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Title: ACCA Kaplan P3(Exam Kit- September 2016)
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Professional Examinations

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Published by:
Kaplan Publishing UK
Unit 2 The Business Centre

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Molly Millar’s Lane
Wokingham
Berkshire
RG41 2QZ
© Kaplan Financial Limited, 2015
Printed and bound in Great Britain

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ISBN: 978-1-78415-234-5

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The text in this material and any others made available by any Kaplan Group company does not
amount to advice on a particular matter and should not be taken as such
...
Please consult your appropriate professional adviser as necessary
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All rights reserved
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Acknowledgements

The past ACCA examination questions are the copyright of the Association of Chartered Certified
Accountants
...

We are grateful to the Chartered Institute of Management Accountants and the Institute of
Chartered Accountants in England and Wales for permission to reproduce past examination
questions
...


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CONTENTS
Page
v

Analysis of past papers
Exam technique
Paper specific information

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Kaplan’s recommended revision approach

xiii
xv
xix
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Kaplan’s detailed revision plan

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Section
Practice questions

2

Scenario-based questions

3

Answers to practice questions

4

Answers to scenario-based questions

1
99
163
381

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Key features in this edition

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In addition to providing a wide ranging bank of real past exam questions, we have also included
in this edition:
An analysis of all of the recent new syllabus examination papers
...


•

Our recommended approach to make your revision for this particular subject as effective
as possible
...

Enhanced tutorial answers packed with specific key answer tips, technical tutorial notes
and exam technique tips from our experienced tutors
...


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•

You will find a wealth of other resources to help you with your studies on the following sites:
www
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Index to questions and answers

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link to the feedback form in MyKaplan
...


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INDEX TO QUESTIONS AND ANSWERS
The P3 examination starts with a strategic case study (see the scenario based questions) and
strategic implementation has formed the majority of the option questions
...
The exam kit tries to reflect this by
having all three strategic planning areas (analysis, choice and action/implementation) reflected in
both the scenario based questions section and the option question section
...


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KEY TO THE INDEX
PAPER ENHANCEMENTS

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We have added the following enhancements to the answers in this exam kit:

Key answer tips

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Tutorial note

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Most answers include key answer tips to help your understanding of each question
...


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Top tutor tips

For selected questions, we “walk through the answer” giving guidance on how to approach the
questions with helpful ‘tips from a top tutor’, together with technical tutor notes
...


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P AP ER P 3 : BU SIN E S S A N AL Y SI S

ONLINE ENHANCEMENTS


...
e
...

In addition to the examiner’s technical answer, enhanced with key answer tips and tutorial notes
in this exam kit, online you can find an answer debrief by a top tutor that:
•

points out how to approach the question

•

how to ensure that the easy marks are obtained as quickly as possible, and

•

emphasises how to tackle exam questions and exam technique
...


Online question assistance

Have you ever looked at a question and not known where to start, or got stuck part way through?

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For selected questions, we have produced “Online question assistance” offering different levels of
guidance, such as:
ensuring that you understand the question requirements fully, highlighting key terms and
the meaning of the verbs used

•

how to read the question proactively, with knowledge of the requirements, to identify the
topic areas covered

•

assessing the detail content of the question body, pointing out key information and
explaining why it is important

•

help in devising a plan of attack
...


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These questions are indicated with the “signpost” icon in the index
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Page number
Question Answer

–

166

–

169

–

171

Jun 10

174

Dec 95

176

Jun 03

8

178

Jun 13

9

182

Dec 11

11

186

Dec 12

13

189

Dec 13

15

193

Jun 09

17

197

Dec 09

19

201

Dec 14

21

204

Dec 12

1

2

3C Pharmaceuticals

2

3

EEE Flavourings

3

4

Swift

4

5

Bowland

6

6

McGeorge Holdings plc

7

7

NESTA

8

ISD

9

Moor Farm

10

ATD

11

One Energy plc

12

Independent Living

13

Noble Pets

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CTC Telecommunication

STRATEGIC CHOICE
Graffoff

15

Environment Management Society

23

208

Pilot 11

16

MMI

24

211

Dec 08

17

Bluesky

26

216

–

29

219

Dec 01

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14

ORGANISATIONAL STRUCTURE
ALG Technology

19

ICC Organisation

30

222

Dec 96

20

Frigate Limited

31

224

Dec 10

cc

18

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BUSINESS PROCESS CHANGE
Country Car Club

