L.

G Dakela

Learning unit 3 – Question 1

Explain various methods of macro environmental analysis

1. Scanning involves detecting and identifying early signals of potential environmental changes and trends. It
entails studying all the segments in the broad environment and reveals ambiguous, incomplete and unconnected
data. Many organizations use special software to help them identify current events and trends using public
sources on internet. Environmental scanning will enable managers to forecast changes in the expected
profitability of the industry and to adjust their strategies accordingly.

ii) Monitoring concern the detection of meaning through ongoing observations of environmental changes and
trends. Analysts observe environmental changes when monitoring to see if an important trend is emerging from
among those spotted through scanning. Scanning and monitoring are particularly important in industries with high
technological uncertainty.

iii) Forecasting involves developing easy projections of what might happen and how quickly as the result of
changes and trends identified through scanning and monitoring. eg analyst  may want to forecast the time that
will be required for a new technology to reach the market place because this will give an organization an idea of
how much time will be available to train employees to deal with the anticipated changes.

iv) Assessing is about determining,  importance and the implications of environmental changes and trends for
organization's strategies and their management. through scanning, monitoring and forecasting analyst are able to
understand the general environment and assess the changes and trends.

Learning unit 3 – Question 2

2)    Analyze the attractiveness of the South African mining industry using Porter’s Five Forces model

According to Porter, there are five forces that are primarily responsible for industry attractiveness. These five
forces are Customers, Suppliers, Existing Competitors, Potential Competitors and Substitute
Providers. Porter argues that the greater the collective strength of the five forces, the less profitable and less
attractive the industry is likely to be. It is important to define the industry’s barrier prior to commencing with an
analysis of the five forces. The basic steps to follow when using the five forces model are (1) For each of the five forces,
identify the parties involved, (2) Evaluate how strong the pressures stemming from each of the five forces are in terms of
strong, moderate to normal, and weak; (3) Determine whether the collective strength of the five forces overall is conducive to
earning attractive profits in the industry.

In analyzing the SA mining industry, the following conclusions can be made on each of the five forces:

a. Customers, or power of buyers, is strong as they have the ability to buy in bulk, such as governments or
big corporations buying gold or iron ore; the product on offer is similar which makes it easier for buyers
to switch suppliers within the SA mining industry or by dealing with other countries, and the value of the
purchases presents a significant portion of the sellers income, for example Lonmin deals predominantly
in platinum sales.
b. Power of suppliers is strong in the SA mining industry. Suppliers such as Eskom, who supplies all
electricity requirements, holds a monopoly in South Africa and prices increased drastically over the past
few years. There are also concerns around the supply of labor resources which are controlled through
Unions such as NUMSA where the workforce regularly participates in strikes around salaries and
benefits.
c. Existing competitor strength is medium to normal since there are not many rivals within the SA mining
industry of equal size and power. The biggest players are corporations such as Anglo Gold, Goldfields,
De Beers and Lonmin; the industry is growing at a slow rate; the incumbents carry huge fixed costs and
exit barriers are extremely high.
d. Potential competitor strength is low due unlikely treat of entry from new competitors. Cost of entry into
the mining industry is extremely high due to capital required. Access to distribution and economies of
scale also deter new entrants
e. Substitute provider strength is also quite low in the mining industry. There are no real substitute for rare
metals such as gold and platinum, or for more common metals such as iron and copper.

In conclusion, it can be said that even though the mining industry in South Africa may have lost some of its
attractiveness over the past years, if a competitor is able to overcome all obstacles presented by entering the
industry, it may still prove reasonably attractive and profitable (2015-11-02 11:10:57)
1. Critically differentiate between resources, capabilities and competencies (10) LU4

Resources

Resources are the productive assets owned by an organisation and can be grouped into the following five
categories:

1. financial capital resources ( e.g. the organisation’s ability to generate funds, internally or through loan
and investments)
2. physical capital resources (e.g. operational and manufacturing plant and equipment, location and
access to raw materials)
3. human capital resources ( e.g. knowledge, management and employee insight, intellect, relationships,
training, experience  and judgement)
4. organisational capital resources ( e.g. reporting structure and management, including planning,
coordinating, controlling and networks)
5. technological capital resources (e.g. ICT systems)

 Organisational resources are further classified into tangible and intangible resources, as explained below.

 Tangible resources

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. 

 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. This implies that there are three types of
intangible resources:

 human resources
 innovation resources
 reputation resources 

Knowledge is a powerful and valuable intangible resource, and the difference between explicit and tacit
knowledge is of significance in their respective values as sources of competitive advantage.

