BACHELOR OF
BUSINESS
ADMINISTRATION:
RETAIL
Retail Strategic
Management I
Contact details:
Regenesys Business School
Tel: +27 (11) 669-5000
Fax: +27 (11) 669-5001
E-mail: info@regenesys.co.za
www.regenesys.co.za
This study guide highlights key focus areas for you as a student. Because the field of study in question is so
vast, it is critical that you consult additional literature.
Copyright © Regenesys, 2023
All rights reserved. No part of this publication may be reproduced, stored in or introduced into a retrieval
system, or transmitted, in any form, or by any means (electronic, mechanical, photocopying, recording or
otherwise) without written permission of the publisher. Any person who does any unauthorised act in relation
to this publication may be liable for criminal prosecution and civil claims for damages.
CONTENTS
1.
2.
3.
STUDY MATERIAL ................................................................................................................................. 1
PRESCRIBED RESOURCES ................................................................................................................. 1
2.1 BOOKS .............................................................................................................................................. 1
2.2 ARTICLES.......................................................................................................................................... 2
2.3 MULTIMEDIA ..................................................................................................................................... 2
INTRODUCTION TO THIS COURSE ..................................................................................................... 3
3.1 LEARNING OUTCOMES ................................................................................................................... 3
3.2 INTRODUCTION TO STRATEGIC MANAGEMENT ......................................................................... 4
3.2.1 BRIEF HISTORY OF CORPORATE STRATEGY ................................................................... 4
3.2.2 STRATEGIC MANAGEMENT TERMINOLOGY AND CONCEPTS ........................................ 5
3.2.3 THE STRATEGIC MANAGEMENT PROCESS ....................................................................... 7
3.2.4 ETHICS IN ACTION............................................................................................................... 18
3.2.5 KEY POINTS ......................................................................................................................... 19
3.3 THE BASIC ELEMENTS OF STRATEGIC PLANNING ................................................................... 20
3.3.1 INTRODUCTION ................................................................................................................... 20
3.3.2 THE IMPORTANCE OF PLANNING ..................................................................................... 21
3.3.3 THE NATURE OF STRATEGIC PLANNING ......................................................................... 21
3.3.4 TYPES OF PLANS ................................................................................................................ 22
3.3.5 CHARACTERISTICS OF AN EFFECTIVE PLAN .................................................................. 24
3.3.6 ELEMENTS OF A PLANNING FRAMEWORK ...................................................................... 25
3.3.7 THE STRATEGIC PLANNING PROCESS ............................................................................ 26
3.3.8 INFORMATION NEEDS FOR STRATEGIC PLANNING ....................................................... 37
3.3.9 ETHICS IN ACTION............................................................................................................... 39
3.3.10 KEY POINTS ......................................................................................................................... 40
3.4 CONSULTATIVE APPROACHES AND STAKEHOLDER ANALYSIS............................................. 41
3.4.1 INTRODUCTION ................................................................................................................... 41
3.4.2 WHO OR WHAT ARE STAKEHOLDERS?............................................................................ 42
3.4.3 WHERE ARE STAKEHOLDERS FOUND? ........................................................................... 43
3.4.4 WHAT DO STAKEHOLDERS NEED AND EXPECT? ........................................................... 45
3.4.5 ANALYSING STAKEHOLDER RELATIONSHIPS ................................................................. 47
3.4.6 COMMUNICATING WITH STAKEHOLDERS ....................................................................... 49
3.4.7 ETHICS IN ACTION............................................................................................................... 52
3.4.8 KEY POINTS ......................................................................................................................... 53
3.5 REVIEW PROCESSES TO IDENTIFY STRATEGIC ISSUES ........................................................ 54
3.5.1 INTRODUCTION ................................................................................................................... 54
3.5.2 IDENTIFYING AND ANALYSING COMPETITORS............................................................... 55
3.5.3 COMPETITIVE DIFFERENTIATION AND POSITIONING .................................................... 59
3.5.4 ETHICS IN ACTION............................................................................................................... 62
3.5.5 KEY POINTS ......................................................................................................................... 64
3.6 ELEMENTS AND RELEVANCE OF A RETAIL STRATEGY ........................................................... 65
3.6.1 INTRODUCTION ................................................................................................................... 65
3.6.2 A STRATEGIC PLANNING TEMPLATE FOR RETAIL MANAGEMENT............................... 66
3.6.3 DEVISING AN OVERALL GENERIC STRATEGY ................................................................ 67
3.6.4 DEVELOPING A RETAIL STRATEGY MIX ........................................................................... 71
3.6.5 CLASSIFYING RETAILERS ACCORDING TO THEIR STORE-BASED STRATEGY MIX ... 72
3.6.6 SPECIFIC ACTIVITIES .......................................................................................................... 73
3.6.7 CONTROLLING THE STRATEGY ........................................................................................ 74
3.6.8 THE CONTROL PROCESS................................................................................................... 75
3.6.9 THE FOCUS OF CONTROL.................................................................................................. 76
3.6.10 CHARACTERISTICS OF AN EFFECTIVE CONTROL SYSTEM .......................................... 77
3.6.11 ETHICS IN ACTION............................................................................................................... 78
3.6.12 KEY POINTS ......................................................................................................................... 79
4.
5.
6.
REFERENCES ...................................................................................................................................... 80
GLOSSARY OF TERMS ....................................................................................................................... 87
VERSION CONTROL ........................................................................................................................... 92
List of Tables
TABLE 1: KEY ASPECTS OF FUNCTIONAL MANAGEMENT ...................................................................... 23
TABLE 2: CHARACTERISTICS OF AN EFFECTIVE PLAN ........................................................................... 24
TABLE 3: PLANNING FRAMEWORK ............................................................................................................. 25
TABLE 4: SMART OBJECTIVES .................................................................................................................... 29
TABLE 5: ANSOFF’S MATRIX........................................................................................................................ 32
TABLE 6: SCHEDULE TO IMPLEMENT A SMART OBJECTIVE .................................................................. 35
TABLE 7: PARTICIPATION PLANNING MATRIX .......................................................................................... 49
TABLE 8: COMMUNICATION CHANNELS FOR INTERNAL AND EXTERNAL STAKEHOLDERS .............. 50
TABLE 9: A FRAMEWORK FOR ANALYSING COMPETITORS ................................................................... 58
TABLE 10: KOTLER’S DIFFERENTIATION VARIABLES .............................................................................. 61
TABLE 11: FOUR LEVELS AND TYPES OF STRATEGIES .......................................................................... 68
TABLE 12: CHARACTERISTICS OF A CONTROL SYSTEM ........................................................................ 77
List of Figures
FIGURE 1: THE STRATEGIC MANAGEMENT PROCESS.............................................................................. 8
FIGURE 2: THE BUSINESS ENVIRONMENT ................................................................................................ 12
FIGURE 3: SWOT ANALYSIS TOOL.............................................................................................................. 14
FIGURE 4: DIFFERENT TYPES OF PLANS AT THE VARIOUS MANAGEMENT LEVELS .......................... 22
FIGURE 5: THE STRATEGIC PLANNING PROCESS ................................................................................... 26
FIGURE 6: SMART OBJECTIVES .................................................................................................................. 29
FIGURE 7: DIRECT VS INDIRECT STAKEHOLDERS .................................................................................. 46
FIGURE 8: POWER VS INTEREST GRID ...................................................................................................... 47
FIGURE 9: PORTER’S FIVE FORCES MODEL ............................................................................................. 56
FIGURE 10: THE CONTROL PROCESS ....................................................................................................... 75
1.
STUDY MATERIAL
Your material includes:
•
•
•
•
This study guide
Prescribed reading and viewing
Digital assessments
Individual assignment
These resources provide a starting point for your studies. You are
expected to make good use of your textbooks, the additional
resources provided via online links, and wider reading that you, as a
higher education student, will source yourself.
2.
PRESCRIBED RESOURCES
Various resources are prescribed to help you complete this course.
2.1 BOOKS
The following textbooks are prescribed and should be used to complete the course. You may use
either, or both.
•
Berman, B. and Evans, J.R. 2013, Retail Management: A Strategic Approach, 12th ed., Harlow, Essex: Pearson
Education.
Please ensure that you order or download your textbooks before you start the course.
These books are also recommended for this course:
•
Botha, S. and Musengi, S. 2012, Introduction to Business Management, Fresh Perspectives, Pearson: Cape
Town.
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2.2 ARTICLES
•
Institute of Business Ethics. 2016, ‘Can ethics be taught. IBE Pearl of Wisdom’,
https://www.youtube.com/watch?v=_2JynQEKnVs (accessed 10 February 2023).
•
Jonker, C.S. 2009, ‘The effect of an emotional intelligence development programme on accountants’, SA
Journal of Human Resource Management, (7) 1, 1-9 https://www.semanticscholar.org/paper/The-effect-of-anemotional-intelligence-development-Jonker/12360a3d6f4ed8e9cf04ec342afce1dccfc95853 (accessed 10
February 2023).
•
Meyer, N. & Meyer, D. 2017, ‘Best practice management principles for business chambers to facilitate
economic development: Evidence from South Africa’,
https://www.researchgate.net/publication/318582751_Best_practice_management_principles_for_business_ch
ambers_to_facilitate_economic_development_Evidence_from_South_Africa (accessed 10 February 2023).
2.3 MULTIMEDIA
•
Arnold, K. 2012, ‘The extraordinary team’, http://www.youtube.com/watch?v=E4AX4vaOL5w (accessed 10
February 2023).
•
LeanVlog. 2020, ‘What is change management – A process you have to know’, [video clip],
https://www.youtube.com/watch?v=jJWrnxnCaLg (accessed 9 February 2023).
•
Madsen, S. 2015, ‘Stakeholder Management’, https://www.projectmanager.com/stakeholder-management
(accessed 10 February 2021).
•
` Mizrahi G. and Durso L. 2014, ‘Google break-up proposed by EU parliament’, The Lip TV,
https://www.youtube.com/watch?v=t9duKlG0KuM (accessed 10 February 2023).
•
Prosci. 2018, ‘What is change management?’ [video clip], https://www.youtube.com/watch?v=e4jnFqlUMmM
(accessed 9 February 2023).
•
Study.com. 2015, ‘What is a stakeholder in business?’, https://study.com/academy/lesson/what-is-astakeholder-in-business-definition-examples-quiz.html (accessed 10 February 2023).
•
Vo, E. 2020, ‘What is Strategic Planning?’, https://sba.thehartford.com/business-management/what-is-strategicplanning/ (accessed 10 February 2023).
© Regenesys Business School
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3.
INTRODUCTION TO THIS COURSE
Welcome to the Fundamentals of Business Management course. This course does not stand alone
but forms an integral part of the business management field of study.
The aim of this course is to enable students to understand the fundamentals of Business
Management. It is to provide insight into general management concepts and develop an
understanding of the business environment. The knowledge and skills obtained in this course are
applicable at all levels of management. The learning content and activities contained in this study
guide will provide you with opportunities to explore the latest developments and practices in this
field.
The course starts off by introducing general management to you; this followed by an in-depth
discussion of the management functions. This course deals with the fundamentals and lays the
foundation for understanding business management. The compulsory assignment question as well
as what you can expect in the examination is contained in this study guide.
Good luck with your studies!
3.1 LEARNING OUTCOMES
Upon completing this course, you should be able to:
•
•
•
•
•
•
•
•
•
Understand strategic management and planning terminology and concepts and their
relevance to the retail sector;
Examine an organisation’s vision, mission and value statements and explore their effect on
individuals and teams in the organisation;
Compare the processes and applicability of strategic planning models;
Understand the different levels at which strategic planning can be implemented, and how
planning at the different levels is integrated;
Compare a variety of consultative approaches and conduct a stakeholder analysis;
Review different processes to identify strategic issues;
Outline the process of developing strategic objectives;
Identify the components of a strategic plan; and
Understand the relevance of a retail strategy.
The number of notional learning hours set out in the table under each section heading provides
guidance on how long to spend studying each section of this course. Set yourself a schedule to
ensure that you spend a suitable period of time on each section, covering the required sections
relevant to each assignment, and giving yourself enough time to prepare for the examination.
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3.2 INTRODUCTION TO STRATEGIC MANAGEMENT
Timeframe
Learning outcomes
Prescribed book
Sixteen hours
•
Understand strategic management and planning terminology and concepts and, their
relevance to the retail sector; and
•
Examine an organisation’s vision, mission and value statements and explore their effect
on individuals and teams in the organisation.
•
Berman, B., and Evans, J.R. 2013, Retail Management: A Strategic Approach, 12th Ed.,
Edinburgh Gate (Harlow): Pearson Education.
•
Meyer, N. & Meyer, D. 2017, ‘Best practice management principles for business chambers
to facilitate economic development: Evidence from South Africa’,
https://www.researchgate.net/publication/318582751_Best_practice_management_princip
les_for_business_chambers_to_facilitate_economic_development_Evidence_from_South
_Africa (accessed 9 February 2023).
•
Institute of Business Ethics. 2016, ‘Can ethics be taught. IBE Pearl of Wisdom’,
https://www.youtube.com/watch?v=_2JynQEKnVs (10 February 2023).
Recommended
articles
Recommended
multimedia
Section overview
Section 1 introduces the field of retail strategic management by providing a brief history of
corporate strategy, its origins and major contributors. The most important concepts and terms
relating to strategic management are then defined from a retail point of view. The strategic
retail management process is introduced, together with its component elements. In this
section, we focus on Phase 1 of the strategic management process (strategy formulation). The
importance and benefits of a systematic, detailed analysis of the business environment are
also discussed. We conclude with a section on ethics in action.
3.2.1 Brief History of Corporate Strategy
The field of corporate strategy is largely based on a framework first conceived by Kenneth R.
Andrews in his classic book The Concept of Corporate Strategy (1971). Andrews defines strategy
as: “The match between what a company can do (organisational strengths and weaknesses) within
the universe of what it might do” (environmental opportunities and threats).
Although the power of Andrews’s framework was recognised right away, in those days, managers
were not really sure how to assess and apply each side of the strategic equation systematically. The
first important breakthrough came through Michael E. Porter’s book Competitive Strategy:
Techniques for Analysing Industries and Competitors (1980). We return to Porter’s work later in this
course.
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By the late 1980s, waves of new approaches to strategy included concepts like In Search of
Excellence (Peters and Waterman), followed by total quality management (TQM) as a strategy,
business process re-engineering (BPR), strategic intent (Hamel and Prahalad, 1989), core
competencies, competing on capabilities, the learning organisation (Senge, 1990), and more
recently, the resource-based view (RBV) of the firm.
This approach is grounded in economics, and explains how a company’s resources drive its
performance in a dynamic competitive environment (Collis and Montgomery, 1995).
But the roots of strategy go back much further, as far back as about 2300 BC. In what is now northern
China, a lineage of military leaders put their collective wisdom into written form for the first time.
Their writings were to shape the strategic thinking of all of East Asia. It offered a radically new
perspective on conflict, whereby one could attain victory without going into battle. In the West their
text is called The Art of War; in China it is still known as the Sun Tzu, named after the patriarch of
the lineage. Over the past half century or so, this text has found application to strategic warfare, in
business and in everyday life. We will revisit some of Sun Tzu’s teachings later in this course.
3.2.2 Strategic Management Terminology and Concepts
The business environment has changed since the 1950s. Approaches like budgeting and
management by objectives were found to be of little use in what had become an unstable economy.
Long-term planning was introduced to improve organisations’ likelihood of survival. Strategic
management techniques were deployed to try and keep on top of changes in the business
environment.
But what exactly is the meaning of a strategy? Let us define this concept first.
A strategy is the overall plan guiding a firm. It influences the firm’s business activities and its
response to market forces, such as competition and the economy.
(Berman and Evans, 2013)
Another definition for strategy is provided by Andrews (1971):
“The match between what a company can do (organisational strengths and weaknesses) within
the universe of what it might do” (environmental opportunities and threats).
Closely related to strategy, are the concepts of strategic planning and strategic management.
Even though some use the notions strategic planning and strategic management synonymously,
there is a distinction between the two.
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Strategic management is defined as:
The art and science of formulating, implementing, and evaluating cross-functional decisions that
enable an organization to achieve its objectives.
(David, 201)
The field of strategic management deals with the major intended and emergent initiatives taken
by general managers on behalf of owners, involving utilization of resources, to enhance the
performance of firms in their external environment.
(Lynch, 2012)
David’s definition focuses on integrating management functions such as marketing, sales, finance,
production or operations, human resources, information systems, and research and development to
promote organisational success.
Lynch’s combines two perspectives of strategic management. The first is the prescriptive view, which
regards strategic management as identifying the purpose of the organisation and implementing plans
to achieve this purpose. The second is referred to as an “emergent perspective”, which involves
gaining competitive advantage by assessing and maximising market opportunities.
Compare the definitions of strategic management with the definitions of strategic planning.
Strategic planning is defined as:
The process of proactively aligning the organisation’s resources (internal environment) with
threats and opportunities caused in the external environment.
(Smit et al, 2011)
The process of analysing the organisation’s external and internal environments; developing a
vision and mission; formulating overall goals; identifying general strategies to be pursued; and
allocating resources to achieve the organisation’s goals.
(Thompson and Strickland, 1998)
Analysis Question
Compare the definitions of strategic management and strategic planning. What do they have in common?
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In summary, strategic management is a comprehensive process that involves formulating,
implementing and evaluating strategies. Strategic planning is one of the processes of strategic
management. This will become more evident when the strategic management process is explained.
3.2.3 The Strategic Management Process
At its most basic level, strategic management is concerned with finding answers to the following
four questions:
•
Where do we want to be? This question is answered by the strategic vision, mission and
objectives the firm formulates in phase 1 of the strategic management process;
•
Where are we now? Answered by analysing the internal and external environment of the
organisation (also phase 1);
•
How do we get there? This is answered by means of the strategy itself – as a vehicle to get
us to where we want to be (our vision, mission and objectives) – this is phase 2; and
•
How can we ensure arrival? The evaluation phase of the strategic management process
(phase 3).
(Adapted from Wilson et al, 1992)
The strategic management process involves three phases:
1. Strategy formulation — strategies are devised
2. Strategy implementation — strategies are put into action
3. Strategy evaluation — strategies are measured to determine their success
The strategic management process, illustrated by Figure 1 will form the basis of the complete course
on retail strategic management. So, please take some time to familiarise yourself with each of its
basic phases and steps, because this process will act as our road map throughout this course. We
will not cover the whole process in this section – only some parts of phase 1 (strategy formulation).
