HRBUS82_D_Jones_4650_836_8_Report

Strategy-Environment

Fit: a Classification and

Analysis of General

Mining and Heavy

Construction Firms’

Strategic Profiles

2015

DEVIN MICHAEL JONES 4650-836-8

UNIQUE NUMBER: 872468 HRBUS82

TABLE OF CONTENTS

Chapter 1

Table of Figures ....................................................................................................................................... 3

1 Introduction .................................................................................................................................... 4

2 Background ..................................................................................................................................... 4

3 Context ............................................................................................................................................ 6

3.1 The General Mining Industry .................................................................................................. 6

3.2 The Heavy Construction Industry ............................................................................................ 9

4 Problem Statement ......................................................................................................................... 9

5 Research Purpose.......................................................................................................................... 10

5.1 Primary Research Objective .................................................................................................. 10

5.2 Secondary Research Objectives ............................................................................................ 10

Chapter 2

1 Introduction .................................................................................................................................. 11

2 Strategy as a Central Component in Organisational Configurations ............................................ 11

2.1 The Classification Utilised in this Research ........................................................................... 12

2.1.1 Strategy Content ........................................................................................................... 12

3 Strategic Fit ................................................................................................................................... 15

3.1 Internal Fit ............................................................................................................................. 16

3.2 Environment Fit ..................................................................................................................... 17

Chapter 3

1 Introduction .................................................................................................................................. 18

2 Research Approach ....................................................................................................................... 18

2.1 Rationale for a qualitative approach .................................................................................... 18

3 Research Design ............................................................................................................................ 19

4 Sampling ........................................................................................................................................ 20

4.1 Sampling strategy .................................................................................................................. 20

4.1.1 Selecting the participants ............................................................................................. 21

5 Data collection and analysis .......................................................................................................... 24

5.1 Data sources .......................................................................................................................... 24

5.1.1 Documentation in organisational research .................................................................. 24

5.2 Data analysis ......................................................................................................................... 24

6 Ethical considerations ................................................................................................................... 27

7 Limitations..................................................................................................................................... 27

Chapter 4

1 Introduction .................................................................................................................................. 28

2 The Common Strategic Stances and Actions of JSE Listed Heavy Construction and General

Mining Organisations in 2012 ............................................................................................................... 28

2.1 The General Mining Industry ................................................................................................ 28

2.2 The Heavy Construction Industry .......................................................................................... 35

3 The Strategic Fit of the Strategic Stances and Actions of the General Mining and Heavy

Construction Organisations .................................................................................................................. 39

3.1 The General Mining Industry ................................................................................................ 39

3.2 The Heavy Construction Industry .......................................................................................... 41

Chapter 5

1 Introduction .................................................................................................................................. 45

2 Conclusions ................................................................................................................................... 45

2.1 The general mining industry ................................................................................................. 45

2.2 The heavy construction industry .......................................................................................... 45

3 Recommendations for future research ......................................................................................... 46

References……………………………………………………………………………………………………………………………………….47

TABLE OF FIGURES

FIGURE 1: THE MINING VALUE CHAIN .................................................................................................................... 8 FIGURE 2: MILES AND SNOW'S ADAPTIVE CYCLE ................................................................................................. 12 FIGURE 3: VENKATRAMAN'S CLASSIFICATORY FRAMEWORK ............................................................................... 16 FIGURE 4: ARM STRATEGY .................................................................................................................................... 35 FIGURE 5: THE BASIL READ GROUP STRUCTURE................................................................................................... 37 FIGURE 6: THE AVENG GROUP STRUCTURE .......................................................................................................... 37 FIGURE 7: MURRAY & ROBERTS GROUP STRUCTURE ........................................................................................... 38 FIGURE 8: GROUP FIVE STRUCTURE ..................................................................................................................... 38

Chapter 1: Introduction to Research

1 INTRODUCTION

One of the most prevalent concepts in the strategy formulation literature is that the appropriateness

of an organisation’s strategy can be articulated in terms of its link, or conceptual fit, with the

environment or organisational contingencies facing the firm (Zajac, et al., 2000; Louw & Venter,

2013). Successfully attaining this strategic congruence shapes the strategies formulated, and has

been traditionally viewed as having desirable performance implications (Burton, et al., 2004).

Within this general perspective, this study is concerned specifically with the environment-strategy

relationship. It departs from the perspective of Venkatraman and Prescott (1990; 1) who assert that

“coalignment is the degree to which strategic resource deployments adhere to an ‘ideal profile’ for a

given environment”. The thrust of this research is to extend this notion one step further by

identifying one or more ideal profiles for a specific industry. The majority of extant research on

environment-strategy coalignmnet attempts to examine the performance implications of aligning

strategy with the environment, or test the concept’s pertinence in specific geographic locations.

Indeed research has been done on specific industries, however in most cases the industry was only

selected as it met certain predetermined criteria, such as high levels of competition or volatility.

2 BACKGROUND

In the context of strategic management, strategy can be viewed as “the direction and scope of an

organisation over the long-term, which achieves advantage for the organisation through its

configuration of resources within a changing environment and to fulfil stakeholder obligations”

(Louw & Venter, 2013:10). This definition captures the essence of strategic management- a concern

for the organisation’s long-term survival, the organisation’s relation to the environmnet in which it

operates, the strategic deployment of its resources in response to external opportunities and threats

and its responsibility to meet the needs of its stakeholders. It is appreciable that the success of an

organisation is dependent on its strategy. In the field of strategic management, an organisation’s

strategy is divided into three levels (Louw & Venter, 2013:19-20):

Business level strategy which relates to how an organisation intends to compete and build a

competitive advantage in each area of business.

Corporate level strategy refers to the overall purpose and scope of an organisation.

Functional level strategy which concerns the support and operationalization of an

organisation’s overall strategy and competitive approach.

The field of strategic management has been around since the early 1950’s (Bracker , 1980). It offers

managers a plethora of knowledge in all avenues of organisational strategy, from conception to

execution, providing all the expertise necessary to craft theoretically sound strategies. And indeed

managers have. Yet it is unexceptional for one organisation to outperform another operating in the

same industry, despite the fact they have both employed a similar strategy, or possess a relatively

equal bundle of resources. The concept of strategic fit offers a justification for such an occurrence.

Strategic fit is defined as “the situation in which all the internal and external elements relevant for a

company are in line with each other and with the corporate strategy” (Scholz, 1987:78). This

definition captures the central contentention of the concept- all three elements must be aligned in

order for an organisation to prosper. In order to understand the nature of strategic fit, the remaining

two elements (as strategy is discussed above) are briefly outlined below:

The Internal Organisation

The organisation is internally comprised of two facets, namely its resources and capabilities:

Resources: with theoretical roots in the resource-based view (RBV) (Ehlers & Lazenby,

2010), an organisation’s internal resources are comprised of tangible resources, such as

financial resources or state of the art machinery, and intangible resources which include an

organisation’s reputation or brand identity, for example.

Capabilities: these are the distinctive skills that an organisation possesses, inherent in its

technologies, processes and strategic architecture (Louw & Venter, 2013). Capabilities

represent an organisation’s ability to effectively employ and extract value from its

resources. Owing to the current business environment of rapid and unpredictable change,

emphasis has been placed on an organisation’s dynamic capabilities. Defined as activities

and processes employed by managers to integrate, build and reconfigure its competencies

to address rapidly changing environments (Louw & Venter, 2013:25). Present across the

entire organisation, they drive the creation, evolution and recombination of other resources

into new sources of competitive advantage.

The Exteral Environmnet

The organisation and the external environment in which it operates act as an open system, meaning

that it will both affect and be affected by the environment (Ehlers & Lazenby, 2010). The

environment can be divided into three levels, namely the external environment, the

macroenvironment and the industry environment (Ehlers & Lazenby, 2010; Louw & Venter, 2013):

The external environment includes everything outside of the organisation at the global,

country and industry levels that might affect the ability of the organisation to achieve its

goals. The factors in this environment are beyond the control of the organisation, such as

major global political events.

The macroenvironmnet is comprised of political, legal, economic, social-cultural,

technological, demographic and ecological forces at a global and/ or country level. These

factors, which are beyond the control of the organisation, are usually not confined to a

single organisation’s operating situation.

The industry environment includes actual and potential competitors, suppliers and buyers,

organisations that supply substitute or complementary products. The industry environment

is primarily influenced by the government.

It is evident that attaining a strategic congruence between an organisation’s internal and external

environments and its strategy is a complex task. To further elucidate the delicate balance strategic

fit entails, consider the following example of an organisation that is operating in an uncertain,

dynamic industry environmnet. It is generally held that such an environment favours strategies of

innovation and differentiation (Miller, 1988; Payne, 2001). If the organisation in question has indeed

employed innovative and differentiative strategies, a clear alignment or fit would exist between its

strategy and the environment. However if that organisation is characterised internally by rigidity,

extensive division of labour and centralised control, its internal structures would not fit such

strategies. Instead, such strategies would favour organic, decentralised and intensively integrated

internal structures (Miles, et al., 1978; Miller, 1988; Lukas, et al., 2001). The internal structures of

the organisation would be unable to effectively facilitate the implementation of its strategies and

subsequently affect its performance.

3 CONTEXT

The strategy-environment coalignment concept, or strategic fit, is itself inherently based on context

(Scholz, 1987). Hence the following section contains a brief description of the two industry settings

of this research that will form the basis of understanding the nature of strategic fit in each industry.

An industry can be described as a group of organisations producing products that are essentially the

same (Louw & Venter, 2013; 193). The organisation’s interaction with the forces present in its

industry environnment have a profound affect on its long-term success. The industry and its

dynamics determine the appropriateness of an organisation’s strategies, making it crucial for an

organisation to understand its industry comprehensively in order to successfully align its strategies

with its environment (Ehlers & Lazenby, 2010). Next, the two industries that are examined in this

research are briefly outlined.

3.1 THE GENERAL MINING INDUSTRY For centuries, mining has been the very backbone of the civilised world. This is evident in the early

development of resource rich countries such as the USA, Canada and Australia. A country such as

South Africa aptly illustrates this as the mining industry made an important contribution to the

economy in the past century. In 2012 alone, this industry contributed R260 billion or 8.8% to the

country’s gross domestic product (Chamber of Mines South Africa, 2012).

From a product perspective, the mining sector is highly diverse. There are at least 80 mineral

commodities and seven principle classes of minerals (World Business Council for Sustainable

Development, 2002):

• Base metals

• Ferrous metals

• Precious metals

• Minor metals

• Energy minerals

• Construction minerals

• Diamonds and precious gem

The mining industry has developed extensively along its value chain, as illustrated in figure 1.

Mining operations are unlike operations in other industries; operations are confined to areas in

which nature has created the ore reserves on which the industry depends. To the countries blessed

with mineral resources, in many instances, are regarded as national assets. This has resulted in the

state ownership of mining assets or a strong state involvement in the regulation of the industry

(Kirkby, 2002). This was exemplified in South Africa by a proposal advocated by, among others, the

ruling party’s youth league for the nationalisation of the country’s mining industry. Despite high-

level assurances that government would not nationalise the mining industry, it had profound

negative effects on investor confidence (Mkhwanazi, 2012). This strong state involvement adds to

the complexity of the industry.

In the past two decades, the global mining industry has seen some of the greatest changes in its

history. Commodity and other price fluctuations, regulatory influences, global opportunities, global

competition, mergers, takeovers, strategic alliances and restructuring are some of the critical issues

that mining firms have to face on an ever increasing scale.

