strategic management assignment introduction

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Rohan Sahani
Prof. Arnoldo Hax

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Sloan School of Management

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Learning resource types, strategic management i, lecture notes.

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Assignment Business strategic management

Business strategy 1, vaal university of technology.

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Introduction

Strategic management is said to be based on the identification and description of the strategies that managers can use in order for them to achieve better performance and a competitive advantage for their organization (management study guide, 2017).

The management study guide (2017) further stated that strategic management can also be regarded as the bundle of decisions and acts which a manager undertakes and which decides the results of the firms’ performance. Strategic management involves setting goals, analyzing the competitive environment, analyzing the internal organization, evaluating strategies and ensuring that management rolls out strategies across the organization.

According to Ehlers and Lazenby (2010), strategic management is defined as the process whereby all the Organisational functions and resources are integrated and coordinated to implement formulated strategies which are in line with the environment; this is done to achieve the long-term objectives of the firm and therefore will help in obtaining competitive advantage while adding value to all stakeholders.

Vision and Mission Statement

A vision statement is where an organisation outlines where they want to be, it communicates both the purpose and the values of a business. A mission statement on the other hand talks about how the organisation will get to where they want to be. It also defines the purpose and the main goals which are related to their customer needs and team values. The vision and mission statements spell out the context in which an organisation operates and provides the employees with a tone that is to be followed in the Organisational climate.

Components of a mission are as follows:

Products and Services

Concern for survival, growth and profitability

Self-concept

Concern for public image

Concern for employees

Clover’s vision statement

To be a leading and competitive company in South Africa and selected African countries, reaching every customer on a daily basis with its most admired branded and trusted products, delivering improved and sustainable shareholder value by being a responsible corporate citizen and preferred employer.

Clover’s mission statement

Clover is a branded foods and beverages group (2) with a strong emphasis on value-added products (7). Clover’s South African dairy business (3) is the perfect enabler to reach the groups widely dispersed customers and consumers (1). Extraordinary care is taken to develop brands which will occupy the number one or two positions in its chosen segments (5). It believes in the superior procurement, production, marketing, sales and distribution of these branded consumer goods to its loyal customers (6, 9).

Revised vision and mission statement

Vision Statement

To be Africa’s leading and competitive company reaching every customer daily with their admired and trusted products, delivering improved and sustainable shareholder value by being a responsible corporate citizen and preferred employer.

In the last column, the weight is multiplied is by the rating of the factor to get the weighted score.
Sometimes it can be useful to include some comments in a further column to make the selected factors clearer.

Opportunities

School feeding programs
Growth of South Africa’s UHT milk market
The increasing in the demand for health and wellness products
taste is changing around the world $ continues merging and develop the markets
expanding in other markets, geographical and in products
acquisition of complementary companies or reduce the weakness $ merging the economy
Become a market of out of home
Open Clover Café’s in the major cities.
They launched a new premium line of higher cacao content in order to cash in on the "recession economy" in which consumers cut back on luxury goods
They can introduce more health-based products, and because they are a market leader, they would likely be more successful
changes in the consumer taste
knowing the local market and the fear of small local companies start competing
The fear of the competition of the big discounters such as wall-mart.
The bad reaction of the political opposition
Threat of organizing
The competition from the big world-known food competitors
The environment regression
The issue of compliances
The factors from macroeconomics

Porte’s Five Forces Model of competition

Porter’s five forces model which is named after Michael E. Porter. Identifies and analysis five competitive forces that shape every industry’s weaknesses and strengths. The forces are as follows:

Competition in the industry- Reason why this force is important it’s because of the number of competitors and their ability to threaten a company.

Potential of new entrants into the industry- A Company has power, but if new entrants enter into their market, it tends to lose that power. The less money and time it costs for a competitor to enter a company’s market and be an effective competitor, the more a company’s position may be significantly weakened.

Power of suppliers- This is the force that addresses how easily suppliers can drive up the price of goods and services. It is affected by the number of suppliers of key aspects of a good or service, hoe unique these aspects are and how much it would cost a company to switch from one supplier to another.

