PART TWO: PLANNING

Cha • Ethics and corporate social responsibility

pte
r4

Cha • Strategic analysis

pte
r5

• Strategic planning and strategy

Cha
pte formulation
r6

Cha • Fundamentals of decision-making

pte
r7
 CHAPTER FIVE: STRATEGIC ANALYSIS
Learning objectives:

• Identify the main elements of the external environment;

• Understand the role and impact of the macro-environment on organisational
decision-making;
• Understand the role and impact of the industry environment on
organisational decision-making;
• Identify the Five Forces that drive competition in any industry;
• Use the Issues Priority Matrix to classify both identified opportunities and
threats as either high priority, medium priority or low priority;
 CHAPTER FIVE: STRATEGIC ANALYSIS
Learning objectives:

• As part of the internal environment, distinguish between resources and

capabilities;
• Distinguish between threshold, core and distinctive capabilities;
• Explain why core capabilities need to be valuable, unique, difficult to copy and
non-substitutable in order to provide an organisation with a sustainable
competitive advantage;
• Apply the Relative Strength/Strategic Importance Matrix to identify the key
strengths and key weaknesses of an organisation.
 LOOK OUT FOR THE FOLLOWING
COMPETENCIES IN THIS CHAPTER
COMPETENCY WHO HAS DEMONSTRATED IT?

C - COMMUNICATION Sasol (sports sponsorships, arts,

community programmes, clear
communication)
P - PLANNING AND FINANCIAL MANAGEMENT Medi-clinic (high-growth, high
barriers to entry, strong
operational cash flows, compelling
investment case)

T – TEAMWORK PwC’s strategy

S – STRATEGIC ACTION www.trendwatching.com

G – GLOBAL AWARENESS SA media organisations developing

digital strategies
 South African insight
SA’s economy seems to be limping along although not quite
falling over
• GDP (Gross Domestic Product): 3.2 (2011) - 0.3 (2016)
• Consumer spending & fixed investment: main contributors
• Issues that South African managers need to monitor closely:
• Household consumption growth
• Consumer’s disposable income
• High unemployment
• Weak economic growth
• Interest rates
• Capital expenditure on infrastructure
• Investment spending
• Strike action
• Inflation
WATCH: “SA economic outlook’. Accessible from:
https://www.cnbcafrica.com/videos/2017/10/11/sa-economic-outlook-2/
 5.1 The interrelationship between
an organisation and its external
environment
• Strategic analysis: evaluation of the
• External environment
• Macro-environment & industry environment
• Use the industry-organisation model
• Internal environment of organisations
• Organisational resources & capabilities
• Use the resource-based model.
Key concepts: External environment; Internal environment; Industry-organisation model;
Resource-based model
External environment: macro- and industry environments of an organisation
Internal environment: organisation’s resources and capabilities
Industry-organisation model: holds that the primary determinant of an organisation’s
strategies is the external environment (i.e. macro- and industry environments)
Resource-based model: holds that the primary determinant of an organisation’s strategies is
the organisation’s internal environment (i.e. resources and capabilities).
 5.1 The interrelationship between an
organisation and its external environment
(cont.).
• Figure 5.1: Interrelationships between the organisation and its
external environments
 5.2 The strategic importance of the
external environment

Scanning Monitoring Forecasting Assessing

• Studying all • Monitor • Develop • Work out

elements in changes to estimates of implications
external identify what might of changes or
environment trends happen trends
• Identify early • Attach • Based on • Implications
signs of meaning to trends for the
changes / trends or identified organisation’s
existing events strategy and
changes tactical
• Scenario decisions
analysis (see
Figure 5.2)
 5.3 Elements of the macro-
environment
Political-legal

Natural
Economic
environment

Macro-
environment

Socio-cultural
Technological and
demographic
 5.3 Elements of the macro-
environment (cont.).
• 5.3.1 Political-legal environment
• What do governments have control over?
• Legislation and regulation
• Economic policy READ: South Africa – AGOA,
• SOEs accessible from:
• E.g. SAA, Eskom etc
https://agoa.info/about-agoa.html
• International policy (last accessed on 20 January
• E.g. AGOA 2018).

Key concept: Political-legal environment

Political-legal environment: part of the macro-environment that is under the direct or indirect
control of the government or state.
 5.3 Elements of the macro-environment (cont.).

• 5.3.1 Political-legal environment (cont.).

