Professional Documents
Culture Documents
MNG3702 Pescribed S
MNG3702 Pescribed S
Practising
Practising Strategy
A southern African context
Third edition
Editors
Tersia Botha and Peet Venter
KI
juta
Practising Strategy: A southern African context 3e
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CONTENTS
PREFACE............................................................................................................................ ix
ACKNOWLEDGEMENTS.................................................................................................. xiii
iv
CONTtNTS
8.1 What is strategy implementation and how does it differ from strategy
formation?............................................................................................................. 231
8.2 Barriers to successful strategy implementation................................................... 234
8.3 Principles of strategy implementation.................................................................. 235
8.4 Change - a fundamental strategy implementation element............................... 239
8.5 Types of strategic change..................................................................................... 241
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
vi
CONTENTS
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
INDEX................................................................................................................................ 417
viii
Preface
Why another strategy book? There are, after all, quite a number of books, international
and local, already available on the South African market. We had to position this book
definitively to make a unique contribution to the extant body of knowledge. So how, then,
is this book different? We believe that there are five key aspects:
■ A cursory review of strategic management books shows that the focus is very
strongly on the process of strategy formulation, i.e., the thinking and analytical
aspects of strategic management, as opposed to the 'doing' part of strategy, which
is often dealt with in one or two chapters towards the end. Given that it is the
greatest challenge to managers in the 21st century and the greatest reason for
strategy failure, we decided to focus on strategy implementation instead.
■ Most strategic management books portray strategic management as a neat,
analytical and rational process that flows from top to bottom in the organisation.
Rather than promoting the unrealistic idea of strategy as a purely rational and
deliberate outcome, we acknowledge and explore the idea that strategy is often
emergent, messy and experimental, and above all a human activity.
■ Top management has long been regarded as the custodians of strategy. The idea
that there are other strategists (human and non-human actors) such as middle
managers and consultants that influence the strategic direction of the organisation
and distribution of resources emerged only relatively recently, and we include this
factor.
■ We focus on strategy as something that people ‘do’ rather than something that
an organisation 'possesses'. Since people are the building blocks of strategy, we
recognise that strategy is both a cognitive and political activity.
■ It integrates the three domains of responsible management - sustainability,
responsibility towards all stakeholders and ethics - into the strategic management
process that serves to create responsible competitiveness.
We trust that you will find value in the contemporary and different perspectives we
present in this book.
Peet Venter
Tersia Botha
ix
About the authors
Peet Venter
Peet Venter is a Professor of Strategy at the University of South Africa's Graduate School
of Business Leadership (the SBL). He holds an MBA from the University of Pretoria and
a Doctor of Commerce in Business Management from the University of South Africa. In
addition to his more than 20 years' experience in teaching and supervising postgraduate
students in management and strategy, Prof Venter has considerable practical experience
in the telecommunications industry, and has worked on many strategic projects in various
private and public organisations. He has published widely in the areas of strategy and
strategic marketing.
Tersia Botha
Professor Tersia Botha has taught strategy, general management, finance and entre
preneurship for the past 27 years at the University of South Africa. She authored, co
authored and acted as editor of numerous academic books in the field of leadership,
corporate citizenship, general management, strategy, business management by portfolio
and strategy. She published articles in accredited peer-reviewed academic journals
and presented papers at international and national conferences. Prof Botha has been
involved in many community engagement projects for the past 25 years, most notably the
partnership with Education Africa and the Davis and Dean Youth Development Programme.
Cecile Nieuwenhuizen
Annemarie Davis
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
Professor Mari Jansen van Rensburg is the Mauritius Campus Director of Middlesex
University. As Campus Director, Mari leads the Mauritius campus of this renowned UK
university and is responsible for shaping and delivering the strategic plan for the campus.
Mari has extensive experience in multicultural and multidisciplinary settings with in-
depth knowledge of higher education in Africa. Mari's formal qualifications include a
BCom (Marketing Management), BCom (Hons), MCom and DCom (Business Management).
Mari specialises and publishes in the fields of strategic and relationship marketing as well
as change and strategic management.
Trevor Amos
Noel Pearse
Noel Pearse is a professor at the Rhodes Business School and a registered Industrial
Psychologist with the Professional Board of Psychology of the Health Professions Council
of South Africa. He has consulted to, and conducted training on behalf of National
Parliament, government departments, NGOs and private companies. He has also done
extensive work in the automotive industry.
xii
Acknowledgements
■ Chapter 1 case study page 3: https://cdn-s3.sappi.com/s3fs-public/Diagram-Sappi-
corporate-structure-Landscape-Standalone.pdf
■ Chapter 2 case study page 51: https://www.mckinsey.com/industries/healthcare-
systems-and-services/our-insights/how-discovery-keeps-innovating?msclkid=18cb5
ae6d10311ecaf3520f0799334aa El
■ Chapter 3 case study page: 71: https://businesstech.co.za/news/banking/525O74/
capitec-reports-continued-recovery-on-expanded-digital-offerings-and-strong-
customer-growth/#:~:text=Headline%20earnings%20increased%20to%20R3,93-
6%20billion
■ Chapter 4 case study page 97: By permission of Aspen Holdings
■ Figure 4.2: ‘A conceptual framework of the strategy-as-practice'. Jarzabkowski, P.,
Balogun, J. Et Seidl, D. 2007. ‘Strategizing: the challenges of a practice perspective'.
Human Relations, 60 (1): 5 ® 2007 The Tavistock Institute. SAGE Publications
■ Chapter 4 practising strategy page 92: Adapted from: http://ethekwinilivinglegends.
com/portfolio-items/sizwe-nxasana/http://www.sowetanlive.co.za/news/201 5/04/04/
you-need-discipline-to-succeed-nxasana
■ Chapter 4 practising strategy page 109: By permission of Woolwoths Holdings
Limited
■ Chapter 6 case study page 161: By permission of Discovery Limited
■ Chapter 6 practising strategy page 167: By permissionof Discovery Limited
■ Chapter 6 practising strategy page 170: By permission of Discovery Limited
■ Chapter 6 practising strategy page 172: By permissionof Discovery Limited
■ Chapter 7 case study page 200: https://www.mrpricegroup.com/mr-price-group-
investor-relations.aspx
■ Chapter 8 case study page: 229: https://www.naspers.com/about [accessed 5 May
2022]; https://www.naspers.com/about-us/ strategy
■ Chapter 10 case study page 281: Adapted from: BusinessTech. 5 June 2022. South
Africa's municipalities on the brink of collapse:
■ Chapter 10 practising strategy page 285: By permission of Discovery Limited
■ Chapter 11 page 305 The Vodacom Way. Vodacom Lesotho. 2017. The Vodacome
Way'. Available online at: http://www.vodacom.co.ls/ls-about-us/about-us/the-
vodacom-way ® and permission of Vodacom Lesotho
■ Figure 11.3: 'Strategy through a cultural lens: Learning from manager’s experience'.
Johnson, Gerry. Management Learning. 31, Iss. (4), (Dec 2000): 403-426. Copyright
0 2000 Sage Publications
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
xiv
The evolution of
1 management theories
Tersia Botha
2
and practices that contemporary managers use to solve problems,
make decisions, practise strategy, have their roots in the history of
management theory. This chapter will commence with a brief overview
of the most prominent traditional theories of management. We will
then proceed to explain how the traditional theories of management
evolve into the contemporary theory of responsible management.
Next, we will debate the drivers of responsible management. We will
conclude the chapter with an explanation of the relationship between
strategy and responsible management. The following opening case
will be used for illustrative purposes throughout the chapter.
Case study
Sappi Limited1
Background
Sappi was founded in 1936 in South Africa to serve South African consumers with locally
produced paper. They have a tradition of innovating and developing new products to
meet local demand for newsprint, graphic papers (paper used for communication
purposes that includes printing and writing papers), packaging papers used to protect
their customers' products (especially in the agricultural sector) and speciality papers used
in the convenience food, confectionery, cosmetic and luxury markets, and tissue paper for
household, medical and industrial use in the Southern Africa region.
Sappi is also the world's largest manufacturer of dissolving pulp (OP). DP is bleached
wood pulp that has a high cellulose content. DP is so named since it is not made into paper
but dissolved either in a solvent or by derivatisation into a homogeneous solution, which
makes it completely chemically accessible and removes any remaining fibrous structure.
Once dissolved, it can be spun into textile fibres (such as viscose, rayon or Lyocell), or
chemically reacted to produce derivatised celluloses, such as cellulose triacetate, a plastic
like material formed into fibres or films, or cellulose ethers such as methyl cellulose, used
as a thickener. DP is used worldwide by converters to create viscose fibre for fashionable
clothing and textiles, acetate tow (which is used, for example, to keep the quality and
aroma of cigarettes), pharmaceutical products as well as a wide range of consumer and
household products.
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
In 2013, Sappi shifted its South African timber resources into the production of dissolving
wood pulp to meet the growing demand for viscose fibre in the Far East, as traditional paper
markets declined. With the recent completion of major expansion and conversion projects
at its Ngodwana and Cloquet mills and the ramp-up of production of dissolving wood
pulp, Sappi has repositioned itself to take advantage of growing markets for this versatile
product. This strategy is a response to weakening demand around the world for fine paper.
"The group has invested substantial money in South Africa and North America into the
production of specialised cellulose,' said Alex Thiel, Sappi SA’s CEO at the time. 'We need to
move Sappi's traditional paper business into areas of more long-term, sustainable growth.'
He pointed out that this does not mean that Sappi is walking away from its traditional
business of producing paper pulp and fine paper. "There's limited growth potential for
graphics paper, so we are adjusting our capacity,' said Alex. 'We supply according to the
market demand but there is no huge growth. We will optimise our production and sustain
our market share.' Alex also sees a bright future for the packaging business and Sappi is
ramping up production for packaging grades, which are manufactured at the Tugela and
Ngodwana mills, utilising softwood fibre.
Sappi is the world’s biggest producer of dissolving wood pulp, which is marketed
under the name 'Specialised Cellulose', and enjoys several competitive advantages in this
market. Sappi's Saiccor mill has been manufacturing dissolving wood pulp since 1955
- it was bought by Sappi in 1989 - so there is a wealth of expertise and experience at
the individual level, both in terms of production and marketing. Sappi owns extensive
plantations in South Africa that are well suited to growing the hardwood fibre required
to supply the mills. Sappi plantations in KwaZulu-Natal and Mpumalanga are already
being converted from softwood to hardwood to meet the growing demand. The company
does not own plantations in North America but has access to sufficient hardwood timber
resources to supply the Cloquet mill with its raw material requirements. Sappi's specialised
cellulose product is marketed mainly in the East, where it is used to produce viscose fibre
used in the clothing and textile industries. Sappi SA has a competitive advantage through
technical expertise as well as economies of scale in that Saiccor is the biggest single-site
producer in the world and the timber supply is close to both the Saiccor and Ngodwana
Mills. There is also a logistical advantage in exporting to the East from South Africa.
Once it has reached full production, Ngodwana will require two million tons
of timber a year, 900,000 tons of which will be hardwoods. Sappi-Saiccor requires
2.8 million tons a year, all hardwood. Wattle makes up 10 per cent of this raw material,
with Eucalyptus makes up the rest. Sappi's total timber requirements in South Africa are
5.5 million tons a year, 70 per cent of which comes from its own plantations and the
balance from private timber growers, small growers and community forestry projects.
Sappi has sufficient resources in the ground in KwaZulu-Natal to provide for the Saiccor
expansion, and a surplus of hardwoods for Ngodwana. Softwood plantations in both
regions are being converted to hardwoods to ensure a sustainable supply of raw material
to the mills.
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CHAPTER 1: THE EVOLUTION OF MANAGEMENT THEORIES
In 2017, Sappi's shift to place more emphasis on dissolving pulp and speciality packaging
was starting to pay off. They managed to improve their European and US businesses.
In South Africa, the paper business experienced a strong recovery in sales volumes.
In a move to reposition the business, CEO at the time, Steve Binnie, said Sappi would
undertake some measures to keep the business going in a rapidly changing global market.
Their traditional glossy-paper business represented only one-third of the company while
two-thirds consisted of dissolving wood pulp and speciality packaging.
Sappi is unlocking the power of renewable resources to meet the needs of the planet and
people while seeding prosperity for all. That's why they have made the United Nations
Sustainable Development Goals (SDGs) an integral part of their business. The goals define
17 global priorities that challenge all at Sappi to lean in and apply their creativity and
innovation to contribute solutions to challenges - from climate change to poverty.
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
Globally, Sappi has identified seven priority SDGs where they believe they can make
the biggest impact. These are the following:
1. Clean water and sanitation. Water is vital to all life, and especially to Sappi's
business. Water not only nourishes trees but is used to make pulp and paper,
generate steam power and so much more in their mills. That's why Sappi takes
their role as responsible water stewards in the regions where they operate
so seriously. Sappi's water-reduction target (to reduce specific water use in
water-stressed locations by 18 per cent) focuses especially on their mills in
South Africa where they have some of their largest operations.
2. Affordable and clean energy. As an energy-intensive industry, Sappi’s fuel
choices have a major impact on air emissions. They focus on increasing the
share of renewable and clean energy within their energy consumption, while
also continually improving their energy efficiency. Their target is to increase
their share of renewable and clean energy by 9 per cent and decrease specific
total energy by 5 per cent.
3. Decent work and economic growth. As a responsible business operating in
many locations around the world, this broad goal aligns with their focus
on being a responsible corporate citizen and providing a safe working
environment in which their employees can reach their full potential. Sappi's
targets are, inter alia, to achieve zero injuries and to increase the proportion
of women in management roles by 3.7 per cent.
4. Responsible consumption and production. Manufacturing products
from renewable resources is the core of Sappi's business and central to its
commitment to the circular economy. Through Research Et Development,
practical innovation and new product development, they continually create
new products, solutions and value from natural resources. Their target is to
launch 25 products with defined sustainability benefits and to reduce specific
landfilled solid waste by 14 per cent.
5. Climate action. Taking urgent and appropriate actions to combat climate
change and its impacts is a shared responsibility. Sappi is focused on the
continued reduction of its greenhouse gas emissions. Their target is to reduce
specific GHG emissions by 17 per cent.
6. Life on land. With Sappi's excellence in sustainable forest management and
commitment to stewardship, they want to continue to increase their positive
contribution to healthy landscapes. They practise and promote sustainable
forestry because it ensures clean air and water, protects biodiversity, and
defends against climate change, among many other critical benefits. Forest
certification validates their forest management practices and those of their
suppliers in the well-managed forests and plantations from which they source
woodfibre. They strive to continually increase the share of certified woodfibre
supplied to their mills. Their target is to have a share of certified fibre of
more than 75 per cent and to increase the enhancement of biodiversity in
conservation areas by 10 per cent.
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CHAPTER 1: THE EVOLUTION OF MANAGEMENT THEORIES
7. Partnership for goals. While Sappi is already engaged in, and has been
contributing to many partnerships and collaborations, they are looking
forward to working more deeply with others to scale their ambition in pursuit
of achieving the Sustainable Development Goals by 2030.
In South Africa, home to Sappi's global headquarters, they have selected an additional
priority SDG that reflect the socio-economic development priorities that reinforce their
unique and longstanding investments in people and local communities in the country.
Their target is to advance their Broad-based Black Economic Empowerment to Level 1.
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
The traditional theories of management that we will peruse in more detail dates
to the mid-1800s and include the scientific approach; bureaucratic management;
administrative management; the human relations approach to management; and the
operations, quality, information, systems and contingency approaches to management.
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CHAPTER 1: THE EVOLUTION OF MANAGEMENT THEORIES
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
Element 3: Each position or job is part of a chain of command that clarifies who
reports to whom throughout the business.
Element 4: To increase efficiency and effectiveness, tasks and responsibilities
should be separated and assigned to those best qualified to complete
them. Authority is vested in these task-defined positions rather than
in people, and the authority of each position is clearly defined in
order to reduce confusion and conflict.
Element 5: A business's rules apply to all its members, regardless of their
position and status.
Element 6: All rules, procedures and decisions should be recorded in writing.
Element 7: Professional managers rather than business owners should manage
or supervise the business.
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CHAPTER I: THE EVOEUTION OF MANAGEMENT THEORIES
♦ Organising (deciding where decisions will be made, who will do what jobs
and tasks and who will work for whom),
♦ Leading (inspiring and motivating workers to work hard to achieve organi
sational goals), and
♦ Controlling (monitoring progress towards goal achievement and taking cor
rective action when needed).
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
12
CHAPTER 1: THE EVOLUTION OF MANAGEMENT THEORIES
and profitability and to improve the quality of its products and services (quality
management will be discussed in the next section). Quantitative approaches are also
used to manage and reduce costly inventories.
The most commonly used tools and techniques in operations management are
quality control, forecasting techniques, capacity planning, measures of productivity,
linear programming, scheduling systems, work measurement techniques, project
management and cost-benefit analysis.
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
to establish the current business status in terms of the business being able
to fully support the work to be performed to achieve the planned strategic
goals, and that the appropriate business drivers have been identified that
will facilitate the process.
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CHAPTER 1: THE EVOLUTION OF MANAGEMENT THEORIES
From reading about the various approaches to management, you may have gathered
that we have a problem - researchers in management seem to all have different
ideas and conclusions in terms of what that one best way is! Furthermore, more
than 100 years of management research indicate clear boundaries and limitations to
most management theories and practices. That brings us to the next vital question -
how does a manager decide which approach to adopt to manage his or her business
successfully? The answer lies in the situation that the manager faces.
The contingency approach to management states that the application of
management principles depends on the specific situation that managers face at a given
point in time in the business. The contingency approach acknowledges that every
business, even every department or unit within the same business, is unique. Every
business exists in a unique environment (micro-, market and macro-environment)
with unique goals and strategies. Managers therefore need to adapt their management
approaches to suit the unique situation of the business. The contingency approach to
management emphasises that there is no universal management theory or approach.
The most effective theory will depend on the kind of problem or situation that the
manager or business faces at a specific point in time.
In this section, we addressed various traditional approaches to management,
where only the most prominent approaches were highlighted. The next section
will explain how the traditional theories of management evolve into responsible
management, a contemporary approach to management.
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
1.2.1 Sustainability
To have a thorough understanding of the first domain of responsible management, an
explanation of sustainability, sustainable development, and sustainable development
goals is necessary.
Sustainability
Sustainability focuses on the organisation’s triple bottom line, related to the
systematic social, environmental and economic issues that threaten the wellbeing
and survival of current and future generations. Systemic issues include, for example,
global warming, the global health crises, the global financial crises and the global
water crises. On a business level, these issues are translated to the so-called triple
bottom line, which means that the organisation needs to focus and commit to social
and environmental concerns just as they do on their profits; in other words, social,
environmental and economic performance. The idea is that organisations need to be
managed in a way that not only eam profits but also improves people's lives and the
planet (the so-called 'people, planet and profit' adage). Management practice should
embrace triple bottom line optimisation.
Sustainable development
Sustainable development is the idea that human societies must live and meet their
needs without compromising the ability of future generations to meet their own needs.
The official definition of sustainable development was developed for the first time
in the Brundtland Report in 1987? Specifically, sustainable development is a way of
organising society so that it can exist over the long term. Sustainable development
is also applicable to smaller units such as small communities, micro, small, medium
and large-sized organisations. This means considering both the imperatives present
and those of the future, such as the preservation of the environment and natural
resources, as well as social and economic equity. Let us take a historical look at how
the idea of sustainable development got relevant.
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CHAPTER 1: THE EVOLUTION OF MANAGEMENT THEORIES
The First Industrial Revolution is connected to the rise of the idea of sustainable
development. From the second half of the 19th century, Western societies started to
discover that their economic and industrial activities had a significant impact on the
environment and the social balance. Several ecological and social crises took place in
the world and gave rise to an awareness that a more sustainable model was needed.
Examples of economic crises were the American banking crisis in 1907, the oil shocks
in 1973 and 1979 and the debt shock in developing countries in 1982. Examples of
ecological crises were the 1986 Chernobyl nuclear disaster (you might have watched
the television series with the same name), and the Exxon Valdez oil spill in 1989, to
name only a couple.
In 1968, the ecologist and philosopher Garret Hardin1 wrote an essay
entitled ‘The tragedy of the commons' in which he argued that if individuals act
independently, rationally and focused on pursuing only their individual interests, they
will end up going against the common interests of their communities and exhaust
the planet's natural resources. He believed that since human beings are compelled
to procreate unlimitedly, the Earth's resources would eventually get overexploited.
Furthermore, mankind needed to radically change its way of using common resources
to avoid a disaster in the future - this would be the way to keep on a sustainable
development track.
A few years after Hardin's essay, in 1972, Meadows et al.,6 commissioned by
the Club of Rome, ran a computer simulation that aimed to predict the consequences
of what could happen on a planet with limited resources. The researchers analysed
the interactions between five different dimensions - world population growth,
industrialisation, pollution generation, food production, and non-renewable resource
depletion - considering a scenario where these variables grew exponentially and
technology's ability to increase resources was linear. The strongest ending scenario
was that an economic and social collapse would happen by the end of the 21st century
if humans were to impose no limits on growth. After more than four decades, these
predictions seem to have been right when it comes to pollution and its consequences
- threatening sustainable development.’
As the world's knowledge of global politics evolved, the first historical
sustainable development conferences started to be organised. In 1972, the first of
these took place in Stockholm, where the first big world leaders' conference was
organised by the United Nations to discuss the human impact on the environment
and how it was related to economic development. One of the main goals of this
conference was to find a common outlook and common principles to inspire and
guide the world’s population to preserve the ‘human environment'. The outcome was
a call upon governments and people to exert common efforts for the preservation
and improvement of the human environment, for the benefit of all the people and for
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
their posterity. The meeting also provided 26 principles that governments and people
can employ to attain this call.8
Once the idea that our planet had limits that needed to be respected grew,
together with the idea that progress is not only about economic growth, integrated
solutions started to develop. For example, the Human Development Index (HD1) was
developed to emphasise that people and their capabilities should be the ultimate criteria
for assessing the development of a country and not economic growth alone.9 Today,
the HDI is used as a statistical tool that measures a country's economic and social
achievements. In order to do so, it uses various dimensions such as health, education,
financial flows, mobility or human security. Ideally, humankind should reach a point
where at least the minimum HDI is achieved and live below the maximum ecological
footprint per capita. Living above the minimum HDI will guarantee that human needs
such as education or health are satisfied. Note that an ecological footprint represents
the maximum limit of consumption per person according to the Earth's ecological
capacity. Living below this level would not compromise future generations, as the
planet would be able to regenerate itself. If we could manage to keep above the
minimum HDI and below the maximum ecological footprint per capita (a number
that is decreasing as the human population increases) we would be on track for a
sustainable future.
We may now ask the question 'What is the reality?’ The reality is that every
year the Earth’s overshoot day comes earlier. The overshoot day represents the date
when humankind gets into debt with the Earth. The reason is that our demand for
ecological resources each year has been exceeding what the planet can regenerate
in that same year. We are keeping this deficit because we are using more ecological
resources than the planet can handle losing. At the same time, we are also not taking
proper care of our waste. We are dealing with it in a linear way, in opposition to
nature, where everything follows a circular approach. Today’s consumption habits are
a big threat to sustainable development.
In 1987, the World Commission on Environment and Development was asked
by the General Assembly of the United Nations to formulate ‘A global agenda for
change'. The Brundtland Report,10 also known as "Our Common Future’, proposed,
among other contributions, long-term environmental strategies for achieving
sustainable development by the year 2000 and beyond and also gave the most
recognised and widely accepted definition of the term ‘sustainable development'. ’The
human ability to ensure that the current development meets the needs of the present
without compromising the ability of future generations to meet their own needs’
was the first widely accepted definition of sustainable development and it is also the
definition that we will adopt in this book.
As the consciousness about the impact that climate change could have on
the planet and on human life grew, the International Panel on Climate Change was
created by the United Nations Development Programme and the World Meteorological
Organisation. Its purpose was (and still is) to develop and share knowledge about the
impact of human activities on climate change. It also aims to explore the causes.
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CHAPTER 1: THE EVOLUTION OF MANAGEMENT THEORIES
consequences, and ways of fighting climate change. C02 and methane are gases that
exist to help the Earth keep its ideal temperature and guarantee life as we know
it. Nonetheless, the excessive production of these gases leads to an increase in the
planet’s temperature. This happens because they keep part of the heat the Earth
radiates trapped in the atmosphere - heat that would otherwise escape into space.
In 2001, the Millennium Ecosystem Assessment, which assessed the consequences
of ecosystem change for human wellbeing, was conducted. It was a four-year
long investigation that started in 2001 at the request of the United Nations and it
included 1,360 researchers worldwide. Another goal of the assessment was to find a
scientific basis for action needed to improve the conservation and sustainable use of
ecosystems. The main findings of the assessment were the following:11
■ Humans have changed ecosystems more quickly and widely than ever before.
This resulted in a substantial and largely irreversible biodiversity loss.
■ The changes made to ecosystems improved human wellbeing and the
economy but have harmed the planet and society. It was not only biodiversity
decreasing at a high rate. Poverty was also still affecting many communities
and climate change increased the risk of nonlinear changes.
■ The degradation of ecosystems services would probably get worse over the
21st century.
■ The changes needed to preserve the ecosystem’s degradation and meet the
increasing demand for services could still be met. Nonetheless, it would
involve significant changes in policies across the public and private sectors.
Goal Description
3 Good health and Ensure healthy lives and promote wellbeing for all
wellbeing at all ages
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
Goal Description
6 Clean water and Ensure access to water and sanitation for all
sanitation
11 Sustainable cities and Make cities inclusive, safe, resilient and sustainable
communities
14 Life below water Conserve and sustainably use the oceans, seas and
marine resources
16 Peace, justice and strong Promote just, peaceful and inclusive societies
institutions
The sustainable development goals focus on realising the human rights of all people
and particularly on achieving gender equality (which includes the empowerment of
all women and girls). A report by the Business and Sustainable Commission outlines
the scale of the opportunity for businesses - achieving the global goals could create
380 million jobs and unlock at least USS 12 trillion in opportunities for business.”
In the opening case of this chapter, Sappi Limited provides us with numerous
examples of management practice that embraces the first domain of responsible
management, namely sustainability, or triple bottom line optimisation. The company
has a tradition of innovating and developing new products to meet customers'
20
CHAPTER 1: THE EVOLUTION OF MANAGEMENT THEORIES
1.2.2 Responsibility
To fully understand the second domain of the responsible approach to management,
we need to unpack the topics of responsibility; stakeholders and stakeholder theory;
for whom should organisations create value; corporate social responsibility; and the
United Nations Global Compact.
Responsibility
In its most simplistic form, the term ’responsibility' means to have a duty to deal with
something or someone, or the state of being accountable for something. In the context
of responsible management, responsibility focuses on stakeholder engagement with
the aim to optimise stakeholder value.
21
PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
Stakeholder theories have grown in number and type since the term
"stakeholder' was first coined in 1963. According to R Edward Freeman,14 whose
work in stakeholder theory is well known, the stakeholder concept was originally
defined as including ‘those groups without whose support the organisation would
cease to exist’. This is a very broad, simple and inclusive definition of stakeholders.
Freeman's definition classifies a stakeholder as virtually anyone that affects or is
affected by organisations. A much more specific definition of stakeholders was given
by Clarkson15 from an organisational perspective. In this book, we adopt the Clarkson
definition, stating that the stakeholders of an organisation are the person or groups of
people who have, or claim to have ownership, rights, or interests in an organisation
and its activities, past, present, or future. Such claimed rights or interests are the
result of transactions with, or actions taken by the organisation, and may be legal
or moral, individual or collective. Stakeholders with similar interests, claims, or
rights can be classified as belonging to the same group, for instance, employees,
shareholders and customers.
22
CHAPTER 1: THE EV01UTI0N Of MANAGEMENT THEORIES
view of CSR. Friedman makes a very clear distinction between the responsibilities of
government and the responsibilities of organisations. According to Friedman, social
responsibilities belong to the state and the major goal of business is to make profits
for shareholders. Not only does CSR undermine business, but Friedman goes even
further by arguing that it is unethical because, in accepting social responsibilities
and using shareholders' money to achieve social goals, business managers impose a
lax on shareholders.
Although Friedman’s argument is still considered valid, even today, many
shareholders believe that sound ethical business practices and responsible management
are good for business. Therefore, many contemporary shareholders view an extended
notion of CSR as consistent with their long-term interests in businesses. Furthermore,
many would argue that business also has a moral duty (not included in Friedman’s
argument) to accept a broader view of CSR.
Proponents of the broad view of CSR argue that organisations have, at the very
least, a negative duty towards society to refrain from harming society. For example,
a factory should refrain from dumping its waste into a river. When a factory dumps
its waste into a river, society is negatively affected. Many proponents also argue that
organisations should have a positive duty by actively, and directly, contributing to
the welfare of society. For example, organisations should engage in philanthropic
activities or can even make these activities part of their core business.
The second argument towards the broad view of CSR concerns what is called
the social contract. The social contract is an implicit agreement whereby members
of society grant organisations the licence to operate through public consent, with
the expectation that organisations will address certain societal needs. The rights and
duties of each are usually stipulated in such a contract.
The third argument towards the broad view of CSR concerns the social-
economic power of businesses, especially large multinational businesses. The
influence that such organisations have should never be underestimated. With this
power and influence comes responsibility.
The fourth argument towards the broad view of CSR concerns the stakeholder
theory. In the narrow view of CSR, the focus was on shareholders and the increase of
profits for the organisation's shareholders. However, the stakeholder theory accounts
for multiple constituencies impacted by organisational entities, namely employees,
suppliers, the community, creditors, the environment and others. In 1984, R Edward
Freeman originally detailed the stakeholder theory of business management
and business ethics that addresses morals and values in managing a business.
The theory argues that a business should create value for all stakeholders, not Just its
shareholders. In his book Strategic Management: A Stakeholder Approach, Freeman
defines a stakeholder as ‘any group or individual who can affect or is affected by
business activity’.17
Seven years after the publication of Freeman's book, Archie B Carroll
created a pyramid of CSR, which provided a framework for categorising business
responsibilities into four categories, namely economic, legal, ethical and philanthropic
23
PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
responsibilities. At the bottom of the pyramid, Carroll defines the economic category
as the responsibility of organisations to be profitable, since it is the only way to
survive and benefit society over the long term. Second on the pyramid is the legal
category, which refers to the responsibility of an organisation to act obey laws and
other regulations, for example employment, competition, health and safety. The
third category is the ethical category, referring to the responsibility to act morally
and ethically. With this responsibility, organisations should go beyond narrow
requirements of the law. The last category is the philanthropic category, referring to
the responsibility to give back to society, which is discretionary, but still important.
Human rights
Principle 1: Businesses should support and respect the protection of internationally
proclaimed human rights
Principle 2: Businesses should make sure that they are not complicit in human rights abuses
Labour
Principle 3: Businesses should uphold the freedom of association and the effective
recognition of the right to collective bargaining.
Principle 4: Businesses should uphold the elimination of all forms of forced and
compulsory labour.
Principle 5: Businesses should uphold the effective abolition of child labour.
Principle 6: Businesses should uphold the elimination of discrimination in respect of
employment and occupation.
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CHAPTER 1: THE EVOLUTION OF MANAGEMENT THEORIES
Environment
Principle 7: Businesses should support a precautionary approach to environmental
challenges.
Principle 8: Businesses should undertake initiatives to promote greater environmental
responsibility.
Principle 9: Businesses should encourage the development and diffusion of
environmentally friendly technologies.
Anti-corruption
Principle 10: Businesses should work against corruption in all its forms, including
extortion and bribery.
Signatories to UNGC are changing the world. They are helping to alleviate extreme
poverty, address labour issues, reduce environmental risks and more. As a voluntary
initiative, the UNGC sees itself as more of a guide dog than a watchdog and, as
such, relies on public accountability, transparency and disclosure to complement
regulation and provide a space for innovation and collective action.
The primary goal of responsible management is the creation of stakeholder
value. Now that we have a clear understanding of who the stakeholders of an
organisation are and thus for whom the organisation should create value, we now
need to answer the question ‘What does stakeholder value actually mean?’ Stakeholder
value refers to the creation of the optimum level of return for all stakeholders of
an organisation. This broad and abstract definition can be translated into concrete
indicators for each individual group of stakeholders. For example, creating value for
employees will mean creating high staff morale, job security, and employee health,
safety and welfare. Creating value for customers will mean customer satisfaction and
retention. Creating value for shareholders will mean a high return on their investment.
From these examples, it should be clear that ‘value’ means something different to each
group of stakeholders. What should also be clear is that stakeholder management is
complicated - organisations need to satisfy the needs of various groups with limited
resources. On the other hand, successful stakeholder management benefits both the
organisation and its stakeholders by creating shared value.
In our opening case, Sappi's management demonstrates its responsibility
towards various stakeholder groups. First, the company takes its responsibility
towards shareholders seriously. The shift from producing traditional papers to placing
more emphasis on dissolving pulp and speciality packaging paid off - since 2017, the
company has succeeded in growing the business with positive effects on its market
share and profits. Its responsibility towards other stakeholder groups is also evident. In
respect of employees, its goals are, inter alia, to provide a safe working environment
in which its employees can reach their full potential, to achieve zero injuries and to
increase the proportion of women in management roles. Sappi views its suppliers as
key business partners who play an important role in helping them realise its vision.
In South Africa, home to Sappi's global headquarters, it has selected an additional
priority SDG that reflects the socio-economic development priorities that reinforce
25
PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
their unique and longstanding investments in people and local communities in the
country. Their target is to advance their Broad-based Black Economic Empowerment
to Level 1.
1.2.3 Ethics
As the third domain of responsible management, ethics focus on ethical issues with
the aim to conduct all activities in an ethical manner and create moral excellence in
the organisation. In this section, we will first define ethics and business ethics, after
which we will explain the drivers of business ethics.
Ethics
Daily, we read and hear the news headlines about yet another large organisation
or political leader being exposed for unethical practices or for breaking the law.
Unethical practices lead to harsh consequences. Millions, if not billions, worth in
revenue are lost, fines are received, legal costs are encountered, the organisation’s
image is tarnished and, in the case of companies, share value significantly decreases.
In some instances, unethical practices may even lead to the demise of the organisation.
Unethical business practices affect not only the organisation, its owners, managers
and employees, but also the community and all other stakeholders such as the
government and suppliers. Before we can understand ethical and unethical business
practices, we first need to have a basic understanding of the term ‘ethics’. Ethics deals
with the character of an individual and the moral rules that govern and limit our
conduct. Ethics investigates questions of what is right and what is wrong, what is
duty and what is obligation, and what is moral responsibility. Thus, ethics addresses
a fundamental query that all of us, at least from time to time, think about - namely:
How should I live my life? This question then leads to other questions, such as:
What sort of person should I strive to be? What values should be important to me
and should I live by? What standards should I live by? Ethics deals with individual
character and with the moral rules that govern and limit our conduct. Ethics is also
concerned with the overall character of society, or the social rules and standards in
a society. Given all of the above, we can state that, in essence, ethics refers to the
participation in social values, standards, norms and customs, which ultimately guide
human behaviour.
Business ethics
Business ethics is the study of what constitutes right and wrong, or good and
bad, human conduct in a business context. For example, would it be wrong for a
procurement manager to accept a gift from a potential supplier? If an employee
innocently comes across secret information about a competitor, would it be wrong
to use this information to the benefit of his or her own employer? Moral questions
such as these differ from other kinds of questions. Whether the old computer in your
office can copy a pirated DVD is a factual question. By contrast, whether you should
copy the DVD is a moral question. When we answer a moral question or make a
26
CHAPTER 1: THE EVOLUTION OF MANAGEMENT THEORIES
moral judgement, we appeal to moral standards. These standards differ from other
kinds of standards. Why? There are three reasons. First, moral standards concern
behaviour that seriously affects human wellbeing, which can profoundly injure
or benefit people. The conventional norms against lying, stealing and killing deal
with actions that can hurt people. Second, moral standards take priority over other
standards, including self-interest. Something that morally condemns, for example,
the burglary of your neighbour’s home, cannot be justified on the non-moral grounds
that it would be a thrill or that it would pay off handsomely. Thirdly, the soundness of
moral standards depends on the adequacy of the reasons that support or justify them.
Legislators make laws, managers of businesses make rules, regulations and policies -
these authoritative bodies are the validating source of the standard and can therefore
change the standard if they wish to. Moral standards are not made by such bodies.
Their validity depends on the quality of the arguments or the reasoning that supports
them. To summarise, the moral standards on which we base moral judgements:
■ concern behaviour that seriously affects human wellbeing;
■ take priority over other standards, including self-interest; and
■ the soundness of moral standards depends on the adequacy of the reasons
that support or justify them.
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
It is important to note that, from time to time, distinct ethical dilemmas arise that
need to be resolved through proper ethical deliberation. Also, there are normal day-
to-day decisions that need to be made about procurement, sales, finances, accounting,
promotions, remuneration, client discounts, after-sales service and so on that have
ethical implications. All these decisions must be made in a manner that addresses the
ethical side of such decisions.
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CHAPTER 1: THE EVOLUTION OF MANAGEMENT THEORIES
that their actions may have on the legitimate rights and expectations of all
stakeholders, and employees in particular, to be treated ethically, that is, with
trust, fairness, honesty, empathy and consistency. Ethical neglect often manifests
itself as job dissatisfaction.
Apart from the variables that influence, affect and/or direct business activities and
decisions towards ethical business practices, there are also various benefits of business
ethics. At its core, ethics is related to making the right decision in an ethical dilemma.
Management practice should embrace ethical decision-making and moral excellence.
In our opening case, Sappi has a Code of Ethics with the following guiding
principles:2’ treat others as you would like to be treated; be truthful and honest;
help to combat dishonesty and crime; protect the environment; and respect diversity
and do not discriminate. They also have a supplier Code of Conduct, stipulating
the following guiding principles: business ethics; human rights; health and safety;
the environment; diversity and equal opportunity; and broad-based black economic
empowerment.
It is important to note that, although we group all the various causes of respon
sible management into the above three domains discussed above (sustainability,
responsibility, and ethics), these domains overlap and significantly influence each
other. In Africa, for example, the effects of global warming, the water crises in
drought-stricken countries, overpopulation, poverty and hunger, and the health crises
can be grouped under the sustainability domain since these issues are concerned
with the triple bottom line of organisations (people, planet, and profit). Workplace
diversity and the wellbeing of communities can be grouped under the responsibility
domain since organisations have a responsibility not only towards its shareholders
(or owners) but also towards other stakeholders such as their employees (that
function in diverse groups and teams) and the community. Corruption, human rights
and income inequality can be grouped under the ethics domain since these issues
usually involve the ethical (or unethical) decision-making processes and moral
issues. Overpopulation significantly influences poverty and hunger (both are in the
sustainability domain). Global warming (in the sustainability domain) causes severe
draught in some countries in Africa and floods in others, influencing the wellbeing
of communities (in the responsibility domain).
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
30
CHAPTER 1: THE EVOLUTION OF MANAGEMENT THEORIES
New markets and the business case. Consumers can choose certain
products over others, or even decide not to buy a product at all, thereby
embracing or rejecting environmental and/or labour practices and making
other value claims based on the ethical values they hold. Exercising choice
in this way creates opportunities for organisations to enter new markets by
making their production practices conform to consumer values. Examples
of successful campaigns waged by ethical consumer movements are
foods that are free from genetically modified organisms, fair-trade coffee,
cosmetic products free from animal testing and conflict-free and ethical
diamonds (where conflict-free refers to diamonds which have not financed
civil wars, whereas ethical diamonds go further, ensuring fair pay, safe
working environments, environmentally sound practices and no human
right abuses). Entering new markets is only one of many tangible economic
benefits of responsible business. Other benefits include the attraction,
motivation and retention of employees; cost savings; reduced business risk;
and increased profitability. These benefits are referred to as the business
case for responsible management.
Globalisation. Organisations today operate under increased pressure to do
things faster, in greater quantities and at cheaper prices. Consequently, there
exists tremendous pressure to cut costs, increase profitability and give their
shareholders (investors/owners) higher returns. Because of these pressures,
organisations have grown, not just within their own national borders, but also
beyond them. Operating beyond borders offers organisations opportunities
to keep costs low, for example, by operating in countries where labour costs
are significantly lower. These actions, although cost-effective and profit
inducing, could have a downside - globalisation may also come at the cost
of social and/or environmental and ethical considerations - increasing the
need for responsible management.
Advances in technology and transparency. Conducting business in
a responsible manner is good for the reputation of the organisation.
Conducting business in an irresponsible manner may lead to losses, first in
reputation, then in the value of the brand or even in the organisation itself.
In 2010, a NASA study declared that automobiles were officially the largest
net contributor to climate change pollution in the world. Cars, buses, and
trucks release pollutants and greenhouse gases that promote global warming,
while emitting few aerosols that counteract it. In contrast, the industrial and
power sectors release many of the same gases - with a larger contribution to
global warming - but they also emit sulphates and other aerosols that cause
cooling by reflecting light and altering clouds.28 The good news is that the
automobile industry has made great strides towards increasing sustainability.
Unfortunately, we have also seen misconduct in this field. In September
2015, the Environmental Protection Agency found that many Volkswagen
cars being sold in America had a defeat device, or software, in diesel engines
that could detect when they were being tested, changing the performance
31
PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
accordingly to improve results. The German car giant has since admitted to
cheating emissions tests in the US.29 This scandal generated, among other
serious social and economic consequences, a situation of distrust towards
Volkswagen (VW), an unprecedented loss of reputation and an immediate
and important loss of value for its shareholders. The perplexity is increased
when it is observed that, in the same month, the company’s website stated
that VW, under the heading of ‘corporate social responsibility’ considered
itself a ‘corporate citizen', responsible for its activities and obligations arising
from them, giving their social and ecological objectives the same priority as
economic ones. Moreover, this was reported to interest groups as part of the
unique nature of the company and its corporate culture. It specified its active
participation in the United Nations Global Compact (UNGC) and in the Global
Reporting Initiative, taking up leading positions in the international rankings
and corporate social responsibility indices. This case has been reported widely
for the contradiction between corporate social responsibility and corporate
social irresponsibility.30 According to the International Organisation for
Standardisation (ISO) norm for social responsibility, ISO 26000, scrutiny has
increased because of mobile communication technologies and widespread
internet access. Furthermore, a variety of institutions, for example, the Global
Compact, provide a new infrastructure and framework for globally available
information on the responsible and irresponsible behaviour of organisations.
