Strategy,Governance,RiskMngmt

• Strategy can be described as the plan of action to achieve the company’s long-term goals.
• The goal of any entity is to create sustainable long-term value for its stakeholders and at the same time minimising or avoiding negative impacts on the natural environment and society (profit, people & planet).
• Sustainability means that the activities can be continued in the long-term without exhausting natural resources.
• Stakeholders are entities or individuals that can affect or are affected by the activities and actions of the entity.
• Stakeholders have an interest in the strategy of the company.
• In February each year, the Finance Minister tables the national budget in Parliament.
• The Minister announces government’s spending, tax and borrowing in the national budget.
• This provides Parliament and the public with the necessary tools to hold government accountable against the 14 outcomes set out in the MTSF.
• The medium-term strategic framework (MTSF) is adopted by Cabinet to give effect to these priority outcomes over the next five years.
• The budget is then approved and adopted by Parliament.
• Each public institution is required to compile a strategic plan and an annual performance plan that includes strategic outcomes, objectives, key performance indicators and targets.
• Companies should identify key stakeholders and their interests or needs.
• Key stakeholders include: shareholders, lenders, employees, suppliers, customers, government, society, and the natural environment.
• There is often a trade-off between profits and the interests of stakeholders, society and the natural environment.
• Increasing shareholder value at the expense of destroying stakeholder value is likely to cause reputational damage, customer loss or penalties and is not sustainable.
• Increasing stakeholder value at the expense of shareholder value will decrease company profits and competitiveness and is also not sustainable.
• Companies must make strategy choices that benefit both shareholders and other stakeholders in order to achieve long-term sustainability.
• In the past, annual financial statements focused mainly on reporting financial performance and serviced the needs of shareholders.
• More recently, reporting on sustainability performance to all stakeholders has become more prominent.
• The entity’s preferred risk responses: Risk avoidance, Risk reduction, Risk transfer, Risk acceptance.
• Risk categories /types : Strategic risk, Operational / business risk, Financial risk, Currency risk, Interest rate risk, Credit risk, Political risk, Economic risk, Information risk, Technological risk, Environmental risk, Social risk, Compliance risk, Reputational risk, Country risk, Commodity risk.
• Risk assessment : Risks are analysed by considering the likelihood of the event occurring and its potential impact.
• Risk seeking: the entity aggressively seeks risks in search of high returns
• Residual risk is the remaining risk AFTER the risk responses above have been taken into account.
• Risk monitoring is a continuous process of identifying new risks and evaluating the adequacy of existing control measures.
• Documenting, monitoring and reporting on risks: All identified risks must be recorded in a risk register and measured based on their potential impact and likelihood.
• Risk averse: the entity seeks to avoid risk
• Risk identification: Risks can be identified by using a variety of methods: SWOT analysis, PESTEL analysis, Porters Five Forces Model, etc.
• The person who is directly responsible for the entity’s risk management: The key role players in determining the risk appetite of the entity, and for giving the assurance that appropriate risk management processes are in place to mitigate and limit losses due to risks, are the board of directors, management, the audit committee and the internal audit function.
• Key risk indicators (KRIs) can be used to monitor the effectiveness of the risk management process.
• Risk neutral: the entity will take on moderate levels of risk
• The vertical axis of the matrix is industry attractiveness, factors that influence industry attractiveness include: Market size, Market growth rate, Industry profitability, Macroeconomic factors (PESTEL).
• An entity can only succeed if it is able to understand and suitably respond to the Political, Economic, Social, Technological, Environmental and Legal (PESTEL) environment in which it operates.
• Product-market matrix is a tool created by Igor Ansoff with the aim of providing entities with growth strategies.
• General Electric Corporation (GEC) Model provides decentralised entities, with multiple business units, with a systematic approach to determine the best manner in which to invest their cash.
• Product and market strategies: Which products/services the company sells and to which market are they aiming their sales, Competitive strategies: Business strategies seeking competitive advantage may include: Cost leadership (lowest-cost producer), Differentiation (unique product/service), Focus/niche (cost leader for specific segment of the market / differentiation for a specific segment of the market), Growth strategies: Acquisition of existing businesses, strategic alliances (e.g. joint ventures) or expanding products into new markets and growing internally (organic growth).
• The horizontal axis of the matrix is the strength of the business unit, factors that influence the strength of the business unit include: Market share, Brand equity, Profit margins relative to competitors.
• Strategic implications: Resource allocation recommendations can be made to grow, hold or divest a strategic business unit based on its position on the matrix.
• South African companies listed on the JSE are required to issue an Integrated Report.
• Porter’s Five Forces Model can be used to analyse the industry’s competitive structure: Rivalry amongst existing competitors, Treat of substitute products/services, Threat of new entrants, Bargaining power of customers, Bargaining power of suppliers.