daily
lives. At a personal level, for instance, we strive for personal development and progress, and
ask ourselves: What have I achieved? What would I like to achieve henceforth? And how do I
go about to achieve what I want? This is expressed in form of personal goals and ambitions.
Secondly, our lives consist of opportunities, obstacles, problems or sheer bad luck. We
attempt to exploit opportunity and good luck, and try to resolve or surmount problems
difficulties or bad luck we encounter. What we term as success is in reality a measure of
how we have coped with the changing circumstances of our lives!
9

Or consider how critical and sceptical we sometimes are about our leadership. In politics, our
judgment of how successful political leaders may have been is reflected in how we vote for or
against them. A vote in their favour is an indication of the success of their program, and when
we vote them out of office, it is an indication of our desire for change because we are not
where we want to be.

Finally, consider the area of competitive sport. To win in a competitive sport, one must
overcome the opposition and success is often attributable to having used some strategy.

2. THE FUNCTIONS OF A CHIEF EXECUTIVE OFFICER (OR

GENERAL MANAGER)
Before examining the nature of corporate strategy, let us first examine the peculiar functions
of the General Manager (GM). The first point to note is that this is the highest responsibility
in the hierarchy of management and yet there is little formal training for it. Heavy reliance is
placed on previous executive and technical experience and yet, in some circumstances, such
experience may be incapacitating. The second point to note is that the General Manager has
to rely for his principal support on a tier of functional managers, each more knowledgeable
than the General Manager within a particular area; each fortified by a pride in his own
expertise; each thus doubtful of the primacy of the generalist role played by the General
Manager; and each committed, and perhaps over-committed, to furthering the interest of his
own function.
Under these circumstances, the functional specialist must be regarded not only as a resource
but also as a problem in communication, direction and control and hence, the need to develop
some conceptual framework for dealing with problems that confront the General Manager.

Management itself may be regarded as leadership in the informed, planned, purposeful

conduct of complex organizational activity. General management is the management of a
total enterprise or an autonomous unit. While there are wide variations in detail of what
constitutes general management, those charged with the responsibilities of general
management generally perform the following functions:

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(a)

The GM must supervise current operations

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

rising expectations of planned earnings per share and return on the
shareholders investment.

The GM is expected to remain continually informed and be ready to

intervene in crises.

The GM is also expected to take part in divisional or corporate

ceremonial activities, to receive visitors of his own stature, and to
entertain important customers.

The GM will see in his own office far more people who want to see
him than he would even take the initiative to see.

The GM will be expected to physically see and acquaint himself with

domestic and/or overseas operations.

His reputation and rewards ride on current results that others may have
largely determined, purposefully or unwittingly, years before.

(b)

The GM must preside over the process of making policy decisions

affecting future results.


He must plan for the future against known and unknown odds and
determine where he wants the firm to be in three, five or ten years from
now.

(c)

The GM must develop and change the organization structure and deploy
its people in such a way as to permit both business success and individual
satisfaction and expression.


He must preside over systems of intended cooperation which produce

inevitable conflict.

If growth is planned, he must make painful decisions to remove or

reassign people.

(d)

He must make his company attractive to recruits; and

He must penalize as well as reward.

The CEO is also expected to make a distinctive personal contribution by:



Excelling in some technical or social way

Demonstrating that he deserves to be in the position he occupies

11

Participating in matters of concern to his community, industry and

trade association and the nation at large

Being a good family man/woman and a role model to all and sundry.

3. THE NATURE OF CORPORATE STRATEGY

Having looked at the functions of the General Manager or generalist, we now examine the
concept of corporate strategy by reviewing how a number of scholars have defined corporate
strategy.
Kenneth Andrews has defined corporate strategy as the pattern of major objectives,
purposes or goals and essential policies and plans for achieving those goals, stated in
such a way as to define what business the company is in or is to be in and the kind of
company it is or is to be.
H.I. Ansoff has defined strategy as the positioning and relating of the firm or
organization to its environment in a way which will assure its continued success and
make it secure from surprises.
Johnson and Scholes have defined strategy as the direction and scope of an
organization over the long term which achieves advantage for the organization
through its configuration of resources within a changing environment, to meet the
needs of markets and to fulfil stakeholder expectations.
J.L. Thompson has defined strategy as the concern with the establishment of a clear
direction for the organization and a means of getting there to create a strong
competitive position.
Alfred Chandler has defined strategy as the determination of the basic long-term
goals and objectives of an enterprise, and the adoption of courses of action and
allocation of resources necessary for carrying out these goals.
A number of elements can be gleaned from these definitions. The first is that strategic
management attempts to articulate an organizations mission, that is, what it is the company
does. A definition of an organizations business answers these questions: What is our
business? What will it be? What should it be? The second element is the articulation of
what the company would like to be, its desired future state. This is known as the vision of a
company. The third element is that a strategy is a purpose, goal or objective. It is this which

12

gives a firm a sense of direction. For goals to be effective, they must be precise, measurable,
realistic and time-specific. Goals are based on a perceive opportunity or threat. Presumably,
the impetus to go in a particular direction is dependent on a firms ability to take advantage of
opportunities that come its way, and avoid or overcome threats that stand in its way. Finally,
is the notion that a strategy includes some means of achieving the stated goal. Together, these
themes embody the three questions which characterize strategic management:

Where are we?

Where do we want to go?

How do we get there?

The reality of corporate strategy

Companies seldom formulate and publish as complete a statement about strategy as is often
illustrated in text books, usually because conscious planning is not carried far enough to
achieve agreement which publication presumes. Nevertheless, every company has a strategy,
imperfect and implicit as it may be. In the absence of explicit statements, the observer may
deduce from operations what the goals and policies are, on the assumption that all normal
behaviour is purposeful.
Another point to note is that various terms are used in describing or defining strategy, and
that some aspects of operations may be emphasized while others are not emphasized or not
mentioned at all. Students of strategy are cautioned to bear in mind the following regarding
the way strategy is expressed:
(a)

Strategy may be stated by defining the product(s) in a more functional than

literal way, saying what the products will do rather than what they are made
of. For example, a watchmakers strategy might be to produce watches of
the highest quality rather than dwell on technical specifications of the watch.

(b)

Strategy might be stated in terms markets or market segments for which

products are now or will be designed, and the channels through which these
markets will be reached. For example, a strategys stated aim might be to
distribute product(s) to all markets of the free world through exclusive
wholesale agents and carefully selected retailers, or the company might state
that developing countries to which the companys products have already been
introduced are expected to be the companys major growth opportunity.

13

(c)

Strategy might be stated in terms of the means by which the operations are to
be financed might be specified, such as financing operations through, say,
retained earnings.

(d)

Strategy might also be described in terms of the size and kind of organization
desired. For example:
 the firm aims to maintain a stable organization of highly skilled, fully trained
workers and a management organization of some breadth, but also wishes to
retain personal direction over marketing and a clear familiarity with the whole
organization; or
 the organization will reward drive, energy and accomplishment and accept
rapid

turnover in management ranks whenever results fall below

expectations.

4. COMPONENTS OF CORPORATE STRATEGY

We will structure the study of corporate strategy along two activities: formulation (or
deciding what to do) and implementation (or achieving results). Figure 1 illustrates the subactivities that comprise formulation of strategy and implementation of strategy. Although our
approach will involve a neat division in the consideration of strategy into aspects of
formulation and implementation, this is a matter of convenience from the point of view of
orderly study of the subject. In real life, the processes of formulating and implementing
strategy are intertwined: feedback from operations gives notice of changing environmental
factors to which strategy must be adjusted.

Formulation of strategy consists of the following sub activities:

Identifying opportunities and threats in the companys environment and

attaching some estimate of risk to the discernible alternative. This is known as
a PEST or STEP analysis. (P stands for political factors; E for economic
factors; S for social/cultural factors and T for technological factors).

Assessing a companys own strengths and weaknesses (SWOT Analysis)

Determining personal values and aspirations of senior management

Acknowledging of non-economic responsibility to society

14

Figure1: Components of Corporate Strategy

FORMULATION

IMPLEMENTATION

(What to do)
2.

(Achieving results)

Identification
of opportunity

relationships

Determining
competences

Organization
structure and its

Strategy:

and risk
3.

1.

Corporate

2.

Organizational
process and

Pattern of purposes

and resources

behaviour

and policies
4.

Personal values
and aspirations
of senior

Top leadership

company and its

business

managers
5.

3.

defining the

Obligations to
society other
than
stakeholders

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

Illinois: Dow Jones-Irwin, 1971

Once purpose is determined, then the resources of a company must be mobilized to

accomplish it. Implementation of strategy is comprised of a series of sub-activities
that are primarily administrative. The sub-activities of implementation are:

Determining an appropriate organizational structure that will be suitable for

the efficient performance of the required tasks, including putting in place
correct information systems and relationships.

Designing

organizational

processes

of

performance

measurement,

compensation, management development, enmeshed in systems of incentives

and controls.

15

5.

Determining the kind and role of personal leadership

THE BENEFITS OF A CONSCIOUSLY CONSIDERED STRATEGY

(a)

It helps in articulating goals and direction of a firm. This will assist a firm
avoid drift without purpose; secondly, it will facilitate the mobilization of
effort toward a defined and understood purpose; and it will open up the
possibility of stating goals in other terms other than maximizing profit.

(b)

It is necessary to plan ahead in undertakings with long lead times.

Improvisation is not enough in dealing with the complexities of modern
business. Planning ahead helps a firm cushion itself against negative effects
of unforeseen events such as technological advances, globalisation and new
product development, which require years of planning and research.

(c)

The need to influence rather than merely respond to environmental change.

The environments and circumstances in which businesses operate are
dynamic. Merely adapting to developments may leave a company in a weaker
position against its rivals. In contrast, planned purpose can affect and change
the character of future developments that might otherwise endanger even the
healthiest organization.

Planned innovation and creativity can enable a

company to carve out its own future rather than depend on chance or
favourable circumstances.
(d)

From the point of view of implementation, the most important function of

strategy is to serve as the focus of organizational effort, the object of
commitment and the source of constructive motivation and self-control in the
organization itself.
Moreover, a common understanding and acceptance of goals potentially
minimizes possible conflict among contending parties and may even hopefully
open up avenues of cooperation.

6. THE LIMITATIONS OF STRATEGY

(a)

Strategy involves planning, but is planning ahead really possible or practical?

It is argued that planning becomes difficult in the face of increasing
complexity and accelerating rate of change.

16

Long-range plans cannot be

detailed precisely and quantitatively with much confidence in unstable

environments characterized by social upheavals, economic instability or
political uncertainty.
The rejoinder to this argument is that the more uncertain the future, the more
necessary it is to contemplate what can happen and to assign probabilities to
the imaginable possibilities in order to reduce the possibility of surprise and
total subjugation to an unforeseen event.
(b)

Over-dedication to plan may result in lost opportunity. That is, by implication

one must stick to a plan, but such dedication to a chosen plan necessarily
implies closing ones mind to other alternative plans. There is thus an
opportunity cost to commitment to a plan to the exclusion of other plans.
The rejoinder to this is that commitment to fixed plans, yes, provides a needed
focus of approach and effort. However, realistic planning calls for some room
for accommodating uncertainty through reasoned flexibility. This calls for
development of the concept of a moving balance among considerations on
which strategy is based, by a careful and informed balancing act of a
companys resources and the opportunities in its environment.

(c)

Conflict

between

corporate

and

departmental

goals

and

between

organizational and personal goals is inevitable.

Ironically, the most articulate, specific and persuasive definition of strategy by
the CEO, ratified by the Board of Directors and even emulated or envied by
competitors, may not have the same meaning or appeal to all parts of the
organization to which it is announced.
It can be argued on the other hand that a difference of opinion can be used
constructively in promoting understanding of a different perspective of an
issue.

7. WHAT IS TO BE GAINED BY THE STUDENT

(a)

It will provide the student with direct but distant preparation for performance
as a general manager.

(b)

It will broaden the students provincial perspective of the specialist in any of

the functional areas to the larger picture of the firm as a whole.

17

(c)

It will deepen the students understanding and knowledge of the concepts

relating to strategy and strategic planning.

(d)

It will facilitate in a reorientation of attitude and appreciation of decisionmaking through:



Acceptance of the frustrations and satisfactions of the generalist.

Frustration arising from failure to achieve desired goals when success
is dependent on many and diverse factors, and satisfaction arising from
a sense of accomplishment.

Willingness to act in the face of incomplete information and to bear the

risk of being proved wrong by subsequent events.

A dislike for organizational drifting or individual hesitation in the face

of the managerial imperative to make direction-determining decisions.

An appreciation of the orientation of the professional manager as

distinct from the self-serving contrives/dealings of the entrepreneur.
The professional manager relies on application of mind and judgement
while the entrepreneur relies on elemental gifts of enterprise.

A preference for creativity and innovation over the maintenance of the

status quo.

(e)

It will help the student develop analytical skills. Administrative skills rely
heavily on work experience; what is to be emphasized in the course however
are analytical skills to be applied to the total situation of a firm as follows:


Understanding of how problems relate to each other and how their

resolution might depend on drawing from the array of all functional
areas without having to depend on a single discipline like finance,
accounting, engineering, marketing, production or organizational
behaviour.

Ability to deal with problems which are less structured than those of
special fields.

Ability to see and devise patterns of information, activities and

relationships.

Skill to superimpose design upon the activities of the company and

relate the company successfully to its environment; this entails

18

An ability to identify significant trends in the environment and

to estimate future opportunity and risk given varying resources
and competence

An ability to appraise the capability of the company, to

determine the strengths it must develop, to predict the impact of
the decision makers own action on that of his competitors.

the supervision of the continuous process of determining the

nature of the enterprise, and setting and revising and attempting
to achieve the firms goals.

Admittedly, the skills involved in successful strategic decision-making are rare but they are
worth pursuing. Hence the need to identify, study and systematically develop them in a
course like this.

19

ANALYZING A CASE STUDY

The purpose of the case study is to let the student apply the concepts of strategic management
to a real or hypothesized situation facing a specific company. To analyze a case study,
therefore, you must examine closely the issues with which the company is confronted. Most
often you will need to read the case several times once to grasp the overall picture of what
is happening to the company and then several times more to discover and grasp the specific
problems.
Generally, detailed analysis of a case study should include eight areas:
1.

The history, development, and growth of the company over time

2.

The identification of the companys internal strengths and weaknesses

3.

The nature of the external environment surrounding the company

4.

A SWOT analysis

5.

The kind of corporate-level strategy pursued by the company

6.

The nature of the companys business-level strategy

7.

The companys structure and control systems and how they match its strategy

8.

Recommendations

To analyze a case, you need to apply the concepts taught in this course to each of these areas.
To help you further, we next offer a summary of some of the steps you can take to analyse the
case material for each of the eight points we have just noted.
1.

Analyze the companys history, development, and growth. A convenient way to

investigate how a companys past strategy and structure affect it in the present is to
chart the critical incidents in its history that is, the events that were the most unusual
or the most essential for its development into the company it is today. Some of the
events have to do with its founding, its initial products, how it made new product
market decisions, and how it developed and chose functional competencies to pursue.
Its entry into new businesses and shifts in its main lines of business are also important
milestones to consider.

2.

Identify the companys internal strengths and weaknesses. Once the historical profile
is completed, you can begin the SWOT analysis. Use all the incidents you have charted
to develop an account of the companys strengths and weaknesses as they have
emerged historically. Examine each of the value creation functions of the company,
and identify the functions in which the company is currently strong and currently weak.
Some companies might be weak in marketing; some might be strong in research and
development. Make lists of these strengths and weaknesses.

3.

Analyze the external environment. The next step is to identify environmental

opportunities and threats. Here you should apply all the concepts on scanning industry
and macroenvironments, to analyze the environment the company is confronting. Of
particular importance at the industry level is Porters five forces model and the stage of
the life cycle model. Which factors in the macroenvironment will appear salient
depends on the specific company being analyzed. However, use each concept in turn
20

(for instance, demographic factors) to see whether it is relevant for the company in
question.
Having done this analysis, you will have generated both an analysis of the companys
environment and a list of opportunities and threats.
4.