In the information technology industry. Green IT has become a mainstream
topic for information technology, and socially responsible investment has
become a hot topic in the finance and investment industry.
■ Increasing corporate power. Organisations have an immense influence in
society - especially multinational organisations. As organisations grow
and get bigger, their revenues and returns become bigger. With increased
returns, comes an increase in power. Furthermore, organisations are acting
beyond their own national borders, with operations in countries all around
the world, having tremendous geographical reach and often power not
too dissimilar to the states they operate in. As such, organisations are
powerful entities. With such power comes a bigger responsibility towards
all stakeholders.
■ Global business risks. The world is more connected and complex than ever
before. An important implication of this statement is that organisations
worldwide are becoming increasingly exposed to global risks, which are
all drivers for responsible management activities. Global challenges and
risks include increased carbon costs, climate change, global health risks,
global educational challenges, poverty, gender diversity, access to water and
clean sanitation, food security and hunger, natural resources shortages and
corruption in politics and the business sector. In the eyes of nearly 13,000
business leaders surveyed at the 2019 World Economic Forum, the top ten
risks in sub-Saharan Africa are:31 (i) unemployment and underemployment.
32
CHAPTER 1: THE EVOLUTION OF MANAGEMENT THEORIES
33
PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
v. ‘Water and food crises’ ranked eighth and ninth respectively across the
region, highlighting the continuing challenge of meeting basic needs
against a backdrop of - among other things - conflict, drought, rising
food prices, weak governance and the strains of rapid urbanisation.
In 2017, nearly 32 million people were food-insecure and in need of
urgent assistance across north-eastern Nigeria, Somalia, Yemen and
South Sudan. ‘Water crises' ranked number one in Namibia and number
two in Botswana and South Africa. In late 2017, urgent measures were
taken to prevent Cape Town, South Africa from running out of water.
The city introduced the idea of ‘day zero’ to focus everyone’s attention
on managing water consumption as tightly as possible by motivating
water consumers to reducing usage. ‘Day zero' would be when most
of the city’s taps are switched off - literally - when taps in the city
would run dry. The consequences of reaching this point would have
been far-reaching. For one, it would have meant that residents would
have to stand in line to collect 25 litres of water per person per day.
The water would be sourced from the remaining supplies that are left
in the dams. Day zero was not a fixed target. The reason for this is that
a number of factors affect the date. These include how much residents
reduce their demand.
The 2019 World Economic Survey was conducted before the C0V1D-19 pandemic.
Growth in sub-Saharan Africa has been significantly impacted by the ongoing
outbreak. The pandemic had devastating effects on unemployment, underemployment,
the fiscal crises and put even more pressure on the food crises in the region. Due to
deteriorating fiscal positions and increased public debt, governments in the region do
not have much room for wiggle in deploying fiscal policy to address the crises. Africa
alone will not be able to contain the disease and its impact on its own - there is a
need for debt relief to help combat the pandemic while preserving macroeconomic
stability in the region.32
In respect of South Africa, business risk may be singled out as the biggest
driver for responsible management in the country. We can substantiate this as follows:
1. The poor condition of state-owned enterprises. The poor state of
Eskom, in particular, remains the country’s biggest barrier to economic
growth.33
ii. High unemployment rate. The unemployment rate in the fourth quarter
of 2019 was 29.1 per cent, meaning that 6.7 million people were
unemployed at the time. The expanded definition of unemployment,
including people who have stopped looking for work, was 38.7 per cent,
and the youth unemployment rate was an astonishing 58.1 per cent.
For the three months to March 2020, the unemployment rate increased
by 1.0 percentage point to 30.1 per cent and the rate is expected to get
much worse because of the Coronavirus pandemic.34
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CHAPTER I: THE EVOLUTION OF MANAGEMENT THEORIES
Hi. Poor urban planning and failure of critical infrastructure. South Africa
is among the most urbanised countries in Africa and has an urban
population that is growing rapidly. Current estimates arc that, by 2020,
71 per cent of the national population will be living in cities, and by
2050, the urban population will increase by an additional 13.8 million
residents. Economic activity is thus disproportionately concentrated in
the country's large urban and metropolitan areas where 59 per cent of
the country's economic output is generated by just 37 per cent of the
population. The country's cities are not performing to their full potential
and shortages of energy and insufficiencies in the water infrastructure,
transport congestion and shortfalls in education and skills arc the order
of the day - all indicating failure of both urban planning and critical
infrastructure.35
iv. Fiscal crisis. South Africa's public finances are in a perilous state.
There are four main reasons for this. First, economic growth is low.
Secondly, tax revenue collection is repeatedly below forecasts. Thirdly,
government debt levels have risen sharply and are at very high levels.
At one point, national government debt was expected to stabilise below
45 per cent of the gross domestic product. However, in 2019 it exceeded
60 per cent and has increased even more since then due to the COVID-19
pandemic. Fourthly, the poor performance of state-owned enterprises
(Eskom and South African Airways in particular) necessitates large-
scale government support.36
iv. High levels of poverty. In 2017, Statistics SA outgoing chief statistician,
Pali Lehohla, revealed that more than half of the country's population
is living in poverty. According to the Poverty Trends Report for 2006
to 2015, 30.4 million people (55.5 per cent of the population) are living
in poverty. This is an increase from the 53.2 per cent, or 27.3 million
people, reported in 2011. ‘Like organisations, governments have
limited resources to execute their strategic plans, and have to allocate
their resources to areas where it is going to have the biggest impact.
Government needed to use statistics (such as those provided by Stats SA)
to come up with a comprehensive plan to give effect to their strategies,
which should respond to market needs and provide education and skills
for the poor. There is no shortcut to good development. It takes time.
It takes investment. It takes collective action. Jobs are a problem, but
when people do not have skills to undertake the job, that’s a problem
too,' Lehohla said. ‘In the absence of planning, this thing is not going to
go anywhere ... Here in SA, we are providing the numbers, but I don't
think they are used adequately.'3’
35
PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
36
CHAPTER 1: THE EVOLUTION OF MANAGEMENT THEORIES
s peers or competitors over the long term. For the responsible organisation, it boils
own to the question, ‘How can we achieve a sustained competitive advantage and
t the same time create value for society and the environment through the strategic
lanagement process?’ This will only be possible by the integration of responsible
usiness factors and principles in the strategic management process, with the goal
f responsible competitiveness. We can now define responsible competitiveness as
le achievement of competitive advantage for an organisation through the strategic
lanagement process, while also creating above-average responsible business
erformance.39 Irresponsible competitiveness occurs when an organisation is com-
etitive at the cost of society and the environment.
In section 1.2.2, the 10 Principles of the UNGC were discussed. We may now ask
le crucial question ‘Are the Global Compact signatories better at strategy?’ Several
rudies have been conducted to find an answer to this question, which we highlight
i the research box below.
Research box
EcoVadis40
In 2019, EcoVadis analysed approximately 30,000 companies, which include UNGC
signatories and non-signatories. Their key findings are:
■ Companies committed to the UN Global Compact principles have, on
average, better sustainability performance. The findings demonstrate a clear
correlation between advanced CSR performance and the UN Global Compact
participation. That said, participation in the UN Global Compact does not
lead to advanced CSR performance in and of itself;
■ Among the UN Global Compact participants, small- and medium- and large
sized companies perform better than non-signatories;
■ Company signatories to the UNGC perform better on the Labour and Human
Rights; Environmental; Ethics and Sustainable Procurement themes than
their non-signatory counterparts; and
■ Sustainable Procurement and Environment themes have the greatest gaps
between the UN Global Compact participants and non-participants. This gap
may be linked to the need for explicit executive-level commitment to make
an investment in environmental and sustainable procurement programmes.
Such commitment is a clear and deliberate part of the UN Global Compact
participation, and thus explains the higher performance of the UN Global
Compact participants.
HAtllilNU STRATEGY: A SOUTHERN AFRICAN CONTEXT
In 2022, Ernest and Young surveyed CEOs in the US. The results of their study
indicate that CEOs in the US are growing their businesses while pivoting deliberately
towards environmental, social, governance (ESG) and sustainability initiatives. Of
these CEOs, 82 per cent sec ESG initiatives as a value driver and nearly all of them
have a sustainability strategy in place. Encouragingly, 73 per cent of them have
adopted ESG for strategic reasons - such as competitive advantage and lower cost
of capital - rather than in response to pressure from regulators.
38
CHAPTER I: THE EVOLUTION OF MANAGEMENT THEORIES
Discussion questions
1. Present an overview of the traditional approaches of management.
2. Explain responsible management and the three domains thereof.
3. Explain the significance of each of the traditional approaches of management
for responsible management.
4. Explain how the traditional theories of management evolve to responsible
management.
5. Debate the drivers of responsible management, specifically in South Africa post
COVID-19.
6. Differentiate between narrow and broad perspectives regarding the intersection
between strategy and responsible management.
39
PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
Learning activities
Answering the following questions will require you to access the internet and other
sources of information, such as articles in journals (such as the Financial Mail)
regarding AECI Limited.
Endnotes
1 Corporate Structure Sappi Group. Available online at: https://cdn-s3.sappi.com/s3fs-public/
Diagram-Sappi-corporate-structurc-Landscapc-Standalone.pdf (accessed 28 September
2021); Harnessing Public Research for Innovation in the 21st Century. Available online:
https://www.cambridgc.org/corc/books/harncssing-public-rcsearch-for-innovation-
in-thc-21st-ccntury/south-africa/F85853E0EE44C6D2A8CAEF1148E42498/corc-rcadcr
(accessed 29 September 2021); More hardwood required as Sappi shifts to dissolving
pulp. Available online: https://saforcstryonlinc.co.za/articlcs/busincss_profilcs/morc_
hardwood_rcquircd_as_sappi_shifts_to_dissolving_pulp/ (accessed 27 September 2021);
New sustainability targets for a thriving world. Available online: https://www.sappi.com/
new-sustainabi)ity-targcts-for-a-thriving-world (accessed 27 September 2021); Sappi
2015 sustainability report. Available online: https://cdn-s3.sappi.com/s3fs-public/2O15-
Sappi-Southem-Africa-Sustainability-Report.pdf (accessed 28 September 2021); Sappi's
shift in strategy is paying off. Available online: https://www.iol.co.za/busincss-report/
companies/sappis-shift-in-strategy-is-paying-off-9159533 (accessed 27 September 2021).
2 Sappi 2020 Vision. Available online: https: //www.sappi.com/sappi-2020vision#:~:
text-In% 20201 5%2C%20Sappi%20Limited%20announced%20a%20new%20
strategic, market%20needs%20and%20take(Vo20advantage%20oftfo20growth%20
opportunities (accessed 15 February 2022).
3 Sappi 2018 Annual Integrated Report. Available online: sappi-reports.co.za/reports/sappi-
iar-2018/0ur-mission-vision-values-strategy.php (accessed 15 February 2022).
40
CHAPTER 1: THE EVOLUTION OF MANAGEMENT THEORIES
42
Introducing the practice
2 of strategy
Peet Venter
■ Organisational ■ Strategists
sustainability _ f ..
’ ■ Strategy formation
■ Responsible strategy . Strategy implementation
Case study
Adrian Gore - Leading for innovation
When Adrian Gore and his team formed Discovery, they asked the question, ‘How do you
innovate and build a health-insurance system that can work in this kind of environment?'
They felt that if you can make people healthier, you can offer more sustainable insurance.
With this in mind, they established that three lifestyle choices (smoking, poor nutrition,
and poor physical activity) contribute to four conditions (diabetes, cancer, heart disease,
and lung disease) that drive over 50 per cent of mortality every year. So, lifestyle choices
are fundamental to any social insurance system, but people need incentives to make a
change. A massive gym chain approached Discovery with the idea to sell health insurance
to their membership base. But when Gore and his team flipped the idea around, it led
to the idea of members earning points by doing healthy things, which can then lead to
points which can be used for rewards (such as cheap gym membership) and discounts on
premiums. This idea led to the commercialisation of the Vitality programme, which has been
hailed as an excellent example of a shared value system, since it benefits the organisation,
its clients, and society as a whole. For example, clinical studies have shown that Vitality
members are healthier, live longer and have lower healthcare costs. Vitality has since been
adapted to use in short-term insurance products for behavioural modification in driving,
and in Discovery Bank for behavioural modification in financial behaviour. Adrian Gore
says of the Vitality idea that it became ’...the catalyst for everything, which I think is true
of innovation. It’s a moment in time. It's not always a revelation in a laboratory. In my
experience, it's right there in front of you. Once you get it, you run with it.'
Sources:
Adrian Gore. 2015. How Discovery keeps innovating. McKinsey Quarterly, May 2015. Available online at: https://
www.mckinsey.com/industries/healthcare-systems-and-services/our-insights/how-discovery-kccps-innovating?
msdkid- 18cb5ae6d 10311 eca(3520f0799334aa
Michael Porter. 2016. The New Competitive Advantage: Creating Shared Value. Harvard Business School Lectures
of o Lifetime. 24 March 2016. Available online at: Https://www.hbs.edu/ris/Publication%20Files/201 60324-
HBS%20lecturc%20o(%20a<fo20Lifetimc%20-%20CSV%20Prcscntation%20-%20FINAL_04f63861-bf94-442f-
861c-b9227b8f0c90.pdf?msclkid-ecb7f7fad10411ec926a84958d260125
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
Practising strategy
Discovery moves into retail banking*
Discovery is a large, listed, financial services institution operating through Discovery
Health (DH), Discovery Life (DL), Discovery Invest (DI), short-term insurer Discovery
Insure, and the very popular and successful Discovery Vitality (a wellness loyalty
programme) (see the opening case study). In addition, it has operations in the US,
where it licenses Vitality for use by employers and other health insurers, and in the
UK, where it operates two joint ventures (JVs) with the Prudential pic - Pruhealth
and Prulife. Its core purpose is 'to make people healthier and enhance and protect
their lives'. Discovery is generally known for its innovativeness; for example, they
are credited with the invention of the medical savings plan used widely by medical
schemes today.
In 2015, Discovery received authorisation from the registrar of banks to
establish banking operations in South Africa and launched its banking products in
2019. Discovery CEO Adrian Gore describes the process of establishing a new bank
as complicated, requiring the assembly of the right team, building the systems to
support the bank, and developing products that banking clients need. In addition, it
requires substantial financial investment, estimated at about R6.5 billion (including
a R3 billion payment to FNB for the Discovery Card business). Ultimately, Gore says,
'We need to meet the needs of our customers. I think we can. We have strong ideas
and convictions about that. If we can do that, the market will tell us.'
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CHAPTER 2: INTRODUCING THE PRACTICE Of STRATEGY
Discovery is not completely new to the banking world, having had tremendous
success with their joint venture with FNB on the Discovery card, which provided
them with a launchpad for full banking services.
Discovery Bank offers its services online only, which means it has an advantage
over the big four traditional banks, as it does not have to maintain a country-wide
network of branches and ATMs. Consequently, Discovery bank's costs will be lower
than its competitors. In addition, it is bringing Its tried and tested shared value
approach to banking with Vitality Money, which rewards clients for responsible
financial behaviour.
While Discovery bank has not grown as quickly as rival TymeBank (with 4
million customers), it has managed to attract 850,000 customers in the middle- and
upper-income segments of society, with a goal of achieving 1 million customers
by June 2022. Customers deposited R9.5 billion in Discovery Bank by the end of
December 2021, a 51 percentincreaseyear-on-year, as customers were wooed by the
higher interest rates the bank pays on savings. The bank is also growing its foreign
exchange products, and will soon allow clients to purchase and sell equities straight
from their account, thanks to a partnership with trading platform EasyEquities. From
Discovery's perspective, the new product additions will boost fee income and put the
bank on the way to achieve their goal of breaking even by 2024.
47
PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
48
CHAPTER J: INTRODUCING THE PRACTICE Of STRATEGY
cognition (rationality) and politics, the quest for power. In the opening case study, it
is dear that Adrian Gore's way of doing things, and even a little bit of luck, played a
considerable role in the success of Discovery.
While top managers undoubtedly play a key role in the success of strategic
management, the emerging strategy perspective suggests that top managers alone arc
not the only strategists. Other individuals or groups in the organisation that control
key or precedent-setting actions’ can be regarded as strategists. Accordingly, we can
extend our perspective of strategists to include non-cxccutivc directors, strategic
planners, middle managers, and consultants. These role players can influence the
allocation of resources, through their own interpretations of strategy or actions. It Is,
therefore, important to consider their role. Certain methodologies and systems can
also be used to facilitate strategising, for example, strategy workshops and projects.
49
PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
50
CHAPTER 2: INTRODUCING THE PRACTICE OF STRATEGY
Bidvest provides us with an example of the different levels of strategy that can be
found in multi-business organisations.
51
PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
Strategic goal
C
Business as usual
Consider Figure 2.2. If we take point A as where we are today, and we carry on doing
what we arc doing (i.e., business as usual) and we are somewhat lucky, we may end
up at point B, in a slightly better position than we are today and, perhaps, if we arc
very lucky, in a position where we arc better off than our competitors. It is also quite
possible that we will end up in exactly the same or even in a worse position than
where we arc today. However, we can set ourselves a long-term strategic goal (point
C) that, if achieved, will take us considerably beyond where we are today and possibly
even beyond our competitors - in other words, it will give us a competitive advantage
that will lead to long-term survival. The difference between point B and point C is
‘strategy*; those actions that will help us achieve our strategic goals. Strategic goals
are also known as long-term or strategic objectives. Being 'strategic* thus involves
the following:
■ it is not ‘business as usual* - we cannot simply keep doing what we have
been doing for years and years anti describe it as ‘strategic*.
■ It involves all business functions, that is, it is an organisation-wide issue,
and across all managerial levels.
■ It is not a quick fix or a small change. It requires a large, sustained change
effort over a long period of time.
■ It requires a large commitment of resources - it is not cheap or easy.
52
CHAPTER 2: INTRODUCING THE PRACTICE Of STRATEGY
■ While it may not be the domain of top management only, and it may be
influenced by many other people, top management is ultimately responsible
for achieving strategic goals (or for failing to achieve them).
53
PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
54
CHAPTER 2: INTRODUCING THE PRACTICE Of STRATEGY
55
PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
■ Political processes. Strategists will not necessarily agree on the best course
of action to achieve strategic goals and may use their sphere of power and
influence or persuasive (or dissuasive) language to sway others towards their
preference. This is known as political behaviour in organisations. Strategists
arc ultimately, like all human beings, social and political beings, influenced by
their backgrounds (e.g., education, culture and religion) and personalities in their
quest for status and power. It Is, therefore, almost impossible to expect strategic
decisions to be entirely objective and rational.
LO 5: Explain how the success of strategy can be measured and apply it in practical
situations.
56
CHAPTER 2: INTRODUCING THE PRACTICE OF STRATEGY
crisis, with detractors suggesting an excessive focus on profits (and especially short
term profits) was not sustainable.
On the other hand, the stakeholder approach (explained in Chapter 1,
section 1.2.2) requires a focus on balancing the often-conflicting needs of multiple
stakeholders such as employees, shareholders, the environment, and local communities.
While we increasingly sec large corporations embracing the concept and reporting,
not only on their financial results, but also on their social and environmental
contributions (so-called 'triple-bottom line' reporting), the stakeholder approach
is criticised for vastly increasing the complexity of strategic decision-making and
diluting the strategic goals of the organisation.
Michael Jensen proposes that the two approaches should meet somewhere
in the middle, and that ultimately enlightened shareholder value maximisation is
exactly the same as enlightened stakeholder theory.16
In this book, we propose responsible competitiveness - a situation in which
an organisation achieves a coexistence of economic competitive advantage and
above-average social and environmental value creation. Accordingly, irresponsible
competitiveness (and thus irresponsible strategic decision-making) occurs when an
organisation is competitive at the cost of society and the environment.
57
PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
58
59
PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
60
CHAPTER 2: INTRODUCING THE PRACTICE Of STRATEGY
Strategy implementation
and control
Resource allocation
Change management
Strategy implementation
and control
61
PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
62
CHAPTER 2: INTRODUCING THE PRACTICE Of STRATEGY
View of strategy Abstract - a characteristic of the The strategic acts, talk and
organisation documents that strategists produce
Discussion questions
1. Explain the origins of strategic management.
2. Identify and explain the universal principles of strategic management.
3. Explain the difference between ‘strategy’ and ’strategic management’.
63
PRACTISING STRATEGY: A SOUIHERN AFRICAN CONTEXT
Learning activities
1. Interview a manager in your organisation, or any organisation of your choice.
Determine whether the organisation follows a deliberate approach to strategic
management or an emergent approach (or perhaps a little bit of both).
2. Watch the video by Michael Porter on creating shared value (https://www.
youtube.com/watch7v-Zip4k71wRBM). After watching it, what is your view on
the role of shared value in strategic management?
Endnotes
1 The Art of War by Sun Tzu (written about 500 BC) is widely regarded as one of the first
known works on strategy.
‘ Porter, M. 1998. Competitive Advantage: Creating and Sustaining Superior Performance.
New York, NY: The Free Press.
’ Grant, R.M. 2013. Contemporary Strategy Analysis, 8 ed. West Sussex: Blackwell.
4 For more background, see MyBroadband. 2017. New Discovery Bank on track. Available
at: https://mybroadband.co.za/news/banking/200968-ncw-discoverybank-on-track.html
(accessed 19 July 2017): Bloomberg. 2022. Discovery Bank aiming for I million accounts
by June. Available at: https://mybroadband.co.za/news/banking/436474-discovery-
bank-aimlng-for-l-million-accounts-by-june.html .
» Ibid.
‘ Grant (2013: 17-18).
' Mintzberg, H., Lampel, J., Quinn, J.B. ft Ghoshal, S. 2003. The Strategy Process, Global,
4 ed. Upper Saddle River, N.J.: Prentice Hall.
• Johnson, G„ Whittington, R. ft Scholes, K. 2011. Exploring Strategy: Text and Cases, 9 ed.
Essex: Pearson Education, p. 517.
’ Compiled from Information available on https://www.bidvest.co.za/about.php .
10 Based on principles In Rumelt, R. 2013. Good Strategy Bad Strategy: The Difference and
Why it Matters. London: Profile Books.
" Mintzberg et al. (2003).
>’ Porter (1998).
” Brevis ft Vrba M.J. (2014).
” Adapted from Eisenhardt, K.M. 1990. Speed and strategic choice: how managers accelerate
decision making. California Management Review, 32(3), 39-54.
14 A quote by British philosopher Carvcth Read, often wrongly attributed to economist John
Maynard Keynes.
“ Jensen, M.C. 2002. Value Maximization, Stakeholder Theory, and the Corporate Objective
Function. Business Ethics Quarterly. 12(2), 235-256.
” Lee. GJ, Venter, R. fl Bates, B. 2004. Enterprise-based HIV/AIDS Strategies: Integration
through Organisational Architecture. South African Journal of Business Management,
35(3): 13-22.
“ This famous quotation is generally attributed to the late business management guru Peter
Drucker.
*’ Adapted from a framework developed by Prof Peet Venter for the module ’Managing
Strategic Change, a core module of the Masters of Business Leadership (MBL)’ at UNISA.
64
A process perspective of
3 strategic management
Annemarie Davis
66
while others have a less formal approach. The process of formulating
strategies leads to actions to implement the strategies and deliberate
attempts to monitor their progress.
Strategic management and the processes associated with
strategising are not new concepts. Strategic management has been
part of every organisation, albeit in a deliberate and formal approach,
or an emergent adaption to survive in a changing environment. The
original approaches to strategic management were grounded in
business policies and planning approaches. Strategic management
then evolved into a process consisting of definite stages or phases.
Later, and most recently, strategic management is considered from a
practice perspective, wherein the impetus is on the 'doing' part.
This chapter focuses on the process perspective of strategic
management, which can be described as a formal, rational
approach to developing deliberate strategies for achieving strategic
competitiveness and competitive advantage. It is part of strategy
formation, as illustrated in Figure 3.1, focusing on the content part of
strategy formation. The discussions in this chapter will commence with
an explanation of the process perspective of strategic management,
followed by an explanation of the new competitive realities and
criticisms of the process perspective. The management levels involved
in strategic management will then be addressed. Thereafter, each of
the phases in the process perspective of strategic management will be
explained with the integration of responsible management factors into
each of the phases and practical examples illustrating these phases.
Strategy implementation
and control
Resource allocation
Strategy implementation
and control
67
PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
Case study
Capitec - from newcomer to challenger in less than two decades
The five biggest banks in South Africa, Standard bank, ABSA bank, FirstRand bank,
Nedbank and Investec, account for 90 per cent of total banking assets in the country. The
remainder of the market belongs to a combination of other role-players in the industry.
According to the Prudential Authority, there are currently 31 banking entities in South
Africa - 18 registered banks and 13 local branches of foreign banks. In addition, four
entities are operating as mutual banks.' The battle to be the biggest bank remains fierce
between FirstRand and Standard Bank. What is exciting to see is the continued growth
of Capitec. Out of nowhere, in 2001 Capitec emerged with a dream to provide low-cost
financial services to low-income groups. From a humble beginning, Capitec moved in and,
20 years later, celebrated a 22 per cent increase in its net asset value (total equity) for the
2021 financial year.2 Capitec's growth in active client numbers amounts to 16.8 million in
August 2021, compared to the 14.7 million in August 2020?
What is the secret to Capitec's success? How did it move from being the newcomer
to becoming a noticeable presence and a real threat to the client base of the big five
banks in South Africa? With over 9 million digital banking clients, and 16.8 million total
clients, Capitec continues to expand its digital offering and introduces a range of banking
applications in touch with current realities. Francois Viviers, Capitec Group executive of
marketing said: 'Carrying cash is expensive and unsafe. We're giving our clients, who are
from all different walks of life, a simpler and safer way to pay. You'll no longer need cash
to pay for small purchases at informal retailers, tip car guards or pay the person selling
ice creams at the beach. It's also an easy way to transfer money to family or friends and
to split the bill at a restaurant.’4
While remaining focused on lowering costs to clients, Capitec initially charged
RIO for immediate payments (compared to an average of R50 charged by the traditional
banks). Now, Capitec charges only R7.50 and their clients do around 30 per cent of all
immediate payments in South Africa?
The Capitec Group confirmed its intentions to enhance its innovation capability by
the recruitment of 300 employees in areas such as business science, artificial intelligence,
data engineering and computer analysis?
According to the 2020 South African Customer Satisfaction Index (Sacsi) report,
Capitec is once again the leader in terms of customer satisfaction.7 With its simplified
and affordable products - built on set fees and a single account over the often-complex
calculations and bundled product offerings from competing groups - Capitec continues
on its growth trajectory and recently introduced a 'needs-based' credit option. This
credit solution offers clients access to up to R25O.OOO for education, medical expenses,
home improvement or vehicles with interest rates from prime. These low interest rates
are enabled by linking the credit granted to responsible client needs and paying the
funds directly to the retailer or service provider? Responsible client needs are linked to
advancing credit to clients who can honour their debts and who are more likely to manage
their credit well and repay on time. The 'needs-based' credit solution enables affordable
68
CHAPTER 3: A PROCESS PERSPECTIVE OF STRATEGIC MANAGEMENT
credit to responsible clients and fits well with Capitec’s simplified and paperless processes.
The application only takes four minutes and payouts are directly to the retailer or service
provider. This is testament to Capitec’s commitment to relevant innovation that supports
consumers wherever and whenever they need it the most.
Capitec is led by its CEO, Gerrie Fourie, who confirms that the bank will continue
its focus on the fundamentals of delivering simplified banking that is affordable and
easy to access through personal service. He states that he is a 'strong believer in looking
for opportunities. You can go to Switzerland where everything works but there are no
opportunities, or work within the South African market where not everything works but
there are lots of opportunities.’9
Overall, Capitec is committed to sustainable profit. This is achieved through the
right strategy, focused leadership, a healthy corporate culture based on strong values
and responding to stakeholders’ needs. Capitec’s strategies are built on providing a
unique service, enhancing the product offering, growing the client numbers, increasing
transaction income, managing costs of credit to clients, and responsible risk management.
These strategies are crafted over the short to medium term (one to five years) without
losing focus on the long term (more than five years). The long-term view is to become
a preferred global retail bank enabled through virtual banking. The foundation of
Capitec’s success includes its competitive culture and its ability to achieve results through
operational excellence and teamwork. These are key ingredients in Capitec’s growth and
its success in executing an innovative strategy.
69
Bb “.ill I'.lll (n)1 0 • '© ED' 4:55
Q. Aa 0* -
The strategy planning stage is often also referred to as strategy crafting. The strategy
implementation stage is also referred to as strategy execution and strategic control
is also referred to as the strategy review stage or strategy review and control stage.
It is important to realise that strategic management is a continuous activity
and information obtained through the strategic review or control stage feeds back
into strategic planning and strategy implementation. The following section offers a
more detailed explanation of each of these stages.
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CHAPTER 3: A PROCESS PERSPECTIVE OF STRATEGIC MANAGEMENT
pw-incomc customers. The vision formed the centre of the founding, listing and
rperations of the bank. The vision sets the strategic planning process in motion,
during this stage, the top management team devised a vision or drcam for such
• bank; analysed the environment and competitors, and then devised strategies
o achieve its dream. The practising strategy box below provides comments from
/ichicl Ie Roux and Gerrie Fourie and show how the overarching goal is still guiding
?apitec’s activities - 20 years down the line. The practising strategy box also includes
he company slogan, which exclaims that Capitec offers simple banking - aligned to
he original vision of offering a simple and low-cost banking solution.
When asked about his views on the future of South Africa's banking sector, Gerrie
Fourie said that the key is 'not to copy and paste what competitors are doing, but
to focus on what clients want and need, then find the competitive gap and build
a product offering around those factors'. And 'Differentiation and innovation are
essentially at the heart of what industry disruption is and together, these two
principles present a substantial opportunity for the sector'.15
PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
Looking at Capitec again, their slogan can be translated into a mission and values
statement that provides more detail about their product and service offerings, their
markets, the technologies they use to make banking simpler, and their commitment
to their stakeholders.
During the strategic planning stage, various analyses take place and the senior
managers gather information about the operations, resources and capabilities of the
organisation. The senior management team also scans the environment to identify
potential opportunities and threats, as well as evaluate the market or Industry in which
the organisation operates and collect information on competitors. This is referred to
as an external environmental analysis. The senior management team also scans the
internal environment, in other words the organisation itself, with the purpose of
identifying its own strengths and weaknesses. Once all the Information from the
external and internal environments has been collected and analysed, the senior
management team then considers the various strategic options and chooses those
strategics where the fit between what the organisation can do with the opportunities is
the strongest. In addition, the senior management team formulates the strategic goals
for the organisation. For example, FlySafair entered the low-cost airline industry
with a vision to open the skies to many who had never flown before. Their strategy
is premised on their commitment to make prices sustainable and to keep them low.
FlySafair aims to keep costs per seat as low as possible. Part of its actions Included
changing the scats on its aircraft to make them lighter and thinner, thereby reducing
fuel costs. Linked to its mission to provide low-fare, hassle-free and on-time travel
experiences, one of FlySafair's strategic goals may, for example, be that FlySafair will
achieve a 95 per cent on-time performance while offering scats at 5 per cent less than
competitors will. This deliberate decision to focus on low-cost air travel is a result of
an external environmental analysis that identified the opportunities in these markets.
An analysis of the organisation's internal environment identified various
strengths of the organisation that enable them to make use of the opportunities
identified In the external environmental analysis. Once the strategies to take the
organisation towards the achievement of its objectives have been selected, the next
stage of the strategic management process starts, namely strategy implementation.
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CHAPTER 3: A PROCESS PERSPECTIVE Of STRATEGIC MANAGEMENT
for selecting them, need to be communicated to all parties. Not only should the
organisation members be told what the strategics and overarching objectives of the
organisation arc, but the senior management team also need to ensure that there is
understanding and buy-in because the wider the organisational support, the greater
the chances of successful implementation. Members must be motivated and energised
towards achieving these goals on business, functional levels and even individual levels.
Operationalising strategics arc an important aspect of strategy implementation.
They entail translating the overarching and strategic objectives into specific
programmes, projects, tasks and activities. The middle and lower management levels
in the organisation arc responsible for this, as well as for overseeing it, so they must
be empowered to do so. By translating the strategic goals or long-term objectives into
shorter-term goals and activities, the organisation members become aware of their
roles in the strategic success of the organisation.
At its most basic level, strategy implementation is the action ('doing') stage of
the process perspective of strategic management. Actions to successfully implement
strategies are ensured through certain drivers such as leadership, management, and
culture. Organisational culture is commonly referred to as ‘the way we do things
around here’ and how things are done will impact on success. For example, if the
organisational culture is negative and there is little support for the strategies, then
the strategy implementation process becomes more challenging and can actually fail.
But when the organisational culture is positive and there is wide buy-in, the efforts to
implement the strategies are more coordinated and have a greater chance of success.
Organisational culture and strategy are discussed in detail in Chapter 11.
The middle and lower levels of managers can use rewards to drive strategy
implementation. By rewarding the actions, tasks and behaviour that contribute
towards successful implementation of strategics, managers enhance the chances of
strategy success. Managers should thus devise reward strategies and systems that are
aligned with the overall strategic direction of the organisation.
The way that the organisation is structured also impacts on the strategy
implementation process. If the strategy requires quick decision-making, then a
bureaucratic structure that entails time-consuming red tape may hamper efforts. The
organisational structure not only indicates the lines of authority and reporting, but
also the process and lines for strategy implementation. Coupled with the structure
of the organisation arc the inherent systems and policies Inside the organisation.
Organisational systems, processes and policies are used to direct the execution efforts.
Again, the systems, processes and policies should be aligned with the overall strategic
direction of the organisation.
Finally, leaders and managers in the organisation need to empower and enable
the employees and organisation members to carry out the tasks to implement the
strategies. This requires the appropriate allocation of financial, human, physical and
informational resources. If the resources arc lacking, the implementation efforts will
surely fail.
73
PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
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CHAPTER 3: A PROCESS PERSPECTIVE Of STRATEGIC MANAGEMENT
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
76
CHAPTE R 3: A PROCESS Pt RSPtCIIVt Of STRATEGIC MANAGE Mt HI
77
PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
1. It provides direction and a clear indication of what the organisation is aiming for.
2. It ensures that all the organisational efforts and all the organisation members are
working towards the same goals
3. It offers a clear message to internal and external stakeholders on what the
organisation wants to achieve over the long term.
4. It guides problem-solving and decision-making as the end goal is clear to all.
5. It provides the organisation with a unique identity.
6. It contributes to synergy among all managers and other employees and stakeholders
Ultimately, the vision is not just a statement on a piece of paper, but rather galvanises
and directs people in the organisation, including responsible management components
in a strategic vision, might not come naturally to a typical profit-maximising business.
On the other hand, including responsible management components may lead to a
high motivational factor that facilitates employees' involvement in their pursuit. It is
of the utmost importance to search for a mutually reinforcing relationship between
a vision’s social, environmental and economic components. An excellent example of
a company showcasing both strategic intent and a mutually reinforcing relationship
between the three dimensions of a responsible management vision is Woolworths
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CHAPTER 3: A PROCESS PERSPECTIVE Of STRATEGIC MANAGEMENT
79
PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
■ Organisational values: These arc principles that the organisation stands by;
these values arc held in high regard within the organisation and sets the
standard of how the organisation wants to do business. An example of a
mission statement that includes the organisation’s values is Pick 'n Pay, one of
the leading food, clothing and general merchandise retailers in South Africa:20
We serve. With our hearts we create a great place to be. With our minds
we create an excellent place to shop. We are passionate about our customers
and will fight for their rights. We care for, and respect each other. We foster
personal growth and opportunity. We nurture leadership and vision, and reward
innovation. We live by honesty and integrity. We support and participate in our
communities. We take individual responsibility. We arc all accountable.
The value of setting clear strategic direction, whether through a vision or mission
statement or both, is an important contributor to organisational success.
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CHAPTER 3 A PROCESS PERSPECTIVE OF STRATEGIC MANAGEMENT
In the case of a start-up business, it is easier for a management team to compile the
strategic direction. For established and multi-business organisations, however, the
management team will need to maintain the business operations while the process of
amending or redesigning the strategic direction is underway.
Strategic goals
Flowing directly from the mission statement is the need to translate the overarching
direction of the organisation into strategic goals. The strategic goals have a shorter
time frame than the vision and mission statements (five to ten years as a rule of
thumb) because they arc determined by the nature and the level of complexity and
rate of change in an organisation and within its industry.
To be of value, strategic goals need to be measurable in terms of time, money
and units. Table 3.2 compares well-formulated and poorly formulated strategic goals.
Our goal is to increase our market Our goal is to increase our market share by 3%
share. by the end of 2024.
The goal for 2024 is to expand our The goal for 2024 is to expand our product
product range. range by introducing two new products in the
baby clothing division.
By 2028, we will open new stores. By 2028, we will open one new store in
Mahikeng, in the North-West Province and one
new store in Kimberley, Northern Cape.
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
Goals should be specific and measurable so that people know exactly what it is that
will be expected of them. Goals must be considered attainable by those who need to
work towards achieving them (if, on the one hand, they seem impossible to reach,
people will sec no point in even trying or will quickly become discouraged). The goals
should be realistic, yet aimed at a level that will motivate people (on the other hand,
if they arc too easy to reach, people will not be inspired to work harder). Finally, a
well-formulated goal is linked to a specific time period so people have a deadline to
work towards (an open-ended goal will carry no sense of urgency and could take
years to complete).
Over and above meeting the SMART principles, strategic goals should also be
congruent with the mission statement components, the overall strategic direction of
the organisation and should focus on the key performance areas of the organisation
(the next section will focus on the use of the balanced scorecard to identify these
areas). Also, goals should be acceptable - people tend to pursue goals that arc
consistent with their preferences and perceptions. Lastly, strategic goals should be
flexible. Organisations function in a turbulent business environment, which makes it
necessary to allow for goals to be modified due to changing circumstances, using the
balanced scorecard to set strategic goals
The balanced scorecard (BSC) is a strategic management tool, developed by
Kaplan and Norton, which can be used in both strategic planning and control. When
used in the strategic planning stage, it guides the organisation and management
team to translate the strategic direction into strategic goals. One of the benefits of
the BSC is that it offers a balanced approach to setting strategic goals. The ‘balance’
is grounded in its four perspectives: financial, customer, learning and growth, and
business processes. At the centre of these is the strategic direction, which will include
the vision, mission and other statements.
For each perspective of the BSC, strategic goals need to be formulated that
will contribute to the achievement of the strategic direction. Each perspective offers
a view on what needs to be done with a focus on two internal measures (internal
business processes and learning and growth) and two external measures (customers
and finance). The balance between the internal and external perspectives ensure that
the strategic goals are aligned with the strategic direction. The four perspectives of
the BSC arc explained below:
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CHAPTER 3: A PROCESS PERSPECTIVE Of STRATEGIC MANAGEMENT
Each of these four perspectives is linked to a specific question which guides the setting
of the strategic goals. Given the foci of each of these perspectives, the BSC is a handy
tool that is used to translate the strategic direction into goals and targets. These targets
can be seen as the shorter-term aims at the business level, which guide the activities
or actions needed on the functional level. Figure 3.4n provides guiding questions for
each perspective. These four questions arc used to select the most important strategic
goals on corporate level. A successful application of the BSC may include two to five
goals in each perspective and each goal should be joined by a performance target that
indicates whether the goal is achieved, as part of the review process.
Goals Goals
Metrics Metrics
Business process perspective
Targets Financial perspective Targets
To satisfy our shareholders and
To succeed financially, how should
Initiatives customers, what business processes Initiatives
we appear to our shareholders?
K must we excel at?
Strategic
direction
F Learning and growth
Customer perspective perspective
Goals Goals
To achieve our vision, how should To achieve our vision, how will
Metrics Metrics
we appear to our customers? we sustain our ability to change
Targets and improve? Targets
Initiatives Initiatives
The scorecard is balanced in that it includes strategic goals and measures for all
four perspectives. The purpose is to ‘balance’ the strategic goals by ensuring that
one business area (such as finance) does not dominate the strategic direction of the
organisation, while, at the same time, ensuring a focus on a few key metrics that
could serve as a ‘scorecard’ for the whole organisation.
The BSC is increasingly being adjusted to explicitly plan and track how a
responsible business strategy translates into concise facts and figures. The originally
developed BSC has already triggered a revolutionary development from a purely
financial goal structure to the integration of goals and metrics related to learning
and growth, internal business process and customers. In modern organisations, these
categories arc renewed by integrating responsible management-related indicators in
the scorecard.
Table 3.3 provides examples of goals, metrics, targets and initiatives for each
of the four perspectives in a modem responsible business
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
Table 3.3 Examples of goals, metrics, targets and initiatives for a balanced scorecard
84
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The following practising strategy box uses CellMobile as an example of the application
of the BSC.
The balanced scorecard offers a valuable framework for setting strategic goals.
Once the strategic goals have been formulated, the strategy selection process starts.
This is discussed in Chapter 7. In sections 3.5 and 3.6, we provide a brief overview of
the strategy implementation and strategy review processes.