Figure 1: The mining value chain

Source: http://www.mbendi.co.za/indy/ming/p.htm (2002)

Divest

Definition: curtailment of operations Input: revenue and profit Output: change in economic parametersParticipants: board decision, including

purchaser of the asset based on due diligence or feasibility

Market

Definition: to maximise profit from the sale of the identified product(s)

Input: saleable product(s) Output: revenue and profit Participants: marketing team

Beneficiate

Definition: the optimal extraction of the saleable product(s) and safe disposal of

residuesInput: quantified ore-body stockpile Output: saleable product

Participants: plant team or operating contractor

Transport

Definition: the removal of the mined ore-body stockpile and transport to destination

Input: quantified ore-body stockpileOutput: stockpiled ore-body containing

tonage at average gradeParticipants: mining team or contractors

Mine

Definition: to safely remove the mineral resource containing saleable product(s)

Input: exposed ore-body containing mineral resource

Output: quantified ore-body stockpile Participants: mining team or contractors

Establish

Definition: the planning and execution of the mine plan

Input: bankable feasibilityOutput: ore-body exposed and ready to

exploitParticipants: design team, construction

contractors, mining contractors

Valuate

Definition: the determination of the profitability of a project, based on the

identified mineral resourceInput: mineral resource model Output: bankable feasibility

Participants: goelogical and business development team and/ or contractors

Locate

Definition: to determine the presence of a viable mineral deposit containing saleable

products Input: suspected mineral deposit Output: mineral resource estimate Participants: geological exploration team

Activity

3.2 THE HEAVY CONSTRUCTION INDUSTRY The heavy construction industry is comprised of companies that provide a broad range of

engineering, planning, design, consulting, construction and management services for a wide variety

of infrastructure and facility undertakings (Anotonson, 2014). Projects range from highways and

bridges to airports and mines. Construction companies tender for projects from both private and

government entities.

The heavy construction industry, due to the size of typical projects, exhibits several unique

characteristics. It is generally held that one can track the growth of any number of industries based

on global economic growth- which is not always the case for the heavy construction industry.

Governments often spend heavily on infrastructure projects to stimulate economic growth during

recessions (Sharma, 2014). The construction industry environment is complex and fragmented,

presenting construction firms with a number of challenges and unique industry dynamics (Oyewobi,

et al., 2013). Kelly (1984) observes that it is not a single industry but rather a multifaceted band of

industries, comprising banking, materials and equipment manufacturers, contracting organisations

and so forth. This complexity is further augmented by the distinctive nature of each construction

project and the diverse range of stakeholder demands (Oyewobi, et al., 2013).

4 PROBLEM STATEMENT

In light of today’s dynamic and turbulent hyper-competitive business environment, the emphasis of

strategic fit research has shifted from analysing the externally oriented environment-strategy

relationship, to more internally focused relationships between strategy and one or more internal

firm constituents. Indeed, there is considerable evidence in support of this perspective (e.g., Zajac,

et al., 2000; Scholz, 1987; Blarr, 2012). The problem, however, arises when strategic leaders become

too entrenched in aligning strategy with internal contingencies facing the firm, rendering the

organisation inflexible and unable to respond quickly to external changes (Louw & Venter, 2013).

The majority of extant literature on environment-strategy coalignmnet attempts to examine the

performance implications of aligning strategy with the environment, or test the concept of fit in

specific geographic locations (e.g., Lukas, et al., 2001). Although such research did indeed examine

organisations in specific industries, in most cases the industries were only selected as they met

certain predetermined criteria, such as high levels of competition, or were chosen based on the

availability of information.

The method of classifying organisations into strategic groups or profiles based on the content of

their strategies has been widely employed in organisational research. This technique has made

valuable contributions to strategy research as it enables the researcher to define and distinguish a

group of organisations from another collective and then use the classifications to predict the

occurrence of other variables (e.g., performance) (Payne, 2001). This technique is particularly useful

when investigating the strategic fit paradigm between the environment and an organisation’s

strategy. Ideal strategic profile(s) can be derived for a specific industry, based on the industries’

specific key success factors and unique dynamics. This profile(s) would exhibit an ideal environment-

strategy fit and serve as a benchmark for organisations operating in the industry, as any deviations

from this ideal profile will negatively affect performance. In spite of this concepts its intuitive appeal,

one finds relatively little explicit attention to ideal profiles for specific industries in recent strategy

literature. The absence of literature vis-à-vis industry specific ideal profiles can be attributed partly

to a lack of necessary relevant data. Recently, in order to meet the growing information needs of the

users of annual reports, these documents have become rich sources of meaningful, reliable and

relevant information on organisations (Myburgh, 2001). Additionally, sections such as the

Chairman’s and CEO’s statements offer insight from the firm’s perspective on key strategic issues

and future strategic direction that they want to communicate to their stakeholders (Bhana, 2009;

Jansen van Rensburg & Venter, 2012). In light of these recent deveopments, researchers now have

at their disposal the necessary data to further investigate the environment-strategy fit phenomenon

and furthermore, develop theoretically ideal profiles for specific industries.

A caveat. The author makes no attempt to disprove the merit of achieving strategic fit by aligning

strategy with the internal organisation. In the words of miller (1988; 282) “neither strategies nor

structures alone, nor a suitable match between environment and structure, will be adequate enough

to ensure good performance”. In essence, it is balancing the internally and externally oriented

perspectives of fit to achieve a harmony between all three elements- the organisation, its

environment and strategy- that truly represents a strategic fit.

5 RESEARCH PURPOSE

At its core, the purpose of this research is to explore the concept of environment-strategy fit in

industry specific settings. Departing from the perspective of Venkatraman and Prescott (1990:1) who

assert that “coalignment is the degree to which strategic resource deployments adhere to an ‘ideal

profile’ for a given environment”, this research aims to identify ideal strategic groups, based on

Miles and Snow’s (1978) typology in the general mining and heavy construction industries. This will

grant managers and practitioners with valuable insight into achieving sound environment-strategy

coalignmnet in these specific industries.

5.1 PRIMARY RESEARCH OBJECTIVE The primary research objective is to describe and report on the environment-strategy fit of JSE listed

organisations in the general mining and heavy construction industries.

5.2 SECONDARY RESEARCH OBJECTIVES The secondary objectives of the study are:

• To identify and describe common strategic stances of organisations in the heavy

construction and general mining industry.

• To identify and describe common strategic actions taken by organisations in the

heavy construction and general mining industry.

• To describe and report on the specific operating contexts of the heavy construction

and general mining industries.

• To classify organisations based on their strategic stances and actions as either

Prospectors, Defenders, Analysers or Reactors.

• To develop an understanding of what strategic profiles exhibit the most appropriate

environment-strategy coalignmnet in the general mining and heavy construction

industries.

Chapter 2: Literature Review

1 INTRODUCTION

The strategy-environment relationship has been a central debate in the strategic and organisation

theory literature. Specifically in the strategic management literature, this debate has emerged to be

principally concerned with not only how the two concepts are interrelated, but also how they,

together, impact firm performance (Payne, 2001). Researchers have proposed that the external

environment should be seen as the initiator of strategy and the organisation achieves a competitive

advantage by developing, or acquiring, the internal resources and dynamic capabilities needed to

implement strategies as dictated by the environment (Louw & Venter, 2013:29). This conceptual fit

between the organisation’s internal and external environments and its strategy can be seen as a key

predictor of how and why certain organisations outperform others (Zajac, et al., 2000). These

alignments of strategy and structure are commonly labelled configurations, which typically classify

organisations according to contextual, structural and/or strategic elements (Payne, 2001).

This classification of organisations assumes that individual members of each group have similar

elements, characteristics or themes. These classifications of organisations are regarded as useful to

strategy research because of their ability to predict the success or failure of organisations, usually

given certain environmental or industry specific conditions (Payne, 2001).

2 STRATEGY AS A CENTRAL COMPONENT IN ORGANISATIONAL

CONFIGURATIONS

One of the primary motives for the use of organisational classification is to define and distinguish a

group of organisations from another collective and then use the classifications to predict the

occurrence of other variables (e.g., performance) (Payne, 2001). This method is particularly useful in

this study as it enables the researcher to classify organisations into strategic groups based on their

strategies employed, and in turn determine the appropriateness of a strategic group to its industry

specific operating environment. An organisation’s strategy has been primarily correlated with the

level of performance, predominantly with environmental fit issues (e.g., Lukas, et al., 2001). While

there are numerous ways to group organisations based on their strategies, not all have proved

equally as valid. Miles and Snow (1978) and Porter (1980) have made seminal contributions to

strategy research with their work in configurations, more specifically strategic groups or generic

strategy types.

One of the most extensively employed typologies was developed by Miles and Snow (1978) to

describe strategic choice. They proposed a framework for analysing internal organisational

relationships between strategy, structure and process as part of the adaptive cycle. In their

framework they identify three main patterns of organisational behaviour that can be classified and

even predicted as ways to adapt to environmental change (Payne, 2001). The three “problems” are

identified as the entrepreneurial problem, the engineering problem and the administrative problem.

The entrepreneurial problem is associated with the organisation’s choice with regard to their

product-market domain, while the engineering problem’s focus lies in the “creation of a system

which operationalizes management’s solution to entrepreneurial problem” (Miles, et al., 1978:549).

The administrative problem involves the integration of the organisation’s internal processes to

support solotions in the other two areas. The value and practical applicability of their typology has

been supported by extensive empirical research. Results from cluster analysis have shown that the

clusters are generally few in number and match the Miles and Snow typology remarkably well (Doty,

et al., 1993; Smith, et al., 1989). The relationship between this typology’s approach and performance

has been empirically analysed with excellent results (Doty, et al., 1993). In addition to the empirical

evidence in support of the Miles and Snow typology, several studies have concluded that the

strategic groups’ (identified by the typology) performance varies with context. For example,

Andrews, Boyne and Walker (2006), in their analysis of 119 English local authorities, used the Miles

and Snow typology as a foundation to show how certain strategic groups outperform others in the

public sector.

Figure 2: Miles and Snow's Adaptive Cycle

Source: Adapted from Miles et al. (1978)

2.1 THE CLASSIFICATION UTILISED IN THIS RESEARCH The Miles and Snow typology presents a suitable method of classifying an organisation’s corporate

strategy (Jansen van Rensburg & Venter, 2012). However, in order to achieve the objectives set out

for this research, it is necessary to extend the classification model to include the identification of

business level strategies. The approach used by Andrews et al. (2006) provides a useful framework

for understanding and defining both corporate and business level strategy content.

2.1.1 Strategy Content

The concept of strategy content refers to how organisations actually behave, in contrast to

strategies that are simply rhetorical or intended but unrealised (Andrews, et al., 2006:53). It refers to

the actual product of a strategy process (Jansen van Rensburg & Venter, 2012). Andrews et. al.

(2006) conceive strategy content as two interlinking levels. First, strategic stance is the general way

in which an organisation seeks to maintain or improve its performance, akin to an organisation’s

corporate strategy (Ehlers & Lazenby, 2010). This level of strategy is regarded as relatively enduring

and unlikely to change in the short-term. This contention is supported by the concept of

•Selection of the product-market domain

Entrepreneuial

•Selection of technologies for production and distribution

Engineering

•Selection of structures and processes

Administrative

organisational inertia. Inertia is the strong persistence of existing form and function (Rumelt,

1995:1). In the context of organisational science, the concept infers that changing strategy and the

structural forms and administrative procedures that underpin it is difficult, costly and time

consuming (Rumelt, 1995). The second level of strategy includes the specific decisions an

organisation makes to execute its stance. These strategic actions are more likely to change in the

short term (Andrews, et al., 2006).

2.1.1.1 Strategic Stance

Andrews et. al.’s (2006) classification of strategic stance is based on the Miles and Snow typology.

