TOPIC 1 – STUDY UNIT 1.1 – AN OVERVIEW OF STRATEGIC MANAGEMENT
1.1 INTRODUCTION (READ)
Managers should realize they have an influence they can influence the competitive landscape. They need to start with a point
of view of how the world can be, not how to improve what is available but rather how to alter it drastically. There are 4
transformations that influenced and continue to influence the business models and work of strategists:
1. Expansion of available strategic space – Companies can decide and change their business portfolios. The forces of
change have provided business with new strategies and new opportunities.
2. Business will be global – All adds to the complexity of strategic management and planning.
3. Speed will be critical – A critical element due to the nature of competitive changes.
4. Innovation as a new source of competitive advantage – usually tied to product and process innovation but has shifted
to innovation in business models.
Managers operate in changing environments, taking resources from the environment and transforming these resources into
final products or services. The concept of systems theory describes the organisation is an open system that operates in a
specific environment, the whole is greater than the sum of its parts.
Management consists of four functions: planning, organising, leading and controlling. Different managers work at different
levels and meet different requirements. Management levels consist of top management, middle management and lower/first-
line management. Top management is represented by the CEO and
the board of directors: together, they are responsible for the whole organisation.
The middle management level represents the functional managers, such as the HR manager, the marketing manager and the
financial manager. They are only responsible for the specific department or functional area under them. The lower/first-line
managers are the supervisors who have more technical skills and who are more actively involved in the day-to-day business
operation.
The three main skills for sound management :
1. conceptual skills - refer to the mental ability to
view the organisation as a whole
2. interpersonal skills - refer to the ability to work
with people
3. technical skills - refer to the ability to use the
knowledge or techniques of a specific discipline to
attain objectives
2.2 DEFINING STRATEGIC MANAGEMENT (1.2.1)
Management involves planning, leading, organizing and controlling. Strategy is an effort or deliberate action that an
organisation implements to outperform its rivals. It is an organisations theory about how to gain competitive advantage.
Strategic management - the process whereby all the organisational functions and resources are integrated and coordinated to
implement formulated strategies which are aligned with the environment, in order to achieve the long-term objectives of the
organisation and therefore gain a competitive advantage through adding value for the stakeholders.
Competitive advantage is the edge that an organisation has over others. To achieve this, an organisation needs to meet the
needs of stakeholders, i.e. adding value. The leap-frog effect is when competitors emulate your strategy and retaliate in a more
competitive way.
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,2.2.1 STRATEGY: DIFFERENT VIEWPOINTS (1.2.2)
Montgomery states that strategy is Traditional View Emerging View
to just a plan that positions a View Strategy as fit with resource Strategy as stretch and leverage
company in its external landscape Industry Space Strategy as positioning in existing Strategy as creating new industry
but rather strategy guides the industry space space
development of the company’s Responsibility Strategy as top management Strategy as total and continuous
identity over time, i.e. a strategy as a activity organisational process
set solution, with the missing Exercise Strategy as an analytical exercise Strategy as an analytical and
element, namely strategy as a organisational exercise
dynamic process. Direction Strategy as extrapolating from Strategy as creating the future.
the past.
2.2.2 THE PEOPLE INVOLVED IN STRATEGIC MANAGEMENT (1.2.3; 1.2.4)
Environmental analysis is the responsibility of every manager. A strategy formulation is mainly the responsibility of top
management. Strategic implementation can only be achieved with communication from all the parties involved
Employees are the catalysts and drivers of strategy implementation. The 3 stages of the strategic management process are:
1. Environmental analysis – responsibility of every manager at every level but driven by top management but by means of
inputs from all levels. Functional and supervisory managers work as specialists so their environmental scanning is
important.
2. Strategy formulation - top management responsibility to formulate strategy from results of environmental analysis
with input from all levels management.
3. Strategy implementation – most challenging stage when formulated strategy needs to come to life with the buy-in
from employees and other stakeholders.
Strategic planning champions (SPC) refers to strategy practitioners who “introduce, promote and guide the strategies planning
process in an organisation”. An SPC is thus a skillful strategic thinker and analytical planner and should also be:
Social craftsperson – The ability to bring different expectations from different the different groups together.
Artful interpreter – Who has enough understanding of the local norms, routines and positions of other role players to
be able to adjust the strategic planning process to suit local rules.
Known stranger – Who has the ability to maintain a balance between closeness and distance to other players in the
strategic planning process.
Strategic management involves both qualitative and quantitative decisions:
Quantitative decisions are built on proper strategic analysis and choice. Strategic options and plans are developed after
a thorough environmental analysis.
Qualitative decisions are based on a ‘gut feeling’ or intuition.
2.2.3 LEVELS OF STRATEGY
Strategic decisions are made at three levels. This module focuses on business level strategy, which is also referred to as
competitive strategy. Carpenter & Sanders (2009) state that:
Corporate strategy - guides a firm’s entry and exit from different businesses, determines Corporate Strategy
how a parent company adds value to and manages its portfolio of businesses, and
creates value through diversification.
Business-level strategy - more concerned about developing and sustaining a competitive
advantage for the goods and services that the company produces. It is the strategy used Business Strategy
to compete against other companies in a particular industry.