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Step 1: Devise a strategic vision, mission and
objectives
Revise
accordingly
Step 2: Analyse the internal and external
organisational environment
2. Strategy implementation
Step 3: Craft a strategy to achieve the
objectives
Step 4: Implement and execute the stategic
plan
3. Strategy evaluation
1. Stratgy formulation
FIGURE 1: THE STRATEGIC MANAGEMENT PROCESS
Step 5: Evaluate performance, amend
strategies and provide feedback
Change or
improve as
required
(Adapted from Botha and Musengi, 2012)
Phase 1: Strategy formulation
This phase of strategic management is important because it reflects the organisation's present status
and where the organisation strives to be in the future. The organisation's vision, mission and
objectives are established in this phase.
An environmental analysis of the organisation's internal and external environment is then conducted
using the SWOT (strengths, weaknesses, opportunities, threats) analysis tool. The SWOT analysis
contributes to generating suitable strategies for the organisation to assist it in becoming more
competitive. Each of these processes in the strategic formulation phases is discussed next.
© Regenesys Business School
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The vision
The vision must be a statement that can lead the organisation to success in the future and it must
be inspiring to both the internal and external stakeholders. A vision is the dream of where the
organisation would like to be in the future. A vision statement serves as an anchor for decisionmaking; it is the end, not the means of getting to the end.
The way in which a strategy is devised has an effect on the way in which it is implemented. When
planning does not take into account the implications of aligning people with strategy, the effort is
doomed to failure. A vision statement is only effective if it is widely shared, ie if there is buy-in from
multiple disciplines.
According to Smit et al (2011), a clear vision is important for the following reasons:
•
•
•
•
•
•
•
It portrays the dream for the future;
It promotes change; it is a road map;
It provides the basis for the strategic plan;
It enhances a wide range of performance measures;
It helps to keep decision-making in context, as it provides focus and direction;
It motivates individuals and facilitates the recruitment of talent; and
If the vision is effectively communicated, there are significantly higher levels of job
satisfaction, commitment, loyalty, pride, etc.
According to De Bruyn (2010), a vision:
•
•
•
•
•
Should be idealistic;
Should be philosophical:
Should be future-orientated;
Should not provide any detail; and
Should accommodate the aspirations and dreams of top management of the organisation.
The mission statement
The mission statement is:
A statement that defines the purpose of the organisation in terms of the product or service it
produces, the market it serves and the technology it applies in serving the market.
(Du Toit, Erasmus and Strydom, 2010)
The mission statement is the vehicle for reaching the end destination, the vision. Formulation of
the mission statement is guided by the vision.
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When formulating the mission statement, management aligns the organisation with the vision in its
products, markets and technology, by asking the following questions:
•
•
•
What is our business?
Who is our customer? and
How will we provide this product or service?
Smit et al (2011) state that, apart from addressing the above components (product or service,
market and technology), a mission statement should also address:
•
•
•
•
•
Concerns about survival, growth and profit;
Philosophy (values, ethics and beliefs of the organisation);
Public image (social responsibility);
Employees and all other stakeholders; and
Distinctive competence (how is the organisation different from or better than its competitors?)
For a mission statement to be effective, it should inform the key performance areas for the whole
organisation. It is important that all levels of management are involved in formulating the mission
statement. The key performance areas are then cascaded down to the performance appraisal of
each individual in the organisation.
But what does a good mission statement sound like? Here is an example:
“At McDonald’s, our customers are the reason for our existence. We demonstrate our appreciation
by providing them with high-quality food and superior service, in a clean, welcoming environment,
at a great value. Our goal is QSC&V (quality, service, cleanliness, and value) for each and every
customer, each and every time.”
(www.aboutmcdonalds.com, 2012)
Vision vs Mission
Refer to your recommended readings, and then answer the questions that follow in writing.
1. Explain the differences between a vision and a mission statement.
2. Review the vision and mission statement of a retail organisation of your choice. What are the differences
between the vision and mission statement?
3. How would you improve on the above vision and mission statement?
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Strategic objectives
After the situation analysis, retail management should set objectives, ie the “long-range and shortrange performance targets it hopes to attain” (Berman and Evans, 2013). Objectives help to shape
and focus a strategy, and to translate the organisational vision and mission into action. Retailers
usually pursue goals related to one or more of these areas: sales, profit, satisfaction of stakeholders
(including customers), and image (ibid).
We will further develop the discussion on objectives in section 2, when we discuss the strategic
planning process. It is important to note that strategic objectives can be revised, especially after
conducting an environmental analysis. The outcome of the analysis could generate different strategic
priorities for the organisation.
The next step in the strategic planning process is assessing the retail firm’s capabilities (internal
analysis) and the opportunities and threats it faces (external analysis).
The strategic objectives could also be devised after conducting an environmental analysis. The
environmental analysis determines the key strategic issues that an organisation should focus on.
These strategic issues are developed into strategic objectives.
However, if you devise strategic objectives before conducting an environmental analysis, then it is
essential to review and revise the strategic objectives in the light of the outcome of the
environmental analysis process.
Environmental analysis
The second step in Phase 1 of the strategic management process involves a detailed analysis of the
retailer’s business environment. There are several reasons why a detailed environmental analysis is
important. One of the most important reasons is that it creates a strategic awareness of the
retailer’s business environment – at the micro-, market- and macro level. This awareness should
also generate different strategic priorities for the organisation, as we shall see.
Figure 2 depicts the composition of a retailer’s business environment. From Figure 2 it is clear that
the total business environment can be divided into three subenvironments, namely the micro,
market and macro environments.
The retailer’s business environment consists of the environment external to its organisation as well
as the internal functioning of its organisation.
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FIGURE 2: THE BUSINESS ENVIRONMENT
MicroEnvironment
• Company’s
strategic vision
and mission;
objectives and
strategies
• Organisational
management
and corporate
culture
• Competencies
and resources eg
people, capital,
expertise and
information
systems, etc
The
business’s
influence on
the market
The market’s
direct
influence on
the business
MacroEnvironment
Market
Environment
•
Consumers
and their
needs,
expectations,
purchasing
power and
behaviour
•
Suppliers
•
Intermediaries
•
Competitors
•
Media
Indirect
Influence
on the
business
(through
the market).
•
Technological
environment
•
Economic
environment
•
Social
environment
•
Physical
environment
•
Institutionalpolitical
environment
•
International
environment
(Adapted from Du Toit et al, 2010)
As we can see in Figure 2, all organisations operate within a given external environment. An
organisation does not exist in a vacuum. Instead, it is dependent on its environment (ie the market,
the economy, society, infrastructure, government, the legal framework and its natural resources) –
both for the inputs it needs for its production, and to sell its outputs to, in the form of finished products
and services.
The sum total of the variables and forces inside and outside the retail organisation that influence
management’s decisions constitute the business environment. This environment directly and
indirectly influences management’s ability to develop and execute successful strategies for its target
market or markets.
Managers should be aware of all the relevant internal and external variables of the business
environment and their influence on business strategies. To understand these variables properly,
managers need to do an internal analysis (focusing on the microenvironment). Once this analysis is
done, an external analysis (also known as environmental scanning) is required to identify and
continuously refine management’s understanding of (external) environmental forces found in the
market and macro environments.
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As we can see in Figure 2, retailers have direct control over their microenvironment; they can
influence their market environment; but have little or no control over the macro environment.
Business Environment
Refer to Figure 2, and then answer the questions that follow in writing.
1. Provide at least three examples (names) of actual companies found in a retailer’s market environment.
2. How can a retailer influence its market environment? Provide at least two examples.
3. Provide at least three examples of different ways in which the macro environment can affect a retailer.
How can manager promote economic recovery and development? Read more here:
•
Meyer, N. & Meyer, D. 2017, ‘Best practice management principles for business
chambers to facilitate economic development: Evidence from South Africa’,
https://www.researchgate.net/publication/318582751_Best_practice_management_prin
ciples_for_business_chambers_to_facilitate_economic_development_Evidence_from_
South_Africa (accessed 9 February 2023).
Situation analysis
As we have pointed out already, a detailed environmental analysis should give management a
strategic awareness of all the relevant variables in the business environment, at the micro, market
and macro level.
Environmental analysis takes place in two stages: an internal analysis (of relevant variables in the
micro environment) and then an external analysis (of variables found in the market and macro
environment) to identify and continually refine management’s understanding of external
environmental forces and trends that could affect the organisation, positively or negatively.
Also referred to as a situation analysis, it is a “candid evaluation of the opportunities and threats
facing a prospective or existing retailer”. It seeks to answer two general questions:
•
•
What is the firm’s current status?
In which direction should it be heading?
(Berman and Evans, 2013)
Situation analysis means being guided by an organisational mission, evaluating ownership and
management options, and outlining the goods or service category to be sold (ibid). In order to
formulate and execute a successful strategy, it is important to analyse both the internal and external
environment.
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One of the tools that can be used for this purpose is called a SWOT (strengths, weaknesses,
opportunities, threats) analysis. Its main purpose is to isolate key issues (ie strategic priorities) and
to facilitate a strategic approach. The SWOT framework was first described in detail by Learned,
Christiansen, Andrews and Guth (1969).
Strengths and weaknesses can be found within the enterprise (and as such are under the direct
control of the enterprise) and include matters such as management, expertise and resources,
capabilities, skills base, relationships with customers and suppliers. Strengths and weaknesses can
be seen as the two sides of a coin, as one firm’s strengths can be another firm’s weakness.
Strengths are resources or capabilities that the organisation has which are advantages relative
to what competitors have. They can also be those things the enterprise does well (or has a lot of,
as in the case of abundant resources). Strengths can include competent managers, enough capital,
strong expertise provided by highly trained technical experts, and a motivated workforce.
Weaknesses are the lack of or deficiency in a resource that presents a relative disadvantage to
an organisation in comparison to what competitors have. Weaknesses are those constraints that
limit the firm’s ability to make decisions, or take specific action. They are areas that need urgent
attention from management, in order for the firm to become fit and healthy. Think of the firm as an
athlete that needs to improve its performance constantly, to stay ahead in the business race!
Figure 3 illustrates the basic elements of a SWOT analysis tool.
FIGURE 3: SWOT ANALYSIS TOOL
Strengths
Weaknesses
Opportunities
Threats
Internal
analysis
External
analysis
(Adapted from Berry, 2012)
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Opportunities and threats occur in the external environment. Management has to understand the
external environment of a firm’s operations in order to identify opportunities and to anticipate any
possible threats facing the firm. Many companies today have teams of specialists, assembled from
various departments across the firm, to continually collect and evaluate environmental information,
a process called environmental scanning. The keyword here is early detection of these
environmental opportunities and or threats.
An opportunity for the retail firm is a favourable condition or tendency in the market environment
that can be used to the benefit of the organisation by means of a deliberate management effort. An
example of an opportunity could be an unmet consumer need that the firm can meet and serve
profitably.
A threat to the firm is an unfavourable condition or tendency in the market environment that can,
in the absence of a deliberate effort by management, lead to the failure of the business, its products
or its services.
SWOT Analysis
Refer to the discussion above on SWOT analyses, and then answer the questions that follow in writing.
1. Explain the importance and benefits of conducting a SWOT analysis for an organisation.
2. Conduct a SWOT analysis on an organisation of your choice.
Craft a strategy to achieve the objectives
The third and final step in Phase 1 of the strategic management process (Figure 2), involves crafting
an overall, detailed strategy at the corporate level of a retail firm. This involves two components: the
aspects of the business environment the firm can directly affect (ie controllable variables) and
those to which the retailer must adapt (or uncontrollable variables), according to Berman and
Evans (2013). See Figure 3-9 in the prescribed text for a detailed list of these variables. By now, you
should recognise the controllable variables as being those internal variables found in the
microenvironment, while the uncontrollable variables are those found in the market- and macro
environments of the retailer.
A strategy must be devised with both of these types of variables in mind (ibid). The ability of retailers
to understand and predict the effects of controllable and uncontrollable variables is greatly aided by
the use of reliable, accurate data and information. In section 2 we discuss how information should
be gathered and processed in order to facilitate effective management decision-making.
The overall retail strategy should also attempt to minimise the threats and weaknesses, while
maximising the opportunities and strengths identified by the SWOT analysis. Remember: any
strategy must be aligned with strategic objectives, which the retailer formulated in step 1 of the first
phase of the strategic management process (Figure 2).
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We will return to the crafting of retail strategies in more detail in section 4.
Phase 2: Strategy implementation
In this phase, the (overall) strategic plan is implemented. The organisation's structure, systems and
culture might have to change so that they align to the new organisational strategy.
The more the entire organisation supports and is involved in implementing the organisational
strategy, the more successful strategy implementation will be. In section 4, we discuss the
implementation and control of retail strategy in more detail.
Phase 3: Strategy evaluation
The third and final phase of strategic management actually consists of two phases: the control phase
and the feedback phase.
In the control phase, a review takes place, as the strategy and tactics (short-term and daily activities)
are assessed against the business vision, mission, objectives and target market of the retailer. This
(assessment) procedure is called a retail audit, which is a systematic process for analysing the
performance of a retailer (Berman and Evans, 2013). The retail audit is covered in detail in section
4.
The strengths and weaknesses of a retailer are revealed as performance is reviewed. Successful
aspects of a strategy should be maintained, while weaker aspects should be revised, in line with the
organisation’s mission, goals and target market. These adjustments are then reviewed in the
organisation’s next retail audit (ibid).
As the strategy unfolds and rolls out, an “observant management receives signals or cues, known
as feedback, as to the success or failure of each part of the strategy” (ibid). Positive feedback
includes high sales revenue, increased market share, no customer complaints or problems with the
government, and low employee turnover. Negative feedback includes falling sales revenue,
decreased market share, increased customer complaints, government sanctions (such as fines), and
high employee turnover. Management should look for both positive and negative feedback so they
can determine the causes in order to maximise opportunities and or rectify problems.
Finally, the strategic review process serves to evaluate the effect of the strategy in relation to the
strategic objectives. A strategy is evaluated for consistency (consistent with goals and policies of the
organisation), consonance (keeps abreast of trends), feasibility (the firm possesses the human,
material and financial resources to implement the strategy) and competitive advantage (places the
organisation at a competitive advance from a resources, skills or brand perspective) (Botha and
Musengi, 2012). If the strategy does not yield the desired effect, the strategy has to be revised to
ensure the organisation remains competitive in the market place.
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Research Assignment: Business Situation Analysis
Refer to the discussion above on the business environment-, situation- and SWOT analyses, and then
answer the questions that follow in writing. (NB: The final product of this research is to be a written
(investigative) report to management of the company you will do the analysis on.)
This is an activity that will help you do your own application of a business analysis. Think of the company where you
work (or one that you are familiar with, or have access to), and then answer the questions below.
For your business situation analysis, collect information along the lines below:
1. Overview of your organisation – today and key trends (Key organisational features such as its size, location,
history and ownership structure)
a) Your organisation’s vision, mission and strategic objectives;
b) Your organisation’s annual sales turnover (rands); and
c) The relative position of your organisation (with reference to competitors. In other words, is your firm the
market leader, or number 2, 3, or smaller?) Also try to find out what percentage market share your firm
has.
2. Overview of the industry – today and key trends
a)
b)
c)
d)
Market sector of your firm’s operations;
Market size (volume and value of total annual sales turnover of the whole market);
Number, size and type of organisations competing in this industry;
Nature of competition (pure, oligopolistic, or monopolistic? Also, is price an important issue for customers,
or are there other bases for competition, such as services or quality?)
e) Geographical area of operation of your firm and its competitors;
f) Market sales patterns (trends over time – upward or downward; how seasonal are your sales?);
g) Governmental influences? (Provide examples);
h) What are the key factors influencing consumer demand?
i) Does your firm offer mobile (cellular phone) applications for its customers? Whether yes or no, identify at
least one of your competitors that offers mobile phone apps to its customers; and
j) Comment on your firm’s level of community involvement. In other words, on a scale of 1 to 10, how would
you rate your employer or company as a corporate citizen?
3. Combine the findings from your analysis into a SWOT analysis of your firm (identify at least four strengths, four
weaknesses, four opportunities, four threats facing your firm).
4. How will you turn these weaknesses into strengths, and the threats into opportunities?
5. Now that you have conducted this situation analysis, what implications does this analysis have (both now and
in future) for your organisation’s business?
6. What recommendations would you make to your firm’s management as a result of this analysis? Remember to
include all of the above items in your written report to management.
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3.2.4 Ethics in Action
The scandals of the financial crisis in 2008 have forced universities to re-examine how they teach
ethics – but there is much controversy over how ethics should be taught at university, and whether
it really can change a student’s behaviour.
Broaden your understanding of the value of ethics:
•
Institute of Business Ethics. 2016, ‘Can ethics be taught. IBE Pearl of Wisdom’,
https://www.youtube.com/watch?v=_2JynQEKnVs (accessed 10 February 2023)
When you have finished watching the video, complete the activity below.
Reflecting on the Role of Ethics in Business
Now that you have watched the video, take a few minutes to answer the following questions in writing:
1. Why is ethics important?
2. Do you think ethics should be an overt component of organisation’s vision, mission and or values? If so, where is
it best accommodated? Give reasons to support your conclusion.
3. How do an organisation’s value statements affect individuals and teams in an organisation?
Section 1 introduced the field of retail strategic management; by providing a brief history of
corporate strategy’s origins and major contributors. The most important concepts and terms
relating to strategic management were then defined, from a retail point of view. The strategic
retail management process was then introduced, together with its component elements.
We emphasised phase 1 of the strategic management process (strategy formulation), which
includes the corporate vision, mission, and strategic objectives. The importance and benefits of a
systematic, detailed analysis of the business environment were also discussed. Together, these
elements set the tone for the subsequent phases of the strategic management process, which
are discussed in the following sections of this course.
