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ACCA P6 SMART NOTES (50 Pages)

ACCA F6 SMART NOTES (40 Pages)

BUSINESS ANALYSIS

For Exams up-to March 2017

SMART NOTES 50 Pages only

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Compiled By: Aziz Ur Rehman (ACCA, CMA)

NCS |School of accountancy Peshawar (0331-9114878)

1

Contents

CH #: Chapter Name: Page no

Chapter 1

BUSINESS STRATEGY Mission & Mission Statement Strategy

• Levels of strategy • Types of Strategy

Strategic lenses

1

Chapter 2

ENVIRONMENTAL ANALYSIS PESTEL Porter Five Forces

Scenario planning Forecasting

Porter Diamond Industrial Analysis

• Types of industry • Strategic Groups

• Convergence • Sustaining competitive advantage

• Hyper competition

Marketing • Market analysis

• Customer analysis • Targeting

• Marketing mix • E-Marketing

• Branding • Customer Relationship management

4

Chapter 3

STRATEGIC CAPABILITY Strategic Capability

• Resources • Competence • Cost efficiency

CSF & KPIs Knowledge Management Organisational Learning Benchmarking Value chain Analysis Value Network Product Life Cycle SWOT analysis TOWS matrix

10

Chapter 4

STRATEGIC CHOICE Porter Generic Strategies Strategic Clock

Ansoff Product/Market Matrix Diversification

16

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2

• Unrelated • Related

– Horizontal – Vertical

Methods of Developments • Organic Growth • Mergers & Acquition • Alliances • Licensing • Franchising • Outsourcing • Demerger

International Expansion Corporate Parenting

• Ways of Adding & Destroying Value • Rationales of Adding Value

• BCG Matrix • Ashridge Portfolio Matrix

Evaluation of options (SFA analysis)

Chapter 5

ORGANISATIONAL STRUCTURE Types of organizational Structure

• Entrepreneur • Functional • Product • Geographical • Matrix • Tall & Flat • Centralisation & Decentralization

• Mintzberg Building Block & Organiational Configurations

24

Chapter 6

BUSINESS PROCESS Business Process

Harmon Process Strategy Matrix • Outsourcing

• Process Redesign • Process of Process Redesign

• Factors to consider Process Redesign (POPIT Model)

27

Chapter 7

CHANGE MANAGEMENT Types of strategic Change

Context of Change Cultural Web

Force Field Analysis Lewin Process Change

Leadership Style for Change Management Change Agent

Process Change Lifecycle

30

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3

Chapter 8

ROLE OF IT E-Business Stages of E-Business

• Advantages & Disadvantages IT Risk & Control Continuity Planning Disaster Recovery Planning Market Restructuring

Intranet & Extranet Supply Chain Management

• Upstream SCM – E-Procurement

Components & Benefits • Downstream SCM

– How to Improve – Role of IT to improve

• Re-Structuring Supply Chain Software Solution

• Establishing business information needs • Using generic software solutions • Evaluating and selecting a generic software solution

• Implementation

34

Chapter 9

STRATEGY and PEOPLE Theories of Leadership

• Trait • Behavioural • Transformational • Contingency

Job Design • Scientific Managemet

• Job Enrichment • Japanese Managent

• Re-engineering Succession Planning

40

Chapter 10

PROJECT MANAGEMENT What is Project?

Project Definition • Force Field Analysis

• Gap Analysis • Project Selection

• Risk Assessment and Management • Pre-Initiation Tasks

• Initiation Tasks

42

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4

Business Case • Contents of business Case • Reasons for building business Case

• Identifying the benefits • Identifying the cost • Cost benefit analysis

• Responsibility for delivering Benefit • Benefit Realization Plan

• Benefit dependency Network Project initiation Document (elements)

Project Planning • Why project go wrong?

• Force field analysis • Work breakdown Structure • Project Budget

• Network Analysis • Critical Path Analysis

• Gantt Chart • Resource Histogram

Project Execution • Project Sponsor

• Project manager – Duties

– Skills • Project Owner

• Project Team – Team Development

– Team Roles • Matrix Structure

Controlling the Project • Gateways • Progress Report & Realistic Timescale • Dealing with Slippage (Fast Tracking & Crashing) • Project Change Procedure

Project Completion Post Project Review Post Implementation Review Benefit Realization Review

Chapter 11 Finance 49

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ACCA P3 Business Analysis

1 NCS |School of accountancy Peshawar

CHAPTER 1

BUSINESS STRATEGY 1 MISSION, GOALS, PLANS AND STANDARDS Mission:

“The reason of existence of an organisation is called mission of the organisation” or “The business's basic function in society', is expressed in terms of how it satisfies its stakeholders.” Mission Statement: “Mission statement is a formal document that conveys the mission of the organisation to stakeholders.”

Characteristics of mission statements: Brief; General;

Statement of purpose;

Powerful force for change;

Clarify the mission;

Communicates the mission to stakeholders.

Elements of mission Purpose Values

Strategy

Policies and standards of behavior

Advantages of developing a formal mission statement Determine direction

Unified strategy

Communication of mission to stakeholders

Basis of competition (high quality or cost reduction)

Consistency of Basis of competition

Identify key stakeholders Keep key stakeholders satisfied

help to prevent future misunderstandings

Improves coordination between various departments,

managers and employees.

Disadvantages of developing a formal mission statement

Time consuming Problem in identifying priorities.

May only be used for communication and

ignored by top management. Deter innovation.

Role of mission statement in the strategic planning process Mission statements can play an important role in the strategic planning process, but they are most suitable for companies which follow the full rational planning model. In such companies, a mission statement can influence the way a company implements its planned strategy and it can act as a reference document against which future business plans can be judged. GOALS AND OBJECTIVES

Goals: “The intentions behind decisions or actions' or 'a desired end result.” Objective: “Objective is the more specific goals that support the mission of the organisation.” Characteristics of objectives: SMART. Specific, Measurable, Achievable, Relevant, Time-bound.

PAST EXAMS Bonar Paint June 2007. Question 1.(c): What are the advantages and disadvantages of developing a formal mission statement to guide Bonar Paint’s future direction after the buyout and what role could the mission statement play in the strategic planning process? (15 marks) Hammond Shoes June 2012 Question 1.(c) Advise the Hammond family on the importance of mission, values and objectives in defining and communicating the strategy of Hammond Shoes. (12 marks)

2 WHAT IS STRATEGY OR STRATEGIC PLAN? Strategy: “Long term plan to achieve the objective of the organisation.” Johnson, Scholes and Whittington (JSW) on strategy defined strategy as “the direction and scope of an organisation over the long term, which achieves advantage in a changing environment through its configuration of resources and competencies with the aim of fulfilling stakeholder expectations.” Characteristics of strategic decisions

Determine the long term direction of the company. Are concerned with the scope of an organisation’s activities (i.e. types of products, services and markets).

Aim to match activities to resource capabilities.

Have significant effect on lower-level decisions.

Considers all stakeholders.

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Intended Strategy

Realised Strategy

Deliberate strategy

Unrealised Strategy

Emergent

Strategy

Involve uncertainty about the future, the integration of operations and major change.

Aim to match activities with the firms’ environment:

– Competitive environment (e.g. meeting needs of the market); – Financial environment (e.g. satisfying shareholders’ expectations); – Social environment (e.g. eco-friendly activities).

3 LEVELS OF STRATEGY/STRATEGIC PLANNING

CORPORATE STRATEGY The corporate-level strategy is concerned with the overall purpose and scope of an organization and how value will be added to the different parts (business units) of the

organization. It considers: The firm’s orientation towards growth (known as

directional strategy)

Diversification of organisation’s products and markets (known as portfolio strategy)

Management of strategic business units

(parenting strategy)

BUSINESS STRATEGIES Planning at this level often relates to a strategic business unit (SBU) “A section within a larger business which can perform independently is called

strategic business unit (SBU).” How to achieve competitive advantage in

particular markets?

Planning about the utilization of resources to achieve specific objectives.

FUNCTIONAL (OPERATIONAL) STRATEGIES Planning at this level relates to the components (departments) of strategic business unit (SBU). It includes planning about resources, processes and people.

4 POSITIONING VERSUS RESOURCE-BASED VIEWS OF STRATEGY The positioning-based view states that strategy development is about identifying opportunities in the

environment and developing strategic capability to take advantage of them. The resource-based view states that Strategies are developed on the unique capabilities of the business, and

opportunities are searched to allow business to exploit these capabilities to achieve competitive advantage. 5 TYPES OF STRATEGY

RATIONAL STRATEGY Strategy is the outcome of a formal (rational) planning process, in which management go through a formal procedure for:

Strategic position analysis Strategic Choice (Identifying and evaluating strategic

options and making strategic choices) Strategic implementation (Implementing the

strategy)

EMERGENT STRATEGY Emergent strategy is strategy that is not formally planned, but develops by emerging different ideas in response to unforeseen changes in the environment and

unexpected opportunities that arise. For example a business develops a new product. A salesman visits a customer and finds that the product isn’t right. So they work out some modifications and after few more rounds the finally get the new product.

INCREMENTAL STRATEGY Incremental strategy is strategy that is developed over time by making small incremental changes to existing strategies. This type of strategy is only ‘safe’ within a stable business environment, where change is slow and gradual.

FREEWHEELING OPPORTUNISM Followers of freewheeling opportunists do not like planning. They prefer to see and capture opportunities as they arise. They are of the belief that planning is too much time consuming.

MINTZBERG 5 TYPES OF STRATEGIES: Mintzberg (The Strategy Process) identified the following. Intended: Result of a deliberate planning process. Deliberate: Intended plans have been put into action. Unrealised: rejected strategy.. Emergent: Strategies developed through ideas addition. Realised: The final realised strategy results from a balance of forces of the other types of strategies.

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6 THE IMPORTANCE OF CONTEXT The context of strategy is the organisational setting in which it is developed.

Small businesses tend to have limited resources and strong competition; Multinationals are more concerned with problems of structure, resource allocation and logistics. Public sector and not for profit organisations are influenced by ideology, politics, and the influence of a range of

stakeholders. Intangible aspects have become very important for companies dealing in physical products. 7 THE STRATEGY LENSES Johnson and Scholes have suggested a slightly different approach to understanding strategy development. They have suggested that there are three different ways of looking at strategy development and, depending on circumstances, each approach might be appropriate.

STRATEGY AS DESIGN Strategy development can be a logical process which consist of analysis of current position, identification of option, evaluation of options, selection of best option and the finally the implementation of that option. ‘Strategy as a design’ is similar to Rational strategy. Characteristics:

Top-down process – senior managers establish a clear course of strategic action as a result of analysing and evaluating strategic options.

Senior management responsibility – senior management is responsible to develop the strategy and lower levels of management is responsible to deliver the operational actions.

Clear objectives – Lack of consultation – Rules based approach Careful in-depth analysis

Strategy based on organizational strengths & resources.

STRATEGY AS EXPERIENCE Adapting current experience – Strategy as experience views strategy as an adaptation and extension of what has worked in the past. It does not look to change the existing strategy but to adapt it, and build on it and as such tends not to be appropriate for major change. Therefore, changes are often incremental as an

organisation adapts to new opportunities or threats in its environment. “Strategy as an experience” is similar to incremental strategy. Characteristics: Strategy through past expeience

May amend existing strategy by not suitable for

major change. Involvement of all levels of management. No change in Culture (paradigm) –

Risk of Strategic drift –

Normally develop when problem occur.

STRATEGY AS IDEAS This approach to strategy emphasises innovation and the need for new ideas. These ideas can emerge from all levels

of an organisation, not just from senior management. “Strategy as ideas” is similar to emergent strategy. Characteristics: Innovations Environmental based High cost strategy

Rapid change Team work Suitable for major change. Ideas in a time of change – The ideas lens suggests that strategy can emerge from the way people in an

organisation respond to changing forces in the organisation and the environment. Context for ideas – To be successful at generating ideas there must be a culture and context which encourage

staff to generate ideas and to embrace change. Drivers for change – Rapidly changing environment increase the need of innovative ideas.

PAST EXAMS National Museum December 2008. Question 1.(c) Johnson, Scholes and Whittington identify three strategy lenses; design, experience and ideas. Examine the different insights each of these lenses gives to understanding the process of strategy development at the National Museum. (10 marks) Midshire Health June 2013 Question 1.(b) Johnson, Scholes and Whittington identify three strategy lenses: design, experience and ideas. Evaluate the strategic planning project at MidShire Health through each of these three strategy lenses. (10 marks)

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CHAPTER 2

ENVIRONMENTAL ANALYSIS

1 Analysing Macro-Environment (PESTEL Analysis) The environmental analysis will be carried out using the PESTEL model to consider the political, economic, social, technological, environmental and legal factors that affect abc ltd. Political Factors: Govt. policies effects the planning activities of organization.

Govt policies includes Fiscal policy (taxes, borrowing, spending), Monetary policy (interest rates, exchange rates) and Size and scope of the public sector.

Economical Factors: These operate in both a national and international context. Relevant factors include: Inflation rates, Growth/fall of GDP, Employment rates, Savings levels, Interest rates, Exchange rates, Tax levels, International trade, The business cycle Capital markets

Social Factors: It includes both social and cultural factors. E.g. Age distribution, Health of people, Wealth, Taste of

people, People class, Life style changes, Age group, Gender, Attitude of work, Religion. Culture in society provides a framework for understanding beliefs and values, and creates patterns of human activity. It influences tastes and lifestyles.

Technological factors: Technological developments affect all aspects of business. New products & services become available, New methods of production and service provision, New ways of selling (e-commerce); Improved handling of information in sales and finance, New organisation structures to exploit technology, New media for communication with customers and within business (eg Internet and email); facilitates bu siness becoming global.

Environmental: Environment is important for logistical reasons, as a source of resources, and because of increasing regulation. Pressure coming from many quarters: Green pressure groups, Legislation, Employees, Environmental risk screening, Corporate Social Responsibility. Possible green issues for businesses to consider: Consumer demand for environmentally friendly products, Greater

regulation by governments and international bodies, Businesses may be charged for the external cost o f their activities, Scarcity of non-renewable resources, Sustainability of operations. Opportunities to develop new environmentally friendly products and technologies

Legal: There are laws & Regulations related to every organization and influence their strategic planning. E.g. Company law, Employment law, Health & safety law, Data protection Act, Crimes law, Legal framework, Environmental law, Tax law, Accounting or reporting law, marketing law.

PAST EXAMS

National Museum December 2008. Question 1.(A) Analyse the macro-environment of the National Museum using a PESTEL analysis. (20 marks) Wetland June 2010 Question 1.(A) The new CEO, Sheila Jenkins, recognises that she should understand the strategic position of WET before considering str ategic options and changes. She wants a concise assessment of the strategic position; covering environment, strategic capability, stakeholder expectations and organisational mission. Undertake the assessment, required by Sheila Jenkins, of the strategic position of WET. (25 marks)

Eco Car June 2011. Question 1.(A) Universal Motors have explicitly recognised the need for analysing the external macro-environment and marketplace (industry) environment of EcoCar. Analyse the external macro-environment and marketplace (industry) environment of EcoCar. (16 marks) (b) Universal motors is considering outsourcing the EcoLite model to an overseas manufacturer, whilst retaining in-house production of Eco and EcoPlus models. Evaluate financial and non-financial case for and against the outsourcing option. (15 marks) (c) Three weaknesses identified by Universal Motors are (1) lack of control and co-ordination, (2) research & development – succession and learning and (3) the understanding of risk. Analyse how each of these three weaknesses might be addressed at EcoCar. (15 marks) GET December 2011. Question 1.(A) Using appropriate models analyse GET’s current strategic position from both an internal and ex ternal perspective. (20 m)

Moor Farm December 12. Question 2.(A) Evaluate the strategic position of the estate with specific reference to the expectations of stakeholders, to the external environmental factors beyond the control of the estate and to the strategic capabilities of the estate itself. (15 marks)

2 Analysing Competitive Environment (Porter Five Forces Analysis) Porter's five forces model is a framework for analysing the competitive environment; it includes threat of new entrants;

substitute products; the bargaining power of customers; the bargaining power of suppliers; competitive rivalry . Porter suggest that competitive forces influence the state of competition in an industry, and collectively determine the profit potential of the industry as a whole.

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Threat of new entrants (and entry barriers to keep them out): A new entrant into an industry will bring extra capacity and more competition (and so could, in turn, drive down profits). This threat depends upon entry barriers

which includes: Economies of scale, Product differentiation, Switching costs, Access to distribution, Patent rights, Access to resources, capital requirement.

The threat from substitute products: A substitute is produced by a di fferent industry but satisfies the same need. Threat will be

high if: Our product is expensive, Indirect customer relation, Our product has less beneficial or our product has less features, switching cost is low.

The bargaining power of customers: Customers want better quality products and services at a lower price. Satisfying this want might force down the profitability of suppliers in the industry. Power will be high if: Recession in industry, customer has complete information, Few buyers, Bulk buying by customer, Low brand loyalty, Low demand, Many substitute products.

The bargaining power of suppliers: Suppliers can exert pressure for higher prices. The ability of suppliers to get higher prices depends on several factors E.g. Small no. of suppliers, If difficult to change supplier due to contract, If

supplier does not depends upon our business, customer has high switching cost, supplier has differentiated product.

The rivalry amongst current competitors in the industry: competitive rivalry within an industry will affect the profitability of the industry as a whole and boost the competition. Rivalry will be high if: Fixed cost of production, Industry recession, High customer bargaining power, Un-differentiated product or service, Low demand but many suppliers, Same product or services as competitor.