Power of customers- This force deals specifically with the ability customers have in driving down the prices. Affected by how many buyers a company has how significant each customer is and how much it would cost customers to switch from one company to another.

Threat of substitutes- Competitor substitutions that can be used in place of a company’s products or services pose a threat

Internal factors are the outcome of detailed internal audit of a firm obviously, every company has some weak and strong points, therefore the internal factors are divided into two categories namely strengths and weakness. Strengths are the strong areas or attribute of the company, which are used to overcome weakness and capitalize to take advantage of the external opportunities available in the industry. Weaknesses are the risky area which needs to be addressed on priority to minimize its impact. The competitors put their best effort to capitalize on the identified weaknesses.

Steps to develop an IFE matrix

List key internal factors as identified in the internal audit process. Use a total of from ten to twenty internal factors, including both strengths and weaknesses, List strengths first and then weaknesses. Be as specific as possible, using percentages, ratios, and comparative numbers.

Assign a weight that ranges from 0 (not important) to 1 (all important) to each factor. The weight assigned to a given factor indicates the relative importance of the factor to being successful in the firm’s industry. Regardless of whether a key factor is an internal strength or weakness, factors considered to have the greatest effect on organizational performance should be assigned the highest weights. The sum of all weights must equal 1.

Assign a I to 5 rating to each factor to indicate whether that factor represents a major weakness (rating = 1), a minor weakness (rating = 2), a minor strength (rating = 3), or a major strength (rating = 5). Note that strengths must receive a 5 or 3 rating and weaknesses must receive a 1 or 2 rating. Ratings are thus company based, whereas the weights in Step 2 are industry based.

Multiply each factor’s weight by its rating to determine a weighted score for each variable.

Sum the weighted scores for each variable to determine the total weighted score for the organization.

17 iconic South African consumer brand with market recognition, People all over the world trust and recognize Clover, because they have brand recognition.

18 to an attractive industry with favourable fundamentals, they carry leadership in nutrition, especially infant nutrition. Their key priority is innovation in nutrition products.

19 to one of the largest chilled and ambient distribution networks in South Africa Also Professional brands sold to restaurants, colleges, and hotels.

20-enhancing optimisation and expansion projects, in addition to edging ahead operating excellence, innovation, renovation, product availability and low cost operators, which allow them to beat competition, and communication.

21 and unique relationships with its milk producers.

22 growth opportunities, with a high level of market share.

23 management team with significant experience in the dairy and fast moving consumer The production of dairy and non-alcoholic beverage consumer products.

24 distribution of chilled and ambient consumer products.

25 sales and merchandising of fast moving consumer goods

 Growth in their organic food sales division was slightly low in 2008.

 Since 2004 the breakfast cereal industry has been under fire from the FDA and the American Medical Association, both of which say that false claims of "heart healthy" and "lower cholesterol" need to be removed from packaging and advertising. They have also been forced to reduce the amount of sugar in their products, as parent's advocates groups claimed they were contributing to the diabetes epidemic among American children

 Clover is entering into markets that are already mature and can give a tough competition to new entrants.

Key Internal Factors Weight Ratin g

Weighted scr.

Strengths 26 iconic South African consumer brand with market and brand recognition. 0 3 0. 27 to an attractive industry with favorable fundamentals and is innovation in nutrition products. 0 4 0. 28 to largest chilled and distribution networks in SA 0 3 0.

29-enhancing optimisation and expansion projects, in addition to edging ahead operating excellence. 0 4 0. 30 and unique relationships with its milk producers. 0 2 0.

31 growth opportunities & high level of market share. 0 3 0.

32 management team with significant 0 3 0.

33 distribution of chilled and ambient consumer products. 0 2 0.

34 sales and merchandising of fast moving consumer goods 0 3 0.

Weaknesses 35 in their organic food sales division was low in 2008 0 2 0.

36 industry attack by from the FDA and AM Association. 0 2 0.

37 into markets that are already mature and can give a tough competition to new entrants. 0 1 0.

38 Yogurt has proved to be a weakness because it has been unable to make its market place in USA. 0 1 0. 39 company has a complex supply chain management 0 1 0.