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3.2.5 Key Points
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
The business environment has changed since the 1950s;
Approaches like budgeting and management by objectives were found to be of little use in
what had become an unstable economy;
Long-term planning was introduced to improve organisations’ likelihood of survival;
Strategic management techniques were deployed to try and keep on top of changes in the
business environment;
The vision must be a statement that can lead the organisation to success in the future and it
must be inspiring to both the internal and external stakeholders;
A vision is the dream of where the organisation would like to be in the future;
A vision statement serves as an anchor for decision-making; it is the end, not the means of
getting to the end;
The mission statement is the vehicle for reaching the end destination, the vision. Formulation
of the mission statement is guided by the vision;
For a mission statement to be effective, it should inform the key performance areas for the
whole organisation;
Objectives help to shape and focus a strategy, and to translate the organisational vision and
mission into action;
Retailers usually pursue goals related to one or more of these areas: sales, profit, satisfaction
of stakeholders (including customers), and image (ibid);
Managers should be aware of all the relevant internal and external variables of the business
environment and their influence on business strategies;
To understand these variables properly, managers need to do an internal analysis (focusing
on the microenvironment);
Once this analysis is done, an external analysis (also known as environmental scanning) is
required to identify and continuously refine management’s understanding of (external)
environmental forces found in the market and macro environments;
The scandals of the financial crisis in 2008 have forced universities to re-examine how they
teach ethics – but there is much controversy over how ethics should be taught at university,
and whether it really can change a student’s behaviour.
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3.3 THE BASIC ELEMENTS OF STRATEGIC PLANNING
Timeframe
Learning outcomes
Prescribed book
Recommended
multimedia
Section overview
Sixteen hours
•
Compare the processes and applicability of strategic planning models;
•
Understand how planning at different levels is integrated; and
•
Outline the process of developing strategic objectives.
•
Berman, B. and Evans, J.R. 2013, Retail Management: A Strategic Approach, 12th ed,
Harlow, Essex: Pearson Education.
•
Vo, E. 2020, ‘What is Strategic Planning?’, https://sba.thehartford.com/businessmanagement/what-is-strategic-planning/ (accessed 10 February 2023).
The nature, elements and importance of the strategic planning process are discussed. The
strategic planning process is a part of the strategic management process (introduced in
section 1). Different levels of management are responsible for different types of plans, from
the strategic level (formulated by top management), through to the operational, day-to-day
level (done by first-line managers). Setting goals and objectives is the essence of planning, so
these processes are discussed in detail. Next, the critical role and value of information
systems to overall strategy and success are examined. This section then concludes with a
look at ethics in the retail sector.
3.3.1 Introduction
In the previous section, we introduced the strategic management process (Figure 2). We also
described strategic management as a comprehensive process that involves formulating,
implementing and evaluating strategies. Strategic planning is one of the processes of strategic
management. This will become evident as this section unfolds, and the strategic planning process
is explained further.
Planning is the foundation upon which all the functions of management should be built. It involves
an evaluation of where the business is and where it would like to be in future. From this evaluation
a plan is constructed to allow the organisation to move towards its desired future state.
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3.3.2 The Importance of Planning
Benjamin Franklin once said, “If you fail to plan, you are planning to fail” (Goodreads, 2013).
1. What did Benjamin Franklin mean?
2. Think of a time when you planned for an event and another time when you did not. What was the
outcome in each case?
3. What lessons can you extract from your experiences of planning or not planning an event?
Planning provides the organisation with its direction and determines the actions that management
must take. Planning is important because it provides direction, promotes co-ordination between the
various departments and people in the organisation and forces managers to look to the future.
Planning also ensures that the organisation stays in touch with technology and the latest trends; it
ensures cohesion in the sense that it enables top management to see the organisation in a holistic
way. Lastly, planning promotes stability in the organisation by encouraging pro-activeness. Before
devising plans, management must consider the following:
•
•
•
The influence of external factors;
The strong and weak points of the organisation; and
The cost associated with each alternative.
3.3.3 The Nature of Strategic Planning
All managers have to plan continually. Planning, as a management task, takes place at all levels of
a business, from the top management level (focusing on long term, strategic level planning),
through to the first line management (focusing on short term, operational planning).
Strategic planning can be defined as the process of proactively aligning the organisation’s
resources (internal environment) with threats and opportunities caused in the external
environment.
(Smit et al, 2011)
Strategic planning is the process of analysing the organisation’s external and internal
environments; developing a vision and mission; formulating overall goals; identifying general
strategies to be pursued; and allocating resources to achieve the organisation’s goals.
(Thompson and Strickland, 1998)
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3.3.4 Types of Plans
On each level of management, different kinds of plans must be devised. Three types of planning are
discussed, namely: strategic planning, functional planning and short-term planning. These types of
plans are illustrated in Figure 4.
FIGURE 4: DIFFERENT TYPES OF PLANS AT THE VARIOUS MANAGEMENT LEVELS
Top Management
• Mission goals
• Long-term or strategic planning
Middle
Management
• Tactical functional goals
• Medium-term or functional and tactical planning
First-Line
Management
• Operational goals
• Short-term or operational planning
(Adapted from Kroon, 1995)
Strategic planning
Strategic planning involves long-term planning in order to achieve strategic, company-wide goals.
Strategic planning ensures that organisations remain competitive by being responsive to changes in
their external and internal environment. Effective strategic planning involves relevant stakeholders
to ensure widespread buy-in and implementation of the organisation's vision, goals and strategic
plan (Kroon, 1995).
Top management usually consists of a relatively small group of executives who control the
organisation and who take ultimate responsibility for executing the strategy. Top management
usually focuses on long-term planning and they manage the strategic planning process. They also
devise the goals, policies and strategies for the organisation (ibid).
Functional planning
Functional planning refers to medium-term planning and is usually carried out by middle
management. These managers co-ordinate employee activities, including those of first-line
managers. They are responsible for carrying out top management’s directives by delegating
authority and responsibility. They are responsible for certain functional areas of the business and
are primarily accountable for executing the policies, plans and strategies determined by top
management.
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They are responsible for medium- and long-term planning and organising, translating the general
strategies from top management into specific goals and plans for first-line managers to implement.
Middle management is also concerned with managing group performance and allocating
resources. Budgeting is the main method used by management in planning the allocation of (and
control over) resources.
Middle management is also required to develop their subordinates and ensure open lines of
communication (Kroon, 1995). Table 1 summarises the key aspects for each functional management
area.
TABLE 1: KEY ASPECTS OF FUNCTIONAL MANAGEMENT
Functional Management Areas
Key Aspects to be Considered
Marketing
Product line, market position, distribution channels, market communication and
prices
Finance
Policy on debtors, dividends, asset management and capital structure
Production and operations
Improvement of productivity, location problems and legislation
Human resources
Labour relations, labour turnover, training of human resources and equity
considerations
Purchasing
Suppliers, policies on creditors and sources of raw materials
(De J Cronje, Du Toit and Motlatla, 2004)
Functional Plans
Review the discussion on functional planning above, and then answer the following question in writing.
Think of the department where you work (or one you are familiar with). Provide practical examples of the key
aspects that your organisation would need to consider when making functional plans.
Short-term planning
This type of planning is usually done for periods within a year. It is the responsibility of first-line
management in the light of the company’s functional and tactical goals. It is usually concerned
with the day-to-day performance of tasks, and allocation of resources.
First-line managers are responsible for the production of goods or services. They are technical
experts, able to teach and supervise employees in their day-to-day tasks. First-line managers,
sometimes referred to as lower management, are responsible for smaller segments of the
organisation. They supervise the finer details of organising.
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It is important to state that depending on the size of the organisation, there may be more or fewer
levels of management.
There are different types of managers in an organisation, namely functional managers and general
managers. Functional managers are specialised managers in charge of specific functions, eg
financial management, human resource management, marketing management. These functional
managers plan, organise, lead and control their units or departments. General management is
different from specialised functions in that it integrates all the others (Kroon, 1995).
Kinds of Planning
Read the scenario below and answer in writing the question that follows:
Devise a Plan for Customer Relations Training
You have been appointed the head of a planning committee in your organisation. This committee has been tasked
with achieving the following objective: Devise a plan to conduct a three-day training programme for all marketing
employees on customer relations. The training will commence in three months’ time. Twenty employees will attend
the training.
Can this plan be defined as a strategic, functional, or short-term plan? Explain your answer.
3.3.5 Characteristics of an Effective Plan
Strategic plans are devised to ensure that little is left to chance and that risks are mitigated. An
effective strategic plan should include the characteristics explained in Table 2.
TABLE 2: CHARACTERISTICS OF AN EFFECTIVE PLAN
Comprehensive
A thorough analysis of all relevant factors has been conducted and all significant
options and effects are considered.
Efficient
The process optimises time, money and effort.
Inclusive
Everyone affected by the plan has an input into decision-making.
Informative
Communication with stakeholders takes place extensively, to ensure that they
understand the results.
Integrated
The plan is aligned to the overall strategic goals of the organisation.
Logical
The plan flows in a coherent way.
Transparent
People involved understand how the process operates.
(Litman, 2011)
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3.3.6 Elements of a Planning Framework
Planning is a process of identifying and formulating the goals and objectives of an organisation,
followed by a choice of the strategy to achieve the goals, and then the actual implementation of the
chosen strategy. It is important to note that planning does not take place in isolation, but is closely
linked with organising, leading and control; it is a dynamic process.
If we think of planning as a process, then the elements of this process together form a framework,
a conceptual structure intended to support and guide the development of a plan. Litman (2011) says
a planning framework should include these elements.
TABLE 3: PLANNING FRAMEWORK
Principles
A guideline used for making decisions
Vision
A desired future state
Problem
An adverse condition to be resolved
Goals
A condition to be achieved. May be long- or short-term.
Objectives
A method to achieve a goal
Targets or standards
Minimum levels of performance to attain
Performance indicators
A method of measuring progress toward objectives
Plans
The organisation of a set of actions to achieve a determined goal
Options
Feasible recommendations to achieve an objective or solutions to a problem
Policies or strategies
A plan or way to perform a certain task
Programmes
A set of objectives, responsibilities and tasks within an organisation
Tasks or actions
A thing to be conducted
Scope
The range (area, people, time, activities, etc) to be included in a process
Evaluation criteria
The advantages and disadvantages considered in an analysis
Evaluation methodology
A technique used to determine the value of an action
(Litman, 2011)
Planning Framwork
Refer to the scenario, ‘Devise a Plan for Customer Relations Training’ (the previous application question), and
then perform the following task: Prepare a planning framework (taking into account all the elements in Table 3) that
will guide your planning process.
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3.3.7 The Strategic Planning Process
John Maxwell (nd) argues that planning should be based on principles. Principle-centred planning
has the following advantages:
•
•
It allows organisations to be flexible without losing focus; and
It allows organisations to be creative.
To understand the concept of principle-centred planning in more detail, read the metaphors in the
icon below by John Maxwell (nd):
•
•
•
•
Planning is the structure: Principle-centred planning is the flesh.
Planning is the road map: Principle-centred planning is the movement.
Planning is the idea: Principle-centred planning is the action.
Planning is on paper: Principle-centred planning is the power.
(Maxwell, nd)
Planning can be seen as the development and implementation of a plan or schedule that is
based on goals and objectives.
It is vital to note that without planning, the next step in the management process cannot take place.
Organising cannot take place if there is no plan to direct the allocation of resources. Effective
leadership is not possible as there is no plan according to which people can be instructed and
encouraged to carry out their tasks. Control relates to dealing with any deviations from the plan; if
there is no plan, there is nothing to control.
Strategic planning is a systematic process that involves the implementation of specific steps. These
steps are outlined in Figure 5. Each of these steps will be discussed in more detail.
FIGURE 5: THE STRATEGIC PLANNING PROCESS
Step 1: Setting
the scope
Step 2: Define
goals and
objectives
Step 3: Draw up
and implement a
schedule
Step 5: Close
Step 4: Track,
adjust, update
(Halward, 2013 and Rymill, nd)
Let us now take a closer look at each of the steps in the strategic planning process.
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Step 1: Scope
The first step in the strategic planning process is to set the scope of the plan. Setting and assessing
the scope of the plan entails setting expectations (Rymill, nd); because the plan’s scope is required
to be inclusive of all factors and stakeholders that the plan will affect.
A practical tip for planners is to think backwards. In other words, determine the desired end result
of the plan; then, think backwards to analyse the tasks and resources needed to arrive at the
desired result. All factors included in this analysis will form part of the scope.
Step 2: Define goals and objectives
The second step of the strategic planning process is to set goals and objectives. Goals and
objectives are connected to, but distinct from, each other (Botha and Musengi, 2012). Goals state
long-term targets, while objectives state short-term, specific targets. Goals are broken down into
several objectives.
Goals are strategic in nature, involving the whole enterprise, while objectives are usually set at
departmental level, for shorter time frames, usually for no longer than a year. In other words, goals
are critical for strategy formulation, while objectives are important for strategy implementation.
Goals should meet the following criteria:
•
•
•
•
Suitable: Does it fit with the vision and mission?
Acceptable: Does it fit with the values of the company and the employees?
Understandable: Is it stated simply and easy to understand?
Flexible: Can it be adapted and changed as needed?
Goals should also be focused on the important priorities of the business. Beware of setting too
many goals – you’ll run the risk of losing focus. Also, design your goals so that they don’t contradict
and interfere with each other.
(Adapted from Iowa State University, 2009).
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Here are some examples of business goals:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
To improve profitability
To increase efficiency
To capture a bigger market share
To improve employee training
To reduce carbon emissions
A better, more secure, competitive position
Higher product quality
Lower costs relative to key competitors
Broader or more attractive product line
Superior customer service
Recognition as a leader in technology
Increased ability to compete in international markets
Expanded growth opportunities
Total customer satisfaction
(Adapted from Iowa State University, 2009; Gilligan and Wilson, 2009)
At a more personal level: If for example, your goal is to complete your BBA degree in three years,
you should devise specific objectives to achieve this long-term goal, such as: to pass every
assignment and examination per module; to make summary notes for each recommended article
per module; to apply at least one model or theory from each module in the workplace. If one
achieves these objectives, then the (overall) goal of completing one’s BBA degree will eventually
be achieved.
Goals are important because they:
•
•
•
•
•
Provide direction and purpose;
Focus attention on relevant activities that are related to the goal;
Motivate people to achieve a target;
Promote persistence and perseverance, as they help people to overcome obstacles; and
Establish a benchmark to measure performance.
(Botha and Musengi, 2012)
Objectives are:
Unlike goals, objectives are specific, measurable, and have a defined completion date. They are
more specific and outline the “who, what, when, where, and how” of reaching the goals.’
(Michigan.gov, nd)
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In Section 1, under strategic objectives, we said that retailers usually set strategic objectives
relating to one or more of these areas: sales, profit, satisfaction of stakeholders (including
customers), and image (positioning).
(Berman and Evans, 2013)
How to define SMART Objectives
Objectives should be devised using the SMART (specific, measurable, achievable, realistic and time
bound) principles. Deliverables must be identified and defined when setting SMART objectives, as
they define quality standards and determine the feasibility of each objective. These are discussed in
Figure 6 and Table 4.
FIGURE 6: SMART OBJECTIVES
Specific
Measurable
Achievable
Realistic
Time bound
(Haughey, 2012)
TABLE 4: SMART OBJECTIVES
Specific
Measurable
Achievable
Realistic
Time bound
•
•
•
•
•
•
•
•
•
•
Is the objective clear and well defined?
Can everyone understand it?
How will the organisation know when the objective has been reached?
What evidence is needed to confirm that it has been reached?
Is it within the organisation’s capabilities?
Are there sufficient resources available?
Is it possible to reach the objective?
How sensible is the objective in the current business context?
Is there a deadline?
Are there review dates?
(Haughey, 2012)
Examples of SMART objectives are:
•
•
•
To train 10 senior managers in advanced project management before 10 June 2015;
To build five three-bedroom houses in Johannesburg by 16 December 2015; and
To employ one receptionist by 30 March 2015.
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SMART Objectives
Convert the following objectives into SMART objectives (in writing):
1. To train administrators;
2. To graduate; and
3. To organise a team meeting
What did you learn from this exercise that you can apply to other situations?
Before continuing, let us keep in mind that strategic planning (as a process) is all about “proactively
aligning the organisation’s resources (internal environment) with threats and opportunities caused in
the external environment” (Smit et al, 2011). This is one of the definitions of strategic planning we
provided in subsection 7.2.3. That is why we need to now take a closer look at the concept of
opportunity analysis – and how to take advantage of opportunities timeously, while the strategic
window is open.
Opportunity analysis and strategic windows
One technique for timing the utilisation of opportunities is to identify strategic windows. A
strategic window is the limited period during which the “fit” between the key requirements of a market
and the particular competencies of a firm are at an optimum (Lamb et al, 2008).
The declining value of the South African rand is bad news for importers of goods into SA – yet, it
has created huge opportunities for SA’s exporters, as well as companies in the tourism and
hospitality sector. This is because all foreign tourists (carrying strong foreign currency) will
probably find our country to be relatively more affordable, than, say, Europe, Britain or the US. A
weaker currency also provides our exported goods with a strategic window to compete with other
(foreign) products, due to the ability it provides exporters to sell these goods at cheaper prices in
foreign markets.
Corporate culture and strategic windows
Whether a firm seizes opportunities when the strategic window is open is often determined by its
corporate culture. Corporate culture is the term given to a “pattern of basic assumptions a firm
has adopted to cope with its internal environment and the changing external environment” (Lamb et
al, 2008).
Internally, corporate culture is concerned with such issues as worker loyalty, centralisation or
decentralisation of decision-making, promotion criteria, and problem-solving techniques. Corporate
culture regarding the external environment is revealed by the way the firm reacts to threats and
opportunities.
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According to Lamb et al (2008) a firm’s response to the external environment will be influenced
by its corporate culture and can be categorised into four types of responses:
•
The Prospector: focuses on identifying and capitalising on emerging market opportunities,
thus emphasising thorough research and communication with the market. Because of its
strong external orientation, the prospector tends to build and maintain an excellent
information system and product development programme. A prospector prefers strategic
alternatives that tap new markets or that develop new goods and services.
•
The Reactor: the opposite of the prospector. Instead of looking for opportunities, it responds
to environmental pressures when forced to do so. The reactor is a follower, not a leader,
and lacks a strategic focus. Emphasis is on maintaining the status quo despite
environmental change. A reactor will avoid any strategic alternative that takes it out of its
niche or that calls for bold, risk-taking action.
•
The Defender: has a specific market domain and does not search outside that domain for
new opportunities. Instead, it tries to defend its turf. A defender looks favourably on any
strategic alternative that helps reduce operating costs. The risk, however, is that market
changes might go unnoticed. Even if the defender detects such changes, it is typically unable
to adjust its business practices quickly in response.
•
The Analyser: tends to be both conservative and aggressive. It usually operates in at
least one stable market and tries to defend its position in that market. An analyser also tries
to identify emerging opportunities in other markets. Unlike the prospector, the analyser is not
an aggressive risk taker. Usually second into new product markets, the analyser does have
the advantage of observing and learning from other firms’ new-product problems.
