i
CRAFTING AND EXECUTING AN OPERATIONAL
STRATEGIC PLAN FOR A RETAIL PRODUCT LINE
Bradley Collins
Research report
presented in partial fulfilment
of the requirements for the degree of
Master of Business Administration
at the University of Stellenbosch
Supervisor: Professor Marius Ungerer
Degree of confidentiality: A
March 2009
ii
DECLARATION
By submitting this research report electronically, I declare that the entirety of the work
contained therein is my own, original work, that I am the owner of the copyright thereof
(unless to the extent explicitly otherwise stated) and that I have not previously in its entirety or
in part submitted it for obtaining any qualification.
_____________________________
B.J. Collins
31 January 2009
Copyright © 2008 Stellenbosch University
All rights reserved
iii
ACKNOWLEDGEMENTS
I would like to express my sincere thanks to everyone who assisted me in successfully
completing this research.
I would especially like to thank my wife and daughter for their support, assistance and patience.
Also, thanks to my parents, for their constant encouragement during the course of my studies. I
would also like to thank my sister, for her kind contribution.
My sincere thanks and gratitude to Professor Marius Ungerer, for his guidance and assistance.
Finally to God, for His strength.
iv
ABSTRACT
The following research report is titled “Crafting and executing an operational strategic plan for a
retail product line”. The report presents operational analysis which results in creating
operational strategy which is relevant to current trading conditions and which is clearly aligned
with both the organisation’s group and corporate strategic goals. The primary focus is therefore
not on the development of organisational strategy, but on strategic implications, interpretation
and operational execution.
The central research question is described as follows:
How can the current operational strategic planning process be improved in order to deliver
strategic plans which are aligned and clearly support the key strategic thrusts at group and
corporate level?
A literature study was conducted by consulting a vast number of books, articles and websites in
order to gain a comprehensive understanding of the latest management thinking pertaining to
the creation and implementation of strategy. Primary research, which took the form of informal
interviews with key personnel, was also conducted in order to ascertain the opinions and
insights of individuals who are directly affected by the operational strategic process.
The research resulted in a one year operational strategic framework which can be used as a
tool by all central buying teams when creating operational strategic plans. The framework
allows teams to follow a standardised process which results in concise summary populated with
key strategic points. Teams are thus guided by these points and are also prompted to
corrective action by ensuring that each strategic action has a measurable outcome. The
framework is also populated with group and corporate goals, which act as guiding principles to
team members.
v
The final recommendation is that teams allow for a degree of flexibility in the operational
strategic actions which were identified in their initial analysis. While key strategic points at group
and corporate level will most likely remain unchanged during the course of a financial year,
certain operational activities may have to be reconsidered should the micro and macro trading
environment change.
vi
OPSOMMING
Die titel van die volgende navorsingverslag is: “Crafting and executing an operational plan for a
retail product line”. Die verslag is ‘n weergawe van ‘n bedryfsontleding wat lei tot die ontwerp
van ‘n bedryfs-strategie wat van toepassing is op die huidige handelsmilieu. Die strategie is
verder in lyn met beide die organisasie se groep en korparatiewe doelwitte. Die verslag fokus
hoofsaaklik op strategiese implikasies, interpretasie en operasionele uitvoering en nie op
strategiese ontwikkeling nie.
Die sentrale navorsingskwessie word soos volg beskryf:
Watter verbeterings kan aangebring word aan die huidige bedryfs-strategiese beplannings
proses om sodoende strategiese planne op te lewer wat in lyn sal wees en ondersteuning sal
gee aan die sleutel strategiese dryfkrag op groep en korporatiewe vlak.
‘n Aantal sekondêre bronne –boeke,artikels and webwerwe- is nageslaan en ‘n letterkundige
studie is gedoen om ‘n omvattende begrip te kry van die nuutste bestuursdenke met betrekking
tot die ontwerp en implementering van strategie. Onderhoude is gevoer met sleutel personeel
wat gedien het as primere bronne. Sodoende is die opinies en insigte verkry van individue wat
direk betrokke is by die bedryfs-strategiese proses.
Die ondersoek het as gevolg ‘n bedryfs-strategiese raamwerk. Dit kan as instrument gebruik
word
deur alle sentrale aanskaffingspanne wanneer hulle bedryfs-strategiese planne
ontwerp.Die raamwerk maak voorsiening vir ‘n gestandardiseerde proses wat kulmineer in ‘n
een-bladsy opsomming wat strategiese punte bevat. Die opsomming gee dus rigting aan
spanne en hulle word aangespoor tot korrektiewe aksies elk met meetbare uitkomstes. Die
raamwerk bevat ook groeps- en korporatiewe doelwitte wat deur spanne as riglyne gebruik kan
word.
vii
‘n Finale voorstel is dat spanne voorsiening maak vir ‘n mate van plooibaarheid in die bedryfsstrategiese aksies wat aanvanklik in hul ontledings geidentifiseer was.Sekere strategiese punte
sal waarskynlik op groep en korporatiewe vlak onveranderd bly na afloop van die finansieele
jaar terwyl sekere bedryfsaktiwiteite heroorweeg sal moet word na gelang van veranderinge in
die mikro en makro handelsmileu.
viii
TABLE OF CONTENTS
Page
Declaration.....................................................................................................................................ii
Acknowledgements ...................................................................................................................... iii
Abstract .........................................................................................................................................iv
Opsomming ..................................................................................................................................vi
List of tables................................................................................................................................. xii
List of figures .............................................................................................................................. xiii
List of appendices ....................................................................................................................... xiv
List of abbreviations and acronyms ............................................................................................ xv
CHAPTER ONE: INTRODUCTION AND STATEMENT OF THE PROBLEM .......................... 1
1.1
Introduction ...................................................................................................................... 1
1.2
Statement of the problem and research question ........................................................... 3
1.3
Assumptions and delimitations ........................................................................................ 4
1.4
Subsequent chapters of the report .................................................................................. 7
CHAPTER TWO: RESEARCH DESIGN AND METHODOLOGY ............................................. 9
2.1
Introduction ...................................................................................................................... 9
2.2
Primary data .................................................................................................................. 11
2.3
Secondary data ............................................................................................................. 13
2.4
Conclusion ..................................................................................................................... 13
ix
Page
CHAPTER 3: REVIEW OF RELATED LITERATURE ............................................................. 14
3.1
Introduction .................................................................................................................... 14
3.2
A definition of strategy ................................................................................................... 14
3.3
Levels of strategy .......................................................................................................... 16
3.4
The benefits and risks of strategic planning .................................................................. 18
3.5
The steps in the strategic planning process .................................................................. 20
3.5.1
Developing a strategic vision ......................................................................................... 20
3.5.2
Setting objectives .......................................................................................................... 22
3.5.3
Crafting strategy to achieve the objectives and vision .................................................. 24
3.5.3.1 Porter’s five forces ......................................................................................................... 26
3.5.3.2 SWOT analysis .............................................................................................................. 32
3.5.3.3 Ansoff’s product/market mix .......................................................................................... 34
3.5.4
Strategic implementation ............................................................................................... 37
3.5.5
Initiating corrective action .............................................................................................. 42
3.6
Strategic alignment ........................................................................................................ 43
3.7
Conclusion ..................................................................................................................... 44
CHAPTER 4:
CRAFTING AND EXECUTING AN OPERATIONAL STRATEGIC PLAN
FOR LONG LIFE DAIRY ................................................................................. 45
4.1
Introduction .................................................................................................................... 45
4.2
Summary of information obtained from interviews ........................................................ 45
4.3
The operational strategic framework and strategic planning process........................... 48
4.3.1
The operational strategic framework ............................................................................. 48
4.3.2
The operational strategic planning process .................................................................. 49
4.4
Operational strategic analysis ....................................................................................... 52
4.4.1
Porter’s five forces ......................................................................................................... 52
4.4.2
Ansoff’s product/market matrix ...................................................................................... 61
4.4.3
Analysis of internal reports ............................................................................................ 63
x
Page
4.4.4
SWOT analysis for Long Life Dairy ............................................................................... 64
4.4.5
Summary of strategic action points from Ansoff, SWOT and internal reports .............. 65
4.4.5.1 Marketing and sales ...................................................................................................... 65
4.4.5.2 Product features ............................................................................................................ 65
4.4.5.3 Staff competence building ............................................................................................. 65
4.4.5.4 Supply chain and product display ................................................................................. 65
4.5
Populate the operational strategic framework ............................................................... 66
4.6
Conclusions and recommendations .............................................................................. 69
CHAPTER 5:
IMPLEMENTING THE OPERATIONAL STRATEGIC FRAMEWORK
IN TWO OTHER DEPARTMENTS .................................................................. 70
5.1
Introduction .................................................................................................................... 70
5.2
Operational strategic analysis for Organic Dairy ........................................................... 70
5.2.1
Porter’s five forces ......................................................................................................... 70
5.2.2
Ansoff’s product/market matrix for Organic Dairy ......................................................... 78
5.2.3
Analysis of internal reports for Organic Dairy ................................................................ 79
5.2.4
SWOT analysis for Organic Dairy ................................................................................. 80
5.2.5
Summary of strategic action points from Ansoff, SWOT and internal reports .............. 81
5.2.5.1 Marketing and sales ...................................................................................................... 81
5.2.5.2 Product features ............................................................................................................ 81
5.2.5.3 Staff competence building ............................................................................................. 81
5.2.5.4 Supply chain and product display ................................................................................. 82
5.2.6
Populate the operational strategic framework for Organic Dairy .................................. 82
5.3
Operational strategic analysis for Short Life Dairy ........................................................ 85
5.3.1
Porter’s five forces for Short Life Dairy.......................................................................... 85
5.3.2
Ansoff’s product/market matrix for Short Life Dairy....................................................... 93
5.3.3
Analysis of internal reports for Short Life Dairy ............................................................. 94
5.3.4
SWOT analysis for Short Life Dairy............................................................................... 96
xi
Page
5.3.5
Summary of strategic action points from Ansoff, SWOT and internal reports .............. 97
5.3.5.1 Marketing and sales ...................................................................................................... 97
5.3.5.2 Product features ............................................................................................................ 97
5.3.5.3 Staff competence building ............................................................................................. 97
5.3.5.4 Supply chain and product display ................................................................................. 97
5.3.6
Populate the operational strategic framework for Short Life Dairy ............................... 98
5.4
Conclusion…………………………………………………………………………………..100
CHAPTER 6:
SUMMARY, CONCLUSIONS AND RECCOMMENDATIONS ..................... 101
6.1
Summary and conclusions ............................................................................................ 101
6.2
Recommendations ......................................................................................................... 102
LIST OF SOURCES ................................................................................................................. 104
APPENDICES .......................................................................................................................... 108
xii
LIST OF TABLES
Page
Table 1.1:
List of Long Life Dairy subclasses...................................................................... 6
Table 2.1:
List of employees interviewed .......................................................................... 11
Table 3.1:
Financial versus strategic objectives ................................................................ 24
Table 3.2:
What to look for in identifying a company’s strengths, weaknesses,
opportunities and threats .................................................................................. 33
Table 4.1:
Summary of responses from employees interviewed ...................................... 46
Table 4.2:
Ansoff’s product/market matrix for Long Life Dairy .......................................... 62
Table 4.3:
Summary of key financial indicators for Long Life Dairy .................................. 63
Table 4.4:
The operational strategic framework for Long Life Dairy 2009/2010 ............... 67
Table 5.1:
Ansoff’s product/market matrix for Organic Dairy ............................................ 79
Table 5.2:
Summary of financial indicators for Organic Dairy ........................................... 80
Table 5.3:
The operational strategic framework for Organic Dairy 2009/2010 ................. 83
Table 5.4:
Ansoff’s product/market matrix for Short Life Dairy ......................................... 94
Table 5.5:
Summary of key financial indicators for Short Life Dairy ................................. 95
Table 5.6:
The operational strategic framework for Short Life Dairy 2009/2010 .............. 98
xiii
LIST OF FIGURES
Page
Figure 1.1:
Trend cycle of retail trade sales (at constant 2000) prices ................................ 1
Figure 1.2:
The firm’s product hierarchy ............................................................................... 5
Figure 3.1:
A company’s strategy making hierarchy .......................................................... 17
Figure 3.2:
The strategy-making, strategy-executing process ........................................ 21
Figure 3.3:
The components of a company’s microenvironment ....................................... 25
Figure 3.4:
Porter’s five forces model ................................................................................. 27
Figure 3.5:
The relationship between SWOT and the environmental analysis ................. 32
Figure 3.6:
The Ansoff product/market matrix .................................................................... 35
Figure 4.1:
The operational strategic planning process .................................................... 51
Figure 4.2:
Porter’s five forces of competitive position for Long Life Dairy ........................ 60
Figure 5.1:
Porter’s five forces of competitive position for Organic Dairy .......................... 77
Figure 5.2:
Porter’s five forces of competitive position for Short Life Dairy........................ 92
xiv
LIST OF APPENDICES
Page
Appendix A:
Questions used in the informal interviews...................................................... 108
xv
LIST OF ABBREVIATIONS AND ACRONYMS
BEE
:
black economic empowerment
CEO
:
chief executive officer
KPI
:
key performance indicator
QC
:
quality control
SWOT
:
strengths, weaknesses, opportunities and threats
1
CHAPTER 1
INTRODUCTION AND STATEMENT OF THE PROBLEM
1.1
INTRODUCTION
The period 2004 to mid 2007 was categorised by excellent growth for the retail industry in
South Africa. Figure 1.1 indicates the upward trend experienced in the sector during this time
frame. During this period disposable income was less affected by inflationary prices and
spiralling interest rates.
Figure 1.1: Trend cycle of retail trade sales (at constant 2000) prices
Source: Statistics South Africa retail trade sales, 2008: 4
2
In May 2008, Statistics SA released retail trade sales data showing a decrease of 3.6% for May
2008 to May 2007. The figures showed a decline of 0.4% for the first five months of 2008
versus 2007, while the growth for the same period of 2007 versus 2006 was almost 9%. The
poor sales environment has resulted in retailers intensifying their efforts to grow market share
by modifying their offers most notably in terms of price on key value items. Retailers do this in
order to attract customers in a sustained manner.
The strategy adopted by the retailer is vital for attracting new and current customers. “A retail
strategy describes the comprehensive plan that a retailer follows to differentiate itself from
competitors and to create and deliver value to its customers. To arrive at this comprehensive or
strategic retail plan, the retailer must embark on a process of strategic planning” (Terblanche,
1998:84-85).
Strategic planning allows the retailer to better understand the threats and
opportunities in its environment. The resultant strategic plan enables the retailer to achieve a
strategic fit between the retailer’s present and future capabilities and the present and future
opportunities.
The focus of this research will be to develop an operational strategic planning framework which
can be utilised by the trading departments in the foods group of a large retail concern. The
framework is designed in a manner which makes it simple and clear for trading departments to
craft and execute a strategic plan which is linked to, and clearly supports the broader group and
corporate strategic goals. The current strategic planning process at this level is not inadequate,
as it does deliver success for the business. However, the latest management thinking is often
not incorporated into the strategic decisions and also a uniform approach is not used across the
entire trading group. This results in various strategies being presented which are often not
aligned with the overriding strategy of the group and corporate entity.
The framework will incorporate tools and processes based on sound theoretical principles and
the latest management thinking, as well as information gleaned from interviews with key
3
stakeholders in the organisation. The strategy framework must provide an operational strategy
which is executable and measurable, and which provides sound guidelines for the buying
teams to consider when making decisions during the course of the year.
1.2
STATEMENT OF THE PROBLEM AND RESEARCH QUESTION
The strategic plans which are formulated at department level in the foods group of a major
retailer are not aligned with the group and corporate strategy. The primary reason for this is
that each department formulates their plan using a different process, and it is often done
without consulting the broader strategic objectives at group and corporate level. Senior
management often criticises these plans which result in teams having to go back to the drawing
board and therefore spending a large amount of precious time reworking the document.
“Competition occurs at business unit level. Diversified companies do not compete; only their
business units do. Unless a corporate strategy places primary attention on nurturing the
success of each unit, the strategy will fail, no matter how elegantly constructed” (Porter, 2001:
46). A direct relationship therefore exists between corporate, group and business unit strategic
plans which emphasises the importance of having these plans aligned.
The research conducted will result in a framework which can be used to formulate strategy
across the foods group at department level. The framework will provide central buying teams
with the tools to conduct strategic analysis, formulate strategic plans which are relevant and
which will enable the foods group to continue to prosper well into the future. The primary focus
is therefore not on the development of strategy, but on strategic implications, interpretation and
operational execution.
The central research question can be summarised as follows:
4
How can the current operational strategic planning process be improved in order to
deliver strategic plans which are aligned and clearly support the key strategic thrusts at
group and corporate level?
1.3
ASSUMPTIONS AND DELIMITATIONS
The report does not attempt to cover all the theory on strategy. Certain theories may be
adapted to best suit the nature of the business for which a strategic framework is being
developed.
The report also assumes that the current business environment is flexible enough to conduct
this type of research as a means toward improving current business processes.
The research is being conducted by an internal employee with access to company data, as well
as the support of management.
The research occurs at department level of the foods group. The group product hierarchy in
Figure 1.2 depicts the different levels in the organisation. Strategy formulation occurs at each
level and it is important that the guiding principles are reflected in the detail of the strategic
initiatives at each of these levels.
5
Corporate
Clothing, home, beauty,
connect
Foods Group
Produce & horticulture
Sales & new stores, communication,
space & range, store
Speciality, wine, beverages &
impulse
Prepared, deli, bakery, dessert &
frozens
Grocery & non-foods
Meat, poultry, seafood & dairy
Meat, poultry, seafood
Organic Dairy
Short Life Dairy
Figure 1.2: Foods product hierarchy
Long Life Dairy
6
Table 1.1 shows a list of subclasses which constitute the Long Life Dairy department. These
are used to classify products in reporting and display. Long Life Dairy is highlighted, because
the development of the operational strategic framework baseline was done in this department.
Table 1.1: List of Long Life Dairy subclasses
Department
Long Life Dairy
Subclass
Gouda
Subclass
Cheddar
Subclass
Mature cheddar
Subclass
White cheese
Subclass
Feta
Subclass
Cream cheese
Subclass
Cottage cheese
Subclass
Fresh cheese
Subclass
Speciality hard cheese
Subclass
Speciality semi hard cheese
Subclass
Speciality soft cheese
Subclass
Speciality blue cheese
7
1.4
SUBSEQUENT CHAPTERS OF THE REPORT
Chapter Two: Research design and methodology
This chapter outlines the design and methodological approach to this research report, using
primary and secondary research techniques.
Chapter Three: Review of related literature
This chapter reviews relevant literature on crafting and executing strategy. The literature
reviewed was obtained from books, journals, articles and websites. It defines strategy in more
detail and also describes key processes and concepts required for producing an excellent
strategic plan.
Chapter Four: The development of an operational strategic plan
Chapter four involves developing the framework for crafting and implementing strategy while
simultaneously populating the framework with an actual plan for a specific department. All the
required analysis and interpretation will be conducted in this chapter.
Chapter Five:
Practical utilisation of the operational strategic framework in two other
departments
In order to provide validity to the report, two other departments within the foods group were
selected. The departments are Short Life Dairy and Organic Dairy, and are at the same level in
8
the hierarchy as Long Life Dairy. The framework was applied to these two departments in order
to show the applicability of the proposed framework.
Chapter Six: Summary, conclusions and recommendations
This chapter concludes the research report with a summary of the key findings encountered
from the research. Also presented here are conclusions and recommendations based on the
research that was done.
9
CHAPTER 2
RESEARCH DESIGN AND METHOGOLOGY
2.1
INTRODUCTION
Research design refers to the outline, plan or strategy that specifies the procedure that will be
used in seeking an answer to the research question. Furthermore, it is a set of guidelines and
instructions to be followed in addressing the research problem, and differs from project to
project. The rationale for a research design is to plan and structure a research project in such a
way that the eventual validity of the research findings is maximised through either minimising
or, where possible, eliminating error (Mouton, 1996:107-109).
Qualitative research uses a naturalistic approach that seeks to understand phenomena in
context-specific settings, such as "real world setting where the researcher does not attempt to
manipulate the phenomenon of interest" (Patton, 2001:39). Qualitative research, broadly
defined, means "any kind of research that produces findings not arrived at by means of
statistical procedures or other means of quantification" (Strauss and Corbin, 1990:17) and
instead, the kind of research that produces findings arrived from real-world settings where the
"phenomenon of interest unfold naturally" (Patton, 2001:39). Unlike quantitative researchers
who seek causal determination, prediction, and generalisation of findings, qualitative
researchers seek instead illumination, understanding, and extrapolation to similar situations.
This report will follow a qualitative research process by interpreting and applying information
obtained in the literature review and from interviews conducted with key stakeholders in the
business. The findings will be presented in a manner that will result in an operational strategic
framework that will add value and can be easily implemented in other trading departments.
10
Guba and Lincoln (1981) propose four criteria for evaluating qualitative findings and increasing
trustworthiness. These being credibility, transferability, dependability and confirmability.
Credibility is the believability of the research findings from the perspective of the report
participants. The credibility of this report will be increased by incorporating the views of the
people being interviewed as key stakeholders in the operational strategic framework.
Transferability is the degree to which findings can be generalised to other settings or contexts.
The framework is available for utilisation in the firm by other departments also crafting
operational strategic plans. Transferability will be enhanced by the practical application of the
strategic framework in two other chosen areas, all related to the same context, namely the
foods group.
Dependability is related to the importance of the researcher describing the changing contexts
and circumstances that are vital in qualitative research. The context of the research is the
current strategic plan of the firm, and this will be described as part of the operational plan
baseline.
Confirmability refers to the extent that findings can be corroborated by others. The framework
will be applicable within the firm, but not outside. The intent is to create a framework for the
operationalisation of strategy in the case report firm, not to create a universal strategic
operational tool.
Whilst research design focuses on the end product – what kind of report is being planned and
what kind of result is aimed at – research methodology focuses on the research process and
the kinds of tools and procedures to be used (Mouton, 2001:56). The research methodology
that has been used in this research report is a combination of primary and secondary research.
Primary data is that which has been collected for the express purpose of the research being
11
undertaken, whereas secondary data is that which has been collected for purposes other than
the research objectives (Parasuraman, 1986:165).
2.2
Primary data
Primary research was conducted amongst key decision makers across the foods group in order
to determine the effectiveness of the current strategic plans. Information obtained from these
sources was used to populate various strategy making tools in order to help formulate the
strategic plan. The primary research took the form of qualitative research, personal interviews
were conducted in a semi-structured interview format. It was felt that, for the purposes of this
report, it was not necessary to conduct complex, quantitative research in the form of a
structured and comprehensive research questionnaire. Table 2.1 provides a summary of people
interviewed. The majority of the participants interviewed had more than 10 years experience;
all were older than 30 years and were men.
Table 2.1: List of employees interviewed
Number
Name
Surname
Position
Number of
years
experience
Age
Gender
1
Denzil
Greentree
Senior buyer
12
35
Male
2
Giscard
Heradien
Sales manager
12
33
Male
3
Clynton
Louw
Inventory manager
14
33
Male
4
Rian
Marren
Senior technologist
4
34
Male
5
Chan
Pillay
Trading head
15
36
Male
12
The research was conducted in a more investigative, journalistic and descriptive approach in
order to find the answers to the research problem. A purposive or judgmental sampling
technique was used to identify the group of people who were subsequently interviewed.
Judgmental sampling is defined as a procedure in which the researcher exerts some effort in
selecting the sample that he feels is most appropriate (Parasuraman, 1986: 501). This is an
example of non-probability sampling that Mason and Lind (1996: 298) define as a sampling
method in which not all items or people have a chance of being included in the sample. In
contrast to this, probability sampling is defined as a sample selected in such a way that each
item or person in the population being studied has a known likelihood of being included in the
sample (Mason & Lind, 1996: 298).
The sample was selected from a wide range of management positions in the foods hierarchy.
Personal interviews were conducted with the aid of a Discussion Guide (refer to appendix).
Each interview was a semi-formal discussion relating to the respondent’s experience and
opinions of how operational strategy is crafted and executed in the foods business.
Discussions from these interviews have been used to formulate the findings of the primary
research. The use of a qualitative, discussion technique in the interviews provided the freedom
to ask respondents questions relating to their specific areas of expertise and experience, and to
probe into deeper issues where appropriate. The personal interviews were conducted during
October 2008. The input of those interviewed was especially useful in applying the theory and
concepts of crafting and executing strategy in the retail industry. The author assumes full
responsibility for his interpretation of the data presented.
13
2.3
Secondary data
The secondary data has been obtained by conducting an extensive literature review on relevant
and related topics to provide a thorough understanding of strategy and how it can best be
crafted and implemented in the chosen area. A wide variety of journals, books, and internet
websites was consulted.
2.4
Conclusion
This chapter has provided an overview of the research design and methodology for this
research report. The methods used to find relevant information have been described as well as
how the trustworthiness of data will be established. The chapter is followed by a review of the
related literature on the area of crafting and executing strategy.
14
CHAPTER 3
REVIEW OF RELATED LITERATURE
3.1
INTRODUCTION
The literature review aims to provide insight into the area crafting and executing strategy. The
areas which are covered provide explanations of the theory that will be employed in answering
the research problem. Numerous texts, journals, articles and websites were consulted for the
purposes of the literature review.
3.2
A DEFINITION OF STRATEGY
“A company’s strategy is management’s game plan for growing the business, staking out a
market position, attracting and pleasing customers, competing successfully, conducting
operations, and achieving targeted objectives.” (Thompson, Strickland & Gamble, 2005:3).
Strategy serves as a unifying theme that guides actions and decisions by individuals in the
organisation. An organisation has a strategic advantage when it does similar tasks to that of
rivals in a different way or performing different activities which clearly set it apart from its rivals.
In defining a business strategic direction management must address the following three
questions:

Where are we now?

Where do we want to go?

How will we get there?
15
The strategy of an organisation can be intended or proactive, where management intentionally
does certain things that have been working well for the business. Alternatively there is a portion
of the strategy which is reactive or adaptive to conditions and events which are unforeseen or
beyond the control of the organisations’ management.
The strategy for any business could be viewed as a work in progress. Managers must not feel
bound to stick to a strategic plan where it is clearly not delivering success for the business. In
certain circumstances it may be necessary to make significant changes in the current game
plan; other circumstances may only require tweaking and fine tuning. The strategy of an
organisation will evolve over time, and a degree of change is inevitable.
The successful retailer must ensure that it has a sound strategic plan, one which sets it apart
from its competitors. The dynamic nature of the retail business and the intense rivalry amongst
competitors requires that the strategy be flexible and allows for change at the operational level.
Changes at this level are often required in order to react to threats and other market conditions
which may lead to loss of market share should the organisation remain unresponsive. “A
retailer’s long term performance is largely determined by its strategy. A strategy coordinates
employees’ activities and communicates the direction the retailer plans to take” (Levy & Weitz,
2007:153). The components of the strategic plan, like price, promotions and product range may
thus change at an operational level on a more regular basis, but the long term overriding
strategic principles remain in tact in order to guide the organisation in its activities.
16
3.3
Levels of strategy
Strategy is formulated and implemented at different levels in an organisations structure. The
role players at each level will differ, with some role players applying themselves across various
levels depending on their position within the organisation.
Thompson, et al. (2005:34-37), identifies four levels of strategy. Figure 3.1 depicts a summary
of these levels of strategy as well as the interrelationships at various levels.
“Corporate strategy for multi-business retailers includes developing the overall mission for the
corporation, specifying the objectives to be achieved, and managing the individual businesses
that comprise the corporation” (Mason & Mayer, 1990:54). The role players at this level will
include the CEO and other key executives. The strategic guiding principles will be established
at this level, as well as ways of creating synergies which result in competitive advantage.
The level, called business strategy, is largely derived by general managers and heads of
business units. At this level it is established how each of the businesses will operate within their
competitive environment in order to achieve the mission and objectives of the corporate entity.
Functional strategy specifies how the overall objectives of the business strategy will be
achieved. This area of strategy is crafted by the functional managers for approval by the
business head. The functional strategy will typically encompass decisions around new product
development, product distribution strategy, the procurement strategy, the planning strategy and
the technical strategy.
17
Figure 3.1: A company’s strategy making hierarchy
Source: Thompson, Strickland & Gamble, 2005: 35
18
The importance of the operational strategy level must not be underestimated because it falls at
the bottom of the strategy making hierarchy. Execution at this level is a vital component to
achieving the goals at the levels above. “Operating strategies, while of lesser scope than the
higher levels of strategy-making, add relevant detail and completeness to the overall business
plan. Lead responsibility for operating strategies is usually delegated to operating-level
managers, subject to review and approval by higher level managers” (Thompson & Strickland,
1992:39).
3.4
THE BENEFITS AND RISKS OF STRATEGIC PLANNING
Strategic planning leads to improved profitability and turnover in businesses that use the tool
correctly. A good strategic plan allows a business to better utilise scarce resources which result
in increased productivity and therefore increased competitive advantage.
“Through effective strategic management, all employees tend to understand the goals and
objectives of the organisation so much better and this directly leads to better and more effective
communication” (Ehlers & Lazenby, 2007:8). The improved understanding which is a result of
improved communication allows employees to own the strategy which is being implemented
and makes them more committed to driving the change.
Employees can become empowered by the process of strategic planning. A common error by
senior management is that strategic plans are forced on lower level employees without having
them involved in the formulation of these plans. Involving employees in the formulation of
strategic plans allows them to take ownership of the plans, and they are thus empowered to
implement these plans successfully.
19
Strategic planning improves the sense of responsibility to the management team of the
organisation. The team involved in the planning process is held accountable for the detail and
implementation of the plan. Their actions are guided by corporate governance which ensures
that activities are executed in a controlled and disciplined manner.
Time management can be vastly improved by good strategic management. Strategic planning
requires that various timelines are adhered to for a plan to be relevant and effect the desired
change. “The whole strategic process is therefore broken down into more specific timeframes,
giving all employees involved a better idea of their own time management” (Ehlers & Lazenby,
2007:8).
The strategic management process does not always allow for all parties to be involved in the
process. This will result in unrealistic expiations form both management and employees which
will eventually undermine the intended strategic changes. Additionally, organisations encounter
an unclear chain of implementation when strategic plans are handed down from the upper
levels of the organisation.
The concept of strategic management must be embraced at every level of the organisation. As
it inevitably involves change it is vital that it be managed accordingly and with minimum
disruption to the running of the business. A negative perception of strategic management must
not be allowed to foster itself among employees.
“Probably the most important criticism of strategic management is the fact that management
does not know whether strategies have been implemented effectively or not. In other words,
there are frequently no measurement tools to see whether the organisation is better off or not
after implementing the strategies” (Ehlers & Lazenby, 2007:9-10).
20
3.5
THE STEPS IN THE STRATEGIC PLANNING PROCESS
Thompson Strickland and Gamble (2005:17) identifies five managerial processes in the
crafting and execution of an organisation’s strategy. These five phases are:
1.
Developing a strategic vision
2.
Setting strategic objectives
3.
Crafting strategy which achieves the vision and objectives
4.
strategy implementation and execution
5.
Monitoring, evaluating and corrective action.
Figure 3.2 below graphically depicts the Strategy-Making, Strategy-Executing Process.
3.5.1 Developing a strategic vision
The strategic vision gives direction, unifies efforts and provides a sense of identification. An
effective strategic vision must have the following characteristics:

Realistic: A vision must be based in reality to be meaningful for an organisation.

