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Strategic and Operations Management June 2010

Suggested answers and examiner’s comments Important notice When reading these answers, please note that they are not intended to be viewed as a definitive ‘model’ answer, as in many instances there are several possible answers/approaches to a question. These answers indicate a range of appropriate content that could have been provided in answer to the questions. They may be a different length or format to the answers expected from candidates in the examination. Examiner’s general comments The Strategic and Operations Management paper examines both the breadth (in the compulsory Section A) and depth (in Section B) of candidates’ knowledge of the subject. It is difficult for candidates to secure a good result by picking isolated sections of the syllabus to study. The performance at this exam dipped in both sections of the paper. Those scoring the highest marks focused on the question, dealt with the key issues that were raised, and contained references and examples to support all of the points made. Some questions asked candidates specifically to use examples from their own organisation or one with which they were familiar. The focus on answering the question was not as good as it has been in recent sessions and it is important to take an analytical view of your own organisation so that you are able to use it in this way in the exam. There were too few very good examples of candidates who applied course models and frameworks to organisational examples. Those who did so answered the questions very effectively. The answers to Question 1 were variable - some good, others poor. It is important not to over-elaborate answers to these questions. There can only ever be four marks for each answer in Section A. That said, simply listing is not always sufficient. Candidates are advised to take time to read the questions and plan responses. There were too many answers that, whilst covering the topic of the question, did not engage with what they were specifically asked to do.

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Section A 1. (a) Using examples, identify three characteristics of strategic decisions. (4 marks)

Suggested answer Johnson and Scholes (2008) argue that strategic decisions are concerned with:

The long-term direction of an organisation.

The scope of an organisation’s activities – Whether the organisation should concentrate on one area of activity or many. The issue of scope of activity is fundamental to strategic decisions because it concerns the way in which those responsible for managing the organisation see the organisation’s boundaries and what they want the organisation to be like and to be about.

Securing advantage – Strategic decisions are normally about trying to achieve some advantage for the organisation over the competition or providing higher quality, value-for-money services than other providers in the public or third sector, thus attracting support and funding from the government.

Strategic fit with the environment – Strategy can be seen as the matching of the activities of an organisation to the environment in which it operates. For example, locating in particularly favourable markets or seeking to appeal to particular market segments.

The organisation’s resources and competences – Strategy can also be seen as exploiting the strategic capability of an organisation in terms of its resources and competences to provided competitive advantage or yield new opportunities. For example, IKEA has built up its logistics expertise, from sourcing products to stock control, over many years and provided a distinct way of operating, greatly appreciated by customers.

Values and expectations – The strategy of an organisation is affected not only by environmental forces and resource availability, but also by the values and expectations of those who have power in and around it. In some respects, strategy can be thought of as a reflection of the attitudes and beliefs of those who have most influence on the organisation. For example, whether a company is expansionist or more concerned with consolidation may say much about the values and attitudes of those who influence strategy – the stakeholders of the organisation. These include shareholders or financial institutions, management and the workforce, buyers, suppliers and the local community.

Examiner’s comments Answers to this question were variable. Good answers offered three distinct characteristics and clear examples. Weaker answers failed to give examples or talked about the characteristics of strategy in more vague and general terms, rather than strategic decisions. (b) Outline the purpose, and process, of ‘stakeholder analysis’. (4 marks) Suggested answer Stakeholder analysis identifies stakeholder expectations and power, and helps to establish political priorities. It consists of making judgements on:

The interest each stakeholder group has in impressing its expectations on the organisation's choice of strategies.

Whether they have the power to do so.

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Stakeholder analysis helps to assess:

Whether the levels of interest and power of stakeholders properly reflect the corporate governance framework within which the organisation is operating.

Whether actions need to be taken to reposition certain stakeholders. This could be to lessen the influence of a key player or to ensure that there are more key players who will champion the strategy.

Who are the key ‘blockers’ and facilitators of change and how this will be responded to education or persuasion?