3 Scenario Planning: Scenarios are a tool to allow managers to envisage alternative futures in highly uncertain business environments. Scenario is a detailed and consistent view of how the business environment of an organisation might develop in future. Scenarios are built with reference to key influences and change drivers in the environment. They inevitably deal with conditions of high uncertainty, so they are not forecasts: instead, they are internally consistent views of potential future conditions.

For the scenarios to be most use the influencing factors should be: Limited to a few significant ones

Largely out of the control of the organisation. Macroeconomic forces are usually outside the control of the organisation and it can only react to, not influence, them

Scenario construction (Mercer)

Identify drivers of change

Arrange drivers in a viable framework Produce 7-9 mini-scenarios

Group mini-scenarios into 2-3 comprehensive scenarios

Write up the scenarios Identify issues arising, and what they mean to the

business

Factors which could be used to develop scenarios could be for example: Change to the economic climate.

Competitor response.

Conventional supermarket approach.

Impact of IT developments:

4 Forecasting: Sound knowledge of the environment requires some element of forecasting. The past is not necessarily a good guide to the future, but in simple, static conditions time series analysis and regression analysis can be used. Economic forecasting uses leading indicators to assess future economic conditions. We will discuss in finance chapter.

PAST EXAMS

AutoFone June 2008. Question 1.(A) Using an appropriate model or models, analyse the competitive environment of AutoFone’s retail shops division. (16 marks) ABCL December 2009 Question 1.(A) Xenon usually analyses an industry using Porter’s five forces framework. Using Porter’s framework, analyse the business analysis certification industry (BACTI) in Erewhon and assess whether it is an attractive market for ABCL to enter. (20 marks) Nesta June 2013. Question 2.(A) [Porter 5 forces & scenarios] (a) Use Porter’s five forces to assess attractiveness, to NESTA, of entering discount fixed-price retail market in Eurobia. (15 marks) (b) Discuss the potential use of scenarios by NESTA’s managers as part of their analysis of NESTA’s possible entry into the discount fixed-price retail market in Eurobia. (10 marks) Eco Car June 2011. Question 1.(A) Universal Motors have explicitly recognised the need for analysing the external macro-environment and marketplace (industry) environment of EcoCar. Analyse the external macro-environment and marketplace (industry) environment of EcoCar. (16 marks)

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Wetland June 2010 Question 1.(A) The new CEO, Sheila Jenkins, recognises that she should understand the strategic position of WET before considering strategic options and changes. She wants a concise assessment of the strategic position; covering environment, strategic capability, stakeholder expectations and organisational mission. Undertake the assessment, required by Sheila Jenkins, of the strategic position of WET. (25 marks) GET December 2011. Question 1.(A) Using appropriate models and frameworks, analyse GET’s current strategic position from both an internal and external perspective. (20 marks)

5 Porter’s Diamond Porter suggests that some nation’s industries are more internationally competitive than others and this is due to the conditions in that country that may help firms to compete. This means that the location of the company can play a big part in establishing international competitive advantage. Porter’s Diamond consists of four main determinants of competitive advantage.

Factor conditions: These are factors, such as unskilled labour, material, natural environment, skilled labour,

transport infrastructure that are necessary for firms to compete in a given industry. Demand conditions: Demand conditions are concerned with the level of demand by consumers for a particular

product or service in a company's home market. Customer satisfaction in its home market may help when anticipating and satisfying buyer requirements in comparable overseas markets.

Related and supporting industries: Related and supporting industries within a country are those which help to underpin the performance of organisations in a particular industry.

Firm strategy, structure and rivalry The final component of the 'diamond' model concerns firm strategy, structure and rivalry. Porter identified that significant rivalry in a given market encourages competitors to continually develop their own products and services in order to maintain competitive advantage.

PAST EXAMS

Joe Swift Transport June 2010. Question 2.(B) Porter’s Diamond can be used to explore the competitive advantage of nations and could be a useful model for Joe Swift to use in his analysis of countries that he might move his company to. Examine using Porter’s Diamond (or an appropriate alternative model/framework) the factors which could influence Swift’s decision to move a large part of its logistics business to Ecuria. (10 marks) MachineShop December 2013 Question 1.(C) Dave Deen has heard about Porter’s ‘diamond’ and wants an explanation of the principles, relevance and application of this model. Explain the principles of Porter’s ‘diamond’ and use it to assess the relative attractiveness of Ceeland and Arboria in providing an environment in which MachineShop’s growth ambitions could be achi eved. (10 marks)

6 Industrial Analysis Industry: “An industry is a group of firms producing the same product or products that are close substitutes for one another.” Sector may be used in a similar way in public and not-for-profit services. The intensity of competition will vary between industries according to the nature of what is being traded.

Primary industries: (involved in agriculture, forestry and extraction of minerals including oil) Competitive forces tend to be stronger in primary industries because of undifferentiated products, Large number of producers, High level of fixed and unavailability of alternative products.

Secondary industries: (processing materials by manufacture into final finished products) Profits will tend to be greater than primary industries due to differentiated product, less number of producers.

Factor Conditions

Related and Supporting industries Demand Conditions

Firm Strategy, Structure and Rivalry

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Tertiary industries (Industries engaged in the provision of services) In some tertiary industries high degrees of differentiation allow high profitability. Examples include accounting and

business services, football and entertainment and some retailing. Other tertiary industries feature intense competition and low profitability, eg logistics and parcel delivery, office cleaning, call Centre services.

Strategic groups

A strategic group is a number of entities that operate in the same industry and that have similar strategies or that are competing in their markets in a similar way. When there are many competitors in the industry, it can simplify the analysis to put them into strategic groups of entities with similar resources and similar strategies. For the purpose of competitor analysis, all the entities in the

same strategic group can then be treated as if they are a single competitor. Instead of analysing each competi tor individually, they can be analysed collectively, in groups. Strategic space When these groupings are analysed, a strategic space might become apparent. A strategic space is a gap in the market that is not currently filled by any strategic group. The existence of strategic space might provide an opportunity for a company to make a strategic initiative, and attempt to fill the space that no other rivals occupy. CONVERGENCE:

Convergence occurs when two or more industries or markets that were separate pr eviously now converge to become parts of a larger single industry or market Convergence in substitutes: Where one technology can replace another. E.g mobile and landline phones Convergence in complements: Two technologies which are complementary to each other work better together Demand-led convergence: With demand-led convergence, the pressure for industry convergence comes from

customers. Customers begin to think of two or more products as interchangeable or closely complementary. Supply-led convergence: With supply-led convergence suppliers see a link between different industries and decide

to bridge the gap between the industries. The convergence of the entertainment, voice communication and data communication industries, is probably supply-led, because suppliers became aware of the technological possibilities before consumers became aware of the convenience.

SUSTAINING COMPETITIVE ADVANTAGE

Once competitive advantage is achieved then it needs to be preserved over time?

Sustaining Price-Based Strategies Price based strategy can be sustained as follows: Continually drive down costs;

Substantial financial resources;

Winning Price Wars Concentrating on price conscious market.

Sustaining Differentiation Differentiation based strategy can be sustained as follows: Attempts at imitation can be blocked, e.g. licensing;

Some resources are immobile (intangible, e.g. in case of

brands);

Lock-in: Lock-in is achieved in a market place when a company’s product or service becomes the industry standard, e.g. Microsoft has achieved this position in the market for PC operating systems. Dominance in the market (in terms of market share). • First mover advantage (early in the product life cycle);

Hyper competition

Hyper competition is a condition of constant competitive change. It is created by frequent, boldly aggressive competitive moves. E.g. Repositioning on the strategy clock, Try to get first mover advantage, find new distribution ways, Rapid technological improvement. This state makes it impossible for a firm to create lasting competitive advantage. 7 Marketing and Marketing Process “The management process which identifies, anticipates and supplies customer requirements efficiently and profitably”

7.1 MARKET ANALYSIS

Market analysis helps to make appropriate marketing strategy. It includes: Appraisal and analysis of present situation Definition of future targets, Evaluation of possible marketing strategies. Purpose of analysis: Identify gaps in market where customer needs are not being met and identify opportunities to increase sales, no of products etc. 7.2 CUSTOMER ANALYSIS

It consists of segmentation, motivation and unmet needs.

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MARKET SEGMENTATION “A market segment is a group of customers who have similar needs that are different from customer needs in other parts of the market.”

Identifying target Segment – (biggest, most profitable existing and potential customers whose needs are unmet.) Consumer segmentation bases: Geographic variables, Demographic variables (age, gender, income, education), Psychographic variables (personality, lifestyle, values and attitudes), cost conscious or quality conscious etc. Motivation: Concerns with customers’ preference. Unmet needs of customer: 7.3 TARGETING

Targeting involves selecting the best market segments. The attractiveness of a market segment depends on it being: • Measurable: The ability to forecast the sales or market potential of the segment. • Accessible: The ability of the firm to make and distribute a product. • Stable: Likelihood that the segment will persist for sufficient time to enable a return on investment.

• Substantial: The profits available will give an adequate return on capital employed. • Defensible: There should be barriers to entry to allow the firm some measure of dominance. 7.4 THE MARKETING MIX (Developed for every targeted segment)

The marketing mix is a term used to describe a collection of tools that can be used to construct a detailed marketing strategy. It is a set of controllable marketing variables that a firm uses to influence a target market. The marketing mix comprises: Product; Price; Promotion; Place. For services you will need to add: People, Processes and Physical evidence. PRODUCT Marketing issues relevant to products are Brand name, Packaging, Features, Options, Quality, Warranty and Augmented Service, Sample products, Online courses, Product updates PRICE Price must set by taking a number of factors into consideration: Economic influences; Competitors’ prices; Brand;

Quality; Discounts; Payment terms; Delivery options; Product life cycle. 4Cs Cost; Customers (what are they willing to pay?); Competitor, Corporate objectives Pricing methods • Penetration pricing – a low price is set to gain market share. • Perceived quality (or prestige) pricing – a high price is set to reflect/create an image of high quality. • Periodic discounting – this is a temporary reduction in prices for a limited period such as a 'Holiday Sale'. • Price discrimination – different prices are set for the same product in different markets, e.g. peak/off peak rate. • Going rate pricing – prices are set to match competitors. • Price skimming – high prices are set when a product is new and reduced later. • Negotiated pricing – the price is established through bargaining between the seller and the customer. • Loss leaders – one product may be sold at a loss to attract customers to buy other profitable products.

• Bundle pricing – two or more products, usually complementary, are packaged together and sold for one price. • Cost plus pricing – the cost per unit is calculated and then a markup added. PROMOTION Promotion is all about communication, thus informing customers about the product and convincing them to buy it. Push Technique: Ensuring products/services are available to consumers by encouraging intermediaries. Pull Technique: Persuading the ultimate consumers to buy Types of promotion: There are four main types of promotion ('the communication mix'): a) Advertising: It includes television, magazines, newspapers, internet, billboards by the side of roads.

b) Sales promotion (e.g buy one get one free)

c) Personal Selling: Personal selling is when a salesman goes around spending time with potential customers trying to persuade them to buy.

d) Public Relations: Public relations usually means good mentions in the press. Sometimes there are charitable activities where a local firm has made some sort of donation or lent some sort of equipment.

PLACE (DISTRIBUTION) How the product will be sold or distributed: e.g. transport decision, Direct distribution or distribution through a retailer,

online sales etc. Where the products will be sold or distributed: Intensively (in every big supermarket), selectively (only in pharmacies) or exclusively (only in one particular shop in town).

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THE EXTENDED MARKETING MIX (Additional 3Ps for marketing of services)

People

Employees are particularly important in service marketing. Front-line staff must be selected, trained and motivated with particular attention to customer care and public relations. In some services, the physical presence of people performing the service is a vital aspect of customer satisfaction. The staff involved are performing or producing a service, selling the service and also liaising with the customer to promote the service, gather information and respond to customer needs. Staff must have well: Appearance/behavior, Attitude/professionalism, Knowledge/skills, Commitment. Processes (by which marketing tasks are achieved) Efficient processes can become a marketing advantage in their own right. For example, automated telephone booking and ticketing systems for cinemas. Factors include: Procedures/policies; Information/accessibility; Capacity/volume; Automation/mechanisation; Speed/timing; Queuing. Physical evidence

Services are intangible: they have no physical substance. The customer has no evidence of ownership and so may find it harder to perceive, evaluate and compare the qualities of service provision. This could be addressed through physical representation such as tickets and programs relating to entertainment, or by incorporating evidence into the design and specification of the service environment such as decor, colour scheme, noise levels, background music, fragrance, furnishings, uniforms, paperwork; labeling, tickets, logos.

PAST EXAMS

The Management Press December 2010. Question 2.(b) (b) Evaluate how e-business might help TMP exploit each of the five elements of the marketin g mix (price, product, promotion, place and physical evidence) identified by the marketing director. (20 marks) ISD December 2011 (a) Identify and discuss the factors that need to be taken into consideration when pricing the e-learning product. (15 marks)

8 E-MARKETING Identifying and meeting customer needs by using digital technologies.

DIFFERENCE BETWEEN TRADITIONAL AND E-MARKETING 6 I’s:

The 6 I’s summarises the main differences between the new media and traditional media Interactivity

Interactivity is a significant feature of the new media, allowing a long-term dialogue to develop between the customer and the supplier. In the context of the web site, this is likely to be through e-mails, providing the customer with information and special offers for their areas of specific interest. To initiate this dialogue the web site must capture information such as e-mail address, name, age, gender and areas of interest.

Intelligence Intelligence has also been a key feature of the new media – allowing the relatively cheap collection of marketing research data about customers’ requirements. This is routinely available from web logs and these logs need to be viewed and analysed using appropriate software. This type of analysis is rarely available in the traditional media.

Individualisation Another characteristic of electronic media is that they allow marketing messages to be tailored to specific market segments, whereas with traditional media a single message is sent to all market segments.

Independence of location Independence of location allows a company to move into geographical areas that would have been unreachable before. The Internet effectively provides a world wide market that is open 24 hours per day, seven days per week. It is difficult to think of any traditional media which would have permitted this global reach so cheaply.

Integration Integration of all marketing activities under one umbrella using new technology makes marketing more valuable and cost effective. The Web`s interactive nature can be exploited gathering customer information, obtaining customer feedback, using existing knowledge about the customer … and using it.

Industry restructuring

Industry restructuring looks at redesigning business processes, finding new market segments and expanding marketing boundaries. • Reintermediation – new intermediaries created through re-intermediation. Reintermediation is particularly

common in the travel industry, where on-line reintermediaries are replacing traditional travel agents.

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• Disintermediation – is there an option for selling direct? While disintermediation gives a company the opportunity to sell direct and increase profitability on products, it can also threaten distribution arrangements

with existing partners.

PAST EXAMS

Cronin Auto Retail June 2011 (a) Evaluate how the principles of interactivity, intelligence, individualisation and independence of location might be appl ied in the e-marketing of the products and services of CAR. (16 marks) Accounting Education Consortium June 2008 (a) Explain, in the context of AEC, how the marketing characteristics of electronic media (such as the Internet) differ from those of traditional marketing media such as advertising and direct mail. (10 marks) (b) Evaluate how the marketing manager might use electronic marketing (including the Internet) to vary the marketing mix at AEC. (15 marks) (Total = 25 marks)

9 Branding Definition: “A brand is a name, term, sign, symbol, design or a combination of there, which is used to identify the

goods or services of one seller or group of seller and to differentiate them from those of competitors.” E-Branding Strategies • Carry out exactly the same branding on website as on other places. • Offer slightly amended product but still connected to original brand • Form a partnership with existing brand. • Create an entirely new brand. 10 CUSTOMER RELATIONSHIP MANAGEMENT CRM is an approach to building and sustaining longterm business with customers.

ECRM is the use of digital communications technology to maximise sales to existing customers and encourage con

tinued usage of online services. CRM Stages: (The customer lifecycle)

1) Customer selection defining what type of customer is being targeted.

Who are we targeting?

What is their value?

Where do we reach them?

3) Customer retention – keeping existing customers. Emphasis on understanding customer needs better to

ensure better customer satisfaction. Use offers to reward extended website usage.

Ensure ongoing service quality right by focusing on

tangibles, reliability, responsiveness, assurance and empathy.

2) Customer acquisition – forming relationships with new customers.

Need to target the right segments.

Try to minimise acquisition costs. Methods include

traditional offline techniques (e.g. advertising, direct mail) and online techniques (e.g. search engine marketing, online PR, online partnerships, interactive adverts, optin email and viral marketing)

Service quality is key here.

Choice of distribution channel also very important

4) Customer extension (or ‘customer development) – increasing the range of products bought by the customer.

"Resell" similar products to previous sales

"Crosssell" closely related products

"Upsell" more expensive products

PAST EXAMS

Chemical Transport June 2013 (b) Requesting and tracking information could be the first part of a comprehensive customer relationship management (CRM) system. Evaluate how CT could use a CRM system to acquire and retain customers. (10 marks)

CHAPTER 3

STRATEGIC CAPABILITY 1 STRATEGIC CAPABILITY “Strategic capability reflects the ability of an entity to use and exploit the resources and competences required by an

organisation to survive and prosper.” OR “The adequacy and suitability of resources and competences of an organisation to survive and prosper.”

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Capability

Resources (Tangible and intangible) Competence

Threshold Resources Unique Resources Threshold Competence Core Competence

RESOURCES: (Asset, skill or item of knowledge that is controlled by the entity.) Threshold resources (meet customer’s minimum

requirements and are needed for survival) Unique resources: (Underpin competitive

advantage and are difficult for competitors to

imitate or obtain.)

