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CHAPTER 2- THEORETICAL MODEL OF STRATEGY
2.26 Strategic Management Style
Goold and Campbell identified three corporate management styles, financial control, strategic control and strategic planning as depicted in figure 2.23.
Figure 2.23 Management Styles High
Planning Influence
Low
Strategic Planning
Strategic Control
Financial Control
Flexible Tight Strategic Tight Financial Control Influence
Source: Johnson And Scholes (2002) Exploring Corporate Strategy
The principle differences between the management styles included the level at which strategies were formulated. The strategic planning style included head office playing a vital role in formulating and coordinating strategies while the financial control style emphasised corporate head offices emphasis on financial management. A third style includes a combination of both styles, this is known as strategic control.
In the strategic management style emphasis was on establishing long term competitive advantage that were reflected in performance goals such as market share, innovation and quality leadership.
According to Grant (1998), the major weakness of the strategic planning process includes.
• Lack of autonomy which results in the lack of initiatives and ownership.
• Lack of responsiveness to new circumstances and opportunities.
• Lack of diversity as a result of the unitary view imposed by the corporate.
Strategic planning is appropriate for the smaller business that do not spread across a wide range of products and industries, were long term strategy goals are more important than short term profits.
In the financial control style, corporate head quarters have limited involvement in business strategy formulation. Primary control is exercised through short term budgetary control.
Objectives are short term and easily quantifiable, provide an added incentive for managers to improve efficiency and expand business profits. Grant (1998), states that this type of management style has three benefits;
• Encourages top management capabilities among business level managers due to flexibility given to them to determine business unit strategy.
• Emphasis is on profit enabling the managers to use more effective strategies to gain results.
• As major decisions are taken at business unit levels corporate level managers can focus on corporate issues.
Grant (1998) further elaborates that despite managing by numbers these styles have two weaknesses.
• Managers may sacrifice long term strategies that may result in profits in the future over short term profits.
• Achieving coordination between business units may become difficult as they compete for limited resources.
The financial control style is suited for an organisation that are characterised by broad business diversity, with investment projects that are short to medium.
2 2 1 Framework for the Case Analysis
South African's culture of compliance is strongly influenced by there past history. People of different race groups tended to have a natural reluctance to follow government policies and procedures which they felt where discriminatory. Paying of taxes and complying with customs rules and regulations fell within this ambit. The culture of compliance is further influenced by the current macro-economic and social political conditions. Figure 2.24, however, indicates that the client's behaviour can range from being deliberate or in some instances unintentional due to the lack of knowledge.
Figure 2.24 SARS Enforcement Regulatory Model
Source: SARS Business Intelligence, internet site
SARS behaviour on the other hand is dictated by its mandate to optimize revenue collection and protect the citizens of the country from illicit imports and exports. This behaviour is further influenced by the resources available to meet these objectives. Strong internal strengths such as skilled staff and financial backing from treasury to modernize SARS have enabled its Customs department to meet the challenges of globalization and trade liberalization. The task is however complicated when confronted by the governments economic policies which requires additional funding for the delivery of essential services such as housing and health, which places added strain on the administration to collect more funds to subsidize state spending.
SARS response in fulfilling its mandate is therefore determined by the behaviour of its clients.
This behaviour more often than not creates a tax gap or a leakage within our fiscus. The actions SARS may take to close this tax gaps include:
<t High visibility- throughout the region and the country which provides as a deterrent to non compliance or voluntary disclosure of non compliance.
<4 Random risk based actions to detect wilful non-compliers based on selected criteria's.
±- Maintenance checks which would entail physical examinations or post audit inspections.
«t Combinations of methods including compliance checks, maintenance audits, investigative audits, criminal and financial investigations.
Figure 2.25 gives a graphical presentation of the actions taken by SARS in performing its mandate.
Figure 2.25 SARS Response to Tax Payer behaviour
Source: SARS Business Intelligence, internet site
The model in figure 2.26 will form the basis for the analysis of the case study. The model focuses both on internal as well as external factors that contribute to forming the tax gap. This therefore has created a need to close this tax gap through an effective risk management process.
Figure 2.26 Framework for the Case Analysis
SA History
Current macro- economic Socio-oolitical
oni pliance
SARS' mandate
SARS' resources SARS'
behaviour
State's spending requirements
Towards a specific taxpayer
Taxpayer behaviour determines SARS
resnnnse
Generally fulfilling our mandate
High visibility
Risk based & random actions
Combination of methods
;*
/
\
*
Entire geographical area
Presence in all spheres of economy
Compliance checks
Maintenance audits
Investigative audits
Criminal investigations
2.28 Summary
Strategy is about organisational change, a firm's action is strategic when its can maintain its competitive edge. In affect not all decisions are strategic some decisions are made in order to maintain the current state of affairs. Many writers like Porter advocated initially that strategy was the ability of the organisation to position itself within an industry so that appropriate choices could be made. Other writers such as Grant advocated a resource view to attaining competitive advantage. Strategy is however about knowing your internal and external environment that serves as a platform to achieve sustainable competitive advantage.
The chapter gave a rational approach to strategic decision making, emphasising the use of strategic tools as a key to analysing the business environment in achieving an organisations vision. The chapter further indicated that long term objectives and grand strategies can serve as useful strategies that if implemented correctly and monitored can provide sustainable competitive advantage.
Whether strategy is rational and deliberate or emergent through trial and error, understanding the culture and management style that is necessary to implement the strategy is the back bone for success.
Chapter 3- Analysis of Case Study Evidence
3.1 Introduction
The South African Revenue Services (SARS) is focused towards optimal revenue collections and the facilitation of legitimate trade. To this end the organization engages in a variety of activities and employs different skills across numerous branch offices and ports of entry within South Africa. The South African Revenue Services Act, No 34 of 1997 provided for administrative autonomy of the entity and provided the mandate for the performance of the following tasks (SARS annual report, 2003):
4- Collect all revenue that are due.
•4 Ensure maximum compliance with legislation.
•^ Provide a customs service that will maximize revenue collections, protect our borders as well as facilitate trade.
Customs administrations play a strategic role in the growth of international trade and the development of the global market place. The efficiency and effectiveness of a customs administration can significantly influence the economic competitiveness of a country. The Kyoto Convention came into force with the aim of simplifying and harmonizing customs procedures in order to facilitate and encourage international trade. Amongst the items discussed in the convention the modernization of customs by using automated systems and the use of pre-arrival notifications of interventions became the focus of discussion. Customs administrations around the world have adopted this philosophy as it is seen as a driver for attracting foreign direct investment and enhancing the movement of goods within the supply chain.
This chapter provides an analysis of the case study and explores the internal and external activities of SARS.