Ude, Anthony Obiora
PG/Ph.D/06/46396
STRATEGIC BUSINESS UNITS AND ORGANIZATIONAL
PERFORMANCE IN SELECTED MANUFACTURING
COMPANIES IN SOUTH-EAST,
EAST, NIGERIA
DEPARTMENT OF
MANAGEMENT
FACULTY OF BUSINESS ADMINISTRATION
ADMINISTRATI
Digitally Signed by: Content manager’s Name
Ebere.omeje
DN : CN = Webmaster’s name
O= University of Nigeria, Nsukka
OU = Innovation Centre
i
STRATEGIC BUSINESS UNITS AND ORGANIZATIONAL PERFORMANCE IN
SELECTED MANUFACTURING COMPANIES IN SOUTH-EAST, NIGERIA
By
Ude, Anthony Obiora
PG/Ph.D/06/46396
DEPARTMENT OF MANAGEMENT
FACULTY OF BUSINESS ADMINISTRATION
UNIVERSITY OF NIGERIA NSUKKA
ENUGU CAMPUS
SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS
FOR THE AWARD OF DEGREE OF DOCTOR OF PHILOSOPHY (Ph. D)
DEGREE IN MANAGEMENT.
SUPERVISOR
PROF.U J F EWURUM
JULY 2015
ii
DECLARATION
I, Ude Anthony Obiora, a Postgraduate student in the Department of Management with
registration number PG/Ph.D/06/46396 do hereby declare that the work incorporated in this
thesis is original and has not been submitted in part or full for any other Diploma or Degree of
this or any other university.
………………………………………….
Ude Anthony Obiora
PG/Ph.D/06/46396
iii
APPROVAL
This is to certify that this thesis is undertaken by Ude, Anthony Obiora with registration number
PG/Ph.D/06/46396 and has been prepared in accordance with the policies and regulations
governing the requirements for the award of Ph.D in Management, Faculty of Business
Administration, University of Nigeria Nsukka.
………………………………
Prof. U J F Ewurum
Supervisor
…………………………………
Dr. O C Ugbam
Head of Department
iv
DEDICATION
This work is dedicated to God the Father, the Son and the Holy Spirit. The most blessed Trinity
and in loving memory of my late aunt and benefactress Mrs. Benedeth Ukamaka Ude.
v
ACKNOWLEDGEMENTS
I remain eternally grateful to the Almighty God for leading me to the successful completion of
this work. My special appreciation goes to my Supervisor Prof. U. J. F Ewurum who
painstakingly supervised this work despite his tight schedule and the Dean of the Faculty Prof. J.
O. Nnabuko. I remain equally grateful to my distinguished Lecturers in the Department of
Management especially the Head of Department, Dr. O. C. Ugbam, Dr. V. A. Onodugo, Late Mr.
C. O Chukwu, Dr. E. K. Agbaeze, Dr. V.A. Onodugo, Dr. B. I Chukwu, Dr. A. Ogbo, Dr. Nnadi,
Dr. C. A. Ezeigbo, Rev. Fr. (Dr) A. A. Igwe and Prof. T. Enudu for their support and
encouragement.
My sincere thanks go to my family for the support and assistance especially my Daddy Chief
P.O. Ude, Ezekwuibe 1 of Affa and my mum Lolo R. N. Ude, my uncle Chief L.C. Udeh
(Omeluoha-Ebekuodike), to my wife Mrs. Love Ogochukwu Ude for being at home for me and
to my Children Faith Chidinma Ude, Anthony Kenechukwu Ude, Paul Victor Chukwuebuka Ude
and Lovelyn Chimamanda Ude for denying them quality time during the course of this research.
Afam Agu my friend, brother and course mate you are indeed a great friend. Posterity will surely
reward you. I wish to extend my appreciation to the Management of Enugu Electricity
Distribution Company (EEDC) led by Mr. R. N. Dickerman (MD/CEO) and the Deputy
Managing Director (DMD), Mr. Temitope Borishade for giving me the opportunity to serve the
Company. I wish to equally acknowledge the massive support from my colleagues in the ICT
family of EEDC led by Mr. M. I. Ekpo (AGM, ICT), Engr, J. B. Yekini (PM, ICT) for leading us
right. The support of my fellow Data Centre Managers, Nwachukwu V.N, Idafieresi G, Ofili M.I,
Nwamu Uche, Onuoha M. O, Fyneman-Kalio D.M, Akwari U, Akabogu Ikenna, Ariche
Chinonye, Onwumere H.M, Onasanya O.S.G, Odunze C.N, Uwaga C.J, Iwuchukwu Hadiza,
vi
Ajuzie Robinson, Egbechuo Ifeanyi and Onovo A.O is highly appreciated. The support of the
Corporate Headquarters staff of ICT, Okeke H, Nwodo Nwanneka, Mbamalu Arinze, Segun
Atseyinku, Nwosu C.U, Ozoije C.C, Aneke Nkiru, Nwadawa C.O, Okeru Ifeoma, Orimuo V,
Mogbogu N.C and Okafor U. B is worthwhile and highly commendable. I cannot forget to thank
my colleagues’ in the office most especially the Principle Manager (RCS Anambra State), Mr
K.E Dogun , the Senior Manager (RCS) Mr. Allison Ifeanyi and the Manager Billing, Mr. Segun
Medunoye for official synergy and co-operation. Mrs. Onwuaso Ndilika, Mrs. Anuna C. O, Mrs
Ukadike C. E, Mrs Umeonyili D.N, Mrs Zira P.N, Mrs Agbanusi I, Mrs Umeozulu J. K, Mrs.
Chukwu J. C, Mrs Ubboh O, Nweke Cynthia, Chinyere Anioji, Mrs Ilomuanya C.O, Mrs Okafor
C.P, Mrs Okafor C.N, Mrs Azubogu A, Mrs. Ezenwobi N.G, Mrs Ucheana U.O, Muodili A,
Corper Modesta Ugwu and Mrs N. Ashuke for holding brief for me. May the almighty God
bless your families.
I wish to acknowledge all authors and researchers whose works were valuable during the course
of this research. I wish to commend Hebron Associates under the leadership of Theophilus
Manulu and his lieutenants; Clementina and Ozioma for the post production of this work. Hon.
(Engr) Vita Ndu for unfettered access to his library and quality sponsorship overtime. My
gratitude goes to Hon. (Chief) Ogbuefi Ozomgbachi (MHR) and his family for encouraging this
programme.
Finally, I wish to recognize the support and prayers of Most Rev. Monsignor Anthony Okafor,
Rev. Fr. Moses Aburime (OCD), Rev. Fr. Ibemaria Ugwuoke (OCD), Rev. Fr. Chike Dim
(OCD), Rev. Fr. Tony Ogwu (OCD), Rev. Fr. Ephraim Orjiekwe (OCD) Rev. Fr. Pius Akajiaku
Eluka, Rev. Fr. Emmanuel Nwadike (OCD), Rev. Fr. Pascal Ekediegwu and Rev. Fr. Uchenna
Amuh. May the good Lord sustain your journey in his vineyard.
vii
TABLE OF CONTENTS
Certification
ii
Approval
iii
Dedication
iv
Acknowledgements
v
List of Figures
x
List of Tables
xii
Abstract
xv
Chapter One
INTRODUCTION
1
1.1
Background of the Study
1
1.2
Statement of the Problem
11
1.3
Objectives of the Study
12
1.4
Research Questions
13
1.5
Research Hypotheses
13
1.6
Significance of the Study
14
1.7
Scope of the Study
15
1.8
Limitations of the Study
16
1.9
Operational Definition of Terms
16
1.10
Parent Companies and their SBU Policies
18
References
32
Chapter Two
REVIEW OF RELATED LITERATURE
33
2.1
Introduction
33
2.2
Conceptual Framework of Strategic Business Unit
33
viii
2.3
Theoretical Framework
40
2.4
Empirical Review
63
2.5
Business Unit Strategies in a Synchronized Corporate Strategic Plan
105
2.6
Performance Measurement in Strategic Business Units
108
2.7
Challenges Facing Strategic Business Units in the Manufacturing Industry in Nigeria 110
2.8
Strategic Business Unit Forms
111
2.9
Summary of the Review of the Related Literature
116
References
119
Chapter Three
RESEARCH METHODOLOGY
126
3.1
Introduction
126
3.2
Research Design
126
3.3
Sources of Data
126
3.4
Population of the Study
127
3.5
Sample size Determination
128
3.6
Sampling Procedures
129
3.7
Sample size Allocation
130
3.8
Instruments for Data collection
131
3.9
Validity of the Instruments
131
3.10
Reliability of the Research Instrument
131
3.11
Methods of Data Analysis
132
3.12
Questionnaire Administration and Collection
134
3.13
Data Analysis Technique
136
References
137
ix
Chapter four
DATA PRESENTATION AND ANALYSIS
4.1
Introduction
138
4.2
Tabular presentation, descriptive analysis of data from primary sources
138
4.3
Test of Hypotheses
151
4.4
Test of Hypothesis one
152
4.5
Test of Hypothesis two
154
4.6
Test of Hypothesis three
157
4.7
Test of Hypothesis four
161
4.8
Test of hypothesis five
165
4.9
Discussion of Results
169
Chapter five
SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.1
Introduction
173
5.2
Summary of findings
173
5.3
Conclusion
174
5.4
Recommendations
175
5.5
Contribution to knowledge
176
5.6
Area for further studies
177
Appendix I
178
Appendix II
179
Appendix III
181
Appendix IV
187
Bibliography
189
x
List of Figures
Fig. 1.1
Tonimas Nigeria Limited Corporate office
18
Fig. 1.2
Pokobros Products
24
Fig. 1.3
Innoson Group Headquarters
24
Fig. 1.4
Innoson Group Corporate office and Products
27
Fig. 1.5
Orange Drug Products
29
Fig. 1.6
Orange Group Products
30
Fig. 1.7
Camela group Products
31
Fig. 2.1
Global Division Structure
34
Fig. 2.2
Global Matrix Structure of Strategic Business Units
36
Fig. 2.3
The Strategic Management Process
46
Fig 2.4
Strategic Business Area
69
Fig. 2.6
The Boston Consulting Group (BCG) Growth Share Matrix
73
Fig. 2.7
General Electric Strategic Business Planning Grid
74
Fig. 2.8
The Four Perspectives for Balanced Score Card
75
Fig. 2.9
The Performance Management Cycle
79
Fig. 4.1
Decision on Hypothesis one
153
Fig. 4.2
Decision on Hypothesis two
157
Fig. 4.3
Decision on Hypothesis three
155
Fig 4.4
Decision on Hypothesis five
168
xi
List of Tables
Table 2.1
Customer/ Offer Matrix
60
Table 3.1
Composition of the Population
129
Table 3.2
Composition of the Sample Size
132
Table 3.3
Percentage Representative Allocation of the Population
136
Table 4.1
Relevance of Strategic Business Units in the Productivity of
Manufacturing Companies
Table 4.2
139
The extent to which Strategic Business Units can be used to enhance
profitability in manufacturing companies
Table 4.3
141
Extent of technological and environmental challenges in
manufacturing companies
144
Table 4.4
Ways of encouraging Strategic Business Units
146
Table 4.5
The degree to which Strategic Business Units enhances the market share 149
Table 4.6
Computation of the Pearson “r” using the raw score method
152
Table 4.7
Test of Hypothesis two
154
Table 4.7.1
2nd Contingency Table of Table 4.7
155
Table 4.7.2
3rd Contingency Table of 4.7 for Chi-square determinant
157
Table 4.8
Computation of pearson ‘r’using the raw score method
158
Table 4.9
Difference between emerging means of production
160
Table 4.9.1
Computation of mean (X) for Lower and Middle Cadre Staff
161
Table 4.9.2
Computation of mean (X) for Management Cadre Staff
Table 4.9.3
Standard deviation for Lower and Middle Cadre Staff (X1) = 3.11
162
Table 4.9.4
Standard deviation for Management Cadre Staff (X2) =2.94
163
Table 4.10
Test of hypothesis five
165
xii
162
Table 4.10.1 Contingency table of table 4.10
166
Table 4.10.2 3rd Table of table 4.10 for Chi-square determination
xiii
167
ABSTRACT
This research Strategic Business Units (SBU) and Organizational performance in selected
manufacturing Companies in South-East Nigeria critically assessed the impact of Strategic
Business Units on Organizational Performance over time. Strategic management deals with the
major and emergent initiatives taken by general managers on behalf of owners, involving the
utilization of resources to enhance the performance of firms in their external environment. This
study is embarked upon to know why the business environment has been turbulent which has
resulted in poor performance of most of our manufacturing companies, thereby making their
product to be of poor quality and expensive. It is intended to reverse this trend. The objective of
the study is to check the extent Strategic Business Units affect productivity of manufacturing
companies. The study methodology adopted is the descriptive Survey design. The population of
the study was three thousand and three (3003) workers with a sample size of five hundred (500)
obtained using the Taro Yamane formular. This comprises lower, middle and top management
staff of the Companies. Primary data collection was with questionnaire method using the five
point Likert scale and Oral Interviews. Data was analyzed using tables and percentages.
Hypothesis one and three were tested using Pearson Product Moment Correlation while
hypothesis two and five were tested using Chi Square statistics. Hypotheses four was tested using
Z-test. The results indicate that there was a significant relationship (rc = 0.96 > rt = 0.8114, P <
0.05) between Strategic Business Units and productivity of the selected manufacturing
companies. Strategic Business Units significantly (P < 0.05) can be used to enhance profitability
in the selected manufacturing companies. Strategic Business Units significantly (rc =0.8253 > rt
=0.8114, P < 0.05) can be used to address Technological challenges in the selected
manufacturing companies. Use of Emerging means of Production is not significantly (P > 0.05)
a major way of encouraging Strategic Business Units in the selected manufacturing companies
performance index. Strategic Business Units can significantly (P < 0.05) be used in enhancing
the market share in selected manufacturing Companies. The conclusion of this research is that
there is a significant relationship between Strategic Business Units, productivity and profitability
which can be used to address technological challenges in the selected manufacturing companies
to enhance its market share. This research recommends that targets should not only be financial
but also strategic. They should be underpinned by clear cut action plans that cascade down the
organization and promote both ownership and commitment. Therefore in filling the gap created
by previous works, this work will ensure that performance monitoring and tracking of
individuals and Units in Strategic Business Units will help in knowing problem areas and
effecting changes that could adversely affect the fortunes of the Strategic Business Units thereby
shifting the burden of making an SBU President a scape goat in the event of company failure.
xiv
CHAPTER ONE
INTRODUCTION
1.1
Back ground of the Study
Until the 1940s, strategy was seen as primarily a matter for the military. Military history is filled
with stories about strategy. Almost from the beginning of recorded time, leaders contemplating
battle have devised offensive and counter-offensive moves for the purpose of defeating an
enemy. The word strategy derives from the Greek for generalship, strategia, and entered the
English vocabulary in 1688 as strategie. According to James’ 1810 Military Dictionary, it differs
from tactics, which are immediate measures in face of an enemy. Strategy concerns something
“done out of sight of an enemy.” Its origin can be traced back to Sun Tzu’s The Art of War from
500 BC. Over the years, the practice of Corporate strategy has evolved through five phases (each
phase generally involved the perceived failure of the previous phase). These include: Basic
Financial Planning (Budgeting), Long-range Planning (Extrapolation), Strategic (Externally
Oriented) Planning, Strategic Management, Complex Systems Strategy: Complex Static Systems
or Emergence and Complex Dynamic Systems (Vijaykumar, 2009: 1).
McKinsey (1889-1937), founder of the global management consultancy that bears his name, was
a professor of cost accounting at the School of Business at the University of Chicago. His most
important publication, Budgetary Control (1922), is quoted as the start of the era of modern
budgetary accounting. Early efforts in corporate strategy were generally limited to the
development of a budget, with managers realizing that there was a need to plan the allocation of
funds. Later, in the first half of the 1900s, business managers expanded the budgeting process
into the future. Budgeting and strategic changes (such as entering a new market) were
synthesized into the extended budgeting process, so that the budget supported the strategic
objectives of the firm. With the exception of the Great Depression, the competitive environment
at this time was fairly stable and predictable.
Long-range Planning was simply an extension of one year financial planning into five-year
budgets and detailed operating plans. It involved little or no consideration of social or political
factors, assuming that markets would be relatively stable. Gradually, it developed to encompass
xv
issues of growth and diversification. In the 1960’s, Steiner did much to focus business manager’s
attention on strategic planning, bringing the issue of long-range planning to the forefront.
Managerial Long-Range Planning, edited by Steiner focused upon the issue of corporate longrange planning. He gathered information about how different companies were using long-range
plans in order to allocate resources and to plan for growth and diversification. A number of other
linear approaches also developed in the same time period, including “game theory”. Another
development was “operations research”, an approach that focused upon the manipulation of
models containing multiple variables. Both have made a contribution to the field of strategy.
Strategic Planning (Externally Oriented) aimed to ensure that managers engaged in debate about
strategic options before the budget was drawn up. Here the focus of strategy was in the business
units (business strategy) rather than in the organization centre. The concept of business strategy
started out as ‘business policy’, a term still in widespread use at business schools today. The
word policy implies a ‘hands-off’, administrative, even intellectual approach rather than the
implementation-focused approach that characterizes much of modern thinking on strategy. In the
mid-1900s, business managers realized that external events were playing an increasingly
important role in determining corporate performance. As a result, they began to look externally
for significant drivers, such as economic forces, so that they could try to plan for discontinuities.
This approach continued to find favour well into the 1970s.
Strategic Management as a discipline originated in the 1950’s and 1960’s. Although there were
numerous contributors to the literature, the most influential pioneers were Alfred D. Chandler,
Selznick, Ansoff and Drucker. Alfred (1962: 4) recognizes the importance of coordinating the
various aspects of management under one all encompassing strategy. Prior to this time the
various functions of management were separate with little overall coordination or strategy.
Interactions between functions or between departments were typically handled by a boundary
position, that is, there were one or two Managers that relayed information back and forth
between two departments.
Chandler (1962: 4) also stressed the importance of taking a long term perspective when looking
at the future in his work ‘strategy and structure’ . He show that a long term coordinated strategy
was necessary to give a company structure, direction and focus. He said it concisely “structure
follows strategy”. Selznick (1957: 5) introduced the idea of matching the organizations internal
xvi
factors with external environmental circumstances. This core idea is developed into what we now
call “SWOT Analysis” at the Harvard Business school General Management group. Strengths
and weaknesses of the firm are assessed in light of the opportunities and threats from the
Business environment. Ansoff (1965: 6) builds on Chandlers work by adding a range of strategic
concepts and inventing a whole new vocabulary. He developed a strategy grid that compared
market penetration strategies, product development strategies, marked development strategies
and horizontal and vertical integration and diversification strategies. He felt that he could use
these strategies to systematically prepare for future opportunities and challenges.
In Ansoffs classic “Corporate Strategy” he developed the “Gap Analysis” still used today in
which we must understand the gap between where we are currently and where we would like to
be, then develop what he called “Gap reducing actions”. Drucker (1954: 4) is a prolific strategy
theorist author of dozens of Management books, with a career spanning five decades. His
contributions to strategic management were many but two are most important. Firstly, he stresses
the importance of objectives. An organization without clear objectives is like a ship without a
rudder. As early as 1954, he was developing a theory of management based on objectives. This
evolved into his theory of management by objectives (MBO).
The study’s conclusions continue to be drawn on by academics and companies today. PIMS
provides compelling quantitative evidence as to which business strategies work and don’t work
Peters (1970: 9). The benefits of high market share naturally led to an interest in growth
strategies. The relative advantages of horizontal “Integration, vertical integration”,
diversification, franchises, mergers and acquisitions, joint ventures and organic growth were
discussed. The most appropriate “Market dominance strategies” were assessed given the
competitive and regulatory environment.
There was also a research that indicated that a low market share strategy could also be very
profitable. Studies by Schumacher, Woo and Cooper, Levenson, and Traverso (1982) show how
smaller niche players obtained very high returns. By the early 1980’s the paradoxical conclusion
was that high market share and low market share companies were often very profitable but most
of the companies in between were not. This was sometimes called the “Hole in the middle”
problem. (Porter 1980).
xvii
The Management of diversified organizations required new techniques and new ways of
thinking. The first Chief Executive Officer (CEO) to address the problem of Multi-divisional
Company was “Alfred Sloan” at General Motors. It was decentralized into Semi – Autonomous
“Strategic Business Units (SBU’s)” but with centralized support functions.
According to Markowitz (1960) one of the most valuable concepts in the Strategic Management
of Multi-divisional Companies was portfolio theory. He and other financial theorists developed
the theory of “Portfolio Analysis”. It was concluded that a broad portfolio of financial assets
could reduce “Specific risk”. In the 1970’s Markowitz extended the theory of product portfolio
decisions and managerial strategists extended it to operating division portfolios. Each operating
division (also called Strategic Business Units) were treated as a semi independent profit centre
with its own revenues, costs, objectives and strategies. Several techniques were developed to
analyze the relationship between elements in a portfolio. Boston Consulting Groups Analysis, for
example was developed by the Boston Consulting Groups in the early 1970’s. This was the
theory that gave us the wonderful image of a CEO sitting on a stool milking a cash cow. Shortly
after that the General Electric multi factorial Model was developed by General Electric,
companies continued to diversify until the 1980’s when it was realized that in many cases, a
portfolio of operating divisions (Strategic Business Units) was worth more than separate
completely independent companies.
During the 1970 and early 1980s, several leading consulting firms developed the concept of
portfolio management to achieve a better understanding of the competitive position of an overall
portfolio of businesses, to suggest strategic alternatives for each of the businesses, and to identify
priorities for allocation of resources. Several studies have reported widespread use of these
technologies among companies. The key purpose of portfolio analysis is to assist a firm in
achieving a balanced portfolio of businesses. This consists of Strategic Business Units (SBU)
whose profitability, growth and cash flow characteristics complement each other and adds up to
a satisfactory over all corporate performance. (Dess et al, 2009: 206). According to Business
Dictionary (2010:1) Strategic Business is an autonomous division or organisational unit, small
enough to be flexible and large enough to exercise control over most of the factors affecting its
long-term performance. Strategic business units are more agile and usually they have
independent missions and objectives that allow the owning conglomerate to respond quickly to
changing economic or market situation. Its creation is meant to address each market in which the
xviii
company is operating. In other words the organisation of the business unit is determined by the
needs of the market. It remains a sole operating unit of planning focus that group a distinct set of
products or services, which are solely for uniform set of customers, facing a well-defined set of
competitors. The external dimension of a business is the relevant perspective for the proper
identification of SBU. Therefore any strategic business unit should have a set of external
customers and not just an internal supplier.
In the words of Wikipedia (2010:60) Strategic Business Unit is a business unit within the overall
corporate identity which is distinguishable from other businesses because it serves a defined
external market where management can conduct strategic planning, planning in relation to
products and markets. When companies become really large, they are best thought of as being
composed of a number of businesses. These organisational entities are large enough and
homogeneous enough to excise control over most strategic factors affecting their performance.
They are managed as self contained planning units for which discrete business strategies can be
developed. A strategic business unit can encompass an entire company, or can be a smaller part
of a company set up to perform specific tasks. It has its own business strategy, objectives and
competitors and these will often be different from those of the parent company. SBU deal with
minor intended and emergent initiative on behalf of the owners, involving utilization of resources
to enhance the performance of other firms with the same parental relationship or ownership. It
entails specifying the organisations missions, visions and objectives developing policies and
plans, often in terms of projects and programmes which are designed to achieve these objectives.
Lamb (1984:9) describes strategic Business Unit as a unit that evaluates and controls the
business and the industries in which the company is involved, assesses its competitors and sets
goals and strategies to meet all existing and potential competitors and then re-assesses each
strategy annually or quarterly to determine how it has been implemented and whether it can
succeed or needs replacement by a new strategy to meet changing circumstances, new
technology, new competitors, new Economic environment or a new social financial or political
environment. In using portfolio strategy approaches, a corporation tries to create synergies and
Shareholders value in a number of ways. Since the businesses are unrelated, synergies that
develop are those that result from actions of the corporate office with the individual units instead
of among business units. Corporate parenting generates corporate strategy by focusing on the
xix
core competencies of the parent corporation and on the value created from the relationship
between the parent and its businesses. In the form of corporate head quarters, the parent has a
great deal of power in this relationship.
According to Campbell, Goold, and Alexandra (2001:217) if there is a good strategic fit between
the parent skills and resources and the needs and opportunities of the business units, the
corporation is likely to create value. If, however, there is not good fit, the corporation is likely to
destroy value. Research indicates that the companies that have a good fit between their strategy
and their parenting roles are better performers than companies that do not have a good fit. This
approach to corporate strategy is useful not only in deciding what new business to acquire but
also in choosing how each existing business unit should be best managed. The primary job of
corporate headquarters is therefore to obtain synergy among the business units by providing
needed resources to units, transferring skills and capabilities among the units, and coordinating
the activities of shared unit functions to attain economic scope.
This is in agreement with the concept of learning organisation in which the role of a large firm is
to facilitate and transfer the knowledge assets and services throughout the corporation given that
modern company market value sterns from its intangible assets- the organisation’s knowledge
and capability. This is a corporate strategy that cuts across business unit boundaries to build
synergy across business units and to improve the competitive position of one or more business
units. When used to build synergy, it acts like a parenting strategy. When used to improve the
competitive position of one or more business units, it can be thought of as a corporate
competitive strategy. In multi point competition large multi-business corporations compete
against other large multi-business firms in a number of markets. These multipoint competitors
are firms that compete with each other not only in one business unit but in a number of business
units.
At one time or another, a cash-rich competitor may choose to build its own market share in a
particular market, to the disadvantage of another corporation’s business unit. Although each
business unit has primary responsibility for its own business strategy, it may sometime need
some help from it corporate parent, especially if the competitor business unit is getting heavy
financial supply from its corporate parent. In such an instance, corporate headquarters develops a
xx
horizontal strategy to coordinate the various goals and strategies of related business units.
Multipoint competitions and the resulting use of horizontal strategy may actually show the
development of hyper competition in an industry. The realization that an attack on a market
leader’s position could result in a response in another market leads to mutual forbearance in
which managers behave more conservatively towards multi market rivals and competitive rivalry
is reduced.
Once it is defined an SBU’s management must decide how to allocate corporate resources. The
1970’s saw several portfolio planning models introduced to provide on analytical means for
making investment decisions. The General Electric/ Mckinsey Matrix classified each SBU
according to the extent of its competitive advantage and the attractiveness of its industry.
Management would like to grow, harvest or draw cash from, or hold on to the business. Another
model, the Boston Consulting Groups’ Growth-Share Matrix, uses relative market share and
annual rate of market growth as criteria to make investment decisions. Assessing growth
opportunity includes planning new business, downsizing and terminating older business. If there
is a gap between future desired sales and projected sales, corporate management will need to
develop or acquire new businesses to fill it (Kotler, 2009:84).
Corporate management’s first course of action should be a review of opportunities for improving
existing businesses. One useful framework for detecting new intensive growth opportunities is
called a “product-market expansion grid” A company first considers whether it could gain more
market share with current products in their current market, using market penetration strategy.
Next it considers whether it can find or develop new markets for it current products, in a market
development strategy. Then it considers market with a product-development strategy. Later the
firm will also review opportunities to develop new products for new markets in a diversification
strategy. Next it considers whether it can find or develop new markets for its current products, in
a market development strategy. Then it considers whether it can develop new products of
potential interest for its current market with a product-development strategy. Later the firm will
also review opportunities to develop new products for new markets in a diversification strategy
(Kotler, 2009:85).
xxi
In broader domain of strategic Management, the phrase “Strategic Business Unit” came into use
in the 1960’s largely as a result of General Electrics many units. These organizational entities are
large enough and homogeneous enough to exercise control over most strategic factors affecting
their performance. They are managed as self contained Planning Units for which discrete
business strategies can be developed. A Strategic Business Unit can encompass an entire
company, or can simply be a smaller part of a company set up to perform specific tasks. The
SBU has its own business strategy, objectives and competitors and these will often be different
from those of the parent company. Research conducted on this includes the Boston Consulting
Group (BCG) Matrix (Wikipedia, 2019:1).
A Strategic Business Unit is a sole operating unit of planning focus that does group a distinct set
of products or services, which are solely for uniform set of customers, facing a well-defined set
of competitors. The external (Market) dimension of a business is the relevant perspective for the
proper identification of a Strategic Business Unit. (Porter Five Forces Analysis 2010:5).
Therefore any SBU should have a set of external customers and not just an internal supplier.
Companies today often use the word segmenting or “Deviation” when referring to SBU’s or an
aggregation of SBU that share such commodities. (Hax, 1979).
In discussing Strategic Business Units (SBU) it is imperative to look at its relationship with
strategic Planning. According to (Onwuchekwa 1998) Strategic Planning is a systematic and
comprehensive analysis for selecting an organizational long-term goals programme, projects,
budgets, policies, plans etc for realizing long-term goals. Organizational visions and missions
consists part of its’ corporate strategy, strategic planning are rational plans through which an
organization accomplishes its goals. They are means through which Managers accomplish
objectives. Strategic Planning deals with fundamental issues of problems about organizational
functionality (Onwuchekwa 1998). SBU’s have come to be identified as one of the ingredients of
strategic planning which is aimed at achieving organizational set goals in the long-run. It helps
management to conduct strategic planning in relations to products and Markets (Wikipedia,
2010).
Strategic Business Units (SBU’s) are products of Strategic Management and Strategic Planning
discussed above. Strategic Management is a field that deals with the major intended and
emergent initiatives taken by general Managers on behalf of owners, involving utilization of
xxii
resources to enhance the performance of firms in their external environment. It entails specifying
the organizations missions, visions and objectives, developing policies and plans, often in terms
of projects and programmes which are designed to achieve these objectives, and then allocating
resources to implement the policies and plans, projects and programs (Nag, Hambrick, Chen,
2007). According to Arieu (2007) there is strategic consistency when the actions of an
organization are consistent with the expectations of Management and these in turn are with the
market and the context. Strategic Management is an ongoing process that evaluates and controls
the business and the industries in which the company is involved, assesses its competitors and
sets goals and strategies to meet all existing and potential competitors and then re-assesses each
strategy annually or quarterly to determine how it has been implemented and whether it has
succeeded or needs replacement by a new strategy to meet changed circumstances, new
technology, new competitors, new economic environment or a new social financial or political
environment (Lamb, 1984: 9).
Strategic Business Units are the most viable and useful tools for strategic Management
processes. While we have looked at Strategic Business Units in relation to Strategic Planning and
strategic Management, its importance in organizational performance needs to be highlighted in
this discuss. According to Business Dictionary.Com (2011), Performance is defined as the
accomplishment of a given task measured against preset known standards of accuracy,
completeness, cost and speed. In a contract performance is deemed to be the fulfillment of an
obligation, in a manner that releases the performance from all liabilities under the contract
Eckenson (2007) defines Performance Management as a series of organizational processes and
applications designed to optimize the execution of business strategy. Organizational performance
therefore is a process by which organization’s monitor the accomplishment of given tasks
measured against existing standards of accuracy, completeness, cost and speed aimed at
achieving its set goals or objectives.
Aubrey (2006) describes Performance Management as a technology (ie science embedded in
application methods) for managing both behaviour and results, two critical elements of what is
known as performance. According to Wikipedia (2008) Organizational performance comprises
the actual output or results of an organization as measured against its intended outputs or goals
xxiii
and objectives. According to Richard et al (2009) organizational performance encompasses three
specific areas of firm outcomes
a)
financial performance (profits, returns on assets, return on investment etc)
b)
product market performance (sales, Market shares etc)
c)
Shareholder return (total shareholder return, economic value added etc)
Specialists in many fields are concerned with organizational performance including strategic
planners, operations, Finance, legal and organizational development. In recent years many
organizations have attempted to manage organizational performance using the balanced scorecared methodology where performance is tracked and measured in multiple dimensions such as:
Financial performance (eg shareholder return)
Customer service
Social responsibility (eg corporate citizenship, community outreach)
Employee stewardship
1.2
Statement of the Problem
The turbulent nature of our business environment has resulted in poor performance of most of
our businesses making their products of poor quality and very expensive. It is estimated that the
manufacturing sector in Nigeria has to bear additional indirect costs amounting to 16 percent of
sales because of bottlenecks in the business environment. Loses due to poor power supply
amount to 10 percent of sales and production cost while losses on transit occasioned by
dilapidated road networks account for 4% of sales is quite significant. These loses affect every
business by making their products uncompetitive both in terms of quality and prices. Ingredients
of the investment climate such as physical infrastructure, utilities, financial markets, security and
predictable public institutions create the enabling environment for investment.