COMPETENCES: (ability to utilize its resources effectively) Threshold competencies (meet customer’s minimum

requirements and are needed for survival) Core Competences: (Underpin competitive advantage

and are difficult for competitors to imitate or obtain.)

Resources and Competences includes: 9M Money, Management, Manpower, Material,

Machinery Make-up (Structure. Patents. Goodwill. Brands.), Management information, Market (position, share; Image, reputation and brand loyalty), Methods

Remember:

If competitive advantage is to be based on core competence and strategic capabilities, the capabilities must have four key qualities: Offer value to buyers – contribute to customer needs

Rare – can create competitive advantage by itself

Robust (difficult to imitate) – l inking of processes and

activities in ways that cannot be copied

Non substitutable – substitute products and competences

are a key threat

Cost Efficiency

Cost Efficiency is fundamental to strategic capability for both public and private sector organisations. It is regarded as a

threshold competence (vital for mere survival) and is achieved in four main ways: a) Economies of Scale– reducing costs per unit b) Control of the cost of incoming supplies – transport costs; supplier relationships c) Careful design of products and processes – minimising direct and indirect costs d) Exploitation of experience effects – learning curve effects; outsourcing

PAST EXAMS

Wetland Trust June 2010. Question 1.(A) (a) The new CEO, Sheila Jenkins, recognises that she should understand the strategic position of WET before considering strategic options and changes. She wants a concise assessment of the strategic position; covering environment, strategic capability, stakeholder expectations and organisational mission. Undertake the assessment, required by Sheila Jenkins, of the strategic position of WET. (21 marks) (b) Problems with the current membership renewal process include: – The low response to payment requests – The despatch of renewal reminders for people who have already paid – The failure to send renewal invoices to some members Analyse faults in the current membership renewal process that cause the problems identified above. Suggest solutions that would remedy these faults. (15 marks) (c) Sheila Jenkins sees customers as ‘both prospective and existing members, volunteers and donors of WET’. She also wishes to gain increased revenue from each member and donor. Evaluate how email and website technology might facilitate the acquisition and retention of WET’s customers and support WET's aim to gain increased revenues from members and donors. (10 marks) Moor Farm December 2012 Question 2.(A) Evaluate the strategic position of the estate with specific reference to the expectations of stakeholders, to the external environmental factors beyond the control of the estate and to the strategic capabilities of the estate itself. (15 marks)

Exam Focus: Please solve capability analysis by using strength and weaknesses analysis. E.g. I have assessed the strategic capability of WET ltd. by identifying the strengths and weaknesses of the organisation. Strengths: Internal Positive Points. Weaknesses: internal Negative Points

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2 CSF & KPIS CRITICAL SUCCESS FACTORS (CSFs)

“The factors critical for the success of an organisation i.e. ‘things that must go right’ OR “Those product features that are particularly valued by a group of customers” Examples of critical success factors: • Profitability • Market share • Growth • Innovation • Productivity • Quality of product • Customer satisfaction KEY PERFORMANCE INDICATORS (KPIs):

“KPIs can be used to measure the critical success factors by using; • Quantitative Measures (e.g. ROCE) • Qualitative Measures (e.g. Market Share) • Relative or Absolute (e.g. complaints per customer or no of complaints) • Value for Money (e.g. value generated vs cost incurred used by not for profit organisations)

Be careful: A critical success factor is not a key performance indicator (KPI). Critical success factors are elements that are vital for a strategy to be successful. KPIs are measures that quantify objectives and enable the measurement of strategic performance.

PAST EXAMS

GET December 2011. Question 1.(C) (c) Critical Success Factors (CSFs) and Key Performance Indicators (KPIs) are important business concepts in the context of franchising rail services. Explain and discuss these concepts in the context of GET and the rail i ndustry. (10 marks)

3 KNOWLEDGE MANAGEMENT AND ORGANISATIONAL LEARNING KNOWLEDGE

Data: Raw facts and figures. Information: Processed data which is useful is called information. Knowledge: Johnson, Scholes and Whittington define organisational knowledge as the ‘collective and shared experience accumulated through systems, routines and activities of sharing across an organisation’.

Managing organisational knowledge is important because as organisations get larger, it becomes more difficult to share what people know. The organisation increasingly does not ‘know what it knows’ and so it makes unnecessary mistakes, duplicates activity and misses opportunities as a result of this. Furthermore, it is also increasingly likely that organisations, will have to achieve competitive advantage through accumulated experience (their knowledge). Knowledge management itself has been facilitated by the increasing functionality of computerised information systems. Explicit knowledge is knowledge that the company knows that it has. This includes facts, transactions and events that can be clearly stated and stored in management information systems. Tacit knowledge is personal knowledge and expertise held by people within the organisation that has not been formally documented. Knowledge management is the process of discovering, Recording, Sharing, Levering (using knowledge acquired for one

purpose for another purpose) and Maintaining knowledge to ensure that the knowledge is up to date.. ORGANISATIONAL LEARNING

A learning organisation actively creates, captures, transfers, and mobilises knowledge to enable it to adapt to a changing environment. • Capturing individual learning is the first step to making it useful to an organisation. There are many methods for

capturing knowledge and experience, such as publications, activity reports, lessons learned, interviews, and presentations. Capturing includes organising knowledge in ways that people can find it; multiple structures facilitate searches regardless of user’s perspective (e.g., who, what, when, where, why, and how). Capturing also includes storage in databases, or libraries to insure that knowledge will be available when and as needed.

• Transferring knowledge requires that it be accessible to everyone when and where they need it. In a digital world, this involves browser-activated search engines to find what one is looking for. A way to retrieve content is also

needed, which requires a communication and network infrastructure. • Mobilising knowledge involves integrating and using relevant knowledge from many, often diverse, sources to

solve a problem or address an issue.

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Further Explanation: Strategic drift will take place when changes in an organisation’s environment take place at a greater rate than the rate

of strategic change within the organisation itself. In such circumstances, the organisation begins to be increasingly misaligned with the environment it is operating in. The challenge is to try to ensure that misalignment does not occur in the first place, but if it does, to tackle it quickly. The likelihood of strategic drift suggests that the strategy development process in an organisation needs to encourage people to have the capacity and willingness to challenge and change their core assumptions and ‘ways of doing things’. This is one of the commonly claimed principles of a ‘learning organisation’. Traditionally, organisations have been organised and structured around order and control. This is unsuitable for the dynamic environment. ‘We must become able not only to transform our institutions, in response to changing situations and requirements; we must invent and develop institutions which are ‘learning systems’, that is to say, systems capable of bringing about their own continuing transformation.’ (Donald Schon) A learning organisation is one which is capable of continual regeneration based on the knowledge, experience and

skills of individuals working in an organisational culture which encourages mutual questioning and challenge. It emphasises the potential capability of an organisation to regenerate from within. The learning organisation is an ‘ideal’ towards which organisations should evolve in order to respond to contemporary pressures. It is characterised by a view that both collective and individual learning is key to organisational success. Advocates of the learning organisation suggest that the collective knowledge of all the individuals within an organization greatly exceeds what the organisation ‘knows’ in its formal documentation, filing and information systems. They suggest that it is the responsibility of management to encourage processes which reveal the knowledge of individuals and encourage the sharing of this knowledge. Hence the learning organisation is closely connected with the principles of knowledge management. As a result of free-flowing knowledge, individuals within an organisation become more sensitive to the changes happening around them and this helps them contribute to identifying opportunities and threats in the external environment and also to them developing strategies to tackle these threats or to exploit the opportunities.

Questioning and challenging the ‘taken-for-granted’ is essential if an organisation is to avoid strategic drift. It helps build an organisation which does not take success for granted and reinvents itself using internal capabilities to build a new business model. 4 BENCHMARKING Benchmarking involves gathering data to allow current performance to be identified and evaluated against best practice or past performance. Types of benchmarking There are various types of benchmarking such as: Internal • competitive/Industry

activity (comparing with other organisations not necessarily the competitor)

generic (if process is unique then this process will be compared against conceptually similar process)

Benefits

Improve performance Improve competitive position

Continuous improvement

Facilitate organizational learning

Drawbacks

Don’t always identify reasons for poor/good performance. Demotivation for staff if they consider it a weakness identifying activity.

May ignore innovation

Focus on doing things right rather than doing the right thing

Does not identify the reasons why performance is at a particular level, it

just states whether good or bad.

PAST EXAMS

The EA Group December 2012

(c) Discuss the principles, together with the advantages and the disadvantages, of benchmarking in the context of Steeltown Information Technology. (10 marks)

5 ANALYSING PORTER'S VALUE CHAIN Porter's value chain groups the various activities of an organisation into value activities in order to illustrate how the organisation creates value. Primary activities are the activities involved in making the product, selling it, and providing the customer with the product and after-sales service and assistance. Support activities provide purchased inputs, human resources, technology and infrastructural functions to support the primary activities.

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If the organisation is successful, it will create a margin. This margin is the excess that the customer is prepared to pay over the cost to the firm of obtaining resource inputs and providing value activities. It represents the value

created by the value activities themselves and the linkages between them.

`

Primary activities: Inbound logistics are activities concerned with receiving, storing and distributing inputs to the product or service including materials handling, stock, control, transport, etc. Operations transform these inputs into the final product

or service: machining, packaging, assembly, testing, etc. Outbound logistics collect, store and distribute the product to customers, for example warehousing, materials handling, distribution, etc. Marketing and sales provide the means whereby consumers/users are made aware of the product or service and are able to purchase it. This includes sales administration, advertising and selling. Service (After-sales-service) includes those activities that enhance or maintain the value of a service, such as installation, repair, training and spares.

Support activities: Procurement. The processes that occur in many parts of the organisation for acquiring the various resource inputs to the primary activities. Technology development. All value activit ies have a

‘technology’, even if it is just know -how. Technologies may be concerned direct ly with a product (e.g. R&D, product design) or with processes (e.g. process development) or with a particular resource (e.g. raw materials improvements). Human resource management. This supports all primary act ivities. It is concerned with those activities involved in recruiting, managing, training, developing and rewarding people within the organisat ion. Infrastructure. The formal systems of planning, finance, quality control, information management, and

the structures and routines..

MARGIN is the excess which the customer is prepared to pay for the product (or service) over the cost to the organisation of obtaining resource inputs and adding value.

PAST EXAMS

Perfect Shopper December 2007. Question 3.(A) Describe the primary activities of the value chain of Perfect Shopper. (5 marks) Independent Living December 2009. Question 2.(A,B) (a) Analyse the primary activities of the value chain for the product range at IL. (10 marks) (b) Evaluate what changes IL might consider to the primary activities in the value chain to improve their competitiveness, whilst continuing to meet their charitable objectives. (15 marks) Jayne Cox Direct June 2012. Question 4.(A,B) (a) Analyse the existing value chain, using it to highlight areas of weakness at Jayne Cox Direct. (12M) (b) Evaluate how technology could be used in both the upstream and the downstream supply chain to address the problems identified at Jayne Cox Direct. (13 marks)

6 VALUE SYSTEM / VALUE NETWORK A single organisation rarely undertakes in-house all of the value activities from design through to delivery of the final

product or service to the final consumer. so any one organisation is part of a wider value network. The value network is the set of inter-organisational links and relationships that are necessary to create a product or service. So an organisation needs to be clear about what activities it ought to undertake itself and which it should not and, perhaps, should outsource.

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Figure : Product life cycle

Linkages Porter suggests that value-adding activities occur in sequence in supplier, firm and customer value

chains. By analysing and understanding these linkages between value chains, a firm can add more value by “stealing” a value-adding activity from another value chain.

7 ANALYSING PRODUCTS: THE PRODUCT LIFE CYCLE Product life cycle: The product life cycle is an attempt to recognise dist inct stages in a product's life. Profitability and sales of a product be expected to change over time. The product life cycle varies from product to product depending upon type and characteristics of the product. Some products may have long life cycles but others may short.

Features Introduction Growth Maturity Decline

Competition Few players

Many new entrants

and mergers/ takeovers. Fight for market share

Shakeout leaves, only a few large players

Heavy discounting and price wars

Demand Usually higher income buyers

Increasing market Penetration

Growth rate falls, Well

informed, demanding & repeated buyers.

Falling demand

Technology Nonstandard Narrow range of technologies applied

All competitors have knowledge of market

All competitors have knowledge of market

Product Characteristics

Differences in choice, Inconsistent quality

Improvement in the design and quality

Standardisation of products with only small differentiations

Less emphasis on product differentiation

Production Processes

Short production runs with specialized distributors

Mass production Overcapacity begins to develop; long production runs

High incidence of overcapacity

Difficulties of the product life cycle concept Only indicates where the product/market is now – not where it will be.

Nice theory, not much use in application – cannot be used for forecasting, because it is not known how long

each phase will last. All different shapes – life cycle patterns are very variable.

Does not cater for products which fail during development/introduction. Does not cater for products which seem to be mature forever.

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PAST EXAMS

Rock Bottom June 2009. Question 2.(A) (a) Analyse the reasons for Rock Bottom’s success or failure in each of the three phases identified in the scenario. Evaluate how Rick Hein’s leadership style contributed to the success or failure of each phase. (18 marks)

8 CORPORATE APPRAISAL (SWOT ANALYSIS) Current posit ion of an organizat ion can be evaluated by using SWOT analysis which consists of strengths, weaknesses, opportunities and threats.

Internal appraisal should identify • Brand • Functionality of website • Regional presence • Employees motivation/ demonization • Safety record • marketing expenditure • Ordering process

• Patent • manufacturing capacity • Expertise • Location • Cost • Core competenc es • Management team • Financial position • liquidity

External appraisal should identify All points of PESTEL, Porter Five forces, Porter Diamond,

If Positive If Negative Favorable Unfavorable

Strengths Weaknesses Opportunities Threats

PAST EXAMS Oceana National Airline December 2007. Question 1.(A)

(a) Using the information provided in the scenario, evaluate the strengths and weaknesses of ONA and their impact on its performance. Please note that opportunities and threats are NOT required in your evaluation. (20 marks) Green TechJune 2009. Question 1.(A)

(a) Evaluate the current strategic position of greenTech using a SWOT analysis. (12 marks) GET December 2011. Question 1.(A)

(a) Using appropriate models and frameworks, analyse GET’s current strategic position from both an internal and external perspective. (20 marks) ReInk Co June 2014. Question 1.(A)

(a) Undertakes a SWOT analysis of ReInk Co. (20 marks)

9 TOWS MATRIX The TOWS matrix is a positioning approach to strategy which builds upon the SWOT analysis and categories

strategic options under the following headings. SO strategies use strengths to overcome opportunities. ST strategies use strengths to counter or avoid threats.

WO strategies address weaknesses so as to be able to exploit opportunities.

WT strategies are defensive, aiming to avoid threats and the impact of weaknesses.

PAST EXAMS

Hammond Shoes June 2012. Question 1.(B) [Q42 BPP Kit] (b) Using an appropriate framework (or frameworks) examine the alternative strategic options that Hammond Shoes could consider to secure its future position. (20 marks) Relnk CO. June 2014. Question 1.(C) (c) And, in the light of your analysis above, recommends possible strategic options for each quadrant of a TOWS matrix of ReInk Co. (12 marks)

CHAPTER 4

STRATEGIC CHOICE 1 Gap Analysis Gap analysis: “A comparison between an entity's forecasted future position (if the business continues with current activity) and the desired future position as set out in strategic objectives.” If there is a gap, the business needs to select new strategy that will ensure the strategic objectives are met.

2 Porter's Generic Competitive Strategies: How To Compete? Porter believes there are three generic competitive strategies: cost leadership, differentiat ion and focus. Cost leadership: “Producing at the lowest cost in the industry as a whole.” Differentiation: “Provision of a product perceived as unique within the industry.”

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Focus: “Focus on one or more particular segments or niches of the market, and does not try to serve the entire market with a single product.”

A cost-focus strategy: aim to be a cost leader for a particular market segment. A differentiation-focus strategy: pursue differentiation for a chosen market segment. Cost Leadership Differentiation Focus

How (examples)

• economies of scale • use of learning effects • large production runs • using cheaper labour and

materials • moving to cheaper premises

• branding • quality & design • innovation • knowledge management • control over suppliers • support

• find a segment where the cost leader or differentiators have little or no presence and build business here

• reduction in product range Benefits • high volumes

• creates a barrier to entry • win price wars • reduced power of substitutes

• builds brand loyalty and repeat purchases

• higher margins • reduction in power of customer

• develops brand loyalty • little competition • often a first step towards

the other generic strategies

Threats • no fallback position if leadership is lost

• larger (possibly from overseas) rivals may enter the market

• strong currency makes imports cheaper

• Not Suitable in recession • Easily copied in long run • constantly innovate • needs much higher marketing

than cost leadership • fewer barriers to entry • smaller volumes

• low volumes • if successful, it attracts cost

leaders and • differentiators • few barriers to entry

Suitability Large organisations with economies of scale

Innovative companies with large marketing budgets

Small business, strong market knowledge and a risk taking attitude (often new starts)

3 The Strategy Clock: (How To Compete?) This approach is based on the assumption that competitive advantage is achieved if a firm supplies customers want better than its competitors. Customer wants consist of combination of cost & quality. Better means a more suitable product or service, or could mean a cheaper one of adequate quality.

4 ANSOFF'S MATRIX: (Product/Market Strategies) Ansoff drew up a matrix describing how a combination of a business's act ivities in current and new markets, with existing and new products, can lead to four different competitive strategies for growth.