(Adapted from Lamb et al, 2008)
Opportunity utilisation strategies
Setting objectives and strategies in relation to products and markets is a fundamental element of the
strategic planning process.
In the late 1950s, the Russian-American engineer Igor Ansoff, one of the founders of strategic
management, argued that strategic planning was essential for firms operating in a complex, turbulent
environment. Ansoff's article, “Strategies for Diversification”, in the Harvard Business Review
provided a practical framework for companies wishing to expand their businesses in a growing
market by reasoning that long-range planning was necessary to drive managerial decision-making
when the speed of change exceeded the firm's ability to respond.
Ansoff simplified the competitive position of firms by defining two dimensions:
1. Products (what it sold); and
2. Markets (to whom they are sold).
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To discover (and understand) a business opportunity, management must know how to identify
available alternatives for expanding (growing) their business. One method for developing
alternatives is Ansoff’s strategic opportunity matrix (1957), which matches products with markets.
Retailers can explore the following four growth strategies:
•
•
•
•
Market penetration;
Market development;
Product development; or
Diversification.
Ansoff’s matrix is illustrated in Table 5.
TABLE 5: ANSOFF’S MATRIX
MARKETS
PRODUCTS
Existing
New
Existing
Market penetration
Product development
New
Market development
Diversification
(Adapted from Ansoff, 1957)
Let us take a closer look at each of the four growth strategies identified in Ansoff’s matrix.
Remember, a growth strategy will always involve a product or service offering, which we aim at a
selected target market. Using Ansoff’s matrix, gives us four basic product or market combinations
to take advantage of growth opportunities.
a)
Market penetration: existing products or existing markets
A growth strategy designed to sell more products to the same segment or target market.
For example, retail marketers can try to increase consumption of toothpaste by suggesting
consumers brush their teeth three times a day instead of twice.
b)
Market development: existing products or new markets
This growth strategy is used to find new market segments for your existing products or you will have
to convert nonusers into new and regular users. One way of achieving this is to open retail outlets in
new countries.
Shoprite Checkers, Woolworths and Spar (among other South African retailers) have followed this
strategy by opening branches in foreign countries, in various parts of the world.
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c)
Product development: new products or existing markets
This is a growth strategy that offers new or improved products for your existing markets.
Samsung and Apple are forever trying to boost their sales by continually introducing upgraded
versions of their cellular phones, to their (existing) cell phone customers.
d)
Diversification: new products or new markets
A growth strategy aimed at moving into totally different types of businesses and, perhaps, entirely
unfamiliar products, markets, or even levels in the production-marketing system. This is also the
riskiest of the four growth strategies considered here.
Several traditional retailers have diversified into the financial services market by offering banking,
consumer finance, insurance, and other related financial services to the general public.
Which opportunity do we pursue?
Selecting which of the above four opportunities to pursue depends on the company’s strategic
(overall) philosophy and corporate culture. The choice also depends on the “modelling tool used to
make the decision” (Lamb et al, 2008). Retailers have numerous modelling tools (such as Ansoff’s
matrix) available today to help them make informed strategic decisions. We discuss a few more of
these models later in this course.
The question now becomes: “How long should a company wait to start reaping the profits of its
business opportunity and related growth strategy?” There are essentially only two philosophies about
when to expect profits: a company either pursues profits right away, or first seeks to increase market
share and then to pursue profits. Over the long term however, market share and profitability are
perfectly compatible goals to pursue. Many companies have long followed the credo: “Build market
share -- and profits will surely follow” (Bird and Duckles, forthcoming).
Step 3: Draw up and implement a schedule
Drawing up a schedule includes:
•
•
•
•
Linking dependent variables;
Identifying milestones;
Allocating tasks; and
Communicating.
When preparing a schedule it is important for organisations to consider the elements listed above.
For example, if an objective is set, one must determine the flow of events that must occur for that
objective to be achieved; milestones must be identified for monitoring purposes; tasks must be
allocated to the relevant people; and all information must be communicated and explained to all
relevant stakeholders.
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We will now further discuss each of the elements of a schedule, identified above.
Link dependent activities
When deliverables and objectives are set it allows firms to identify the activities that must be
performed to achieve the required outcome. Connecting interrelated tasks allows firms to create a
logical flow of events to increase efficiency. This also allows the organisation to accommodate the
ripple effect of time delays. Certain activities depend on the completion of other activities, and this
must be considered. (For example: a building cannot be painted before it is constructed.)
Milestones
A milestone may be defined as:
Subobjectives or stages into which a programme or project is divided for monitoring and
measurement of work performance.
(Business Dictionary,2013)
Milestones should be identified in order to assess quality at the various stages of development. By
setting milestones, expectations can be managed and the planning can be constantly monitored and
amended accordingly. Milestones must simplify the scope and objectives by breaking them down
into smaller activities or outcomes. These activities must be easy to manage. They must also add
significant value to the overall objective.
Allocate tasks
Tasks should be allocated to the relevant human resource in the organisation. Firms need to ensure
that they have enough resources to complete the activities in the available time and within the
allocated budget. Resources include labour, capital and capabilities. Organisations must ensure that
their resources are aligned with their ultimate objective.
Communicate
All stakeholders must be communicated with. Information such as progress, delays and changes
must be shared. An advantage of communication is that subject-matter experts can offer invaluable
opinions that improve the planning of the project. This increases efficiency. Communication fosters
buy-in and the development of a common understanding among stakeholders. The SMART
objectives considering the scope, the activities, the milestones, the person responsible, indicator of
success and deadlines should be documented in the form of a schedule. This schedule is like a road
map to guide the activities in the plan. It assists with monitoring and evaluation.
Table 6 is an example of a schedule for the activity of advertising a vacant post internally. It illustrates
the overall activities that must be accomplished to achieve the SMART objectives. Milestones are
set to break down and monitor each subactivity.
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Even though there may be many people involved in an activity, the person responsible must ensure
that the overall milestone is implemented. The person responsible should involve other people in the
activity, but is ultimately accountable for this milestone or activity.
For example: in Table 6, Jack the HR manager, is responsible for many of the milestones.
However, he will involve other key people in certain milestones, such as shortlisting candidates.
The indicator of success refers to the tangible evidence required to prove that a milestone has
been implemented. To ensure that you have identified an appropriate indicator of success, ask
yourself, “How will one know if an activity or milestone has been successfully implemented?” The
deadline refers to the date by which the milestone should be implemented. An important aspect to
note is the repercussions of delays on activities that are linked.
An example of a schedule to implement a SMART objective is illustrated in Table 6.
TABLE 6: SCHEDULE TO IMPLEMENT A SMART OBJECTIVE
SMART objective: To employ a senior IT manager before 31 March 2015.
Activity
Advertise the
position of IT
manager
Shortlist the
candidates
Interview the
candidates
Select the
candidate
Send letters to
candidates
Milestone
Write the content of the
advertisement for the
vacancy
Confirmation of the
advertisement date
Person Responsible
Indicator of Success
Deadline
Jack (human
resources manager)
Job description
3.2.2015
Jack (HR manager)
Confirmation letter
5.2.2015
Read receipt of email
5.2.2015
Copy of notice
5.2.2015
Notices placed in open
areas
Gail (HR
administrator)
Gail (HR
administrator)
Advertise the position
Jack (HR manager)
Review all CVs
Shortlist the candidates
based on criteria
Set up interviews with
candidates
Jack (HR manager)
Senior management
team
Gail (HR
administrator)
Thabo (line manager
of IT manager)
Thabo (line manager
of IT manager)
E-mail of job description sent
Interview each candidate
Apply criteria to select the
most appropriate candidate
Send a letter of acceptance
to the successful candidate
Send a letter of regret to
unsuccessful candidates
All internal staff are
aware of the vacancy
Checklist
List of shortlisted
candidates
6.2.2015
24.2.2015
26.2.2015
Schedule of interviews
27.2.2015
Minutes of interviews
14.3.2015
Name of selected
candidate
24.3.2015
Jack (HR manager)
Letter of acceptance
26.3.2015
Jack (HR manager)
Letters of rejection
26.3.2015
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Once the schedule has been prepared, it can be implemented according to the milestones, person
responsible, indicator of success and deadline. However, it is common for schedules not to go
according to plan. The next phase focuses on how the plan can be monitored and adjusted
accordingly.
Step 4: Monitor – track, update and adjust
The successful implementation of a schedule requires constant monitoring to ensure that each and
every SMART objective is achieved. The activities therefore must be tracked, and if there are
problems, the schedule should be updated and adjusted accordingly.
Once a schedule is drawn up, the activities performed must be constantly measured against the
objectives and elements of the schedule (track). Performance and nonperformance must be
recorded (update). If changes must be made for any reason then the schedule must be amended
(adjust). It is important to remember that if there are linking activities, updates must be made to all
activities involved. For example, the effect of all unexpected delays and progressions must be
considered against other activities. This stage may also be referred to as monitoring.
Documenting all aspects of the plan, noting which elements worked and which did not, allows
organisations to be continually progressive. The entire process must be reviewed. Reviewing a
process provides the firm with vital pieces of information that may be referred to in future planning
endeavours. It ensures that the organisation learns from its mistakes and does not repeat them.
Step 5: Close
Closing a project is one of the most important stages of planning. This entails capturing the
successes and failures of the plan (reviewing). This information must be recorded, and revisited at
the commencement of new plans. It ensures that mistakes are not repeated. The purpose of this is
growth, minimising mistakes, and increasing efficiency and accuracy. (Rymill, nd)
It will be useful at this point to compare briefly the main steps in the strategic planning process
just explained, with the strategic management process (explained in section 7.1.3: Figure 2). After
comparing these two processes, what would you say are the similarities and differences?
Schedule for SMART Objectives
Please refer to the above scenario ‘Develop a Plan for Customer Relations Training’ and draw up an implementation
schedule to implement a SMART objective – as illustrated by Table 6 – to ensure that all marketing staff in the
company are adequately trained.
NB: Write out your SMART objective (relating to the envisaged training project described above) before starting your
implementation schedule. This SMART objective must also be the heading of your implementation schedule.
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For a practical illustration of the strategic planning process, watch this video clip:
•
Vo, E. 2020, ‘What is Strategic Planning?’, https://sba.thehartford.com/businessmanagement/what-is-strategic-planning/ (accessed 10 February 2023).
3.3.8 Information Needs for Strategic Planning
Good managers are good decision-makers. Decision-making is about the future and the future is by
definition uncertain. The availability of information reduces risk and enhances the quality of decisionmaking, by allowing managers to make informed decisions, without having to rely only on their
intuition.
Management needs timely, accurate, relevant and reliable information for more accurate
planning and better anticipation of consumer needs and competitive activity, which allows the firm
to quickly use opportunities and effectively overcome threats. The modern manager is faced with a
three-fold dilemma:
•
•
•
Problems in the company or market, are often only visible as symptoms, meaning that it’s
not always obvious to a manager what the exact cause of a particular problem might be (eg
a sudden drop in sales is a symptom, but what has caused this decrease? The answer to this
question is of course the real problem!);
Second, there are many situations where the information needed is not readily available to
make the best decision;
Third, the information is available but not in the right format. We will have a look shortly at
the main types of information needed for strategic planning and decision making.
(Van der Walt et al, 1996)
The value of information
Although information is considered a useful resource, not all information is necessarily valuable.
The value of information is directly linked to how it helps decision makers to achieve their
organisation's goals. For example, the value of information might be measured in the time required
to make a decision or in increased profits to the company.
To be valuable to managers and decision makers, information should at least be: accurate (error
free); detailed (complete, and containing all the relevant facts); reliable (from a credible, trustworthy
source); economical (the cost of collecting and using it); relevant (to the manager or decision
maker); simple yet sufficient (not overly complex, or too much or too little); timely (delivered when
needed – outdated information is useless); and secure (from access by unauthorised users.) In
other words, information that does not meet the above requirements is actually useless for decision
making – or worse, if used can result in uninformed, flawed decision making – with potentially
disastrous consequences for the company.
(Adapted from Laudon and Laudon, 2007)
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The need for an information system in strategic planning
When we discussed the strategic planning process (section 7.1.3: Figure 2), we identified the three
major areas of the business environment as the:
•
•
•
Micro (internal) environment;
Market (external); and
Macro environment.
So a company continually needs information on these three areas, in order to plan and make
strategic decisions successfully. A business information system is therefore absolutely essential
in today’s environment, as we shall see in a moment. But what exactly is an information system?
O’Brien and Marakas (2011) defines an information system (IS) as “any organised combination of
people, hardware, software, communications networks, data resources, and policies and
procedures that stores, retrieves, transforms, and disseminates information in an organisation”.
So, an information system consists of data, information, hardware, software, communications,
people, and procedures. An information system collects, manipulates, and disseminates (makes
available) data and information. An information system need not include electronic equipment.
However, nowadays an information system has become synonymous with a computer-based
information system. Cameron (2008:169) suggests that information systems deal with everything
from accounting and budgeting, through human resource data, to quality improvements.
Information systems perform three vital roles in any organisation (O’Brien, 1999):
•
•
•
Support of business operations;
Support of managerial decision-making; and
Support of strategic competitive advantage.
An example of support of business operations is found in the retail business. Most retail stores
use information systems to help them record customer purchases, keep track of inventory, pay
employees, buy new stock, and evaluate sales trends. Managers have to make decisions about
the products that the business sells, required investments, and marketing strategies. Information
systems help them to make better and informed decisions.
Information systems, especially if they are used in innovative ways, also help managers to gain an
advantage over their competitors, ie a competitive advantage. For example, if a business uses
social media platforms to interact effectively with their customers, this will give it a competitive edge.
Information systems are also constantly making it possible for organisations to improve the way they
conduct business.
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3.3.9 Ethics in Action
Read the caselet below, ‘Reaching out in times of tragedy’.
On a monthly basis, Franchising World reports on instances of the franchising industry’s
community outreach programs. For example, one issue described the franchising community’s
efforts in assisting those who suffered as a result of the earthquake and tsunami that hit Japan in
2011.
The nature of the retailers’ efforts varied: Some provided collection boxes, others made direct
contributions from retailer- based charitable foundations, and still others developed cause-related
marketing programs, which donated a portion of profits on specific items.
7-Eleven (www.7-eleven.com) installed in-store collection boxes in nearly 39,000 of its store
locations to assist relief organizations in Japan. McDonald’s (www.mcdonalds.com) decided to
contribute $2-million to the International Federation of the Red Cross for the charity’s disaster
relief efforts in Japan. Auntie Anne’s (www.auntieannes.com), the pretzel chain, donated the
profits for its sales of lemonade over one entire month to relief efforts in Japan. As a result of this
commitment, sales of lemonade almost tripled at Auntie Anne’s outlets. Marriott International
(www.marriott.com) offered Marriott Rewards members the opportunity to redeem points for
donations to the International Federation of Red Cross and Red Crescent Societies Japan
Earthquake and Tsunami relief programs.
[Franchising World. 2011, ‘Franchise community reaches out to Japan,’ Franchising World (June
2011).]
Recap Questions
1. Describe planning as part of the management function.
2. Why should planning take place first?
3. Identify areas of similarity, and areas of difference, between the strategic planning process and the strategic
management process.
4. Describe briefly what type of information system your employer or your company of choice uses. Also identify
the role(s) that your employer’s or your chosen company’s information system performs in managing the
business (daily and long term).
In section two, the nature, elements and importance of the strategic planning process (as part of
the strategic management process) were discussed. Different types and levels of plans were
introduced and explained (according to the three major levels of management in an
organisation). Setting goals and objectives were then discussed in detail.
Strategic management and planning relies heavily on a well functioning, efficient information
system. In fact, strategic planning cannot happen without a reliable information system. This
section concluded with a look at ethics in the retail sector.
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3.3.10 Key Points
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Planning provides the organisation with its direction and determines the actions that
management must take;
Planning is important because it provides direction, promotes co-ordination between the
various departments and people in the organisation and forces managers to look to the
future;
Planning, as a management task, takes place at all levels of a business, from the top
management level (focusing on long term, strategic level planning), through to the first line
management (focusing on short term, operational planning);
Strategic plans are devised to ensure that little is left to chance and that risks are mitigated;
If we think of planning as a process, then the elements of this process together form a
framework, a conceptual structure intended to support and guide the development of a plan;
Planning can be seen as the development and implementation of a plan or schedule that is
based on goals and objectives;
It is vital to note that without planning, the next step in the management process cannot take
place;
Organising cannot take place if there is no plan to direct the allocation of resources;
Effective leadership is not possible as there is no plan according to which people can be
instructed and encouraged to carry out their tasks;
Control relates to dealing with any deviations from the plan; if there is no plan, there is nothing
to control;
Good managers are good decision-makers;
Decision-making is about the future and the future is by definition uncertain;
The availability of information reduces risk and enhances the quality of decision-making, by
allowing managers to make informed decisions, without having to rely only on their intuition;
Management needs timely, accurate, relevant and reliable information for more accurate
planning and better anticipation of consumer needs and competitive activity, which allows
the firm to quickly use opportunities and effectively overcome threats.
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3.4 CONSULTATIVE APPROACHES AND STAKEHOLDER ANALYSIS
Timeframe
Sixteen hours
Learning outcome
•
Compare a variety of consultative approaches and conduct a stakeholder analysis.
•
Berman, B. and Evans, J.R. 2013, Retail Management: A Strategic Approach, 12th ed,
Harlow, Essex: Pearson Education.
•
Madsen, S. 2015, ‘Stakeholder Management’,
https://www.projectmanager.com/stakeholder-management (accessed 10 February
2023).
•
Study.com. 2015, ‘What is a stakeholder in business?’,
https://study.com/academy/lesson/what-is-a-stakeholder-in-business-definitionexamples-quiz.html (accessed 10 February 2023).
Prescribed book
Recommended
multimedia
Section overview
The formulation and implementation of a retail strategy cannot happen in isolation (in a
secret backroom somewhere); instead, strategies involve people (or stakeholders), and
strategies unfold in a specific business environment, as we have seen in section one. In
other words, retail management needs to identify, analyse and consult with stakeholders –
before making or implementing any kind of strategic plans.
Failing to do so means “planning to fail”, in the wise words of Benjamin Franklin. Section
three discusses how to classify different types of stakeholders; identifying their needs and
expectations; understanding power bases of and relationships between stakeholders; and
how to communicate meaningfully with these people. As always, this section concludes with
a discussion of ethics in action.