Individual resources often have limited value, but a combination of resources can become exceptionally valuable
and resources and capabilities lead to core competencies.

 Capabilities

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 

Core competencies
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.

 Resources and capabilities have the potential to become core competencies that can result in a competitive
advantage, provided certain conditions are met. The analysis of resources, capabilities and competencies is
approached from a resource-based view of the organisation. For resources and capabilities to become core
competencies they need to be valuable (V), rare (R), inimitable (difficult to imitate) or nonsubstitutable (I) and
exploitable by the organisation (O) – the so-called “VRIO framework for appraisal”. These criteria are used to
assess the value of resources, capabilities and core competencies.
 Criteria for core competency leading to competitive advantage:

 Valuable (V) implies the extent to which resources and capabilities can be transformed to enable the
creation of higher value for the consumer through differentiation or low cost. Examples would be
increased customer value resulting from a superior low-cost strategy in the case of Mango airlines, or
the increased customer value resulting from effective product or service differentiation, in the case of the
City Lodge Group, with its Courtyard Group of hotels, City Lodge, Town Lodge and Road Lodge, serving
different customer-market segments.
 Rare (R) exists when organisations own a valuable resource or possess a rare and valuable capability
that competitors do not have, or is not available to them, such as a pharmaceutical manufacturer's
patent for a specific proprietary medicine. Ö
 Inimitable (I) implies that resources and capabilities should in some way be protected against imitation
to be valuable. This could involve being too difficult or too costly to imitate, or there should be no viable
substitutes. Ö
 Organisation (O) means that where organisations cannot exploit its resources, capabilities and core
competencies, they will be of little value. The way in which leadership, organisation culture, strategies,
policies, systems and procedures are manifested in or executed by an organisation should result in the
optimal deployment of the organisation's resources, capabilities and core competencies, leading to
effective strategies, superior customer value creation and excellent performance. Ö

2. Explain the role of the resource-based view in the internal analysis (10) LU 4

The RBV is a model for analysing the strengths and weaknesses of an organisation, which can then be linked to
environmental opportunities and threats as inputs to the formulation of competitive business level strategies.
Combining internal strengths and weaknesses with external opportunities and threats is the basis for SWOT
analysis.

The resources, capabilities and competencies of an organisation are linked, and need to be fully understood in
the context of internal analysis. These concepts are known 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-12

specific strengths that allow a company to differentiate its products from those offered by rivals, and/or achieve
substantially lower costs than its rivals”. This implies that core competencies arise from two complementary
sources: 1) resources and 2) capabilities of an organisation

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The resource based view focuses on the strengths, resources and capabilities of organisations.It is a model of
analysing the internal strengths and weaknesses of the organisation regarding its resources and linking to
opportunities in the external environment.The resource based view determines where the organisation can build
competitive advantage, superior performance and customer value.The important considerations for internal
assessment of an organisation are:

 The strategic direction such as vision, mission, purpose and values

 The key internal stakeholders including managers, their experience, strengths, weaknesses and
management style
 The owners of the organisation
 Operational issues such as sales, assets and location
 The types and level of employees and culture of the organization
 3. Explain the role of value chain and resource based view in internal analysis
LU4

Porter (1995) linked the following two areas together for the purposes of internal analysis using
the value chain:

a. Identify the added value that each part of the organisation contributes to the whole organisation
b. Identify the contribution that each of these parts might then make to the competitive advantage of the
whole organisation

 The main purpose of an organisation is to add value successfully in the process of producing and or
delivering services.  The activities of an organisation such as primary and support categories are
effectively combined to create customer value:

i. Primary activities and related capabilities of the value chain

 Inbound logistics:  receiving, storing and distributing inputs for manufacturing of products by the
organisation.   Capabilities: purchasing, material and inventory control systems
 Operation: activities that transform inputs into final products such as facility operations, machines and
assembly.  Capabilities:  design   development, quality control, component manufacture and assembly.
 Outbound logistics:  collecting storing and distributing products and services to customers. 
Capabilities: distribution coordination, process related to warehousing of products and dealer
relationships.
 Marketing and sales:  marketing, sales and purchasing of products and services of an organisation. 
Capabilities: innovative promotion and advertising, and a motivated sales force.
 Customer services: everything involved in proving and maintaining the value of a product for the
customer.  Capabilities:  parts, warranty and servicing arrangements, and the quality and training of
employees 

ii. Support activities of the value chain

a. Administration and infrastructure:  support the entire value chain such as management, planning,
financial management, information systems, legal issues and quality management.  Capabilities: risk
management and integration of the value chain.
b. Human resource management:  involves the appointment, development and retention of employees at
all levels, their compensation and all matters relating to their employment.  Capabilities:  training, skills
development, staff recruitment and retention.
c. Procurement is the purchasing function.  Capabilities:  inventory and database and database
management.
d. Technology development include all technology related to the operations and management of the
organisation.  Capabilities:  integrated management information systems and technology-managed
design and manufacturing.