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5 DIVERSIFICATION

5.1 CONCENTRIC/ RELATED DIVERSIFICATION:

It means that the new product -market area is related in some way to the entity’s existing products and markets. Horizontal integration

Horizontal integration is development into act ivities which are competitive with or directly complementary to a company’s present activit ies. There are three cases: Competitive products: Taking over a competitor can have obvious benefits, leading eventually towards

achieving a monopoly. Apart from active competition, a competitor may offer advantages such as complet ing geographical coverage.

Complementary products: For example, a manufacturer of household vacuum cleaners moving into

commercial cleaners. A full product range can be presented to the market and there may well be benefits from having many of the components common between the different ranges.

By-products: For example, a butter manufacturer discovering increased demand for skimmed milk. Genera lly,

income from by-products is a windfall to be counted, at least initially, as a bonus.

Advantages Disadvantages

Increased synergies

Offer defence against substitute

Extend company’s product portfolio. Reduce risk of depending on one type of product.

Lack of knowledge of new customers and market.

Need of new strategic capabilit ies

Extra cost to achieve synergies. Difficulty in managing diversified business.

Vertical Integration

Vertical integrat ion occurs when a company becomes its own supplier (backward) or distributor forward). Backward integration: taking over responsibility for upstream processes eg a clothing retailer producing or

designing its own clothes. Forward integration: taking over responsibility for downstream processes eg an electrical goods retailer

setting up its own installat ion, servicing and repairs service.

Advantages • Economies of combined operations. • Economies of internal control. • Information stays confidential.

• Enhanced ability to differentiate. • Creation of barriers to entry.

Disadvantages • Vertical integrat ion increases fixed cost and business risk. • Reduced flexibility to change partners. • Need for additional capital.

• Differing managerial requirements.

5.2 CONGLOMERATE/UNRELATED DIVERSIFICATION

Diversifying into completely unrelated businesses.

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Not clear where added value comes from – except if an ailing business is turned round.

Often leads to loss of shareholder value.

ADVANTAGES DISADVANTAGES Increased flexibility

Increased profitability

Ability to grow quickly

Better access to capital markets

Avoidance of antimonopoly legislation

Diversification of risk

No synergies

No addit ional benefit for shareholders

No advantage over small firms

Lack of management focus

6 METHODS OF DEVELOPMENT 6.1 ORGANIC GROWTH

Internal development – also known as organic growth – is achieved through an organisation developing its own internal resources.

Advantages Best understanding of market &product

It can be financed easily.

It is less risky.

Economies of scale Easier to plan

No cultural clashes or control issues

Provides career development opportunities for

managers. It could be cheaper as compared to acquisition

Disadvantages It may intensify competition.

It is too slow.

The firm does not gain access to the knowledge and

systems of an established operator so it can be more risky

There may be barriers to entry in new market

Narrow scope

6.2 MERGERS AND ACQUISITIONS

Acquisition – one where one organisation (such as EMS) takes ownership of another existing organisation.. Merger – two original legal entities cease to exist and a third is created, Usually by mutual agreement.

Advantages • Quick access to new product/markets; • Acquires knowledge, expertise and goodwill; • Cheaper development if target is in difficulty or

undervalued; • Prevents targets being taken over by a rival; • May realise cost advantages resulting from target’s

experience effects; • Overcomes legal entry barriers; • Synergies.

Disadvantages • Difficulties of rationalisation and integration of

activities and cultures. • May pay excessive price if bid is contested. • Cost of acquisition which also include goodwill. • Access to funds which require for acquisition. • Incompatibility: problems of assimilating employees

and different operating systems • Cultural Mismatch.

6.3 ALLIANCES

“A cooperative business activity, formed by two or more separate organisations for strategic purposes, that allocates ownership, operational responsibilities, financial risks, and rewards to each member.” Joint ventures (newly created organisations jointly owned by the parents);

Consortia (two or more organisations in a joint venture arrangement); Franchising (Franchise holder undertakes specific activities, the franchiser is responsible for the brand and marketing); Licensing (common in science-based industries where the right to manufacture a patented product is granted for a fee); Co-production (e-commerce companies moving towards “customerisation” where the customer “designs” the product/service online).

Benefits Of Alliances They share development costs of a particular

technology. The regulatory environment prohibits take-over (e.g.

most major airlines are in strategic alliances because in most countries there are limits to the level of control an ‘outsider’ can have over an airline).

Complementary markets or technology.

Drawbacks of Alliances Core competence: Each organisation should be able

to focus on its core competence. Alliances may not enable it to create new competences.

Strategic priorities: If a key aspect of strategic

delivery is handed over to a partner, the firm loses flexibility. A core competence may not be enough to provide a comprehensive customer benefit.

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6.4 Licensing agreements

Licensing: Under licensing arrangements, one company gives another the right to use a process or a trade name. For

example, if you license a company in the UK to make beer, tell them the recipe, allow them to bottle it, and market it, you greatly improve the efficiency of the operation. For the licensor (that’s a company granting the license), this is a relatively low risk way of growth. They earn the money primarily from royalties and don’t have to undertake any great risk in setting up production and distribution facilities overseas. 6.5 Franchising

Franchising: “The purchase of the right to exploit a business brand in return for a capital sum and a share of profits or turnover.” The main points of franchising are as follow: • The franchisee pays the franchisor an initial capital sum and thereafter the franchisee pays the franchisor a share of

profits or royalties. • The franchisor provides marketing, research and development, advice and support.

• The franchisor normally provides the goods for resale. • The franchisor imposes strict rules and control to protect its brand and reputation. • The franchisee buys into a successful formula, so risk is much lower. • The franchisor gains capital as the number of franchisees grows. • The franchisor’s head office can stay small as there is considerable delegation/decentralisation to the franchisees.

Benefits for Franchiser: • Rapid expansion and increasing market share

with relatively little equity capital. • The franchisee provides local knowledge and

unit supervision, limiting the range of management skills needed.

• The franchiser has limited capital in any one unit and therefore has low financial risk.

• Economies of scale are quickly available to the franchiser as the network increases.

• Franchisee has strong incentives.

Drawbacks for Franchiser: • A franchisee is largely independent and makes decisions

about operation for personal benefit. In addition, the quality of product, customer satisfaction and goodwill is under his control. The franchiser will seek to maintain some control but it may not be sufficient to control operations at local level.

• There can be a clash between local needs or opportunities and the strategy of the franchiser.

• The franchiser may seek to update/amend the

products/services on offer, while some franchisees may be slow to accept change or may find it necessary to write off existing inventory holdings.

• The most successful franchisees may break away and set up as independents, thereby becoming competitors.

PAST EXAMS

Rock Bottom June 2009. (A: General) Analyse the reasons for Rock Bottom’s success or failure in each of the three phases identified in the

scenario. Evaluate how Rick Hein’s leadership style contributed to the success or failure of each phase. (18 marks) (B: Franchising) Rick Hein considered franchising the Rock Bottom brand at two points in its history – 1988 and 2007. Explain the key factors that would have made franchising Rock Bottom feasible in 1988, but would have made it ‘unlikely to be successful’ in 2007. (7 marks) (Total = 25 marks)

6.6 Outsourcing

Already have knowledge from earlier studies. Knowledge of advantages and disadvantages are required. 6.7 DEMERGER

The splitting of one company into two or more separate companies. 7 INTERNATIONAL EXPANSION • Exporting is an extension of home sales, using foreign intermediaries. • Overseas branches arise when turnover is large enough. It requires greater investment. • Overseas production exploits cheap labour and reduces exporting costs. • Insiderisation full functional organisations being set up overseas. This reduces exchange rate and political risk but

economies of scale may be lost and there may be problems of co-ordination. The company is a multinational.

• The global company takes a world view while recognising total differences: It integrates learning, skills and competences to achieve global efficiencies while retaining local responsiveness.

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Reasons for International Expansion Competition: (may be lower in foreign market.)

Chance: (to increase sales.)

Life cycle: (may be extended due to growth in sales in

foreign market.) Competition: (may be lower in foreign market.)

Reduce dependence: (on a single domestic market.) Economies of scale:

Finance:

– Favourable currency exchange rates – Tax benefit – Profit margins may be higher abroad. – Seasonal fluctuations may be leveled out. – International activities spread risk.

Reasons for Avoiding International Expansion • Profits may be affected by factors outside the firm’s

control (e.g. unfavourable currency exchange rates) • May reduce economies of scale. • Extending the product life cycle is not always cost

effective. It may be better to develop new products

for the domestic market. • The opportunity costs of investing abroad – funds

and resources may be better utilised at home. • Foreign tax rates and additional duties cost.

PAST EXAMS

MachineShop December 2013. Question 1.(B) (b) MachineShop is considering the acquisition of FRG. They have asked you, as a business analyst, to write a report

which advises them on this potential acquisition. Write a report, using the criteria of suitability, acceptability and feasibility, which evaluates the potential acquisition of FRG, concluding with whether you would recommend MachineShop to acquire FRG. (18 marks) Professional marks will be awarded in part (b) for the structure of the report, the clarity of the analysis and the soundness

of the conclusion or recommendation. (4 marks)

Joe Swift Transport June 2010. (a) Assess, using both financial and non-financial measures, the attractiveness, from Swift’s perspective, of EVM as an acquisition target. (15 marks)

MMI December 08 (a) In the context of MMI’s corporate-level strategy, explain the rationale for MMI acquiring First Leisure and Boatland

and assess the subsequent performance of the two companies. (15 marks) (b) Assess the extent to which the proposed a cquisition of InfoTech represents an appropriate addition to the MMI portfolio. (10 marks) (Total = 25 marks)

Graffoff December 2012

(a) Evaluate the franchising option being considered by Graffoff, highlighting the advantages and disadvantag es of this approach from Emile’s perspective. (10 marks) (b) Johnson, Scholes and Whittington have identified franchising as a form of strategic alliance. Evaluate how other forms of strategic alliance might be appropriate approaches to strategy development at Graffoff. (7 m)

(c) A consultant has suggested that Graffoff should be able to completely fund its proposed organic expansion (at a cost of $500,000) through internally generated sources of finance. Evaluate this claim. (8 marks) (Total = 25 marks)

Country Car Club June 2008 (b) Analyse the advantages that 3C will gain from the decision to outsource the purchase and maintenance of their own

vehicles. (10 marks)

June 2014 (a) Evaluate the potential benefits to the city authority and its IT employees, of outsourcing I T to Pro-Tech Public. (12 m) (b) The role of the business analyst is currently being redesigned. Analyse what new or enhanced competencies the business analysts will require to undertake their proposed new role in

the city authority. (7 marks) (c) Identify the main stakeholders that would be affected by the planned changes at the city authority. (6 marks)

GET December 2011 (b) GET’s proposed strategy is firstly to acquire SOFR and then the franchise to run the rail network of Raziacstan. You have been asked to provide an independent assessment of this proposed strategy.

Write a report evaluating GET’s proposed strategy. (16 marks) Professional marks will be awarded in part (b) for appropriate structure, style and fluency of the report. (4 marks)

ABCL December 2009 (b) Write the requested short report evaluating Ecoba Ltd and analysing whether it was the most appropriate and

attractive of the three possible acquisition targets for ABCL. (16 marks) Professional marks will be awarded in part (b) for clarity and format of your report. (4 marks)

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8 Corporate parenting Corporate parenting looks at the relationship between head office and individual strategic business units (SBU’s).

Ways of adding value: Corporate parent can add value and give SBUs advantages that they would not otherwise have. • Providing resources which the SBUs don’t have. such as

investment and expertise. • Providing access to central services such as IT and HR

which may be more efficient and cheap. • Providing access to markets, suppliers and sources of finance • By improving performance through performance

evaluation and taking corrective action. • Sharing expertise, knowledge and training across SBUs.

• Facilitating cooperation and collaboration between SBUs.

Destroying value Sometimes corporate parents are criticised for destroying value such that SBUs would fare better on their own. It can happen in following ways.

• The high administrative cost of the centre may exceed the benefits provided to SBUs.

• Added bureaucracy resulting from organisational structure may slow decision making and limit the organisation’s flexibility and speed of response to customers and environmental changes.

• May increase complexity, this can prevent clarity and make it difficult to understand the strategic direction

Rationales for adding value (Different roles adopted by good corporate parents)

Portfolio managers: Portfolio managers are corporate parents effectively acting as agents for financial markets and shareholders to enhance the value from individual businesses more effectively than the financial markets could • identify and acquire undervalued businesses and

improve them. • keep the costs of the centre low by minimising the

provision of central services and allowing business units autonomy whilst using targets and incentives

to encourage high performance • may manage a large number of businesses, which

may be unrelated

Parental developers: • use their own central competences to add value to the businesses by applying specific skills required by business units for a particular purpose, such as financial management or research and development • need to have a clear understanding of value adding capabilities of the parent and the needs of the business units in order to identify how these can be used to add value to business units • need to ensure that they are able to add value to all

businesses or be prepared to divest those to which they can offer no advantages.

Synergy manager • enhance value by sharing resources and activity, such as distribution systems offices or brand names • may however bring substantial costs as managing integration across businesses can be expensive • may have difficulty in bringing synergy as cultures and systems in different business units may not be compatible • may need to be very hands-on and intervene at the business unit level to ensure that synergy is actually achieved The Ashridge portfolio display

The Ashridge portfolio display, or parenting matrix, focuses on the benefits that corporate parents can bring to business

units and whether they are likely to add or destroy value.

This model indicates which types of companies should be divested and why. Businesses that may

be candidates for disinvestment are a) alien businesses – the parent can do good to

these organizations and they would achieve

more in another group

b) value trap businesses – despite potential a lack

of fit leads to a high possibility of a loss of value

c) ballast businesses – may do better as the

parent has little to offer

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Heartland business units: These are where there is a high degree of match and the parent company has the

capabilities and experience to add value by providing the support required by the business unit. These businesses

should be central to future strategy.

Ballast businesses: These are those where the parent understands the business well but there are limited

opportunities to offer help, sometimes because the business has been owned for a long time and has no further

support needs. These businesses would do better if left alone or indeed divested

Value trap businesses: These are those where there appear to be many parenting opportunities but there is a poor fit

with the critical success factors of the business. There appears to be good potential but in practice because of the

lack of fit with the strategy there is a high possibility of destruction of value.

Alien businesses: These are those where there is a complete mismatch. These should not remain part of the portfolio.

Edge of heartland business units: These are those where there is a good fit in some areas where the parent can bring

particular skills that add value to the business unit, but not in others, where the parent may destroy value.

If parent develops sufficient understanding of the business to avoid this, then the business may move into heartland.

The Boston Consulting Group (BCG) growth share matrix

Portfolio analysis is applicable to products, market segments and SBUs. The two by two matrix classifies businesses, divisions or products according to the present market share and the future growth of that market.

A cash cow has a high relative market share in a low growth market and should be generating substantial cash inflows. The period of high growth in the market has ended (the product life cycle is in the maturity or decline stage), and consequently the market is less attractive to new entrants and existing competitors. Cash cow products tend to generate cash in excess of what is needed to sustain their market positions. Profits support the growth of other company products. The firm’s strategy is oriented towards maintaining the product’s strong position in the market. Strategy: hold or harvest if weak. A star has a high relative market share in a high growth market. This type of product may be in a later stage of its product life cycle. A star may be only cash neutral despite its strong position, as large amounts of cash may need to be spent to defend an organisation’s position against competitors. Competitors will be attracted to the market by the high growth rates. Failure to support a star sufficiently strongly may lead to the product losing its leading market share position, slipping eastwards in the matrix and becoming a problem child. A star, however, represents the best future prospects for an organisation. Market share can be maintained or increased through price reductions, product modifications, and/or greater distribution. As industry growth slows, stars become cash cows. Strategy: build.

Four major strategies can be pursued with

respect to products, market segments and,

indeed, SBUs:

Build: Sacrifice short term earnings and profits

in order to increase market share.

Hold: Seeks to maintain the current position.

Harvest: Seeks short-term earning and profits at

the expense of long-term development.

Divest: Divestment reduces negative cash flow

and releases resources for use elsewhere.

Rate of market growth as high or low depends

on the conditions in the market.

Relative market share is assessed as a ratio: it

is market share compared with the market share

of the largest competi tor.

Cash Movement:

Cash generated by cash cow is invested on:

• Problem child so that it can convert into star

• Star so that it can convert into cash cow

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A problem child (sometimes called ‘question mark’) is characterized by a low market share in a high growth market. Substantial net cash input is required to maintain or increase market share. The company must decide whether to do

nothing – but cash continues to be absorbed – or market more intensively or get out of this market. The questions are whether this product can compete successfully with adequate support and what that support will cost. Strategy: build or harvest.

The dog product has a low relative market share in a low growth market. Such a product tends to have a negative cash flow that is likely to continue. It is unlikely that a dog can wrest market share from competitors. Competitors, who have the advantage of having larger market shares, are likely to fiercely resist any attempts to reduce their share of a low growth or static market. An organisation with such a product can attempt to appeal to a specialised market, delete the product or harvest profits by cutting back support services to a minimum. Strategy: divest or hold.