Functional strategy - decisions involve the development and coordination of resources
through which business unit level strategies can be executed efficiently and effectively. Functional Strategy
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,3. CONTEMPORARY APPLICATIONS OF STRATEGIC MANAGEMENT (1.3.5)
Strategic management not only applies to profit-oriented organisations, but is also relevant to the survival of non-profit
organisations and NGOs. These include governments, schools, sports clubs and churches. As profits are not their main goal,
they tend to focus on expenses and income.
Many not-for-profit organisations have more stakeholders than big corporations. Argument is stronger to implement strategic
management as they have more time, do not operate in a cut-throat and fast moving environment.
The trend of doing business globally has increased over the past few years, largely due to globalization and integrated
economies. This can be seen as an opportunity and a threat but the basics of strategic management remain the same, but with
a few more options available to managers.
Strategic issues and concepts leading us into the future (1.6)
Ethics and strategy
Companies cannot ignore the link between ethics and strategy after Enron and WorldCom scandals. The strategy process
represents an ‘appropriate locus’ for ethical reflection within the organisation. Strategy formulations representing ethical
reflection on a corporate level
Stakeholder management
Stakeholders in a firm are individuals and constituencies that contribute, either voluntarily or involuntarily, to its wealth-creating
capacity and activities, and who are therefore its potential beneficiaries or risk bearers.
Stakeholders play an important part in the creation of organisational wealth. The challenge of strategic management is to
create a balance between the interests of diverse stakeholders who are voluntary or involuntary involved in the operation of
the business and usually relationships rather than transactions responsible for organisational wealth.
Voluntary stakeholders - contribute directly to the operations of the organisation, include investors, employees,
customers, market partners, etc.
Involuntary stakeholders – Thos affected by things such as pollution and congestions and the focus is on reducing harm
and avoiding or creating benefits.
Innovation economy and knowledge management
There has been a clear shift from industrial economy to innovation economy as rapid sharing of knowledge forces those
involved to reinvent and constantly adapt. Companies that will be successful are those that take information and transform it
into value-creating knowledge and use it to innovate, i.e. creative thinking and visionary companies succeed, innovate or be
damned.
Innovation – New products, business processes and organic changes that create wealth or social welfare.
Knowledge management
Knowledge management – in its broadest sense it is seen as a generic process through which organisations generate value from
knowledge. There is a difference between knowledge and information. Information is data organized into meaningful patterns
and this is transformed into knowledge when read, understood, interpreted and applied to a function.
Tacit knowledge – knowledge that cannot be explained properly. It can only be passed from one person to the next by
a long process of apprenticeship.
Explicit knowledge – easy to communicate and easily transferred, resides in formulae, textbooks or technical
documents.
Knowledge can lead to competitive advantage but organisations are already flooded with more knowledge that they can
handle. Knowledge management solves this by designing processes that oversee the creation, distribution and utilization of
knowledge to meet organisational goals.
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, Innovation management
Innovation management is a field of discipline that deals directly with issues relating to how the innovation process can be
managed efficiently. It is essential to create efficient use of knowledge to create better, faster, more cost-effective innovations
to stay competitive. Knowledge management and innovation management should not be treated separate.
Knowledge innovation
Knowledge innovation is defined as the creation, evolution, exchange and application of new ideas into marketable goods and
services, leading to the success of an enterprise, the vitality of a nation’s economy and the advancement of society.
Knowledge innovation recognizes 2 key elements:
1. Knowledge, not finance or technology, as one of the core components of innovation and
2. Actions associated with managing the flow and use of knowledge in an innovation process
The real benefit for companies lies in the ability to utilize knowledge for innovation
Multiculturalism of South African organisations and knowledge management.
Knowledge depends on experience and can be regarded as a process that is personal and subjective. Culture plays an essential
role in knowledge sharing and challenge is to utilize the richness of ethnic groups in order to enhance productivity and global
competitiveness.
Advantages of multiculturalism are the diversity of ideas, influences and cultures which can lead to new and innovative
thinking.
The knowledge manager acts as a change agent and facilitator for new ideas. Distrust and miscommunication are causes for the
breakdown of multicultural knowledge sharing. Trust as an integral part of the knowledge sharing process. The manager
showing sensitivity to towards the different languages may encourage understanding.
Multiculturalism in the corporate knowledge environment is a reality that needs to be utilized to achieve innovation. A culture
of trust, understanding, support and openness needs to be actively encouraged.
Corporate entrepreneurship
Intangibles such as knowledge, innovation and entrepreneurial leadership are assets that help companies gain a competitive
advantage. In turbulent rich environments the combination of technological opportunities and demand for new products
creates technology push and market pull forces increasing entrepreneurial behavior.
Corporate entrepreneurship – is the term used to describe the process in which an individual, or group in alliance with an
existing organisation creates a new organisation or instigates renewal or innovation within the organisation.
The 3 dimensions of an entrepreneurial orientation in companies are:
1. Innovativeness – the ability to generate ideas that will result in the production of new products, services and
technologies.
2. Risk taking – refers to the willingness to make resources available to pursue opportunities that may fail but take
precautions to minimize uncertainties. Risks are calculated and manageable.
3. Proactiveness - reflects a managerial orientation of initiative, competitive aggressiveness and boldness in pursuing
opportunities.
Change Management
Change with the times or fail. A primary role of strategists is to deal with change. The common success factors for managing
change, called an Organisational Change Framework, include;
1. Leadership
2. Project management
3. Processes
4. People
5. Learning
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