Business Strategy and Tax Governance

Nkuhlu Department of Accounting

The strategic management process
What is strategic management:
• Defining strategic management
• The objective of strategic management is to position the organisation optimally
for the future.
• It is process whereby the internal and external environments are analysed to
identify strategic goals and develop strategies in line with the organisation’s
vision and mission.
• Implementation should be through a coordinated and integrated effort of
different functional areas to achieve the strategic goals of the organisation
with the ultimate purpose of gaining a competitive advantage.
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The strategic management process
• The different tasks that can be identified in
the process:
• Formulating a strategic vision, mission and values,

indicating the long-term direction of the organisation

• Identifying resources and capabilities through internal

environmental analysis
• Analysing the external environments to identify

challenges and opportunities for the organisation 3

The strategic management process
• The different tasks that can be identified in
the process (continued):
• Identifying the long-term goals and the most applicable strategies

to deliver value to the stakeholders

• Coordinating and integrating the efforts of people, structures,

technologies and allocate resources to implement the identified

strategies
• Evaluating the success and implementation of the strategic choices

through strategic control and evaluation 4

The strategic management process
• Origins of strategic management
• The earliest strategy has a military origin.

• In terms of this military strategy, the idea was to identify the

enemy’s weakness and then you would use your own strengths to
attack where the enemy was most vulnerable.
• In the 1970s, the world experienced major oil price increases. The
business environment was suddenly confronted with an unpredicted
change that caused organisations to reconsider the value of prediction
in corporate strategy.
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 The strategic management process
Why is strategy important
• Because it deals with the fundamental issues that will affect the future of
the organisation, and any effect, both positive or negative will be felt for a
long time.

• Strategy is important for the following reasons:

• All functional areas of the organisation are part of the strategic process.

• Adds value to stakeholders (more than just surviving)

• The organisation is cognisant of its environment – both internal and external; and is able
to adapt to change.

• Able to develop sustainable competitive advantage.

• Good corporate governance. 6

The strategic management process
Key elements of strategy
• Sustainability: strategic decisions must be maintained over a long time. Strategies
take time to be implemented and for the benefits of a strategic move to be seen.
Organisations want to survive in the long term and therefore strategies must be
sustainable.

• Competitive advantage: strategy takes place in a competitive environment and the

purpose of strategy is to outsmart the competition. Achieving a competitive advantage
is important, but more important is achieving a sustainable competitive advantage.

• Alignment with its environment: the internal environment of the organisation must
be aligned with the challenges and opportunities from the external environment.

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 The strategic management process
• Process development to deliver the strategy: a strategy is about how to outsmart the competition. It
means that business processes must be developed to answer the question of how to undertake this task.

• Adding of value: the last important element of strategy is that it must add value not only to the owners

of the organisation, but also to all the different stakeholders. Who are these stakeholders and what stake

do they have in the organisation?

• Shareholders – owners of the organisation will receive a higher income.

• Employees and management – they will receive the added value through their pay.

• Customers – they experience value for money if they buy a quality product or service.

• Government – it receives part of the added value in the form of taxes.

• Suppliers – they have to supply more stock because of customers buying more.

• The community at large will experience the added value through the social responsibility of the

organisation.
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The strategic management process

• Levels of strategy
1. At the top of the hierarchy, corporate strategy is typically
concerned with the overall direction, purpose and scope of the
organisation. These include:
• Decisions on alliances, mergers, integration or the closure of some business
units
• Decisions on new product development or entering new markets

• Development of corporate policies and general employment practices in the

organisation 9
The strategic management process

2. Business strategy is concerned with the operation of a strategic

business unit in the organisation. Its concern is with:
• How a specific market will be approached and it is responsible for winning over
the customer or client and beating the competition.

• A competitive strategy - low cost, differentiation, focus or best cost.

This strategy must be followed within the broad framework of the corporate
strategy.

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The strategic management process

3. Operational-level strategies are developed within the different

business functions of an organisation:

• Functional strategies must be taken in the financial, marketing, human

resources, production, and other business functions

• It help the organisation (business unit) achieve the goals of the corporate
strategy.