Evaluate the SWOT analysis. Having identified the companys external opportunities
and threats as well as its internal strengths and weaknesses, you need to consider what
your findings mean. That is, you need to balance strengths and weaknesses against
opportunities and threats. Is the company in an overall strong competitive position?
What can the company do to turn weaknesses into strengths and threats into
opportunities? Can it develop new functional, business, or corporate strategies to
accomplish this change? Never merely generate the SWOT analysis and then put it
aside. Because it provides a succinct summary of the companys conditions, a good
SWOT analysis is the key to all the analyses that follow.

5.

Analyze corporate-level strategy. To analyze a companys corporate-level strategy,

you first need to define the companys mission and goals. Sometimes the mission and
goals are stated explicitly in the case; at other times you will have to infer them from
available information. The information you need to collect to find out the companys
corporate strategy includes such factors as the line(s) of business and the nature of its
subsidiaries and acquisitions. It is important to analyze the relationship among the
companys businesses. Do they trade or exchange resources? Are there gains to be
achieved from synergy? Alternatively, is the company just running a portfolio of
investments? This analysis should enable you to define the corporate strategy that the
company is pursuing (for example, related or unrelated diversification or a combination
of both) and to conclude whether the company operates in just one core business.
Then, using your SWOT analysis, debate the merits of this strategy. Is it appropriate,
given the environment the company is in? Could a change in corporate strategy
provide the company with new opportunities or transform a weakness into a strength?
For example, should the company diversify from its core business into new businesses?
Other issues should be considered as well. How and why has the companys strategy
changed over time? What is the claimed rationale for any changes? Often it is a good
idea to analyze the companys businesses or products to assess its situation and identify
which divisions contribute the most to or detract from its competitive advantage. It is
also useful to explore how the company has built its portfolio over time. Did it acquire
new businesses, or did it internally venture its own? All these factors provide clues
about the company and indicate ways of improving its future performance.

6.

Analyze business-level strategy. Once you know the companys corporate-level

strategy and have done the SWOT analysis, the next step is to identify the companys
business-level strategy. If the company is a single-business company, its business-level
strategy is identical to its corporate-level strategy. If the company is in many
businesses, each business will have its own business-level strategy. You will need to
identify the companys generic competitive strategy differentiation, low cost, or focus
and its investment strategy, given the companys relative competitive position and the
stage of the life cycle. The company also may market different products using different
business-level strategies. For example, it may offer a low cost product range and a line

21

of differentiated products. Be sure to give a full account of a companys business-level

strategy to show how it competes.
Identifying the functional strategies that a company pursues to build competitive
advantage through superior efficiency, quality, innovation, and customer
responsiveness and to achieve its business-level strategy is very important. The SWOT
analysis will have provided you with information on the companys financial
competencies. You should further investigate its production, marketing, or research
and development strategy to gain a picture of where the company is going. For
example, pursuing a low-cost or a differentiation strategy successfully requires a very
different set of competencies. Has the company developed the right ones? If it has,
how can it exploit them further? Can it pursue both a low-cost and a differentiation
strategy simultaneously?
The SWOT analysis is especially important at this point if the industry analysis,
particularly Porters model, has revealed the threats to the company from the
environment. Can the company deal with these threats? How should it change its
business-level strategy to counter them? To evaluate the potential of a companys
business-level strategy, you must first perform a thorough SWOT analysis that captures
the essence of its problems.
Once you complete this analysis, you will have a full picture of the way the company is
operating and be in a position to evaluate the potential of its strategy. Thus, you will be
able to make recommendations concerning the pattern of its future actions. However,
first you need to consider strategy implementation, or the way the company tries to
achieve its strategy.
7.

Analyze structure and control systems. The aim of this analysis is to identify what
structure and control systems the company is using to implement its strategy and to
evaluate whether that structure is the appropriate one for the company. Different
corporate and business strategies require different structures. What is the degree of fit
between the companys strategy and structure? For example, does the company
have the right level of vertical differentiation (for instance, does it have the appropriate
number of levels in the hierarchy or decentralized control?) or horizontal differentiation
(does it use a functional structure when it should be using a product structure?)?
Similarly, is the company using the right integration or control systems to manage its
operations? Are managers being appropriately rewarded? Are the right rewards in
place for encouraging cooperation among divisions? These are all issues that should be
considered.
In some cases there will be little information on these issues, whereas in others there
will be a lot. Obviously, in writing each case you should gear the analysis toward its
most salient issues. For example, organizational conflict, power and politics will be
important issues for some companies. Try to analyze which problems in these areas are
occurring. Do they occur because of bad strategy formulation or because of bad
strategy implementation?
Organizational change is an issue in most of the cases because the companies are
attempting to alter their strategies or structures to solve strategic problems. Thus, as a
part of the analysis, you might suggest an action plan that the company in question

22

could use to achieve its goals. For example, you might list in a logical sequence the
steps the company would need to follow to alter its business-level strategy from
differentiation to focus.
8.

Make recommendations. The last part of the case analysis process involves making
recommendations based on your analysis.
Obviously the quality of your
recommendations is a direct result of the thoroughness with which you prepared the
case analysis. The work you put into the case analysis will be obvious to the instructor
from the nature of your recommendations. Recommendations are directed at solving
whatever strategic problem the company is facing and at increasing its future
profitability. Your recommendations should be` in line with your analysis; that is, they
should follow logically from the previous discussion.
For example, your
recommendations generally will centre on the specific ways of changing functions
business, and corporate strategy and organizational structure and control to improve
business performance. The set of recommendations will be specific to each case, and
so it is difficult to discuss these recommendations here. Such recommendations might
include an increase in spending on specific research and development projects, the
divesting of certain businesses, a change from a strategy of unrelated to related
diversification, an increase in the level of integration among divisions by using task
forces and teams, or a move to a different kind of structure to implement a new
business-level strategy. Again, make sure your recommendations are mutually
consistent and are written in the form of an action plan. The plan might contain a
timetable that sequences the actions for changing the companys strategy and a
description of how changes at the corporate level will necessitate changes at the
business level and subsequently at the functional level.
After following all these stages, you will have performed a thorough analysis of the
case and will be in a position to join in class discussion or present your ideas to the
class, depending on the format used by your instructor. Remember that you must tailor
your analysis to suit the specific issue discussed in your case. In some cases, you might
completely omit one of the steps in the analysis because it is not relevant to the
situation you are considering. You must be sensitive to the needs of the case and not
apply the framework we have discussed in this section blindly. The framework is
meant only as a guide and not as an outline that you must use to do successful
analysis.
Source: Charles W.L. Hill & Gareth R. Jones, Cases in Strategic Management,
Houghton Mifflin Company, New York, 1999.

23

Trials and Tribulations of a Chief Executive

In the end, Zambia National Commercial Bank could not keep up the pretence any longer. The
banks Chief Executive, Robert Tusheni, who came from Citibank in 1998, and its Chairman, Mr
Patrick Kunda, an old hand, were at each others throats and one of them had to go. It was the
young, well-regarded Zambian MBA graduate who was ousted last week, rather than Mr Kunda,
who is 67 years old and due to retire in 2005.
As soon as Mr Tusheni arrived at the bank, he made the banks top managers face some
uncomfortable truths. In the late 1970s, he reminded them, Zambia National Commercial Bank
and the other commercial banks in Zambia, had roughly similar geographical reach, balance
sheets, market capitalisations, profits and staff numbers. Why was it, he asked, that Zambia
National Commercial Bank had so dismally under performed its rival banks ever since? If it was
not to lose even more ground, Mr Tusheni told them, its culture and strategy would have to
change.
Under his leadership, Zambia National Commercial Bank made three biggish acquisitions, worth
ZMK3 billion in all: Chase Manhattans consumer-banking business in Congo, Grindlays Bank
in Zimbabwe and Nakonda Bank in Malawi. Thanks to these, and to the disposal of Chartered
Trust, its Zambian consumer-finance and contract-hire business, the share of the banks profit that
came from the region rose sharply. Last year Mr Tusheni started to back away at the banks cost
base, to investors approval. He promoted local fellow Zambians and Africans from neighbouring
countries as managers to run the banks operations in the large towns and overseas, traditionally a
role reserved for British expatriates.
Forcing the pace of change at Zambia National Commercial Bank, half of which dates from the
colonial era, was a hard task, and Mr Tusheni made enemies along the way. Critically, he failed
to keep in with the banks non-executive board members, viewed in the city of Lusaka as clubby
lot. It was these folk who turned on Mr Tusheni last week, despite his support from the executive
managers. Most recently, differences between Mr Tusheni and his Chairman had been
aggravated by informal approaches from Barclays Bank and Lloyds Bank of London, both
interested in acquiring Zambia National Commercial Bank under the privatization programme.
While Mr Kunda was adamant that his bank should remain independent, Mr Tusheni was willing
to consider a deal at the right price.
Its growing business in high-margin consumer finance in the region makes Zambia National
Commercial Bank a tempting bite for another bank and other investors. In market share for credit
cards, it ranks among the top three banks in the Comesa region. In Congo, Kabuza wa Kabuza of
Congo Investments reckons Zambia National Commercial Bank now has more than a quarter of
the 3.8 million or so of credit cards issued. The bank rates highly its chances in Kenya. Both
Lloyds Bank and Barclays Bank are keen to reach outside their domestic British market.
Citibank, from where Mr Tusheni once sized up Zambia National Commercial Bank as a target,
would also be interested. Now that investors know that there has been dissent within the bank
over its future, they may try harder to persuade Khoo Teck Puat, a Malaysian based in Singapore
who is Zambia National Commercial Bank minority shareholder, to part with his 14.5% stake.
Fending off predators will now be the job of Mukela Mundia, Zambia National Commercial
Banks former Operations Manager, who was promoted to Managing Director last week. Mr
Mundia says that if the bank is to stay independent, it must translate its position in emerging
markets into higher shareholder returns, and not just talk about the future all the time. There
will be no shift from Mr Tushenis focus on consumer finance, and Mr Mundia will also carry on
his predecessors efforts to trim lending to less profitable corporate borrowers and politicians. So
Mr Tushenis ideas, if not his management style, will continue.
Source: Adapted from The Economist, December 8-14, 2001, p.72

24

TOPIC 2
THE COMPANY AND ITS ENVIRONMENT
Introduction


Determination of a suitable strategy for a company begins with identifying the
opportunities and risks in its environment.

We will examine the nature, complexity and variety of the environmental forces which
must be considered.

What are these forces and what is their precise impact on strategy formulation?

The Nature of the Companys Environment

The major purpose of an environmental analysis is to identify opportunities and threats which
obtain in the environment. Whatever factors or events exist in the environment are regarded
as external influences on the firm.
1. Globalization
A market typically evolves from submarket within a national market, to a national market, to
a regional market, to a continental market and to a global market, viz.
Copperbelt

Zambia

Comesa

Global

National

Regional

World

The concept of globalization lies in looking at the whole world (globe) as constituting a
firms sphere of operations rather than any part of it. The key influences toward globalisation
include:


Convergence of needs and preferences across nations. The functional utility

of most goods tend to be universal. Such goods and services include:
i.

Electric/electronic gadgets, e.g.

o computers
o hi-fi systems
o TV, cameras, video recorders
o soft drink (Coca-cola)

ii.

Machinery and equipment used in the following industries:

o mining
o extractive
o building and construction
25

o fishing
o agriculture
iii.

Professional and other services offered across national

boundaries:
o accountancy or auditing,
o medicine
o entertainment and sport

It is generally accepted that the most obvious and direct route to growth is
to operate beyond ones immediate border. Among the many reasons why
firms seek external growth are:
- To find a new market for a product in the
maturity or declining stage in their life
- To spreading risk of operating in one market
- To seek tax relief abroad

To seek economies of scale (cost advantages) in

-

manufacturing

product research

marketing

In international politics, East-West tensions have eased and many countries

now share common ideologies and values based on Western-style politics
and values, viz.

democracy

market-driven economies

liberalization

privatisation

The strategic impact of globalization is two-fold. One is that it creates opportunities of doing
business in new markets. Second and paradoxically, in as much as opportunities for new
markets overseas are created through economic liberalization, national economies also
become exposed to foreign competition by way of imports and entry of foreign investment.

26

2. Political, Economic, Social, Technological (PEST) Analysis

2.1. Technological Environment/Advances

Technological developments are not only the fastest unfolding but the most
far-reaching in extending or contracting opportunity for an established
company. They include:

the discoveries of science

the impact of related product development, and

the progress of automation

We see a continually accelerating rate of change with new developments

piling up before the implications of yesterdays changes can be assimilated.

Besides, science gives the impetus to change not only in technology but
also in all other aspects of business activity

Some major areas of technological change:

(a)

Increased transportation capability

masterly of greater distances in less time and cost

movement and operations in space, under seas, and otherwise inaccessible

areas

Consider for a moment the impact and opportunities offered by the

following modes of transportation.

Bicycle

Confined to basic elementary

business transactions

Advances have created

opportunities for leisure and sport

Motor cars

A big and significant improvement

over bicycles, even in the delivery
of mail

Has created opportunities for

passenger transport (taxi) and car
hire

The haulage business has created

immense opportunities in the

27

haulage business, even overtaking

rail transportation
Aeroplanes

The aviation industry is big

business because of the advantages
of time and speed over road
transportation.

Travel by air has made it possible to

reach and conduct business with
otherwise inaccessible areas.

The tourism industry has thrived in

part because of technological
advances in this area.

There is also an opportunity for the

oil industry to supply aviation fuel.

(b)

Increased masterly of energy

Advances in this area have made it possible to have greater magnitude and
intensity of power

Industry relies heavily on the generation and distribution of power from

new sources and by new devices. Contrast and compare the opportunities
created by the following forms of energy:

(c)

firewood

hydro-electricity

solar energy

Increased ability to extend and control life and serviceability

Business operations have been enhanced by advances in the following areas:

Longer life for living things

Tolerance for extremes of climates

Control of growth

Greater resistance to accident and illness

Longer life for perishable foods and other organic products

Reduced deterioration of physical goods

28

(d)

Increased ability to alter characteristics of materials

New opportunities have emerged by advances of creating


New properties from old materials

(e)

(f)

Combination of materials to provide new and unique characteristics

Extension of mans sensory capabilities in the following areas have made man
more productive


vision

hearing

touch

memory

Growing mechanization of physical activity has made business more efficient

Examples of mechanization abound:

Production
-

direct labour

materials handling

packaging

testing and inspection

Distribution
-

shipping and receiving

warehousing

loading

Communication
-

messenger

postal services

fax

electronic mail

Extractive industries and construction

-

earthmoving

mining

lumbering and agriculture

29

(g)

Growing mechanization of intellectual processes has revolutionalized the way

business is conducted, particularly in:

Information processing, and

Problem solving in industry and medicine (diagnostic tools)

-

Impact

increase of competition; greater product

availability

accessibility of new markets/products

Expansion and growth of markets through

higher standards of living and improved ways
of living

2.2. The Political Environment

Politics is a dominant and pervasive feature of our lives:



The most powerful and influential office in a nation, that of a Head of

State, is controlled/occupied by a politician

Politicians control the most important organs of governance, namely,

the legislature, the executive and the judiciary

Politicians usually have some influence on institutions and organs that

affect every day lives, such as, educational, health, religion or even
recreational activities.

Major national and international events are initiated, presided over or

controlled by politicians, such as
-

a nations stability

national disasters

war/peace

sports events

major contracts: airports, roads, telecommunications, bridges,

infrastructure of towns, cities, buildings

Government Role in the economy has an impact on business



Participatory

ownership

30

state enterprise

Joint ventures


Regulatory by

taxes

investment

rules of the game

standards

policies

permits

Bargaining Power of as major or sole buyer

may initiate, finance or even own major infrastructure and

capital projects - airports, roads, buildings

may be a key account, e.g. for a bank

may be a big buyer for motor vehicles

only client/purchaser of military goods

may own and run institutions such as hospitals, schools

and strategic facilities, such as airports, oil installations,
bridges.