The typology identifies four ideal types of organisation: the prospector, the analyser, the defender

and the reactor (Miles, et al., 1978:550-558). Each of these ideal types is richly described as a unique

configuration of contextual, structural and strategic factors (Doty, et al., 1993). Miles and Snow

posited that at least three of these ideal types- the prospector, analyser and defender- were

effective forms of organisations. The four types of organisation are discussed below (Andrews, et al.,

2006; Jansen van Rensburg & Venter, 2012; Miles, et al., 1978; Doty, et al., 1993):

The prospector is the most dynamic of the organisation forms described by Miles and Snow.

They are regarded as highly innovative organisations, and are likely to be pioneers in their

field. This type of organisation strives to enact an environment characterised by rapid and

unpredictable change. Prospectors adapt accordingly to this turbulent environment by using

high levels of environmental scanning to identify and exploit new product and market

opportunities. Due to this rapid rate of product development, prospectors are characterised

by flexible, non-routine technologies. From a structural perspective, they are organic, highly

decentralised and exhibit low levels of formalisation.

The defender is a less dynamic form of organisation that strives towards strategic stability.

This type of organisation operates in a much more stable and predictable environment.

Consequently, this stable environment permits defenders to devote their efforts away from

environmental scanning to more long-range forecasting and planning. They take a

conservative view of new product development and focus on a narrow range of products or

services, their core activities. This narrow focus enables defenders to compete by

concentrating on efficiency. Defenders produce low-cost goods or services and obtain

efficiency by relying on routine technologies and economies of scale. This type of

organisation is characterised by their mechanistic structures, centralisation, specialisation

and vertical differentiation.

The analyser can be viewed as a combination of the Prospector and Defender types. They

strive to minimise risk while still exploiting new product and market growth opportunities.

To achieve this, Analysers tend to focus on a core set of products or services, while seeking

to selectively exploit new opportunities. Because of their risk aversion, they are inclined to

pursue new opportunities only after their feasibility has been proven.

The reactor is typified as an unstable organisational form that lacks a coherent context-

structure-strategy alignment. They are persistently reacting to their environment as they

lack a clear, articulated strategy. Reactors can be regarded as a strategy failure, when one of

the previous three types is indecorously and inconsistently pursued.

2.1.1.2 Strategic Actions

The second dimension of strategy content is described as the specific actions used to support and

operationalise the strategic stance of an organisation (Jansen van Rensburg & Venter, 2012; Louw &

Venter, 2013). Many studies support the notion that changes in strategic actions have a direct effect

on an organisation’s performance (Andrews, et al., 2006). If the strategic actions are to have a

positive effect on organisational performance, ceteris paribus, they should be in harmony with the

overall strategic stance of the firm (Louw & Venter, 2013). The strategic actions can be categorised

as follows (Jansen van Rensburg & Venter, 2012; Louw & Venter, 2013; Ehlers & Lazenby, 2010):

Market development involves organisations addressing the needs of new markets with its

current products. This can be accomplished by developing new uses for existing products or

by spreading the existing product over new geographic areas. Market development is an

effective strategic decision when the organisation either has access to reliable distribution

channels in the new market or possesses the necessary capital, expertise and resources to

manage the extended operations. Another option is to form strategic alliances with

established organisations in the foreign market they wish to enter.

Product development is where organisations either modify their existing products or develop

new products to meet the needs of markets they currently serve. Although the costs

associated with research and development are large, organisations are often compelled to

introduce new and improved products when their current offering reaches its maturity

stage. Organisations face the risk of losing their customers to competitors who offer a better

product.

Diversification entails an organisation expanding into new markets with new products to

secure additional market share aimed at increasing profitability. An organisation considering

to diversify is confronted with two options: related or unrelated diversification. Related

diversification is where an organisation seeks new opportunities in linked industries.

Relatedness may be in terms of the market or industry as well the strategic assets (i.e. those

that cannot be accessed cheaply nor are readily available to non-diversified competitors).

Related diversification is a viable option when an industry is experiencing slow growth and

an organisation intends to increase its sales in a particular market by increasing the number

of products consumed by individual customers. Unrelated diversification as a strategic

decision involves the organisation entering into an entirely new market or industry. An

organisation must possess the necessary skills and resources to compete successfully in the

new territory.

Vertical integration concerns the acquisition or expansion by an organisation into its

suppliers and/or distributers. When an organisation pursues vertical integration it seeks to

capture more profit from the industry’s value chain. Furthermore, it enables the

organisation to reduce the economic uncertainties and transaction costs associated with its

industry while strengthening the hold of the organisation on the resources it deems crucial

to its competitive advantage. Vertical integration can be achieved in two directions:

backward vertical integration where the organisation expands into the supply of its inputs

and forward vertical integration which entails the expansion into the distribution of its

outputs.

Consolidation is where an organisation intends to maintain its market share in existing

markets with its existing products. In other words it refocuses on its core business.

Consolidation does not mean that the organisation takes no action at all, instead the

organisation may be externally influenced to reshape or innovate to improve the value of its

products or services. This strategic action may take two forms, namely reshaping through

downsizing or maintaining market share. Reshaping may require the organisation to

unbundle its non-core businesses, implement cost-cutting measures or withdraw from a

market completely. A key determinant of consolidation is the product life cycle. Towards the

end of a product life cycle, an organisation that possesses a high market share is in a better

position to maintain it, owing to the resultant benefits of economies of scale. As a result, it is

crucial for an organisation to gain and maintain market share in the growth phase of the

product life cycle.

Corporate management modifications by introducing new entrepreneurial blood with fresh

perspectives and specialised skills to facilitate changes in the organisation such as

restructuring.

Direct responses to macro environmental changes and threats. This may entail new

legislation with which the organisation must comply regarding its impact on the

environment.

Corporate combination strategies enable different organisations to form partnerships to

share resources, capabilities or distinctive capabilities to thwart increasing competitive

pressure and build a competitive advantage. Cooperative strategic decisions take two forms,

namely joint ventures and strategic alliances. A joint venture is the creation of a new

organisation owned by two or more partners. They are formed to exploit opportunities that

are only viable when the co-owners collaborate. An organisation enters into a strategic

alliance in order to achieve shared goals for a defined period of time. The partner

organisations agree to provide joint services and facilities and to share the costs, risks and

benefits of the business opportunity.

3 STRATEGIC FIT

The alignment or fit of organisational constituents along themes has been a historically central topic

in strategic management theories (Zajac, et al., 2000; Venkatraman, 1989). At the core of this

concept lies the assertion that alignment, or fit of an organisation’s strategy is related to its context-

whether it is the external environment or organisational characteristics, such as structure, culture or

resources. And that this alignment has positive performance implications (Venkatraman & Prescott,

1990). Thus, when analysing the different strategic groups discussed above, the fundamental

preposition is that those strategic groups that closely align strategic and environmental factors will

outperform those that do not.

However, due to the abundance of studies and the decades passed since the first contributions,

different understandings, perspectives and operationalisations of the concept of fit have evolved.

These various perspectives of fit have often resulted in conflicting research findings, stemming from

equivocal definitions of the concept and the corresponding research methods (Venkatraman &

Camillus, 1984). In 1989, Venkatraman developed a classificatory framework of six perspectives of

strategic fit to better structure the field. The six perspectives he identified are: moderation,

mediation, matching, gestalts, profile deviation and covariation (Venkatraman, 1989:424-438). His

core thesis states that when deciding to apply the concept of fit, researchers face two fundamental

questions (Blarr, 2012):

1. First, they must choose the degree of specificity of the theoretical relationship, such as

strategy and environment, as the underlying variables predicted to fit together.

2. Second, the concept must anchor to a particular criterion, for example firm performance or

used in a criterion-free specification.

Figure 3: Venkatraman's Classificatory Framework

Source: Adapted from Venkatraman (1989)

The concept has been used to examine a range of contingencies related to fit (Payne, 2001). These

instances include fit of strategy to resources and capabilities (SubbaNarasimha, 2001), fit of strategy

to structure (Blarr, 2012), fit of organisation to market environment (Dess & Davis, 1984) or fit of

organisation to corporate culture (Scholz, 1987). While researchers and strategic leaders view fit as

crucial to organisational success, which type of fit is often the question. In this research, the fit of

strategy and the industry environment is of primary concern. The profile deviation perspective

identified by Venkatraman (1989) has been employed particularly to test this relationship

(Venkatraman & Prescott, 1990).

Miller (1988) showed that strategies should be matched with complementary environments and

structures to “promote success” (280). In his research he confirmed that strategy has strong

relationships with environment and have a significant influence on organisational structure. Most

importantly, his findings revealed that “neither strategies nor structures alone, nor a suitable match

between environment and structure, will be adequate enough to ensure good performance” (282).

In other words, strategic fit is only achieved when strategies, structures and environments are in

line. Numerous other researchers have also dichotomised fit into external and internal fit. External

fit refers to the congruence between the firm and its environment, with strategy serving as the

mediating link between the two. While internal fit is the coherence between strategy and the

internal components of the organisation, such as structure, managerial systems and organisational

capabilities. Therefore in analysing the nature of fit strategic management literature, two major

classifications of fit are evident.

3.1 INTERNAL FIT This perspective on the analysis of fit, as the name suggests, takes a more internal orientation in its

classification. This classification draws primarily from the resource-based view literature or on

porter’s value chain (1985). The internal organisation is comprised of its resources, dynamic

capabilities, strategic architecture, goals and values (Louw & Venter, 2013) which are important

determinants of success. These internal components of the organisation must correspond with the

strategy in order for the organisation to succeed. Simply put, the organisation must possess the

necessary amount and type of resources required to implement its strategy (Payne, 2001).

Traditionally this viewpoint regarded an organisation’s sustainable competitive advantage as

determined by the nature and type of its resources- whether they are valuable, rare and costly to

imitate (Louw & Venter, 2013) and how they are utilised (i.e., strategy). Owing to the contemporary

business environment, characterised by dynamism, hyper-competition and turbulence, emphasis has

shifted towards an organisation’s capabilities (SubbaNarasimha, 2001; Louw & Venter, 2013). This

means that an organisation’s distinctive capabilities inherent in its technologies, processes and

strategic architecture form the basis of its competitive advantage. Accordingly, a degree if

consistency must exist between a firm’s strategy and its architecture and the functional processes

and technological capabilities that support it (Miller, 1988; Payne, 2001; Blarr, 2012). However, an

organisation that becomes too entrenched in its resources and capabilities is unable to respond

quickly enough to external developments (Louw & Venter, 2013). In addition, time, competition and

change erode the value of an organisation’s competitive position- defined by its resources and

capabilities. It is the task of management to build on its internal resources by aligning its strategy not

only with its current resources and capabilities, but strategically shaping them to fit in the long-term,

thus creating a sustainable competitive advantage (Payne, 2001).

3.2 ENVIRONMENT FIT This externally oriented perspective questions the fit between an organisation’s strategy and the

environment in which it operates. Essentially, the contention is that environment and strategy

interact in a dynamic coalignment process (Miller, 1988) and the resulting fit between strategy and

its environmental context has positive performance implications (Venkatraman & Prescott, 1990).

The strategic fit paradigm generally considers the organisational environment as a construct over

which the organisation has limited control. Consequently, the environment is thought to determine

the context of strategy formulation (Lukas, et al., 2001). An organisation’s strategy serves as a link

between the organisation and its environment over which management has direct control. Research

has shown that some strategies are better suited for some environments than others. For example,

in dynamic and uncertain environments, innovation and marketing differentiation typically result in

higher performance (Miller, 1988; Porter, 1980). Researchers have taken the concept of

environment-strategy coalignment one step further by examining the fit of strategic groups within

an environment. In this instance fit is high to the extent that an organisation is similar to an ideal

type of strategic group for its environment. Deviations from the ideal type have negative

performance implications (Doty, et al., 1993). An example of testing fit within this particular class of

fit comes from Venkatraman and Prescott (1990), which empirically examined the performance

implications of environment-strategy coalignment across two time periods, and eight distinct

environments in two different samples drawn from the PIMS data base.