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CHAPTER 3: A PROCESS PERSPECTIVE OF STRATEGIC MANAGEMENT
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
Behaviour, actions and tactics will need to be adapted. Involving people in the change
process and ensuring that they understand the reasons for the change will ease the
transition. There should be a fine balance between driving the change and giving
people time to adjust.
Strategy implementation deals with the ‘doing’ part of the strategy, and organi
sational culture plays an important role in the success or failure of an organisation.
An unhealthy and negative culture can cause undue resistance to change, which
seriously hampers progress. This is something management and leadership will have
to tackle as it can undermine the entire strategic management process. Organisational
culture can help or hinder the strategy execution process. Chapters 11 and 12 deal
with organisational culture and the role of strategic leaders, respectively in more
detail. In Chapter 11, the integration of the principles of responsible management in
organisational culture will be discussed, while Chapter 12 will address responsible
strategic leadership.
Resource allocation is another important driver of strategy implementation.
Resources comprise human resources, physical resources, information resources and
time. Coupled with the allocation of resources is the need for structure. In Chapter
10, the responsible allocation of resources will be highlighted. Organisational
structure indicates the lines of authority and responsibilities in the organisation.
It forms the backbone of the organisation and helps to direct the various actions
required to implement the strategies. The organisational structure needs to support
the implementation of the strategies. In Chapter 13, a more detailed discussion of
organisational structure and the integration of the pillars of responsible management
in the organisational structure to become a responsible organisation will be provided.
Finally, the last driver of strategy implementation is organisational learning,
which is covered in Chapter 9. Organisational learning is a process in response
to change and provides for change, creating new knowledge and practices and,
ultimately, the transferring of knowledge.
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important here. When the middle managers (such as the section heads, departmental
leaders and site managers) involve the supervisory level in this process, the acceptance
of these medium-term goals is ensured. Medium-term goals arc typically set for
the functional areas in the organisation, such as the marketing, operations, human
resources, finance and purchasing departments. A responsible business may also
establish a specific department or section specifically responsible and accountable
for responsible business issues. The balanced scorecard also assists in this process.
As we have explained earlier, the balanced scorecard has four perspectives and the
organisation's vision and strategy form the starting point. Within each perspective,
(he balanced scorecard is used to specify the goals, measures, targets and initiatives.
Each business unit and department in the organisation will have its own focused and
specifically balanced scorecard. A responsible business will integrate the domains of
responsible management also in its BSC, as illustrated in Table 3.3.
In addition to the medium-term goals, functional tactics also need to
be developed. Functional tactics provide even more detail to ensure the daily
operationalisation of the organisation's strategics. A functional tactic is developed
in support of the short-term goals. Functional tactics arc even more specific and
require wider participation. The focus of the functional tactics is the tasks and
activities required to operationalise the strategy and indicate what needs to be done
immediately and on a daily basis.
Finally, the organisational actions to operationalise the strategy arc guided
by the organisational policies. Policies are often referred to as 'red tape' but form an
important part of the fair and justified actions of the organisation and its workers.
Policies provide detailed and specific guidelines and rules that direct the organisational
activities - the framework and specific ‘do's and don'ts'. Policies are often referred
to as standard operating procedures. It is important that the organisational policies
be documented and recorded in written format and made available to all the
organisational members. In line with fair business practices, the policies should
also be made available to the customers and other stakeholders. Policies guide the
organisational managers in the control and coordination of organisational activities.
LO 6: Explain strategy review and control, identify the main strategic control
mechanisms in organisations and integrate the principles of responsible
management in strategy review and control.
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
operate in changing environments, the need for regular and continuous monitoring
and review is important. Different methods to review the strategy implementation
process exist and, although the focus of each methodology is different, the aims
remain the same: review and control.
Our focus is on the four main strategic control mechanisms, namely, premise
control, strategic surveillance, special alert control and implementation/execution
control. Typically, all four of these methodologies will be employed, but at different
stages of the implementation process. When the strategies are devised, a number
of assumptions or premises arc made. Premise control is aimed at reviewing these
assumptions in a focused way. If any of the assumptions are no longer valid, a change
in the strategy is required. This type of control is very specific. With its exclusive
focus, it is possible that other factors, which may also bear an impact on the success
of the strategy, are overlooked. Hence the need for the strategic surveillance type of
control.
Strategic surveillance is also referred to as environmental scanning and is not
focused, but rather opens the opportunity for managers to consider a whole range of
internal and external environmental factors. As organisations operate in a changing
environment, some changes may occur that were not predicted. Despite the proactive
nature of the strategic management process, it is impossible to predict and plan for
all changes, especially unexpected changes that lead to a total reconsideration of
the strategies. This type of control is often referred to as implementation control or
execution control. It takes place during the strategy execution process and comprises
four steps: setting the standard, measuring the actual, identifying deviations and
taking corrective measures. The functional managers are responsible for this type
of control, with inputs from the supervisory level. Special alert control is linked
to a largely unpredicted and unexpected event that warrants a total review of
the strategy. Chapter 14 provides a detailed discussion of the different types of
strategic review and control methodologies, with the integration of the domains of
responsible management.
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
Discussion questions
1. Depict the process perspective of strategic management diagrammatically.
2. Explain what vision, mission, and value statements entail.
3. Explain how the vision, mission and value statements of a responsible business
may be different from a purely profit-driven business.
4. Critique the process perspective of strategic management.
5. Explain the role of environmental analysis in strategic management.
6. Explain strategic programmes and projects.
7. Identify and explain key drivers of strategy implementation and identify these in
organisations.
8. Explain strategy review and control and recognise various control mechanisms
in organisations.
Learning activities
1. Interview two managers in any two organisations of your choice about their
perception of the value of the strategic management process. What did you learn
about strategic management from these interviews?
2. In your opinion, will it be possible for a business selling tobacco or alcoholic
beverages to conduct their activities in a responsible manner? Substantiate your
answers in no more than 100 words.
3. Access the annual report of AB InBev for 2022. Identify the domains of
responsible management evident in the report. Would you regard the company
as a responsible business? Substantiate your answer in no more than 50 words.
4. Visit the website of strategist Tony Manning and read the blog at http://www.
tonymanning.com/stratblog/. What arc the implications of this perspective for
strategic management as a process? Provide an answer in no more than 50
words.
5. Read some of the work by scenario planner Clem Suntcr (or visit the website http://
www.clcmsuntcr.co.za/). What role does scenario planning and environmental
scanning play in the development of strategics?
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Endnotes
1 How South Africa's 5 biggest banks continue to dominate. 2021. Available online: https://
businesstech.co.za/news/banking/506740/how-south-africas-5-biggest-banks-continue-
to-dominate/ (accessed 8 February 2022).
1 Capitec reports continued recovery on expanded digital offerings and strong customer
growth. 2021. Available online: https://businesstech.co.za/news/banking/525074/capitec-
reports-continued-recovery-on-expanded-digital-offerings-and-strong-customer-
growth/f :~:text-lleadline%20earnings9b20increased%20to%20R3,936%20billion)
(accessed 8 February 2022).
I Ibid.
4 Capitec is expanding its digital offering. 2021. Available online:https://businesstech.co.za/
news/banking/543O84/capitec-ls-expanding-its-digital-offering/ (accessed 8 February
2022).
4 Ibid.
6 Capitec reports continued recovery on expanded digital offerings and strong customer
growth. 2021. Available online: https://businesstech.co.za/news/banking/525074/capitec-
reports-continued-recovery-on-expanded-digital-offerings-and-strong-customer-
growth/# :~:text-Headline%20earnings%20increased%20to%20R3,936%20billion)
(accessed 8 February 2022).
’ Majola, G. 2021. Capitec once again leader of banking satisfaction index. Available online:
https://www.iol.co.za/business-report/companies/capitec-once-again-leader-of-banking-
satisfaction-index-b714e8b7-6a06-4268-a50c-Oefb07c40d8f (accessed 8 February 2022).
’ Capitec launches 'needs-based' credit option - how it works. 2021. Available online:
https://businesstech.co.za/news/banking/541098/capitec-launches-needs-based-credit-
option-how-it-works/ (accessed 8 February 2022).
’ Capitec boss Gerrie Fourie on the future of South Africa’s banking sector. 2021. Available
online: https://businesstech.co.za/news/banking/509240/capitec-boss-gerrie-fourie-on-
the-future-of-south-africas-banking-sector/ (accessed 8 February 2022).
10 Le Roux, K. 2016. Meet the founder of Capitec Bank, named ‘Best Bank on Earth and
Cheapest in SA’. Available online: http://www.702.co.za/articles/15182/meet-the-founder-
of-Capitec-bank-named-bestbank-on-earth-and-cheapest-in-sa (accessed 15 April 2017).
" 'I originally had a very basic bank in mind.' @CapeTalk. Available online: http://
www.702.co.za/articles/l5182/meet-thc-founder-of-Capitcc-bank-namcd-best-bank-on-
earth-andchcapcst-in-sa (accessed 15 April 2017).
II 'We'll keep it simple. In 10 years it'll still be recognisable as the bank you see today.' @
CapeTalk. Available online: http://www.702.co.za/articles/15182/meet-the-founder-of-
Capitec-banknamed-best-bank-on-earth-and-cheapest-ln-sa (accessed 15 April 2017).
11 Available online: https://www.Capitecbank.co.za/media-ccntre/ncws-article/252 (acces
sed 15 April 2017).
14 Available online: https://www.Capitccbank.co.za/about-us (accessed 15 April 2017).
14 Capitec boss Gerrie Fourie on the future of South Africa's banking sector. 2021. Available
online: https://businesstech.co.za/news/banking/509240/capitec-boss-gerrie-fourie-on-
thc-future-of-south-africas-banking-sector/ (accessed 8 February 2022).
14 Available online: https://www.katlcgoint.co.za/ (accessedl2 May 2022).
17 Available online: https://www.katlegoint.co.za/social-responsibility-initiative/ (accessed
19 September 2022)
Available online: https://clhg.com/company-pronie (accessed 12 May 2022).
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94
Strategising and
4 Strategists
Annemarie Davis
LEARNING After reading this chapter, you should be able to do the following:
OUTCOMES LO 1: Differentiate between the process and practice perspectives
of strategic management.
LO 2: Explain the term 'strategising'.
LO 3: Differentiate between deliberate, emergent and emergent
responsible strategising.
LO 4: Explain the roles and responsibilities of strategists.
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Strategy implementation
and control
Resource allocation
Change management
Strategy implementation
and control
Case study
Aspen - Strategising over 160 years
The organisation known today as Aspen Pharmacare has a rich history that stretches
over 160 years. Barry Grey Lennon, a chemist from Ireland, settled in the Cape, South
Africa, and opened a chemist and druggist in Port Elizabeth in 1850. Not only did he
establish a household brand, but he also served as chief strategist to grow a company
that has proven its ability to survive and thrive in a changing business environment. By
1858, Lennon advertised his products in the local press and they featured on the cover
page of the first issue of the South African Medical Journal in 1884. From here on, the
wholesale chemist expanded and incorporated as a public company in 1898 under the
name Lennon Ltd. Today this is the Aspen Pharmacare Trading Company and continues to
carry the 1898 registration number. By 1911, Lennon Ltd had 21 pharmacies across South
Africa. During the years that followed, Lennon Ltd continued to grow and, by 1930, it
had established itself as the largest pharmaceutical company in the southern hemisphere.
In 1968, the South African Druggist group, which included Lennon Ltd, listed on the
Johannesburg Stock Exchange (JSE). During the 1970s, Lennon Ltd capitalised on the birth
of the generic industry and focused on providing equivalent products on the expiry of
patents. The establishment of the Lennon Ltd Research and Development department in
1975 led to the registration of a wide range of generic products. Through the 1980s and
1990s, Lennon Ltd became an undisputed leader in the generics field.
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During 1997, from a converted house in Durban, Aspen Healthcare was founded
by among others, Stephen Saad and Gus Attridge. Aspen was listed on the JSE through
reverse listing into Medhold Ltd and, by 1999, had acquired the South African Druggist
group (which included Lennon Ltd). At that time, the South African Druggist group was
the oldest pharmaceutical business in South Africa.
Moving from strength to strength is what Aspen is known for - from establishing
Aspen Australia in 2001, to taking the lead in a broad-based economic empowerment deal
in 2002, to launching the first generic anti-retroviral drug in 2003, to constructing a state-
of-the-art facility in Port Elizabeth in 2004 (with two new facilities added in Port Elizabeth
in 2016 and 2018 and subsequent investments in manufacturing infrastructure currently
taking place, to acquiring fine chemicals in Cape Town in 2004... the list continues.
In 2002, Aspen Pharmacare launched its new corporate identity which has
grown to accommodate nearly 50 business units across the world. Aspen remains one
of South Africa's success stories and one of the top 40 companies listed on the JSE.
Aspen is established as a global player and a leading speciality and branded multi-national
pharmaceutical company that provides treatment for a broad spectrum of acute and
chronic health conditions experienced through all stages of life.
In 2006, Aspen Holdings reported gross revenue of R3.4 billion - in 2021, the gross
revenue was more than 10 times that, namely R37.7 billion, as released on 30 June 2021.
The success of Lennon Ltd and the Aspen Group can arguably be ascribed to the
vision and guidance of its leaders. Moreover, the deliberate attempts to stay ahead of the
game have proven to be successful. Aspen and its leaders are committed to sustaining
life and promoting healthcare through increasing access to its high-quality, affordable
medicines and products.
As a strategist, co-founder and group chief executive of Aspen, Stephen Saad is widely
recognised for his astute leadership, passion, commitment and focus. There are many
stories that testify to his out-of-the-box thinking while managing to stay focused on the
end goal: continuous improvement of efficiencies and performance. One example of his
strategising activities is from 2001, when Aspen expanded its operations to Australia with
only two people and two laptops. Saad and his team followed a simple strategy to enter
the Australian market: Aspen hired doctors who had been forced to retire at ages 60 to
65 as sales representatives. They obtained access to practising doctors more readily than
ordinary sales representatives did. They were rejuvenated and highly motivated.
Aspen, under the leadership of Saad and his senior management team, continues to
increase the number of lives benefiting from its products, reaching more than 150 countries
across the world. Aspen supplies products to more than 150 countries, has 23 manufacturing
facilities at 15 sites on six continents and employs approximately 10,000 people.
In South Africa, Aspen was a driving force in the development of the Public Health
Enhancement Fund, a three-year partnership between the public and private health sector
in South Africa, which invests millions in funds to assist government in addressing a
number of public healthcare priorities identified by the Department of Health.
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Aspen remains globally competitive through its centralised regulatory, supply chain and
procurement resources that provide a competitive advantage to the group. The ongoing
focus on the continuous improvement of efficiencies and performance sets a strong
foundation from which to operate.
Being able to lead the organisation to stay at the front end of change, Saad
confirmed the importance of partners that add value to Aspen's offering. When Aspen and
Siemens announced the licensing of the first African COVID-19 vaccine, Aspenovax, Saad
explained that the partnership between the two companies leads to greater efficiency and
bolstering Africa's security of supply to fight the COVID-19 pandemic.2 His commitment
to the communities they serve is evident in his comments during the announcement of
the manufacture and sale of an Aspen-branded COVID-19 vaccine: 'we are not safe until
we are all safe.’3
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practice research field is not only focused on the micro-activities, but also on the
context within which these micro-activities take place. For a responsible strategist,
strategy-as-practice will be focused on micro-activities in the context of being a
responsible business.
The strategy-as-practice perspective supports and builds on the strategy
process perspective and views strategy as a situated, socially accomplished activity -
meaning that it is done by people and influenced by their background and context.
It refers to activities that are connected with particular practices such as strategic
planning, annual reviews, strategy workshops and their associated discussions.
The strategy-as-practice perspective distinguishes between strategy praxis (the
work), strategy practitioners (the workers) and strategy practices (the tools). Figure
4.2 depicts the conceptual framework that forms the foundation of the strategy-as-
practice perspective.
The three elements of praxis, practices and practitioners, depicted in Figure
4.2, are discrete but interrelated social phenomena. It is thus not possible to study one
without also drawing on aspects of the others.
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■ Praxis is linked to human action and encompasses 'all the various activities
involved in the deliberate formulation and implementation of strategy’.6 In
everyday terms, praxis refers to the flow of activities such as meeting, consulting,
talking, calculating, writing, presenting, communicating, completing documents,
and so on, that are employed to constitute strategies?
■ Practices are the social, symbolic and material tools through which strategy
work is done. These tools are combined, coordinated and adapted to construct
strategy practice, and include theoretically and practically derived tools such
as Porter’s five forces of competition, a SWOT analysis, resource-based view
analysis and value chains, as well as material artefacts and technologies such as
PowerPoint, flipcharts, and spreadsheets.8 Because of the unique characteristics of
organisations, their managers and employees and the underlying organisational
culture, practices are diverse and variable, which means that no single approach
to strategy formulation and implementation is correct for all organisations.
Organisations customise their strategising practices to suit their circumstances.
■ Practitioners, or strategists, are the actors - the individuals who draw upon
practices to act. In this book, we prefer to use the term ‘strategists’. Practitioners/
strategists are interrelated with practices and praxis. They derive agency through
their use of the practices, namely ways of behaving, thinking, emoting, knowing
and acting prevalent within their society, combining, coordinating and adapting
the practices to suit their needs in order to act within and influence that society.9
As alluded to earlier, we accept that strategy is not only a deliberate, top-down process.
Middle managers and operational-level employees are also important strategic actors
or strategists. While their actions and influence on strategy may be unintended on an
organisation level, middle managers and operational-level employees are significant
for organisational survival and competitive advantage. In this book, we identify and
discuss a wider range of actors as strategists, going beyond top managers to include
other levels of employees, as well as the board of directors and consultants.
4.2 Strategising
Strategising is essentially what strategists do and can be described as devising or
influencing strategies. Through their actions, strategists influence the allocation of the
organisation's resources and control or influence key actions. The terms ‘strategising’
and ’strategy-making' are often used interchangeably and include strategising
activities. Strategising not only involves those inside the organisation, but also
consulting firms, business schools, business media, academic journals, professional
societies, enterprises and management in a joint endeavour that are all recognised as
somehow strategic.10 For example, when we look at the opening case study, Stephen
Saad, CEO of Aspen, clearly influences key actions of the organisation. But he does
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not do this on his own: he specifically refers to those who are appointed to lead the
business, that is, the managers. The case also describes Aspen's deliberate strategy as
a growth strategy that led the organisation into new markets and product ranges and
how he leads the company towards growth amid the C0V1D-19 pandemic. When we
reflect on Chapter 1 and the notion of responsible leadership, we also see evidence from
the case where definite decisions and actions are taken towards being a good corporate
citizen by conducting their business in a responsible, inclusive, and sustainable way,
while adhering to their ethical and moral principles. The next level of strategies may
be more emergent in nature as an organisation’s strategy is partly proactive and partly
reactive. The following section describes strategising from a deliberate strategy and
emergent strategy perspective.
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For a strategy to be emergent, it may develop outside the original intentions of the
original strategic plan. This does not mean that an organisation intentionally ignores
the original strategic plan - rather, it is a rethinking of strategy that is necessitated
by immediate circumstances. Thus, strategy may suddenly be rationalised to mean
something very different from what was originally intended.14 The COVID-19 pandemic
forced organisations to rethink many of their strategies. The national lockdown
regulations that restricted organisations in doing their business as previously led
to a number of innovative solutions and offer a wealth of examples of emergent
strategising. One example is the introduction of Checkers Sixty6O shopping. While
Checkers intended to enter the ecommerce race, the opportunities brought on by the
COVID-19 restrictions enabled them to move faster and gain a stronger market. The
entire e-commerce solution was developed in less than nine months.15 The race to
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establish a strong base in terms of e-commercc while keeping the fears and risks of
the pandemic at a minimum meant that Checkers had to rethink its strategy and offer
a solution as the effects of the pandemic emerged.
Another example, not linked to the C0V1D-19 pandemic, is situated in the
Apple company, which is recognised for its emergent strategies.
The practising strategy box below provides the detail.
Emergent strategies are usually shaped by the decisions and actions of middle managers
and other strategists (including the top management team) within the organisation
outside of the formal and deliberate strategic management processes. Middle managers
are more involved with the operations of the organisation and can influence strategy
through what they do. This means that some strategic initiatives may arise initially
without the awareness of the senior management team. Emergent strategy implies
learning what works - taking one action at a time in search of that viable pattern
or consistency. It is also frequently the means by which deliberate strategies change.
This does not mean that the senior management team loses control, but rather that
strategies are open, flexible and responsive to allow the organisation to leam and
adapt to its environment. Emergent strategising enables management to act before
everything is fully understood. It enables the senior management team, which cannot
be close enough to a situation or which cannot know enough about the varied activities
of its organisation, to surrender control to those middle-level managers who have
enough current and detailed information to shape realistic strategies. Whereas the
more deliberate strategies tend to emphasise central direction and hierarchy, the more
emergent strategics open the way for collective action and convergent behaviour.
The approach of this book is that strategic and strategising decisions are not only a way
of making sense of an emergent pattern of activity, but also a way of creating sense in
the absence of any such patterns, as a response to the anxieties of the human condition
or to the uncertainties with which managers are characteristically faced.16 Strategic
decisions cannot always await consensus, commitment or visible action. When existing
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strategies are no longer convincing, the decision complexes associated with them cease
to be effective carriers of meaning, and new rationalisations of the world in the form of
new decisions, however provisional, must be constructed in their place.
All management levels and employees have specific roles to fulfil in ensuring
successful strategising. Often, a disconnect exists between the perspectives of the
various role-players. For example, the senior management team of the organisation
decides, after a strategic review, to launch a new strategy. This new strategy involves a
range of commitments, most of which have already been made, either in anticipation of
the decision or in reactive response to market pressures (deliberate strategising). Many
of the commitments agreed upon are modified along the way (emergent strategy) and
at least one major part of the strategy is never implemented at all (unrealised strategy).
Accordingly, the strategy of the organisation changes and the change is reflected both
in management thinking and in the organisation’s actions and behaviours.
Emergent responsible strategies have emerged as a new tool to address the
infinite nature of managerial responsibility. Whereas the concept of responsibility
of corporations has been brought to the forefront with increasing recognition of the
importance of corporate social responsibility (CSR) and corporate citizenship, the essence
thereof has not been fully perceived, which has inevitably resulted in the restrictive
feeling associated with organisational CSR activities. This resulted in the development of
emergent responsible strategies as a tool to address the sustainability, responsibility and
ethical issues in businesses. In addition, emergent responsible strategies can be applied
to new issues, such as fulfilling sustainable development goals (SDGs). The practising
strategy below offers an example of how Woolworths adjusted its strategy in response to
changes in the environment, with a longer-term focus on the environment.
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The next section focuses on the roles and responsibilities of strategists or strategy
practitioners.
4.4 Strategists
A strategist is the ‘doer’ of the strategy. Whereas top managers have traditionally
been regarded as the custodians of strategy, the idea that other people and even
objects (artefacts) can also be strategists is gaining ground. Any individual or group
in the organisation that controls key or precedent-setting actions'9 (for example,
middle managers and strategy consultants) can be regarded as strategists. Since
objects can also control or influence key actions, we can extend this definition to
include presentations, written documents, information systems, and so on.
By accepting that strategists are not only from the top management echelons,
or even appointed as strategists, we then also need to look at the different categories
of strategists. For example, within the middle management level, individuals may
exist that offer a range of skills who make them strategists and enable them to do
strategy. Hodgkinson and Clarke20 found that individual strategists will, cognitively
speaking, fall into one of four broad types: detail-conscious, big-picture conscious,
non-disceming and cognitively versatile. Bear in mind that the complexity of the
environment, the size of the organisation, the experience levels of the managers and
workers all influence the skills needed by strategists. Often strategists who fall within
a combination of these categories are best suited to the unique circumstances in which
the organisation finds itself. These categories of strategists are described in Table 4.1.
Strategists Description
Big picture Practitioners who are big-picture conscious can become preoccupied
conscious strategy with gaining an overview of the problem at the expense of the
workers details. They are highly intuitive in orientation, with little or no regard
for analytic approaches to problem-solving and decision-making.
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Strategists Description
Irrespective of the category, it is often said that a good strategist requires keeping a
cool head.21 In simple terms, this means that strategists should regulate their emotions
to ensure their organisations are able to adapt effectively to change in turbulent
times. Various strategists, both internal and external, who influence organisational
performance and strategic success are discussed below.
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or have these roles fulfilled by members of their management team. Listed below are
the three roles that SPCs must perform:
■ The social craftsperson integrates different expectations from groups and
individuals to ensure buy-in into 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 a
volatile situation into a positive one.
■ The artful interpreter adjusts general strategic planning practices to align
them with the local routines and norms. He or she contextualises the strategy
so that others can identify their own roles in it.
■ The known stranger ensures a balance between distance and closeness in
the interaction between strategists and other parties to maintain objectivity
while at the same time cultivating trust.
The senior or top management team needs to have enough detail of the organisation to
ensure that the strategising is sound and to be able to allocate scarce resources to put
the strategies in place. The practising strategy box below illustrates the strategising
abilities of one of South Africa's top business leaders, Sizwe Nxasana.
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The various board committees report back to the board on how they
carried out their responsibilities. The committees assess their mandates annually as
documented in their respective terms of reference and undertake internal reviews of
their effectiveness. WHL board meetings are held on a regular basis in Australia to
ensure that directors receive adequate exposure to the Australian retail market and
the dynamics within which the WHL Group operates.
The WHL board is guided by a charter that is reviewed annually. The charter includes
a delegation of authority, which sets out the delegation of matters by the board
to its committees and the CEO. There are a number of governance policies that
complement the delegation of authority. These policies are reviewed annually, and
the board approves all amendments.
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Discussion questions
1. Differentiate between the process and practice perspective of strategic
management.
2. Explain the term ‘strategising’.
3. Differentiate between deliberate, emergent and emergent responsible strategies.
4. Identify the different kinds of strategists and explain their role in strategising.
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Learning activities
Interview a middle manager in your organisation, or any organisation of your choice,
and do the following:
1. Ask him or her to describe how strategising is done in the organisation.
Evaluate the descriptions against the definitions of deliberate, emergent and
emergent responsible strategy that were discussed in this chapter.
2. Ask the manager to explain his or her role in the development and execution
of strategy. Use the information in Table 4.1 to determine what type of
strategist you have interviewed. Substantiate your answer in no more than
50 words.
3. Read the CEO report that forms part of the integrated report of the
organisation and identify the deliberate strategising activities described in
the document.
Endnotes
1 Mashego, P. 2021. EXPLAINER | How Aspen aims to make enough Covid-19 vaccines
for every single person in Africa. Available online: https://www.news24.com/fin24/
companies/health/explainer-how-aspen-aims-to-make-enough-covid-19-vaccines-for-
every-single-person-in-africa-20211201 (accessed 28 February 2022).
2 Mahlangu, A. 2022. Siemens SA and Aspen join forces to enhance vaccine production for
Africa. Available online: https://www.businesslive.co.za/bd/companies/healthcare/2022-
02-07-siemens-sa-and-aspen-join-forces-to-enhance-vaccine-production-for-africa/
(accessed 25 February 2022).
3 Beukes. S. 2021. Aspen confirms non-binding term sheet on manufacture and sale
of an aspen- branded Covid-19 vaccine throughout Africa. Available online: https://
www.aspenpharma.com/2021/ll/30/aspen-confirms-non-binding-tcrm-shcet-on-
manufacture-and-sale-of-an-aspen-branded-covid- 19-vaccine-throughout-africa
(accessed 28 February 2022).
4 Corradi, G., Gherardi, S. ft Vcrzclloni, L 2010. Through the practice lens: where is the
bandwagon of practice-based studies heading? Management Learning, 41(3), 265-283.
4 Johnson, G., Langley, A., Melin, L ft Whittington, R. 2007. Strategy as Practice: Research
Directions and Resources. Cambridge: Cambridge University Press.
6 Whittington, R. 2006. Completing the practice tum in strategy research. Organization
Studies, 27(5), 619.
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THE EXTERNAL CONTEXT
5 OF STRATEGIC PLANNING
Trevor L Amos and Noel J. Pearse
LEARNING After studying this chapter, you should be able to do the following:
OUTCOMES LO 1: Recognise the implications of corporate citizenship for
managing and governing organisations.
LO 2: Explain the process of strategic analysis.
LO 3: Explain the levels and related analytical tools of the external
context and identify sustainability and responsibility
considerations.
LO 4: Identify and analyse the external context to recognise
strategic imperatives at the global and regional levels.
LO 5: Identify and analyse the external context to recognise
strategic imperatives at the national and local levels.
LO 6: Identify and analyse the external context to recognise
strategic imperatives at the industry level.
10 7: Identify and analyse the external context to recognise strategic
imperatives at the functional level of an organisation.
LO 8: Consolidate an integrated external analysis of an
organisation.
■ PESTLEG goals
120
■ Manufactured capital includes the various material
objects created by people such as plant, equipment and
an inventory of goods produced.
■ Financial capital is the stock of funds to which the
organisation has access.
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Strategy implementation
and control
Strategy formation
architecture
(^Organisational learning^
Resource allocation
Change management
Strategy implementation
and control
OPENING CASE
Responsible use of plastic
Alexander Parkes first introduced plastic in 1862 while he was trying to find a synthetic
substitute to use for waterproofing. However, it was only in the 1950s that its versatile
commercial use grew substantially5 and became a pervasive element in the manufactured
capital of organisations.
Synthetic plastics are derived from hydrocarbons such as crude oil, natural gas,
or coal.6 There are seven types of plastics that are grouped into two categories, namely
thermoplastics and thermosetting plastics. When heated, thermoplastics soften and can be
easily moulded. In contrast, thermosetting plastics are more rigid and durable. Examples of
thermoplastics include PET used in bottles, polystyrene used for insulation, and PVC used in
window frames, pipes, and flooring. Examples of thermosetting plastics include epoxy resin
used in adhesives, and polyurethane used in electrical components and computer parts.’
The versatility of plastic and its low cost to manufacture has meant that it has been used
extensively in a wide range of products globally. It is estimated that 9 billion tonnes of
plastic have been produced. However, only 10 per cent of it has been recycled.6
With the longevity of plastic estimated to be hundreds to thousands of years,
plastic debris accumulates on the planet and disintegrates into different sizes9 posing a
threat to ecosystems and people.10 Fragments called microplastics are tiny plastic particles
up to 5 millimetres in size" and do not readily break down into harmless molecules.”
Microplastics can be classified as primary or secondary. Primary microplastics are the tiny
particles or pellets manufactured for cosmetics or the manufacture of larger plastic items
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and microfibres shed from textiles, while secondary microplastics are particles from the
breakdown of larger plastic items.'1-14 The main source of secondary plastics are single
use plastics such as plastic bottles, packets, and straws.'5 The fragmentation or breakdown
of plastic into microplastics is caused by exposure to the elements of the environment
such as the sun as well as the ocean's rolling waves. The presence of microplastics globally
has been well documented.16- ”•16
Plastic pollution soared from two million tonnes in 1950, to 348 million tonnes
in 2017, becoming a global industry valued at $522.6 billion. It is expected to double in
capacity, by 2040. The impacts of plastic production and pollution on the triple planetary
crisis of climate change, nature loss and pollution are a catastrophe in the making, with
exposure to plastics harming human health, and potentially affecting fertility, hormonal,
metabolic and neurological activity, while open burning of plastics contributes to air
pollution'.19 A recent study, finding microplastics in human blood, provides "a unique
dataset that supports the hypothesis that human exposure to plastic particles results in
absorption of particles into the bloodstream'.20
'More than 800 marine and coastal species are affected by this pollution through
ingestion, entanglement, and other dangers, while around 11 million tonnes of plastic
waste flow each year into the ocean. This could triple by 2040.'21 The harm to South Africa's
marine life has also been documented; it was noted that the 'ingestion of these non-
biodegradable particles reduces an organism's ability to consume its natural prey'.22
In summary, as noted by the President of the UN Environment Assembly, plastic
pollution has grown into an epidemic (United Nations, ND) with Harvey, Sullivan
and Amos (2021) noting that 'the presence of plastics in the natural environment carries
substantial risks for global populations and ecosystems'.21 Plastics cannot simply be
banned or quickly replaced' considering our growing dependence on them' as is evident
by escalating global usage.24
In 2015, UN member states adopted the 17 Sustainable Development Goals (SDGs)
as a "universal call to end poverty, protect the planet and improve the lives and prospects
of everyone, everywhere’ by 2030.25 Plastic pollution is directly addressed by Goal 12:
Responsible Consumption and Production. It also has an adverse impact on several of the
other SDGs, including:
■ "Goal 3: Good Health and Well-Being. Ensuring healthy lives and promoting the
well-being for all at all agesPlastic pollution affects people's health in many
ways, including when it is burnt.26
■ 'Goal 6: Clean Water and Sanitation. Clean, accessible water for all...'. Microplastics
in the water are being ingested and can contribute to ill health.22-28
■ 'Goal 9: Industry, Innovation, and Infrastructure. Investments in infrastructure
are crucial to achieving sustainable development.' However, as explained earlier,
plastic, especially PVC, is used widely in industry and infrastructure.
■ 'Goal 14: Life Below Water. Careful management of this essential global resource
is a key feature of a sustainable future.' At the current rate of pollution, by 2050,
it is projected that there will be more plastic in the oceans than fish.29-10
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■ 'Goal 15: Life on Land. Sustainably manage forests, combat desertification, halt
and reverse land degradation, halt biodiversity loss.' A large portion of plastic
pollution is in landfill sites, degrading the land.31
On the other hand, work opportunities related to addressing plastic pollution can also
contribute to Goal 8: Decent Work and Economic Growth. That is, 'Sustainable economic
growth will require societies to create the conditions that allow people to have quality
jobs.' Perhaps some of these jobs can be generated by dealing with plastic pollution.
Protecting the planet is key to ending poverty and improving the lives and prospects
of people. As part of protecting the planet, in early 2022 "heads of State, environment
ministers and other representatives from 175 nations endorsed a historic resolution
entitled "End Plastic Pollution: Towards an internationally legally binding instrument”, at
the UN Environment Assembly... to end plastic pollution, and forge an international legally
binding agreement, by the end of 2024'.32 The Executive Director of the UN Environment
Assembly described the resolution as 'a triumph by planet earth over single-use plastics'
and as ‘an insurance policy for this generation and future ones, so they may live with
plastic and not be doomed by it'.33
Many countries have taken several initiatives to reduce our reliance on plastic
and to promote its reuse and recycling.34 For example, in 2004 South Africa introduced
legislation requiring retailers to charge a price for plastic bags, which has led to a
significant drop in the number of bags sold, particularly with the incremental increase
in the levy over the years.35 More recently, the focus has been on reducing single-use
plastics, such as plastic water bottles and plastic straws. It is estimated that one million
plastic bottles are purchased every minute, and that annually, five trillion plastic bags are
used worldwide.36 There are also initiatives to find alternatives to plastic, such as using
bioplastics, paper and cardboard, glass, tin and foil and natural textiles. However, many
of these have adverse impacts on the environment. Natural textiles such as linen or hemp
seem to be more sustainable alternatives.37
Given its adverse impacts, retailers, for example, should be identifying plastic
pollution as an issue when conducting their political, economic, social, technological,
legal, environmental, and governance (PESTLEG) and risk analyses (PESTLEG will be
explained in section 5.4). Among South African retailers, the SA Plastics Pact (see https://
www.saplasticspact.org.za/) has been formed. This voluntary membership is committed to
action to achieve several targets by the year 2025. These targets are:
■ taking action on problematic or unnecessary plastic packaging;
■ 100% of plastic to be reusable, recyclable or compostable;
■ 70% of plastic packaging effectively recycled; and
■ 30% average recycled content across all plastic packaging.
This type of initiative has a bearing on the supply chain and environmental impact
analyses of retailers. From the perspective of being a responsible organisation, there is
a need to be aware of the impact of plastic on the ecosystem and humans and of global
and national initiatives and legislation relevant to encouraging the responsible use of
plastics for the sustainable development of society. The need for responsible plastic use
for the sustainable development of society needs to inform the strategic planning of any
organisation and its triple-bottom-line reporting.
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is moral, just and fair for self and others, and to do no harm. In addition, they
also have a philanthropic responsibility to be responsible corporate citizens41 and be
sustainable. Sustainability is about the focus on the triple bottom line of business,
good governance, the 17 SDGs and the idea that human societies must live and meet
their present needs without compromising the ability of future generations to meet
their needs.44
Responsibility is about the duty/obligation to society and stakeholders
to optimise stakeholder value while applying the United Nations Global Compact
(UNGC) principles.45 It is said that ‘by incorporating the Ten Principles of the UN
Global Compact into strategies, policies and procedures, and establishing a culture
of integrity, companies are not only upholding their basic responsibilities to people
and planet, but also setting the stage for long-term success'.46 It is ensuring that
organisations fulfil a responsible corporate social responsibility of doing what society
requires and expects them to do.47
Being a responsible corporate citizen has implications for managing and
governing an organisation. The strategic leaders, or the top management team, must
act on behalf of the organisation to ensure that the strategic actions of the organisation
reflect responsible citizenship. As a responsible corporate citizen, strategic leaders
need to ensure the good governance of organisations where they need to be able to
explain to society ‘why they do what they do’, rather than 'what they do'. Therefore,
strategic leaders need to understand and disclose ‘how the actions they took were
intended to help the organisations achieve its goals'.48 The approach to disclosure
then is important where an approach of‘apply and explain’49 forces the leadership of
organisations to take actions that have the right outcomes or results.50 This approach
of ‘apply and explain’ moves organisations away from a tick-box compliance-based
‘apply or explain’ approach to a more proactive approach where organisations disclose
that they are doing what they said they would do and have good governance outcomes
for the organisation.51 This disclosure is periodic and in the form of an integrated
report communicating the value creation story of the organisation to society. Such
a report brings together the organisation's value creation process explaining the
organisation's strategy and goals, how it created, preserved, or eroded value over
time for stakeholders, and its impact on the six capitals.52 The International Integrated
Reporting Council also publishes the Integrated Reporting Framework and standards
for reporting globally, adopted in South Africa.51-54 The key areas of information to be
included in an integrated report under the Integrated Reporting Framework include
Organisational overview and external context. Governance, Business model. Risks
and opportunities, Strategy and resource allocation, Performance outlook, and Basis
of preparation and presentation.55 It should be noted that the need for integrated
reporting drives the need for integrated thinking. This thinking ‘takes account of
the connectivity and interdependencies between the range of factors that affect an
organisation's ability to create value over time', including the six capitals it uses and
impacts.56 Chapter 14 provides more detail regarding integrated reporting. The next
section addresses the process involved in strategic analysis.
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Holistic and systems thinking approaches are ways in which these insights
can be generated. Gathering data from a range of stakeholders gives the organisation
insight into how these significant other parties view it. In addition, a range of
analytical tools provides new perspectives. The range of tools available to the
strategist are listed in Table 5.1 on page 135.
As explained, strategic analysis begins with a process of collecting data and
information for analysis. In other words, the organisation needs to conduct research
about its external context, analyse the data collected, and consider its implications.
The type of data collected can be quantitative or qualitative in nature. First,
quantitative data is usually collected through administering survey questionnaires, or
existing datasets are used, such as share prices or social media metadata. The analysis
of quantitative data helps to identify trends occurring in the external context. Trends
describe the pattern of a particular phenomenon over time. In simple terms, the
trend could be evidence of an increase, decrease, stable state (i.e., no substantial
change) or a fluctuating trend of ups and downs. One of the set of characteristics that
describes the context of business today is VUCA.71 This is an acronym for volatility,
uncertainty, complexity, and ambiguity. VUCA therefore reflects the increased
inability to accurately identify trends in the external context, given its turbulence,
which can be disempowering for leaders.
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quantitative summaries of the qualitative data. There are also automated applications
that can assist in quantifying and visualising quantitative data, such as tools that
create word clouds (see Figure 5.2 for an example of a word cloud).
future
No matter what form the data is collected in, or what procedures are used to analyse
the data, it is important that the strategist assesses the quality of the research, which
is based on the rigours applied to the research process. Each data collection method
and analysis technique has a set of standards and procedural requirements that
should be adhered to in order to ensure that the research results or findings can be
relied upon. For example:
■ When there are research participants involved in data collection it is impor
tant to clarify: Who was the sample? How were they selected? How large is
the sample? Is the data representative of the broader population or not?
■ With survey questionnaires: Was a valid instrument used? Was the
measurement scale used appropriate for the questions and the respondents?
■ With interview and focus group data: Were appropriate questions asked?
How was the data analysed? Are correct interpretations made?
■ With documents that are analysed: Were the right documents used and
was the set of documentation complete? What was the original intention
of the original documentation and who was it written for? How does this
information influence the available kind of data and how it is analysed?
■ When reading the research report: What were the terms of reference and was
the research scope suitable? Have all questions been adequately investigated
and addressed? Has the evidence from the research been correctly presented
and interpreted? Can recommendations made be traced back to the research
findings and results?
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
LO 3: Explain the levels and related analytical tools of the external context and
identify sustainability and responsibility considerations.
Global ft Regional
I
National ft Local
I
Industry: Suppliers, Competitors
ft Customers
In this section, we will focus on identifying the various levels and the analysis
tools and responsibilities associated with each level of the external context. In what
follows, the analysis tools and responsibilities associated with each level of the
external context will be discussed. As illustrated in Figure 5.3, the external context
can be broken down into several levels, from large-scale and remote global factors
down to the organisation's more immediate context. Table 5.1 provides an overview
of the levels and some of the tools available for analysis at that level, as well as some
of the sustainability and responsibility considerations.
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Table 5.1: Levels of the external context, analysis tools and sustainability and
responsibility considerations
PESTLEG
When analysing these global and regional influences, it is useful to conduct such
an analysis by looking at specific themes. PESTLEG is an acronym which represents
such themes. PESTLEG stands for political, economic, social, technological, legal,
environmental, and governance factors.