The consequence of this situation is all manner of violent crimes ranging from kidnapping to
religious crises the most recently being the activities of Boko Haram sect in the Northern part of
the country which has continued to place our country on the watch list of terrorist Nations with
its spate of bombing of private and public utilities with its attendant loss of lives and property.
xxiv
Lack of proper environment scanning to have an understanding of the environments have most
often led organizations into serious problems. Before an organisation begins strategy
formulation, it must scan the external environment to identify possible opportunities and threats
and its internal environment for strength and weaknesses. Environmental scanning is the
monitoring, evaluation, and dissemination of information from the external and internal
environments to key people within the corporation. A corporation uses this tool to avoid strategic
surprises and to ensure its longer term health. Research has found a positive relationship between
environmental scanning and profit.
According to the report of the Presidential Advisory Council (PAC), the Committee on the
economy took pains to assess Nigeria’s performance on business environment, not surprisingly,
the result showed the country as a failure. It was not able to compete well globally, ranking 99
out of 133 countries, below South Africa which ranks 45.
Another available study shows that our country is not investor friendly. A study of 183
economies on where to do business put Nigeria in 166th positions (The News Magazine 2010,
Vol. 34 N0 24 P36). A lot of factors such as low productivity, infrastructural deficiencies
corruption, level and nature of technology are road blocks towards the Nigeria Business
Environment.
Manufacturing companies in the South East are not isolated from these problems and
inadequacies which include:
•
Outright closure or failure of manufacturing companies and its inability to break even
in the long-run.
•
•
Obsolete technology which has rendered operations ineffective and inefficient
Challenges of emerging means of production and manufacturing technologies that
have made some firms redundant by its competitors.
Strategic Business Units are into manufacturing, and thus is susceptible to the challenges facing
the manufacturing businesses in Nigeria. These includes: epileptic power supply; the country’s
deficient infrastructure; credit squeeze; low purchasing power; high financing cost in the
financial market and poor performance which affects investments..
xxv
Therefore, in view of the negative environmental effects on manufacturing companies in respect
to their Strategic Business Units, of their products and their poor performance, this study is
embarked upon to reverse them through improved production and technological processes which
will enhance efficiency in the manufacturing sector.
1.3
Objectives of the Study
The study is on Strategic Business Units (SBU) and Organizational Performance in Selected
Manufacturing Companies in South-East Nigeria. Strategic Business Units must have a Strategic
vision of its future if success is to be achieved. This success must be achieved through an internal
analysis of the firm’s resources, capabilities and key company activities and operations. The
external analysis will help Strategic Business Units identify its competitors and plan towards
sustained competitive Environment. Manufacturing creates the real wealth in an economy and
this work will create a road map for these successes. The specific objectives of the study are as
follows:
1. To ascertain the extent to which Strategic Business Units affect productivity of
manufacturing companies.
2. To determine the extent Strategic Business Units enhance profitability in manufacturing
companies.
3. To determine the extent to which Strategic Business Units can be used to address
technological and environmental challenges in manufacturing companies.
4. To ascertain the major ways of encouraging Strategic Business Units application in
manufacturing companies
5. To determine the degree to which Strategic Business Units enhance the market share of
manufacturing companies.
1.4
Research Questions
Five research questions were used to test the reliability of this study. These questions are in line
with the objectives of this study. The key success factors which were listed in the above
objectives of this study can only be achieved through a well structured research questions listed
below. They are;
(1) To what extent can Strategic Business Units affect the productivity of manufacturing
companies?
xxvi
(2) To ascertain the extent Strategic Business Units can be used to enhance profitability in
selected manufacturing companies?
(3) To what extent can Strategic Business Units be used to address technological and
environmental challenges in manufacturing companies?
(4) To ascertain the major ways of encouraging Strategic Business Units application in
manufacturing companies?
(5) To determine how Strategic Business Units be used to enhance the market share of
manufacturing companies?
1.5
Research Hypotheses
The following hypotheses were proposed to guide this research. They are equally in line with the
objectives of this study and its research questions. The hypotheses that are to be accepted or
rejected are as follows;
H1.
Strategic Business Units significantly enhance the improvement of productivity in
selected manufacturing companies.
H2.
Strategic Business Units promotes profitability in selected manufacturing companies
H3.
Strategic Business Units could significantly help organizations to overcome technological
and environmental challenges in manufacturing companies.
H4.
Strategic Business Unit application is a major way of promoting productivity in
manufacturing companies
H5.
Strategic
Business
Units
significantly
enhance
the
market
share
of
manufacturing companies
1.6
Significance of the Study
This research is meant to benefit the under listed group of people;
Government: The research will help the government in designing a strategic blueprint that will
fast track growth of the manufacturing sector of the economy which will boost employment
opportunities. Since the commencement of this democratic process in 1999, the Economic blue
print in every administration has continued to place high premium on is the growth of the
xxvii
manufacturing sector which has the potential of solving our unemployment problems. The
fortune of this sector which is the pivot of socio-economic development of any Nation has been
in bad shape and has led to the closure of most manufacturing firms and the relocation of others
to neighbouring African countries with more stable infrastructure for its growth and sustenance.
While the past and present civilian administration has made funds available to the real sector to
salvage it and ensure its growth, most manufacturing companies are yet to come to terms with
the reality of sustaining its expected growth because of challenges posed by technology and
competition.
It is imperative to note that the administration of President Olusegun Obasanjo between 1999 and
2007 had to ban the importation of finished goods that the real sector of the economy is capable
of producing to encourage its growth and development. Recent developments have shown that
more elaborate and comprehensive managerial framework is required to ensure that resources
which are available to this sector will be strategically used to make them viable and self
sustaining through the creation of Strategic Business Units in these organizations to enable it
handle the challenges of competition, environmental changes and technological changes
associated with manufacturing.
As a policy statement of the Central Bank of Nigeria (CBN), banks have been mandated to make
available ten (10%) of their annual profit to aid the sustenance of Small and Medium Scale
Enterprises growth and development. While the manufacturing sector has enormous fund to draw
from the Small and medium scale Enterprises (SME) fund set aside by banks to aid this sector,
the need to effectively use these resources in improving organizational performance of
manufacturing companies in the South East is the most important significance of this study.
Business Managers: Strategic business units serve as a training field for would be Chief
Executive Officers. It affords young managers the opportunity to update their knowledge and
horn their managerial skills in a smaller arena. Strategic Business Unit has been found useful in
this undertaking and the output of this study will help managers in making decisions on the
improvement of organizational performance.
xxviii
General public: Strategic business units in a not shell means expansion in the activities of
manufacturing sector and this automatically translates into more employment and increase in the
standard of living of the general public
Researchers: Finally, research of this nature which involves manufacturing sector will provoke
further research into the general development of the sector in particular and the country in
general. It will be useful for decision makers and also to research students and academic in
future.
1.7
Scope of the Study
This study looked at strategic business units (SBU) and organizational performance as it affects
some selected manufacturing companies in South East Nigeria. The study examines the
performance of some selected manufacturing Organizations and their Strategic Business Units.
The area of the study covered the South Eastern part of Nigeria which is made up of Enugu,
Anambra, Ebonyi, Abia and Imo State. The parent companies and their SBU include;
1. Tonimas group (Tonimas Oil) Aba, Abia state.
2. Pokobros group (Pokobros Oil and gas) Onitsha, Anambra state
3. Innosson Group (Innoson Technical) Enugu, Enugu state.
4. Orange Group (Orange Kalbe Limited) Owerri, Imo state.
5. Camela Group (Camela Vegetable oil) Abakaliki, Ebonyi state.
The states which this study covered include, Abia, Anambra, Enugu Imo and Ebonyi State. This
work took place from 2006 – 2015.
1.8
Limitations of the study
This research work witnessed its own limitations. These limitations include;
1. Finance: A lot of money went into data collection and interpretation. Research of this nature
is very expensive. The researcher had to spend a lot in order to cover the area of the study.
xxix
Travelling through the five states of South Eastern Nigeria involves a lot of money and risk
occasioned by the poor state of the roads.
2. Attitude of Respondents: Some of the respondents were
unwilling to corporate with the
researcher since they receive no financial benefit from the study.
3. Time: The fact that Researcher has other things doing to earn a living, apart from schooling
posed serious constraints. Time constraint was a major challenge towards this research.
1.9
Operational Definition of Terms
This thesis is devoid of ambiguity and very simple English was used in the work. However, these
following terms used in the course of this work were defined as it relates to its use in this
research.
A Business, also known as an enterprise or a firm is an organization involved in the trade of
goods, services or both to consumers. A business owned by multiple individuals is referred to as
c company (Business Dictionary.com: 2011)
Competitive Advantage is a process of fashioning a method or a pattern of competition (Business
Dictionary.com: 2011).
Manufacturing is the production of merchandise for use or sale using labour and machines, tools,
chemical and biological processing or formulation (Business Dictionary.com:2011).
Industry is the production of a good or service within an economy (Business Dictionary.com:
2011).
Competitive Strategy is a process of fashioning a method or a pattern of competing. (Business
Dictionary.com: 2011).
Multi-market rivals are people you compete with in several market segments. (Business
Dictionary.com: 2011).
xxx
Multipoint competition means competition from several products and companies or SBUS.
(Business Dictionary.com: 2011).
Portfolio analysis is a means of assessing the desirability or otherwise of an investment.
(Business Dictionary.com: 2011).
Portfolio
management
is
a
process
of
organizing
and
controlling
of
several
investments.(Business Dictionary.com: 2011)
Productivity is computed by dividing average output per period by the total costs incurred or
resources (capital, energy, material, personnel) consumed in that period. Productivity is a critical
determinant of cost efficiency. (Business Dictionary.com: 2011).
Strategy is a method or plan chosen to bring about a desired future, such as achievement of a
goal or solution to a problem. The art and science of planning and marshalling resources for their
most efficient and effective use. The term is derived from the Greek word for general ship or
leading an army. (Business Dictionary.com: 2011).
Strategic Business Unit is a business unit within the overall corporate identity which is
distinguishable from other businesses because it serves a defined external market where
management can conduct strategic planning, planning in relation to products and markets..
(Business Dictionary.com: 2011).
1.10
Parent Companies and their SBU Profiles
The profile of five parent companies and five SBU’s under them are presented to enable this
research to determine the relevance of these units in these selected manufacturing companies in
South East Nigeria. They include;
1.6.1.1
Tonimas Group
xxxi
Fig 1.1 . Tonimas Nigeria Limited Corporate Office Aba, Abia State.
Source: www.tonimasgroup.com
TONIMAS GROUP
HAULAGE/TRANSPORT SERVICES
At Tonimas Nigeria Limited, they provide a wide spectrum of Haulage/Transport services.
Whether it is moving petroleum products inter-state or delivering goods from source to a
required destination, they are able to cater for your every day haulage requirements. So no matter
your haulage need, they are ready to provide you with reliable and practical solutions. The
haulage division also handles the movement of their varieties of lubricants, petroleum products
and plastics.
They can handle the entire cargo transportation requirement of Tonimas Nigeria limited,
delivering goods at any appointed destination within the country. As a matter of fact, there are no
restriction as to the size of product haulage and destination. Their haulage services are available
to both small and large companies. Thinking about moving goods across the country, then look
no further.
TONIMAS MANUFACTURING (TONIMAS OIL)
xxxii
Welcome to our lubricant product line. At Tonimas, they endeavour to make sure their products
are of high quality and help increase the life span of vehicles, machines, power plants etc. Over
the years, they have developed various ranges of top of the line lubricants that meet high
standards and ensure complete customer satisfaction. The Lubricant blending plant with a staff
strength of over 600, boasts of a Plastics Section, a Grease Unit, its own Packaging and Printing
Unit and of course a top of the line Blending Unit. At Tonimas, our quality control operations are
world class, ensuring nothing but the best quality gets to the end consumer.
HOSPITALITY
Welcome, to the prestigious White Castle Hotels. Located in the serene and peaceful town of
Neni in Anambra State. Our 74 guest rooms are fully furnished and equipped to provide you with
the maximum comfort which you desire.Wake up to the breath-taking nature and take a dip in
our standard swimming pool perhaps after a round of Lawn Tennis. Whatever your plans, at
White Castle hotels, they will ensure you feel fully at home and relaxed!
TONIMAS OIL
At Tonimas Oil Nigeria limited, they are proud of their commitment to blend only 100%
pure quality Oil and have trademarked the symbol TONIMAS to signify unique, premiumquality oils.
Lubricants made from TONIMAS Blending Plant have been the choice of equipment
manufacturers and consumers for well over 26 years.
With the state-of-the-art blending and packaging facility for high-speed production of engine
oils, gear/transmission oils, hydraulic oils and other specialty lubricant products. They
package and distribute their own line of lubricant products under the BRAND: TONIMAS.
They are continuously improving their blending facilities and operations by investing in new
equipment and technology that enables them to consistently provide their domestic and
worldwide customers with high-quality products. Tonimas is focused on being flexible and
responsive to the needs of their customers as they continue to grow.
Services are carried out in strict industry standards that give their clients the peace of mind
they need in order to achieve great success in their business. As an Indigenous Nigerian
xxxiii
lubricating, company, the success of their clients is their priority and this they do by providing
an excellent customer service.
Thanks to highly trained and experienced staff that are on hand to carry out the most complex
jobs of putting their talent to work in creating quality products for clients.
Tonimas Oil Products
NOBLE 68
A brand of high quality industrial hydraulic oil of ISO HM type. It contains additives that assure
anti-wear, corrosion resistance, load carrying, oxidation properties, good filterability,
emulsification of water and low pour points allow operation under adverse conditions.
These well-blended products meet the German DIN 515125 standard for anti-wear hydraulic oil.
PRIMUS SUPER
Primarily formulated for gasoline engines. It is a high performance multigrade oil. This product
meets and surpasses the requirement of the SSM-2C 9001 AA and FORD ESE 10.1 and
GM6136 specifications.
It is in the API service classification SE and passes the CCMC test sequences
xxxiv
SUPREME (TWO STROKE)
Low Smoke / Semi-synthetic Oil
A supreme quality Lubricant recommended for Two-stroke engine capacity
(e.g. Motorcycles & Generating sets).
KAPER
High performance diesel engine oil for Turbo charged and naturally aspirated diesel engines,
which meets and surpasses API Specifications SC/CE, Us Army MIL-L2104B & MIL-L-46152,
& British Army-Uk PE+21020 specifications.
ATF DEXTRON
xxxv
Automotive lubricant carefully produced for power steering easy performance.
GEAR OIL
EP 90 & EP 140
EP 90 and EP140 Gear oil are extreme pressure oil suitable for gear and axle of vehicles
operating under severe high speed/low torque conditions and gear units and transmission system
requiring EP type oil for initial fill.
The gear oil meets the MIL-L2105B specification and API service classification GL4 and GL5.
The oil assures durable performance of gear and axles.
T5 BRAKE FLUID
Produced for heavy duty and other vehicles' clutch and brakes.
xxxvi
POKOBROS GROUP
POKOBROS® TRADING CO. NIG. LTD.
Importers and Marketers of general goods and manufacturers representatives. The company was
incorporated in 1980.The company is solely co
concerned with the marketing
rketing of her sister
companies' products. The company also trades in industrial chemicals. The company has many
sales outlets inn Lagos, Kaduna, Abuja and Port
Port-Harcourt
arcourt to enhance marketing network with the
Onitsha business office located at Onitsha, Anamb
Anambra State, Nigeria.
POKOBROS MOTORS
This
his is a Division of Pokobros group that has the sole franchise of Marketing a Chinese Brand of
jeeps known as TIANMA. This is a highly rugged, durable, cost effective, affordable and reliable
automobile for the middle income
ncome earners. They have sales outlet in major Nigerian cities of
Lagos, Abuja, Kaduna and Port-Harcout.
Harcout.
HOSPITALITY
Pokobros
okobros Hospitality Division operates under the brand name of Tourist Hotels Limited with
World class facilities in Aguleri (Anambra Stat
State)
e) and Asaba (Delta State). The facility in the
Aguleri branch of Tourist Hotels draws its customers from the visitors and workers at the Orient
Refinery Anambra State located within its environs.
2a. Whiz Oil
WHIZ® PRODUCTS [W.A] Limited is the subsidiary
ary company mainly concerned with the
blending and manufacturing of automotive care variety products after being the first indigenous
company to receive blending licence. Incorporated in 1986, the factory commenced operation in
1989 at the Awka & Isuoffia blending factories.
WHIZ®
WHIZ®
Super
Oilxxxvii
Treatment.
Automobile
Brake Fluid.
Automobile
Brakes
Fig1.2 Pokobros Products
Source: www.pokobrosgroup.com
3. Innoson Group
Innoson Group is a world
class
Nigerian
company
devoted to the production
of quality goods for supply
to
the
world
market.
Fig 1.3 Innoson Group Headquarters
Source: www.innosongroup.com
Innocent
nt Chukwuma (Innoson) is a resourceful and accomplished entrepreneur of international
repute. His trading outfits which started in 1976 has successfully grown into a big trading giant
of blue chip status. His visionary attributes saw the company diversifyi
diversifying
ng into manufacturing
away from distributive trade in support of the Federal Government industrialization policy hence
the group motorcycle manufacturing / assembly plants in Nnewi and Plastic Manufacturing Plant
in Emene, Enugu with a trade name, Innoson, which is fast becoming a household name in
Nigeria. He is a recipient of international and local awards on leadership and management.
INNOSON NIGERIA LTD
Innoson Nigeria Limited is an indigenous blue chip company engaged extensively in the
importation, assembly and marketing of automotive components, accessories and motorcycles.
Incorporated in July, 1987, the company has grown to become one of the major importers,
suppliers and assemblers of motorcycles and motorcycles spare parts to outermost part of West
W
African sub-region
region and beyond. INNOSON NIGERIA LIMITED started in 1986 as a trading
outfit by buying Honda Motorcycle parts and over a period of time was recognized as the major
dealer of Honda Motorcycle parts at that time.
xxxviii
As time progressed, INNOSON started importing the motorcycle parts and accessories into the
country and having had the vast knowledge and experience in the motorcycle business sometime
in 1994, they entered into joint venture of assembling motorcycle in Nigeria with a Chinese
Motorcycle Manufacturer. The assembly was in manual form and this usually forced the price of
assembled motorcycle up and at the end they made little or no profit.
They were relentless in their efforts in breaking through their dream in making sure that
motorcycles are sold to the masses at affordable prices hence in 1995, they installed a fully
automated assembly plant which can produce up to 1,000 units of motorcycle per day and has
helped reduce the prices of our different brands of motorcycle.
INNOSON VEHICLE MANUFACTURING CO. LTD
Innoson Vehicle Manufacturing Company (IVM) was commissioned by His Excellency,
President Goodluck Ebele Jonathan at Nnewi. Innoson Vehicle Manufacturing is part of the
Innoson Group of Companies founded by the visionary Chairman, Mr. Innocent Chukwuma,
Officer of the Order of the Niger (OON). Innoson Vehicle Manufacturing introduces automotive
products from China, Japan and Germany. Its product line includes heavy duty vehicles, middle
and high level buses, special environment friendly vehicles. The company carries out
optimization design and assembly according to West African road condition so as produce
suitable products at affordable prices.
The company also provides good services for repairs and parts supply. All these actions are
engineered to meet the customers' special requests, attain the highest possible performance and
safety standards and also make the vehicles suitable for the West African market.
INNOSON GENERAL TYRES AND TUBES CO. LTD
Innoson Tyre Manufacturing company is using the abundant rubber resources in the country, to
produce premium tyres for its Vehicles and Motor Cycles. It ensures that its various Divisions
are sustained through quality and durable tubes and tyres. It enhances the value chain of its
Business Units.
xxxix
3a. Innoson Technical
Innoson Technical & Industrial Co. Ltd produces the best plastic products in the country.
Products include chairs, jerry can, drums, motorcycle parts etc. Innoson Technical and Industrial
Limited is a subsidiary of Innoson group of companies and was incorporated in 2002 with it's
Head Office/Factory situated at Plot W/L Industrial Layout, Emene, Enugu State, Nigeria. Full
scale operations and production commenced in October 2002. It is an indigenous blue chip
company engaged in the manufacturing of Plastic Chairs, Tables, Trays, Plates, Spoons, Cups,
Jerry Cans of different sizes and many other allied products.
It produces the highest quality range of the plastic products of international standard and has a
production capacity of over 10,000 pieces of chairs and tables per day. Due to the rapid demand
of these products, the company's twelve production lines of injection moulds have since been
increased with tremendous and near perfect production lines of international standard.
The company has an annual turnover of 3.6 billion Naira. Their foreign partners are CRETEC
INDUSTRIES CO., LTD (China) whose wealth of experience is unquantifiable.
xl
INNOSON TECHNICAL AND INDUSTRIAL COMPANY
Chairs
Tables
Cans
Drums
Tableware
Household
Plastics
Models PVC Hoses Ammeter
Dustbins
Tanks
Helmets
Motorcycle
Foam
Baskets
parts
products
Boxes
Toys
Plastic
Ceilings
Pallets
Fig 1.4:: Innoson Group Corporate Office and Products
Source: www.digitaldreamstudio.net/innosongroup/innoson
www.digitaldreamstudio.net/innosongroup/innoson-plastic.php
4. Orange Groups
xli
History of Orange Drugs Limited
After working for the family owned Chemist shop; Eastern Industrial Chemist, for 13 years, Sir
Tony Ezenna decided to establish his own pharmaceutical company, with the leadership and
managerial skills acquired on the Job.
The company; Orange Drugs Limited, was registered and incorporated on July 20th 1988 with
No RC 115913. Its first office was in Ikenegbu, Owerri, Imo state in 1989 and in order to be
among the leading Pharmaceutical companies in Nigeria and compete with other companies in
different parts of the world, the Company later moved its base to Lagos.
The first Corporate Office was at 4B Okupe Estate, Mende, Maryland, Lagos and in 2001, the
Company relocated to its present Head Office at 66/68 Town Planning Way, Ilupeju, Lagos with
branches in different parts of the country.
Orange Drugs Limited is a limited liability company with an authorized fully paid share capital
of N5 Million Naira, involved in the marketing and distribution of well-tested drugs,
manufactured in Indonesia, Italy, India, Germany and the United States of America with the
Nigerian consumer in mind.
Subsequently, Orange Drugs limited joined the Beauty care industries through the importation of
Soaps, creams and other beauty products. By 2006, the Company commenced the local
production of different brands of their soaps in Lagos and this was aimed at boosting the
Nigerian manufacturing sector and also creating jobs for the populace.
In order to meet up with the challenges in the global economy, Orange Drugs Limited
subsequently diversified its line of business by the establishment of Orange Kalbe Ltd and
Orange West Africa Limited leading to the formation of Orange Groups.
xlii
Fig 1.5: Orange drug products
Source: www.orangegroups.com
4a. Orange Kalbe Limited
History of Orange Kalbe Limited
Established in 1966, PT Kalbe Farma is the largest Pharmaceutical group in Indonesia and South
East Asia with presence in the USA and Singapore. The Kalbe group came into Nigerian market
through
Orange
Drugs
Limited
as
its
sole
representative.
Both Orange Drugs Ltd and Kalbe Farma have a proven business track record based on trust and
competence spanning for over two decades.
Due to the ban policy of imported paracetamol-based OTC products by NAFDAC in 2004, the
two companies then agreed to set up a joint manufacturing firm in Nigeria with the name,
Orange Kalbe Limited (OKL)
The Factory, Orange Kalbe Ltd; was incorporated in 2005 as a manufacturing company.
Construction commenced at the site in April 2006 and was completed in July 2008 while
installation and commissioning of machinery and production trials commenced thereafter.
OKL was registered by PCN and approved by NAFDAC in August 2008. The Factory was
designed and built within GMP specification and its very highly technological equipment
complies with WHO and GMP standard
xliii
Fig 1.6: Orange group products
Source: www.orangegroups.com/profile.html
5. Camela Group
Camela Vegetable Oil Company Ltd formerly known as R.O Ikoro and Sons Ltd was
incorporated in June 1960 as a Limited Liability Company dealing in Agricultural Produce and
Palm Oil Milling.
In 1985, the company expanded into Palm Kernel Nut Crushing for the extraction of Palm Kernel
Oil (PKO) and Palm Kernel Cake (PKC). The next major expansion was in 1998 which was the
installation of the Vegetable Oil Refining for the processing of palm kernel oil (PKO) into
vegetable oil and fatty acid. The vegetable oil was branded Camela Vegetable Oil and hence the
new name of the company in August 2000 to Camela Vegetable Oil Co. Ltd. The company
having met all requirements of National Agency for Food, Drug and Alcohol Control (NAFDAC)
and the Standard Organization of Nigeria (SON) have since being issued a NAFDAC number 012016L and a Mandatory Conformity Assessment Certificate Programme (MANCAP) Number:
FT-697.Camela Vegetable Oil co. Ltd in 2007 expanded into fish farming and fish feed
production.
Presently it has an installed feed production capacity of 2metric tons per day and utilize only 30%
of it.
xliv
The company has a 150MT per day palm kernel oil extraction plant and a 60MT per day
vegetable oil refining plant.
5a. Camela Vegetable oil
The company vegetable oil refining uses an ultra modern state of art physical refining to achieve
bleaching
and
deodorizing
of
palm
kernel
oil.
It has an installed capacity of 60 metric tons per day. Camela vegetable oil is completely fortified
with vitamin ‘A’
Deodorizing of Palm Kernel oil/Palm oil which are canned in 18 litres, 10 Litres and 5 Litres
Can.
Fatty acids are considered essential fatty acids. They are essential to human health but cannot be
manufactured by the body. Fatty acid as one of our product is highly requested for both domestic
and industrial use.
Our Fatty Acid is of the highest grade, essentially for the production of high quality soap and
also very good for distillation.
Fig 1.7: Camela group Products
Source: www.camelaoil.com
xlv
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Arnoldo C. and Nicholas M.
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Lamb, R. B. (1984), Competitive Strategic Management, New Jersey, Prentice Hall
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deviation of a consensus definition of the field. Strategic Management Journal of
abnormal and social psychology, Vol. 23 N0. 4.
Onwuchekwa C. I. (2000), Business Policy and Strategic Management, Onitsha, University
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Richard et al (2009), Measuring Organizational Performance:Towards Methodological Best
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Wikipedia (2010), The free encyclopedia “http”. // en. Wikipedia. Org/wiki/Strategic.
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xlvi
Woyve E.
(2007) The Datawarehouse Institute. The Rational guide to Monitoring and
Analyzing with office performance point server, tdwi.org/../wayne-blog.aspx.
xlvii
CHAPTER TWO
REVIEW OF RELATED LITERATURE
2.1
Introduction
This chapter critically reviewed the relevant literature that will help in highlighting Strategic
Business Units and Organisational Performance. The Concept of Strategic Business Units was
discussed alongside its theoretical framework. Strategic Business Area (SBA), strategic
management, accessing organisational performance and improvement of organisational
performance were equally discussed. There was also an empirical review which is in line with
the objectives of this study. Views of Nigeria and foreign authors on strategic Business Units
were equally examined.
Strategic Business Unit forms, SBU President’s role and challenges, Challenges facing Strategic
Business Units in manufacturing in Nigeria as well as performance Measurement of Strategic
Business Units were discussed.
2.2
Conceptual Framework of Strategic Business Unit (SBU)
According to Hill and Jones (2009) the global division monitors and controls the overseas
subsidiaries that market the products and decides how much authority to delegate to managers in
these countries.
This arrangement of tasks and roles reduces the transaction of managing head offices across
countries and world regions. However, managers abroad are essentially under the control of
managers in the global division, and if domestic and overseas Managers compete for control of
strategy making, conflict and lack of co-operation may result. Companies such as IBM, Citibank
and Daimler Chrysler have experienced this problem. Very often, significant strategic control has
been decentralized to overseas divisions. When cost pressures force corporate managers to reassess their strategy and they decide to intervene, such intervention frequently provokes
resistance, much of it due to difference in culture, not just corporate but also Country differences.
Implementing a global standardization Strategic Business Unit
xlviii
When a company embarks in a global standardization Strategic Business Units today, it locates
manufacturing and other value chain activities at the global location that will allow it to increase
efficiency, quality and innovation. In doing so, it has to save the problems of coordinating and
integrating its global value chain activities. (Hill & Jones 2009:437)
It has to find a structure that lowers the bureaucratic costs associated with resource transfer
between corporate headquarters and its overseas divisions and provides the centralized control
that a global standardization strategy requires. The answer for many companies is a global
product group structure.In this structure, a product group headquarters is created to coordinate
the activities of a company’s home and overseas operations. The managers at each product group
headquarters decide where to locate the different functions.
CORPORATE
HEADQUARTERS
3
DIVISION
1
DIVISION
3
DIVISION
2
GLOBAL
DIVISION
UNITED
4
STATES
UNITED
KINGDO
JAPAN
FRANCE
Fig 2.1: Global Division Structure Source: Hill & Jones (2009) Strategic Management Approach,
New York, Cengage Learning.
Global Matrix Structure Theory of Strategic Business Units
xlix
According to Hill & Jones (2009:440) global matrix structure shows such a structure that might
be used by a company such as Ford, HP, SAP or Nestle. On the vertical axis, instead of functions
to the company’s product groups, these groups provide specialist services such as research and
development, product design and marketing information to its overseas divisions, which are
often grouped by world region. They might be the petroleum, plastic, pharmaceuticals, or
fertilizer product groups. On the horizontal axis, are the company’s overseas divisions in the
various countries or world regions in which its operating managers at the regional or country
level control local operation.
Though a system of output and behavioural controls, then they report to managers in product
group headquarters in the United State and ultimately to the C.E.O managers to world regions or
countries are also responsible for working with U.S product group managers to develop the
control and reward systems that will promote transfer, sharing or leveraging of competencies.
Implementing a matrix structure thus decentralizes control to overseas managers and provides
them with considerable flexibility for managing local issue; but it can still give product group
and top corporate executives in the United State the centralized control they used to coordinate
company activities on a global level. The matrix structure can allow knowledge and experience
to be transferred among divisions in both product groups and geographic regions because it
offers many opportunities for face to face contract between managers at home and abroad. The
matrix also facilitates the transmission of a company’s norms and values and hence the
development of a global corporate culture. This is especially important for a company with wide
global operations for which lines of communication are longer.
l
NORTH
AMERICA
SBU
EUROPEAN
SBU
PACIFIC
SBU
PRODUCT
GROUP1
PRODUCT
GROUP2
PRODUCT
GROUP3
Individual Operating Companies
Fig 2.2: Global Matrix Structure of Strategic Business Unit.
Source: Hill & Jones (2009) Strategic Management Approach, New York, Cengage Learning.
Nestles’ Strategic Business Units conceptual framework
Nestle, based in Vevey, Switzerland, is the world’s largest food company with global sales in
excess of seventy ($70) billion dollars in 2009. The company has been pursuing an ambitions
programme of global expansion by acquiring many famous companies, for example Perviev, the
French mineral water producer and Rowntree, the British candy maker. In the United States,
Nestle bought carnation, Stouffer foods, Contadina, Ralston Purina and Dreyer’s Grand ice
cream.
li
In the past, Nestle pursued a localization strategy and managed its operating companies through
a global area structure. In each country, its individual divisions (such as its carnation division)
were responsible for managing business level strategy.
For example they had the authority to make all product development, marketing and
manufacturing decisions. Nestles’ corporate managers at its Vevey headquarters made the vital
acquisition expansion and corporate resource decision, such as how best to invent its capital and
the size of the corporate staff had increased dramatically to manage its rapid global expansion.
In the 1990’s Nestle realized it had major problems. Corporate managers had become remote
from operating divisions. They did not understand the problems divisions faced and because
authority was centralized, Nestle was often slow to respond to the fast changing food products
industry moreover the way the company operated made it possible to obtain potential benefits
from sharing and leveraging its distinctive competences in food products development and
marketing both among divisions in a product group and among product groups and world
regions.
Because each product group operated separately, corporate executives could not integrate
product group activities around the world. To raise corporate performance, Nestle managers had
to find a new way to organize it activities.
Its CEO at the five Helmut Maucher started restructuring Nestle from the top down. He stripped
away the power of corporate managers by decentralizing authority to the managers of seven
global product groups that he created to oversee the company’s major product lines [for example
coffee, milk, and candy]. Each global product group was to integrate the activities of all the
operating divisions in its group to transfer and leverage distinctive competencies to increase
profitability. After the change managers in the candy product group, for instance began
orchestrating the marketing and sale of Rowntree candy products, such as after eight mints and
smarties throughout Europe and the united states and sales climbed by 60%.
Maucher then grouped all divisions within a country or a world region into one National or
regional Strategic Business Unit (SBU) and created a team of SBU managers to link, coordinate
and oversee their activities. When the different division started to share joint purchasing,
marketing and sale activities major cost savings resulted. In the United States, the SBU
lii
management team reduced the number of sales offices Nationwide from 115 to 22 and the
number of suppliers of packaging materials from 43 to 3.
