STRATEGIC MANAGEMENT LEVEL 3

BMC37W1

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Study unit 1

1. Critically differentiate between the concepts of strategy,

strategic planning and strategic management.
1.5 THE CONCEPT OF STRATEGY
1.2 TEXT BOOK THE TRADITIONAL STRATEGIC MANAGEMENT
PROCESS.
• Strategic management traditionally draws on the perspective that the management
tasks consist of planning, organising, leading and controlling.
• The strategy tasks of top management as per the text book consists of formulating
strategy (planning), implementing strategy (organising and leading) with the
help of middle management and other in the organisation, and ensuring that
the strategic plans and implementation initiatives stay on track.
1.6 Strategic planning (1.2 text book)
• Strategic formulation (or strategic planning page 4 TB) is the focus of most text
books on strategic management and is generally regarded as the ‘thinking’ part of
the strategic management process.
▪ The top management set the strategic direction of the organisation
▪ They analyse the internal and external environment
▪ Set strategic goals
▪ And then choose strategies that will help them

2. Describe the different levels of strategy in an organisation.

1.11 (1.4.6 TB PAGE 12 ) LEVELS OF STRATEGY IN ORGANISATIONS:

Table 1.1 The different levels of strategy: page 12

CORPORATE BUSINESS- FUNCTIONAL
LEVEL STRATEGY LEVEL STRATEGY
STRATEGY(SBU)

Where Corporate centre Business unit Functional

management

Scope The multibusiness Markets In which Functional

corporation it is competing area (e.g.
marketing)

Who is Board of directors Business unit Functional

responsible manager manager

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 Goal Shareholder value Competitive Executing
advantage business unit
strategy.

• Corporate level strategy: Focus is on creating shareholder value. Decisions

made are about mergers, acquisitions, disinvestments and internalisation.
• Business – level strategy: The focus is the achievement of competitive
advantage within its own market. It supports the corporate strategy by ensuring it
is successful in the markets it is competing in and relies on the corporate to
provide it with the means and resources to achieve this.
• Functional strategies: These relate to the functional department such as
marketing, human resources, operations etc. to develop strategies that support the
implementation of business strategies.
• The study guide page 39 discusses the importance of strategy and strategic
management:
▪ It provides for cohesive strategic thinking and an innovative and future-
oriented decision framework for the organisation.
▪ It pools the contributions by organisational members, thereby facilitating
the communication of strategy to all
▪ It is the verbalisation of the organisation’s aspirations and serves as a
source of motivation for everyone in the organisation.

3. Critically discuss the importance, benefits and risks of

strategy.
1.12 THE IMPORTANCE OF STRATEGIC MANAGEMENT, BENEFITS AND
RISKS 1.4.2 Text book and 1.12 study guide.

• It provides members of the organisation with a framework to guide their decision

making
• The strategic management process combines the views and thinking of many
members of the organisation and communicates the outcome back to the
organisation so that everyone follows the same strategy.
• In a sense it verbalises the organisation’s aspirations and accordingly provides an
inspirational element that may be far removed from the realities of the present.
• A good strategy can inspire, unite and motivate members of the organisation.
Study guide page 39 1.12
• Study section 1.4.2 in chapter 1 in the prescribed book.
• In this section we briefly relate the importance of strategic planning and strategic
management to the potential benefits and risks of these processes.
• As explained in the prescribed book, strategy is a coherent narrative about the
future direction of an organisation and provides an actionable blueprint for

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 achieving its aspirations. More specifically, the importance of strategy and
hence strategic management is confirmed in the following broad terms:
• • It provides for cohesive strategic thinking and an innovative and future-oriented
decision framework for the organisation.
• • It pools the contributions by organisational members, thereby facilitating the
communication of strategy to all.
• It is the verbalisation of the organisation's aspirations and serves as a source of
motivation for everyone in the organisation.

• The opening case in chapter 1 in the prescribed book relating to Steve Jobs
confirms the importance of people and their behaviour in shaping strategies.
Despite its acclaimed benefits, strategic management also faces the risk of a
strategic nature. Even though there are different perspectives on risk, Slywotzky
and Drzik (2005:80) define strategic risk as “an array of external events and
trends that can devastate a company's growth trajectory and shareholder value”.
These authors further categorise strategic risk into seven major categories,
namely industry, technology, brand, competitor, customer, project and
stagnation.
• However, Rowe (2009) cautions that there is a common view that strategic risk
is about managing risk strategically instead of examining it as a category similar
to operational, financial and other risk areas. This is a common view that mainly
stems from the complexity and difficulty of identifying strategic risk.
• Advantages and disadvantages of having a clear strategic direction, expressed
through vision and mission statements.

Table 4.1 Advantages of having a clear strategic direction

• It provides direction

• It guides all the organisational efforts towards achieving the overarching

goal of the organisation

• It binds the organisation members to work together towards achieving the

overarching goal of the organisation.

• It communicates to internal and external stakeholders what the

organisation wants to achieve in the long run.

• It guides decision making

• It distinguishes the organisation from other organisations

• It promotes a sense of shared expectations

• It contributes to synergy among managers and employees.

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 4. Describe the tests for a winning strategy.
1.13 (1.4.7 TB 13) TESTS FOR A WINNING STRATEGY.

• This is not always a simple matter because there are two schools of thought. The
first one advocates the pursuit of shareholder capitalism which suggests that the
only goal of the organisations is the creation of shareholder’s wealth which means
‘profit at all cost.’ This approach is heavily implicated in the 2008-2009 global
economic crisis (focus on short term profits is not sustainable).
• The stakeholder approach: This requires the focus and balancing of a number
of different partners such as employees, shareholders, the environment and local
communities’ interests which are often conflicting. Reporting by large
corporations now includes the ‘triple bottom line’ (financial, social and
environmental contributions. The criticism levelled against this approach is that it
increases the complexity of strategic decision making and diluting the strategic
goals of the organisation.
• Jenson suggests that the two approaches should meet somewhere in the middle.
• Study guide gives four common requirements for strategy success: (page 40)
(i) Goals that are consistent and long term
(ii) An in-depth understanding of the competitive environment.
(iii) An objective appraisal of resources
(iv) Effective implementation.
• The study guide also give three tests that can be used to assess the success of an
organisation’s strategy.
(i) The goodness if fit test: This measures how well the strategy fits the
organisation’s situation in matching the organisation to the industry and
competitive conditions.
(ii) The competitive advantage test: This measure whether the strategy can
help the organisation to achieve sustainable competitive advantage.
(iii) The performance test: This measure performance of strategy in terms of
profitability, financial strength, competitive strength and market standing.

1. What is meant by the traditional process perspective on

strategic management? Provide a critical analysis of this
perspective
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4.1 (2.5 SG) A PROCESS PERSPECTIVE OF STRATEGIC MANAGEMENT
(SM):
• The traditional view of SM is that it is process with distinct steps or phases.
• The book however moves away from this approach and sees SM as a complex
and dynamic discipline. This means that a static linear approach does not
consider the complexity or the environment in which the organisation works
• The three stages are depicted below
Figure 4.1 The process perspective of strategic management: (page 64)

STRATEGY FORMULATION

The first stage in the strategic management process

This stage is a conceptual process that consists of environmental analyses and

formulation of strategies.

STRATEGY IMPLEMENTATION

The second stage in the strategic management process

This is referred to as the action phase. All staff in the organisation are tasked
with implementing the formulated strategies.

STRATEGIC CONTROL

The third stage in the strategic management process

This is referred to as the control or monitoring phase. The strategy review

phase is aimed at monitoring progress and providing feedback.

• The study guide gives Pearce and Robison (2009) view that strategic management has
the following sets of decisions and actions that result in the formulation,
implementation and control of action plans designed to achieve a company’s
objectives.
(i) Formulating the company’s strategic intent, vision and mission, including
broad statements about its purpose, philosophy and goals.
(ii) Analysing the company’s external environment, including the macro
environment and industry and market environments.
(iii) Analysing the company’s internal environment in terms of its strengths and
weaknesses relating to its resources and capabilities.
(iv) Analysing the company’s strategic options by matching resources and
capabilities with opportunities and threats in the external environment to
develop optimal strategies.

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 (v) Identifying the most desirable strategic options by evaluating each option
against the company’s vision, mission and strategic intent.
(vi) Selecting a set of long term objectives and strategies that will achieve these
long-term objectives
(vii) Developing annual objectives and short-term functional strategies and tactics
that are compatible with the selected set of long-term objectives and strategies.
(viii) Implementing the selected strategies and tactics by means of budgeted
resource allocations and matching and aligning tasks, people, structures,
technologies, culture and reward systems in the organisation, while ensuring
that sustainability has been integrated into the strategies.
(ix) Evaluating the success of the strategic management process continuously as an
input for decision making.
• Note: Actions 1 to 6 form part of strategic planning or strategy formulation
Actions 7 to 8 form part of strategy implementation
Action 9 forms part of strategy evaluation, review and control.

2. Critically differentiate between deliberate and emergent

strategies
2.7 (5.3 PAGE 86) DELIBERATE AND EMERGENT STRATEGIES.
• Despite basing strategic decisions on a range of assumptions that were
logically and conceptually developed, change can render the strategies
obsolete, or force organisations to formulate strategies during the
implementation process.
• Deliberate strategies: These are implemented and realised as intended. In
order for this to happen three conditions need to be satisfied.
(i) The management team must know precisely what they wish to
achieve and what they intend for the future of the organisation before
any actions can be taken.
(ii) Organisation means collective action. All members of the
organisation must believe in the strategy and work towards it.
(iii) The strategy must be realised exactly as intended, with no external
interference. This is difficult given the pace of change in the
contemporary business environment. (see box on page 87 of text
book)
• Emergent strategies: For this to happen there must be order in the absence
of intention about the strategy. Strategy may suddenly be rationalised to
mean something very different from what was originally intended.
➢ These are actions taken by middle management. They are more
involved in the operations in the organisations and can make changes
to strategies when required. This can mean that strategic initiatives
may be undertaken without top or senior managers being aware.
➢ Emergent strategy implies learning what works – taking action n at a
time in search of that viable pattern or consistency.
➢ It is also the means by which deliberate strategies change.