Chapter 3: Research Methodology

1 INTRODUCTION

This chapter explains the rationale for selecting a qualitative approach to achieve the objectives of

the study. The research design followed in this study is a case study of nine South African

organisations in two separate industries. The research was conducted through a content analysis of

the CEO and Chairman statements in the 2012 annual or integrated reports of the organisations

studied to identify common business level and corporate strategies, classify the organisations

strategic stance according to the strategy typology by Miles and Snow and evaluate the strategic fit

of the identified strategies in relation to the industry operating context. The case study research

design, and specific research methods are explained and the logic behind their selection will be

discussed and justified. Furthermore the limitations and ethical considerations will be reviewed.

2 RESEARCH APPROACH

A research approach is a broad strategy of enquiry which encompasses the steps from general

assumptions to detailed methods of data collection, analysis and interpretation (Creswell, 2014:3).

Research approaches are classified under many different terms and categories. The most common

classification, which is used in this study, is into qualitative and quantitative approaches (Tracy,

2013). It is important to note that quantitative and qualitative approaches should not be regarded as

rigid, separate categories or polar opposites. Instead, they represent different ends on a continuum.

A study tends to be more qualitative than qualitative or vice versa (Creswell, 2014:3). The

differences between qualitative and quantitative approaches can be viewed according to the

procedures of enquiry (called research designs, such as quantitative experiments or qualitative case

studies), and the specific research methods of data collection, analysis and interpretation (Creswell,

2014:3). Qualitative research is an approach that has its roots in the social sciences. Recently it has

been employed in a variety of academic disciplines as it allows researchers to answer questions that

quantitative research cannot. The research process typically involves collecting data from the

participants setting, analysing the data according to general themes, and the researcher makes final

interpretations on the meaning of the data. It is an effective way of rendering the complexity of a

situation (Salkind, 2012; Tracy, 2013; Creswell, 2014). Quantitative research, on the other hand, is an

approach used to test objective theories by probing the relationship among variables. The variables

in question are typically measured on instruments in order to collect numbered data which in turn is

analysed using statistical procedures (Creswell, 2014:4).

2.1 RATIONALE FOR A QUALITATIVE APPROACH Numerous researchers (e.g. Insch, et al., 1997; Nordqvist, et al., 2009; Tucker, et al., 1995) argue

that traditional, quantitative approaches to organisational research have led to studies that maintain

narrow research paradigms on recurring topics. Critics contend that quantitative studies have

hindered organisational research by limiting the kinds of questions that can be answered. Such an

approach is mostly focused on the context of justification rather than discovery (Tucker, et al.,

1995). Qualitative approaches empower organisational researchers to provide well-grounded, rich

descriptions and explanations of the complex processes and phenomena associated with the

dynamics of the organisation (Nordqvist, et al., 2009). Several studies verify this contention. For

example, Jansen Van Rensburg and Venter (2012) followed a qualitative approach to effectively

identify and analyse the strategic stance and actions employed by South African banks in response to

the recent global economic crisis.

The nature of this study calls for an approach that enables the researcher to initially identify and

classify the common strategies employed by specific organisations within the general mining and

heavy construction industries of South Africa. A qualitative approach was best suited to achieving

this objective as it is concerned with the particulars of a case, rather than generalisations and is

regarded as an ideal method for the identification of items in a conceptual domain (Tracy, 2013;

Creswell, 2013). Thereafter, the research aimed to describe the identified strategies and the

operating context of each industry. Qualitative methods are an excellent tool for a researcher intent

on describing individual items, in this case- the common strategies employed by organisations.

Additionally, this approach enabled the researcher to provide a rich, detailed description of the

dynamic industry contexts (Tracy, 2013). Quantitative approaches rarely focus on context (Insch, et

al., 1997). The evaluation of strategic fit, which is a concept inherently based on context, would have

proved problematic if the researcher opted for a quantitative approach. Instead, a qualitative inquiry

allowed the researcher to effectively evaluate and describe the strategic fit of the common

strategies employed relative to the operating context of the industry.

3 RESEARCH DESIGN

A research design is a systematic plan to achieve the research objectives. The design of a study

defines the type of research (e.g. descriptive, correlational, exploratory, or experimental) and the

sub-type (e.g. case study, ethnography, or historical research) employed in the research report

(Tracy, 2013). As was the case when selecting the overall research approach, the primary concern for

the researcher was to choose a research design that would enable him to achieve the research

objectives. Descriptive research, as a research type, is concerned with describing an existing

situation and exploring the causes of particular phenomena absent of any experimental

manipulation (Salkind, 2012). It enables the researcher to provide an accurate and valid

representation of the factors that are relevant to the research question (Tracy, 2013). A descriptive

research design was most suitable for this research report as it allowed the researcher to provide a

detailed description of the strategic actions and industry context of the organisations in question,

and evaluate the strategic actions relative to the industry context to assess their strategic fit.

Creswell (2013:16-17) describes 5 specific research designs, or sub-types, associated with a

qualitative approach:

Ethnography aims to describe a culture’s characteristics in a natural setting over a prolonged

period of time.

Grounded theory, where the researcher aims to derive a general, abstract theory of a

process, action, or interaction grounded in the views of participants in a study.

Case studies describe in-depth the experiences of one person, community or organisation.

Narrative research is a form of enquiry where the researcher studies the lives of individuals.

Phenomenological research, in which the researcher identifies the “essence” of human

experiences concerning a phenomenon, as described by participants in a study.

After an extensive review of specific qualitative designs, the researcher believes a case study was the

most appropriate design to use. Case studies aim to explore and investigate contemporary, real-life

phenomenon through detailed contextual analysis of a limited number of events or conditions, and

their relationships (Zainal, 2007:2). A case study approach is especially useful in research where

contextual conditions of the particular phenomenon being studied are integral to its understanding

(Yin, 2009). Merriam (1998) identifies three essential characteristics of a case study design:

particularistic, descriptive and heuristic. Particularistic refers to one event, process or situation that

is the focus of a study. Descriptive refers to the rich and extensive set of details relating to the

phenomena. This characteristic illuminates the complexities of a situation, particularly when there

are many factors contributing to the understanding of a phenomenon. Lastly, heuristic indicates that

a case can explain the reasons for a problem or issue, i.e. what happened and why. Case studies do

not claim to be representative. The value lies in what can be learned from a single case (Salkind,

2012). Such a research design does not seek to prove new theory or concepts, but rather improve

our understanding of existing knowledge (Yin, 2009). Indeed, the purpose of this research was to

explore the concept of environment-strategy fit in industry specific settings. A case study of

organisations in two specific industries was a useful method to achieve this. A multiple case study

design uses more than one case to gather data and draw conclusions. By using multiple cases in this

research, the researcher was able to corroborate the data from two groups of four organisations in

the general mining and heavy construction industries, therefore enhancing the validity of the study

(Merriam, 1998; Creswell, 2014). In a descriptive and interpretive case study, the researcher

analyses, interprets and theorises about the phenomenon against a theoretical framework (Zainal,

2007).

Case studies are a prominent design used in the fields of medicine, psychology and education.

However, case studies are not limited to people. The Harvard Business School frequently includes

case studies of successful and failed businesses in its course work to help students understand the

mechanics of how a business might be affected by a variety of factors (Salkind, 2012). Locally, Mason

(2007) conducted a case study on four South African organisations to understand how more

successful companies, operating in environments of differing complexity and turbulence, differ in

their use of management and strategic activities from companies that are less successful.

4 SAMPLING

The next section of this chapter will explain what sampling procedures, describe the context and

participants.

4.1 SAMPLING STRATEGY Sampling is the selection of cases from the wider population. Sampling is the link between the study

population and its generalisation to the wider population. A key consideration when sampling is if

the sample is representative of the population i.e. do the characteristics of the sample approximate

to the characteristics of the population. The nature of the research dictates whether the sample

should be generalizable to a wide population or representative with respect to characteristics that

are important to the study question (Bloor & Wood, 2006:154). Sampling methods fall into two

broad categories: probability and non-probability sampling. Probability sampling methods are

typically more representative of the total population because selection bias is avoided and the

selection of participants is determined by chance. Probability sampling techniques are generally

associated with quantitative approaches as they are generalisable. Non-probability sampling on the

other hand, refers to the selection of participants according to certain reasons other than

mathematical probability (Salkind, 2012). Non-probability sampling includes a range of approaches

such as convenience, where participants are selected on the basis of their availability, or snowball,

where the researcher asks each respondent to suggest other potential respondents (Bloor & Wood,

2006). Another non-probability sampling method, purposive sampling involves deliberately selecting

participants based on criteria that have relevance to the research question (Bradley, 1993).

Purposive sampling was the sampling strategy used in this research. It allowed the researcher to

select participants based on certain characteristics pertinent to the research objectives.

4.1.1 Selecting the participants

The next step in the sampling process involved defining the selection criteria and choosing

appropriate participants for the case study. Cohen and Crabtree (2006) note that to increase the

validity of the research when using purposeful sampling, it is imperative to select cases that will yield

the most appropriate and richest information relevant to the research. The nature of this research

called for participants operating in the general mining and heavy construction industries, listed on

the JSE. Selecting organisations based on the industry in which they operate served as the primary

criterion, as the nature of this research aimed develop environment-strategy alignment theory in

specific industries. An additional criterion was a listing on the JSE. The rationale behind this decision

was based on the listing requirements for the JSE. South Africa is the first country in the world in

which the stock exchange has made integrated reporting a mandatory requirement for all listed

companies (Louw & Venter, 2013). The International Integrated Reporting Council provides an

outline of the content of an integrated report (International Integrated Reporting Committee, 2011):

• Organisational overview and business model: What does the organisation do and how

does it create and sustain value in the short, medium and long term?

• Operating context, including risks and opportunities: What are the circumstances under

which the organisation operates, including the key resources and relationships on which

it depends and the key risks and opportunities that it faces?

• Strategic objectives and strategies to achieve those objectives: Where does the

organisation want to go and how is it going to get there?

Participants were drawn from two different industries namely, the general mining and heavy

construction industries. The rationale behind this decision was to widen the scope of understanding

in this research by extending the theory across two contexts (Cohen & Crabtree, 2006).

When selecting the number of participants for a multiple-case study there is no single rule

concerning the minimum number of cases that should be selected, unlike statistical sampling

methods (Cohen & Crabtree, 2006). Instead, the researcher should limit the number of cases to the

point where the incremental contribution of extra cases is only marginal (Cohen & Crabtree,

2006:140). The researcher selected four organisations from both the general mining and heavy

construction industries. The researcher selected typical cases organisations as they provided a cross

section of the larger group of firms operating within the industry (Cohen & Crabtree, 2006). The

specific organisations chosen in the heavy construction industry were: Murray and Roberts Holdings,

Ltd; Basil Read Holdings Ltd.; Group Five Ltd.; Aveng Group Ltd. In the general mining industry the

following organisations were selected: Chrometco Ltd.; BHP Billiton plc; African Rainbow Mining Ltd.;

Anglo American plc. Table 1 provides a brief description of each organisation:

Table 1

Organisation name Abbreviation Description

Heavy construction

Murray & Roberts Holdings, Ltd. MUR Murray & Roberts is an engineering, contracting and construction services company, with

a primary focus on the resource-driven construction markets in industry, mining, oil, gas

and power.