Political Ideology and Economic System

Politics drive the choices between

Democracy and capitalism (Laissez-faire)

Socialism/communism (interventionist)

Nationalism


Nationalism is used here to refer to the belief among individuals of

one nation that they are different from and /or better than individuals
of other nations This may manifest itself in any of the following:
-

patriotism love for ones country

chauvinism arrogance and unreasonable attitude toward other

nations

Impact it tends to create a we vs. they mentality in international

relations, which in some cases results in protectionism in international
trade.

A nations stability refers to a desire for change to be gradual and nonviolent.

31

Recall that strategy is about (long-term) direction. It is therefore desirable

that government programmes have some continuity in cases where they
have an impact on business.
Indicators of instability:


frequency of changes in regime

-

Long-serving political leaders, such as Tito of Yugoslavia,

Mobutu in Congo, Kaunda in Zambia, are associated with
political stability which provided for continuity and consistency
of major government policies. In contrast, the frequent changes
of government associated with Western democracy (Israel,
Italy, or Japan) do not necessarily result in an unstable
environment for business principally because government
programs do not radically change because of a change of
government. All too often, the civil service survives
governments.

a stable professional civil service

incidences of public unrest

-

civil disobedience

violence

demonstrations

riots, looting

armed attacks, both internal and external

civil war

politically motivated assassinations

irregular (and violet) change of government and/or government

leaders

various cultural divisions in the country

-

tribal differences

linguistic differences

religious diversity
-

Hindu vs. Moslem

Christian vs. Moslem/Hindu

Protestant vs. Catholic

32

Political sovereignty
This refers to a nations desire to assert its authority and complete power to
govern over foreign businesses which operate within its confines,
sometimes bordering on hostility toward foreign owned businesses. The
desire for political sovereignty may manifest itself in any of the following:

rebuke of the foreign owned business for perceived

transgressions

awarding contracts on a selective basis, the criterion determined

by political considerations

(punitive) taxes

foreign exchange controls and remittance of profit

domestication or indigenisation
o gradual transfer of ownership to nationals
o nationals in top level jobs
o more products produced locally for
manufacturing/assembly

expropriation or nationalization seizure of foreign owned

property by a host country supposedly in the public interest

Corporations can craft strategies against seizure, such as:

seeking joint ventures with host government or nationals

holding back in home countries critical elements in

o research
o process technology (formula)

seeking open political alliance with government through

o friendships
o donations
o invitations to prominent citizens to sit on board

supporting and financing social programs like

o sport, entertainment
o education, health

33

o support in times of national disasters

2.3. The

legal environment

This comprises a nations laws and regulations pertaining to business. Such laws
and regulations can be at two levels:


Home countrys laws/Foreign countrys laws have an impact on

business depending on the extent to which they prescribeo

Which foreign countries a firm is allowed to trade

with? Libya/Cuba

Which products a firm is allowed to trade in,

manufacture or export.

o What business practices are forbidden or permissible?



International laws refer to collection of treaties, conventions and

agreements between nations, e.g. bilateral treaties of friendship.
Notable among international laws which have an impact on business
are:
-

Patent the prevention of others by the patent holder

from selling the patented product wherever the patent is
registered. Protection offered to a patent holder
constitutes a monopoly of the patented product.

Trademark protection of a brand, word, symbol,

device, colour or combination of any which helps to
distinguish/recognize the product.

2.4.

The Economic Environment

The following are some of the most important factors to analyze:



Economic System
The economic system of a country is conditioned by many factors:

Is the economy market-driven vs. state controlled?

Is economic activity liberalized or regulated/protected?

Is the nation secular or non-secular?

34

What economic philosophy or ideology drives economic

aid and foreign investment?

Level of Economic Development

Underdeveloped countries (UDC) have historically been

regarded as producers of primary goods and consumers of
manufactured goods. Where is the comparative advantage
for a firm?

UDCs are often perceived as sources of cheap labour. Can

labour be exploited to advantage?

UDCs associated with poor physical infrastructure. Is this a

constraint for a firm?

UDCs offer greater scope for business since they are

relatively less industrialized and thus offer potential for
growth, as is the case with investors coming into Zambia.

Limitation of income presents opportunities for market

segmentation. For instance, niches for the following can be
pursued:
o military ware
o education supplies, books
o health care
o insurance

UDCs often experience high levels of poverty, inflation

and monetary instability.

Size of the Market

Population other things being equal, the greater the

population the better the market (potential), especially for
essentials or necessities such as food or health care items.

Population growth rate

-

on the positive side, a high population growth rate may

indicate buoyancy in the economy healthy appetites, a
healthy people, new households-which tend to increase
demand for goods and services.

35

on the negative side, high population growth rates can

hinder modernization and development of the economy by
holding back per capita income.

Distribution of the population this variable can be used

to qualify the size of the market by taking into account the
economically active population. For example, new foreign
investment in Zambia tends to be slanted toward the urban
sector as opposed to the rural sector.

Income distribution

Markets require not only people, but people with

disposable income. It is the availability of money and the
willingness to spend it which makes markets viable. With
income, people are able to buy goods of their choice. Per
capita income is a measure of economic prosperity for it is
a determinant of what standard of living people enjoy.
Botswana is economically more attractive than Zambia and
therefore tends to attract more investment and migrant
labour.

Indicators of economic prosperity include:

-

A boom in housing and other construction

Personal possessions

car

home

furnishings

Life style


holiday

entertainment

clothing

Eating habits

Nature of the economy

This refers to any of the following:

A nations physical endowments, e.g. its natural resources

Minerals and foreign exchange earnings

36

Sources of inputs/raw materials

Future economic prospects

A countrys topography, that is, a countrys surface

features such as land, rivers, lakes, forests, deserts,
mountains.

A countrys climate

A countrys infrastructure

The nature of the economy may present opportunities of all sorts. For
instance, a countrys endowments may define what business a firm
may engage in:


Timber where there are forests

Fishing where there are rivers, oceans or seas

Agriculture where there is arable land, or

Tourism where there is wild game and a good

climate

Extreme climates may also give rise for

technological developments intended to control
climatic conditions, e.g. refrigeration, air
conditioning, heating.

Mining where there are minerals

A countrys infrastructure (telecommunications,

available modes of transportation) facilitates
economic activity

2.5.

The Cultural Environment

Business operations cannot be explained only in economic terms. Many other non-economic
factors impinge, affect or influence business practice and conduct. For example, the demand
for food cannot be explained away in only economic terms. The preference for certain foods
may be determined by noneconomic factors such as background or social status.

37

In recent years, in the field of marketing strategy, there has been an increasing recognition of
the influence of cultural and social factors on consumer behaviour. Accordingly,
opportunities and barriers in the market place may be a function of cultural and social factors.

What is Culture?
Adamson Hoebel (1960:168) in his book Man, Culture and Society (New York: Oxford
University Press,) defined culture as:
The integrated sum of learned behavioural traits that
are manifest and shared by members of a society. p.168

Edward Taylor (1871:1) in Primitive Culture (London: John Murray, 1871) defined culture
as:
that complex whole which includes knowledge, belief, art, morals, law, custom
and any other capabilities and habits acquired by individual members of a
society.
Two important features of culture are that, first, is man-made in that it is learned or acquired
behaviour. Examples of learned behaviour are what Taylor op.cit. observed as including
knowledge, customs, tradition and capabilities. Second, culture is a distinct way of life of a
people.

Elements of Culture
1. MATERIAL CULTURE
This involves techniques and physical things made and fashioned by man, such as tools,
artifacts and technology, as opposed to those found in nature.
Materials culture relates to the way of life of a people the way that society organizes its
economic activities. A fruit tree per se is not part of a culture, but an orchard is part of a
culture. The concept of a technology gap among nations reflects culture. Thus, references
to nations being backward, in the space age, industrialized or underdeveloped refer
to how a particular society has organized its economic way of life as distinct from other
nations. The American Way of Life reflects a culture steeped in materialism, that is, the
good things of life, such as a house, car, TV, fridge or general life style.
Impact of Material Culture on Strategy
Production of goods is responsive to and conditioned by need for those goods. In other
words, the craving for material things inherently creates an opportunity for those goods to be

38

produced so that they can be consumed or used to satisfy need. Materialism flourishes when
consumption goes beyond satisfying basic needs. The fashion industry, real estate and the
food industry are not just about satisfying the basic needs for clothing, shelter or hunger;
rather they thrive because of the craving for a good life implicit in the desire to wear designer
clothes, to live in a mansion, or eat at a restaurant.
A classic example of the impact of materialism has been the demise of the railway system
against the ever growing popularity of road transportation over rail transportation. The loss of
ground to road transportation by the railway transportation has been attributed to marketing
myopia: a failure by the railway industry to realize that they were in the transportation
business and not in the railway business, and as such the industry failed to adapt to the
emerging preferences for speed and comfort that the trucking business exploited.
Convenience and comfort have influenced developments in shopping from corner shops to
supermarkets and department stores where shopping can be done under one roof.

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

Advertisement and sales promotion

Product differentiation

Brands

Concessions and discounts

Impact of Language on Strategy

Language has an impact in facilitating communication with

suppliers, dealers, customers and markets, and language barriers
may hinder growth in international markets.

Language facilitates access to technological advances.

Economies of scale can be achieved if a common language is used

in, say, advertising, instead of using several languages.

39

3. AESTHETICS refers to a communitys conceptualization of beauty and good taste

as expressed in fine arts, music, art, drama, dancing or colour.
Impact of Aesthetics

Product design is influenced by what is considered in good taste or

beautiful. Architectural designs, for example, are associated with
certain cultures.

The significance and importance of colour can be readily seen in

the following instances:
-

Home furnishing

Trademarks and product brands

At ceremonies and functions

4. EDUCATION
Education in the broader sense is the process of transmitting skills, ideas and
attitudes as well as training in particular disciplines. In the narrower sense, it is
the pursuit of formal education.
The type and level of education have an impact on business in several ways, for
example:

The role one plays in an economy is a function of the type and

level of ones education. A nations economic activities and
occupations and achievement are a function of education.
Hunting, fishing and craft-making in primitive and developing
nations contrasts sharply with parallel activities in advanced
nations.

Research and Development presupposes a certain level of

knowledge/skills in order to achieve innovation or make
improvements to existing products.

Use and application of modern products require some prerequisite

education. For instance, proper and effective use of computers,
drugs, or preparation and consumption of some foods require some
schooling.

40

5. RELIGION
Religion has an impact on business to the extent that it accentuates or restricts
consumption or participation. Here are some examples:
Animism: the religion and philosophy of primitive people founded or based
on traditional witchcraft, ancestor worship, taboos and fatalism.
It tends to promote a traditionalist and conservative attitude and may result in
slow acceptance, or rejection, of innovation.
Hinduism is largely prevalent in India and is based on a caste system in which
heredity casts specific occupational and social roles. Its major features are the
veneration of the cow and restrictions on women.
The reverence for the cow closes any opportunity for business in beef. As for
restrictions placed on women, this has the potential of depriving busineness of
the value women add to business in such areas as decision making, sales
promotion, or public relations.
Shinto is the national religion of Japan. Its major feature is reverence for the
special or divine origin of the Japanese people, and reverence for the Japanese
nation and the imperial family as head of the nation. Its major impact is the
patriotism of the Japanese people and their love and pride in Japanese-made
products. In international trade, this has manifested itself in Japan exporting
more than it imports. Contrast this with the Zambians near disdain for locally
made products in preference for foreign-made products.

Christianity
The values underlying modern capitalism and free trade have their origin in
Christianity. Missionary works and colonization in Africa - especially by the
Portuguese, Spaniards, French-moved in tandem, and tended to promote a
non-secularalism. The major Christian churches have an impact in other more
specific ways:
 Catholicism
The major characteristic of Catholicism is the centrality
of the Church as an intermediary in salvation. The

41

sacraments and priests are the intermediary between God

and man, and without Church, there is no salvation.
Church laws prescribe certain forms of abstinence and
fasting which have an impact on business. For instance,
the Church prohibits use of contraceptives, condoms and
other devices to control birth.

 The Protestant Reformation

A major point of departure from Catholicism is that,
under Protestantism, the Church and its sacrament are not
essential to salvation. Rather the individual is enjoined to
seek salvation on the basis by personally relating to God.
Salvation is more of an individual matter and that each
person has a calling. The virtues of hard work, thrift,
achievement and wealth accumulation are pleasing to
God and should be practiced to glorify God. These values
and the centrality of the individualism and family have
provided the basis for the growth capitalism.
 Islam
It is followed and practised by those known as Moslems
in most parts of Africa, the Middle East and Asia and is
growing rapidly in other parts of the world. Based on a
fatalistic belief that everything, which happens, whether
good or evil, proceeds directly from the Divine Will and
is preordained. The Sharia prescribes what man should do
and believers must religiously follow and obey Sharia law
in whatever they do.
It promotes non-secularalism and hence tends to dominate
all aspects of life.
The influences and impact of Religion manifest themselves in:

Observance of holy days and feasts, such as

-

Sundays for Christians

42

Saturday for Seventh Day Adventists

Ramadan for Moslems

Contraction of opportunity by restricting demand or consumption p

-

Beef, in the case of Hinduism

Alcohol, in the case if Islam and to some extent Christianity

Religious intolerance and instability

SOCIAL ORGANIZATION
Another aspect of culture is for the individual relates to other members of the community.
Of particular interest are the following issues and questions:

The extended family concept- with its implicit obligation toward

other members-and thrift.

What constitutes an economic unit-is it the household or the

immediate family?

What is the impact of the family on business?

How does gender impact on business?

How do family values affect business?

What is the envisaged role of minority groups?

43

2.6. THE COMPETITIVE ENVIRONMENT

Competition is yet another factor in a companys environment that can present an opportunity
or a threat to a firm. Competition is an opportunity when a company has a competitive
advantage over its rivals. A company is said to have a competitive edge over its rivals when
its profitability is greater than the average profitability of all companies in its industry.
Competition is a threat to a firm when its rivals have the ability to erode a firms profitability
base.
Competitive advantage leads to superior profitability. Profitability in turn depends on three
factors:
(a)

The value customers place on a product or service

(b)

The price that a company charges for its product, and

(c)

The costs of creating the product

A firm can be said to be at a competitive disadvantage when its profitability is reduced either
because rivals offer better value for a product, offer a product at lower price or create a
product at lower cost.
Competition is viewed in the narrower sense as the existence of rivalry among firms. Michael
Porter identified five forces that constitute competitive forces to the extent that they can
potentially or actually reduce a companys profitability. These have become to be known as
Porters Five Competitive Forces and are illustrated in Figure 8.
PORTERS MODEL: FIVE COMPETITIVE FORCES
Threat of
New Entrants

Bargaining Power
of Suppliers

Industry
Rivalry

Bargaining Power
of Buyers

Threat of
Substitutes

Source: Michael Porter, How Competitive Forces Shape Strategy, Harvard

Business Review, March/April, 1979

44

(i)

The Threat of New Entrants

The threat of new entrants refers to the risk of entry posed by companies that are
not currently in the industry but have the capability to enter the industry if they
should choose to do so. Potential entrants to an industry pose threat by seeking to
gain market share, or by bringing into the industry better valued or lower priced
products. This has the effect of shifting customers and profitability away from
firms in the industry to the new comer. For example, when Shoprite Checkers
entered the Zambian market, they took away customers from existing
supermarkets by providing services that customers highly valued, such as:
-

A wider range of goods

Lower prices

Opportunity to purchase many and diverse

goods under one roof.