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 ➢ This does not mean that senior management is out of control but
rather that strategies are open, flexible and responsive which allows
the organisation to adapt and learn its environment.
• Whereas deliberate strategies tend to emphasise central direction and
hierarchy, the ore emergence strategies open the way for collective action
and convergent behaviour.
• The authors point out that strategic decisions cannot always await consensus
commitment and or visible action.

3. Explain what is meant by strategy as practice? Critically defend why

is it an appropriate approach to manage new strategic realities

2.8 STRATEGIC MANAGEMENT AND NEW REALITIES: THE POCESS

VERSUS THE PRACTICE PERSPECTIVE. (STUDY GUIDE AND 5.1 PAGE 83
TEXT BOOK)

• The traditional perspective of strategic management has attracted

considerable criticism for various reasons.
• It is considered out of touch with strategy in practice or reality
• It tends to regard strategies as being formulated through relatively formal
structures and systems. With not much emphasis on interpersonal
relationships and political processes.
• The practice perspective in strategic management is known as the strategy
of practice.
• The key insight is that of strategy as practice is that strategy work
(strategising) relies n organisational and other practices that significantly
affect both the process and the outcome of resulting strategies.
• The scope is therefore wider than just strategy formulation.
• It focuses on social practices as the basis for explaining strategy emergence.
• It is concerned with the details such as how do strategists think, talk, reflect,
act, interact, emote, embellish, politicise, which tools and technologies they
use, and the implications of different forms of strategising for strategy as an
organisational activity.
• It is also concerned with what people do during their board meetings as well
as what happens in breakaway sessions.
• This perspective views strategy as a situated, socially accomplished activity.
• This means that it is done by people and influenced by their context.
• See figure 5.1 page 84
• Praxis: This is linked to human action and encompasses all the various
activities involved in the deliberate formulation and implementation strategy.
It refers to the meeting, consulting, talking, calculating, writing, presenting,
communicating, filling in forms, etc that are employed to constitute
strategies.
• Practices: These are the social, symbolic and material tools through which
strategy work is done. These tools include the Porter’s five forces model,

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 SWOT analysis, resource-based view analysis, value chain analysis as well
as material artefacts and technologies such as PowerPoint, flipcharts and
spreadsheets. Because of diverse organisational cultures, practices are
diverse and varied. This means that no one approach to strategy formulation
and implementation is correct for all organisations. Strategies have to be
customised by organisations.
• Practitioners: (strategists): these are the actors. These individuals draw
upon practices to act. These strategists derive agency through their use of the
practices, namely ways of behaving, thinking, emoting, knowing, and acting
within their society, combining, coordinating, and adapting the practices to
suit their needs in order to act within and influence that society.
• The authors do not only view top management, middle management and
operational level there are a wide range of actors who act as strategists.

4. Explain why strategic thinking is important in setting a

strategic direction

2.9 THE CONCEPT OF STRATEGISING STUDY GUIDE 5.2

STRATEGISING: PAGE 86 TEXT BOOK.
• This is essentially what strategists do.
• It can be described as devising or influencing strategies. (allocate
organisational resources and control or influence the key actions)
• Strategising not only involves those inside he organisation but also
consulting firms, business schools, academic journals etc. see page 86 of text
book for more)

5.2 /2.9 THE CONCEPT OF STRATEGISING/ STRATEGISING: PAGE 86 TEXT

BOOK.
• This is essentially what strategists do.
• It can be described as devising or influencing strategies. (allocate
organisational resources and control or influence the key actions)
• Strategising not only involves those inside he organisation but also
consulting firms, business schools, academic journals etc. see page 86 of text
book for more)
• Strategists and strategising (page 14 text book):
▪ People bring their own personalities and backgrounds with them
(culture, education, politics and religious beliefs)
▪ Strategising is not only a cognitive activity, but is fuelled by the
individual’s quest for personal power.

5. Explain what is meant by strategising and critically explain the role of

strategists and managers in the context of strategy as practice
2.10.2 Strategists

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Study section 5.4, including subsections 5.4.1 to 5.4.4, in chapter 5 in the prescribed
book. PAGE 88

Of importance in this section is the fact that strategists and their strategising activities
are fundamental to strategic management, and that any individual or group in the
organisation, as well as external role players including consultants, is regarded as a
strategist.
Now study the four broad types of strategists (page 88 text book)

(i) Detail-conscious strategy workers; these are practitioners who are detail
conscious are highly analytical and driven by minutiae of available data, with
little or no regard for intuition. They have a tendency to approach problems in a
step-by-step systematic fashion.
(ii) Big-picture strategy workers; Practitioners who are big picture conscious can
become preoccupied with gaining an overview of the problem at the expense of
the details. They are highly intuitive in orientation, with little or no regard for
analytical approaches to problem solving and decision making.
(iii) Discerning strategy workers; Non-discerning practitioners deploy minimal
cognitive resources in order to derive strategic insight, being disinclined to
process the detail or to extract a bigger picture from such detail. They rely on
opinion and wisdom received from others and thereby relieve themselves of the
burdens of analytical and intuitive processing
(iv) Cognitively versatile strategy workers. These practitioners possess in equal
abundance the inclination to attend to analytical detail and cut through that detail,
as and when required. This type of practitioner is able to switch more readily
between analytical and intuitive processing strategies

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. 2.10.3 Top managers as strategists
Study this section to establish what the typical “strategic responsibilities” of top
managers or the top management teams are, including the setting of the overall
strategic direction, conducting analyses, formulating and choosing appropriate
strategies to attain competitive advantage, allocating resources, ensuring
implementation as well as review and control of the implemented strategies.

• As stated previously, strategies need to be communicated effectively to middle

management and lower organisational levels in a climate of strategy-as-practice.
Of significance here is recognising the “new strategising roles” that you have not
encountered before in the process approach to strategic management.

• The so-called “strategic planning champion” has to fulfil three critical roles, (page
89 text book)

(i) Craftsperson, Integrates different expectations from groups and

individuals to ensure buy-inn to the overall strategic direction, creating
a positive and common ground from which to plan the strategic future
of the organisation. He or she deals with tensions and conflicts and
changes volatile situations into positive ones.
(ii) Artful interpreter: Adjusts general strategic planning practices to align
them with the local routines and norms. He or he contextualises the
strategy so that others can identify their own roles in it.
(iii) Known stranger. Ensures a balance between distance and closeness
in the interaction between strategists and other parties to maintain
objectivity whilst ate the same time cultivating trust.

• Ensure that you know what each of these roles involves, and why each is
deemed important in the context of strategising, and especially as each
relates to strategy-as-practice, the nonlinear process illustrated in figure 5.1.
We now examine the role of the board of directors.

2.10.4 Board of directors as strategists

Study this section to determine the duties of the board of directors and why and how
the board can influence the overall strategic direction of a company as well as how it
monitors the relationships between management and stakeholders. The board has to
ensure that the strategies are aligned with the purpose of the organisation.

2.10.5 Middle managers as strategists

The increasingly vital role of middle- and even lower-level managers in strategising
has the following two antecedents:

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(1) the rapidly changing external and competitive environments in recent
decades that have required new approaches to strategising, such as
emergent strategies to complement deliberate and intended strategies; and
(2) the evolvement of strategy-as-practice which can accommodate
emergent strategies that may occur anywhere in the organisation, thus
increasing the value of middle- and even lower-level managers as
strategists. These developments have led to revised strategic roles of
middle management as described in the prescribed book to include the
implementation of deliberate strategies; synthesising information; reshaping
the strategic thinking of top management; and managing change and
facilitating adaptability.

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Study unit 3

1. Explain the various methods for macro-environmental

analysis
2.
3. 3. PROCESS FOR CONDUCTING A MACROENVIRONMENTAL
ASSESSMENT
See figure 5.1 above four interrelated activities (scanning, monitoring, forecasting
and assessing)

Figure 5.1 Components of the external environmental analysis

SCANNING: EARLY SIGNALS OF ENVIRONMENTAL

CHANGES AND TRENDS ARE IDENTIFIED

MONITORING : THE MEANING OF

ENVIRONMENTAL CHANGES AND TRENDS IS
DETECTED THROUGH ONGOING OBSERVATION

FORECASTING: BASED ON MONITORED

CHANGES , PROJECTIONS OF ANTICIPATED
OUTCOMES ARE DEVELOPED

ASSESSING: THE TIMING AND IMPORTANCE

OF ENVIRONMENTAL CHANGE AND TRENDS
FOR ORGANISATION’S STRATEGIES AND

3.5 ANALYSING THE MACROENVIRONMENT : FACTORS AND FORCES

THAT AFFECT INDUSTRIES AND ORGANISATIONS.

3.5.1 INTRODUCTION
• Macroenvironmental analysis is based on the PESTLE approach, an acronym
for the following broad categories of macroenvironmental factors:

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3.5.2 POLITICAL – LEGAL FACTORS
• From a business perspective, the extent of political stability and a government's
ability to ensure a stable business environment are possibly the two main political
considerations for business.
▪ The most important legal considerations from a business perspective are the
appropriateness of a country's legal system, the effectiveness of law
enforcement and whether the country adheres to the rule of law. (protection
of intellectual and property rights)
▪ These political and legal factors could have a positive or a negative
influence on business, depending on the actual situation.
(privatisation/nationalisation)
▪ Other examples are Credit Act, BEE, Equity, Labour Relations Act,
smoking laws and now the impending alcohol laws which will include no
drinking and driving at all.