Basil Read Holdings, Ltd. BSR Basil Read Holdings is one of the top construction companies in South Africa founded in

1952. Its subsidiary companies are active in a range of construction related areas business

throughout Africa.

Group Five, Ltd. GRF Group Five is an integrated construction services, materials and infrastructure investment

group.

Aveng Group, Ltd. AEG The Aveng Group is one of the largest infrastructure development companies in Africa

with a reputable track record and worldwide presence.

General mining

Chrometco, Ltd. CMO Chrometco is primarily involved in the exploration of mineral resource projects and the

possible beneficiation thereof.

BHP Billiton Plc. BIL BHP Billiton is a leading global resources company and is among the world’s top producers

of major commodities including iron ore, copper and aluminum. In the 2013 financial year,

the BHP Billiton workforce comprised of approximately 128 800 employees working in 26

countries around the world.

African Rainbow Minerals, Ltd. ARI African Rainbow Minerals is a leading South African diversified mining and minerals

company characterised by its low unit cost operations, growth opportunities and long-life.

Anglo American Plc. AGL Anglo American is one of the world’s largest mining companies, headquartered in London.

Its portfolio of mining businesses includes precious metals, minerals, base metals and bulk

commodities.

Source: www.sharenet.co.za

5 DATA COLLECTION AND ANALYSIS

5.1 DATA SOURCES The data sources selected for this research were considered the most appropriate sources of relevant

information that would enable the researcher to effectively achieve the set objectives. The primary

sources of this were the nine South African organisations from two industry groups detailed above in

sampling. The data collection techniques used in this research were the literature review used to

construct a theoretical framework and documentation analysis.

5.1.1 Documentation in organisational research

Document analysis refers to the study of public and private documents such newspapers, personal

journals, minutes of meetings and annual reports (Tharenou, et al., 2007:124). Documentation as a data

collection technique is advantageous as it does not actively interfere with the participants, such as

interviews or administering questionnaires, making it unobtrusive and non-reactive (Tharenou, et al.,

2007). Obtaining access to relevant documents is often problematic as they may be protected or

unavailable to the general public (Bloor & Wood, 2006). According to section 8.63 of the listing

requirements, organisations are required to produce an annual report (Practice notes, 2013). In light of

this, the annual reports of the participants served as a valuable source of secondary data that was

publically available and easy to access. Annual reports provide an abundance of qualitative and

quantitative data and as a result have been used extensively in organisational research (McPhee, 2002).

The data contained within these reports is important and thoughtful, as the organisation has allocated

resources and the informants have given time for their compilation (Creswell, 2013; Tharenou, et al.,

2007). Readers of annual reports typically review the financial and nonfinancial information contained in

the report to form an opinion about the organisation (Zeller, et al., 2012). It is for that reason that

compilers of annual reports can potentially use voluntary disclosures in such a way as to shape the

readers’ opinion; portraying the organisation in a positive light, or masking negative information

(Yuthas, et al., 2002). However, annual reports are key form of formal communication of an organisation

to its shareholders (Jansen Van Rensburg & Venter, 2012:9638). As outlined above, the JSE listing

requirements vis-à-vis integrated reporting provide valuable insight from the firm’s perspective on key

strategic issues and future strategic direction that they want to communicate to their stakeholders.

Two sections within these documents, namely the CEO and chairman’s statements, were considered by

the researcher to offer the most appropriate data relevant to the study. Both the CEO and Chairman are

actively involved in the strategy formulation process (Ehlers & Lazenby, 2010). Hence their statements

present an accurate reflection of the main strategic issues facing the organisations, and the strategic

actions and decisions in response to their environment (Jansen Van Rensburg & Venter, 2012:9638). This

is corroborated by a recent PricewaterhouseCoopers (2013:15) study which revealed “61% of companies

linked strategic choices to external drivers” in their annual reports.

5.2 DATA ANALYSIS The research was conducted through content analysis of the Chairman and CEO statements in the

annual reports. Where verbatim quotes are used the abbreviation was used in conjunction with the year

and page number to indicate the source of the quotation (ARI, 2012:13; African Rainbow Minerals

Annual Report, 2012:13). Content analysis is a group of procedures for studying the contents and

themes of written text. This method of analysis provided the researcher with rich, detailed data in

addition to being an unobtrusive source of data (Insch, et al., 1997:1). Insch, Moore and Murphy

(1997:6-15) proposed an eleven step procedure for using content analysis which was adapted to this

research report. Each step will be explained followed by a description of how it was employed in this

research.

Step 1: identify the questions to be investigated and the constructs involved. This step concerns a review

of the literature for relevant theory that serves as the basis for the definition of research questions and

theory. The researcher used theoretical rationales from the literature to identify what words and

phrases would represent a viable measure of the construct. An objective of this research was to identify

and classify corporate and business level strategies. The researcher conceptualised these two constructs

in order to facilitate the aforementioned process. Step 2: identify the texts to be analysed. The identified

texts, i.e. the CEO and Chairman Statements, were selected as they served as an appropriate source of

information to capture the constructs and answer the research questions. Step 3: specify the unit of

analysis. The unit of analysis is the basic unit of text to be analysed. Common units of analysis include a

single word, word sense or phrase, sentence, paragraph or the whole document. The reliability of

content classification is dependent on the unit of classification and it was for that reason the researcher

chose to classify specific words and phrases. If the researcher used too large of a unit, for example a

sentence or paragraph, he may have potentially missed a phenomenon of interest. On the other hand,

too small of a unit could have potentially disguised interpretations in context (Insch, et al., 1997:10).

Step 3: specify the categories. This step entails the classification of the unit of analysis into categories.

The categories are based on the research question and underlying theory and constructs. The strategy

typology by Miles and Snow, adapted by (Andrews, et al., 2006) aided in the analysis of strategic stance.

Organisations were classified as employing a stance of a Defender, Prospector, Analyser or Reactor. This

classification was based on the corporate strategy followed or their strategic intent. Business level

strategies were identified based on the strategic actions of the organisations. The researcher used an

existing content analysis template developed by Gao, Darroch, Mather and MacGregor (2008:10) to

specify the exact categories for analysis, see table 2. Step 4: collect data. This step involved the

researcher hand-coding the texts identified in step 2 into the categories identified in table 2. Care was

taken to ensure consistent, accurate classification of words and phrases into categories. Step 5: assess

reliability. The results of the classification were checked to ensure the coding rules were applied

correctly. Stability reliability was assessed by repeating the coding after one week to ensure the same

results. Step 6: analyse data. The data gathered facilitated the classification of the organisations

strategic stance (corporate strategies) and their entrepreneurial solution (business level strategies).

Common strategies employed by organisations operating within the same industry were then identified.

The strategic fit of these common business and corporate strategies was assessed by evaluating their

appropriateness in relation to their specific industry or operating context.

Table 1: Definition of the Variables Used in the Content Analysis

Index 1: Strategic Objective

(1) Pursue the development of a diverse portfolio of innovative products or services (P).

(2) Pursue the development of innovative products or services based on high quality, cost-effectiveness, and

efficient operation (A).

(3) Pursue high quality, cost-effective products or services through efficient operations (D).

Entrepreneurial (product/market) Dimension

Index 2: Product Innovation

(1) Always initiate, create new ideas, new products, or new services (P).

(2) Focus on products currently developed and selectively follow pioneers, once the promise of their innovative

products or services is demonstrated. Alternatively, pursue product innovation based on proven evidence from the

existing product/market space of pioneers (A).

(3) Few new products or services are currently developed or are likely to be developed in the near future. Any new

products under consideration are likely to be closely related or complementary to existing products or services (D).

Index 3: Product/Market Breadth

(1) Continually changing and broader in nature throughout the organization and marketplace (P).

(2) Fairly focused in certain markets, while pursuing innovative opportunities in other markets (A).

(3) Well focused, relatively stable, and consistently defined (D).

Index 4: Risk Taking

(1) Aggressive. Recognizes risks and threats from new product and market development, but still willing to pursue

(P).

(2) Moderate. Maintains stability in current business while also moving into new markets but with careful risk

analysis, based on proven evidence (A).

(3) Conservative. Little attempt to try risky projects or new areas (D).

Index 5: Success Posture

(1) A reputation as a first mover, innovator, and change creator (P).

(2) Achieves high quality, cost-effectiveness, and operational efficiency in current products/markets but also

pursues an image of innovator in newly developing products/markets (A).

(3) Has an image of offering products or services that are in high quality, cost-effectiveness, or operational

efficiency (D).

Note: D= defender; A= analyser; P= prospector

Source: Gao, H., Darroch, J., Mather, D. & MacGregor, A., 2008

6 ETHICAL CONSIDERATIONS

Ethical clearance has been applied for by UNISA on behalf of the researcher. The researcher did not

make any attempts to contact the organisations or employees of the organisations studied in the

research. The data used in this research is publically available and accessed on the internet.

7 LIMITATIONS

Purposive sampling is a very subjective sampling strategy. As a result the researcher may have selected

cases that are not typical of organisations within the industry, and as a result do not provide an accurate

cross section. Although multiple cases were selected to improve the generalizability of the research,

case study research is by definition unrepresentative of a wider population. A potential are of concern

when using content analysis is the potential researcher bias when extracting the data from contextually

rich communications (Insch, et al., 1997). The researcher acknowledges he may have incorrectly

interpreted the true meaning and intent of words and phrases coded from the text. In addition, the

compilers of the annual reports may have excluded certain communications to avoid drawing attention

to weaknesses or disclosing a future action to competitors.

Chapter 4: Research Findings

1 INTRODUCTION

In the preceding chapters the researcher has explained the rationale for his research, presented a

literature review and theoretical framework of organisational strategy, classification of organisations

according to their strategic intent and actions, the concept of a strategic fit and has explained the design

of this research. In this chapter, it is the aim to explore the findings of this research. The results of the

content analysis are presented as a description of each of the general mining and heavy construction

organisations’ strategic stances based on the overall corporate strategy followed and the specific actions

employed to support the stance. Thereafter, the operating environment of each industry is described

and used to determine the degree of alignment between the operating context and the common

strategic stances and actions of the organisations in each industry i.e. the strategic fit.

2 THE COMMON STRATEGIC STANCES AND ACTIONS OF JSE LISTED HEAVY

CONSTRUCTION AND GENERAL MINING ORGANISATIONS IN 2012

In this area, table 3 presents a summary of the content analysis, followed by a discussion of the strategic

groups in each industry. In table 3, evidence in support of the strategic stance is presented, followed by

a defining quote and key terms the organisation uses to describe the essence of its strategy. The

interpretation of strategic stance is thus subjective and founded on the organisation’s own

communication of their strategies and strategic actions. The data sources analysed in this research focus

largely on key facets of the entrepreneurial and engineering solution (Figure 2). These aspects were

used to develop a perspective on the stance of each organisation.

2.1 THE GENERAL MINING INDUSTRY The analysis of the strategic stance of the organisations investigated revealed that the strategic

positioning of firms in the general mining industry is dominated by the Analyser strategic stance, as all

four organisations were classified as Analysers. These organisations strive to minimise risk while

simultaneously seeking to exploit new product and market growth opportunities. To achieve this, they

tend to focus on a core set of products or services, while seeking to selectively exploit new

opportunities. None of the four organisations are focused on a single stage of the mining value chain

(Figure 1). Chrometco, the smallest of the four organisations (determined by market capitalisation on

the date of the annual report publication) is involved in mining and exploration, while the remaining

three larger firms are engaged in activities throughout the value chain, including exploration,

acquisition, mining, beneficiating and marketing. This vertical integration along the industry value chain

is a common corporate strategy followed by the organisations.