1. Critically discuss the obstacles and drawbacks in doing business in Africa LU5

1. Lack of Infrastructure

Insufficient infrastructure in Africa is a significant damper on investment and business in Africa for example:
roads, harbours, electricity, ICT networks and railways.  Governments are not willing to spend enough
money required to keep roads in basic repair. The lack of infrastructure compounds the high poverty and low
food security levels in Sub-Saharan Africa.  It also hampers the distribution of food and food aid, and
information.  For business, the lack of infrastructure may translate into an inadequate and disorganized
supply chain and distribution system.

1. Lack of Industrial Development

There is a need to improve and increase manufacturing capabilities.  Most of the member countries apply
primary resource development such as mining or harvesting and then export the raw product for secondary
and tertiary economic processing.  This leads to intensive imports as the final products need to be brought
back into these countries for local consumption.  Development in secondary and tertiary industrial activities
would result in greater creation of wealth and independence of imports, it could also lead to greater
production capabilities which in turn would stimulate imports and create not only jobs but also wealth.
 1. Political Instability

Political instability in Africa takes the form of unpredictable government decision making that results to
armed conflict which makes foreign investment extremely risky at best.  For example: in Zimbabwe, the
government has been enforcing their 2007 Act requiring that all foreign business have a local 51% partner. 
All foreign small and medium enterprises which did not comply until January 2014 had to close and vacate
their premises or face arrest.  This led to dwindling economy rather than economic growth.

1. High Levels of Poverty

In most African and many other developing countries, a large proportion of the population lives on less than
two US dollars a day.  This population often endure poor living conditions and are susceptible to diseases
such as malnutrition , cholera and tuberculosis, yet they do not have access to good healthcare.  They are
also unable to obtain an adequate education.  This forces them into a cycle of poverty which is very hard to
escape.  In South Africa a large proportion of the population survive on welfare grants and other social
services funded by tax payers.

1. Corruption

The cumulative effect of corruption on business and society can be disastrous.  According to various
international indices such as Transparency International’s Corruption Perception Index, 90% of the countries
in Africa, on average, scored 33, below the symbolic pass mark of 50.

1. An Inefficient Public Sector

The economic growth for the African economy was negative in 2013.  This was dismal failure to alleviate
poverty in Sub-Saharan Africa, where per capita income now is less than it was in 1994, can be attributed to
an inefficient public sector.

1. Lack of Key Skills

African markets often present investors with a lack of people with key business skills and an oversupply of
semi-skilled and unskilled workers.  This is caused by limited access to education at various levels.

2. Critically assess the role of government in enhancing business conditions in Africa (10)

Governments can enhance/deter economic growth & development through their strategies, policies, investment decisions.
Main purpose, apart from ensuring political stability is to create an environment conducive to economic

growth, foreign investment, export promotion, job creation & poverty alleviation. Role of governments is to
provide an enhancing business environment in which businesses can effectively deploy strategies to compete
effectively.

Section focuses on strategies of overarching institutions like the AU, regional bodies (SADC) & individual
countries. For Africa to grow and comply with the AU and SADC strategic objectives, countries in Africa will need
to be more focused on improvement and growth, with maintenance of infrastructure of critical importance.

AU and SADC objectives and strategies are aimed at infrastructure improvement and promoting exports to
increase the competitiveness of countries in the region, but these can only be implemented by individual
countries
Discussing corporate governance
Corporate governance refers to the frameworks provided for governing sustainably. It is described as the system
by which corporations are directed and controlled, and it performs the following functions: (1) it specifies the
distribution of rights and responsibilities among different participants in the corporation (such as the board of
directors, managers, shareholders, creditors, auditors, regulators, and other stakeholders); (2) it specifies the
rules and procedures for making decisions in corporate affairs;  (3) it provides a structure through which
corporations set and pursue their objectives, while reflecting the context of the social, regulatory and market
environments; (4) it is a mechanism for monitoring the actions, policies and decisions of corporations; and (5) it is
a mechanism for aligning the interests of different stakeholders.
 