PAST EXAMS

Academic Recycling Company June 2013 [Q36 BPP Kit] (a) Assuming the role of an external consultant, prepare a report for Richard evaluating the performance of three product

groups and their contribution to overall company results. Use appropriate models to s upport your analysis. (25 m) (b) Assess the main strategic options open to PIT and recommend a preferred strategy. (15 marks) (c) Explain how PIT might change from a technology driven culture to a marketing led one. (10 marks) (Total = 50 m)

Shoal Plc December 2010 [Q40 BPP Kit]

(a) In the context of Shoal plc’s corporate-level strategy, assess the contribution and performance of ShoalFish, ShoalPro and ShoalFarm. Your assessment should include an analysis of the position of each company in Shoal plc portfol io. (15) Portfolio managers, synergy managers and parental developers are three corporate rationales for adding value. (c) Explain each of these separate rationales for adding value and their relevance to understanding the overall corporate

rationale of Shoal plc. (10 marks)

The EA Group December 2012 (a) Analyse the performance of each of the four companies described in the scenario and assess each company’s potential future contribution to the EA Group portfolio of businesses. (24 marks) Professional marks will be awarded in part (a) for the clarity and structure of the answer. (4 marks)

9 EVALUATION OF STRATEGIC OPTIONS (SFA analysis) If a business has a lot of alternative corporate strategies which could fill the gap, it needs to: Evaluate each strategy, then • Choose the best one.

The suitability, feasibility, acceptability technique can be used to evaluate an option. Suitability: Suitability looks at the fit of a proposed strategy with the current strategic position of the organisation. Suitability may be increased if it will increase strength & opportunities while reduce weaknesses and threats e.g. Synergies, more geographical coverage, access to expertise & experience & products of acquire company. Feasibility: Feasibility involves assessing whether an entity has sufficient resources and competencies to implement a strategy successfully. Acceptability: The acceptability of a strategy depends on expected performance outcomes and the extent to which these are acceptable to stakeholders. Acceptability can be evaluated by considering return, risk and shareholder

reactions. Return: ROCE, ROI, GP margin, NP margin, and other non financial returns Risk: Liquidity (current ratio & quick ratio), gearing, interest cover and other non financial risks. Stakeholder Reaction: if given in question

CHAPTER 5

ORGANISATIONAL STRUCTURE 1 Organisational Configuration An organisation's configuration consists of the structures, processes, and relationships through which it operates. a) Structure has its conventional meaning of organisation structure. b) Processes drive and support people: they define how strategies are made and controlled; and how the

organisation's people interact and implement strategy. c) Relationships are the connections between people within the organisation and between those inside it and those

on the outside.

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2 Organisation Structures An organisation's formal structure reveals:

a) Who is responsible for what? b) who communicates with whom? c) Upper levels of the structure provides the skills and knowledge the organisation requires. Types of Organisational Structure:

Entrepreneurial structure: “The owner manages the business himself and makes all the major decisions.” Functional Structure: In a functional structure, people are organised according to the type of work that they do. Product/Divisional organisation structure: Organisation structured in accordance with product lines or divisions or departments. Each division has its own management structure and within each division there are functional departments for the specific division. Geographical organisation structure : “Organisation is structured according to geographic area. Some authority is related to head office but day to day operations are handled on regional basis. “ Matrix organisation structure: Matrix structure is basically a combination of two of the types of organisation

structures which are described earlier.(i.e. functional, divisional, geographical or product). Employees from different departments were collected to form a group to achieve a particular task. It consist of multidisciplinary teams

Type Advantages Disadvantages

Entrepreneurial

• Quick decisions making • Goal congruence • Flexible/adaptable to change • Good control.

• Cannot expand beyond a certain size • Cannot easily cope with diversification. • Lack of career structure for lower level

employees • May be too centralized.

• Owner has limited expertise and resources.

Functional • Economies of scale. • Standardisation. • Specialists more comfortable. • Career opportunities.

• Empire building. • Slower Decision making. • Conflicts between functions. • Cannot cope with diversification.

Product/ Divisional

• Enables growth. • Clear responsibility for products/divisions. • Training of general managers. • Easily adapted for further diversification. • Top mngmt free to focus on strategic matters

• Potential loss of control. • Lack of goal congruence. • Duplication. • Specialists may feel isolated. • Allocation of central costs can be a problem.

Geographical • Enable geographical Growth. • Clear responsibility for area. • Top mngmt free to focus on strategic matters

• Potential loss of control • Lack of goal congruence • Allocation of central cost can be a problem.

Matrix • Greater flexibility in work and decision making • Improved communication and co-ordination • Co-ordinating the activities of employees

from different functions can promote

creativity and innovation.

• Risk of conflict between functional managers and product/ project/area managers.

• Employees might not know who they are responsible to.

• Slower decision making due to added complexity

Tall and Flat Business

Span of control The number of subordinates who report to a manager (i.e. Manager has 6 subor dinates, span of control is 6.) If a manager has a large number of subordinates reporting directly to him, the “span of control is wide” and

If a manager has few number of subordinates reporting directly to him, the “span of control is narrow”.

Scalar chain : The scalar chain refers to the number of levels in the management hierarchy. Tall organisation is one which, in relation to its size, has a large number of levels of management hierarchy.

This implies a narrow span of control and large scalar chain.

Flat organisation is one which, in relation to its size, has a small number of hierarchical levels.

This implies a wide span of control and small scalar chain.

Tall Organisation Flat Organisation

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Advantages • Better control due to Narrow span of control. • Defined career ladder (employee loyalty) • Specialisation (technical excellence) Disadvantages • Close control fosters rigidity, blocks initiative • Increased administration and overhead costs • Lengthens communication & decision making • Strategic apex distanced from the customers

Advantages • Strategic apex close to operating core • Strategic apex close to customers • Savings on managerial costs Disadvantages • Loss of managerial control • Loss of middle management interface • If delayered, loss of middle management knowledge

Centralisation and Decentralisation:

Centralisation: The degree to which decision making is concentrated at upper levels of organisation. Decentralisation: The degrees to which lower-level employees provide input or actually make decision. Advantages of Centralisation • Decisions easier to control and coordinate • Senior managers have access to big picture • Senior managers can balance demands of different

functions

• Better decisions from senior managers’ expertise/skills

• May reduce overheads (fewer managerial salaries) • Crisis decisions cab be taken speedily (no reference) • Policies can be standardised organisation wide

Advantages of Decentralisation • Avoids overburdening senior managers with detail • Improves motivation of subordinates given

responsibility • More awareness of local/front-line issues

• Quick decision-making (less reference upwards) • Facilitates development/succession of junior managers • More distinct areas of accountability for control • Supported by communications technology • More flexible in the face of customer demand

Mintzberg’s Building Blocks & Organisaitonal Configuration:

Mintzberg argues that the nature of the organisation structure varies with differences in processes and internal and external relationships. He suggested that there are five elements or ‘building blocks’ in an organisation. The way in which an entity is organised most effectively depends on which of these elements is dominant. Building Blocks: Strategic apex. This is the top management in the organisation.

Operating core. This represents the basic work of the organisation, and the individuals who carry out this work.

Middle line. These are managers and management structure between the strategic apex and the operating core.

Support staff. These are the people who provide support for the operating core, such as secretarial staff, cleaning

staff, repair and maintenance staff and IT staff. Technostructure. These are staff without direct line management responsibilities, but who seek to standardise the

way the organization works. They produce procedures and systems manuals that others are expected to follow.

Mintzberg’s six organisational configurations: Mintzberg identified six different organisational configurations, each having a different mix of the five building blocks. He suggested that the most suitable organisational configuration would depend on the type and complexity of the work done by the entity. Simple structure: This is found in an entrepreneurial company. The strategic apex exercises direct control over the operating core, and there is no middle line. There is also little or no support staff or techno-structure. The strategic apex might be an owner director of the company. This type of structure is very flexible, and can react quickly to changes in the environment, because the strategic apex controls the operating core directly. Machine bureaucracy: In a machine bureaucracy, the techno-structure is the dominant element in the organisation. The entity is controlled

and regulated by a bureaucracy and the emphasis is on control through regulation. It is difficult for an entity with this type of organisation to react quickly to environmental change. This structure is therefore more suitable for entities that operate in a stable business environment. Professional bureaucracy: In this type of structure, the operating core is the dominant element. Mintzberg gave the name ‘professional bureaucracy’ to this type of structure because it is often found in entities where the operating core consists of highly-skilled professional individuals (such as investment bankers in a bank, programmers in a software firm, doctors in a hospital, accountants and lawyers in a professional practice, and so on).

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Divisionalised form In this type of structure, the middle line is the dominant element. There is a large group of powerful executive

managers, and the organisation structure is a divisionalised structure, each led by a divisional manager. In some divisionalised structures, divisional managers are very powerful, and are able to restrict the influence of the strategic apex on decision-making. Adhocracy: Mintzberg identified a type of organisation that he called an ‘adhocracy’. This is an organisation with a complex and disordered structure, making extensive use of teamwork and project-based work. This type of organisation will be found in a complex and dynamic business environment, where innovation is essential for success. These organisations might establish working relationships with external consultancies and experts. The ‘support staff’ element can therefore be very important. Missionary organizations: In this type of organisation, all the members share a common set of beliefs and values. There is usually an

unwillingness to compromise or accept change. This type of organisation is only appropriate for small entities that operate in simple and fairly static business environments.

PAST EXAMS

8 Hats June 2011 (b) Discuss the principles, benefits and problems of introducing a matrix management structure at 8-Hats. (10 m)

The Management Press December 2010 (b) Using appropriate organisation configuration stereotypes identified by Henry Mintzberg, explain how an

understanding of organisation configuration could have helped predict the failure of Ann Li’s proposed formalisation of structure, controls and processes at Frigate Ltd. (10 marks)

CHAPTER 6

BUSINESS PROCESS 1 Business Process Process: “An arrangement of resources that transforms inputs into outputs that satisfy customer needs whether those customers are internal or external.” Process follows strategy: Organizations need to design their processes which don’t contradict with their strategy instead processes should support in implementation of strategy. This demonstrates how process follows strategy. Process leads strategy: However, processes can also lead strategy. Existing processes, goals and measures may not be aligned with strategy because some part of the strategy is operationally unfeasible. In this case, the processes would be modified to make them workable, and the strategy would also be modified to accept this.

2 Harmon’s Process-Strategy Matrix Harmon’s process-strategy matrix charts processes using their complexity on one axis, and their strategic importance on the other.

Strategic Importance

Low High

Process complexity &

Dynamics

High Complex and dynamic processes but not part of company’s core competences: hard to automate, so outsource Examples: Tax advice, advertising,

staff counseling

Complex, dynamic, high value processes which generate competitive advantages; careful process improvement, focusing on people, their skills and their interactions

Examples: product development Low Simple, commodity-like processed:

automate with off-the-shelf systems (generic software) or outsource

Examples: payroll accounting, credit card approval, receivables ledger.

Simple but important automate to improve efficiency. Examples: sales order processing

Complexity and dynamism: A dynamic process is one that frequently changes.

Strategic Importance: Process which is essential or core or provide competitive advantage, or high value added

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Low strategic importance, low complexity: These are simple stable processes which add little business value. They should be automated in the most efficient way possible.

Low strategic importance, high complexity: These processes are complex and dynamic, but not part of the organisation’s core competences. They are too complex to automate, so outsourcing is the best option. High strategic importance, low complexity: These are simple but important processes that should be automated to improve efficiency and reduce cost. High strategic importance, high complexity: These are complex, dynamic and high value processes which generate competitive advantage. They involve human judgement and expertise that cannot be automated. Outsourcing

“Outsourcing enables organisations to benefit from their suppliers' scale economies and expertise.”

Practical considerations relating to outsourcing are cost/benefit analysis; increase efficiency & effectiveness due to supplier expertise; effect of loss of control (particularly over quality); effect of giving up a competence.

Advantages

Reduction in staffing costs Internal conflicts may be resolved

Allows the organisation to focus on its own core

activities/competencies Technological opportunities

Quicker and time saving

Easier to budget costs

Reduced capital requirements Reduced overhead costs

Can increase effectiveness where the supplier

deploys higher levels of expertise

Disadvantages

Staff morale problems finding a single supplier who can manage

complex processes in full Firms may be unwilling to outsource whole processes

loss of control (particularly over quality)

Firms may be tied to inflexible, long term contracts.

Giving up a threshold competence

Confidentiality issues Over-dependency on supplier

Off-shoring Offshoring is a form of outsourcing which involves an external party in a different country providing an

organisation with a particular process.

PAST EXAMS

Icompute December 2011.

iCompute is currently re-considering three high level processes: (i) Advice on legal issues (currently outsourced)

(ii) Software support (currently outsourced) (iii) Time recording (in-house, bespoke software development) Evaluate, using an appropriate model, suitability of iCompute’s current approach to each of these high level processes. (12 m)

Country Car Club June 2008 (a) The Business Architecture Committee (BAC) has been asked to make recommendations on the sourcing of activities (in-house or outsourced). The BAC has also been asked to identify technological implications or opportunities for the activities that they recommend should remain in-house. Suggest and justify recommendations to the BAC for each of the following major process areas: (i) Attendance of repair staff at breakdowns (ii) Membership renewal (iii) Vehicle insurance services (iv) Membership queries (v) Vehicle history checks (15 marks)

Chemical Transport June 2013 (a) Three significant business process areas have been identified in the scenario: (1) payroll, (2) legal advice and (3) an enhanced web service allowing wholesalers to request and track deliveries. Use Harmon’s process-strategy matrix to analyse the characteristics of each of the three process areas defined above and suggest how each should be sourced and implemented at CT. (15 marks)

Lowland Bank December 2009 (b) The bank has identified three further desirable process initiatives (see above). (i) Explain, using Harmon’s process-strategy matrix, how the complexity and strategic importance of process

initiatives can be classified. (4 marks) (ii) Recommend and justify a solution option for each of the three process initiatives. (9 marks)

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3 Process Redesign Options

Opportunities & Threats means a total rethink

Process Re-engineering

Process has large problems that must be addressed

Process design

Process is stable

Process Improvement

Small Sub-Processes Medium sized processes Value Chain, Core Process Process improvement deals with small changes in small sub-processes, but essentially the overall process is stable.

Process redesign considers large problems that must be addressed, for example the bottlenecks discussed earlier.

It will tend to require changes to middle-sized processes. Process re-engineering. Fundamental rethink and radical redesign starting from a zero in business processes to

achieve dramatic improvements’ Other Option: Simplification: Here it’s recognized that as time passes most processes gather elements of duplication and redundancy. Although the process may be well thought out at the start, it can grow in a rather disorg anised way so that considerable inefficiencies can be created. Value-added analysis: Remove all non-value adding activities. Analysis of gaps and disconnects: Check flows of information and products between departments. Poor

communication between the various functions in the business is liable to result in non-value added activity. Business Process Re-Design Methodologies or Process of Process Re-Design

1

Planning a process redesign effort

Identify goals

Define scope

Identify personnel

Develop plan and schedule

2

Analysis of an existing process Document workflow

Identify problems

Devise a general plan for the redesign

3

Design a new or improved process Explore alternatives and choose best redesign to achieve goals

4

Development of resources for an improved process

Make products better, easier to manufacture and maintain

Redesign managerial and supervisory jobs and develop measurement

system to monitor new process Redesign jobs, work environment and incentive systems; develop

training; hire new employees if necessary

5

Managing the implementation of the new process

Integrate and test

Train employees, arrange management Maintain process and modify as needed

Factors to consider for Process Redesign: POPIT model (four view model) The POPIT (or four view) model provides details of the key aspects that should be considered when undertaking a business process change. These elements must all be considered, planned and coordinated if business changes (such as process redesigns) are to be successful. A failure in one area will often restrict the success in other areas. It consists of People, Organization, Processes and IT.

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People: Staff needs to have the right ski lls and motivation to carry out the tasks. They need to understand tasks and their roles within the organisation. Staff needs to be developed to support business changes and resistance to change has to be managed and overcome. This will

involve understanding and sometimes shifting the organisational culture

Processes: These must be well defined, efficient, documented and understood. Those of high strategic importance and complexity should have undergone process improvement. Opportunities for improvement in other areas must have been explored in order to maximise

efficiency and support the organisational strategy

Organisation: Success must be organised Job roles need to be clearly

defined and understood, lines of command and communication need to be effective, the organisational structure needs to support the organisational strategy, there needs to be flexibility in changing environments and bureaucracy needs to be kept to a minimum. Organisational support will be an important link between the other elements of the business system

IT: IT needs to support the changes that are taking place

within the system. It needs to provide the relevant information at the point that it is needed. IT can replace some manual tasks and improve the efficiency of others. IT may facilitate organisational changes, process changes and staff development and it therefore binds all of the other elements together. IT must be exploited in order to maximise business benefits.

Exam focus: The model can be examined in a number of ways: • Identifying weaknesses in systems. Or • Identifying opportunities for system improvements. Or • Identifying areas that are not working well together. Or• what points needs to be Ensured so that all aspects of business change are considered when making process redesigns.

Control Process: Control processes determine how organisations perform. Traditional accounting measures are inadequate for assessing overall progress; as financial reporting is heavily retrospective in focus so other matters must be considered. The balanced scorecard covers most of the angles with its four perspectives.

Customer perspective ‘How do customers see us?’ This perspective concentrates on customers’ concern with price, quality, performance and service. Measures could be percentage of on-time deliveries and customer rejection rates

Internal business perspective ‘What business processes must we excel at to achieve financial and customer objectives? Measures could be core competences, skills, productivity and cost, etc.

Innovation and learning perspective ‘Can we continue to improve and create value?’ This perspective is forward looking and concentrates on what the company must do to satisfy future needs. Measures could be time-to-market for new products and percentage of revenue from them.