It is in the interest of established firms already operating in the industry to

protect their share of the market and profits by discouraging potential entrants
from entering the industry. How successful a new entrant is consequently
depends on his ability to overcome barriers erected by established firms
operating in an industry. Conversely, the success of established firms will
depend on their ability to erect barriers that make it costly for a potential entrant
to enter the industry. Some of these barriers are:


Economies of scale these are determined by the cost structure of

the industry. They refer to unit costs of a firm falling as volume
increases. Economies of scale may be realized through cost
reductions gained by mass-production of a standardized product;
quantity discounts on purchases of raw materials; or the ability to
spread fixed costs overlarge volumes of output. When such costs
are realizable by established firms, a new firm will be at a cost
disadvantage.

The capital requirements of entry-these refer to investment needed

to set up the requisite plants, machinery or distribution outlets.
-

set up plants/purchase

establish distribution outlets

45

Access to distribution channels-this refers to the ease or difficulty

of establishing customer contacts, either directly or through
intermediaries.

Expected retaliation from existing firms through

-

price cuts

clout with customers/distributors

advertising

investing more in the business.

Government policy-this refers to measures and policies enacted by

government that may facilitate or inhibit entry into the industry.
Examples include:
-

Regulations governing investment, that is,

specifying who may invest in what, where and
how much.

licence requirements

work permits

regulations relating to taxation, remittance of

profits

pressure for protection of local industry

access to raw materials and labour

Brand loyalty-this refers to the extent to which consumers have a

preference for the products of established firms. Customer loyalty
to an existing brand will compel new entrant to spend heavily on
advertising, customer service and product differentiation.

Customer switching costs-this refers to the time, money and energy

spent by a customer in switching from products offered by
established firms to the products offered by a new entrant.

(ii)

The Bargaining Power of Suppliers

Suppliers refer to providers of inputs to an industry. Inputs include raw
materials, components, services or labour.
Powerful suppliers exert bargaining power on industry participants to the extent
that they are able to raise prices of inputs or raise costs by providing poor quality
inputs or poor services. This has the effect of reducing profits of buyers.

46

Suppliers may become powerful under the following circumstances:

 When the product that suppliers sell is unique and vital to the buyers
such that switching costs to the buyer are high
 The profitability of suppliers is not significantly affected by rthe
purchases of buyers in the industry, that is, the buyers are not
important customers to the supplier.
 When buyers are likely to incur significant switching costs if they
moved their patronage to a different supplier because they depend on
the suppliers product.
 When suppliers can threaten to enter the buyers industry and use their
inputs to produce products that would compete with products of their
buyers.
 When buyers cannot threaten to enter their suppliers industry and
make their own inputs.
 When the suppliers customers are highly fragmented
(iii)

Bargaining Power of Buyers

Buyers consist of consumers, users or distributors of a product. Bargaining
power of buyers refers to the ability of buyers to bargain down prices or to raise
the costs of suppliers by demanding better quality and service. This has the effect
of squeezing the profits of the supplier.
The power of buyers manifests itself when:
 The buyers are few, concentrated and buy in large volumes.
 The products bought are standard or undifferentiated.
 The industrys product is unimportant to the quality of the buyers
products or services
 The supply industry depends on buyers for a large percentage of its
business
 Buyers can threaten to enter the suppliers industry and pose a credible
threat of backward integration to make the industrys product.
 Switcing costs are low to the buyer such that the buyer is in a position
to play off supplying companies against each other in order to force
down prices.

47

In Zambia, examples of powerful buyers are Shoprite and the

mining companies (Mopani and Konkola).

(iv)

The Threat of Substitutes

Substitutes are products of different industries or businesses that can potentially
satisfy similar customer needs. Product substitution can take the following
forms:

product-for-product substitution, as is the case with the postal

service, fax and e-mail.

substitution of need by a new product, as is the case with maizemeal, cassava, rice and potatoes; pain killers (Panado, Aspirin,
Aspro); or soft drinks (Coke, Fanta, Sprite, Orange).

Doing without, as might be the case with smoking, drinking or

dieting.

Close substitutes limit the price that can be charged for a product as a high price
is likely to tempt customers to look for a cheaper substitute.
(v)

Industry Rivalry
Rivalry among existing firms in the same industry refers to to the competitive
struggle for market share through
-

price competition

after sales service

product design

product differentiation, innovation

advertising and sales promotion

Intensity of rivalry implies lower prices and/or

more spending on non-price competitive
weapons. These in turn result in reduced
profit.

Intense rivalry flourishes or intensifies under the following situations:

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

48

 industry growth is slow, stagnant or declining and hence the fight for
market share
 when the product is perishable, thus creating strong temptation to cut
prices
 when fixed costs are high, thus exerting pressure on increasing sales
volume
 when there are exit barriers; such barriers may be economic, strategic
or emotional.

Strategic Implications of Competition

In coping with competition, a firm must search out a market position and a competitive
approach that will:


insulate it as much as possible from forces of competition;

influence the industrys competition rules in its favour; and

give it a strong position from which to play the game of competition.

Strategic Responses:
(a)

Strategic Cost Analysis: an assessment of the relative cost position of a

firm. It involves showing the make-up of costs all the way from purchase
of raw materials to the end product paid for by the customer (activity cost
analysis). This is illustrated in the figure below.

Supply related
activities

Manufacturing-related activities
Production

Marketing

Forward channel
Wholesale/Distribution

Raw materials

Processing

Sales force

Dealer/distributor

Component parts

Labour

Advertising

Management and

Energy

Maintenance

Marketing

In-bound transportation

Process design

In-bound materials

Quality and inspection

handling
Inspection/warehousing

Inventory
management

49

research

relations

Negotiate favour
able terms with

Internal cost-

saving measures

favourable terms

suppliers

Negotiate
with distributors

Backward
integration

Cost-saving

technological

Forward
integration

improvements

Substitute search

Innovation

around
troublesome cost
components

(b)

Competitor Analysis: This involves a careful assessment of a companys

relative competitive standing and an understanding of the firms relative
strengths and weaknesses in ,say, the following areas:

product design convenience, comfort

product innovation

pricing strategies

distribution network

advertising/sales promotion

customer service

personal relationship

after sales service

overall customer acceptance of product

The objective of this analysis is to explore ways in which the firm might retain or
improve its standing on the competitive ladder. The rungs on the ladder can be
broadly categorized by:

Dominant leader-who usually has the largest market share and

is therefore the acknowledged leader in innovation and sales

One of the industrys top leaders-this is characterized by a few

firms dominating the industry

Middle-of-the-pack- this category comprises a large group of

firms who are basically followers

50

Firms on the fringe-these are firms whose individual market

share is small and insignificant.

(c)

Product differentiation This involves creating a difference from rivals

and the difference being valued by customers. The difference could be in:

Procurement of materials; for instance, firms place a value on whether

or not an input is original or from a secondary source.

Production process and product design

Marketing process, e.g. product branding, product appearance and

packaging

Improved quality

Perceived value will entail any of the following:

Greater convenience and ease in use of product

More economy

The design and availability of extras to meet occasional needs, e.g.

packaging for picnics and outdoor recreation

Non-economic wants

status

prestige

image

comfort

Pitfalls (caveats) of differentiation:

Buyers must quickly see the intended value implicit in the difference

The danger of competitors copying new features/innovation,

including pricing

The risk of over-differentiation, that is, the resultant quality being

needlessly superfluous or the investment being too high for the
perceived value.

51

(d)

Market Focus-This entails concentrating on catering to a narrower and

limited segment (or niche) of the market rather than going after the whole
market with a something-for-everyone approach.

Segmentation of the market may be based on:

demographic/socioeconomic characteristics


Age, such as in the case of entertainment or toys for

children

Gender, in the case of perfumes

Education, in the case books

Economic and social status, in the case of tourism, cars

purchase


size

application
-

industrial

consumer

Government

price

Risks of using a focus approach

Buyers may shift their preferences away from the focusers special
product attributes

The possibility that broad-range competitors will find effective ways

of serving the narrow target markets

The risk that competitors will find smaller segments within the target
segment and thus outfocus the focuser. This often happens in the
electronics industry.

52

The Competition and Fair Trading Act of 1995

(The Zambia Competition Commission)
This legislation is intended to promote economic efficiency by encouraging
competition or at least prohibiting behaviour which kills, restricts or distorts
competition.
The rationale for encouraging competition is that it promotes economic efficiency. That
is, when the economy is market driven through competition, economic efficiency will
manifest itself in the following:

Producers will produce the type and quantity of goods which consumers want;

The goods will be produced and sold at the optimum price, where the forces of
supply and demand are balanced; and

1.

The delivery of the right goods, at the right time, to the customer.

The Elements of Competition Policy

1.1. Prohibits any agreement, decision, or concerted practices which prevent, restrict

or distort competition
1.2. Prohibits enterprises from acquiring a dominant position of market power which

results in limiting access to markets or unduly restricts competition, such as:

1.2.1.

The use of cost pricing to eliminate competition

1.2.2.

Discriminatory pricing and discrimination in the supply or purchase of

goods and services

1.2.3.

Making the supply of goods and services dependant upon the acceptance
of restrictions on the distribution or manufacture of competing goods

1.2.4.

Making the supply of particular goods and services dependant upon the
purchase of other goods/services from the supplier to the consignee.

1.2.5.

Imposing restrictions on where and to whom goods may be sold, or in

what quantities goods may be sold

1.2.6.

Effecting mergers, acquisitions joint ventures or takeovers

1.2.7.

Colluding in setting prices whose effect is to eliminate competition

1.2.8.

Allocation agreements on markets and customers

1.2.9.

Concerted refusals to supply goods and services to potential purchasers

1.2.10. Unjustifiable exclusion from a trade association of any person carrying

on or intending to carry on in good faith the trade in relation to which the
association is formed

53

2.

Promotion of Consumer Welfare and Protection

It is prohibited to:
2.1. Withhold or destroy producer or consumer goods, render unserviceable or destroy

means of production and distribution of such goods, with the aim of bringing
about a price increase.
2.2. Disclaim liability for defective goods
2.3. Limit any warranty to a particular geographic area or sales point
2.4. Falsely represent that goods are of a particular style, model or origin
2.5. Falsely represent that goods are new or of a specified age
2.6. Represent that goods have any sponsorship, approval, performance and quality

characteristics, components, accessories, uses or benefits which they do not have

2.7. Engage in conduct that is likely to mislead the public as to the nature, price,

availability, characteristics, suitability, quantity or quality of a product

2.8. Supply any product which is likely to cause injury to health or physical harm to

consumers, when properly used, or which does not comply with the consumer
safety standard which has been prescribed under any law

54

TOPIC 3
DETERMINING CORPORATE COMPETENCE AND
RESOURCES
Analysing and understanding the external environment in which an organization operates
facilitates the process of identification of opportunities and threats. Once opportunities have
been identified, the next step is to validate the choice among the several opportunities by
determining whether the organization has the capacity to prosecute the preferred choice.
The capability of an organization is its demonstrated or potential ability to accomplish,
against competition and circumstance, whatever it sets out to do. The examination of the
components of strategic capability and techniques consists of:

1.

Resource Audit

A resource audit must seek answers to two questions:



What is the nature of the resources available?

What is the inherent strength of these resources in terms of age, condition,

location or capability?

This analysis should extend to the following types of resources:

1.1

1.2

1.3

1.4

Physical resources

plants

machinery

land

Human resources

number and types of skills

adaptability

Financial resources

the ease of obtaining capital

control of debtors and creditors

managing cash

Intangibles

name and reputation

image

contact network of distributors, suppliers or customers

55

2.

Distinctive Competences

This refers to firm-specific strengths that allow a company to deploy its resources in a unique
or special way to sustain excellent performance. The primary objective of strategy is to
achieve a sustained competitive advantage, which in turn will result in profitability.
Accordingly, the importance of distinctive competence to strategy formulation rests with:

The unique capability it gives an organization in capitalizing on a particular

opportunity, and

The competitive edge it may give a firm in the market place.

Forms of distinctive competence:



Excelling in the manufacture of quality products or provision of a service

Offering the customer superior service after sale; this would entail for
example

the quality of delivery service

repairs and maintenance

warranties and guarantees

the policy on returns and/or refunds.

Finding innovative ways to achieve low-cost production efficiency and then

offering customers the attractiveness of a lower price

Excelling at developing innovative products that customers consider a step

ahead of a rivals product

3.

Designing more clever advertising and sales promotion techniques

Having the best technological expertise

Having the best network of dealers and distributors.

Capabilities or the Quality of Coordination of individual and group effort

Competences project themselves in separate activities through individual effort, for
example:

in a case of brain surgeon at a hospital

outstanding and reputable lawyer in a law firm

a customer-driven account executive

a member of a choir with an excellent voice

56

Capabilities refer to a companys skills at coordinating its resources together and putting
them to productive use. These skills reside in an organizations style or manner through
which it makes decisions and manages its internal processes to achieve organizational
objectives. Coordination involves harnessing individual talents and balancing them against
the effort of others so that there is organizational harmony and symmetry in total
organizational effort. The management of linkages of otherwise separate activities can
provide leverage and levels of performance which may be difficult to match. Strategic
coordination demands that separate units should not pull in opposite directions.

It is important to note the relationship of resources and capability in generating a distinctive

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

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

The capability to manage the resources.

TECHNIQUES FOR ANALYZING STRATEGIC CAPABILITY

1.

Value added analysis

A business system is conceived as a series of activities which add
perceived value to the product or service

Value for the customer is the perceived stream of benefits that accrue
from obtaining the product or service

Price is what the customer is willing to pay for that stream of benefits

At the same time, each activity in the business is performed at a cost.

The value created by a company is measured by the difference between

the value to a customer (V) and the costs of production. This can be
illustrated as follows:

57

V-P
V
P-C
P
C

V = Value to customer
P = Price
C = Costs of Production
V P = Consumer surplus
P C = Profit margin



Value creation
A company creates value by converting inputs that cost C into a product on
which customers place a value of V.

A company can create more value for its customers either by

lowering C, or

making the product more attractive through superior design,

functionality, quality, etc. so that consumers place a greater value on
it and, consequently, are willing to pay a high price (V increases).

Each activity can therefore be performed to maximize the perceived value,

or to minimize the delivered cost.

2.

Cost efficiency


Efficiency is the ratio of inputs to outputs
E

Outputs
Inputs

The more efficient a company is , the lower or fewer its inputs required to
produce a given output should be.

The most important component of efficiency for many companies is employee

productivity, which is usually measured by output per employee.
Additionally, efficiency can be attained at corporate level by striving toward
economies of scale in production, distribution and advertising or sales promotion.

58

3.

4.

Historical Analysis
This is an assessment of the deployment of resources of an organization over time, e.g.
2000

2001

2002

Profit

Sales

Comparison with industry norms

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

5.

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

6.

Financial Analyses
This involves an analysis of the companys financial condition. Although analysing
financial statements can be quite complex, in general a companys financial position ca
be determined through the use of ratio analysis. Financial performance ratios can be
calculated from the balance sheet and income statement. These ratios can be classified
into five different subgroups:
1.1

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

1.1.1

Gross profit margin (GPM)

GPM

Sales Revenue Cost of Goods Sold

Sales Revenue

1.1.2

Net profit margin

=

Net Income
Sales Revenue

59

1.1.3

Return on total assets

=

Net income available to common stockholders

Total assets

1.1.4

Return on stockholders equity

=

Net income available to common stockholders

Stockholders equity

1.2

Liquidity Ratios
A companys liquidity is a measure to its ability to meet short-term obligations.
An asset is deemed liquid if it can be readily converted into cash. Liquid assets
are current assets such as cash, marketable securities, accounts receivable, and so
on.
1.2.1

Current Ratio
=

Current Assets
Current Liabilities

1.2.2

Quick Ratio
=

Current Assets Inventory

Current Liabilities

1.3

Activity Ratios
Activity ratios indicate how effectively a company is managing its assets
1.3.1

Inventory Turnover
=

Cost of Goods Sold

Inventory

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

determining whether a firm is carrying excess stock in its inventory.
1.3.2

Days sales outstanding (DSO), or average collection period

This ratio is the average time a company has to wait to receive its cash
after making a sale.