Credible: A vision must be believable to be relevant. It must be credible to the employees
or members of the organisation. If the members of the organisation do not find the vision
credible, it will not be meaningful or serve a useful purpose. One of the purposes of a
vision is to inspire those in the organisation to achieve a level of excellence, and to
provide purpose and direction for the work of those employees. A vision which is not
credible will accomplish neither of these ends.
21
Figure 3.2: The strategy-making, strategy-executing process
Source: Thompson, Strickland & Gamble, 2005: 35
22

Attractive: If a vision is going to inspire and motivate those in the organisation, it must be
attractive. People must want to be part of this future which is envisioned for the
organisation.

Future: A vision is not in the present, it is in the future. A vision is not where you are now;
it's where you want to be in the future.
“The vision statement answers the question: ‘What do we want to become?’ and serves as the
roadmap of the organisation. A vision statement is a dream that focuses on a desirable future
and is often referred to as being as an enduring promise” (Ehlers & Lazenby, 2007: 63).
The vision must be effectively communicated, it must serve to inspire and motivate employees
at all levels. The strategic vision is usually encapsulated in a slogan which summarises the
essence of where the company would like to strategically find itself in the future.
3.5.2 Setting objectives
Phase 2 of the strategy making process is to set objectives. The objectives have the role of
applying specific measurable targets which help achieve the strategic vision. Objectives start to
narrow the focus for managers on which activities need to be executed and forces creative
thinking in order to tackle complex problems. The organisation which sets realistic yet
challenging objectives will ensure that all employees are clear on what is required, and will
therefore have the drive and will to complete the tasks at hand.
Objectives need to be set for both the short and the long-term. Short-term objectives provide
focus on what must occur immediately. “The most important situation in which short-range
objectives differ from long-range objectives occurs when managers are trying to elevate
23
organisational performance and cannot reach the long-range target in just one year”
(Thompson, Strickland & Gamble, 2005:29).
As strategy formulation occurs at different levels in the organisation it is imperative that
objectives are set at each level. The corporate objectives must be cascaded to the lower levels
of the organisation where objectives must be set in a manner which allows all corporate goals
to be achieved. According to Dunne and Lusch (2005:38), retailers generally divide their
objectives into two dimensions. Firstly, that of market performance, which allows a retailer to
compare itself against its competitors, and secondly, financial performance, which analyses the
organisations ability to generate wealth for its shareholders and continue operations.
Thompson, Strickland and Gamble (2005: 46) argue that performance must be measured in
terms of financial and strategic objectives. Examples of these types of objectives are
summarised in Table 3.1 below.
24
Table 3.1: Financial versus strategic objectives
Financial objectives
 Achieve revenue growth of 10%
per year
Strategic objectives
 Increased market share
 Quicker design-to-market ls
 Reduce waste by 3%
 Higher product quality than rivals
 Increase margin by 5%
 Lower costs relative to key competitors
 Increase product availability by
 Broader product line
4%
 A stronger reputation with customers
 Improve stock turn by 3%
 Stable earnings during periods of
economic downturn
 Sufficient internal cash flows to
fund new investment
than rivals
 Better customer service
 Recognition as a leader in technology
 Wider geographic coverage than rivals
 More innovative products
Source: Thompson, Strickland & Gamble, 2005: 27
3.5.3
Crafting strategy to achieve the objectives and vision
The formulation of strategy requires detailed analysis of both the internal and eternal
environment in which the organisation operates. “After developing a mission statement and
setting objectives, the next step in the strategic planning process is to conduct a situation audit,
an analysis of the opportunities and threats in the retail environment and the strengths and
weaknesses of the retail business relative to its competitors” (Levy & Weitz, 2007:146). Figure
3.3 depicts the elements of the macro environment in which an organisation conducts its
25
operations. The greatest influence on an organisation’s strategy comes from the inner circle or
what Figure 3.3 refers to as the “immediate industry and competitive environment”.
Figure 3.3: The components of a company’s micro-environment
Source: Thompson, Strickland & Gamble, 2005: 47
Strategic analysis tools are available which assist in the strategy formulation process. Three
strategic analysis tools have been chosen for this report which is most relevant to the retail
environment in which this business finds itself. These three tools are Porter’s five forces, SWOT
analysis; and Ansoff’s growth matrix.
26
3.5.3.1 Porter’s five forces
The competitive environment does not only consist of direct rivals of the organisation. “Rather,
competition in an industry is rooted in its underlying economics, and competitive forces exist
that go well beyond the established combatants in a particular industry. Customers, suppliers,
potential entrants and substitute products are all competitors that may be more or less
prominent or active, depending on the industry” (Porter, 1980:34).
The goal is to position the business in such a manner that the effect of these forces can easily
be defended by the organisation. Greater attention must be given to those forces which affect
the profitability of an industry. These may differ from industry to industry depending on the
nature of the business. In the retail industry the threat of a low cost substitute could pose a
substantial threat which needs to be addressed.
In order to deal with these forces it is important to understand how they work within a given
industry and how they the affect the organisation. The information gained form this analysis is
vital for the strategic plan of action, and it results in much broader analysis of the competitive
environment. Figure 3.4 shows the Five Forces Model of competitive forces for industry
analysis.
27
Figure 3.4: Porter’s five forces model
Source: Ehlers & Lazenby, 2007: 113
Threat of entry occurs when a new player enters or attempts to enter an existing industry. The
new competitor threatens to lower the profits of those already in the industry by taking away
their market share. New entrants into an industry are hesitant to do so if they barriers to entry
28
are high and if expected retaliation from existing players is high. Porter (1980:37) identifies six
sources of barriers to entry. These are:

Economies of scale. This is achieved by the ability to increase production over a given
time period and thereby lower the costs per unit manufactured as the costs are now
spread over a larger amount of units. Organisations are therefore able to increase profits
by keeping prices constant. New entrants are forced to enter the market by manufacturing
large volumes, or accepting a cost disadvantage. The concept can also be applied to
other parts of a business, like distribution and the utilisation of a sales force.

Product differentiation. New entrants must spend large sums of money in order to
overcome customer brand loyalty.

Capital requirements. Money spent on high capital investment act as a barrier to entry.
Big corporations do however have the capability to enter almost any market as they have
an abundance of resources.

Cost disadvantages independent of size. Companies entrenched in the industry have
certain cost advantages irrespective of size. These cost advantages originate from the
learning and experience curve, access to the best raw materials, assets bought at lower
prices, technology and government subsidies.

Access to distribution channels. The new product must present itself to the market but
this may be difficult and expensive if existing operators have tied up these distribution
channels. In some instances it may be so difficult to displace entrenched brands that
organisations resort to finding new ways of presenting their offer to the market.
29

Government policy. Government regulations can restrict entry to an industry by issuing
licence requirements which limits access to raw materials.
Existing players in the industry may however have access to a large amount of resources with
which they may fight back if new entrants attempt take market share. Price cuts are often used
as a weapon for impeding the growth of a new entrant in the market.
Suppliers are organisations that offer as their product inputs into production like raw material,
machinery and labour. They exert bargaining power over competitors in an industry by raising
prices or reducing the quality of purchased goods and services. Suppliers may have the power
to diminish the profitability in an industry such that competitors are unable to recover the cost of
the raw material input. The power of a supplier group is powerful under the following conditions:

The industry is dominated by a few large organisations and is more concentrated than the
industry it supplies.

Very little or no substitutes are available.

The customer base of the supplier group spans several industries and therefore a group in
a certain industry may not be very meaningful.

Buyers have no option but to take the goods from the supplier as it is critical to the
success of the buyer.

The cost of switching is high due to supplier efficiency or differentiated products.

The supplier is able integrate forward and thus becomes its own buyer of products or
services.
Buyers are the customers of organisations in an industry. This group is constantly bargaining
for higher quality goods and services which reduce their costs. Buyers with a high degree of
bargaining power can drive down prices and have the ability to play competitors against each
other in order to find the best deal. Buyers are powerful under the following conditions:
30

Buyers are meaningful to the organisations from which they purchase. The buyer
purchases large volumes from the supplier and is therefore responsible for a substantial
percentage of the suppliers’ turnover.

Switching costs are low and the buyer is able to move to another supplier with relative
ease.

The current supplier is responsible for a high percentage of a buyers’ cost. This will
prompt the buyer to seek alternative supply.

Products in the industry are undifferentiated or standardised. Buyers are thus able to
obtain several prices and compare.

The products that buyers purchase are not vital to the quality of the buyers’ products.

Information about the market is freely available to buyers.

The buyer is able to apply backward integration. The buyer is then able to become its own
supplier.
“Consumers tend to be more price-sensitive if they are purchasing products that are
undifferentiated, expensive relative to their incomes and of a sort where quality is not
particularly important. The buying power of retailers is determined by the same rules, with one
important addition. Retailers can gain significant bargaining power over manufacturers when
they can influence consumers' purchasing decisions, as they do in audio components,
jewellery, appliances, sporting goods and other goods” (Porter, 1980:43).
Substitute products or services are able to limit the potential in an industry by capping prices.
These products pose a strong threat to an organisation when the switching costs for customers
are low. The threat is intensified when a substitute product has a low price or it is able to
compete with the other product in terms of quality and performance. According to Porter (1980:
44), substitute products that deserve the most attention strategically are those that (a) are
subject to trends improving their price performance trade-off with the industry's product, or (b)
are produced by industries earning high profits. Substitutes often come rapidly into play if
31
some development increases competition in their industries and causes price reduction or
performance improvement.
Ehlers and Lazenby (2007:117) cite rivalry amongst competitors as the strongest of the five
forces. The actions taken by direct competitors will require a response in order to remain in
business. Competitive advantage can only be gained by differentiating the organisation’s offer
in the mind of the customer. This can be done in such a manner that the customer perceives as
value, and is usually based on dimensions such as price, quality and innovation. Rivalry among
competitors is intensified under the following conditions:

Many competitors exist in the industry with approximately the same size and power.

The industry growth is slow and results in fights for increased market share.

In an attempt to minimise the impact of fixed costs origination engage in high production
runs. This results in high inventories and storage costs. Customers are incentivised to buy
more products by lowering prices and other special discounts.

The products in the industry have a lack of differentiation and low switching costs. The
demand for undifferentiated products is largely based on price and service. Under such
condition rivalry can be very intense. Also low switching costs imply that it is easier for
competitors to lure customers away from existing suppliers.

The exit barriers are high.
Once this analysis has been completed it should become apparent where the organisation is
positioned in the competitive environment. The organisation is then able to develop plans which
can position the company where it is best able to fend off rivals, influence the balance of the
forces through strategic moves and is able to best exploit shifts in the competitive environment
before competing firms.
32
3.5.3.2 SWOT analysis
The SWOT analysis is considered one of the more popular techniques for analysing the internal
and external environment of the organisation. The acronym SWOT stands for strengths,
weaknesses, opportunities and threats. Figure 3.5 shows the elements of the SWOT technique
with their relationship to the internal and external environment.
SWOT ANALYSIS
Strengths
Internal Analysis
External Analysis
D
D
i i
h
Weaknesses
Opportunities
i i
h
Threats
Figure 3.5: The relationship between SWOT and the environmental analysis
Source: Ehlers & Lazenby, 2007: 82
33
Strength is a resource or capability which is a distinctive competence for the organisation and
offers a competitive advantage. A weakness is something which is lacking in the organisation
relative to that of a competitor. A weakness prevents the organisation form developing a
competitive position in the industry. An opportunity is some favourable situation which can be
exploited in the organisations external environment, while a threat is an unfavourable one.
Table3.2 summarises a few of the concepts to consider when identifying the organisation’s
strengths, weaknesses, opportunities and threats.
Table 3.2:
What to look for in identifying a company’s strengths, weaknesses,
opportunities and threats
SWOT Analysis - What to Look For
Potential Resource
Strengths
Potential Resource
Weaknesses
• Powerful strategy
• Strong financial
condition
• Strong brand name
image/reputation
• Widely recognized
market leader
• Proprietary
technology
• Cost advantages
• No clear strategic
direction
• Obsolete facilities
• Weak balance sheet;
excess debt
• Higher overall costs
than rivals
• Missing some key
skills/competencies
• Subpar profits
• Strong advertising
• Product innovation
skills
• Good customer
service
• Internal operating
problems . . .
• Falling behind in
R&D
• Too narrow product
line
• Weak marketing
skills
• Better product
quality
• Alliances
• An attractive
customer base
Potential Company
Opportunities
• Serving additional
customer groups
• Expanding to new
geographic areas
• Expanding product
line
• Transferring skills to
new products
• Vertical integration
• Take market share
from rivals
• Acquisition of rivals
• Alliances or JVs to
expand coverage
• Openings to exploit
new technologies
• Openings to extend
brand name/image
Potential External
Threats
• Entry of potent new
competitors
• Loss of sales to
substitutes
• Slowing market growth
• Adverse shifts in
exchange rates & trade
policies
• Costly new regulations
• Vulnerability to
business cycle
• Growing leverage of
customers or suppliers
• Reduced buyer needs
for product
• Demographic changes
262
Source: Thompson, Strickland & Gamble, 2005: 95
34
Once the SWOT listings have been constructed, the process of identifying key strategic issues
from these lists must be followed. Management must act on the conclusions it draws from the
SWOT in order to match the company’s strategy to its resource strengths and market
opportunities. Understanding the organisations’ resource strength is vital for future prosperity.
Managers must build strategy around these resource strengths in order to best create a
competitive advantage. Resource strengths that are unable to serve as the foundation for the
organisation’s strategy must be revaluated and possibly upgraded by the organisation.
3.5.3.3 Ansoff’s product/market matrix
The organisation needs to have a good understanding of the products they currently offer and
should offer, as well as the markets they currently serve and should serve in order to ensure
profitable growth. The Ansoff product/market matrix is a tool which helps organisations to
decide which product and market growth strategy they should follow. The matrix suggests that
businesses will find growth from new or existing products in new or existing markets. There are
four quadrants which suggest a different growth strategy depending on where the organisation
is currently positioned. Organisations use this analysis tool in order understand a series of
growth strategies which will help determine the strategic direction of the business. The four
strategies which the organisation can adopt are market penetration, product development,
market development and diversification. Figure 3.6 depicts Ansoff’s product/market matrix.
35
Figure 3.6: The Ansoff product/market matrix
Source: http://tutor2u.net/business/strategy/ansoff_matrix.htm
36
An organisation adopts the strategy of market penetration when it decides to sell existing
products into existing markets. Adopting a strategy of market penetration achieves the following
objectives:

The market share of current products is maintained or increased. This strategy is typically
driven by aggressive lower prices, promotions, increased personnel selling and
advertising.

