Explain what the term ``strategic management'' entails in your own words.
It is a deliberate effort by the organization to allocate resources in such a way that the organization could realize an above average return in order to have a competitive advantage over its competitors over long term for the wealth maximization of all its stakeholders
2.2.2 Levels of strategy (refer 1.2 of study guide)
corporate strategy is strategy for guiding a firm's entry into and exit from different businesses, for determining how a parent company adds value to and manages its portfolio of businesses, and for creating value through diversification.
Business level strategy is more concerned about developing and sustaining a
competitive advantage for the goods and services that are produced. It is strategy for competing against competitors within a particular industry.
functional level, decisions involve the development and coordination of
resources through which business unit level strategies can be executed efficiently and effectively
THE STRATEGIC MANAGEMENT PROCESS AND STRATEGIC PLANNING. Strategic planning
Done by top management, it is the first stage in the strategic planning process and deals with the strategic planning and direction of the organization. It involves the formulation of the company’s mission or review of a company vision , mission and long term goals. It also evaluates the environments in which the organization operates in order to identify swot.
. Strategy implementationStrategy implementation is the action stage of the strategic management process and requires input and participation from everyone in the organisation.
. Strategic control
The final stage in the strategic management process is the evaluation stage. Strategic control aims to assess the progress made towards achieving the desired outcome. It offers feedback and alerts top management to problems or potential problems before a situation becomes critical. Change in one of the stages may necessitate a change in any or all of the other stages. Strategic planning, strategy implementation and strategic control should be performed on a continuous basis - the process never ends.
WEALTH MAXIMISATION VERSUS PROFIT MAXIMISATION
Profit maximization emphasizes maximum profit and therefore focuses only on turnover, sales and marketing. This is a short sighted approach and will only secure survival in the short term .
Wealth maximization incorporates all spheres of the organization and emphasis on sustaininability and survival in the long term . Wealth maximization modifies the goal of profit profit maximation in order to deal with the complexities of the business environment.
EXPLAIN WHAT CORPORATE GOVERNANCE ENTAILS AND YOU’RE COMMENTS ON ITS IMPACT ON STRATEGIC MANAGEMENT
REFERS TO THE FORMAL SYSTEM OF ACCOUNTABILITY OF THE BOARD OF DIRECTORS TO SHAREHOLDERS.
IN ITS BROADEST SENSE IT REFERS TO THE INFORMAL AND FORMAL REALTIONSHIP BETWEEN THE CORPORATE SECTOR AND ITS STAKEHOLDERS AND THE IMPACT OF THE CORPORATE SECTOR ON SOCIETY IN GENERAL.
GOOD CORPORATE GOVERNANCE REASSURES STAKEHOLDERS THAT THE COMPANY IS BEING RUN WELL.IT FOLLOWS CORPORATE GOVERNANCE DEALS WITH THE ORG AND ALIGNS ITS OWN GOALS WITH THOSE OF THE STAKEHOLDERS AND MANAGERS, ITS REALTIONSHIP WITH BOTH ITS INTERNAL AND EXTERNAL STAKEHOLDERS.
DISCUSS THE CONTEMPORARY CORPORATE GOVERNANCE ISSUES
1CORPORATE SOCIAL RESONSIBILITY- ORG DECISION MAKING LINKED TO ETHICAL VALUES, COMPLIANCE WITH LEGAL REQ AND RESPECT FOR COMMUNITIES AND THE ENVIRONMENT.
2. ENVIRONMENTAL RESPONSIBILITY-MANY ORG HAVE TAKEN STEPS TO DO NO HARM TO THE ENVIRONMENT-THE CHALLENGE IS TO DEVELOP A SUSTAINTABLE GLOBAL ECONOMY
3. SUSTAINABILITY-SUSTAINABLE DEVELOPMENT MEETS THE NEEDS OF THE PRESENT GENERATION WITHOUT COMPRIMISING THE ABILITY FUTURE GENERATIONS TO MEET THEIR OWN NEEDS.
4. SUSTAINABILITY REPORTING AND THE TRIPLE BOTTOM LINE-IT REFERS TO THE ECONOMIC, ENVIRONMENTAL AND SOCIAL ASPECTS OF THE BUSINESS.THE ENVIRONMENTAL REPORTING REFERS TO HOW THE PRODUCT/SERVICE AFFECTS THE ENVIRONMENT.