60

DSO

Accounts Receivable
Total Sales/360

1.4

Leverage Ratios
A company is said to be highly leveraged if it uses debt rather than equity,
including stock and retained earnings.
1.4.1

Debt-to-assets ratio
= Total Debt
Total Assets

This measures the extent to which borrowed funds have been used to finance a
companys investment.
1.4.2

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

Total Debt
Total Equity

1.4.3

Times-covered Ration (TCR)

This measures the extent to which a companys gross profit covers its annual
interest payments. If it declines to less than 1, then the company is unable to
meet its interest costs and is technically insolvent.
TCR

Profit Before Interest and Tax

Total Interest Charges

1.5

Shareholder-Return Ratios
Shareholder-return ;ratios measure the return earned by shareholders by holding
stock in the company.
1.5.1

Total shareholder returns (TSR)

This measurers the returns earned by time( t + 1) on an investment in a

companys stock made at time t. {Time t is the time at which the initial
investment is made}
TSR = Stock Price (t + 1) Stock Price (t) + Sum of annual dividends per
share
Stock Price (t)

61

Thus, given:


shareholder invests K2 at time t

at time t + 1 the share is worth K3

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

to K0.2

TSR

(3 2 + 0.2)

0.6

2
which is 60% return on initial investment of K2 made at time t.
1.5.2

Price-earnings ratio
This measures the amount investors are willing to pay per Kwacha of
profit.
Price-earnings ratio

Market price per share

Earnings per share

1.5.3

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

Dividend per share

Market price per share

1.6

Cash Flow
This is simply cash received minus cash distributed. A positive cash flow enables
a company to fund future investments without having to borrow money from
bankers or investors. A weak or negative cash flow means that a company has to
turn to external sources to fund future investments.

1.7

Product Portfolio Analysis

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

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

market leader.

62

There are however opportunities for growth characterized by a high

growth rate

The company must target growth and may therefore require a lot of cash
to spend money on plant, equipment and personnel to keep up with the
fast-growing market, and because it wants to overtake the market leader.
The Boston Groups Growth-Share Matrix
High

Low

Star

Question Mark

Cash Cow

Dog

High

Market
Growth
Rate

Low

Relative Market Share

Star

This represents a market leader in a high-growth market

The company must spend substantial sums of money to keep up with the
high market growth and fight off competitors attacks

Cash Cow

A company produces a lot of cash.

The company does not have to finance capacity expansion because the
market growth rate has slowed down.

Because it is a market leader, it enjoys economies of scale and higher

profit margins.

63

Dog

1.8

Typically generates low profits or incurs losses.

An appropriate strategy here might be to sell or liquidate the business.

SWOT Analysis
This involves scanning the environment for opportunities and threats and to
balance these against the companys strengths and weaknesses. The following
questions are essential to the analysis:

1.9

Is the company in an overall strong competitive position?

Can it continue to pursue its strategic profitability?

What can the company do to turn its weaknesses into strengths and
threats into opportunities?

Can it develop new corporate strategies to accomplish this change?

Critical Success Factors

These are aspects of strategy in which the organization must excel to outperform
competition. These must be underpinned by core competences in specific
activities or in managing linkages between activities.

64

TOPIC 3
PERSONAL VALUES AND ASPIRATIONS OF
SENIOR MANAGERS
An analysis of the environment is intended to facilitate understanding of what a company
might do as revealed by the opportunities or threats obtaining in the environment. The
identification and analysis of corporate competence addressed the question of what the
company can do in terms of its state of preparedness and capability to prosecute what it might
do. Strategy formulation also depends on the personal values and aspirations of the chief
executive and his senior managers. The proposition being put forward is that strategy is also a
function of what management wishes to do. To recap, then, environmental analysis addressed
the question of what a company might do; an analysis of corporate competence and resources
addressed the question of what a company can do; and an examination of personal values and
aspirations will address the question of what a company wishes to do.

We now turn to an examination of the personal values and aspirations of senior executives
and their impact on the formulation of strategy.

WHAT ARE PERSONAL VALUES AND ASPIRATIONS?

W.D. Guth and R. Tagiuri defined a value as a conception, explicit or implicit, distinctive of
an individual or characteristic of a group, or the desirable which influences the selection of
available modes, means and ends of action.

Individuals or groups form ideas about what they desire and direct their efforts towards
attaining the desirable. Values are acquired early in life as a result of the interplay of what the
individual learns from those who bring him up, the times and circumstances of his upbringing
and his particular individuality.

A persons basic values are a relatively stable feature of his personality, although they may
change somewhat with his level of knowledge and analytical skill.

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

65

TYPES OF VALUE ORIENTATIONS

(a)

The theoretical orientation characterized by intellectual interest in an empirical,

critical, rational approach to issues.

(b)

The economic orientation characterized by a materialistic approach to practical

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

(c)

The aesthetic orientation manifested by interest in the artistic, form, symmetry,

harmony and fine taste.

(d)

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

(e)

The political orientation manifested by the love for power, influence and recognition.

(f)

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

STAKEHOLDERS AND THEIR VALUE ORIENTATIONS

1.

2.

3.

Stakeholders

Have equity interest in the firm.

Their power and influence derive from ownership and control of strategic
resources, such as capital or a patent.

Their orientation is economic because they are strongly motivated by the return
on their investment.

The Board of Directors

Represent those who have an equity interest in the firm or those who own
strategic resources being used by the firm, e.g. Banks that might have loaned
funds to a firm.

Constitute the policy making and governing body of a firm

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

rejected.

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

The Chief Executive Officer

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

66

4.

Accountable to the Board for the implementation of strategy.

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

strategy.

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

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

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

Senior (Top) Management

Directly assist CEO in initiating and implementation of strategy.

They are the embodiment of the expertise, knowledge and capability necessary
for the search, analysis, selection and implementation of strategy.

Their power and influence derives from the perceived value of their contribution
to the formulation and implementation of strategy.

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TOPIC 4
THE COMPANY AND ITS SOCIAL
RESPONSIBILITIES: RELATING CORPORATE
STRATEGY TO THE NEEDS OF SOCIETY
INTRODUCTION
In our consideration of strategic choices, we have so far moved from what the strategist
might, to what he can do, and to what he/she wants to do. We now turn to what he/she
ought to do from the point of view of disinterested observers in society and his/her
standards of right and wrong. Our task is to recommend that strategic choice should meet
ever rising moral and ethical standards. This requires an examination of the inherent conflict
between the economic isolationists, who argue that business serves society best if it
concentrates solely upon its economic function, and the social interventionists, who maintain
that management of business should and ought to concern itself with the problems of its
physical and social environment.

WHAT IS SOCIAL RESPONSIBILITY?

Social responsibility is the intelligent and objective concern for the welfare of society. This
concern should restrain individuals and corporations from behaviour and activities that are
ultimately destructive, no matter how immediately profitable such behaviour or activities
might be. Such concern must additionally lead firms to making a positive contribution to
human betterment.

THE CASE AGAINST VOLUNTARY ASSUMPTION OF SOCIAL RESPONSIBILITY

(The Economic Isolationists Argument)
The case of the economic isolationist rests on the following principles:
1.

That the primary purpose of business is economic, that is, to maximise revenue.

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

inefficiency.

68

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

2.

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

to regulate or correct.

3.

Business should however live up to its legal obligations, such as paying taxes or bills,
keeping honest expense accounts and labelling and weighing its products accurately.

PROPONENTS OF THE ECONOMIC ISOLATIONIST VIEW

(a)

Adam Smiths Wealth of Nations

In his work, The Wealth of Nations, Adam Smith argued that perfect competition, as
characterised by atomised markets, produces not only the optimum allocation of
resources, but also satisfaction of the general interest.

The invisible hand of

competition keeps the self-seeking men, striving against each other, from harming the
public. The general good can be attained by the self-centred drive for survival and
efficiency of the entrepreneur or small firm. In a famous quote, Adam Smith asserted
It is not from the benevolence of the butcher, the brewer, or the baker that we
expect our dinner, but from their regard for their own interest
The counter argument against Adam Smiths proposition is that perfect competition
does not exist in its pure idealised form as envisaged by Smith: in reality, what
obtains is imperfect competition characterised by few large suppliers who control
markets and incomplete knowledge on the part of the buyers of sources of supply and
prices.
(b)

Theodore Levitt & Reavis Cox argue that:

The only responsibility of business is to make profit.

The need to make profit in the present is so great and so pressing that selfinterest necessarily excludes public service.

It is governments role to check abuse, prescribe rules and codify public

aspirations.

69

(c)

Milton Friedman (in Capitalism and Freedom)

In a free society, there is one and only one social responsibility of business
and that is to use its resources and engage in activities designed to increase its
profits, so long as it stays within the rules of the game.

Direct intervention or the doctrine of social responsibility is fundamentally

subversive in a free society.

THE CASE FOR INVOLVEMENT

(The Social Interventionist)
The case for the social interventionists rests on the following arguments:
1.

Government regulation, certainly essential for the provision of ground rules for
competition and prohibition of grossly improper and dishonest behaviour, is neither a
subtle instrument for reconciling private and public interests, nor an effective
substitute for knowledgeable self restraint.

2.

If businessmen are to be freed from the need for self-restraint, then government
regulation ought to be sufficiently specific and knowledgeable and timely to check or
forestall abuse. This is often not the case: Laws are invariably not specific enough to
cover every case; neither are all affected persons sufficiently knowledgeable about the
provisions of the law; nor are laws enacted on time. Secondly, regulation cannot
possibly design the ideal relationship between corporation and society. A regulation
or law is premised on preventing some anticipated errant behaviour. This implies
some divergence of interest to necessity conformity to accepted norms of behaviour.
A law is thus an imposition on aberrant behaviour and is not itself sufficient to fight
off the inclination toward bad behaviour. Moreover, even in matters where the law is
intended to promote public interest, such as taxation, there is considerable contention
regarding the nature and scope of taxation.

3.

In this day and age, it is wanton irresponsibility to argue that a businessman should
knowingly ignore the consequences of his companys impact upon its physical and
social environment until new laws are put in place. The public constantly expects and
demands that businesses behave not only legally but within visible regard for the
rights of competitors, customers and the general public.

70

4.

In an industrial society, corporate power vast in its potential strength must be

brought to bear on certain social problems if they are to be solved at all.
Governments in most developing nations do not have the capacity to solve the vast
and diverse social and economic problems which beset them.

5.

Corporate executives of the calibre, integrity, intelligence and humanity required to

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

6.

The dangers and problems of corporate participation in public affairs can be dealt
with through research, education, government control and self-regulation.

The

voluntary participation in working towards a common good is preferable to a standoff

between government and business.
THE CATEGORIES OF CONCERN / SCOPE FOR CORPORATE SOCIAL RESPONSIBILITY
(a)

The problems of the world society:



the opportunity to contribute to industrialisation in underdeveloped countries;

the willingness to undertake joint ventures rather than insist on full ownership;

the willingness to share management and profits in terms not immediately

related to the actual contributions of other partners;

(b)

the training of nationals for skilled jobs;

the willingness to enter business to meet social as well as material needs;

Cooperation in matters of taxes, bribery or corruption.

The problems within a countrys borders:



Occasional disasters such as floods, earthquakes, drought or civil strife.

Environmental consequences of manufacturing processes.

Promotion of underprivileged groups.

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(c)

(d)

(e)

The problems of the community in which the company operates:



Impact of new investments on existing cultures and traditions

The need for social amenities offered to the community

Employment opportunities to the local community

Industry-specific problems:


environmental concerns arising from disposable products;

road maintenance in the case of heavy users of roads;

ethical and moral issues in the provision of services

The quality of life within a company:



the welfare of employees;

the quality of goods and services being offered to the public the active role
played or disinterest or indifferences shown;

the impact upon the individual of the control systems and other organisational
processes installed to secure results, e.g. the pressures which lead executives
to offer bribes; the failure or reluctance to acknowledge and recognize the
efforts which do not have a direct bearing on visible profits;

the freedom afforded to the individual employee to participate in social causes

beyond the corporate effort.

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

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

(ii)

his humane concern for the progress of society and his perception of the
proper uses of corporate power in dealing with problems not directly related to
his present business; and

(iii)

the threat of regulation that will be ultimately forthcoming if business

behaviour does not meet the standards applied to it by society

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TOPIC 5
STRATEGIC ALTERNATIVES
INTRODUCTION
We have previously observed that strategic management basically deals with three questions:


Where are we?

Where do we want to go?

How do we get to where we want to be?

What has been covered so far has dealt with the first question. The second question where
do we want to go is the subject of this topic. In it, we examine the strategic options
available to a firm once it has determined what might be done, what can be done, what it
wishes to do and what it ought to do.
The following are some of the options of strategic direction a firm could follow.
1.

NO CHANGE strategy
This strategy is followed when a firm is satisfied with its current corporate or
competitive strategies and therefore sees no justification for change of course. A No
Change strategy thus entails a continuation of the existing strategies, whatever these
strategies might be.
Strategic management does not, therefore, mean change for its own sake. If a strategy
that is being followed is sound and effective, and is producing results that management
is satisfied with, it is sensible to continue with the strategy. This certainly can be
justified in the short-term but not be prudent in the long term because changing
circumstances might call for change.

2.

BUSINESS-LEVEL STRATEGIES IN COMPETITIVE INDUSTRIES

In our earlier discussion of strategic responses to competition, we observed that a
company must craft strategies that give it a competitive advantage over its rivals. The
three generic responses to competition were:
Product differentiation is the process of obtaining a competitive advantage over
rivals by making, creating, and selling a product in a way that satisfies customers
differently and better than rivals. A company can devise strategies to differentiate a
product by innovation, excellent quality, or responsiveness to customers.

73

Market Focus is the process of deciding which kind of product(s) to offer to which
customer segment(s). Customer segments are the sets of people who share a similar
need for a particular product. However, a particular product may satisfy different
kinds of needs. Within each group, there are subgroups that may have a more
specific need for a product. Market focus aims at targeting these needs more
narrowly. How responsive a company is to needs of market segments can range
from (a) where a product is targeted at a typical customer; in this instance, a
company chooses to ignore the existence of differences among market segments; (b)
where a different product is offered to each market segment; and (c) where a product
is offered to one or a few market segments.

A low cost strategy is based on a company lowering its cost structure so that it can
make and sell its product(s) at a lower cost than its rivals. This offers a competitive
advantage in two ways: First, where firms charge similar prices for their products,
the company with a lower cost structure will be more profitable than its competitors
because of its lower costs. Second, because of its lower cost structure a company
may attract customers away from its rivals because it will be able to offer its product
at a lower price than its competitors.
3.

INTERNAL GROWTH (BUSINESS LEVEL) STRATEGIES

(a)

Concentration or specialization (single business strategy)

Resources are directed towards the continued and profitable growth of a single
product in a single market, using a single technology. This can be
accomplished by:


Attracting new users or customers

Increasing the consumption rate of existing users

Attracting consumers away from competitors

Examples of single-business concentration strategies include



Coca-cola

Apple computer

Polaroid

74

Advantages of single-business concentration:



By utilizing the full force of organizational resources and managerial knowhow in order to become proficient at doing one thing very well and
efficiently, a company can build a distinctive competence.

A firm can then use and translate the firms distinctive competence and
ability into a reputation for leadership/excellence

A firm can use its accumulated experience and distinctive expertise to

pioneer fresh approaches in

production technology

meeting customer needs

product innovation

value creation in any of its activity/cost chain

Disadvantage of single-business concentration:

-

A firm may run the risk of putting all of its eggs in one basket,
especially if the industry stagnates, declines or otherwise becomes
unattractive.

(b)

Market development


This strategy is closely related to concentration because it entails building

on existing strengths, skills and capabilities.

Market development focuses on positioning a product in markets by

extending into new markets that are not served, or developing new uses for
existing products. These may require some modification of the product.