By penetrating the market the organisation is able to ensure that it is the dominant player
especially in the case where the market is growing profitably.

Alternatively in a mature market this strategy can be employed in order to drive out
competitors. Organisations are able to do this by adopting a pricing strategy which makes
the market unattractive for competitors.

Organisations can also increase usage by existing customers through the introduction of
loyalty programmes.
A market penetration strategy is not very disruptive to the daily operations of the business and
does not require a large amount of investment in new market research.
The organisation adopts a strategy of market development when is seeks to sell its existing
products into new markets. Globalisation has played a major role in opening up new markets to
organisations that were previously unreachable. The percentage of exports to different
geographical areas can be increased in order to foster new growth and gain better economies
of scale. Also introducing different packaging and dimensions can open up new markets which
require the product for different uses. The organisation may decide to use distributing channels
which were previously off limits are not viable in the past. Tiering pricing can also open up new
markets to lower, middle or higher income brackets depending on where the organisation is
currently trading.
37
Organisations may choose to introduce new products into existing markets. In this case, the
business adopts a strategy of product development. This strategy requires speed to market and
a high degree of innovation which may require the development of new competencies. In the
case of the retailer, this strategy is widely used at the operational level where an innovative
product range is used as the point of difference for attracting customers.
Diversification is the name given to the growth strategy where the organisation decides to
market new products to new markets. The risks associated with adopting this strategy are high,
as the business will have very little knowledge or experience in this arena. It is important that
good market research is done, which may be costly, and that the risks have been carefully
assessed.
“Typically, retailers have the greatest competitive advantage in opportunities that are similar to
their present retail strategy. Thus retailers would be most successful in engaging in market
penetration opportunities that don’t involve entering new, unfamiliar markets or operating new
unfamiliar retail formats” (Levy & Weitz, 2004: 162). Therefore, once the strategic analysis has
been conducted, the retail strategy employed must be the one best suited to the current profile
of the retailer that will enable a sustainable competitive advantage. The salient strategic points
derived from each analysis need to be summarised and presented in a format that clearly
indicates the strategic direction for the retailer.
3.5.4
Strategic implementation
“Strategy implementation can be defined as the process that turns strategic plans into a series
of tasks, and ensures that these tasks are executed in such a way that the objectives of the
strategic plan have been achieved” (Ehlers & Lazenby, 2007:212). The success of strategy
implementation also relies on the information obtained in the strategic analysis. This is
38
important information as the organisation must be sure that it is implementing the correct
strategy.
The following are required to successfully implement strategy:

The allocation of appropriate resources in order to fulfil the requirements of the strategy.
This relates to staffing, systems, finance, plant and equipment.

The culture and structure of the organisation must also be redefined in order to support
the proposed strategy.

A process on internal change must be considered through the mechanism of change
management.
“The implementation stage in the process often sees a shift in the responsibility, from the
strategic level down to the divisional or functional managers. This transfer may also act as a
barrier to the implementation of the desired strategy as the responsibility is shifting from the few
to the many” (Campbell, Stonehouse & Houston, 2004: 93-194).
The successful implementation of strategy can be deterred by the following:

Differing interpretations of the strategy at each new business level.

Inadequate planning and communication.

Lack of support from the design team.

Failure to take account of internal issues that do not facilitate the adoption of the strategy.
The amount of resources allocated to the proposed strategy will depend on the amount change
that the strategy will effect. A small change may require only modest financing or training of
only a few employees. However, a strategy advocating few changes may also require that
resources be streamlined. Conversely, a strategy requiring a big change will require an
39
increase in the resource base. In order to facilitate this type of change, it may become
necessary to reallocate the current organisational resources, as well as to procure new
resources from the organisations external environment.
The suitability of an organisation’s culture must be assessed in order to implement a chosen
strategy. This will help determine the readiness of the organisation for the change to come, as
well as how this change will be embraced. According to Miles and Snow (1978), four culture
types exist in organisations based on how they will approach strategy. These are:

Defender cultures, which work best in well-defined markets and the adopted strategy, are
similar to that of market penetration. This type of culture is uncomfortable with exploring
new markets, is diversifying and prefers to operate in a known arena.

Protector cultures seek out new markets and opportunities. This type of culture
propagates change and enjoys doing things differently. The prospector culture is more
likely to embrace change and fresh ideas.

The analyser culture can be defined as a hybrid of the defender and prospector culture.
This type of culture can thrive in both stable and unstable environments.

Reactor cultures tend to deal with change after it has happened, they may lack strategic
focus and therefore seem directionless. This type of culture tends to adopt strategies of
successful competitors and is therefore a follower not a leader.
Understanding the culture is therefore extremely relevant when implementing strategic change.
The strategy may require a complete turnaround in how business is currently conducted, which
may leave certain organisations in turmoil depending on their culture classification at the time.
“An organisational structure is the framework within which the strategic process must operate to
achieve the organisation’s objectives” (Ehlers & Lazenby, 2007:247). Organisational structure
can be used as a competitive advantage if it supports the strategic process, is difficult to copy
40
and makes it easy for customers to conduct business. It is therefore in their best interests to
ensure that the organisational structure is optimised in order for the strategy to deliver the best
possible results. The following organisational structures can be identified:

Entrepreneurial structure.
This is simple structure consisting of the owner and his
employees. The owner is involved in all daily operations and communicates frequently
with workers – usually in an informal fashion. As the organisation grows, it may form
entrepreneurial to functional structure.

Functional structure.
This structure is characterised by categorising tasks such as
marketing, human resources research and development, operations and finance into
separate areas. The structure typically has a CEO and some senior managers. These
structures have the ability to create economies of scale and optimise resource allocation
and budgeting, as they usually have a single or very narrow product line. As the
organisation continues to grow, it will move from a functional structure to a divisional
structure.

Divisional structure.
A divisional structure is represented by clusters of similar
businesses. The clustering may take place by means of geographical area, product or
service, customer or business process. Divisional structures are good where the
organisation needs to adopt the characteristics or culture of the customers in a particular
geographical area. As the organisation grows, the span of control may become too wide in
a divisional structure and strategy implementation will become more complex. At this
point, organisations may opt for the strategic business unit structure.

Strategic business unit structure. Similar divisions are grouped together into strategic
business units and the accountability is assigned to a senior executive who reports
directly to the CEO. Certain functions may be centralised into a central head office. This
41
structure places strategy formulation and implementation closer to each business unit’s
competitive environment.

The matrix structure. A matrix structure is characterised by its dual lines of authority. It
allows several competencies to be combined, which allows for improved problem-solving
and innovation.

Network structures. Network structures are composed of different teams that band
together for a project. The structure can easily be dropped once the project has been
completed. Network structures are beneficial in that they are able to make decisions
quickly and can react innovatively to customers’ demands.
The organisational structure will therefore change as the organisations choice of strategy
changes. The structure which best suits the strategy and its successful implantation is the
structure which should be adopted. Ehlers and Lazenby provide the following guidelines for
matching strategy with structure:

Organisations which have a single or dominant product focus should employ a functional
structure which results in a strong product focus.

A divisional structure will work best for an organisation with several business lines that can
somehow be related.

Diverse organisations that have unrelated divisions should adopt a strategic business unit
structure.

The need for a high degree of product development and innovation can best be achieved
by employing a matrix and product team structure.
“The willingness to change may depend upon the culture of the organisation, its size, its
existing structure, its production and/or market positioning and even its age (i.e. how long has it
existed in its present form) (Campbell, Stonehouse &Houston, 2004: 204).
Employee
42
resistance to change will affect the implementation of strategy and can stem from the following
attitudes:

A lack of understanding as to why the change is required. Under these circumstances,
management will need to close the information gap.

Employees may have distrust for management.

Employees fear losing their current status and position.

Employees are uncertain about how their future will be affected.
The change agent approach is a model which can be applied to assist in managing strategic
change. This process entails using one individual for managing the entire change process from
start to finish. The individual is referred to as a change agent and is either an internal employee
or an external consultant. The change agent has the ability to focus on the changes required
and ensures that change process is followed. Also, employees identify the individual with the
change process and he acts as a port of call for questions which employees need answered. A
change agent also has the added advantage of freeing up management to concentrate on their
normal tasks.
The implementation phase is a vital aspect of the strategic management process. The focus
must be on winning the hearts and minds of the employees in an attempt to embrace the
change and deliver maximum results.
3.5.5
Initiating corrective action
The dynamic nature of the organisation's business environment demands that managers
constantly monitor changes and trends which may affect the strategic position of the
organisation. Circumstances may change to such a degree that every facet of the strategic
43
process needs to be entirely reworked in order to maintain competitive advantage. Alternatively,
the newly implemented strategy may be delivering the desired results under the prevailing
conditions and very little or no tweaking is required.
3.6
STRATEGIC ALIGNMENT
Strategic alignment refers to ensuring that all organisational resources and capabilities are
being used as efficiently and effectively as possible toward achieving the organisation’s
strategic goals. Enterprise-derived value is created when the organisation aligns the activities of
different business units and support functions. At the business unit level, the strategy employed
is designed in a manner which supports and delivers the overriding enterprise or corporate
strategic goals. The business unit creates a customer value proposition which consists of
products and services that offer customers a unique differentiated mix of benefits.
“The enterprise value proposition defines the strategy for value creation through alignment, but
is doesn’t describe how to achieve it. The alignment strategy must be complimented with an
alignment process” (Kaplan, R. & Norton, P., 2006:15). Kaplan and Norton (2006:16) further
suggest eight steps in the planning process to ensure that alignment is achieved:
1.
The enterprise value proposition. The corporate strategy is shared with all the lower
levels and serves as guiding principles for crafting and executing strategy at these levels.
2.
Board and shareholder alignment. The board monitors, reviews and approves the
corporate strategy.
3.
Corporate office to corporate support units. The support units now translate the
corporate strategy into policies that will be administered throughout the year.
44
4.
Corporate office to business units. Business unit strategies are derived based on key
corporate strategic thrusts.
5.
Business units to support units. Business unit’s strategic priorities are incorporated into
the functional support units.
6.
Business units to customers. Customers are made aware of the value proposition.
7.
Business support units to suppliers and other external partners.
8.
Corporate support. Business unit strategies clearly reflect and support the strategic
thrusts at corporate level.
3.7
CONCLUSION
This chapter has provided an overview on aspects of the theory with regard to crafting and
executing strategy. The tools which will be used in the analysis for crafting strategy have also
been discussed. The theory will provide guidelines when crafting and executing the operational
strategic plan, as well as deeper insights as to why certain strategies have been chosen with
regard to culture and structure. In the following chapter, an operational strategic plan is crafted
and executed for Long Life Dairy.
45
CHAPTER 4
CRAFTING AND EXECUTING AN OPERATIONAL STRATEGIC PLAN
FOR LONG LIFE DAIRY
4.1
INTRODUCTION
The following chapter consists of three parts. Firstly, the results of the interviews will be
summarised; secondly, the operational strategic framework and the operational strategic
process will be introduced; and finally, an operational strategic plan for Long Life Dairy will be
presented. The framework is used as a tool to develop and align operational strategy at the
department level.
Strategic analysis will be conducted, using the analysis tools outlined in the literature review, as
well as key internal business reports. The information from this analysis will be used to update
the strategic operational framework for the new plan. The theory from the literature review will
form the basis of the decisions made in this chapter, as well as the information obtained from
key stakeholders in the foods managerial hierarchy.
4.2
SUMMARY OF INFORMATION OBTAINED FROM INTERVIEWS
The interviews that were conducted consisted of four questions which were designed to
ascertain the opinions of individuals affected by the strategic planning process. The responses
of these individuals are summarised in Table 4.1.
Two central themes clearly reveal
themselves in terms of the responses. Firstly, a desire for more analysis using management
46
tools; and secondly, a need for a standardised process which can be followed by all teams in
crafting and executing an operational strategic plan.
Table 4.1: Summary of responses from employees interviewed
No
1
Question
In your
opinion, what
are the
functions of an
operational
strategic plan?
Rian Marren
Clynton Louw
Giscard
Heradien
Denzil
Greentree
Chan Pillay
Senior
technologist
Planning
manager
Sales
manager
Senior buyer
Trading
head
Set shortterm goals
Clear
direction of
strategic
intent
Provide
specific
measured
targets
Provide long
term direction
Provide
teams with
direction
Provide
strategic
direction
Clear
accountabilities
Focused
Commonality
in direction
Set
accountabilities
A pro-active
plan
Define
process
parameters
Provide
KPI's
Alignment of
functions
Designed to
achieve
broader
strategic
objectives
Confident
execution of
the plan
2
What would
you like to see
more of in
these plans?
Priorities
Deliberate
operational
processes
Clear
directives
Consistency in
implementation
Analysis
Strategic
lines,
projects
Greater
implementation
Clear
accountability
Consistency in
delivery
Market
intelligence
Regular
updates
Analysis
Scorecard
Proper
measured
targets
Stretch
targets
47
Commercial
targets
The use of
management
tools
People
development
Commercial
acumen
More “science”
behind the
thinking
Clear
alignment
3
What would
you like to see
less of in these
plans?
History
Less
international
benchmarking
Ad hoc
projects
Less pie in
the sky
thinking
Overseas
influences
Less niche
NPD
Less
ambiguity
Detail
4
What are your
suggestions to
improve the
operational
strategic
planning
process?
Market
research
Involvement
from
operational
teams
Consultation
with broader
business
Bottom up
approach
Know your
market
New
technology
input
Template for
teams
Increased
transparency
Lessons learnt
– not to be
repeated
Ensure
understanding of
corporate
strategy
Consolidated
document
First line to
input
Internal
SWOT
Financial
projections
Analysis
Standardised
process
A clear way of
working
48
4.3
THE OPERATIONAL STRATEGIC FRAMEWORK AND STRATEGIC PLANNING
PROCESS
4.3.1
The operational strategic framework
The operational strategic framework provides guidelines which must be taken into account
when crafting and executing strategy at the department level. The frame work summarises the
salient points taken from the corporate and group strategy which will guide teams when
developing the departmental strategy.
The framework incorporates all the steps in the strategic planning process with the key strategic
thrusts from the corporate and group strategy acting as guiding principles.
The strategic
principles at group and corporate level may remain the same from one year to the next, with
only slight changes. However, the data at the operational level will change each year as new
budgets are set and trading conditions differ.
The framework provides for a clear link at each level of strategy, as well as a clear indication of
how the lower level goals will feed into and help achieve the goals at the higher levels. The key
strategic components of the framework are the vision, objectives, strategic analysis, strategic
action and corrective action. Each of these components is linked to operational strategic actions
and metrics, as well as the strategic guiding principles at group and corporate level.
The operational strategic action is a statement of what needs to be achieved, as well as how
the department will go about achieving the goals. Importantly, the framework makes provision
for what the measurement of success will be, as well as the magnitude of the measurement.
Finally, the framework also incorporates the aspects of monitoring and implementing corrective
action. The framework will act as a summary of the key strategic thrusts at each level enabling
49
the user to consult it at any time, ensuring that the operational decisions are being made which
supports the organisation’s strategic plans.
4.3.2 The operational strategic planning process
The operational strategic planning process does not require the strategist to start from nothing
when crafting and executing the operational strategic plan. Therefore, it is important to
emphasise that the goal is not the development of strategy, but understanding the strategic
implication of corporate and group strategy, interpreting these strategies and developing a plan
for operational execution.
The following steps are recommended for the operational strategic planning process:

Review the corporate strategy. Have any of the guiding principles changed? Has the
board deemed it necessary to make broad changes or have they stuck to the original
plan?

Review the group strategy. Has it been required to change any of the group strategic
thrusts due to not achieving the corporate goals? Have trading conditions changed so
significantly that a different strategy is required to achieve group and corporate
objectives?

Review the previous year’s operational strategic plan. Were the goals set in the last
plan achieved? Does the plan still support the group and strategic goals?
50

Update the operational strategic framework. Any changes in group and corporate
strategy must be updated in the operational strategic framework which will be used for the
new operational strategic plan.

Conduct operational strategic analysis. Use the strategic analysis tools to conduct
operational strategic analysis. The tools which will be used are the SWOT analysis,
Porter’s five forces and Ansoff’s growth matrix. Key internal reports should also be
analysed relating to the achievement of the key performance indicators.

Update the operational strategic framework. Use the information obtained in the
strategic analysis to update the balance of the operational strategic framework.

Monitor, review and corrective action. Any new trends or changing trading conditions
must be taken into account and incorporated into the plan if required. Also any initiative
that is not performing to the required measurements must be evaluated and changed as
required.
The steps in the operational strategic planning process are shown in Figure 4.1.
51
Review
corporate
strategy
Review
1 year
operational
strategy
Review
group
strategy
Update operational strategic framework with any changes in
corporate or group strategy
Conduct strategic analysis
Porter’s
five
forces
SWOT
Ansoff’s
growth
matrix
Internal
analysis
Populate operational strategic framework
with information for new 1 year plan
Monitor, review, corrective action
Figure 4.1: The operational strategic planning process
52
4.4
Operational strategic analysis for Long Life Dairy
The analysis covers both the internal and external environment in which the department
operates, and makes use of the following strategic analysis tools:

Porter’s five forces

SWOT analysis

Ansoff’s growth matrix

Key internal reports – the analysis timeframe is July 2007 to June 2008.
The information obtained for these strategic analysis tools is used to populate the operational
strategic framework for the new one year operational strategic plan.
4.4.1 Porter’s five forces for Long Life Dairy
The bargaining power of Long Life Dairy suppliers can be analysed as follows:

Is there a large number of potential input suppliers? The greater the number of
suppliers of your needed inputs, the more control you will have.
The number of suppliers in this area, which conform to the organisation’s specifications, is very
limited. The viability of importing product remains poor, as the rand continues to lose value
against currencies like the pound and the dollar. The costs associated with opening new
suppliers are high and requires volume commitments that cannot necessarily be met.
53

Are the products that you need to purchase for your business ordinary? You have
more control when the products you need from a supplier are not unique.
Certain input products are ordinary while others are not. As suppliers are audited on a
regular basis with regard to quality and traceability of raw materials, sourcing from an
increased number of suppliers becomes complex.

Do your purchases from suppliers represent a large portion of their business? If
your purchases are a relatively large portion of your supplier’s business, you will
have more power to lower costs or improve product features.
The department is more meaningful to certain suppliers and less meaningful to others.
However, all suppliers are under pressure to increase volumes which are down on last
year. Smaller exclusive suppliers are particularly affected by the slowdown in sales
affecting the department. More established suppliers have the ability to increase business
with other customers and compensate for the drop in growth in the department.

Would it be difficult for your suppliers to enter your business, sell directly to your
customers, and become your direct competitor? The easier it is to start a new
business, the more likely it is that you will have competitors.
Certain smaller cheese manufacturers are based on farms and other facilities and are
open to the public. There is thus a degree of overlap between the firm’s cheese customer
and the customer which frequents these types of places. However, the percentage is not
significant and will have very little impact on the department’s sales. Also, as most
products are sold under the organisation’s house brand with strict specifications and
exclusivity agreements, it becomes difficult for suppliers to replicate the value proposition.
54

Can you easily switch to substitute products from other suppliers? If it is relatively
easy to switch to substitute products, you will have more negotiating room with
your suppliers.
Substitutes are available in the market, but from very limited number of sources which
conform to the firm’s policies and standards. Also, past relationship and communication
breakdowns may increase the complexity of again having a mutually beneficial
relationship with some off the suppliers that offer viable alternatives for current products.

Are you well informed about your supplier’s product and market? If the market is
complicated or hard to understand, you have less bargaining power with your
suppliers.
The current supplier base relies heavily on technical expertise within the business. As a
result, the department has a very good understanding of both the products available in the
supplier base, as well as future capabilities.
Ideally, the organisation would prefer that the suppliers have very low bargaining power.
However, based on the above analysis, it appears that the suppliers have a medium to strong
bargaining power within the Long Life Dairy department.
The bargaining power of Long Life Dairy buyers can be assessed as follows:

Do you have enough customers so that losing a percentage isn’t critical to your
success? The smaller the number of customers, the more dependent you are on
each one of them.
The entire chain has recently experienced a drop in footfall, which has affected some
departments more than others. Top tier products, in particular Long Life Dairy, have been
affected which has resulted in significant loss of volume.
55

Does your product represent a small expense for your customers? If your product
is a relatively large expense for your customers, they’ll expend more effort in
finding better priced products elsewhere.
The perception in the consumer market is that the product range in Long Life Dairy is
expensive. Consumers therefore are of the opinion that they can get better value for
money elsewhere, especially on the bulk and entry level products.

Are customers uninformed about your product and market? If your market is
complicated or hard to understand, buyers have less control.
Customers buy Long Life Dairy with a great degree of trust. The consumer expects that
all the best ingredients have been used and that the product attributes are superior on
all levels. Based on this relationship, the bulk of customers do not easily comprehend
the work involved in launching and keeping a product on the counter. Therefore, it is a
complicated process in adhering to strict specifications, while remaining commercially
viable.

Is your product unique? If your product is homogenous or the same as your
competitors’, buyers have more bargaining power.
Recently the range has been narrowed. The offer is thus almost identical with that of the
competition. However, it remains superior in terms of quality.

Would it be difficult for buyers to integrate backward in the supply chain, purchase
a competitor providing the products you provide, and compete directly with you?
The less likely a customer will enter your industry, the more bargaining power you
have.
Exclusivity agreements between suppliers and the department make it difficult for
customers to reach into the supplier base. Also, a powerful chain brand ensures that it is
not easy to enter the market.
56

Is it difficult for customers to switch from your product to your competitors’
products? If it is relatively easy for your customers to switch, you will have less
negotiating power with your customers.
Customers are able to switch with relative ease to competitor products.
The bargaining power of buyers can be described as high based on the above analysis. While
the organisation is clearly ahead of the market based on quality, consumers can find substitutes
with relative ease, especially in tough economic conditions.
The threat of new entrants can be analysed in the following manner:

Do you have a unique process that has been protected?
The cheese making process is not unique and can be employed by competitors. However,
a strict grading process is employed which guarantees the quality of the product.

Are customers loyal to your brand? If your customers are loyal to your brand, a
new product – even if identical – would face a formidable battle to win over loyal
customers.
Customers are fiercely loyal to the organisation’s brand. Market share does, however,
come under pressure when prices increase and the middle-class customer moves her
spending into cheaper competitors.

Are there high start-up costs for your business? The greater the capital
requirements, the lower the threat of new competition.
The start-up costs are high, especially in terms of real estate. Also, capital investment in
plant and machinery will require high volumes over a sustained period of time in order to
recoup costs.
57

Are the assets needed to run your business unique? Others will be more reluctant
to enter the market if the technology or equipment cannot be converted into other
uses if the venture fails.
The assets required to manufacture a product are unique to the industry. However, other
parts of the supply chain are easily converted to other uses if the venture does not
succeed.

Is there a process or procedure critical to your business? The more difficult it is to
learn the business, the greater the entry barrier.
The strength in the department lies in the strong and close working relationships with the
suppliers.

Will a new competitor have difficulty acquiring needed inputs? Current distribution
channels may make it difficult for a new business to acquire/obtain inputs as
readily as existing businesses.
New competitors will not find it difficult in order to obtain inputs. Current surpluses in the
industry imply that product is readily available at good prices.

Will a new competitor have any difficulty acquiring/obtaining customers? If current
distribution channels make it difficult for a new business to acquire/obtain new
customers, you will enjoy a barrier to entry.
The firm’s centralised distribution system enables the department to have consistent and
high availability of product at all times. The wide store footprint also means that
consumers have ready access to products.
58

Would it be difficult for a new entrant to have enough resources to compete
efficiently? For every product, there is a cost-efficient level of production.
The current level of oversupply in the market has led to production being decreased.
Economies of scale are thus more difficult to achieve.
New entrants will thus find it difficult to enter the market and gain significant market share under
current trading conditions. Also, well-established and preserved relationships ensure a strong
barrier to entry for new competitors. However, viable opportunities must be explored for
surpluses in the market before new competitors procure these volumes.
The threat of substitutes can be evaluated in the following manner:

Does your product compare favourably to possible substitutes? If another product
offers more features or benefits to customers, or if their price is lower, customers
may decide that the other product is a better value.
Substitutes are readily available at better prices. Quality and innovation are therefore
required to constantly try and differentiate from competitors.

Is it costly for your customers to switch to another product?
Customers can easily switch to competitor products.

Are customers loyal to existing products? Even if switching costs are low,
customers may have allegiance to a particular brand. If your customers have high
brand loyalty to your product, you enjoy a weak threat of substitutes.
The department does enjoy high brand loyalty from its customers.
59
Despite high brand loyalty, a strong threat exists in terms of substitute product. Pricing will be a
key determinant in terms of future success in order to retain customers.
The rivalry amongst competitors can be evaluated in the following manner:

Is there a small number of competitors? Often the greater the number of players,
the more intense the rivalry. Rivalry can be intense when one or more firms are
vying for market leader positions.
The market is dominated by a few major retailers. Competition among the retailers has
intensified at all levels in the past year as consumers disposable income has dropped.

Is your market growing? In a growing market, firms are able to grow revenues
simply because of the expanding market. In a stagnant or declining market,
companies often fight intensely for a smaller and smaller market.
The market is not growing. Volumes are down on last year and inflationary prices have
affected the rate of sale.

Are your competitors pursuing a low growth strategy? You will have more intense
rivalries if your competitors are more aggressive.
Competitors remain aggressive and fight for more market share. Intense advertising and
promotional campaigns are characterising the market at this stage.
The rivalry among competitors is high. The organisation will have to increase efforts on all
fronts in order to maintain and grow market share.
Key potential actions from the above analysis are shown in Figure 4.2.
60
Threat of new market entrants
 Create similar processes like the grading
process
 Build viable long-term relationships with all
stakeholders
 Increase customer awareness and brand
loyalty
 Find uses for surplus product
 Exploit opportunities in the distribution
system
Buyer power
Supplier power
 Increase the amount of
suppliers
 Standardise raw
materials
 Create database of
suppliers that can
provide substitutes
 Continually increase
product and market
knowledge
Competitive rivalry
 Increase competitor
intelligence
 Intensify volume
growth campaign
 Anticipate actions of
competitors
 React swiftly
 Drive down costs


Maintain and attract new
customers
Change ‘expensive’
price perception

Provide customers with
product choices that
cannot be acquired
elsewhere

Tighten exclusivity
agreements
Threat of substitutes
 Sufficiently differentiate
 Increase quality and
innovation on existing lines
 Grow and maintain
reputation
Figure 4.2: Porter’s five forces of competitive position
for Long Life Dairy
Source: Ehlers & Lazenby, 2007: 113
61
From the above analysis, it is concluded that the firm’s competitive position in the Long Life
Dairy market is medium to weak. The following core operational activities could improve the
competitive position of Long Life Dairy in the market:

Change the perception that prices are high relative to competitors; this will be achieved
by advertising lower prices in print media and showing customers in store by means of
shelf edge labels and flashes on products where prices have been reduced.

Create a database of approved suppliers.

Sufficiently differentiate the product range by showing the difference and educating
customers about the benefits of purchasing the department’s products.

Develop processes that make it difficult for competitors to imitate, like stricter quality
control measures and ensuring that all cold chain disciplines are strictly administered.

React swiftly to competitors.