3.4.1 Introduction
It is commonly accepted that organisations are open systems, and so we can view an organisation
as a collection of parts that interact in a collective manner. Open systems are input-throughputoutput mechanisms. This means that something goes in one side, goes through a series of
conversion processes, and comes out on the other side in a different form. For example, various
fruits are put into a blender on one side. Inside the blender they undergo a process that changes
them, and fruit juice comes out on the other side.
Systems also have boundaries that separate them from their environment. What is inside the
boundary is the system and what is outside is the environment. Boundaries of open systems are
permeable and so they permit the exchange of information, resources and energy between the
system and its environment. It is during these exchanges with the environment that the organisation
encounters other parties or stakeholders that are important to the survival of the organisation. Given
the influence these stakeholders have on the survival of the organisation, it is extremely important
for the organisation to identify these stakeholders and determine how they affect the organisation,
and vice versa.
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For example, a state hospital depends on funding from the government, and so its relationship
with the government will be a lot closer and more important than it would be for a private hospital.
A private hospital might only be responsible to comply with legislation, and so the government will
not be as important to it as to the government hospital, which depends on the government for its
livelihood.
3.4.2 Who or What are Stakeholders?
The stakeholder concept was first mentioned in 1963 in a Stanford Research Institute memorandum
and since then, this theory has gained increasing use, especially in the strategy development
literature. But who or what exactly is a stakeholder?
Stakeholders are traditionally defined as “any individual or group who can affect or is affected by
the actions, decisions, policies, practices, or goals of the organisation”.
(Freeman, 1984)
They can also be defined as “persons or groups with legitimate interests in procedural and/or
substantial aspects of corporate activity”.
(Donaldson and Preston, 1995)
According to Eden and Ackermann (1998) stakeholders are “people or small groups with the power
to respond to, negotiate with and change the strategic future of the organisation”. In other words, we
could see an organisation and its stakeholders as a series of relationships between the organisation
and its stakeholders, and among stakeholders. If we accept this view it then becomes necessary to
examine the nature of each stakeholder relationship and to recognise that some stakeholders have
relationships with each other.
We can also view the relationships between the organisation and its stakeholders as a series of
“contracts”. Some of these “contracts” are only commitments in the broadest sense of the word,
whereas others are more formalised and meet the requirements of a legal contract, for example: the
organisation’s relationship with its employees.
Many writers have pointed out that an organisation has social responsibilities and that
shareholders are not the only stakeholders in the business. Stakeholders may even have interests
that conflict with that of shareholders and they often have longer-term relationships with the
organisation than its shareholders.
These other stakeholders can be divided into:
•
Employees: Employees usually make a long-term commitment to the organisation and, in
today’s information-age organisations, the special skills of employees are intangible assets
that are very important in creating value. Employees usually seek job security, compensation
and job satisfaction from their jobs. Job security may conflict with the maximising of
shareholder value.
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•
Managers: During the 20th century, management often did not pursue interests that were
aligned with those of shareholders. Managers are more risk averse in searching for
opportunities than shareholders, since their jobs and prestige are on the line each time they
make a decision to act on an opportunity.
•
Customers: Without customer value there can be no shareholder value since the source of
an organisation’s long-term revenue is satisfied, loyal customers. Many managers believe
that maximisation of customer satisfaction and customer value should be the primary goal of
the organisation. This can conflict with shareholder value if the price the customer is paying
is less than the cost of delivering the satisfying product or service.
•
Suppliers: Retailers depend on the co-operation and commitment of their network of
suppliers, also known as a value chain. Competition also exists between supply networks (or
value chains), and suppliers in these networks want long-term security, predictability and
satisfactory margins.
•
Community: The local and national communities where a retail organisation is located also
have interests in the organisation’s behaviour. Social responsibilities can be divided into
those arising from what the organisation does to society and what society can do for the
organisation.
Stakeholder Identification
Write down at least three of the most important stakeholders for each of these organisations:
•
•
•
A major supermarket chain.
A cellular service provider.
A private hospital.
3.4.3 Where Are Stakeholders Found?
In Section 1, we introduced and explained the business environment (Figure 2) as consisting of
the organisation’s micro-, market- and macro environments.
The situation analysis (from Section 1 also) of the retailer’s business environment is a very effective
method to identify stakeholders, as it scans (investigates) all three subenvironments of the overall
business environment. Seen on the whole, this environment is a complex set of interacting people,
relationships, processes, regulations, situations and technologies that can significantly affect the
retailer’s strategies and success. This is why accurate stakeholder identification is critical. Using the
framework provided by the business environment, a retailer’s stakeholders can then be classified as
either internal- or external stakeholders.
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Internal stakeholders
These are individuals or groups of people who work and operate within the retailer’s organisation
and are therefore directly dependent on the organisation. They include:
•
•
•
•
Shareholders ;
Board members;
Employees (management and staff); and
Distribution channels (ie the retailer’s branch network, franchisees and or dealers).
External stakeholders
These are individuals or groups from outside the organisation, who can be either directly or indirectly
dependent on the retail organisation. They include:
•
•
•
•
•
•
•
•
•
•
•
•
Customers (shoppers, supporters, advocates);
The public (including potential customers);
Suppliers (direct or indirect);
Government (national or local);
Other organisations (strategic partners or third-party alliance organisations);
The media;
Industry associations;
Chambers of commerce;
Consumer councils;
Trade unions;
Pressure groups; and
Financial institutions.
Which of these stakeholders are relevant to the retailer?
The list of internal or external stakeholders above is merely a general example. Each company will
have their own, unique cluster of stakeholders, which have to be identified by name. We can use
the basic stakeholder analysis technique to identify stakeholders and their interests in, and,
requirements from, the organisation. We explain this technique in a moment.
Before the retailer can embark on a stakeholder identification process, it must pinpoint the individuals
who will be involved in the stakeholder identification. The choice of individuals will depend on the
reason for the stakeholder identification being undertaken. In our case it is done in order to
formulate and implement a retail strategy; so it stands to reason that a good place to start would be
members of the management team and employees (at all levels).
A general rule is that people should be involved if they have information that cannot be gained
otherwise or if their participation is necessary to ensure the successful implementation of the
retail strategy. One way to approach this is to use a basic stakeholder analysis technique to identify
stakeholders and their interests in, and, requirements from, the organisation.
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This technique consists of the following steps:
•
•
•
•
•
•
•
•
Brainstorm the list of potential stakeholders;
Rank the stakeholders according to their importance to the organisation;
Prepare a separate flipchart sheet for each stakeholder;
Place a stakeholder’s name at the top of each sheet;
Determine whether the stakeholder is internal or external;
Draw a column down the right hand side of each sheet and leave the column blank;
Specify how each stakeholder influences the organisation;
For each stakeholder, list the expectations or requirements the group thinks the stakeholder
has of the organisation, in the blank column;
• Indicate how well the group thinks the organisation is meeting the expectations or
requirements of the stakeholder; and
• Identify and record what must be done to satisfy each stakeholder.
Customers are extremely important stakeholders in any organisation and they may require a few
things from the retailer such as stock availability, assortment, on-time delivery, competitive prices,
quality products and so on. Suppliers are equally important to the effective functioning of a
retailer and so they will require different things from the organisation such as on-time payment
and quick turnaround times at stores’ unloading bays.
3.4.4 What do Stakeholders Need and Expect?
In the 21st century it has become essential that retailers focus their strategies on the relationships
they have with stakeholders (internal and external). In today’s competitive world, the retailer’s
stakeholder system should also be seen as a negotiated environment in which relationships need
to be managed carefully. The nature of a retailer’s relationship with customers, suppliers, regulators,
shareholders, communities and so on can have a huge effect on the retail organisation’s corporate
brand image, product and market acceptance, customer loyalty, competitiveness, employee
relations and corporate reputation.
Attention to stakeholders is important because success for most organisations implies satisfying key
stakeholders according to their definition of what is valuable. If one’s key stakeholders are not
satisfied (at least in part) one can expect some form of (negative) repercussion.
For example, if a retailer’s suppliers are not satisfied with the period of time it takes to pay them,
this would place strain on the relationship, should these suppliers decide to not provide the retailer
with products or services any longer.
Take note, that it is not necessary for the organisation to satisfy all its stakeholders all the time, but
the key stakeholders should at least be satisfied, involved or taken into account. Therefore, it is
important to know who the key stakeholders of your organisation are.
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Direct vs indirect stakeholder relationships
Using the basic stakeholder analysis technique (described above) will also help us to classify
stakeholder relationships as either direct or indirect. The relationships between a retail organisation
and its stakeholders can be illustrated as in Figure 7.
FIGURE 7: DIRECT VS INDIRECT STAKEHOLDERS
Indirect stakeholders:
Government;
Financial
institutions; Capital markets;
Media; Consumer groups;
and Supplier associations
Direct stakeholders:
Employees;
Shareholders;
Customers; Suppliers;
Communities; Unions
and trade associations
Retailer
In Figure 7, we see direct relationships are those in which both stakeholders rely directly on each
other. Staff members, for example, rely on a company for wages and salaries; the company relies
on staff for their skills, expertise, labour, etc (Bird and Duckles, forthcoming).
Indirect relationships consists of stakeholders who do not rely directly on each other – and whose
actions do not affect the retail organisation directly either – such as government, financial markets,
and the like (ibid).
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3.4.5 Analysing Stakeholder Relationships
Retailers have to develop a series of relationships with a wide variety of other organisations, groups
and consumers who buy their products. These relationships vary considerably in their intensity,
duration and function (Eden and Ackermann, 1998). Stakeholder relationships are formed because
a company anticipates benefits from mutual co-operation (ibid). We have seen already that some
stakeholders will have more influence on our organisation and retail strategy than others. That is
why we need to determine who has how much power and how they can affect our strategies, and
how our strategies and other actions can affect these stakeholders (ibid).
One way to determine the power of the relationships between the organisation and its stakeholders
is to compile a power versus interest grid (Eden and Ackermann, 1998). Four categories of
stakeholders can be identified when doing this namely:
•
•
•
•
Players who have both an interest in the organisation and significant power;
Subjects who have an interest in the organisation, but little power;
Context setters who have power but little direct interest; and
The crowd, stakeholders with little interest or power.
An example of a power vs interest grid is shown in Figure 8.
FIGURE 8: POWER VS INTEREST GRID
High
I
N
T
E
R
E
S
T
SUBJECTS
PLAYERS
CROWD
CONTEXT SETTERS
T
Low
Low
POWER
High
(Adapted from Eden and Ackermann, 1998)
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Application Exercise: Analysing Stakeholder Relationships
Think of the four most important stakeholders of your employer (or a company that you are familiar with). Complete the table below in detail (in writing).
[In column 4 (Description of the Relationship), simply underline in ink the correct description in each case.]
Stakeholder
1.
2.
3.
4.
Internal or External?
Stakeholder
Requirements
Description of the
Relationship
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Direct or Indirect?
Importance to organisation (high, average or low)?
Importance to stakeholder (high, average or low)?
Is this stakeholder a player, subject, crowd or context setter?
Direct or Indirect?
Importance to organisation (high, average or low)?
Importance to stakeholder (high, average or low)?
Is this stakeholder a player, subject, crowd or context setter?
Direct or Indirect?
Importance to organisation (high, average or low)?
Importance to stakeholder (high, average or low)?
Is this stakeholder a player, subject, crowd or context setter?
Direct or Indirect?
Importance to organisation (high, average or low)?
Importance to stakeholder (high, average or low)?
Is this stakeholder a player, subject, crowd or context setter?
(Adapted from Bird and Duckles, forthcoming)
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Another tool that can be used to describe the relationship the organisation has with its stakeholders
is the participation planning matrix (Bryson, 2003). This grid is used to describe the type of
relationship the organisation has with each stakeholder as well as the effect of these relationships.
Relationships can range from ones where the stakeholder merely needs to be informed of the
organisation’s action(s) to ones where the stakeholder is given final decision-making authority (ie is
empowered). The type of relationship will depend on the power or influence the stakeholder has.
An example of a participation planning matrix is shown in Table 7.
TABLE 7: PARTICIPATION PLANNING MATRIX
Stakeholder
Nature of Relationship with Stakeholder
Inform
Consult
Involve
Collaborate
Empower
(Adapted from International Association for Public Participation, Public Participation Spectrum of Levels of
Public Participation (http://www.iaps.org/practitionertoois/spectrum.html) and Bryson, J. 1995, Strategy
Change Cycle)
For example, most retailers need to have collaborative relationships with suppliers today, due
to technological advances such as data sharing, real-time or online automatic stock ordering, and
the need for retailers to reduce levels of inventory, as well as supplier lead times.
3.4.6 Communicating with Stakeholders
Relationships are based on communication. So, any organisation needs to communicate with its
stakeholders continuously. Fortunately, there are many ways we can communicate with
stakeholders. We will look at channels of communication shortly, but for now, please note that we
must have a clear policy that describes what information should go to which stakeholder group, and
that ensures that our messages are consistent (ie the same level, tone, content, etc). There are
different levels of communication in any organisation and these include:
•
•
•
Interpersonal communication, which is communication between two people usually in a
face-to-face encounter. As a member of the marketing team you should use opportunities
like these to market the organisation to fellow employees;
Small group communication, which happens when three or more people come together to
communicate, and these gatherings can also be used by the organisation to communicate
with employees; and
Intra-organisational communication refers to the messages that are shared internally
among the members of the organisation.
(Adapted from Knapp, 1984)
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Organisational communication also flows in different directions. The structure of an organisation
should provide for communication in three distinct directions: downward, upward, and horizontal
(Lunenburg and Ornstein, 2008).
Downward communication flows from the top (management) to the bottom in the organisational
hierarchy and it is an important means of keeping employees informed. Upward communication
occurs when management receives feedback on how employees at the lower levels feel. This is also
very important since it can indicate a problem with the relationship between the employees and the
organisation, and this can then be addressed.
The greater size and complexity of organisations have increased the need for communication
laterally or diagonally across the lines of the formal chain of command. This is referred to as
horizontal communication. These communications are informational too, but in a different way from
downward and upward communication. Here information is basically for co-ordination: to tie together
activities within or across departments in an organisation or within divisions or branches in a
nationwide organisational system (Lunenburg, 2010).
Communication channels for stakeholders
We can use a variety of data gathering methods to collect feedback and input from stakeholders.
Focus groups, one-to-one interviews and Intranet-based discussion forums are especially useful for
collecting data on internal stakeholder needs and feedback. There are also many different media we
can use to communicate with external stakeholders. The communication channels we can use to
listen to internal and external stakeholders are summarised in Table 8.
TABLE 8: COMMUNICATION CHANNELS FOR INTERNAL AND EXTERNAL STAKEHOLDERS
External Stakeholders
Internal Stakeholders
•
Focus groups
•
Factory and or store visits
•
Trade shows
•
Debriefing frontline staff
•
Customer panels
•
Customer contact logs
•
Toll-free numbers
•
Interdepartmental planning sessions
•
Surveys (phone, online or e-mail)
•
One-to-one interviews
•
Mystery shoppers
•
Company intranet
•
Company website
•
Closed circuit TV
•
Social media
(Adapted from Bird and Duckles, forthcoming)
Once again, the chosen communication channel will depend on the power and interest of the
stakeholder group (See Figure 9).
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Questions to ask stakeholders
An initial set of open questions or discussion-starters is helpful to get stakeholders talking and to
uncover the key issues that affect our relationship. Stakeholder discussion should be structured
according to the type of stakeholder group we are communicating with, and the channel we are using
(Bird and Duckles, forthcoming).
Questions to ask stakeholders include:
1. What do you think about the current situation?
a. Why are we here?
b. What is our primary focus?
2.
3.
4.
5.
What are your priorities (primary and secondary)?
How would you like us to respond to those priorities?
What type of feedback do you need and how often?
How would you like us to communicate with you in future?
(ibid)
Stakeholder Participation
Revisit the exercise: Analysing Stakeholder Relationships (the previous exercise) and complete the table
below.
NB: Read through the explanation of the stakeholder Participation Planning Matrix (Table 7) again, before
attempting this exercise.
Identify your employer’s four most important stakeholders, and list them in the table below. Decide what type and
level of participation you feel is necessary for each stakeholder by inserting a tick under the appropriate column
heading.
Stakeholder
Nature of Relationship with Stakeholder
Inform
Consult
Involve
Collaborate
Empower
1.
2.
3.
4.
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3.4.7 Ethics in Action
For a brief explanation of stakeholder analysis, watch these video clips:
•
•
Madsen, S. 2015, ‘Stakeholder Management’,
https://www.projectmanager.com/stakeholder-management (accessed 10 February
2023).
Study.com. 2015, ‘What is a stakeholder in business?’,
https://study.com/academy/lesson/what-is-a-stakeholder-in-business-definitionexamples-quiz.html (accessed 10 February 2023).
Stakeholder Theory
When you have finished watching the ‘Stakeholders are people’ video clip, answer the following questions in
writing.
1. Why do some people call business ethics an oxymoron?
2. According to Prof Freeman in the video, besides products and services, what do businesses also provide or offer
to stakeholders and customers? [In other words, Products come with a ...”?]
3. What is the essential point of stakeholder theory (according to Prof Freeman)?
4. Explain in your own words how stakeholder theory and business ethics are related to each other.
5. Which economic system does Prof Freeman support? Why?
As we saw in section three, a retail strategy is not conceived or implemented in isolation; instead,
strategies involve people (or stakeholders), and unfold within a specific business environment, as
we saw in section one. In other words, retail management needs to identify, analyse and consult
with stakeholders – before making or implementing any kind of strategic plans.
This section also provided a classification system for different types of stakeholders; identifying
their needs and expectations; understanding power bases of and relationships between
stakeholders; and how to communicate meaningfully with these people. We concluded this
section with a discussion on stakeholder theory.
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3.4.8 Key Points
•
•
•
•
•
•
•
•
•
•
•
•
It is commonly accepted that organisations are open systems, and so we can view an
organisation as a collection of parts that interact in a collective manner;
Open systems are input-throughput-output mechanisms;
This means that something goes in one side, goes through a series of conversion processes,
and comes out on the other side in a different form;
Systems also have boundaries that separate them from their environment;
What is inside the boundary is the system and what is outside is the environment;
Boundaries of open systems are permeable and so they permit the exchange of information,
resources and energy between the system and its environment;
Stakeholders are traditionally defined as “any individual or group who can affect or is affected
by the actions, decisions, policies, practices, or goals of the organisation;
In the 21st century it has become essential that retailers focus their strategies on the
relationships they have with stakeholders (internal and external);
In today’s competitive world, the retailer’s stakeholder system should also be seen as a
negotiated environment in which relationships need to be managed carefully;
Retailers have to develop a series of relationships with a wide variety of other organisations,
groups and consumers who buy their products;
These relationships vary considerably in their intensity, duration and function;
Relationships are based on communication. So, any organisation needs to communicate with
its stakeholders continuously.