Table 2: The Strategic Stance and Strategic Actions of the General Mining and Heavy Construction Organisations

Strategic Stance Strategic Actions GENERAL MINING

CMO: Overall strategic stance can be described as focused on the exploration and mining of chrome, while carefully seeking to diversify

into platinum group metals and other bulk commodities. This is a typical ANALYSER stance.

Chrometco is a young company involved in the exploration and

mining of chrome, the organisation is carefully repositioning itself to

move into platinum group metals (PGMs) and other bulk

commodities. Strategic stance is described in the following terms:

Defining quote:

“Chrometco’s exposure to a single commodity is therefore of concern to the board, which believes it is in the interests of the company to diversify its mineral portfolio. Fortunately the healthy balance sheet and lack of debt places the company in a sound position to ride out the current downturn in the metal markets, while at the same time seeking new opportunities at reasonable prices” (CMO, 2012:6)

A currently limited product and market scope (focus on exploration, chrome)

Primary objective is to acquire interests in mineral rights

Seeking to diversify into related sectors

Vertical integration through the reacquisition of the Rooderand chrome deposit

Consolidating: limited volume mining production at Rooderand in response to sharp decline in price of chrome

AMS: Overall strategic stance can be described as a focus on core operations while cautiously investing in low risk opportunities. This is a

typical ANALYSER stance.

Anglo American has a uniquely diversified portfolio of mining

businesses that spans bulk commodities, base metals and precious

metals and minerals.

Defining quote:

“We have a substantial potential pipeline of high-quality growth options in the most attractive commodities. However, given the increased challenges involved in developing large and complex greenfield sites, the Board will apply a highly disciplined approach to the allocation of capital, with smaller, lower-risk brownfield expansion projects more likely to find favour” (AMS, 2012:2).

Unique diversification of businesses exposes it to all stages of the economic cycle

Objective is to become the world’s leading mining company

Organic growth through investment into new mines and expansion of existing operations

Growth through acquisitions and cautious investment in low-risk, brownfield expansion projects

Consolidation through increased operating efficiency and restructuring and cost cutting of platinum business

Divestment of non-core businesses

BIL: Overall strategic stance can be described as seeking to create a highly diverse portfolio while maintaining focus on its core operations. This is a typical ANALYSER stance.

BHP Billiton creates shareholder value through the discovery,

acquisition, development and marketing of natural resources.

Defining quote:

“The diversification of the BHP Billiton portfolio continues to be our defining attribute. The quality of our people, our asset base and our unchanged strategy of owning and operating large, long-life, low-cost, expandable, upstream assets diversified by commodity, geography and market, together with our ability and commitment to investing through the cycle and delivering projects on budget and to schedule, is what sets us apart from our peers” (BIL, 2012:5).

Focused on owning and operating large, long-life,

expandable, upstream assets

Defined by highly diverse portfolio

Organic growth through continued investment in low-risk,

brownfield projects

Horizontal integration through acquisition (for example: HWE

Mining and Petrohawk)

Consolidation: simplify the portfolio by the sale of non-core

assets (for example: Richards Bay Minerals and Yeelirrie

uranium deposit) and implementation of cost cutting

measures to reduce operational costs and non-essential

expenditure

ARI: Strategic stance can be described as a focus on high operational efficiency while cautiously seeking to diversify through joint ventures,

acquisition and exploration in Africa. This is a typical ANALYSER stance.

ARI is a diversified mining and mineral company involved in

mining and the beneficiation thereof.

Defining quote:

“We remain focused on improving efficiencies at our existing

operations, while at the same time continuing to grow our quality

asset base” (ARI, 2012:10).

Focus on operational efficiencies

Continues to assess acquisition and joint venture

opportunities

Organic growth through increased volumes and new growth projects

Revenue growth by increasing sales volumes across its portfolio to mitigate the effect of lower commodity prices

Concentrated growth through capital expenditure projects resulting in higher production and sales volumes, improved efficiencies and extended lives of mines

Implemented a range of cost cutting initiatives

Related diversification and market development through

acquisitions, joint ventures and strategic alliances

HEAVY CONSTRUCTION

BSR: Overall strategic stance can be described as a focus on its core sectors, while simultaneously exploring growth opportunities in emerging markets. This is a typical ANALYSER stance.

Basil Read’s core focus lies in engineering, procurement and construction, with additional involvement in open cast mining.

Defining quote:

“As part of this strategic review, we have renewed our focus on our core business of EPC (engineering, procurement, construction) while consolidating recent acquisitions that have diversified our earnings base (BSR, 2012:14).

Strong organic and acquisitive growth in recent years has made Basil Read a strong competitor in its core sectors

Diverse group of companies allow it to offer a comprehensive service, while securing additional work for the group

Based in South Africa with operations in Africa and other emerging markets

Consolidation of its activities to focus on its core skills

through divesture of non-core assets and businesses (for

example: sold major portion of the TWP group, and the

disposal of its 50% stake in Siyaya Energy)

Market development by tendering for projects in Africa and

abroad (for example: BSR was awarded a road project in

Mozambique and the construction of an international airport

in St. Helena), investigation of possible strategic alliances to

increase its footprint in Africa, and an intention to balance its

dependence on public by tendering for more private projects

Product development through the establishment of a

bitumen reactor plant to supply its own operations and the construction sector as a whole (related diversification is in line with its strategy)

Reduction of operating costs through optimising internal

efficiency

AEG: Overall strategic stance can be described as a core focus in construction, infrastructure and engineering activities, while pursuing

growth opportunities in related sectors. This is a typical ANALYSER stance.

The Aveng Group is a leading infrastructure development company providing a diverse range of construction, infrastructure and engineering products, services and solutions.

Defining quote:

“The Aveng strategy aims to optimise and enhance the performance

of the group’s existing portfolio to generate greater shareholder

value, and to expand in the short to medium term in selected

geographies (rest of Africa, Middle East, South East Asia) and markets

(power, water, rail, steel) that offer the greatest potential for

sustainable growth” (AEG, 2012:28).

Broad exposure across the infrastructure value chain gives it a multidisciplinary capacity

Reinforce its position in selected areas of the infrastructure

market in South Africa and the rest of Africa

Organic growth through market development and diversification of product areas

Consolidation: enhancing the profitability of existing portfolio

through operational efficiency and improved project

execution

Market development (for example: entering four new

markets)

Related diversification (for example: into rail and energy)

Recovery of a number of businesses through restructuring

(for example: the construction and engineering businesses in

South Africa)

GRF: Overall strategic stance can be described as focused on its core activities with a capability to capture growth from turnkey offerings and the full value chain in the building and infrastructure markets. This is a typical ANALYSER stance.

Group Five is an integrated construction services, materials and infrastructure concessions group.

Defining quote: “looking forward, Group Five will continue to develop the skills required for future growth while focusing on retaining existing capacity- which, in turn, requires the achievement of a delicate balance between investment in required resources against desired returns in fluid markets” (GRF, 2012:30).

Focused on quality management in every aspect of its operations

Cost cutting through retrenchment of employees and cost reduction initiatives

Capacity to capture multiple margin streams across the

building and infrastructure value chain and offer a full

turnkey solution

Global operations with focus on Africa

Restructuring to improve group’s efficiencies

Market diversification into the rest of Africa

Divesture of loss-making construction materials businesses and cancellation of a number of loss-making contracts in the Middle East

MUR: Overall strategic stance can be described as diversified engineering and construction group with a strong focus on a segment of the market while selectively seeking to exploit opportunities in related sectors. This is a typical ANALYSER stance.

Murray & Roberts is a diversified engineering and construction group with a primary focus in resource driven construction markets.

Defining quote: “The Group’s focus on growth aims to enhance shareholder value through a return to profitability as soon as practically possible. It envisages aligning the Group’s portfolio of businesses selectively with market segments and geographies that present sustainable growth potential and simultaneously expanding its offshore revenue base” (MUR, 2012:26).

Objective is to be leading diversified engineering and construction group in chosen sectors

Focus on expansion into Africa

Restructure through reorganisation of businesses and

introduction of new management and key executive

appointments

Consolidation through business closures, sale of discontinued

operations, cost cutting, efficiency initiatives, and

realignment of group

Organic growth through market development and

acquisitions

1. Chrometco listed on the JSE in 2005 as a mineral exploration company. Since its listing, it has

expanded its operations into mining and the possible beneficiation thereof. In 2011, the

organisation re-acquired the Roodarant chrome deposit and subsequently began mining

operations at the site. Chrometco’s vertical integration objectives are emphasised by the

following quote: “In addition your board continues to seek suitable additions to Chrometco’s

mineral portfolio” (CMO, 2012:5)

2. African rainbow Mineral’s core focus lies in the mining and beneficiation of certain minerals. In

the FY2012, the organisation set up a new division, ARM Exploration, which “focuses on

identifying, exploring for, evaluating and acquiring mineral resource projects that have the

ability to outline and define sustainable mineral resource for mine development” (ARM,

2012:95).

3. BHP Billiton is the largest firm in this research, with a market capitalisation of US$160.6 billion

and is fully integrated along the industry value chain. The organisation’s “strategy is to own and

operate large, long-life, low-cost, expandable, upstream assets” (BIL, 2012:2).

4. Anglo American is another organisation with operations spanning across the entire mining value

chain. “As our business model illustrates, mining is only part of the story”. The organisation

boasts sector-leading exploration teams and “Many of the commodities we mine are processed

and refined further before we apply our market knowledge to deliver a quality product our

customers value” (AMS, 2012:8).

In line with Miles and Snow’s (1978) description of an Analyser, the four organisation’s approach to

growth along the value chain can be characterised as cautions, only capitalising on opportunities once

their feasibility was proven.

Out of the four organisations, Chrometco is the only one to focus on a single product, chrome. Although

this narrow product focus could be characterised as a Defender stance, the data analysed signalled a

clear strategic intent to diversify its mineral portfolio as “Chrometco’s exposure to a single commodity is

therefore of concern to the board” (CMO, 2012:5). The remainder of the organisations possess a diverse

portfolio of minerals. According to BHP Billiton CEO Marius Kloppers, “The diversification of the BHP

Billiton portfolio continues to be our defining attribute” (BIL, 2012:5). The organisation’s product offering

spans the petroleum, aluminium, base metals, diamonds, stainless steel materials, iron ore, manganese,

metallurgical and energy coal sectors. African Rainbow Mineral’s investment in gold through its

shareholding in Harmony, the third largest gold producer in South Africa (Mbendi, 2002), substantiates

its diversification aims. Anglo American is no different as its portfolio of mining businesses spans bulk

commodities, base metals and precious metals and minerals.

In terms of product/market breadth, both Anglo American and BHP Billiton have a global presence. BHP

Billiton, for example, operates in 25 countries worldwide (BIL, 2012). The bulk of African Rainbow

Mineral’s operations are located in South Africa, with several additional ventures in Zambia and the

Democratic Republic of Congo and exploration activities in Mozambique. Through its exploration

division, ARM intends to expand its operations into sub-Saharan Africa.

Another common strategic element identified in the analysis was a strong emphasis placed on the

continuous improvement of operational efficiency. Chrometco was the only organisation that neglected

to communicate a strategic intention to do so. This could partially be attributed to the relatively limited

scope of strategy related content found in their 2012 annual report. The other three organisations,

however, have incorporated it into the organisation’s overall strategy. Figure 4 depicts graphically

illustrates ARM’s strategy, which earmarks operational efficiency as critical to their success.