3.5.3 ECONOMIC FACTORS

• The study guide points out that the following four economic factors are important
from a business perspective: (76). The impact on disposable income and
employment levels will determine whether an economy will grow or decline.
(1) The growth rate of the economy: A growth in the economy such as an
annual increase in GDP will result in a boom in the economy and a positive
effect on everyone who will have more money to spend. If there is low
economic or no economic growth there will a recession and businesses will
not be able to survive.
(2) The level of interest rates: Interest rates can have a positive or negative
impact on the economy because if interest rates are raised consumer
spending and borrowings by firms will decrease, this will slow down the
economy and a recession will result.
(3) The currency exchange rates: A depreciated rand has an impact on
imports which will raise prices and consequently inflation rates will rise.
(4) Price inflation: This can cause big problems since the nominal or face
value of income is reduced by the inflation rate so the same spending
cannot occur.

3.5.4 SOCIOCULTURAL FACTORS.

• Sociocultural factors and forces refer to existing and changing social values,
beliefs, attitudes, traditions and lifestyles in a society that could affect the
preference and demand for certain products and services over time.
• Changes in sociocultural factors may create a demand for new products and
services, creating totally new opportunities and thereby changing the rules of
industry competition.
• While demographics is included here as a sociocultural factor, it is often treated
as a separate factor because of its increasing importance in a globalising world.

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3.5.5 TECHNOLOGICAL FACTORS. (PAGE 78)
• Technological change has become a main driving force in the global economy
over the past few decades and continues unabated
• Needless to say, managers must be aware of and understand how these changes
could affect their business and how they need to respond strategically to ensure
that they are at the cutting edge of new technological advances in order to remain
competitive.
• It is a well-known fact that technological change can be both creative and
disruptive.
8.3.1 (PAGE 142)
• (research, and development, new products and processes and new technologies)
• The way business operate has been revolutionise in the form of internet, cell
phones, laptops,
• Innovation and technology can spill from one industry to another.

3.5.6 FACTORS RELATING TO NATURAL ENVIRONMENT.

• Concerns about the natural environment have increased dramatically in recent
years.
• Preservation of the ecology worldwide is threatened by continuous air, water,
and land pollution.
• Global climate change and global warming have been accelerated by humanity's
activities.

4. Analyse the structure, dynamics and attractiveness of the

South African mining industry

3.6.2 DEFINING AN INDUSTRY (PAGE 82 STUDY GUIDE)

• The ultimate purpose of defining an industry is to know who your customers and
competitors are.
• We (study guide) define an industry as a group of companies competing directly
with one another in the marketplace.
• More specifically, an industry is defined as a group of organisations offering
products and services that are close substitutes for one another – in other words,
products or services that satisfy the same basic customer needs.
• Industries can be defined broadly or narrowly, but each approach has its
limitations.
• Where industries are defined too broadly, it might be difficult to decide exactly
who your competitors are, which could result in devising inappropriate
competitive strategies.
• Defining industries too narrowly could mean that you are not including all
relevant competitors, again leading to inappropriate strategies.
• Furthermore, a narrow definition could result in missing out on viable
opportunities, which competitors who are alert could capitalise on.

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 • Defining the organisation's industry and its market segment correctly is
imperative to know exactly who your competitors are and which
Customers you are serving.

3.6.3 ANALYSING INDUSTRY ATTRACTIVENESS

• Michael Porter's approach to the analysis of industry attractiveness and
profitability. He evaluates the following five factors:
(i) The bargaining power of buyers,
(ii) The bargaining power of suppliers,
(iii) The rivalry between existing industry members,
(iv) The threat of substitute products and the threat of new entrants to the
industry.
• Porter subsequently added another two factors:
(i) The role of government and regulators,
(ii) and of complementors (these are products that enhance an industry’s own
products e.g lease financing that enhances the sale of cars).
• See figure 8.2 Model of industry stakeholders and competitive forces. Page 148
of Text Book. Which illustrates the different relationships in industry
competitiveness.
• When studying this section, ensure that you know and understand the “seven”
forces of industry attractiveness.
(i) Customers. The four requirements for powerful customer buying power
that would increase industry competitiveness and reduce industry
profitability. (Taken from text book page 149)
1) They are few in number and/or when they have the ability to buy in
bulk.
2) The product or service being offered is similar which makes it easier
to switch to alternative suppliers.
3) The value of the buyer’s purchases is significant portion of the
sellers’ total income
4) The buyers can move backwards into the supply chain by acquiring or
developing the ability to produce the goods and services themselves.
(ii) Power of suppliers. There are five requirements for powerful suppliers that
can increase industry competitiveness and reduce industry profitability.
1) There are only a few major suppliers and they are highly
concentrated in relation to the industry that they serve.
2) Suppliers to the industry are not similar, thereby making it difficult
for incumbents to switch to alternative suppliers.
3) Few or no alternative or substitute products or services exist
4) The suppliers can move forward in the supply chain
5) The value of the industry’s purchases represents but a small portion
of the suppliers’ total income (suppliers income is derived from
serving other or multiple industries)
(iii) Existing industry members and rivalry. The five requirements for intense
rivalry and their effect of increasing industry competitiveness and reducing
profitability where they prevail.

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 1) There are a large number of rivals who are relatively equal in size
and power.
2) The industry is growing slower and incumbents are vying for the
support of existing customers rather than seeking new customers
3) Incumbents carry huge fixed costs
4) Rivals have excess capacity
5) Existing players are unable to exit the industry due to high costs
associated with ceasing operations or high exit packages.
(iv) Potential competitors and threat of entry. The numerous underlying
elements that could potentially influence this factor. There are six barriers to
entry
1) Capital required
2) Access to distribution
3) Cost disadvantages not related to size
4) Economies of scale
5) Government legislation and regulation
6) High switching costs.
(v) Providers of substitute products and services. Note the meaning of
substitute products. It is possible that an increase of substitutes coming from
outside the immediate industry but which could replace industry products
would increase competitiveness and reduce industry profitability.
(vi) Government intervention. Government intervention could be
enhancing (e.g. deregulation) or constraining (e.g. nationalisation,
competition policy). It could affect the structure, competitiveness and
profitability of industries, especially where interventions are industry specific
(e.g.telecommunications, energy and licensing in the retail liquor sector).
(vii) Complementors as additional forces. Complementors are products that
enhance an industry member's own products (e.g. lease financing that
enhances the sale of cars; or handsets to use the service provided by mobile
communication providers such as MTN, Vodacom and CellC).
• To summarise, according to the study guide page 84 where the original five factors
all have high ratings, industry competition increases and profitability decreases,
and vice versa. The three steps of a five forces analysis include:
1) the analysis of each one of the five forces
2) determining their combined effect,
3) which then provides an indication of overall attractiveness or otherwise of an
industry.
• This information is vital for strategic planning.

3.6.4 INDUSTRY STRUCTURE, DYNAMICS, COMETITIVENESS AND

PROFITABILITY.
• Having evaluated industry attractiveness and competitiveness in the preceding
section, we now explore the following in the context of industry analysis:
▪ industry structure
▪ industry dynamics
▪ industry evolution – the industry lifecycle

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 ▪ drivers of industry change – industry key success factors

3.6.4.1 INDUSTRY STRUCTURE

• Industry structure in terms of general types and features is illustrated in table 8.2
page 151 text book.
▪ Monopoly: usually a state owned enterprise serving in a closed domestic
market. It has virtually no legitimate competition and has full support of the
government. The organisation’s market will be stable and predictable and the
managers will be typically adopt a defensive approach to strategy to maintain
barriers to prevent entry to the market.
▪ Oligopolistic structures are characterised by a few large organisations with
substantial share of the market. Then try to maintain their own long-term
competitive advantage through crafting largely defensive strategies.
▪ Monopolistic competition has more rivals of a similar size that can result in
less stability and short-term competitive advantage. This leads to aggressive
strategic approaches and more intense competition.
▪ As the industry nears perfect competition, it is likely that an aggressive
strategic approach would be required. The market would be volatile with
frequent entry and exit of players.

3.6.4.2 INDUSTRY DYNAMICS: (PAGE 85 STUDY GUIDE)

• Industry dynamics refer to the rate of competitive and structural changes in an
Industry over time.
• Recall the difficulty of defining an industry from the point of view of an
individual organisation, mainly because of the blurring of industry boundaries
and the difference between the concepts of industry and market.
• The management challenge of dynamic industries is to know at all times the rules
of the industry, who their competitors are and why change takes place.
• Change can be due to external factors such as technological change or a change in
one or more of the industry forces, or internal factors such as new product and/or
process development, or some other factors.

5. Discuss the importance of performing a competitor analysis

18
Study unit 4

Critically differentiate between resources, capabilities and competencies

4.5 IDENTIFYING RESOURCES, CAPABLITIES, AND CORE

COMPENTENCIES
4.5.1 INTRODUCTION
• The resources, capabilities and competencies of an organisation are linked,
and need to be fully understood in the context of internal analysis.
• In this section the study guide explain these concepts as sources of
competitive and sustainable competitive advantage.
• According to Jones and Hill (2013:84-85), a competitive advantage is based
on core competencies which they describe as follows: “Firm-specific
strengths that allow a company to differentiate its products from those offered
by rivals, and/or
achieve substantially lower costs than its rivals”.
• According to these authors, core competencies arise from two
complementary sources: the resources and capabilities
of an organisation. In the sections that follow we discuss resources,
capabilities and core competencies in more detail.

4,5,2 IDENTIFYING RESOURCES.

4.5.2.1. (7.2.1 PAGE 117 IN TEXT BOOK) RESOURCES

• Resources are the productive assets owned by an organisation and can be
grouped into the following five categories:
(1) Financial capital resources: This is the ability for the organisation to
generate funds.
(2) Physical capital resources: Operational and manufacturing ant
equipment, location and access to raw materials.
(3) Human capital resources: Knowledge, management and employee
insight, intellect, relationships, training, experience and judgement
(4) Organisational capital resources: Reporting structure and
management, including planning, coordinating, controlling and
networks.
(5) Technological capital resources: ICT systems.
• Not all organisations possess similar endowments of the above types of
resources, and all aspects of an organisation's resources are not strategically
relevant.
• Even organisations in the same industry differ along different dimensions such
as size, market orientation, innovation orientation and even their competitive
strategies.