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3.5 REVIEW PROCESSES TO IDENTIFY STRATEGIC ISSUES
Timeframe
Sixteen hours
Learning outcome
•
Review various processes to identify strategic issues.
•
Berman, B. and Evans, J.R. 2013, Retail Management: A Strategic Approach, 12th ed,
Harlow, Essex: Pearson Education.
•
Mizrahi G. and Durso L. 2014, ‘Google break-up proposed by EU parliament’, The Lip TV,
https://www.youtube.com/watch?v=t9duKlG0KuM (accessed 10 February 2023).
Prescribed book
Recommended
multimedia
Section overview
Section 4 focuses on competitive analysis and the related concepts of competitive
differentiation and positioning. One of the essential goals of devising a retail strategy is to gain
a competitive advantage in the marketplace. In other words, how to identify, analyse, take on,
and beat the competition in the market in which we (as retailers) operate. As always, this
section concludes with a discussion on ethics in action.
3.5.1 Introduction
The first three sections of this course have focused on Phase 1 of the strategic management
process; ie strategy formulation (see Figure 2, subsection 7.1.3.). This section keeps the focus on
the first phase; specifically, step 2, analysing the internal and external (business) environment. The
observant reader might wonder why we still seem to be in the same phase. The reason is simply
that the one major element yet to be covered is found in the market environment (see Figure 2) of
the business environment.
This element is competitors: how to identify them, analyse them, and how best to compete with them.
In fact, one of the essential purposes (goals) of retail strategy formulation is to gain a competitive
advantage in the marketplace. In other words, a retail strategy has to put us in a stronger
competitive position than we were before we had the strategy; if not, such a strategy is an exercise
in futility.
At the start of this course (Section 7.1.1, A Brief History of Corporate Strategy), we referred to the
writings of Sun Tzu. About 2300 BC, in what is now northern China, a lineage of military leaders put
their collective wisdom into written form. Their writings offer fascinating perspectives on strategy and
conflict, whereby one could attain victory without even going into battle. In the West their text is
called The Art of War; in China it is still known as the Sun Tzu, named after the patriarch of their
lineage. Over the past half century or so, this text has found application to strategic warfare, and
strategic management.
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Here is what Sun Tzu has to say on the topic of competitor analysis:
Knowing the other and knowing oneself, in one hundred battles, no danger;
Not knowing the other and knowing oneself, one victory for one loss;
Not knowing the other and not knowing oneself – in every battle certain defeat.
The Art of War (Sun Tzu)
Although written more than 2000 years ago, the above quotation from the Sun Tzu can still be applied
to competitive analysis in business today. In other words, competitive analysis (and response)
should start from knowledge: of ourselves, and of the competition.
3.5.2 Identifying and Analysing Competitors
The competitive environment consists of the number and type of competitors that a retailer has to
deal with. From Figure 2 and our discussion of the business environment, you will recall that
competitors form part of the market environment. The market environment has a direct effect on
any company, through role players such as consumers, suppliers, intermediaries and competitors.
Although economists recognise a number of different economic environments – from monopoly to
pure competition – modern markets, including the South African market, are characterised by
intense competition. For the purposes of this section, therefore, we consider highly competitive
market environments.
What is competitive analysis?
Competitive analysis is “an organised approach for evaluating the strengths and weaknesses of
current and potential competitors’ marketing strategies”.
(Perreault and McCarthy, 2002)
One of the major contributions to the topic of competitive analysis has been the work done by Michael
Porter (1980). A central idea of Porter’s work is that ”competition in an industry is rooted in its
underlying economics and competitive forces that go well beyond the established combatants in a
particular industry” (1980). Porter also emphasised that the first determinant of a firm’s profitability,
is the attractiveness of the industry in which it operates. The second determinant of profitability is
competition within an industry.
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Porter suggests that the nature and intensity of competition in an industry is determined by the
interaction of five key forces:
1
2
3
4
5
The threat of new entrants. The more competitors enter the market, the stronger the
competition will become.
The bargaining power of clients and consumers. The stronger the power of the consumer,
the stronger the competition.
The bargaining power of suppliers. The stronger the bargaining power of suppliers, the
stronger the competition.
The availability or lack of substitute products or services. The higher the availability of
substitute products, the stronger the competition.
The number of existing competitors. The more existing competitors, the stronger the
competition.
Figure 9 depicts Porter’s five forces model. An organisation needs to know in which industry it is
competing, what the structure of that industry is, what the major determinants of competition are,
and which organisations are its competitors.
FIGURE 9: PORTER’S FIVE FORCES MODEL
Potential
Entrants
Threat of new
entrants
Suppliers
Bargaining
power of
suppliers
Industry
Competitors
Buyers
Bargaining
power of
buyers
Rivalry among
existing
organisations
Substitutes
Threat of
substitute
products
(Adapted from Porter, 1980)
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Identify your competitors: against whom are we competing?
The first step in competitor analysis is to identify competitors. This is easier said than done
because some of your most serious competitors could be in other industries, but offer products
that satisfy the same needs as your product. Strategists should therefore avoid competitive
myopia, both by adopting a broad perspective and recognising that, in general, companies tend to
“overestimate the capabilities of large competitors and either underestimate or completely ignore the
capabilities of smaller players” (Wilson et al, 1992).
In the 1970s, large computer manufacturers were preoccupied with competing against one
another and failed for some time to recognise the emergence and growing threat in the PC
market posed by what were (at the time) small companies like Apple.
Business history is full of examples of companies that have seemingly been taken by surprise by
organisations they had failed to recognise as competitors, or whose competitive capabilities they
drastically underestimated. Companies are more likely to be “taken by surprise and hit hard by latent
competitors than by current competitors whose patterns of behaviour are largely predictable”
(Wilson et al, 1992).
Harley Davidson motorbikes are seen by many as one of the icons of the design world, and as
such, has become a powerful social or fashion statement, complete with all the required
accessories that are co- branded with these bikes.
One consequence of the elevated status of Harley motorcycles is that they actually compete only
very indirectly with other motorcycles. Instead, as Steve Dennis of Harley Street, a dealership
specialising in used and customised bikes, puts it: “We compete against conservatories and
swimming pools, not other bikes.”
(Sunday Times, 23 September 1990)
Therefore, the competitor identification process must be as broad as possible to begin with. As
part of this, the retail strategist also needs to identify potential new entrants to the market and,
where necessary, make contingency plans to neutralise their competitive effect. We then narrow it
down to those competitors that pose the most direct threat to our business (ibid).
Once you have identified your direct competitors, you need to analyse their objectives, ie what the
evidence tells you they are seeking in the marketplace or what drives their behaviour. It could be
any one of a number of objectives, including current profitability, cash flow, market dominance or
leadership, technological leadership, service leadership, etc (ibid).
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Competitive Analysis
Review the whole of competitor analysis section and then answer the questions below in writing.
1. What is meant by the term “competitive myopia?” Explain in your own words the inherent danger of this myopia.
2. Think of your employer’s business and market for a moment (or any company that you are familiar with). Now
identify and list all its direct and indirect competitors.
3. Discuss the nature and intensity of competition in the industry that your chosen company operates in, by using
Porter’s five forces framework (Figure 10). Describe this industry in detail.
4. Based on your analysis in question 3, would you say that your chosen company operates in a profitable
industry, or not? Justify your answer.
Once we (as retailers) have analysed the competition’s possible objectives in a market, we also need
to determine what strategies they are using to reach their objectives. This is directly related to
their resources and capabilities. So, we need to gather information on their strengths and
weaknesses along a range of dimensions (Perrault and McCarthy, 2002).
Table 9 shows a typical framework for competitor analysis:
TABLE 9: A FRAMEWORK FOR ANALYSING COMPETITORS
Competitive
variable
Your Current or
Planned Strategy
Competitor A’s Strengths &
Weaknesses
Competitor B’s Strengths &
Weaknesses
Target market
Product
Price
Distribution
Communications
mix
Business processes
People
Service
Competitive barriers
Likely responses
(Adapted from Perrault and McCarthy, 2002)
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Once we have analysed our competitors against key variables (such as those in Table 9), we can
decide what action to take, ie to attack or not. This decision will rest partly on our own ability to
improve performance in a particular area and partly on a competitor’s ability to counter-attack.
In other words, looking at Table 9, let us say we identify Competitor A has a weakness in a
particular product (for example, a shorter warranty period than ours). We could then “attack”
Competitor A’s weakness in this area, by for example, communicating (advertising) our superior
warranty period, as well as any supporting after-sales or backup service we provide with our
product. However, we need to be very vigilant (aware) of our own possible weaknesses in any of
the competitive variables identified Table 9 – in case a competitor decides to attack us, in one or
more of our weak areas.
Kotler (2003) identifies four types of competitors (according to their behaviour):
•
•
•
•
Laid back: does not react quickly or strongly; may feel own customers are loyal, may be
milking the product market, may be slow in noticing your move, or may lack the resources to
respond;
Selective: reacts only to certain kinds of attack – eg may respond to price cuts, but not to
increases in advertising expenditure. You need to know what kinds of attack this type of
competitor is likely to respond to;
Tiger: reacts swiftly and strongly to any assault. You need to beware of these types of
competitors and plan for the inevitable counterattack; and
Unpredictable: does not show any predictable response patterns. In this case, you need to
plan “what if?” scenarios to cover possible counterattacks.
If a retailer wants to compete effectively, it must differentiate itself from the competition. In other
words: we as retailers must do whatever we can to make ourselves seen as different from the
competition, even unique. Recall the example of Harley Davidson motorcycles being seen as so
different from other bikes that they actually compete against completely different products – like
swimming pools and conservatories.
The question now becomes: How can we as retailers differentiate ourselves (let ourselves
stand out) from the competition? Let us see how in the next subsection.
3.5.3 Competitive Differentiation and Positioning
Right at the start of the strategic management process (Phase 1: Formulation of strategic objectives),
we said that retailers usually pursue goals related to one or more of these areas: sales, profit,
satisfaction of stakeholders (including customers), and image (Berman and Evans, 2013). Now,
when we talk about the concept of an “image”, we also have to talk “positioning”, as these concepts
go hand in hand. But, what do these actually mean, what do they involve, and how do they relate to
each other?
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“An image represents how a given retailer is perceived by consumers and others. A firm may be
seen as innovative or conservative, specialized or broad-based, discount-oriented (mass market)
or upmarket. The key to a successful image is that consumers view the retailer in the manner (way)
the retail firm intends”.
(Berman and Evans, 2013)
“Through positioning, a retailer devises its strategy in a way that projects an image relative to
its retail category and its competitors and that elicits a positive consumer response.”
(Berman and Evans, 2013)
For example, “a retail firm selling women’s apparel could generally position itself as an upmarket
or mid-priced speciality retailer; or a traditional department store; a discount department store, or
a discount speciality retailer, and it could specifically position itself against other (competitive)
retailers carrying women’s apparel”.
(ibid)
Two opposite positioning philosophies have gained popularity in recent years: mass
merchandising and niche retailing. Mass merchandising is a positioning strategy whereby retailers
offer a discount or value-based image, a wide and or deep merchandise selection, and large store
facilities. Wal-Mart has a wide, deep merchandise mix whereas Dick’s Sporting Goods has a
narrower, deeper assortment. These firms appeal to a broad customer market, attract a lot of
customer traffic, and generate high stock turnover. Because mass retailers have relatively low
operating costs, enjoy economies of scale, and appeal to value-conscious shoppers, they should
stay popular for the foreseeable future (Berman and Evans, 2013).
In niche retailing, retailers identify specific customer segments and deploy unique strategies to
address the desires of those segments rather than the mass market. “Niching” creates a high level
of loyalty and shields retailers from more conventional competitors. Babies “R” Us appeals to parents
with very young children, whereas Jeep Clothing stores offer fashions mostly for men who enjoy the
outdoors and related lifestyle. A niche retailing approach will have a strong future since it lets retailers
stress factors other than price and have a better focus (ibid).
Because both mass merchandising and niche retailing are now popular, some observers call this the
era of bifurcated retailing. They believe this could mean the “decline of middle-of-the-market
retailing. Firms that are neither competitively priced nor particularly individualistic may have more
difficulty competing” (ibid).
Figure 3-7 in the prescribed text shows a retail positioning map based on two shopping criteria: (1)
price and service and (2) product lines offered. Note, the assumption here is “that there is a link
between price and service” (ie high price equals excellent service).
Visit the Babies “R” Us website on www.babiesrus.com, and then answer the following questions
(based on their website) below, in writing.
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Case Study: Babies “R” Us
Review the Babies “R” Us website, and then answer the following questions (based on their website, and
our discussion so far), in writing.
1.
2.
3.
4.
5.
Babies “R” Us can be described as a niche retailer. Why?
Describe who their primary target market is.
How has this retailer differentiated themselves from their competitors? (Discuss in detail, using examples.)
Explain (using your own words) how their website supports their positioning.
Identify three essential benefits that niche retailing offers retailers. (In other words, reasons why retailers use
niche retailing.)
6. Comment on their name – specifically, where do you think the idea to use this name came from? Do you think
this is an effective name? Why?
Differentiation – the cornerstone of positioning
According to Kotler (2003), “differentiation is the act of designing a set of meaningful differences to
distinguish the company’s offering from competitors’ offerings”. When retailers differentiate their
company and its products or services, they offer consumers something they value that competitors
do not have or are not offering. This differentiation can lead to a competitive advantage for the firm
(but not automatically). Meaningful differentiation is the key to a successful positioning strategy.
It is therefore what the average consumer thinks of a retailer such as Woolworths in comparison
to Shoprite, for example. The retailer has to decide which differentiation variable will be the most
effective and sustainable in differentiating it from competitors. As you can see, the difference
between differentiation and positioning is that differentiation is largely product or service related,
whereas positioning is consumer related. What is important is that the positioning of the retailer’s
product or service must be supported by the actual differentiation of these products or services.
Kotler shows differentiation variables along five dimensions. (See Table 10).
TABLE 10: KOTLER’S DIFFERENTIATION VARIABLES
Product
Services
Personnel
Channel
Image
Form
Ordering ease
Competence
Coverage
Symbols
Features
Delivery
Courtesy
Expertise
Media
Performance
Installation
Credibility
Performance
Atmosphere
Conformance
Customer training
Durability
Customer
consulting
Reliability
Events
Responsiveness
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Reliability
Maintenance and
repair
Product
Reparability
Services
Communication
Personnel
Channel
Image
Miscellaneous
Style
Design
(Adapted from Kotler, 2003)
Application Exercise: Kotler’s Differentiation Variables
Review the discussion just completed, and then apply Kotler’s differentiation variables (Table 10) to your
employer, or a company that you are familiar with. Which variables do you think you could use to position
your employer’s (or chosen company’s) business differently from their competitors’ businesses?
Your answer should be in table format (shown below). Use the same headings, with at least four of the five
differentiation variables shown in Table 10.
Differentiation variable
Descriptive examples
3.5.4 Ethics in Action
European regulators are accusing Google of breaking several competition laws (among other
things), and are trying to pass a resolution that would separate Google's search operations from the
rest of the company's services. Has Google abused its dominant competitive position in Europe and
elsewhere?
For the full story, watch this video clip:
•
Mizrahi G. and Durso L. 2014, ‘Google break-up proposed by EU parliament’, The Lip
TV, https://www.youtube.com/watch?v=t9duKlG0KuM (accessed 10 February 2023).
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Ethical Competition
When you have finished watching the above video clip, ‘Google break-up proposed by EU parliament’, answer
the following questions in writing.
1. What is Google’s official share of the European search engine market, according to the video?
2. What prompted the European parliament to work to separate Google's search operations from the rest of the
company's services?
3. Do you think the EU Parliament’s stance is fair? Why?
4. In your opinion, has Google abused its dominant position in the search engine market in Europe (and elsewhere?).
Justify your answer.
Section four focused on competitive analysis and the related concepts of competitive differentiation
and positioning. During the strategic management process we analysed the business environment;
and competitor analysis formed an important part of this process. One of the essential goals of
devising a retail strategy is to gain a competitive advantage.
In other words, to be in a stronger, more agile position than we were before we had the strategy.
This section introduced a number of models and tools for this purpose; the best known (and most
proven) of these being Porter’s five forces model, which was discussed in detail. This section
concluded with a discussion on ethics in action.
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3.5.5 Key Points
•
•
•
•
•
•
The competitive environment consists of the number and type of competitors that a retailer
has to deal with;
The market environment has a direct effect on any company, through role players such as
consumers, suppliers, intermediaries and competitors;
One of the major contributions to the topic of competitive analysis has been the work done
by Michael Porter (1980);
A central idea of Porter’s work is that ”competition in an industry is rooted in its underlying
economics and competitive forces that go well beyond the established combatants in a
particular industry” (1980);
Porter also emphasised that the first determinant of a firm’s profitability, is the attractiveness
of the industry in which it operates;
The second determinant of profitability is competition within an industry.
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3.6 ELEMENTS AND RELEVANCE OF A RETAIL STRATEGY
Timeframe
Learning outcomes
Prescribed book
Sixteen hours
•
Identify the components of a strategic plan; and
•
Understand the relevance of a retail strategy.
•
Berman, B. and Evans, J.R. 2013, Retail Management: A Strategic Approach, 12th ed,
Harlow, Essex: Pearson Education.
This final section focuses on the implementation and evaluation of the retail strategic
management process, which was introduced in section 7.1.3, Figure 2. We introduce a
strategic planning template – a master plan for implementing the retail strategy and all its
components. We then focus on how actual strategies should be implemented – at different
levels, and in different business environments.
Section overview
Various retail strategies are then identified and explained by looking at a classification
system for retailers, according to their retail strategy mixes. Once a strategy is implemented,
it has to be constantly monitored, controlled and evaluated by management, through
appropriate performance measurement tools and techniques. To this end, the retail audit will
be introduced and discussed. As always, we conclude with a discussion of ethics in action.
3.6.1 Introduction
The three essential phases of the retail strategic management process are: formulation,
implementation and evaluation. In this final section of the course, we discuss how a formulated retail
strategy should be implemented and evaluated. In section 1 (7.1.3), we said that the strategic
management process can be summarised by asking four basic questions, which must be
answered by the process itself. In other words, in Phase 1 (strategy formulation) we have already
answered the first two questions, “Where do we want to be?” and “Where are we now?”