Figure 4: ARM Strategy

Source: African Rainbow Minerals (2012)

For Anglo American, operational efficiency is regarded as one of four strategic elements that will enable

it to achieve its strategic aim of becoming the leading global mining company. The organisation

describes it as “Organising efficiently and effectively to outperform our competition throughout our

value chain” (AMS, 2012:8).

2.2 THE HEAVY CONSTRUCTION INDUSTRY As is the case with the general mining industry, the analysis of the data revealed that all four

organisations operating in the heavy construction industry could be classified as Analysers in terms of

the Miles and Snow typology (Andrews, et al., 2006). The four organisation’s strategies included a focus

on their core sector of construction, while simultaneously pursuing opportunities in related sectors, such

as the manufacture of steel products used in construction. This “duality” is the core feature of the

Analyser strategic stance. It combines the strengths of both the Defender (i.e., “maintaining a firm core

of traditional products and customers”) and Prospector (i.e., “locate new product and market

opportunities”) into a single system (Miles, et al., 1978:555).

A focus on construction was a common element in the four organisation’s strategies. The majority of

each organisation’s revenue was earned through their construction division.

1. Basil Read’s construction division contributed 58% to the group’s revenue in the FY2012. The

core focus of this division lies in civil engineering, roads and building operations.

2. 65% of the Aveng Group’s revenue in the FY2012 was earned through its construction division.

The group’s construction division is comprised of two operating groups namely, Aveng Grinaker-

Lta and McConnell Dowell Corporation Limited. Aveng Grinaker-Lta is a multidisciplinary

construction and engineering group based in South Africa, with a focus in the power, mining,

infrastructure, commercial and industrial, oil and gas sectors. The McConnell Dowell

Corporation, anchored in Australia, is a major engineering, construction, building and

maintenance contractor servicing the building, infrastructure and resources markets with

expertise in building, rail, civil, electrical, marine, mechanical pipelines, fabrication, tunneling

and underground services.

3. The Murray & Roberts construction division contributed a total of 76% to the group’s revenue in

the FY2012. The construction division is comprised of three platforms, each incorporating a

number of businesses. The first platform, construction Africa and Middle East, earned 22% of

group turnover in the FY2012 and is involved in project development and design, planning and

engineering, construction works, maintenance and refurbishment and operations and facility

management in the metals and minerals, industrial, infrastructure and building sectors. The

construction global underground mining platform contributed 28% to group turnover in the

FY2012 and is involved in planning and engineering, construction works, operations and facility

management in the metals and minerals sector. The final platform, construction Australasia oil

and gas and minerals contributed the remaining 24% of revenue and its operations involve

planning and engineering, construction works and maintenance and refurbishment in the metals

and minerals and industrial sectors.

4. Group Five’s construction cluster comprised the business segments of building and housing, civil

engineering and engineering. Engineering incorporates the businesses of projects and

engineering and construction. This division contributed 81% of group revenue in the year under

review. The group’s building and housing businesses are involved in the design to build and

construction of large buildings and human settlements in the real estate and related

infrastructure sectors. The civil engineering businesses operate in the construction of large

structures in public and private infrastructure, including heavy civil structures, roads, ports,

airports and pipelines. The projects businesses are active in multi-disciplinary plant construction

covering structural, mechanical, electrical and piping in the mining, industrial and power sectors.

The group’s engineering and construction services deliver multi-disciplinary projects from

feasibility through to supporting bankability and front-end design, as well as project

management of contracts during execution to completion in the industrial, power oil and gas

and water sectors.

The organisations have been able to maintain their firm core of traditional products and customers

(Miles, et al., 1978) by integrating along the entire value chain and diversifying the range of services they

offer and establishing a presence in a number of sectors. This gives the organisations the capacity to

offer complete, multi-disciplinary solutions to clients and capture revenue across the value chain. In

addition, the data analysed indicated a clear strategic intent by the organisations to continually improve

their operational efficiency.

Miles and Snow (1978) suggest that Analysers can grow through product and market development. It is

evident- when examining the broad scope of businesses the four organisations in this study are

comprised of- that they have indeed followed these strategies. Figures 5- 8 depict the individual

structures of the organisations to illustrate the products and markets the organisations have expanded

into:

Figure 5: The Basil Read Group Structure

Source: BSR (2012)

Figure 6: The Aveng Group Structure

The Basil Read Group

Construction Mining Engineering Developments

The Aveng Group

Construction and engineering

South Africa and Africa

Australasia and Pacific

Manufacturing and processing

Open cut mining

Source: AEG (2012)

Figure 7: Murray & Roberts Group Structure

Source: MUR (2012)

Figure 8: Group Five Structure

Source: GRF (2012)

Murray & Roberts

Construction Africa and Middle East

Construction global underground mining

Engineering AfricaConstruction

products Africa

Group Five

Investments and concessions

Manufacturing ConstructionEngineering and

construction services

The relatively broad scope of businesses that comprise the organisations is a reflection of the Prospector

traits in their strategic stance (Miles, et al., 1978). These organisations have selectively exploited new

product and market opportunities in related sectors, such as Basil Read’s open cast contract mining

businesses, and Group Five’s property development businesses which develop, own and manage

selected property assets, generating development and investment returns.

3 THE STRATEGIC FIT OF THE STRATEGIC STANCES AND ACTIONS OF THE

GENERAL MINING AND HEAVY CONSTRUCTION ORGANISATIONS

In the next section, the operating context of each industry is analysed and described. The strategic fit of

the common strategic stances and actions is then analysed according to their alignment or fit with the

specific industry dynamics and characteristics.

3.1 THE GENERAL MINING INDUSTRY The landscape of the general mining industry has endured significant change in the past half-century.

Dramatic lowering of trade and investment barriers has resulted in a surge in both the volume of

international trade and the value of foreign direct investment (Hill & Jones, 2010). These two trends

have led to the globalisation of production and the globalisation of markets, which in turn have

transformed the dynamics in many well-established industries, including the mining industry (Brummer,

2009). In fact, the search for minerals has been international for centuries- mining turned truly global

before most other branches of industry (ICMM, 2012). Because of the global nature of the general

mining industry and the fact that two of the organisations analysed in this research (BIL and AEG) are

regarded as globally diversified, with a secondary listing on the JSE and head offices outside South

Africa, the scope of the general mining industry is defined as geographically global, and comprises the

entire vertical and horizontal value chain.

In addition to the new challenges presented by the global business environment, the role of the mining

sector in the world economy has diminished. The world has moved into the third wave of civilisation and

radical changes in information technology have reduced the importance of “old-world” industries such

as mining and agriculture (Brummer, 2009; Ehlers & Lazenby, 2010). The traditional management style

of executives in the mining industry has no place in the dynamic, uncertain and unpredictable business

environment of today. In this era of adversity, it has become imperative for mining organisations to

acknowledge the magnitude of external environment influences and adapt accordingly.

The economics of mining are unique- the demand for mineral products is typically based on their

properties in specific end-uses, and not on their intrinsic nature or value. The end-uses of mining

organisation’s products are closely related to the needs of the global population (Brummer, 2009).

Accordingly, the state of the global economy can be regarded as the mainspring driver of the demand

for minerals and mining products. An event such as the Global Financial Crisis (GFC) in mid-2008 had a

disastrous effect on the mining industry. For the five years leading up to the crisis, mining firms placed a

primary emphasis on ramping up production volumes to take full advantage of the soaring commodity

prices (Champigny , et al., 2011). While their profits ballooned, so did their operating costs. In the

months following the GFC, commodity prices plummeted along with the global economy forcing mining

organisations to shift their focus from growth to aggressive cash preservation.

There has been a fundamental shift in focus by the mining industry towards emerging economies.

According to a report by PricewaterhouseCoopers (2013), half of the industry’s 40 largest miners by

market capitalisation have the bulk of their operations in emerging countries. China is the industry’s

most important customer- consuming roughly 40% of the global metal production. In addition, the

emergence of large developing countries such as Brazil, India and Indonesia has further influenced this

trend.

A factor that has a profound influence on the demand for certain types of commodities is the economic

life cycle of a country. It is divided into early, mid and late stages- each with its own unique preferences.

The early stage occurs when emerging economies start to develop. There is a need to expand

infrastructure, construct residential and commercial buildings and build port capacity for the certain rise

in import and export activity. Commodities such as iron ore, thermal coal, metallurgical coal and

manganese are essential for the industrialisation of an economy. As developing economies mature, they

enter the mid stage of the economic cycle. Populations move to cities and begin to enjoy a higher

disposal income. Households begin to purchase “white goods” and mobile phone communication

becomes widespread and diets shift from being grain based to being high in protein. Subsequently, the

demand for copper, nickel, niobium and phosphates rises. The late stage of the cycle ensues as a

country’s population begins to aspire to an affluent lifestyle. Increased purchasing power creates a

demand for “luxury” goods and services, including cars, jewellery, advanced technological goods and

leisure travel. Platinum group metals and diamonds are required to meet the new needs of the

population (AEG, 2012).

On the supply side, the abundance or scarcity of each mineral in the earth’s composition regulates its

availability (Hartman & Mutmansky, 2002). Minerals are unevenly distributed and, unlike agricultural

products, cannot reproduce or be replaced. A mineral deposit is thus a depleting asset whose

production is limited to the area in which it occurs (Hartman & Mutmansky, 2002). Due to this finite

nature of mineral deposits, mining companies must invest heavily in exploration to discover new

deposits or purchase them in order to stay in the mining business. Of equal importance is the manner in

which these deposits can be extracted economically. Technology developments in the past century have

provided mining organisations with the ability to process lower grade ores, increasing productivity.

However the small, incremental developments in technological progress offer miners little respite from

the increasing costs of production. High grade deposits close to markets are depleting, forcing mining

organisations to extract minerals from more remote locations with associated higher costs (Champigny ,

et al., 2011).

It is these external characteristics of the mining industry that ultimately determine the degree of

strategic fit between a mining firm’s strategic stance and its external environment (Venkatraman &

Prescott, 1990; Louw & Venter, 2013). The common strategic stance of the organisations in this research

is an Analyser in terms of the Miles and Snow (1978) typology (Andrews, et al., 2006). This strategic

classification possesses a high level of strategic fit in the mining industry.

The fundamental logic underlying this assertion is based on the “duality” of the Analyser stance (Miles,

et al., 1978). In the general mining industry, a focus on a core set of products is key. The organisations

benefit from a reduced cost structure when concentrating on a few commodities. Large scale production

allows the organisations to spread their fixed costs over a large volume and in this way reduce their

average unit costs. This concept is referred to as economies of scale and is crucial in the mining industry

due to its high fixed-cost structure (Hill & Jones, 2010). The common strategic actions taken by the

organisations in this research to support and operationalise a focus on core activities included horizontal

integration and vertical integration along the industry value chain through mergers and acquisitions and

consolidation by means of operational efficiency initiatives. BHP Billiton’s acquisition of HWE Mining

Subsidiaries is an example of vertical integration through acquisition. Operational efficiency received

considerable attention in the data analysed. The inherent inefficiency in many operations that arose

from the pre-GFC growth boom was identified as a major threat to the organisations profitability. The

common strategic action to mitigate this threat was the implementation of operational efficiency

programmes to boost organisation-wide productivity. An example of such a programme is Anglo

American’s asset optimisation initiative which, since its inception in 2009, had realised over $1 billion in

sustainable benefits at the end of 2011 (AEG, 2012).