In most countries, corporate governance frameworks have been adopted to provide corporations with specific
guidelines on how to implement and manage corporate governance procedures. Ultimately the role of
governance frameworks is to provide mechanisms to help corporations (and other entities) attain sustainability. In
South Africa, the King Code of Corporate Governance of 2009 (generally known as King III) is widely regarded as
a state-of-the-art code for corporate governance. Although some aspects of governance are legislated (e.g.
auditing and reporting in the case of listed entities) the governance guidelines are mostly for voluntary
compliance, described as ‘comply or explain’. It provides guidelines on boards and directors, accounting and
auditing, risk management; internal auditing; integrated sustainability reporting; compliance and stakeholder
relationships; business rescue; fundamental and affected transactions; IT governance; and alternative dispute
resolution mechanisms. The Public Finance Management Act (PFMA) of 1999 is a regulatory framework that
regulates the governance of public sector institutions. It is like the King Code for public sector entities, with the
difference that it is legislation and thus legally enforceable. The objectives of
the PFMA are to
 
 modernise the system of financial management in the public sector
 enable public sector managers to manage, but at the same time be held more accountable
 ensure the timely provision of quality information
 eliminate waste and corruption in the use of public assets
 
The role of corporate governance in corporate sustainability
Corporate and public sector governance both have the same overarching goals, namely to provide guidelines for
managing ethically and sustainably. The King Code of Governance Principles (King III) is a sound framework to
guide companies on governance principles. It is the responsibility of organisations to ensure that they comply
with the principles of King III.
 
Some companies choose to ignore these principles or apply them selectively. In other cases, the guidelines may
be used simply to show compliance, instead of as a mechanism to truly improve governance in the organisation.
Such behaviour is not conducive to economic, environmental and social sustainability.
 
The board of directors or governing board (in the case of not-for-profit organisations) are responsible for
governance in the entity they represent. The board is a focal point of corporate governance and should provide
effective and ethical leadership to direct and safeguard the relationship between the board itself, management,
shareholders and other stakeholders. This includes setting the strategic direction of the entity, taking
responsibility for its effectiveness and ensuring compliance and accountability. More specific tasks of the board
roles are outlined below.
 
Yeh and Taylor (2008) suggest that boards are generally responsible for
 developing, formulating and monitoring corporate strategies
 formulating policies
 enhancing the public image of the organisations they represent
 reviewing and monitoring managerial activities and performance
 reporting to stakeholders
 employing, evaluating, providing advice to and rewarding top executives
 ensuring organisational compliance with related legislations and governance guidelines
 managing financial resources
 developing a risk management plan
 conducting self-assessments (i.e. measuring board performance)
 initiating board development activities, such as director training

Explain what sustainable organisations are and why they are important
2.1          Sustainable organisation take a long-term view in its decision making rather than a short-term one. 
This may require giving up profits in the short term in exchange for survival and wealth creation in the long term. 
Sustainable organisation have the ability to endure and continue over a long period of time.
Why sustainable organisations are important
Sustainable organisations balance the economic objectives i.e. profit with the welfare of the communities in which
the organisation operates (social dimension) it protects the environment in which the organisation physically
exists.
Question 3
Describe the four pillars of corporate sustainability
3.1          Organisational Context
Organisational context refers to all internal aspects such as the internal strengths and weaknesses of the
business that can have an influence on the sustainable planning process.  The organisation needs to draw on
key strengths and address key weaknesses in order to succeed.  There are other specific elements to an
organisation that will affect its ability to develop and execute sustainable strategies.
 Governance structure:are the rules, procedures, process and structures that ensure that the
organisation is managed in a sustainable way.Processes like operation and risk management will form
part of this element.Corporate accountability is an important element of governance.
 Structure:refers to the extent to which different elements of the organisation are suited to the strategy
selected and that positions are filled with people with the competences required.
 Leadership and Culture: determine to a large degree the capacity for change and the shared values that
are required for executing strategies.
 Technology: refers to the equipment needed for daily operations and production of products.Lack of
access to appropriate technologies or choosing the wrong technologies can lead to an inability to
perform optimally.
3.2                Stakeholders
Stakeholders are entities that can be affected or affect the organisation’s actions such as creditors, directors,
employees, government, owners, suppliers, unions, the environment and community from which the business
draws its resources.  The organisation must as far as possible develop strategies that balance the demands of
multiple stakeholders.  The organisation need to weigh up the claims of stakeholders and the relative power and
influence of stakeholders.
Stakeholders differ from firm to firm and from industry to industry. The following are the determining factors:
 Stakeholder power: is determined by the extent to which stakeholders control the resources required by
the organisation.
 Stakeholder legitimacy:is determined by the extent to which the stakeholder are affected by the decision
of the organisation, and the more affected, the higher the legitimacy.
 Stakeholder urgency: is determined by the time sensitivity of the stakeholder’s claim, and the level of
importance to the stakeholder.The more urgent and important the claim, the higher the level of urgency.
Stakeholders can be classified into three broad classes:
 Latent stakeholders:  have only one attribute, either power, legitimacy or urgency.
 Expectant stakeholders:  have two of the three attributes.
 Salient stakeholders: have the strongest claim, and will be most important to the organisation.
3.3          Strategic fit
The long-term strategic success is only possible if the strategies of the organisation are aligned with the internal
and external environments and if processes and capabilities exist to adapt to changes in the environment.
3.4          Business ethics
Businesses should at all times comply with the laws and regulations of the land and the industry in which they
operate.  This can be measured by simply consider the behaviour of the business and compare it to the laws and
regulations that it is bound to uphold.
Guidelines that constitute unethical business practices:
 Behaviours that are illegal or in contravention of regulations or legal contract
 Discriminatory and unfair practices
 Misleading stakeholders deliberately
 Deliberately behaving in ways that are detrimental to stakeholders
 Being unduly influenced
The code of conduct is important in strategic management in order to guide the actions of management and to
help the organisation to avoid ethical pitfalls.