Nestle is not the only company to find the task of integrating and controlling global market
structure a difficult task. Some such as ABB, Motorola and Ford have dismantled their Matrix
structures and moved to a simplified global product group approach using Information
Technology (IT) to integrate across countries. If a Matrix is chosen, however other possible ways
of making it work effectively include developing a strong global organization culture to facilitate
communicating and coordination among Country
based managers. For example many
companies transfer managers between their domestic and overseas operation so they can implant
their domestic culture in their new global division.
Toyota Strategic Business Unit
Toyota has made great efforts to understand how to manage car plants in overseas location and
how to transplant its culture into those plants. When it decided to manufacture cars in the United
States, it first formed a joint venture with GM (General Motors) and the companies combined
their expertise in this venture which was known as NUMML. Toyota was responsible for
implanting its knowledge of lean production in this plant and the workers were cross trained and
taught how to monitor and benchmark their own performance and how to work on quality teams
to improve it.
Toyota then took all the learning from this venture and transferred it to its wholly owned car
plants in Georgetown, Kentucky where it manufactures cars with as good a reliability record as
those made in its Japanese plants. Every Toyota plant in under the control of Japanese managers
however the manager from Toyota Japanese Headquarters’ monitor their performance and work
to transfer and implant Toyota’s latest Research and development innovations into its next car
models
Conceptual Framework of Vietnamese Technology Vision (VTV)
Founded in 1858, VTV is a Vietnamese manufacturing company dedicated to manufacturing
excellence and highly skilled manpower training. They are committed to the constant pursuit of
distinction in their production and marketing programs. At VTV, they come to know their clients
liii
on an individual basis and become their mentors. They strive to bring out the best in every
individual.
VTV prepares highly qualified, effective educators at all level of manufacturing to offer services
to its clients and customers. The commitment to social justice through respect for diversity and
the dignity and worth of the individual provides the foundation for our work with our trainees.
Our programs integrate theory with practice and meet rigorous professional standards. Our
collaborative and highly qualified professionals guide candidates on their journey of professional
and personal discovery.
The Conceptual Framework for the Manufacturing Management of VTV is organized around
three themes: Competence, Experience, and Social Justice. The Manufacturing Management
prepares practitioners who are knowledgeable, reflective learners and who possess a keen
understanding of the inherent worth of individuality and diversity. The graphic depiction of this
framework includes compass points, representing points of understanding. These understandings
are enclosed in a semicircle, which represents the Manufacturing Management community,
including Professionals, Trainers , Trainees and factory workers.
The core values of the VTV Statement include Community and Individual Worth (SBU Mission
Statement, 2001). Inclusiveness has always been a key disposition of the VTV tradition and the
Vietnamese culture. The VTV has long cherished its diversity and has welcomed and celebrated
the contributions of those individuals of differing race, ethnicity, gender, language, religion,
class, sexual orientation, age and intellectual and physical ability. The continuing work of the
Diversity Action Committee reflects the VTV efforts to support change in a number of areas,
including changing curriculum, to recognize power and diversity issues, providing workshops
emphasizing tolerance and respect for diversity for all VTV staff, and even helping to provide
community services and products that a more ethnically diverse population needs. Our rural
location hampers efforts to increase diversity. However, the VTV seeks to recruit Trainers,
professionals and trainees from underrepresented populations.
Manufacturing Management of VTV promote diversity in their programs, preparing candidates
to work in inclusive environments. When interacting with learners, candidates are respectful of
and sensitive to cultural and racial differences; appreciative of bilingual ability; protective of the
liv
educational rights of learners; and committed to meeting the needs of all students. Effective
educators strongly believe that all students can learn (Landsman, 2006; Wolk, 2003).
Based on their knowledge of learners and the principles of learning, trainees design experiences
with appropriate expository and expressive activities and environments that provide suitable
challenges and supports for all learners/clients (Lambert & McCombs, 1998). They apply
appropriate assessments and evaluations to monitor progress. Reflecting on their work leads to
comparing the intended results with outcomes. Analyzing and synthesizing results leads to acting
on assessment data in order to improve outcomes (Costa & Kallick, 2000; Cushner, 1992;
Davidman & Davidman, 1997).
Trainers use their communication skills to ensure that the learning environment is one of
support, caring, trust and a strong sense of belonging and social justice (Cochran-Smith, 1999;
Poplin & Rivera, 2005). Additionally, they build learning communities that help all members to
reach their potential.
Technology is pervasive in the Manufacturing Management of VTV. It is integrated throughout
the program and is a core requirement for all graduating trainees. Trainees thoroughly explore
the appropriate uses and ethical practice of technology in various environments. Trainees learn to
assist, but not be the “keeper” of the technology, to experience using technologies to mediate
learning for and with children. Technology enables trainees to collaborate with each other,
community partners and trainers. (Herrel & Fowler, 1998; Hiede & Stilborne, 1999; Moore,
1991; Strickland, 1997; Wang & Patterson, 2005-2006).
2.3 Theoretical Framework
There is no well known theory about Strategic Business Units because it is a new concept in the
Business World today. But for the sake of our study, we can illustrate the power of Strategic
Business Unit structure and some expert contributions in Strategic Management.
The Views of Dess and Miller (2012) on Strategic Business Unit Structure
With an SBU structure, divisions with similar products, markets and or technologies are grouped
into homogenous groups in order to achieve some synergies. These includes related
diversification, such as leveraging, core competencies, sharing infrastructure and market power.
lv
Generally speaking, the more related business are within a corporation, the fewer SBUs will be
required. Each of the SBU also becomes a profit centre.
The major advantage of SBU structure is that it makes the task of planning and control by the
corporate office more manageable. Also, since the structure provides greater decentralization of
authority, individual businesses can react more quickly to important changes in the environment
than if all divisions had to report directly to the corporate office.
There are also some disadvantages of the SBU structure. Since the divisions are grouped into
SBUs, it may become difficult to achieve synergies across SBUs. That is, if divisions that are
included in different SBUs have potential sources of synergy, it may become difficult for them to
be realized. The additional level of management increases the number of personnel and overhead
expenses, while the additional hierarchical level removes the corporate office further from the
individual divisions. Thus the corporate office may become unaware of key developments that
could have a major impact on the corporation.
Expert Contributions in Strategic Management and Strategic Business Units
The views of Ansoff (1984) on Strategic Management:
According to Ansoff, Strategic Management is a systematic approach to a major and increasing
important responsibility of general management to position and relate the firm to its environment
in such a way that will assure its continued success and make it secure from surprises.
The first step in the evolution of strategic management was taken in the late 1950’s when Firms
invented a systematic approach to deciding where and how the firm will do its future business.
The analytical part of this approach has been named strategic formulation, and the process by
which managers jointly formulate strategy has been given the name of strategic planning.
The second step was taken in 1970’s when it was discovered that the internal configuration
(capability) of the business has to be transformed whenever a firm makes a discontinous change
in its strategy. The process of determining the capability needed to support the new strategy has
been named capability planning.
The third step in the late 1970’s was taken in response to the growing frequency of surpriseful
and rapidly developing continuities. To cope with these, firms have begun to use a real time
strategic response technique called issue management.
lvi
The fourth and most recent step evolved from the organizational resistance which was
encountered by early efforts to implant strategic planning into the firm. The early prescription for
overcoming the resistance was to secure enthusiastic support from top management. This turned
out to be a necessary but far from sufficient solution. A currently emerging (1980’s)
comprehensive approach is management of discontinuous change, which takes account of
psychological, sociological, political and systematic characteristic of complex organizations,
Thus strategic management is a systematic approach for managing strategic change which
consist of
(1) Positioning of the firm through strategy and capability planning.
(2) Real time strategic response through issue management
(3) Systematic management of resistance during strategic implementation.
Ansoff has traced the history of the original concept of strategic management to the two original
patterns of organization behaviours in business organizations. These are entrepreneurial and
incremental behaviour. Entrepreneurial behaviour is flexible and discontinuous from historical
factors in dealing with while incremental behaviour is conservative and reactive through organic
adaptation in dealing with changes resulting from the social composition of the task environment
of organizations. Ansoff noted that within an organization there are two major systems. One is
the logistic subsystem which is responsible for carrying out the productive activities of an
organization and other is the management subsystem. This managerial subsystem in
organizations is divided into strategic management and operation management. Strategic
management is entrepreneurial in behaviour and operation management is incremental in
behaviour. Ansoff noted that strategic management is an addition of systematic planning to
entrepreneurial behaviour.
According to Ansoff, “within the managerial subsystem are two principal managerial regimes:
strategic management and operations management concept.
The strategic management activity is concerned with establishing objectives and goals for the
organization, and with maintaining a set of relationship between the organization and
environment which:
lvii
(a)
Enable it to pursue its objectives
(b)
Are consistent with the organizational capabilities, and
(c)
Continue to be responsive to environmental demands.
One end-product of strategic management is potential for future fulfilment of organization’s
objectives.
In the business firm this consists of:
(a)
At the input to the firm: availability of financing, manpower, information, and raw
materials
(b)
At the output end, developed products and/or services, tested for their potential
profitability and
(c)
A set of social behaviour rules which permits the organization to continue to meet its
objectives. In addition to the future performance potential, another end product of
strategic management is internal structure and dynamics capable of continued
responsiveness to changes in the external environment. In the business firm this requires:
(a)
A managerial capability to sense and interpret environmental change, coupled to a
capability to conceive and guide strategic response; and
(b)
Logistic capability to conceive, develop, test and introduce new products and services.
In summary, the concerns of strategic management are:
(a)
To determine and bring about strategic change.
(b)
To build organizational architecture conductive to strategic change
(c)
To select and develop individuals (both workers and managers) motivated and capable of
creating strategic change.
The views of Steiner and Miner (1977) On Strategic Management
lviii
“Strategic management is a new name given to top management to distinguish it from
operational management. Although the distinction between top management activities and
operational management is not new (Goetz, 1963) Anthony, (1965) the name strategic
management is new and certainly the recognition of its growing significance is of recent origin
(Firankeholf and Gvanger, 1971; Ansoff, 1972); Schendel and Hatten, 1972; and Irusin, 1974; ...
“so important is the forgoing that some scholars in the field suggested that a distinction should be
drawn between the responsibilities of top managers in the formulation and implementation of
policy/strategy and all other managers. It is suggested that what we have been discussing be
called strategic management. The writers do not suggest, of course, that test theories, principles,
and practices of management be abandoned. Rather they assert that there is a significant
difference between management of the policy/strategy process and management in other areas of
organization. They say the Label “Strategic management” provides a new focus that highlights
the significance of this process and its uniqueness compared with other managerial
functions….we think there is merit in this and go one step further, we suggest that these concepts
be called management by structure insight. This is a somewhat awkward phrase but it focuses on
two major underlying principles, namely, structure and systematization of the policy/strategy
frame work, and decision-making based upon surveys of the future.
This view is not saying that strategic planning is the same as strategic management. Rather,
strategic planning is one major aspect of strategic management. The two are inextricably
interrelated. It is wrong to speak of strategic planning as a “tool” of management or as a
“technique” for decision making. It is a new concept of management. It is a new way to manage.
The views of Schendel and Hatten (1972)
They define strategic management “as the process of determining and maintaining the
relationship of the organization to its environment expressed through the use of selected
objectives, and of attempting to achieve the desired states of relationship through resource
lix
allocations which allow efficient and effective action programmes by the organization and its
subpart”.
Reacting to the definition of strategic management by Schendel and Hatten (1972), Steiner and
miner ask the following questions:
This is accepted here, with the observation that it describes a responsibility it has always had.
Why then the new concept?
Strategy is the central and unique core of strategic management strategic refers to the
formulation of basic organization missions, purposes, and objectives, policies and program
strategies to achieve them, and the methods needed to assure that strategies are implemented to
achieve organizational ends”…
The aim of strategic management is to reduce uncertainty for a focal business organization in
terms of changes in the environment. The reduction of uncertainty will help a particular business
organization to position its economic activities where it can maintain sustained growth on long
term basis. So, the operationalization of concept of strategy becomes the central issue in strategic
management.
The views of McCarthy, Minichiello/Curran (1983)
According to the view of McCarthy, Minichiello and Curran 1983) on “Strategic Management”
the idea of the strategy has developed into useful vehicle by which to analyze critical elements of
the job of the top managers. The concept of strategy management is considered to incorporate
various activities including the identification of strategy; the determination or formulation of
strategy; the implementation of strategy’ the evaluation of strategy. Thus these tasks encompass
a vital portion of the job of top management and are not to be interpreted simply as strategic
planning and long-range planning synonyms. However, top-management personnel are typically
most concerned with identifying and formulation of strategy and with planning for and initiating
its implementation. Usually, the actual implementation process is carried out by all members of
the organization. Top management and lower levels in varying degrees are virtually involved in
the continuous evaluation of chosen strategy. The specific approach to strategic tasks and the
lx
particular involvement of top management, however, does differ depending upon size and
diversity of the organization.
In diversified organizations, such as those with multiple divisions or “business”, it is likely that
each will have its own top management group. In such cases, the various divisional topmanagement teams will have a major voice in the formation of strategies for their own business.
These business strategies will be subject to the constraints of the broader corporate strategies but
in many organizations the division heads also have a voice in the formulation of those corporate
strategies….”Finally, McCarthy, Minichiello and Curran(1983) visualized the strategy
management process as including strategy formulation (or identification and reformation);
strategy implementation and strategy evaluation (see figure 2.3)
Strategy Formulation
Strategy Implementation
Strategy Evaluation
Figure 2.3 “The Strategic management process.
Source: Onwuchekwa (2000) Business Policy and Strategic Management, Onitsha: University
Publishing.
From the above definition of strategic management one can say that it is the process through
which top management position a business organization or relate it to discontinuous changes in
the environment through:
(1)
New strategy formulation
(2)
Strategic planning process
(3)
Configuring appropriate organization structure to fit the current strategy through
organizational design
lxi
(4)
Through real-time response issue management/boundary spanning positioning, and
(5)
Initiating programs for managing managers’ resistance to discontinuous changes.
Hence, strategic management helps to position a firm where it can be secure to continue its
productive activities and then reduce environmental uncertainty in terms of contingencies,
constrains, threats, opportunities, etc. so, strategic management is a contingent management
since there is strong influence of environment on the positioning decisions reached and also the
positioning decisions are influenced by the impact of technological discontinuities. But
environment and technology are the major sources of constrains, threats, emergence of
opportunities, synergistic benefits, etc. so, the positioning portfolio strategic balance
implemented by firms are identifiable through strategic planning analysis. So, various forms of
environments and technologies will influence diverse forms of strategy formulation. Hence,
strategic management is contingency management which aims at identifying appropriate
strategies which can position a firm in relationship to changes in environment and technology.
So, the management of an organization be it a top organizational level or operations level is
identifiable and can be evaluated in terms of the environment and technological impact.
According to Thompson (1967) the role of management is to reduce uncertainty for an
organization so that it can carry out its productive activity with certainty. Thus, uncertainty is
reduced at top management level for the entire organization through strategy formulation (see the
strategic problem of the firm and at operations management level through planning, organizing,
directing and controlling). Both the top management (strategy formulation and positioning
activities) and operations management functions are integrated through appropriate
organizational configuration through the process of organizational design in terms of strategy
implementation. Hence, strategic management at the level of environment identification and
technological impact is nothing but a prescription of appropriate organizational structure for
attainment of a particular corporate objective. So, strategic management is an act of top
management organizational design for attaining the corporate objectives of an organization.
So, the concepts of strategy, strategy formulation, strategic planning, organization structure,
organization design, environment, technology are at the heart of strategic management.
lxii
The views of Porter (1980) on Strategic groups within Industries
In an industry analysis, two assumptions are unassailable: (1) No two firms are totally different
and (2) no two firms are exactly the same. The issue becomes one of identifying groups of firms
that are more similar to each other than firms that are not, otherwise known as strategic groups.
This is important because rivalry tends to be greater among firms that are alike. Strategic groups
are clusters of firms that share similar strategies. After all, is Kmart more concerned about
Nordstrom or Wal-Mart? Is Mercedes more concerned about Hyundai or BMW? The answers
are straightforward.
These examples are not meant to trivialize the strategic groups concept. Classifying an industry
into strategic groups involves judgment. If it is useful as an analytical tool, one must exercise
caution in deciding what dimensions to use to map these firms. Dimensions include breadth of
product and geographic scope, price/quality, degree of vertical integration, type of distribution
(e.g., dealers, mass merchandisers, private label) and so on. Dimensions should also be selected
to reflect the variety of strategic combinations in an industry. For example, if all firms in an
industry have roughly the same level of product differentiation (or R&D intensity), this would
not be a good dimension to select.
What value is the strategic groups’ concept as an analytical tool? First, strategic groupings help a
firm indentify barriers to mobility that protects a group from attacks by other groups. Mobility
barriers are factors that deter the movement of firms from one strategic position to another. For
example, in the chainsaw industry, the major barriers protecting the high-quality /dealer-oriented
group are technology, brand image, and an established network of servicing dealers.
The second value of strategic grouping is that it helps a firm identify groups whose competitive
position may be marginal or tenuous. One may anticipate that these competitors may exit the
industry or try to move into another group. This has been the case in recent years in the retail
department store industry where firms such as J.C. Penney and Montgomery Ward have
experienced extremely difficult times because they were stuck in the middle, neither an
aggressive discount player like Wal-Mart nor a prestigious upscale player like Neiman Marcus.
Ward’s competitive position became so tenuous that it went out of business after more than a
century of retailing.
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Third, strategic groupings help chart the future directions of firms’ strategic. Picture arrows
emanating from each strategic group to represent the direction in which the group (or a firm
within the group) seems to be moving. If all strategic groups are moving in a similar direction,
this could indicate a high degree of future volatility and intensity of competition. In the
automobile industry, for example, the competition in the minivan and sport utility segments has
intensified in recent years as many firms have entered those product segments.
Fourth, strategic groups are helpful in thinking through the implications of each industry trend
for the strategic group as a whole. Is the trend decreasing the viability of a group? If so, in what
direction should the strategic group move? Is the trend increasing or decreasing entry barriers in
a given group? Will the trend decrease the ability of one group to separate itself from other
groups? Such analysis can help in making predictions about industry evolution. A sharp increase
in interest rate, for example, would tend to have less impact on providers of higher-price goods
(e.g., Porsches) than on providers of lower-priced goods (e.g., Dodge Neons). The Dodge Neon
customer base is much more price sensitive.
The firms in each group are representative; not all firms are included in the mapping. We have
indentified four strategic groups.. Most of the cars produced by the members of this group cost
well over $100,000. Some cost many times that amount. The Ferrari F60 roughly $550,000 and
the Lamborghini L147 $300,000 (in case you were wondering how to spend you employment
signing bonus). Players in this market have a very exclusive clientele and face little rivalry from
other strategic groups. At the other extreme, in the lower left-hand corner is a strategic group that
has low-price/quality attributes and targets a narrow market. These players, Hyundai and Kia,
limit competition from other strategic groups by pricing their products very low. The third group
(near the middle) consists of firms high in product pricing /quality and are average in their
product and multiple price points. These firms have entries that compete at both the lower end of
the market (e.g., the ford Escort) and the higher end (e.g., Chevrolet Corvette).
The auto market has been very dynamic in recent years. Many firms in different strategic groups
compete in the same product markets such as minivans and sport utility vehicles. In the late 1990
Mercedes entered the fray with its M series, and Porsche now has an entry as well. Some players
are also going more upscale with their product offerings. In 2001 Hyundai introduced its XG300
model price at over $25,000 for a fully loaded model. This brings Hyundai into direct
lxiv
competition with entries from other strategic group-Toyota’s Camry and Honda’s Accord, for
example. Hyundai is offering an extensive warranty (seven years, 100,000 miles) in an effort to
offset customer perceptions of their lower quality. Perhaps ford has made the most notable
efforts to go upscale. Not content to rely solely on the Lincoln nameplate to attract high-ticket.
Note: members of each strategic group are not inclusive, only illustrative buyers, ford, like other
large players, has gone on an acquisition binge. It recently acquired Volvo, Land Rover, Jaguar,
and Aston Martin. Ford is aggressively accelerating its forecasted sales for each of these brands.
To further intensify competition, some key automakers are providing offerings in lower-priced
segments. Mercedes and BMW with their C-class and 3- series, respectively, are well-known
examples. Such cars, priced in the low $30,000 compete more directly with products from broadline manufacturers like Ford, General Motors, and Toyota.
These new products are competing in an industry expected to have flat sales in the early part of
the decade. Value Line expects total U.S passenger car and truck volume to be 17.4 million units
in 2002, the same unit sales as in 1999; value line recently rated automating as 76 out of 92 in
terms of industry attractiveness. Don’t be surprised, therefore, if discounting and rebates
continue on most models.
The views of Porter (2008) on Industry Competition
The “five forces” model developed by Michael E. porter has been the most commonly used
analytical tool for examining the competitive environment. It describes the competitive
environment in terms of five basic competitive forces.
1.
The threat of new entrants
2.
The bargaining power of buyers
3.
The bargaining power of suppliers
4.
The threat of substitute products and services
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5.
The intensity of rivalry among competitors in an industry
Each of these forces affects a firm’s ability to compete in a given market. Together, they
determine the profit potential for a particular industry. The model is shown in exhibit. As a
manager, you should be familiar with the five-force model for several reasons. It helps you
decide whether your firm should remain in or exit an industry. It provides the rationale for
increasing or decreasing resource commitments. The model helps you assess how to improve
your firm’s competitive position with regard to each of the five forces. For example (and looking
ahead a bit), you can use insights provided by the five-forces model to create higher entry
barriers that discourage new rivals from competing with you. Or you may develop strong
relationships with your distribution channels. You may decide to find suppliers who satisfy the
price/performance criteria needed to make your product or service a top performer.
The threat of new entrants the threat of new entrants refers to the possibility that the profits of
established firms in the industry may be eroded by new competitors. The extent of the threat
depends on existing barriers to entry and the combined reactions from existing competitors. If
entry barriers are high and/or the newcomer can anticipate a sharp retaliation from established
from established competitors, the threat of entry is low. These circumstances discourage new
competitors. There are six major sources of entry barriers:
Economies of Scale Economies of scale refer to spreading the costs of production over the
number of units produced. The cost of a product per unit declines as the solute volume per period
increases. This deters entry by forcing the entrant to come in at large scale and risk strong
reaction from existing firms or come in at a small scale and accept a cost disadvantage. Both are
undesirable options.
Product differentiation when existing competitors have strong brand identification and customer
loyalty, differentiation creates a barrier to entry by forcing entrants to spend heavily to overcome
existing customer loyalties.
Capital requirements the need to invest large financial resources to compete creates a barrier to
entry, especially if the capital is required for risky or unrecoverable up-front advertising or
research and development (R&D).
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Switching Costs a barrier to entry is created by the existence of one-time costs that the buyer
faces when switching from one supplier’s product or service to another.
Access to distribution channels the new entrant’s need to secure distribution for its product can
create a barrier to entry.
Cost disadvantages independent of scale some existing competitors may have advantage that are
independent of size or economies of scale. These derive from:
Proprietary product
Favorable access to raw materials
Government subsides
Favorable government policies
In an environment where few, or none, of these entry barriers are present, the threat of new entry
is high. For example, if a new firm can launch its business with a low capital investment and
operate efficiently despite its small scale of operation, it is likely to be a threat. One company
that failed because of low entry barriers in an industry is ProCD. You probably never heard of
this company. It didn’t last very long. ProCD provides an example of a firm that failed because it
entered an industry with very low entry barriers.
The story begins in 1986 when Nynex (a Baby Bell company) issued the first electronic phone
book, a compact disk containing all listings for the New York City area. It charged $10,000 per
copy and sold the CDs to FBI, IRS, and other large commercial and government organizations.
James Bryant, the Nynex executive in charge of the project, smelled a fantastic business
opportunity. He quit Nynex and set up his own firm, ProCD, with the ambitious goal of
producing an electronic directory covering the entire United States.
As expected, the telephone companies, fearing an attack on their highly profitable yellow page
business, refused to license digital copies of their listings to this upstart. Bryant was not deterred.
He traveled to Beijing and hired Chinese workers at $3.50 a day to type every listing from every
U.S. telephone book into a database. The result contained more than 70 million phone numbers
and was used to create a master disk that enabled ProCD to make hundreds of thousand of
copies. Each CD sold for hundreds of dollars and cost less than a dollar each to produce.
lxvii
A profitable business indeed! However, success was fleeting. Competitors such as Digital
Directory Assistance and American Business information quickly launched competing products
with the same information. Since customers couldn’t tell one product from the next, the players
were forced to compete on price alone. Prices for the CD soon plummeted to a few dollars each.
A high-priced, high-margin product just month earlier, the CD phone book became little more
than a cheap commodity.
The bargaining power of buyers: buyers threaten an industry by forcing down prices, bargaining
for higher quality of more services, and playing competitors against each other. These actions
erode industry profitability. The power of each large buyer group depends on attributes of the
market situation and the importance of purchases from that group compared with the industry’s
overall business. A buyer group is powerful under the following conditions:
It is concentrated or purchases large volumes relative to seller sales. If a large percentage
of a supplier’s sales are purchased by a single buyer, the importance of the buyer’s
business to the supplier increases. Large-volume buyers also are powerful in industries
with high fixed cost (e.g., steel manufacturing).
The products it purchases from the industry are standard or undifferentiated. Confident
they can always find alternative suppliers, buyers play one company against the other, as
in commodity grain products.
The buyer faces few switching costs. Switching costs lock the buyer to particular sellers.
Conversely, the buyer’s power is enhanced if the seller faces high switching costs.
It earns low profits. Low profits create incentives to lower purchasing costs. On the other
hand, highly profitable buyers are generally less price sensitive.
The buyers poses a credible threat of backward integration. If buyers are either partially
integrated or pose a credible threat of backward integration, they are typically able to
secure bargaining concessions.
The industry’s product is unimportant to the quality of the buyer’s products or services.
When the quality of the buyer’s products is affected by the industry’s product, the buyer
is more price sensitive.
At times, a firm or set of firms in an industry may increase its buyer power by using the service
of a third party. Free Market Online is one such third party. Pittsburgh based free markets has
lxviii
developed software enabling large industrial buyers to organize online auctions or qualified
suppliers of semistandard parts such as fabricated components, packaging materials, metal
stampings, and services. By aggregating buyers, free markets increase the buyer’s bargaining
power. The results are impressive. In its first 48 auctions, most participating companies saved
over 15 percent; some saved as much as 50 percent. Free markets is growing at the rate of 40
percent per quarter and believe its auction technology is applicable to over $300 billion worth of
industrial purchases in the united state alone.
The bargaining power of suppliers: suppliers can exert bargaining power over participants in an
industry by threatening to raise prices or reduce the quality of purchased goods and services.
Powerful suppliers can squeeze the profitability of firms in an industry so far that they can’t
recover the costs of raw material inputs. The factors that make suppliers powerful tend to mirror
those that make buyers powerful. A supplier group will be powerful in the following
circumstances:
The supplier group is dominated by a few companies and is more concentrated (few
firms dominate the industry) than the industry it sells to. Suppliers selling from
fragmented (disorganized) industries influence prices, quality, and terms.
The supplier group is not obliged to contend with substitute products for sale to the
industry. The power of even large, powerful suppliers can be checked if they compete
with substitute.
The industry is not an important customer of the supplier group. When suppliers sell
to several industries and a particular industry does not represent a significant fraction
of its sales, suppliers are more prone to exert power.
The supplier’s product is an important input to the buyer’s business. When such inputs
are important to the success of the buyer’s manufacturing process or product quality,
the bargaining power of suppliers is high.
The supplier group’s products are differentiated or it has built up switching costs.
Differentiation or switching costs facing the buyers cut off their options to play one
supplier against another.
The supplier group poses a credible threat of forward integration. This provides a
check against the industry’s ability to improve the terms by which it purchases.
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When considering supplier power, we focus on companies that supply raw materials, equipment,
machinery, and associated services. But the supply of labor is also an important input to business
and labors power and varies over time and across occupations and industries. As we enter the
21st century, the outlook is not very good for semiskilled and unskilled laborers. Annual wage
gains before inflation is taken into account – typically a good measure of workers’ bargaining
clout in the labor market – have remained in the 3 percent range for much of the 1990. When the
CPI averaged around 2 percent that provided employees with pay increases that exceeded
inflation. With higher consumer prices, however, real wage gains (wage increases above the
inflation rate) have been virtually nonexistent recently.
Workers with the right skills and jobs have enjoyed the spoils of the New Economy and will
likely continue to do so. However, many other employees face the same forces that kept wage
flat in the early 1990: high immigration, deunionization, and globalization. For example, steel
imports surged in 2000, threatening the jobs of many U.S. steel workers. Not surprisingly,
members of the united steel workers (USW) have been forced to accept below-inflation pay
increases. On September 1, 200, 900 USW members at AK steel crop’s Ashland, Kentucky,
facility approval a pay hike of only 2.6 percent a year for the next five years. Said Roy Murray, a
USW official, “We didn’t want to be out there demanding more money when the industry is on
its heels.”
Identifying substitute products involves searching for other products or services that can perform
the same function as the industry’s offerings. This is a subtle task, one that leads a manager into
businesses seemingly far removed from the industry. For example, the airline industry might not
consider video cameras much of a threat. But as digital technology has improved and wireless
and other forms of telecommunication have become more efficient, teleconferencing has become
a viable substitute for business travel for many executives.
Substitute products that deserve the most attention are those that (1) are subject to trends
improving their price/performance value relative to an industry’s product or (2) are produced by
industries earning high profits. For high-profit industries, substitutes often come into play if a
new development increases competition in their industries, and causes price reductions or
performance improvements. The following example is near and dear to us: substitutes to what
may be considered the traditional institutions of higher learning in the united state, its 2,700
lxx
colleges and universities. The traditional paradigm was that graduation signified the end of
formal leaning. This is giving way to a new model where working and learning blend into one
seamless activity. Corporations are rapidly entering the world continuous learning by creating
corporate universities. These in-house training and development departments are forums for
educating and developing the entire value chain of the organization – employees, customers,
dealers, and suppliers. Strategy spotlight 2.7 addresses the corporate training and development
initiatives of Arthur Andersen, General Electric (GE), and Federal Express (FedEx).
The intensity of rivalry among competitors in an industry. Rivalry among existing competitors
takes the form of jockeying for position. Firms use tactics like price competition, advertising
battles, product introductions, and increased customer service or warranties. Rivalry occurs when
competitors sense the pressure or act on an opportunity to improve their position.
Some forms of competition, such as price competition, are typically highly destabilizing and are
likely to erode the average level of profitability in an industry. Rivals easily match price cuts, an
action that lowers profits for all firms. On the other hand advertising battles expand overall
demand or enhance the level of product differentiation for the benefit of all firms in the industry.
Rivalry, of course, differs across industries. In some instances it is characterized as warlike,
bitter, or cutthroat, whereas in other industries it is referred to as polite and gentlemanly. Intense
rivalry is the result of several interacting factors, including the following:
Numerous or equally balanced competitors. When there are many firms in an industry,
the likelihood of mavericks is great. Some firms believe they can make moves without
being noticed. Even when there are relatively few firms, and they are nearly equal in size
and resources, instability result from fighting among companies having the resources,
instability results from fighting among companies having the resources for sustained and
vigorous retaliation.
Slow industry growth. Slow industry growth turns competition into a fight for market
share since firms seek to expand their sales.
High fixed or storage costs. High fixed costs create strong pressures for all firms to
increase capacity. Excess capacity often leads to escalating price cutting.
Lack of differentiation or switching costs. Where the product or service is perceived as a
commodity or near commodity, the buyer’s choice is typically based on price and service,
lxxi
resulting in pressures for intense price and service competition. Lack of switching costs,
described earlier, has the same effect.
Capacity augmented in large increments. Where economies of scale require that capacity
must be added in large increments, capacity additions can be very disruptive to the
industry supply/demand balance.
High exit barriers. Exit barriers are economic, strategic, and emotional factors that keep
firms competing even though they may be earning low or negative returns on their
investments. Some exit barriers are specialized assets, fixed costs of exit, strategic
interrelationships (e.g., relationships between the business units and others within a
company in terms of image, marketing, shared facilities, and so on), emotional barriers,
and government and social pressure (e.g., governmental discouragement of exit out of
concern for job loss).
Rivalry between firms is often based solely on price, but it can involve other factors. Take
Pfizer’s market position in the impotence treatment market. Pfizer was the first pharmaceutical
firm to develop Viagra, a drug that treats impotence. International sales of Viagra were $332
million during a recent quarter. There are currently 30 million prescriptions for the drug. Pfizer
would like to keep competitors from challenging this lucrative position.
In several countries, the United Kingdom among them, Pfizer faced a lawsuit by Eli Lilly and
Co. and Icos Corporation challenging its patent protection. These two pharmaceutical firms
recently entered into a joint venture to market Cialis, a drug to compete with Viagra. The U.K
courts agreed and lifted the patent.