Financial perspective ‘How do we create value for shareholders?’This is the traditional reporting perspective, but must not be overlooked. Market share and sales growth are included here. Modern measures like value-added and shareholder value analysis should be included

CHAPTER 7

CHANGE MANAGEMENT 1 Strategic Change Change is ever present in our society and a fact of organizational life. Change is necessary if an organization wishes to

prosper in an uncertain, complex and volatile environment. A change may be required to Achieve and maintain competitive advantage; adapt to change in regulations; adapt new technology; meet demand and ensure supply etc. Situation analysis for change: In any event the management of change starts with an understanding of three main considerations: (a) The type of strategic change required (b) The wider context of the change (c) Forces facilitating and blocking change 2 Types of Strategic Change: Velocity (or Nature) of Change: It may be incremental change (step wise small changes in existing policies over time) or Big Bang (involves a major rapid change to existing methods, processes. Such an approach is usually required in

times of crisis when rapid responses are required.)

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Mass (or Scope) of Change: It is extent of changes. It can be realignment (where the change can be accomplished within existing paradigm) or Transformational Change (where a change is required in cultural paradigm)

Nature of change Scope of Change Type of Change

Incremental + Realignment = Adaptation does not require a new paradigm (fundamental change in culture) and proceeds step by step.

Incremental + Transformation = Evolution is an incremental process that leads to a new paradigm.

Big Bang + Realignment = Reconstruction can also be undertaken with an existing paradigm but requires extensive and rapid action.

Big Bang + Transformation = Revolution is rapid and wide ranging responses to extreme pressures for change.

3 Context of Change The context of change is provided by the organisational setting; this has many aspects and can therefore be very complex. However, this complexity can be approached in a manageable way by considering it under eight general headings proposed by Balogun and Hope Hailey, which we will analyse below. Time – is there time for longer term strategic development or does the firm have to react quickly to a crisis? Scope – how much of the organisation will be affected? Is the change best described as realignment or transformation? Preservation – which aspects of working, culture, competences and people need to be retained? Diversity – the need to recognise that different departments (e.g. marketing and R&D) may have different subcultures.

Capability – whether abilities exist to cope with the change. These can be on an individual, managerial or organisational level. Capacity – are resources (e.g. money, managerial time) available to invest in the change process? Readiness – are staff aware of the need for change and are they ready for that change? Power – how much authority and autonomy do change agents have to make proposed changes?

PAST EXAMS

Institute of Analytical Accountants June 2011

(a) The IAA would like to consider a number of re-design options, ranging from very simple improvements to radical solutions.

Identify a range of re-design options the IAA could consider for improving their question handling process. Evaluate the benefits of each option. (15 marks)

Pharmacy Systems International June 2008

(a) The proposal to develop and sell a software package for the retail industry represents a major change in strategy for PSI. Analyse the nature, scope and type of this proposed strategic change for PSI. (10 marks)

(b) The success of any attempt at managing change will be dependent on the context in which that change takes place.

Identify and analyse, using an appropriate model, the internal contextual features that could influence the success or failure of the chief executive’s proposed strategic change for PSI. (15 marks)

Polymat Paints December 2012

(b) Time, scope, capability and readiness for change are four contextual factors that affect strategic change. Evaluate the potential

influence of these four factors at Steeltown Info Technology on any strategic change proposed by the EA Group. (12 mark)

Shoal Plc December 2010 (b) (i) Identify and analyse, using an appropriate model, the contextual factors that will influence how strategic change should be

managed at Captain Haddock. (13 marks) Professional marks will be awarded in part (b)(i) for the identification and justification of an appropriate model. (2 marks)

Once the acquisition is complete, Shoal plc wish to quickly turnaround Captain Haddock and return it to profitability.

(ii) Identify and analyse the main elements of strategic change required to achieve this goal. (8 marks) Professional marks will be awarded in part (b)(ii) for the cogency of the analysis and for the overall relevance of the answer to the

case study scenario. (2 marks)

4 Cultural Web Culture is set of values, beliefs, behaviours, and taken-for-granted assumptions. The cultural web illustrates the combination of assumptions that make up the paradigm, together with the physical manifestation of culture. It helps to understand the culture of the organization. The paradigm The basic assumptions and beliefs that an organisation’s decision-makers hold in common and take for granted.

Stories The stories concern past events and people talked

about inside and outside the company.

‘Who' and ‘what' is talked about most in these stories

can illustrate the behaviour the organization

encourages, and the sorts of things it values.

What stories do people tell about the organisation?

What do these stories say about the values of org.?

What reputation is communicated among customers

and other stakeholders?

What do employees talk about when they think of

the history of the organisation?

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Symbols The visual representations of an organisation

including logos, premises, and dress can illustrate the

nature of that organisation. Also, verbal

representations like language and titles can symbolise

the nature of an organisation.

What language and jargon is used? Is it well

known and usable by all?

What aspects of strategy are highlighted in

publicity?

Are there any status symbols?

Power

structures Who has the real power in the organisation? This

may be one or two key senior executives, a whole

group of executives, or even a department. The key is

that these people have the greatest amount of

influence on decisions, operations, and the strategic

direction of an organisation.

Who has the real power in the organisation?

How strongly held are the beliefs of the people

with power?

How is power used or abused?

What are the main b lockages to change?

Organisati

onal

structures

This includes both the formal structure defined by the

organization chart, and the unwritten lines of power

and influence that indicate whose contributions are

most valued. Structure is likely to reflect power.

Is the structure formal o r informal? Flat or hierarchical?

What are the formal lines of authority?

Are there any informal lines of authority?

Do structures encourage cooperation & collaboration?

Control

systems These concern the ways the organisation is

controlled. They include financial systems, quality

systems, and rewards (including the way they are

measured and distributed within the organisation.)

Looking at the areas which are controlled most

closely can indicate what is seen as most important to

an organisation, and where most attention is focused.

What process has the strongest controls?

What process has the weakest controls?

Is emphasis on rewarding good work or penalising

poor work?

Rituals

and

routines

The daily behaviour and actions of people signal

what is considered acceptable in an organisation.

This determines what is expected to happen in given

situations, and what is valued by management.

What do employees expect when they come to

work?

What do customers expect when they walk in?

What would be immediately obvious if it changed?

What behaviour do the routines encourage?

PAST EXAMS

Icompute December 2011.

(a) Analyse the culture of iCompute, and assess the implications of your analysis for the company’s future performance. (13 marks)

Frigate December 2010

The cultural web allows the business analyst to explore ‘the way things are done around here’.

(a) Analyse Frigate Ltd using cultural web or any other appropriate framework for understanding organisational culture. (15 m) (b) Using appropriate organisation configuration stereotypes identified by Henry Mintzberg, explain how an understanding of

organisation configuration could have helped predict the failure of Ann Li’s proposed formalisation of structure, controls and processes at Frigate Ltd. (10 marks) (Total = 25 marks)

Midshire Health June 2013

(ii) Explain how an understanding of organisational culture and organisational configuration would have helped the CEO anticipate

problems encountered in introducing a strategic planning system, and an associated information system, at MidShire (18 m)

The National Museum (b) The failure of the Director General’s strategy has been explained by one of the trustees as ‘a failure to understand our

organisational culture; the way we do things around here’. Assess the underlying organisational cultural issues that would explain the failure of the Director General’s strategy at the

National Museum. (20 marks)

5 Force field analysis: Forcefield analysis consists of the identification of the factors that promote and hinder change. Promoting forces should be exploited and the effect of hindering forces reduced.

Resistance Wrong perception

New technology New system

Breaking of social groups

Habits

External influence

Reduce Power and benefits

Overcoming Training

User involvement Education

Long term contract

Promotion

Secure Recruitment

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6 Lewin's change process The process of change comprises three stages.

Unfreezing – create the initial motivation to change by convincing staff of the undesirability of the present situation. Change process– mainly concerned with identifying what the new behaviour or norm should be. This stage will often involve new information being communicated and new attitudes, culture and concepts being adopted. Refreezing or stabilising the change – implying reinforcement of the new pattern of work or behaviour by rewards (praise, etc) 7 Leadership Styles for Change Management Participation – aims to involve employees, usually by allowing some input into decision making. This could easily result in employees enjoying raised levels of autonomy, by allowing them to design their own jobs, pay structures, etc. Education and communication – used as a background factor to reinforce another approach. This strategy relies upon the hopeful belief that communication about the benefits of change to employees will result in their acceptance of the need to exercise the changes necessary.

Power/coercion – involves the compulsory approach by management to implement change. This method finds its roots from the formal authority that management possesses, together with legislative support. Facilitation and support – employees may need to be counselled to help them overcome their fears and anxieties about change. Management may find it necessary to develop individual awareness of the need for change. Manipulation and cooptation – involves covert attempts to sidestep potential resistance. The information that is disseminated is selective and distorted to only emphasise the benefits of the change. Cooptation involves giving key people access to the decision making process. Negotiation – is often practised in unionised companies. Simply, the process of negotiation is exercised, enabling several parties with opposing interests to bargain. This bargaining leads to a situation of compromise and agreement. 8 Change Agent A change agent is an individual or group that helps to bring about strategic change in an organisation. JSW examine change agency by considering three distinct groups:

Strategic leaders Five approaches to strategic leadership: Strategic analysis and design focus

Human assets development focus

Expertise as source of competitive advantage focus

Control by procedures and performance monitoring

Change as continuous process – emphasis on

communication and monitoring

Middle management Providers of advice; translation of strategy at

local level; implementation and control

Outsiders Bringing a fresh point of view, such as a new chief

executive or the use of consultants

9 The business change lifecycle The overall change process can be split into five steps defined by the business change lifecycle:

• Alignment – determining the type of

change required.

• Definition – creating a project to achieve

this alignment.

• Design – determining the detail changes

required.

• Implementation – putting the design into

action and managing its success.

• Realisation – assessing the success of the

alignment.

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CHAPTER 8

ROLE OF IT

1 Role IT in business strategy IT plays an important role in all stages of strategic development for example; In strategic analysis it helps to increase strengths & opportunities and reduce weaknesses & threats.

this in turn could lead to new strategic choices, for example, support new competitive strategies

Finally, IT can play a role it putting strategy into action. For example, we have already seen in the previous chapter

how IT can play a vital role in process redesign efforts 2 E-Business Ebusiness: “the transformation of key business processes through the use of internet technologies.” E-business, is the automation of business processes of all types through electronic means. This may be restricted to email or may extend to a fully-featured website or an e-marketplace. Ecommerce: is a subset of ebusiness. The most generic description of ecommerce is trading on the internet, buying and selling products and services online.

Categories of E-Business B2B (business to business). For example, a supermarket IS automatically placing orders into suppliers’ IS.

B2C (business to consumer). Selling over the internet – books, flights, music, etc.

C2B (consumer to business). Some internet sites display a selection of suppliers’ offerings from which the user can choose. A model that largely depends on internet.

C2C (consumer to consumer). Auction sites, such as ebay, putting consumers in touch with each other. Amazon does the same by offering secondhand books.

Stages of EBusiness

The stages of ebusiness can be described as: a) Web presence Static or dynamic webpages but no transactions are carried out. Would show information about the organisation, products, contact details, FAQs (Frequently Asked Questions). Faster updates are possible than with paperbased

information and could be cheaper than paperbased catalogues. How to make website interactive?: Search, online forms, questionnaires, subscription email lists, links to other sites, downloadable files, contact us, site map, Online community, Feedback, Online booking, Weather feed, Search engine

optimisation b) E-commerce: Buying and selling transactions using ecommerce. Might cut out middlemen, but there is probably no fundamental change in the nature of the business. c) Integrated ecommerce. For example, information can be gathered about each customer's buying habits. This can allow the organisation to

target customers very precisely and to begin to predict demand d) Ebusiness Ebusiness is now fundamental to the business strategy and may well determine the business strategy.

Advantages and Disadvantages of E-Business

Advantages Disadvantages

• Cost reduction e.g. lower overheads, cheaper procurement • Increased revenue and profit e.g. online sales, better CRM • Better information for control e.g. monitoring website sales • Increased visibility • Enhanced customer service e.g. via extranets • Improved marketing e.g. emailing customers with special offers • Market penetration

e.g. even small suppliers can gain a global presence via the internet • Enhance the company's competitive advantage

• Set-up costs • Running cost • Security concerns • Technophobia • Limited IT resources in house. • May lack skills to design and maintain a

web site, in which case it has to rely on outsourcing

PAST EXAMS Rock Bottom December 2010. Question 2.(a) [Q4 BK) (a) Determine the main drivers for the adoption of e-business at TMP and identify potential barriers to its adoption. (5 marks) Institute of Administrative Accountants December 2010 [Q31 BPP Kit] (a) Evaluate the perceived benefits and costs of adopting e-assessment at the IAA. (15 marks)

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3 IT Risks and Controls

• Dissatisfied employees might deliberately modify or destroy information in the system.

• A hacker or industrial spy might break into system. • Viruses or malicious software could be introduced.

• Accidental mistakes could be made on input to system • Inadequate security of the hardware or data.

Faults in the hardware system.

4 IT Controls a) Security control: (Prevention of unauthorized access, modification or destruction of stored data. b) Integrity control: (ensure that data are accurate, complete etc) c) Personal controls: (Recruitment, training and supervision to ensure the competency of persons involved in IT.) d) Logical access controls: (use password, user name and access should be provided only to authorised persons.)

e) Physical Control: (security guards, door lock or ID card entry system, use safes, CCTV cameras, alarms) f) Operational controls g) Data input controls 5 Continuity Planning and Disaster recovery planning: Continuity planning Continuity planning is focused on ensuring the survival of an organisation and its operations in the face of short term adversity. Many internal weaknesses and external threats exist which if materialised could have a severe impact on an organisation's ability to achieve its long term objectives and ultimate survival. Events including natural disasters (eg fire and floods) and computer network failures (eg supply chain interruption) are likely to be highly detrimental to an organisation's operations. Continuity planning is concerned with having in place courses of action directed towards combating and preventing

the significant risks an organisation faces. Given the extensive use of computers in modern business, a strong focus of continuity planning is devoted to protecting IT assets (disaster recovery). Most large organisations today produce business continuity plans which detail key parts of an organisation's operations to assist with operational recovery in the event of a risk materialising. Plans often include details about key personnel, customer and supplier contacts and related information about the entity's data back-ups. Disaster recovery Disaster recovery is part of continuity planning. It is predominantly concerned with the processes and procedures that an organisation uses to allow its IT systems to continue in operation in the event of a disaster occurring. In the event of critical functions being interrupted, a company's disaster recovery processes are directed at restoring the organisations operations within an acceptable time frame.

PAST EXAMS BeauCo (a) Analyse the adequacy of BeauCo’s internal control processes. (You should give particular consideration to the IT controls and payroll processes in place at the company and suggest practical recommendations on how these could be improved.) (16 mark) (b) The board of BeauCo would like to gain a better understanding of the terms continuity planning and disaster recov ery. Acting as an IT consultant advise the board why both continuity planning and disaster recovery activities are likely to be significant to BeauCo. (9 marks) (Total = 25 marks)

6 MARKET PLACE CHANNEL STRUCTURES Channel structures are the means by which a manufacturer or selling organisation delivers products and services to its customers..

DISINTERMEDIATION Disintermediation is the removal of intermediaries in a supply chain that formerly linked a company to it s customers. Instead of traditional distribution channels, with intermediaries such as a distributor, wholesaler, broker or agent, companies may now deal with every customer directly via the internet. REINTERMEDIATION Reintermediation is the establishment of new intermediary in supply chain. COUNTERMEDIATION Countermediation is where established firms create their own new intermediaries to

compete with established intermediaries. 7 INTRANETS AND EXTRANETS

An Intranet is an in-house version of the Internet, owned and run by a single organisation. It allows its employees to share the entity’s own internal information (files) and software through the network.

The benefits of an intranet are: • better communications within an entity • easier access for employees to databases (internal

information) and software access to external information through the internet

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An extranet is an intranet that also provides access to the network for some external entities, such as key suppliers or customers. Examples of the use of extranets include: A direct link between the stores/purchasing system of a company and its suppliers would enable the ordering

and delivery processes and procedures to be speeded up and carried out more efficiently. Just in Time (JIT) systems that provide connections between production, stores and suppliers.

A customer network that enables a company to keep a constant flow of information on customer activity to

salespeople.

8 SUPPLY CHAIN MANAGEMENT (SCM) 8.1 WHAT IS SUPPLY CHAIN MANAGEMENT (SCM)?

A supply chain encompasses all activities and information flows necessary for the transformation of goods from the origin of the raw material to when the product is finally consumed or discarded. Push Model of supply chain With a push model, a company markets its goods and services to potential customers, and tries to persuade customers about the merits of its products compared with those of competitors. Pull Model of supply chain With a pull model, a company tries to sell its products to its own customers by encouraging the customers at the end of the supply chain to demand their products. Push-Pull Model of the Supply Chain

In a push-pull system, the initial stages of the supply chain generally follow a push strategy while the remaining stages move to a pull strategy. The interface between the two stages is typically called the push-pull boundary. 8.2 IMPACT OF E-COMMERCE ON THE VALUE CHAIN

Value chain analysis can be used to assess the impact of IS/IT and identify processes within the value chain where it can be used to add value. • Inbound logistics covers receiving, storing and handling raw material inputs. The use of IT includes inventory

control and systems such as Material Requirements Planning (MRP), Enterprise Resource Planning (ERP) and JIT. • Operations are concerned with the transformation of the raw material inputs into finished goods or services. IT

can be used to automate and improve tasks; examples include robots, process control, and machine tool control, Computer Aided Manufacturing (CAM), Computer Integrated Manufacturing (CIM) and Enterprise Resource Planning (ERP).