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The strategic management process
People:
• The drivers of strategy implementation are the employees

• Environmental analysis is the responsibility of every manager from top management level
to middle management and down to the supervisory level. Although top management will
drive the process, every manager must make inputs from all levels, because middle managers
and first-line managers are the specialists in certain areas of the organisation and their
assessments of the environment are not only useful but also a necessity.

• Strategy formulation is mainly the responsibility of top management. These individuals

must use the information from the completed environmental analysis. This is also a very
important stage and needs as much input as possible from representatives from all levels of
management.

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The strategic management process
• The implementation phase of the strategic management process is quite often
the most challenging one. Strategy implementation is the stage in which all the
strategies that have been formulated in the previous stages should now come to
life. It can only be done through effective communication with all the parties
involved. All the employees are important and they must realise the vital role they
play in implementing the strategy.

• The last phase is strategy review and evaluation. The question is: is the strategy
achieving what it is supposed to achieve? This review and evaluation must be done
by management. Top management identifies the success or failure of a chosen
strategy. They have to exercise strategic control in order to establish shortcomings
in the strategic management process.
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The strategic management process
• Characteristics of the strategic planning
• A strategic planning process:

• is a learning process that can provide an opportunity for organisations to understand

more clearly what they want to achieve, and how and what they can do.
• is a discovery process because it can expose hidden opportunities and unseen solutions.

• is a process in which openness to different perceptions and understandings is

fundamental in finding solutions to problems by focusing on matters of strategic
importance.
• requires the separation of strategy from other issues when decision making has to be
done to select a future course of action from various alternatives.

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The strategic management process
• Characteristics of the strategic planning
• is supported by priority-based resource allocations.
• informs efforts to implement decisions, taking into consideration available organisational
resources and capabilities.
• establishes goals and arranges them in a logical hierarchy, nesting one or more goal(s)
within other broader goal(s).
• takes account of the need for “goal congruency”, which refers to how well the goals
combine with each other (e.g. does goal A appear compatible with goal B? do they fit
together to form a unified strategy?) bearing in mind the need to sequence goals logically
over time.
• is responsive and innovative rather than reactive.

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The strategic management process

The strategic management process:

1. Organisational direction and environmental analysis
• Organisations must know where they are going. A vision, a mission and the
organisational values will guide the organisation into the future.

• An organisation’s strategy must allow a good fit with its environment. An

organisation environment analysis consists of an evaluation of the internal
environment for possible strengths and weaknesses and a further analysis of
the external environment for possible opportunities and threats (SWOT
analysis). 16
The strategic management process

2. Strategy formulation
• With the first phase completed, the organisation is in a position to develop long-
term goals and strategies. Strategies must be built on what was identified in the
environmental analysis phase.

• First the organisation must decide how to develop advantages over its
competitors by choosing a specific generic strategy. Then it must work out how to
grow the organisation by deciding on a corporate strategy.

• It is also important for an organisation to know its specific industry setting,

because this will also influence the strategic options available to the organisation.
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The strategic management process

3. Strategy implementation
• The strategy sets the broad direction and identifies the methods the
organisation should apply to achieve its goals and objectives

• To implement the strategies, it is necessary to have detailed tactical

and operational plans, policies and other driving forces to make the
strategy happen.

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The strategic management process

4. Strategy control and evaluation

• There should be a continuous process of evaluating and reviewing both the
suitability and the implementation of the strategy.

• Strategic control and evaluation and the process of continuous improvement are
seen as the last phase in the strategic management process and should not be
neglected.

• Aspects such as total quality management and a balanced scorecard are tools
that can help to improve the manager’s task of successfully controlling the
strategic management process.
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The strategic management process
Different approaches to the strategic
management process:
1. The prescriptive approach:
• The prescriptive approach starts with the organisation’s objective (actually
the mission and vision), then the environmental analysis.

• This is followed by a reconsideration of the objective (mission) if the

environment requires it, then the development and selection of the strategy,
and

• lastly the implementation of the strategy. It is clear that the different phases
are linked sequentially.
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The strategic management process
The prescriptive approach: Assumptions:
• The future of an organisation can be accurately predicted. The competitive environment is
so volatile and because change is inevitable, the whole strategic process may be invalid.