19
 • Also, the ways in which different organisations deploy and combine these five
types of resources will understandably also differ between organisations.
• What is important, however, is that organisations should preferably focus on
their unique resource strengths as a source of competitive advantage.
• . Organisational resources are further classified into tangible and intangible
resources which we briefly explain below.

4.5.2.2. TANGIBLE RESOURCES (PAGE 118 TEXT BOOK)

• Tangible resources are an organisation's physical resources that include
physical infrastructure, land, plant, vehicles, manufacturing equipment,
computer hardware, physical inventory and money, and can relate to any of the
five types of resources mentioned above. Organisations find it relatively easy
to identify tangible resources,
but typically have more difficulty identifying intangible assets.

4.5.2.3 INTANGIBLE RESOURCES

• Intangible resources typically include the knowledge and know-how of
managers and employees gained through experience; the intellectual property
of the organisation including patents, trademarks and copyrights; software;
human capital; brand names; and the reputation of the organisation.
▪ The text book gives three tangible resources
(i) Human resources: Knowledge trust and managerial capabilities
(ii) Innovation resources: Ideas, scientific capabilities and capacity
to innovate.
(iii) Reputational resources: Brand name, reputation with
customers, perceptions or product quality and reliability.
• Kristandl and Bontis define intangible resources as follows: (text book page
119)
▪ These are strategic resources that enable an organisation to create
sustainable value. Bu are not available to a large number of firms (rarity)
▪ They lead to potential future benefits which cannot be taken by others
(appropriability), they cannot be imitated by competitors or substitutable
using other resources
▪ Hey are not tradable or transferable on the factor market (immobility) due
to corporate control.
▪ Because they are non-physical, non-financial ad not included in the
financial statements and have a finite life.
• Intangible resources are not easy to identify but are usually much more valuable
and superior to tangible resources.
• Also note that knowledge as such is a powerful and valuable intangible
resource, and that the difference between explicit and tacit knowledge is of
significance in their respective value as sources of competitive advantage.
• Resources and capabilities lead to core competencies.

20
4.5.3 IDENTIFYING CAPABILITIES 7.2.2 PAGE 120 OF TEXT BOOK.
• Capabilities are the capacity of n organisation to deploy resources for a unique
result.
• However, capabilities, unlike resources generally, represent complex
combinations of assets, people and processes that are used to create value by
transforming inputs into outputs.
• According to Jones and Hill (20013:84), “capabilities refer to an organisation's
resource coordinating skills and productive use…More generally, a company's
capabilities are the product of its organisational structure, processes, control
systems and hiring systems.” Capabilities also involve leadership attributes, the
way decisions are made and how effectively the internal processes are managed
in the organisation in order to achieve its objectives.
• Most importantly, capabilities are intangible and do not reside in individuals, but
in the way individuals interact, cooperate and make decisions in an organisation
(Jones & Hill, 2013:84-85).
• The fact that capabilities can be within business functions and reflect the ability
of the organisation to manage linkages between the elements of the value chain.
• The difference between:
a) Capabilities: These are high level routine that together with its implementing
input flows, confers upon an organisation’s management a set of decision
options for producing significant outputs of a particular type. (e.g SABMiller
ability to develop strong brands and MTN the ability to operate in developing
companies.)
b) Dynamic capabilities: These are geared towards effecting and driving
organisational change. They are strategic in nature and accordingly define the
form’s path of evolution and development. It is those capabilities that help
organisations to learn the new capabilities they require to adapt to
environmental changes.

4.5.4 IDENTIFYING CORE COMPETENCIES/TEXT BOK PAGE 121 7.2.3

• Note the study guide sates that the term “core competencies” is preferred and
will be used in the remainder of this learning unit.
• For our purposes, we distinguish between capabilities and competencies, and do
not see them as similar.
• Core competencies distinguish an organisation from others in the industry.
• An important characteristic of core competencies is that they are difficult to
imitate – hence their importance as a basis for sustainable competitive
advantage.
• Refer to the insert, Practising strategy, which presents SABMiller's core
competencies. (page 122)
• Figure 7.2 page 121 aptly illustrates how core competencies − arising from a
combination of resources and capabilities as an intangible resource – provide
the basis for the organisation's differentiation or low-cost strategies to create
superior customer value that results in above-average performance and
profitability.

21
• Core competencies (page 121 text book) involve the combination of various and
capabilities.
• The development of core competencies usually takes place over a period of time
• It is a process of accumulation and learning how to use a unique combination of
resources and capabilities.

22
2. Explain the role of the resource-based view in the internal
analysis
RESOURCE BASED VIEW

• The RBV holds that an organisation’s resources are more important than the industry
structure in an attempt to gain and keep its competitive advantage. It also sees
organisations as very different in terms of their collections of assets and
organisational capabilities, no two organisations are the same, because they have
different experiences, different assets and capabilities and different organisational
culture. The argument is that it is the resources and capabilities that will determine
how efficiently and effectively the organisation functions.
• The main concern for sustainable competitive advantage, according to RBV, is thus
organisational resources and capabilities. If management wants to manage
strategically, as a useful starting point for internal analysis it is important to
understand what exactly “resources” are and what characteristics will make them
unique.

4.4.1.1 The main resources of an organisation

The three broad categories of resources are:

• Tangible assets (financial and physical page 106 of study guide)

• Intangible assets (technology, brand reputation and culture/values as per study guide)
• Organisational capabilities (skills and know-how, capacity for communication and
collaboration and motivation as per study guide).

• Resources may include all the financial, physical, human and intangible assets that are
used by the organisation to develop, manufacture and deliver products and services to
the public.

Table 4.1: Examples of different resources

RESOURCE EXAMPLES INDICATOR

Tangible resources include What is the organisation’s • Cash flow

financial, physical and financial situation-its cash • Profitability
technological resources reserves? • Solvency
• Liquidity
What physical resources
does the organisation have – • Market value of assets
perhaps an excellent • Capital equipment
location, technically

23
 advanced equipment,
reserves of raw materials?

Stock of technology such a

trademarks and copyrights?
For example Coca-Cola’s
formula or KFC’s recipe.

Intangible resources Intellectual property, • Patents and copyrights

include human, innovation knowledge and skills of • Brand recognition
and reputation resources employees, reputation with • Corporate reputation
customers, brand names and • Brand equity
perception of
product/service quality and
delivery, e.g. Coke’s brand
name and Pick n Pay’s
reputation.

• Tangible assets – are an organisations location and the status of its building and
equipment. The value of many of these tangible resources can be determined by
looking at the financial statements, especially the balance sheet. Remember that the
balance sheet may reflect assets at “book values” which are not a true reflection of their
market values. A good location is a tangible asset or resource, but the real value is only
visible if an organisation is successful at that specific location.

• Intangible assets – are assets that one cannot touch, but they are often critical assets
that create the real competitive advantage. It is fair to say that tangible resources are a
superior and more potent source of core competencies. There is evidence to suggest that
intangible assets are growing in importance relative to tangible assets.

4.4.1.2 Capabilities –

• There is no competitive advantage to an organisation if resources are available but there

is no capacity to deploy them through a complex process of interactions with the
tangible and intangible resources.
• Organisational capabilities are the complex network of processes and skills that
determine how efficiently and effectively the inputs in the organisation will be
transformed into outputs

24
• The foundation of the organisations capabilities lies in the skills and knowledge of the
employees and often in their functional expertise. The essence of capabilities is the
human capital of the organisation. This is why organisations should invest in their
employees’ continuous development.
• The organisation is confronted with a dynamic and complex environment and therefore
the competencies that are capable of leading the organisation to a competitive
advantage position today may not continue to do so as conditions and competitors
change.
• It is better to think in terms of dynamic capabilities – the organisations ability to build,
integrate and restructure capabilities to address the rapidly changing environment.
• To be a successful organisation requires demonstrating timely responsiveness, rapid
and flexible product innovation and also management expertise in coordinating and
deploying organisational resources and capabilities (see strategy in action 4.3 page
118).
• This is actually at the heart of competitive advantage.
• A distinctive capability of McDonalds is its organisational processes and routines such
as quick service delivery.
• Core competencies are only possessed by those organisations whose performance is
superior to the industry average. In the motor industry all motor manufacturers have the
necessary competencies or capabilities and resources to build motor vehicles, but a
company such a BMW has core competencies in design and technology which are the
basis of its company’s reputation for high-quality and high performance cars.
• According to the RBV it is important for resources and capabilities to be unique and
distinctive and capable of leading to sustainable competitive advantage.
• They must be difficult to create, buy, replace or imitate in other words they must have
the quality of inimitability.

2.2 CHARACTERISTICS THAT MAKE A RESOURCE VALUABLE:

▪ Value
An organisations resource value is valuable if it adds value. Skilled employees
can be an example of an organisational resource that can be used to exploit
external opportunities or neutralise negative external threats.

▪ Superior Resources
If the resource is superior to those that the competitor has, and it fulfils a
customers’ needs better, then the resource is superior and valuable.

▪ Scarcity

25
 If a resource is in short supply and ideally no other organisation possesses it, then
it becomes a distinctive competence for the organisation. The important thing,
however, is that the resource be sustainable

▪ Inimitability
If a resource is hard to imitate, it is likely to offer a long term competitive
advantage to the organisation. Difficult to imitate resources will include for
example, reputation (goodwill), a good location, a patented product and
organisational culture.