Po

wer

Level of interest

Low

High

Low Minimal Effort

Keep Informed

High Keep Satisfied

Key Players

Stakeholder Mapping (Johnson and Scholes 2004)

Examiner’s comments There were some very good answers to this question. The best answers contained a clear definition and outline of the process, possibly using examples to clarify. Weaker answers took a superficial view and did not focus clearly on the question. (c) Summarise the advantages, and disadvantages, of both acquisition and internal

development as a means of growth. (4 marks)

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Suggested answer

Advantages

Disadvantages

Internal development (Organic growth)

Lower risk.

Allows for continuous learning.

More control.

Is slow

Lack of early knowledge means there may be misjudgements.

Acquisition Is fast.

Buys presence, market share and expertise.

A premium price may have to be paid.

High risk if there is any misjudgement.

Preferred organisation may not be available.

It may be difficult to sell unwanted assets.

Examiner’s comments The standard of answers to this question was not high. Good answers captured the key points, perhaps in a table such as the one above, and elaborated using appropriate examples. (d) Using examples, explain how the structure of an organisation might reflect its

strategy. (4 marks)

Suggested answer Structure is a means used by an organisation to achieve its objectives. If there is a significant change in the organisation’s strategy, then its structure is likely to need modification. In this sense, structure follows strategy. For example:

Strategy Structural Option

Innovation (3M) Organic/Diverse – A loose structure, low specialisation, low formalisation, decentralised.

Cost-minimisation (Wal-Mart) Mechanistic/uniform – Tight control, extensive work specialisation, high formalisation, high centralisation.

Imitation/Follower (IBM) Mix – Mix of loose with tight properties, tight control over current activities and looser controls for new undertakings.

Examiner’s comments This was a straightforward question that was over-complicated by some candidates. The best answers provided both a clear simple statement of the causal relationship, and examples, such as those above.

(e) Explain what is meant by the ‘grapevine’ in organisational communication, and

propose how managers might deal with it. (4 marks)

Suggested answer In an informal system, information can flow along a grapevine and rumours can flourish. The grapevine has three main characteristics:

It is not controlled by management.

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It is perceived by most employees as being more believable and reliable than formal communiqués issued by top management.

It is largely used to serve the self-interests of those people within it.

Management can minimise the negative consequences of rumours and the grapevine by limiting their range and impact. Some suggestions for minimising negative consequences of rumours are to:

Announce timetables for making important decisions.

Explain decisions and behaviours that may appear inconsistent or secretive.

Emphasise the downside, as well as the upside, of current decisions and future plans.

Openly discuss worst-case possibilities. It is almost never as anxiety provoking as the unspoken fantasy.

Examiner’s comments For many, this question was well-answered and most candidates appeared to understand what is meant by the grapevine. Good answers explained the nature of the grapevine and its key features before clarifying a management strategy. (f) Outline the characteristics of ‘situational leadership’. (4 marks)

Suggested answer Situational leadership is a leadership model developed by Hersey and Blanchard and focuses on exploring leadership by looking at the needs of the followers. Hersey and Blanchard believe that successful leadership is achieved by selecting the right leadership style and that this is contingent on the level of the follower’s readiness. Hersey and Blanchard’s emphasis on the followers in leadership effectiveness reflects the reality that it is the followers who accept or reject the leader. Regardless of what the leader does, effectiveness depends on the actions of his or her followers. ‘Readiness’ is defined by Hersey and Blanchard as the extent to which people have the ability and willingness to accomplish the tasks. Situational leadership uses the two dimensions of task and relationship behaviours and how high or low these may be. They identify four specific leader behaviours linked to four stages of readiness in the followers. The leader behaviours are: (i) Telling (high task; low relationship) – The leader defines roles and tells people what, how,

when and where to do various tasks. The emphasis is on directive behaviour. (ii) Selling (high task; high relationship) – The leader both directs and supports. (iii) Participating (low task; high relationship) – The leader and followers share in decision

making. The main role of the leader is to facilitate and communicate. (iv) Delegating (low task; low relationship) –The leader provides little direction and limited

support. Examiner’s comments Disappointingly few candidates gave a really good answer to this question. Candidates were expected to offer a definition and identify the key elements of situational leadership. There was credit too for identifying Hersey and Blanchard as key proponents of the concept. The best answers explained further and provided a diagram to outline the model and the two key dimensions of leader behaviours and readiness.

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(g) Outline the contribution of either Alderfer or McClelland to motivation theory. (4 marks) Suggested answer Alderfer’s ERG theory Alderfer (1972) argues that people experience three different orientations reflecting their perceived needs and wants, but that these orientations are not organised into any predetermined hierarchy (as Maslow had suggested). These are:

The need to exist – The desire for economic and material goals.

The need to relate to others – Social needs and interpersonal affiliation.

The need for personal growth – The desire for self-development and self-actualisation, and to fulfil one’s potential.

Alderfer argues that there are groups of core needs – existence, relatedness and growth (ERG). ERG theory argues that all three categories could be operating at the same time. Alderfer also argues that frustration in attempting to satisfy a higher level need can result in regression to a lower level need. For example, inability to satisfy a need for social interaction might increase the desire for more money or better working conditions. ERG is, therefore, more consistent with our knowledge of individual differences between people. Variables such as education, family background and cultural environment can alter the importance that a group of needs hold for an individual. McClelland’s theory of needs McClelland’s theory of needs was developed by David McClelland (1965) and focuses on three needs defined as:

Need for achievement – The drive to excel, to achieve in relation to a set of standards, to strive to succeed.

Need for power – The need to make others behave in a way that they would not have behaved otherwise.

Need for affiliation – The desire for friendly and close interpersonal relationships.

Need for achievement Some people have a compelling drive to succeed. They are striving for personal achievement rather than the rewards of success per se. They have a desire to do something better or more efficiently than it has been done before. This drive is the achievement need. From his research, McClelland found that high achievers differentiate themselves from others by their desire to do things better. They seek situations where they can take personal responsibility for finding solutions to problems, where they can receive rapid feedback on their performance so they can tell easily whether they are improving or not, and where they can set moderately challenging goals. The need for power This is the desire to have impact, to be influential, and to control others. These individuals enjoy being ‘in charge’ and tend to be more concerned with prestige and gaining influence over others than with effective performance.

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The need for affiliation This is the desire to be liked and accepted by others. Individuals with a high affiliation motive strive for friendship, prefer co-operative situations rather than competitive ones and desire relationships involving a high degree of mutual understanding. McClelland asserts that some reasonably well-supported predictions can be made based on the relationship between achievement need and job performance. Examiner’s comments This question was answered well by the majority of candidates. Good answers offered a clear explanation of the view of one of the authors in the context of motivation theory as a whole. Those choosing Alderfer received credit for recognising the close relationship with Maslow’s ideas. Too many candidates confused McClelland’s ideas with those of Douglas McGregor. (h) Outline four criteria that should be used to judge the effectiveness of a

performance appraisal system. (4 marks)

Suggested answer Within most organisations, the appraisal scheme itself needs to be regularly re-assessed according to the following general criteria: Relevance – For example:

Does the system have a clear purpose, relevant to the needs of the organisation and the individuals and teams in it?

Is the purpose clearly expressed and widely understood by all concerned, both appraisers and appraisees?

Are the appraisal criteria relevant to the purposes of the system? Fairness – For example:

Is there reasonable standardisation of criteria and objectivity throughout the organisation?

Is there reasonable objectivity?

Serious intent – For example:

Are the managers concerned committed to the system or is it just something the personnel or HR department thrusts upon them?

Who does the interviewing, and are they properly trained in interviewing and assessment techniques?

Is reasonable time and attention given to the interviews, or are they seen as a nuisance to be disposed of as fast as possible?

Is there a genuine demonstrable link between performance and reward or opportunity for development?

Co-operation – For example:

Is the appraisal a participative, problem-solving activity or a tool of management control?

Is the appraisee given time and encouragement to prepare for the appraisal, so that he or she can make a constructive contribution?

Does a jointly agreed, concrete conclusion emerge from the process?

Are appraisals held regularly?

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Efficiency – For example:

Does the system seem overly time-consuming compared to the value of its outcome?

Is it difficult and costly to administer?

Examiner’s comments There were few really good answers to this question. Good answers identified four appropriate criteria and expanded on each of them. The weaker answers were rather superficial or talked about the elements of a performance appraisal system.

(i) In the context of an organisation with which you are familiar, explain what is

meant by a ‘transformation process’. (4 marks)

Suggested answer A transformation process is any activity or group of activities that takes one or more inputs, transforms and adds value to them, and provides outputs for customers or clients. Where the inputs are raw materials, it is relatively easy to identify the transformation involved, as when milk is transformed into cheese or butter. Where the inputs are information or people, the nature of the transformation may be less obvious. For example, a hospital transforms ill patients (the input) into healthy patients (the output). Transformation processes include changes in the:

Physical characteristics of materials or customers.

Location of materials, information or customers.

Ownership of materials, information storage, or accommodation of materials, information or customers.

Purpose or form of information.

Physiological or psychological state of customers. Often, all three types of input – materials, information and customers – are transformed by the same organisation. For example, withdrawing money from a bank account involves information about the customer’s account, materials such as cheques and currency, and the customer. Treating a patient in hospital involves not only the ‘customer’s’ state of health, but also any materials used in treatment and information about the patient.

Examiner’s comments There were some good answers to this question which offered clear definitions and discussed the transformation process. Some answers appeared to confuse this with transformational change.

(j) Explain what is meant by ‘related diversification’. (4 marks)

Suggested answer Diversification usually involves directions of development that takes the organisation away from its present markets and its present products at the same time. Related diversification is development beyond the present product and market, but still within the broad confines of the ‘industry’ (i.e. value chain) in which the company operates. For example, Unilever is a diversified corporation, but virtually all of its interests are in the fast-moving consumer goods industry. Related diversification includes:

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Backward integration – This refers to development into activities that are concerned with the inputs into the company’s current business (i.e. are further back in the value chain). For example, raw materials and machinery.

Forward integration – This refers to development into activities concerned with a company’s outputs (i.e. are further forward in the value chain), such as transport, distribution, and so on.

Vertical integration – This describes either backward or forward integration into adjacent activities in the value chain. Horizontal integration refers to development into activities that are competitive with, or directly complementary to, a company’s present activities. For example, many organisations have realised that there are opportunities in other markets for the exploitation of the organisation’s core competencies.

Examiner’s comments On the whole, this question was very well answered, with candidates showing a clear understanding of related diversification. However, some candidates confused related and un-related diversification.

Section B 2. A group’s performance is largely dependent on the resources brought to it by its

members.

Critically evaluate this statement. (20 marks)

Suggested answer A group’s performance can, to some extent, be predicted by the characteristic or resources of its members. These include:

Abilities – Task-relevant and intellectual abilities of its members. A group’s performance is not just the sum total of its individual members’ abilities. A good coach or leader may encourage teams to superior performance. However, abilities clearly set parameters for what members can do and how effectively they can perform as a group.

Personality characteristics – There has been much research on the relationship between personality traits and group attitudes and behaviour. Robbins concludes that those most positively related to group morale, cohesiveness and productivity are:

Sociability.

Self-reliance.

Independence. It is the combination, rather than a single characteristic, that are of major significance for the behaviour of the group. Charles Handy (1993) argued that when individuals decide about their behaviour in a group, they ask themselves three questions. These focus on issues of:

Identity – Who am I in this group? What is my occupational role? What are the role expectations of me?

Power – Who has the power? What kind of power is it? Do I want to change the influence pattern?

Aims – What are my needs and objectives? Are they in line with the group? What do I do about them if they are not?

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The answers to these questions will influence which role(s) they will play in the group, but there are also other factors that may come into play in determining group performance such as size, leadership, cohesiveness and group processes Examiner’s comments There were some good answers to this question, but some answers discussed the members of a group of companies. It is important to be clear about what is contained in the syllabus. Good questions showed a clear understanding of the nature of member resources and engaged with the question – identifying other factors than member resources.