This opened the door for Eli Lilly and Icos to proceed with challenging Pfizer’s market position.
Because Cialis has fewer side effects than Viagra, the drug has the potentials to rapidly decrease
Pfizer’s market share in the United Kingdom – if physicians switch prescriptions from Viagra to
Cialis. If future patent challenges are successful, Pfizer may see its sales of Viagra erode rapidly.
With projected annual sales of Cialis of $ 1 billion, Pfizer has reason to worry. In addition, Cialis
is currently undergoing phase III clinical trials in the United State (the last step before food and
drug administration approval). If Cialis gets FDA approval, Viagra sales could plummet in the
United States, further eroding Pfizer’s market share. But Pfizer is hardly standing still. It
lxxii
increased advertising expenditures on Viagra from $56 million for all of 1999 to $46 million for
just the first half of 2000.
Using industry analyses: a caveat for industry analyses to be valuable, a company must collect
and evaluate a wide variety of information from many sources. As the trend toward globalization
accelerates, information on foreign markets as swell as on a wider variety of competitors,
suppliers, customers, substitute and potential new entrants becomes more critical. Industry
analysis helps a firm not only to evaluate the profit potential of an industry, but also to consider
various ways to strengthen its position vis-à-vis the five forces.
Five-force analysis implicitly assumes a zero-sum game, determining how a firm can enhance its
position relative to the forces. Yet such an approach can often be very shortsighted; that s, it can
overlook the many potential benefits of developing constructive win-win relationships with
suppliers and customers. Establishing long-term mutual beneficial relationships with suppliers
improves a firm’s ability to implement just-in-time (JIT) inventory systems, which let it manage
inventories better and respond quickly to market demands. A recent study found that if a
company exploits its powerful position against a supplier, that action may come back to haunt
the company if the position of power changes. Further, by working together as partners, suppliers
and manufacturers can provide the greatest value at the lowest possible costs.
According to Shaw (2011), the SBU is a profit making area that focuses on a combination of
product offer and market segment, requiring its own market plan, competition analysis and
marketing campaign. That is to say that if there is a big enough market niche for a product we
supply, then we may want to create a Strategic Business Units that focuses on that opportunity.
Example: selling Ice cream to kids playing outdoors in hot weather could be one SBU. Another
SBU could be selling Ice cream to theatre goers. Another could be selling Ice Cream to
supermarket goers via television advertising (this obviously suggests that the overall corporate
strategy is selling Ice Cream). Either your corporate strategy or personal choice through personal
interest or market research will lead you to a certain market Sector or industry. That market
sector in itself partly defines what type of product that you will sell.
The exact product mix and target niches are down to the Strategic Business Units (SBU). At the
level of (SBU) we have just few core objectives:
lxxiii
•
Selecting market segments in which to compete
•
Providing a mix of well demanded products
•
Out competing competitors through lower cost or higher quality or both or some
other means to achieve higher perceived value.
This however is done through three key areas of market analysis:
1.
Customer / Offer mix
2.
Positioning through competitor profiling
3.
Critical success s factors
1.
Customer/Offer Mix
To arrive at identifying these SBU’S a customer/Offer mix is created. A square with offerings on
one axis and customer groups on the other. Filling in the squares that offer significant market
potential allows you to hone in on where to create SBU’s.
Table 2.1: Customer/ Offer Matrix.
A
B
C
D
E
Product/
Kids
Home life
Summer/
Evening/
Park
Theatre
customer
1.
Cones
Opportunity
Opportunity
2.
Large Tube
Opportunity
Opportunity
3.
Boxes
Opportunity
Opportunity
4.
Small tubs
Opportunity
Opportunity
Source: Shaw (2011) Strategic Business Units, http.//www.Gavrielshaw.strategic Business
unit.html.
Each SBU will be structured uniquely, depending on the nature of the customer relationship,
competitive environment, product availability and so on. From this analysis you arrive at a list of
competencies the organization must have to succeed within each SBU.
lxxiv
2.
Positioning (Competitor Profiling)
Successful businesses effectively manage customer perceptions. Knowing who you are
competing against allows you to position your offer which include
3.
•
Know the companies that are in our market
•
Profile them for strengths and weaknesses
•
Decide on opportunities and threats by arriving at critical success factors.
Critical Success Factors (CSF)
CSF’s are the things you need to do well to optimally win. This must Pin Point the customer
requirements inherent in the product category and in the current competitive environment that
will give you a competitive advantage, extending from the core competencies and values of the
company.
Thus to clearly identify critical success factors you must have clear definitions of the market
segment and customer groups as per the customer/offer Matrix. (Gavriel Shaw 2011: 2).
According to Malayan Insurance (2011) Strategic Business units, it pioneers in one – stop –
express Insurance requirements, processing and approval with proximity, efficiency and total
accessibility. It is our way of bringing dependable Insurance service closer to you. What to
expect from a Malayan Strategic Business Units includes:
a.
Proximity
Accessibility is one of the main reasons why we created SBU. Now you won’t be battling so
much of Metro Manila’s unpredictable traffic conditions in order to apply, verify and follow – up
your Insurance requirements with Malayan. Just drop by anytime at the nearest SBU office and
our personnel will be very pleased to serve you. Soon more SBU’s will be opened thus giving
you, our valued clients, an easier and faster way of availing of efficient Insurance services.
b.
One – Stop Processing Convenience
This time you don’t need to move from department to another and talk to different person for
your various Insurance needs. Since the SBU and the head office have the same processing
procedures, you will carry out your entire transaction within the SBU office.
lxxv
Their SBU
personnel will immediately attend to you and take care of your needs from application stage up
to the final process when the policy is received.
c.
Reliability
Because the SBU has been given responsive function,
clients are assured that its basic
operations have been carefully designed to assure Insurance reliability. Basically, the Malayan
SBU can accommodate all risks that fall under our underwriting guidelines. The SBU is designed
to answer product and service inquires, do risk inspections and policy Insurance, premium
collections, claims processing and settlement and other services that you also get from the main
office.
d.
Personalized Services
Expect our SBU personnel to give you more attention. Because you will be talking to the same
person and will be visiting the same office, it’s easier to know who to talk to whenever you have
inquires on your present and future Insurance plans.
f.
Faster Response Time
We treat each SBU transaction as our utmost priority and will process it with urgency.
Malayan Insurance strategic Business Unit (SBU) currently has ten (10) SBU’s in Manila.
Philippines. (Malayan 2011: 3)
According to BMW (2008) Strategic Business Units, although many of the people who drive
BMW automobiles know what the company’s initial stand for or realize that the company’s well
known and distinctive blue and white propeller badge reproduces the colours of the state flag of
the state of Bavaria, research shows that BMW stands for the “Bayerische Motoren Werke”
which was established during the first World War (Kay, 1995, 1).
The company specializes in the manufacture of engines. In subsequent years, BMW diversified
into what are now its two principal product ranges;
Automobiles and (b) Motor cycles, today BMW is one of Germany’s Largest and most
successful companies Kay (1995: 2). Through its strategic Business Unit efforts, the company
achieved this level of success by a circuitous route, and one that some observers suggest was in
lxxvi
spite of the company’s historically pricey models. For example, BMW automobiles are not
necessarily, the most powerful, or the most reliable, or the most luxurious in the market, even
though they measure up well against all of these criteria Kay (1995: 3).
At Asian Capital Reinsurance (ACR) Group, they understand the need for customised solutions
to manage today’s increasingly complex Asian risk landscape. As such, our dedicated Strategic
Business Unit (SBU) is committed to providing our clients with a holistic approach to formulate
tailor-made solutions so as to help them better handle their challenges in meeting business
objectives and regulatory requirements.
With their in-depth understanding of the Asian landscape and extensive risk management
expertise, we are well-placed to offer strategic advice and a broad range of products and services
which are unique to the Asian insurance industry. Through strategic dialogue, the team works
closely with clients to analyse specific needs and issues in their businesses, and puts together
bespoke solutions that truly reflect and address their business requirements. The team also helps
clients develop their products, underwriting expertise and risk management system through
regular discussions, trainings and workshops.
The SBU comprises of Business Development, Client Servicing, Market Research and Strategic
Solutions teams. These teams are filled up with highly trained and experienced individuals with
in-depth analytical skills and technical know-how to accurately identify and devise innovative
solutions for a wide range of risk schemes. Our client-focused approach ensures that we fully
understand our clients’ needs, strategy and challenges while providing timely and effective
services.
As the Asian risk landscape develops, we continually focus on refining our awareness and
analysis of the business environment pertaining to Asia and will tap on the market intelligence
through their Asian network to offer enhanced solutions to meet the business needs of our
clients.
2.4 Empirical Review
The empirical review of this study was drawn from the objectives herein. In the course of the
study, survey, questionnaire and oral interview were used to empirically ascertain Strategic
lxxvii
Business Units and its link to performance as it concerns profitability of selected manufacturing
companies in South- Eastern Nigeria. The five companies under review are: Tonimas Group,
Pokobros Group, Innoson Group, Orange Group and Camela Group.
2.4.1
To ascertain the extent to which Strategic Business Units affect productivity of
Manufacturing Companies.
Walkman (2009) in a research to check the extent to which Strategic Business Units affect
productivity in manufacturing companies confirms that there is a significant relationship between
Strategic Business Units and productivity of manufacturing companies. He asserts that the three
most important characteristics of any Strategic Business Unit are Competitiveness, Strategy and
Productivity. Competitiveness describes how an organization meets the needs and wants of
customers compared to the competitors of the organization, in other words demand. Strategic
Business Units helps the organization achieve their goals by using tactics, which are the methods
and actions taken to accomplish its strategies. Lastly, Productivity helps Strategic Business Units
know what materials are used effectively. Productivity = Output (Goods and Services) / Input
(Labour, materials, energy and other resources). He affirms that productivity measures are useful
for tracking a Strategic Business Units performance overtime and judging the performance of an
entire industry or Country. Productivity is a measure of the effective use of resources, usually
expressed as the ratio of output to input. It is an important ingredient of Organizational and
Functional level Strategies. A successful Strategic Business Unit must work hard to improve and
grow its revenue base by ensuring that goods and services are produced in a cost effective
manner.
Hill and Kent (2011) in their research on the impact of Strategic Business Units and productivity
of manufacturing companies concludes that Strategic Business Units are more productive and
innovative than mere work groups in an organization. They produce results that exceed what
groups of individuals can do through simple cooperation and coordination. Such results reflect a
“team effect”; members perform better when they feel they are part of a productive Strategic
Business Unit. The root of this benefit is members’ strong mutual commitment to their joint
work. The commitment creates compelling social and emotional bonds among members, who
come to believe that “we will all succeed or fail together and that no one can succeed if the team
fails. In every team “we” triumphs over “I”. Unless you have been part of a team yourself, it is
lxxviii
hard to understand the exhilaration produced by this sense of what “we” can accomplish
together.
The study by Jeff (2009) on Strategic Business Units and productivity concludes that one of the
most important parts of running a successful business is that you need to have a viable Strategic
Business Unit. Not only that but you want your business organized in a way that your Strategic
Business Unit can be most effective. Making sure of this can be tricky but it has to happen if
your business is going to be successful. The reason that you need to make sure that you have a
good organization and Strategic Business Units for your business is that it will keep things
running smoothly. It will ensure that everybody knows what they are supposed to be doing and
what goals of the business are. This will keep everyone on the same page and working towards
the same goals. Most companies know that they need to have a good Strategic Business Unit to
drive organizational productivity.
Creating a good management team can be a bit more of a challenge; there is no doubt that good
managers are critical to your business. They are the ones who will make the important decisions,
so they need experience and the judgment to make good ones. Determining whether they do or
not can be a challenge and the truth is that you may find that you do hire managers who are not
up to the job. If that is the case, you must get rid of them, bad managers can do an enormous
amount of damage to your business. A bad manager will make bad decisions, will hurt the
morale of the employees and your relationship with customers, you can’t afford to keep them
around because organizational productivity will be jeopardized.
2.4.2
To determine the extent Strategic Business Units enhance profitability in
Manufacturing Companies
A research by Hofstrand (2014) on Strategic Business Units and profitability confirms that a
business that is not profitable cannot survive. Whether you are recording profitability for the past
period or projecting profitability for the coming period, measuring profitability is the most
important measure of the success of a Strategic Business Unit. Conversely, a Strategic Business
Unit that is highly profitable has the ability to reward its owners and parent companies large
return on their investment. Enhancing profitability is one of the most important tasks of SBU
Presidents. Strategic Business Unit Presidents constantly look for ways to change the business to
improve profitability. These potential changes can be analyzed with a pro forma income
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statement or a partial budget. Partial budgeting allows you to assess the impact on profitability of
a small or incremental change in the business strategies before it is implemented.
Equally subscribing to the same view on Strategic Business Units and profitability, Mankins et
al (2005) in their work on Turning Great Strategy into performance agrees that Strategic
Business Units enhance profitability of manufacturing companies. They came to the conclusion
that a select group of high performing companies have managed to close the Strategy to
Performance gap through better planning and execution. These companies developed realistic
plans that are solidly grounded in the underlying economics of their markets and then use the
plans to drive execution. Their disciplined planning and execution processes make it far less
likely that they will face a shortfall in actual performance. If they do fall short, their processes
enable them to discern the cause quickly and take corrective action. While these companies
practice are broad in scope, ranging from unique forms of planning to integrated processes for
deploying and tracking resources. Our experience suggests that they can be applied by any
Strategic Business Unit to help craft great plans and turn them into great performance. Their
research affirms that companies on average deliver only 63% of the financial performance their
Strategies promise. Leaders then pull the wrong levers in their attempts to turn around
Performance, pressing for better executions when they actually need a better Strategy and
Strategic Business Units, or opting to change direction when they should really focus the
Organization on execution. The result: wasted energy, lost time and continued under
Performance.
A confirmation of the above views on Strategic Business Units and profitability was collaborated
by Tzeng, Chiang, Lee (2006) in their work on Market orientation, Service Quality and Business
Profitability maintain that Strategic Business Units enhances profitability. They conclude that
due to the variety of organizational tasks, obviously, elements and component of Profitability
and its assessment should be varied and tailored to each Strategic Business Unit. Providing
harmonized and uniform criteria for Profitability and Organizations evaluation based on them.
Therefore, it is essential that the components and criteria of the Profitability evaluation are based
on the objectives, intentions, plans and tasks description and activities of each Strategic Business
Unit. It means that in the Organizations Profitability evaluation of each Strategic Business Unit,
it must be tailored to its specific Organization approach.
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2.4.3 To determine the extent to which Strategic Business Units can be used to address
Technological and Environmental Challenges in Manufacturing Companies
The imperative of the effect of environmental challenges on manufacturing has been highlighted
by many scholars. However, Okafor (1988) in his research on Environmental issues and
Management in Nigeria Development re-affirm that environmental challenges affect Strategic
Business Units. He confirms that Nigeria destroys about 600, 000 hectares of her forest every
year through careless exploitation and husbandry. Such careless exploitation of the forest has
been implicated in a number of worsening environmental problems in the country including soil
erosion and infertility, desertification and flooding which adversely affects Parent Companies
and its Strategic Business Units.
Equally, Lorenzen (2010) in their work on the Impact of Technology and Social media
concludes that technology and social media should be used to increase efficiency in Strategic
Business Units; form relationships with clients and reach new customers. An almost ubiquitous
concept, the challenge lies within setting up systems within your company that allows for a
flexibility that infiltrates new processes in order to take best advantage of the latest technology.
She advocated a list of Strategic issues for Chief Innovation Officers (CIO), also bringing to light
some of the same technology and social media issues such as pushing transformative thinking
and customer engagement. Who is responsible in your Strategic Business Units is to ensure that
innovation and customer service are top priority, and that processes continue to take advantage
of the latest and ever changing technology available.
2.4.4 To ascertain the major ways of encouraging Strategic Business Units application in
Manufacturing Companies
Golden (2012) in his work on Content Marketing Strategy confirms that the use of emerging
means of production is not a major way of encouraging Strategic Business Units. He asserts that
Strategic Business Units need to create a positive image of manufacturing that once enticed the
brightest professionals to the sector. Introduction and use of emerging technologies alone are not
enough. We need to make manufacturing “in” again, highlighting the fortunes created and the
valuable contribution made from manufacturing so that we can attract our best and brightest. He
believes this can be done by creating a “do it for America” type ethos which will help attract
students to the Engineering and Science fields. Many Engineers are looking towards web and
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software firms, leaving the Strategic Business Units and the entire manufacturing industry
hunting for creative talent for product development efforts. In addition, manufacturing is no
longer viewed as “the” place to go for young, well educated Professionals. Software, Wall Street
and Consulting have become the ín” places to be. “Without innovation, price becomes the
competitive basis, and the United States lost structures cannot match those from off-shore
without exceptional productivity.
The same view was given credence by Edozie (2011) in his research on The Challenges facing
Strategic Business Units in the manufacturing industry in Nigeria where he concludes that
Strategic Business Units are not immune to challenges facing manufacturing industries in
Nigeria. These includes: epileptic power supply, the countries deficient infrastructure, credit
squeeze, low purchasing power, high financing cost in the financial market, among others.
Emerging means of production cannot be successful under this current challenges mentioned
above. Efforts should be geared towards improving the quality and quantity of power supply to
manufacturing industries overtime.
2.4.5 To determine the degree to which Strategic Business Units enhance the market share
of manufacturing Companies
An affirmative study in favour of the use of Strategic Business Units in enhancing market share
received a significant boost from the work of Wood (2014) in his research on Business Units and
Market share agree that Strategic Business Units enhance market share of manufacturing
companies. He confirms that Strategic
Business Units
enhance business strategy by identifying the high growth and attractive market categories. It also
develops competitive strategy based on competitive landscape, design capital investment
strategies based on forecasted high potential segments and finally identifies potential business
partners, acquisition targets and business buyers. This will in the long run significantly affect the
market share of that organization. Other indices which will positively affect the market share of a
Strategic Business Unit includes; plan for a new product lunch and inventory in advance,
preparation of management and strategic presentations using the market data as well as the
review of unbiased and independent assessment of the market data.
There was also a research conducted by Hazynla et al (2010) on Market Orientation and
Organizational Performance. They conclude that growth in the market size and market share in
terms of revenue, unit sales, average selling price and forecasted growth rates and company
lxxxii
market shares are traceable to the activities of Strategic Business Units within the parent
organization. Strategic Business Units offers an organization the required competitive advantage
and platform to grow and develop its products and services through its organizational and
functional level strategies. Through these continuous development and growth strategies, the
impact of these activities will sustain the organizational market share and size for increased
return on investment for shareholders.
Strategic Business Area (SBA) as a complementary strategy in Strategic Business Unit
(SBU) Approach in Organizational performance
A Strategic Business Area (SBA) is a distinctive segment of the environment in which the firm
does (or may want to do) business, (Ansoff 1965). An SBA is analysed in terms of distinctive
areas of trends, threats and opportunities which it offered to the firm. As the first step in strategic
portfolio Analysis, the respective SBU’s are identified and analysed without any references to
the firm’s structure or its current products. The outcome of such analysis are:
1. Growth Prospects
2. Profitability Prospects
3. Turbulence Prospects
4. Technology Prospects.
Result of SBA Analysis
Growth
Profitability
Turbulence
Technology
Prospects
Prospects
Prospects
Prospects
Total knowledge of trends, threats and Opportunities.
Cumulative Competitive positioning of a firm
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Figs 2.4 Strategic Business Area (SBA) Analysis.
Source: Onwuchekwa (2000) Business Policy and Strategic Management, Onitsha, University
Publishing.
The above outcome of Strategic Portfolio Analysis are the prospects which an SBA will offer in
the future to any competent competitor. The information from SBA analysis will then be used by
a firm to decide its pattern of strategic entry into any of the SBA’s which were identified
Onwuchekwa (2000:89).
Strategic Business Unit (SBU) Approach:
Strategic Business Unit is a complementary Concept to strategic Business Area. It is a Unit in a
business organization which has responsibility for developing the firm’s strategic position in one
or more SBA’s. This approach to strategic portfolio analysis was started in the U.S.A by the
General Electric Company. In some contexts Strategic Business Area and Strategic Business
Unit are used synonymously. In this context however, they have different definitions
(Onwuchekwa 2000: 90).
Strategic Business Area Vs Strategic Business Unit.
In the real sense an SBA is defined by a need which gives rise to product development and the
technology through which that product is developed. When the Federal Military Government of
Nigeria introduced the Structural Adjustment Programme (SAP), it placed embargo on the
importation of some foreign products. One of the areas affected by this policy was the
transportation sector especially commercial transport. This gave rise to the cost of personal
vehicles (cars and buses). This situation created the need for mass transits. The SBA’s – SBU’s
affected mostly were the automobile assembly and manufacturing industries which came up with
diverse product strategies and automotive technologies to solve the diverse mass transit problems
Onwuchekwa (2000:91).
According to
Ansoff (1984) when ever technology substitution takes place, the
demand/Technology coupling focuses a firms attention on a crucial strategic choice; whether
(and how long) to stay with the historical technology or to shift to the new one which is making
obsolete the firms historical product line. There is much historical evidence to show that, without
the benefit of the SBA perspective, firms tend to persist in developing their historical products
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past the point of their obsolence. As can be observed from the figures, having chosen its SBA’s,
the firm needs to develop the appropriate product line. The strategic development responsibility
for choosing the SBA, developing competitive products and marketing strategies lies with SBU.
Once the product line is developed the responsibility for making the profits belongs to an
operating Unit.
In a business which is strategically oriented towards SBA and SBU phenomena, the major
organization problem is always how to introduce the two operative concepts within the same
structural framework of an organization. This problem has been discussed by both Kotler (1986)
and Ansoff (1984). According to Ansoff (1984:27), when the SBA – SBU approach is first
introduced in a firm an important question is how to structure the SBU operating unit
relationship. To find solution to this major organizational problem, Ansoff discussed solutions
which some companies have already attempted.
The solution is that which has been attempted by the USA Ministry of Defence. In the original
application of the SBU approach in the Ministry of defence, the then secretary of Defence Mr.
Mc Namera and C.J. Hitch (also of the Defence Department) developed what they called the
“Mission Slice”, which is the Military term of on SBA which is environment centred. So, when
Mr. Mc Namera introduced the concept originally, he found out that his principal operating
departments in the Ministry of defence; army, navy, air force, Marines, all made over lapping
and frequently conflicting contributions to the “Mission Slices”. Strategic deference, air defence
of the US, limited warfare etc. Mr. Mc Namera’s solution was to create new units charged with
strategic manning for the respective “Mission Slices”. The strategic decisions made by these new
SBU were cross walked for implementation to the departments. This split created conflicts and
lack of co-ordination, particularly because several departments frequently shared responsibility
for an SBA (Ansoff, 1984: 28).
To avoid the type of problems experienced by the Defence Department above, the General
Electric company used a different solution. The company undertook the difficult task of
matching existing operating units to the firms SBA thus making their SBU’s responsible not only
for strategy planning and implementation, but also for subsequent profit making. The approach
adopted by General Electric company eliminates the cross walk and unifies profit and loss
responsibility in an SBU.
lxxxv
However, the problem experienced by General Electric is that the historical organization
structure does not map simply on the newly identified SBA’s and the resulting responsibilities
are not clearing cut and unambiguous. Because of the above organizational problem experienced
by the General Electric Company, a third solution has been sought on how to integrate SBU’s
and SBA’s with the organizational structure of an organization. According to Ansoff (1984:30),
solution is to re-organize the firm according to SBA’s so that there is a one to one
correspondence of SBA’s and SBU’s. This simply appearing solution runs into its own
difficulties because of effectiveness of strategic development which is the organizational design
criterion used in identifying SBU’s, is only one of the key determinants of organizational
structure. The other are the effective use of thfirms technology and efficiency of profit making.
A re-organization according to SBA, which maximizes the effectiveness of strategic behaviour
may therefore compromise the firms profit making performance, or it may be infeasible in the
light of technological considerations.
According to Onwuchekwa (2000:92) irrespective of the above problems which can be
experienced by the firm in integrating SBA and SBU concepts within its organizational structure,
the two concepts are necessary tools for giving a firms a clear view of its future environment,
which is essential for effective strategic decision.
Boston Consulting Group Approach
The Boston Consulting Group (BCG), a leading management consulting firm, developed an
approach in which a company classifies all its SBU’s in the Growth share matrix shown in fig
2.6. The vertical axis, market growth rate, refers to the annual growth rate of the market in which
the product sold and provides a measure of market attractiveness. In the figure, the market
growth rate goes from a low of zero percent to a high of 20 percent although a larger range could
be shown. Market growth is arbitrarily divided into high and low growth by a 10percent growth
line.
The horizontal axis, relative market share, refers to the SBU’s market share relative to that of the
largest competitor. It serves as a measure of the company strength in the market. A relative
market share of 0.1 means that the company’s SBU is the leader and has ten times the sales of
the next stronger company in the market. Relative market share is divided into high and low
share using 1.0 as the dividing line. Relative market share is drawn in the log scale.
lxxxvi
According to Kotler (1986). By dividing the growth share matrix in the way indicated four (4)
types of SBU can be distinguished.
Market Growth Rate
20%
Stars = X
Question Mark = ?
Relative Market Share
High
White Cats
10%
Low
Cash Cow =
10%
High
Dogs
$
1.0X
Low
0.1X
Fig 2.6: The BCG Growth share Matrix.
Source: Onwuchekwa (2000) Business Policy and Strategic Management, Onitsha, University
Publishing.
Stars: stars are high growth, high market share SBU’s. They are typically cash – using SBU’s
because cash is necessary to finance their rapid growth. Eventually, their growth will slow down
and they will turn into cash cows and become major cash generators supporting other SBU’s.
Cash Cows: Cash cows are low growth high share SBU’s. They produce a lot of cash that the
company uses to pay its bills and support other SBU’s that are cash using.
Question Marks: Question marks are low-share SBU’s in high – growth markets. They require a
lot of cash to maintain their share, let alone increase it. Management has to think hard about
which question marks it should try to build into stars and which should be phased down or out.
Dogs: Dogs are low – growth, low – share SBU’s. They may generate enough cash to maintain
themselves, but do not promise to be a large source of cash.
lxxxvii
General Electric Approach:
General Electric introduced a comprehensive portfolio planning tool called a strategic business
planning grid. (see Fig 2.7). It is similar to the BCG approach in that it uses a matrix with two
dimensions, one representing Industry attractiveness and one representing company strength in
the industry. The best businesses are those located in highly attractive industries where the
particular company has high business strength (Onwuchekwa 2000: 99).
In Figure 2.7, industry attractiveness is shown on the vertical axis. In the General Electric
Approach many factors besides market growth rate are considered. Industry attractiveness is an
index made up of such factors as these.
Market Size: Large markets are more attractive than small market.
Market Growth Rate: High – growth markets are more attractive than low –
growth markets.
Profit Margin: High profit margin industries are more attractive than low profit
margin industries.
Competitive Intensity: Industries with many strong competitors are less attractive
than industries with a few weak competitors.
Business Strength
Industry Attractiveness
Strong
Average
Weak
High
A
C
Medium
Low
D
Fig 2.7 General Electric Strategic Business Planning Grid
Source: Onwuchekwa (2000) Business Policy and Strategic Management, Onitsha, University
Publishing.
lxxxviii
Organizational Performance
According to Dess and Miller (1996), internal strategic analysis provides relevant Information
which can be used for assessing strength and weaknesses. Such an assessment can be
quantitative or qualitative. We shall start with the balanced score and evaluation.
Economic value added (EVA)
Profitability
Growth
Financial
Differentiation
Cost
Quick response
Product Development
Demand Management
Order Fulfillment
Customer
Operations
Leadership
Organizational Learning
Ability to Change
Organizations
Fig 2.8. The four perspectives for balanced score card
Source: Dess and Miller (1996) Strategic Management, New York, Mc Graw Hill
Fig 2.8 above presents the four perspectives of the balanced score card. The balanced score
present a combination of criteria which can be used to assess the actual performance of an
organization. It is called a balanced score card because it does not allow any one perspective to
outweigh the others when a firms strengths and weaknesses are assessed. The four perspectives
in a balanced score card assessment are:
lxxxix
a.
Financial Performance
b.
Customer Performance
c.
Operations Performance
d.
Organizational Performance
Onwuchekwa (2000:55) posits that the ideas reflected by the balanced score card assessment is
that financial assessment ought to precede all other forms of assessment. It is well understood by
most forward thinking managers and members of the financial community that providing
superior returns for shareholders usually depends on a firm sustaining a competitive advantage
based on providing superior value for customers.
Similarly providing superior value to customers depends on the development of operations with
the needed capabilities. Finally, developing the required operational capabilities requires an
organization of employees with the needed creativity, diversity, skills and motivations, so the
above four performance perspectives in a balanced score card are inter – related and supportive
of one another (Miller and Dess, 1996).
a.
Financial Performance
In accessing financial performance, one will like to know if the organization which is being
assessed is generating the required financial returns in excess of the total cost of capital as
suggested in economic value added model. Assessment of a firms growth and profitability tells
more about the degree of financial performance.
b.
Customer Performance
This can be assessed by the competitive factors (business level strategies) of product
differentiation, cost leadership and quick response. Customers value these three competitive
factors. These three competitive factors will influence to what extent customers purchase the
products of a particular organization.
c.
Operations Performance
The focus here is how effectively and efficiently the core processes that produce customer value
perform which are the most important sources of customer value. Which areas are improvements
needed? How are they to be improved?
xc
d.
Organizational Performance
Flexibility to adapt to environmental changes must be assessed. Some managers are biased and
become passive with adapting to changes. Is the work force motivated and committed to
common goals. Does the organization learn from past mistakes and formulate new strategies for
attainment of organizational objectives.
Assessing Organizational Performance.
Several years ago, the International Development Research Centre (IDRC) and Universalia
Management Group began to explore the issues surrounding ways and means to better
understand how to assess institutional/organizational performance. Given the lack of theory on
Institutional assessment, they eventually developed their own framework and a process that
could be used in evaluating organizations. This resulted in the publication of “Institutional
Assessment”. A framework for strengthening organizational capacity for IDRC’s Research
Partners (Lusthaus, Anderson and Murphy, 1995) and “Evaluation Institutionelle, Cadre pour le
reinforcement des organizations partenaires du CRDI (Lusthaus, Anderson and ADvien, 1996)
Although the intended audience for the book was research institutions, the framework of
assessment it describes is generic and has been applied in a range of organizations and
institutions. A range of organizations in the developing world who are interested in self
assessment tested this framework with IDRC and Universalia IDRC (1999).
The Organizational Assessment (OA) Framework
By and large, the framework reflected a change in focus from how well the organization did its
programming work to how its various systems and resources provided it with what they called
“organizational capacity”. As the work evolved, they became increasingly concerned with the
organizational ability to establish priorities in its own capacity development. This led them to
refocus their framework on the organizational performance in carrying out its mission.
Performance
Performance according to IDRC (1999) is defined as terms of effectiveness (Mission,
fulfilment), efficiency, ongoing relevance (The extent to which the organization adapts to
changing conditions in its environment) and financial viability. The framework implies that
xci
certain contextual forces drive performance, the capacities of an organization, forces in its
external environment, and the internal motivation of the organization. In the view of Lusthaus,
Anderson and Murphy, (1995) most organizations view their performance in terms
of“effectiveness” in achieving their mission, purpose or goals. Most NGO’s for example would
tend to link the larger notion of organizational performance to the results of their particular
progress to improve the lives of a target group (eg. The poor). At the same time, a majority of
organizations also see their performance in terms of their “efficiency” in deploying resources.
This relates to the optimal use of resources to obtain the results desired.
Finally, in order for an organization to remain viable over time, it must be both “financial
viable” and relevant to it stakeholders and their changing needs. In the organizational
Assessment (OA) framework, these four aspects of performance are the key dimensions to
organizational Performance:
a.
Effectiveness
b.
Efficiency
c.
Financially viable
d.
Relevant.
External Environment:
Organizations exist within certain contexts or environments that facilitate or impede their
performance, key factors in the policy or regulatory environment, and in the economic, political
socio- cultural environmental and technological contexts, effects how the organization does its
work, or the work it does Pabari (2004: 6).
Internal Motivation:
Internally, performance is driven by the organizations motivation to perform which refers to the
organizational culture, history, mission, values and incentive systems. These factors affect the
quality of work, the nature of how the organization competes, and the degree of involvement of
internal stakeholders in decision, making processes Macphenson (2004: 5).
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Performance is driven in part by organizational capacity, which is understand as existing in
seven basic areas: strategic leadership, human resources, financial resources, infrastructure,
programming and process management and inter institutional linkages IDRC (1999).
Each of these seven capacity areas may be described in sub-components as for example, in the
organizations strategic leadership capacity which is understood as its structures, governance,
leadership, strategic, plans and niche Management, Human resources, financial resources and
infrastructure are seen as resources as well as the management of these resources. Organizations
also have capacities that result from the relations, partnerships and alliances they have
established with other organizations – reffered to as Inter – Institutional Linkages (Lusthaus,
Anderson and Adrien, 1996).
Figure 2.9: The Performance Management Cycle.
Source: Mintzberg and Quinn (1988) The Strategy Process, Harlow, Prentice Hall.
Similar to our fitness program, where progress is monitored and analyzed in areas such as weight
loss or number of repetitions for a given exercise, performance management involves monitoring
key performance indicators (KPIs) that measure whether an organization is meeting its objectives
and overarching strategy. A KPI in this sense is a measure defined by a business that allows for
observation of actual values, as they may emerge from line-of-business (LOB) applications and
their comparison to established targets (or budgeted values). If a KPI reveals an actual value that
xciii
deviates too far from (or in many cases, closely approaches) a pre-defined target, then further
analysis is warranted (Mintzberg 1988).
Discoveries made during analysis should help us plan our next steps, set new (or adjust existing)
expectations, and predict what may happen based on our decisions. In larger organizations, data
from multiple LOB systems are often centralized within “a single version of the truth” business
intelligence (BI) system to optimize KPI monitoring, detailed analysis, and performance
reporting. BI systems often (but not always) consist of several layers that work together, helping
businesses to:
•
Integrate and refine data from a variety of applications, systems, and documents into a
centralized data mart or data warehouse.
•
Analyze refined data to gain insight into current performance (monitoring KPIs),
potential causes for specific KPI variances (or deviations of actual values from target
values).
•
Report past, current, or forecast conditions to stakeholders.
The goal of a BI system is to ultimately help business people make better, faster decisions.
Classically, such decision-making has occurred at higher levels of an organization and been
limited to a relatively small number of individuals. However, corporate culture has changed
significantly over the last decade, and themes of transparency, accountability, and empowerment
have emerged. Performance management frameworks, like Kaplan and Norton’s Balanced
Scorecard method, build on these notions by making all steps in the cycle (illustrated in Figure
2.6) occur at executive, departmental, and operational layers of the modern organization(Barnard
1938).
The strategy hierarchy
In most (large) corporations there are several levels of management. Corporate strategy is the
highest of these levels in the sense that it is the broadest - applying to all parts of the firm - while
also incorporating the longest time horizon. It gives direction to corporate values, corporate
xciv
culture, corporate goals, and corporate missions. Under this broad corporate strategy there are
typically business-level competitive strategies and functional unit strategies.
Corporate strategy refers to the overarching strategy of the diversified firm. Such a corporate
strategy answers the questions of "which businesses should we be in?" and "how does being in
these businesses create synergy and/or add to the competitive advantage of the corporation as a
whole?" Business strategy refers to the aggregated strategies of single business firm or a
Strategic Business Unit (SBU) in a diversified corporation. According to Michael Porter, a firm
must formulate a business strategy that incorporates either cost leadership, differentiation, or
focus to achieve a sustainable competitive advantage and long-term success. Alternatively,
according to Kim and Mauborgne (2005) an organization can achieve high growth and profits
by creating a Blue Ocean Strategy that breaks the previous value-cost trade off by
simultaneously pursuing both differentiation and low cost.
Functional strategies include marketing strategies, new product development strategies, human
resource strategies, financial strategies, legal strategies, supply-chain strategies, and information
technology management strategies. The emphasis is on short and medium term plans and is
limited to the domain of each department’s functional responsibility. Each functional department
attempts to do its part in meeting overall corporate objectives, and hence to some extent their
strategies are derived from broader corporate strategies.
Many companies feel that a functional organizational structure is not an efficient way to organize
activities so they have reengineered according to processes or SBUs. A Strategic Business Unit
is a semi-autonomous unit that is usually responsible for its own budgeting, new product
decisions, hiring decisions, and price setting. An SBU is treated as an internal profit centre by
corporate headquarters. A technology strategy, for example, although it is focused on technology
as a means of achieving an organization's overall objective(s), may include dimensions that are
beyond the scope of a single business unit, engineering organization or IT department.
An additional level of strategy called operational strategy was encouraged by Peter Drucker in
his theory of management by objectives (MBO). It is very narrow in focus and deals with day-today operational activities such as scheduling criteria. It must operate within a budget but is not at
xcv
liberty to adjust or create that budget. Operational level strategies are informed by business level
strategies which, in turn, are informed by corporate level strategies.
Since the turn of the millennium, some firms have reverted to a simpler strategic structure driven
by advances in information technology. It is felt that knowledge management systems should be
used to share information and create common goals. Strategic divisions are thought to hamper
this process. This notion of strategy has been captured under the rubric of dynamic strategy,
popularized by Carpenter and Sanders's textbook . This work builds on that of Brown and
Eisenhart as well as Christensen and portrays firm strategy, both business and corporate, as
necessarily embracing ongoing strategic change, and the seamless integration of strategy
formulation and implementation. Such change and implementation are usually built into the
strategy through the staging and pacing facets.
Growth and portfolio theory
In the 1970s much of strategic management dealt with size, growth, and portfolio theory. The
PIMS study was a long term study, started in the 1960s and lasted for 19 years, that attempted to
understand the Profit Impact of Marketing Strategies (PIMS), particularly the effect of market
share. Started at General Electric, moved to Harvard in the early 1970s, and then moved to the
Strategic Planning Institute in the late 1970s, it now contains decades of information on the
relationship between profitability and strategy. Their initial conclusion was unambiguous: The
greater a company's market share, the greater will be their rate of profit. The high market share
provides volume and economies of scale. It also provides experience and learning curve
advantages. The combined effect is increased profits. The studies conclusions continue to be
drawn on by academics and companies today: "PIMS provides compelling quantitative evidence
as to which business strategies work and don't work" - Tom Peters.
The benefits of high market share naturally lead to an interest in growth strategies. The relative
advantages of horizontal integration, vertical integration, diversification, franchises, mergers and
acquisitions, joint ventures, and organic growth were discussed. The most appropriate market
dominance strategies were assessed given the competitive and regulatory environment.
xcvi
There was also research that indicated that a low market share strategy could also be very
profitable. Schumacher (1973), Woo and Cooper (1982), Levenson (1984), and later Traverso
(2002) showed how smaller niche players obtained very high returns.
By the early 1980s the paradoxical conclusion was that high market share and low market share
companies were often very profitable but most of the companies in between were not. This was
sometimes called the “hole in the middle” problem. This anomaly would be explained by
Michael Porter in the 1980s.
The management of diversified organizations required new techniques and new ways of
thinking. The first CEO to address the problem of a multi-divisional company was Alfred Sloan
at General Motors. GM was decentralized into semi-autonomous “strategic business units”
(SBU's), but with centralized support functions.
One of the most valuable concepts in the strategic management of multi-divisional companies
was portfolio theory. In the previous decade Harry Markowitz and other financial theorists
developed the theory of portfolio analysis. It was concluded that a broad portfolio of financial
assets could reduce specific risk. In the 1970s marketers extended the theory to product portfolio
decisions and managerial strategists extended it to operating division portfolios. Each of a
company’s operating divisions were seen as an element in the corporate portfolio. Each operating
division (also called strategic business units) was treated as a semi-independent profit center with
its own revenues, costs, objectives, and strategies. Several techniques were developed to analyze
the relationships between elements in a portfolio. B.C.G. Analysis, for example, was developed
by the Boston Consulting Group in the early 1970s. This was the theory that gave us the
wonderful image of a CEO sitting on a stool milking a cash cow. Shortly after that the G.E. multi
factorial model was developed by General Electric. Companies continued to diversify until the
1980s when it was realized that in many cases a portfolio of operating divisions was worth more
as separate completely independent companies.
The marketing revolution
The 1970s also saw the rise of the marketing oriented firm. From the beginnings of capitalism it
was assumed that the key requirement of business success was a product of high technical
xcvii
quality. If you produced a product that worked well and was durable, it was assumed you would
have no difficulty selling them at a profit. This was called the production orientation and it was
generally true that good products could be sold without effort, encapsulated in the saying "Build
a better mousetrap and the world will beat a path to your door." This was largely due to the
growing numbers of affluent and middle class people that capitalism had created. But after the
untapped demand caused by the second world war was saturated in the 1950s it became obvious
that products were not selling as easily as they had been. The answer was to concentrate on
selling. The 1950s and 1960s is known as the sales era and the guiding philosophy of business of
the time is today called the sales orientation. In the early 1970s Levitt and others at Harvard
argued that the sales orientation had things backward. They claimed that instead of producing
products then trying to sell them to the customer, businesses should start with the customer, find
out what they wanted, and then produce it for them. The customer became the driving force
behind all strategic business decisions. This marketing orientation, in the decades since its
introduction, has been reformulated and repackaged under numerous names including customer
orientation, marketing philosophy, customer intimacy, customer focus, customer driven, and
market focused.
The Japanese challenge
In 2009, industry consultants Blaxill and Eckardt (2009) suggests that much of the Japanese
business dominance that began in the mid 1970s was the direct result of competition enforcement
efforts by the Federal Trade Commission (FTC) and U.S. Department of Justice (DOJ). In 1975
the FTC reached a settlement with Xerox Corporation in its anti-trust lawsuit. (At the time, the
FTC was under the direction of Frederic M. Scherer). The 1975 Xerox consent decree forced the
licensing of the company’s entire patent portfolio, mainly to Japanese competitors. (See
"compulsory license.") This action marked the start of an activist approach to managing
competition by the FTC and DOJ, which resulted in the compulsory licensing of tens of
thousands of patent from some of America's leading companies, including IBM, AT&T, DuPont,
Bausch & Lomb, and Eastman Kodak.
Within four years of the consent decree, Xerox's share of the U.S. copier market dropped from
nearly 100% to less than 14%. Between 1950 and 1980 Japanese companies consummated more
than 35,000 foreign licensing agreements, mostly with U.S. companies, for free or low-cost
xcviii
licenses made possible by the FTC and DOJ. The post-1975 era of anti-trust initiatives by
Washington D.C. economists at the FTC corresponded directly with the rapid, unprecedented
rise in Japanese competitiveness and a simultaneous stalling of the U.S. manufacturing economy.
Competitive advantage
The Japanese challenge shook the confidence of the western business elite, but detailed
comparisons of the two management styles and examinations of successful businesses convinced
westerners that they could overcome the challenge. The 1980s and early 1990s saw a plethora of
theories explaining exactly how this could be done. They cannot all be detailed here, but some of
the more important strategic advances of the decade are explained below.
Hamel and Prahalad (1994) declare that strategy needs to be more active and interactive; less
“arm-chair planning” was needed. They introduced terms like strategic intent and strategic
architecture. Their most well known advance was the idea of core competency. They showed
how important it was to know the one or two key things that your company does better than the
competition.
Active strategic management required active information gathering and active problem solving.
In the early days of Hewlett-Packard (HP), Dave Packard and Bill Hewlett devised an active
management style that they called management by walking around (MBWA). Senior HP
managers were seldom at their desks. They spent most of their days visiting employees,
customers, and suppliers. This direct contact with key people provided them with a solid
grounding from which viable strategies could be crafted. The MBWA concept was popularized
in 1985 by a book by Tom Peters and Nancy Austin. Japanese managers employ a similar
system, which originated at Honda, and is sometimes called the 3 G's (Genba, Genbutsu, and
Genjitsu, which translate into “actual place”, “actual thing”, and “actual situation”).
Probably the most influential strategist of the decade was Michael Porter. He introduced many
new concepts including; 5 forces analysis, generic strategies, the value chain, strategic groups,
and clusters. In 5 forces analysis he identifies the forces that shape a firm's strategic
environment. It is like a SWOT analysis with structure and purpose. It shows how a firm can use
these forces to obtain a sustainable competitive advantage. Porter modifies Chandler's dictum
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about structure following strategy by introducing a second level of structure: Organizational
structure follows strategy, which in turn follows industry structure. Porter's generic strategies
detail the interaction between cost minimization strategies, product differentiation strategies, and
market focus strategies. Although he did not introduce these terms, he showed the importance of
choosing one of them rather than trying to position your company between them. He also
challenged managers to see their industry in terms of a value chain. A firm will be successful
only to the extent that it contributes to the industry's value chain. This forced management to
look at its operations from the customer's point of view. Every operation should be examined in
terms of what value it adds in the eyes of the final customer.
In 1993, John Kay took the idea of the value chain to a financial level claiming “ Adding value is
the central purpose of business activity”, where adding value is defined as the difference between
the market value of outputs and the cost of inputs including capital, all divided by the firm's net
output. Borrowing from Gary Hamel and Michael Porter, Kay claims that the role of strategic
management is to identify your core competencies, and then assemble a collection of assets that
will increase value added and provide a competitive advantage. He claims that there are 3 types
of capabilities that can do this; innovation, reputation, and organizational structure.
The 1980s also saw the widespread acceptance of positioning theory. Although the theory
originated with Trout in 1969, it didn’t gain wide acceptance until Ries and Trout (1979) wrote
their classic book “Positioning: The Battle For Your Mind”. The basic premise is that a strategy
should not be judged by internal company factors but by the way customers see it relative to the
competition. Crafting and implementing a strategy involves creating a position in the mind of the
collective consumer. Several techniques were applied to positioning theory, some newly
invented but most borrowed from other disciplines. Perceptual mapping for example, creates
visual displays of the relationships between positions. Multidimensional scaling, discriminate
analysis, factor analysis, and conjoint analysis are mathematical techniques used to determine the
most relevant characteristics (called dimensions or factors) upon which positions should be
based. Preference regression can be used to determine vectors of ideal positions and cluster
analysis can identify clusters of positions.
c
Others felt that internal company resources were the key. Barney (1992), for example, sees
strategy as assembling the optimum mix of resources, including human, technology, and
suppliers, and then configure them in unique and sustainable ways.
Hammer and Champy (1993) feels that these resources needed to be restructured. This process,
that they labeled reengineering, involved organizing a firm's assets around whole processes
rather than tasks. In this way a team of people saw a project through, from inception to
completion. This avoided functional silos where isolated departments seldom talked to each
other. It also eliminated waste due to functional overlap and interdepartmental communications.
In 1989 Richard Lester and the researchers at the MIT Industrial Performance Center identifies
seven best practices and concluded that firms must accelerate the shift away from the mass
production of low cost standardized products. The seven areas of best practice were:
•
Simultaneous continuous improvement in cost, quality, service, and product innovation
•
Breaking down organizational barriers between departments
•
Eliminating layers of management creating flatter organizational hierarchies.
•
Closer relationships with customers and suppliers
•
Intelligent use of new technology
•
Global focus
•
Improving human resource skills
The search for “best practices” is also called benchmarking. This involves determining where
you need to improve, finding an organization that is exceptional in this area, then studying the
company and applying its best practices in your firm.
A large group of theorists felt the area where western business was most lacking was product
quality. People like
Deming, Juran, Kearney,
Crosby, and Feignbaum suggests quality
improvement techniques like total quality management (TQM), continuous improvement
(kaizen), lean manufacturing, Six Sigma, and return on quality (ROQ).
An equally large group of theorists felt that poor customer service was the problem. People like
Heskett (1988), Sasser (1995), Davidow, Schlesinger, Paraurgman (1988), Berry, KingmanBrundage, Hart, and Lovelock (1994), gives us fishbone diagramming, service charting, Total
ci
Customer Service (TCS), the service profit chain, service gaps analysis, the service encounter,
strategic service vision, service mapping, and service teams. Their underlying assumption was
that there is no better source of competitive advantage than a continuous stream of delighted
customers.
Process management uses some of the techniques from product quality management and some of
the techniques from customer service management. It looks at an activity as a sequential process.
The objective is to find inefficiencies and make the process more effective. Although the
procedures have a long history, dating back to Taylorism (1984), the scope of their applicability
has been greatly widened, leaving no aspect of the firm free from potential process
improvements. Because of the broad applicability of process management techniques, they can
be used as a basis for competitive advantage.
Some realizes that businesses were spending much more on acquiring new customers than on
retaining current ones. Sewell, Reichheld, Gronroos, and Sasser shows us how a competitive
advantage could be found in ensuring that customers returned again and again. This has come to
be known as the loyalty effect after Reicheld's book of the same name in which he broadens the
concept to include employee loyalty, supplier loyalty, distributor loyalty, and shareholder
loyalty. They also developed techniques for estimating the lifetime value of a loyal customer,
called customer lifetime value (CLV). A significant movement started that attempted to recast
selling and marketing techniques into a long term endeavor that created a sustained relationship
with customers (called relationship selling, relationship marketing, and customer relationship
management). Customer relationship management (CRM) software (and its many variants)
became an integral tool that sustained this trend.
Gilmore and Pine (1999) finds competitive advantage in mass customization. Flexible
manufacturing techniques allowed businesses to individualize products for each customer
without losing economies of scale. This effectively turned the product into a service. They also
realizes that if a service is mass customized by creating a “performance” for each individual
client, that service would be transformed into an “experience”. Their book, The Experience
Economy, along with the work of Schmitt convinced many to see service provision as a form of
theatre. This school of thought is sometimes referred to as customer experience management
(CEM).
cii
Like Peters and Waterman a decade earlier, Collins and Porras (1994) conducts empirical
research on what makes great companies. Six years of research uncovered a key underlying
principle behind the 19 successful companies that they studied: They all encourage and preserve
a core ideology that nurtures the company. Even though strategy and tactics change daily, the
companies, nevertheless, were able to maintain a core set of values. These core values
encourages employees to build an organization that lasts. In Built To Last (1994) they claim that
short term profit goals, cost cutting, and restructuring will not stimulate dedicated employees to
build a great company that will endure. In 2000 Collins coins the term “built to flip” to describe
the prevailing business attitudes in Silicon Valley. It describes a business culture where
technological change inhibits a long term focus. He also popularized the concept of the BHAG
(Big Hairy Audacious Goal).
Geus (1997) undertook a similar study and obtained similar results. He identifies four key traits
of companies that had prospered for 50 years or more. They are:
•
Sensitivity to the business environment — the ability to learn and adjust
•
Cohesion and identity — the ability to build a community with personality, vision, and
purpose
•
Tolerance and decentralization — the ability to build relationships
•
Conservative financing
A company with these key characteristics he called a living company because it is able to
perpetuate itself. If a company emphasizes knowledge rather than finance, and sees itself as an
ongoing community of human beings, it has the potential to become great and endure for
decades. Such an organization is an organic entity capable of learning (he called it a “learning
organization”) and capable of creating its own processes, goals, and persona.
There are numerous ways by which a firm can try to create a competitive advantage - some will
work but many will not. To help firms avoid a hit and miss approach to the creation of
competitive advantage, Mulcaster (2009) suggests that firms engage in a dialogue that centers’
around the question "Will the proposed competitive advantage create Perceived Differential
Value?" The dialogue should raise a series of other pertinent questions, including:
ciii
•
"Will the proposed competitive advantage create something that is different from the
competition?"
•
"Will the difference add value in the eyes of potential customers?" - This question will
entail a discussion of the combined effects of price, product features and consumer
perceptions.
•
"Will the product add value for the firm?" - Answering this question will require an
examination of cost effectiveness and the pricing strategy.
The military theorists
In the 1980s some business strategists realized that there was a vast knowledge base stretching
back thousands of years that they had barely examined. They turned to military strategy for
guidance. Military strategy books such as The Art of War by Sun Tzu, On War by von
Clausewitz, and The Red Book by Mao Zedong became instant business classics. From Sun Tzu,
they learned the tactical side of military strategy and specific tactical prescriptions. From
Clausewitz, they learned the dynamic and unpredictable nature of military strategy. From Mao
Zedong, they learned the principles of guerrilla warfare.
Kotler (1976) was a well-known proponent of marketing warfare strategy. There was generally
thought to be four types of business warfare theories. They are:
•
Offensive marketing warfare strategies
•
Defensive marketing warfare strategies
•
Flanking marketing warfare strategies
•
Guerrilla marketing warfare strategies
The marketing warfare literature also examined leadership and motivation, intelligence
gathering, types of marketing weapons, logistics, and communications.
By the turn of the century marketing warfare strategies had gone out of favour. It was felt that
they were limiting. There were many situations in which non-confrontational approaches were
more appropriate. In 1989, Lynch and Kordis published Strategy of the Dolphin: Scoring a Win
in a Chaotic World. "The Strategy of the Dolphin” was developed to give guidance as to when to
civ
use aggressive strategies and when to use passive strategies. A variety of aggressiveness
strategies were developed.
Moore (1993) instead of using military terms, creates an ecological theory of predators and prey
(see ecological model of competition), a sort of Darwinian management strategy in which market
interactions mimic long term ecological stability.
Strategic change
Drucker (1969) coins the phrase Age of Discontinuity to describe the way change forces
disruptions into the continuity of our lives. In an age of continuity attempts to predict the future
by extrapolating from the past can be somewhat accurate. According to Drucker (1969), we are
now in an age of discontinuity and extrapolating from the past is hopelessly ineffective. We
cannot assume that trends that exist today will continue into the future. He identifies four sources
of discontinuity: new technologies, globalization, cultural pluralism, and knowledge capital.
Toffler (1970) in Future Shock describes a trend towards accelerating rates of change. He
illustrated how social and technological norms had shorter life spans with each generation, and
he questioned society's ability to cope with the resulting turmoil and anxiety. In past generations
periods of change were always punctuated with times of stability. This allowed society to
assimilate the change and deal with it before the next change arrived. But these periods of
stability are getting shorter and by the late 20th century had all but disappeared.
Toffler (1980) characterizes this shift to relentless change as the defining feature of the third
phase of civilization (the first two phases being the agricultural and industrial waves) .He
claimed that the dawn of this new phase will cause great anxiety for those that grew up in the
previous phases, and will cause much conflict and opportunity in the business world. Hundreds
of authors, particularly since the early 1990s, have attempted to explain what this means for
business strategy.
Hamel (2000) discusses strategic decay, the notion that the value of all strategies, no matter how
brilliant, decays over time.
cv
Abell, (1978) describes strategic windows and stresses the importance of the timing (both
entrance and exit) of any given strategy. This has led some strategic planners to build planned
obsolescence into their strategies.
Handy (1989) identifies two types of change - Strategic drift is a gradual change that occurs so
subtly that it is not noticed until it is too late. By contrast, transformational change is sudden and
radical. It is typically caused by discontinuities (or exogenous shocks) in the business
environment. The point where a new trend is initiated is called a strategic inflection point by
Grove (1990). Inflection points can be subtle or radical.
Gladwell (2000) discusses the importance of the tipping point, that point where a trend or fad
acquires critical mass and takes off.
Tichy (1983) posits that because we are all beings of habit we tend to repeat what we are
comfortable with. He wrote that this is a trap that constrains our creativity, prevents us from
exploring new ideas, and hampers our dealing with the full complexity of new issues. He
developed a systematic method of dealing with change that involved looking at any new issue
from three angles: technical and production, political and resource allocation, and corporate
culture.
Pascale, (1990) posits that relentless change requires that businesses continuously reinvent
themselves. His famous maxim is “Nothing fails like success” by which he means that what was
a strength yesterday becomes the root of weakness today, We tend to depend on what worked
yesterday and refuse to let go of what worked so well for us in the past. Prevailing strategies
become self-confirming. To avoid this trap, businesses must stimulate a spirit of inquiry and
healthy debate. They must encourage a creative process of self renewal based on constructive
conflict.
Peters and Austin (1985) stresses the importance of nurturing champions and heroes. They say
we have a tendency to dismiss new ideas, so to overcome this, we should support those few
people in the organization that have the courage to put their career and reputation on the line for
an unproven idea.
cvi
Slywotzky (1996) shows how changes in the business environment are reflected in value
migrations between industries, between companies, and within companies. He claims that
recognizing the patterns behind these value migrations is necessary if we wish to understand the
world of chaotic change. In “Profit Patterns” (1999) he describes businesses as being in a state
of strategic anticipation as they try to spot emerging patterns. He and his team identifies 30
patterns that have transformed industry after industry.
Christensen (1997) takes the position that great companies can fail precisely because they do
everything right since the capabilities of the organization also defines its disabilities. His thesis is
that outstanding companies lose their market leadership when confronted with disruptive
technology. He calls the approach to discovering the emerging markets for disruptive
technologies agnostic marketing, i.e., marketing under the implicit assumption that no one - not
the company, not the customers - can know how or in what quantities a disruptive product can or
will be used before they have experience using it.
A number of strategists use scenario planning techniques to deal with change. The way Peter
Schwartz (1991) puts it is that strategic outcomes cannot be known in advance so the sources of
competitive advantage cannot be predetermined. The fast changing business environment is too
uncertain for us to find sustainable value in formulas of excellence or competitive advantage.
Instead, scenario planning is a technique in which multiple outcomes can be developed, their
implications assessed, and their likeliness of occurrence evaluated.
According to Wack (1995), scenario planning is about insight, complexity, and subtlety, not
about formal analysis and numbers.
Mintzberg (1988) looks at the changing world around him and decided it was time to re-examine
how strategic management was done. He examined the strategic process and concluded it was
much more fluid and unpredictable than people had thought. Because of this, he could not point
to one process that could be called strategic planning. Instead Mintzberg concludes that there are
five types of strategies:
•
Strategy as plan - a direction, guide, course of action - intention rather than actual
•
Strategy as ploy - a manoeuvre intended to outwit a competitor
cvii
•
Strategy as pattern - a consistent pattern of past behaviour - realized rather than intended
•
Strategy as position - locating of brands, products, or companies within the conceptual
framework of consumers or other stakeholders - strategy determined primarily by factors
outside the firm
•
Strategy as perspective - strategy determined primarily by a master strategist
Mintzberg (1998) develops these five types of management strategy into 10 “schools of
thought”. These 10 schools are grouped into three categories. The first group is prescriptive or
normative. It consists of the informal design and conception school, the formal planning school,
and the analytical positioning school. The second group, consisting of six schools, is more
concerned with how strategic management is actually done, rather than prescribing optimal plans
or positions. The six schools are the entrepreneurial, visionary, or great leader school, the
cognitive or mental process school, the learning, adaptive, or emergent process school, the power
or negotiation school, the corporate culture or collective process school, and the business
environment or reactive school. The third and final group consists of one school, the
configuration or transformation school, a hybrid of the other schools organized into stages,
organizational life cycles, or “episodes”.
Markides (1999) wants to re-examine the nature of strategic planning itself. He describes
strategy formation and implementation as an on-going, never-ending, integrated process
requiring continuous reassessment and reformation. Strategic management is planned and
emergent, dynamic, and interactive.
Moncrieff (1999) also stresses on strategy dynamics. He recognized that strategy is partially
deliberate and partially unplanned. The unplanned element comes from two sources: emergent
strategies (result from the emergence of opportunities and threats in the environment) and
Strategies in action (ad hoc actions by many people from all parts of the organization).
Some business planners are starting to use a complexity theory approach to strategy. Complexity
can be thought of as chaos with a dash of order. Chaos theory deals with turbulent systems that
rapidly become disordered. Complexity is not quite so unpredictable. It involves multiple agents
interacting in such a way that a glimpse of structure may appear.
cviii
Information- and technology-driven strategy
Drucker (1954) theorizes the rise of the “knowledge worker” back in the 1950s. He described
how fewer workers would be doing physical labour, and more would be applying their minds.
Nesbitt (1984) theorizes that the future would be driven largely by information: companies that
managed information well could obtain an advantage, however the profitability of what he calls
the “information float” (information that the company had and others desired) would all but
disappear as inexpensive computers made information more accessible.
Bell (1985) examines the sociological consequences of information technology, while Schuck
and Zuboff looks at psychological factors. Zuboff, in her five year study of eight pioneering
corporations makes the important distinction between “automating technologies” and
“infomating technologies”. She studied the effect that both had on individual workers, managers,
and organizational structures. She largely confirmed Drucker's predictions three decades earlier,
about the importance of flexible decentralized structure, work teams, knowledge sharing, and the
central role of the knowledge worker. Zuboff also detects a new basis for managerial authority,
based not on position or hierarchy, but on knowledge (also predicted by Drucker) which she
called “participative management”.
Senge (1990) collaborates with Arie de Geus at Dutch Shell, borrowed de Geus' notion of the
learning organization, expanded it, and popularized it. The underlying theory is that a company's
ability to gather, analyze, and use information is a necessary requirement for business success in
the information age. (See organizational learning.) To do this, Senge claims that an organization
would need to be structured such that:
•
People can continuously expand their capacity to learn and be productive,
•
New patterns of thinking are nurtured,
•
Collective aspirations are encouraged, and
•
People are encouraged to see the “whole picture” together.
Senge identifies five disciplines of a learning organization. They are:
cix
•
Personal responsibility, self reliance, and mastery — We accept that we are the masters
of our own destiny. We make decisions and live with the consequences of them. When a
problem needs to be fixed, or an opportunity exploited, we take the initiative to learn the
required skills to get it done.
•
Mental models — We need to explore our personal mental models to understand the
subtle effect they have on our behaviour.
•
Shared vision — The vision of where we want to be in the future is discussed and
communicated to all. It provides guidance and energy for the journey ahead.
•
Team learning — We learn together in teams. This involves a shift from “a spirit of
advocacy to a spirit of enquiry”.
•
Systems thinking — We look at the whole rather than the parts. This is what Senge calls
the “Fifth discipline”. It is the glue that integrates the other four into a coherent strategy.
Since 1990 many theorists have written on the strategic importance of information, including
J.B. Quinn, J. Carlos Jarillo, D.L. Barton, Manuel Castells, J.P. Lieleskin, Thomas Stewart, K.E.
Sveiby, Gilbert J. Probst, and Shapiro and Varian, to name just a few.
Stewart (1990) uses the term intellectual capital to describe the investment an organization
makes in knowledge. It is composed of human capital (the knowledge inside the heads of
employees), customer capital (the knowledge inside the heads of customers that decide to buy
from you), and structural capital (the knowledge that resides in the company itself).
Castells (1991) describes a network society characterized by: globalization, organizations
structured as a network, instability of employment, and a social divide between those with access
to information technology and those without.
Moore, Frank and Cook (1991) detect a shift in the nature of competition. In industries with high
technology content, technical standards become established and this gives the dominant firm a
near monopoly. The same is true of networked industries in which interoperability requires
compatibility between users. An example is word processor documents. Once a product has
gained market dominance, other products, even far superior products, cannot compete. Moore
shows how firms could attain this enviable position by using Rogers five stage adoption process
and focusing on one group of customers at a time, using each group as a base for marketing to
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the next group. The most difficult step is making the transition between visionaries and
pragmatists. If successful a firm can create a bandwagon effect in which the momentum builds
and your product becomes a de facto standard.
Evans and Wurster (1991) describe how industries with a high information component are being
transformed. They cite Encarta's demolition of the Encyclopedia Britannica (whose sales have
plummeted 80% since their peak of $650 million in 1990). Encarta’s reign was speculated to be
short-lived, eclipsed by collaborative encyclopedias like Wikipedia that can operate at very low
marginal costs. Encarta's service was subsequently turned into an on-line service and dropped at
the end of 2009. He also mentioned the music industry which is desperately looking for a new
business model. The upstart information savvy firms, unburdened by cumbersome physical
assets, are changing the competitive landscape, redefining market segments, and disinter
mediating some channels. One manifestation of this is personalized marketing. Information
technology allows marketers to treat each individual as its own market, a market of one.
Traditional ideas of market segments will no longer be relevant if personalized marketing is
successful. The technology sector has provided some strategies directly. For example, from the
software development industry agile software development provides a model for shared
development processes.
Access to information systems have allowed senior managers to take a much more
comprehensive view of strategic management than ever before. The most notable of the
comprehensive systems is the balanced scorecard approach developed in the early 1990s by Drs.
Robert S. Kaplan (Harvard Business School) and David Norton (Kaplan, R. and Norton, D.
1992). It measures several factors financial, marketing, production, organizational development,
and new product development to achieve a 'balanced' perspective.
Knowledge Adaptive Strategy
Most current approaches to business "strategy" focus on the mechanics of management—e.g.,
Drucker's operational "strategies" -- and as such are not true business strategy. In a postindustrial world these operationally focused business strategies hinge on conventional sources of
advantage have essentially been eliminated:
cxi
•
Scale used to be very important. But now, with access to capital and a global
marketplace, scale is achievable by multiple organizations simultaneously. In many
cases, it can literally be rented.
•
Process improvement or “best practices” were once a favoured source of advantage, but
they were at best temporary, as they could be copied and adapted by competitors.
•
Owning the customer had always been thought of as an important form of competitive
advantage. Now, however, customer loyalty is far less important and difficult to maintain
as new brands and products emerge all the time.
In such a world, differentiation, as elucidates by Porter, Botten and McManus (1990) is the only
way to maintain economic or market superiority (i.e., comparative advantage) over competitors.