▪ The capacity to exploit resource

If an organisation does not have the capacity or ability to exploit the resource, the
resource that could create a competitive advantage will not be in a position to do
this. Some of the resources may need a large capital investment to be exploited.
This will enhance the inimitability of a resource, thus making it more valuable

It is important to keep in mind that resources change and resource based analysis
should be considered an on-going activity

Fig: 4.1

DETERMINE WHAT RESOURCES THE ORGANISATION HAS

DETERMINE WHICH OT THESE RESOURCES ARE CONSIDERED

TANGIBLE ASSESTS, WHICH ARE CONSIDERED INTANGIBLE ASSETS,
AND WHICH ARE CONSIDERED ORGANISATIONAL CAPABILITIES

26
 DETERMINE WHY RESOURCES ARE CONSIDERED STRENGTHS OR
WEAKNESSES (IE WHAT MAKES THE RESOURCES VALUABLE OR NOT)

BREAKDOWN THE REURCES INTO MORE SPECIRIC COMPETENCE, TO

DTERMINE EXACTLY WHERE THE STRENGTHS ARE (EG MARKETING CAN
BE BROKEN DOWN INTO ADVERTISING, PERSONAL SELLING ETC)

DETERMINE IF ANY PATTERN HAS EMERGED (EG ALL STRENGTHS

REFER TO INTERNAL PROCESSES OR SYSTEM)

3. Critically discuss the concepts of competitive advantage and

sustainable competitive advantage. Explain the requirements
for a sustainable competitive advantage and support each
requirement with an example from a company/organisation of
your choice
4.9 SUSTAINABLE COMPETITIVE ADVANATAGE (PAGE 130 TEXT BOOK)
• This is determined by the durability of the relevant resources and capabilities
and how inimitable they are

27
 • Durability: This refers to the length of time over which a capability is relevant
and can contribute to the competitive advantage of the organisation. (strong
ingrained culture is long but technical competence is short term)
• Imitability: This refers to how easy or difficult it s for competitors to copy the
competitive advantage and is determined by transferability and how replicable a
capability is.
• Transferability: This refers to how easy or difficult it is to acquire or buy a
resource. (Raw materials, component, machines and human resources are all
easy to transfer. But intangible like culture are not easy to transfer)
• Replicability: This refers to the ability to use the resource in other settings.
(MTN was able to replicate its capability to start up and manage a mobile
operator in South Africa in 20other countries in Africa and the Middle – East.

4. Explain the role of value chain and resource based view in

internal analysis
2. THE VALUE CHAIN
4.4.2 Value chain analysis

• The assumption behind the value chain approach is that customers want and actually
demand value when they buy products or services.
• Value added to a product or service is the difference in the monetary of the finished
product compared to the monetary value of the inputs. (see Strategy in action 4.4
Shoprite is adding value for customers page.
• There are three aspects of resources in particular that create value for customers. They
are as follows:
▪ The product is unique and/or different
▪ The product is cheaper that of competitors. For example, Game is
committed to providing value – for-money shopping to consumers across
the continent of Africa to ensure its position as Africa’s most dynamic
group.
▪ The organisation has the ability to respond to the customer’s needs very
quickly.

• Value Chain Analysis (VCA) can be defined as a systematic method of determining

how the organisations different activities contribute to creating value for the customer.

It is concerned with creating more value for the customer

• Porter from the five forces model also developed the concept of the value chain.
• VCA views the organisation as a sequential process which includes all value-creating
activities in the organisation.

28
• VCA helps to identify where the most value is added, especially where there is
potential to add more value.
• In an analysis of the chain of activities one can identify where the organisation is
doing things well and really adding value for the customer (strengths) and where there
is potential for improvement (weaknesses).
• Value in VCA can be described as the amount of money that customers are willing to
pay for what the organisation is providing them. (the more value perceived the more
they will be willing to pay)
• The value chain approach to assessing an organisation overcomes the limitations of

the functional approach. The value chain sees an organisation as a series of value

adding activities. These activities can be classified as:

2.1 (4.4.2.1) Primary activities

• Input logistics: This activity is associated with the receiving, storing and distributing
of inputs to the product
• Operations: These activities include all the activities that are associated with the
transformation of the inputs into the final product
• Output logistics: These are all activities associated with the distribution of the
product or service to the customer
• Marketing: This activity refers to the inducements used to get customers to make the
purchases
• Customer service: These are activities to make sure that the value of the product is
maintained, like installation, repair, training, the supply of parts etc.

2.2 (4.2.2.2) Secondary activities

• Procurement: This activity refers to the function of purchasing activities

• Technological development: The technologies used include the different processes
and equipment throughout the entire value chain
• Human resource management: These activities include selection, training and
compensation of employees
• General administration and infrastructure: Example: effective and efficient
planning systems
• Financial management: It is important that sound financial practices must be in
place throughout the value chain.

29
Figure 4.3 The primary and support activities of the value chain (page 122

Support Activities

Financial management

Human Resource Management

Technology development

Procurement
Profit
margin

General management and Infrastructure

Input Operations Output Marketing Customer

Logistics Logistics Service

Primary Activities

30
Study unit 5

1. Critically discuss the obstacles and drawbacks in doing

business in Africa. Use practical examples to support your
answers.
5.4.2 THE EXTERNAL ENVIRONMENT IN CONTEXT (2.1 PAGE 22 TB AND SG
125)
• There are key strategic issues facing Africa as a whole and sub-Saharan Africa
in particular which present challenges to investors in business in Africa.

2.1.1 LACK OF INFRASTRUCTURE

• This includes roads, harbours, electricity, ICT networks and railways.
• This will damper investor and business confidence in Africa.
• Rural Africa has only 34% road access, compared to 90% in the rest of the
world.
• The problem is the state of infrastructure that is there is in poor condition.
• For business this poor infrastructure where only 17% of sub Saharan roads are
paved.
• This lack of infrastructure may translate into a supply chain and distribution
system that is adequate and disorganised with much of the retails sales occurring
through informal channels.
• Good infrastructure I crucial id Africa is to become competitive.

2.1.2 LACK OF INDUSTRIAL DEVELOPMENT.

• What has been identified by the AU is the need to improve and increase
manufacturing capability.
• Most of the member countries apply primary resource development which
means they extract the minerals out of the ground such as coals and iron ore
then export to other foreign countries for secondary and tertiary processing.
• These foreign countries then export the semi or finished products back to the
AU members.
• If the AU member countries can implement their own manufacturing and final
tertiary economic products it could greater production capabilities and produce
gods that will add value and then contribute to wealth creation.
• The problem is that there is too much self-interest and political issues which
override all attempts to create future economic development.
• He other big problem is political instability with civil wars, strikes religious
wars and wars on ethnic grounds.

2.1.3 POLITICAL INSTABILITY

• This refers in Africa takes the form of unpredictable government decision
making that leads to volatility or armed conflict making foreign investment
extremely risky.

31
 • Zimbabwe gave all foreign small and medium enterprises up until January
2014 to close and vacate their premises or be arrested if they did not have a
51% local partner. (this has not been enforced)
• The radical approach to land reform has led to a failed agricultural strategy.
• Western countries are also placing sanctions and embargos on Zimbabwe
which is impacting on the economy
• Also “blood diamonds” which is exploiting the wealth of the country is not
helping.

2.1.4 HIGH LEVELS OF POVERTY

• See figure 2.1 which shows those families that are existing on less than the
international poverty lie of $2 per day.
• Nigeria has a percentage of 85% whilst South Africa s 31%.
• The added problem is that those living at the bottom of the pyramid endure
poor living conditions which makes them susceptible to diseases such as
malnutrition, cholera and tuberculous but have little access to health care
• Because they cannot afford an adequate education they are forced into the
cycle of poverty.

2.1.5 CORRUPTION
• While the levels of corruption may differ from country to country the
cumulative effect of endemic corruption on business and the African economy
is massive.
• According to the Transparency 2012 Corruption Perception Index (CPI) 90% of
African countries scored below the pass mark of 50.
• Botswana ahead of Spain and Portugal moved in to the top 30 least corrupt.

2.1.6 AN INEFFICIENT PUBLIC SECTOR

• In 2013 economic growth for the African economy was negative (-1.5%)
• This dismal failure to alleviate poverty in Sub Sahara where the per capita
income I less than what it was in 1994 can be attributed to inefficient public
sector (TB page 25),

2.1.7 LACK OF KEY SKILLS

• Because of the limited access to education at various levels African markets
present investors with a lack of people with key business skills and an
oversupply of semi-skilled and unskilled workers.
• Do activity 5.1

2. Critically assess the role of government in enhancing

business conditions in Africa.

32
5.7 THE ROLE OF GOVERNMENTS IN ENHANCING BUSINESS
STRATEGIES IN THE CONTXT OF AFRICA.
• Because governments are enablers of economic growth through
their policy and investment decisions, African governments will
need to create an environment suited to investment and job
creation.
• Africa needs to move away from what is called a monoculture
economy (depending on a single agricultural source) to a
multicultural one in order to become more competitive in the
international trade.
• The trouble with Africa is that too much is moving out of its
borders such as their raw materials and not enough manufacturing.
• Focus should be on foreign direct investment (FDI) which invests
in infrastructure.
• Strategic management in Africa should also address the current
weak infrastructures as per AU and SADC manifestos as it inhibits
growth and especially competitiveness of a region.
• For Africa to grow and not only comply with AU and SADC
strategic objectives it needs to be more focused on improvement
and growth with maintenance.
• Africa has sufficient resources but is unable to convert them into
value adding manufacturing capabilities.
• It also lacks the skills to make this happen.
• Nkrumah is of the opinion that a united African economy, and
strategy us the only option
• However this is going to be difficult with religious beliefs are also
a problem.
• Note SKA a radio telescope in development in South Africa and
Australia.
• Focus should also be on the formulation of strategies for renewable
sources.