• Outbound logistics is concerned with the storing, distributing and delivering the finished goods to the customers. IT makes it possible to follow the progress of goods from pickup to delivery.

• Marketing and sales are responsible for communication with the customers. Supermarkets use EPOS system information on inventory to aid speedy ordering and replenishment.

• Service covers all of the activities that occur after the point of sale eg, installation, repair and maintenance. Customer databases allow organisations to sell after-sales services.

9 UPSTREAM SCM Upstream activities in the supply chain are those that relate to suppliers and the obtaining and storing of raw material. How to Re-structure or improve Upstream SCM: • Reduce dependence on single supplier: identify a wider range of suppliers, it will remove the risks of sourcing all

the products from a single supplier and other suppliers may have better systems in place • Outsourcing re-branding and packaging to suppliers,

• Contract terms (use short term or long term contracts whichever is more beneficial) • Forecasting of delivery dates: Identify suppliers who are able to provide information about delivery dates prior

to purchase and provide internet-based order tracking systems • Streamlining shipping process: single contracted logistics company which will collect the goods from the supplier

and transport them directly. greater visibility of the progress of the order from de spatch to arrival • Independent marketplace: B2B electronic marketplaces, greater supplier choice with reduced costs. opportunity

for aggregation for smaller organization to work together. • Improve communication. 9.1 E-PROCUREMENT

Procurement relates to organisational purchasing and involves locating items of the right price; that are available at the right time, of the right quality, in the right quantity and from the right source. E-procurement looks at the

potential opportunities that can be gained from automating aspects of the procurement process. Procurement activities include:

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a) Identifying the need to purchase a quantity of an item (initiating a ‘materials requisition’)

b) Identifying one or more possible suppliers c) Negotiating price & other contract details with suppliers

d) Placing the purchase order with the chosen supplier e) Receiving, checking, recording and storing the goods

received. f) Paying the supplier.

Components of E-Procurement E-sourcing: E-sourcing is the use of electronic methods for finding new suppliers and negotiating terms for

purchase agreements. The internet (emails) can be used to identify potential new suppliers, and to find out more about the business of potential suppliers by visiting their websites.

E-purchasing: Process of making purchase orders electronically. The process of making a purchase might involve:

Sending requests to suppliers for quotations for the supply of goods or services. Receiving quotations/tenders from potential suppliers

Placing the order electronically.

E-payment: E-payment is the use of electronic methods for payment, such as electronic invoicing and self -billing. Many companies also arrange to pay suppliers by sending electronic payment instructions to their bank. In t he UK, electronic payments are made through BACS (the Bankers Automated Clearing Services).

Benefits of E-Procurement

Benefits Risks

savings in labour and procurement costs become over reliant on the technology

better inventory control there may be staff resistance better control over suppliers (may even be able to influence cost savings may fail to materialize

their design and production) prices may become out of date or uncompetitive

PAST EXAMS Cronin Auto Retail June 2011 [Q15 BPP Kit] (b) Explain the principles of e-procurement and evaluate its potential application to CAR. (9 marks)

Perfect Shopper December 2007 (b) Explain how Perfect Shopper might re-structure its upstream supply chain to address the problems identified in the scenario. (10 marks)

DRB Pilot Paper (b) Explain how DRB might re-structure its upstream supply chain to achieve the growth required by DRB and to tackle the problems that Dilip Masood has identified. (10 marks)

10 DOWNSTREAM SCM Downstream activities in the supply chain are those that relate to customer and consumer and selling of finish goods. How to Re-structure or improve Downstream SCM: Improve functionality of buy-side web site: shows product availability, and allows customers to order and pay for

products securely through the website. Join an independent marketplace as a supplier:

Introduce on line marketing and online sales

Inventory model, business should use demand driven supply chain model; which will reduce high storage and

holding cost of high levels of inventory. Outbound logistics arrangements: single contract will afford economies of scale,

Shop ordering and delivery system: flexible ordering system, in which customer can make orders and deliveries can be made as required.

Redeploy sales representatives: reduce the size of its sales team, or else it could redeploy some of them on projects to improve the branding and marketing of the business

IT systems, EPoS tills and sales information,

Role of E-Business to improve relationship with its customers The following are the main ways in which ebusiness can affect an organisation’s relationship with its customers.

Tiein/switching costs. A good ebusiness arrange

ment can make customers reluctant to switch supplier due to extra switching cost.

Ecommerce can lead to disintermediation.

The process of re-intermediation is also found.

Counter-mediation is where established firms

create their own new intermediaries to compete.

Continual updates – products, prices, news.

Easy, fast, cheap, twoway communication.

Tracking customer internet activity and buyer habits.

Clicks on website can be recorded & analysed. Customer preferences can be acted on.

Customers can specify precisely the features they might want in their product.

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PAST EXAMS

Jayne Cox Direct June 2012. Question 4.(A,B) (b) Evaluate how technology could be used in both the upstream and the downstream supply chain to address the problems identified at Jayne Cox Direct. (13 marks) Perfect Shopper (12/07) December 2007 (b) Explain how Perfect Shopper might re-structure its upstream supply chain to address problems identifi ed in scenario. (10 m) (c) Explain how Perfect Shopper might re-structure its downstream supply chain to address the problems identified in the scenario. (10 marks)

11 RESTRUCTURING THE SUPPLY CHAIN VERTICAL INTEGRATION is a style of ownership and control with companies united through a hierarchy and

sharing a common owner. VERTICAL DISINTEGRATION is a specific organisational form of production. This means that the production

process is in the hands of several separate companies. A good example of this is to be found in the film industry. VIRTUAL INTEGRATION – a virtually integrated company is one in which core business functions take place in

external organisations. They are so tightly organised that it is often difficult to determine where one legal entity starts and the other one finishes.

12 SOFTWARE SOLUTIONS 12.1 Establishing business information needs

Various methods are available for establishing business information needs, including the following:

Technique Suitability

Interviewing Standard technique for most scenarios Written questions Where people are not available for interview Questionnaires Where the user population is too large to interview

Generally unsuitable due to superficial nature of questions and lack of interaction.

Observation Particularly useful if carried out before interviewing

Document analysis of existing processes

Good source of design and analysis material.

Workshops Useful for resolving conflicts and for new processes where high uncertainty exists.

Protocol analysis – a mixture of interview and observation

Ensures all aspects of the process are considered and none ‘taken for granted’ by users.

Prototyping • Where requirements are unclear • Helps users reassess their desired functionality

12.2 Using generic software solutions

There are various ways to produce a software solution. • Purchase a standard (‘generic’) software package and:

– use this without any modification – make suitable amendments to customise this for the organisation’s specific requirements – add company specific modules as necessary.

• Pay for a bespoke system to be developed using existing hardware.

Advantages of generic solutions Speed of implementation (time saving)

Software quality. Already used by large no customers means faults

have already been identified and corrected. Try before you buy Predicted maintenance costs

Access to expertise of software provider.

Initial cost Cheaper to buy than bespoke solutions

Available almost immediately.

Bugs should have been discovered by the vendors before sale.

Good packages are likely to come with good training programs and

excellent documentation and onscreen help facilities. Availability of updated version on regular basis Different packages will be available for different operating systems

Disadvantages of generic solutions They do not fit precisely the needs of

the organisation The organisation is dependent upon an

outside supplier for the maintenance of the software.

Different packages used by the

organisation may have incompatible data structures.

Using the same packages as rival

organizations removes the opportunity of using IS for competitive advantage.

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12.3 Evaluating and selecting a generic software solution

Evaluation: In evaluating different options, both the

software and the supplier need to be assessed. Key factors are thus: Evaluation of different options

Develop Business case Case (A business case should be

developed which set out the financial case for undertaking

the project. This evaluation provides management with the

opportunity to fully assess the merits and costs involved.) Functional requirements Non-functional requirements (legal compliance, user

friendly and audit requirements.) Technical requirements (hardware support) Supplier stability requirements (Length of time in

business, Financial stability, Third party references)

Supplier cit izenship requirements Initial implementation requirements (Installation stage of

a new package must be carried out successfully) Cost constraints Time constraints Control Design requirements Update

Selection:

a) Obtaining potential suppliers (Identify potential suppliers, Invitation to tender)

b) First pass selection (short list few suppliers from list tenders)

c) Second pass selection (Objective reassessment of suppliers’ claims using specific test scenarios. Suppliers may perform against a script or client staff may use demonstration packages, Visits to reference sites to see package in operation, Financial investigation of suppliers)

d) Implementation:

12.4 Implementation

Implementing software solutions involves three key elements: data migration, training and changeover.

Data migration: (transferring data from the old system to the new) Stages in data migration include: • Planning

• Data mapping • Manual input • Testing the solution • Implementing the solution

Training: Issues needs to be considered are: • Who needs to be trained and why. • On or off the job training.

• Who will provide the training. • Short term or ongoing training. • Line management involvement? Methods of training • External courses • Internal courses • Computer based training

Changeover techniques: (introducing new system to the business operations) Parallel running (old and new

system run side by side) Direct changeover (old system

immediately finished and new takes over)

Phased (old system finished and

new takes over by through different stages)

PAST EXAMS

Flexipipe June 2012 (a) Critically evaluate the decision made by the CEO to use a software package approach to automating the production process at Flexipipe, and explain why this approach was unlikely to succeed. (12 marks) (b) The CEO recommends that the company now adopts a formal process for procuring, evaluating and implementing software packages which they can use in the future when a software package approach appears to be more appropriate. Analyse how a formal process for software package procurement, evaluation and implementation would have addressed the problems experienced at Flexipipe in the production process project. (13 marks) (Total = 25 marks)

OneEnergy plc June 2009 (b) Examine four ways in which OneEnergy failed to follow a proper evaluation procedure in the selection of the RitePay software package. Include in your examination a discussion of the implication of each failing. (12 marks) Institute of Analytical Accountants June 2011 (b) Eventually, the IAA decided not to develop a bespoke solution but to use an established software package to implement its multiple choice question management and examination requirements. The selected package, chosen from a shortlist of three, includes the delivery of tests, question analysis, student invoicing and student records. It is already used by several significant examination boards in the country. Explain the advantages of fulfilling users’ requirements using a software package solution and discuss the implications of this solution for process re-design at IAA. (10 marks)

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CHAPTER 9

STRATEGY and PEOPLE 1 Strategic leadership

Trait theories: Trait theories are based on the idea that some people are inherently suited to positions of leadership because they possess appropriate personal qualities. Behavioural theories:

Blake and Mouton's Managerial Grid Blake and Mouton observed two basic dimensions of leadership: concern for production (or task

performance) and concern for people. a) 1.1 impoverished: the manager is lazy, showing

little interest in either staff or work. b) 1.9 country club: the manager is attentive to staff

needs and has developed satisfying relationships. However, there is little attention paid to achieving results.

c) 9.1 task oriented: almost total concentration on achieving results. People's needs are virtually ignored.

d) 5.5 middle of the road: adequate performance

through balancing (or

switching between) the necessity to get out work with team morale.

e) 9.9 team: high work accomplishment through

'leading' committed people who identify themselves

with the organisational aims.

Theory X and Theory Y McGregor suggested that managers tended to behave in two different way with people at work: Theory X and Theory Y. (a) Theory X suggests that most people dislike work and responsibility, and will avoid both if possible. Because of this, most people must be coerced, controlled, directed and/or threatened with punishment to get them to make an adequate effort. Managers who operate according to these assumptions will tend to supervise closely, apply detailed rules and controls, and

use 'carrot and stick' motivators. (b) Theory Y suggests that physical and mental effort in work is as natural as play or rest. The ordinary person does not inherently dislike work: according to the conditions it may be a source of satisfaction or dissatisfaction. The potentialities of

the average person are rarely fully used at work. People can be motivated to seek challenge and responsibility in their job, if their goals can be integrated with those of the organisation. A manager with this sort of attitude to his staff is likely to be a consultative, facilitating leader, using positive feedback, challenge and responsibility as motivators

Transformational theories Transactional leaders who focus on managing through systems and processes. These leaders are likely to be more effective in securing improvement in stable situations.

Transformational leaders who provide a vision, inspire people to achieve it by instilling pride and gaining respect and trust. These leaders appear to be particularly effective in times of change and uncertainty

Transactional leadership

• Clarify goals & objectives and the focus is on short term

• Focus on control, and Solving problems • Maintain status quo

• Plan, organise and control • Guard and defend existing culture • Positional power exercised Suitability

This is best suited to static, predictable environments.

Transformational leadership

• Establish long term vision • Create a climate of trust • Make people solve their own problems by empowerment • Train, coach, counsel and mentor people

• Change culture • Power comes from relationships and influencing people Suitability This is best suited to environments here change is inevitable and

may be unpredictable.

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Contingency theories These theories suggests that no one style is likely to be entirely appropriate for all circumstances.

Adair's action-centred, model sees the leadership process depends upon three main variables, These are task needs, the individual needs of group members, and the needs of the group as a whole. The total situation dictates the relative priority that must be given to each of the three sets of needs. Effective leadership is identifying and acting on that priority to create a balance between the needs. 2 Job design Process of combining tasks and responsibilities to form complete jobs and the relationship of jobs in the organisation. Scientific Management

Management should be based on 'well-recognised, clearly defined and based on fixed rules, instead of depending on more or less hazy ideas.' This approach states that there is always “one best way” to do a job. Principles of Scientific Management a) The development of a true science of work. Every single subject, large and small, should be gathered and recorded

by management. b) Selection and progressive development of workers: workers should be carefully trained and given jobs to which

they are best suited. c) Combine science and trained men. The application of techniques to decide what should be done and how, using

workers who are both properly trained and willing to maximise output, should result in maximum productivity. d) Co-operation between management and workers: 'the relations between employers and men form without

question the most important part of this art.' Job enrichment

Job rotation shifting from one type of job towards another within an organization. Job enlargement extension of burden of same horizontal job without increase in authority. Job enrichment: “Job enrichment is extension to authority, responsibility and control over the way the job is accomplished. Its main objective is to increase job satisfaction.”

Principles of Job Enlargement: Hackman and Oldham suggest that five core characteristics are required in enriched jobs if they are to produce positive outcomes: a) The job requires the use of a range of skills and talents. b) Task identity (sometimes called closure): the job includes all the tasks needed to complete an identifiable product

or process. c) Task significance: the job has an impact on other people's lives or work. d) Autonomy: workers have a degree of discretion in scheduling and organising their work. e) Feedback: workers are provided with information on the results of their performance. The Japanese model

Flexibility of manufacturing means producing range of products by keeping set-up cost low. The principal features is to

recruit multi-skilled workers and range of machinery and equipment available to each of them. Quality methods: development of the total quality approach in which production workers responsible for the quality of their own output. Minimisation of waste: production is pulled through the factory by demand, not pushed by production schedule. The just-in-time strategy is a further example. Re-engineering

Fundamental rethink and radical redesign starting from a zero in business processes to achieve dramatic improvements 3 Staff development Human resource development (HRD) can be viewed as an investment in strategic capability, since it improves both skills and commitment.

Investment in people is akin to investing in any other type of asset – people become ‘human capital ’. This can be ei ther ‘top -down’ (driven by management) or ‘bottom-up’ (empowered employees recognise their own skills gaps).

Competencies, in the sense used here, are 'the required outcomes expected from the performance of a task in a work role, expressed as performance standards with criteria'. Application of competencies

• Recruitment. • Managing performance. • Benchmark for rewards and promotion • Training and development. 4 Succession planning Succession planning is undertaken in order to ensure continuity in the organisation's leadership. It involves the systematic identification, assessment and development of managerial talent at all levels.

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Features of successful succession planning a) The plan should focus on future requirements, particularly in terms of strategy and culture.

b) The plan should be driven by top management. Line management also have important contributions to make. It is important that it is not seen as a HR responsibility.

c) Management development is as important as assessment and selection. d) Assessment should be objective and preferably involve more than one assessor for each manager assessed. e) Succession planning will work best if it aims to identify and develop a leadership.

CHAPTER 10

PROJECT MANAGEMENT What is a Project? Project: “A project is 'an activity that has a beginning and an end and is carried out to meet established goals within project constraints'.” Project Management: “management of project within project constraints” Project Constraints: These include cost, time (schedule) and scope (quality).

Stages in Project Life cycle Normally every project has at least the following five stages: Project Definition

Planning

Execution

Control

Completion

Project management problems Need for team building

Identified difficulties

Unexpected problems

No client benefit before completion

Management of specialist input Wide range of stakeholders

1 Project Definition Process of project definition is the preparation of answers to a series of questions. What opportunities and threats does the project present?

What are its objectives?

What are its potential benefits, costs and risks?

What is its overall implementation difficulty?

Who are the key stakeholders?

Force field Analysis: identify the factors in favour of project and that which will prevent it. Gap analysis: the difference between desired future results and likely future results. Project are selected which

can reduce this gap. Project selection: projects are evaluated by using the criteria suitability, acceptability and feasibility and best project is selected. Assessment and management of risks Consequences of Risk: Benefits are delayed or reduced

Timeframes are extended

Expenses are increased and Output quality (fitness for

purpose) is reduced. Risk assessment – Risks can be assessed on the basis

of likelihood that they will occur, and the impact that they could have on the project.

Risk management plan –Explaining how these risks will be managed in order toensure project success. Likelihood Impact

Low High

Low Accept Reduce

High Transfer Avoid

Pre-initiating tasks a) Determination of project constraints.

Costs: initial budget for the project and need

to prove that benefits of the project exceed costs.