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Risk analysis
Risk analysis involves identifying potential organisational hazards and evaluating
the consequences versus the likelihood or frequency of occurrence. Emerging from an
analysis of the context is therefore the identification of several factors that are likely
to impact an organisation in a negative way. When assessing risks of an organisation,
adverse impacts are often mapped in a way that visualises the likelihood of their
occurrence, combined with the strength of the impact. A likelihood/impact analysis
helps the organisation identify the most prominent trends and change imperatives in
its external context to which it needs to respond proactively.
Each year, the World Economic Forum produces a Global Risks Report that
has identified the most important environmental factors in terms of the likelihood
and impact at a global level. The Global Risks Landscape is illustrated on page 12
of the 2021 report, which can be found at https://www3.weforum.org/docs/WEF_
The_Global_Risks_Report_2021.pdf. Not surprisingly, with the C0V1D-19 pandemic,
infectious diseases was identified as the risk with the highest levels of probability
and impact. Several environmental risks also feature strongly in the high impact
and high probability quadrant, including climate action failure, a natural resource
crisis, biodiversity loss, human environmental damage, and extreme weather. This
likelihood-impact figure is not shown in the 2022 report. Instead, the 10 most severe
global risks likely to occur over the next 10 years are identified and illustrated on
page 14, with a more detailed analysis of the risks that will become a critical threat
to the world over the next 0-2 years, 2-5 years and 5-10 years being grouped and
listed on page 25. The report can be accessed at https://www3.weforum.org/docs/
WEF_The_Global_Risks_Report_2022.pdf. Closer to home, Statistics SA (See https://
www.statssa.gov.za/) provides regular reports and statistics related to the people of
South Africa, their social and living conditions and its economic activities. These and
other sources provide organisations with valuable insights into its external contexts
and the risks that it could face.
Once an organisation has analysed its risks, it can then consider how to
manage the most impactful and likely risks in a proactive manner. Furthermore, crisis
management plans can be drawn up for those risks which have a high impact but
low probability of occurrence. For example, many organisations have an emergency
plan that is activated in the event of a fire. Similarly, an organisation may wish to
devise a plan for handling a product recall. In Chapter 14, various risk responses will
be discussed.
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B-BBEE Codes of Good Practice have been developed for various sectors.80
Organisations can arrange for an accrediting body to analyse their business activities
to determine the extent to which the company contributes to BBBEE and give them
a rating. A high rating demonstrates the organisation's commitment to economic
transformation and can also assist the organisation in getting business from
government entities and other organisations.
Scenario planning
Scenarios are descriptions of alternative futures arising from a series of trends and
possible events.81 Creating these scenarios helps organisations to identify and plan
for these possible eventualities, making them more agile.82 One of the most prominent
scenario planners in South Africa is Clem Sunter.” He states ‘When you’re thinking
about the future, you’ve actually got to look around you. It’s not just about having
great thoughts from within about what can happen; it’s really trying to observe
what’s going on around you and projecting that into the future.... The essence of
thinking the future is to understand the pattern of forces propelling the present into
the future and to see where those forces can lead.’84
Scenario planning is a tool available to strategists for better thinking about the
future, where one uses imagination and creativity to formulate assumptions about
the future. It is not about forecasting the future but anticipating the future in terms
of the magnitude of changes and what is going to be needed. An organisation may
choose to develop its own scenarios for the organisation. This process can be initiated
by asking:
What will South Africa/our region/our organisation look like in Jive years?
Alternatively, strategists can study existing scenarios that have been generated by
others, and consider their implications for the organisation.
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Stakeholder analysis
Stakeholder analysis involves stakeholder identification and mapping, followed by
identifying and prioritising issues, to guide stakeholder engagement.88 To aid their
identification, it may be helpful to recognise two stakeholder categories.89 The
organisation has more regular contact with primary stakeholder group members, who
consist of financiers, suppliers, employees, customers and communities. Secondary
stakeholder groups include government departments, competitors in the industry, the
media, and special interest and consumer groups. Stakeholder analysis often examines
the stakeholder's power, interest, or commitment to determine the importance of the
stakeholder and, consequently, the level of engagement required in managing the
relationship with the stakeholder. The range of types and levels of engagement are
as follows:80
■ Remain Passive
■ Monitor
■ Inform
■ Transact
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■ Consult
■ Involve
■ Collaborate
■ Empower
These processes are typically analysed and optimised through modelling and
performance measurement.92 However, these processes cannot foresee all supply chain
problems or disruptions. For example, global trade was disrupted and the availability
of parts and completed goods was disrupted recently when the Evergreen container
ship grounded across the Suez Canal closing it as a global supply line.9’ Therefore,
organisations need to also assess the vulnerability of their supply chain to this type of
risk. More recently, with the growing emphasis on organisations acting responsibly,
the focus has been on the sustainability of the supply chain. Various definitions of
a sustainable supply chain have been provided and include the following features:94
■ Achieving economic, social and environmental goals through coordinating
inter-organisation processes.
■ Exercising corporate social responsibility across production processes and
geographic boundaries.
■ Cooperating and collaborating with other organisations and members of its
supply chain to realise stakeholder expectations of sustainable development.
With the emphasis on sustainable supply chains, additional supply chain analyses
related to the sustainability of the supply chain have grown in importance. These
include calculating the water footprint of goods produced and determining the carbon
emissions related to the production and use of goods.
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Information from an analysis of the industry context as input into the strategic
planning process clarifies opportunities and threats within the industry. This helps
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strategic leaders formulate strategies on how to best enter an industry and to position
the organisation to strategically compete for market share and be sustainably successful.
Having mapped out the competitive landscape of the industry from the
perspective of these five forces, strategic leaders can then analyse a particular
competitor in the industry in detail by applying the four-corner analysis to predict
what a particular competitor will do in the future.104 This tool focuses not only a
competitor’s current strategy and capabilities but also on understanding what
motivates the competitor by analysing what drives them and their management
assumptions. This tool guides strategic leaders to focus on and understanding a
competitor in terms of what Porter refers to as four corners. The four comers focus
broadly on the motivation of the competitor (drivers and management assumptions)
and on their actions (current strategy and capabilities) as outlined below:
Motivation
■ Drivers: What drives or motivates your competitor, what is their agenda/
intentions, and how does this shape their strategy?
■ Management assumptions: What perceptions and assumptions does the com
petitor have about the industry and themselves that inform their strategy
compared to reality? What does the competitor take for granted?
Actions
■ Strategy: What is your competitor's strategy to compete, how are they progressing
in implementing it and how are they performing? Are they likely to change
direction because they are not succeeding?
■ Capabilities: Identify the strengths of your competitor to respond to the external
context and their competitive advantage. This may be the resources they have or
have access to, patents, marketing ability or financial strength.
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offering products and services targeted specifically at this group, by packaging their
products in smaller and more affordable sizes or quantities or by creating products
and services specifically for this segment.
Once a product or service has been launched, it usually goes through a stage
of exponential growth in sales before this flattens and then eventually tapers off as
consumers begin to use less of the product or service or substitute it with alternatives.
One explanation of the rapid growth in the early stages of the product launch is
offered by the theory of diffusion of innovation.*" According to this theory, there are
different groupings of customers, these being:
■ A very small group of Innovators, who are always keen to try something new.
■ A small group of Early Adopters, who follow the innovators and become
significant opinion leaders.
■ The Early Majority, who embrace an innovation once they see that it is
working properly and successfully and has the approval of opinion leaders.
■ The Late Majority, who are risk-averse and somewhat sceptical of the
innovation, but eventually adopt it when they see its growing popularity.
■ The small group of Laggards are the last to adopt the innovation, if they
even do so.
The adoption of the new or innovative product or service by the early and late
majority explains the exponential growth in sales. Therefore, the organisation needs
to analyse the consumer market so that it can more accurately predict the timing of
sales growth and adjust production output or grow services accordingly.
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
In the end, this analysis of the external context needs to be consolidated and priorities
identified that aid in strategy formulation. The SWOT analysis is an important
analysis tool for this purpose. In addition, this external analysis informs the
organisation's risk management strategy, so that it develops resilience in the face of
disruptions and crises.
SWOT analysis
The analysis of its external context is consolidated in the SWOT analysis of an
organisation. The acronym SWOT stands for strengths, weaknesses, opportunities
and threats."7 This is a very popular strategy analysis tool, as it combines an analysis
of the organisation's internal context with an analysis of its external context. That
is, internal strengths and weaknesses are identified along with external opportunities
and threats. This chapter has focused on the external context, and opportunities and
threats are specific to the analysis of the external context.
■ Environmental threat. A possible state or change in the context outside the
organisation, which threatens its ability to survive, prosper, compete, and/or
meet the needs of its stakeholders - add value and to development goals.
■ Environmental opportunity. The reverse of a threat, being a possible state or
change in the context outside an organisation which improves its prospects to
service, compete, and/or meet the needs of its stakeholders - add value and to
development goals.
Knowing the external opportunities and threats helps the organisation determine
how its internal strengths can be used to reduce threats and take advantage of
opportunities.
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CHAPTER 5: THE EXTERNAL CONTEXT Of STRATEGIC PLANNING
■ Learning. What processes does the organisation have in place to learn from
disruptive events and crises? This involves the ability to take in and process
information from its external context and stakeholders, review its internal
processes, and develop a way of learning that is more risk-sensitive.
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CHAPTER 5: THE EXTERNAL CONTEXT OF STRATEGIC PLANNING
Discussion questions
1. How does a responsible citizenship perspective affect the analysis of the context
of an organisation?
5. If you were an entrepreneur, what kind of business opportunities can you identify
that are related to reusing, recycling, or reducing the use of plastics by providing
substitutes?
6. How could a grocery store reduce its plastic use for packaging items such as
fresh fruit and vegetables?
8. What legislation could the government introduce that reduces plastic pollution?
9. How could the media industry help in educating consumers on the damage
caused by plastic pollution?
Learning activities
1. Read about the technologies associated with the Fourth Industrial Revolution at
https://afroant.com/2019/I0/08/4ir-what-is-it-and-what-docs-it-mean-for-us/ .
What business opportunities docs it provide? What existing businesses does it
threaten?
2. Read about the 17 sustainable development goals at https://sdgs.un.org/goals .
For each goal, identify an organisation that is helping to attain this goal through
its business activities.
Endnotes
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158
Strategic resources,
capabilities and core
competencies
Cecile Nieuwenhuizen
■ Exploitable advantage
■ Tacit knowledge
■ Inimitable
■ Knowledge: explicit ■ Value chain
knowledge: tacit knowledge
CHAPTER Strategy is the link between the organisation and its environment.
ORIENTATION This means that there should be consistency between the external
environment of the organisation (including the market and remote
environments) with its opportunities and threats, and its internal
environment (including its mission, goals, values, resources,
capabilities, core competencies, structure and systems) with its
strengths and weaknesses.'
Matching resources and capabilities within the organisation,
with opportunities in the external environment is essential for
successful strategy. Resources, capabilities and core competencies
have been identified as the primary source of competitive advantage
and also as a basis for the formulation of a strategy for an organisation.
Resources, capabilities and core competencies enable organisations
to differentiate themselves from competitors and develop strategies
from which they can benefit
In this chapter, the focus is on the role of the organisation's
resources, capabilities and core competencies in the development
and implementation of strategy to achieve the goals of the
organisation. First, we differentiate between resources, capabilities
and core competencies and focus on their importance in strategic
management. Second, we focus on appraising the value of resources
and capabilities addressed, and then on the resource-based view
relating to internal environmental analysis. Subsequently, we identify
the capabilities and core competencies for creating value in line with
the functional area and value chain analyses. Then, the contribution
of resources, capabilities and core competencies towards responsible
competitiveness of organisations are addressed. Lastly, the importance
of capturing the value generated by resources, capabilities and core
competencies is addressed. Figure 6.1 demonstrates the focus of this
chapter within the broader context of strategic management. This
figure also demonstrates the uniqueness of strategic resources and
capabilities, in the sense that they underpin both strategy formation
and organisational architecture. They form part of the internal
context of organisations, because organisations need to understand
their strategic resources and capabilities and their strengths and
weaknesses in this regard.
Current development and/or the development of new
resources and capabilities can also be the content of strategic
decisions. For example, in the Discovery case study, Discovery used
its strategic resources and capabilities for innovation and managing
financial services organisations as a basis to grow the organisation
from a medical aid insurance corporate entrepreneurial venture into
a global integrated financial services organisation with an innovative
Shared-value Insurance model. All the businesses in Discovery are
160
vital parts of its organisational architecture, and are aligned,
not only to the strategy, but also to other components of the
organisational architecture, such as responsible leadership and key
stakeholders. The opening case study explains Discovery’s responsible
management approach (refer to Chapter 1, section 1.2, where these
concepts were explained) and its ability to create and sustain unique
value propositions for customers.
Case study
Discovery Limited
Discovery was established as a corporate entrepreneurial venture specialising in medical
aid insurance in 1992 by Adrian Gore and Barry Swartzberg. The First Rand Group owned
75 per cent of Discovery. In 1999, Discovery was listed on the JSE and First Rand Group
reduced its stake to 64 per cent and later unbundled its shareholding allotting its Discovery
shares to shareholders. Rand Merchant Bank Holdings as a shareholder of the First Rand
Group thus received a 25 per cent stake in Discovery. Discovery's portfolio developed
to include Discovery Health, Discovery Vitality, Discovery Life, Discovery Bank and many
more. By 2021 ’Discovery is a global integrated financial services organisation that uses a
pioneering Shared-value Insurance model across businesses to achieve our core purpose
of making people healthier and enhancing and protecting their lives'. Discovery's primary
markets are South Africa and the United Kingdom, and partner markets are Ping An Health
in China and the Vitality Group, which expands beyond their primary markets. Discovery
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
operates in 28 countries, employs 12,650 people, and impacts more than 41 million lives
with a market capitalisation of R84 billion.
Discovery's core purpose is to 'make people healthier and enhance their lives’,
focusing on three dimensions to deliver on its core purpose:
■ To build brilliant businesses,
■ To strengthen its foundation, and
■ To enhance its financial and social impact.
Through its Shared-value Insurance model that is built on the Vitality behaviour change
platform, people are guided and incentivised towards better health, driving, financial and
climate change behaviour. Discovery's ‘Shared-value Insurance model delivers better health
and value for customers, superior actuarial dynamics for the insurer, and a healthier society'.
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CHAPTER 6: STRATEGIC RESOURCES, CAPABILITIES AND CORE COMPETENCIES
Risks are reduced by ‘Promoting, supporting and tracking positive behaviour change ->
Which results in less illness, fewer accidents and deaths, and better financial management
(Healthy behaviour) -> Thereby reducing risk and creating an actuarial surplus (Insurer
savings) -> Which is used for funding incentives that drive positive change and add value
for clients (member incentives)'. The positive outcome, including a reduction in healthcare
costs, improved profitability and incentives that drive positive behaviour of the Discovery
Shared-value Insurance model was validated by independent research.
Discovery's values and brand reflect its organisational resources.
'Our Values: Every decision we make is underpinned by our core purpose and values
to ensure that, at all times, value creation is balanced with value preservation:
♦ Great people
♦ Liberate the best in people
♦ Intellectual leadership
♦ Drive, tenacity and urgency
♦ Innovation and optimism
♦ Business astuteness and prudence
♦ Customer, customer, customer
♦ Integrity, honesty and fairness
♦ Force for social good.'
As noted by Adrian Gore, Discovery Group Chief Executive, the 'Force for social good' was
added to Discovery’s values to ‘reinforce our commitment to be a good employer, partner
and corporate citizen as well as our commitment to nation building and protecting
the planet'.
Discovery's resources are key to the organisation's success. These include the
Discovery brand, which is an important organisational resource: ‘The Discovery brand
continues to be recognised for its intellectual leadership, innovation and purpose-led
Shared-value Insurance model, enabling us to be a force for social good. Our brand is a
key asset and differentiator in pursuit of our long-term strategic objectives. We aim to
build the Discovery brand in South Africa while leveraging Vitality as a leading global
behaviour-change platform.’
Another important resource is Discovery’s people. People, including the board of
directors, leadership teams, management and all employees of Discovery are important
human and organisational resources. ‘Discovery's entrepreneurial drive is encoded in our
unique culture, which is nurtured by all employees - including our leadership teams. Our
business thrives on our employees’ diverse perspectives which, in turn, drives innovation.
We embed exceptional performance as an intrinsic part of our daily lives. Furthermore, we
encourage our employees to participate in and share new ideas for product development
and technological enhancements. In doing this, we harness the diversity of our employees'
backgrounds, thinking and experience to develop market-leading products and build
brilliant business across our markets.'
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
164
CHAPTER 6: STRATEGIC RESOURCES. CAPABILITIES AND CORE COMPETENCIES
In his overview of Discovery’s performance over the financial year ending 30 June 2021,
the Chairman of the Board, Mark Tucker, reported on the effect of the COVID pandemic,
the pace of vaccine rollout and the mortality impact in South Africa. Responsible
management was reflected in Discovery's response to the pandemic: protecting its
people; protecting and supporting its clients; supporting country efforts; a strategy to
maintain financial strength and resilience. Discovery managed to contribute meaningfully
to the SA COVID-19 response by collaborating with the National Department of Health
in the government's mass vaccination Rollout, vaccinating over 1.1 million people. To
safeguard people and set an example, a mandatory vaccination policy was implemented
in all Discovery's South African offices. Despite the trying situation, the group performed
well financially, with a 7 per cent growth to R6 494 million in normalised operating
profit. New business growth was 11 per cent. As a source for social good, Discovery
continued its support to the South African healthcare ecosystem through the Discovery
Foundation that expanded access to specialised healthcare services and prepaid health
offering to non-Discovery members as well as supporting the Department of Health on
vaccine-related initiatives. Climate change was tackled by minimising Discovery's impact
and developing a climate change strategy that involved becoming a carbon-neutral
organisation by 2025 (scope 1 and 2 emissions) and integrating climate-related issues
in its investment, procurement and partnership decisions and policies. The focus is also
on developing product solutions where it can apply its behaviour change and incentive
expertise to personal carbon emissions.
Source2; Source3
6.1.1 Resources
Resources are the productive assets owned by organisations4 used to transform inputs
to marketable outputs. Resources can be grouped into five primary categories:
1. Financial resources. Financial resources refer to any economic resource
that an organisation has, measured in terms of the money utilised in the
organisation to buy what is needed to offer products and/or services to the
market. An organisation can generate financial resources internally from its
own funds or externally from third parties (or non-owners) such as banks,
financial institutions and creditors.
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
Resources can be used as a basis for the formulation and implementation of strategies,
but not all are strategically relevant. Some have little or even a negative impact
on the performance of an organisation. Resources that can contribute positively to
an organisation's strategy and lead to sustained competitive advantage need to be
identified.
Although resources of organisations in the same industry are typically similar,
organisations themselves are never identical. They will therefore possess some
resources that are differentiating, valuable, rare and inimitable (cannot be imitated)
and will accordingly pursue different strategies and achieve different levels of success.
This heterogeneity in resources can be acquired and sustained over a longer period
within an industry as it may not be perfectly mobile across organisations.5
To determine the resources of an organisation, a comprehensive inventory
(according to the various categories thereof as explained previously) should be
developed. The inventory should differentiate between tangible and intangible
resources and capabilities, and human resources (or tacit knowledge). The practising
strategy box below illustrates an example of the value of resources and capabilities
of Discovery.
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CHAPTER 6: STRATEGIC RESOURCES, CAPABILITIES ANO CORE COMPETENCIES
Tangible resources
Tangible resources are physical, observable and quantifiable assets of the organisation
and include physical things such as equipment, money, structures, the sophistication
and location of a plant, formal reporting structures, technology used and patents.
Tangible resources can fall into any of the five categories of resources identified
above: financial (i.e., loan capital raised), physical (i.e., equipment and machinery),
human (i.e., employees), organisational (i.e., brands) and technological (i.e., computers)
resources. However, some of these resources can also be intangible, for example,
intellectual capital as a human resource and networks as an organisational resource.
167
Intangible resources
Intangible resources are a subset of an organisation's strategic resources and can
be categorised into three types, namely, human resources, innovation resources and
reputational resources.6
Kristandl and Bontis define intangible resources as follows:7
‘Intangibles are strategic firm resources that enable an organisation to
create sustainable value, but are not available to a large number of firms
(rarity). They lead to potential future benefits which cannot be taken by
others (appropriability), and are not imitable by competitors, or substitutable
using other resources. They are not tradeable or transferable on factor
markets (immobility) due to corporate control. Because of their intangible
nature, they are non-physical, non-financial, are not included in financial
statements, and have a finite life. In order to become an intangible asset
included in financial statements, these resources need to be clearly linked
to a company’s products and services, identifiable from other resources, and
become traceable results of past transactions.’
Intangible resources are not so easy to identify, but are usually much more valuable
and superior to tangible resources. Intangible resources include the reputation of
an organisation and that of its product, employee know-how, perception of quality,
ability to manage change, ability to innovate, team-working ability and participative
management style.
Competitors find it difficult to understand, acquire, substitute and imitate
intangible resources. Therefore, organisations often rely on intangible resources
for their core competencies and capabilities. Consequently, more intangible and
unobservable resources will lead to more sustainable competitive advantage.8
The three types of intangible resources (human resources, innovation and
reputation) are discussed in more detail below.
1. Human resources. Human resources refer to people who own, manage or work in
an organisation, that have knowledge, trust and managerial capabilities. Having
these capabilities can be valuable and even be primary contributors to competitive
advantage as these can contribute to the uniqueness of an organisation.
2. Innovation resources. Innovation resources include ideas, scientific capabilities
and the capacity to innovate. Innovation resources refer to the capacity of an
organisation to innovate through the acceptance and implementation of new
ideas, processes, products or services. It involves the ability of an organisation
to understand the needs of customers and develop innovative solutions that
will ensure customer satisfaction. The practising strategic box, focusing on
Discovery Medical Aid Insurance, highlighted the fact that Discovery started as
a corporate entrepreneurial venture within FNB. Corporate entrepreneurs (also
referred to as ‘intrapreneurs’) have the vision and ability to develop new ideas
and opportunities (in this case, new approach to medical aid insurance) within an
existing business (in this case, FNB). The Discovery case study at the start of this
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6.1.2 Capabilities
Capabilities are the capacity of an organisation to deploy resources for a unique end
result. Capabilities are organisation-specific clusters of activities developed through
complex interactions between tangible and intangible resources over time and reflect
what an organisation excels at compared to other organisations. They can also be
information-based.9
Key characteristics of capabilities are that they are valuable across various
products and markets, embedded in routines, and are tacit. Capabilities are what
the organisation can do exceptionally well.10 While resources are static and will
generally deplete over time, capabilities increase with use and become more valuable.
Figure 6.2 illustrates an example of how resources combine to become marketing and
branding capabilities within an organisation.
Marketing and
branding capability
f------------------ 1------------------ f
Marketing budget Marketing experts Brand (intellectual
(financial resources) (human resources) property)
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Carefully developed capabilities form the basis of competitive advantage and are
therefore the primary differentiators of organisations from their competitors. Building
difficult-to-imitate capabilities, as seen from the Discovery examples, is of great
importance to an organisation as this ensures differentiation.
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Figure 6.3 The link between resources, capabilities, core competencies, strategy and
competitive advantage and organisational performance’6
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Responsible management
Responsible and ethical leadership are central to the Discovery's management and
leadership teams. Entrepreneurship, innovation, good governance, sustainability and
ethical leadership ensure that Discovery delivers on its objectives enhancing people's
lives by assisting them to become healthier.
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Developing strong, relevant brand portfolios that win in the local market
Discovery developed a variety of brand portfolios that meet different insurance and
finance needs of the same target market, the mass affluence market. These services
are complemented by rewards programmes with equally strong brands, for example
Vitality linked to Discovery Medical Aid and Vitality Drive linked to Discovery Car
Insurance.
Through the varied services. Discovery attracts clients that then often also
migrate to other services. For instance, a Discovery Medical Aid and Vitality member
will also acquire the Discovery credit card due to the integrated benefits (such as
additional rewards and Discovery miles) between the services.
Our focus now turns to the appraisal of the value of organisational resources and
capabilities.
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by using the same resources to generate more outputs. For example, an information
system could reduce the number of customer service agents required or increase
the number of calls that the same number of agents can answer. To be valuable,
the capability must increase the effectiveness of the organisation, meaning that
the organisation should increasingly be ‘doing the right things' - formulating and
pursuing appropriate organisational goals. Value is dependent on the type of strategy
implemented. An example is the low-cost strategy of a specialist South African
airline, such as FlySafair, originally primarily a cargo carrier, which diversified in to
a low-cost airline that offers flights at a lower cost than conventional airlines. During
the COVID pandemic when most airlines suffered great losses and the demise of the
national carrier, SAA FlySafair filled the gap. Thus, FlySafair attracts more customers,
which is valuable as this contributes to higher profitability for the company. Another
example is value created by a differentiating strategy. For example, the African Pride
hotels, the luxury hotels in the Protea Group of hotels, generate additional income
for the group from customers who require specialist services and who are prepared
to pay for such services. African Pride hotels transform a resource into a service
(hotel accommodation) with a higher value to its customers. An organisation decides
on a strategy for a specific business unit that will add value to the organisation. In
business, this value can be a measure such as profitability
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Another option was to develop an electric bus using the intellectual property
developed by optimal energy for the Joule.
While one could argue that the Joule was a good design and idea, the company
simply could not meet the requirement of organisation, meaning that it could not
attract the required funding and manufacturing expertise to commercialise its idea.
However, the intellectual property is still a valuable resource that could be used to
generate revenues for its owners.
In the next section, our focus shifts to the analysis of the interna) strengths and
weaknesses of the organisation in terms of its resources. We focus on one specific
model that can be used for this purpose, namely, the resource-based view.
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A positive assessment of the organisation (management's strategic role and core com
petencies) will lead to responsible management and responsible competitiveness that
ensures value to the client and, subsequently, superior performance in terms of profita
bility of the organisation, sustainability and the attainment of organisational goals.
Figure 6.4 depicts a model of the resource-based view of an organisation’s
internal analysis.
As mentioned previously, the RBV is a model that is used for analysing the
internal strengths and weaknesses of the organisation in terms of its resources and
linking them to opportunities in the external environment. It determines where the
organisation can build sustainable competitive advantage, superior performance and
customer value. Although the RBV is a widely accepted and invaluable framework
for strategy formulation, some limitations have been identified. These limitations are
listed below:
■ It has not yet been tested and proven empirically.2’ Daellenbach and Rouse
suggest that an important requirement is that the RBV be measured and
analysed at the resource level, implying the need for longitudinal studies.
A longitudinal study is a research design that involves repeated observations
of the same variables over different points in time. Reviewing and testing
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
The next section focuses on the identification of capabilities and core competencies
in an organisation.
I
Core competencies
Tangible resources Intangible resources Capabilities
Barriers Easy for rivals Unique and complex Tacitness and casual
associated with to identify and resources create ambiguity create
duplication duplicate inimitability inimitability
I
Sustainable competitive advantage
Value to client - consistently high performance
----------------------4-------------
Superior performance
Constantly outperform competitors - rate of return
relative to competitors
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As discussed in the previous section, the resource-based view of strategy focuses on the
internal environment with an analysis of the internal strengths and weaknesses of the
organisation in terms of its resources and capabilities and links it with opportunities
in the external environment. Internal resources and capabilities determine strategic
decision-making as these are key factors that determine the performance of an
organisation. The five stages of strategy formulation, according to Grant and Jordan’0
based on the resource-based view of strategy, are as follows:
1. The identification and classification of the organisations' resources.
2. The identification of the capabilities of the organisation.
3. Appraisal of the rent-generating potential (the value) of resources and
capabilities.
4. The selection of a strategy that optimally exploits the resources and capabi
lities of the organisation relative to the opportunities in the external
environment.
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Primary activities
External environment
As previously stated, capabilities or competencies are the same things. However, core
competencies (also referred to as distinctive capabilities) are those capabilities or
competencies that distinguish an organisation from others in an industry and form
the basis of its competitive advantage, strategy and performance. Thus, capabilities
can become an organisation's core competencies.
A distinction is made between primary and support activities. Primary activities
and related capabilities in the value chain include the following:
■ Procurement and inbound logistics. These activities relate to receiving, storing
and distributing inputs for the manufacturing of products by the organi
sation. Capabilities: purchasing, material and inventory control systems.
■ Production/operations. Production/operations activities refer to those
activities that transform inputs into final products, i.e„ facility operations,
machines and assembly. Capabilities: design and product development,
quality control, component manufacture and assembly.
■ Outbound logistics. Outbound logistics refers to activities related to
collecting, storing and distributing products and services to customers.
Capabilities: distribution coordination, processes related to warehousing of
products and dealer relationships.
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The internal environment of the organisation, including the primary and support
activities, determines an organisation's strengths and weaknesses. This has to be
aligned with the opportunities and threats in the external environments (as indicated
in Figure 6.5). Therefore, knowledge and understanding of the external environment
are essential to determine opportunities and threats. The external environments that
impact on organisations are the market environment and the macro-environment.
The market environment comprises consumer behaviour, needs, purchasing power,
suppliers, intermediaries and competitors. The macro-environment includes the
political, technological, physical and international environments, as well as broad
economic and social issues.
The margin (which is also indicated in Figure 6.5) is the economic value that
the organisation retains for corporate and operational purposes and includes profits
and funding for other projects, such as research and development projects, corporate
social responsibility projects, mergers and acquisitions.
The objective of successful organisations is to build difficult-to-imitate core
competencies that distinguish an organisation from its competitors. Capabilities and
core competencies are valuable when they enable an organisation to implement
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
strategics that improve efficiency and effectiveness. The type of strategy also
determines the value, i.e., low-cost or differentiation strategies.
In the original value chain model, the intended outcome was a maximum
financial margin resulting from the difference between the cost caused and the buyer
value created by all the business functions as a whole. The original purpose, as
indicated in the above discussion, is to map every function’s contribution to this
financial margin, either by cost reduction or value creation for customers. For
responsible business, Laasch and Conaway propose a three-dimensional (social,
environment, economic) value chain model that results in a triple bottom line depicted
by a social, environmental and financial economic margin. Every business function
not only produces a certain economic cost and value, but it does so in both social
and environmental dimensions. For example, a simplified social margin of Anheuser-
Busch InBev, the world’s largest brewing company based on revenue, might be the
difference between the social cost of health problems caused and the social value
created by employing 169,000 people. The environmental margin of an ecotourist
business might be the difference between the environmental value of the ecosystems
protected for tourist activity and the environmental cost of C02 emissions caused
by tourists while travelling to their destination. An example of such a business is
Ecotourism Kenya, which promotes responsible tourism practices within the tourism
industiy. This entails encouraging the adoption of best practices in the use of tourism
resources, working with local communities and managing waste and emissions.
Each business function and every business portrays a different and unique social-
environmental-economic cost and value structure, contributing to the overall three-
dimensional margin in different ways. The goal of a responsible business should not
be only to reach at least a positive overall three-dimensional margin, but to also
deliver positive results throughout all three value dimensions - positive triple bottom
line. In addition to the traditional management tools, every business function in the
value chain can be matched with responsible management tools, aimed at three-
dimensional value creation. Examples are sustainable innovation for the research and
development function and sustainable packaging for outbound logistics. The adjusted
value chain for responsible business is depicted in Figure 6.6.
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External environment
Primary activities
External environment
A responsible value chain will execute primary activities in a responsible manner and
support activities will focus on the sustainability and responsible competitiveness of
the business.
The following section focuses on the contribution of organisational resources
towards the competitive advantage and sustainable competitive advantage of
organisations.
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potential to perform) better than its rivals. Organisations can achieve a competitive
advantage, in two ways:
1. Differentiation. It can produce products and services that are superior in
value to those of competitors, allowing it to charge premium prices or to
retain customers for a longer period of time. The differentiation approach
can be focused, meaning that the organisation can concentrate on offering
its products or services to a specific segment of a market or niche market.
Alternatively, if it is a product or service with a wider appeal, it can target
broad segments of a market or industry.
The practising strategy box that follows provides examples of companies achieving
competitive advantage through various strategies (differentiation and cost-leadership).
Practising strategy:
Apple: Competitive advantage through a broad differentiating strategy
As introduced in section 6.4.1, Apple Inc. is the producer of the Macintosh computer
and laptop range, iPods, iPhones, and iPads, Apple watch and complementary products
and services. The products are also developed to integrate and synchronise with one
another. Many people who make up Apple's loyal customer base own various Apple
products, such as a Mac Air laptop, an iPhone, an Apple watch, an iPad, Air Pods and
all the complementary products such as smartphone and iPad covers, docking stations,
various applications such as iTunes and more. The design of Apple products is sleek and
sophisticated and the Apple brand is a core competence of the organisation. Apple Inc.
is an example of a company that is a differentiator, as it spends a lot on research and
development and charges a premium price for its products. Despite this, Apple products
have a broad international appeal in the high-income market.
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An efficient organisation will require less input to produce the desired output.
Efficiency is often determined by the productivity of the employees of an organisation.
The ability to produce products or services at a cost significantly lower than competitors
rests on the ability of the organisation to leverage production efficiencies. Production
efficiencies can be achieved through various means, for example:
■ Economies of scale. Economies of scale is an economics term that describes
a competitive advantage that large organisations have over smaller
ones. It means that the larger the organisation, the lower its costs and
such an organisation will be able to produce larger quantities of a product
at lower prices.
■ Economies of learning. A learning economy can be defined as an economy
in which knowledge is the crucial resource and learning is the most
important process. Just like economies of scale, economies of learning will
enable an organisation to develop a competitive advantage by gaining more
experience, which will lead to a decrease in production costs.
■ Designing products for more economical production or using new
technologies to reduce costs. Organisations can gain competitive advantage
by designing products which require fewer inputs, and which will lead to
higher levels of efficiency.
■ Reducing unnecessary costs.
■ Leveraging location advantages. Organisations can gain a competitive
advantage by locating productive assets in areas where the costs are lower.
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Practising strategy
Differentiating or cost leadership strategy can be achieved through different
capabilities:
189
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An organisation that has the ability to perform (or the potential to perform)
better than its rivals over the long term has a sustainable competitive advantage.
Sustainable competitive advantage is determined by the durability of the relevant
resources, capabilities and core competencies and how inimitable they are. Durability
refers to the length of time over which a capability is relevant and can contribute
to the competitive advantage of the organisation. For example, a strongly ingrained
culture is extremely durable and long-lasting, while a technical competence is of
much shorter duration, /irritability refers to how easy or difficult it is for competitors
to copy the competitive advantage and is determined by transferability and how
replicable a capability is. Transferability is how easy or difficult it is to acquire
or buy a resource. For example, raw materials, components, machines and human
resources are all easily transferable, while immobile and intangible resources, such as
organisational culture, are not easy to transfer. The latter is more valuable because
it may be specific to the organisation or lose worth when transferred. Replicability
refers to the ability to use the resource in other settings. For example, Curro Schools
were established in 1998 as a leading independent school provider in southern Africa.
It was able to replicate its ability to start up and manage more than 175 private
schools since its establishment in South Africa.
Responsible competitiveness is achieved when a business uses its resources,
capabilities and core competencies to achieve a coexistence of an economic
competitive advantage and above-average social and environmental value creation.
Irresponsible competitiveness (also called level-zero responsible competitiveness)
occurs when a business is competitive at the cost of society and the environment.
The practising strategy box below provides examples of responsible competitiveness
and irresponsible competitiveness.
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The initial oil rig explosion killed 11 people and injured 17 others. Of the 400 miles
of Louisiana coast, approximately 125 miles have been polluted by the oil spill. A
method of treating the oil spill is 'in-situ burning' or burning oil in a contained area
on the surface of the water, which has negative effects on the environment. Over
8,000 animals (birds, turtles, mammals) were reported dead just six months after
the spill, including many that were already on the endangered species list. BP is
responsible for close to $40 billion in fines, cleanup costs, and settlements as a result
of the oil spill in 2010, with an additional $16 billion due to the Clean Water Act.
Over 30,000 people responded to the spill on the Gulf Coast, working to collect oil,
clean up beaches, take care of animals and perform various other duties. As of 2012,
the Gulf was still polluted with oil.
A decade later, many species, such as deep-sea coral, common loons, and
spotted sea trout, are still struggling, their populations lower than before. Scientists
say it is still too early to tell definitively what the impact has been for longer-lived
species such as dolphins, whales, and sea turtles.
Source: Meiners, J. 2020. Ten years later, BP oil spill continues to harm wildlife - especially dolphins.
National Geographic. April.
Starbucks
Starbucks is a good example of a company practising responsible competitiveness
in the coffee industry. The company is committed to becoming resource positive -
to giving more than it takes from the planet. It stores more carbon than it emits,
eliminates waste and conserves and replenishes more freshwater than it uses. The
company also practises ethical sourcing - it produces and purchases its coffee, tea
and manufactured goods in responsible ways. With stores around the globe, the
company is the premier roaster and retailer of speciality coffee in the world.
In (he last section of this chapter, our focus turns to capturing the value generated by
resources, capabilities and core competencies.
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
them, nor benefit from them. If the organisation cannot capture sufficient value to
justify its investment in developing unique resources and capabilities, it will not be
able to achieve competitive advantage. This is known as appropriability.
As explained in section 6.1.2, dynamic capabilities are strategic in nature and
are those capabilities that help organisations to learn new capabilities that enable
them to adapt to environmental changes. Dynamic capabilities involve the ability to
integrate, build and reconfigure internal and external processes and competencies to
address a rapidly changing environment. It is the ability to adapt capabilities that is
the ultimate basis of sustainable competitive advantage. Doing so responsibly will be
the basis for responsible competitiveness.
Resources and capabilities are valuable when they enable organisations to
deliver products and services to customers at a price they are willing to pay. The
value of resources and capabilities is indirectly determined by the following:
■ the external environment, including demand and the potential of the market
■ changes in the external environment, for example, changes in technology,
the structure of an industry and preferences of customers
■ differences between the resources utilised by different organisations
■ value as determined by either lower production cost than rivals or increased
revenues, or a combination of the two.
These additions extend the VRIO framework of resources and capabilities to VRIOLU.
The extended framework involves the evaluation of resources and capabilities along
three important dimensions:56
1. From the organisational perspective, it evaluates the value (V) to the
organisation and the ability of the organisation (0) to exploit the resources
and capabilities.
2. From the perspective of competitiveness, it considers the rareness (R)
and inimitability (I) and the availability of resources and capabilities to
competitors.
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3. From the perspective of customers, it evaluates the size of the market and
determines whether it is large (L) enough to cover the fixed costs of the
organisation. It also evaluates the extent to which resources and capabilities
allow the organisation to address unmet (U) customer needs. A responsible
business will create value for all stakeholders.
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Discussion questions
1. Differentiate between resources, capabilities and core competencies of an
organisation and explain the importance thereof to strategic management.
2. Differentiate between competitive advantage, sustainable competitive advantage
and responsible competitiveness.
3. Distinguish between tangible and intangible resources of an organisation.
4. Explain why it is important for an organisation to ensure that its resources and
capabilities become core competencies.
5. Explain the VRIO analysis.
6. Explain the resource-based view of an organisation's internal analysis.
7. Explain the identification of capabilities and core competencies to create value
in terms of their functional area analysis.
8. Explain the identification of capabilities and core competencies to create value
in terms of the value chain analysis.
9. Explain, by means of a diagram, the adjusted value chain for responsible business.
10. Identify an example of how organisations gained competitive advantage through
a differentiation and cost leadership strategy respectively.
11. Explain, and illustrate with the aid of an example, your understanding of the
'appropriability' of an organisation.
12. Consider the opening case study in this chapter. What are the core competencies
of Discovery? How valuable will these core competencies be in the insurance and
financial services industry? Substantiate your answer.
13. Read the story on Apple Inc. by Gary Hamel on Management Innovation
Exchange (http://www.managementexchange.com/blog/what-makes-apple-
apple) and identify the core capabilities of Apple that led to its success.
Learning activities
1. Watch the video on the resource-based view by Jay Barney on YouTube (http://
www.youtube.com/watch?v=-KN81_oYlls). What did you learn about the notion
of differential resources in this video?
2. Interview a manager in any organisation of your choice about his or her
organisation’s key strengths and weaknesses. What did you leam about the idea
of resources and capabilities in this interview?
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
Endnotes
I Grant, R.M. ft Jordan, J. 2012. Foundations of strategy. West Sussex, UK: John Wiley fl
Sons, p. 36.
2 Discovery Integrated Annual Report for the year ended 30 June 2021. Available online:
https://www.discovery.co.za/assets/discoverycoza/corporate/investor-relations/2021/
discovcry-intcgrated-annual-report-2021.pdf (accessed 6 April 2022).
3 Discovery Sustainability Report 2021. Available online: https://www.discovery.co.za/
assets/discoverycoza/corporate/corporate-sustainability/2021/sustainability-report.pdf
(accessed 6 April 2022).
4 Grant, R.M. ft Jordan, J. 2012. Foundations of strategy. West Sussex, UK: John Wiley El
Sons, p. 114.
5 Barney, J. 1991. Firm resources and sustained competitive advantage. Journal of
Management, 17(1), 101.
6 Kristandl, G. ft Bontis, N. 2007. Constructing a definition for intangibles using the
resource-based view of the firm. Management Decision, 45(9). 1517.
7 Ibid, p. 1518.
8 Hoskisson, R.E., Hitt, M.A., Ireland, R.D. 8 Harrison, J.S. 2008. Competing for advantage,
2 ed. Canada: Thomson South Western, 73.
9 Grant 8 Jordan (2012:114).
10
Ibid.
II Jacquier, B. 2003. The resource-based view of the firm (REX'). Available online: http://
www.ecofine.com/strategy/RBV of the firm.htm (accessed 17 October 2012).