40 enough competitive unit $ not fast enough than rivals 0 2 0.

Alternative strategies

GRAND STRATEGIES

Grand strategies are also referred to as alternative strategies, business strategies or master strategies. They provide basic direction for strategic actions. A grand strategy can be described as a comprehensive generic approach that guides a firm’s actions. Grand strategies can contribute to achieving cost leadership, differentiation and focus.

There are three types of grand strategies namely:

 Growth strategies,  Decline strategies and  Corporate combination strategies.

Growth strategies

Growth strategy consists of internal and external growth strategies.

Internal growth strategy

Included in this internal growth strategy is:

Concentrated growth/market penetration- with this strategy the market share of an organisation will be increased through concentrated market efforts. These efforts will include customisation of the organisation’s product features, prices, distribution channels and promotional strategies in order to meet the needs and expectations of consumers in that particular market better than its competitors.

Market development- involves expanding the portfolio of markets that the organisation serves. Present products or services are therefore introduced into new geographical areas as well as other countries.

Product development- this refers to the improvements and modifications of the organisation’s products and services. This is only effective when the organisation has successful products that are reaching the maturity stage of their product life cycle.

Innovation- it is only profitable to make innovations to an organisation’s grand strategy when it has distinctive technological competencies and capital reserves to invest in R&D. These

This type of strategy is attractive when an organisation competes in a growing industry where the achievement of economies of scale could provide cost benefits or other forms of competitive advantage.

Decline strategies

These strategies are defined as those that are aimed at transforming organisations into more significant competitors. They focus on ways of controlling a downward spiraling situation in the course of business or loss of competitive advantage.

Types of decline strategies include:

Retrenchment or turnaround strategy- this strategy involves the letting go employees, reduction in costs and increasing long term assets. Recession, unfavourable economic conditions, inefficiencies and/or increased competition are some of the external and internal factors that could result in an organisation needing turnaround strategies.

Divestiture- this strategy involves the selling of the organisation or part/unit of the organisation. This could be done for a number of reasons, including; to raise capital or getting rid of unprofitable units or those that have become more of a liability or even those that do not fit in with the organisation’s vision ad mission.

Liquidation- this is where all operations of a business and its units are shut down and selling its assets to avoid bankruptcy for its tangible worth. This normally is the last resort, when all strategies to turn the business around have failed. Liquidation is planned in attempt to reduce the potential loss for shareholders.

Bankruptcy (if failure is inevitable) - when all strategies, including liquidation have failed, a business can be declared bankrupt. This is to avoid debt obligation when nothing else can be done to intervene. Creditors and shareholders are compensated to such an extent that will accommodate all other debt obligations.

Corporate combination strategies

These are strategies that require joint efforts and working together to achieve results and create value for customers as well as wealth for shareholders. These strategies are successful in

organisations that operate in global, dynamic and technologically driven industries. They can also be implemented successfully through outsourcing.

Types of corporate combination strategies include:

Joint ventures- they are defined as corporate entity formed by two or more organisations for the purpose of acquiring or getting hold of an opportunity. The partnering organisations contribute their own skills and resources and share equal ownership. A few reasons behind forming this venture include; to learn and acquire the partnering organisation’s unique feature of skill that adds value and to come up with new technologies that will be beneficial to the industry’s future direction. This strategy is successful when the unique competencies of partners complement each other.

Strategic alliances- it can be defined as an endeavour in which organisations combine their resources and skills to create a competitive advantage. It differs from a joint venture in the sense that the partners do not share ownership of this venture. Strategic alliances are ideal for organisations that want to venture into new and unfamiliar markets.

Consortia- it is an association of two or more individuals, organisations or even governments with the sole purpose of participating in a common activity and use their respective resources and capabilities to achieve a common goal. This large relationship between organisations in specific industries share complex technologies, resources and value creating activities.

Strategy analysis framework

Strategy analysis framework is a framework that most organisations use to decide which strategy to pursue further in order to best create more value for their customers and thereby gain a competitive edge. The organisation has to develop one or all of the following matrixes in order to narrow the possible strategies down to more specific ones.