5. STAKEHOLDER ENGAGEMENT-THIS APPROACH REQUIRES AN ORG TO IDENTIFY AND COMMUNICATE TO ALL STAKEHOLDERS THE PURPOSE AND VALUES BY WHICH THE ORG WILL OPERATE.
4.3 The King Report on Corporate Governance for South Africa 2002(King II Report)
-The King II Report identifies seven characteristics of good corporate governance. These include issues like discipline, transparency, independence, accountability, responsibility, fairness and social responsibility.
- recommends moves from single to triple bottom line measurement and reporting
-directors, management, employees and suppliers have a commitment to maintain the highest level of confidentiality in relation to the activities and assets of the business operations.
-Disclosure and transparency relate to the communications of outcomes, that is, the results of performance.
5.1 What is corporate citizenship?
Corporate citizenship is based on the idea that organisations have a duty to serve
not only the financial interests of shareholders, but also the interests of society by respecting and showing consideration to its stakeholders. Comprises the extent to which an organization makes a positive contribution to society by
Respecting and showing consideration to its stakeholders
Has high ethical values
Adheres to legislation, rules and regulations
And has a high regard for the natural environment
5.2 Contemporary corporate citizenship issues
The contemporary corporate citizenship issues are
. corporate social responsibility
. environmental responsibility
. sustainability
. sustainability reporting and the triple bottom line
. stakeholder engagement
5.3 The link between corporate governance and corporate citizenship
Corporate citizenship is a broader concept than corporate governance as corporate governance tends to focus on issues internal to the organization , whereas corporate citizenship also focuses on issues outside the organization, such as the community and an organisation’s obligation to broader social issues
5.4 The impact of corporate governance on strategic management
All strategic decisions should be taken within the context of good corporate
governance. Organisations should pay close attention to the King II Report when
developing or changing strategic direction. The King II Report forms an integral part of any organisation operating in South Africa.
Note that corrupt business practices have no place in sustainable business practices. It is possible to reap short- term rewards from corrupt practices, but no organisation that wants to survive in the long term will be able to do so if they do not adhere to sound business principles and good corporate governance.
EXPLAIN WHAT HE CONCEPT THE TRIPLE BOTTOM LINE ENCOMPASSES:
ECONOMIC, ENVIRONMENT AND SOCIAL.-THE TRIPLE BOTTOM LINE APPROACH EMBRACES THE ECONOMIC, ENVIRONMENTAL AND SOCIAL ASPECTS OF AN ORGANISATIONS ACTIVITIES, THEREFORE ORGANISATIONS WILL ALSO REPORT ON MATTERS SUCH AS THE EFFECT OF THE ENVIRONMENT OF THE PRODUCT OR SERVICE, PRODUCED BY THE ORGANISATION. (ENVIRONMENTAL ISSUES) AND THE VALUES ETHICS AND REALTIONSHIP WITH THE STAKEHOLDERS (SOCIAL ISSUES) AS WELL AS FINANCIAL MATTERS (ECONOMIC ISSUES). (5MARKS)
Advantages and disadvantages of strategicmanagement
Advantages of strategic management
Higher profitability –organizations that have used strategic management as the foundation of their business have shown better improvements in turnover and profits
Higher productivity –better planning and utilization of resources and materials (inputs) tend to deliver more and better outputs, thus improving their productivity
Improved communication – All employees tend to understand the goals and objectives of the organization better and this leads to more effective communication
Empowerment – If employee are involved in the process of strategic of strategic planning they will be empowered and committed to making this a success
Discipline and a sense of responsibility to the management of theorganization –management takes full responsibility for its strategic plans and implementation which ensures that the process is managed and controlled in a disciplined way
More effective time management – This strategic process in broken down into specific time frames giving all employees a better idea of their own time management
More effective resource management – Resources are scarce therefore it is managed by resource allocation
Strategic management – This provides a framework / process in which every employee can see and understand thru which phase the strategic process is currently moving.
3 DISADVANTAGES IN STRATEGIC MANAGEMENT
If strategic planning and strategic management are executed incorrectly, it could negatively affect an organisation's productivity, profitability and competitive advantage.
Time – Managers sometimes so busy fire –fighting (solving short term difficulties ) that there is really no time for strategic management .