(c)

Product development


Involves substantial modification or additions to present products in order

to increase their market penetration within existing customer groups.

Intended to prolong or extend the product life cycle, e.g. revised edition of a
book, restyling of an engine.

(d)

Innovation


Implies significant changes to a product or service. It involves replacing

existing products with new ones as opposed to modifying them.

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4.

STRATEGIES IN DECLINING INDUSTRIES

Many industries experience sooner or later a decline, whereby the size of the total market
starts to contract. The decline stage can be attributed to many causes, including technological
changes, emergence of substitutes, shifts in tastes and preferences and falling incomes. The
severity of the decline can be exacerbated by the intensity of competition.
Hill and Jones have developed a framework of strategic options in a declining industry as
illustrated in Figure 2. Note that the options are determined by the intensity of competition
and a companys strengths relative to the remaining pockets of demand.
(i)

Leadership Strategy
This aims at growing in a declining industry by picking up the market share of
companies that are leaving the industry. This strategy is appropriate when (a)
the company has distinctive strengths that allow it to capture the remaining
share and (b) the rate of decline is slow and intensity of competition is not
severe. The tactical steps may include aggressive marketing and making new
investments.

Figure 2: A Framework of Options in a Declining industry

Few

High
Divest

Many

Niche or
Harvest

Intensity of
Competition

Harvest or divest

Leadership or
Niche

Low

Companys strength
Source: Charles W. Hill & Gareth R. Jones, Strategic Management op.cit.p223

(ii)

Niche Strategy

76

This calls for a company to focus on pockets of demand in which demand is

stable or declining slowly. This strategy is appropriate when a company has
strengths to exploit the pockets of demand.
(iii)

Harvest Strategy
This is used when a company wishes to get out but would like in the process
to optimize cash flow. This strategy entails cutting all new investments and
reducing costs wherever possible.

(iv)

Divestment Strategy
Represent strategic alternatives where money is not invested for growth
purposes, but rather money raised may be reinvested to develop a
competitive advantage and enhance consolidated and repositioning.
They are applicable in any of the following:

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

where a firm experiences an economic reversal because of
competitor pressure

demand declines

when resources can be better deployed elsewhere.
Divestment can be accomplished through retrenchment. Basic assumption is
that the

firm can survive but seeks to improve efficiency and concentrate

on those activities in which it has a distinctive competence.

Cost reduction, e.g. through redundancies

Leasing rather than outright purchases

Asset reduction

Other strategies in a declining industry involve:

Disinvestment Strategy
This refers to the company being sold off a part in order to recover most of its
investment before the crunch.
Liquidation
The sale of a complete business:

As a single going concern

In piecemeal to different buyers

By auctioning assets

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5.

EXTERNAL GROWTH STRATEGIES

These are often implemented through acquisition, merger or joint venture.

They involve the purchase of, or an arrangement with, firms that are behind or
ahead of a business in the added value channel.


Can also involve firms or activities that are indirectly related through
technology or markets, or even unrelated businesses.

The key objective is to increase market share and find new opportunities
that can generate synergy.

Horizontal integration
when a firm acquires or merges with a major competitor, or at least another firm
operating at the same stage in the added value chain.
A

Ranch

Meat Processing

Supermarkets/
Butcheries

B
Vertical integration
Acquisition of a company which supplies a firm with inputs (raw materials or
components) or serves as a customer for the firms products or services.
Ranch

Supermarkets/
Butcheries

Meat Processing

Backward Vertical
Integration

Forward Vertical
Integration

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6.

DIVERSIFICATION
This involves departure from existing products or services and engaging in new
investment opportunities. It involves adding new businesses to the company that are
distinct fro its core industry. Diversification means operating in two or more industries.
As a strategy, a company attempts to add value by using its distinctive competence in a
new industry.

7.

STRATEGIC OUTSOURCING
This involves a company allowing any of a companys value chain activities or
functions to be performed by an independent specialist company. The principal reason
for outsourcing is that the company may not have a distinctive competence, or
competitive advantage, in the activity or function to be outsourced.
Outsourcing may result in the following advantages:

Increased profitability if the cost of outsourcing is lower than that

incurred by the company if it performed the function.

Enhanced differentiation of a companys final product through better

quality coming from outsourcing.

Enhancement of core competence by allowing a company to focus its

energies and resources on core activities.

The following disadvantages are associated with outsourcing:

The risk of the company becoming too dependent on the specialist

company, and hence losing bargaining power over the price it has to
pay to the specialist company.

Possible loss of competitive information with respect to the outsourced

activity.

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IMPLEMENTATION OF CORPORATE STRATEGY:

ACCOMPLISHMENT OF PURPOSE
Introduction
The formation of corporate strategy called for analytical and conceptual ability to:
(a)

examine the environment for opportunity and risk;

(b)

assess corporate strengths and weaknesses;

(c)

identify and weight personal values; and

(d)

clarify public responsibilities.

We now turn our attention to the concepts and skills essential to the implementation of
strategy which, like was the case in the formulation of strategy, can be divided into the
following sub-activities for examination:
(a)

the design of organizational structure and relationships;

(b)

the effective administration of organizational processes and behaviour; and

(c)

the development of effective personal leadership.

A word of caution is in order here. Our approach has involved a neat division in the
consideration of corporate strategy into aspects of Formulation and Implementation. This is a
matter of convenience from the point of view of orderly study of the subject. In real life, the
processes formulation and implementation of strategy are interdependent and intertwined:
feedback from operations will serve notice of changing environmental factors, which might
require an adjustment of strategy.

One way of appreciating the value of implementation is to examine a firm it as it evolves

from infancy to maturity. In a small and newly-established firm, the founder initially does
almost everything. Typically, the founder knows precisely where he/she wants to go and what
he/she must do get there. Thus, he/she is quite clear about what tasks must be performed and
might he himself perform them or ask any of the few people around him to carry out the tasks
on his behalf; there are few or no communication problems because of the almost nonexistent
barriers to communication; conflict is at the barest minimum and there are hardly any
organizational politics because of the ease and informal way in which people relate to each
other; the organizational culture is personified embodied in the owner/founder; and most
likely there is no leadership crisis. As the business grows, however, the number and diversity

80

of issues that must be dealt with begins to grow, necessitating the structuring and designing
of system(s) of how to manage and coordinate the numerous and diverse issues relating to
recruitment, assignment of task, monitoring performance, training and retention of the
workforce. To cap it all, there must be some leadership to inspire, direct and control human
effort.
Our treatment of the implementation of strategy is premised on the proposition that
successful implementation of strategy depends on, first, designing an organizational structure
in which tasks to be performed are identified and assigned to individuals and/or groups to
carry them out; second, designing systems of encouraging the individuals and groups to work
toward the accomplishment of purpose, or discouraging them from behaviour that does not
advance strategy; and third, to provide for effective leadership to inspire performance.

TOPIC 6
STRATEGY AND ORGANIZATIONAL STRUCTURE
AND RELATIONSHIPS
If consciously formulated strategy is to be effective, organizational development should be
planned rather than left to evolve by itself. As observed earlier, a one-person set up has no
organizational problem. However, as organizations grow beyond one person, organizational
problems increase in number and complexity. Because an organization is a collection of
people striving for a common purpose, a mechanism must be put in place to guide the
accomplishment of organizational purpose. An organizational structure is therefore a way in
which an organization arranges its people and jobs so that work can be performed and its
goals can be met. Organizational structure is consequent upon and proportionate to the
diversity and size of the undertaking.

The Process of Designing an Organization Structure

The process of designing an organizational structure consists of the following activities:
1.

Determine strategy or the companys distinctive purpose

Whatever is to be undertaken is for a purpose. It is therefore important to define and
understand the strategy which brings people together. Purpose gives focus and meaning
to organizational activity.

81

2.

Identify the tasks to be performed

Once the strategy or purpose is clearly understood, the identification of the tasks to be
performed will follow. Pertinent questions to ask are:

3.

Does the strategy call for new or additional tasks?

Will old tasks be deleted or retained from current portfolio?

Will personnel have to be retrenched or retrained?

Assign responsibility for accomplishing these tasks to individuals or groups

A Chief Executive Officer is ultimately responsible for the accomplishment of each and
every task. If the organization grows beyond his capability to carry out each and every
task, he must then decide:


When and to whom should he delegate?

What authority is commensurate with delegation?

FORMATS FOR ASSIGNING RESPONSIBILITY:

The Simple Structure

The owner assumes most of the management responsibilities

There is no clear delineation or division of responsibility. There may be an

assistant whose role is not clearly spelt out who can therefore be assigned any
task at the personal whim of the principal

The organization is driven by the sheer force of the personality and drive of the
CEO.

The Mature or Machine Organization

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

Operating work is routine, rather simple and often repetitive;

Because operating work is simple, routine and repetitive, it is amenable to

standardization.

Unlike the simple structure, a mature organization usually has an elaborate

administrative structure, with a centralized power base at the top.

The following organizational structures may obtain in a mature or machine

structure:

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Functional Structure
In this format, the organization is structured on the basis of functions to be
performed. Thus, in a typical manufacturing firm, activities are organized
along the basic functions of production, marketing and finance. In a trading
firm, the functions might be grouped along the functions of buying, inventory
control and selling.
Manufacture and Sell

Trading

Production Finance Marketing

Buying Inventory Selling

Control
People who perform similar or related tasks are grouped together in a unit
under a functional head.


Product Structure
In this type, the tasks are centred on a product. An example of a product
structure might be at a farm where activities might be grouped around poultry,
crop, dairy and orchard products being produced. All tasks to be performed
revolve around a product.
Farm Manager

Poultry

Crop

Maize

Tobacco

Dairy

Orchard

Potatoes

Customer/Market/Geographic
Tasks are centred on the Customer, Market or Geographic area. The tasks may
be varied in nature but are grouped together on account of facilitating service
delivery to a customer, market or geographic area.

83

Customer-based

Account Holders

Non-Account Holders

Government Business Individuals

Individuals Institutions Other

Market-based

Consumer Market

Industrial Market

Geographic area based

Domestic or local market

Overseas market

PRINCIPAL REQUIREMENTS OF STRUCTURE



The basis for division is its relationship to corporate purpose. The grouping of
tasks must advance strategy or purpose.

The design should be flexible and allow for a more complex structure as the
organization grows in size.

There is no typical or universal organizational structure. An organizational

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

Decide on whether to have a flat or tall organization structure. Many different

levels or ranks, within the total, may result in a long hierarchical and
psychological distance between top and bottom, and this may impair
performance. Flat structures are characterized by few hierarchical levels between
the top and bottom. Tall structures are characterized by many hierarchical levels
between the top and bottom. Tall structures are appropriate where product and
service delivery are capital intensive, requiring few but often expert staff at the

84

front line. Banking or travel service characterize tall structures. However, there
are a number of disadvantages associated with tall structures. The first is that
decision making processes become long, convoluted and ultimately ineffective.
Secondly, the different administrative and support functions become the domain
of powerful and dominant interests. Thirdly, tall structures tend to lead to rigidity
and entrenched authority. Fourthly, specific responsibility at a hierarchical level
may not always be apparent. The advantage of flat structures is that decision
making is faster. However, span of control can be problematic


Determine whether you will have a centralised or decentralised structure.

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

4.

Provide for coordination of inherent divided responsibility through:



Hierarchy of supervision
Functions at one level typically are accountable to a higher level, which serves as
point of coordination. Thus, the diagram below shows that a Chief Executive
Officer coordinates the functions of finance, manufacturing and marketing. In
turn, the sub activities falling under any of the functional managers are
coordinated by the respective functional manager.
Managing Director

Finance


Manufacturing

Marketing

Establishment/use of Committees
Committees provide a forum at which diverse views, or people from different
departments, are brought together in an attempt to reach consensus on an issue. A
planning committee typically draws its membership from a cross-section of

85

stakeholders. Similarly, a management committee is a point of coordination of the

views if the different managers who comprise its membership.

Project form of organization

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

5.

Design of an Information System



This is intended to provide members with information needed to perform their

tasks and relate their work to that of others. It is important for the organizations
strategy to be clearly understood and for every employee to understand how they
contribute to the achievement of strategy.

A good information system should

provide for:

Red-flag information alerts one to things that are not going well or
emerging threats.

Progress information

monitors progress by comparing actual

performance to desired performance.

Awareness Information creates awareness of what is happening and

connects employees to changing business challenges and hence facilitates
quicker adjustments to changing business conditions.

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TOPIC 7
ORGANIZATIONAL PROCESSES AND BEHAVIOUR
1.

INTRODUCTION
In the implementation of strategy we have thus far looked at organizational structure
and relationships, specifically at identification of tasks to be performed, assignment of
responsibility for accomplishing these tasks; provision for the coordination of divided
responsibility; and design of an appropriate information system. We now turn to the
second element of implementation organizational processes and behaviour.
Organizational performance does not depend only on the structure put in place. It
depends also on the extent to which individual energy is successfully directed toward
organizational goals.
Man-made and natural systems and processes are available for individual
development and performance. In any organization, the system which influences
behaviour consists of six elements:
(i)

Standards for measuring performance

(ii)

The measurement of performance

(iii)

Incentives for inducing design performance

(iv)

Rewards for satisfactory performance

(v)

Penalties for unsatisfactory or undesirable performance

(vi)

Systems of restraint and controls

1.1. THE ESTABLISHMENT OF STANDARDS AND MEASUREMENT OF

PERFORMANCE

Strategy by nature of its definition implies some progress toward some longterm goal.

Progress toward some goal implies that one is able to observe and measure
that progress.

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

organization is compared to where it ought to be.

87

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

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

(a)

Profitability

Profitability represents a return on investment and is a reflection of

how economically efficient operations have been conducted.

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

half-yearly or annually.

(b)

Competitive Position

This attempts to assess a firms position in the market place given a

competitive situation.

A firms market share is used to determine the standing of a firm

relative to its competitors.

(c)

Is the firm the dominant or acknowledge leader?

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

Is the firm on the fringe of the market?

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

Non-economic Expectations

Performance can also be measured by the extent to which an

organization meets non-economic expectations. For instance, to what
extent are the companys operations conducted in accordance with
legal and ethical requirements? Is the behaviour of individuals socially
unacceptable, in bad taste or against good judgement?

(d)

Budget
A budget is a projection of hoped-for performance.

Positive or negative

variances reflect differences between budgeted and actual performance. An

analysis of management accounts for example is a way of measuring expected
performance against actual performance across activity lines.

88

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

be exercised:


The evaluation program should not encourage performance which detracts

from overall strategy; rather it should support the overall strategy.

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

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

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

achievements which must be accomplished during a specified period

1.2. MOTIVATION AND INCENTIVE SYSTEMS

The influences upon behaviour in any organization are visible and invisible; planned
and unplanned; or formal and informal. If the executive does not wish to leave the
implementation of strategy to chance, he has a number of options of encouraging
behaviour which advances strategy and deterring behaviour which does not.
Motivation and incentive systems are positive elements of encouraging desired
performance, while systems of restraint and control are considered as negative
elements. Whatever systems are in place, they must be visible, planned and known.
1.2.1.

THE POSITIVE

ELEMENTS

The positive elements largely comprise compensation of executives. In

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

Characteristics of the work



(b)

Complexity of the work, such as:

overseas versus domestic operations

nature and intensity of competition

size of the organization

General education required

MBA versus other qualifications

technical versus non-technical sills

Responsibility of job-incumbent for people and property

89

(c)

nature and number of decisions to be made

the risks involved

Quality of performance


(d)

individual versus organizational performance

Logical relationship to rewards paid to others in the same

organization.

(e)

(f)

The relevance of the following:

Age?

Length of service?

Potential?

Materials needs?

External influencing factors



regional difference in the cost of living

regional hardships to individual and his family

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

competitors

level of local taxation.

Forms of compensation

Financial rewards, including executive basic salary and allowances such as

housing, transport, entertainment.