In Phase 2 (implementation), we ask, “How do we get there?” – which is answered by means of the
strategy itself – as a vehicle to get us to where we want to be (ie our vision, mission and objectives).
Then in Phase 3 (evaluation), we ask, “How can we ensure arrival?” That is answered by means of
control and evaluation of the strategy to ensure that the goals and desired outcomes (ie the vision,
mission and strategic objectives) are achieved the way in which they were intended to be achieved
(Wilson et al, 1992).
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3.6.2 A Strategic Planning Template for Retail Management
Before we look at the components of the retail strategic planning template, remember the purpose
of this template is to help us (as retail managers) to see the big picture, ie the strategic retail plan,
all its components, how to integrate these (ie how they fit together) and how to apply the complete
plan to any given retail scenario (ie situation or environment).
In the prescribed text (Berman and Evans, 2013), we find a very useful strategic planning template
(Table 3-5).
A “detailed, user-friendly strategic planning template, Computer-Assisted Strategic Retail
Management Planning”, appears at:
(https://wps.prenhall.com/bp_berman_retail_12/234/60100/15385675.cw/-/15385677/index.html).
This online template uses a series of drop-down menus, based on Figure 3-1 (Berman and Evans,
2013:85), to build a strategic plan. You may apply the template to one of the retail scenarios
provided—or invent your own scenario (ibid).
Table 3-5 highlights the steps used in Computer-Assisted Strategic Retail Management Planning as
the basis for preparing a strategic plan. Table 3-6 presents an example of how the template may be
used. The essential components of this strategic planning template include:
1.
2.
3.
4.
5.
6.
7.
Situation analysis
SWOT analysis
Objectives
Identification of consumers
Overall strategy
Specific activities
Control mechanisms
Strategic Planning Template
Revisit the research assignment you did in Section 1 (business situation analysis). From the data and information
you collected and summarised in your research, complete a detailed strategic planning template, according to
Table 3-5 and 3-6 (Berman and Evans, 2013) in writing (with examples throughout).
Now that we have assembled all the essential components of the strategic retail plan, we need to
start looking at how they should all be integrated into an actual strategy. We now look at the essential
types and levels of generic and retail strategies available to retail management.
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3.6.3 Devising an Overall Generic Strategy
Once all the components of the strategic plan are in place, an in-depth overall strategy must be
devised (Berman and Evans, 2013). This involves two components: the factors or variables of
business the retail firm can directly affect, and those to which the retailer must adapt. The former are
called controllable variables, and the latter are called uncontrollable variables. See Figure 3-9
in the prescribed text for more detail on each of these variables. These variables are also found
when analysing the business environment, in terms of the micro-, market-, and macro
environments (as we did in Figure 2, section 7.1.3 of this study guide).
A strategy must be devised with both controllable- and uncontrollable variables in mind. The ability
of retailers to “grasp and predict the effects of controllable and uncontrollable variables is greatly
aided by the use of suitable data” (ibid). That is why we discussed the importance of high quality,
reliable information and the need for an effective retail information system in section 2 (subsection
7.2.8) – remember? The overall strategy must also attempt to minimise the threats and weaknesses,
and harness the opportunities and strengths. It should also be aligned with the vision, mission and
strategic objectives established in Phase 1 of the strategic management process.
Table 11 outlines four levels (and types) of strategies that can be devised, according to Botha and
Musengi (2012):
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TABLE 11: FOUR LEVELS AND TYPES OF STRATEGIES
Level of Strategy
Corporate-level strategy
This strategy establishes the direction an
organisation will follow in the long term. It ensures
that the organisation is competitive and profitable.
Strategy Options
The corporate-level strategy includes various options:
•
•
Concentration on a single business involves focusing
only on one business, as Delta Airlines and McDonald’s
do.
Vertical integration involves producing goods or
services from the bottom to the top, or vice versa.
One form of vertical integrated is backward vertical
integration, which involves an organisation producing its own
raw materials or inputs. An example is a cheese company that
owns or buys a dairy farm so that it can control the quality,
supply and cost of milk. Starbucks is another example of
adopting backward vertical integration as a strategy. It can
ensure a steady supply of reasonably priced coffee beans
from the coffee farm it purchased in China (Simonetti, 2013).
Another form of vertical integration is forward vertical
integration, which involves providing an outlet for its
products. An example of forward vertical integration is Apple,
which not only produces its own software and hardware but
also distributes its products through its iStores.
•
Business-level strategy
This strategy establishes how an organisation will
compete in a specific industry.
Diversification involves branching or expanding to other
businesses (Ansoff, 1957). This business could be
related or unrelated to the core business. An example of
diversification is Richard Branson's company, Virgin
Group. Some of the Virgin businesses include Virgin
Records, Virgin Active, Virgin Atlantic, Virgin Money and
Virgin Galactic.
Various options fall under the business-level strategy:
•
A cost-leadership strategy involves providing goods or
services at a cost as low as possible, lower than
competitors (Porter, 1980). But low cost does not mean
low price. To keep costs low, there must be a constant
concern for efficiency. This strategy depends on
economies of scale – so to keep process costs low, large
quantities of the product or service must be sold.
According to Hellriegel et al (2008: 242), the
requirements for implementing a cost leadership strategy
include:
•
•
Using facilities or equipment that yield high
economies of scale;
Constantly striving to reduce per-unit cost; and
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•
•
•
Minimising labour-intensive personal services
and sales forces; and
Avoiding customers whose demands would
result in high personal selling or service cost.
A differentiation strategy involves competing by offering
products or services that are perceived as unique by
consumers, for example, in the motor vehicle industry.
This strategy is only effective for as long as the product or
service delivered remains unique – that means
competitors cannot easily copy it (Porter, 1980).
•
Functional-level strategy
This strategy ensures that an organisation gains
competitive advantage through internal
competencies.
A focus strategy involves focusing on a segment or
niche market and serving only this niche. A niche is a
specialised group of customers, such as heart surgeons,
Porsche owners, etc. In short, organisations try to create
a unique image for their products or services that caters
to the demands of a specific niche (Porter, 1980).
There are various strategy options available at a functional
level:
•
This strategy focuses on rendering certain functions
•
(such as finance, marketing, and operations) in the
organisation more effective and efficient.
•
•
Superior efficiency — attaining superior efficiency refers
to increasing outputs (eg product or service) without
increasing inputs (eg people, time, materials). This
strategy reduces the cost of the product.
Superior quality — attaining superior quality refers to
providing products and services based on specific and
measurable standards and requirements. This strategy
has several advantages such as more satisfied clients,
lowered production costs as a result of fewer defects,
better brand perception and more market competitive
than its competitors, can charge a higher price for the
product as it is regarded as being of higher quality.
Superior innovation — attaining superior innovation
refers to devising novel ideas to develop a better product,
service or process. Providing superior innovation
promotes the company's brand in that it is construed as
being cutting edge. This gives the organisation the
competitive advantage where consumers are prepared to
pay a premium price for an innovative product or service.
The disadvantage of innovation is that many other
companies may copy the ideas without incurring
substantial research and development costs.
Customer responsiveness — ensuring customer
responsiveness refers to an organisation giving
customers what they want and need. Organisations that
respond the fastest will attain the competitive advantage
and secure brand loyalty.
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Global strategy
There are basic strategies that fall under global strategy:
‘Global strategy’ refers to an organisation being able
to position itself competitively in a global market.
•
International strategy — refers to providing a
specific product or service to a foreign market.
•
Multidomestic strategy — refers to providing and
tailoring a specific product or service to a foreign
market's local context (such as food preferences and
religious customs). For example, a food company
producing and selling products to India will sell spicy
foods that are not made of beef because cows are
regarded as sacred in Indian culture. The same
company will produce foods that are halaal and not
made of pork if it is selling to Pakistan.
•
Global strategy — refers to a company having
different operations in different countries. For
example, a car manufacturing company has
operations in various countries to take advantage of
cost benefits (such as tax benefits, lower wages,
import or export costs, cost of raw materials) by
operating in these countries.
•
Transnational strategy — involves combining the
global strategy and multi-domestic strategy to achieve
low cost and differentiation benefits. The product
(ingredients and brand) remains exactly the same in
each country. However, the label reflects the local
language.
(Adapted from Botha and Musengi, 2012)
Find Examples
Identify examples of companies who have implemented business level, functional level, or global level strategies. [In
other words, at least one different example of each of these three levels of strategy from Table 11.]
Now that we have a good idea of the basic types and levels of (generic) strategies available to us
(as retailers), we need to move from the general, to the specific. In other words – from generic
strategies to retail-specific strategies – also called the retail strategy mix (Berman and Evans,
2013).
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3.6.4 Developing a Retail Strategy Mix
To develop a retail-specific, unique strategy (the basis of a competitive advantage) a retailer needs
its own special strategy mix, ie the firm’s particular combination of store location, operating
processes, goods or services offered, pricing tactics, store atmosphere and customer services, and
promotional methods (ibid).
In other words, the retail strategy mix is very similar to the marketing mix, which will be covered
in the retail marketing course (and in nearly every available marketing textbook). The essential
(traditional) marketing mix is often referred to as the “Four P’s” – ie product, price, place, and
promotion; with the additions lately of people and processes. Refer to the prescribed text for detailed
examples and explanations of each element in the retail strategy mix. To be successful today, a
retailer should strive to be dominant in some way. The retailer may then reach destination retailer
status—where consumers view the company as distinctive (different) enough to become loyal to
it and go out of their way to shop there. We tend to link “dominant” with “large”, yet both small and
large retailers can dominate in their own way.
Destination Retailer
Can you name at least three actual retailers that you would describe as “destination retailers” in your city or town?
How does one become a destination retailer?
There are several ways to become a destination retailer, and combining two or more of the following
approaches will go a long way towards ensuring that a retailer gets the consumer appeal of a
destination retailer:
•
•
•
•
•
•
Be price-orientated and cost-efficient to attract price-sensitive shoppers;
Be upmarket to attract full-service, status-conscious consumers;
Offer convenience, to attract shoppers wanting shopping ease, nearby locations, or long
hours;
Offer a detailed or wide assortment in the product lines carried to appeal to consumers
interested in variety and in-store shopping comparisons;
Offer superior customer service to attract those frustrated by the decline in retail service; and
Be innovative or exclusive and provide a unique way of operating (such as kiosks at airports)
or carry products or brands not stocked by others, to reach people who are innovators or
bored.
(Adapted from Berman and Evans, 2013)
Before looking at specific retail strategy mixes, let us look at two concepts that help explain the use
of these mixes: the wheel of retailing, and scrambled merchandising.
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The wheel of retailing
According to the wheel of retailing theory, “retail innovators often first appear as low-price operators
with low costs and low profit margin requirements. Over time, the innovators upgrade the products
they carry and improve their facilities and customer service (by adding better-quality items, locating
in higher-rent sites, providing credit and delivery, and so on), and prices rise” (ibid).
As innovators mature, they in turn “become vulnerable to new discounters with lower costs, hence,
the wheel of retailing”. See Figure 5-1 of the prescribed text.
Scrambled merchandising
Whereas the wheel of retailing focuses on product quality, prices, and customer service, scrambled
merchandising involves a retailer “increasing its width of assortment (the number of different
product lines carried). Scrambled merchandising occurs when a retailer adds goods and services
that may be unrelated to each other and to the firm’s original business” (ibid). See Figure 5-3 in the
prescribed text for an illustration of this concept.
Scrambled merchandising is popular for many reasons: retailers want to increase sales turnover and
profitability by adding fast-selling, highly profitable goods and services; consumers make more
impulse purchases; people like one-stop shopping; different target markets may be reached; and the
effect of seasonality and competition is reduced (Berman and Evans, 2013).
In addition, the popularity of a retailer’s original product line(s) may fade, causing the retailer to
“scramble” to maintain and grow the customer base (ibid).
For example, “even though Starbucks’ in-store coffee sales are still strong, it now faces more
competition in the coffee market from Dunkin’ Donuts, McDonald’s, and other chains that have
upgraded their offerings. Today, Starbucks carries many items outside its original coffee
business, including pastries, hot breakfasts, salads, sandwiches, and smoothies”.
(ibid)
3.6.5 Classifying Retailers According to Their Store-Based Strategy Mix
Selected aspects of the strategy mixes of 14 store-based retail institutions, divided into foodoriented and general merchandise groups, are highlighted in this section and Table 5-1 of the
prescribed text.
Although not all-inclusive, the strategy mixes do provide a good overview of store-based strategies.
Please note that width of assortment is the number of different product lines carried by a retailer;
depth of assortment is the selection within the product lines stocked.
See also pages 152-160 in the prescribed text for a detailed discussion of the different types of foodoriented vs general merchandise retailers.
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Integrating the overall strategy
At this point, the firm has set an overall strategy. It has chosen a vision and mission, and formulated
goals and strategic objectives. It has defined and chosen its desired goods or service category; the
target market has been identified and studied also. Decisions have been made about store location,
managing the business, merchandise management and pricing, and communications (promotions).
These factors must be co-ordinated to have a consistent, integrated strategy and to account for
uncontrollable variables (consumers, competition, technology, economy, seasonality, and legal
restrictions). The firm is then ready to do the specific tasks to carry out its strategy productively (ibid).
3.6.6 Specific Activities
This is the stage where the strategy gets specific, with short-term, daily decisions being made and
implemented for each controllable part of the retail strategy. Controllable variables are the internal
variables (in the microenvironment), shown in Figure 3-9 of the prescribed text.
These actions are known as tactics and involve a retailer’s daily and short-term operations. They
must be responsive to the uncontrollable environment. Below are some typical tactical decisions a
retailer needs to take:
•
•
•
•
Store location. Trading-area analysis studies and evaluates the area from which a retailer
draws its customers. The level of competition in a trading area should also be studied
regularly. Relationships with nearby businesses should be established. A retail chain will
need to do site evaluations of proposed new outlets. Facilities are actually built or modified.
Managing the business. A clear chain of command should exist from managers to workers;
based on a defined organisational structure. Staff must be hired, trained, and supervised.
Financial management monitors and controls assets and liabilities Budgets are spent and
controlled properly. Operations are systemised, standardised and streamlined as required.
Merchandise management and pricing. The assortments within departments and the
space allocated to each department require constant decision-making and adjustments.
Innovative firms look for new merchandise and clear out slow-moving items. Purchase terms
are negotiated and suppliers sought. Selling prices need to reflect the retailer’s image
(positioning) and target market. Price ranges should offer consumers some choice. Decisions
are needed to respond to higher supplier prices and react to competitors’ prices.
Communicating with the customer. Matters such as the retail storefront and display
windows, store layout, planograms and merchandise displays need regular attention. These
elements help gain consumer enthusiasm, create a conducive, pleasant shopping
environment or experience, introduce new products, and reflect changing seasons. Special
promotions should be scheduled and co-ordinated with suppliers, and ads placed during the
proper time slots and in the proper media. Sales personnel and merchandisers should be
varied according to merchandise categories and seasons.
(Adapted from Berman and Evans, 2013)
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Read the case study of Target Corporation in the prescribed textbook, and then answer these
questions, in writing.
Case Study: Target Corporation
When you have finished reading the Target Corporation case study, answer the following questions, in writing.
1.
2.
3.
4.
5.
How does Target Corporation describe itself?
How long has this retailer been in business?
What is its “brand promise”? Explain what this means to consumers.
Describe the type of niche that Target has carved out for itself (compared to rivals Wal-Mart and K-Mart).
Target Corporation does not call its shoppers “customers”. What term does it use instead? Why does it use this
term (ie what do you think the implications are for its “customer” service levels?)
6. Do you think Target Corporation’s retail strategy has been successful? Explain in detail.
3.6.7 Controlling the Strategy
Why is a control process necessary? The answer is simple. It is necessary because:
•
•
•
•
•
•
•
•
Of the nature of the strategic management process itself and in particular, the task of
planning;
Of the growing nature of the business – as an organisation grows, more people are
employed, new products developed, etc;
Managers and subordinates can make poor decisions and commit errors;
The delegation of tasks to subordinates does not mean that the job of management is now
completed;
Control enables management to cope with change and uncertainty as and when it arises;
Competition is an important factor in any organisation and the organisation must remain
competitive;
Control is applied to ensure that the organisation’s resources that are allocated facilitate the
achievement of the set goals; and
Control usually leads to better quality implementation and production.
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3.6.8 The Control Process
The control process consists of four steps, illustrated in Figure 10.
FIGURE 10: THE CONTROL PROCESS
Step 1:
Setting the
performance
standard
Step 4:
Taking
corrective
action
Step 2:
Measuring the
actual
performance
Step 3:
Evaluating
deviations (to
establish the
gap)
(Du Toit, Erasmus and Strydom, 2010)
The figure shows the steps of control, including setting standards against which actual performance
will be measured, measuring the actual performance, evaluating any deviations and taking corrective
action.
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3.6.9 The Focus of Control
The question must now be asked: “What must be controlled?” Control of activities should occur at
strategic points, thus at areas responsible for the effectiveness of the organisation. When a control
system is being designed, the following should be considered: the nature of the organisation, and
the activities, size and structure of the organisation. Areas of control are defined in terms of the types
of resources used:
•
•
•
•
•
Physical resources – inventory control, quality control, stock taking, inspections, etc;
Financial resources – most control measures or techniques are quantified in financial
terms, and include financial management principles, budgetary control and financial
analysis;
Information resources – such as accurate market forecasting, environmental scanning, etc;
Human resources – selection, placement, training and development, performance
appraisals, disciplinary measures, etc; and
Specific ratio analysis – which measures labour turnover, absenteeism and the composition
of the labour force.
(Adapted from Du Toit, Erasmus and Strydom, 2010)
The retail audit as a control tool
After a retail strategy is formulated and implemented, it must be continually assessed and necessary
adjustments made. A vital evaluation tool is the retail audit, which “systematically examines and
evaluates a firm’s total retailing effort or a specific aspect of it” (Berman and Evans, 2013).
The purpose of an audit is to study what a retailer is doing, appraise performance, and make
recommendations for the future. An audit investigates a retailer’s objectives, strategy,
implementation, and organisation. Goals are reviewed and evaluated for their clarity, consistency,
and appropriateness. The strategy and the methods for deriving it are analysed. The application of
the strategy and how it is received by customers are reviewed. The organisational structure is
analysed with regard to lines of command and other factors (ibid).