32

228

Jun 08

22

Stella Electronics

34

232

Dec 14

TMP

36

235

Dec 10

Institute of Analytical Accountants

38

238

Jun 11

Flexipipe

39

242

Jun 12

23
24
25

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Perfect Shopper

AEC

51

268

Jun 08

34

HGT

53

276

Dec 13

35

BA Times

55

281

Dec 13

36

IAA

56

285

Dec 10

37

Chemical Transport

57

288

Jun 13

38

iTTrain

59

292

Jun 14

60

298

Dec 11

61

301

Dec 08

64

305

Dec 09

65

309

Jun 11

PROJECT MANAGEMENT

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33

HomeDeliver

40

ASW

41

LDB

42

8-Hats Promotions

43

Institute of Independent Analysts

67

313

Jun 14

44

TKP

69

317

Dec 14

45

A clothing company

70

320

Dec 07

46

PAA

72

324

Jun 12

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39

FINANCING

Woods Educational Institution

74

328

–

48

Potato-to-go Inc

75

332

–

49

David Silvester

77

334

Dec 06

Satellite Navigation Systems

78

336

–

X plc

79

339

–

World Engines

80

341

Dec 12

53

CoolFreeze

82

345

Pilot 11

54

PES

84

348

–

51
52

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MANAGING STRATEGIC CHANGE


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P AP ER P 3 : BU SIN E S S A N AL Y SI S

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Pilot
11

Dec
11

Jun
12

Dec
12

Jun
13

Dec
13

Jun
14

Dec
14

C
C

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C

C
O

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O

C

C

O

O

C
O

C

O

O

C

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C

C

C

C

C
C

C

C
C
C

O

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O
O
O
O

C
O

O
O
O

O
O

O
O
O

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O

O
C

O
C

O

O
O

O
O
O
C

O
C

O
O

O
O
C

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Key:

Jun
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Note that the references are to the number of the question in this edition of the exam kit, but the
Pilot Paper is produced in its original form at the end of the kit and therefore these questions
have retained their original numbering in the paper itself
...

Section A

Section A contains one multi-part question based on a case study scenario
...

Section B
Section B will consist of three discrete questions each worth 25 marks
...

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EXAM TECHNIQUE
•

Use the allocated 15 minutes reading and planning time at the beginning of the exam:
read the questions and examination requirements carefully, and

–

begin planning your answers
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–

See the Paper Specific Information for advice on how to use this time for this paper
...
8 minutes available per mark in the examination

•

Spend the last five minutes of the examination:
–

•

reading through your answers, and
making any additions or corrections
...


Stick to the question and tailor your answer to what you are asked
...


If you do not understand what a question is asking, state your assumptions
...

You should do everything you can to make things easy for the marker
...

Written questions:

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•

Your answer should have:
–

a clear structure

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–

a brief introduction, a main section and a conclusion
...


•

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It is better to write a little about a lot of different points than a great deal about one or two
points
...

Make sure that you use the correct format – there could be easy marks to gain here
...
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PAPER SPECIFIC INFORMATION


...


Note that:
All syllabus areas will be examined
...
However, some exam
questions have examined more than one syllabus area in the same question
...
It is important to refer back to this
scenario when answering the question
...


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READING AND PLANNING TIME

Remember that all three hour paper based examinations have an additional 15 minutes reading
and planning time
...

This time should be used to ensure that all the information and, in particular, the exam
requirements are properly read and understood
...
They may not write anything
in their answer booklets until told to do so by the invigilator
...
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P AP ER P 3 : BU SIN E S S A N AL Y SI S

KAPLAN GUIDANCE
As all questions are compulsory, there are no decisions to be made about choice of questions,
other than in which order you would like to tackle them
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Therefore, in relation to P3, we recommend that you take the following approach with your
reading and planning time:
•

Skim through the whole paper, assessing the level of difficulty of each question
...
Do this for each part of every question
...