Unrealistic expectationsfrom managers and employees – Even though the process of strategic management should include as many participants as possible, this is not always practically achievable.
The uncertain chain of implementation – Strategic plans are formulated at higher managerial levels of the organization. This means that it usually someone else who has to implement them. It is important that there is a clear chain of implementation down to the lower levels. This can be done by identifying clear responsibility areas and outcomes.
Negative perception of strategic management – Everyone in the organization should support the use and importance of strategic management especially every individual in top management. If this does not take place the organization risks a possible negative attitude from top management which would directly flow down to employees – implementation team.
No specific objectives and measurable outcomes – There are no frequent measurement tools to see whether the organization is better off or not after the implementing strategies. Well formulated long term objectives and the balanced scorecard can help overcome this risk.
Culture of change – Strategic management and organizational change go hand in hand. A positive culture would increase the positive acceptance of new ideas and strategies while the opposite is even more true.
Success groove – Managers become over confident and focused on their current success that they do not foresee any difficulties in the future and therefore do not see strategic management as necessary.
The first step in the strategic
planning process: setting strategic direction
Importance of strategic direction, vision and
strategic intent
2 STRATEGIC DIRECTION
Before a strategy can be proposed, or implemented, the organisation must develop a clear idea of where it is going and why. Strategic planning begins with the setting of strategic direction for the organisation. Strategic direction can be set in different ways. Some organisations use a vision statement to set its strategic direction; others use a mission statement, while some organisations use both these tools.
Strategic intent may be defined as the leaders' clear sense of where they want to
lead their company and what results they expect to achieve
DIFFERENCIATE BETWEEN THE VISION, MISSION AND STARTEGIC INTENT
MISSION STATEMENT-IS REALISTIC AND ASKS THE QUESTIONS WHAT IS OUR BUSINESS.IT IS A STATEMENT OF PURPOSE THAT DISTINGUISHES AN ORGANISATION FROM SIMILARE ONES. Focuses on the present or the reality
VISION-IS A ROAD MAP OF THE ORGANISATION, IS A DREAM AND ANSWERS THE QUESTION OF WHAT WE WANT TO BECOME. Focuses on the future
STRATEGIC INTENT: USED TO SET THE STRATEGIC DIRECTION AND IS A BASIS FOR RESOURCE ALLOCLATION.ESTABLISHES CRITERIA THAT AN ORGANISATION WILL USE TO CHART ITS PROGRESS.
Mission statement and stakeholders
2.1 The role of the mission statement in the strategic management
process
Managers have two tools to use to set the strategic direction of an
organisation. The first tool is the vision statement. The second tool that managers have at their disposal is a mission statement.
The vision statement deals with the dream for the organisation, the mission
statement deals with the existing/current reality. It is also called a purpose
statement. A mission statement has four focus areas: the purpose, the organisation'sstrategy in terms of the nature of their business, its behaviour standards and culture, and lastly, its values, beliefs and moral principles.
The mission statement also indicates how the organisation sees its stakeholders. If
an organisation addresses its stakeholders directly in its mission statement it ensures
that the company earns the support of its stakeholders.
DISCUSS THE COMPONENTS OF THE MISSION STATEMENTPG 67 TB
PRODUCTS/SERVICE, MARKET AND TECHNOLOGY- FORM THE CORE COMPONENTS OF THE MISSION STAT.THESE COMP DESCRIBE THE BUSINESS ACTIVITIES OF THE ORG.
SURVIVAL, GROWTH AND PROFITABILITY-DEAL WITH THE ECONOMIC GOALS OF THE ORG.
PHILOSPHY OF THE ORGANISATION-REFLECTS IN BELIEFS, VALUES, AND COMMITTMENT IN TEREMS OF HOW THE ORG WILL BE MANAGED
PUBLIC IMAGE- AN ORG AN USE ITS MISSION STAT TO INSTALL A PUBLIC IMAGE OF ITSELF
ORGANISATIONAL SELF CONCEPT-DEALS WITH AN ORG ABILITY TO KNOW ITSELF-IN TERMS OF ITS OWN CAPABILITIES AND LIMITS
2.4 Formulating a mission statement
The most important factor is to involve as many managers as possible.