• The strategies proposed are logical and capable of being managed in the way proposed.
However, as a result of political and economic realities of organisations, there may be
many management difficulties in practice.

• The long-term benefits are more important than the short-term advantages. Yet can the
long term benefits really be determined?

• After the analysis phase, strategies are specified and need no further development or
change as a result of changing external situations. This is sometimes but not always true.

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 The strategic management process
The prescriptive approach: Advantages:
• It avoids behaviour focused only on the short term. Management considers
the long-term development of the organisation rather than just the short-term
results.

• Environmental analysis encourages management to consider the environment

in its plans and decisions.

• The process of strategy development and implementation provides a basis for

strategic control and evaluation.

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 The strategic management process
The prescriptive approach: Advantages:
• It enables stakeholders to make plans for the future. Suppliers will feel that
they can rely on the organisation in terms of future orders. Employees will
experience higher morale, because they will perceive the organisation as
capable of meeting their career expectations.

• Goal congruency is improved, because the different business functions will

coordinate their efforts to work together to realise the full potential of the
organisation.

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 The strategic management process
The prescriptive approach: Disadvantages
• Most importantly, the organisational environment is uncertain. The external
organisational environment is more uncertain than ever before.

• It may be too complicated a process for the small-business owner.

• The formal process may be too infrequent to allow the organisation to be

dynamic. If there is a formal planning process every three years, for example,
the changing environment may result in the strategy becoming inappropriate.

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 The strategic management process
2. The emergent strategic approach
• According to this approach, the different phases of strategic
management are interrelated. The analysis phase is still the first phase,
but strategy development and implementation are closely linked and
involve a process of trial and error.

• Strategy implementation does not follow strategy development, but is

rather an integral part of strategy development. Strategies actually
emerge and are derived as a result of trial, repeated experimentation
and small steps forward.
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 The strategic management process
The emergent strategic approach: Advantages:
• It allows strategy to develop, as more is learnt about the strategic
situation.

• Strategy implementation is redefined by being interrelated with and an

integral part of strategy development.

• Organisational culture is more adaptable to the new strategy because it

develops with the process.

• It provides more flexibility to respond to changes in the markets

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 The strategic management process
The emergent strategic approach: Disadvantages
• Board members at corporate level will not want to sit back and allow operations to
carry on haphazardly.

• Allowing the development and implementation of strategy to be integrated may be

seen by management as an abdication of responsibility, rather than taking a decision
on a specific strategy.

• For long-term projects, a long-term view is important, and therefore perhaps a fixed
strategy would be preferable.

• Strategic control and evaluation will be simpler and clearer if the strategic actions
have been planned in advance.

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The strategic management process
Benefits of strategic management
• Problems are prevented. Strategy development enhances the organisation’s ability to
prevent problems by encouraging employees to pay attention to planning and to flag
potential problems.

• Group-based decisions are better than individual decisions. Group interaction in the
strategy development process generates a greater variety of strategic alternatives. Group-
based decisions can result in the best alternative being chosen.

• The organisation experiences higher productivity. The purpose of an organisation is to

transform inputs into outputs as effectively and efficiently as possible. Strategic
management ensures that inputs are better utilised, thus delivering better outputs.
Resource allocation is improved by strategic management, because resources are allocated
and applied where they will contribute most.
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The strategic management process
• Communication is improved across the different organisational functions. The
importance of communication in all kinds of organisations cannot be over emphasised.
Strategic management decisions and goals that are communicated help employees to
understand what must be achieved. They will then work together to achieve these
strategicgoals.

• Gaps and overlaps in activities are reduced. This can be a direct benefit of
strategic management if it is managed correctly. It helps individuals and groups to
understand their roles in the strategic management process, and this reduces the gaps
and overlaps in their day to-day activities. Strategic management integrates the
behaviour of employees into a total effort.

• Resistance to change is reduced. Employees understand the direction in which the

organisation is heading and they understand why they have to do things in a specific
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way. A greater awareness of the parameters determining their decisions and actions
The strategic management process

• Commitment is improved. Effective strategic management leads all

employees to understand that everyone in the organisation plays an
important role in managing strategically.