Drive down costs.
4.4.2 Ansoff’s product/market matrix
The growth strategy adopted by the department will be dependent on the category of product
and therefore more that one strategy will be employed. The analysis done here will also
highlight which products will subsidise others through constant sales levels and established
known markets. Existing products in existing markets have very established and stable sales
patterns, and will therefore have to subsidise more risky ventures, which the department will
undertake when following a diversification strategy.
Product categories in the market penetration quadrant constitute 80 percent of the department’s
sales. These categories will require more focus than others in order to ensure that all sales
objectives are met. Market development product categories will require a technical and product
62
development focus as well as a product demonstration programme in order to ensure that
products in this market development segment are sufficiently exposed to customers. The
products in the diversification quadrant are what differentiates the range in the mind of the
customer and will only be catalogued to top tier stores.
Table 4.2: Ansoff’s product/market matrix for Long Life Dairy
Existing products
Existing markets
New markets
New products
Market penetration
Product development







Core gouda
Core cheddar
Core mature
White cheese
Feta cheese
Cottage cheese
Cream cheese
Market development
Diversification







Convenience
Fresh cheese
Hot eating cheese
Specialty hard
Speciality softy
Speciality semi hard
Specialty blue
63
4.4.3 Analysis of internal reports for Long Life Dairy
An internal report is used to analyse the key financial indicators. The reports could be standard
reports, or custom created reports, based on user needs. Table 4.3 is a summary of key
financial indicators for Long Life Dairy:
Table 4.3: Summary of key financial indicators for Long Life Dairy
Department
Financial Year
2006
Long Life
Dairy
Budget
2007
Actual
Budget
2008
Actual
Budget
2009
Actual
Budget
R
272.00
R
296.00
R
355.00
R
317.00
R
418.00
R
440.00
R
502.00
Growth
24.00%
19.00%
20.00%
13.60%
14.10%
38.00%
20.00%
Waste
2.90%
3.37%
3.10%
2.80%
2.40%
2.30%
3.00%
Gross profit
rands
R
66.90
R 75.40
R 81.90
R 83.10
R 99.90
R
119.00
R
109.80
Gross profit
%
24.60%
25.47%
23.07%
26.21%
23.90%
27.05%
21.87%
Sales
Source: Company internal reports (figures adapted, pattern in same direction)
Actual
64
The target margin for the 2009 financial year has been decreased despite overachieving on the
previous year’s goal. The primary reason for this is to provide for an intense promotional
campaign in the new financial year.
4.4.4
SWOT analysis for Long Life Dairy
Strengths
•
•
•
•
•
Clearly defined core business
Exclusivity in specific categories e.g.
platters, fresh, hot eating, speciality
Quality of cheese versus competitors
by informing customers about
maturation levels
Brand Values firmly entrenched in
minds of our customers
Aspirational brand
Weaknesses
• Not enough product differentiation in
speciality cheese categories
• Certain products not competitively
priced
• Slow reaction to competitor activity
• Slow speed to market due to lack of
dedicated research personnel
• Little or no innovation
• Limited funds for aggressive promotions
• Inconsistent availability
• Range and depth of staff competence at
head office and store level
Opportunities
Threats
•
•
•
•
•
•
•
•
Imported bulk raw material procurement
Innovate in order to remain ahead of
competition in key product categories.
Sufficiently differentiate display of core
cheese vs. speciality cheese offer (look
& feel)
Packaging formats e.g. fixed mass 240g
Education of cheese category – in store
staff and customers
Aggressive demo strategy – specifically
for niche lines
Learning from past promotion
Promotions on branded cheese &
spreads

•
•
•
•
•
Losing customers
Cheap imported cheese products,
specifically speciality cheeses
Competitor business models which
allow competitors to change the way
they compete
Exchange rates affect prices of
imported cheeses
Inflationary pressure – raw material,
packaging, transport
Value perception of firm
vs
Competition
65
4.4.5 Summary of strategic action points from the strategic analysis for Long Life Dairy
4.4.5.1 Marketing and sales
The department must promote its products more aggressively, as well as inform customers
about its competitive prices. A market penetration strategy must be employed in order to grow
existing products in existing markets, thereby increasing market share.
4.4.5.2 Product features and differentiation
The department must ensure clear and informative packaging on its products which assists the
customers in making their purchasing decisions. Also ensure that packaging is environmentally
friendly and that products contain ingredients that are not harmful to customers.
4.4.5.3 Staff competence building
Staff at department and staff level must be well-educated about the various types of cheese
included in the range, as well as the various uses for these products. The department must
investigate the possibility of a cheese booklet which can be posted and updated on the
organisation’s intranet.
4.4.5.4 Supply chain and product display
Product availability must be improved in all branches by ensuring that all orders are accurately
filled by suppliers. Also opportunities for cost saving in the centralised distribution system must
66
be exploited in order to drive down costs. Product displays in branches must be logical,
grouping similar eating occasions together. The concept of cross-merchandising must also be
employed in order to stimulate sales on products. A database of approved suppliers must be
created in order to improve the department’s bargaining power.
4.5 Populate the operational strategic framework
The strategic analysis required for the new one year operational strategic plan for Long Life
Dairy has now been completed. The operational strategic framework can now be updated with
the key points which will guide the central buying teams in their actions and decisions for the
year ahead.
The strategic actions identified in paragraph 4.4.5 were integrated into the operational strategic
framework to a large extent. The identified strategic actions must, however, be kept in mind
when executing the plan to ensure improvements in performance.
67
Table 4.4: The operational strategic framework for Long Life Dairy 2009/2010
Strategic
concept
Key strategic
elements
Operational strategic plan : Long Life Dairy
Operational
strategic action
Vision
How we see
ourselves
What we
measure
Link to group and
corporate vision
Strategic guiding principles
Strategic statement
Foods group
Corporate
Destination shop
Change the way a
nation eats
Trusted modern
SA retail brand
Convenience and
quality
Change the way a
nation shops
Lifetime
relationships with
customers
Always available
Care for the
environment
Earn
relationships
Make the
'difference"
Objectives
Strategic
Increase market
share
% Market
share
Increase by 2.5%
Lower overall
costs
Expense
accounts
Decrease by 6%
Technical
leadership
Customer
complaints
Decrease by 10%
Achieve 15%
market share by
2015
Lead our
customer
Differentiated
range
Number of
new lines
% Sales from new
products
Drive availability
Good business
journey
Speed to market
Product
success rate
Number of new lines
still on counter
Deliver value and
key pricing
Operational
excellence
Grow sales
Passionate and
committed
retailers
Maximise net profit
Consistent profit
growth
Maximise
investment
Financial
Strategic
analysis
and
strategy
formulation
Increase sales
Sales
Increase by 20%
Reduce waste
Waste
Reduce by 0.5%
Achieve reduced
margin target
Margin
22%
Increase
availability
Availability
Increase by 2%
% market
share
Grow by 2%
SWOT
Internal
Porter’s five forces
External
Ansoff matrix
Target market
Maintain and grow
target market
Internal reports
Strategic
action
Position as iconic
food retailer
68
and
execution
Locations
Regular visits to
all locations
No of stores
visited
Increase by 10%
Healthy eating
Range
Differentiated
range of products
Product
segmentation
Increase contribution
by 5%
Differentiated range
of products
Pricing
Competitive
pricing
Department
inflation
Decrease by 3%
Drive the good food
journey
Promotions &
advertising
Promote product
categories in
Market penetration
quadrant of Ansoff
Promos as %
of sales
12% of weekly sales
Upgrade core
ranges
Quality
Product
Demonstrations
Regular demo
plan which
exposes niche
lines and a
customer
education
programme
Demos as %
of sales
4% of weekly sales
Improve pricing and
real value
Innovation
Product Display
Equipment and
layout which best
flatters products
% of
locations
upgraded
Upgrade 50% of all
locations
Clear product
segmentation
Value
Supplier
All orders must be
filled
Order fill %
Increase by 3%
Brand positioning
Style
Create supplier
data base
No of
approved
suppliers
Packaging
Move toward
environmentally
friendly packaging
Packaging
material used
Reduce by 4%
BEE contributor
Service
Quality
Regular quality
control sessions
and strict grading
system
Returns to
supplier
Reduce by 6%
Improve social and
environmental
standing
Energy
People
Increase range
and depth of
product
knowledge
Reduce packaging
Centralised
distribution
Improve availability
Benchmark and
implement trading
packages
Monitor
Corrective
action
Reports
analysis
All performance
indicators must be
in line
Key
performance
indicators
Track at stretch targets
Reviews
Revisit the
strategic plan in
light of current
trends
Cost of
changes
Reduction in changes
Implement based
on analysis
69
4.6
Conclusions and recommendations
The strategic analysis tools used for the formulation of operational strategic actions and goals
will provide a deeper insight into the department and what decisions should be taken. However,
it should not be used in isolation when updating or crafting the operational strategic framework.
Informal discussions with industry players, media, and macro economic issues must all be
taken into account when developing a strategic plan for the year ahead.
During the course of the year, new opportunities may present themselves which may not be in
line with the strategic actions defined in the operational strategic plan. These opportunities may,
however, set the foundations for trends which may only become popular in two or three years
time, but it is important to start building the required relationships to capitalise on these new
opportunities now. These must then be factored into the plan and, if necessary, resources must
be acquired or reallocated in order to accommodate these new opportunities – this is in line with
an emergent strategy approach.
While the plan provides guidelines on strategic actions and measurements, it does not take into
account the personal experiences of team members during the course of the previous year and
how this affects relationships into the future. It is therefore important that, while planning for the
year ahead, these experiences and opinions are reflected in the final operational strategic plan
for the department.
70
CHAPTER 5
IMPLEMENTING THE OPERATIONAL STRATEGIC FRAMEWORK
IN TWO OTHER DEPARTMENTS
5.1
Introduction
In the following chapter, the strategic framework developed in chapter four will be applied to two
other departments, namely Organic Dairy and Short Life Dairy. The same process will be
followed in order to derive an operational strategic plan for these two departments.
5.2
Operational strategic analysis for Organic Dairy
5.2.1 Porter’s five forces
The bargaining power of Organic Dairy suppliers can be analysed as follows:

Is there a large number of potential input suppliers? The greater the number of
suppliers of your needed inputs, the more control you will have.
A very limited amount of certified organic suppliers is available.

Are the products that you need to purchase for your business ordinary? You have
more control when the products you need from a supplier are not unique.
The input products required are not ordinary. The raw material inputs are grown under
strict conditions.
71

Do your purchases from suppliers represent a large portion of their business? If
your purchases are a relatively large portion of your supplier’s business, you will
have more power to lower costs or improve product features.
The department is meaningful to its suppliers and facilities are underutilised at this stage.
Suppliers are therefore highly dependent on the department to grow volumes.

Would it be difficult for your suppliers to enter your business, sell directly to your
customers, and become your direct competitor? The easier it is to start a new
business, the more likely it is that you will have competitors.
The department currently serves a niche market, and it would therefore be very difficult for
suppliers to become a direct competitor.

Can you easily switch to substitute products from other suppliers? If it is relatively
easy to switch to substitute products, you will have more negotiating room with
your suppliers.
Substitutes are not readily available in the market.

Are you well-informed about your supplier’s product and market? If the market is
complicated or hard to understand, you have less bargaining power with your
suppliers.
The current supplier base relies heavily on technical expertise within the business. As a
result, the department has a very good understanding of both the products available in the
supplier base, as well as future capabilities.
Organic dairy suppliers have a medium bargaining power despite the underutilisation of
facilities. The department should therefore focus on becoming more meaningful to its suppliers.
The bargaining power of Organic Dairy buyers can be assessed as follows:
72

Do you have enough customers that losing a percentage isn’t critical to your
success? The smaller the number of customers, the more dependent you are on
each one of them.
The department currently serves a niche market. It is therefore critical that all customers
be retained and the customer base grown.

Does your product represent a small expense for your customers? If your product
is a relatively large expense for your customers, they’ll expend more effort in
finding better priced products elsewhere.
Organic Dairy products carry a premium that standard dairy products do not. The organic
products are therefore more expensive and represent a high expense for buyers.

Are customers uninformed about your product and market? If your market is
complicated or hard to understand, buyers have less control.
Only a small amount of customers understands the benefits of eating organic products.
The vast majority of customers still prefer the standard dairy lines.

Is your product unique? If your product is homogenous or the same as your
competitors’, buyers have more bargaining power.
The competition does not offer a comprehensive range of Organic Dairy products making
it difficult for customers to easily switch.
73

Would it be difficult for buyers to integrate backward in the supply chain, purchase
a competitor providing the products you provide, and compete directly with you?
The less likely a customer will enter your industry, the more bargaining power you
have.
The organisation is currently able to subsidise supplier losses by offering lines which
produce volume through their facilities. New entrants will struggle to compete in this niche
market.

Is it difficult for customers to switch from your product to your competitors’
products? If it is relatively easy for your customers to switch, you will have less
negotiating power with your customers.
As comprehensive product offerings are not readily available, customers are unable to
switch with ease.
The bargaining power of buyers can be described as medium-based on the above analysis.
The organisation dominates the niche Organic Dairy market with very little range offered by the
competition.
The threat of new entrants can be analysed in the following manner:

Do you have a unique process that has been protected?
Quality control measures are built into the system to ensure that the organic process is
followed at every step of production. All suppliers must be certified and audited regularly.
74

Are customers loyal to your brand? If your customers are loyal to your brand, a
new product, even if identical, would face a formidable battle to win over loyal
customers.
Customers are fiercely loyal to the organisation’s brand. Market share does, however,
come under pressure when prices increase and the middle-class customer moves her
spending into cheaper competitors.

Are there high start-up costs for your business? The greater the capital
requirements, the lower the threat of new competition.
The start-up costs are high, especially in terms of real estate. Also, capital investment in
plant and machinery will require high volumes over a sustained period of time in order to
recoup costs.

Are the assets needed to run your business unique? Others will be more reluctant
to enter the market if the technology or equipment cannot be converted into other
uses if the venture fails.
The assets required to manufacture product is unique to the industry. However, other
parts of the supply chain are easily converted to other uses, if the venture does not
succeed.

Is there a process or procedure critical to your business? The more difficult it is to
learn the business, the greater the entry barrier.
The strength in the department lies in the strong and close working relationships with the
suppliers.
75

Will a new competitor have difficulty acquiring needed inputs? Current distribution
channels may make it difficult for a new business to acquire/obtain inputs as
readily as existing businesses.
New competitors will not find it difficult in order to obtain inputs.

Will a new competitor have any difficulty acquiring/obtaining customers? If current
distribution channels make it difficult for a new business to acquire/obtain new
customers, you will enjoy a barrier to entry.
The organic market remains a niche market at this stage and does not enjoy a mass
consumer base. Any new competitor will, therefore, have difficulty acquiring new
customers.