12 Adapted from Winter, S. 2000. The satisficing principle in capability learning. Strategic
Management Journal, 21, 981-996.
13 Discovery Integrated Annual Report for the year ended 30 June 2021. Available online:
https://www.discovery.co.za/assets/discoverycoza/corporate/investor-relations/2021/
discovery-integrated-annual-report-2021.pdf (accessed 6 April 2022).
14 Grant 8 Jordan (2012:122).
15 Prahalad, C.K. 8 Hamel, G. 1990. The core competence of the corporation. Harvard
Business Review, May-June, 79-91.
16 Adapted from Grant fl Jordan (2012:114); Hill, C.W.L., Jones. G.R. ft Galvin, P. 2004.
Strategic management: an integrated approach. Milton, Queensland: John Wiley, p. 115.
17 Prahalad ft Hamel (1990).
18 Jacquier (2003:4).
19 FlySafair, Available online: https://www.flysafair.co.za/otp (accessed 8 April 2022).
20 Clulow, V. 8 Gerstman, J. 2007. The resource-based view and value: the customer-based
view of the firm. Journal of European Industrial Training, 31(1), 19-35.
21 Hoskisson et al. (2008:79).
22 Harrison, J.S. 8 St John, C.H. 2014. Foundations in strategic management, 6th ed. Mason.
OH: South-Western Cengage Learning, p. 48.
23 Partly based on Cokayne, R. 2012. Optimal; Energy closes its doors. IOL Motoring. 27
June. Available online: http://www.iol.co.za/motoring/industry-news/ optimal-energy-
closes-its-doors-1.1328648 (accessed 19 February 2014).
24 Arend, RJ. 2006. Tests of the resource-based view: do the empirics have any clothes?
Strategic Organisation, 4(4), 418.
196
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IS Daellenbach. U.S. Et Rouse, MJ. 2007. Ten years after: some suggestions for future
resource-based view research. Research Methodology in Strategy and Management, 4, 14.
11 Sheehan, N. ft Foss, N. 2007. Enhancing the prescriptiveness of the resource-based view.
Management Decision, 45(3).
17 Hinterhuber, A. 2013. Can competitive advantage be predicted? Towards a predictive
definition of competitive advantage in the resource-based view of the firm. Management
Decision, 51(4), 796.
It Adapted from Barney (1991:100); Clulow ft Gerstman (2007:21).
It Hoskisson et al. (2008:71).
» Grant ft Jordan (2012:114).
31 Porter, M.E. 1998. Competitire advantage: creating and sustaining superior performance.
New York: The Free Press.
33 Ibid.
33 Grant ft Jordan (2012:123-128): Dess et al. (2008:75-83).
34 Little, T. 2022. Apple retains most-valuable brand crown as tech boom continues and
TikTok soars. Available online: https://www.worldtrademarkreview.com/apple-retains-
most-valuable-brand-crown-tech-boom-continues-and-tiktok-soars (accessed 8 April
2022).
3S Hinterhuber (2013:803).
36 Ibid, p. 808.
37 Grant, R.M. 1996. Prospering in dynamically competitive environments: organizational
capability as knowledge integration. Organization Science, 7(4), 375-387.
197
Developing and choosing
7 appropriate strategies
Mari Jansen van Rensburg
Strategy implementation
and control
Strategy formation
architecture
^^Organisational learning^
Resource allocation
Change management
Strategy implementation
and control
Case study
Mr Price: Never waste a good crisis'
Mr Price spent lockdown developing a new strategy. This ambitious growth strategy ‘is
to leapfrog Shoprite to become Africa's largest retailer by market value’. When Laurie
Chiappini and Steward Cohen opened the first Mr Price Factory Shop in Klerksdorp in
1985, it was history in the making for factory shop-style shopping. In fact, those who
shared in their vision and bought shares at a share price of 28c in 1988, would have
seen their investment soar by 70,714 per cent in 2021 with a share price of R198.2
Today, Mr Price Group Limited is a JSE listed company with a market value of R46bn. It
operates eight divisions in the value clothing, sport, and homeware sector with a store
footprint of 1,592 total owned stores. The retailer network include:
Mr Price - a fashion-leading clothing, footwear, cosmetics, and accessories retailer
that offers on-trend and differentiated merchandise at extraordinary value to ladies,
men, and kids.
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CHAPTER V. DEVELOPING AND CHOOSING APPROPRIATE STRATEGIES
Mr Price Home - a retailer that specialises in design and decor, offering home
textiles, decor, accessories, kitchen, dining, furniture, and kids' merchandise.
Mr Price Sport - a retailer offering sporting, outdoor and fitness ranges - all
comprising footwear, apparel, equipment, and accessories.
Mr Price Money - a division that supports the group's profitable growth in retail
market share. Its product offering includes varying credit tender types, Mr Price
Cellular, Mr Price Mobile and Mr Price Insurance.
Milady's - A retailer that specialises in women's smart and causal fashion, intimate
wear, footwear, and accessories.
Sheet Street - a retailer of home textiles, offering a wide range of tasteful, affordable,
and wanted homeware products at exceptional value.
Power Fashion - an everyday low-priced fashion retailer, serving the needs of the
whole household.
Yuppiechef - a retailer that specialises in kitchen, small appliances, table and barware,
bed d bath, furniture and decor, outdoor, and specialist food and drink.
Mr Price Baby - the lasted store concept that has been created to cater for all
parents, baby, and kids need. This retailer offers online shopping facilities as well as
six standalone stores across South Africa. Some products are also found in selected
Mr Price kids stores and Mr Price Stores.
The group's strategic direction is expressed as follows:
During 2020 and 2021, the group applied its focus and energy to revise its overall strategy
with the aim of getting its business back on track after the crippling effect of COVID-19.
In April 2020, during level 5 lockdown, the company announced the news that it would
return from the previously adopted brand MRP, to its original brand name, Mr Price. Mark
Blair, CEO, recall:
we returned not only in name but also to the behaviours and competitive
and insurgent mindset we all associated with the original brand. All
rebranding from MRP to Mr Price was completed at head office, on social
media and e-commerce channels, with store rollouts to be completed in the
new financial year. We've unpacked and redefined our cultural DNA with
our associates while hardcoding it into the business.
The group also adopted the vision to be the most valuable retailer in Africa, in terms
of market capitalisation, and set detailed plans to target various valuation components
to pursue this ambitious goal. Plans were informed by detailed research to identify
opportunities and formulated during extensive workshops and discussion with associates,
emerging talent, and senior leadership. The focused approach to growth led to the
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
acquisition of Power Fashion and Yuppiechef in 2021. In addition, all divisions identified
opportunities to grow and achieve organic growth by launching new category extensions.
An example of this is the new Mr Price Baby range that was added in 2022.
Mr Price recognises the importance of responsible management. The group
views a sustainable business as one that ‘understands the role it plays in the context
of environmental constraints, responsible citizenship, volatile economic systems and a
more conscious and demanding society'. Their sustainability journey is anchored in the
very purpose of the business - ‘to add value to the lives of customers and worth to our
partners' lives, while caring for the communities and environment in which we operate'.
The group is committed to the United Nations Global Compact (UNGC) Principles and
uses the Sustainable Development Goals (SDGs) to guide implementation. To achieve this
commitment, efforts have been focused as follows:
■ Increase sustainable raw material content in products, in line with international
standards. The target is to source 80 per cent sustainable cotton by 2023.
■ Increase supply chain visibility by mapping to 90 per cent of the value chain,
thereby deepening measure of social and environmental performance as well
as supplier longevity and resilience. This will enable the group to target high-
impact interventions.
■ Reduce and stabilise value chain impact on the planet, with an immediate
focus on reducing single-use plastics and other non-recyclable raw materials
in packaging.
■ Remind leaders and associates to consider longevity in business decision
making.
■ Extend 'together we do good' partnership to further key stakeholders.
■ As a signatory of the Retail-CTFL Master Plan 2030 of South Africa, the group
continues to work collaboratively with government and industry to develop
meaningful interventions to unlock a competitive and sustainable local
manufacturing industry.
(Source: Mr Price Group limited. Available online https://www.mrpricegroup.com/sustainabilitY
(accessed 4 May 2022)).
Winston Churchill said, 'Never waste a good crisis.' Mr Price took note of this advice to
reshape its future.
The growth strategy adopted by Mr Price is informed by its vision and values, and
delivery centres on the group’s DNA and culture. The group's new vision, ‘To become
the most valuable retailer in Africa’, and purpose, 'to be your Value Champion' are clear.
To focus on value, the group updated its value equation. Traditionally, value
was focused predominantly on price, and value was expressed as 'Value ■■ Price +
Fashion + Quality'. The new equation added experience and convenience to unlock
additional growth opportunities in existing and new market segments. To support
growth, the group's DNA and culture are underpinned by the principles of the Founder's
Mentality. The Founder’s Mentality is a term coined by Bain ft Company following
intensive research on why profitable growth is hard to achieve and sustain. Findings
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CHARIER T. DEVELOPING AND CHOOSING APPROPRIATE STRATEGIES
suggest that when companies fail to achieve growth targets, 90 per cent of the time
the root causes are internal and include increasing distance from the front lines, loss
of accountability, and proliferating processes and bureaucracy. In response, Bain ft
Company introduced the concept of a ‘Founder's Mentality' - behaviours typically
embodied by a bold, ambitious founder to restore speed, focus, and connection to
customers.1 As such, Mr Price adopted principles of'Owner’s Mindset', 'Insurgency'
and 'Frontline Obsession' to ensure clarity and focus among relevant stakeholders.4
Mr Price Group Limited has grown from its humble beginning to a multinational
organisation. During the last four decades, the company had to consider its own
resources and capabilities as well as the opportunities in the external environment
to make the best strategic choices. The current portfolio of the organisation is
strategically diversified and the result of several strategic choices responding to
market conditions.
LO 1: Articulate the nature and use of strategic goals and strategic choices in
providing strategic direction.
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
Table 7.1 Strengths, weaknesses, opportunities and threats of the responsible business
Helpful Harmful
Strategic goals are statements that express specific outcomes to be achieved. We also
acknowledge that goals form the basis of a common language for understanding
the wider context as it contains realistic measures of progress and achievement.5
These measures of progress are set to support and achieve the strategic direction of
the organisation. However, the primary objective of business strategy is to achieve
a sustainable competitive advantage that leads to above-average performance and
returns. The primary objective of a responsible business is to achieve responsible
competitiveness. To achieve this objective, managers and key employees need to
make decisions on three levels:
1. Organisational or corporate level. Decisions are taken about the overall
purpose, scope, range, and diversity of the organisation. These decisions are
typically orchestrated by senior management, such as the chief executive
officer (CEO) or managing director (MD), the board of directors and other
senior executives. The outcomes of these decisions are corporate strategies,
and the purpose of corporate strategy should be to maximise stakeholder
value in the long term by managing a portfolio of businesses.
2. Business level. General managers of each line of business or strategic
business unit (e.g., a subsidiary or division) determine which business (or
competitive) strategies would be most suitable for achieving sustainable
competitive advantage. These decisions constitute business-level strategies.
3. Functional level. Managers lower down make decisions about how to best
support business-level strategies by performing strategy-critical activities.
These functional strategies include decisions, such as optimal staffing (the
responsibility of the HR manager), marketing strategies (the responsibility
of the marketing manager) or research and development initiatives.
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CHAPTER T. DEVELOPING AND CHOOSING APPROPRIATE STRATEGIES
Each SBU is required to compete in its respective markets and industries with a
view to establishing competitive advantage as a means of creating a competitive
advantage for its corporate owners.
Figure 7.2 The relationship between the corporate centre and strategic business units
In this chapter, we will review different corporate and business strategic options that
could be implemented to create strategic success based on an organisation’s proposed
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
strategic direction, its strengths and weaknesses, as well as the opportunities and
threats presented in the environment in which it operates. The complexity of strategic
choice lies in the alignment between choices and the realities found in the operating
environment. In addition, strategy is developed over time and often involves choices.
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CHAPTER T. DEVELOPING AND CHOOSING APPROPRIATE STRATEGIES
• Diversification
• Market • Retrenchment
penetration (related or
unrelated) • Recovery
• Market •Joint
• Inegration • Revenue
development venture
(horizontal or growth
• Product vertical) • Merger
• Divestiture
development
• Acquisition
• Liquidation
• Innovation
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
Innovation strategies
The aim of innovation strategies is to introduce advancements in technology and/
or services. These advancements are developed through research and development.
TymeBank provides an excellent example of how everyday banking was transformed
through financial technology. The bank uses the latest and best-in-breed technologies
to deliver digital financial services designed to engage customers with compelling
experiences and empower them to do more with less. This is the first South African
bank to put its core banking platform in the cloud. You can read more about this
bank’s innovative approach at https://www.tyme.com.
As can be observed from the TymeBank example, choices made based on
products and markets have successfully contributed to the organisation achieving
its growth objectives. Read more about the organisation’s growth objectives in the
practising strategy box below.
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According to TymeBank CEO, Pauriq Keraan, TymeBank has shaken up SA's banking
landscape. The bank disproportionately serves low-income rural customers.
The business model is a compelling example of how challenger banks can leverage
digital technology to reach excluded customer segments with more affordable and
useful products.
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
Diversification strategies
Diversification strategies are driven by two key objectives, namely, growth and risk
reduction. However, diversification that only seeks growth or risk reduction is likely
to destroy value. Conversely, if these objectives are supplemented by an intention
to exploit economies of scope (in cases where it is cheaper to manufacture a variety
of products together, rather than separately) in resources and capabilities, it has the
potential to create stakeholder value.14 Once an organisation decides to diversify, it
faces the choice of whether to diversify into related or unrelated businesses.
Businesses are said to be related when there is a close resemblance between
how they perform key value chain activities. Pursuing this strategic option allows
the organisation to build stakeholder value by leveraging synergies between the
two organisations, enabling the organisation to perform better as a whole than just
the sum of its individual businesses.15 Mr Price Group diversified its value clothing
portfolio by adding Power Fashion as a division of the group.
An unrelated diversification strategy discounts the merits of pursuing a cross
business strategic fit. Instead, it focuses on entering and operating businesses in
industries with opportunities to realise consistently good financial results.16 An
example of an organisation that achieved growth through unrelated diversification
is the Bidvest Group. Brian Joffe launched the organisation in 1988. Joffe built
the organisation by buying businesses that others were eager to sell. He followed
a uniquely empowered business model driven by autonomous entrepreneurs, each
responsible for growing their own operations. Following the acquisition by Bidvest,
under-performing operations were often transformed into industry leaders. Rather
than focus on one market, the group offers a diverse range of products and services
across industries. Today the group operates in the areas of consumer, pharmaceutical
and industrial products, financial services, freight management, office and print
solutions, outsourced hard and soft services, travel services and automotive retailing.17
Integration strategies
Organisations often acquire other organisations similar to their own. The operative
word here is similar, meaning that the operations of these organisations are
incorporated within the current operations of organisations pursuing this strategic
option. These organisations aim to achieve growth through acquisitions of and/or
mergers with competitors (horizontal integration) or suppliers or distributors (vertical
integration).18 Mergers and acquisitions are discussed in more detail below.
Diversification and integration strategic moves involving highly responsible
companies are not uncommon. Colgate Palmolive serves as an example. Colgate
Palmolive is a consumer products company operating in two segments: oral, personal
and home care; and pet nutrition. Colgate uses palm oil, palm kernel oil and derivatives
in soap products, toothpaste, antiperspirants, deodorants and house cleaners. Palm oil
is an edible vegetable oil made from the fruits of trees called African oil palms. The
company tried to hedge the environmentally questionable product structure of its main
business by buying the long-hailed role-model environmentally entrepreneurship
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company. The trees originally came from west and south-west Africa, but they were
introduced to Indonesia and Malaysia in the late 19th and early 20th centuries. Palm
oil is a very inexpensive vegetable oil that is being used in so many products that
it cannot keep up with the demand. So, companies are tearing down rainforests and
plant life all over the world to plant more palm trees. So why is this a problem? The
first reason that deforestation for the needs of palm oil is a problem is due to the
natural wildlife in those areas. Palm oil deforestation is leading to possible extinction
for orangutans, and harming many other species such as elephants and tigers. Palm
oil is also causing harm to the planet by simply deforestation. As we rip out plants,
animals, and trees in their natural environment to plant a monocrop (acres upon acres
of only one crop) it is harmful to our planet. The loss of rainforests also contributes to
the world's rising greenhouse gas emissions, which cause climate change. In an effort
to hedge their environmentally questionable product structure, Colgate Palmolive
bought the long-hailed role model environmental entrepreneurship company The
Body Shop.
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Acquisition strategies
An acquisition occurs when one entity targets and buys another to become the sole
owner of both. Consider the acquisition of Power Fashion and Yuppiechef reported
on in the opening case study. Mr Price Group bought Power Fashion to establish a
foothold in the price-focused segment of the apparel price/value segment. Through
the acquisition of Yuppiechef, Mr Price Group was able to enter the homeware
aspirational value segment and add another point to the fast-growing e-commerce
sector targeting a more affluent customer base not previously served.24
Merger strategies
A merger occurs when two separate entities combine forces to create a new
organisation. An example of a merger is that between Dotsure Insurance and the
Bollard Group. Dotsure is a licensed short-term (non-life) insurer and authorised
financial services provider wholly owned by the Badger Group. The Bollard Group
is also an insurance provider, offering a range of investment products to a diverse
customer base. The merger comprises the transfer of Bollard's direct, personal lines
insurance book consisting of short-term (non-life) insurance in return for further
shareholding and joint control in Badger.25
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Besides its own cash injection of R1.5 billion, Mara Phones received working capital
and trade finance from the state-owned Industrial Development Corporation (IDC)
and from Standard Bank to the value of some R350 million. The company also
benefited from the section 121 tax incentive scheme. Under this scheme, businesses
could get back up to 55 per cent of the amount they invested in buildings and
equipment in the form of a tax deduction (estimated in this case to the value of
RIOOm). Additionally, the South African government offered buying support and
recognised Mara Phones as ‘its preferred phone brand in a transversal contract’
which required all government entities to buy Mara Phones.28
Within the first year of existence, the brand launched two models, the Mara X
and Mara Z. These phones retailed between R3.000 and R4.00029 and offered 'a long-
lasting battery, immense storage and a two-year Android version update delivered
through a partnership with Google and its Android One programme’.30 The first Mara
store also opened in Maponya Mall Soweto, with plans to roll out 50 more physical
experience stores across the country on its own and through franchises.31
But, after just two years of operating the facility, it has shut down and was
placed on auction in a sale mandated by the IDC and Standard Bank. Mara Phones
blamed its demise in the country on the COVID-19 pandemic, a slow uptake of its
phones and fewer government tenders for its devices than it had anticipated.32
At the time of writing this chapter, a buyout team comprising of Mara Phones
management made a proposal to investors to turn the company around rather than
auctioning it off for parts
In the shorter term, the most successful turnaround strategies focus on reducing direct
operational costs and improving productivity gains. Three strategic options that can
be used to achieve these objectives are retrenchment, recovery, and revenue growth.
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
Retrenchment strategies
Retrenchment strategies are the most common strategy for underperforming
companies in a turnaround process and encompass all actions to reduce costs or
assets to increase operational efficiency or to raise quick cash for immediate survival.
Retrenchment strategies are typically used to reduce the size or diversity (in terms
of the number of product offerings or strategic business units) of the organisation.
This strategy takes two forms, namely, cost-cutting and reducing non-core assets.
Cost and/or asset retrenchment do not guarantee improved financial performance. In
some cases, process improvement or innovation may, for example, be more effective
than reducing headcount. However, in instances where efficiency is gained through
digitalisation it can be an appropriate strategy to reduce headcount.33 Cost-cutting
should only incur when internal controls are in place to ensure operational efficiency,
reliable financial reporting and compliance with laws and regulations. Cost-cutting
can also be achieved if staff is reduced in line with international best practices and if
mechanisms are put in place to ensure optimum performance.
In the case of Mara Phones, being a new entity the company could not reduce
non-core assets but instead they had to reconsider the launch of the planned two
subsequent facilities in Africa to manufacture ‘Made in Africa' devices. Staff were
not retrenched, but promises made to workers to be permanently employed in the
company after three months of temporary work did not realise as contracts were
never revised to permanent. Media also reported allegations about unfair labour
practices, including poor working conditions and unpaid wages.34 Companies should
take care not to cut costs to the detriment of employees and their own reputation.
Recovery strategies
While retrenchment strategies focus on the stabilisation of a financial decline
and correction of operational inefficiencies, recovery strategies aim to reorientate
organisations towards sustainable competitive advantage. Essentially, recovery
strategies are used to stabilise the business. Recovery strategies include leadership
changes, enhanced stakeholders' support, redefining the core business, organisational
restructuring, changes to the organisational culture and improvements in critical
processes.35 Mara Phones management team claimed that they have been working
tirelessly to restructure and turn around the company which included a Management
By Objective process to enhance overall performance.
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Divestiture strategies
A divestiture is the partial or full disposal of assets or SBUs through sale, exchange
or closure. Divestiture results from a management decision to cease operations in a
particular area because it is no longer part of a core competency or when it is no
longer profitable.56
Liquidation strategies
If none of the options above (retrenchment, recovery, revenue growth or divestiture
strategies) is viable, the organisation would have no other choice but to exit the
industry. To exit, executives may sell the organisation, liquidate the organisation
or declare bankruptcy.37 A liquidation strategy implies that the entire organisation
be sold off, either as a whole or in parts of it. Liquidation can be voluntary or, in
the case of bankruptcy (where the organisation can no longer pay its debts), can be
directed by the court. In the case of Mara Phones, this strategy was evoked when a
sale, through an auction, was mandated by its funders.
In summary, this section provided an overview of the various options for
corporate-level strategies. In the following section, our attention shifts to the
management of the multi-business organisation.
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
SBU strength
Luxury
Premium
Aspirational
value/Niche
Fashion-Value
Price value
The segment and opportunity matrix positions the various strategic business units
(divisions) of the Mr Price Group according to (1) the relevant market in which they
operate, ranging from price value to luxury (depicted on the vertical axis of this
matrix), and (2) the opportunities through growth in selected sectors. Sectors deemed
attractive with growth potential (depicted on the horizontal axis of the matrix)
include apparel, homeware, financial services and telecoms and e-commerce. In the
case of Mr Price, the company is well represented in the ‘fashion-value- segment with
strategic business units across identified sectors. This follows the initial strategy of
the company to focus on ‘factory shop-style shopping’ as discussed in the opening
case. The original Mr Price positioning was thus centred on a market segment known
to appreciate fashion and value with an initial presence in the apparel and homeware
sectors. In support of pursuing growth, additional opportunities were identified
through extensive market research, and this focused approach to growth led to the
acquisition of Power Fashion and Yuppiechef in 2021, extending its reach to include
the ‘price value' segment in the apparel sector and the ‘aspirational value/niche'
segment in the homeware sector. In addition, all divisions identified opportunities
to grow and achieve organic growth by launching new category extensions mostly
through e-commerce. Future growth is expected in new sectors as well as extensions
to the premium market.
This snapshot serves to inform portfolio strategies to guide corporate decision
making in terms of financial investment and divestment. Investment would be
appropriate in instances in which the market is attractive and the SBU displays a
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Due to the global sustainable consumption megatrend, many modem business units
focusing on responsible business topics are found in the upper half of the segment
and opportunity matrix, which represents high long-term market attractiveness -
sustainability-related industries are often highly attractive industries. For example.
General Electric’s wind energy business unit operates in an attractive market. Its 1.5
MW series has been a widely deployed wind turbine installed globally. In terms of
market growth, wind power is an attractive market.
An understanding of where the organisation wants to go should be followed
by an agreement on how to compete to get there. The next section focuses on the
various business-level strategic options.
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
When you ask customers why they buy a specific product or service, they will
tell you that it is because the product is cheaper than, different from or provides
a better value proposition than alternative competing choices. Although these are
broad generalisations, important implications which represent the generic strategic
options for achieving competitive advantage flow from them. Four distinct generic
competitive strategy approaches stand out.'*0•'*,
Differentiation strategies
A differentiation strategy involves uniqueness along some dimension that is
sufficiently valued by customers to allow a price premium. This strategy may focus
on either a broad section of buyers or a narrow buyer segment.
Focus strategies
A focus strategy involves targeting a narrow segment or domain of activity and
tailoring its products or services to the needs of that specific segment, to the exclusion
of others.
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T3
co
Cost leadership Broad differentiation
strategy strategy
Best cost
o provider strategy
0t
TO •o
u
kt
Focused low-cost strategy Focused/niche differentiation
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
Responsible management can have a strong influence on the two crucial factors of
cost and differentiation and thereby leading to or supporting a beneficial strategic
market position. It can lead to cost savings from increased efficiency in natural
resource usage and, at the same time, achieve the so-called "sustainability premium'
due to customers' higher willingness to pay for products with improved responsible
business performance, the so-called ‘sustainable innovation products’. Numerous
examples exist of companies that have achieved clear strategic positioning supported
by their responsible management activities. One such example is the Apple company
that achieved broad differentiation through its iPod Nano which includes a built-in
pedometer application that motivates users for healthier living and at the same time
act as a differentiator. Massmart is another example of a business that achieved cost
leadership through responsible management practices. The company's aim is to build
the strongest and healthiest diversified retail group with the best long-term prospects
on the continent of Africa. They believe that being socially and environmentally
responsible is fundamental to achieving this and creating long-term stakeholder value.
A last example is Starbucks with a focused differentiation strategy. The company
is well-known for its C.A.F.E. (Coffee and Farmer Equity) programme, which is an
important contributing factor leading to its high-quality products, which is one of
the main reasons why the company can charge a price-premium for its products. The
C.A.F.E. programme is a verification programme created in 2004 that evaluates coffee
farms following economic, social and environmental criteria designed to promote
transparent, profitable and sustainable coffee growing practices, while protecting the
wellbeing of coffee growers, workers, their families and communities. Another salient
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CHAPTER 7: DEVELOPING AND CHOOSING APPROPRIATE STRATEGIES
point of Starbucks is its ‘third-place’ value proposition for customers. The idea is to
create third place’, a place where people could go to relax and enjoy time with others,
or just be by themselves. The comfort and acceptance of the ’third-place’ depend on
a subset of responsible management-related activities, one of them being the high
human resource standards that Starbucks represent, for example its constantly high
ranking of best place to work.
Although consolidated market positions are achieved over time, organisations
often need to review different strategic choices more frequently. Once an organisation
has selected potential business-level strategies, it needs to evaluate these options to
choose the most appropriate business-level strategy or combination of strategies. The
next section focuses on the evaluation of strategic choices.
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
Discussion questions
1. Distinguish between corporate- and business-level strategies.
2. Explain why the Mr Price Group followed a successful diversification strategy.
Substantiate your answer.
3. Explain how an organisation can build a competitive advantage.
4. Explain how responsible management can have an influence on a beneficial
strategic market position and provide two real-life examples.
5. Discuss three strategic options that companies can employ to grow from within.
6. Mara Phones and TymeBank both started their operations in 2018 in South
Africa, facing similar market conditions. Evaluate strategies employed by these
companies to explain the difference in their performance.
Learning activities
1. Watch the video entitled, ‘Founder’s mentalitySM' and the paths to sustainable
growth on YouTube (https://www.youtube.com/watch7vsRp4RCIfX66I ). What
do you think drives and constrains organisational growth?
2. Read the Monitor Deloitte report on the five new realities chief strategy offers
need to embrace available at https://www2.deloitte.com/us/en/pages/operations/
articles/five-realities-to-guide-chief-strategy-officers-post-covid-19.html. How
do you think COVID-19 reshaped the role of corporate strategy?
Endnotes
1 Mr Price. 2021. 2021 Integrated Report: mrpricegrouplimitcd. Available online: https://
www.mrpricegroup.com/mr-price-group-invcstor-relations.aspx (accessed: 26 February
2022).
2 Premium, B.L. 2021. Inside Mr Price’s ambitious makeover. Financial Mail, 27 May.
Available online: https://www.businesslive.co.za/fm/featurcs/covcr-story/2021 -05-27-
insidc-mr-prices-ambitious-makcovcr/ (accessed: 26 February 2022).
’ Zook, C. fl Allen, J. 2016. The Founder's Mentality: How to Overcome the Predictable
Crises of Growth. Boston, Massachusetts: Harvard Business Review Press.
4 Mr Price (2021:38).
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4 Chau, V.S. ft Witcher, B. 2014. Strategic Management Principles and Practice. 2 ed.
Hampshire: Cengage Learning.
‘ Mr Price (2021:3).
’ Jcnik, I. 2022. Tymebank: Case Study - The customer impact of inclusive digital banking.
CGAP, January. Available online: https://www.cgap.org/rcsearch/publication/tymebank-
case-study-customer-impact-inclusive-digital-banking (accessed: 26 February 2022).
• TymeBank. 2022. TymeGlobal. Who are we. Available online: https://www.tyme.com/
who-we-are/ (accessed: 26 February 2022).
’ Malinga, S. 2021. TymeBank to provide 'buy now, pay later' credit offering. fTWeb, 25
February. Available online: https://www.itweb.co.za/content/mYZRXM9awNnM0gA8
(accessed: 26 February 2022).
10 Malinga (2021).
11 Jenik, I. 2022. Tymebank: Case study - The customer impact of inclusive digital banking.
CGAP, January. Available online: https://www.cgap.org/research/publication/tymebank-
case-study-customer-impact-inclusive-digital-banking (accessed: 26 February 2022).
» TymeBank (2022).
14 Grant, R.M. 2021. Contemporary Strategy Analysis. 11 ed. West Sussex: John Wiley El
Sons Ltd.
15 Thompson, A.A., Gamble, J.E., Peteraf, M.A. Et Strickland, AJ. 2022. Crafting 8 Executing
Strategy: The Quest for Competitive Advantage. 23 ed. New York: McGraw Hill Education.
16 Thomas et al. (2022).
17 Bidvest. 2022. Bidvest. Available online: https://www.bidvest.co.za/ (accessed: 26
February 2022).
Louw Et Venter (2019).
>’ Ibid.
20 Weller, H., Streller, A. El Purinton, E.F. 2019. Brand equity and partnership fit: strategic
alliance considerations for the professional sports industry. International Management
Review, 15(1), 19-71.
21 Thompson et al. (2022).
22 Ibid.
21 Pioneer Foods. 2022. About us: Our Joint Ventures. Available online: https://pioneerfoods.
co.za/about/our-joint-ventures/ (accessed: 26 February 2022).
24 Mr Price (2021:39).
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n Thukwana, N. 2022a. Mara Phones went bust in South Africa despite a R100 million
tax break, and govt, preference. Business Insider. Available online: https://www.
businessinsidcr.co.za/the-mara-smartphone-factory-went-bust-even-after-a-rlOO-
million-tax-break-2022-2 (accessed: 26 February 2022).
29 Thukwana, N. 2022b. In 2019, SA celebrated its first smartphone factory. Now it is empty
and going on auction. Business Insider. 8 February. Available online: https://www.
businessinsider.co.za/mara-smartphone-factory-in-durban-goes-on-auction-2022-2
(accessed: 26 February 2022).
so Nair, N. 2019. Africa gets first smartphone manufactured in KZN after R1.5bn investment.
SowetanLive, 17 October. Available online: https://www.sowetanlive.co.za/news/south-
africa/2019-10-17-mara-africas-first-smartphone-is-manufactured-in-kzn-trade-port/
(accessed: 26 February 2022).
31 McKane, J. 2019. Inside South Africa's first smartphone factor. MYBR0ADBAND.
18 October. Available online: https://mybroadband.co.za/news/business/324030-inside-
south-africas-first-smartphone-factory-photos-html (accessed: 26 February 2022).
32 Thukwana (2022a).
33 Claite, M.C. Et Tshehla, M.F. 2021. Addressing the determinants of the relationship between
the degree of severity of companies in decline, asset and cost retrenchment and financial
performance. In 21st Academy of African Business and Development Conference (26-35).
34 Staff Reporter. 2022. Mara Phones' South African ambitions come to a pandemic end.
Available online: https://weetracker.com/2022/02/15/mara-phones-south-africa-dosure/
(accessed: 26 February 2022).
39 Rico Llopis, M. 2018. Turnaround Strategies for Severe Crises. Surviving a Bankruptcy
Procedure (unpublished PhD Thesis: University of Valencia).
36 Investopedia. 2022. Divestiture. Available online: https://www.investopedia.com/ terms/d/
divestiture.asp (accessed: 20 February 2022).
37 Louw and Venter (2019).
38 Johnson. G.. Whittington. R. fl Scholes. K. 2011. Exploring Strategy: Text fl Cases. 9 ed.
Harlow: FT Prentice Hall.
39 Louw and Venter (2019).
40 Johnson et al. (2011).
41 Thompson et al. (2022).
42 Adapted from Thompson et al. (2022).
Volkswagen. 2022. Explore our models. Available online: https://www.vw.co.za/en/
models.html (accessed: 26 February 2022).
44 Johnson et al. (2011).
226
Strategy implementation
8 as change management
Tersia Botha
■ Evolutionary change
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Case study
NASPERS'
Founded in 1915 in Stellenbosch, South Africa, Naspers is a global internet and
entertainment group and is one of the largest technology investors in the world and a
prime example of a company with a philosophy of’not business as usual'. Naspers operates
in more than 130 countries and markets with long-term growth potential. Throughout
their 100-year history, the company have grown by investing in, acquiring and building
leading companies with sustainable competitive advantages. The strategy of the company
is stated as follows:
Naspers' operating model is different from many other companies. They both invest and
manage leading companies and add value at all life stages. They create their own businesses
or invest in early-stage companies, take promising modes and grow them quickly to scale,
they grow companies already at scale and they hold investments in listed companies with
significant upside.
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■ Data privacy and cyber resilience. Each business is directly responsible for managing
data privacy and security within its own organisation. Responsibility lies overall with
the CEO of each business. The group data privacy office and the cyber team support
and monitor the businesses in executing sound data privacy and security practices.
Data privacy is essential for good governance, risk management, building trust and
doing the right thing for our stakeholders.
■ Supply chain. They are committed to building a more sustainable supply chain
through their purchase decisions. New and existing vendors will be screened across
a range of material issues to identify and address any areas of concern. They are
mindful of their opportunity to influence supply chain partners through their
purchase decisions and seek vendors that share their standards on issues including
use of natural resources and human rights.
■ Al and machine learning. Artificial intelligence (Al) and machine learning (ML) are
embedded across the group to add value for customers, partners and businesses
by personalising services, predicting prices, validating transactions, optimising
logistics and reducing fraud. Their development framework ensures that the social
and ethical dimensions of Al are included within the development process. They
take an operational approach to ethical and responsible Al, adopting best practices
across the group's data science community. They focus not just on how to ensure Al
is unbiased, robust and transparent, but also on how to use it to positively improve
people's everyday lives.
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Figure 8.2 The top-down and bottom-up approaches of strategy formation and
strategy implementation
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Also, every employee will know where he or she fits into the big picture of this overall
vision and strategy. This principle is imperative in creating a common understanding
and point of reference for all individuals, functional units and business units in the
organisation. It helps to overcome the vision barrier.
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external stakeholders, such as customers and suppliers. BSCs can also be developed to
define the organisation’s relationship with these stakeholders. The execution of this
step will help overcome the people barrier through initiatives that support strategy
implementation. The importance of appropriate change management and effective
communication should be acknowledged in these steps. (Change management is
addressed in detail in section 8.4.)
Figure 8.4 illustrates how this principle is executed. For illustrative purposes,
the strategic priorities identified in the corporate scorecard are financial growth,
improved stakeholder value, corporate citizenship, and research and development. The
organisation may have several different business units and a number of functional
units, such as finance, marketing, procurement, operations, public relations and
information technology. The external stakeholders identified as important and which
should be linked to the corporate strategy are customers, suppliers and distributors.
Improved
stakeholder value
Supplier
Business units
scorecard
Corporate
citizenship
Distributor
Research and
Information scorecard
development
technology
Source: Adapted from Kaplan, R.S. Et Norton, D P. 2001. Transforming the balanced scorecard from performance
measurement to strategic management: Part II. American Accounting Association, Accounting Horizons, 15(2), 150.
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managers and employees may also lead to strategic change. Promotional expectations
require strategic developments and growth in organisations, which require strategic
changes. In the next section, the various types of strategic change will be addressed.
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Extent of change
Transformation Realignment
Incremental
Speed of
change
‘Big bang'
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Practising strategy
From small start-ups to large organisation, no one has been spared the wrath of the
coronavirus pandemic. The worldwide crisis has nearly shut down entire industries
and forced organisation of all sizes to adapt and evolve. The one silver lining could
be that organisations are forced to expedite their use of technology to make
employees' and customers’ lives easier and better.
While technology can greatly aid organisations of all kinds that are not
prepared for an increasingly digital future, not all transformations right now depend
entirely on technology. Many organisations have responded with innovative changes
that push them into new markets. Instead of shutting down or taking a break, these
large organisations made revolutionary changes to stay alive and stay relevant.
Below are examples of these revolutionary changes in the wake of COVID-19:
■ Commercial airlines offer cargo flights. With an unprecedented drop
in commercial passengers, airlines have cancelled up to 90 per cent
of their scheduled flights. Instead of flying people, large airlines such
as Virgin Atlantic, Lufthansa, United Airlines and American Airlines
are instead switching to cargo-only flights. The airlines use the empty
passenger cabins to transport much-needed items, including grocery
items and healthcare provisions.
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Stage 2: Changing
During this stage, the actual change takes place and, for that reason (and due to
the resistance to change that will accompany it), it is the most difficult phase of
the change process. During this stage, employees need to start learning the new
behaviours required of them, and they require a lot of support. This phase is
characterised by employees acquiring new knowledge, skills and attitudes (for example,
through training); organisational structures and systems changing; and effective
communication throughout to maintain the momentum of change. Employees should
be reminded why it is necessary and how it will benefit them.
Stage 3: Freezing
Once the change has been implemented, the challenge is to make it a permanent part
of employee behaviour. It has to be solidified and entrenched in the organisation, and
that is why Lewin called this phase ’freezing’. This stage is essential to ensure that
employees do not simply revert to their old ways. The change should, therefore, be
made part of the performance management and reward systems.
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Based on the analysis of the context of the organisation change, Balogun and Hope-
Hailey argued that those leading the change need to make key decisions around the
way in which the change process will be managed. These decisions include:
■ Changing path. The first decision to make is whether the change will
be incremental or transformational. Incremental change refers to small
adjustments made towards a targeted end result. Incremental change does
not have a significant impact on existing structures, neither does it alter
current methods. On the one hand, an example of an incremental change
is the implementation of a new computer system to increase efficiency. A
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The change kaleidoscope model recognises that it is virtually impossible to map all
contextual variables with any one best-practice approach. It acknowledges the need
to account for a wide range of organisational situations.
It is important to note that the pace of change in contemporary organisations
is such that change is a constant state that requires managing, which leaves little
or, sometimes, even no time for recovery (or freezing/sustaining) in between. Also,
change often emerges in an unplanned and non-linear manner as a result of changes
in the external environment. Change may also develop bottom-up, as people,
sometimes unconsciously, change the way that they work over time, to become more
effective and efficient. Change can therefore also be seen as an open-ended process
of adaptation and organisational learning, which will be addressed in more detail in
Chapter 9.
The following practising strategy box provides an excellent example of changes
taking place in a mining company, showing how it was managed successfully.
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These changes delayed the project. Eventually, Carroll needed to make tough
decisions, not all popular. For example, she had to reduce the number of people.
Eventually, these decisions paid off. The company delivered US$3.2 billion of value
over and above their committed number of US$2 billion. They had a clear strategy -
they were working together. They reduced the number of fatalities by about 70 per
cent and that cascaded down into the industry, where a 50 per cent reduction was
achieved. That's a great accomplishment.
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Discussion questions
1. Explain where strategy implementation fits into the strategic management process.
2. Depict the top-down and bottom-up approaches of strategy formation and
strategy implementation diagrammatically.
3. 'For the responsible business, various functions have immense potential to create
cost leadership and differentiation.' Defend this statement by means of three
examples.
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Learning activities
Read the article ‘Thriving under pressure' that is available online https://www.
youtube.com/watch?v=VakaqEEUJjQ to answer the following questions.
1. Identify the types of strategic change that Anglo American underwent under the
leadership of Cynthia Carroll as CEO.
2. Identify the primary goal that Cynthia Carroll wanted to achieve as CEO.
3. Apply Balogun and Hope-Hailey’s change kaleidoscope to the change programme
implemented in Anglo under the leadership of Cynthia Carroll.
4. In your opinion, did Carroll, as CEO, manage the change in Anglo effectively?
Substantiate your answer.
Endnotes
1 Naspers. About. Available online: https://www.naspers.com/about (accessed 5 May
2022); Naspers. Strategy. Available online: https://www.naspers.com/about-us/ strategy
(accessed 5 May 2022).
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’ Kaplan Financial Knowledge Bank. Managing strategic change. Available online: https://
kfknowledgebank.kaplan.co.uk/business-strategy/strategy-into-action/managing-
strategic-change (accessed 20 April 2018).
10 The Kurt Lewin change management model. Available online https://www.change-
management-coach.com/kurt_lewin.html (accessed 17 September 2022).
12 Financial Times. 2018. ‘1 was very unpopular’ - ex-CEO of Anglo American. Available
online: https://www.ft.com/video/d8edd628-8afa-4c53-90da-7f7968d9fr58 (accessed
4 September 2022).
257
The learning
9 organisation
Peet Venter
LEARNING After reading this chapter, you should be able to do the following:
OUTCOMES LO 1: Explain what a learning organisation is, and why
organisational learning is important.
LO 2: Explain the barriers to organisational learning.
LO 3: Discuss how individuals learn and transfer knowledge.
LO 4: Explain the transfer of knowledge to others.