A company must OWN the thing that differentiates it from competitors. Without ownership and
protection, any product, process or scale advantage can be compromised or entirely lost.
Competitors can copy them without fear of economic or legal consequences, thereby eliminating
the advantage.
This principle is based on the idea of evolution: differentiation, selection, amplification and
repetition. It is a form of strategy to deal with complex adaptive systems which individuals,
businesses, the economy are all based on. The principle is based on the survival of the "fittest".
The fittest strategy employed after trail and error and combination is then employed to run the
company in its current market. Failed strategic plans are either discarded or used for another
aspect of a business. The trade off between risk and return is taken into account when deciding
which strategy to take.
Strategic decision making processes
Mulcaster (2009) argues that while much research and creative thought has been devoted to
generating alternative strategies, too little work has been done on what influences the quality of
strategic decision making and the effectiveness with which strategies are implemented. For
instance, in retrospect it can be seen that the financial crisis of 2008 to 2009 could have been
avoided if the banks had paid more attention to the risks associated with their investments, but
how should banks change the way they make decisions to improve the quality of their decisions
in the future?. Mulcaster's Managing Forces framework addresses this issue by identifying 11
cxii
forces that should be incorporated into the processes of decision making and strategic
implementation. The 11 forces are: Time; Opposing forces; Politics; Perception; Holistic effects;
Adding value; Incentives; Learning capabilities; Opportunity cost; Risk; Style—which can be
remembered by using the mnemonic 'TOPHAILORS'.
The psychology of strategic management
Several psychologists have conducted studies to determine the psychological patterns involved in
strategic management. Typically senior managers have been asked how they go about making
strategic decisions. A 1938 treatise by Barnard, that was based on his own experience as a
business executive, sees the process as informal, intuitive, non-routinized, and involving
primarily oral, 2-way communications. Bernard says “The process is the sensing of the
organization as a whole and the total situation relevant to it. It transcends the capacity of merely
intellectual methods, and the techniques of discriminating the factors of the situation. The terms
pertinent to it are “feeling”, “judgement”, “sense”, “proportion”, “balance”, “appropriateness”. It
is a matter of art rather than science.
Mintzberg (1973) finds that senior managers typically deal with unpredictable situations so they
strategize in ad hoc, flexible, dynamic, and implicit ways. . He says, “The job breeds adaptive
information-manipulators who prefer the live concrete situation. The manager works in an
environment of stimulus-response, and he develops in his work a clear preference for live action.
Kotter (1982) studies the daily activities of 15 executives and concluded that they spent most of
their time developing and working a network of relationships that provided general insights and
specific details for strategic decisions. They tended to use “mental road maps” rather than
systematic planning techniques.
Isenberg's (1984) study of senior managers finds that their decisions were highly intuitive.
Executives often sensed what they were going to do before they could explain why. He claims in
1986 that one of the reasons for this is the complexity of strategic decisions and the resultant
information uncertainty.
Zuboff (1988) claims that information technology is widening the divide between senior
managers (who typically make strategic decisions) and operational level managers (who
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typically make routine decisions). She claims that prior to the widespread use of computer
systems, managers, even at the most senior level, engaged in both strategic decisions and routine
administration, but as computers facilitated (She called it “deskilled”) routine processes, these
activities were moved further down the hierarchy, leaving senior management free for strategic
decision making.
Zaleznik (1977) identifies a difference between leaders and managers. He describes leadership
leaders as visionaries who inspire. They care about substance. Whereas managers are claimed to
care about process, plans, and form. He also claimed in 1989 that the rise of the manager was the
main factor that caused the decline of American business in the 1970s and 80s.The main
difference between leader and manager is that, leader has followers and manager has
subordinates. In capitalistic society leaders make decisions and manager usually follow or
execute. Lack of leadership is most damaging at the level of strategic management where it can
paralyze an entire organization.
According to Corner, Kinichi, and Keats (1984) strategic decision making in organizations
occurs at two levels: individual and aggregate. They develop a model of parallel strategic
decision making. The model identifies two parallel processes that both involve getting attention,
encoding information, storage and retrieval of information, strategic choice, strategic outcome,
and feedback. The individual and organizational processes are not independent however. They
interact at each stage of the process.
Reasons why strategic plans fail
There are many reasons why strategic plans fail, especially:
•
•
Failure to execute by overcoming the four key organizational hurdles.
o
Cognitive hurdle
o
Motivational hurdle
o
Resource hurdle
o
Political hurdle
Failure to understand the customer
o
Why do they buy
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•
o
Is there a real need for the product
o
inadequate or incorrect marketing research
Inability to predict environmental reaction
o
o
•
•
•
•
•
•
Fighting brands
Price wars
Will government intervene
Over-estimation of resource competence
o
Can the staff, equipment, and processes handle the new strategy
o
Failure to develop new employee and management skills
Failure to coordinate
o
Reporting and control relationships not adequate
o
Organizational structure not flexible enough
Failure to obtain senior management commitment
o
Failure to get management involved right from the start
o
Failure to obtain sufficient company resources to accomplish task
Failure to obtain employee commitment
o
New strategy not well explained to employees
o
No incentives given to workers to embrace the new strategy
Under-estimation of time requirements
o
•
What will competitors do
No critical path analysis done
Failure to follow the plan
o
No follow through after initial planning
o
No tracking of progress against plan
o
No consequences for above
Failure to manage change
o
Inadequate understanding of the internal resistance to change
o
Lack of vision on the relationships between processes, technology and
organization
•
Poor communications
o
Insufficient information sharing among stakeholders
o
Exclusion of stakeholders and delegates
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Limitations of Strategic Management
Although a sense of direction is important, it can also stifle creativity, especially if it is rigidly
enforced. In an uncertain and ambiguous world, fluidity can be more important than a finely
tuned strategic compass. When a strategy becomes internalized into a corporate culture, it can
lead to group think. It can also cause an organization to define itself too narrowly. An example of
this is marketing myopia.
Many theories of strategic management tend to undergo only brief periods of popularity. A
summary of these theories thus inevitably exhibits survivorship bias (itself an area of research in
strategic management). Many theories tend either to be too narrow in focus to build a complete
corporate strategy on, or too general and abstract to be applicable to specific situations. Populism
or faddishness can have an impact on a particular theory's life cycle and may see application in
inappropriate circumstances. See business philosophies and popular management theories for a
more critical view of management theories.
Hamel (2000) coins the term strategic convergence to explain the limited scope of the strategies
being used by rivals in greatly differing circumstances. He lamented that strategies converge
more than they should, because the more successful ones are imitated by firms that do not
understand that the strategic process involves designing a custom strategy for the specifics of
each situation.
Charan (1995) aligning with a popular marketing tagline, believes that strategic planning must
not dominate action. "Just do it!" while not quite what he meant, is a phrase that nevertheless
comes to mind when combating analysis paralysis.
The linearity trap
It is tempting to think that the elements of strategic management – (i) reaching consensus on
corporate objectives; (ii) developing a plan for achieving the objectives; and (iii) marshalling and
allocating the resources required to implement the plan – can be approached sequentially. It
would be convenient, in other words, if one could deal first with the noble question of ends, and
then address the mundane question of means. But in the world where strategies must be
implemented, the three elements are interdependent. Means are as likely to determine ends as
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ends are to determine means. The objectives that an organization might wish to pursue are
limited by the range of feasible approaches to implementation. (There will usually be only a
small number of approaches that will not only be technically and administratively possible, but
also satisfactory to the full range of organizational stakeholders.) In turn, the range of feasible
implementation approaches is determined by the availability of resources.
And so, although participants in a typical “strategy session” may be asked to do “blue sky”
thinking where they pretend that the usual constraints – resources, acceptability to stakeholders ,
administrative feasibility – have been lifted, the fact is that it rarely makes sense to divorce
oneself from the environment in which a strategy will have to be implemented. It’s probably
impossible to think in any meaningful way about strategy in an unconstrained environment. Our
brains can’t process “boundless possibilities”, and the very idea of strategy only has meaning in
the context of challenges or obstacles to be overcome. It’s at least as plausible to argue that acute
awareness of constraints is the very thing that stimulates creativity by forcing us to constantly
reassess both means and ends in light of circumstances.
The key question, then, is, "How can individuals, organizations and societies cope as well as
possible with ... issues too complex to be fully understood, given the fact that actions initiated on
the basis of inadequate understanding may lead to significant regret?" The answer is that the
process of developing organizational strategy must be iterative. It involves toggling back and
forth between questions about objectives, implementation planning and resources. An initial idea
about corporate objectives may have to be altered if there is no feasible implementation plan that
will meet with a sufficient level of acceptance among the full range of stakeholders, or because
the necessary resources are not available, or both.
Even the most talented manager would no doubt agree that "comprehensive analysis is
impossible" for complex problems. Formulation and implementation of strategy must thus occur
side-by-side rather than sequentially, because strategies are built on assumptions that, in the
absence of perfect knowledge, are never perfectly correct. Strategic management is necessarily a
"...repetitive learning cycle [rather than] a linear progression towards a clearly defined final
destination." While assumptions can and should be tested in advance, the ultimate test is
implementation. You will inevitably need to adjust corporate objectives and/or your approach to
pursuing outcomes and/or assumptions about required resources. Thus a strategy will get remade
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during implementation because "humans rarely can proceed satisfactorily except by learning
from experience; and modest probes, serially modified on the basis of feedback, usually are the
best method for such learning."
It serves little purpose (other than to provide a false aura of certainty sometimes demanded by
corporate strategists and planners) to pretend to anticipate every possible consequence of a
corporate decision, every possible constraining or enabling factor, and every possible point of
view. At the end of the day, what matters for the purposes of strategic management is having a
clear view – based on the best available evidence and on defensible assumptions – of what it
seems possible to accomplish within the constraints of a given set of circumstances. As the
situation changes, some opportunities for pursuing objectives will disappear and others arise.
Some implementation approaches will become impossible, while others, previously impossible
or unimagined, will become viable. The essence of being “strategic” thus lies in a capacity for
"intelligent trial-and error" rather than linear adherence to finally honed and detailed strategic
plans. Strategic management will add little value—indeed, it may well do harm—if
organizational strategies are designed to be used as a detailed blueprints for managers. Strategy
should be seen, rather, as laying out the general path—but not the precise steps—an organization
will follow to create value. Strategic management is a question of interpreting, and continuously
reinterpreting, the possibilities presented by shifting circumstances for advancing an
organization's objectives. Doing so requires strategists to think simultaneously about desired
objectives, the best approach for achieving them, and the resources implied by the chosen
approach. It requires a frame of mind that admits of no boundary between means and ends.
It may not be as limiting as suggested in "The linearity trap" above. Strategic thinking/
identification takes place within the gambit of organizational capacity and Industry dynamics.
The two common approaches to strategic analysis are value analysis and SWOT analysis. Yes
Strategic analysis takes place within the constraints of existing/potential organizational resources
but it’s would not be appropriate to call it a trap. For e.g., SWOT tool involves analysis of the
organization's internal environment (Strengths & weaknesses) and its external environment
(opportunities & threats). The organization's strategy is built using its strengths to exploit
opportunities, while managing the risks arising from internal weakness and external threats. It
further involves contrasting its strengths & weaknesses to determine if the organization has
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enough strength to offset its weaknesses. Applying the same logic, at the external level, contrast
is made between the externally existing opportunities and threats to determine if the organization
is capitalizing enough on opportunities to offset emerging threats.
2.5 Business Unit Strategies in a Synchronized Corporate Strategic Plan
Once a business grows large enough to require separate divisions / units to support diverse lines
of business, the challenges and complexity of strategic planning and strategy execution begin to
grow as well. As the business portfolio expands, strategic planning models must adapt and
change with the growing business for optimal results to be recognized.
Diversified businesses operate on models oriented to product and/or service lines. Often these are
organized into lines of business that are managed by executives controlling their own Profit &
Loss structures. Their measurements for success are tied to that particular line of business,
meaning that their markets are unique and their cultures and organizational structures may not
mirror those of the parent company or the other business units within the company. Likewise, the
challenges they must confront to turn a profit and sustain growth are also not necessarily the
same as their executive counterparts in other divisions of the company.
Bi-Directional Planning
Monolithic corporations comprised of multiple operating divisions need more granular
approaches to strategy development, not a “one size fits all” approach. Ideally, the corporate
strategy for a large and diversified business serves as the umbrella strategy that provides
structure, goals and measurement for the business unit strategic plans to link back to as an
anchor. The business unit strategies exist to propel results for their organization that will satisfy
the overall corporate strategic goals.
Strategy is all about people. It is about the people that the organization serves through the
execution of its mission. Strategy is also about the people within the organization that must
execute the strategy. Customers, employees, partners and suppliers are known and understood
better at the business unit level where they are directly linked. As such, strategic planners in the
corporate organization must develop overarching strategic plans that leave room for the nuances
of tactical execution to remain the business unit management team’s responsibility.
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Corporate-level strategic plans must cast the broad mission, vision and strategy in aggregate
terms for the overall business, but it must also define strategic key outcomes that can be
translated and measured at the business unit level (e.g. revenue growth, market share and
profitability targets to name a few). Of course, business units must have strategic plans as well.
Business unit plans should map back to the broader strategic goals defined in the corporate
strategic plan while also relating line-of-business level strategic goals, objectives and tactics that
advance the business unit strategy.
The relationship between the corporate-level strategic plan and the individual business unit plans
form a synchronized structure that pushes and pulls the organization in one direction. At the
same time, this symbiotic structure leaves the accountability for leveraging intimate knowledge
of customers, competitors, employees and culture to the business layer closest to the action. It
allows the business unit the flexibility to plan autonomously while remaining aligned with the
overall corporate strategy and goals. This is the strategic planning model mirrored in most
corporate to subsidiary business relationships.
Maintaining alignment between corporate goals and business unit strategies in a bi-directional
planning model is the key to making this structure and process work. A planning governance
model that works up and down the business layers is essential to maintaining alignment and
tracking execution. So is corporate performance management. Performance management helps
tie the measurement of the business unit leader’s performance to the attainment of corporate
goals as well as those defined in the business unit-level strategic plan. Performance management
also applies to the employees within the business units, who are measured on goal attainment
within the operating unit where they have direct impact on strategic plan execution.
Bi-directional planning works well for diverse portfolio businesses. The level of detail involved
in corporate strategic planning is not well-matched to that involved in business unit strategic
planning. Implementation methods (execution tactics) are more effectively defined at the
business unit level, as they are dependent on organization structure, culture and business
knowledge. Another reason that a separation of planning layers is beneficial is because corporate
strategists have a different perspective than their counterparts in the business units. Corporate
strategists are more tuned into the aggregated set of competitors they face across the
organization’s diversified lines of business, so strategic manoeuvers at the parent company level
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tend to be broad. Conversely, business units are more attuned to their specific competitors. With
their more intimate knowledge of their landscape, business units can craft better strategies to
address competitors and trends in their industry niche. Diversified planning, while it may seem
more complicated on the surface, actually removes complexity by allowing each strategic plan to
be written more concisely and measured more accurately.
2.6 Performance Measurement in Strategic Business Units
Recent years have seen heightened concern and focus on measuring and managing organizational
performance. Performance management methodologies such as strategy maps, demand
forecasting, customer profitability analysis, product profitability analysis, activity-based costing,
value based management, balanced scorecards, performance prism, dynamic pricing and driverbased resource capacity planning have proved to be great assets for improving business
performance. At the same time, as the global modern economy has evolved, businesses are now
being challenged to adapt to new operational models.
Competition in the marketplace has intensified further increasing the need for businesses to
respond promptly to customer needs, improve quality and cut costs. As a result, most companies
have eliminated management layers and devolved authority and decision-making down through
the organization. Through decentralization and empowerment, there is conventional thinking that
managers and their subordinates will think and act like owners, be willing to take calculated risks
and become accountable for their performance. However, the reality is often very different. The
results are, more often than not, disappointing.
One of the problems that most companies encounter when they migrate from a centralised to a
decentralized organizational model is setting up targets and designing reward systems for the
newly formed strategic business units. As the managers of these business units get involved in
strategic decision-making, they face the challenge of achieving great results and avoid
experiencing a backlash from senior executives. In the end, they are more likely to negotiate
manageable targets that appear outwardly tough but are inwardly comfortable. In the long-term,
this approach doesn’t help at all to improve organizational performance.
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To really benefit from decentralization and empowerment, you should re-examine how you set
targets, measure performance, and design your reward systems. Below are issues that you should
consider in order to make measuring performance in this new business model successful:
• Top management commitment: Most change projects start from the top of the organization
and are then cascaded down. Senior executive’s involvement is key to securing buy in because of
their power and influence. Management should be able to clearly communicate the reasons and
benefits of measuring and improving performance. They should also be able identify and analyze
any training and educational needs and address the issues accordingly. Better trained employees
often lead to more satisfied and loyal customers and ultimately improved cash flows and
shareholder value.
• Definition of your targets: Targets should not only be financial but also strategic. They should
be underpinned by clear action plans that cascade down the organization and promote both
ownership and commitment. Most organizations are still glued to the notion of focusing on
actual versus budget numbers. In order to get a broader view of business performance, your
reports should take a modern balanced scorecard approach that tracks progress in various areas
of the business. They should be relative to other strategic business units and external factors.
Furthermore, are your targets demanding or not and how are they linked with the reward
systems? Are you sending out a message that promotes winners and punishes losers? Are
employees getting all the support they need to improve performance? By using performance
management tools such as scorecards to set targets, you will avoid the mistake of focusing on
numerical variances that tell nothing about what to do differently in the future. Instead,
scorecards help you set targets that will result in real action plans that spell out changes to
processes, timescales and responsibilities for implementing them.
• Reward Processes: Compensation systems should be based on company-wide results. This
means looking beyond the share price only and monitor performance in other parts of the
business and against external competition. Share prices can easily be manipulated and do not tell
the whole story of the business. Lessons can be learned from the collapse of Enron, the former
US giant oil company and Lehman Brothers, the former Wall Street titan. During their
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operational time, both companies were great at hitting their numbers, but were poor at walking
the talk of their core values. Their emphasis on numbers over company-wide results resulted in
managers and employees getting rewarded for failure.
2.7 Challenges facing Strategic Business Units in the manufacturing industry in Nigeria
PZ Cussons Nigeria is principally engaged in the manufacture, distribution and sale of a wide
range of consumer products and home appliances, which are leading brand names across the
country in detergent, soap, pharmaceuticals, cosmetics, confectionary, refrigerators, freezers and
air conditioners. The company also distributes the products of Nutricima Limited, Harefield
Industrial Nigeria Limited and PZ Wilmar Limited. In Q2, 2011, the company recorded strong
revenue growth in all its business units of Personal Care, Home Care, Electrical and Nutrition.
In order to combat the threat facing manufacturing companies in Nigeria, PZ Cussons has
invested in improving its manufacturing and distribution facilities under the “Project Unity”
program it concluded in 2010, with the upgrade of the white goods (white goods are major
household appliances) manufacturing and distribution facilities in Ilupeju, Lagos State. Also, the
new Detergent Tower in Ikorodu, Lagos State, which was completed at the end of 2009 is now
fully operational and has enabled PZ Cussons to provide new and innovative products to the
Nigerian consumers, while at the same time, increasing its production capacity. The Project
Unity program of the company represents an N10bn investment into upgrading its manufacturing
and distribution facilities. Also worthy of note is the recent strategic joint venture with
Singapore’s Wilmar International limited to construct palm oil refinery in Nigeria. The project is
scheduled to be completed by the end of the 2012 calendar year. PZ is investing about $27mn
over the space of two years to fund the project.
Threats:
PZ Cussons is a manufacturing company, and thus is susceptible to the challenges facing the
manufacturing businesses in Nigeria. These includes: epileptic power supply; the country’s
deficient infrastructure; credit squeeze; low purchasing power; high financing cost in the
financial market, among others.
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2.8 Strategic Business Unit Forms
In one of its purest forms a corporate structure with SBU have a tiny headquarters consisting of
only few people (sometimes fewer than ten) and each Business unit president is left with full
responsibility and autonomy to run the business. In less pure forms, an SBU president may only
have global responsibility for sales and marketing or even only manufacturing depending on the
nature of the business. In this form corporate and shared service centers attempt to fill many of
the gaps that the SBU is not responsible for. The worst cases (or best opportunities) are where
boundaries of responsibilities are unclear and there is a lot of overlap between centralized and
business unit responsibilities. In this case a company is normally ripe for reorganization and a
cost saving drive.(Watson, 2003:99)
According to Watson (2003) it is more common for large global companies to have a sizeable
corporate headquarters, even when they have several SBU’s.
SBU presidents often have global profit and loss and responsibility and their own functional and
operational leadership teams. They may be responsible for all corporate functions as well as
operation in their business unit. The SBU president and his or her team may also be involved in
financing the operation, legal and insurance matters, lobbying governments, the environment and
really everything from beginning to end that concerns the business. In this case, the SBU
president is more or less the Chief Executive Officer of the business unit (often carrying the CEO
title) but instead of reporting to the board, he or she will often report to the CEO or perhaps the
Chief Operations Officer (COO), depending on the structure of the leadership team.
Another form of SBU is when the business unit acts as primarily a sales and marketing
operation. The SBU president is responsible for selling a distinct set of products but instead of
being responsible for the entire profit and loss they are only responsible down to the operating
income level. This means that they are responsible for sales, most aspects of the costs of sales
and expenses incurred by their business unit, but the other elements further down the profit and
loss are the responsibility of the headquarters in these setups, transfer pricing often becomes an
item of contention
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If the company y manufactures its products, the manufacturing may be embedded in a business
unit or may be controlled directly from the CEO team. Some companies have large and extensive
manufacturing operations, selling internally to some companies in the corporate umbrella and
also externally to other customers or even competitors.
When a company has very distinctive products and businesses and is also significant in size and
geography, the role of the business unit president can help to keep a company well organized and
focused. Employees will often associate themselves more with the business unit than with the
company, and in many cases this is useful for the business.
Some companies take great pain to explain “strategy” to their employees, but the fact is that a
large majority of employees do not have the capacity, interest or time to deal with strategic
issues on a corporate level. By dividing companies into smaller pieces it is often easier to stay
focused on customer, quality, service and the competition. Organizations that are too large and
disorganized will become vulnerable.
The SBU president must be a global business manager, responsible for strategy and business coordination. The overall responsibility is to grow profitably and leverage the company’s scale for
efficiency and competitiveness.
The SBU president is in fact the chief wealth creator in the company. Operationally, he or she is
responsible for a business portfolio that generalizes sales and expenditures. Well-run business
unit can bring significant top and bottom-line growth to company’s financial statements. In good
times, the SBU president is a company here and often rewarded generously for a strong financial
contribution. Conversely, when sales growth flattens or fails the SBU president is often the
scapegoat and can easily be sacrificed by the top leadership team in order to try to reverse the
fortunes of a struggling business.
Dana (1999) proposes some generic forms and strategies that Strategic Business Units can use to
sustain its operations and serve its demand market. The forms are listed below;
Competitive Advantage
A competitive advantage is one gained over competitors by offering consumers better value. You
increase value by lowering prices or increasing benefits and services to justify the higher price.
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Differentiation and cost leadership strategies search for competitive advantage on a broad scale,
while focus strategies work in a narrow market. Sometimes, businesses look for a combination
strategy to please customers looking for multiple factors such as quality, style, convenience and
price.
Cost Leadership Strategy
To practice cost leadership, organizations compete for the largest number of customers through
price. Cost leadership works well when the goods or services are standardized. That way, the
company can sell generic acceptable goods at the lowest prices. They can minimize costs to the
company in order to minimize costs to the customer without decreasing profits. A company
either sells its goods at average industry prices to earn higher profits than its competitors or it
sells at below-industry prices, trying to profit by gaining the market share. Wal-Mart is an
example of a company with a cost leadership strategy.
Differentiation Strategy
Differentiation strategy calls for a company to provide a product or service with distinctive
qualities valued by customers. You draw customers because you set yourself apart from the
competition. To succeed at this strategy, your business should have access to leading scientific
research (or perform this research); a highly skilled and creative product development team; a
strong sales and marketing team; and a corporate reputation for quality and innovation. Apple,
for example, uses differentiation strategy.
Focus Strategy
Focus strategy is just what it sounds like: concentrate on a particular customer, product line,
geographical area, market niche, etc. The idea is to serve a limited group of customers better than
your competitors who serve a broader range of customers. A focus strategy works well for small
but aggressive businesses. Specifically, companies that do not have the ability or resources to
engage in a nationwide marketing effort will benefit from a focus strategy. Focus can be based
on cost or differentiation strategy. It involves focusing the cost leadership or differentiation on a
small scale. The idea is to make your company stand out within a specific market sector.
Integrated Cost Leadership-Differentiation Strategy
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Companies that integrate strategies rather than relying on a single generic strategy are able to
adapt quickly and learn new technologies. The products produced under the integrated cost
leadership-differentiation strategy are less distinctive than differentiators and costs are not as low
as the cost-leader, but they combine the advantages of both approaches. A somewhat distinctive
product that is mid-range-priced can be a bigger draw to customers than a cheap generic product
or an expensive special one.
The SBU Leadership Role
The word “executive” is operative in describing the typical SBU president. The SBU president
often wears two very distinct leadership hats. To the members of the business unit they are in
charge of; the President is the leader, the boss, the CEO. Employees in the organization often
more associate themselves with their SBU president than with CEO; their loyalties are to the
business unit. But the other distinct hat SBU president wears is a corporate executive or
corporate officer. In this sense, the SBU president is normally a very senior executive and must
also represent the view of the corporate headquarters to the business unit employees. The success
of many corporate initiatives hinges on how or whether the SBU president supports them.
In this role, the SBU president while wielding considerable influence is often a go-between
representing the customers and the SBU employees to the other corporate executives, or playing
a lobbying or influencing role when it comes to corporate policies. The SBU president must also
be champion of the leadership team and seal corporate policies to the business unit employees.
This can be a delicate balancing act. The SBU president will often take the blame in front of
CEO colleagues when a corporate initiative (eg from finance, IT or human resources) is not
going smoothly in their Business Unit. The CEO function will often complain about not getting
enough support from the “business” when it comes to implementing a new IT system, a new
reporting requirement or a new human resource policy.
On the other hand when the corporate headquarter sends a new directive, programme initiative or
requirement to each of the business units. SBU president have to be there to explain why and
how the decision was made.
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The SBU president’s job should be to concentrate on a profitable segment of the business and
should also be aware of how their “corporate initiatives” should really be helpful or necessary
globally before becoming a requirement.
The SBU president’s challenges
The SBU president wears two distinct hats:
1. As the head of a business, the SBU president is the top executive, often with a
management/leadership team of direct reports that will closely mirror a CEO team.
2. When the SBU president is part of the CEO’s team, he or she is one of several team
members often reporting directly to the CEO.
The SBU president, as an enterprise leader, faces several challenges. One is that the culture of an
organization often favours the SBU’s business objectives over the enterprise as a whole. A
second significant challenge is that companies tend to promote “experts” based on the
company’s focus, engineers in manufacturing companies, marketing experts in product-driven
companies and technology wizards in high tech companies. Even if the SBU president is
excellent in one specific area, he or she may not have overall leadership qualities necessary to
ascend beyond business unit.
A final challenge is that reward systems are often skewed to favour business units operational
objectives over the corporations needs. This is often a source of internal conflict for SBU
presidents.
The SBU most significant challenge is balancing their roles and time as CEO’s team and
president. As CEO’s team, they will be part of a team that makes company level strategy, starts
and supports global initiatives and leads the corporation in its strategic mission. As president of
SBU, the primary focus is often the profitability of the business unit, focusing on keeping
customers satisfied and keeping a quality mindset in the organization. Corporate overheads and
central initiatives often cut the business unit time and money.
How then does an SBU resident decide between lobbying for what may be good for the company
(or one of the CEO’s challenges) and not for the business unit? These are the same types of
tough decisions that the CEO is required to make. The answer almost naturally comes down to
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how the SBU will be rewarded for performance and what the likelihood is that the stance on the
issue will affect career progression. Designing a balanced scorecard or other framework for
evaluating the performance of an SBU president is a balancing act, and one that the CEO should
not take lightly.
In addition of divided loyalties; perhaps the next biggest challenge SBU presidents face is how to
divide themselves between their business unit and their responsibilities to the CEO team and its
members. SBU president have a very different and much more operational role to most of the
other CEO’s; this often a recipe for conflict.
2.9 Summary of the Reviewed Related Literature
The review of the related literature has been quite revealing. Although a sense of direction in
Strategic Business Unit is important, one of its disadvantages is that it can also stifle creativity,
especially if it is rigidly enforced. In an uncertain and ambiguous world, fluidity can be more
important than a finely tuned strategic compass. When a strategy becomes internalized into a
corporate culture, it can lead to group think. It can also cause an organization to define itself too
narrowly. An example of this is marketing myopia.
Bi-directional planning works well for diverse portfolio businesses. The level of detail involved
in corporate strategic planning is not well-matched to that involved in business unit strategic
planning. Implementation methods (execution tactics) are more effectively defined at the
business unit level, as they are dependent on organization structure, culture and business
knowledge. Another reason that a separation of planning layers is beneficial is because corporate
strategists have a different perspective than their counterparts in the business units. Corporate
strategists are more tuned into the aggregated set of competitors they face across the
organization’s diversified lines of business, so strategic manoeuvres at the parent company level
tend to be broad. Conversely, business units are more attuned to their specific competitors. With
their more intimate knowledge of their landscape, business units can craft better strategies to
address competitors and trends in their industry niche. Diversified planning, while it may seem
more complicated on the surface, actually removes complexity by allowing each strategic plan to
be written more concisely and measured more accurately.
cxxix
It was equally discovered that many theories of Strategic Business Units tend to undergo only
brief periods of popularity. A summary of these theories thus inevitably exhibits survivorship
bias (itself an area of research in strategic management). Many theories tend either to be too
narrow in focus to build a complete corporate strategy on, or too general and abstract to be
applicable to specific situations. Populism or faddishness can have an impact on a particular
theory's life cycle and may see application in inappropriate circumstances.
This review highlighted the challenges facing the manufacturing businesses in Nigeria. These
includes: epileptic power supply; the country’s deficient infrastructure; credit squeeze; low
purchasing power; high financing cost in the financial market, among others.
From available literature, the next biggest challenge SBU presidents face is how to divide
themselves between their business unit and their responsibilities to the CEO team and its
members. SBU president have a very different and much more operational role to most of the
other CEOs; this often a recipe for conflict.
It was equally discovered that when a company has very distinctive products and businesses and
is also significant in size and geography, the role of the business unit president can help to keep a
company well organized and focused. Employees will often associate themselves more with the
business unit than with the company, and in many cases this is useful for the business.
The SBU president is in fact the chief wealth creator in the company. Operationally, he or she is
responsible for a business portfolio that generalizes sales and expenditures. Well-run business
unit can bring significant top and bottom-line growth to company’s financial statements. In good
times, the SBU president is a company hero and often rewarded generously for a strong financial
contribution. Conversely, when sales growth flattens or fails the SBU president is often the
scapegoat and can easily be sacrificed by the top leadership team in order top try to reverse the
fortunes of a struggling business.
Therefore in filling the gap created by previous works, this work will ensure that performance
monitoring and tracking of individuals and Units in Strategic Business Units will help in
knowing problem areas and effecting changes that could adversely affect the fortunes of the
Strategic Business Units thereby shifting the burden of making an SBU President an escape goat
in event of company failure.
cxxx
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cxxxviii
CHAPTER THREE
RESEARCH METHODOLOGY
3.1 Introduction
This chapter takes a look on the Research Methodology that will help in relating Strategic
Business Units and Organisational Performance, the design of the study as well as the sources
of data. It equally discusses the study population alongside its sampling procedures. Sampling
size determination and allocation were equally discussed in this chapter. Relevant tool for this
research such as instruments for data collection, validity of the instruments, reliability of the
research instrument, questionnaire administration and collection as well as methods of data
analysis are contained in this chapter. This chapter provides the framework for chapters four and
five.
3.2.
Research Design
According to Nworgu (1991:53) a research design is a plan or blue print which specifics how
data relating to a given problem were collected and analyzed.
It therefore provides the
procedural outline for the conduct of any given investigation. In this study, descriptive Survey
design method of data collection was used, which according to Unyimadu (2005:42) can be
better understood as comprising of distinct characteristics which relate to the way in which
information about the object of the study is gathered. The random sampling procedure was used
to select the sample population amongst the selected companies in the south East of Nigeria. The
design of the study also was to use simple percentages and frequency distribution table in the
analysis of collected data. The instrument for data presentation and analysis will be the chisquare statistics and t-distribution in the listing and analysis of the formulated hypotheses.
3.3
Sources of Data
The sources of data for the study were from Primary and Secondary sources.