See page 556 of the prescribed text for a discussion on good auditing principles and practice, as
well as the steps in retail auditing.
Figure 20-7 (A Management Audit Form for Small Retailers); and Figure 20-8 (A Retailing
Effectiveness Checklist) in the prescribed text are good examples of practical retail audit tools –
ready for use, by small and large retailers.
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3.6.10 Characteristics of an Effective Control System
Du Toit, Erasmus and Strydom (2010) identify and summarise the characteristics of a control system
in Table 12.
TABLE 12: CHARACTERISTICS OF A CONTROL SYSTEM
Integration
A control system is more effective when it is integrated with the planning process.
The closer the link between control and planning, the more effective the actual
control system.
Flexibility
A control system should be able to accommodate change
Accuracy
A control system should provide an objective and accurate picture of the situation
Timeliness
Data should not be obtained in a hasty, makeshift measurement, but should be
supplied on a regular basis.
Unnecessary complexity
Complex control systems become an obstacle and can have a negative influence.
Too much red tape will prohibit managers from proper control. Unnecessary
control is demotivating to staff and leads to resistance. A control system should
not become more “expensive” than the benefits derived from it.
Recap Questions
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
The essential components of a strategic planning template include seven basic elements. Name these.
What is the difference between vertical integration and diversification, as strategies?
What is the difference between a focus strategy and a differentiation strategy?
How does a retailer earn “destination retailer” status in the market? Provide at least two examples of such
retailers.
In one sentence, describe why it is necessary for a retailer to control and review its strategy regularly?
Describe the following terms: “width of product assortment” and “depth of assortment.”
Identify the four typical areas in which tactical retail decisions are usually made.
Identify at least four functional areas of a company that have to be controlled effectively.
Identify and explain the characteristics of an effective retail auditing system.
The Management Audit Form for Small Retailers asks questions in nine different areas. Name these nine basic
areas.
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3.6.11 Ethics in Action
Read the following case study, extracted from “Why do Poor Ethics Occur?”
Why Do Poor Ethics Occur?
In two experts’ experience in teaching sales executives, a common problem encountered is that
sales forces seek to maximise sales, not profits. Many sales incentive programs are also based on
rewarding sales, instead of profits. These experts say that too many sales managers are guilty of
rewarding results as opposed to rewarding high-quality decisions. A memorable example of this
error occurred several years ago when Sears (www.sears.com) in the 1990s gave its auto
mechanics a sales goal of $147 per hour. Rather than work faster, the mechanics overcharged
consumers by “repairing” parts that were not broken.
Retailers can avoid ethical breakdowns by being mindful of “motivated blindness” and letting their
managers know if such ethical dilemmas exist. However, rather than just making the managers
aware of potential conflicts, top management should completely remove these obstacles from the
organisation. Another type of ethical breakdown results from “indirect blindness,” when sales
managers might tell their subordinates to “do whatever it takes” to achieve a sale or reach a quota.
An example of indirect blindness is producing goods in offshore locations with lower environmental
and worker safety standards and trying to sell them as American made.
Managers need to be on the constant lookout for a “slippery slope,” which is the gradual
acceptance of unethical behaviour over time. To avoid the slippery slope, trivial infractions need to
be investigated and addressed.
(Max H. Bazerman and Ann E. Tenbrunsel, “Ethical Breakdowns,”
Harvard Business Review, Vol. 89 (April 2011))
Once you’ve finished reading the above case study, answer the following question, in writing.
1.
2.
3.
4.
5.
How can maximising sales (as a business objective) lead to unethical business
practises?
What are many sales people (and their managers) guilty of, according to this case
study?
What is a better (wiser) business goal, than maximising sales? Why?
What is meant by “indirect blindness”? Provide an example of this.
What is the danger of the “slippery slope”, and how can management avoid it?
Section 5 focused on the implementation and evaluation of the retail strategic management
process. A strategic planning template – a master plan for implementing the retail strategy and all
its components - was introduced. The focus then turned to how actual strategies should be
implemented – at different levels, and in different business environments. Various specific retail
strategies were then identified and explained by looking at a classification system for retailers,
according to their retail strategy mixes. Once a strategy is implemented, it has to be constantly
monitored, controlled and evaluated by management, through appropriate performance
measurement tools and techniques. To this end, the retail audit was discussed in some detail.
Ethics in action was the conclusion for this section.
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3.6.12 Key Points
•
•
•
•
•
•
•
•
•
•
•
The three essential phases of the retail strategic management process are: formulation,
implementation and evaluation;
A strategy must be devised with both controllable- and uncontrollable variables in mind;
Once all the components of the strategic plan are in place, an in-depth overall strategy must
be devised (Berman and Evans, 2013);
This involves two components: the factors or variables of business the retail firm can directly
affect, and those to which the retailer must adapt;
To develop a retail-specific, unique strategy (the basis of a competitive advantage) a retailer
needs its own special strategy mix, ie the firm’s particular combination of store location,
operating processes, goods or services offered, pricing tactics, store atmosphere and
customer services, and promotional methods (ibid);
Control enables management to cope with change and uncertainty as and when it arises;
Competition is an important factor in any organisation and the organisation must remain
competitive;
Control is applied to ensure that the organisation’s resources that are allocated facilitate the
achievement of the set goals;
Control usually leads to better quality implementation and production;
Control of activities should occur at strategic points, thus at areas responsible for the
effectiveness of the organisation;
When a control system is being designed, the following should be considered: the nature of
the organisation, and the activities, size and structure of the organisation.
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5.
GLOSSARY OF TERMS
Term
Explanation
Assets
“Any items a retailer owns with a monetary value” (Berman and Evans 2013).
Assortment
“Selection of merchandise carried by a retailer. It includes both the width of product
categories and the variety within each category” (ibid).
Bifurcated retailing
Denotes the decline of middle-of-the-market retailing due to the popularity of both mass
merchandising and niche retailing (Berman and Evans, 2013).
Budgeting
“Outlines a retailer’s planned expenditures for a given time, based on expected performance”
(ibid).
Buyer
“Person responsible for selecting the merchandise to be stocked by a retailer and setting a
strategy to market that merchandise” (Berman and Evans 2013).
Chain
“Retailer that operates multiple outlets (store units) under common ownership. It usually
engages in some level of centralized (or co-ordinated) purchasing and decision making”
(ibid).
Channel of
distribution
“All of the businesses and people involved in the physical movement and transfer of
ownership of goods and services from producer to consumer” (ibid).
Competitive
advantage
“Distinct competencies of a retailer relative to competitors” (ibid).
Competitive
analysis
“An organised approach for evaluating the strengths and weaknesses of current and
potential competitors’ marketing strategies” (Perrault and McCarthy 2002).
Consumer
behaviour
“The process by which people determine whether, what, when, where, how, from whom, and
how often to purchase goods and services” (Berman and Evans 2013).
Consumerism
“Involves the activities of government, business, and other organizations that protect people
from practices infringing on their rights as consumers” (ibid).
Convenience store
“Well-located food-oriented retailer that is open long hours and carries a moderate number of
items. It is small, with average to above-average prices and average atmosphere and
services” (Berman and Evans 2013).
Corporate culture
Corporate culture is the term given to a “pattern of basic assumptions a firm has adopted to
cope with its internal environment and the changing external environment” (Lamb et al,
2008).
Customer loyalty
“Exists when a person regularly patronises a particular retailer (store or nonstore) that he or
she knows, likes, and trusts” (ibid).
Customer
satisfaction
“Occurs when the value and customer service provided through a retailing experience meet
or exceed consumer expectations” (ibid).
Customer service
“Identifiable, but sometimes intangible, activities undertaken by a retailer in conjunction with
the basic goods and services it sells” (ibid).
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Term
Explanation
Database
management
“Procedure a retailer uses to gather, integrate, apply, and store information related to specific
subject areas. It is a key element in a retail information system” (ibid).
Data mining
“Involves the in-depth analysis of information so as to gain specific insights about customers,
product categories, vendors, and so forth” (ibid).
Department store
“Large store with an extensive assortment (width and depth) of goods and services that has
separate departments for purposes of buying, promotion, customer service, and control” (ibid).
Destination retailer
Firm that consumers view as distinctive enough to become loyal to it. Consumers go out of
their way to shop there (Berman and Evans 2013).
Differentiated
marketing
“Aims at two or more distinct consumer groups, with different retailing approaches for each
group” (Berman and Evans 2013).
Differentiation
“The act of designing a set of meaningful differences to distinguish the company’s offering
from competitors’ offerings” (Kotler, 2003).
Diversification
“Way in which retailers become active in business outside their normal operations—and add
stores in different goods or service categories” (Berman and Evans 2013).
Electronic
data “Allows retailers and suppliers to regularly exchange information through their computers with
interchange (EDI)
regard to inventory levels, delivery times, unit sales, and so on, of particular items” (ibid).
Ethics
“Refers to the retailer’s moral principles and values” (Berman and Evans 2013).
Goals
“Goals state long-term targets, are strategic in nature, and are broken down into several
objectives” (Botha and Musengi, 2012).
Gross profit
“Difference between net sales and the total cost of goods sold. It is also known as gross
margin” (ibid).
Hypermarket
“Combination store pioneered in Europe that blends an economy supermarket with a discount
department store. It is even larger than a supercentre” (Berman and Evans, 2013).
Image
“Represents how a given retailer is perceived by consumers and others” (ibid).
Impulse purchases
“Occur when consumers buy products and or or brands they had not planned to before
entering a store, reading a catalogue, seeing a TV shopping show, turning to the Web, and so
forth“ (ibid).
Independent
“Retailer that owns one retail unit” (ibid).
Information system “Any organised combination of people, hardware, software, communications networks, data
(IS)
resources, and policies and procedures that stores, retrieves, transforms, and disseminates
information in an organisation” (O’Brien and Marakas, 2011).
Inventory
management
“Process whereby a (retail) firm seeks to acquire and maintain a proper merchandise
assortment while ordering, delivery, handling, storing, displaying, and selling costs are kept in
check” (ibid).
Liabilities
“Financial obligations a retailer incurs in operating a business” (ibid).
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Term
Explanation
Membership
(warehouse) club
“Appeals to price-conscious consumers, who must be members to shop” (ibid).
Merchandising
“Merchandising consists of the decisions and activities involved in sourcing a retailer’s product
or service assortment or mix and making these available at right place, time, price and correct
quantities, for a retailer to reach its goals” (Berman and Evans, 2013).
Merchandising
philosophy
“Sets the guiding principles for all the merchandise decisions a retailer makes” (ibid).
Milestone
“Sub-objectives or stages into which a programme or project is divided for monitoring and
measurement of work performance” (Business Dictionary, 2013).
Mission statement
“The mission is a statement that defines the purpose of the organisation in terms of the product
or service it produces, the market it serves and the technology it applies in serving the market”
(Du Toit, Erasmus and Strydom, 2010).
Net profit
“Equals gross profit minus retail operating expenses” (ibid).
Net profit margin
“Performance measure based on a retailer’s net profit and net sales. It is equal to net profit
divided by net sales” (ibid).
Net sales
“Revenues received by a retailer during a given time period after deducting customer returns,
markdowns, and employee discounts” (ibid).
Niche retailing
“Enables retailers to identify customer segments and deploy unique strategies to address the
desires of those segments” (Berman and Evans, 2013).
Nonstore retailing
“Utilises (retail) strategy mixes that are not store-based to reach consumers and complete
transactions. It occurs via direct marketing, direct selling, and vending machines” (ibid).
Objectives
“Long-term and short-term performance targets that a retailer hopes to attain. Goals can
involve sales, profit, satisfaction of publics, and image” (ibid).
Operating expenses
“Short-term selling and administrative costs of running a business” (Berman and Evans, 2013).
Order lead time
“Period from when an order is placed by a retailer to the date merchandise is ready for sale
(received, price marked, and put on the selling floor)” (ibid).
Performance
measures
“Criteria used to assess effectiveness, including total sales, sales per store, sales by product
category, sales per square foot, gross margins, gross margin return on investment, operating
income, inventory turnover, markdown percentages, employee turnover, financial ratios, and
profitability” (ibid).
Planogram
“Visual (graphical) representation of the space for selling, merchandise, personnel, and
customers—as well as for product categories” (ibid).
Positioning
“Enables a retailer to devise its strategy in a way that projects an image relative to its retail
category and its competitors, and elicits consumer responses to that image” (ibid).
Relationship
retailing
“Relationship retailing requires retailers to focus on the total retail experience, monitoring
customer satisfaction with service levels and keeping in contact with customers” (Berman and
Evans 2013).
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Term
Explanation
Retailing
“Business activities involved in selling goods and services to consumers for their personal,
family, or household use” (Berman and Evans 2013).
Retail audit
“Systematically examines the total retailing effort or a specific aspect of it to study what a
retailer is presently doing, appraise how well it is performing, and make recommendations”
(ibid).
Retail strategy
“Overall plan guiding a retail firm. It influences the firm’s business activities and its response
to market forces, such as competition and the economy” (Berman and Evans 2013).
Retail value chain
“Total bundle of benefits offered to consumers through a channel of distribution” (Berman and
Evans 2013).
Sales promotion
“Encompasses the paid communication activities other than advertising, public relations, and
personal selling that stimulate consumer purchases and dealer effectiveness” (ibid).
Scrambled
merchandising
“Occurs when a retailer adds goods and services that may be unrelated to each other and to
the firm’s original business” (Berman and Evans 2013).
Situation analysis
Candid evaluation of the opportunities and threats facing a prospective or existing retailer
(Berman and Evans 2013).
Social media
“Encompass online technology tools that allow vast numbers of people to easily communicate
with one another via the Internet and mobile devices. Through social media, messages, audio,
video, photos, podcasts, and other multimedia communications are possible” (Berman and
Evans 2013).
Social responsibility “Social responsibility requires retailers to behave in a socially responsible, beneficial way to
society in general and local communities in particular” (Berman and Evans 2013).
Speciality store
“Retailer that concentrates on selling one goods or service line” (ibid).
Stakeholder
“Any individual or group who can affect or is affected by the actions, decisions, policies,
practices, or goals of the organisation” (Freeman, 1984).
Strategy
“A strategy is the overall plan guiding a firm. It influences the firm’s business activities and its
response to market forces, such as competition and the economy” (Berman and Evans, 2013).
Strategic
management
“Strategic planning can be defined as the process of proactively aligning the organisation’s
resources (internal environment) with threats and opportunities caused in the external
environment” (Smit et al, 2011).
Strategic planning
“Strategic planning is the process of analysing the organisation’s external and internal
environments; developing a vision and mission; formulating overall goals; identifying general
strategies to be pursued; and allocating resources to achieve the organisation’s goals”
(Thompson and Strickland, 1998).
Supply chain
“The logistical side of a (retail) value delivery chain (Berman and Evans 2013).
Strategic window
“A strategic window is the limited period during which the “fit” between the key requirements
of a market and the particular competencies of a firm are at an optimum” (Lamb et al, 2008).
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Term
Explanation
Strategy mix
“Retailer’s firm’s particular combination of store location, operating procedures, goods or
services offered, pricing tactics, store atmosphere and customer services, and promotional
methods” (Berman and Evans, 2013).
Supercentre
“Combination store blending an economy supermarket with a discount department store”
(ibid).
Supermarket
“Self-service food store with grocery, meat, and (fresh) produce departments. The category
includes conventional supermarkets, food-based superstores, combination stores, box
(limited-line) stores, and warehouse stores” (ibid).
Supply chain
“Logistics aspect of a value delivery chain. It comprises all of the parties that participate in the
retail logistics process: manufacturers, wholesalers, third-party specialists, and the retailer”
(Berman and Evans 2013).
Tactics
“Actions that encompass a retailer’s daily and short term operations” (ibid).
Target market
“Customer group that a retailer seeks to attract and satisfy” (ibid).
Total
experience
retail “All the elements in a retail offering that encourage or inhibit consumers during their contact
with a retailer” (ibid).
Trading area
“Geographical area containing the customers and potential customers of a particular retailer
or group of retailers for specific goods or services” (ibid).
Traditional
department store
“Type of department store in which merchandise quality ranges from average to quite good,
pricing is moderate to above average, and customer service ranges from medium levels of
sales help, credit, delivery, and so forth to high levels of each” (ibid).
Value
“From the perspective of the customer, value is the perception a shopper has of the value
chain: ie the customers’ view of all the benefits gained from a particular purchase (the total
retail experience). Value is based on the (customer’s) perceived benefits received, versus the
price paid” (Berman and Evans 2013).
Vertical integration
“Involves producing goods or services from the bottom to the top or vice versa (Botha and
Musengi, 2013).
Vertical
system
marketing “All the levels of independently owned businesses along a channel of distribution. Goods and
services are usually distributed through one of three types of systems: independent, partially
integrated, and fully integrated” (Berman and Evans 2013).
Vision
“A vision is the ‘dream’ of where the organisation would like to be in the future” (2011).
Warehouse store
“Food-based discounter offering a moderate number of food items in a no-frills setting” (ibid).
Wheel of Retailing
“Theory stating that retail innovators often first appear as low-price operators with low costs
and low profit margins. Over time, they upgrade the products carried and improve facilities and
customer services. They then become vulnerable to new discounters with lower cost
structures” (Berman and Evans, 2013).
Width of assortment
“Number of distinct goods or service categories (product lines) a retailer carries” (ibid).
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6.
VERSION CONTROL
Date of Publication:
Publisher:
Place of Publication:
Date
19 September 2012
28 September 2012
23 October 2012
09 November 2012
21 January 2013
27 September 2013
Version
1
2
3
4_e_f
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4.2_e_f
Initials
LC
FR
LC
LvN
LC
FVS
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05 December 2013
20 December 2013
20 December 2013
9 December 2014
31 December 2014
20 February 2015
25 February 2015
06 February 2017
10 February 2021
16 February 2021
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4.4_e_f
5_e_f
6_e_f
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6.2
6.3_e
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6.5_e_f
6.6
6.7_e_f
FVS
PL
CJ
PL
RS
TS
RT
SK
SK
KA
SK
February 2023
Regenesys Management
Sandton
Description of Change
First draft
SME review
Review and update
Editing and formatting
Final submission
Reversion (updated version control system)
Amendment of title of course
Amendment of reference and formatting
Reviewed and restructured (revised v6_f)
Editing of updated sections
Final review
Contextualised for BBA 1 Retail Strategic Management
Reviewed
Edited
Formatted
Updated SG template and checked hyperlinks
Updated links, 60 new MCQs and an assignment with memo
Formatted for a new intake
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