LO 5: Explain how an organisation can become a learning
organisation.
■ Knowledge management
CHAPTER
Discovery started out as a medical aid with an innovative loyalty
ORIENTATION
and rewards programme (Vitality) to help their clients live healthier
lives. Healthier clients meant lower medical expenses for Discovery
and more rewards to the clients - a win-win situation. Discovery
has subsequently used this shared-value model to expand into other
businesses such as life insurance, short-term insurance and, in 2019, a
retail bank, applying what it has learned across a range of businesses.
What is clear from this is that an organisation like Discovery
would not have been as successful without its ability to adapt to
changing conditions and stakeholder requirements. During the
COVID-19 pandemic, we have seen that organisations that have been
able to adapt faster to the radical changes brought about by the
pandemic have often been able to survive better than their peers.
Sources of responsible competitiveness will alter over time
and the ability to learn and adapt is arguably the only sustainable
source of responsible competitiveness. In the previous chapter, we
explored the processes of planned change (change management).
However, change does not always occur in a deliberate and managed
way. In fact, we could argue that most change happens organically as
individuals and organisations learn and adapt to their environment.
In this chapter, we explore the idea of learning organisations
and the importance of organisational learning in innovation and
change. In our exploration of organisational learning, we accept the
following principles:
1. Learning takes place primarily at the individual level.
2. Organisational learning takes place as information is
shared and meaning is created by means of interactions
between individuals, technologies, and processes.
3. Organisational learning is advantageous because it
enables organisations to adapt to their environment and
innovate.
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Case study
Ramtsilo Ecobricks - conserving nature brick by brick
Businesses often emerge from the passion of their founders, and it is no different with
Kekeletso (Keke) Tsiloane, whose obsession about litter led to the development of a
successful business. Kekeletso says: ‘I'm one of those people where, if I see somebody
litter in front of me, I’ll pick it up and give it back to them to dispose of properly.'
This awareness of plastic pollution led Kekeletso and her older sister, Kedibone, 32, to
break new ground in South Africa's construction industry with their eco-friendly bricks.
They use mostly non-recyclable plastic in manufacturing their bricks, and have teamed
up with waste-pickers as a source of raw materials. The result? A strong, lightweight, and
fire-retardant product (PlastiBrick), that is made of 30 per cent recycled plastic. It uses less
water to manufacture, and is less porous, stronger and longer-lasting than conventional
bricks. Together, the sisters founded Ramtsilo Manufacturing and Construction, a 100 per
cent black, female-owned company and a circular green economy business in the plastic
recycling and building material industry. Their ecobricks are being used in residential,
industrial and commercial projects. PlastiBrick is now being sold at Builders Warehouse
stores in Johannesburg's Rivonia and Fourways suburbs, with more offerings on the way
as the company, now based in Gauteng's East Rand, grows.
The sisters grew up in a construction household, with their father, Thabo, running
a business in the sector. 'We would always go on site with him. I would gravitate towards
the construction side while my sister would always be on the administrative and business
side of things,' Keke says. In 2013, their father registered a construction business for the
sisters, and they soon began manufacturing conventional cement bricks at home and
continued working with their father.
Their move into ecobricks came about by chance, when their interactions with an
elderly waste-picker, Nkgono 'Ouma' Miriam taught them a lot about the waste recycling
chain and the importance of waste-pickers in the circular economy. It made them think
that they could do something to help recycle plastic waste. At the same time, they did
not want to stray from what they knew, which was construction. In 2016, they started
prototyping the use of plastic in brick manufacturing. At the time, Kedibone was working
full-time as an auditor in Pretoria, and Keke was running the business. The family home
in Sasolburg was virtually turned into a brick factory and chemical laboratory, and every
Friday the latest improvement was exhibited for the family to consider. Together with
my father and brother, we would do the actual experimenting and, when my sister came
home on a Friday, we would spend the weekend working. We went on for close to a
year prototyping different types of plastic because we didn't know the different types
of plastic, the durability and all of that so we had to go through a steep learning curve,'
Keke says.
By 2017, they had a product they were comfortable with, and took it for testing
to ensure that it had the right structural integrity. When they got the results back, they
were blown away by the fact that the brick, in comparison, was not far off the national
standards. The South African Bureau of Standards (SABS) played a key role in directing the
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product development and assessment and referred the sisters to other experts for advice
where necessary. In 2018, they entered the market, taking their network of waste pickers
with them. 'Waste pickers are playing a huge part in plastic recycling but it's often looked
down upon. This is because people don't really understand the value in what they're doing
- how much money they’re saving for municipalities through their collections - and how
they're kickstarting the circular economy through what they're doing. We would sit with
them and teach them how to increase the value of their collected items by separating
the different types of plastic and making sure they rinse it out to increase its value. We
really tried to bring dignity to that side of the economy because they are playing that
important role.'
PlastiBricks contain about 30 per cent plastic. The company buys their plastic
from more than 50 waste pickers in the Free State and on the East Rand, from waste
management companies, and from packaging corporations, provided that it does not
contain harmful chemicals. All the plastic waste is stored and processed on their site,
ensuring it does not end up in landfills or rivers and drainage systems. Currently, the
company's focus is on producing the required production volume and managing quality.
The company produces up to 10,000 PlastiBricks per day at their Benoni site.
While Keke focuses on the difference they make to the environment, Kedibone's
vision is a multinational company operating on various continents and listed on the New
York stock exchange. With the sisters' willingness to learn and their determination, only a
fool would bet against this dream becoming a reality.
Adapted from: Bega, S. 2021. Sisters pave the way with ecobricks. Mail ft Guardian. Available online: https://
mg.co.za/environment/2021-09-19-sisters-pave-the-way-with-ecobricks/ (accessed 4 September 2022);
Slabbert, A. 12 September 2021. Sussies bewaar natuur - baksteen vir baksteen. Rapport Soke, p. 15.
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Individual
learning
Applying Transferring
acquired
knowledge in L knowledge to
other members
management of the
practice organisation
Perhaps the most important phase is when the learning is applied to strategic decisions
and responsible management practices in the organisation. At this point, it starts
becoming an organisational capability, and organisational capabilities are important
building blocks of responsible competitiveness, as we have seen in Chapter 6.
Application of knowledge also creates new learning opportunities and, once again, the
assimilation of this learning in the organisation will lead to the further development
of knowledge and capabilities. This process is depicted in Figure 9.2
From Figure 9.2 we can see that organisational learning is continuous (all
members of an organisation should be learning and adapting every day in a never-
ending cycle) and experimental, because the acquisition of knowledge does not
provide guarantees that mistakes will not be made. Making mistakes or figuring out
what works or does not work in different situations is an important part of learning.
While we can agree that organisational learning is conceptually important,
can we see the evidence of organisational learning leading to organisational success?
In the case of Ramtsilo Ecobricks, we can see the important role that experimentation
and learning played in the development of the business, but is organisational learning
the only driver of its success? Perhaps we should ask the question the other way
around: what would happen if organisations did not leam and adapt? Clearly, many
organisations would fail if they were unable to adjust to environmental changes,
which occur often, as we will see in the next section. In addition, such organisations
would simply not be able to benefit from innovation because there would be none. So,
we can argue that being a learning organisation could lead to at least four benefits:
1. Being able to adapt more quickly to environmental changes through more
flexible and agile strategic responses.
2. Being able to benefit from opportunities and sensing and reacting to threats
earlier than competitors, leading to superior performance.
3. Being able to apply newly acquired knowledge to business problems and
opportunities, leading to innovation.
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Individual learning styles differ according to the emphasis that individuals place on
various phases of the learning cycle. For example, engineers and researchers may
place a lot of emphasis on abstract conceptualisation, while salespeople and marketers
may place much more emphasis on concrete experience and experimentation.
Accordingly, not everyone will approach a problem in the same way. For
example, the lecturer mentioned above may have started with the abstract concep
tualisation process by reading a book on how to use case studies in class, followed by
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experimentation and concrete experience. Other lecturers may start by trying things
in class and learning from their errors.
It is unlikely that managers or other members of an organisation will act
without any prior consideration, and hearing stories related to management and
popular accounts by other successful managers (e.g., a book by Bill Gates or a seminar
by Michael Porter) have been shown to be effective sources of knowledge, even more
so than scientific or theoretical descriptions of management.5
No matter how learning takes place, in an organisation it is the transfer of
knowledge to other individuals that will ultimately lead to organisational learning,
and that is the focus of the next section.
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influence one another's mental models and effect change. For example, in the case
of Ramtsilo Ecobricks, we can see how waste pickers and a construction business
influenced each other, and the exchange of views and knowledge led to new
business innovation.
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■ People may form part of more than one community or be in a position to act
as brokers between CoPs. For example, a manager in an organisation may
be a part-time student at a leading business school and, accordingly, may
be able to act as a bridge between CoPs.
■ Artefacts, such as documents, tools, processes, and discourses, may act as
bridges between CoPs. For example, the findings of a research project conducted
by academics at a university may be used by a CoP in an organisation.
■ Interaction can be a means of exchanging information directly between
CoPs. For example, a conference on a specialised topic may attract business
managers, consultants and academics representing several CoPs.
It is important for organisations to understand the role that CoPs can play in a
learning organisation.
9.5.10 Collaboration
Collaboration with suppliers, customers and even competitors, is becoming a more and
more common means of fostering teaming in organisations. However, it does require
a specific mindset - organisations that cannot or will not trust their collaboration
partners or share openly will not be able to learn. In the case of Ramtsilo Ecobricks,
they made waste-pickers their innovation partners by learning more about the waste
recycling system, while at the same time teaching the waste-pickers more about
the plastic that can be used in bricks. Rather than just tolerating collaboration,
collaboration should be valued and rewarded.
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The global financial crisis in 2008 saw the property sector fall, leaving many
construction and property firms at risk of bankruptcy and negatively affecting
prospects in the quarrying industry. In an attempt to diversify their income streams
and protect themselves against another changing landscape, Afrimat decided to
expand their operations into mining. They started by purchasing a few industrial
mineral businesses, the first of which was a mine called Glen Douglas (purchased
from Exxaro). Since 2012, Afrimat has purchased a few limestone and dolomite
mines. The group aspires to find underperforming assets with large upside potential.
In 2016, Afrimat bought an iron ore mine in the Northern Cape. At that time,
the iron ore price was $55 and the rand was trading at R12 to the dollar. They have
acquired a few more iron ore reserves in the Northern Cape and recently also bought
an anthracite mine in Mpumalanga that was also in deep distress. They are currently
busy with the turnaround of the mine. The group plans on adding manganese to its
portfolio in the near term.
Afrimat has had tremendous success in diversifying its portfolio of operating
assets and in turn ensured that shareholder value was created, despite cyclical
downturns in the construction industry. They have consistently outperformed the
industry over the past five years. Afrimat has shown that, when facing difficulties in
business, one has to find new sources of advantage, and their diversification strategy
has paid off, with Afrimat today being regarded as a well-managed, well-diversified,
and profit-driven business.
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Knowledge acquisition
Existing knowledge in an organisation is constantly supplemented by knowledge
obtained through external and internal scanning, and the addition of new employees
with new knowledge. It can also be expanded through training and development.
Capturing knowledge
Some knowledge, such as training or product manuals, may be explicit and easy
to capture, but much of the strategically useful knowledge may be much harder to
capture. It could be argued that it will be impossible to capture all the tacit knowledge
associated with a project. For example, a consulting project team may capture the
steps they took in a complicated client project, describing the tools they used, the
steps they followed and the presentations they made. However, it will be virtually
impossible to describe exactly how they dealt with the negotiation process, difficult
clients, and internal politics on the client site.
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Organising knowledge
The purpose of this phase is to consolidate the knowledge and capture it in a format
and language that will be usable throughout the organisation.
Sharing knowledge
Knowledge is of little value unless it is shared across different teams and departments,
as a precursor to being used.
Using knowledge
The crux of knowledge management is to enable the organisation and its members
to use the knowledge in a business setting to solve problems, improve business
performance and deal effectively with opportunities and threats in the external
environment.
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What we see from this chapter is that organisational learning is not a simple process.
It may lead to success, but the journey will not be easy. A lot of thinking is required
by management to instil a culture of learning. Even then, it may fail, but if it works,
the effects may be spectacular. It is evident from the chapter case study that Ramtsilo
Ecobricks innovated and grew their business through organisational learning in their
innovation efforts.
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Discussion questions
1. Explain what a learning organisation is.
2. Explain why organisational learning is important.
3. Discuss the barriers to organisational learning.
4. Describe the nature of individual learning and why it is important in organisational
learning.
5. Describe five mechanisms that organisations can use to become learning
organisations.
6. Explain why communities of practice are important in organisational learning.
7. Explain what knowledge management is and identify the components of
knowledge management.
8. Give an example of organisational learning in the case of Afrimat.
9. Identify an organisation of your choice and interview two managers. In your
view, is this a learning organisation? Why or why not?
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Learning activities
1. View the video by Yves Give! at https://www.youtube.com/watch7v-D 1 iO2QwJYAI
and write down the guidelines he provides for leaders of learning organisations.
2. Visit the Management Innovation Exchange (http://www.managementexchange.
com/story) and find three examples of what organisations are doing to encourage
organisational learning.
Endnotes
1 Prahalad, C.K. El Bettis. R.A. 1986. The dominant logic: a new linkage between diversity
and performance. Strategic Management Journal, 7, 485-501.
2 Clegg. S., Komberger, M. El Pitsis, T. 2010. Managing and Organisations: An Introduction
to Theory and Practice. London: SAGE.
3 Adapted from Zahra, S.A. El George, G. 2012. Absorptive capacity: a review,
reconceptualization and extension. Academy of Management Review, 17(2), 185-203.
4 Daft, R.L. 2006. The new era of management, Int ed. Mason, Ohio: Thompson South
Western, 642.
5 Clegg et al. (2010).
6 Nonaka, I. Et Takeuchi, H. 1995. The Knowledge-Creating Company: How Japanese
Companies Create the Dynamics of Innovation. New York NY: Oxford University Press.
’ Clegg et al. (2010).
8 Senge, P.M. 1990. The Fifth Discipline: The Art and Practice of the Learning Organization.
New York: Doubleday/Currency; Prahalad El Bettis (1986).
’ Senge (1990).
278
Resource allocation for
10 strategy implementation
Peet Venter
LEARNING After reading this chapter, you should be able to do the following:
OUTCOMES LO 1: Explain what resource allocation for strategy
implementation entails.
LO 2: Explain what the Strategic Project Management framework
(SPM) entails.
LO 3: Explain the management of strategic initiatives.
LO 4: Explain the creation of an environment for effective
resource allocation.
■ Project management
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Case study
Turning South Africa's municipalities around
Few things affect people as directly as the conditions where they live and work and,
going by the latest findings by Ratings Afrika, things are getting worse for South Africans
in that respect year by year. By 2022, six of South Africa's eight major metropolitan
municipalities were financially unsustainable and needed critical government intervention
to turn them around. The ratings agency described the municipal sector as dangerously
close to collapsing: The South African municipal sector (except the Western Cape) is
about to collapse financially. The government needs to acknowledge this and start taking
the necessary steps to save the country.' The problem goes further than just our immediate
living conditions. Speaking at a PSG annual conference, former finance minister Tito
Mboweni stressed that, without fixing dysfunctional municipalities, dangerous roads, and
reducing reliance on Eskom, South Africa can forget about meaningful economic growth.
But how did we get here?
The Bureau for Economic Research identified eight reasons for the collapse of
service delivery in municipalities.
1. A shortage of skills. In 2019, 16.4 per cent of positions were vacant,
1.5 percentage points more than in 2018. The problem is even more acute at
managerial level, with 25 per cent of section 56 managerial positions vacant
across metros and intermediate city municipalities.
2. Migration. While urbanisation gives households greater access to employment
and services, it also presents specific challenges to urban development. Rural
to urban in-migration means that cities need to acquire new land, build
houses, and install services - all of which take time. For rural municipalities,
it means that the more entrepreneurial or economically active leave, causing
such municipalities to lose an essential part of their tax base.
3. A lack of spending. Capital spending is needed to expand basic services such
as water, sanitation, electricity, and housing. By 2019, municipalities were
spending no more than they were spending in 2010, in real terms.
4. Supply chain management. Inefficiencies in the procurement process mean
that there is a higher focus on procedural compliance than on value for
money, which negatively impacts on weak support functions and hampers the
ability of the municipality to deliver services. It also impacts on the ability
and appetite of businesses to invest in a municipality, which prevents new
opportunities for economic development and job creation.
5. Municipal audits. The BER argues that municipal audits are necessary, but the
way that they are conducted often hinders municipal performance. There is
a focus on procedural compliance, and staff can be held personally liable for
irregularities. The end result is that managers tend to focus on their narrow
mandates, rather than addressing cross-cutting, complex issues that are
needed to address developmental challenges.
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6. Revenue management. This is one of the greatest causes of financial distress for
local governments, and leads to many municipalities being unable to fully finance
their operations and maintenance. In 2019, only 199 out of 257 municipalities
submitted their audits timeously and, of these, only 38 were deemed to be in
good financial health. For the year to June 2021, the 108 municipalities tracked
by Ratings Afrika had an accumulated deficit of R54 billion.
7. Irregular, fruitless, and unauthorised expenditure. In 2019, this category of
wasteful spending totalled R26 billion across all municipalities.
8. Repairs and maintenance. Treasury data suggests severe underspending on
repairs and maintenance, which can lead to even greater technical losses in the
delivery of water and electricity services. This deterioration of infrastructure
further constrains cash flow and the financial viability of municipalities.
From the above, we can argue that the current inability of municipalities to generate
revenue and spend it on improving service delivery (i.e., resource allocation) is at the
heart of the problem, and if government intervenes to bail out and to help turn around
struggling municipalities as it has promised, this is an area that will require a lot of
attention for a turnaround to be successful and sustainable.
Turning around municipalities would boost the quality of life of residents,
encourage economic activity and investment, and boost tax and rate payments. Failure to
do so will curb our economic performance and increase the risk of social unrest, like that
seen in July 2021 in KwaZulu Natal and parts of Gauteng.
Adapted from: BusinessTech. 5 June 2022. South Africa's municipalities on the brink of collapse: report. Available
online: https://businesstech.co.za/news/government/593676/south-africas-municipalities-on-the-brink-of-
collapse-report/ (accessed 22 September 2022); BusinessTech. 24 October 2021. 8 reasons why South Africa's
municipalities are completely broken. Available online: https://businesstech.coza/news/government/528846/8-
reasons-why-south-africas-municipalities-are-completely-broken/ (accessed 22 September 2022).
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This is necessary so that someone at the lowest level in any function can
answer the question: what is the plan for the business over the next few years?
Another question to be answered: what am 1 doing to contribute to this plan that
will make a difference? This represents a development from 'making strategy
happen' to embodying strategy, and from traditional strategy implementation (the
translation of a chosen strategy into organisational action to achieve strategic goals
and objectives) to resource allocation (a process that aligns - both vertically and
horizontally - an organisation's functions and activities with its strategic goals and
objectives). Resource allocation can therefore be seen to consist of three key elements
that should be considered as an integrated whole. These elements are first the
successful implementation of strategic initiatives, second, the successful alignment
of organisational units with the strategic direction of the organisation and, third, the
successful alignment of individual behaviour with strategic direction. This integrated
whole is depicted in Figure 10.2.
Successful
implementation of .
strategic
initiatives /
Successful -^ \ ^/‘Successful \
alignment of t alignment of \
individual I
organisational I
behaviour with J units with ]
strategic r strategic /
direction*^/' directions^x
In the following sections, these elements are discussed in more detail, starting with
the alignment of organisational units with strategic direction.
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
the strategy of value for money. It also means that all the functional area plans have
to align with the concept of value for money. In the example below, we compare
Woolworths, a high-quality retailer, with Shoprite in some key functional areas.
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285
---------------------------------------------------- •
Twice a year, our remuneration committee looks at each business and gives
it an innovation score. So, the take-home bonus of a thousand people is based on
a subjective review of the success of their launches. But even beyond that pool, all
our employees are involved in this time-based cycle, working on projects. Across the
organisation, there's a natural metronome of our innovation.
I genuinely believe that the smartest people work for the organisations they
believe are doing good. At Discovery, our people have built innovative businesses
that are good, not only for the company, but also for our customers. I'm dedicated
to Discovery's work in building South Africa and communities around the world. I
want South Africans to look at Discovery with hope, to feel the future is certain.
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In most cases, simply enforcing a strategy will elicit resistance to change. For that
reason, one of the key objectives of the communication process may be to 'sell'
the strategy to the organisation, and to ensure that everyone understands why the
decision was made and why it was the best decision under the circumstances.
The communication of the strategy may comprise of formal communication
initiatives, such as presentations by management, ‘roadshows’ throughout the organi
sation detailing the strategy, and the use of company newsletters and intranets to provide
the required information. However, it is also important for managers to ensure that they
adopt the new strategy in their everyday language and in informal communication with
their peers and subordinates, and even other stakeholders, such as customers.
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
The proposals that most contribute towards the strategic success of the organisation
and best fits its risk profile should enjoy preference.
In the next section, we summarise the resource allocation process.
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to achieve), metrics (how we measure success), and strategies, tactics, and activities
(how we are planning to achieve the goals and objectives).
However, we should remember that it is not simply a matter of cascading
objectives, metrics, and strategies. The process is much more complex than that, and
communication, resource allocation, managing strategic initiatives and change are all
part of it. However, at the most basic level, resource allocation is about ensuring that
all of the business unit goals, metrics and strategies are aligned with the corporate
goals, metrics, and strategies; that functional goals, metrics and plans support the
business units, and that the functional level plans and tactics translate into individual
measurements and tasks. The balanced scorecard is an example of a tool that can be
used to align goals and metrics across the whole organisation (see Chapter 3).
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
At the same time, they may be looking to grow and expand into new areas
and shopping formats. For instance. Woolworths have outlets inside certain Engen
forecourt shops. At the corporate level, the focus may be to grow by increasing
revenue. The return on shareholders' equity may be an example of a metric related
to this goal. As a strategy, the group may be looking to expand their investment
into new shopping formats and geographical areas (for example, moving more into
online shopping during the COVID-19 pandemic and moving into more countries in
Africa).
At the business level, the focus may be on differentiation - providing high
quality at a relatively high price. The objective may, therefore, be to increase
profitability. An example of a metric may be the gross profit margin (the difference
between sales revenue and the cost of sales divided by sales).
The strategy for achieving this may be through innovation and quality
management to provide higher quality products that contribute to environmental
sustainability. At the functional level, one area of focus may be to increase the
percentage of products with environmentally friendly packaging. The strategy may
be to work with and incentivise producers (suppliers) for 'greening' their packaging.
At the individual level, buyers may be required to actively source new
environmentally friendly forms of packaging to use. There may be certain standards
or policies, for example, that certain types of packaging may not be used. They may
be measured, for instance, on the number of new innovations they introduce in this
regard every year.
290
----------------------------------------------------- •
10.2.1 Identification
In the first instance, the organisation must understand what needs to be done as part
of the roll-out of the strategy. The organisation needs to understand its strategic
context, mainly where they are now, where they want to be in future, and how they
are going to get there. At this point, organisations may well have an entire potential
portfolio of strategic initiatives to invest in but, due to limited resources, it will not
be able to invest in all of them, and will have to make tough choices.
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The purpose of this process is to translate strategy into action, and to prioritise actions
in a way that eliminates guesswork and power play in the allocation of resources. The
clearer the link between the funding decision and the strategy, the better the level of
alignment between strategy and deployment.
10.2.3 Synthesis
The investment portfolio of the organisation funds those activities that are strategic
initiatives and not part of the normal day-to-day operations of the organisation. For
that reason, it is managed by means of portfolio, programme, and project management,
with a view to ultimately absorbing it into the operations of the organisation. The
synthesis domain has four key performance areas:
1. Every portfolio, programme, and project should have a strategy.
2. The organisation must have a process methodology and structure for
managing project-based work on a strategic level.
3. The organisation must have process maturity for these process methodologies
- in other words, it must have the capability to manage the process.
4. Executive sponsorship of project-based work, to the extent that every
project should have an executive sponsor.
Project strategy
Every portfolio, programme, and project should be clear on its perspective, position,
and guidelines for what to do and how to do it, to achieve the best value from the
project.6 In essence, this means that there is clarity on the strategic and financial value
and benefits that are expected from the project, how the project will be governed, and
how project success will be measured.
Process methodology
In the process methodology for programme and project management, there are three
key concepts:
1. Portfolio management in the context of strategy implementation could be
seen as the overall management of the entire portfolio of programmes and
projects related to strategy implementation. It could be done by a senior
manager in the organisation or a project office.
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Process maturity
Many organisations do programme or project management on a tactical level. For
example, it is a common approach to the development and implementation of IT
systems. The key difference between this conventional approach and strategic project
management is that the focus in the former is on project execution, while the focus
in the latter is on selecting the right projects. However, not many organisations do it
successfully at the level of strategy implementation. Maturity is best viewed on a scale
where 'no formal approach' is the bottom of the scale and ‘best-in-class performance’
is at the top. The lower the level of maturity, the less the chance of successfully using
programme and project management in strategy implementation, and the more work
the organisation needs to do to develop maturity in these critical skills.
Executive sponsorship
Without an executive sponsor to champion a project, it has little chance of succeeding.
The role of the executive sponsor is to help overcome obstacles, to maintain visibility
for the project and to help with investing in opportunities.
10.2.4 Transition
The outcomes of portfolio, programme, and project management will ultimately
become part of the day-to-day activities (operations) of the organisation. The transition
domain is where the organisation's strategic efforts succeed or fail and result in the
achievement of metrics or not.
There are two types of transitional arrangements that have to be balanced by
the organisation. First, existing systems and processes have to be maintained and
continuously improved upon in order to reap the benefits from them. At the same
time, the resource allocation process is about finding those breakthrough changes
that will really alter the game and ensure a step-up in performance. For example,
when Capitec acquired Mercantile Bank7 it was important for Capitec to continue
doing business while integrating Mercantile into the fold.
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
Second, during the transition process, it is vital that strategic control (see
Chapter 14) ensures that the strategic metrics of the organisation are achieved.
Metrics throughout the organisation must be aligned and work towards the same
ultimate goal. The complexity of the strategy implementation process means that
managers are simply unable to have a view of all strategic aspects continually and
at the same time. For this reason, this framework provides a means of directing the
attention of managers to key focus areas of strategy implementation to be addressed
and managed. In the next section, we will focus on management practices and tools
in resource allocation, specifically in respect of managing strategic initiatives.
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Aligning individual
behaviour
Reporting and
management
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Strategy Strategy
formation implementation
What are the few essential
goals that must be met to
achieve our strategy?
From Figure 10.6 we can see that the process of resource allocation starts with the
identification of strategic objectives, the few key things that the organisation wants
to achieve. If we use the example of a supermarket in a small rural town, the owner
of the supermarket may want to achieve ‘sustainable profitability’ as a key goal to
ensure the survival of his business in the future. The next step is to identify how he
is going to measure his success (or failure) in this regard, and the answer is relatively
simple - the net profit of his supermarket is the most important measure. Next, he
will set himself a performance improvement target. He is struggling at the moment
and making a loss of R500.000 for the year (which prompted him to start thinking
strategically!). He would like to be in a position in which he makes a net profit of
R1 million per year three years from now. To achieve that, he will need to identify
some strategic initiatives that are ’new’ to his business. One example may be to
develop a loyalty programme for his customers, which would encourage them to buy
only from his supermarket in return for some rewards. This will now be a project
that he must manage, and will require him to, for example, do some research about
loyalty programmes and what his customers want as a first step.
Successful strategy execution or deployment is achieved when the strategic
initiatives realise the set improvement targets, the set improvement targets meet the
set measures, and the set measures result in the attainment of the set objectives
to achieve the strategy (Figure 10.7). Refer to our discussion of the top-down and
bottom-up aspects of strategy formation and implementation in Chapter 8, section
8.2. Misalignment between strategic initiatives and measures may result in wasted
resources with no clear improvement in performance.
Initiatives are the major efforts required to make progress towards strategic goals,
and they must be clearly described during the implementation process in order to facilitate
the selection of the most viable initiatives. Defining the elements outlined in Table 10.1
for each initiative will enable decision-makers to compare and evaluate initiatives.
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• Deliverables: What will be the results of the initiative? How will 'success' be
measured?
• Initiative leader and team: Who is responsible and involved in the work?
• Key activities: What action steps need to be undertaken to achieve the deliverable?
• Resource requirements: What investments (people, equipment, time, and finances)
will be needed to carry out the initiative?
• Interdependencies: How will the initiative impact on other functions or areas of
the organisation? How will it affect other initiatives?
• Milestones: What are the major events, accomplishments, or key decision points
that are anticipated? How will you know when and if your initiative is on or off
track?
• Performance metrics: What will you measure to gauge progress on your initiative?
How will you utilise these performance metrics to tell if your initiative is on or off
track?
• Timeline: When will the initiative begin and end? At what milestone will you judge
if your initial timeline is correct?
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Based on the briefings and documentation provided, projects can be prioritised. For
example, a simple process for rating initiatives can be as follows:
Category A initiatives - committed (the organisation will allocate resources)
Category B initiatives - high strategic impact
Category C initiatives = medium strategic impact
Category D initiatives = low strategic impact.
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
the current business environment and the importance of programme and project
management in resource allocation may be better understood. Leading practices for
managing strategic initiatives for effective resource allocation were identified. We
also focused on the potential barriers to resource allocation.
To come full circle, resource allocation must be supplemented and supported
by strategy control activities - which will be addressed in Chapter 14. In the next
chapter, we will look at organisational culture and strategy.
Discussion questions
1. Differentiate between 'strategy implementation projects' and 'strategic initiatives'.
2. Differentiate between 'strategic implementation' and resource allocation’.
3. Explain the enablers of effective resource allocation with the help of examples.
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Learning activities
1. Watch the video on the Balanced Scorecard (BSC) at https://www.youtube.com/
watch?v-O71daIs6x_Mftt=127s and explain the role that the BSC could play in
the resource-allocation process.
2. Study the strategy execution framework of Jeroen de Flander at https://jeroen-
de-flander.eom/strategy-execution/#strategy-execution-framework. Make a list
of the similarities and differences between the Strategic Project Management
framework discussed in this chapter and the model explained on the web page.
Endnotes
1 Extract from: Adrian Gore. May 2015. How Discovery keeps innovating. McKinsey
Quarterly. Available online: https://www.mckinsey.com/industries/healthcare-systems-
andservices/our-insights/how-discovery-keeps-innovating (accessed 15 October 2017).
2 Saunders, M., Mann, R. 8 Smith, R. 2008. Implementing strategic initiatives: a framework
of leading practices. International Journal of Operations 8 Production Management,
28(11), 1095-1123.
3 Miller, S., Wilson, D. Et Hickson, D. 2004. Beyond planning strategies for successfully
implementing strategic decisions. Long Range Planning, 37(3), 201-219.
4 Adapted from McCoy, S.P. Et Venter, P. 2017. Corporate branding and corporate strategic
change: a study of selected South African companies. Unpublished.
5 Rwelamila, P.M.D ft Purushottam, N. 2016. Strategic project management as an innovative
approach for sustainable green campus buildings in Africa: The need for a paradigm shift.
Smart and Sustainable Built Environment, 5(3), 261-271.
6 Adapted from Patanakul, P. Et Shenhar, A J. 2012. What project strategy really is: The
fundamental building block in strategic project management. Project Management
Journal, 43(1), 4-20.
7 BusinessTech. 9 October 2019. Capitec aquircs Mercantile Bank. Available online: https://
businesstcch.co.za/news/banking/345460/capitec-acquires-mcrcantile-bank/ (accessed
22 September 2022).
8 See for example Rwelamila, P.M.D. ft Purushottam, N. 2016. Strategic project management
as an innovative approach for sustainable green campus buildings in Africa: The
need for a paradigm shift. Smart and Sustainable Built Environment, 5(3), 261-271;
Saunders et al. (2008).
301
Organisational culture
11 and strategy
Mari Jansen van Rensburg
LEARNING After reading this chapter, you should be able to do the following:
OUTCOMES LO 1: Explain what organisational culture encompasses.
LO 2: Differentiate between the various layers of organisational
culture.
LO 3: Explain the use of the cultural web as an approach to assess
an organisation’s culture.
LO 4: Explain how an organisation can instil an organisational
culture that supports responsible strategy implementation.
LO 5: Explain the various culture indicators that can be used to
gauge the health of an organisation’s culture.
LO 6: Discuss the key considerations in organisational culture and
strategy.
_ n .. ■ Values
■ Paradigm
■ Visible artefacts
CHAPTER Can you recall a situation in which you got into an argument with
ORIENTATION someone and, upon reflecting on the somewhat heated discussion,
you still find it hard to understand how your opponent could take
such an unreasonable position? In the role of student, researcher, or
employee, you may find it even more difficult to comprehend how
a person in a position of authority, especially your immediate line
manager or those we consider our leaders, can be so set in their
ways. These different opinions, or ways of doing things, are often
explained through different cultural backgrounds.'
Extending the concept of culture beyond differences found
on a national or ethnical level, this chapter will argue that every
organisation also has its own unique culture. We will furthermore
propose that the essence of an organisation’s work climate is a product
of the core values and business principles that executives espouse,
the standards of what is ethically acceptable, the work practices and
norms of behaviour that define 'how we do things around here', and
the approach to people management. These values and standards are
expressed in the style of operating, the ’chemistry' and the 'personality'
that permeates the work environment and the stories that get told
over and over to illustrate and reinforce the organisation's values,
business practices and traditions. The opening case study illustrates
how Vodacom embeds a culture of being a purpose-led business
that fosters innovation and agility through a cultural programme
they call the Spirit of Vodacom. Through embedding this culture,
they prioritise high-performance, customer-focused, and respectful
behaviours from their employees. It is important to understand
and assess organisational culture as it influences the organisation's
actions and approaches to conducting business and the way in which
strategy is implemented. In a very real sense, organisational culture is
the organisation’s automatic, self-replicating 'operating system' and
can be thought of as organisational DNA.2
In this chapter, we will demystify organisational culture and
argue that the power of culture lies in the ability to bring employees
together to work collectively towards achieving the same goal. We
will also consider the impact of COVID-19 on people practices in the
workplace and how organisations can respond to changing needs of
employees. For Vodacom, like many other organisations, COVID-19
expediated digital transformation to ensure business continuity and
sustainability during lockdown.
Figure 11.1 depicts the focus of this chapter within the big
picture of practising strategy.
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CHAPTER 11: ORGANISATIONAL CULTURE AND STRATEGY
Strategy implementation
and control
Strategy implementation
and control
Case study
The Spirit of Vodacom3
Vodacom relies on its staff to maintain and build on the success of its business. It values
people because it realises that 'the better the experience our employees have at Vodacom.
the better service they will provide to our customers'. The company aims 'to attract,
develop and retain the best people by engaging employees, offering attractive incentives
and career opportunities, and ensuring that all people are treated with respect'. To ensure
a conducive working environment, the company launched a new culture programme in
January 2020. The 'Spirit of Vodacom' is aimed to embed a customer-centric, purpose-led
culture that drives innovation. It sets out the values and behaviours required to support
the overall aim of the company to be an admired and innovative company that puts the
customer at the heart of its business.
IVe want to be a trusted partner to connect fora better future. That's who
we aspire to be. To get there, we are restless, passionate about improving
the lives of our customers, colleagues and communities. H/e are always
open to learning new things and curious to create solutions that our
customers will love. No matter where we work across the Vodacom and
Vodafone family, we act as one. Together we create a place where everyone
can truly be themselves and belong.
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The programme is anchored on four pillars that include earning customer loyalty, creating
the future, learning fast and getting it done together. These anchors support the business
purpose, vision, operating model, and strategy. To embed the Spirit of Vodacom across
the business, the company aligned its rewards programme, Vodacom Star Awards, with
the cultural pillars to encourage employees to demonstrate the Spirit behaviours in
their daily work. During 2021, more than 1,500 employees received a Star Cash Award,
while more than 3,200 employees were nominated for a thank-you award. Employee
productivity, increased employee collaboration and enhanced employee wellness are, after
all, considered as key deliverables. For Vodacom, culture is more than talk. Instead it is
about action, and the company reported the following results for 2021:
■ An investment of R324 million in their South African operations to skills
development for black employees (R141 million invested in black female employees
and R18 million invested in black youth with disabilities).
■ Employee representation in South Africa comprise of 77.1 per cent of black
employees, with G5 per cent at senior management level and GG.7 per cent at
executive committee level.
■ The #1 MoreSkill programme was launched across all of its African markets to
support employee skills development.
■ 5,000 employees participated in the agile programme, resulting in 64,535 online
courses completed via Vodafone University.
■ An employee engagement index of 77 per cent and a Team Spirit index score of 75
per cent.
To navigate the pandemic, the company introduced various initiatives to engage and
support employees. The key priority during 2021 was employee wellness. Some examples
of targeted actions include 30 virtual fireside chats with the group CEO and executive
committee to keep staff updated on COVID-19 developments and critical business
announcements; the introduction of the Vodacom Engage app, a mobile employee
engagement platform, that served as the primary communication gateway for the
business; the launch of the 'our SPIRIT of FUN’ campaign, which included virtual activities
such as a comedy show, a virtual employee party and a virtual pop quiz.
In recognition of the nurturing environment where employees thrive, Vodacom
was recognised as a top employer in all its operating markets.
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We designed a huge glass box that leads you to a giant crown light
installation as you enter the building. The office areas are filled with
lots of greenery, contemporary lighting, and 'reverse graffiti' on the
walls, where we chipped the art into the walls for a unique effect.'*
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We acknowledge that individual employees are guided by their own belief systems,
but in an organisational context we are interested in collective, rather than individual,
reactions. Consider, for example, how Nando's expresses their values and norms in a
statement, entitled the Nando’s Way, which guides employee behaviour.
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
When you say howzit, heita or hello at a Afro-Luso beats and friendly service add
Nando's, the one thing you're guaranteed to the vibe, and then there's the secret
to find, besides our legendary chicken, is ingredient - our flame-grilled PERi-PERi
a warm South African welcome and a chicken.
smile to make you feel at home.
We've set the eating experience on fire
Each one of our restaurants has its own and we can't wait for you to join our
unique design, but they all have earthy table because if there’s one thing we
textures and colours that remind us of love as much as PERi-PERi, it's lots of
our sunny Afro-Portuguese roots and people to enjoy it with!
feature original, local South African art
and unique design touches that make it
the perfect place to sit down and enjoy
the best food you've ever tasted.
The Nando's way is a clear expression of how Nando's embeds its values in their retail
operations. Nando's philosophy states that they are a people-first, chicken-second
kind of place - it's the people that make the chicken. The company's values include
- Pride; Passion; Courage; Integrity; Family and the love of great chicken. When
new employees join the company, they become part of the Nandoca clan and are
encouraged to work hard, play hard and make the best chicken in the world.
‘In my life I have never experienced the vibe and respect like Nando's
and helping people develop, especially the managers are perfect.'
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immediate awareness and thus difficult to identify. This is one of the reasons why so
many change programmes fail to make an impact beyond the surface.
To conclude this section, it is important to note that although surface-level
artefacts are highly visible, observers may interpret them differently when they apply
their personal frames of reference. For example, if staff members dress casually, one
observer may interpret it as sloppy, whereas another may see it as an indication of
open-mindedness and creativity. When artefacts are considered in combination with
stated values and beliefs, a greater level of awareness can be achieved. However,
organisational culture can only be fully understood if the underlying patterns of
assumptions have been exposed and made sense of.28 In the next section, we explore
the cultural web as a tool for understanding the nature of cultural patterns and
assumptions in organisations.
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
workers and leaders. In addition, digital technologies and robotics are disrupting the
world of work in terms of changing work processes and the way people interact with
each other.”
Even though organisational culture can be elusive, various approaches have
been developed to help us look at it in a systematic way. A better understanding
of cultural assumptions and practices can contribute to formulating strategy, as
well as implementing strategic actions.” A well-accepted approach to analysing an
organisation’s culture is the cultural web. The cultural web shows the behavioural,
physical, and symbolic manifestations of a culture that inform and are informed by
taken-for-granted assumptions; in other words, the paradigm of an organisation. The
elements of the cultural web are illustrated in Figure 11.3 and will be discussed in
more detail next.
The cultural web is a useful tool for uncovering the taken-for-granted
assumptions that inform the day-to-day behaviour of employees. By assessing the
elements contained in the web, management can determine where blockages to
strategy implementation may occur.
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
It is important to note that the substance within the elements contained in the cultural
web can come from anywhere in the organisational hierarchy. Key influencers can be
founders, strong leaders or staff members. Indeed, a healthy organisational culture is
characterised by a willingness, on the part of all organisational members, to accept
change and take on the challenge of introducing and executing new strategies.
However, strong strategic leadership, which will be discussed in Chapter 12, remains
the single most visible factor that distinguishes successful culture-change efforts
from failed attempts.40 In the next section, we will review how organisations can
instil an organisational culture that supports good strategy implementation.
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Unfortunately, not all cultures are strong positive cultures as organisational cultures
can also become highly toxic. Furthermore, not all cultures contains elements of
a responsible culture, focusing on sustainability, responsibility and ethical issues.
Organisations need the ability to recognise the indicators of a culture at risk. Culture
is at risk when ‘the organisation’s values and beliefs are not embedded or the ones
that are embedded are not the right ones, resulting in behaviours that fail to respect
stakeholders’.45 Warning signs include:46
■ When financial, sales, production, or other performance measures become
the primary business purpose.
■ When undue pressure is placed within the organisation on achieving those
metrics. These pressures may result in unethical or overly risky activities by
employees.
■ When leaders fail to uphold the organisation’s values creating discord
between the organisation’s image and how it operates.
■ When performance and talent systems that reinforce desired behaviours are
misaligned.