Monetary Incentives for individual performance

profit sharing

stock options

executive bonuses

pension/savings plans

Non-monetary incentive systems including:

pride in or sense of accomplishment

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climate for free expression and innovation

good/pleasant environment
-

able and honest associates

pleasant surroundings clean and quiet

office location, size and furnishings

satisfaction deriving from doing work

1.3. THE NEGATIVE ELEMENT: SYSTEMS OF RESTRAINT AND

CONTROL
A system of incentive and rewards is not necessarily sufficient to achieve
organizational goals.

A system of controls and restraint is further needed to

supplement the positive aspects of incentives and rewards. Systems of restraint are
aimed at deterring behaviour which does not advance strategy.
Controls may be formal or informal. Formal controls derive from accounting, where
we attempt to quantify performance, e.g. the principle of budgetary variances, or
accounting controls; codes of conduct; or systems of discipline. Informal controls
derive from the behavioural sciences and thus tend to be subjective. They can be
regarded as social controls.

They are basically norms to which individuals are

responsive if not obedient:



they constitute the accepted way of doing things

they define the limits of proper behaviour and the type of action that will meet
with approval from the group
1.3.1.

Organizational Culture

Our interest in organizational culture rests on the premise that group effort or
influence can positively affect performance. It draws heavily on general systems
theory where, through synergy, parts of a system produce more in working together
than they can if they worked apart. Stated simply, it is the proposition that while
2

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

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That is, an organization working as a system, can entice from is members more than
the individuals would produce if they worked apart. This is attributable to a
motivational element which obtains when people work in groups. Groups, as working
system, are said to have a mood, atmosphere or chemistry, intangible yet real, which
induces effort over and above the ordinary. This mood, atmosphere or chemistry is
the driving or influencing force of collective behaviour and is rooted in an ideology.
Ideology or organizational culture is taken here to mean a rich system of values and
beliefs about an organization, shared by its members, that distinguishes it from other
organizations.
The key feature of such an ideology is its unifying power. It ties the individual to the
organization, generating a sense of mission. The development of an ideology
proceeds in three stages:
Stage 1: The rooting of ideology in a sense of mission

An organization is usually founded when a single prime mover identifies a

mission. This mission is identified as either a product or service.

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

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

because they share the values associated with prime mover and the fledgling
organization. An example of this might professionals coming together to start
a firm in order to create something unusual or exciting. When people come in
this fashion, they can be said to share a common sense of purpose. Another
example of shared sense of mission might be a situation where a new CEO
recruits and brings together old associates to come and work with him.
Factors which facilitate this sense of mission


The new organization is perceived to offer wide latitude for

manoeuvre and not constrained by procedure and tradition.

New organizations tend to be mall, enabling members to

establish personal relationships where it is easy to seek advice

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and guidance and to assess the impact of ones actions on

others.


The founders of new organizations are often charismatic

individuals, and so energize the followers and knit them
together

Stage 2: Development of ideology through traditions and sagas

As the new organization establishes itself, or an existing one establishes a new set of
beliefs, it makes decisions and takes actions that serve as commitments and establish
precedent:


these decisions and actions are repeated over time and lead to
reinforced behaviour

reinforced behaviour in turn translates itself into tradition - a

way of doing things which members share

the organization transcends the individual and becomes a self,

distinctive personality or identity

this distinctive personality captures the allegiance and

commitment of members of the organization.

Stage 3: Reinforcement of ideology through identifications



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

culture.

Membership of the organization becomes cardinal through

identification. This process of identification with and loyalty to
the organization is manifested through the following:

New members find the culture attractive and rich and

want to be identified with the organization.

New members may be subjected to a selection process,

to see whether they fit in with the existing beliefs

For existing members, promotion to higher positions is

made on the basis of strength of loyalty to those beliefs
and values of the organization.

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Identification may also be evoked through the use of

socialization and indoctrination to reinforce natural or
selected commitment to the system of beliefs.

1.3.2.

Organizational Politics

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

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

this is based on legally sanctioned power, e.g. a directive from a

superior/boss.

Ideology:

this is based on widely accepted beliefs, e.g. adherence to a Churchs

doctrine or a political partys manifesto.

Expertise:

this is based on power that is officially certified

These systems can be considered as legitimate. The system of politics, in contrast,

reflects power that is technically illegitimate because it is not formally authorized,
widely accepted or officially certified. The result is that political activity is usually
divisive and conflictive, pitting individuals or groups against more legitimate systems
of influence.
Forms of Political Activity (Games)
(a)

Insurgency Game


Usually played to resist authority, ideology or expertise, or to effect
change in the organization outside established procedure

It can range from protest to open rebellion

Usually played by lower participants who feel the greatest weight of

formal authority

(b)

Counterinsurgency Game


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

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It is all too often manifested by subordinates who make comments

about their company but refuse to disclose their identity for fear of
reprisals from their superiors.

(c)

Sponsorship Game


It is played to build a power base by invoking superiors

It originates in an individual attaching self to someone with legitimate

power, in authority, or of higher status, professing loyalty in return.

It is played by special assistants to CEO or family members in a family

company.

(d)

Alliance-building Game


It is played among peers, such as line managers or experts

It is aimed at negotiating implicit contracts of support for each other in

order to build a power base to advance selves in the organization

(e)

Empire-building Game


It is played by line managers or even CEO

It is played individually with select subordinates to foster a unique

sense of loyalty to the boss

(f)

Expertise Game


It involves non-sanctioned use of expertise to build a power base either
by flaunting it or feigning it

It is manifested by exploiting ones technical skills and knowledge,

emphasizing the uniqueness, criticality and irreplaceability of ones
expertise

It is reinforced by keeping skills from being programmed or by

keeping knowledge to self.

(g)

Line versus Staff Game

This is like a sibling-type rivalry

It is played not just to defeat a rival, but also to enhance personal

power.

It pits line managers with formal decision-making authority against

staff advisers with specialized expertise e.g. Consultants in an
organization.

(h)

Rival Camps Game

This is played to defeat a rival

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It occurs when two major power blocs emerge from other games

It takes the form of conflict between functional units or between rival

personalities.

(i)

Whistle-blowing Game


It is typically brief and simple

It is played an insider, usually a lower participant, to blow the

whistle to an influential outsider on questionable or illegal behaviour
by the organization by revealing privileged information

The information is given to an outsider in order to effect change in the

organization

(j)

Young Turks Game

It is played by a small group of young Turks who are close to but not
at the centre of power.

It is aimed at questioning legitimate power, perhaps even to overthrow

it, and thereby reorient organizations basic strategy, displace a major
body of its expertise, replace its ideology or rid it of its leadership.

Functional Role of Politics in Organizations

Politics can have both a positive and negative effect on organizational performance.
The dysfunctional influence of politics in organizations manifests itself when politics
is divisive and costly, burns up energies that could instead go into operations and
leads into all sorts of aberrations whose ultimate result is paralysis of the organization
to a point where its effective functioning comes to a halt and nobody benefits. On the
other hand, politics can serve a functional role under the following conditions:

Where it is necessary to correct certain deficiencies in an organizations

legitimate systems of influence. Above all where it is expedient to provide for
certain forms of flexibility discouraged by the legitimate systems.

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

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

Politics provides a forum for that all sides of an issue are to be fully debated,
whereas other systems of influence seek at best to solicit adherence to the

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status quo or at worst blind subservience to legitimate systems of influence.

For instance, the system of authority defers open discussion to a central
hierarchy, and this is often favoured one by those in authority; the system of
ideology imposes restraint through a system of common beliefs; and the
system of expertise gives deference to the expert or experience. In contrast, the
system of politics encourages a broader and researched articulation of issues
which challenges the status quo.

Politics can stimulate change that is blocked by legitimate systems of

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

The system of politics can ease the path for the execution of duties. That is,
once people are convinced about he merits of a strategic option, they are more
likely to implement the decision with renewed vigour and commitment.
1.3.3.

RECRUITMENT AND DEVELOPMENT OF MANAGERS

No system of controls, no program of rewards, no procedure of measuring and

evaluating performance can take the place of an individual who has a clear idea of
right and wrong, a consistent policy for himself and the strength to stand the gaff
when results suffer because he stands firm. It takes management development to come
up with a person who has the disposition and commitment to give his best to the
organization. This kind of person is different from the human animal that grasps at
every preferred reward and flinches at every punishment. Management development
is cardinal in the successful implementation of strategy. Nevertheless manpower
development has its detractors. The criticism against manpower development rests on
the following arguments.


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

are born with qualities of energy, shrewdness of judgement, ambition
and capacity for responsibility. These become leaders of business. It is
argued that this, for instance, explains some people of humble

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education can become quite successful at business, or why certain

ethnic groups such as Jews, Asians, West Africans seem o have a
natural flair for business.
The rejoinder to this is that men are, of course, born with different
innate characteristics, but none of these precludes the necessity to
acquire knowledge, skills and attitudes which fill the gap between an
identifiable trait and executive action.
Basic instincts may be necessary for effective performance in lesser
and lower jobs. But different and additional skills are required for one
to successfully exploit the opportunities and challenges of the
dynamics of the corporate world. Manpower development adds value
to the state of preparedness for higher responsibility. The development
or growth of corner shop in a township to a modern supermarket
cannot be entirely attributable to basic instinct.


A man prepares himself for advancement by performing well in his

present job. The man who does best in competition with his fellows is
best qualified to lead them.
People naturally want somebody they can look up to be their leader; in
sport, it is the top sportsman who can be captain; in a factory, the
physique, brawn and experience of a foreman may be the attributed
operatives expect in a foreman for inspiration and guidance
A rejoinder to this argument is that advances in technology, the
internationalisation of markets, and the progress of research in science
and information processing and organizational behaviour easily
challenge the notion that one can naturally have such knowledge and
naturally adapt to these changing times, or that a man will learn all he
needs to know from what he is currently doing.

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

qualities of leadership who are equal to higher responsibilities, it may
bring in such persons from other companies.
Experiences in human resource management reveal that there are
advantages and disadvantages to hiring from within and outside. It is

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therefore nave to be rigid about a hiring and promotion policy. It is

both risky and expensive to prefer hiring from outside instead of
having a deliberate manpower development scheme within the
organization. For one, it is difficult to appraise the quality of outsiders;
secondly, it is questionable whether outsiders can effectively transfer
to another organization their technical effectiveness, knowledge and
experience which blossomed and matured in a different organization;
thirdly, hiring from outside inevitably impacts negatively on natural
internal motivation and incentive systems.
The realistic approach is to be open and objective and hire as
circumstances dictate.


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

through training in order for them to show their personal qualities
which qualify them for advancement.

Such people are successful

because they are internally driven.

The counter argument to this is that ambition is not a recipe for success
in each and every circumstance. Indeed, ambition can be misplaced.
Ambition must be nurtured through a realistic assessment of
opportunities and constraints. Freedom to make mistakes and achieve
success through a process of learning is more productive in developing
executive skills than the practice of following detailed how-to-do-it
instructions designed by superiors or specialists.

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TOPIC 7
TOP LEADERSHIP AND ACHIEVEMENT OF
PURPOSE
Our proposition here is that leadership affects performance. Consequently, we will
examine those factors in leadership that are determinants of effective leadership. The
issues to be discussed are:

The attitudes and values of a leader

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

The key functions of a leader are to achieve results, inspire others, and work
hard and effectively. A leader must also be honest and responsible. The variables
listed above that affect performance will be examined in this context.
1. Attitudes and values
All those who aspire to leadership, senior and key positions must have a distinctive
and powerful set of attitudes and values involving:
(i)

A generalist orientation

This refers to frames of mind necessary to adapt and influence thinking

in particular directions.

It involves having a breadth and depth of expertise and approach

It helps to explain why those who have specific and tried expertise in
one area often fall short of full success when further development is
required.

(ii)

A practitioner orientation

This refers to the delivery of expertise in particular sets of

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

It implies a willingness to act on the basis of incomplete information,

related past experiences and the present and envisaged state of the
social, political and economic environment
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It also means a willingness to be seen in action in different sets of

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

(iii)

A professional orientation
This refers to a personal and occupational commitment to the
development of leadership expertise and applying this to a particular set of
circumstances, and the extent to which he/she acts in the best interests of
the organisation.

(iv)

An innovation orientation
The capability and willingness to look at the present state of activities,
products, services and processes as being a vehicle for further
development and to develop new products and services, which may or
may not succeed

(v)

A positive orientation
This requires a leader taking a positive approach to whatever presents
itself. This includes products and services, marketing campaigns and
activities, staff, expertise and technology, communities and clients, as
well as crises and emergencies.
A positive attitude is a reflection of the legitimate pride, confidence and
commitment in the organisation and its products, services and staff.

2. Roles of a leader
A leader needs expertise to fill a range of different roles. The nature of these
roles and the frequency with which they are required varies between and
within organisations. However, these roles include:
The visionary role: the ability to see the future of the organisation, and to
translate this vision into language that engages the support of all stakeholders
and constituents
The champion role- this involves enthusiastically supporting, promoting,
defending or fighting for the strategy in question. Championing the
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organisation and its activities, products and services is not always easy
because other people in the organization may hold the view that the CEO and
his top managers are overcompensated given the results.
The cheerleader role is carried out by a combination of visibility, presentation,
charisma and accessibility possessed by those in leadership positions. The
absence of cheerleading always gives rise to perceptions of lack of faith, belief
or commitment.
The enthusiast role-reflects the fact that if leaders are not enthusiastic, they
cannot, and should not, expect enthusiasm from staff shareholders, backers
suppliers, customers and clients
Heroes and heroines are distinguished from others by virtue of their
exceptional courage, achievement and superior qualities.
Role models-this is demonstrated by managements ability to set the standard
for others to follow. Others in the organisation take their cue in terms of
required, desired and demanded standards of performance from those in
overall charge.
The wanderer role-refers to the need for visibility among staff and gaining the
broadest

possible

perspective

on the

effectiveness

of

organisation

performance. The primary purpose of wandering is so that the leader sees for
himself or herself what is happening within his domain rather than relying
solely on what is reported back to him. Wandering may also involve visiting
other organizations with a view to learning new lessons and seeing different
ways of doing things. The best leaders also take time out to attend courses,
conferences or professional association meetings in order to meet with others
with similar problems and learn from them.
The coach role-this refers to guidance and steerage provided. This reinforces
the need for visibility, capability and clarity in all those in leadership
positions. If those in leadership positions are going to translate their ideas into
practice, then those in other executive positions need to know how this should
be done and the required outcomes; in many cases, they need guiding through
this by the person in charge.

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The other key feature of this role is to take corrective action wherever it is
required. Managers whose behaviour, attitudes, standards and performance
slip must be called into line immediately
The surgeon role- this involves cutting functions, products, services or
processes when it is deemed they are no longer required.
3. Traits and Characteristics
Research studies have revealed a long and comprehensive list of desirable
attributes of a leader as contrasted to a non-leader.

LEADER

Carries water for people

Open door problem solver, advice giver,
cheer leader

Comfortable with people in their
workplaces

Manages by walking about

Arrives early, leaves late

Good listener

Available

Decisive

Humble

Tough, confronts nasty problems

Often takes the blame

Gives credit to others

Gives honest, frequent feedback

Knows when and how to discipline
people

Prefers discussion rather than written
reports

Sees mistakes as learning opportunities
and the opportunity to develop

NON-LEADER

Presides over the mess

Invisible, gives orders to staff, expects
them to be carried out

Uncomfortable with people

Invisible
In late, usually leaves on time
Good talker
Hard to reach
Uses committees
Arrogant
Elusive, the artful dodger
Looks for scapegoats
Takes credit
Amasses information
Ducks unpleasant tasks

Prefers long reports

Sees mistakes as punishable offences and
the means of scapegoating

4. Types of leader
A key characteristic of the leadership position relates to the type of leader that
a particular individual is. The following types of leader may be distinguished:
(i)

The traditional leader is one whose position as a leader is assured by birth

and heredity, e.g. kings and family businesses whereby the child succeeds
the parent as CEO

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(ii)

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

(iii)

The bureaucratic leader is one whose position is legitimised by the

position held

(iv)

The appointed leader is one whose position is legitimised by virtue of the

fact that he or she has gone through a selection, assessment and
appointment process

(v)

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

of expertise, command of technology or resources.