Would it be difficult for a new entrant to have enough resources to compete
efficiently? For every product, there is a cost-efficient level of production.
Due to a lack of demand, volumes are small in the Organic Dairy department. Organic
facilities are operating efficiently and have to be subsidised with other products that
provide the supplier with volume.
New entrants will thus find it difficult to enter the market and gain significant market share. Also,
well-established and preserved relationships ensure a strong barrier to entry for new
competitors. Strategies must be employed which increases the demand for Organic Dairy
products.
The threat of substitutes can be evaluated in the following manner:
76

Does your product compare favourably to possible substitutes? If another product
offers more features or benefits to customers, or if their price is lower, customers
may decide that the other product is a better value.
Substitutes are not readily available at better prices.

Is it costly for your customers to switch to another product?
Customers cannot easily switch to competitor products.

Are customers loyal to existing products? Even if switching costs are low,
customers may have allegiance to a particular brand. If your customers have high
brand loyalty to your product, you enjoy a weak threat of substitutes.
The department does enjoy high brand loyalty from its customers.
Currently the
department enjoys a low threat from substitute products.
The rivalry amongst competitors can be evaluated in the following manner:

Is there a small number of competitors? Often the greater the number of players,
the more intense the rivalry. Rivalry can be intense when one or more firms are
vying for market leader positions.
The market is dominated by a few major retailers. Competition among the retailers has
intensified at all levels in the past year as consumers’ disposable income has dropped.
However, not all the retailers have a good Organic Dairy offer.

Is your market growing? In a growing market, firms are able to grow revenues
simply because of the expanding market. In a stagnant or declining market,
companies often fight intensely for a smaller and smaller market.
The market is growing and will continue to do so as consumer awareness increases.
77

Are your competitors pursuing a low growth strategy? You will have more intense
rivalries if your competitors are more aggressive.
Competitors remain aggressive and fight for more market share. Intense advertising and
promotional campaigns are characterising the market at this stage.
The rivalry among competitors is high. However, the organisation currently has the biggest
market share due to its superior range offer.
Key potential actions from the above analysis are shown in Figure 5.1.
Threat of new market entrants
 Strict QC and certification
 Build viable long-term relationships with all stakeholders
 Increase customer awareness and brand loyalty
 Create demand for underutilised facilities
Competitive rivalry
Supplier power
 Increase competitor intelligence
 Increase the amount of
suppliers
 Create
demand
for
underutilised facilities
 Continually increase
product and market
knowledge
 Intensify volume growth
campaign
 Anticipate actions of competitors
 React swiftly
 Drive down costs
 Continue to dominate market
through superior range offer
Buyer power
 Maintain and attract new
customers
 Change ‘expensive’ price
perception
 Increase customer
awareness about organic
products
Threat of substitutes

Sufficiently differentiate

Low threat of substitutes in current market
Figure 5.1: Porter’s five forces of competitive position
for Organic Dairy
Source: Source: Ehlers & Lazenby, 2007: 113
78
From the above analysis, it is concluded that the firm’s competitive position in the Organic Dairy
market is medium. The following core operational activities can be considered in order to
improve competitive position of Organic Dairy in the market:

Create demand for underutilised supplier facilities by extending the range to more stores
and promotions

Educate customers about the benefits of organic products

Develop processes that make it difficult for competitors to imitate like strict organic
certification for suppliers

Continue to dominate the growing organic market by providing the best range and high
quality products
5.2.2
Ansoff’s product/market matrix for Organic Dairy
The market for Organic Dairy is growing at a high rate. The products in the market penetration
quadrant therefore need to be maintained by ensuring that availability meets consumer
demand. Applying the correct focus here will ensure that the department is well poised to
capitalise on any growth in the current market size. The product ranges in these categories
have the ability to move into the market penetration segment should demand increase
sufficiently in line with the organic market growth.
79
Table 5.1: Ansoff’s product/market matrix for Organic Dairy
Existing products
Existing markets
New markets
New products

Market penetration

Product development

Organic gouda

Organic cream cheese

Organic cheddar

Organic cottage cheese

Organic milk

Organic yoghurt

Market development

Diversification

Organic feta

Organic speciality cheese

Organic cream

Organic butter
5.2.3 Analysis of internal reports for Organic Dairy
Internal reports will be used to analyse the key financial indicators. The reports could be
standard reports, or custom created reports based on user needs. Table 5.2 is a summary of
key financial indicators for Organic Dairy.
80
Table 5.2: Summary of key financial indicators for Organic Dairy
Department
Financial year
2006
Organic Dairy
2007
2008
2009
Budget
Actual
Budget
Actual
Budget
Actual
Budget
Sales
R 12.80
R 12.20
R 14.60
R 15.90
R 19.70
R 20.20
R 21.00
Growth
35.00%
28.00%
20.00%
34.00%
14.00%
27.00%
20.00%
Waste
7.80%
10.70%
10.00%
8.60%
7.40%
7.10%
8.00%
Gross profit
rands
R 2.40
R 2.00
R 2.80
R 3.20
R 3.90
R 4.00
R 4.40
18.75%
16.39%
19.18%
20.13%
19.80%
19.80%
20.95%
Gross profit %
Actual
Source: Company internal reports (figures adapted, pattern in same direction)
5.2.4 SWOT analysis for Organic Dairy
Strengths
Weaknesses
•
Dominant in the organic market
• Products carry a price premium
•
Exclusivity in specific categories e.g.
• Supplier facilities are underutilised.
cheese and yoghurt
• Slow reaction to competitor activity
Brand Values firmly entrenched in minds
• Slow speed to market
of our customers
• Inconsistent quality on certain yoghurts
•
•
•
•
•
•
Suppliers dependent on department
Opportunities
Stimulate demand by decreasing price
Extend the current range to a wider number
of stores
Aggressively promote the current range of
products
Implement
a
customer
awareness
programme

•
•
•
Threats
Suppliers may offer competitors good
prices in order to run facilities more
efficiently
Competitors
may
produce
organic
products at better prices under less strict
conditions
Inflationary pressure – raw material,
packaging, transport
Economic conditions may cause the niche
market to become even smaller.
81
5.2.5
Summary of strategic action points from the strategic analysis for Organic Dairy
5.2.5.1 Marketing and sales
The department must decrease prices in order to stimulate demand, thereby increasing
efficiencies in supplier facilities. A campaign must be implemented which increases customer
awareness of Organic Dairy products through product demonstrations. Market development
and product development strategies can be utilised in order to entrench the brand values in the
niche organic market.
5.2.5.2 Product features and differentiation
The department must ensure clear and informative packaging on its products which assists the
customer in making their purchasing decisions. Organic products must be clearly discernable
form commercial products. Also ensure that packaging is environmentally friendly. The range
must be expanded in order to captivate the growing customer base; however this needs to be
done in line with current market growth.
5.2.5.3 Staff competence building
Staff must fully understand the differences between organic and commercial products. The
department can arrange visits to organic suppliers for key staff members who are able to share
their experiences with their colleagues.
82
5.2.5.4 Supply chain and product display
Product availability must be improved in all branches by ensuring that all orders are accurately
filled by suppliers. Also, opportunities for cost saving in the centralised distribution system must
be exploited in order to drive down costs. Product displays in branches must clearly differentiate
organic form other commercial products. The department must implement a regional supplier
programme in order to decrease lead times and transportation costs. The current range must
also be extended to more branches across the country.
5.2.6
Populate the operational strategic framework for Organic Dairy
The strategic analysis required for the new one year operational strategic plan for Organic Dairy
has now been completed. The operational strategic framework can now be updated with the
key points which will guide the central buying teams in their actions and decisions for the year
ahead.
83
Table 5.3: The operational strategic framework for Organic Dairy 2009/2010
Strategic
concept
Key
strategic
elements
Operational strategic plan :
Organic Dairy
Operational strategic
action
Vision
How we
see
ourselves
What we
measure
Link to group and
corporate vision
Strategic guiding
principles
Strategic
statement
Destination shop
Convenience
and quality
Always available
Objectives
Strategic
Increase market share
Lower overall costs
Technical leadership
Differentiated range
Speed to market
% Market
share
Expense
accounts
Customer
complaints
Increase by 4%
Number of
new lines
Product
success rate
% Sales from
new products
Number of new
lines still on
counter
Foods group
Corporate
Change the
way a nation
eats
Change the
way a nation
shops
Care for the
environment
Trusted
modern SA
retail brand
Lifetime
relationships
with customers
Earn
relationships
Make the
“difference”
Achieve 15%
market share
by 2015
Drive
availability
Deliver value
and key
pricing
Grow sales
Lead our
customer
Decrease by 6%
Decrease by
10%
Maximise net
profit
Maximise
investment
Financial
Strategic
analysis
and
strategy
formulation
Strategic
action
Increase sales
Reduce waste
Increase margin
Sales
Waste
Margin
Increase availability
SWOT
Availability
Internal
Porter’s five forces
External
Ansoff matrix
Internal Reports
Target
market
Maintain and grow
target market through
product and market
development strategy
% market
share
Increase by 20%
Reduce by 2%
Increase by
.95%
Increase by 8%
Grow by 5%
Position as
iconic food
retailer
Good business
journey
Operational
excellence
Passionate
and committed
retailers
Consistent
profit growth
84
Locations
and
execution
Range
Pricing
Promotions
&
advertising
Product
demonstrations
Product
display
Supplier
Packaging
Quality
Monitor
Reports
analysis
Reviews
Corrective
action
Regular visits to all
locations and use this
opportunity to inform
staff about Organic
Dairy
Differentiated range of
products which
stimulate demand and
market growth
Reduce pricing in
market penetration
segment in order to
maintain and grow sales
Promote new lines
which will attract more
customers
Regular demo plan
which exposes niche
lines
Equipment and layout
which best flatters
products
All orders must be filled
and look at
regionalisation of
suppliers
Move toward environmentally friendly
packaging
Regular quality control
sessions
No of stores
visited
Increase by 10%
Healthy
eating
Product
segmentatio
n
Increase
contribution by
10%
Differentiated
range of
products
Department
inflation
Decrease by 6%
Drive the
good food
journey
Promos as %
of sales
12% of weekly
sales
Upgrade
core ranges
Quality
Demos as %
of sales
5% of weekly
sales
Innovation
% of
locations
upgraded
Order fill %
Upgrade 50% of
all locations
Improve
pricing and
real value
Clear product
segmentation
Increase by 10%
Brand
positioning
Style
Packaging
material used
Reduce by 5%
BEE
contributor
Service
Returns to
supplier
Reduce by 8%
Improve
social and
environment
al standing
Reduce
packaging
Centralised
distribution
Improve
availability
Benchmark
and
implement
trading
packages
Energy
All performance
indicators must be in
line
Revisit the strategic plan
in light of current trends
Implement based on
analysis
Key
performance
indicators
Cost of
changes
Track at
budgeted targets
Reduction in
changes
Value
85
5.3
Operational strategic analysis for Short Life Dairy
5.3.1
Porter’s five forces for Short Life Dairy
The bargaining power of Short Life Dairy suppliers can be analysed as follows:

Is there a large number of potential input suppliers? The greater number of
suppliers of your needed inputs, the more control you will have.
A large amount of input suppliers exist, whose facilities can easily be upgraded in order to
conform to the organisation’s specifications.

Are the products that you need to purchase for your business ordinary? You have
more control when the products you need from a supplier are not unique.
A large percentage of the current product range requires raw material inputs that are
ordinary and readily available. However, certain raw materials are specifically
manufactured to the organisations strategy to differentiate itself from its competitors.

Do your purchases from suppliers represent a large portion of their business? If
your purchases are a relatively large portion of your supplier’s business, you will
have more power to lower costs or improve product features.
The department is meaningful to its suppliers. However, there are often periods where
excess raw material is available or, alternatively, there is a shortage of raw material. The
challenge lies in ensuring the steady supply of raw material throughout the year in order to
gain the best returns.

Would it be difficult for your suppliers to enter your business, sell directly to your
customers, and become your direct competitor? The easier it is to start a new
business, the more likely it is that you will have competitors.
Certain suppliers are already in direct competition with the organisation.
86

Can you easily switch to substitute products from other suppliers? If it is relatively
easy to switch to substitute products, you will have more negotiating room with
your suppliers.
Substitutes are readily available in the market.

Are you well-informed about your supplier’s product and market? If the market is
complicated or hard to understand, you have less bargaining power with your
suppliers.
The current supplier base relies heavily on technical expertise within the business. As a
result, the department has a very good understanding of both the products available in the
supplier base, as well as future capabilities.
Short Life Dairy suppliers have a low bargaining power. The department is in a favourable
position to negotiate better prices and product features form it supplier base.
The bargaining power of Short Life Dairy buyers can be assessed as follows:

Do you have enough customers such that losing a percentage isn’t critical to your
success? The smaller the number of customers, the more dependent you are on
each one of them.
A substantial customer base exists. However, the goal is to lose no customers in a
highly competitive environment.

Does your product represent a small expense for your customers? If your product
is a relatively large expense for your customers, they’ll expend more effort in
finding better priced products elsewhere.
Prices on certain lines are competitively priced. However, the expense incurred by
consumers on value added lines may cause switch buy into competitor lines.
87

Are customers uninformed about your product and market? If your market is
complicated or hard to understand, buyers have less control.
Despite a substantial customer base, only a small percentage understands the benefits
of buying the department’s products.

Is your product unique? If your product is homogenous or the same as your
competitors’, buyers have more bargaining power.
The majority of products are homogenous, making it easy for customers to switch.

Would it be difficult for buyers to integrate backward in the supply chain,
purchase a competitor providing the products you provide, and compete directly
with you? The less likely a customer will enter your industry, the more bargaining
power you have.
Customers cannot easily become a direct competitor.

Is it difficult for customers to switch from your product to your competitors’
products? If it is relatively easy for your customers to switch, you will have less
negotiating power with your customers.
Customers can easily switch to competitor products.
The bargaining power of buyers can be described as medium to strong-based on the above
analysis. Substitutes are readily available in the market. The organisation must focus on its
differentiation strategy, which places the product favourably in the mind of the customer.
The threat of new entrants can be analysed in the following manner:
88

Do you have a unique process that has been protected?
Products are manufactured with cultures and ingredients that to which the organisation
has exclusive rights.

Are customers loyal to your brand? If your customers are loyal to your brand, a
new product, even if identical, would face a formidable battle to win over loyal
customers.
Customers are fiercely loyal to the organisation’s brand. Market share does, however,
come under pressure when prices increase and the middle-class customer moves her
spending into cheaper competitors.

Are there high start-up costs for your business? The greater the capital
requirements, the lower the threat of new competition.
The start-up costs are high, especially in terms of real estate. Also, capital investment in
plant and machinery will require high volumes over a sustained period of time in order to
recoup costs.

Are the assets needed to run your business unique? Others will be more reluctant
to enter the market if the technology or equipment cannot be converted into other
uses if the venture fails.
The assets required to manufacture product is unique to the industry. However, other
parts of the supply chain are easily converted to other uses if the venture does not
succeed.
89

Is there a process or procedure critical to your business? The more difficult it is to
learn the business, the greater the entry barrier.
The strength in the department lies in the strong and close working relationships with the
suppliers.