■ When sustainability issues are of no importance to the organisation.
Organisational culture can either be the company’s greatest strength or most harmful
weakness. A negative corporate culture prevents employees from thriving and will
eventually lead to a lack of cohesion among teams, increased absences and tardiness,
lower productivity, and higher staff turnover. In toxic working conditions, the work
culture is institutional-centric and policies and procedures are designed with the
company, not its workforce, in mind. This culture favours budget above wellbeing
and staff are considered as objects that fulfil the company's needs, not as people who
have their own lives and families.4’
So, how can managers in responsible business create a culture for sustainability,
responsibility and ethics? Schein identified five key mechanisms of how managers
can influence culture. Transforming the organisational culture will involve:4’
1. Attention. All stakeholders, but especially employees, need to focus
their attention of the pillars or domains of responsible management,
namely sustainability, responsibility and business ethics. Responsible
leaders and managers, for example, can create the appropriate focus by
praising employees’ performance, criticising unethical behaviours and
communicating sustainable, responsible and ethical values to stakeholders.
2. Reactions to crises. Crises usually reveal a leader's true nature. Managers
will either respond ethically or unethically, responsibly or irresponsibly. It
is in times of crises that the true nature of leaders is revealed.
3. Role modelling. A leader’s actions may say more about an organisation’s
values than many words and many messages. Individuals as role models
have a crucial influence on the behaviour of followers. Leaders may lead a
green office programme, participate in sustainability activities, implement a
zero waste programme and demonstrate other responsible actions.
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4. Allocation of rewards. Leaders often have control over decisions to pay salary
increases, pay bonuses, and promotions in organisations. These decisions
will communicate a strong message about the importance of responsible
management in the organisation. For example, a manager who rewards such
performance financially and backs ethical practices will promote a cultural
change towards a responsible culture.
5. Criteria for selection and dismissal. The recruitment, selection and hiring of
individuals with sustainability experience communicates these values inside
and outside the organisation. Likewise, the dismissal of employees who lack
ethical integrity will communicate an ethical culture.
The practising strategy box below provides an example of a company that took a
drastic decision to stick firmly to its values in times of crisis.
McDonald's in Russia was supposed to change the world when it opened its first
store in Russia in January 1990 - the Big Macs were symbols of global peace. In an
email announcing the company would be 'de-Arching' a major market for the first
time in its history and completely exit Russia, McDonald’s CEO Chris Kempczinski
noted that its existence in the country carried importance bigger than its burgers.
Tn fact, hope is what brought McDonald's to the Russian market 32 years ago,' he
said in his email. Mr Kempczinski said the decision was made 'extremely difficult' due
to the dedication of regional employees. 'However, we have a commitment to our
global community and must remain steadfast in our values. And our commitment
to our values means that we can no longer keep the Arches shining there,' he said.
Mr Kempczinski's decision to close McDonald’s franchises in Russia sends a
clear signal that the company values trump profit.
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
LO 5: Explain the various culture indicators that can be used to gauge the health of
an organisation's culture.
These indicators should be tracked over time and alarm mechanisms need to be in
place to identify unacceptable variances. The chapter concludes with an overview of
the key considerations in organisational culture and strategy.
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CHAPTER 11: ORGANISATIONAL CULTURE ANO STRATEGY
Each of these aspects (except for a culture of responsible business and management)
has advantages and drawbacks to business paradigms but, taken together, they
confirm that there can never be one best or ideal culture. Culture needs to be flexible
and adaptable to changing circumstances.
Key considerations of culture, which are grounded in actions, agreed
behaviours and work practices that are beneficial to strategy implementation, include
the following:
■ Matching the organisational culture with the requirements of the strategy
execution effort. This action can focus the attention of employees on what
is most important to successfully implement the strategy.
■ Using strong group norms to create culture-induced peer pressure which
can shape employee behaviour to do things in a manner that aids the cause
of good strategy implementation.
■ Accepting that an organisational culture that is consistent with the
requirements for good strategy execution can energise employees, deepen
their commitment, and enhance worker productivity.
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
A strong and supportive organisational culture can thus promote good performance
as almost all managers share a set of relatively consistent values and methods of
doing business. New employees adopt these values very quickly and the shared values
and institutionalised practices can affect goal alignment, motivation and control
positively.
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CHAPTER 11: ORGANISATIONAL CULTURE ANO STRATEGY
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
implementation is a culture that (1) recognises and embraces shared values, attitudes,
standards, and beliefs that characterise the goals of the organisation; (2) recognises
that it is people who make a business successful and not only its business operations;
and (3) weaves its values into the DNA of its teams and informs the recruitment of
new employees.
Discussion questions
1. If you were to start up your own organisation, what would you tell new employees
about the kind of organisational culture you would like to have?
2. What core values would you engrain in your organisation’s culture? Why?
3. Draw a cultural web for a company you are familiar with.
4. Discuss the differences between strong and weak organisational cultures.
5. Identify indicators that could provide insight into organisational culture.
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CHAPTER 11: ORGANISATIONAL CULTURE ANO STRATEGY
Learning activities
1. Visit Countries and their Cultures (http://www.everyculture.com/) and read more
about cultural differences in different countries.
2. Consider the criteria used to certify top employees at https://www.top-employers.
com/en-ZA/certified-top-employers/.
3. Watch the webinar entitled, King Price Culture Webinar with Marno Boshoff,
at https://www.youtube.com/watch?v=bzhKPrQ4zB84. Watch the video.
King Price - A word from the king, culture eats strategy at https://www.youtube.
com/watch?v=CTN-yCVSA18Ett=4s.
Endnotes
1 Schein, E.H. with Schein, P. 2016. Organizational Culture and Leadership. 5 ed. San
Francisco: John Wiley Et Sons.
2 Thompson, A.A., Gamble, J.E., Peteraf, MA El Strickland, AJ. 2022. Crafting ft Executing
Strategy: The Quest for Competitive Advantage. 23 ed. New York: McGraw Hill Education.
’ Vodacom. 2021. Annual Integrated Report 2021. Available online: https://vodacom-
reports.co.za/integrated-reports/ir-2021/ (accessed 27 February 2022).
< Vodacom. 2022. Careers overview. Available online: https://www.vodacom.com/careers.
php (accessed 27 February 2022).
5 Schein with Schein (2016: 6).
6 Schein with Schein (2016: 8).
7 Hall, E.T. 1976. Beyond Culture: Into the Cultural Unconscious. Harlow: Anchor Press.
10 Asatiani, A., Hamalainen, J., Penttinen, E. ft Rossi, M., 2021. Constructing continuity
across the organisational culture boundary in a highly virtual work environment.
Information Systems Journal, 31(1), 62-93.
11 Rafaeli, A. ft Pratt, M.G. eds. 2013. Artifacts and organizations: Beyond mere symbolism.
London: Psychology Press.
12 Vilnai-Yavets, I. ft Rafaeli, A 2013. Managing Artifacts to Avoid Artifact Mayopia. In
Rafaeli, A. ft Pratt, M.G. eds. 2013. Artifacts and Organizations: Beyond Mere Symbolism.
London: Psychology Press.
11 King Price Insurance. 2022. Our flawsome culture. Available online: https://www.
kingprice.co.za/about/culture/ https://www.kingprice.co.za/about/culture/ (assessed 27
February 2022).
14 Ibid.
15 Building and Decor. 2020. King Price's quirky new PTA office. Available online: https://
www.buildinganddecor.co.za/king-prices-quirky-new-pta-office/ (assessed 27 February
2022).
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
II Sampayo, H. 2022. Hybrid working 101: The ultimate guide to blended working. Hubble,
4 February. Available online: https://hubblehq.com/blog/hybrid-working-ultimate-guide
(assessed 27 February 2022).
I* Ibid.
20 Ibid.
II Ibid.
12 Jones, G.R. ft Hill. C.W.L. 2017. The theory of Strategic Management with cases. 12 ed.
Mason, OH: South-Western Cengage Learning.
21 Thompson et al. (2022).
24 Johnson, G., Whittington, R„ Regner, P„ Angwin, D. fl Scholes, K. 2020. Exploring
Strategy. 12 ed. Pearson UK.
2S Ibid.
26 Nando's. 2022. About us: The Nando’s way. Available online: https://www.nandos.co.za/
work/about-us (assessed 27 February 2022).
27 Schein with Schein (2016).
28 Rodgers, C. 2008. Informal coalitions: Mastering the hidden dynamics of organizational
change. Human Resource Management International Digest, 16 (2).
29 Eaton, K. Et Mallon, D. 2021. The worker-employer relationship disrupted. Available
online: https://www2.deloitte.com/us/en/insights/focus/human-capital-trends/2021/the-
evolving-employer-employee-relationship.html (assessed 27 February 2022).
30 Deloitte. 2017. On the board’s agenda: Would you recognize the warning signs of a toxic
culture? May. Available online: https://www2.deIoitte.com/content/dam/Deloitte/ global/
Documents/Risk/on-the-boards-agenda-may.PDF (assessed 27 February 2022).
31 Deloitte (2017: 17).
32 Jonck, P., Van der Walt, F. Et Sobayeni, N.C., 2017. A generational perspective on work
values in a South African sample. SA Journal of Industrial Psychology, 43(1), 1-9.
33 Deloitte (2017).
34 Thompson et al. (2022).
36 Johnson, G. 2000. Strategy Through a Cultural Lens: Learning From Manager's Experience.
Management Learning, 31(4). 403-426.
36 KingPrice. 2022. About us. Available online: https://www.kingprice.co.za/about/our-
valucs/ (assessed 27 February 2022).
17 Fisher, R. 2013. Daily Maverick interview: Christo Wiese. Daily Maverick, 22 April. Available
online: http://www.dailymaverick.co.za/article/2013-04-23-daily-maverickinterview-
christo-wicsc/ (assessed 27 February 2022).
18 Van Wijk, C.H. ft Finchilescu, G. 2008. Symbols of organizational culture: describing and
prescribing gender integration of navy ships. Journal of Gender Studies, 17(3), 237-249.
30 Singh, A. 2009. Organizational power in perspective. Leadership and Management in
Engineering, 9(4), 165-176.
40 Thompson et al. (2022).
41 Winkler, L. ft Zerfass, A. 2016. Strategy and organizational culture-Conceptualizing the
interplay of key concepts in communication. Globe: A Journal of Language, Culture and
Communication, 3, 108-120.
42 Deloitte (2017).
41 Bloom. J. 2015. Fueled by Failure: Using Detours and Defeats to Power Progress.
Entrepreneurs Books.
326
CHAPTER:
44 Ibid.
” Heinz, K. 2021. 16 Signs of a toxic work culture and how to fix them. Available online:
https://builtin.com/company-culture/bad-company-culture (accessed 14 May 2022).
54 Ibid.
327
Responsible strategic
12 leadership
Tersia Botha
Strategy implementation
and control
Resource allocation
Change management
Strategy implementation
and control
Case study
Steinhoff International
Steinhoff was founded in 1964 by Bruno Steinhoff, a West German, who saw an opportunity
to procure low-cost furniture from East Germany and sell it to his wealthier countrymen in
West Germany. It was a game of arbitrage that helped shape Steinhoff as a core business
strategy and it was one that the company vigorously pursued, enabling it to become one
of the biggest retailers in the world. Steinhoffs business was doing well, and he decided
to diversify into furniture production, in line with his vision to grow, expand and own
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CHAPTER 12: RESPONSIBLE STRATEGIC LEADERSHIP
the supply chain. By 1980, the company's sales network included sales representatives in
Germany, Austria and Switzerland and exhibitions were held in England, the Netherlands,
Belgium and Switzerland. During the global recession in the 1980s, the company started
importing furniture from China, again in line with Steinhoffs preference to source low-
cost furniture. The fall of the Iron Curtain in November 1989 presented the company with
the opportunity for expansion in Europe - Europe became a continent without borders,
enabling the free movement of goods and services across borders and a united Germany.
The new German government offered incentives for businesses to invest in the former East
Germany, where manufacturing facilities were mostly outdated and faced closure. Given its
knowledge of and experience in East Germany, Steinhoff was in an extremely favourable
position to buy out its East German suppliers - seven upholstery factories and one bedding
factory - at very attractive prices. The result was that Steinhoff became one of the largest
producers of upholstered furniture destined for the German market.'
With the collapse of apartheid and the lifting of sanctions against South Africa
in the 1990s, many international companies saw an opportunity to invest in the country.
In 1993, Claas Daun, through Daun & Kie, bought a controlling interest in the ailing
JSE-listed Victoria Lewis furniture manufacturing company. In 1995, the same company
invested in another two furniture companies, namely Gommagomma Holdings and Bakker
ft Steyger. It was then that the paths of Bruno Steinhoff and Marcus Jooste crossed.
Steinhoff and Daun had been acquaintances in Germany and Jooste was Daun’s CEO. In
1997, Bruno Steinhoff acquired a 35 per cent share in Gommagomma from Daun ft Kie. In
1996, Jooste floated the idea of merging the South African assets of Daun with Steinhoff
Europe and, by 1998, Steinhoff Europe and Steinhoff Africa (formerly Gommagomma)
had consolidated their operations. Steinhoff International listed on the JSE in 1998. A
few months after the listing, the company acquired the struggling Pat Cornick company,
making Steinhoff International one of the largest furniture manufacturers on the JSE.
For the next five years, the company developed into a vertically integrated furniture and
household goods business.2
Steinhoff International was the epitome of a successful, global retail business.
In its short 50-odd-year history, it was able to make the transition from a small-time
furniture company, which sourced low-cost furniture from eastern Europe and sold it
into West Germany, to a truly global retail giant, boasting a fully integrated supply chain
covering sourcing, manufacturing, distribution, logistics and retail. This was the result of
decades of conscious decisions to expand, diversify and vertically integrate the business
- a vision set by Bruno Steinhoff in 1964. Its headquarters were in South Africa and it
was registered in Amsterdam, with most of the company's operations being situated in
Europe. One of the company's most newsworthy acquisitions was that of Pepkor from
Christo Wiese, which served to accelerate growth and ensure the profitable transfer of the
Pepkor business model into the Steinhoff network. In 2015, the company also acquired
the Kika-Leiner Group and, in July 2016, entered into a 50/50 joint venture with Cofel and
acquired Poundland. Indirectly, in 2016 Pepkor also acquired GhMI and Tekkie Town. The
most significant deal concluded by the company was the merger with Mattress Firm in the
US. This merger created the world's largest multi-brand mattress retail distribution network
and afforded Steinhoff the opportunity to enter the coveted US market.3 At its peak, and
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
after making many acquisitions and takeovers, Steinhoff was part of the JSE Top 40 Index,
the JSE Top 25 Industrial Index and the JSE Socially Responsible Investment (SRI) Index. In
2015, the company added to its financial credentials by securing a listing on the Frankfurt
Stock Exchange (FSe). By 2016, Steinhoff was selling more than 40 different brands in
more than 32 countries across four continents. Globally, it had 26 manufacturing facilities,
2,500,000 m2 of warehouse space, 12,000 retail outlets covering 9,000,000 m2 of retail space
and a 4,000,000 m2 property portfolio. It was also shipping 150,000 containers annually
and employed approximately 130,000 people.4 In 2016, the company posted revenue of
€8.645 million and a net profit of €1.51 million, representing a year-on-year growth rate
of 11.8 per cent. On 23 May 2017, its share price on the JSE was valued at R50.25, equating
to a market capitalisation of R240.5bn.5 On the evening of 5 December 2017, the empire
came tumbling down when Steinhoffs CEO, Markus Jooste, announced that he would step
down from his position with immediate effect The Steinhoff board announced that the
company had become aware of accounting irregularities requiring further investigation; it
subsequently appointed PricewaterhouseCoopers to conduct an independent investigation
into the alleged irregularities, identified by Deloitte. These irregularities related to off-
balance sheet items and possible misrepresentations of earnings. Within days the company
lost R200bn in value. Banks across the globe took a $1bn hit. For example, JP Morgan took
a $273 million knock in its 2018 financial results due to Steinhoff, which was the largest
loss they have seen since the 2008/2009 financial crisis.
In early January 2018, Steinhoffs commercial director Louis de Preez was on a
charm offensive in London, trying to convince the retailer's bankers not to pull the plug.
Steinhoffs funders were sceptical and believed the retailer was set for failure. One of the
bankers gave Du Preez until the end of February 2018 to settle the company's debt. Others
agreed to convert, or roll over, debt that matured into new debt In March 2019, Steinhoff
reported RIOGbn in fictitious and/or irregular transactions over nearly a decade. Its assets
were overvalued by more than $12bn. Furthermore, it had debt of €9.8bn (at a 10 per
cent interest rate per annum) it had to repay with cash flows that were suddenly radically
smallerthan anyone suspected. Soon, R136bn in legal claims flooded in - from pension fund
managers to deal makers who sold assets to Steinhoff in exchange for shares. In January
2019, with the prospects of Steinhoff at the bleakest, Du Preez stepped into the role of CEO.
In February 2022, he did something that few CEOs of fraud-ridden companies had ever
done - he settled all legal claims against Steinhoff, paying about 20c for every rand claimed.
In other words, the Rl36bn of legal claims were settled for R31.5bn.6 This settlement has
wide-ranging implications for the corporate sector. For a start, it will fuel expectations that,
where there has been fraud, shareholders can claim back some of their losses.
Why did the funders agree to roll over the companies' debt so many times, even
though they did not have to? According to Du Preez, there is value in the business and it
would have been an absolute shame if it had been liquidated. Historically, companies just
do not survive fraud of this scope. Steinhoffs former chair Heather Sonn once described
Steinhoffs scandal as 'SA's Enron'. However, the Houston energy company went bankrupt
six weeks after it restated earnings and the US Securities Et Exchange Commission opened
an investigation. Locally, the gravestones of fraudulent companies are many - Masterbond,
Fidentia, LeisureNet, Regal Treasury bank, Macmed and Mirror Trading International are all
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CHAPTER 12: RESPONSIBLE STRATEGIC LEADERSHIP
examples. Yet, Steinhoff is now entering the fifth year after its crash, its odds of survival
have never looked better and, according to their CEO, 'we believe we can really provide a
return to those shareholders who've stuck with us over the past three years. We believe
we can unlock some value for them.'7
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
managers do not lead at all. Being a manager does not necessarily mean that the
person is a leader. Also, the definition says nothing about having to be a subordinate
to be a follower. Following a leader is an act of choice or free will, as opposed
to being pushed, pulled or prodded. Positions of authority in an organisational
setting are often called ‘leadership positions', and thereby create confusion between
management authority and leadership. However, leadership and management are not
the same.
How does leadership differ from management? Management and leadership
share many similar characteristics and outcomes. However, the two terms also differ
in many ways. Management and leadership are complementary qualities that are
inevitably linked to each other. The manager, on the one hand, is a person appointed
in a formal position in a formal organisational structure or hierarchy. A manager
commands subordinates because the position gives him or her the right to command.
A subordinate obeys the manager because he or she is contractually obliged to obey.
Leadership, on the other hand, relates to the relationship between a leader and a
follower. A leader may command because the follower allows him or her to command.
A leader influences, inspires, motivates, and has various responsibilities.
John Kotter is regarded as a leadership and organisational change guru.
Kotter10 contends that organisations need both managers and leaders to be successfill.
Managers are needed to deal with the complexity in their organisations, by performing
the essential managerial functions of planning, organising and controlling. Leaders
are needed to deal with and cope with change. In our definition of leadership provided
earlier, one of the key aspects of leadership that we highlighted was the fact that
leaders are in the front, providing movement and direction. In other words, leaders
guide organisational change. Table 12.1 lists the most important differences between
leadership and management in an organisational context.
Leadership.... Management...
align people with the vision and strategic organise and staff the organisation
direct on of the organisation
focus on a clear vision for the organisation focus on goals and objectives
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Leadership, on the one hand, is strategic, focused on the vision of the organisation
and involves a strong element of building trust and emotional engagement with
followers. Management, on the other hand, is operational, focused on goal
achievement, and more directive of those who are managed.11 In the opening case
of this chapter, Steinhoff CEO Louis du Preez has played the role of manager and
leader since January 2018. As a leader, he aligned the employees with the vision
of the company, developed new direction and movement and, most importantly, he
orchestrated a settlement of all legal claims against Steinhoff. As a manager, he has
successfully coped with all the complexities of navigating a business through a fraud
of this magnitude.
Leadership plays a key role in strategy implementation. The next section
elaborates on this statement.
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
charismatic leader, Jooste had fiercely loyal insiders who enjoyed social
and other financial privileges through their close association with him.11
These followers included Steinhoff fund managers and directors, who
failed to remain alert and exercise proper oversight. Even Pepkor’s largest
shareholder Christo Wiese invested in Steinhoff in exchange for shares in
Jooste’s company. It was, as Wiese points out, a R59bn mistake. Sadly, the
causes that Jooste believed were important were neither moral, ethical, nor
were they to the benefit of all stakeholders of Steinhoff. In contrast, where
Jooste’s goal was self-enrichment, Louis du Preez’s goal has been to provide
a return to the company’s shareholders and unlock value for them. Louis du
Preez took on the enormous task of CEO at a desperate time and has had to
rebuild trust in the company.
■ The architectural role. This role entails building an organisation and an
appropriate organisational structure, a controlling and rewarding system.
The architectural role of a strategic leader, according to De Vries, overlaps
with the responsibilities of a strategic manager, as discussed in previous
chapters of this book, which emphasise the point made in section 12.1 that
an organisation needs both - leaders and managers - to be successful.
Researchers have differing viewpoints about the essence of strategic leadership. Boal
and Hooijberg15 regard strategic leadership as involving the creation and maintenance
of absorptive capacity, adaptive capacity and managerial wisdom.
■ Absorptive capacity. Absorptive capacity was explained in Chapter 9 in
an organisational learning context, where it was defined as the ability of an
organisation to recognise the value of new, external information, in order to
assimilate it and use it to address business problems. In the context of strategic
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on the economy, the environment and society at large. In order to be viable and
sustainable over the long term, leaders need to ensure that they act responsibly and
build (or in some cases rebuild), not only the trust of shareholders, but also the trust
of all other stakeholders.
Changes towards responsible business often require broad visions that can
barely be achieved without strategic leadership. More importantly, bad leadership
can lead to the downfall of an entire organisation (as was the case with Steinhoff
in 2017). Getting rid of toxic leaders can be only the first step to developing a
responsible organisation. A new type of strategic leader is needed - a responsible
strategic leader, who can lead in all three dimensions of sustainability, responsibility
and ethics. Figure 12.2 depicts such a leader.
As depicted in Figure 12.2, the three pillars of the responsible strategic leader are:
■ Sustainability strategic leadership. A sustainable strategic leader promotes
sustainability (as defined in Chapter 1) in the organisation.
■ Responsibility strategic leadership. A responsible strategic leader will focus
on the creation of stakeholder value and will lead in an extended leader
follower relationship that goes beyond the hierarchical relationships of the
organisation. Responsible strategic leaders are leaders that take responsibility
for all stakeholders.
■ Ethical strategic leadership. An ethical strategic leader embodies ethical
behaviour and decision-making and inspires others to act ethically and lead
their followers to moral excellence.
The above view of responsible strategic leadership starts with the assumption that
values are necessary and explicitly part of doing business responsibly. In what
follows, we will first explain values and value creation in organisations, followed by
a detailed discussion of sustainability, responsibility, and ethical strategic leadership.
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In business practice, values are most prevalent in corporate codes of ethics, which are
most often based on the six values of (i) trustworthiness; (ii) respect; (iii) responsibility;
(iv) fairness; (v) caring; and (vi) citizenship. Once a value results in consistent actions,
it becomes operationalised and a natural habit of individuals in organisations; the
organisation can be said to stand for this value and have a culture based on this
value. Such a value-based organisation can be achieved through both changing
the values of existing employees and hiring new employees with the right personal
value set. To create sustainable, responsible, and ethical organisations, values have to
reflect these topics. Strategic leaders play a vital role in creating such value systems
in organisations. They are also responsible for maintaining the value system and in
aligning all other systems and the organisational culture with its values.
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Practising strategy
For years, brand managers have groused that consumers say they intend to buy
sustainable products, but do not actually buy them. Companies have used this
conventional wisdom as justification for not making their productsmore sustainable.
A new study, looking at the sales from 2013 to 2018 of products marketed as
sustainable, finds the conventional wisdom is not true. In more than 90 per cent
of consumer-packaged goods categories, sustainability-marketed products grew
faster than their conventional counterparts. They accounted for 16.6 per cent of the
market in 2018, up from 14.3 per cent in 2013, and delivered nearly $114 billion in
sales. Companies should be aware that consumers are increasingly voting with their
buying patterns — against unsustainable brands.”
Strategic managers play a crucial role in responsible leadership in organisations
in transforming organisations from the top. They can respond to the challenges
of responsibility and sustainability, either by taking a position on, or by moving
through, six levels or phases of commitment:’8
■ Phase 1: Rejection. During this phase, an organisation will focus
on exploiting all resources (human and ecological) for the sake of
maximising its profit. Strategic leaders here will not accept responsibility
or listen to sustainability arguments and will work actively against
possible regulation or activism.
■ Phase 2: Non-responsiveness. Organisations in this phase are
characterised by a lack of awareness or ignorance of sustainable or
social issues, rather than by active opposition to these issues.
■ Phase 3: Compliance. Organisations in this phase are characterised
by complying with laws and regulations to avoid risk, or by complying
with self-regulatory measures to avoid legislation, which may limit their
activities.
■ Phase 4: Efficiency. In this phase, sustainability is seen asa cost-reduction
and efficiency strategy. Principles of sustainability are incorporated into
the everyday business practice of the organisation.
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are either overexploited or fully fished (according to the 2012 United Nation's
Food and Agricultural Organisation report). The state of the ocean's fish stocks
is a worldwide concern and overfishing will continue to affect marine life unless
action is taken. Therefore, Woolworths is committed to procuring all its seafood
from sustainable fisheries and from responsible farming operations. Woolworths
is working with local and international seafood sustainability and certification
programmes to ensure that all their seafood is responsibly sourced and traceable
back to the ship that caught it, or the farm that raised it. Furthermore, Woolworths
has various programmes aimed at increasing awareness of these issues and at
assisting customers in making informed choices when they buy these products.
■ The social environment/community. Responsibility leaders foster contributions
to society. This can be in the form of passive actions (such as charity and
corporate donations), or active engagement in the wellbeing of communities.
Responsibility leaders should also endeavour to train and develop their staff
in their understanding of the responsibilities of their organisations in society.
Investec is an example of an organisation that is actively engaged in the
wellbeing of their community. Investec's Corporate Social Investments (CSI) are
central to the group’s philosophy of making an unselfish contribution to society.
Their approach to CSI focuses on education and entrepreneurship. They believe
initiatives in these two areas are the most effective way to create employment,
wealth creation and socio-economic growth in South Africa. Their overall aim is
to create opportunities for young people to become active participants in society.
To achieve this, they recognise that there needs to be a continuum of initiatives,
starting from high school, moving to tertiaiy education and continuing through
to young adult learning. Their strategy can therefore be shown on a progressive
timeline, spanning three stages of personal learning and growth. They arc
passionate about empowering talented, hardworking individuals and enabling
them to realise their potential.”
■ The natural environment. Responsibility strategic leaders are sensitive to the
world in which they operate and assess the impact their organisation's decisions
and actions will have on the natural environment. They ensure that production
processes are environmentally friendly, that they use 'green' technology wherever
it is possible, recycle material and save energy. In South Africa, Woolworths
stand out for its care for its environment: The Group's Good Business Journey,
is a comprehensive commitment to responsible business that help to ensure
the health and wellbeing of people, the transformation and empowerment of
communities and the sustainability of the environment.20
■ Shareholders. A shareholder, on the one hand, is a person or entity that owns
shares in an organisation. Shareholders are entitled to vote for the board of
directors as well as for a small number of additional issues, they receive dividends
from the organisation and share in any residual cash should the organisation
be sold or dissolved. Stakeholders, on the other hand, represent a substantially
broader group, including anyone with an interest in the success and failure of the
organisation. This group can include shareholders, but goes beyond shareholders
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January 1997 and moved to the private sector, where he became a director of
New Africa Investments Limited. Ramaphosa was appointed Deputy President by
Jacob Zuma on 25 May 2014. He was made Leader of Government Business in
the National Assembly, responsible for the affairs of the national executive in
Parliament; the programming of parliamentary business initiated by the national
executive, within the time allocated for that purpose and ensuring that cabinet
members attend to their parliamentary responsibilities. Following Jacob Zuma's
resignation as president in February 2018, he was elected unopposed as president
of South Africa by the National Assembly on 15 February 2018.
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Discussion questions
1. Differentiate between the concepts of leadership and management and justify the
statement that organisations need both.
2. Investigate the key roles that most successful strategic leaders perform in
organisations and discuss how leaders can use these roles to the detriment of an
organisation.
3. Explain the essence of strategic leadership.
4. Explain values and value creation in an organisation.
5. Strategic leaders have responsibilities towards several key stakeholders. Explain
this statement and provide examples to illustrate your explanation.
6. Organisations respond to the challenges of responsibility and sustainability
either by taking a position on, or by moving through, six levels of commitment.
Depict these levels by means of a diagram.
7. Explain the three pillars of responsible strategic leadership.
Learning activities
On 10 August 2014, the governor of the South African Reserve Bank announced
that the Registrar of Banks and the Minister of Finance had decided to place African
Bank Limited under curatorship. The concerns they expressed particularly focused
on the bank’s liquidity, the bank’s impairment and provisioning policy, the rapid
credit growth, and the need for a strategic rethink of the business model. Access
the Myburgh report on the collapse of African Bank (http://www.politicsweb. co.za/
documents/on-the-collapse-of-African-bank—adv-jf-myburgh):
1. What, according to the Myburgh report, were the main reasons for the
collapse of African Bank?
2. Identify all the stakeholders of African Bank who were affected by its
collapse.
3. From inception until 6 August 2014, Mr Kirkinis was CEO of African Bank.
Would you regard Mr Kirkinis as a charismatic strategic leader? Substantiate
your answer.
4. Compare the strategic leadership of Mr Kirkinis with that of Marcus Jooste
at Steinhoff International.
5. Contrast the strategic leadership of Marcus Jooste and Leon Kirkinis with
the strategic leadership of Louis du Preez and indicate the differences in the
outcomes of their leadership styles.
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Endnotes
I Steinhoff International. 50 Years of Steinhoff. Available online: https://www.youtube.com/
watch?v-xa3U2BKKeNkftab_channel-StcinhoffIntemational (accessed 18 February 2019).
2 https://www.bizncws.com/sa-invcsting/2018/06/29/steinhoff-full-story-small-
fumitureshop-retail-giant (accessed 14 February 2019).
3 https://www.biznews.com/sa-investing/2018/06/29/steinhoff-full-story-small-
fumitureshop-rctail-giant (accessed 14 February 2018).
4 Steinhoff International. Available online: http://wwwiteinhoffrntemational.com/
(accessed 18 February 2019).
5 https://www.biznews.com/sa-investing/2018/06/29/steinhoff-full-story-small-
fumitureshop-retail-giant (accessed 14 February 2019).
6 Rose, R. 2022. The great escape. Financial Mail, February, pp. 22-23.
7 Rose, R. 2022. The great escape. Financial Mail, February, p. 26.
8 Campbell, M. 2021. Which country is the world leader in renewable energy in 2021?
Available online: https://www.euronews.eom/green/2021/03/02/which-country-is-the-
world-leader-in-renewable-energy-in-2O2I (accessed 14 May 2022).
9 Allouche, D. Top 10 of the most high tech countries in the world. Available online: http://
www.young-diplomats.com/top-10-high-tech-countries-world/ (accessed 20 January
2019).
10 Kotter, J.P. 2013. Management is (still) not leadership. Harvard Business Review. Available
online: https://hbr.org/2013/01/ management-is-still-not-leadership (accessed 15 July
2019).
11 Carmichael, J., Collins, C., Emsell, P. Ft Haydon, J. 2011. Leadership and Management
Development. New York: Oxford University Press, p. 2.
12 De Vries, M.K. 1996. Leaders who make a difference. European Management Journal,
14(5), 486-493.
13 CNBC Africa. 2018. Inside the Steinhoff saga, one of the biggest cases of corporate
fraud in South African business history. Available online: https://www.cnbcAfrica.com/
insights/steinhoff/2018/06/28/steinhoff-rise-fall/ (accessed 19 February 2019).
14 Rohlin, L, Skarrvad, P.H. ft Nilsson, S.A. 1998. Strategic leadership in the learning society.
Vasbyholm: MiL Publishers AB. p. 182.
IS Boal, K.B. ft Hooiberg, R. 2001. Strategic leadership: Moving on. The leadership quarterly,
11(4), 515-549.
16 Quinn, L. Ft Dalton, M. 2009. Leading for sustainability: implementing the tasks of
leadership. Corporate governance, 9(10), 21-38.
17 Whelan, T. ft Kronthal-Sacco, R. 2019. Research: Actually, consumers do buy sustainable
products. Harvard Business Review. Available online https://hbr.org/2019/06/rcscarch-
actua!ly-consumers-do-buy-sustainable-products?rcgistration«success (accessed 15 May
2022).
18 WWF. 2014. Living Planet Report: Species and spaces, people and places. Available
online: http://www.panda.org/about_our_earth/all_publications/living_planet_rcport/
(accessed 10 March 2017).
19 Investec. Our community. Available online: https://www.invcstcc.com/cn_za/wclcome-
to-investec/corporate-responsibility/our-community.html (accessed 21 January 2019).
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20 Woolworths: The Good Business Journey to a food secure South Africa. Available online:
https://trialogueknowledgehub.co.za/index.php/casestudies-foodsecurity/214-sectors/
food-security-and-agriculture/related-articles/1106-woolworths-the-good-business-
journey-to-a-food-secure-south-africa#:~:text-Thc%20Woolworths'%20Good'fo20
Business%20Journey%2C%20which%20the%20retail,ofQb20communities%2Ctfc20
and%20the%20sustainability<M>20of’M>20thc<M>20cnvironmcnt. (accessed 15 May 2022)
11 Raymond, N. 2020. Top 10 highest paid CEOs in South Africa. Available online https://
buzzsouthafrica.com/top-10-highest-paid-ceos-in-south-africa/ (accessed 5 May 2022)
350
Organisational structure
13 and strategy
Tersia Botha
■ Responsible organisational
■ Institutionalism
structure
■ Instrumentalism
■ Self-contained organisation
■ Modular organisation
■ Virtual organisation
Case study
Starbucks Corporation12
Starbucks, an American company and largest coffeehouse chain in the world, is regarded
as the pacemaker in the coffee industry. In addition, the company is regarded as one
of the top responsible companies in the world. Their vision statement is To establish
Starbucks as the premier purveyor of the finest coffee in the world while maintaining our
uncompromising principles while we grow’. The vision statement of the company relates
to the following elements:
■ Premier purveyance. In this first component, it is obvious that Starbucks echoes its
desire to lead from the front and by example through superior coffee products. The
company has made significant strides in meeting the expectations of this element
by improving the service approaches employed in all its outlets. It has also widened
its reach through its global presence as its expansion ambition remains active.
■ Finest coffee in the world. To remain competitive and outperform competitors,
Starbucks prioritise simplicity. The company has come out as an unwavering
competitor, especially in the rankings of its coffee brands, as a show of its
determination to provide the finest coffee.
■ Uncompromising principles. In this third component of its vision statement.
Starbucks remains true to its culture towards its customers and everyone it comes
in touch with, as well as how it behaves as a responsible business.
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■ Growth. Starbucks has proven to stay in line with its growth ambition. The company
boasts a global presence - as of November 2021, the company had 33,833 stores in
80 countries.
The company's mission statement is To inspire and nurture the human spirit - one person,
one cup and one neighborhood at a time'. It is a statement that brings out the critical
customer-centric elements of the company. The mission statement starts by emphasising
the primary role of the company towards its customers, while at the same time stressing
the importance of its clients towards the continued growth of the company. The mission
statement relates to the following elements:
■ Improving life. Starbucks' mission statement is all about giving its customers the
best possible service. Making a difference in the lives of people is attached to the
customer experience that Starbucks seeks to achieve in the first component of
its mission statement. The determination efforts of Starbucks in satisfying this
component are shown in numerous ways with the ‘green cup responsibility' being
one of many examples.
■ Exceeding expectations. Starbucks echoes its leadership presence in the coffee
market sector by doing more than normal. The company's primary goal is to let its
client base feel its presence by offering extraordinary services that extend to social
responsibilities rather than merely serving the customers with its products. The
company has come out successful in fulfilling this second component in its mission
statement as shown in its social impact. Decades ago, the company developed
an agenda of global social impact priorities. Their investment has centered on
balancing its role as a for-profit company with the betterment of people and
planet. They invest in people, especially their partners, so they in turn can support
people in the communities they serve. They also recognise healthy human lives
depend on healthy ecosystems, so they have worked to better the health of our
natural resources. That brought the brand to where it is today - a company aiming
to be a resource-positive company.
■ Simplifying beverage services. In its third component, Starbucks has proven
that coffee service does not have to look so complex and sophisticated. With its
dynamic, simple, yet top service delivery strategies, the company has established
itself as a revolutionary in the service delivery niche by improving on friendliness
and quality. The simplicity characterising Starbucks is what has drawn its massive
client base towards it, speaking volumes of how the company strategises to satisfy
this element in its mission statement.
Starbucks core values comprise‘teamwork, integrity, respect for culture, and perseverance'.
These core values of the company are a representation of the codes of conduct that
ensures the company remains true to the expectations of its mission and vision statements.
The first component (teamwork) is an emphasis on how important the company values
coordination with both its stakeholders and clients towards their growth. It closely relates
to the second element (integrity) which calls for all the processes of the company to
be carried out in the right way that promotes the expectations of the third component
(respect for culture) of the core values. The company does this because it recognises the
variations of cultural elements in its locations across the globe.
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These three elements of organisational structure refer to both the vertical and
horizontal aspects of organising. The first two elements are the structural framework,
which includes the vertical hierarchy, whereas the third element pertains to the
horizontal and vertical aspect, namely, the pattern of interaction among organisational
employees and departments.
The organisational chart is the (usually top-down) visual representation of
the organisational structure, showing what positions exist, how they are grouped,
and who reports to whom. Like organisational culture, organisational structure is an
integral part of the nature and architecture of an organisation. If the organisational
culture is considered the soul of the organisation, the organisational structure can be
considered the body, which together with the bones, muscles, blood vessels and other
physiological systems, enable the body to function. The organisational structure
assists the organisation in distributing resources and in delivering its core products
and services as effectively and efficiently as possible.
It is a widely held view that the primary responsibility of top management is
to determine an organisation’s goals, strategies and structure, thereby enabling the
organisation to adapt to a changing environment. Middle managers are considered to
do much the same thing for major departments within the guidelines provided by top
management. The purpose of this chapter is to explain how organisations can move
towards the integration of responsible management, sustainable development and
ethical practice throughout the structure of the organisation. We call this a responsible
organisational structure. What would an organisational structure look like when
this goal of integration is achieved? Such structures would lead to positive triple
bottom line that protects, creates and sustains social, environmental and economic
business value. Furthermore, the structure of a responsible business would lead to
the maximisation of stakeholder value. Lastly, ethical decision-making throughout
the organisational structure would be morally desirable in both its processes and
its outcome. Although few (if any) organisations, and specifically South African
organisations, have achieved this vision, this chapter examines the process of how
this goal can be achieved.
Figure 13.2 depicts three phases towards the creation and implementation of a
responsible organisational structure.
In the discussion that follows, we will focus on each of the three phases of the process
depicted in Figure 13.2.
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conduct on realism will focus on normative and control systems, for example a
code of ethics and a sustainability scorecard. In contrast to realism, supporters of
constructivism believe that ethical decisions are enacted through socially shared
beliefs and human interactions are based on what is best for the organisation.
An organisation that bases responsible business conduct on constructivism, will
focus on developing a dialogue culture and high interaction among stakeholders,
for example stakeholders' dialogue forums and open innovation platforms.
■ Instrumentalism versus institutionalism. The fundamental thesis of instrumen
talism is that practical reasoning is fundamentally about using one’s own
knowledge of causal relations, constitutive relations and so on, in order to
achieve one’s goals, and there is nothing more to practical reasoning than this.
In an organisation, proponents of instrumentalism view organisations as rational
entities that are managed by dominant members who aim to achieve their own
goals. Instrumentalist thinking may lead to pure business-case thinking, in
which the only responsible management activities that are realised are those
that pay off. Contrary to this view, institutionalism is a general approach to
governance and social science. In an organisation, proponents of institutionalism
view organisations as having intrinsic worth above and beyond the value of
their assets. Organisations will institutionalise over time and form identities
with which individuals wish to associate. This will have an impact on ethical
decision-making and other responsible management issues.
The three viewpoints explained above, can be viewed jointly to help determine the
point of departure in creating a responsible business structure. Figure 13.3 provides
a summary that may assist strategic managers in this process. The last column in the
figure provides the actions that strategic managers can take within each viewpoint.
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Organisation is managed
by small group of
dominant members
concerned only with their
own individual goals Create a structure
to develop a culture
Organisation of responsibility,
Instrumentalism
institutionalise sustainability
versus sustainability as an and ethics that
Institutionalism
organisation and supersedes what
collectively assume individuals can do on
a moral identity in their own
sustainability, norms
and values in ethical
practices and responisble
management
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Starbucks Corporation reforms its organisational structure over time. By 2007, the
company was expanding rapidly, such that it shifted focus away from customers and
towards strategic global expansion. However, the business experienced significant
decline in sales in that year. This decline was worsened because of the lack of focus
on customer experience. When Howard Schultz resumed the CEO position in 2008, he
changed Starbucks Coffee's corporate structure to bring focus back onto customer
experience. New regional divisions were created and teams at the company's cafes
were given better training.