Question 4
Discuss the “triple-bottom line” and explain why it is important
4.1  Environmental context
        There are arguments regarding the environmental context, i.e. people being generally restricted to doing
what they can in their immediate environment, same thing applies, businesses tend to operate in a specific
environment, and will need to do what they can to sustain their physical environment.  For strategies to be
sustainable an organisation should not harm the physical environment in which it operates.
4.2  Social context
The focus of a social context is on the contribution the organisation makes to the general welfare of the
communities and the broader society in which it operates.  A tool that addresses this aspect directly is the
corporate social responsibility (CSR) programme of every business:
Corporate social responsibility is continuing 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 of 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 the business to
create long-term sustainability.  Planning is important because if the project fails to deliver, it will not only reflect
negatively on the company’s reputation, but will also be detrimental to the company’s long-term sustainability.
The benefits of corporate social responsibility can vary significantly from one project to another depending on the
following aspects:
  Design of the project
 Outcomes of what the corporate social responsibility department wants
 How the project will fit in locally with the needs of the community
 Support from the different role players
Project success is also location specific.  A project that is successful in one community can be a failure in another
because of different needs and community characteristics. Successful projects are usually designed in
participation with all role players and beneficiaries who then feel connected to these projects and believe that
these projects and believe that these projects address their most important needs.  Social context is important as
sustainable strategies contribute positively to the communities in which they operate.
4.3  Economic context
It refers to the economic contribution of the organisation in terms of its profit and wealth creation.  For example:
an organisation can increase bonuses for managers and employees through its profits and also higher salaries,
dividends for shareholders and funds for investments which may lead to the creation of new jobs.
By increasing the value of the organisation for example: where the value of shares increase over time, the
organisation creates wealth for its shareholders, who can in turn invest their wealth in other ventures to the
benefit of other stakeholders such as employees.  Economic context is important as it relates to the economic
success and contribution of the organisation, typically measured by financial measures such as profits, return on
equity and economic value added.

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 (20) - LU7

Cost leadership strategy

The aim of this strategy is to under-price competitors by building and sustaining their competitive advantage
through the reduction of costs, or keeping lower than those of their competitors, while providing products and
services that customers want, at the same or a higher quality than their competitors. For example, Kulula
minimises costs by landing at cheaper airports (Lanseria).

Differentiation strategy

The aim of a differentiation strategy is to produce products and services that are unique in the industry for
customers that are not price sensitive and are willing to pay a premium price for products and services with
unique, differentiated features that they desire. For example, Starbucks is the leader in the coffee market. As an
individual company, it controls several times more market share than any of its competitors. More than just a
high-priced coffee shop, Starbucks offers a combination of quality, authority and relative value.

Focus low-cost leadership and differentiation strategies

An organisation may often find itself in a situation where neither a low-cost strategy nor a true differentiation
strategy is feasible across a broad range of the market. One option is to identify and serve a niche or focus
market competitively. For example, Yo-sushi offers low-cost sushi as part of a focused low-cost leadership
strategy, and Porsche is employs a focused differentiation strategy in the luxury sports car market.

Best-cost provider strategy

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. For example,
Toyota’s Lexus is a case in point.