33
 3. Describe suitable approaches for strategies in emerging
markets, specifically the sub-Sahara
5.6.2 EMERGING MARKET ENVIRONMENTS IN A GLOBAL AND AFRICAN
CONTEXT. Taken directly from study guide. (page 33)

• The obvious point of departure when doing business in Africa, or

contemplating doing business, is the need to consider the relevant challenges.
• In order to formulate relevant strategies for emerging markets, managers need
to at least consider the economic, political, legal, sociocultural, technological,
ecological, infrastructural and demographic dispositions of the country or
countries in which their organisations are already involved or if they are
planning such involvement.
• Suffice it to say that conflict, such as the religious conflicts in Nigeria and
power struggles in South Sudan and Somalia during 2014, as well as the
general underdeveloped infrastructure in SSA, generally poses serious
challenges in many African countries, and this has an adverse effect on foreign
investment and business.
• In reviewing the environment for business in Africa, note that emerging
markets have become popular business destinations in recent decades for the
following reasons:
(i) They present increasingly attractive market opportunities to
international companies wishing to expand business and operations to
foreign markets.
(ii) They currently reflect the potential for increasing levels of demand
for internationally recognised brands and relatively more
sophisticated products and services.
(iii) They could serve as manufacturing bases and destinations for
outsourcing activities.
(iv) They serve as destinations for sourcing strategic materials and
commodities
• (Cavusgil, Knight & Riesenberger 2008:265-266). Benefits for developing
economies invariably include higher economic growth and higher income
levels, a better quality of life, improved skills, increased technology transfer
and more competitive consumer markets.
• Despite their attractive growth prospects, emerging economies typically
involve high inherent risks, which apply even more so to Africa and SSA, the
latter a vast "developing" region.
• According to Parker (2009:54-60), in addition to the problems SSA has been
plagued by perennial problems such as self-serving governments, weak
institutions, ethnic and religion induced civil wars, weak property rights, low
productivity, the scourge of bureaucratic red tape and corruption.

34
• However, the promise of SSA resides in its population of more than 800
million people in 48 countries, with SSA comprising all the countries in
Africa, excluding Algeria, Egypt, Libya, Morocco, Sudan and Tunisia.
• Of the estimated world population of just over seven billion in 2012 an
estimated more than four billion aspiring poor consumers at the bottom of the
economic pyramid (BOP), who are joining the market economy for the
first time, represent the new untapped source of market promise

35
 Study unit 6

1. Critically distinguish between the different types of business level

strategies for creating and sustaining competitive advantage. Provide
business practical examples for each business level strategy discussed.

6.4 SUSTAINABLE DEVELOPMENT (STUDY GUIDE 149/3.1/3.2

TB 47)
• It requires organisations to take a long term view as opposed to
focussing on short term profits, so that wealth is created and the
organisation an survive in the long term.
• Business sustainability is commonly accepted to mean balancing
economic objectives (profit)
• With the welfare of communities in which the organisation
operates (social dimension)
• And protecting the environment in which the organisation
physically exists. See figure 3.1 below Business sustainability

Ethical profits

Healthy
environment
Heathy communities

36
 • Sustainable strategies: These strategies consider all three
elements and strike the right balance between them.
• Note profits should be earned ethically and legally in order to
sustain sustainability.
• Unlike social responsibility (CSR) which addresses issues
retroactively (looks at the past actions of the organisation,)
sustainability implies forward trajectory (looks at changing the
nature of the company to be more successful in the long run.)
• The purpose of sustainable strategy is to generate a maximum
increase in the outputs, turnover and other aspects of a company,
the consumers, and employee value by embracing opportunities in
the macro and market environments and managing risks derived
from environmental and social developments.
• Do activity 6.2

2. Describe the four pillars of corporate sustainability.

Page 149 Figure 6.1 study guide and page 59 in txt book figure 3.4

3. Explain what sustainable organisations are and why they are

important.

6.4 SUSTAINABLE DEVELOPMENT (STUDY GUIDE 149/3.1/3.2

TB 47)
• It requires organisations to take a long term view as opposed to
focussing on short term profits, so that wealth is created and the
organisation an survive in the long term.
• Business sustainability is commonly accepted to mean balancing
economic objectives (profit)
• With the welfare of communities in which the organisation
operates (social dimension)
• And protecting the environment in which the organisation
physically exists. See figure 3.1 below Business sustainability

37
 Ethical profits

Healthy
environment
Heathy communities

• Sustainable strategies: These strategies consider all three

elements and strike the right balance between them.
• Note profits should be earned ethically and legally in order to
sustain sustainability.
• Unlike social responsibility (CSR) which addresses issues
retroactively (looks at the past actions of the organisation,)
sustainability implies forward trajectory (looks at changing the
nature of the company to be more successful in the long run.)
• The purpose of sustainable strategy is to generate a maximum
increase in the outputs, turnover and other aspects of a company,
the consumers, and employee value by embracing opportunities in
the macro and market environments and managing risks derived
from environmental and social developments.
• Do activity 6.2
3.2 SUSTAINABILITY AND COMPETITIVE ADVANTAGE.

• While competitive advantage is largely focussed on profitability

(it does not guarantee sustainability)
• Sustainability is focussed on survival n the long term.
• Some of the greatest benefits to an organisation in addressing a
sustainability issues.
▪ Company or brand image
▪ Cost saving
▪ Competitive advantage
▪ Employee satisfaction, moral or retention

38
 ▪ Product service or market innovation
▪ Business model or process innovation
▪ New sources of revenue or cash flow
▪ Effective risk management
▪ Enhanced stakeholder relations

3.2.1 EVALUATING THE SUSTAINABILITY OF STRATEGIES.

• The following six elements are important in developing

sustainable strategies. See figure 3.2 Holistic business model for
sustainable strategies. (page 49 text book)

(i) Environmental context:

• For strategies to be sustainable they should not harm the
physical environment in which the organisation operates.
• SABMiller need to focus on water –food-energy nexus.
• If SABMiller have no access to water they ceased to
exist.
• So it would be in their own self-interest to preserve water

(ii) Social context

• This focuses on the contribution the organisation makes
to the general welfare of the communities and the broader
society in which it operates.
• One aspect that addresses this aspect directly is the
corporate social responsibility.
• Definition of CSR “It is the continuing social
commitment by business to behave ethically and
contribute to economic development while improving the
quality of life of the workforce and their families as well
as the local community and society at large”.
• Sustainability incorporates societal and environmental
issues as building blocks within a business model.
• Therefore a sustainable business will use some CSR
practices to help business to create long term
sustainability.

39
 • Planning is important for both credibility and long term
sustainability.
• Benefits of CSR vary from one project to the other
depending on
▪ Design of the project
▪ Outcomes of what the CSR department wants
▪ How the project will fit in locally with the needs of
the community
▪ Support from different role players.
• Projects are also location specific
• A project that is successful in one community can be a
failure in another.

(iii) Economic context:

• This refers to the economic contribution of the
organisation in terms of profit and wealth creation. (profits
create wealth for managers and employees like bonuses,
salary increases, dividends).
• There is a problem with balancing short term profits and
long term wealth
• One cannot do one without the other.

(iv) Organisational context:

• These are all the internal aspects that can have an influence
on the sustainable planning process
• This means looking at the strengths and weaknesses of the
business.
• There are other specific elements to an organisation that
will affect its ability to develop and execute sustainable
strategies.
▪ Governance structures: These are the rules,
procedures, processes and structure that ensure that
the organisation is managed in a sustainable way.
▪ Structure: This refers to the extent to which
different elements of the organisation are suited to
the selected strategy and that the positions are filled
with people who have the right skills and
competencies.

40
 ▪ Leadership and culture: This determines to a large
degree the capacity to change and the shared values
that are required for executing strategies.
▪ Technology: This refers to the equipment and
machinery required for the daily operations and
production of goods and services. Lack or wrong
technologies can lead to the inability of the
organisation to perform optimally. See the Telkom
and Nigeria example page 53 TB

(v) Stakeholders:
• These are the people who are affected by the long term
survival of a company (directors, shareholders, employees,
managers, governments, customers, suppliers, community,
unions and the environment.
• In terms of sustainable strategy the organisation should try
to balance the needs and claims of its key stakeholders
(unions striking for more wages and business says that they
cannot afford it.)
• The importance of shareholders will differ from firm to
firm and industry to industry.
• The determining factors are as follows see figure 3.3 The
drivers of stakeholder salience.
▪ Stakeholder power: This is determined by the extent
to which stakeholders control the resources required
by an organisation. The more resources the higher the
degree of control, the more powerful. (unions have
control over the human resources)
▪ Stakeholder legitimacy: This is determined by the
stakeholders are affected by the decision of the
organisation and the more affected the higher the
legitimacy. (employees are usually affected by
decisions so they have more legitimacy)
▪ Stakeholder urgency: This refers to the time
sensitivity of the stakeholder’s claim and the level of
importance of the stakeholder. Could be a customer
or a project that is running behind time with penalties.
• These attributes can be used to classify stakeholders
into three broad categories:

41
 1) Latent stakeholders: They only have one attribute,
either power, or legitimacy or urgency. (the
environment has legitimacy because it is affected by
the decisions made by the organisation but it may not
have power or urgency.
2) Expectant stakeholders: These have two or three
attributes. (The government may have power through
legislation and urgency, but may not have a high level
of legitimacy i.e decisions made by the organisation).
3) Salient stakeholders: These have the strongest claim
and will be the most important to the organisation.
(unions and the mines, have high power, high
legitimacy and high urgency). But shareholders could
also be salient and that is why there is a deadlock
between management and the trade unions due to
claims being made by the union.

(vi) Strategic fit:

• The organisation needs to develop strategies that are
aligned with the internal and external environment of the
organisation i.e is there a fit?
• Furthermore the ability of the organisation to adapt to
changes in the environment is critical.
• Strategic fit should be dynamic and as the environment
changes the organisation needs to adapt and to develop
new sources of competitive advantage.
•

4. Discuss the “triple-bottom line” and explain why it is important.

As above

5. Explain what is meant by corporate social responsibility (CSR) is and

give examples of CSR activities in a company.