3.3.1 Primary sources
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This is the most authentic and reliable data gathered purposely for the subject matter under
review.
Primary data were gathered from the respondents through direct interview and
questionnaire.
These primary sources include:
a. Oral Interview
Staff of the select SBU firms were interviewed alongside those of the parent company to
ascertain their views and position towards the research work. This helped in giving this work a
wider view point which positively impacted on its output.
b. Questionnaire
Copies of the Questionnaire were distributed to the select group of respondents in all the five
Strategic Business Units that made up this study.
Personal Observation
During the course of visits to the selected SBU’s of study, events, actions and team spirit
observed at the office were very high and motivating. The desire to achieve organisation set
goals and satisfy customer curiosity was equally visible. Staff met were eager to satisfy visitors
curiosity through explanation and timely response to questionnaires.
3.3.2. Secondary Sources
The secondary data for the work were sourced from journals, magazines, newspapers, textbooks,
and periodicals from school, state and national libraries within the Enugu metropolis. Published
materials were also sourced from organizations of investigation. The internet was also useful in
the study.
3.4.
Population of the Study
According to Udeze (1992:12) population is that portion of the total universe to which the
researchers has access. The total population covered in this study therefore includes 3003 staff
made up of 603 staff from Tonimas Oil (Abia), 650 staff from Whiz Oil (Anambra), 550 staff
cxl
from Innoson Technical (Enugu), 575 staff from Orange Kalbe Nigeria Limited (Onitsha), 625
staff from Camela Vegetable Oil (Imo). The table below displays the constituents of the total
population of the study.
Table 3.1 Composition of the population
Companies
Total
number Mgt cadre
drawn
Middle
Lower
cadre
cadre
Abia: Tonimas Oil
603
31
212
360
Anambra: Whiz Oil
650
38
277
335
Innoson 550
39
198
313
Imo: Orange Kalbe 575
37
230
308
30
231
364
175
1148
1680
Enugu:
Technical
Nig. Ltd.
Ebonyi:
Camela 625
Vegetable Oil
Total
3003
Source: 2011 Company Quarterly Staff Establishment Returns.
3.5
Sample size determination
The sample size was determined using the Taro Yamane’s model (1964) in which
n
=N
1 + N (e)2
Where n= sample size to be calculated
N= Total population size
i= Constant
e= Estimated error.
Plugging in the value:
cxli
N= 3003
i= 1
e= 5% (ie. Maximum risk of error the researcher
is willing to run)
n= ?
Therefore
n
=
3003
1 + 3003 (0.05)2
=
3003
1+5
=
3003
= 500
6
= 500 respondents
3.6.
Sampling procedures
The sampling procedure adopted is the simple random sampling procedure with a sample size of
500 respondents and a population of 3003 people. The 500 respondents were randomly selected
in the following ways: This procedure was adopted because it is a probability sampling in which
there is no bias in selection, hence every member of the sample population will have equal
chance of being selected.
•
The population was divided into three strata consisting of 29 management staff,
191 middles management staff and 280 lower cadre employees.
•
Writing the names of all the sample population on a piece of paper and folding
them into balls and thereafter mixing and putting them in a bag.
•
One of the pieces is picked up once with replacement.
•
Any person picked up by chance is selected.
•
This is repeated in each case until 500 respondents were selected.
cxlii
Through the same process, the sample frame for each organization was drawn.
3.7.
Sample size allocation
Allocation of the sample size of the population was based on Kumars proportional allocation
model which corroborates Bowlay’s proportional allocation formula in which
nh =
n (Nh)
N
Where:
Nh
n
=
Number of allocation to each group of respondents.
=
Nh
Total sample size of 500 respondents
=
Total population for cell (ie. Each for management cadre, middle
cardre and lower cadre employees)
N
.
. . Applying
=
Population size.
the above formular for each cell
Cell I (management cadre of 175 staff drawn across)
=
500 x 175
3003
=
29.14
= 29 staff
Cell II (middle cadre of 1148 staff drawn across)
= 500 x 1148
=
191.14
= 191 staff
3003
Cell III (lower cadre of 1680 staff drawn across)
= 500 X 1680
=
279.7
3003
cxliii
= 280 staff
Table 3.2 Composition of the sample size
Respondents Management
Middle cadre
Lower cadre
Total
191
280
500
cadre
Number
3.8.
29
Instruments for Data Collection
Consequent upon collecting sufficient and valid Information, the instruments used for data
collection was the questionnaires which were divided into two parts; the first part deals with the
bio-data of the respondents while the second part deals with the questions relating to the subject
matter of enquiry. Oral interview was used to complement the questionnaire that was previously
administered to respondents.
In designing the questionnaire, careful efforts were made to exclude offensive questions and also
leaving out questions requiring complicated answers. However, almost all the questions were
close-ended.
They are structured to have bearing with the research questions, hypotheses,
statement of the problem and objectives of the study.
3:9.
Validity of the Instrument
The instrument was validated via the application of concurrent validity in order to establish the
appropriateness of the measuring instruments.
In this case, there should be some concurrently existing criterion measure and test scores
constituting an instrument (ie. Test being validated). Correlation were computed between test
score on the new test (test being validated) and score on an existing criterion measure.
3.10.
Reliability of the Research Instrument
cxliv
After two weeks of the first questionnaire administration, second test was re-administered to the
same test group in order to find the consistency of the two tests as supplied by the test group.
To determine the reliability of an instrument, a test re-test scores was correlated to determine the
consistency of the instruments. Correlation technique is used to determine the relationship
between two variables in any circumstance.
The purpose is to reduce to a single number or
index, the relationship between two sets of scores.
The number hence referred to as the
coefficient of correlation designated. The more the result approaches one (1) the more reliable it
is.
3.11. Methods of Data Analysis
Three methods of data analysis were used in testing the results of this study. These include;
a. Chi-Square Test
A chi-square test, also referred to as chi-squared test or χ2 test, is any statistical hypothesis test
in which the sampling distribution of the test statistic is a chi-square distribution when the null
hypothesis is true, or any in which this is asymptotically true, meaning that the sampling
distribution (if the null hypothesis is true) can be made to approximate a chi-square distribution
as closely as desired by making the sampsle size large enough.
b. Correlation Coefficient
Correlation coefficient may refer to:
Pearson product-moment correlation coefficient, also known as r, R, or Pearson's r, a measure of
the strength of the linear relationship between two variables that is defined in terms of the
(sample) covariance of the variables divided by their (sample) standard deviations
Correlation and dependence, a broad class of statistical relationships between two or more
random variables or observed data values. Goodness of fit which refers to any of several
measures that measure how well a statistical model fits observations by summarizing the
discrepancy between observed values and the values expected under the model in question
cxlv
Coefficient of determination, a measure of the proportion of variability in a data set that is
accounted for by a statistical model; often called R2; equal in a single-variable linear regression
to the square of Pearson's product-moment correlation coefficient Infraclass correlation, a
descriptive statistic that can be used when quantitative measurements are made on units that are
organized into groups; describes how strongly units in the same group resemble each other.
Rank correlation, the study of relationships between different rankings on the same set of items.
Spearman's rank correlation coefficient, which measures how well the relationship between two
variables can be described by a monotonic function
Kendall rank correlation coefficient, which measures the portion of ranks that match between
two data sets.
Pearson Product-Moment Correlation Coefficient
Pearson product-moment correlation coefficient (sometimes referred to as the PPMCC or
PCCS, and typically denoted by r) is a measure of the correlation (linear dependence) between
two variables x and y, giving a value between +1 and −1 inclusive. It is widely used in the
sciences as a measure of the strength of linear dependence between two variables. It was
developed by Karl Pearson from a similar but slightly different idea introduced by Francis
Galton in the 1880s. The correlation coefficient is sometimes called "Pearson's r."
Several sets of (x, y) points, with the correlation coefficient of x and y for each set. Note that the
correlation reflects the non-linearity and direction of a linear relationship (top row), but not the
slope of that relationship (middle), nor many aspects of nonlinear relationships (bottom). N.B.:
the figure in the center has a slope of 0 but in that case the correlation coefficient is undefined
because the variance of Y is zero.
c.Z-test
A Z-test is any statistical test for which the distribution of the test statistic under the null
hypothesis can be approximated by a normal distribution. Because of the central limit theorem,
many test statistics are approximately normally distributed for large samples. For each
cxlvi
significance level, the Z-test has a single critical value (for example, 1.96 for 5% two tailed)
which makes it more convenient than the Student's t-test which has separate critical values for
each sample size. Therefore, many statistical tests can be conveniently performed as approximate
Z-tests if the sample size is large or the population variance known. If the population variance is
unknown (and therefore has to be estimated from the sample itself) and the sample size is not
large (n < 30), the Student t-test may be more appropriate.
3.12.
Questionnaire Administration and Collection
In view of the attitude of Nigerians with regards to survey research through mailing of
Questionnaire and inherent problems in the handling and delivery of mails by NIPOST PLC, the
researcher chose hand delivery and a water-tight arrangement put in place for its collection.
“Loss in transit” and other unforeseen happenings necessitated this choice
cxlvii
Table 3.3 Percentage representative allocation of the population
Organization
Cadre
No.
of Returns
Accepted
Discarded %
questionnaires
Tonimas
Oil Mgt. Cadre
Accepted
9
9
9
-
100
Middle Cadre
30
30
30
-
100
Lower cadre
55
54
54
-
97
Mgt. Cadre
8
8
8
-
100
Middle Cadre
40
38
38
-
93
Lower cadre
62
60
58
2
90
Innoson
Mgt. Cadre
8
8
8
-
100
Technical
Middle Cadre
38
38
38
-
100
Lower cadre
56
56
55
1
97
Mgt. Cadre
8
8
8
-
100
39
39
39
-
100
Lower cadre
55
53
53
-
94
Mgt. Cadre
7
7
7
-
100
Middle Cadre
35
35
35
-
100
Lower cadre
50
48
47
1
92
500
491
487
4
97.5
(Abia)
Whiz
Oil(Anambra)
(Enugu)
Orange
Kalbe Nig. Ltd Middle Cadre
(Anambra)
Camela
Vegetable Oil
(Imo)
TOTAL
The figures generated from the table were used in the presentation and analysis of data in chapter
four.
cxlviii
3.13.
Data Analysis Technique
The data so obtained from the field study are were analyzed using a set of techniques. First the
frequency distribution table and simple percentages were used to analyze research questions
while Pearson Product Moment Correlation technique, chi-square statistics (X2) and Z-test were
applied to the list of hypotheses.
cxlix
References
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cl
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
4.1 Introduction
This chapter attempts to present and analyse data collected through the questionnaires and oral
interview. There was a statistical testing of all the hypotheses earlier formulated in chapter one
which formed the bases for the synthesis of information expected of this work. At 5% level of
significance, hypotheses one and three were tested with the Karl Pearson product movement
correlation coefficient while hypotheses two and five were tested with the chi-square statistics.
Hypothesis four was tested using the Z-test. All the questionnaire items were analyzed with the
instrumentality of the five point likert scale.
From a population of three thousand and three (3003),
sample size 500
was drawn and
questionnaire were consequently administered on them. But on close observation of the
distributed and retuned questionnaires seven (7) questionnaires were found defective which
represents 1.4% of the sample population. The effective sample size now is four hundred and
ninety (487).
4.2 Tabular presentation, descriptive analysis of data from primary sources.
The five point Likert scale will be used to analyse the collected questionnaires which
will attempt to answer positively collected research question.
Note, A= Agree, SA = strongly agree, D = Disagree, SD = strongly Disagree, U = undecided,
STD = Standard deviation, N = Number, U = mean value, Rem = remarks. The numbers
in parenthesis are percentage frequencies. Any standard deviation value above or equal to
the mean value 3.00 accepted and any value below it is rejected.
Research question (1):
To ascertain the extent to which Strategic Business Units affect productivity of manufacturing
companies?
cli
Table 4:1 To ascertain the extent to which Strategic Business Units affect Productivity of Manufacturing
Companies.
S/N
Questionnaire
A
SA
D
SD
U
N
X
STD
REM
5
4
3
2
1
103
190
92
108
0 (0%)
493
3.58
1.05
Accept
(20.89%)
(38.54%)
(18.66%)
(21.91%)
Strategic business
133
150
110
97
3 (0.61%)
493
3.63
4.53
Accept
units
(26.89%)
(30.43%)
(22.31%)
(19.68%)
Strategic business
105
145
99
104
40 (8.11%)
493
3.34
1.24
Accept
units
(21.30%)
(29.41%)
(20.08%)
(21.09%)
Strategic business
160
130
90
110
3 (0.60%)
493
3.67
1.16
Accept
units are useful in
(32.45%)
(26.36%)
(18.25%)
(22.31%)
Strategic business
111
172
97
109
4 (0.81%)
493
3.56
1.08
Accept
unites
(22.51%)
(34.88%)
(19.67%)
(22.10%)
Items
1.
Strategic
business
units
aids
organizational
performance
2.
aids
organizational
growth
3.
aids
organizational
expansion
4.
strategic planning
5.
help
in
maintaining
product
market
size
The position of the respondents in the above table 4.1 shows that 103 respondent or 20.89% and
190 respondent or 38.54% agree and strongly agree respectively that Strategic Business Units
aids organizational performance while 92 respondents (18.66%) and 108 respondents (21.91%)
disagree and strongly disagree to the fact that Strategic Business Units aids organizational
clii
performance. Nobody remained undecided. In another circumstance 26.98% or 133 respondents
and 30.43% or 150 respondents agree and strongly agree respectively that Strategic Business
Units aids organizational growth while 110 or (22.31%) respondents and 97 or (19.68%)
respondents disagree and strongly disagree respectively that Strategic Business Units aids
organizational growth. 3 respondents or 0.61% remained undecided.
105 respondent represented by 21.30% and 145 respondents represented by 29.41% agree and
strongly agree respectively that Strategic Business Units aids Organizational expansion while 99
(20.08%) and 104 or (21.06%) respondents disagree and strongly disagree respectively that
strategic business units aids organizational expansion. 40 respondents or 8.11% remained
indifferent. In the table also 160 (32.45%) respondents and 130 (26.36%) respondents
respectively agree and strongly agree that Strategic Business Units are useful in Strategic
Planning while on the contrary 90 (18.25%) respondents and 110 (21.31%) respondents disagree
and strongly disagree respectively that Strategic Business Units are useful in strategic planning. 3
or 0.60% of the respondents had no indication.
In another development, 111 (22.51%) respondents and 172 (34.88%) respondents respectively
agree and strongly agree that Strategic Business Units helps in maintaining product market size
while 97 or (19.67%) of the respondents and 109 or (22.10%) of the respondents respectively
disagree and strongly disagree that Strategic Business Units helps in maintaining product Market
size. 4 respondents or 0.81% remained indifferent.
At the least Standard derivation of 1.05 more respondents opined that Strategic Business Units
affects productivity of manufacturing companies.
RESEARCH QUESTION (2)
To determine the extent Strategic Business Units enhance profitability in
Companies?
cliii
Manufacturing
Table 4.2 To determine the extent Strategic Business Units enhance profitability in
manufacturing companies.
N Questionnaire
Items
A
SA
D
SD
U
5
4
3
2
1
150
100
43
0 (0. %) 493
3.69 11.11 Accept
2
493
3.63 1.17
Accept
0 (0%)
493
3.63 1.05
Accept
0 (0%)
493
3.58 1.03
Accept
0 (0%)
493
3.65 1.09
Accept
Strategic business 140
N
X
STD
REM
units help in the (28.39%) (30.42%) (20.28%) (8.72%)
introduction of a
new product line.
Strategic business 105
185
99
102
unit can be used in (21.29%) (37.52%) (20.08%) (20.68%) (0.40%)
demand
management
SBU’s can be used 130
in
153
111
99
responding (26.36%) (31.03%) (22.51%) (20.08%)
quickly
to
customer requests
SBU’s
can
be 101
192
useful in economic (20.48%) (38.4%)
value
added
96
104
(19.47%) (21.09)
to
organization
fiancés
SBUS can be used 132
158
93
110
in optimizing cost (26.77%) (32.04%) (18.86%) (22.31%)
for
the
organization
cliv
The distribution of responses in the above table 4.2 reveals that 140 respondents or 28.39% and
150 respondents or 30. 42% agree and strongly agree respectively that Strategic Business Units
helps in the introduction new product line. In the country 100 respondents or 20.28% and 43
respondents or 8.72% disagree and strongly disagree respectively that Strategic Business Units
helps in the introduction of new product line. The percentage that had no indication is nil.
In another instance, 105 respondents being represented by 21.29% and 185 respondents being
represented by 37.52% agree and strongly agree respectively that Strategic Business Units can be
used in demand management. In a divergent view, 99 or 20.08% of the respondents and 102 or
20.68% of the respondents disagree and strongly disagree respectively that Strategic Business
Units can be used in demand management. Only 2 respondents or 0.40% had no indication.
130 respondents (26.36%) and 153 respondents (31.03%) agree and strongly agree respectively
that SBU can be used in responding quickly to customers requests. On the contrary, 111
respondents or 22.31% and 99 respondents or 20.08% disagree and strongly disagree that SBU
can be used in responding quickly to customers requests. Nobody is indifferent.
With a percentage number of 20.48%, 101 respondents and 192 respondents or 39.94% agree
and strongly agree respectively that Strategic Business Units can be useful in economic value
added to organizational finances. Following this, 96 respondents or 19.47% and 104 respondents
or 21.09% respectively disagree and strongly disagree that Strategic Business Units can be useful
in economic value added to organizational finances. All respondents indicated nil for undecided.
In another development, 132 respondents (26.77%) and 158 respondents (32.04%) agree and
strongly agree respectively that Strategic Business Units can be used in optimizing cost for the
organization. Again 93 respondents, represented by 18.86% and 110 respondents represented by
22.31% disagree and strongly disagree that Strategic Business Units can be used in optimizing
cost for the organization. Nobody remained indifferent.
The least Standard derivation of 1.03 suggests that more respondents are of the view that
Strategic Business Units can be useful in economic value added to organizational finances.
clv
Research question 3
To determine the extent to which Strategic Business Units can be used to address technological
and environmental challenges in manufacturing companies?
clvi
Table 4.3: The extent to which Strategic Business Units can be used to address
technological and environmental challenges in manufacturing companies
S/N
Questionnaire Items
A
SA
D
SD
U
5
4
3
2
1
N
X
STD
REM
1.
Strategic
Business 104
Units are important in (21.09)
solving technological
challenges
in
manufacturing
organizations.
189
(38.33)
102
(20.68)
98
(19.87)
0 (0)
493
3.60
1.02
Accept
2.
Strategic
Business 105
Units are important in (21.29)
monitoring
technological
developments
in
manufacturing
organizations
145
(29.41)
93
(18.86)
147
(29.81)
3
(0.60)
493
3.40
1.14
Accept
3.
Strategic
Business 129
Units are important in (26.16)
managing
technological
developments
in
manufacturing
organizations.
161
(32.65)
90
(18.25)
110
(22.31)
3
(0.60)
493
3.61
1.11
Accept
4.
Strategic
Business 96
Units are useful in (19.47)
tracking
new
production processes
in
manufacturing
organizations
114
(23.12)
124
(25.15)
159
(32.25)
0 (0)
493
2.60
1.31
Reject
5.
Strategic
business 120
units can improve the (24.34)
technology
that is
required
in
developing
its
demand area
170
(34.48)
100
(20.28)
103
(20.89)
0 (0)
493
3.62
1.06
Accept
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Indication above in table 4.4 shows that 104 respondents or 21.09% and 189 respondents or
38.33% agree and strongly agree respectively that Strategic Business Units are important in
solving technological challenges in manufacturing organization while 102 respondents or
20.68% and 98 respondents or 19.87% disagree and strongly disagree respectively that Strategic
Business Units are important in solving technological challenges in manufacturing organizations.
There is no undecided case.
In the above table 4.4, 105 or 21.24% of the respondents and 145 or 29.41% of the respondents
agree and strongly agree respectively that Strategic Business Units are important in monitoring
technological developments in manufacturing organizations while 93 or 18.86% of the
respondents and 147 or 29.31% of the respondents disagree and strongly disagree respectively
that Strategic Business Units are important in monitoring technological developments in
manufacturing organizations. 3 respondents or 0.60% remained indifferent.
In another development, 129 respondents or 26.16% and 161 respondents or 32.65% agree and
strongly agree respectively to the notion that Strategic Business Units are important in managing
technological developments in manufacturing organizations while 90 respondents or 18.25% and
110 respondents or 22.31% disagree and strongly disagree respectively that Strategic Business
Units are important is managing technological developments in manufacturing organization. 3
respondents being represented by 0.60% remained undecided.
Also in table 4.4, 96 respondents as represented by19.47% and 114 respondents as represented
by 23.12% agree and strongly agree that Strategic Business Units are useful in tracking new
production processes in manufacturing organizations. In the contrary, 124 respondents or 25.15%
and 159 respondents or 32.25% disagree and strongly disagree that Strategic Business Units are
useful in tracking new production processes in manufacturing organization. Nobody remained
undecided.
Indication shows that 120 (24.34%) of the respondents and 170 (34.48%) of the respondents
agree and strongly agree respectively that Strategic Business Units can improve the technology
that is required in developing its demand area. On the contrary, 100 (20.28%) of the respondents
and 103 (20.89%) disagree and strongly disagree that Strategic Business Units can improve the
clviii
technology that is required in developing its demand area. All the 493 respondents without any
undecided case had indications.
And with the least standard deviation of 1.02, the popular opinion of the table is that Strategic
Business Units are important in solving technological challenges in the manufacturing
organizations.
Research question 4
To ascertain the major way of encouraging Strategic Business Unit application in manufacturing
companies.
Table 4.4: To ascertain the major way of encouraging Strategic Business Units application
in manufacturing companies.
A
SA
D
SD
U
5
4
3
2
1
Reduction of import 93
duty
on (18.86)
manufacturing
equipment in a way of
encouraging strategic
business units
107
(21.70)
104
189
(38.33)
2.
Improved
and 131
sustainable
power (26.57)
supply will encourage
Strategic
Business
Units
148
(30.02)
99
(20.08)
3.
Providing low interest 90
rate for funds will (18.25)
encourage
strategic
business units in
manufacturing
companies
110
(22.31)
4.
Use of emerging 123
means of production (24.94)
positively influences
Strategic
Business
Units
5.
Use of information 117
and communication
S/N
1.
Questionnaire Items
N
X
STD
REM
0 (0)
493
3.21
1.14
Accept
109
(22.10)
6
(1.21)
493
3.58
1.13
Accept
125
(25.35)
160
(32.45)
8
(1.62)
493
3.23
1.15
Accept
160
(32.45)
95
(19.26)
114
(23.12)
1
(0.20)
493
3.58
1.12
Accept
166
87
123
0 (0)
493
3.56
1.10
Accept
(21.09)
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technology improves (23.73)
Strategic
Business
Units performance.
(33.67)
(17.64)
(24.94)
The position of the respondents in table 4.5 shows that 93 (18.86%) of the respondents and 107
(21.70%) of the respondents agree and strongly agree respectively that reduction of import duty
on manufacturing equipment is a way of encouraging Strategic Business Units while 104
(21.09%) of the respondents and 189 (38.33%) of the respondents disagree and strongly disagree
respectively that reduction of import duty on manufacturing equipment is a way of encouraging
Strategic Business Units. No respondent remained undecided.
The display by the respondents above shows that 131 respondents or 26.57% and 148
respondents or 30.02% agree and strongly agree respectively that improved and sustainable
power supply will encourage Strategic Business Units. On the contrary, 99 respondents or
20.08% and 109 respondents or 22.10% disagree and strongly disagree respectively that
improved and sustainable power supply will encourage Strategic Business Units. 6 respondents
or 1.21% are indifferent on their opinions.
In another development, 90 (18.25%) of the respondents and 110 (22.31%) of the respondents
agree and strongly agree respectively that providing low interest rates for funds will encourage
Strategic Business Units in manufacturing companies while 125 (25.35%) of the respondents
and 160 (32.45%) of the respondents disagree and strongly disagree respectively that providing
low interest rate for funds will encourage strategic business units in manufacturing companies
while 8 respondents or 1.62% were undecided on their opinion.
On the same table 4.5, 123 respondents or 24.94% and 160 respondents or 32.45% agree and
strongly agree respectively to the notion that the use of emerging means of production positively
influences Strategic Business Units while 95 respondents or 19.26% and 114 respondents or
23.12% disagree and strongly disagree respectively that the use of emerging means of production
positively influences Strategic Business Units. Only one (1) respondent remained undecided.
In yet another circumstance, 117 or 23.73% of the respondents and 166 or 33.67% of the
respondents agree and strongly agree respectively that the use of Information and
Communication Technology improves Strategic Business Units performance. On the contrary,
87 respondents or 17.64% and 123 respondents or 24.94% disagree and strongly disagree
clx
respectively to the effect that the use of Information and Communication Technology improves
Strategic Business Unit performance. All the respondents had indication.
Based on the least standard deviation in the table (ie 1.10) the popular view of the respondents is
that the use of Information and Communication Technology improves Strategic Business Units
performance.
Research question 5
To determine the degree to which Strategic Business Units
manufacturing companies.
clxi
enhance the market share of
Table 4.5 The degree to which Strategic Business Units enhance the market share in
manufacturing companies.
S/N Questionnaire
Items
A
SA
D
SD
U
5
4
3
2
1
N
X
STD
REM
1.
Strategic business 124
159
unit are properly (25.15) (32.25)
being funded in
your organization.
96
111
3
493
(19.47) (22.51) (0.60)
3.58
1.10
Accept
2.
Strategic business 119
164
units
need (24.13) (33.26)
manpower
development
to
with
stand
competition.
89
121
0
(18.05) (24.54) (0.0)
493
3.56
1.12
Accept
3.
The inconsistency 141
149
in
Government (28.60) (30.22)
policies adversely
affects
Strategic
Business Units.
92
109
2
493
(18.66) (22.10) (0.40)
3.64
1.23
Accept
4.
High interest rate 112
178
can
hinder (22.71) (36.10)
Strategic Business
Units
from
accessing
funds
from banks for
expansion
88
111
4
493
(17.84) (22.51) (0.81)
3.57
1.09
Accept
5.
Environmental and 122
168
natural disaster can (24.74) (34.07)
affect
Strategic
Business Units
100
103
0
(20.28) (20.89) (0.0)
3.62
1.06
Accept
clxii
493
Indications in table 4.3 shows that 124 respondents or 25.15% and 159 respondents or 32.25%
agree and strongly agree respectively that Strategic Business Units are properly being funded in
your organization. At the same time, 96 respondents represented
by 19.47% and 111
respondent represented by 22.51% disagree and strongly disagree respectively that Strategic
Business Units are being funded properly in your organization.
The distribution of responses from the respondents shows that 119 (24.13%) respondents and
164 (33.26%) respondents agree and strongly agree respectively that Strategic Business Units
need many power development to with stand competition. 89 (18.05%) respondents and 121
(24.54%) disagree and strongly disagree respectively that Strategic Business Units needs
manpower development to with stand competition. All the 493 respondents had contribution in
this case.
In another development, 141 respondents or 28.60% and 149 respondents or 30.22% agree and
strongly agree respectively that the inconsistency in government policy adversely affects
Strategic Business Units. In a divergent view, 92 (18.86%) respondents and 109 (22.10%)
disagree and strongly disagree respectively to the above notion while 2 or (0.40%) remained
indifferent.
Indications above show that 112 (22.71%) respondents and 178 (36.10%) respondents agree and
strongly agree respectively that high interest rate can hinder Strategic Business Units from
accessing fund from banks for expansion. In a different view, 88 (17.89%) respondents and 111
(22.51%) respondents disagree and strongly disagree
clxiii
to the notion that high interest rate hinder Strategic Business Units from accessing funds from
banks for expansion. 4 respondents or 0.81% had no indication.
Evidence from table 4.3 shows that 122 (24.74%) respondents and 168 (34.07%) agree and
strongly agree respectively that environmental and natural disaster can affect Strategic Business
Units. In the contrary, 100 (20.28%) respondents and 103 (20.89%) respondents respectively
disagree and strongly disagree that environmental and natural disaster can affect Strategic
Business Units. All the 493 respondents had indications.
At the least standard deviation of 1.06 the popular view is that environmental and natural
disaster can affect Strategic Business Units.
4.3 Test of Hypotheses
The list of hypotheses earlier formulated in chapter one were tested here using different
statistical tools. Hypotheses two and five were tested with chi-square statistics while hypothesis
four was tested with the Z-test tool. Hypotheses one and three were tested with the Karl Pearson
product moment correlation coefficient.
4.4 Hypothesis one
Ho: There is no significant relationship between Strategic Business Units and productivity in the
selected manufacturing companies
HA: There is significant relationship between Strategic Business Units and productivity in the
selected manufacturing companies.
To test these hypotheses, the Karl Pearson product moment correlation coefficient is applied
hence it is a parametric test and is the most sensitive measure of correlation. The raw score
method will be used in which the raw score formular for computing the Pearson product moment
correlation coefficient (Y) is given by
r =
N∑xy - ∑x∑y
2
√[N∑x – (∑x)2][N∑y2 – (∑y)2]
The above hypothesis will be tested at 0.05 level of significance.
clxiv
Where N = Number of cases
X = Variable factor X in the population.
y = Variable factor Y in the population.
Data generated from two groups of respondents (ie Lower/Middle cadre staff and Management
staff) which answered the research question (Are strategic business units relevant in the
productivity of manufacturing companies?) were used to analyse this hypothesis in which the
researcher had already hypothesized on the null hypothesis. Consequent upon this, the
computation follows:-
Table 4:6 Computation of the Pearson ‘r’ using the raw score method.
S/N
Options
SBU (X)
Productivity
X2
Y2
XY
(Y)
1.
High
50
39
2500
1521
1950
2.
Very High
61
51
3721
2601
3111
3.
Exceedingly High
67
59
4489
3481
3953
4.
Low
47
34
2209
1156
1598
5.
Very Low
30
12
900
144
360
6.
Exceedingly Low
37
6
1369
36
222
Totals
∑ = 292
∑ = 201
∑
∑
∑
= 8939
= 11194
=15188
The value of N = 6
∑ X = 292
∑y = 201
clxv
∑ X2 = 15188
∑ y2 = 8939
∑ Xy = 11194
Substituting in the formular
r= 6 x 11194 – 292 x 201
[6 x 51588 – (292)2 ] [6 x 8939 – (201)2]
r= 67163 – 58692
[91128 – 85264] [53684 – 4040
r= 8472
[5864] [13233]
r= 8472
77598312
r = 8472
8808.99 = 0.96
r = 0.96
This value (0.96) signifies a very strong positive relationship between the two variables X and y.
hence the correlation coefficient ‘Y’ 0.96; to test for the hypothesis, the table value of the
Pearson product moment correlation coefficient will be determined at 5% significant level and at
N – 2 degree of freedom (DF) in which N = 6; DF is therefore 6 -2 = the table value at 0.05
significant level and DF of 4 = 0.8114.
Decision: The computed Y (0.96) is greater than the critical value (0.8114) for two tailed test at
0.05 significant level. There is very reason to reject the null hypothesis and conclude that there is
significant relationship between Strategic Business Units and productivity in the selected
manufacturing companies.
Acceptance
Rejection region
region
rejection region
1-α
= 0.95
clxvi
-0.96
0.8114
0.96
Figure 4.1: Decision on hypothesis one
4.5 Test of Hypothesis Two:
Ho: To a great extent, Strategic Business Units cannot be used to enhance profitability in the
selected manufacturing companies.
HI: To a great extent, Strategic Business Units can be used to enhance profitability in the
selected manufacturing companies.
The chi-Square statistics (X2) will be used in the computation of the result at 0.05 level of
significance. Data for this computation will be drawn from the respondent’s opinion on the
extent Strategic Business Units can be used to enhance profitability in the selected
manufacturing companies.
A 2 x 5 contingency table on the extent Strategic Business Units can be used to enhance
profitability in the selected manufacturing companies
Table 4:7: Test of Hypothesis Two
S/N
Options
Lower/Middle
Management
cadre (X)
cadre
Total
1.
Agree
72
23
95
2.
Strongly Agree
46
50
96
3.
Disagree
67
51
118
4.
Strongly Disagree
65
47
112
clxvii
5.
Undecided
42
30
72
Total
292
201
493
Table 4.7.1: 2nd Contingency table of Table 4.7
S/N
Options
Lower/Middle
cadre (X)
Management
Total
cadre
1.
Agree
Fe = 56
Fa = 72
Fe = 39
Fa = 23
95
2.
Strongly Agree
Fe = 57
Fa = 46
Fe = 39
Fa = 50
96
3.
Disagree
Fe = 70
Fa = 67
Fe = 48
Fa = 51
118
4.
Strongly Disagree
Fe = 66
Fa = 65
Fe = 46
Fa = 47
112
5.