• Management is enabled to think forward. This is perhaps one of the

major benefits of strategic management, because it encourages management
to be more disciplined and formal in their approach towards the future. It
also helps to direct all decisions to support the determined objectives.

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The strategic management process

Risks of strategic management

• Poor time management. Managers spend too much time on the strategic management
process, which may have a negative influence on their operational responsibilities. Proper
time management is essential and managers must make a deliberate decision to balance
their responsibility between strategic and operational activities. Some managers also see
planning as a waste of time.

• Avoidance of responsibilities. A significant risk is posed when the formulators of strategy

are not directly involved in its implementation, or when managers do not support the
strategic planning process. They actually avoid their individual responsibility for the planning
done and the decisions taken. Linked to this is the lack of will to put in the required effort to
formulate and implement a plan.
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The strategic management process

Risks of strategic management

• Unattained expectations. Not all expectations can be met. Several ideas and
strategic suggestions of employees will not be accepted, which can lead to the
demotivation of staff members. Strategic managers should be trained to anticipate
and understand this disappointment.

• Negative perception of strategic management. The implementation of the

strategy is the most difficult phases of strategic management. Strategies fail because
the implementation is not as structured as the development phase. This leads to a
negative perception that strategic management is a waste of time and will not deliver
any positive results.
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The strategic management process

Risks of strategic management

• Success groove. Managers who experience the success of their current strategies may
become so overconfident and focused on their current successes that they do not foresee
any difficulties in the future, and therefore do not see strategic management as
necessary. Good organisations that have gone bad are simply organisations that have
denied the reality of their strategy decay for too long.

• Neglecting to involve key employees. Key employees throughout the organisation

must be involved in all the phases of strategic management, especially during planning.
If they are not part of the process, the organisation runs the risk of not being successful
in implementing the strategy.

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The strategic management process
The drivers of the organisation’s environment
1. The information revolution
• The amount of information that is being created in digital format is growing by more than
57 per cent per year.

• The availability of this information has changed the way we do business, as well as the
context of strategic management.

• The ability to effectively and efficiently read, understand, interpret and apply information
and to transform it into knowledge has become an important source of competitive
advantage.

• When this knowledge is used to achieve increased efficacy and efficiency, it becomes an
essential resource for production and is no longer seen as only a means to an end. The
implication for strategic management is that managers should realise that information and
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knowledge are the keys to gaining a competitive advantage.
The strategic management process
2. Technological advanced and breakthroughs
• Technology refers to all the equipment, material, knowledge and experience
in an organisation that it requires to perform its tasks, and technological
diffusion refers to the rate at which technologies are available and used.

• Technological diffusion has increased at a tremendous rate; for example,

while it took35 years to get telephones into 25 per cent of all homes in the
USA, it took only seven years for the internet. Obviously, some organisations
rely more on technology than others. For example, MTN and Vodacom rely
more on technology than a small supermarket in the suburbs does.

• technology is being used in all organisations – think about access to the

internet, or using your credit or debit card to pay for products and services. 35
The strategic management process
3. Globalisation
• Globalisation refers to the increasing economic interdependence among countries,
reflected in the flow of goods and services in particular.

• If a global organisation’s products are better and of a higher quality than those of
the local business, customers are likely to buy from the global business.

• To create a competitive advantage, an organisation may have to look for potential

customers locally and globally. There are also opportunities to identify financial,
material and human resources on a global scale.

• Increased global competition poses a threat to organisations, which creates a

challenge. Globalisation has necessitated a new way of thinking about the
organisational environment.
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The strategic management process

Ethics and strategy

• Organisational ethics refers to the standards of conduct the organisation must
set for itself in its dealings with the different stakeholders of the organisation.

• The code of ethics must become part of the organisational culture, which
determines the behavioural norms according to which the organisation operates.

• The organisation has an ethical framework in place to make it easier to choose

the “right” behaviour and thus the “right”’ strategy that will support the
standards of conduct of the organisation

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