Articles about mission statements should be selected, copied and distributed to the management team. All managers should be asked to read it as background information and then they should prepare a mission statement for the organisation..The premise is that if managers are more involved in the process of mission formulation, they will accept and support the strategic planning, implementation and control process more easily.
3 STAKEHOLDERS
F-FINANCIAL INSTITUTIONS-INTEREST
E-EMPLOYEES-SALARY
S-SUPPLIERS-PAYMENT
S-SHAREHOLDERS-DIVIDENDS
M-MEDIA-HONEST REPORTING/TRANSPERANCY
G-GOVERNMENT-TAXES
C-COMPETITORS-FAIR COMPETITION
C-CUSTOMERS-HIGH QUALITY PRODUCTS
COMMUNITY-SOCIAL RESPONSIBILITY
IMPORTANCE OF STAKEHOLDERS AND THEIR CLAIMS TO THE ORGANISATION
Any organization is the sum of its stakeholders. While all have a common interest in the org success , stakeholders have different perspectives on the org, each looking to take something out of it and all have an ability to influence that success. To achieve a competitive advantage an org needs to meet the needs of the stakeholders which mean adding value. Adding value can be defined as adding certain characteristics to the product/services that the competitor and customer(or other stakeholders) cannot do for themselves. Anyone who is directly influenced by the acts of the organization is seen as a stakeholder. Stakeholders usually have divergent goals and are driven not only by profit or other financial aspects. To ensure sustainability and long term survival of the organization it is important to ensure that the claims of the stakeholders are met. In the event of their claims being met, org will ,lose their competitive advantage and ultimately losing their sustainability over the long run
The second step in the strategic planning process:
environmental assessment
The rationale for assessing the environment
2 THE COMPOSITION OF THE ENVIRONMENT
The environment in which an organisation operates can be divided into the internal environment and the external environment Internal environment eg organisational structure, the resources, the assets, the employees, the mission and vision, the board of directors and so on. This environment is often referred to as the microenvironment and it is controllable through management decision making and action.
1EXPLAIN THE RATIONALE FOR ASSESSING THE EXTERNAL AND INTERNAL ENVIRONMENT
In order to develop the most effective and efficient strategy it is important to analyse the organisation internally .The success of a new strategy for an organisation depends on the strategic fit between the internal situation of the organisation and the external conditions. By using swot analysis an internal and external assessment is done on the organisation-about what the organisation has in terms of resources and capabilities and about what is happening in the environment. The organisation needs to use its resources, capabilities and skills to build a competitive advantage. Swot analysis highlights the basic raw materials of specific conditions in the business’s environment. If the external environment analysis is done thoroughly.
Strategic management aims for the long term survival or sustainability of the organisation.
The organisation operates in an environment which it cannot control. The organisations competitive advantage and survival is threatened by factors in the external environment. Competitors are competing for the organisations market share and customers. The organisations survival is influenced by the changing needs of its customers.
Factors in the macro environment which the organisation cannot control impacts on the operations and survival of the organisation.
4 SWOT ANALYSIS
Strengths,Weaknesses, Opportunities and Threats.
Strengths – refers to a resource or a capability that the organization has that is an advantage relative to what competitors have
Weaknesses – refers to the lack of or deficiency in a resource that is a relative disadvantage to an organization in comparison with what competitors have.
Opportunities – Refers to a favourable situation in the organization’s external (market and macro) environment)
Threats- Refers to an unfavourable situation in the organisation’s external environment
Limitations of SWOT analysis
The focus on the external environment may be too narrow.
It is perhaps a static assessment – a one shot view of a moving target
The strengths that are identified may perhaps not lead to an advantage
It may lead to an overemphasis of a single feature or strength and a disregard for other important factors that may lead to competitive success.
The strengths and weaknesses are located in the internal environment. The
opportunities and threats are located in the external environment.
Internal environmental assessment using aresource-based view
2 RESOURCE-BASED VIEW
The resource-based view argues that internal resources are more important for an organisation than external factors in achieving and sustaining competitive advantage.
Categories of resources:
Tangible assets – The value of tangible resources can be det by looking at the organization financial statement ie balance sheet
Intangible assets – are assets that one cannot touch ie patents and copyrights, brand recognition, corporate reputation and brand equity
Organisational capabilities – are the complex network of processes and skills that determine how efficiently and effectively the inputs in the organization will be transformed into outputs.
2.2 Characteristics that make a resource valuable: