SCHOOL OF POSTGRADUATE STUDIES

GBS 750: STRATEGIC MANAGEMENT

Semester Test

11 March 2023

TIME ALLOWED: 3 HOURS plus 5 minutes reading time.

INSTRUCTIONS TO CANDIDATES:

1. There are two (2) sections and four (4) questions in this test. ATTEMPT ALL the questions.

2. Begin answering each question on a new page.

3. Answers must be in full sentences. Answers in point notes or in phrases will not merit credit.

DO NOT TURN OVER UNTIL YOU ARE TOLD TO DO SO

SECTION A

QUESTION ONE

Afcom Computer Limited

Afcom Computer Limited is one of the fastest growing companies in Zambia. Its stock price is increasing at a rate of 25 per cent a year, to the delight of Mikatazo Wakumelo, its founder and chief executive officer. The success of Afcom Computer Limited is due to circumstances and strategies employed by the company in the last thirty years of its development.

Wakumelo was only thirty-nine years old in 1995 when he lost his job with an international computer company that had decided to relocate from Zambia to South Africa. Wakumelo was paid $50000 in terminal benefits. He used the terminal benefits to set up his own computer company, Afcom Computer Limited, in 1996. His line of business was to buy computer parts, assemble them into computers and sell the computers.

Wakumelo characterized the first ten years of the companys existence as the era of opportunity. The company was in its infancy, and its main objective was to grow by seeking customers for its product. The company launched a strategic plan to scan the Zambian market for viable customers. This initial analysis of the Zambian market identified the midlands and the Copperbelt as worthwhile markets. Lusaka in the midlands was the capital city and home to government ministries and foreign embassies. Ndola was the provincial headquarters of Zambias copper mining area and pulse of the countrys economy since copper mining was the countrys major economic activity. For these reasons, Wakumelo decided to set up factories and sales depots in Lusaka and Ndola.

The general perception of a computer in Zambia was that a computer went with status and was therefore appropriate for high income groups. Wakumelo decided to change this perception by assembling affordable computers that could be sold to a wider section of the population. Since cost was a major component of the price of a computer, he decided to approach his former employers to supply him inputs at a discount. His former employer was only too happy to oblige. He took advantage of the lower cost for his inputs, assembled the parts himself into PCs and then sold the PCs over the phone. Increasing demand for his PCs meant that within a few years he found it necessary to employ more people to help him.

The period from 2007 to 2017 was an era of economic growth for the company. The demand for computers grew considerably as Zambia reacted positively to technological developments in Information technology. Computer companies, including Afcomp, enjoyed phenomenal growth in sales and profits. The economic boom in the IT industry understandably attracted and intensified competition. The computer industry in Zambia was dominated by international companies from the United States of America, West Germany, the United Kingdom and Japan. Afcom Computer Limited faced fierce competition from these foreign companies that had a competitive advantage in experience and capital. Wakumelo decided that the only way he could survive the competition was to use a market focus strategy. Wakumelo observed that international companies dominated the upscale market that consisted of the government, multinational companies, embassies, and non-government organizations. Undeterred, Wakumelo was convinced that there were still some viable pockets of demand in the Zambian market, such as students in schools, colleges and universities, professionals in various walks of life, churches, and other members of the public, in which Afcom had a competitive advantage over the international companies.

Despite the boom of the previous periods, the computer industry went into a recession from 2018 and sales and profits plummeted across computer companies. Afcom, on its part, used a two-pronged approach to deal with the decline of profits: first, it retrenched some of its employees; second, it used a niche strategy; and third, it outsourced some of its operations and fourth, it embarked on diversification by opening a repair shop of computers.

Source: Adapted from Charles W.L. Hill and Gareth R. Jones, Strategic Management (New York: Houghton Mifflin Company, 2007) p.450

Required:

Kenneth Andrews in his book, The Concept of Corporate Strategy, has asserted that determination of a suitable strategy for a company begins in identifying the opportunities and risks it its environment.

Identify and describe the strategies Afcom deployed in response to opportunities and risks in its external environment.

(20 marks)

Koudi (2009) in his book, Business Strategy, has defined strategy as any plan, choice or decision that is used to guides a firm to success or greater profitability.

Reconcile the four strategies Afcom deployed when there was a decline in the computer industry with the role of a strategy as acclaimed by Kourdi.

(20 marks)

SECTION B

QUESTION TWO

Explain the significance of the following in the formulation of strategy:

Cash flow

[5 marks]

Inventory turnover

[5 marks]

Market share

[5 marks]

Efficiency

[5 marks]

[Total=20 marks]

QUESTION THREE

Explain why it might be argued that the formulation of a companys strategy is the responsibility of a Chief Executive Officer of a company.