Psychologists believe that you usually perform at your best on the second and third
question you attempt, once you have settled into the exam, so not tackling the most
difficult question first may be advisable
...

Whatever you approach, you must make sure that you leave enough time to attempt all
questions fully and be very strict with yourself in timing each question
...


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•

Always read the requirement first as this enables you to focus on the detail of the
question with the specific task in mind
...
You therefore need to be clear as to which model(s) are required in each question
...

For written questions:

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Take notice of the format required (e
...
letter, memo, notes) and identify the recipient of
the answer
...


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Plan your beginning, middle and end and the key areas to be addressed and your use of
titles and sub-titles to enhance your answer
...
For example, discussing the problems with a
numerical technique might be easier than actually performing the calculations
...

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This is a personal choice and you have time on the revision phase to try out different
approaches, for example, if you sit mock exams
...
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PAPE R SPE CI FI C I N F OR M A TION

Don’t go overboard in terms of planning time on any one question – you need a good
measure of the whole paper and a plan for all of the questions at the end of the
15 minutes
...
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By covering all questions you can often help yourself as you may find that facts in one
question may remind you of things you should put into your answer relating to a different
question
...


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P AP ER P 3 : BU SIN E S S A N AL Y SI S

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KAPLAN’S RECOMMENDED REVISION
APPROACH
Success in professional examinations relies upon you acquiring a firm grasp of the required
knowledge at the tuition phase
...


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The Kaplan complete text is the starting point, designed to provide the underpinning knowledge
to tackle all questions
...


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Kaplan Online fixed tests help you consolidate your knowledge and understanding and are a
useful tool to check whether you can remember key topic areas
...
There is a need to progress to full exam standard questions as soon as
possible, and to tie your exam technique and technical knowledge together
...

The recommended approach below is designed by expert tutors in the field, in conjunction with
their knowledge of the examiner and their recent real exams
...
However, with the
professional stage papers, a multi topic approach is required to answer the scenario based
questions
...


OUR AIM

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Our aim is to get you to the stage where you can attempt exam standard questions confidently, to
time, in a closed book environment, with no supplementary help (i
...
to simulate the real
examination experience)
...


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In order to achieve this we recognise that initially you may feel the need to practice some
questions with open book help and exceed the required time
...


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However, the difference between success and failure often hinges on your exam technique on the
day and making the most of the revision phase of your studies
...
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P AP ER P 3 : BU SIN E S S A N AL Y SI S

Remember that in the real examination, all you have to do is:
•

attempt all questions required by the exam

•

only spend the allotted time on each question, and

•

get them at least 50% right!

EXAMINER COMMENTS

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We have included the examiners comments to the specific new syllabus examination questions in
this kit for you to see the main pitfalls that students fall into with regard to technical content
...
Candidates must understand what the
numbers tell them about business performance”

•

“a lack of common business sense” and

•

“ignoring clues in the question”
...


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Stage 1: Assess areas of strengths and weaknesses
Review the topic listings in the revision table plan below

Not comfortable
with the technical content

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Comfortable
with the technical content

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Read the relevant chapter(s) in
Kaplan’s Complete Text

Attempt the Test your understanding
examples if unsure of an area

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Attempt appropriate Online Fixed
Tests

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Review the pocket notes on this area

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Stage 2: Practice questions

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Follow the order of revision of topics as recommended in the revision table plan below and
attempt the questions in the order suggested
...


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Try to answer the question in the allotted time
...


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Determine whether or not the area is one with which you are comfortable

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Comfortable with question attempt

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Focus on these areas by:
•
Reworking test your understanding
examples in Kaplan’s Complete Text
•
Revisiting the technical content from
Kaplan’s pocket notes
•
Working any remaining questions on
that area in the exam kit
•
Reattempting an exam standard
question in that area, on a timed,
closed book basis

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Only revisit when comfortable with
questions on all topic areas

Note that:

The “footsteps questions” give guidance on exam techniques and how you should have
approached the question
...


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Stage 3: Final pre-exam revision

cc

We recommend that you attempt at least one three hour mock examination containing a set of
previously unseen exam standard questions
...