• Governments seek to influence business activity as
follows:
• Control of inflation
• Promotion of economic growth DO: Class activity
• Control of unemployment Select at least five of the
• Control of employment ways that governments
seek to influence
• Stabilisation of exchange rates business activity and
• Control of the balance of payments provide South African
• Control of monopoly power examples – report back to
the class.
• Redistribution of incomes
• Consumer protection
• Regulation of working conditions
• Regulation of trade
• Industry-specific regulations (e.g. ICASA)
 5.3 Elements of the macro-
environment (cont.).
• 5.3.1 Political-legal environment (cont.).
• Examples of political risk that managers should be
aware of include:
• Nationalisation and expropriation
• Unfair competition from the public sector
• Unexpected imposition of discriminatory taxation
• Unexpected imposition / tightening of foreign
exchange controls
• National hostilities and military intervention.
 5.3 Elements of the macro-
environment (cont.).
• 5.3.2 Economic factors
• Strong links to Political factors
• National economy is regulated by fiscal policy and
monetary policy
• Effects of both fiscal and monetary policy measured
by: Key concepts: Fiscal policy; Monetary
• Rate of economic growth (using GDP) policy; Agility; Absorption
• Agility and Absorption Fiscal policy: regulation of national
• economy through management of
Levels of income
government revenues and expenditure
• Exchange rates
Monetary policy: regulation of the
• Levels of unemployment national economy by changing the
• Balance of payments supply of money (volume of money) and
• Levels of inflation ‘price’ of money (interest rates)
• Levels of productivity Agility: nimbleness of businesses
• Wage levels and rate of increases Absorption: ability of a company to
• Patterns of consumer demand. cushion itself.
 5.3 Elements of the macro-
environment (cont.).
• 5.3.3 Socio-cultural and demographic environment
• Social culture
• Culture: made up of values, attitudes and beliefs
• Value: basic belief about a condition that has
importance and meaning to individuals and is
relatively stable over time
• Value system: multiple beliefs that are compatible
and supportive of one another
• Culture impacts: consumer taste and preferences;
attitudes towards work, education, ethics
corruption and work.
 5.3 Elements of the macro-
environment (cont.).
• 5.3.3 Socio-cultural and demographic environment
(cont.).
• Social culture (cont.).
• Hofstede’s six dimensions of national culture:
• Uncertainty avoidance Managers should avoid
• Individualism cultural pitfalls; avoid
• Power distance upsetting customers; avoid
breaking sacred taboos; avoid
• Masculinity ignoring time-honoured
• Long-term orientation customs.
• Indulgence.
LISTEN: “South Africans Reflect On Mandela's 'Rainbow Nation’”, accessible from:
https://www.npr.org/2013/12/13/250734816/south-africans-reflect-on-mandela-s-
rainbow-nation
(last accessed on 20 January 2018).
 5.3 Elements of the macro-environment (cont.).

• 5.3.3 Socio-cultural and demographic environment (cont.).

• Demography and social structure
• Population
• Age
• Gender
• Population groups
• Household income
• Education attainment
• Managerial challenges relating to demography and social
structure:
• Market segmentation (strategies of product
development etc)
• Diverse workforce
• Shifting SA economy
• HIV/Aids
 5.3 Elements of the macro-
environment (cont.).
• 5.3.4 Technological environment
• Information technology
• CAD
• Consumers can shop online
• Managers can determine profit and loss positions daily
• Retail banking functions
• Social media (positive and negative information about an
organisation’s activities quickly communicated)
• Cloud computing
• Manufacturing technology
• New production techniques
• Sophisticated robots
• Flexible manufacturing and mass customisation
• Competitive advantage
Key concept: Technology
Technology: refers to the knowledge, tools, techniques and actions used to transform ideas,
information, and materials into finished goods and services
 5.3 Elements of the macro-
environment (cont.).
• 5.3.5 Natural environment
• Sustainable development
• Brundtland Commission
• Triple bottom line
• King IV report
• Actions organisations should take:
• Comply with protective legislation voluntarily and proactively
• Compensate for environmentally risky endeavours
• Comply early
• Promote new manufacturing technologies
• Recycle water and waste
 5.4 Elements of the industry
environment
• TABLE 5.3: Porter’s Five Forces and profitability