[20 marks]

QUESTION FOUR

W.D. Guth and R. Tagiuri, in their article on Personal Values and Corporate Strategy, published in the Harvard Business Review, Sept-Oct 1965, pp 123-32, argued that the strategic direction of a firm can be influenced by the personal values and aspirations of stakeholders.

Required:

Discuss and contrast the strategic direction of Zambia National Commercial Bank, a publicly owned bank with the strategic direction of Standard Chartered Bank which is privately owned bank.

(20 marks)

SECTION A

QUESTION ONE

Afcom Computer Limited

Afcom Computer Limited is one of the fastest growing companies in Zambia. Its stock price is increasing at a rate of 25 per cent a year, to the delight of Mikatazo Wakumelo, its founder and chief executive officer. The success of Afcom Computer Limited is due to circumstances and strategies employed by the company in the last thirty years of its development.

Wakumelo was only thirty-nine years old in 1995 when he lost his job with an international computer company that had decided to relocate from Zambia to South Africa. Wakumelo was paid $50000 in terminal benefits. He used the terminal benefits to set up his own computer company, Afcom Computer Limited, in 1996. His line of business was to buy computer parts, assemble them into computers and sell the computers.

Wakumelo characterized the first ten years of the companys existence as the era of opportunity. The company was in its infancy, and its main objective was to grow by seeking customers for its product. The company launched a strategic plan to scan the Zambian market for viable customers. This initial analysis of the Zambian market identified the midlands and the Copperbelt as worthwhile markets. Lusaka in the midlands was the capital city and home to government ministries and foreign embassies. Ndola was the provincial headquarters of Zambias copper mining area and pulse of the countrys economy since copper mining was the countrys major economic activity. For these reasons, Wakumelo decided to set up factories and sales depots in Lusaka and Ndola.

The general perception of a computer in Zambia was that a computer went with status and was therefore appropriate for high income groups. Wakumelo decided to change this perception by assembling affordable computers that could be sold to a wider section of the population. Since cost was a major component of the price of a computer, he decided to approach his former employers to supply him inputs at a discount. His former employer was only too happy to oblige. He took advantage of the lower cost for his inputs, assembled the parts himself into PCs and then sold the PCs over the phone. Increasing demand for his PCs meant that within a few years he found it necessary to employ more people to help him.

The period from 2007 to 2017 was an era of economic growth for the company. The demand for computers grew considerably as Zambia reacted positively to technological developments in Information technology. Computer companies, including Afcomp, enjoyed phenomenal growth in sales and profits. The economic boom in the IT industry understandably attracted and intensified competition. The computer industry in Zambia was dominated by international companies from the United States of America, West Germany, the United Kingdom and Japan. Afcom Computer Limited faced fierce competition from these foreign companies that had a competitive advantage in experience and capital. Wakumelo decided that the only way he could survive the competition was to use a market focus strategy. Wakumelo observed that international companies dominated the upscale market that consisted of the government, multinational companies, embassies, and non-government organizations. Undeterred, Wakumelo was convinced that there were still some viable pockets of demand in the Zambian market, such as students in schools, colleges and universities, professionals in various walks of life, churches, and other members of the public, in which Afcom had a competitive advantage over the international companies.

Despite the boom of the previous periods, the computer industry went into a recession from 2018 and sales and profits plummeted across computer companies. Afcom, on its part, used a two-pronged approach to deal with the decline of profits: first, it retrenched some of its employees; second, it used a niche strategy; and third, it outsourced some of its operations and fourth, it embarked on diversification by opening a repair shop of computer

Required:

Kenneth Andrews in his book, The Concept of Corporate Strategy, has asserted that determination of a suitable strategy for a company begins in identifying the opportunities and risks it its environment.

Identify and describe the strategies Afcom deployed in response to opportunities and risks in its external environment.

(20 marks)

Koudi (2009) in his book, Business Strategy, has defined strategy as any plan, choice or decision that is used to guides a firm to success or greater profitability.

Reconcile the four strategies Afcom deployed when there was a decline in the computer industry with the role of a strategy as acclaimed by Kourdi.

(20 marks)

SECTION B

QUESTION TWO

Explain the significance of the following in the formulation of strategy:

Cash flow

[5 marks]

Inventory turnover

[5 marks]

Market share

[5 marks]

Efficiency

[5 marks]

[Total=20 marks]

QUESTION THREE

Explain why it might be argued that the formulation of a companys strategy is the responsibility of a Chief Executive Officer of a company.

[20 marks]

QUESTION FOUR

W.D. Guth and R. Tagiuri, in their article on Personal Values and Corporate Strategy, published in the Harvard Business Review, Sept-Oct 1965, pp 123-32, argued that the strategic direction of a firm can be influenced by the personal values and aspirations of stakeholders.

Required:

Discuss and contrast the strategic direction of Zambia National Commercial Bank, a publicly owned bank with the strategic direction of Standard Chartered Bank which is privately owned bank.

(20 marks)