Will a new competitor have difficulty acquiring needed inputs? Current distribution
channels may make it difficult for a new business to acquire/obtain inputs as
readily as existing businesses
New competitors will not find it difficult in order to obtain inputs.

Will a new competitor have any difficulty acquiring/obtaining customers? If current
distribution channels make it difficult for a new business to acquire/obtain new
customers, you will enjoy a barrier to entry.
A new competitor can easily acquire new customers by offering better value to customers
under conditions where customers are more sensitive to price.

Would it be difficult for a new entrant to have enough resources to compete
efficiently? For every product, there is a cost-efficient level of production.
Privately-owned dairies have the ability to flood the market when trading conditions are
good, with very little overheads and other running costs. However, on value-added
products it becomes difficult to operate at a cost efficient level of production.
Based on the above analysis the threat of new entrants is medium. High start-up costs may
deter potential competitors. However, resources are readily available.
The threat of substitutes can be evaluated in the following manner:
90

Does your product compare favourably to possible substitutes? If another product
offers more features or benefits to customers, or if their price is lower, customers
may decide that the other product is a better value.
Substitutes are readily available; however, the department’s products have distinct
product features which clearly differentiate it form its competitors.

Is it costly for your customers to switch to another product?
Customers can easily switch to competitor products.

Are customers loyal to existing products? Even if switching costs are low,
customers may have allegiance to a particular brand. If your customers have high
brand loyalty to your product, you enjoy a weak threat of substitutes.
The department does enjoy high brand loyalty from its customers.
Currently the department enjoys a low to medium threat from substitute products. The rivalry
amongst competitors can be evaluated in the following manner:

Is there a small number of competitors? Often the greater the number of players,
the more intense the rivalry. Rivalry can be intense when one or more firms are
vying for market leader positions.
The market is dominated by a few major retailers. Competition among the retailers has
intensified at all levels in the past year as consumers disposable income has dropped.
However, not all competitors offer the same nutritional benefits.
91

Is your market growing? In a growing market, firms are able to grow revenues
simply because of the expanding market. In a stagnant or declining market,
companies often fight intensely for a smaller and smaller market.
The market is not growing. The department will have to apply highly innovative measures
in order to grow market share.

Are your competitors pursuing a low growth strategy? You will have more intense
rivalries if your competitors are more aggressive.
Competitors remain aggressive and fight for more market share. Intense advertising and
promotional campaigns are characterising the market at this stage.
The rivalry among competitors is high. A low growth market implies that the department will
have to consider market penetration strategies in order to increase market share.
Key potential actions from the above analysis are shown in Figure 5.2.
92
Threat of new market entrants
 The department has the
rights
to
exclusive
ingredients and cultures
 Customers are very loyal
 Start costs are high
 New customers can be easily
acquired by competitors.
Supplier power
 A large number of
suppliers exist
 Stronger
price
negotiations with
current
supplier
base.
 Increase supplier
reliance on
technical expertise
within the
department
Competitive rivalry
 Increase competitor
intelligence
 Intensify volume growth
campaign
 Anticipate actions of
competitors
 React swiftly
 Drive down costs
 Continue to dominate market
through superior range offer
Buyer power
 A substantial
customer base exists
 The department has
priced its products
competitively
 Products are
homogenous
 Erratic supply of
raw material
Threat of substitutes
 Substitutes products are
readily available
 Sufficiently differentiate
through nutritional benefits
and new flavours
 Consumers have low
switching costs
Figure 5.2: Porter’s five forces of competitive position
for Short Life Dairy
Source: Ehlers & Lazenby, 2007: 113
93
From the above analysis, it is concluded that the firm’s competitive position in the Short Life
Dairy market is medium. The following core operational activities can be considered to improve
the competitive position of Short Life Dairy in the market:

Leverage the low supplier bargaining power by intensifying negotiations for lower prices.

Attract and maintain customers by emphasising nutritional benefits and new flavours.

Employ market penetration strategy in a low growth market.

Stabilise the supply of raw materials throughout the year to avoid a feast and famine
situation.
5.3.2
Ansoff’s product/market matrix for Short Life Dairy
Short Life Dairy is a well established department with stable and predictable sales patterns.
However certain product categories in the product development quadrant still continue to show
impressive growth in sales and market share. The department should focus the majority of its
efforts in this quadrant in order to ensure that it is fully prepared to exploit the opportunities in
this sector of the market. Research and development energy should also be spent in the
diversification quadrant, which will help differentiate the product range in the mind of the
customer.
94
Table 5.4: Ansoff’s product/market matrix for Short Life Dairy
Existing products


Existing markets






New markets


New products
Market penetration
Ayrshire milk
Regular milk
Low fat fruited yoghurt
Cream
Plain yoghurt

Market development
Drinking yogurts
Fat free smooth yoghurts
Fat free fruited yoghurts










5.3.3
Product development
Milkshakes
Functional yogurts
Smoothies
Kids flavoured milk
Flavoured milk
Diversification
Full cream kids yogurts
Double cream yoghurts
Soya products
Goats products
Analysis of internal reports for Short Life Dairy
Internal reports will be used to analyse the key financial indicators. The reports could be
standard reports, or custom created reports based on user needs. Table 5.2 is a summary of
key financial indicators for Short Life Dairy:
95
Table 5.5: Summary of key financial indicators for Short Life Dairy
Department
Financial year
2006
Short Life
Dairy
2007
2008
2009
Budget
Actual
Budget
Actual
Budget
Actual
Budget
R 356.00
R 392.00
R 460.00
R 409.00
R 530.00
R 522.00
R 610.00
Growth
18.50%
21.20%
17.50%
10.90%
13.70%
28.00%
15.00%
Waste
3.50%
4.90%
3.80%
4.40%
3.40%
4.20%
Gross profit
rands
R 61.50
R 63.00
R 70.00
R 76.10
R 84.40
R 88.00
R 97.00
Gross profit
%
17.28%
16.07%
15.22%
18.61%
15.92%
16.86%
15.90%
Sales
3.10%
Actual
Source: Company internal reports (figures adapted, pattern in same direction)
Despite overachieving on the sales budget in the 2008 financial year, the growth for 2009 has
not been aggressively budgeted. The waste budget has, however, been increased to allow for
an increased amount of experimental spending in different store formats.
96
5.3.4 SWOT analysis for Short Life Dairy
Strengths

Comprehensive range of products

A
high
degree
of
innovative
flavours

Substantial customer base

Market leader in terms of healthy
Weaknesses

Value added products expensive

Poor communication within the
team

throughout the year
ingredients

Core
range
Unable to ensure consistent supply
very
competitively

Slow to react to competitor
campaigns
priced
Opportunities
•
Negotiate better prices as a large
amount of suppliers are available
•
Stabilise the supply of raw material
throughout the year
•
Increase market share through a
penetration strategy
•
Continue to lead through innovation
and healthy ingredients
Threats
 Competitors are able to copy value
added lines at a lower price
 The volatile price of raw milk
97
5.3.5
Summary of strategic action points from the strategic analysis for Short Life
Dairy
5.3.5.1 Marketing and sales
The department must ensure that prices of value added products are competitive, and that the
value proposition is difficult to copy by the competition. Promotional spending must be twofold,
with resources being allocated market penetration product categories as well as product
development product categories.
5.3.5.2 Product features and differentiation
Innovation with new flavours will allow the department to remain the leader in terms of a product
range offer to customers. The department should investigate and expand on additional healthy
ingredients.
5.3.5.3 Staff competence building
All staff must understand the functionality of the product ingredients and be able to explain the
benefits to customers.
5.3.5.4 Supply chain and product display
The department must ensure consistent volumes throughout the year in order to avoid price
changes and out of stock periods. Also, as many suppliers are available, a supplier
regionalisation strategy can be adopted.
98
5.3.6
Populate the operational strategic framework for Short Life Dairy
The strategic analysis required for the new one year operational strategic plan for Short Life
Dairy has now been completed. The operational strategic framework can now be updated with
the key points which will guide the central buying teams in their actions and decisions for the
year ahead.
Table 5.6: The operational strategic framework for Short Life Dairy 2009/2010
Strategic
concept
Key strategic
elements
Operational strategic plan : Short Life Dairy
Operational
strategic action
Vision
How we see
ourselves
Strategic
Objectives
Financial
What we
measure
Increase sales
Reduce waste
Increase margin
Increase availability
Foods group
Destination shop
Convenience and
quality
Always available
Change the
way a nation
eats
Change the
way a nation
shops
Care for the
environment
% Market
share
Expense
accounts
Customer
complaints
Number of
new lines
Product
success rate
Increase by 3%
Decrease by 6%
Decrease by 10%
% Sales from new
products
Number of new
lines still on
counter
Achieve 15%
market share
by 2015
Drive
availability
Deliver value
and key
pricing
Grow sales
Maximise net
profit
Maximise
investment
Sales
Waste
Margin
Availability
Increase by 15%
Reduce by 0.1%
Increase by .0%
Increase by 4%
Link to group and
corporate vision
Increase market
share
Lower overall costs
Technical
leadership
Differentiated
range
Speed to market
Strategic
statement
Strategic guiding principles
Corporate
Trusted
modern SA
retail brand
Lifetime
relationships
with
customers
Earn
relationships
Make the
‘Difference”
Lead our
customer
Good
business
journey
Operational
excellence
Passionate
and
committed
retailers
Consistent
profit growth
99
Strategic
analysis
and
strategy
formulation
Strategic
action
and
execution
Internal
External
Target market
Locations
Range
Pricing
SWOT
Porter’s five forces
Ansoff’s matrix
Internal reports
Maintain and grow
target market by
means of
promotions on
certain categories
Regular visits to
all locations
coupled with a
programme to
educate staff.
Introduce new
flavours and
highlight nutritional
benefits
Leverage low
supplier
bargaining power
to improve pricing
Promotions &
advertising
Product
demonstrations
Product display
Supplier
Introduce supplier
regionalisation
strategy and
ensure constant
availability of raw
materials
Packaging
Quality
Monitor
Corrective
action
Reports
analysis
Reviews
All performance
indicators must be
in line
Revisit the
strategic plan in
light of current
trends
Implement based
on analysis
% market
share
Grow by 3.4%
Position as
iconic food
retailer
No of stores
visited
Increase by 10%
Improve
pricing and
real value
Product
segmentation
Increase
contribution by
5%
Department
inflation
Decrease by 3%
Healthy
eating
Differentiated
Range of
Products
Drive the
good food
journey
Promos as %
of sales
Demos as %
of sales
% of
locations
upgraded
12% of weekly
sales
1% of weekly
sales
Upgrade 50% of
all locations
Upgrade core
ranges
Clear product
segmentation
Brand
positioning
Order fill %
Cost Price
Reduction %
Increase by 8%
decrease by 10%
BEE
contributor
Packaging
material used
Reduce by 4%
Returns to
supplier
Reduce by 6%
Key
performance
indicators
Cost of
changes
Track at budgeted
targets
Reduction in
changes
Improve
social and
environmental
standing
Reduce
packaging
Improve
availability
Benchmark
and
implement
trading
packages
Quality
Innovation
Value
Style
Service
Energy
100
5.4
Conclusion
In this chapter the operational strategic process was applied to two other departments within
the Foods Group. The applicability of the process was demonstrated by constructing
operational strategic plans for Organic Dairy and Short Life Dairy. The final results prove that
the process can be applied across the different departments which constitute the Foods Group
of the organisation.
101
CHAPTER 6
SUMMARY, CONCLUSIONS AND RECOMMENDATIONS
6.1
Summary and conclusions
The central focus of this research was to create a standardised process for central buying
teams in the foods group of a major retailer for crafting and executing operational strategy. The
creation of organisational strategy was not the goal; however, the tool had to incorporate the
significance of key strategic thrusts at group and corporate level.
Secondary research was conducted by consulting a vast number of books, articles and
websites in order to gain a comprehensive understanding of the latest management thinking
pertaining to the creation and implementation of strategy. Primary research, which took the
form of informal interviews with key personnel, was also conducted in order to ascertain the
opinions and insights of individuals who are directly affected by the operational strategic
process. A central theme which emerged for these interviews was the need for more strategic
analysis and goals which were clear and measurable. Interviewees also expressed the need for
a standardised process which could be used by all central buying teams and which clearly
reflected management’s expectations in terms of operational strategy.
The research resulted in the development of an operational strategic framework which can be
used a standardised tool at department level. The tool will ensure that operational strategic
actions are aligned and clearly support the key strategic thrusts at group and corporate level.
The information populated in the framework is derived by following the operational strategic
process for crafting and executing strategy and requires that the team conducts strategic
analysis using various tools. Once the analysis has been conducted, the team is left with a
102
concise document which guides actions and decision making during the course of a financial
year.
6.2
Recommendations
Reviewing the organisation’s strategy at all levels is important before embarking on the journey
of crafting and executing operational strategy. Analysis must always be done in the context of
the broader strategic issues to ensure that key strategic goals are met at group and corporate
level. Operational team members must ensure that they have clear guidelines from
management and that they fully understand the environment in which they are operating.
Gathering information from a variety of sources, other than those suggested in the operational
strategic framework, will also ensure that more insightful decisions are made. These sources
could include opinions of customers, informal discussions with people working in the industry,
periodicals and journals or business trips abroad which reveal international trends. A keen eye
must also be kept on key economic indicators which influences the purchasing power of
consumers.
A key recommendation is to ensure that the operational plan and the action summary from the
strategic analysis is consulted on a regular basis. The content must be revisited by team
members and made part of the monthly agenda in departmental meetings. This will ensure that
progress is diligently tracked and corrective action is implemented where required.
All stakeholders must bear in mind that the operational plan is a living document and must
therefore be reviewed on a monthly basis. Teams must track progress and adjust strategic
actions where objectives are not being met. The plan will evolve over time as teams work with it
and therefore an open mindset must be adopted in order to incorporate new ideas and themes.
103
Employees must allow for a degree of flexibility in the operational strategic actions that were
implemented in their initial analysis. While key strategic points at group and corporate level will
most likely remain unchanged during the course of a financial year, certain operational activities
may have to be reconsidered, should the micro and macro trading environment change.
The final recommendation is that success is celebrated. Dedication and hard work should be
rewarded and recognised. Operational strategic goals must be linked and aligned to the
performance management process in order to measure employees accordingly.
104
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APPENDIX A
Research Questionnaire
To: Foods Management Team
For: MBA research report
Crafting and executing an operational strategic plan
for a retail product line
Personal details:
Name:
Position:
Question 1
In your opinion, what are the functions of an operational strategic plan?
Question 2
What would you like to see more of in these plans?
109
Question 3
What would you like to see less of in these plans?
Question 4
What are your suggestions to improve the operational strategic planning process?