WATCH: ‘U.S. Tech Superpowers Are Getting Some Overseas Competition’ Accessed
from: http://fortune.com/2017/08/31/china-google-apple-facebook-challengers/
WATCH: ‘The explainer: Porter’s five forces’. Accessed from
https://hbr.org/video/3590615226001/the-explainer-porters-five-forces
 5.5 Assessing the turbulence in the
external environment
• Certain elements are more turbulent than others
• Level of turbulence: continuum (repetitive – surprising)
• Turbulence is influenced by changeability and predictability
• Turbulence levels increase: degree of changeability increases;
difficulty of predicting changes increases
• Population growth: repetitive, change is familiar, recurring (easy
to predict)
• Information technology: surprising, discontinuous and novel
changes, unpredictable
• Surprising elements present the greatest challenges for managers

READ: ‘How to manage morale when companies hit turbulence’. Accessible from:
https://www.forbes.com/sites/robertsher/2015/10/12/how-to-manage-morale-w
hen-companies-hit-turbulence/#28fc259e1468
(last accessed on 22 January 2018).
 5.6 Identifying and evaluating
opportunities and threats
• FIGURE 5.3: Issues Priority Matrix
 5.7 The internal environment
• Internal environment of the organisation is made up of resources
and capabilities
Intangible
(brand value,
reputation
etc)
Tangible Human
(physical) resources

Resources

Key concepts: Resources; Capabilities

Resources: tangible, intangible or human capital that can be used to fulfil organisational goals.
Capabilities: complex combinations of assets, people and processes that organisations use to
transform inputs into outputs; and represent accumulated learning and proficiencies built up
over time.
 5.7 The internal environment
(cont.).
• Internal environment of the organisation is made up of resources and
capabilities
• Table 5.4: Core and threshold capabilities of a hypothetical soft-drink bottler

Key concepts: Resources; Capabilities

Resources: tangible, intangible or human capital that can be used to fulfil organisational goals.
Capabilities: complex combinations of assets, people and processes that organisations use to
transform inputs into outputs; and represent accumulated learning and proficiencies built up
over time.
 5.7 The internal environment
(cont.)
• Internal environment of the organisation is made up of resources and
capabilities
• Table 5.5: Outcomes from combinations of the criteria for sustainable
competitive advantage

Key concepts: Threshold capabilities; Core capabilities; Distinctive capabilities

Threshold capabilities: (what an organisation can do) represent the minimum capabilities that
an organisation needs in order to participate in a particular industry
Core capabilities: is an evolved threshold capability; develops when a well-performed activity is
central to what delivers value to the customer, and is therefore central to the organisation’s
competitiveness and profitability
Distinctive capabilities: core capabilities that an organisation performs better than its
competitors.
 5.7 The internal environment
(cont.).
• Assessing the strengths and weaknesses in an organisation’s
resources and capabilities using the Relative Strength/Strategic
Importance Matrix
Identify the key
resources and
capabilities

Appraising
resources and
capabilities

Developing
strategy
implications
 5.7 The internal environment (cont.).
• Assessing the strengths and weaknesses in an organisation’s resources and capabilities
using the Relative Strength/Strategic Importance Matrix
• Figure 5.4: The Relative Strength/Strategic Importance Matrix:
Appraising Volkswagen’s resources and capabilities (hypothetical)
 Management in reality
Case study: Politics, policy and Mr
Clean?

Clip-to-case: Watch the following clip:

• ‘Ramaphosa speaks on South
Africa's new era’:
https://www.iol.co.za/ios/news/w
atch-ramaphosa-at-davos-on-
change-zuma-cape-towns-water-
and-trump-12951081
 Class activity
 Divide into groups of 3-5 members.
 You are a consultancy team hired by Ster Kinekor
 Make use of tablets, smart phones etc to look up information
regarding the general trends noted in the film entertainment
industry
Principle-
 Consider the implications of these trends for Ster Kinekor led
Flexible
 Identify at least one sustainableviewpoint
competitive advantageviewpoint
that
Ster Kinekor could develop to ensure survival
 Use the five-forces framework as a basis for viewpoints
New
developing
strategic actions that Ster Kinekor could take to ensure its
survival.

 Report back to the class.

 Chapter Summary

Organisation & external Strategic importance of the Elements of the macro-

environment interrelated external environment environment

Now that we know about

strategic analysis let us apply it to Elements of the industry
Internal environment
the formulation of strategies and environment
strategic planning in Chapter 6.