Undecided
Fe = 43
Fa = 42
Fe = 29
Fa = 30
72
Total
292
201
Note: Fe = Observed frequencies
Fe = Expected frequencies
Expected frequency = Row total X column total
Total
Fe = 95 X 292 = 56
493
Fe = 95 X 201 = 39
493
clxviii
493
Fe = 96 X 292 = 57
Fe = 96 X 201 = 39
493
493
Fe = 118 X 292 = 70
Fe = 118 X 201 = 48
493
493
Fe = 112 X 292 = 66
Fe = 112 X 201 = 46
493
493
Fe = 72 X 292 = 43
Fe = 72 X 201 = 29
493
4
Table 4.7.2: 3rd Contingency Table of Table 4.7 for Chi-square determinant
Fa
Fe
Fa-Fe
(Fa-Fe)2
(Fa-Fe)2
Fe
72
56
16
256
4.57
23
39
-16
256
6.56
46
57
-11
121
2.12
50
39
29
841
21.56
67
70
-17
289
4.12
51
48
3
9
0.18
65
66
-1
1
0.01
47
46
1
1
0.02
42
43
-1
1
0.02
30
29
1
1
0.03
∑ = 40.18
:. X2 = 40.18 = 40
Degree of freedom (DF) = (No Row - 1) (No of Column - 1)
= (5-1) (2-1)
clxix
= (4) (1) = 4
Sig. level = 0.05
The critical value of chi-square at 5% significant level and DF of 4 = 9.488
Decision rule: (1) reject Ho if X2 calculated is greater than the table value of Chi – square
(2) otherwise accept Ho
Conclusion X2 calculated = 40
X2 (.05, 4) = 9.488. This is a two tailed test.
:. HO is rejected since 40> 9.488 implying that the alternative hypothesis is upheld. This means
that, to a large extent, Strategic Business Units can be used to enhance profitability in the
selected manufacturing companies.
Acceptance
Region
Rejection region
1- α = 0.95
- 40
rejection region
9.488
40
X
Figure 4.2: Decision on Hypothesis Two
4.8 Test of Hypothesis three
Ho:
There is no significant relationship between Strategic Business Units and
technological and environmental challenges in the selected manufacturing
companies.
H1:
There is significant relationship between Strategic Business Units and
technological and environmental challenges in the selected
manufacturing companies.
clxx
At 5% level of significance, this hypothesis will be tested with the Pearson product moment
correlation coefficient. Hence, it is a parametric test and it is the most sensitive measure of
correlation. The raw score method for treating Pearson Product Moment Correlation will be
adopted in which the formular states that:
r =
N∑xy - ∑x∑y
√[N∑x2 – (∑x)2][N∑y2 – (∑y)2]
In the above formular;
N = Number of cases
X= Variable factor x in the population
y = Variable factor y in the population
Data for this test is drawn from the respondents’ opinion on the extent Strategic Business Units
can be used to address the challenges of technological and environmental issues in the selected
manufacturing companies.
In view of the above, the computation is as follows:
Table 4:8 Computation of Pearson ‘r’ using the raw score method
S/N Options
Lower
Middle
/ Management
X2
y2
Xy
cadre (y)
cadre (x)
1
High
46
50
2116
2500
2300
2
Very high
65
47
4225
2209
3055
3
Exceedingly
67
51
4489
2601
3417
High
4
Low
42
30
1764
900
1260
5
Very Low
34
11
1156
121
374
clxxi
6
Exceedingly Low
Totals
38
12
1444
∑= 292
∑ = 201
∑
15194
The value of N
=
6
∑x
=
292
∑y
=
201
∑x2
=
15194
∑y2
=
8475
∑xy
=
10862
Substituting in the formular:
r
=
6 x 10862 – 292 x 201
√[6 x 15194 – (292)2][6 x 8475 – (201)2]
r
=
65172 - 58692
√[91164 - 85264][50850 - 40401]
r
=
6480
√[5900][10449]
r
=
6480
√61649100
r
=
6480
7851.69
=
0.8253
clxxii
144
= ∑
8475
456
= ∑ = 10862
The level of correlation coefficient ‘r’ (0.8253) implies a strong positive relationship existing
between the two variables x and y.
To test for the hypothesis, the table value of the Pearson Product Moment Correlation
Coefficient will be determined at 5% level of significance and at N – 2 degree of freedom (DF)
in which N = 6; DF is therefore 6 – 2 = 4. The table of the Correlation Coefficient at 5%
significant level and DF of 4 = 0.8114.
DECISION:
Since r – cal (0.8253) > r – critical (0.8114) at 4 DF and 0.05 level of
significance, there is every reason to reject the null hypothesis but instead accept the alternate
hypothesis. We conclude that there is significant relationship between Strategic Business Units
and technological and environmental challenges in the selected manufacturing companies.
clxxiii
Critical region
acceptance region
- 0.8253
- 1.96
critical region
0.8114
+ 0.8253
Figure 4.4: Decision on Hypothesis three
4.9 Test of hypothesis four
Ho:
Strategic Business Unit application is not only a major way of
encouraging manufacturing companies.
H1:
Strategic Business Unit application is a major way of encouraging
manufacturing companies.
The Z – test statistical tool will be employed to test this hypothesis. It is always used to test the
hypothesis about the difference between means of two groups. This will be ascertained at 5%
significant level. To test this hypothesis, data will be drawn from the respondents opinion on
whether there is effect of use of emergency means of production and old means of production.
Table 4:9: Difference between emerging means of production and old means of
production
S/N
Options
Lower & Middle Management
cadre staff
cadre staff
1
Agree
69
25
2.
Strongly Agree
49
48
3.
Disagree
66
50
clxxiv
4.
Strongly Disagree
64
47
5.
Undecided
44
31
Total
292
201
The two group of respondents required are the Lower / Middle Cadre staff and the management
Cadre staff on which there shall be the computation of the means and Standard derivation of the
groups.
Table 4:9:1 Computation of mean (X) for Lower / Middle cadre Staff
S/N
Options
X
Y
FX
1
Agree
5
69
345
2
Strongly agree
4
49
196
3
Disagree
3
66
198
4
Strongly disagree
2
64
128
5
Undecided
1
44
44
292
911
Total (∑)
Mean (X1)
=
∑fx
∑F
=
911
292
clxxv
=
3.11
Table 4:9:2. Computation of Mean (X) for Management Cadre Staff
S/N
Options
X
Y
FX
1
Agree
5
25
125
2
Strongly agree
4
48
192
3
Disagree
3
50
150
4
Strongly disagree
2
47
94
5
Undecided
1
31
31
201
592
Total (∑)
Mean (X2)
=
∑fx
=
∑F
Therefore: (X2)
=
592
=
2.94
201
2.94
Table 4:9:3. Standard Deviation for Lower/Middle Cadre Staff (x1) = 3.11)
X
F
X – X = x1
Fx1
F(x1)2
5
69
5 – 3.11 = 1.89
69 (1.89)
69(1.89)2 = 246.47
4
49
4 – 3.11 = 0.89
49 (0.89)
49 (0.89)2 = 38.81
3
66
3-3.11 = 0.11
66 (0.11)
66 (0.11)2 = 0.79
2
64
2 – 3.11 = 1.11
64(1.11)
64(1.11)2 = 78.85
1
44
1-3.11 = 2.11
44(2.11)
44(2.11)2 = 195.89
∑
292
560.81
clxxvi
∑N1 = 292
Where N1 = Summation of the frequencies.
Variance S2 in given as ∑F(x1)2
N–1
2
By Substitution S
=
560.81 =
560.81
292 -1
=
Standard Derivation S =
Therefore
S1
√S
291
1.9271
2
=
√1.9271
=
1.3882
=
1.388
Table 4:9:4. Standard Derivation for Management Cadre Staff (x2) = 2.94)
X
F
X – X = x1
Fx1
F(x2)2
5
25
5 – 2.94 = 2.06
25 (2.06)
25(2.06)2 = 106.09
4
48
4 –2.94 = 1.06
48 (1.06)
48(1.06)2 = 53.93
3
50
3 - 2.94 = 0.06
50 (0.06)
50 (0.06)2 = 0.18
2
47
2 – 2.94 = 0.94
47(0.94)
47(0.94)2 = 41.52
1
31
1 -2.94 = 1.94
31(1.94)
31(1.94)2 = 116.67
∑
201
318.39
∑N2 = 201
Where N2 = Summation of the frequencies.
Variance S2 in given as ∑F(x1)2
N2 – 1
clxxvii
By Substitution S2
=
318.39 =
318.39
201 -1
=
Standard Derivation S =
Therefore
S2
200
1.59195
√S2
=
√1.2617
=
1.2617
=
1.2617
Determined are the following variables:
X1
=
3.11
X2
=
2.94
S1
=
1.388
S2
=
1.2617
N1
=
292
N2
=
201
Computing for the Z – test with the following:
Z
=
x1 – x 2
√s21/N1 + s22/N2
By substituting;
Z
=
3.11 – 2.94
√(1.388)2 /292 + (1.2617)2/201
=
0.17
√1.9265/292 + 1.5918/201
0.17
√6.5976 + 7.9194
0.17
√14.517
0.17
3.8101
=
0.0446
Therefore: Z =
0.0446
Degree of freedom (DF)
clxxviii
=
N1 + N2 – 2
=
292 + 201 – 2
=
493 – 2
=
491
Z α (0.05) = 1.645 while the t – calculated = 0.0446
Decision: Reject Ho and uphold HA (alternative hypothesis) if this t – calculated exceeds the
table value. Otherwise, do not reject the null hypothesis Ho.
Decision: there is no reason for rejecting Ho since the t – calculated (0.0446) is less than the
table value which is 1.645 at α degree of freedom and 0.05 significant levels. Therefore, Ho is
uphold with the conclusion that Strategic Business Unit application is not only a major way of
encouraging manufacturing companies.
4.10 Test of Hypothesis five
H0: Strategic Business Units cannot to a large extent be used to enhance the market share of
manufacturing companies.
H1: Strategic Business Units can to a large extent be used to enhance the market share of
manufacturing companies.
The above hypothesis will be tested with then chi-square statistic which will enable the
researcher arrive at correct and valid conclusion. This exercise will be carried at 5% level of
significance. Data generated from the relevant research question will be drawn to effect the
computation of the result.
A 2 X 5 contingency table on the effect of strategic business units and market share of selected
manufacturing companies.
Table 4:10: Test of Hypothesis Five
S/N
Options
Lower and Middle cadre
Management cadre
Totals
1.
Agree
70
25
95
2.
Strongly
48
48
92
Agree
clxxix
3.
Disagree
61
53
114
4.
Strongly
71
44
115
Undecided
42
31
73
TOTAL
292
201
493
disagree
5.
Table 4.10.1: 2nd Contingency Table of Table 4.10
S/N Options
Lower
&
Middle Management
cadre Staff
Total
cadre Staff
1
Agree
Fe = 56
Fa = 70
Fe = 39
Fa= 25
95
2
Strongly agree
Fe= 55
Fa=48
Fe=38
Fa=48
92
3
Disagree
Fe=68
Fa=61
Fe=47
Fa=53
114
4
Strongly disagree
Fe=68
Fa=71
Fe=47
Fa=44
115
5
Undecided
Fe=43
Fa=42
Fe=30
Fa=31
73
TOTAL
292
201
Note: Fa
=
Observed frequency
Fe
=
Expected frequency
Expected frequency
=
493
Row total x Column total
Total Number
Therefore:
Fe =
95 x 292
=
56;
493
Fe = 95 x 201
493
clxxx
=
39
Fe =
92 x 292
=
55;
Fe = 92 x 201
493
Fe =
114 x 292
=
68;
Fe = 114 x 201
=
47
=
47
=
30
493
115 x 292
=
68;
Fe = 115 x 201
493
Fe =
38
493
493
Fe =
=
493
73 x 292
=
43;
Fe = 73 x 201
493
493
Table 4:10:2: 3rd Table of table 4:10 for Chi – square determination
Fa
Fe
Fa – fe
(fa – fe)2
(fa – fe)2/fe
70
56
14
196
35.00
25
39
-14
196
5.02
48
55
-7
49
0.89
48
38
10
100
2.63
61
68
-7
49
0.72
53
47
6
36
0.76
71
68
3
9
0.13
44
47
-3
9
0.19
42
43
-1
1
0.02
31
30
1
1
0.03
45.39
Therefore: x2 = 45.39 = 45
Degree of freedom (DF)
= (No. of Row – 1)(No. of Column – 1)
= (5 -1)(2-1)
clxxxi
= (4)(1)
=4
Significance level
= 0.05
The critical value or the table value of chi-square at 5% significant level and DF of 4 = 9.488.
Decision Rule:
1. Reject Ho if x2 calculated is greater than the table value of the chi – square
2. Otherwise accept Ho
Conclusion: x2 calculated = 45;
but x2 (0.05, 4) = 9.488
Therefore: Ho is rejected since 45 > 9.488 showing that the alternative hypothesis (HA) is upheld
meaning that Strategic Business Units can to a large extent enhance the market share of
manufacturing companies.
1-α = 0.95
Acceptance
-
45
9.488
45
Figure 4.5: Decision on Hypothesis five
4.9 Discussion of Results
In this study, Strategic Business Units and Organizational Performance in selected
Manufacturing Companies in South East Nigeria were evaluated. Five hypotheses were raised in
the study. They were to determine the relationship between Strategic Business Units and
productivity of manufacturing companies, to ascertain the extent Strategic Business Units
enhances profitability in manufacturing companies, to determine the extent to which Strategic
Business Units can be used to address technological challenges in manufacturing companies, to
clxxxii
ascertain if Strategic Business Unit application is only a major way of encouraging
manufacturing companies and finally to establish the degree to which Strategic Business Units
enhances the market share of manufacturing industries. However in the test of these hypotheses,
the following facts have emerged and they are summarized below.
4.9.1 Hypothesis one
There was a significant relationship (rc = 0.96 > rt = 0.8114, P < 0.05) between Strategic Business
Units and productivity of the selected manufacturing companies.
The computed Y (0.96) is greater than the critical value (0.8114) for two tailed test at 0.05
significant levels. There is every reason to reject the null hypothesis and conclude that there is
significant relationship between Strategic Business Units and productivity of the selected
manufacturing companies. The level of correlation coefficient ‘r’ (0.96) displayed in table 4.6*
computation of Pearsons ‘r’ using the raw score method implies a strong positive relationship
existing between the two variables x and y.
This result confirms the report by Walkman (2009) that the three most important characteristics of
any Strategic Business Unit are Competitiveness, Strategy and Productivity. Competitiveness
describes how an organization meets the needs and wants of customers compared to the
competitors of the organization, in other words demand. Strategic Business Units helps the
organization achieve their goals by using tactics, which are the methods and actions taken to
accomplish its strategies. Lastly, Productivity helps Strategic Business Units know what
materials are used effectively. This result further aligns with the report of Hill and Kent that
Strategic Business Units are more productive and innovative than mere work groups in an
organization. They produce results that exceed what groups of individuals can do through simple
cooperation and coordination. Such results reflect a “team effect”; members perform better when
they feel they are part of a productive Strategic Business Unit
4.9.2 Hypothesis two
Strategic Business Units to a great extent (P < 0.05) can enhance profitability in the selected
manufacturing companies.
clxxxiii
The null hypothesis is rejected since 40> 9.488 implying that the alternative hypothesis is upheld.
This means that, to a great extent, Strategic Business Units can enhance profitability in the
selected manufacturing companies. The observed and expected frequencies are displayed in
contingency table 4.7.1.2nd contingency table of table 4.7 while table 4.7.2.3rd is the contingency
table of table 4.7 for Chi-square determinant.
This result aligns with Hofstrand (2014) that a business that is not profitable cannot survive.
Whether you are recording profitability for the past period or projecting profitability for the
coming period, measuring profitability is the most important measure of the success of a
Strategic Business Unit. Conversely, a Strategic Business Unit that is highly profitable has the
ability to reward its owners and parent companies large return on their investment. Enhancing
profitability is one of the most important tasks of SBU Presidents. Strategic Business Unit
managers constantly look for ways to change the business to improve profitability. This result is
also in conformity with
Tzeng, Chiang, Lee (2006) that due to the variety of organizational tasks, obviously, elements
and components of Profitability and its assessment should be varied and tailored to each
Strategic Business Unit. Providing harmonized and uniform criteria for Profitability and
Organizations evaluation based on them, essentially cannot be brought to positive approaches.
4.9.3 Hypothesis three
Strategic Business Units significantly (rc =0.8253 > rt =0.8114, P < 0.05) can be used to address
Technological and Environmental challenges in the selected manufacturing companies.
Since r – cal (0.8253) > r – critical (0.8114) at 4 DF and 0.05 level of significance, there is every
reason to reject the null hypothesis but instead accept the alternate hypothesis. We conclude that
there is significant relationship between Strategic Business Units and technological and
environmental challenges in the selected manufacturing companies. The level of correlation
coefficient ‘r’ (0.8253) displayed in table 4.9 computation of Pearsons ‘r’ using the raw score
method implies a strong positive relationship existing between the two variables x and y.
This result confirms Okafor (1988) view that Nigeria destroys about 600, 000 hectares of her
forest every year through careless exploitation and husbandry. Such careless exploitation of the
forest has been implicated in a number of worsening environmental problems in the country
clxxxiv
including soil erosion and infertility, desertification and flooding which adversely affects Parent
Companies and its Strategic Business Units. Secondly credence to this result comes from
Lorenzen (2010) that technology and social media should be used to increase efficiency in
Strategic Business Units; form relationships with clients and reach new customers.
4.9.4 Hypothesis four
Strategic Business Unit application is not only (P > 0.05) a major way of encouraging
manufacturing companies.
There is no reason for rejecting the null hypothesis since the t – calculated (0.0446) is less than
the table value which is 1.645 at α degree of freedom and 0.05 significant levels. Therefore, null
hypothesis is uphold with the conclusion that Strategic Business Unit application is not only a
major way of encouraging manufacturing companies.
This result is in affirmative with the report of Golden (2012) that Strategic Business Units needs
to create a positive image of manufacturing that once enticed the brightest professionals to the
sector. Introduction and use of emerging technologies alone are not enough. We need to make
manufacturing “in” again, highlighting the fortunes created and the valuable contribution made
from manufacturing so that we can attract our best and brightest. Finally, further confirmation
provided by Edozie (2011) declares that Strategic Business Units are not immune to challenges
facing manufacturing industries in Nigeria. These includes: epileptic power supply, the countries
deficient infrastructure, credit squeeze, low purchasing power, high financing cost in the
financial market, among others. Emerging means of production cannot be successful under this
current challenges mentioned above. Efforts should be geared towards improving the quality and
quantity of power supply to manufacturing industries overtime.
4.9.5 Hypothesis five
Strategic Business Units can to a large extent (P < 0.05)
enhance the market share of
manufacturing Companies.
The null hypothesis is rejected since 45 > 9.488 showing that the alternative hypothesis is upheld
meaning that Strategic Business Units can significantly be used in enhancing the market share of
clxxxv
manufacturing companies. The observed and expected frequencies are displayed in contingency
table 4.8.1.2nd contingency table of table 4.8 while table 4.8.2.3rd is the contingency table of table
4.8 for Chi-square determinant.
This result confirms the report of Wood (2014) that Strategic Business Units enhances business
strategy by identifying the high growth and attractive market categories. It also develops
competitive strategy based on competitive landscape, design capital investment strategies based
on forecasted high potential segments and finally identifies potential business partners,
acquisition targets and business buyers. This will in the long run significantly affect the market
share of that organization. It is also in conformity with Hazynla et al (2010) in their research that
growth in the market size and market share in terms of revenue, unit sales, average selling price
and forecasted growth rates and company market shares are traceable to the activities of Strategic
Business Units within the parent organization. Strategic Business Units offers an organization
the required competitive advantage and platform to grow and develop its products and services
through its organizational and functional level strategies
clxxxvi
CHAPTER FIVE
SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.1 Introduction
This chapter looked at the results of our data presentation and analysis done in chapter four and
summarized our findings in line with the objectives of this research. These results which were
tested using Pearson Product Moment Correlation for hypothesis one and three while Chi Square
Statistics were used in hypothesis two and five. Z test was the testing tool for hypothesis four.
Other features in this chapter include; Conclusion, Recommendations, the research Contribution
to knowledge and Area for further Studies.
5.1 Summary of Findings
The summary of findings after a detailed analysis of data presented and analyzed are as follows:
1.
The computed r (0.96) is greater than the critical value (0.8114) hence there is a
significant relationship between Strategic Business Units and productivity of the selected
manufacturing companies.
2.
Statistical computation upheld that to a great extent, Strategic Business Unit enhance
profitability in the selected manufacturing companies (X2– cal=40, X2– t at 0.05, 4 =
9.488)
3.
The null hypothesis which states that there is no significant relationship between
Strategic Business Units and technological environmental challenges in the selected
manufacturing companies was rejected in favour of the alternative hypothesis hence r –
cal (0.8253)> r – critical (0.8114) at (0.05,4) which states that Strategic Business Units
can significantly be used to address technological and environmental challenges in
manufacturing companies
4
Proof reveals that Strategic Business Unit application is not only a major way of
encouraging manufacturing companies hence the null hypothesis was upheld wherefore t
– calculated (0.0446) < r – critical (1.645) at df (∞) and (0.05)
clxxxvii
5.
X2 – calculated (45) > X2 – critical (9.488) at 5% significant level and degree of freedom
of 4. Therefore Ho is rejected since 45 > 9.488 showing that HA is upheld wherefore the
view is held that Strategic Business Units can to a large extent enhance the market share
in the selected manufacturing companies.
5.2 Conclusion
Strategic management deals with the major and emergent initiatives taken by general managers
on behalf of owners, involving the utilization of resources to enhance the performance of firms in
their external environment. Strategic business units (SBU’s) are products of strategic
management which are treated as a semi-independent profit centers with their own revenue,
costs, objectives, Competitors and Strategies. It is a business unit within the overall corporate
identity which is distinguishable from other businesses because it serves a defined external
market where management can conduct Strategic Planning, planning relating to products and
markets.
Recent years have seen heightened concern and focus on measuring and managing organizational
performance. Performance management methodologies such as strategy maps, demand
forecasting, customer profitability analysis, product profitability analysis, activity-based costing,
value based management, balanced scorecards, performance prism, dynamic pricing and driverbased resource capacity planning have proved to be great assets for improving business
performance. At the same time, as the global modern economy has evolved, businesses are now
being challenged to adapt to new operational models.
Competition in the marketplace has intensified, further increasing the need for businesses to
respond promptly to customer needs, improve quality and cut costs. As a result, most companies
have eliminated management layers and devolved authority and decision-making down through
the organization. Through decentralization and empowerment, there is conventional thinking that
managers and their subordinates will think and act like owners, be willing to take calculated risks
and become accountable for their performance.
clxxxviii
Strategic Business Units have become a very important tool in the hands of Business Managers
on behalf of owners to use in achieving performance in manufacturing companies. It is equally
worth mentioning that the impact of good management team in realizing organizational set goals
is very paramount and this could only be achieved if Organizational standards of recruitment are
set and maintained for efficiency and effectiveness of its human resources base.
Finally, it is imperative to note that the main objectives of this work which is Strategic Business
Units and Organizational Performance in Selected Manufacturing Companies in South-East,
Nigeria was achieved alongside its specific objectives which were to determine the relationship
between Strategic Business Units and good Management team in the performance of
manufacturing companies, to ascertain the extent Strategic business units can be used to achieve
performance in manufacturing companies, to identify challenges facing Strategic Business Units
application in selected manufacturing companies, to determine the extent to which Strategic
Business Units can be used to address technological challenges in manufacturing companies, to
ascertain if the use of emerging means of production is a major way of encouraging Strategic
Business Units application in manufacturing companies.
The conclusion of this research is that there is a significant relationship between Strategic
Business Units, productivity and profitability which can be used to address technological
challenges in the selected manufacturing companies to enhance its market share.
5.3 Recommendations
This study is embarked upon to know why the business environment has been turbulent which
has resulted in poor performance of most of our manufacturing companies, thereby making their
product to be of poor quality and expensive. It is intended to reverse this trend. It was equally
discovered that when a company has very distinctive products and businesses and is also
significant in size and geography, the role of the business unit president can help to keep a
company well organized and focused. Employees will often associate themselves more with the
business unit than with the company, and in many cases this is useful for the business. Most
change projects start from the top of the organization and are then cascaded down. Senior
executive’s involvement is key to securing buy in because of their power and influence.
clxxxix
Management should be able to clearly communicate the reasons and benefits of measuring and
improving performance.
1.
Targets should not only be financial but also Strategic. They should be underpinned by
clear action plans that cascade down the organization and promote both ownership and
commitment. Most organizations are still glued to the notion of focusing on actual versus
budget numbers. In order to get a broader view of business performance, reports should
take a modern balanced scorecard approach that tracks progress in various areas of the
business. They should be relative to other strategic business units and external factors.
2.
Compensation systems should be based on company-wide results. This means looking
beyond the share price only and monitor performance in other parts of the business and
against external competition. Strategic Business Units has the capacity and ability to help
manufacturing companies in South East Nigeria overcome many of its challenges. It is
strongly recommended that Strategic Business Units should be adopted by manufacturing
companies which will help their products and services in overcoming competition.
5.4 Contribution to Knowledge
The SBU president is in fact the chief wealth creator in the company. Operationally, he or she is
responsible for a business portfolio that generalizes sales and expenditures. Well-run business
unit can bring significant top and bottom-line growth to company’s financial statements. In good
times, the SBU president is a company hero and often rewarded generously for a strong financial
contribution. Conversely, when sales growth flattens or fails the SBU president is often the
scapegoat and can easily be sacrificial by the top leadership team in order to try to reverse the
fortunes of a struggling business.
Therefore in filling the gap created by previous works, this work will ensure that performance
monitoring and tracking of individuals and Units in Strategic Business Units will help in
knowing problem areas and effecting changes that could adversely affect the fortunes of the
Strategic Business Units thereby shifting the burden of making an SBU President a scape goat in
event of company failure.
cxc
5.5 Areas for further Studies
Strategic Business Units has a very important impact in Organizational performance in selected
manufacturing companies in South East Nigeria. Because of this positive effect on
Organizational growth and expansion, it is strongly recommended that the Power Sector Reform
Road-map and the privatization agenda in the power sector of our Economy should adopt a
Strategic Business Unit model approach in solving the existing problem in that sector. A study of
the Effect of Strategic Business Units in Enugu Electricity Distribution Company, South-East
Nigeria should be embarked upon.
cxci
APPENDIX I
QUESTIONNAIRE
Department of Management
Faculty of Business Administration
University of Nigeria Nsukka, Enugu Campus (UNEC)
Dear Sir,
I am a Doctor of Philosophy (Ph.D) student of the above named Department and University
currently undertaking a research on “Strategic Business Units (SBU) and Organizational
Performance in selected manufacturing companies in South East Nigeria”.
The attached questionnaire is to enable me capture relevant data for analysis on this topic. It is
strictly for academic purposes, and any information supplied will be treated with deserved
confidentiality.
I most humbly therefore request that you assist me in responding timely to this questionnaire so
that this research work will not be delayed.
Thanks for your anticipated co-operation.
Yours faithfully,
Ude Anthony Obiora
PG/Ph.D/06/46396
cxcii
APPENDIX II
PERSONAL DATA
1.Sex : male [ ] Female [ ]
2.Marrital Status : Married [ ] Single [ ] Divorced [ ] Widowed [ ] Separated [ ]
3.Indicate your Age
a. 20 – 30
b. 31 – 40
c. 41 – 50
d. 51 – 60
e. 61 and above
4. Indicate your highest academic qualification
a. WAEC/ GCE
b. OND/ NCE
c. BSC/HND
d. MSC/MBA/Ph.D
5. Your current position in the organization
a. Management
b. Middle Management
c. Lower cadre
cxciii
6. Working Experience
a. 0 – 5years
b. 6 – 10 years
c. 11 – 20 years
d. 21 – 30 years
e. 31 years and above.
cxciv
APPENDIX III
Strategic Business Unit is an autonomous division or organizational unit which is responsible for
its own planning, budget and a defined competitive market. Its mission is principally to add to
the value chain of its parent organization.
Variables for determining Strategic Business Units and organisational performance includes;
profit, growth, diversification, market share and size. Further variables are customers, operations,
organization and economic value added.
S/N
QUESTION
Strongly
Agree
Undecided Disagree
Agree
A
To ascertain the
extent to which
Strategic Business
Unit
affect
productivity
of
manufacturing
companies.
1.
Strategic Business
Unit
aids
organisational
performance
2.
Strategic Business
Unit
aids
organisational
growth
3.
Strategic Business
Unit
aids
organisational
expansion
4.
Strategic Business
Unit are useful in
strategic planning.
5.
Does
Strategic
Business Unit help
Strongly
Disagree
cxcv
in
maintaining
product market size.
S/N
QUESTION
Strongly
Agree
Undecided Disagree
Agree
B
To
determine
extent
Disagree
the
Strategic
Business
Unit
enhance profitability
in
manufacturing
companies.
1.
Strategic
Business
Units help in the
introduction
of
a
new product line.
2.
Strategic
Business
Units can be used in
demand
management.
3.
Can
Strategic
Business Units be
used in responding
quickly to customer
request.
4.
Can
Strategic
Business Units be
useful in economic
value
added
to
organisational
finances.
5.
Can
Strongly
Strategic
cxcvi
Business Units be
used in optimizing
cost
for
an
organisation.
Strongly
Agree
S/N
QUESTION
E.
To determine the
degree to which
Strategic Business
Unit enhance the
market share of
manufacturing
companies.
1.
Are
Agree
Undecided Disagree
strategic
Business
units
properly
being
funded
in
your
organization.
2.
Strategic
Business
Units
needs
manpower
development
to
withstand
competition.
3.
Government
policy
inconsistency
adversely
affects
Strategic
Business
Units.
4.
High
affects
interest rate
Strategic
Business Units from
cxcvii
Strongly
Disagree
accessing funds from
banks for expansion
5
Environmental and
natural
disaster
affects
Strategic
Business Units.
S/N
QUESTION
C.
To
Strongly
Agree
determine
extent
to
Strategic
Agree
Undecided Disagree
the
which
Business
Units can be used to
address technological
and
environmental
challenges
in
manufacturing
companies.
1.
Strategic
Business
Units are important
in
solving
technological
challenges
in
organisation
2.
Strategic
Business
Units are important in
monitoring
technological
development
in
manufacturing.
3.
Strategic
Business
Units are important in
managing
technological
cxcviii
Strongly
Disagree
development
manufacturing.
4.
Strategic
in
Business
Units are useful in
tracking
new
production processes
in manufacturing
S/N
5.
Strongly
Agree
QUESTION
Can
Agree
Undecided Disagree
Strategic
Business
Units
improve
the
technology
that
is
required
in
developing
its
demand area.
D.
To
ascertain
the
way
of
major
encouraging
Strategic
Business
Units
in
manufacturing
companies.
1.
Reduction of import
duty
on
manufacturing
equipment is a way of
encouraging Strategic
Business Units.
2.
Improved
power
supply will encourage
cxcix
Strongly
Disagree
Strategic
Business
Units.
Low interest rate is a
3.
way of encouraging
Strategic
Business
Units
in
manufacturing.
S/N
QUESTION
Strongly
Agree
Undecided Disagree
Agree
4.
Use
of
Disagree
emerging
means of production
positively influences
Strategic
Business
Unit.
5.
Use of Information
and communication
technology
tools
improves
Strategic
Business
Unit
Strongly
Performance.
cc
APPENDIX IV
ORAL INTERVIEW SCHEDULE
SECTION B
Strategic Business Units (SBU) and Organizational performance
1. What are the relevance of Strategic Business Units (SBU) in the Economic Value Added
(EVA) in your Organization?
a. It is highly relevant and commendable in the achievement of organizational set goals.
b. Strategic Business Units helps organizational growth and expansion.
c. Strategic Business Units are useful in satisfying customers demand.
2. What values does Strategic Business Units add to your Parent Organization?
a. It is the main source of revenue to the parent Organization.
b. It maintains and sustains customer confidence.
c. Takes the organizations mission and vision to the grassroots
3. Does Strategic Business Units (SBU) help your Organizations competitive edge.
a. It is very useful in sustaining our company’s market share.
b. It helps our product development plans.
c. It helps our demand Management plans.
4. Why does an Organizations Strategic plans fail?
a. As a result of failure to understand the customer.
b. Inability to predict environmental reaction.
c. Failure to obtain employee commitment.
cci
5. What is the role of Strategic Business Units (SBU) in the Information and technology-driven
strategy of your organization?
a. It helps people to continuously expand their capacity to learn and be productive.
b. It helps in nurturing new patterns of thinking.
c. Encourages collective aspirations and troubleshooting.
ccii
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