6.5 CORPORATE SOCIAL RESPONSIBILITY (STUDY GUIDE

PAGE 153/ TEXT BOOK PAGE 50)

42
3.2.3 SOCIAL CONTEXT
• This focuses on the contribution the organisation makes to the
general welfare of the communities and the broader society in
which it operates.
• The one mechanism that that addresses this aspect is the
corporate social responsibility (CSR) programme.
• CSR is used by businesses as a tool to address societal and
environmental issues as building blocks within the business
model.
• It is essential that before a CSR project is initiated that the
company knows all the details as well as the specific
environment in which the project should take place to ensure that
it will be successful.
• Planning is vital because if the CSR project fails it will not only
have a detrimental effect on the image of the organisation but it
will impact on the long-term sustainability of the company.
• The benefits of the CSR can vary significantly depending on the
following aspects:
▪ Design of the project
▪ Outcomes of what the CSR department wants
▪ How the project will fit in locally with the needs of the
community
▪ Support from different role players.
• Project success is also location specific.(vegetable projects are
more suitable in the rural areas than in the suburbs).

6. Explain the role of corporate governance in corporate sustainability.

6.8 CORPORATE GOVERNANCE AND THE BOARD OF

DIRECTORS ( 3.5 page 56 text book)
• Corporate governance is described as the system by which
corporations are directed and controlled. It performs the following
functions.
▪ It specifies the distribution rights and responsibilities among
different participants in the corporation (board of directors,
managers, shareholders and other stakeholders etc )

43
 ▪ It specifies the rules procedures for making decisions in
corporate affairs
▪ It provides a structure through which corporations set and
pursue their objectives while reflecting the context of the
social regulatory and market environment.
▪ It is a mechanism for aligning the interests of different
stakeholders.
• In South Africa the King Code Corporate Governance of 2009 is
widely regarded as a state code for corporate governance.
3.4.1 THE ROLE OF THE BOARD OF DIRCTORS AND TOP
MANAGEMENT IN GOVERNANCE. (PAGE 57 TEXT BOOK)

• The board is appointed by the shareholders of the organisation to

represent them in the strategic decisions made by the company.
• The board is the focal point of corporate governance and should
provide effective and ethical leadership to direct and safeguard
relationships between the board itself, management, shareholders
and other stakeholders.
• A recommendation by the King code is that the board should have a
majority of non-executive directors on board (directors who are not
employees of the organisation)
• Top management are appointed by the board of directors.
• Agency theory states that top management are agents of the
shareholders and that agents may sometimes act in their own
interests and not that of the shareholders
• Top management is presented on the board of directors although the
King Code recommends that the CEO should also not be the
chairman of the board of directors as this may cause a conflict of
interests.

44
Study unit 7

1. Critically distinguish between the levels of strategy in organisations.

7.4 LEVELS OF STRATEGY CUT FROM STUDY GUIDE

• Managerial levels and the corresponding levels of strategy generally found in
organisations were briefly introduced in learning unit 1 (sec 1.6) for both
corporate (or multibusiness) organisations and single business organisations.
The levels and strategies are as follows:
▪ corporate level strategies
▪ business level strategies
▪ functional level or tactical strategies
▪ operational level strategies
• Operational level strategies are often omitted when the levels of strategy are
considered.
• The four levels of strategy in corporate organisations and the three levels of
strategy in single business organisations need to be totally aligned in both these
types of organisations for any degree of success.
• One of the primary reasons for reviewing the levels of strategy here is the
importance of the relationship between levels of strategy and decision making at
these levels
• There, strategic decisions were typically seen to be long term, requiring
significant resource commitments and involving high levels of risk.
• It should thus be clear why the correct strategic decisions at the corporate and
business levels need to be made by formulating appropriate long-term objectives
and choosing the correct business level strategies..

2. Differentiate between the different types of business level strategies.

Give an example of an organisation, product or service in each business
level strategy discussed.

7.6 /9.3 BUSINESS LEVEL STRATEGIES. (PAGE 176 STUDY GUIDE AND PAGE
186 TEXT BOOK)
• Corporate strategies are concerned with the number of products and services
that the company will offer and the markets that they will pursue.
• Business level or competitive strategies consider how to compete successfully
in these markets (how to position the company in such a way that it has a
competitive advantage).

45
 • There are various business strategies but if one strips away the details, the
biggest and most significant differences among competitive strategies are
reduced to the following:
▪ Whether the organisation’s target market is broad or narrow
▪ Whether the organisation is pursuing a competitive advantage linked to
low cost or product differentiation.
▪ A combination of the above
• There are four generic competitive strategy approaches that stand out:
1. A cost leadership strategy: This strategy is produce goods and
services at the lowest possible production cost in a domain of activity
by significant margin. This strategy pursues a broad spectrum of
buyers. It does not necessarily mean low prices, because having low
production costs and low prices does not constitute a competitive
advantage. (Pep stores, Checkers, Pick & Pay)
• Cut and pasted from study guide page 177
o In fact, cost leadership strategies are most suitable in
situations characterised by large markets that allow high
production volumes of standardised products for customers
that are price-sensitive and have low switching costs. Low
cost and price as a competitive advantage can thus be
achieved in a variety of ways such as

• selling cost-effective products and services that satisfy

customer needs, resulting in higher market share than
that of rivals
• enhancing profit margins through economies of scale,
lower unit costs and organisational efficiencies

3. Critically discuss the advantages and disadvantages of each business

level strategy.

46
The advantages of cost leadership strategies include the following:

47
48
49
 ▪ an increasing in competitiveness and market share
through sustainable cost advantages protection for
the organisation against competition as a result of its
durable cost advantage
▪ protection against powerful suppliers because of large-
scale purchases and the resultant potential of
discounts
▪ protection against the power of buyers because of the
low-cost advantage and competitive pricing
possibilities
▪ durable cost advantages serving as barriers to
imitation, barriers to the threat of substitute products
and barriers to the threat of new entrants to the
market, which should be evident from analysis of the
organisation's competitors

o The potential disadvantages of cost leadership strategies

include the following:
▪ not keeping up with changes in the external
environment, for example, where core competencies
relate to and are sensitive to changes in technology
which are not recognised (e.g. the fuel-efficient aircraft
of Mango Airlines that have put other low-cost airlines
that have not adapted at a competitive disadvantage)
▪ not being aware of changing consumer needs and
preferences with regard to products and services in the
low-cost market sector that could seriously affect
competitive market position
▪ not being aware of industry dynamics, changing
industry competitive forces, and the actions of
competitors as far as imitating, or even worse,
improving on an organisation's low-cost core
competencies, is concerned − the so-called "curse of
complacency".

2. A differentiation strategy: This strategy involves uniqueness along

some dimension that customers value highly and for which they are
prepared to pay a premium price (Rolex, Nike, Adidas, Lacoste or
Unilever that offers different products to different markets). The
customer focus could be on narrow segment of buyers or a broad
section of buyers.
• Cut and pasted from study guide page 178
▪ The uniqueness can be achieved in the following ways,
inter alia:
▪ based on dimensions widely valued by customers in an
effort to achieve higher market share than one’s rivals,
demonstrating how product or service functions and
features better meet customer needs compared to those
of competitors

50
▪ basing differentiation on the organisation's own core
competencies that could lead to a sustainable
competitive advantage

51
 ➢ clear identification of customers and their needs
➢ understanding what customers value and what they
are willing to pay
➢ clear identification of competitors
➢ understanding the globalisation of markets
➢ having effective barriers to imitation

▪ The advantages of differentiation strategies include the

following:
➢ They could safeguard an organisation against
competition as a result of brand loyalty.
➢ They could enhance profit margins by slightly higher
pricing than their competitors.
➢ Powerful suppliers are rarely a problem.
➢ Differentiators are unlikely to experience problems with
powerful buyers.
➢ Threats of substitute products really depend on
competitors' products to meet or exceed customer
needs before customers would be willing to switch
products.
➢ Effective differentiation and brand loyalty could act as
barriers to entry.

▪ The disadvantages of differentiation strategies

➢ basically relate to the organisation's inability to
maintain uniqueness from a customer perspective −
not fully responding to the durability challenge of
competitive advantage.
➢ Another danger stems from the design or physical
features of a product, which are much easier to imitate
than uniqueness, which stems from intangible sources
like innovation, quality of service, reliability, brand and
prestige.
3. A focus strategy: This involves focusing on targeting a narrow
segment of the market or domain of activity and tailors its products and
services to serve this market to the exclusion of all others. (dry Commented [L1]:
cleaners, Crawford schools)
• Cut and pasted from text book page 180
• A focus strategy − cost leadership or differentiation −
becomes attractive when one or more of the following
conditions exist:
▪ the existence of a relatively small target or niche
market
▪ successfully avoiding industry leaders as a result of the
relatively small market
▪ the existence of effective barriers to the entry of
multisegment competitors
▪ the possible existence of a multiplicity of niches
▪ few rivals and acceptable profit potential,
notwithstanding the small market
▪ the organisation's ability to resist challengers

52
 • The advantages of focus strategies include the following:
▪ protection from competitive rivals owing to the
uniqueness of product(s) or service(s)
▪ power over buyers because of significant uniqueness
and exclusivity
▪ passing supplier price increases on to customers
▪ customer loyalty as a protection against substitute
products as well as new entrants

• The disadvantages of focus strategies include the

following:
▪ high production costs, basically because of the inability
to realise economies of scale
▪ not being aware of changing technology and consumer
preferences
▪ not being able to effectively ward off an attack by rival
differentiators

• Cut and pasted from study guide page 180

4. 7.6.4 LOW FOCUS LEADERSHIP AND DIFFERNTIATION
STRATEGIES
• A focus strategy − cost leadership or differentiation −
becomes attractive when one or more of the following
conditions exist:
▪ the existence of a relatively small target or niche
market
▪ successfully avoiding industry leaders as a result of the
relatively small market
▪ the existence of effective barriers to the entry of
multisegment competitors
▪ the possible existence of a multiplicity of niches
▪ few rivals and acceptable profit potential,
notwithstanding the small market
▪ the organisation's ability to resist challengers

• The advantages of focus strategies include the following:

▪ protection from competitive rivals owing to the
uniqueness of product(s) or service(s)
▪ power over buyers because of significant uniqueness
and exclusivity
▪ passing supplier price increases on to customers
▪ customer loyalty as a protection against substitute
products as well as new entrants

• The disadvantages of focus strategies include the

following:
▪ high production costs, basically because of the inability
to realise economies of scale
▪ not being aware of changing technology and consumer
preferences

53
 ▪ not being able to effectively ward off an attack by rival
differentiators
Do activity 7.2

5. A best cost provider strategy: This hybrid strategy involves giving

customers more value for their money by offering upscale product
attributes at lower production costs than rivals. (Hyundai, KIA,
Honda) (see page 188 text book for examples of different positioning)
.