Although the benefits of maintaining a strong focus on core products are clear, an exposure to a limited

mineral portfolio poses a threat to an organisation in the dynamic and unpredictable external

environment of the mining industry. Commodity price shifts and fluctuations in global economic growth

can have a devastating effect on an organisation’s profit margins and demand for its limited range of

products. A diversified mineral portfolio thus positions a mining organisation for all stages of the

economic cycle and mitigates the effects of commodity price fluctuations. This hybrid domain of an

Analyser allows a mining organisation to reap the benefits of operating in the stable domain of its core

minerals, while simultaneously according it the strategic flexibility necessary to pursue opportunities in

new minerals and markets. The common strategic actions taken by the organisations in this research to

diversify their mineral portfolios are related diversification, product development and market

development.

3.2 THE HEAVY CONSTRUCTION INDUSTRY The heavy construction industry is defined geographically as a South African industry. In other words

strategic fit is determined from the perspective of a company operating in the South African heavy

construction industry. The basis for this decision was that although the organisations have operations

located across the globe, they are traditionally South African with head offices located in South Africa

and a primary listing on the JSE.

The construction industry environment is complex and fragmented, presenting construction firms with a

number of challenges and unique industry dynamics (Oyewobi, et al., 2013). Kelly (1984) observes that it

is not a single industry but rather a multifaceted band of industries, comprising banking, materials and

equipment manufacturers, contracting organisations and so forth. This complexity is further augmented

by the distinctive nature of each construction project and the diverse range of stakeholder demands

(Oyewobi, et al., 2013).

In South Africa, the construction industry plays a vital role in the economy and is a substantial

contributor to economic growth (Statistics South Africa, 2010a). It is regarded as a critical sector of the

economy that produces infrastructure necessary to realise outcomes from investment efforts (Windapo

& Cattel, 2013). In addition to economic growth, the construction industry creates employment-

especially for the least skilled members of society.

Unlike its southern African counterparts, South Africa has a well-established construction industry with

the ability to deliver a full range of projects (Olivier & Root, 2014). The long period of isolation and

resulting economic adversity during the apartheid era compelled construction firms to sharpen their

corporate competitiveness (Olivier & Root, 2014).

The 2012 financial year market a down cycle for the South African construction industry. In years leading

up to the 2010 FIFA World Cup, the industry benefited significantly from the infrastructure development

boom. However, it was particularly hard hit by the global recession and depressed growth which ensued

(PricewaterhouseCoopers, 2012). The public sector represents a valuable source of work for the

construction industry, with the bulk of the public corporation capital spending done by Eskom, Transnet

and SANRAL. However, the markedly slow roll out of announced Infrastructural Investment projects in

South Africa has only exacerbated the slump in the construction sector (BSR, 2012). This lack of public

sector capacity is regarded as a key constraint on infrastructure delivery and sustainable growth in the

industry (Windapo & Cattel, 2013:67). Nevertheless, the industry remains hopeful of an upswing as the

minister of finance at the time reaffirmed government’s commitment to large-scale infrastructure spend

(BSR, 2012).

The public sector is by no means the only player in the South African construction industry. The private

sector, often led by the mining sector, has been a important contributor to construction expenditure.

The severe pressures faced by this industry have had a significant effect on demand

(PricewaterhouseCoopers, 2012).

The post 2010 contraction has intensified competition in the industry and eroded net profit margins

from between 5% and 6% to between 2% and 3% (PricewaterhouseCoopers, 2012). This historically low-

margin industry was further impacted by volatile and above-inflation increases in the cost of building

materials, which account for as much as 60% of total project costs (Windapo & Cattel, 2013:70).

Anticipation for government’s significant capital expenditure locally and across the African continent

meant that construction companies retained their capacity, but at a staggering cost.

Taking into account these characteristics of and trends in the South African heavy construction industry,

the common strategic stance exhibited by the four organisations in this research of an Analyser- in

terms of the Miles and Snow typology (Andrews, et al., 2006)- is suitably aligned with the operating

environment and thus can be said to have a strategic fit.

In terms of the Analyser’s focus on its core products and markets, the data analysis revealed a clear

strategic intent by all four organisations to maintain their interest in construction operations. This

enables the organisations to exploit the distinctive capabilities they have developed to sustain and/ or

build their competitive advantage (Louw & Venter, 2013). In addition, the high exit barriers associated

with the substantial cost of machinery and equipment required to operate in the construction industry

mean that the companies cannot withdraw from the industry when conditions become challenging

(Ehlers & Lazenby, 2010). In order to cope with the intense competition and low growth in demand

present in the industry, the four organisations placed an emphasis on reducing costs. This reasoning is

typical of organisations operating in a mature industry (Louw & Venter, 2013).

The common strategic actions employed by the four organisations were seen as necessary strategic

responses to preserve a continued focus on their traditional industry and to maintain their competitive

advantage. The specific strategic actions are categorised broadly into consolidation and diversification

(Louw & Venter, 2013; Oyewobi, et al., 2013).

The primary aim of the organisations’ consolidation actions was to refocus on their core businesses and

reduce costs. The group structures of the organisations were revised, streamlined and aligned with their

core products and markets. The St Helena project undertaken by Basil Read serves as an excellent

example of the benefits of focusing on core business. The company made impressive headway in

constructing an international airport on the island of St Helena, one of the largest construction projects

ever awarded to the group (BSR, 2012). Furthermore, the organisations divested and sold loss making

and non-core businesses. For instance Group Five disposed of two construction materials businesses

during the year under review (GRF, 2012). These consolidation actions were supported by extensive

efficiency programmes aimed at containing costs and improving productivity- an essential response to

the significant operational and material costs and low margins that characterise the South African

construction industry.

The diversification actions- specifically geographical diversification (Oyewobi, et al., 2013)- of the

organisations can be regarded as both proactive and reactive (Louw & Venter, 2013). The primary

reactive reason for the organisations is because of the saturation of the domestic market. The proactive

reasons for the firms’ goegraphical expansion include the reduction of costs through the realisation of

economies of scale and scope (Louw & Venter, 2013).

While there are advantages associated with maintaining a focus on construction in the South African

market, defending and entrenching their a position in those products and markets is not enough to

succeed, let alone survive in the dynamic and hypercompetitive industry. The Analyser strategic

orientation affords organisations the flexibility to diversify product and market risks and respond to

external opportunities and threats.

The detrimental consequences of a sole product and market focus can be explicated by examining the

poor performance of the four construction organisation’s South African construction businesses. The

depressed industry conditions and intense levels of competition in the industry had a severe impact on

the businesses’ profitability. Had the organisations neglected to diversify their products and expand

internationally, challenging external conditions such as these would have had a much more significant

impact on each of the group’s overall performance. Indeed, Group Five identified “reduce reliance on

the South African market with a sustainable geographic diversification” (GRF, 2012:34) as a key focus

area for the year under review. This imperative for geographic diversification was a common sentiment

shared by all of the organisations- with a focus on emerging markets. According to Global Construction

Perspectives and Oxford Economics (2009), construction in the developing world is expected to double

by 2020 to generate sales of US$7 trillion. Group Five and Basil Read have identified southern Africa as

their primary focus, while Aveng and M&R are looking beyond the African continent as they regard

southern Africa as part of their normal business area (Olivier & Root, 2014). Group Five conceded that

although the Continent presents immense growth opportunities, the political risks of business in Africa

and lack of public sector capacity to implement development plans necessitate a prudent approach

towards expansion in the region (GRF, 2012). This cautious and incremental growth is typical of an

Analyser orientation (Miles, et al., 1978).

Not only have the four construction organisations demonstrated a “duality” in terms of their market

focus, the pursuit of diversification opportunities in related industries was a common facet of their

strategy too. Much like geographic diversification, diversifying into related industries mitigates the risk

of a single product focus (Louw & Venter, 2013). In addition, when faced with the decline in demand

growth in a mature industry, organisations can increase their profitability by transferring and leveraging

their competencies, sharing resources and bundling products (to increase the number of products

consumed by each individual customer) (Hill & Jones, 2010; Louw & Venter, 2013). For the construction

industry specifically, the four organisations diversified into the related industries of engineering and

concessions- giving the organisations the capacity to deliver multidisciplinary, turnkey projects which

offer clients a complete construction solution while securing additional streams of revenue for the

groups.

The results from a recent study conducted by Oliver and Root (2014) support the contention that an

Analyser stance is the most appropriate in the South African heavy construction industry. Their research

analysed the performance implications of diversification strategies employed by large South African

contractors. Their findings revealed that undiversified organisations, akin to Miles and Snow’s (1978)

defender stance, is associated with underperformance and that “moderately diversified within a

specialised field”, akin to an Analyser strategic stance, is associated with outperformance (Olivier &

Root, 2014:96).

Chapter 5: Conclusions and Recommendations

1 INTRODUCTION

The research set out to identify the common strategic orientations of organisations in the South African

heavy construction and the global general mining industries and determine whether or not these

orientations are appropriate in the context of each industry. More specifically, the degree of fit between

the organisations’ strategic stance and actions and the external environment. To do this, the Chairman’s

and CEO’s reports in the annual reports of eight organisations- four in each industry- for the 2012

financial year were analysed.

The analysis revealed that the strategic stances of all of the organisations operating in the general

mining and heavy construction industries were classified as Analysers in terms of the Miles and Snow

(1978) typology (Andrews, et al., 2006). This could be attributed to a number of commonalities shared

by both industries- they are in the mature stage of the industry life cycle; cyclical in nature;

characterised by high levels of competition; exhibit high barriers to entry; and are capital intensive with

high operational costs.

Each organisation maintained a focus on their traditional industry which they regarded as core to their

business model, while simultaneously pursuing growth opportunities in related industries. BHP Billiton

was the only organisation to diversify into an unrelated industry with their petroleum business.

2 CONCLUSIONS

2.1 THE GENERAL MINING INDUSTRY The primary conclusion that can be drawn from the research is that a diversified mineral portfolio is

crucial to success in the mining industry. The industry is heavily affected by volatile commodity prices

which are determined by external market forces. Thus reliance on a single product poses a major risk to

an organisation. A diversified portfolio absorbs the negative effects of price fluctuations. The economic

life cycle of countries is a major determinant of demand for certain commodities. With the expected

growth of emerging economies, mining organisations need adapt their portfolio to suit the needs of

early- and mid- stage industrialisation. However, the high operational costs associated with mining

mean that organisations must ensure they do not become over-diversified. Focusing on a core set of

products that generate the bulk of revenue allows mining companies to increase their efficiency and

benefit from economies of scale.

2.2 THE HEAVY CONSTRUCTION INDUSTRY The cyclical nature of the South African heavy construction industry presents a major threat to

organisations. To overcome this, it is imperative for construction companies to diversify their products

and markets. Diversifying horizontally and vertically across the industry value chain gives construction

companies the capacity to offer multi-disciplinary, turnkey solutions to clients which build inter-group

synergy and capture multiple streams of income. The lack of demand and intense competition in the

industry mean that the organisations need to expand their geographic footprint into emerging markets.

Africa presents the South African companies with a wealth of opportunities. However, political

instability is a major risk for organisations considering to expand their operations. A cautious approach is

therefore crucial as construction projects require a substantial capital investment. Expanding operations

internationally also enables construction companies to cope with excessive operational costs associated

with the industry through the cost reductions derived from economies of scale and scope.

The Analyser strategic stance is therefore considered an ideal strategic profile for the two industries in

this research.

3 RECOMMENDATIONS FOR FUTURE RESEARCH

With regard to future research, repeating similar research in the same industries with different

organisations may assist in developing more generalizable results about an Analyser as an ideal strategic

profile. In addition, including performance measures in the analysis of whether adopting an Analyser

strategic stance in the general mining and heavy construction industries could offer further insight into

its suitability, beyond its alignment with the external context as is the case with this research. Another

possible area for future research is the effect public sector capacity to implement development plans

has on the South African construction industry.

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