Acca SBL Smart Notes PDF
Acca SBL Smart Notes PDF
Acca SBL Smart Notes PDF
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ACCA SMART NOTES ACCA P6 (ADVANCE TAXATION)
50 Pages only
BUSINESS ANALYSIS
AZIZ UR REHMAN
(ACCA, CPA, CMA)
ForFor
Exams up-to
Exams March
up-to March 20162017 (FA14)
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Contents
CH #: Chapter Name: Page no
BUSINESS STRATEGY
Mission & Mission Statement
Strategy
Chapter 1 1
• Levels of strategy
• Types of Strategy
Strategic lenses
ENVIRONMENTAL ANALYSIS
PESTEL
Porter Five Forces
Scenario planning
Forecasting
Porter Diamond
Industrial Analysis
• Types of industry
• Strategic Groups
• Convergence
Chapter 2 4
• Sustaining competitive advantage
• Hyper competition
Marketing
• Market analysis
• Customer analysis
• Targeting
• Marketing mix
• E-Marketing
• Branding
• Customer Relationship management
STRATEGIC CAPABILITY
Strategic Capability
• Resources
• Competence
• Cost efficiency
CSF & KPIs
Knowledge Management
Chapter 3 10
Organisational Learning
Benchmarking
Value chain Analysis
Value Network
Product Life Cycle
SWOT analysis
TOWS matrix
STRATEGIC CHOICE
Porter Generic Strategies
Chapter 4 Strategic Clock 16
Ansoff Product/Market Matrix
Diversification
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• 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)
ORGANISATIONAL STRUCTURE
Types of organizational Structure
• Entrepreneur
• Functional
• Product
Chapter 5 24
• Geographical
• Matrix
• Tall & Flat
• Centralisation & Decentralization
• Mintzberg Building Block & Organiational Configurations
BUSINESS PROCESS
Business Process
Harmon Process Strategy Matrix
Chapter 6 • Outsourcing 27
• Process Redesign
• Process of Process Redesign
• Factors to consider Process Redesign (POPIT Model)
CHANGE MANAGEMENT
Types of strategic Change
Context of Change
Cultural Web
Force Field Analysis
Chapter 7 Lewin Process Change 30
Leadership Style for Change Management
Change Agent
Process Change Lifecycle
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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
Chapter 8 – E-Procurement 34
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
PROJECT MANAGEMENT
What is Project?
Project Definition
• Force Field Analysis
• Gap Analysis
• Project Selection
Chapter 10 42
• Risk Assessment and Management
• Pre-Initiation Tasks
• Initiation Tasks
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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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CHAPTER 1
BUSINESS STRATEGY
1 MISSION, GOALS, PLANS AND STANDARDS
Mission:
The easo of e iste e of a o ga isatio is alled issio of the o ga isatio o
The business's basic fu tio i so iet ', is e p essed i te s of ho it satisfies its stakeholde s.
Mission Statement:
Mission statement is a formal document that conveys the mission of the organisation to stakeholders.
Characteristics of mission statements: Elements of mission
Brief; Purpose
General; Values
Statement of purpose; Strategy
Powerful force for change; Policies and standards of behavior
Clarify the mission;
Communicates the mission to stakeholders.
Advantages of developing a formal mission statement Disadvantages of developing a formal mission
Determine direction statement
Unified strategy Time consuming
Communication of mission to stakeholders Problem in identifying priorities.
Basis of competition (high quality or cost reduction) May only be used for communication and
Consistency of Basis of competition ignored by top management.
Identify key stakeholders Deter innovation.
Keep key stakeholders satisfied
help to prevent future misunderstandings
Improves coordination between various departments,
managers and employees.
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 i te tio s ehi d de isio s o a tio s' o 'a desi ed e d esult.
Objective: O je ti e is the o e spe ifi goals that suppo t the issio of the o ga isatio .
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 de elopi g a fo al issio state e t to guide Bo a Pai t s futu e di e tio
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: Lo g te pla to a hie e the o je ti e of the o ga isatio .
Johnson, Scholes and Whittington (JSW) o st ateg defi ed st ateg as the di e tio a d s ope of a o ga isatio
over the long term, which achieves advantage in a changing environment through its configuration of resources and
competencies with the aim of fulfilli g stakeholde e pe tatio s.
Characteristics of strategic decisions
Determine the long term direction of the company.
A e o e ed ith the s ope of a o ga isatio s a ti ities i.e. t pes of p odu ts, se i es a d a kets .
Aim to match activities to resource capabilities.
Have significant effect on lower-level decisions.
Considers all stakeholders.
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Involve uncertainty about the future, the integration of operations and major change.
Ai to at h a ti ities ith the fi s e i o e t:
– Competitive environment (e.g. meeting needs of the market);
– Fi a ial e i o e t e.g. satisf i g sha eholde s e pe tatio s ;
– Social environment (e.g. eco-friendly activities).
3 LEVELS OF STRATEGY/STRATEGIC PLANNING
CORPORATE STRATEGY BUSINESS STRATEGIES
The corporate-level strategy is concerned with the overall Planning at this level often relates to a strategic
purpose and scope of an organization and how value will be usi ess u it SBU A se tion within a larger
added to the different parts (business units) of the business which can perform independently is called
organization. It considers: st ategi usi ess u it SBU .
The fi s o ie tatio to a ds g o th k o as How to achieve competitive advantage in
directional strategy) particular markets?
Di e sifi atio of o ga isatio s p odu ts a d a kets Planning about the utilization of resources to
(known as portfolio strategy) achieve specific objectives.
Management of strategic business units
(parenting strategy)
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 EMERGENT STRATEGY
Strategy is the outcome of a formal (rational) planning Emergent strategy is strategy that is not formally
process, in which management go through a formal planned, but develops by emerging different ideas in
procedure for: response to unforeseen changes in the environment and
Strategic position analysis unexpected opportunities that arise.
Strategic Choice (Identifying and evaluating strategic For example a business develops a new product. A
options and making strategic choices) salesman visits a customer and finds that the product
Strategic implementation (Implementing the is t ight. So the o k out so e odifi atio s a d
strategy) after few more rounds the finally get the new product.
INCREMENTAL STRATEGY FREEWHEELING OPPORTUNISM
Incremental strategy is strategy that is developed over Followers of freewheeling opportunists do not like
time by making small incremental changes to existing planning. They prefer to see and capture opportunities
st ategies. This t pe of st ateg is o l safe ithi a as they arise. They are of the belief that planning is too
stable business environment, where change is slow and much time consuming.
gradual.
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 strat egies.
Intended Deliberate strategy Realised
Strategy Strategy
Unrealised Emergent
Strategy Strategy
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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)
Usi g app op iate odels a al se GET s u e t st ategi positio f o oth a i te al a d e 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 subs titute is produced by a di fferent indus try but satisfies the same need. Threat will be
hi gh 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) Factors which could be used to develop scenarios could
Identify drivers of change be for example:
Arrange drivers in a viable framework Change to the economic climate.
Produce 7-9 mini-scenarios Competitor response.
Group mini-scenarios into 2-3 comprehensive scenarios Conventional supermarket approach.
Write up the scenarios Impact of IT developments:
Identify issues arising, and what they mean to the
business
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)
Usi g a app op iate odel o odels, a al se the o petiti e e i o e t of AutoFo e s etail shops di isio . a ks
ABCL December 2009 Question 1.(A)
Xe o usuall a al ses a i dust usi g Po te s fi e fo es f a e o k.
Usi g Po te s f a e o k, a al se the usi ess a al sis e tifi atio i dust BACTI i E e ho a d assess hethe it is a
attractive market for ABCL to enter. (20 marks)
Nesta June 2013. Question 2.(A) [Porter 5 forces & scenarios]
(a) Use Po te s fi e forces to assess attractiveness, to NESTA, of entering discount fixed-price retail market in Eurobia. (15 marks)
Dis uss the pote tial use of s e a ios NESTA s a age s as pa t of thei a al sis of NESTA s possi le e t i to the dis ou t
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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5 Porter s Dia o d
Po te suggests that so e atio s i dust ies a e o e i te atio all o petiti e 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
o pa a pla a ig pa t i esta lishi g i te atio al o petiti e ad a tage. Po te s Dia o d o sists
of four main determinants of competitive advantage.
Factor Conditions
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)
Po te s Dia o d a e used to e plo e the o petiti e ad a tage of atio s a d ould e a useful odel fo Joe S ift to use in
his analysis of countries that he might move his company to.
E a i e usi g Po te s Dia o d o a app op iate alte ati e odel/f a e o k the fa to s hi h ould i flue e S ift s
decision to move a large part of its logistics business to Ecuria. (10 marks)
MachineShop December 2013 Question 1.(C)
Da e Dee has hea d a out Po te s dia o d a d a ts a e pla atio of the principles, relevance and application of this
odel. E plai the p i iples of Po te s dia o d a d use it to assess the elati e att a ti e ess of Ceela d a d A o ia i n
p o idi g a e i o e t i hi h Ma hi eShop s g o th a itio s ould e a hi eved. (10 marks)
6 Industrial Analysis
Industry: A i dust is a g oup of fi s p odu i g the sa e p odu t o p odu ts that a e lose su stitutes fo o e
a othe . 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.
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MARKET SEGMENTATION A a ket seg e t is a g oup of usto e s ho ha e si ila eeds that are different from
usto e eeds i othe pa ts of the a ket.
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, life-style, values and attitudes), cost conscious or quality conscious etc.
Motivation: Concerns with usto e s 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: E o o i i flue es; Co petito s p i es; B a d;
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 mark-up 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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• 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 a d is a a e, te , sig , s ol, desig o a o i atio of the e, hi h is used to ide tif the
goods o se i es of o e selle o g oup of selle a d to diffe e tiate the f o those of o petito s.
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 long-term business with customers.
E-CRM 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 3) Customer retention – keeping existing customers.
is being targeted. Emphasis on understanding customer needs better to
Who are we targeting? ensure better customer satisfaction.
What is their value? Use offers to reward extended website usage.
Where do we reach them? Ensure ongoing service quality right by focusing on
tangibles, reliability, responsiveness, assurance and
empathy.
2) Customer acquisition – forming relationships with 4) Custo er e te sio or usto er de elop e t –
new customers. increasing the range of products bought by the
Need to target the right segments. customer.
Try to minimise acquisition costs. Methods include "Re-sell" similar products to previous sales
traditional off-line techniques (e.g. advertising, "Cross-sell" closely related products
direct mail) and online techniques (e.g. search engine "Up-sell" more expensive products
marketing, online PR, online partnerships, interactive
adverts, opt-in e-mail and viral marketing)
Service quality is key here.
Choice of distribution channel also very important
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
o ga isatio to su i e a d p ospe . OR
The ade ua a d suita ilit of resources and competences of a o ga isatio to su i e a d p ospe .
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Capability
RESOURCES: (Asset, skill or item of knowledge that COMPETENCES: (ability to utilize its resources effectively)
is controlled by the entity.) Threshold competencies ( eet usto e s i i u
Threshold resources ( eet usto e s i i u requirements and are needed for survival)
requirements and are needed for survival) Core Competences: (Underpin competitive advantage
Unique resources: (Underpin competitive and are difficult for competitors to imitate or obtain.)
advantage and are difficult for competitors to
imitate or obtain.)
Resources and Competences includes: 9M Remember:
Money, Management, Manpower, Material, If competitive advantage is to be based on core competence and
Machinery strategic capabilities, the capabilities must have four key
Make-up (Structure. Patents. Goodwill. Brands.), qualities:
Management information, Market (position, share; Offer value to buyers – contribute to customer needs
Image, reputation and brand loyalty), Methods Rare – can create competitive advantage by itself
Robust (difficult to imitate) – linking 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 Je ki s sees usto e s as oth p ospe ti e a d e isti g e e s, olu tee s a d do o s of WET . She also ishes
to gain increased revenue from each member and donor.
Evaluate how email and website technolog ight fa ilitate the a uisitio a d ete tio of WET s usto e s a d suppo t 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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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)
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Further Explanation:
Strategic drift will take place when changes in an organisatio s e i o e t take pla e 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 willi g ess to halle ge a d ha ge thei o e assu ptio s a d a s of doi g thi gs .
This is one of the o o l lai ed p i iples of a lea i g o ga isatio .
Traditionally, organisations have been organised and structured around order and control. This is unsuitable for the
dynamic environment. We ust e o e a le ot only to transform our institutions, in response to changing
situations and requirements; we must invent and develop i stitutio s hi h a e lea i g s ste s , that is to sa ,
systems capable of bringing about their own continuing t a sfo atio . Do ald S ho
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 lea i g o ga isatio is a ideal to a ds hi h o ga isatio s should e ol e i o de to espo d to o te po a
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 o ga isatio k o s i its fo al do u e tatio , fili g a d i fo atio
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 t o identifying
opportunities and threats in the external environment and also to them developing strategies to tackle these threats
or to exploit the opportunities.
Questio i g a d halle gi g the take -for-g a ted is esse tial if a o ga isatio is to a oid 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 Drawbacks
Improve performance Do t al a s ide tif reasons for poor/good performance.
Improve competitive position Demotivation for staff if they consider it a weakness identifying activity.
Continuous improvement May ignore innovation
Facilitate organizational learning 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)
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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.
`
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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
steali g a alue-adding activity from another value chain.
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PAST EXAMS
Rock Bottom June 2009. Question 2.(A)
a A al se the easo s fo Ro k Botto s su ess o failu e i ea h of the th ee phases ide tified i the s e a io. E aluate how
Ri k Hei s leade ship st le o t i uted to the su ess or failure of each phase. (18 marks)
8 CORPORATE APPRAISAL (SWOT ANALYSIS)
Current position of an organization can be evaluated by using SWOT analysis which consists of strengths,
weaknesses, opportunities and threats.
Internal appraisal should identify External appraisal should identify
• Brand • Functionality of website All points of PESTEL, Porter Five forces,
• Regional presence • Employees motivation/ demonization Porter Diamond,
• Safety r ecord • marketing expenditure • Ordering process
• Patent • manufacturing capacity • Expertise
• Location • Cost • Core competenc es
• Management team • Financial position • liquidity
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 Usi g app op iate odels a d f a e o ks, a al se GET s u e t st ategi positio f o oth a i te al a d e te al
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 o pa iso et ee a e tit 's fo e asted futu e positio if the usi ess o ti ues ith u e t
a ti it a d the desi ed futu e positio as set out i st ategi o je ti es.
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, differentiation and focus.
Cost leadership: Producing at the lowest cost in the industry as a whole.
Differentiation: ͞P o isio of a p odu t pe ei ed as u i ue ithi the i dust .
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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 • economies of scale • branding • find a segment where the
• use of learning effects • quality & design cost leader or
(examples) • large production runs • innovation differentiators have little or
• using cheaper labour and • knowledge management no presence and build
materials • control over suppliers business here
• moving to cheaper premises • support • reduction in product range
Benefits • high volumes • builds brand loyalty and • develops brand loyalty
• creates a barrier to entry repeat purchases • little competition
• win price wars • higher margins • often a first step towards
• reduced power of substitutes • reduction in power of customer the other generic strategies
Threats • no fallback position if • Not Suitable in recession • low volumes
leadership is lost • Easily copied in long run • if successful, it attracts cost
• larger (possibly from • constantly innovate leaders and
overseas) rivals may enter • needs much higher marketing • differentiators
the market than cost leadership • few barriers to entry
• strong currency makes • fewer barriers to entry
imports cheaper • smaller volumes
Suitability Large organisations with Innovative companies with Small business, strong market
economies of scale large marketing budgets knowledge and a risk taking
attitude (often new starts)
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5 DIVERSIFICATION
5.1 CONCENTRIC/ RELATED DIVERSIFICATION:
It means that the new product - a ket a ea is elated i so e a to the e tit s e isti g p odu ts a d a kets.
Horizontal integration
Horizontal integration is development into activities which are competitive with or directly complementary to a
o pa s p ese t a ti ities. The e a e th ee ases:
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 completing
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 Lack of knowledge of new customers and market.
Offer defence against substitute Need of new strategic capabilities
E te d o pa s p odu t po tfolio. Extra cost to achieve synergies.
Reduce risk of depending on one type of product. Difficulty in managing diversified business.
Vertical Integration
Vertical integration 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 installation, servicing and repairs service.
Advantages Disadvantages
• Economies of combined operations. • Vertical integration increases fixed cost and business risk.
• Economies of internal control. • Reduced flexibility to change partners.
• Information stays confidential. • Need for additional capital.
• Enhanced ability to differentiate. • Differing managerial requirements.
• Creation of barriers to entry.
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 No synergies
Increased profitability No additional benefit for shareholders
Ability to grow quickly No advantage over small firms
Better access to capital markets Lack of management focus
Avoidance of anti-monopoly legislation
Diversification of risk
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 Disadvantages
Best understanding of market &product It may intensify competition.
It can be financed easily. It is too slow.
It is less risky. The firm does not gain access to the knowledge and
Economies of scale systems of an established operator so it can be more
Easier to plan risky
No cultural clashes or control issues There may be barriers to entry in new market
Provides career development opportunities for Narrow scope
managers.
It could be cheaper as compared to acquisition
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 Disadvantages
• Quick access to new product/markets; • Difficulties of rationalisation and integration of
• Acquires knowledge, expertise and goodwill; activities and cultures.
• Cheaper development if target is in difficulty or • May pay excessive price if bid is contested.
undervalued; • Cost of acquisition which also include goodwill.
• Prevents targets being taken over by a rival; • Access to funds which require for acquisition.
• Ma ealise ost ad a tages esulti g f o ta get s • Incompatibility: problems of assimilating employees
experience effects; and different operating systems
• Overcomes legal entry barriers; • Cultural Mismatch.
• Synergies.
6.3 ALLIANCES
A oope ati e usi ess a ti it , fo ed t o o o e sepa ate o ga isatio s fo st ategi pu poses, that allo ates
ownership, operational responsibilities, financial risks, and rewards to each e e .
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- o e e o pa ies o i g to a ds customerisation he e the usto e desig s the
product/service online).
Benefits Of Alliances Drawbacks of Alliances
They share development costs of a particular Core competence: Each organisation should be able
technology. to focus on its core competence. Alliances may not
The regulatory environment prohibits take-over (e.g. enable it to create new competences.
most major airlines are in strategic alliances because Strategic priorities: If a key aspect of strategic
in most countries there are limits to the level of delivery is handed over to a partner, the firm loses
control a outside a ha e o e a ai li e . flexibility. A core competence may not be enough to
Complementary markets or technology. provide a comprehensive customer benefit.
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PAST EXAMS
Rock Bottom June 2009.
(A: General) A al se the easo s fo Ro k Botto s su ess o failu e i ea h of the th ee phases ide tified i the
s e a io. E aluate ho Ri k Hei s leade ship st le o t i uted to the su ess o failu e of ea h phase. a ks
(B: Franchising) Rick Hein considered franchising the Rock Bottom brand at two points in its history – 1988 and 2007.
E plai the ke fa to s that ould ha e ade f a hisi g Ro k Botto feasi le i , ut ould ha e ade it u likel
to e su essful i . a ks 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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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 Tr ansport June 2010.
(a) Assess, using both financial and non-fi a ial easu es, the att a ti e ess, f o S ift s pe spe ti e, of EVM as a
acquisition target. (15 marks)
MMI December 08
a I the o te t of MMI s o po ate-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
app oa h f o E ile s pe spe ti e. a ks
(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
GET s p oposed st ateg is fi stl to a ui e SOFR a d then the franchise to run the rail network of Raziacstan. You
have been asked to provide an independent assessment of this proposed strategy.
W ite a epo t e aluati g GET s p oposed st ateg . a ks
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: Destroying value
Corporate parent can add value and give SBUs advantages Sometimes corporate parents are criticised for
that they would not otherwise have. destroying value such that SBUs would fare better on
• Providing resources which the SBUs do t ha e. such as their own. It can happen in following ways.
investment and expertise. • The high administrative cost of the centre may
• Providing access to central services such as IT and HR exceed the benefits provided to SBUs.
which may be more efficient and cheap. • Added bureaucracy resulting from organisational
• Providing access to markets, suppliers and sources of finance structure may slow decision making and limit the
• By improving performance through performance orga isatio s fle i ilit and speed of response to
evaluation and taking corrective action. customers and environmental changes.
• Sharing expertise, knowledge and training across SBUs. • May increase complexity, this can prevent clarity and
• Facilitating cooperation and collaboration between SBUs. make it difficult to understand the strategic direction
Rationales for adding value (Different roles adopted by good corporate parents)
Portfolio managers: Parental developers:
Portfolio managers are corporate parents effectively • use their own central competences to add value to
acting as agents for financial markets and shareholders the businesses by applying specific skills required by
to enhance the value from individual businesses more business units for a particular purpose, such as financial
effectively than the financial markets could management or research and development
• identify and acquire under valued businesses and • need to have a clear understanding of value adding
improve them. capabilities of the parent and the needs of the business
• keep the costs of the centre low by minimising the units in order to identify how these can be used to add
provision of central services and allowing business value to business units
units autonomy whilst using targets and incentives • need to ensure that they are able to add value to all
to encourage high performance businesses or be prepared to divest those to which they
• may manage a large number of businesses, which can offer no advantages.
may be unrelated
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.
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
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 fi s st ateg is o ie ted to a ds ai tai i g the p odu t s st o g positio i the market.
Strategy: hol d 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
spe t to defe d a o ga isatio s positio agai st 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: buil d.
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A problem child so eti es alled uestio a k 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: buil d 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: di vest or hol d.
PAST EXAMS
Academic Re cycling Company June 2013 [Q36 BPP Kit]
(a) Assuming the role of an external consultant, prepare a report for Richard evaluating the perfor mance 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 I the o te t of Shoal pl s o po ate-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 A al se the pe fo a e of ea h of the fou o pa ies des i ed i the s e a io a d assess ea h o pa s pote tial
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)
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 pe ople 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 o e a ages the usi ess hi self a d akes all the ajo de isio s.
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 : O ga isatio is st u tu ed a o di g to geog aphi a ea. So e autho it is
related to head office but day to day operatio s a e ha dled o egio al asis.
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
Entrepreneuri • Quick decisions making • Cannot expand beyond a certain size
al • Goal congruence • Cannot easily cope with diversification.
• Flexible/adaptable to change • Lack of career structure for lower level
• Good control. employees
• May be too centralized.
• Owner has limited expertise and resources.
Functional • Economies of scale. • Empire building.
• Standardisation. • Slower Decision making.
• Specialists more comfortable. • Conflicts between functions.
• Career opportunities. • Cannot cope with diversification.
Product/ • Enables growth. • Potential loss of control.
Divisional • Clear responsibility for products/divisions. • Lack of goal congruence.
• Training of general managers. • Duplication.
• Easily adapted for further diversification. • Specialists may feel isolated.
• Top mngmt free to focus on strategic matters • Allocation of central costs can be a problem.
Geographical • Enable geographical Growth. • Potential loss of control
• Clear responsibility for area. • Lack of goal congruence
• Top mngmt free to focus on strategic matters • Allocation of central cost can be a problem.
Matrix • Greater flexibility in work and decision making • Risk of conflict between functional managers
• Improved communication and co-ordination and product/ project/area managers.
• Co-ordinating the activities of employees • Employees might not know who they are
from different functions can promote responsible to.
creativity and innovation. • 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 su o di ates epo ti g di e tl to hi , the spa of o trol is ide and
If a manager has few u e of su o di ates epo ti g di e tl to hi , the spa of o trol is arro .
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 Advantages
• Better control due to Narrow span of control. • Strategic apex close to operating core
• Defined career ladder (employee loyalty) • Strategic apex close to customers
• Specialisation (technical excellence) • Savings on managerial costs
Disadvantages Disadvantages
• Close control fosters rigidity, blocks initiative • Loss of managerial control
• Increased administration and overhead costs • Loss of middle management interface
• Lengthens communication & decision making • If delayered, loss of middle management knowledge
• Strategic apex distanced from the customers
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 Advantages of Decentralisation
• Decisions easier to control and coordinate • Avoids overburdening senior managers with detail
• Senior managers have access to big picture • Improves motivation of subordinates given
• Senior managers can balance demands of different responsibility
functions • More awareness of local/front-line issues
• Bette de isio s f o se io a age s • Quick decision-making (less reference upwards)
expertise/skills • Facilitates development/succession of junior managers
• May reduce overheads (fewer managerial salaries) • More distinct areas of accountability for control
• Crisis decisions cab be taken speedily (no reference) • Supported by communications technology
• Policies can be standardised organisation wide • More flexible in the face of customer demand
Mi tz erg s Buildi g 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 uildi g lo ks i a 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.
Mi tz erg s si orga isatio al o figuratio s:
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 ga e the a e p ofessio al
u eau a to this t pe of st u tu e e ause 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:
Mi tz e g ide tified a t pe of o ga isatio that he alled a adho a . 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
u de sta di g of o ga isatio o figu atio ould ha e helped p edi t the failu e of A Li s p oposed formalisation
of structure, controls and processes at Frigate Ltd. (10 marks)
CHAPTER 6
BUSINESS PROCESS
1 Business Process
Process: A a a ge e t of esou es that t a sfo s i puts i to outputs that satisf usto e eeds hethe those
customers are internal or e te al.
Process follows strategy: Organizations need to design their processes hi h do t o t adi t ith thei st ateg
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 Har o s Pro ess-Strategy Matrix
Ha o s p o ess-strategy matrix charts processes using their complexity on one axis, and their strategic importance
on the other.
Strategic Importance
Low High
High Complex and dynamic processes but not Complex, dynamic, high value processes
Process pa t of o pa s o e o pete es: which generate competitive advantages;
complexity hard to automate, so outsource careful process improvement, focusing on
& Examples: Tax advice, advertising, people, their skills and their interactions
Dynamics staff counseling Examples: product development
Low Simple, commodity-like processed: Simple but important automate to improve
automate with off-the-shelf systems efficiency.
(generic software) or outsource Examples: sales order processing
Examples: payroll accounting, credit card
approval, receivables ledger.
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
o ga isatio s o e o pete es. The a e too o ple to auto ate, so outsou i g is the est optio .
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 Disadvantages
Reduction in staffing costs Staff morale
Internal conflicts may be resolved problems finding a single supplier who can manage
Allows the organisation to focus on its own core complex processes in full
activities/competencies Firms may be unwilling to outsource whole processes
Technological opportunities loss of control (particularly over quality)
Quicker and time saving Firms may be tied to inflexible, long term contracts.
Easier to budget costs Giving up a threshold competence
Reduced capital requirements Confidentiality issues
Reduced overhead costs Over-dependency on supplier
Can increase effectiveness where the supplier
deploys higher levels of expertise
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)
E aluate, usi g a app op iate odel, suita ilit of iCo pute s u e t app oa h to ea h of these high le el
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 Ha o s p o ess-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 E plai , usi g Ha o s p o ess-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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Process Re-engineering
Opportunities & Threats
means a total rethink
Process Improvement
Process is stable
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: Processes:
Staff needs to have the right skills and motivation to These must be well defined, efficient, documented and
carry out the tasks. They need to understand tasks and understood. Those of high strategic importance and
their roles within the organisation. Staff needs to be complexity should have undergone process
developed to support business changes and resistance improvement. Opportunities for improvement in other
to change has to be managed and overcome. This will areas must have been explored in order to maximise
involve understanding and sometimes shifting the efficiency and support the organisational strategy
organisational culture
Organisation: IT:
Success must be organised Job roles need to be clearly IT needs to support the changes that are taking place
defined and understood, lines of command and within the system. It needs to provide the relevant
communication need to be effective, the organisational information at the point that it is needed. IT can replace
structure needs to support the organisational strategy, some manual tasks and improve the efficiency of others.
there needs to be flexibility in changing environments IT may facilitate organisational changes, process changes
and bureaucracy needs to be kept to a minimum. and staff development and it therefore binds all of the
Organisational support will be an important link other elements together. IT must be exploited in order
between the other elements of the business system 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 Internal business perspective
Ho do usto e s see us? This pe spe ti e What usi ess p o esses ust e e el at to achieve
o e t ates o usto e s o e ith p i e, quality, financial and customer objectives? Measures could be
performance and service. Measures could be percentage core competences, skills, productivity and cost, etc.
of on-time deliveries and customer rejection rates
Innovation and learning perspective Financial perspective
Ca e o ti ue to i p o e a d eate alue? This Ho do e eate alue fo sha eholde s? This is the
perspective is forward looking and concentrates on traditional reporting perspective, but must not be
what the company must do to satisfy future needs. overlooked. Market share and sales growth are
Measures could be time-to-market for new included here. Modern measures like value-added and
products and percentage of revenue from them. 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 th e 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 eliefs that a o ga isatio s decision-makers hold in common and take for granted.
Stories The stories concern past events and people talked What stories do people tell about the organisation?
about inside and outside the company. What do these stories say about the values of org.?
‘Who' and ‘what' is talked about most in these stories What reputation is communicated among customers
can illustrate the behaviour the organization and other stakeholders?
encourages, and the sorts of things it values. 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 What language and jargon is used? Is it well
including logos, premises, and dress can illustrate the known and usable by all?
nature of that organisation. Also, verbal What aspects of strategy are highlighted in
representations like language and titles can symbolise publicity?
the nature of an organisation. Are there any status symbols?
Power Who has the real power in the organisation? This Who has the real power in the organisation?
structures may be one or t wo key senior executives, a whole How strongly held are the beliefs of the people
group of executives, or even a depart ment. The key is with power?
that these people have the greatest amount of How is power used or abused?
influence on decisions, operations, and the strategic What are the main b lockages to change?
direction of an organisation.
Organisati This includes both the formal structure defined by the Is the structure formal o r informal? Flat or hierarchical?
onal organization chart, and the unwritten lines of power What are the formal lines of authority?
structures and influence that indicate whose contributions are Are there any informal lines of authority?
most valued. Structure is likely to reflect power. Do structures encourage cooperation & collaboration?
Control These concern the ways the organisation is What process has the strongest controls?
systems controlled. They include financial systems, quality What process has the weakest controls?
systems, and rewards (including the way they are Is emphasis on rewarding good work or penalising
measured and distributed within the organisation.) poor work?
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.
Rituals The daily behaviour and actions of people signal What do employees expect when they come to
and what is considered acceptable in an organisation. work?
routi nes This determines what is expected to happen in given What do customers expect when they walk in?
situations, and what is valued by management. What would be immed iately 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)
Mi dshire Health June 2013
(ii) Exp lain how an understanding of organisational culture and organisational configuration would have helped the CEO anticipa
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)
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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
E-business: the t a sfo atio of ke usi ess p o esses th ough the use of i te et te h ologies.
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.
E-commerce: is a subset of e-business. The most generic description of e-commerce is trading on the internet, buying
and selling products and services online.
Categories of E-Business
B2B (business to business). For example, a supermarket B2C (business to consumer). Selling over the internet –
IS auto ati all pla i g o de s i to supplie s IS. books, flights, music, etc.
C2B (consumer to business). Some internet sites display C2C (consumer to consumer). Auction sites, such as
a sele tio of supplie s offerings from which the user ebay, putting consumers in touch with each other.
can choose. A model that largely depends on internet. Amazon does the same by offering second-hand books.
Stages of E-Business
The stages of e-business can be described as:
a) Web presence
Static or dynamic web-pages 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 paper-based
information and could be cheaper than paper-based 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 e-commerce. Might cut out middlemen, but there is probably no fundamental
change in the nature of the business.
c) Integrated e-commerce.
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) E-business E-business 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 • Set-up costs
• Increased revenue and profit- e.g. online sales, better CRM • Running cost
• Better information for control - e.g. monitoring website sales • Security concerns
• Increased visibility • Technophobia
• Enhanced customer service - e.g. via extranets • Limited IT resources in house.
• Improved marketing - e.g. e-mailing customers with special offers • May lack skills to design and maintain a
• Market penetration - web site, in which case it has to rely on
e.g. even small suppliers can gain a global presence via the internet outsourcing
• Enhance the company's competitive advantage
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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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 con stant 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 d) Placing the purchase order with the chosen supplier
i itiati g a ate ials e uisitio e) Receiving, checking, recording and storing the goods
b) Identifying one or more possible suppliers received.
c) Negotiating price & other contract details with suppliers 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 e-business can affect an o ga isatio s relationship with its customers.
Tie-in/switching costs. A good e-business arrange Continual updates – products, prices, news.
ment can make customers reluctant to switch sup Easy, fast, cheap, two-way communication.
plier due to extra switching cost. Tracking customer internet activity and buyer habits.
E-commerce can lead to disintermediation. Clicks on website can be recorded & analysed.
The process of re-intermediation is also found. Customer preferences can be acted on.
Counter-mediation is where established firms Customers can specify precisely the features they
create their own new intermediaries to compete. 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)
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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.
E plai the ad a tages of fulfilli g use s e ui e e ts usi g a soft a e pa kage solutio a d 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
McGrego r 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 Transformational leadership
• Clarify goals & objectives and the focus is on short • Establish long ter m vision
term • Create a climate of trust
• Focus on control, and Solving problems • Make people solve their own problems by empower ment
• Maintain status quo • Train, coach, counsel and mentor people
• Plan, organise and control • Change culture
• Guard and defend existing culture • Power comes from relationships and influencing people
• Positional power exercised Suitability
Suitability This is best suited to environments here change is inevitable and
This is best suited to static, predictable environments. 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 o e est a 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: Jo e i h e t is e te sio to autho it , espo si ilit a d o t ol o e the a the jo is
a o plished. Its ai o je ti e is to i ease jo satisfa tio .
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 t o achieve dramatic improvements
3 Staff development
Human resource development (HRD) can be viewed as an investment in stra tegi c capability, since it i mproves both skills and commi tment.
Investment in people is a kin to inves ting in any other type of asset – people e o e hu a apital . This a e ei the top -do di e
a a ge e t o otto -up e po e ed e plo ees e og ise thei r own s kills 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
• Re uit e t. • Ma agi g pe fo a e. • Be h a k fo e a ds a d p o otio • 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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Internal Acceptable projects have Consider all costs and benefits Does not relate directly to
Rate of IRR greater than cost of Allows for timing of costs and shareholder wealth
Return capital benefits Ignores scale of investment
(IRR) Can be unreliable it cashflows
Select project with highest are unconventional
IRR
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 achieve
d 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, measure able,
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 Outline schedule of work
Details of the project sponsor and project Outline of project scope and work sequence
Project purpose and objectives Budget information
Authorisation by the main stakeholders Further details of roles and responsibilities
Project start date and expected finish date
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2 Project Planning
Why projects go wrong: Gantt charts
Unproven technology A Gantt chart shows the consumption of resources over time.
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 Resource histogram
into its component points in the form of a A resource histogram shows a view of project data in which
hierarchical chart resource requirements, usage, and availability are shown
The project budget against a time scale.
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
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 Skills required of the project manager
Planning Leadership and team building
Obtaining resources Organisational ability
Teambuilding Understanding of the way that groups interact
Communication Written and spoken communication skills
Co-ordinating project activities Interpersonal/negotiation skills
Monitoring and control Technical knowledge of the issues involved
Problem resolution Problem solving
Quality control 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
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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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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.
C iti all e aluate Ba s o e ts o 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 o luded i thei epo t that the e e e lea sig s that the o pa RiteSoft a e as i diffi ult a d
this should ha e led to fu the i estigatio .
Assess, usi g the fi a ial i fo atio a aila le, the alidit of W&P s o lusio . a ks
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)