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♦ Code of ethics. These provide concrete rules of ethical behaviour and decision
making in the organisation. Codes of ethics may be drafted for the entire
organisation or for single areas, for example an ethical procurement code.
Starbucks is often cited as an industry leader in paying above-market rates
for its coffee beans, though these higher rates are usually paid to a broker
and may or may not translate to higher profits for the farmers themselves.
The company states that more than 99 per cent of its beans are ethically
sourced and has a commitment to reach 100 per cent. In addition, they aim
to have 100 per cent of their tea and cocoa ethically sourced. To this end,
they employ their own set of economic and agricultural standards known
as Coffee and Fanner Equity (C-A.F.E.) practices and acts in partnership
with Conservation International to foster environmental sustainability. The
company is one of the largest purchasers of FairTrade-certified coffee in the
world, and several of its blends are certified organic.
♦ Policies. These state the organisation’s official stance on responsible business
topics, and can be broad summaries of what the business does or does not
do in a certain area. For example. Starbucks is committed to a resource
positive future, formalising environmental goals to cut its carbon, water and
waste footprints by half. As a progression against these goals, the company
committed to Carbon Neutral Green Coffee and conserving water usage in
green coffee processing by 50 per cent, both by 2030.
■ Programmes. Programmes are sets of activities that serve a common purpose.
Programmes comprise joint activities undertaken by several company
departments. An organisation may have a responsible business programme,
which is a joint activity undertaken by several company departments. Starbucks
provides the opportunity for customers to collect a free bag of used coffee
grounds to enrich their gardens and compost. They started their Grounds for
Your Garden Programme in 1995. The company seeks to support the fanning
communities it works with through a number of nongovernmental programmes
designed to strengthen economic and social development. The company also
offers farmer loans, and in 2019 it made relief payments to its farmers in
Guatemala, Nicaragua, El Salvador and Mexico when coffee prices hit record
lows. In addition, by 2021 the company had 10 farmer support centres that
shared ‘open-source’ agronomy practices with growers in coffee-producing
countries around the world (agronomy is the science of soil management and
crop production). The programme has trained more than 200,000 farmers since
the first centre opened in Costa Rica in 2004.
■ Departments. The more meaningful a corporate social responsibility programme
becomes in an organisation, the more likely it is that a department for the
topic will be created. A responsible business department may cover topics
such as sustainability and environmental issues, philanthropy, governance/
risk/compliance, human rights or employee relations. Two possibilities exist
when creating departments for such issues. First, a stand-alone department for
responsible business may be developed. Second, responsible business may be
integrated into mainstream business departments. For example, the procurement
department will have a responsible procurement programme, the human
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This brings us to the third and final phase of the creation of a responsible organisational
structure, namely developing the organisation responsibly. This phase is discussed in
the following section.
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organisation should aim to produce a sustainable triple bottom line, one that is inside
the planetary resource limits. In terms of the responsibility dimension, it should aim
to embed social responsibility into all core processes of the organisation. Lastly, in
terms of the ethics dimension, it should manage the main ethical issues occurring in
the organisation’s sphere of influence well.
To develop an organisation into a responsible organisation, three essential
elements are needed, namely responsible leadership, change management and
organisational culture. These will be briefly discussed below.
Responsible leadership
To become a truly responsible organisation requires a broad vision and commitment
which cannot be achieved without responsible leadership. Often, bad leadership
is the cause of irresponsible behaviour of an entire organisation, as we have seen
in the Steinhoff case in Chapter 12. Responsible leaders are necessary to lead the
organisation in all three dimensions of responsible business, namely sustainability,
responsibility and ethics. In Chapter 12, we have discussed responsible leadership in
detail, and you may refer to this chapter.
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In March 1987, Baldwin and Bowker decided to sell Starbucks, and Schultz
was quick to use II Giornale to purchase the company with investor backing. Heb
combined all his operations under the Starbucks brand and committed to the cafe
concept for the business, with additional sales of beans, equipment, and other items
in Starbucks stores. Under Schultz's leadership, in four years the coffeehouse chain
grew from fewer than 20 stores to more than 100. Starbucks entered a meteoric
period of expansion that continued after the company went public in 1992. In 1996
it began opening stores outside North America, and Starbucks soon became the
largest coffeehouse chain in the world. By the end of the decade. Starbucks had
2,500 locations in about a dozen countries.
Schultz announced in 2000 that he was stepping down as CEO but would
remain as chairman. By 2007 the chain boasted more than 15,000 locations
worldwide but was foundering, and in January 2008 Schultz returned as CEO. He
oversaw the closure of 900 stores and implemented an ambitious strategy to secure
new avenues of growth, which included acquisitions of a bakery chain and the
makers of a coffee-brewing system as well as the introduction of an instant-coffee
brand. He also oversaw changes to menu offerings at Starbucks stores. These moves
were largely successful, and by 2012 Starbucks had rebounded financially. Five years
later, Schultz again stepped down as CEO, though he continued to be active in the
company, serving as executive chairman until 2018. Mr Schultz believes there is a
great need to 'achieve the fragile balance between profit, social impact and a moral
obligation to do everything possible to enhance the lives of employees and the
community that we serve'. Under his leadership, Starbucks is proof that corporate
profits are congruous with doing social good.
Responsible culture
In Chapter 12, we indicated that to be a leader there need to be followers. Without
followers, the term ‘leader’ is just an empty title. Organisational change cannot
happen without followers being responsive to the vision of their leader. Therefore,
a responsible organisational culture is a prerequisite for organisation change and
creating a responsible structure. In Chapter 11, we defined organisational culture as
‘the accumulated shared learning of that group as it solves its problems of external
adaption and internal integration; which has worked well enough to be considered
valid and. therefore, to be taught to new members as the correct way to perceive, think,
feel, and behave in relation to those problems’. We also indicated in Chapter 11 that
leaders in responsible business can create a culture of sustainability, responsibility
and ethics, mainly through five mechanisms, namely attention, reactions to crises,
role modelling, allocation of rewards and criteria for selection and dismissal (you may
refer to Chapter 11 for an explanation of these mechanisms). While phases 1 and 2 in
the creation of a responsible organisational structure mostly refer to static elements
of an organisation, these elements cannot create and maintain a responsible business
alone. The role of organisational culture as a force connecting the structures and
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Managing change
Chapter 8 provided a detailed discussion of change as a fundamental strategy
implementation element. We defined organisational change as a process in which an
organisation changes its working methods or aims. In the context of organisational
structure, change refers to a process of moving forward to a better structure that
improves organisational performance. When an organisation decides to restructure
and move towards responsible management, greater sustainable performance and
better ethical decision-making, the change process may create resistance to change.
Leaders need to be aware of resistance to change and manage it - you may refer to
Chapter 8's discussion of the barriers to strategic change and ways to overcome them.
Figure 13.4 summarises the three phases in creating a responsible organisational
structure.
- ; ;
■ Individualism vs ■ Organisational ■ Goal of
Collectivism design patterns restructuring an
■ Realism vs ♦ Self-contained organisation
constructivism ♦ Horizontal ■ Topics in
■ Instrumentalism ♦ Hollow organisational
vs Institutionalism ♦ Modular development
♦ Virtual ♦ Responsible
■ Elements of leadership
responsible ♦ Responsible
organisational culture
structure ♦ Organisational
♦ Normative change
documents
♦ Programmes
♦ Departments
♦ Job positions
♦ Engagement
platforms and
common tools
♦ Processes and
procedures
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CHAPTER 13: ORGANISATIONAL STRUCTURE ANO STRATEGY
■ Hollow organisation
■ Modular organisation
■ Virtual organisation
■ Departments
■ Job positions
■ Engagement platforms and communication tools
■ Processes and procedures
Discussion questions
1. Explain the concept organisational structure.
Learning activities
1. Defend the following statement: ‘Corporate profits are congruous with doing
social good'.
2. Consider these statements: ‘In practice, the design of an organisational structure
is a messy, political process in which established routines and vested interests are
challenged and often defended. Uneasy compromises are often found. Also, there
may be discrepancies between how the design of an organisation is presented
by its top management, for example as a neat organisational chart, and how
organisations operate on a day-to-day basis.' Do you agree with this statement?
Substantiate your answer.
3. Do some research to establish where the discourse about how companies should
make money started.
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Endnotes
I Starbucks. Becoming resource positive. Available online https://www.starbucks.ca/
responsibility/planet/ (accessed 2 June 2022).
2 Starbucks 2019 Global Social Impact Report. Available online https://stories.starbucks.
com/uploads/2020 (accessed 3 June 2022).
i Laasch, 0. ft Conaway, R.N. 2016. Principles of Responsible Management: Global
Sustainability, Responsibility and Ethics. Stamford: Cengage Learning, p. 223.
4 Laasch, 0. ft Conaway, R.N. 2016. Principles of Responsible Management: Global
Sustainability, Responsibility and Ethics. Stamford: Cengage Learning, p. 228.
5 Ibid. p. 229.
6 Meyer, P. 2019. Business Management. Starbucks Coffee's organisational structure
and its characteristics. Available online: panmore.com/starbucks-coffee-company-
organizational-structure (accessed 7 June 2022).
7 Laasch, 0. ft Conaway, R.N. 2016. Principles of Responsible Management: Global
Sustainability, Responsibility and Ethics. Stamford: Cengage Learning, p. 231.
8 Ibid. p. 239.
9 Ibid. p. 239.
10
Ibid. p. 239.
11 O'Leary, C. 2022. Howard Schultz: American businessman. Britannia. Available online:
https://www.britannica.com/topic/Starbucks/Sustainability-and-community-develop
ment (accessed 6 June 2022).
372
Strategic control and risk
14 management
Tersia Botha
Strategy implementation
and control
Strategy formation
architecture
Organisational learning
Strategy implementation
and control
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Case study
Caterpillar Inc.
Caterpillar Inc. is an American Fortune 500 corporation that designs, develops, engineers,
manufactures, markets and sells machinery, engines, financial products and insurance to
customers via a worldwide dealer network. Caterpillar is the world's largest construction
equipment manufacturer. It dominates the construction and earth-moving equipment
industry.1 Since 1925, the company has been helping their customers build a better world
- making sustainable progress possible and driving positive change on every continent.2
Its connection to Africa spans more than 100 years, where it has 13 dealers covering
52 countries and a presence in 144 cities, plus more than 15,000 employees combined
between Caterpillar and its dealers.3 Africa and South Africa are key markets and
opportunities for company growth.
However, the company has not been able to master the cyclical nature of its
industry. In economic growth phases, when the heavy machinery industry booms, it
cannot keep up with demand. So, it builds new factories and hires thousands of new
employees. During economic recessions, factories are closed, and tens of thousands of
employees are laid off. The company faces dramatic swings in the demand for its products.
For example, in April 2004, they had a 43 per cent spike in sales, and in September 2009,
they experienced a 52 per cent decline. The COVID-19 pandemic starting December 2019,
affected the company’s supply chain tremendously. In sudden economic downturns such
as these, Caterpillar learned to switch from selling new equipment to refurbishing used
equipment. For customers, the advantages of refurbishing equipment are a new factory
warranty and 30 to 80 per cent lower costs. The second way in which Caterpillar managed
sudden swings in demand was to try to predict when they would occur. However, the
problem with the prediction of demand swings is that Caterpillar could generally predict
when a shift in demand would occur, but they could not predict the severity of the shift.
As a result, the company needs to lay off thousands of employees during an economic
downturn. Because of COVID-19, the company also laid off thousands of workers, who
needed to file for unemployment benefits. These layoffs support the long-term survival
of the company, and their executives are giving up pieces of their salaries. The company
has been criticised for distributing US$500 million in dividends to its shareholders in April
2020, while laying off thousands of employees and discontinuing operations at some
plants.4
As Caterpillar's situation described above shows, the past success of an organisation
is no guarantee for future success. Even successful Fortune 500 companies fall short, face
challenges and must make changes. The control function can assist companies such as
Caterpillar in these processes of becoming and remaining a responsible organisation.
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To be effective and efficient, strategic control systems should comprise four elements.
First, the strategic direction and goals of the organisation should be clearly articulated.
This element is part of the strategy formation phase of strategic management, which
we have dealt with in the first section of this book. In the case of Caterpillar, the
company will, for example, set high production targets during economic growth
phases. Second, the strategic activities that need to be carried out in order to achieve
the strategic goals of the organisations, should be specified and described. Caterpillar
will hire additional employees and build new factories during economic growth
phases. The third element revolves around the definition of the method used to track
the progress of the organisation in terms of attaining its strategic goals. For example.
Caterpillar will use various statistical tools and techniques together with financial
statements to track their progress in terms of attaining strategic goals. Tracking
progress goes hand in hand with the fourth element, namely, the identification of an
intervention mechanism to change or adjust organisational activities when strategic
goals are not attained. When Caterpillar does not meet their strategic goals during
economic recessions, it implements various tactics. For example, they switch from
selling new equipment to refurbishing used equipment. The strategic control process
is explained in more detail in the next section.
LO 2: Explain where strategic control fits into the strategic management process.
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may need to change the way that they implement their strategies. Strategic control
is a vital component of the strategic management process - chosen strategies may
become obsolete as the organisation’s environment changes. Strategic control
provides feedback and it may indicate that an adjustment will need to be made
in order to realign the organisation with its strategic direction. Identifying and
interpreting critical events or change triggers in the external environment that
requires a response from the organisation is not a straightforward and easy process.
The external environment has become increasingly more complex and it has become
difficult and almost impossible to forecast, as strategists have experienced with the
outbreak of the COVID-19 pandemic. Even the best plans of an organisation may
become obsolete, making it impossible to plan with any degree of certainty. Therefore,
strategic managers need to be constantly aware of possible deviations from strategic
plans in order to take corrective action. Therefore, strategic control has two focal
points. First, to review the content of strategy and, second, to evaluate and control
the implementation of strategy. In the next section, we will address the various types
of strategic control.
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Phase 1: Phase 2:
Phase 4:
Identify the Evaluate and Phase 3:
Management
account and elaborate the Reporting
control
gather the data data
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Product
quality
Innovation
Research and
development
Transport
Water
In the first phase, the organisation must identify all the broad groups of sustainability
information required. Table 14.1 can be used for this purpose.The different stakeholder
issues should then be prioritised. This process depends on how organisations define
their level of sustainability disclosure - also referred to as ESG (environment, social
and governance) disclosure - which is the act of communicating organisational
performance on material matters relating to ESG activities. Social and environmental
disclosures have been increasing in both size and complexity over the last decade.
Companies do not operate in a vacuum. They operate in a triple context of commerce,
the environment and society. Therefore, stakeholders cannot make an informed
assessment about sustained value creation by a company only from its financial
report. Information is required on its governance and how its operations impact on
the environment and society. ESG disclosures are required and, if not furnished, the
company should explain why not.
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Human rights:
Level of compliance with
human rights in investment and
supplier selection practices
Society:
Corruption
Public policy
Compliance
Anticompetitive behaviour,
antitrust and monopoly
practices
Product responsibility:
Health and safety
Information and labelling
Marketing communication
Customer privacy
Phase 3: Reporting
In the first two phases of the sustainable accounting process, the core topics were
identified and the key performance measurements for the expected contributions of
responsible business were identified. Once the information is elaborated, the third
component of the sustainability accounting process concerns the dissemination of
information to internal and external users, that is, reporting. Responsible business
reporting can be subdivided into two broad categories. The first is supplemental
reporting (in other words, in addition to traditional financial reports) that uses both
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
qualitative and quantitative data for accounting purposes to meet the expectation
of broader categories of stakeholders. The second category of responsible business
reporting, integrated reporting, integrates social, environmental and ethics data
with traditional financial reporting data. In other words, the responsible business
dimensions are not supplemental to financial accounting, but rather integrated with
it as one topic of four aspects. Integrated reporting brings together the material
information about an organisation's strategy, governance, performance and prospects
in a way that reflects the commercial, social, and environmental context within which
it operates.
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The message from the CEO and Chairman focuses on the traditional financial results of
the company, but also gives a clear message in terms of the responsible management
actions of the company. For example, their efforts to mitigate climate change, the fact
that sustainability is an important element of their long-term strategy for profitable
growth, and the opportunity that energy transition represents for the company to
create shareholder value. The company is also concerned about the community and
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
388
Employee health Aspire to prevent all injuries ✓ Best safety performance on record
and safety and will further their for third year in a row
industry-leading safety ✓ Facilities worldwide effectively
results by reducing recordable managed enhanced safety measures
injury frequency (RIF) by 50% and vaccination opportunities to
from 2018 to 2030 protect employees from C0VID-19
✓ Amplified focus on new hire safety
training and mentorship
The 2030 goals as reflected in the sustainability report of Caterpillar covers many
of the indicators as discussed in phase 2 of the sustainable accounting process. The
company succeeds in finding a well-balanced responsible accounting system that
identifies a balanced set of indicators related to the triple bottom line, stakeholders
and ethical issues and opportunities.
The sustainability of the organisation is influenced by the strategic leadership
of the organisation. This is clearly illustrated by the message of the CEO and Chairman
of Caterpillar in its 2021 annual report. Strategic leadership can be a person or even a
small group of people whose personality, position or reputation gives them dominance,
especially with regard to the strategy development process. Their decisions point in
some way or another to strategic risk management and the sustainability of the
organisation. This alludes to the integrated and complex nature of risk, strategic risk
and the management thereof, which is the focus of the next section.
LO 5: Explain risk, strategic risk and the strategic risk management process.
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391
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different events may affect the ability to achieve longer-term objectives in view of
identified opportunities and threats. It is possible that different organisations may
view these events and their impact differently. Hence, it is imperative to develop a
shared understanding of major organisational risk exposures and the interrelatedness
in a way that is adapted to the specific environmental conditions. Adopting a
common risk management framework can underpin a consistent examination of
organisational exposures and allow for cross-functional comparisons when assessing
the aggregate organisational exposures. Organisational disruptions can typically
arise along the organisational value chain and particularly in the interfaces between
different functional units within a larger operational system. These internal processing
conditions can affect the generation of cash flows, both in terms of operating expenses
and sales revenue and may provide a good basis for understanding vulnerable
business activities and identifying opportunities for improvement. The identification
of organisational risks may be supported by a common classification scheme that
makes it easier to compare and communicate information about insights about major
exposures.
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■ Risk transfer refers to sharing with another party the burden of loss or benefit
of gain, for a particular risk. Purchasing insurance is a common example of
transferring risk from one individual or entity to an insurance company.
■ Risk acceptance refers to the decision to accept the risk. This means the identified
risk is considered acceptable enough that no expense or effort is made trying to
limit or avoid it. Risk acceptance occurs when a business or individual decides
that the potential loss from risk is not great enough to justify spending money
or effort to avoid it. Most organisations eventually discover that they have more
risks than they can manage, mitigate, or prevent. This is particularly true given
the limited resources at their disposal. As a result, organisations must strike a
balance between the potential costs of a problem caused by a known risk and
the cost of preventing or otherwise dealing with it. Any and all risks that are
not accepted, transferred, or avoided are said to be retained risks. For example,
consider a consumer electronics supplier who depends on a single supplier for
certain key components. Without these specialised devices, production will be
impacted, and revenue will decline. Management has investigated qualifying
an additional supplier, but the process will be prohibitive in terms of time and
resources. Research shows that the probability of a major supply disruption
with the current supplier has a likelihood of less than 1 per cent. As a result,
management decides to accept the current risk and delay qualifying another
supplier.
■ Risk exploitation refers to a situation in which a particular event or risk has a
positive consequence on the organisations and relevant stakeholders and should
then be exploited. Risk exploitation is about doing everything to ensure that the
situation or event happens. In this risk response strategy, the organisation takes
the opportunity seriously and develops a strategy to realise it. For example, a
construction company is suddenly told by a client that if they complete a project
two months before the actual completion date, they will receive a financial
incentive. This is an opportunity for the construction company, and they will do
everything to complete the project ahead of time.
■ Risk mitigation refers to the limitation of any negative consequence of a
particular event. For example, a jewellery shop may reduce the possibility of
robbery by providing surveillance devices. This does not deter all incidents of
robbery, but it may dissuade offenders from choosing this store over another that
does not have any protection steps.
In conclusion, we must bear in mind that the integrated strategic risk management
framework is designed as a control framework that should comply with regulatory
requirements. Although compliance is important, the integrated risk management
framework advocates that risk be dealt with in the context of the organisation's
strategy to accomplish the organisation’s strategic objectives, and that priority
be given to controls. As indicated in the integrated strategic risk management
framework, corporate governance is an essential component thereof. The last section
in this chapter focuses on corporate governance.
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right, rather than because of the effects that they have. For example, a leader
should follow the rules in terms of accounting, paying corporate taxes and value
added tax, labour laws, and so on. If a leader follows his or her duty, then he or
she is deemed to have acted in an ethical manner, regardless of the outcomes. In
line with the teleological (consequential) perspective, a leader should be judged
to be ethical if the outcomes of his or her actions have achieved something good,
regardless of the actions themselves. These two descriptions (deontology and
teleology) highlight two key elements in the thinking about ethical leadership,
namely the character of the leader (doing the things right) and the actions of the
leader (doing the right things). Ethical leadership focuses on the moral character
of the leader, his or her integrity and ethical awareness and his or her ability to
communicate and extol this sense of ethics to the organisation. Ethical leadership
is needed to direct and control an organisation in such a way that it promotes
good corporate governance.
■ Sustainability. In Chapter 1, sustainability was defined as the ability of an
organisation to continue to do business over the long term - and possibly
indefinitely. We also indicated that sustainable business is tied up with the
impact that the business has on the environmental resources of the world that
it consumes in the process. Sustainability suggests that business leaders need
to critically consider how their organisations can reduce and minimise their
impact on the natural resources they utilise. By doing this well, business leaders
can help to ensure that their businesses will be around in the future, and that
future generations will continue to have the ability to support themselves and
to flourish, thanks to the impact of current business strategies and practices.
Therefore, the sustainability of organisations is connected to the long-term
maintenance of their systems, taking into account environmental, economic
and social considerations. Sustainability issues have gained importance
internationally since the publication of King II. Locally, the topic has also
burgeoned. The JSE launched the SRI index in 2004 as a tool for investors
to identify companies incorporating sustainability practices into their business
activities. The proliferation of initiatives, tools and guidelines on sustainability
is evidence of the growing awareness of sustainability issues. The significance of
sustainable action by organisations is highlighted in the King Report as follows:
Because the company is so integral to society, it is considered as much a
citizen of a country as is a natural person who has citizenship. It is expected
that the company will be seen to be a responsible citizen. This involves social,
environmental and economic issues - the triple context in which companies in
fact operate. Boards should no longer make decisions based only on the needs
of the present because this may compromise the ability offuture generations to
meet their own needs. 'The success of companies in the 21st century is bound
up with three interdependent subsystems - the natural environment, the social
and political system and the global economy. Global companies play a role in
all three and they need all three to flourish.' This is according to Tomorrow's
Company, UK.
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
In short, planet, people and profit are inextricably intertwined. A key challenge
for leadership is to make sustainability issues mainstream. Strategy, risk,
performance and sustainability have become inseparable; hence the phrase
'integrated reporting' which is used throughout this Report. The achievement
of best practice in sustainability and integrated reporting is only possible if
the leadership of a company embraces the notion of integrated sustainability
performance and reporting.17
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
and the stakeholders for the distribution of responsibilities, rights, and rewards;
(2) procedures for reconciling the sometimes conflicting interests of stakeholders
in accordance with their duties, privileges, and roles; and (3) procedures for the
proper supervision, control, and information flows to serve as a system of checks
and balances. The three value dimensions of corporate governance are corporate
citizenship, ethical leadership and sustainability.
Discussion questions
1. Define strategic control and explain the importance thereof.
2. Explain where strategic control fits into the strategic management process.
3. Differentiate between the various types of strategic control and identify situations
in which a combination of these types of control is deemed necessary.
Learning activities
Access Investec’s 2021 annual report (available online https://www.investec.com/
content/dam/investor-relations/financial-information/group-financial-results/2021/
Investec-Abridged-Report-2021-Online.pdf] to answer the following questions:
Endnotes
1 Williams, C. 2013. Principles of Management. 7 cd. South Western Cengage Learning, p. 417.
2 Caterpillar announces updates and response to CVID-19 and global business conditions.
Available online: https://www.caterpillar.eom/en/news/corporate-press-rcleases/h/cater
pillar-announces-updatcs-and-responsc-to-covid-19.html (accessed 16 May 2021).
3 Caterpillar in Africa. Available online: https://www.caterpillar.com/cn/company/global-
footprint/came/africa.html (accessed 2 June 2021).
4 Whoriskcy, P. 2020. U.S. companies cut thousands of workers while continuing to reward
shareholders during the pandemic. Available online: https://www.washingtonpost.com/
busincss/2020/05/05/dividcnds-layoffs-coronavirus/ (accessed 16 May 2021).
s Busincsstech. 2022.4 new laws proposed for South Africa to look out for in 2022. Available
online: https://busincsstcch.co.za/news/govemment/548226/4-ncw-Iaws-proposcd-for-
south-africa-to-look-out-for-in-2022/ (accessed 1 July 2022).
6 Laasch, 0. fl Conaway, R.N. 2016. Principles of Responsible Management: Global sustain
ability, responsibility and ethics. Stamford: Cengage Leaming.p.451.
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’ Ibid. 459
11 Correia. C., Uliana, E. ft Wormald, M. 2013. Financial Management. 7 ed. Cape Town: Juta.
p. 3-3.
12 Morken, B. 2017. South Africa: Turmoil in Steinhoff and Naspers exposes crisis of the big
capitalists. Available online: https://www.marxist.com/turmoil-in-steinhof-and-naspers-
exposes-crisis-of-the-big-capitalists.htm (accessed 28 January 2019).
11 Business Dictionary. Corporate governance. Available online: http://www.businessdic
tionary.com/definition/corporate-govemance.html (accessed 28 January 2019).
14 Available online: https://www.iodsa.coia/page/govemance_standards_and_codes (accessed
17 September 2022).
15 Available online: https://www.iodsa.coia/page/govemance_standards_and_codes (accessed
17 September 2022).
401
Glossary of key terms
Absorptive capacity: In the context of strategic leadership, absorptive ability refers to the
ability of a leader to learn - to absorb and understand new developments, and to be
able to see how they can be used in the organisation.
Acceptability: A strategic decision is acceptable if the expected performance outcome of
the strategy meets the expectations of all stakeholders.
Adaptation: Changes undertaken to realign the way in which the organisation operates.
Beliefs: Beliefs reflect someone’s sense of what ought to be and can typically be discerned
in how people talk about issues the organisation faces.
Best practice models of planned change: There is a recipe that can be learned for
managing change successfully.
Broad-Based Black Economic Empowerment (BBEEE): a national initiative for economic
transformation where legislation in the form of the Broad-Based Black Economic
Empowerment Act (53 of 2003) promotes the economic empowerment of all black
people (i.e. African, coloured and Indian).
Business ethics: Business ethics is the study of what constitutes right and wrong, or good
and bad, human conduct in a business context.
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
Capabilities: The capacity of an organisation to deploy resources for a unique end result.
The strategic value of capabilities is determined by its ability to generate revenue, its
rarity, how difficult it is for competitors to imitate or copy, and the extent to which
the organisation is able to organise itself in order to exploit its capabilities.
Carbon footprint: The amount of carbon dioxide released into the atmosphere as a result
of the activities of a particular individual, organisation, or community.
Change agents: Although top managers should take the lead in transforming an
organisation to become a sustaining corporate, middle managers and employees are
increasingly appearing as leadership figures in grassroots initiatives. So-called change
agents can be found throughout the organisational architecture and in all hierarchies,
not only in top managerial levels.
Collectivism: The organisation is an entity that can be held accountable for its actions.
In such an organisation, the focus of responsible management will be to create an
organisational culture that is one of sustainability, responsibility and ethics.
Competitive advantage: Organisations have competitive advantage when they achieve
superior performance (in other words, performance consistently better than the
market average) in the markets they compete in.
Constructivism: Supporters of constructivism believe that ethical decisions are enacted
through socially shared beliefs and human interactions are based on what is best for
the organisation.
Co-operative strategy: Co-operative strategies allow different organisations to form
partnerships to share resources, capabilities or technical know-how to build a
competitive advantage.
Core competencies (also known as distinctive capabilities): Those capabilities or
competencies that distinguish an organisation from others in an industry and form
the basis of its competitive advantage.
Corporate citizenship: This incorporates a concern for the social, environmental and
economic performance of the organisation and a concern for the role, scope and
purpose of the organisation.
Cost leadership strategy: A cost leadership strategy involves becoming the lowest cost
organisation (with regard to production cost) in a domain of activity by a significant
margin.
404
GLOSSARY OF KEY TERMS
Culture indicators: Indicators that provide a dashboard of the organisation's culture and
various subcultures.
Cultural web:The cultural web shows the behavioural, physical and symbolic manifestations
of a culture that inform and are informed by taken-for-granted assumptions, or
paradigm, of an organisation.
Deliberate strategy: Deliberate strategies are strategies that mostly originate from a
central direction and organisational hierarchy in a formal setting.
Deliverables: A project consists of various deliverables, whereas deliverables consist of
various activities.
Differentiation strategy: A differentiation strategy involves uniqueness along some
dimension that is sufficiently valued by customers to allow a price premium.
Dynamic consistency: The extent to which the strategies of the organisation match with
its (internal) resources and capabilities.
Ecological intelligence: The manifestation of behavioural attributes that contribute in
making of decisions that are ecologically safe at personal, local and global levels.
Emergent strategy: An emergent strategy differs from the original intention and is deemed
open, flexible and responsive to enable adaption to the environment to take place.
Entrepreneurial structure: An organisational structure built around the owner-manager,
usually utilised by small organisations in the start-up stages of their development.
Ethical leader: An ethical leader can be described as someone who not only does the right
thing, but also does so in the right way and for the right reasons.
Ethical strategic leadership: An ethical leader has a moral character and the ability to
communicate this sense of ethics to a team or organisation.
Evolutionary change: Transformational change that is implemented gradually (or
incrementally) through inter-related initiatives.
Explicit knowledge: Knowledge that can be taught or conveyed with case.
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PRACTISING STRATEGY: A SOUTHERN AFRICAN CONTEXT
External Factor Evaluation Matrix: This refers to a decision-making tool that strategists
use for summarising and evaluating the strategic significance of identified political,
economic, socio-cultural, technological, legal, environmental and global factors to an
organisation.
External growth strategy: External growth strategies create diversification by means of
new products or markets or integration when organisations acquire an organisation
similar to the current business.
External (or macro-) environment: The external environment refers to the market and
remote environments outside an organisation's boundaries and comprise the sum of all
the external variables impacting on its competitiveness, growth and survival.
Feasibility: A strategic decision is feasible if the organisation has, or can obtain, the
capabilities required to deliver a strategy.
Functional structure: An organisational structure whereby the activities belonging to
each functional area are grouped together into a unit or department.
406
GLOSSARY OF KEY TERMS
Leading: Leading entails directing human resources and motivating them in such a way
that their actions are aligned with the goals of the organisation.
Learning organisation: A learning organisation is an organisation skilled in creating,
acquiring and transferring knowledge and in modifying its behaviour to reflect new
knowledge and insights.
Legal environment: A sub-environment of the remote environment comprising the variables
from which legal and regulatory factors, conditions or trends such as consumer laws,
labour laws, anti-trust laws and occupational health and safety regulations originate.
Lower management: This level of management is responsible for smaller segments of the
organisation.
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Management: The process of working with and through others to achieve organisational
objectives as efficiently and effectively as possible within a changing environment.
Management levels: These represent the tiers of managers within an organisation and
normally differentiate between top-level, middle-level and lower (or first-level) level
management.
Management process: A structured, interrelated activities designed to produce a specific
output.
Manager: A person responsible for running part of or the whole of an organisation.
Materiality matrix: The materiality matrix is recognised as a valuable tool to analyse the
materiality of the organisation concerning its stakeholders. This matrix provides a
visual illustration of the significance of material matters to the business itself, rating
these matters along the x-axis, while simultaneously rating the same matters on the
y-axis according to their influence on the assessments and decisions of stakeholders.
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Project management: Project management involves the planning, organising, leading and
controlling of a project and requires a project team to set the scope for a project,
to develop a project schedule, to obtain project resources, to implement the project
phases and to track progress.
Project strategy: The identification of the strategic and financial value and benefits that
are expected from the project, how the project will be governed, and how project
success will be measured.
Political environment: The political environment refers to a sub-environment of the
remote environment comprising the variables from which political factors, conditions
or trends such as political climate, government policies and government intervention
originate.
Porter’s five forces analysis of competition: A tool used to help understand the industry
context of an organisation in terms of how and why competition in the industry works
and how the forces of competition affect your profitability.
Portfolio: an investment fund aimed at managing and attaining strategic goals and plans.
A portfolio funds various approved projects.
Project: A project has a clear objective with an organised set of activities to be carried out
in order to attain its objective. Each project in a portfolio is prioritised and activated
based on its contribution to the strategic goals and plans of the organisation.
Realism: Realism is best characterised by duty ethics, where the latter would suggest that
employees should choose a course of action based on their duty to uphold appropriate
rules and principles, for example the law.
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GLOSSARY OF KEY TERMS
Reconstruction: Change undertaken to realign the way in which the organisation operates
with many initiatives implemented simultaneously.
Remote environment: The remote environment surrounds the market environment and
includes political/legislative, technological, economic, cultural, ecological/physical,
and international sub-environments. The remote environment is also referred to as the
macro-environment.
Resource allocation: The allocation of organisational resources (such as funds, people,
space, and technology) to strategy implementation efforts.
Resource-based view (or resource-based theory): The resource-based view (RBV) holds
that competitive advantage of an organisation primarily stems from its unique
resources and capabilities rather than from its positioning in the market
Resources: Resources are the inputs that are necessary to produce outputs in an
organisation and include people, money, raw materials, knowledge, technology,
information and components.
Resources: tangible resources, intangible resources: Resources are the productive assets
owned by the organisation, and can be tangible (such as land or money) or intangible
(such as intellectual capital).
Responsibility: the term 'responsibility' means to have a duty to deal with something
or someone, or the state of being accountable for something. In the context of
responsible management, responsibility focus on stakeholder engagement with the
aim to optimise stakeholder value.
Responsible strategic leadership: The art of building and sustaining morally sound
relationships with all relevant stakeholders of an organisation.
Revolution: Transformational change that occurs through simultaneous initiatives in
many aspects.
Scenario: A description of alternative futures arising from a series of trends and possible
events.
Self-contained organisation: A self-contained organisation conducts all its processes
internally with external support.
Six capitals: The capitals or stocks of value, which are available in the external context
and are required as inputs into an organisations' value-creating throughput process.
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Special alert control: A type of strategic control that involves a rigorous and rapid
reassessment of the organisation's strategy because of the occurrence of an immediate,
unforeseen event.
Stakeholder: A stakeholder is a person or groups of people who have, or claim to have
ownership, rights or interests in an organisation and its activities, past, present and
future. Such claimed rights or interests are the result of transactions with, or actions
taken by the organisation, and may be legal or moral, individual or collective.
Strategy: those actions that will help the organisation to achieve its strategic goals.
Strategic agility: Strategic agility refers to the ability of organisations to stay competitive
in their industry and markets, by adjusting and adapting to new ideas and using these
ideas to create new products and services, as well as new business models. It also
refers to the ability of an organisation to effectively manage change, continuously
adapting its organisational bureaucracy, systems, products, services and culture to
survive shocks and prosper from the forces that often decimate its competitors.
Strategic business units: A strategic business unit is an organisational unit that exercises
control over most of the resources they require to be successful.
Strategic change: Deep organisational change that seeks to improve an organisation's
competitive position by improving certain of its features. Strategic change involves
a change in the strategic direction of the organisation and the implementation of
new strategies, involving major changes to the normal or previous routines in the
organisation.
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GLOSSARY OF KEY TERMS
Strategic risk management: The identification and evaluation of actual and potential
risk areas as they pertain to an organisation as a total entity, followed by a process
of either avoidance, termination, transfer, tolerance (acceptance), exploitation, or
mitigation (treatment) of each risk, or a response that is a combination or integration
of these.
Strategic surveillance: This type of strategic control is designed to observe a wide range
of events within and outside an organisation that is likely to affect the track of the
organisation's current strategy.
Strategic thinking: Strategic thinking is 'big picture' thinking that is focused on the
future and represents a certain willingness to take calculated risks in pursuit of success.
Strategising/strategy making: Strategising refers to the act of strategy making, which
is what happens when practitioners use strategy tools and processes to develop,
implement, review and do strategy.
Strategising: Strategising is essentially what strategists do, and can be described as
devising or influencing strategies.
Strategists: Any individual or group in the organisation that controls key or precedent
setting actions.
Strategy: The direction provided by the actions and decisions of strategists in pursuit of
organisational goals.
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Strategy formation: All of the informal and formal practices and processes that shape the
strategy of the organisation.
Strategy implementation: Strategy implementation refers to the process during which
the organisation draws on both human and non-human factors in the organisation to
ensure that the strategy is executed in line with the plans devised during the strategic
planning phase.
Strategy map: A strategy map is drawn up by specifying strategic objectives for each
element (financial, customer, internal business processes, learning and growth) of the
BSC.
Strategy practices/tools of strategy: Strategy practices refer to the social, symbolic and
material tools through which strategic work is done.
Strength: A strength refers to an internal organisational resource and capability that can
lead to a competitive advantage.
Suitability: A strategic decision is suitable if there is strategic fit between the organisation's
resources and capabilities and the external opportunities present in the market.
Sustainable competitive advantage: The ability of the organisation to survive and
outperform rivals in the long run based on its competitive advantage that is relevant
and durable over a period of time.
Sustainability: The ability of an organisation to continue to do business over the long
term - and possibly indefinitely.
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GLOSSARY OF KEY TERMS
SWOT analysis: The acronym SWOT stands for strengths, weaknesses, opportunities and
threats. This is a very popular strategy analysis tool, as it combines an analysis of the
organisation's internal context with an analysis of its external context.
Tacit knowledge: Gained through experience, insight and intuition, which is difficult to share
or record, making it virtually impossible to emulate or sell. Therefore, tacit knowledge
can be very valuable and can lead to a competitive advantage for an organisation.
Tactical plan: Tactical plans state the direction of the functional areas of the organisation
with a medium-term time horizon.
Value chain: A value chain is a set of activities that an organisation performs to create
value for its customer.
Vision (or vision statement): The vision statement is often referred to as the dream
of the organisation. It is used as an indicator of the desired future position of the
organisation.
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Index
Page numbers referring to figures and tables are in italics.
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INDEX
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422
INDEX
G human
capital 120
Gantt, Henry, and scientific approach to
management 9 environmental damage 137
relations approach, to management
Gantt chart 9
11-12
Gilbreth, Frank, and scientific approach to
resources 147, 166, 167, 168
management 8-9
Human Development Index (HDI),
Gilbreth, Lillian, and scientific approach to
management 8-9 development of 18
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INDEX
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426
INDEX
427
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428
INDEX
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Sappi Limited (case study) 3-7 and responsible accounting 382, 382
scenario planning 139-140 and responsible corporate citizenship
scenarios for South Africa 140 126
and responsible strategic leadership
scientific approach (to management)
342-345, 343
development of 8-9
view of 21
principles of 8
stakeholder theory
secondary stakeholders 126
and corporate social responsibility
segment and opportunity matrix 215-217, (CSR) 23
216
and responsible management 21-22
self-contained organisation 360
stakeholder value
shared value, and responsible management definition of 25
36
and organisational structure 355
shareholder(s) and responsibility 127
capitalism 56-57
Starbucks Corporation (case study)
responsible strategic leadership 352-354
344-245
Starbucks
value maximisation 57
leadership at (practising strategy)
SMART principles, applied to strategic 367-368
goals 81-82
organisational structure (practising
social strategy) 361-363
aspects of work 11-12 and responsible competitiveness 191
capital 120 state-owned enterprises
crises, and sustainable development and business risk 34
17 and ethical corporate behaviour 45
environment, and responsible strategic
Steinhoff International (case study)
leadership 344
330-333
factors, and internal context analysis
strategic
136,138
alliance strategies 211
margin 184
objectives 52
society, and strategic management 36
planning champion (SPC) 108-109
sourcing, responsible 30, 142
planning, and failure of change
South Africa efforts 251
and PESTLEG 138-139 priorities 134, 172
scenarios for 140 resources 161,168
special alert control 90, 380 risk management 391-392, 392
specialised processes, and responsible success, measure of 56-57
organisational structure 365 surveillance 90, 92, 379-380, 399 (see
stakeholder(s) also environmental scanning)
accountability, definition of 380-390 thinking 49,50, 103
analysis 140-141 strategic analysis
approach, to strategic success 57 and data collection 131
definition of 22, 23 definition of 130
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INDEX
framework 192-193 W
principles 173-175, 191 water crises
values and norms (iceberg analogy of in sub-Saharan Africa 34
organisational culture) 311-312, 308 and sustainability 16, 29
virtual organisation 361 water footprint 141,142
visible artefacts (iceberg analogy of Weber, Max, and bureaucratic approach to
organisational culture) 308-310, 308 management 9-10
vision statement 78-79. 363 well-structured problems, and strategic
Vodacom (case study) 305-306 analysis 130
volatility, uncertainty, complexity, and Woolworths (practising strategy) 106,
ambiguity (VUCA) 131 110-111
Volkswagen (practising strategy) 220 word clouds 132, 132
and misconduct 31-32 working conditions, and unrest 11
VRIO (valuable, rare, inimitable and workplace diversity, and business
non-substitutable, and exploitable by responsibility 29
organisation) and resources 173-176 World Economic Survey (2019), and
vulnerable employment, in sub-Saharan business risks in sub-Saharan Africa
Africa 33 32-36
writing, technology of 7
435