54
The advantages of cost leadership strategies include the following:

55
56
 ▪ an increasing in competitiveness and market share
through sustainable cost advantages protection for
the organisation against competition as a result of its
durable cost advantage
▪ protection against powerful suppliers because of large-
scale purchases and the resultant potential of
discounts
▪ protection against the power of buyers because of the
low-cost advantage and competitive pricing
possibilities
▪ durable cost advantages serving as barriers to
imitation, barriers to the threat of substitute products
and barriers to the threat of new entrants to the
market, which should be evident from analysis of the
organisation's competitors

o The potential disadvantages of cost leadership strategies

include the following:
▪ not keeping up with changes in the external
environment, for example, where core competencies
relate to and are sensitive to changes in technology
which are not recognised (e.g. the fuel-efficient aircraft
of Mango Airlines that have put other low-cost airlines
that have not adapted at a competitive disadvantage)
▪ not being aware of changing consumer needs and
preferences with regard to products and services in the
low-cost market sector that could seriously affect
competitive market position
▪ not being aware of industry dynamics, changing
industry competitive forces, and the actions of
competitors as far as imitating, or even worse,
improving on an organisation's low-cost core
competencies, is concerned − the so-called "curse of
complacency".

6. A differentiation strategy: This strategy involves uniqueness along

some dimension that customers value highly and for which they are
prepared to pay a premium price (Rolex, Nike, Adidas, Lacoste or
Unilever that offers different products to different markets). The
customer focus could be on narrow segment of buyers or a broad
section of buyers.
• Cut and pasted from study guide page 178
▪ The uniqueness can be achieved in the following ways,
inter alia:
▪ based on dimensions widely valued by customers in an
effort to achieve higher market share than one’s rivals,
demonstrating how product or service functions and
features better meet customer needs compared to those
of competitors

57
▪ basing differentiation on the organisation's own core
competencies that could lead to a sustainable
competitive advantage

58
 ➢ clear identification of customers and their needs
➢ understanding what customers value and what they
are willing to pay
➢ clear identification of competitors
➢ understanding the globalisation of markets
➢ having effective barriers to imitation

▪ The advantages of differentiation strategies include the

following:
➢ They could safeguard an organisation against
competition as a result of brand loyalty.
➢ They could enhance profit margins by slightly higher
pricing than their competitors.
➢ Powerful suppliers are rarely a problem.
➢ Differentiators are unlikely to experience problems with
powerful buyers.
➢ Threats of substitute products really depend on
competitors' products to meet or exceed customer
needs before customers would be willing to switch
products.
➢ Effective differentiation and brand loyalty could act as
barriers to entry.

▪ The disadvantages of differentiation strategies

➢ basically relate to the organisation's inability to
maintain uniqueness from a customer perspective −
not fully responding to the durability challenge of
competitive advantage.
➢ Another danger stems from the design or physical
features of a product, which are much easier to imitate
than uniqueness, which stems from intangible sources
like innovation, quality of service, reliability, brand and
prestige.
7. A focus strategy: This involves focusing on targeting a narrow
segment of the market or domain of activity and tailors its products and
services to serve this market to the exclusion of all others. (dry Commented [L2]:
cleaners, Crawford schools)
• Cut and pasted from text book page 180
• A focus strategy − cost leadership or differentiation −
becomes attractive when one or more of the following
conditions exist:
▪ the existence of a relatively small target or niche
market
▪ successfully avoiding industry leaders as a result of the
relatively small market
▪ the existence of effective barriers to the entry of
multisegment competitors
▪ the possible existence of a multiplicity of niches
▪ few rivals and acceptable profit potential,
notwithstanding the small market
▪ the organisation's ability to resist challengers

59
 • The advantages of focus strategies include the following:
▪ protection from competitive rivals owing to the
uniqueness of product(s) or service(s)
▪ power over buyers because of significant uniqueness
and exclusivity
▪ passing supplier price increases on to customers
▪ customer loyalty as a protection against substitute
products as well as new entrants

• The disadvantages of focus strategies include the

following:
▪ high production costs, basically because of the inability
to realise economies of scale
▪ not being aware of changing technology and consumer
preferences
▪ not being able to effectively ward off an attack by rival
differentiators

• Cut and pasted from study guide page 180

8. 7.6.4 LOW FOCUS LEADERSHIP AND DIFFERNTIATION
STRATEGIES
• A focus strategy − cost leadership or differentiation −
becomes attractive when one or more of the following
conditions exist:
▪ the existence of a relatively small target or niche
market
▪ successfully avoiding industry leaders as a result of the
relatively small market
▪ the existence of effective barriers to the entry of
multisegment competitors
▪ the possible existence of a multiplicity of niches
▪ few rivals and acceptable profit potential,
notwithstanding the small market
▪ the organisation's ability to resist challengers

• The advantages of focus strategies include the following:

▪ protection from competitive rivals owing to the
uniqueness of product(s) or service(s)
▪ power over buyers because of significant uniqueness
and exclusivity
▪ passing supplier price increases on to customers
▪ customer loyalty as a protection against substitute
products as well as new entrants

• The disadvantages of focus strategies include the

following:
▪ high production costs, basically because of the inability
to realise economies of scale
▪ not being aware of changing technology and consumer
preferences

60
 ▪ not being able to effectively ward off an attack by rival
differentiators
Do activity 7.2

9. A best cost provider strategy: This hybrid strategy involves giving

customers more value for their money by offering upscale product
attributes at lower production costs than rivals. (Hyundai, KIA,
Honda) (see page 188 text book for examples of different positioning)
• 7.6.5 Page 183 study guide.

7.5 BEST – COST PROVIDER STRATEGY (CUT FROM STUDY GUIDE)

• This strategy seeks to achieve a lower price than competitors while trying to
keep the value of the product or service at the same level as competitors, or
provide greater value at the same price as competitors. Study this section,
noting that sources of cost advantage could originate from
▪ market size and economies of scale
▪ specialised equipment and facilities
▪ the ability to keep overhead costs low
▪ the intention to relentlessly pursue exceptional quality
• The advantages of a best-cost provider strategy are seen to essentially stem
from the implications of Porter's five forces model for industry analysis, which
we discussed in learning unit 3.
▪ To recap, the five forces are threats from competitors, powerful
suppliers, powerful buyers, and the threat of substitute products and
new entrants.
▪ An organisation that is a cost leader is protected from industry
competitors by its cost advantage, and is relatively safe as long as it can
maintain this advantage because low prices are important for
consumers.
▪ Differentiation strategies will be successful when the variety of
products offered meets customer needs better than those of competitors
in a sustainable way.
▪ As stated above, the distinguishing feature of a best-cost provider
strategy is that it uniquely combines low cost and differentiation, while
maintaining quality and providing good value at a reasonable price
compared to competitors. Toyota's Lexus is a case in point.
• The disadvantages of a hybrid best-cost provider could result from not being
aware of a changing competitive industry environment, and the risk that the
cost leadership and/or differentiation features that underlie this strategy do not
measure up to market expectations, leaving this strategy "stuck in the middle",
and therefore uncompetitive.

7.6.6 COMBINING BUSINESS STRATEGIES (CUT FROM TUDY GUIDE 184)

▪ Organisations often use a combination of business level
strategies to serve different market segments in the same
industry or industry sector. In this section in the prescribed
book, study the example of how Unilever positions its
strategies

61
4. Explain how organisations can evaluate business level strategies.
7.7 EVALUATING BUSINESS LEVEL STRATEGIES (CUT FROM STUDY
GUIDE PAGE 188)
• Once a number of feasible strategy options have been formulated, these strategy
options have to be evaluated, and the most appropriate strategy or combination
of strategies selected for implementation, as dealt with in the module on strategy
implementation. Strategies can be evaluated in terms of their suitability,
acceptability and feasibility as explained in section 9.4 in the prescribed book.
▪ Suitability. This is the degree to which an organisation's strategy deploys
its core competencies to exploit external opportunities and overcome
external threats and internal weaknesses. Methods that are available to test
suitability include SWOT analysis, the five forces industry analysis, and
scenario analysis and planning.

▪ Acceptability. This requirement relates to the ability of the strategy to

produce the expected results over both the short and the long term in line
with stakeholder expectations. It also considers the evaluation of factors
such as benefits, risks and stakeholder reactions. Sensitivity analysis,
financial analysis and break-even analysis, inter alia, can be used to assess
acceptability.

▪ Feasibility. Feasibility implies that the organisation is capable of

executing the strategy. The following questions need to be answered:
o Can the strategy achieve the set objectives?
o Can the strategy be implemented effectively and efficiently?
o Are the required resources and capabilities available for
implementation of the strategy?

• For the feasibility measure, the organisation’s financial and human resources as
well as resource integration need to be evaluated.

• Once formulated, strategies need to be evaluated according to the above-

mentioned measures discussed in this section if they are to be deemed "fit for
purpose". This section in the prescribed book provides a number of relevant
examples in this regard.

62