Scope: Series of tasks to be performed and

level of quality for each task. (means quality & quantity)

Time: overall time constraint for project

completion and time budget e.g. man hours available.

b) Identification of the project sponsor

c) Selection of the project manager Initiating tasks Initiating tasks are carried out by the project manager. a) Identify of project stakeholders & their interests b) Prepare business case c) Prepare project initiation document (or project

charter) d) Drafting an initial statement of project scope e) Holding a project initiation meeting ('kick-off'

meeting)

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1.1 Business Case

A business case is a key document which summarise of why the project is needed, what it will achieve and how it will proceed. Before a business case is approved, it should be evaluated to ensure that a project has value, that it will be properly managed, and that a firm has the capabilities required to deliver the benefits expected from the project.

Reasons for building Business Case: to obtain funding for the project

to compete with other projects to improve planning

to improve project management

Contents of Business Case: Introduction

Management summary

Description of current situation

Project Scope

Project timetable (starting date

and finish data) Options considered

Analysis of costs and benefits

Investment appraisal

Impact assessment

Risk assessment

Recommendations

Appendices and supporting

information

Few contents business case are explained below: Identifying the benefits Observable benefits The realisation of observable benefits, such as increased staff morale, can only be determined by judgement or experience by someone who is qualified to make such an assessment. Staff morale could perhaps be assessed via an independent survey carried out both before and after the community centre is up and running, but the results of this

and any benefit obtained can only be assessed once the project is complete and the building has been in place for some time. However, such observable benefits should not be included in the business case because It is not clear whether they would bring about improvement in staff morale and motivation or not. Measurable benefits relate to an area of performance that could be (or already is being) measured, but it is not possible to quantify how much performance will increase as a result of the change. E.g Process improvement. Quantifiable benefits are those where the level of benefit that will result from the change can be reliably forecast based on the evidence in place. Quantifiable benefits differ from measurable benefits because it is possible to quantify the degree of improvement before the change is actually made. Financial benefits are quantified benefits that have had a financial formula (such as cost or price) applied to them to produce a financial value for the benefits.

Identifying the costs Many costs will be incurred as part of a project, these will be both capital and operational. Care should be taken to ensure all costs are fully identified within the business case. Project costs might be: Capital investment costs, Development costs, centrally allocated costs/infrastructure costs, External consultancy costs, Resource costs, Quality costs, Flexibility costs, Disruption costs Evaluation of the costs and benefits There are four key methods that are used for investment appraisal, they are ARR, Payback period, NPV and IRR.

Approach Decision of criteria Advantages Limitations

Accounting Rate of Return (ARR)

Acceptable projects

achieve target ARR

Select project with highest

ARR

Consistent with ROCE

Result expressed as a percentage

Ignores time factor

Based on profits not cash

Difficult if comparing

investments of different size

Pay back Period (PP)

Acceptable projects have

PP shorter than target PP

Select project with

shortest PP

Quick and easy to calculate

Easily understood

Emphasises importance of liquidity

Ignores cash flows after pay

back date Ignores many risks

Not l inked to promoting

increases in organisational and shareholder wealth

Net Present

Value (NPV)

Acceptable projects return

a positive NPV


NVP

Consider all costs and benefits

Allows for timing of costs and

benefits

Aligns with business objective of increasing wealth

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Internal Rate of

Return (IRR)

Acceptable projects have

IRR greater than cost of capital


IRR

Consider all costs and benefits

Allows for timing of costs and

benefits

Does not relate directly to

shareholder wealth Ignores scale of investment

Can be unreliable it cashflows

are unconventional

Responsibilities for delivering the benefits A benefit owner is an individual or group who will gain advantage from a business benefit and who will work with the project team to ensure that benefit is realised. Benefits map: A benefits map is a useful tool which assists the benefit owner in understanding how to realise the intended benefit from a project. A benefits map can be linked back to the organisation's objectives to illustrate how the intended benefits will help the entity. For example reducing the marker fees may be part of the IIA's plan to improve profitability. The benefits map should also help to indicate any new processes that will be needed in order to achieve the project's expected benefits. However, the benefit owners cannot be considered to be solely responsible for realising the benefit, since the changes

necessary to deliver the benefit may need to be undertaken by others outside their sphere of control or influence people who do this are known as change owners. A change owner is an individual or group who will ensure that an identified change is successfully achieved. The benefits realisation plan A benefits realisation plan should be included as part of the business plan to demonstrate how the identified benefits will be measured, taken forward and achieved. Full descriptions of each benefit and change with responsibilities for delivery defined and agreed

Measures, and where possible expected values, for each benefit

Agreed ownership of all the changes to achieve benefit

Criteria to be used to assess whether each change has been successfully carried out Complete and documented benefits dependency network identifying all the benefit and change relationships

A benefits dependency network A benefits dependency framework is aimed at ensuring that the business drivers and investment objectives are achieved by ensuring there are appropriate business changes in areas such as work methods, structure, culture etc.

The network should be established in the following order: a) Identify business drivers The key drivers of any project will be the business strategy and the organisational objectives. Before starting a project, it is important that these drivers are understood and discussed. This is known as driver analysis. b) Establish investment objectives Objectives should also be personalised to the investment. These will be more detailed and operatio nal than the overall project drivers. However, each should be directly linked to one or more of the project drivers. The list should be short (with between three and six targets) and precise. Ideally, each objective should follow a SMART (specific, measureable, achievable, relevant, time bounded) criteria. c) Identify business benefits d) Identify required business changes

e) Associate further enabling changes (changes required to make business changes)

1.2 Project initiation document (or project charter)

The business case explains the need for work on the project to start, the charter gives authorisation for work to be done and resources used. Elements of project initiation document.

Project title

Details of the project sponsor and project Project purpose and objectives

Authorisation by the main stakeholders

Project start date and expected finish date

Outline schedule of work

Outline of project scope and work sequence Budget information

Further details of roles and responsibilities

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2 Project Planning

Why projects go wrong: Unproven technology

Changing client specifications

Politics at all levels lack of management support

Poor project management

Poor leadership by technical experts

Poor planning

Poor control

Force field Analysis: Identify the factors in favour of project and that which will prevent it. Work breakdown structure A work break down structure breaks a work down into its component points in the form of a hierarchical chart The project budget The project budget plans the allocation of resources to the project and forms a basis for their control. Budgeting may be top-down or bottom-up

Gantt charts A Gantt chart shows the consumption of resources over time.

Resource histogram A resource histogram shows a view of project data in which resource requirements, usage, and availability are shown against a time scale.

Network analysis or Critical Path Analysis It is used to plan the sequence of tasks of project and to determine the critical path. Project evaluation and review technique (PERT) is a modified form of network analysis designed to account for uncertainty

3 Project Execution The project sponsor provides and is accountable for the resources invested into the project and is responsible for the achievement of the project's business objectives. The project manager takes responsibility for ensuring the desired result is achieved on time and within budget. The Project Board (project steering committee) is the body to which the project manager is accountable for achieving the project objectives. It represents the interests of the project sponsor. Project champion. Sometimes a project champion is appointed. This is a senior manager whose role is to represent the project to the rest of the organisation, communicating its vision and objectives and securing commitment to them. Project owner. The project owner is the person for whom the project is being carried out and as such they are interested in the end result being achieved and their needs being met. Project manager

The project manager takes responsibility for ensuring the desired result is achieved on time and within budget.

Duties of the project manager Planning

Obtaining resources Teambuilding

Communication

Co-ordinating project activities

Monitoring and control

Problem resolution

Quality control

Skills required of the project manager Leadership and team building

Organisational ability Understanding of the way that groups interact

Written and spoken communication skills

Interpersonal/negotiation skills

Technical knowledge of the issues involved

Problem solving

Change control/change management

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Leadership style As in other forms of management, different project managers have different styles of leadership. There is no single

best leadership style, as individuals react differently to different styles on different occasions. The key is adopting a style that suits both the leader and the team and that is appropriate to the current situation. The project team

A group or team differs from a random collection of people in that its members perceive themselves to be a group. They have: A sense of identity

Loyalty to the group

Purpose and leadership

Development of the team – Tuckman Forming. The team is still a collection of individuals. Aims, norms and personalities are probably unclear and no leader is likely to have emerged. Storming. There may be open conflict as objectives and norms are set and revised. Trust increases. Norming. The team settles down and creates norms for output, worksharing and individual needs. Performing. The team is sufficiently integrated to perform its task.

Roles of team member Specialist or technical expert – brings specialist

knowledge and advice to the team. Representative – as part of the core team, the

member represents their ‘home’ department and as part of the project team communicates the project team’s views and decisions when back in their ‘home’ department.

Monitor – will monitor their progress against the plan

appropriately and regularly Change manager – as changes are identified, will

ensure that the full implications have been assessed before the changes are agreed and implemented.

Problem solver – will be faced with many problems

during any project and will be required to solve them by drawing on the resources of the project team and their ‘home’ department and through the use of problemsolving techniques.

Matrix Structure

Most suitable structure to perform project is matrix structure in which consist of multi-skilled persons. 4 Controlling the Project Gateways A gateway is a project review point at which certain criteria must be met before for the project can pass through the

gateway and proceed to the next stage. Gateways should be incorporated into formal monitoring of projects in order to ensure that the project has remained on track, and any problems can be identified and rectified before they get out of hand. Gateways are particularly helpful for identifying scope creep (uncontrolled changes in the scope of a project.) Progress reports & Realistic timescale A progress report shows the current status of the project, usually in relation to the planned status. The report should monitor progress towards key milestones. A milestone is a significant event (major target) in the life of the project. Dealing with slippage

When a project has slipped behind schedule there are a range of options open to the project manager. Do nothing

Add resources Work smarter

Replan (If the assumptions that the original plan was based on have been proved invalid, a more realistic plan

should be devised.) Reschedule (A complete replan may not be necessary – it may be possible to recover some time by changing the

phasing of certain deliverables.) Introduce incentives to enhance individual performance

Briefings and motivation

Change the specification (negociate a change in number of activities or level of quality required in each activities.

Options for major slippage & Project can’t be delayed: Fast-tracking :Performing activities in parallel which were previously scheduled in sequence. fast-tracking can

accelerate a project, it also involves the risk of increased costs.

Crashing: Crashing involves assigning additional resources to the critical path. For example, if one person was working on a twelve day activity on the critical path, and it was essential to reduce the path length to eight days, a second person could be added to work on the activity.

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Project change procedure

Changes will cost time and money and should not be undertaken lightly. When considering a change an investigation should be conducted to discover: a) The consequences of not implementing the proposed change. b) The impact of the change on time, cost and quality. c) The expected costs and benefits of the change. d) The risks associated with the change, and with the status-quo. 5 Project completion The completion report summarises the planned and actual results of the project, and includes client sign-off. Post Project Review

A post-project review is a formal review of the project that examines the lessons that may be learned and used for the benefit of future projects. They help the organisation to avoid making the same mistakes twice. Post-project reviews are carried out after the project has been completed and aims to measure the success of the project by considering: if the project was completed on time and within budget

Whether the project was successfully managed, or if problems and bottlenecks were encountered

if these problems could arise on future projects; and how well the team performed, both individually and as a group

The whole team should be involved in the post project review and the overall findings should be formalised into a report called post project review report which should include the following. A summary of the findings highlighting any area where the process, structures and tools used to manage the

project were unsatisfactory A cost-benefit review which compares the forecasted costs and benefits to actual costs incurred and benefits

achieved Recommendations as to how the project management process could be improved

Post-implementation reviews Post-implementation reviews are assessments of the completed working solution. The post-implementation review focuses more specifically on the product that was produced by the project. It is carried out for three main reasons. To determine how well the project met its objectives, delivered the expected benefits and addressed the

requirements that were originally defined. To consider the working business solution to see if further improvements could be made to optimise the benefit

delivered. To identify lessons that can be learned and fed back into the product production process. This could involve

improving processes such as research and development and operational processes as well as making changes to who is involved in certain processes and the timings at which individual processes are carried out.

Benefits realisation review The benefits realisation review involves returning to the business case for the project and determining whether or not

the costs were accurate and also if benefits identified at the outset were actually delivered by the project. This review can only be carried out, therefore, once the product produced by the project has been delivered. It is likely that this review will take place at a later date than the post-implementation review due to the long-term nature of many benefits. In reality, the benefits realisation review may actually be a series of reviews where the long-term costs and benefits identified in the business case are monitored.

PAST EXAMS

Clothing Co. December 2007 Most project management methods have an initiation or definition stage which includes the production of a

document that serves as an agreement between the sponsors and deliverers of the project. This may be called a project initiation document or a project charter. Defining the business case is also an important part of the initiation or definition stage of the project. (a) Explain how a business case and a project initiation document would have helped prevent some of the problems that emerged during the conduct of the website re-design project. (15 marks) (b) Analyse how effective project management could have further improved both the process and the outcomes of the website re-design project. (10 marks) (Total = 25 marks)

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Tillo Community Centre June 2012 (a) The local authority has commissioned the independent Project Audit Agency (PAA) to look into how the project

had been commissioned and managed. The PAA believes that a formal ‘terms of reference’ or ‘project initiation document’ would have resolved or clarified some of the problems and issues encountered in the project. It also feels that there are important lessons to be learnt by both the local authority and the construction company. Analyse how a formal ‘terms of reference’ (project initiation document) would have helped address problems encountered in the project to construct the community centre and lead to improved project management in future projects. (13 marks) (b) The PAA also believes that the four sets of benefits identified in the original business case (rental savings, energy savings, increased income and better staff morale) should have been justified more explicitly. Draft an analysis for the PAA that formally categorises and critically evaluates each of the four sets of proposed benefits defined in the original business case. (12 marks) (Total = 25 marks)

Lowlands Bank December 2009 (a) The branch rationalisation was a successful project. Identify and analyse the elements of good project management that helped make the branch rationalisation project successful. (12 marks)

HomeDeliver December 2011 (a) Explain the purpose of each of the following: a post-project review, a post implementation review and a benefits realisation review. (6 marks) (b) Evaluate the problems and the lessons that should be learned from a post -project review and a post-implementation review of the electronic ordering system at HomeDeliver. (12 marks)

(c) HomeDeliver does not have a benefits management process and so a benefits realisation review is inappropriate. However, it does feel that it would be useful to retrospectively define the benefits to HomeDeliver of the new electronic ordering system. Identify and discuss the potential benefits to HomeDeliver of the new electronic ordering system. (7 marks) (Total = 25 marks)

ASW June 2010 (a) Evaluate the alternative strategies available to ASW’s project manager to address the sl ippage problem in the CaetInsure project. (10 marks) (b) As a result of your evaluation, recommend and justify your preferred solution to the slippage problem in the CaetInsure project. (6 marks) (c) Explain what is meant by a post-project review and demonstrate how carrying out such a review could be of benefit to ASW. (9 marks) (Total = 25 marks)

Institute of Administrative Accountants December 2010 (b) Explain why establishing a business case, managing benefits and undertaking benefits realisation are essential requirements despite the claimed ‘self-evident’ justification of adopting e-assessment at the IAA. (10 marks)

MidShire health June 2013 (a) (i) Identify and analyse mistakes made by the CEO in the project management process (initiation, conduct and termination) in his attempt to introduce strategic planning, and an associated information system, at MidShire Health. (18 marks)

CHAPTER 11

FINANCE

Use BPP book to Revise areas of finance Integrated Reporting

PAST EXAMS

Alpha Software

(a) Discuss what is meant by 'integrated reporting', highlighting how it differs from traditional performance reporting. (10 marks) (b) How may integrated reporting help Alpha Software to communicate its strategy and improve the company’s strategic performance? Your answer should make reference to the concerns raised by the finance director. (10 M) (c) Advise on the likely implications of introducing ‘integrated reporting’ which Alpha should consider before deciding to proceed with its adoption. (5 marks) (Total = 25 marks)

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Financial Analysis

PAST EXAMS

8 Hats June 2011 (a) Barry Blunt has criticised the investment appraisal approach used at 8-Hats to evaluate internal jobs. He has made specific comments on payback, discount rate, IRR, intangible benefits and benefits realisation. Critically evaluate Barry’s comments on the investment appraisal approach used at 8-Hats to evaluate internal jobs. (15 marks)

ISD December 2011 regression (b) Figures 1 and 2 provide important, independent, statistical data: Evaluate the potential of each set of statistical data for use in the pricing decision for the e-learning product, particularly highlighting any limitations in using such data. (10 marks)

One Energy plc June 2009 (a) W&P concluded in their report ‘that there were clear signs that the company (RiteSoftware) was in difficulty and this should have led to further investigation’. Assess, using the financial information available, the validity of W&P’s conclusion. (13 marks)

Hammond Shoes December 2012 (a) Analyse the financial position of Hammond Shoes and evaluate the proposed investment of $37.5 million in upgrading its production facilities. (14 marks)

World Engines December 2012 Decision trees and expected values (a) Develop a decision tree from the information given in the scenario and discuss its implications and shortcomings. Ignore the time value of money in your analysis. (9 marks) (b) The divisional director suggests that the procurement decision could have been taken on the evidence of the decision tree. Discuss what other factors (not considered by the decision tree analysis) should also be taken into consideration when deciding which option to select. (6 marks)

(c) WE executives are concerned about the risk of Topaz, as a relatively new company, going out of business. They have also expressed concern about the loss of the evaluation team in a fatal accident and they believe that this should lead to a review of the risks associated with employee travel. Discuss how each of the above risks (supplier business failure and employee travel) might be avoided or mitigated. (10 marks) (Total = 25 marks)

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