 SWOT Matrix  SPACE Matrix  Grand Strategy Matrix

o Exposure to an attractive industry o Access to one of the largest distribution networks in SA o Strong and unique relationships with producers o Attractive growth opportunities o Dynamic and experienced management team o Sales and merchandising of fast moving consumer goods

relationships o Complex supply chain o Slow competitive unit o Possible high loan rates o Small business units o Slow growth in the food sales division

Opportunities o School feeding programme o Growth of South Africa’s UTH milk market

SO Strategies o Market recognition (S1, O2) o Access to one of the largest distribution networks in SA (S3, O2)

WO Strategies o Growth of South Africa’s UTH milk (W3,W5, W6, O1, O2)

Threats o Changes in consumer tastes o Competition from small local companies o Bad reaction of the political opposition o Environment regression o Issue of compliances o Factors from macroeconomics

ST Strategies o Exposure to an attractive industry ( S2, S5,S6,T 2,T3,T5)

WT Strategies o Slow competitive unit (W3,W6,T1,T2)

Grand Strategy Matrix

The Grand Strategy Matrix is an important management strategic tool, which is simple and easy to do.

The strategy is based on two dimensions namely, competitive position and market growth. It consists of four quadrants and two axes (x-axis and y-axis) represent the two dimensions. The x- axis represents the extremes of the competitive position (weak and strong competitive position). The y-axis represents the extremes of market growth (rapid and slow market growth).

Quadrant I – this quadrant represents an excellent strategic position, where the company has excessive resources it can use backward, forward and horizontal integration. Concentric diversification would be a good option.

Quadrant II – organizations are competing in a strongly growing market but do not compete effectively against competitors. Internal growth strategies, the horizontal integration and diversification are advisable.

Quadrant III – organizations compete in slow growth industries and have weak competitive position. The organization can consider diversification, asset reduction or retrenchment before liquidation.

Quadrant IV – organizations have a strong competitive position but in a slow growth industry. Diversification and partnership such as a joint venture are options.

RAPID MARKET GROWTH Quadrant II Quadrant I Develop new added products Developing a healthy nutritional drink. Acquire brands that naturally fit the company’s portfolio.

Building South Africa’s first mass mega factory. Appealing marketing. Entry into soya based milk. Mergers and acquisitions. New\nondairy products. Liquidation. Bloemfontein yoghurt capacity expansion. Acquisition of Frankie’s good hope. Exporting to Botswana, Lesotho, Namibia and Swaziland

Market share Growth potential Quality Life cycle stage Customer loyalty Entry barriers Cost levels Customer power Product range Substitutes

Competitive

Conservative Aggresive

The competitive space matrix

This means that Clover has strong advantage in an attractive industry bit its financial position is insufficient to compensate for the environmental instability. The immediate strategy is to improve its financial position whilst maintaining its competitive advantage. Strategies like vertical and horizontal integration, market penetration, product development and any of the corporate combination will be feasible

Quantitative Strategic Planning (QSPM)

QSPM is a technique that can objectively indicate which strategy would be best for the organisation. The following are the different steps in the QSPM: 1. SWOT analysis: From IFE and EFE matrixes’ information. The most important opportunities and threats from the external environment as well as the most important strengths and weaknesses from the internal environment are written on the left hand side of the matrix. 2. Weights assigned (W): The next column from the left is the weights column. Weights are allocated to each factor and should be more or less the same as those in the IFE and EFE matrixes. 3. Alternative strategies: From the previous stage’s matrixes the most feasible strategies that are being considered for the implementation should be described in the top row of the QSPM, next to each other. 4. Total attractiveness score (TAS): The TAS is calculated by multiplying the weight of the factor by the attractiveness score for each strategy. 5. Attractiveness score: Each strategy is now individually evaluated against each individual factor. 6. Sum total attractiveness score (STAS): Now all the TAS scores for each strategy are added up to give the sum total attractiveness score (STAS) for each strategy.

STRATEGIC ALTERNATIVES Joint venture with Clover

Joint venture with Nestle KEY FACTORS Weight AS TAS AS TAS Opportunities: