Strategic Management Essay

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The following strategic review aims at assessing the strategic situation of South African Breweries Group. We will start with an external analysis of the environment in which SAB operates, we will continue with an internal analysis of its resources and capabilities, and then we will outline and appraise the group current strategy. Additionally we will study the company’s strategy implementation issues, and we will finish giving some recommendations to SAB.

In order to carry out this analysis different analysis tools were used, which are included in the Appendices. In the main body of the report we will only focus on the conclusions we have obtained, hence, if further information about how we got to these findings is required the appendices should be consulted.

Different tools were used (Porter’s five forces, analysis of industry’s life cycle, and PEST analysis) in order to assess the environment in which SAB operates.

Based on the analysis conducted using Porter’s five forces (Appendix A) the following was found: the brewing industry in the developed world is not clearly attractive; its performance depends on the ability to consolidate and exploit opportunities in the emerging markets. However, the brewing industry in the emerging markets, where SAB operates, is highly attractive. We have observed good points such as the low level of power within suppliers and buyers, a lack of substitutes, and a relatively low level of rivalry because emerging markets are supplied by small-scaled local brewers offering low quality beer.

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However, there is a significant threat of new entrants coming from other geographical areas (International breweries).

Conclusion Of Strategic Management Essay

We have also analysed the industry life cycle (Appendix B). We have got to the conclusion that the brewing industry in the developed world is in the maturity stage. It is very important for SAB to be aware of this issue, because it means that the market situation will force breweries based in mature markets to look for new opportunities for growth by entering the emerging markets where SAB operates. In the less developed world and in the emerging economies the brewing industry is still in its growth stage.

Growth in beer consumption in these markets is driven by an increase in population and economic prosperity which indicates that SAB can achieve its own growth through the growth in the marketplace. The brewing industry is highly fragmented, and the market is supplied by small breweries offering low quality beer, meaning that rivalry between local breweries and SAB is not intense. SAB has successfully captured market share through acquisitions and joint ventures and differentiated its brand portfolio, by offering a high quality beer. However, entry of international competitors is expected to intensify the competition as well as the fight for market share.

With the PEST analysis (Appendix C) we outlined how political, economical, social and technological factors affect the company. The emerging market attractiveness (like other markets) is determined by the following: market potential, which is influenced by the market size, market growth prospects and customer preferences. Market growth is clearly correlated to economic growth and wealth distribution. Additionally, economic growth and wealth distribution influence whether customers seek economy or premium beers. Drinking norms and societal attitudes to alcohol consumption also affect market attractiveness. All the above mentioned issues are analysed in order to gain a better understanding of SAB’s environment.

Regarding competitors we do not think we have enough information to get to any relevant conclusions, however, we know the degree of rivalry is likely to increase (international brewers based in mature markets are moving out of their geographic areas to the emerging markets). In order to assess competition, it is critical that SAB recognises the strategic group to which it belongs which is “the international breweries strategic group”, seeking consolidation and competing for development opportunities throughout the world. It is very important to do a deeper analysis of the competitive landscape; a good study should include the following steps (Porter, 1998):

* Identify competitors’ current strategy.

* Identify their future goals.

* Identify their assumptions about the company.

* Identify their resources and capabilities.

This approach provides valuable information, and helps the company predicting competitors’ moves.

At this point we are going to focus on the importance of the Resource-based strategy. It is based on the assumption that the company achieves its competitive advantages by developing a strategy based on its organisational capabilities and the key success factors of the industry; thus, a key issue for SAB is to identify and develop these capabilities in order to achieve a competitive advantage.

It is very important to understand the process of turning resources into capabilities and to identify the core competences; those capabilities fundamental to its performance and strategy, done better than its competitors. Resources are inputs into the production process; a capability is the capacity of a team of resources to perform some task or activity. We have identified some resources and capabilities of SAB in (Appendix D); however, the company should do a deeper analysis. It is important to note here that SAB’s capabilities are not the result of superior resource endowments; however, the key issue here is the firm’s ability to leverage its resources.

SAB has achieved resource leverage using the following fundamental ways: first, concentrating resources on key strategic goals. SAB focuses attention on a few operational goals in the acquired breweries at any one time, and then it moves to other goals. It first focuses on upgrading quality, then comes improvement to marketing and distribution, afterwards, the improvement of productivity and capacity. Second, SAB has used the resources accumulation method to leverage resources. SAB has borrowed the resources of other breweries through acquisitions, and joint ventures (CREB in China), which gave SAB a smooth and quick penetration into the emerging markets. SAB also used the resource conserving method, through the process of recycling resources. The more often SAB expertise in running breweries was used in different emerging markets, the greater the resource leverage was.

To conclude, we think SAB has valuable resources and capabilities so as to achieve and maintain competitive advantage in the emerging markets. Nevertheless, the company must investigate at this point whether these capabilities are transferable to the developed world, where it needs to have a major brand according to many commentators.

At this point we will define the nature of the strategy carried out by SAB. We will distinguish between the Corporate, the Business and the Functional level, in order to draw a more accurate picture on this issue. Once the strategy is defined, we will use a strategic tool (Rumelt’s Test) in order to assess the convenience of the strategy.

* Corporate Strategy: SAB has developed a strategy of growth in the emerging economies via acquisitions. Its acquisition policy has been acquiring breweries that would increase SAB’s market share and at the same time could be improved by exploiting synergies and economies of scale. SAB also follows a related diversification strategy in order to spread risk. In addition to the geographic diversification strategy which tends to increase the company’s overall profitability, SAB adopted a business diversification strategy by going into the hotel and entertainment business.

* Business strategy. The strategy is to differentiate products on the basis of quality, in order to achieve higher market shares than competitors and enhance profit margins through charging slightly higher prices (see Appendix E, The strategy clock). The strategy also includes adjusting to local needs; SAB kept the local brands of acquired breweries. Moreover, the company realised the regional differences in China and treated each region in which it operates as an independent self-contained market.

* Functional strategy. The strategy evolves around growth (through sales increase), and costs reduction (automation and modernisation of breweries and large production runs – economies of scale).

We have used Rumelt’s Test to assess if the different strategies are appropriate (see Appendix F). It is evident that all strategies are appropriate. However, this does not necessary mean that they can still work in the future, SAB should be aware of changes in environment, demand, strategies of other competitors, etc.

Strategy implementation is an action-oriented, operation-driven activity revolving around managing people, within the organizational structure and its culture. At this stage we will identify the structure of the company and the key aspects of its culture.

In the case of SAB, limited information was provided about the type of the organizational structure. However, from the analysis conducted in Appendix E, we can define SAB’s organizational structure.

According to Mintzberg’s structure configuration analysis (Appendix E), SAB follows a pattern of a divisionalised organization, adopting a geographically based vertical corporate structure for its international operations. Such a structure allows each of its country units or divisions to operate fairly autonomously from the other areas. The key part in this type of organization is the middle line managers. As a strategy for developing countries this is a definite benefit for SAB because it allows it to maintain expertise in each of its different countries. Moreover, this kind of structure is appropriate in market diversity as it spreads risk and reduces setbacks (e.g. setbacks in Mozambique and Tanzania were offset by the growth in China and Poland); it also allows the company to divest from any market easier than functional (machine) structures. However, it is argued that divisions can be seen as less effective than independent businesses.

Organization culture:

Divisional cultures: the differences between divisions may be particularly evident in organizations that have grown through acquisition (Exploring corporate strategy, Jerry Johnson and Kevan Scholes, 6th Ed, 2002). Having adopted a growth strategy through acquisition, and being a divisionalized organization, SAB has generated a difference in its geographical as well as in its functional divisions, creating subcultures. However, there is one main dominant culture for the whole group.

Handy characterized culture in terms of the relationship between the organization and individuals and also the importance of power and hierarchy (Johnson and Scholes, Exploring corporate strategy, 6th Ed, Prentice Hall). Based on Handy’s analysis, SAB’s organizational culture could be the closest to the Task Culture seeking to achieve integration and synergy through acquisition.

We will closely identify the characteristics of SAB’s culture by looking at its cultural web (Johnson 1998) these are:

* Stories and myths: no information provided.

* Rituals and routines: SAB has a consistent high quality brands and services, meeting customer’s needs (consistency could be considered as an operational routine).

* Control system: no information provided.

* Organization structure: SAB’s management structure is decentralized, reflecting its power structure and its divisionalization. Collaboration is very important.

* Power structure: SAB’s power structure is decentralized. While strategic decisions are kept at the head-quarter, the power is not only based in the hands Graham Mackay the CE, but also delegation of the strategic planning is done at other managerial levels, reflecting SAB’s growth strategy. Moreover, operations in each country are run autonomously.

* Symbols: no information provided.

* The paradigm: SAB seems to be working not only to maximize long-term shareholders value like any other multi-national organization, but also seeks to maximize all stakeholder value. Moreover, despite the political, racial and economical problems faced in South Africa, SAB unlike other companies, continued to invest where it had initially started showing its commitment. SAB also respects the values and cultures of the communities in which it operates. Differentiation and high quality beer is on of the main key aspects in SAB’s paradigm.