(vi)

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

(vii)

The informal leader is one whose position is secured also by virtue of

personality, charisma, expertise, command of resources, and who is
therefore the de facto leader in a particular situation

5. Leadership Styles
It is usual to classify leadership styles on an autocratic-democratic continuum
as illustrated below: in a boss-centred leadership, the leader makes all
decisions relating to the work of the subordinate; in a subordinate-centred
leadership, the subordinate has relative freedom in decision that affect his
work..
Boss-centred leadership

Subordinate-centred
leadership

Use of authority by the manager

Area of freedom for the subordinate

6. Succession and Continuity

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

104

Full communication between the CEO and the top management team and
fully integrating communications with the rest of the organisation.

The ability to integrate the management of crises and emergencies into the
overall direction and purpose of the organisation.

The development of leadership and strategic expertise in all those in

senior positions and all those who aspire to such positions.

The identification of a range of individuals from within the organisation

who show promise, capability and willingness to be developed into
strategic positions.

The identification of sources of expertise from outside the organisation so

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

The integration of strategic thinking, awareness and expertise into all

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

Strategic leadership can therefore be considered at three levels:

1.

General Manager as the Architect of Strategy

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


analytical ability

searching out and analysing strategic alternatives beyond

advice received from functional managers



making or ratifying decisions among competing choices

creativity (role of innovator)

ability to find strategic choices which are not routine

ability to determine strategy uniquely adapted to external

opportunities and internal strengths of his organization

a sense of personal purpose

a sense of social responsibility

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2.

General Manager as Organization Leader



GM must act as promoter and defender of strategy

A leader must remain focused and keep the organization on

course against the tendency of organizations to veer off course
in response to circumstances, special interest and sudden
opportunity

GM must act as mediator and integrator

A leader must deal with conflict among special interest groups

A leader must balance the need for present profitability against

the need to invest in future success

A leader must balance the desirability for uniformity against

the requirements for flexibility.

GM is responsible for creating a conducive climate in his organization

A leader must ensure an absence of political manoeuvring for

position or attention

A leader must reject preferment on grounds other than merit

A leader must create interpersonal amity and tolerance of

individual differences

3.

A leader must instil high standards of moral integrity

General Manager as a Personal Leader

Business leaders generally are characterized by such personal qualities as:

drive

intellectual ability

initiative

creativeness

social ability

flexibility

In reality, there is considerable variation in leadership styles. On one extreme end is

the petty tyrant who uses power to abuse those whom he considers offenders, and uses
reports to find some discrepancy with which to needle a subordinate. He/she thus

106

lacks the level-headedness to inquire objectively into reasons for failure without
raising his voice. On the other end, a leadership style may be characterized by:


inquiring objectively and calmly into reasons for failure

without unnecessary fuss, establishing a new schedule to match new

conditions, or

working through intermediaries in calling attention to lapses from standards.

Within these extremes and possibilities, he must carve out a distinctive style which
will characterize his performance and his expectations of others.

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TOPIC 5 - STRATEGY IN CONTEXT

In this section we explore how the formulation and implementation of strategy is conditioned
by the context in which organizations operate.
1. The Entrepreneurial Context
1.1. Features of an entrepreneurial organization include the following:


It has a simple, basic structure

It has few or no staff

It has no established formal structure and relationships, its structure

tends to be flexible rather than rigid

It has a small managerial hierarchy

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

CEO exercises a high personal profile, and the organization is driven

by the sheer force of the personality of the CEO through

A strong vision

Charisma or

Autocratic leadership

1.2. Examples of entrepreneurial organizations



Management Consultants

Guest Houses

Restaurant

Clinic, Law firm, Architectural firm (Professional)

Trading, Hair saloon, Garage

1.3. How strategy is formulated

The industries in which entrepreneurial organizations are started and operate are often
characterized by bust-and-boom cycles. It is this characteristic that forms the basis of
opportunity and risk. Thus, a PEST analysis is cardinal.

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The entrepreneur usually has a deep knowledge of product/service in question, and

places heavy reliance on intuition drawn from knowledge, experience, energy and
ambition

The personal aspirations and value of the entrepreneur are an important aspect in the
formulation of strategy as the organization is founded on the basis of some inspiration
(strong idea) and championed by an aggressive and energetic risk taker

Issues of corporate social responsibility are insignificant and are not likely to prevail

1.4. How strategy is implemented

Decisions concerning strategy and operations tend to be centralised in the person of

the founder. Its performance is largely determined and bounded by the limitations of
the founder

The strong sense of mission rather than guidelines, procedures, rules or formal
controls are the driving force in the implementation of strategy.

Leadership is critical to the successful implementation of strategy

2. The Mature/Machine Context

2.1. Features of the machine organization

There is an elaborate organization and administrative structure characterized by

-

specialization of tasks

departmentalisation by function, product, customer or territory

line vs. staff

Operating work tends to be simple and repetitive and eventually develops into routine,
hence facilitating standardization and automation of work processes, hence the name
machine organization.

The text book theory of corporate strategy is modelled after the machine organization.

2.2. Examples of a machine operation



A commercial bank, along the likes of Standard, Barclays

A mining company Mopani, Konkola or former ZCCM

Supermarket chain Shoprite

Government/Public Enterprises

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Service companies, such as Zambia State Insurance Corporation,

Zambian Airways, Zambia Railways

2.3. How strategy is formed:

Strategy originates from the top of the hierarchy, where the perspective is broadest
and the power most focused.

Decisions tend to be rational and objective, based on PEST/SWOT analyses

Issues of corporate social responsibility feature in the formulation of strategy

2.4. Strategy implementation

Elaborate structure provides for supervision and the monitoring of assigned task to
ensure performance of task

Operations tend to be more efficiently run through

-

standardization

automation, and

elaborate control systems

There are usually problems of motivation and job satisfaction

-

routine, little thinking involved

breeds boredom, absenteeism and sabotage, undermining

sloppy workmanship

The organization tends to breed conflict, and political games tend to be pervasive

3. The Professional Context

3.1. Features of a professional organization

The operating core are the professionals themselves

Administrative structures tend to be flat and democratic, characterized by elective,

rotational or honorary leadership, and collective decision-making as opposed to
directives.

The CEOs roles are largely of being

-

fire extinguisher/fighting

liaising officer with external bodies

buffer and defender of against external forces

Power and influence are expertise-based and need not be tied to formal position

110

Work tends to be project-based, as for example

-

engineers in construction

surgeons on an operation

researchers in a university

lawyers as a defence team

auditors in an audit team

3.2. Examples of a professional organization

-

Doctors in a hospital

Academic staff in a university

Lawyers in a law firm

Engineers in a construction firm

Accountants/Auditors

3.3. Strategy Determination

This can be done at any of the levels or using a combination of any of these levels:

Professional Judgement by Individual: Based on individual values

and professional needs as dictated by clients, professional
affiliations and funding agencies.

Administrative Fiat (Administrator/Managing or Senior Partner):

this involves articulations from Government, donors, public,
business concerns

Collective

Choice: This involves interactive process that

deliberately seeks out a combination of professionals and nonprofessionals/administrators from a variety of levels and units.

3.4. Strategy implementation

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

ever apply their knowledge/skills in exactly the same way, hence it is difficult to
standardize their work, and there is need for wider consultation and team work the
more complex the task.

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Self-discipline and externally determined standards and a code of conduct by the

professional body ensure quality assurance in performance.

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

-

individual skill/professionalism

work is regarded as a calling

autonomy and democratic principles.

May breed problems of coordination attributable to the professional individualism and

arrogance

4. The Innovation Context

4.1. Features

The tasks are highly specialized and complex, often requiring expert training

The environment is dynamic, complex and unpredictable.

4.2. Example of Innovation Context

-

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

industry and drug manufacturing

Entertainment industry, such as music, advertising or the movie industry

Work of arts, such as painting

Fashion designers

Universities

Research Centres

Space agencies

4.3. Strategy Determination

It cannot rely on deliberate strategy because if must respond

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

Decisions are serial and incremental. Strategy is formed rather

than formulated because it derives from the series of actions and is
not predetermined.
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4.4. Strategy implementation

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

organization cannot rely on any form of standardization of the work processes. There
is therefore minimum division of labour and formalized behaviours.

Information and decision processes are allowed to flow flexibly and informally,
wherever they must go, in order to promote innovation.

Different specialists must join forces in multidisciplinary teams, each formed around a
specific project of innovation.

Because of the fluid nature of their structures, there is a high cost associated with
communication.

Top managers do not spend much time formulating explicit strategies; rather they
spend time in the battles that ensue over the selection among strategic choices and in
handling disturbances which arise from the environmental forces

Top managers additionally spend time in monitoring projects and liaising with the
external environment.

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TOPIC 6 - STRATEGY EVALUATION

CRITERIA FOR EVALUATION*1
The attempt to identify the actual or optimal strategy for a business firm raises at once the
question of how the actual or proposed strategy is to be judged. How are we to know that one
strategy is better than another in advance of validation by experience? As is already evident,
no infallible indicators are available. A number of important questions can regularly be
asked. With practice they will lead to intuitive determinations.
1. Is the strategy identifiable and has it been made clear either in words or in practice?
The degree to which attention has been given to the strategic alternatives available to a
company is likely to be basic to the soundness if its strategic decision. To cover in empty
phrases (our policy is planned profitable growth in any market we can serve well) an
absence of analysis of opportunity or actual determination of corporate strength is worse than
to remain silent, for it conveys the illusion of a commitment when none has been made. The
unstated strategy cannot be tested or contested and is likely therefore to be weak. If it is
implicit in the intuition of a strong leader, his organization is likely to be weak and demands
his strategy makes upon it are likely to remain unmet. A strategy must be explicit to be
effective and specific enough to require some actions and exclude others.
2. Does the strategy fully exploit domestic and international environmental opportunity?
An unqualified yes answer is likely to be rare, even in the instance of global giants like
General Motors. But the present and future dimensions of markets can be analyzed without
forgetting the limited resources of the planning company in order to outline the requirements
of balanced growth and the need for environmental information. The relation between market
opportunity and organizational development is a critical one in the design of future plans.
Unless growth is incompatible with the resources of an organization or the aspirations of its
management, it is likely that a strategy does not purport to make full use of market
opportunity will be weak also in other respects. Vulnerability to competition is increased by
lack of interest in market share.
3. Is the strategy with corporate competence and resources, both present and projected?
Although additional resources, both financial and managerial, are available to companies
with genuine opportunity, the availability of each must be fully determined and programmed
1

Source: Kenneth R. Andrews, The Concept of Corporate Strategy (Homewood, Illinois: Dow Jones, Inc,
1971)

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along a practicable time scale. The decision of the Wilkinson Sword Company to distribute
stainless steel razor blades in the United States must have raised the question whether the
company could in effect take yes for an answer from this market-that is, whether its
productive capacity could be increased fast enough to fend off the countermoves of large
competitors.
4. Are the major provisions of the strategy and the program of major policies of which it
is comprised internally consistent?
A foolish consistency is the hobgoblin of little minds, and consistency of any kind is certainly
not the first qualification of successful corporation presidents. Nonetheless, one advantage of
making as specific a statement of strategy as is practicable is the resultant availability of a
careful check on coherence, compatibility, and strategy-the state in which the whole can be
viewed as greater than the sum of its parts. For example, a manufacturer of chocolate candy
who depends for most of his business upon wholesalers should not follow a policy of
ignoring them or of dropping all support of their activities and all attention to their
complaints. Similarly, two engineers who found a new firm expressly to do development
work should not follow a policy of accepting orders that, though highly profitable, in effect
turn their company into a large job shop, with the result that unanticipated financial and
production problems take all the time that might have gone into development. An
examination of any substantial firm will reveal at least some details in which policies pursued
by different departments tend to go in different directions. When inconsistency threatens
concerted effort to achieve budgeted results within a planned time period, then consistency
becomes a vital rather than merely an aesthetic problem.
5. Is the chosen level of risk feasible in economic and personal terms?
Strategies vary in the degree of risk willingly undertaken by their designers. For example, the
Midway Foods Company, in pursuit of its marketing strategy, deliberately courted disaster in
production slowdowns and in erratic behaviour of cocoa futures. But the choice was made
knowingly and the return, if success were achieved, was likely to be corresponding great.
Temperamentally, the president was willing to live under the pressure and presumably had
resources if disaster were to strike. At the other extreme, a company may have such modest
growth aspirations that the junior members of its management are unhappy. A more
aggressive and ambitious company would be their choice. Although risk cannot always be
assessed scientifically, the level at which it is set is, within limits, optional. The riskiness of
any future plan should be compatible with the economic resources of the organization and the
temperament of the managers concerned.
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6. Is the strategy appropriate to the personal values and aspirations of the key
managers?
Until we consider the relationship of personal values to the choice of strategy, it is not useful
to dwell long upon this criterion. But, to cite an extreme case, the deliberate falsification of
warehouse receipts to conceal the absence of soybean oil from the tanks which are supposed
to contain it would not be an element of competitive strategy to which most of us would like
to be committed. A strong attraction to leisure, to cite a less extreme example, is inconsistent
with a strategy requiring all-out effort from the senior members of the company. Or if, for
example, the president abhors conflict and competition then it can be predicted that the harddriving firm of an earlier day will have to change its strategy. Conflict between the personal
preferences, aspirations, and goals of the key members of an organization and the plan for the
future is a sign of danger and a harbinger of mediocre performance or failure.
7. Is the strategy appropriate to the desired level of contribution to society?
Closely allied to the value criterion is the ethical criterion. As the professional obligations of
business are acknowledged by an increasing number of senior managers, it grows more and
more appropriate to ask whether the current strategy of a firm is as socially responsible as it
might be. Although it can be argued that filling any economic need contributes to the social
good, it is clear that a manufacturer of cigarettes might well consider diversification on
grounds other than his fear of future legislation. These days all manufacturers discharging
pollutants to air and water and offering offence to eye and ear must rest uneasy.
8. Does the strategy constitute a clear stimulus to organizational effort and
commitment?
For organizations which aspire not merely to survive but to lead and to generate productive
performance in a climate that will encourage the development of competence and the
satisfaction of individual needs, the strategy selected should be examined for its inherent
attractiveness to the organization. Some undertakings are inherently more likely to gain the
commitment of able men of goodwill than others. Given the variety of human preferences, it
is risky to illustrate this difference briefly. But currently a company that is vigorously
expanding its overseas operations finds that several of its socially conscious young men
exhibit more zeal in connection with its work in developing countries than in Europe.
Generally speaking, the bolder the choice of goals and the wider the range of human needs
they reflect, the more successfully they will appear to the capable membership of a healthy
and energetic organization.

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9.

Are there early indications of the responsiveness markets and market segments to the
strategy?

Results, no matter how long postponed by necessary preparations, are, of course, the most
telling indicators of soundness, so long as they are read correctly at the proper time. A
strategy may pass with flying colours all the tests so far proposed, and may be in internal
consistency and uniqueness an admirable work of art. But if, within a time period made
reasonable by the companys resources and the original plan, the strategy does not work, then
it must be weak in some way that has escaped attention. Bad luck, faulty implementation, and
competitive countermoves may be more to blame for unsatisfactory results than flaws in
design, but the possibility of the latter should not be unduly discounted. Conceiving a strategy
that will win the company a unique place in the business community that will give it an
enduring concept of itself, which will harmonize its diverse activities and that will provide a
fit between environmental opportunity and present or potential company strength is an
extremely complicated task. We cannot, therefore, except simple tests of soundness to tell the
whole story. But an analytical examination of any companys strategy against the several
criteria here suggested will nonetheless give anyone concerned with making, proving, or
contributing to corporate planning a good deal to think about.

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