3. Knowledge management and change must be synchronised for organisational

improvement.

Evaluate this statement by:

(a) Using a model of your choice to review a change in an organisation with which you are familiar. (10 marks)

Suggested answer There are a number of models that might have been chosen here. The most likely were Kotter’s model or Lewin’s framework and credit was given for using others. It was possible, for example, to look at individual reactions during the change process and use Kubler-Ross or Moss-Kanter to analyse what happened. (b) Explaining the benefits to the chosen organisation of taking such a strategic view

of knowledge management. (10 marks) Suggested answer The benefits cited in the Roffey Park research, for example, of taking a strategic approach to knowledge management are:

Minimising the duplication of effort.

Reducing repeated learning curves.

Improved internal efficiency, including the more effective use of time.

Minimising risk.

Improving the rate of innovation.

Improving the speed and quality of service.

Providing consistent global offerings. However, these benefits can be achieved from a range of other initiatives. The importance of knowledge management is perhaps best appreciated in the broader context of changes occurring in the global economy. New communications technologies, globalisation in economic development, industry convergence and global customers are among the drivers dispersing knowledge in companies as well as information. Global organisations, for example, usually seek to deliver value by combining global and local presence but this poses challenges. The effects of geography and culture can hamper knowledge creation (innovation) and sharing because of the effects of location and variation in contexts. Santos has argued that in dispersed and diverse organisations, the various knowledge processes (creation and sharing) must be managed – explicitly. This means understanding the nature and complexity of the knowledge and the contexts in which it resides if we are to avoid the pitfalls of managing dispersed teams and the waste of the ‘not invented here’ syndrome.

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Examiner’s comments In part (a), candidates were expected to draw on a relevant model. The answer required more than just a description but also a degree of analysis. In part (b), the key requirements were a clear understanding of knowledge management and its strategic benefits. Many answers showed the former but not the latter.

4. Approaches to measuring effectiveness in modern organisations seek to take a broader view of effectiveness than has traditionally been the case, but during difficult times for the economy the only measures that make any sense are hard, quantitative measures.

Critically examine this statement by discussing the issues involved in evaluating organisational effectiveness. (20 marks)

Suggested answer This question meant a focus on organisational effectiveness and how this can be monitored, measured and evaluated. Understanding organisational goals and strategies is the first step toward understanding organisational effectiveness. Organisational goals, expressed through mission statements and corporate objectives, are the reason for an organisation's existence and the outcomes it seeks to achieve. They represent the desired future state of the organisation. Organisational effectiveness is the degree to which an organisation realises its goals. Effectiveness implicitly takes in a range of variables at both the organisational and departmental levels and evaluates the extent to which goals are attained. Efficiency is a more limited concept that concerns the internal workings of the organisation. Organisational efficiency is the amount of resources used to produce a unit of output. If one organisation can achieve a given production level with fewer resources than another organisation, it would be described as more efficient. Sometimes efficiency leads to effectiveness. An organisation may be highly efficient but fails to achieve its goals because it makes a product for which there is no demand. Likewise, an organisation may achieve its profit goals but be inefficient. Our prime concern in this question is with effectiveness. How does the board of a company ensure that it is meeting the goals that it has established as part of its strategy? Overall, effectiveness is difficult to measure in organisations. Organisations are large, diverse, and fragmented. They perform many activities simultaneously. They pursue multiple goals and they generate many outcomes, some intended and some unintended. Managers determine what indicators to measure in order to gauge the effectiveness of their organisations. Research by Blekhorn and Gaber suggested that many managers have difficulty with the concept of evaluating effectiveness based on characteristics that are not subject to hard, quantitative measurements. Many think of measures and systems of control as built around the organisation's accounting system. True, the management of costs, cash and margins are essential in many cases; especially businesses devoted to the pursuit of profit. Accounting systems satisfy criteria of comprehension, timeliness, flexibility and accuracy. Further, they can be designed to support each manager's critical decisions, providing them with sufficient information, and allowing for further investigation to establish causes and solutions. Yet there are problems with the predominance of financial measures, including:

The style of accounting in most organisations is narrowly focused. There can be too much accuracy at the expense of usefulness.

All statements in accounts are both backward and inward looking. Management control should be concerned with wider aims, especially strategic ones.

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The following issues in evaluation could also have been discussed:

What is evaluated? – Some approaches concentrate on the performance of the organisation as a whole, while others look at strategic business units, divisions, functions or the individual. Things to measure or evaluate are profitability, activity, productivity and quality and service. A traditional view is that a desire to achieve greater profitability often entails a sacrifice in some other aspect of performance. But economising on quality may have an adverse effect in the longer term. A company may, for example, aim to improve working conditions for its staff, and measure its success in terms of the cost of improved facilities, reductions in staff turnover, or absenteeism and so on.

Who decides what constitutes 'performance' and whether it is good or bad? – Some approaches are based on the viewpoint of a single interest group such as investors; others include the views of various interest groups (for example, employees or environmental pressure groups).

Organisational purpose – An organisation may have a single unambiguous purpose that can be translated into specific goals. Its values may be a conglomeration of the values of the different interest groups. In the former case, performance evaluation can take the form of measuring progress towards targets. In the latter, the measurement needs be far more diverse.

Types of measure – Are the measures that will be used quantitative, qualitative or both? With financial performance measures, the important point is that the monetary amounts stated are only given meaning in relation to something else, for example, profits are higher than last year's. Non-financial indicators may be either quantitative (but not in money quantities) or qualitative. Quantitative non-monetary measures are either expressed in units other than money, such as units of product, hours or weight, or in a relative form, such as percentages, ratios and indices.

Examiner’s comments This was not one of the most popular questions and there were few good answers. Not many candidates really engaged with the question, showing a clear distinction between effectiveness and efficiency and an understanding of the limitations of purely financial measures. Some candidates approached this question in other ways and looked at the role of the balanced scorecard, for example. Credit was given where this was done appropriately.

5. Discuss in what way, and to what extent, organisational culture impacts upon

organisational strategy. (20 marks)

Suggested answer The question was intended to give candidates the opportunity to look at the important relationship between strategy and culture. The implication here is that strategy-making does not occur in a vacuum and reflects the culture of the organisation. It could also be inferred that a ‘dysfunctional’ culture will, therefore, negate the strategic effort. But is also evidence from Peters and Waterman onwards that, if aligned, culture and strategy will make a significant contribution to organisational success. Candidates could have supported their argument in a number ways. A definition of culture would have helped and a model such as Schein’s would have usefully expanded on this. Candidates could have looked at ideas such as strong and weak culture and culture as a liability. Culture defines the ‘rules of the game’ for employees. The role of culture in influencing employee behaviour appears to have increased in importance as organisations have widened spans of

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control, flattened structures, introduced teams, reduced formalisation, and sought to empower employees. The shared meaning provided by a strong culture ensures that everyone is aiming towards the same goals. Useful examples might be the Royal Mail and examples from the recent banking crisis. It is also important to look at national/regional culture. Is resistance to change greater in some cultures than in others? Resistance to change will be influenced by a society's reliance on tradition. Italians, as an example, focus on the past, while Americans emphasise the present. Italians, therefore, should generally be more resistant to change efforts than their American counterparts. Does culture influence how change efforts will be implemented? Power distance can help with this issue. In high-power-distance cultures, such as the Philippines or Venezuela, change efforts will tend to be autocratically implemented by top management. In contrast, low-power-distance cultures value democratic methods. We would predict, therefore, a greater use of participation in countries such as Denmark and Israel. Note: other approaches could have been taken in answering this question. Examiner’s comments This was a straightforward question in many ways, the option for candidates in the way they chose to approach it. Good answers provided a clear identification of the role of culture and provided examples to illustrate the points. They also realised the important influence of national culture. Weak answers simply described a culture model and talked very generally about strategy.

6. ‘The growth of inter-organisational business structures refocusses attention on core

competencies’ Walters (2002).

(a) Using examples, review the nature of core competencies in organisations. (10 marks)

Suggested answer Question 6 required candidates to engage with a quotation that links the issues of core competencies and inter-organisational structures and to dissect its key elements in the parts of the question. The requirement of part (a) was to explore the nature of core competences using examples from the literature, or by reference to an organisation known to candidates. The difference in performance of organisations in the same ‘industry’ is rarely explained by differences in their resource base alone. It will also be determined by the way resources are deployed to create competences in the organisation’s separate activities and the processes of linking these activities together to sustain performance. Core competences underpin the organisation’s ability to outperform competition and must be difficult to imitate, or they will not provide a long-term advantage. They may also be the basis on which new opportunities are created. In this lay their strategic significance. Of the range of competencies that an organisation has, only some will be core competences. Candidates needed to point out, using their chosen example, that core competences may have a variety of bases. For example:

Cost efficiency – The provision of value-for-money products or services (cost efficiency) is a measure of the level of resources needed to create a given level of value. Cost efficiency is determined by a number of factors, often called ‘cost drivers’. Innovative ways of

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managing these cost drivers can create cost reductions and competitive advantage. They include economies of scale, supply costs, product/process design and experience.

Analysing value added (effectiveness) – Effectiveness is a measure of the level of value that can be created from a given level of resources. This is essentially related to how well the organisation is matching its products or services to the identified needs of its chosen customers and the competencies that underpin this effectiveness. Unlike cost analysis, the potential sources of value added or effectiveness are likely to be many and varied. The key question is: what are the critically important features and the core competencies that underpin these features? For example, are the services that support the product matched with client expectations and, again, do these represent perceived value? If organisations are to compete on a value-added basis, it is important to remember that the detailed assessment of value added must be done from the viewpoint of the customer or user of the product or service.

Managing linkages – Core competences in separate activities may provide competitive advantage for an organisation, but over time may be imitated. Core competences are likely to be more robust and difficult to imitate if they relate to the management of linkages within the organisation’s value chain and linkages into the supply and distribution chains. It is the management of these linkages that provides ‘leverage’ and levels of performance which are difficult to match. Leverage is a measure of the improvement in performance achieved through the managing of linkages between separate resources and activities. This could create competitive advantage in a number of ways. For example, a decision to hold high levels of finished stock might ease production-scheduling problems and provide for a faster response time to the customer.

In addition to the management of internal linkage, competitive advantage may also be gained by the ability to complement or co-ordinate the organisation’s own activities with those of suppliers, channels or customers. This could, for example, occur through vertical integration; attempting to improve performance through owning more parts of the value system, bringing more linkages inside to the organisation.

(b) Explain why structures that cross traditional organisational boundaries make

core competencies particularly significant (10 marks) Suggested answer Part (b) invited candidates to look at the issue of competences by reviewing their significance in contemporary structural forms. For example, in the virtual organisation (the network organisation), where there is a small, core organisation that outsources major business functions, each contributes according to its core competence. Companies such as Nike, Reebok and Dell Computers are among those that operate successful businesses without owning their own manufacturing facilities. Dell assembles its computers from outsourced parts manufacturers. These virtual organisations have created networks of relationships that allow them to contract out key functions where this can be done more efficiently and more cheaply. The major advantage this brings is flexibility, allowing, for example, Dell to compete successfully against larger companies. Its core competencies are in marketing, tailoring, fulfilment and distribution. Examiner’s comments On the whole, there were some good answers to part (a) but part (b) was not well answered. The best answers provided appropriate definitions and explanations and clearly showed the links to strategy. They also developed the discussion further in the context of inter-organisational business structure. The highest marks were gained by those who used examples to illustrate their answers to both parts (a) and (b) and recognised the relationship between competencies and contemporary organisational forms.

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The scenarios included here are entirely fictional. Any resemblance of the information in the scenarios to real persons or organisations, actual or perceived, is purely coincidental.