Ideally this mock should be sat in timed, closed book, real exam conditions and could be:
a mock examination offered by your tuition provider, and/or

•

the pilot paper in the back of this exam kit, and/or

•

the last real examination paper (available shortly afterwards on MyKaplan with “enhanced
walk through answers” and a full “tutor debrief”)
...
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Not comfortable with question attempts

KAPLAN’S DETAILED REVISION PLAN
Pocket
note
Chapter

1

Questions
to
attempt

1

external analysis

2

2

7, 10,78

−

internal analysis

3

3

11, 64

−

objectives

4

4

Self assessment

This chapter pulls all the other chapters
together
...
It is
important that you understand the two
key models: J,S & W, and the strategy
lenses
...

Q67 will test the 5 Forces model, whilst
Q78 will test the PESTEL
...
Forecasting also
forms part of this chapter and Q10
should illustrate the nature of the
question that you could face on this
topic
...
These questions will ensure you
can do this well
...
In any question on
stakeholders you should aim to apply
this model to the scenario
...
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P AP ER P 3 : BU SIN E S S A N AL Y SI S

Questions
to
attempt

Tutor guidance

5–6

5–6

64, 74

7

7

15, 66, 77

Strategy in action
− Organisational
structure

Competitive strategies will have already
been tested in Q63
...

It is important in these types of question
that you do not just regurgitate the lists
that are presented in the pocket notes
...
Q66
provides a good question on portfolio
management
...
But Q18 should test your
application of the pocket note material
to a question scenario
...

Harmon’s models are the key models in
this chapter
...
Q21 is a good
test of the first model, whilst the second
model (already been covered in Q74 and
Q78) is covered again in Q22
...
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KA PL AN ’S DE T AILE D RE V ISI ON P L A N

−

Marketing

−

Project
management

11

11

12 & 13

12 & 13

Questions
Tutor guidance
to
attempt
27, 30, 31 The examiner is likely to focus on supply
chain management – an area covered
well in Q27 (whilst Q30 goes into more
details on e-procurement)
...

This area is deceptively tough
...
But you will only
score in this area of the syllabus if you
use the appropriate models and make
your answers as relevant and specific to
the scenario as possible
...
Q46 will test the numerical
aspects, whilst the other questions will
test different elements of the project
management process
...


Date
attempted

Self assessment

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Information
technology

Pocket
note
Chapter
10

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−

Complete
Text
Chapter
10

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ma
ter

Topic

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You should focus
on areas of weakness rather than doing
questions on topics that you are
comfortable with
...
Q14 will test your
knowledge on raising finance (the other
element within this topic)
...
This question
will show you how to apply the chapter
to a real world scenario
...
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KA PL AN ’S DE T AILE D RE V ISI ON P L A N

Topic

Questions
Tutor guidance
to
attempt
60, 76
This is another chapter that can be linked
to almost any other chapter
...
will all require
good change management
...
The suggested questions focus
on key models such as the cultural web,
types of change, and the contextual
features of change
...
We have recommended a large number of exam standard questions and successful
completion of these should reassure you that you have a good grounding of all of the key topics and are well prepared for the exam
...


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Section 1

STRATEGIC ANALYSIS
CTC TELECOMMUNICATION

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CTC, a telecommunications company, has recently been privatised by the government of
C after legislation was passed which removed the state monopoly and opened up the
communications market to competition from both national and overseas companies – a
process known as deregulation
...
At
that time the government dictated the performance levels required for CTC, and the level
of resources it would be able to bring to bear to meet its objectives
...
The government
of C retained a ‘golden share’ to prevent the acquisition of CTC by any foreign company
...
Apart from the money
received from the flotation, the government privatised CTC in recognition of both the
changing global environment for telecommunications companies, and the overseas
expansion opportunities that might exist for a privatised company
...


Required:

Produce two examples of suitable strategic objectives for CTC, following its
privatisation and the deregulation of the market, and explain why each would be
an appropriate long term objective
...

(10 marks)

ea

(a)

cc

You have recently been appointed as the management accountant for CTC and have a
background in the commercial sector
...


(c)

Advise the Board of Directors on the stages of an appropriate strategic planning
process for CTC in the light of the privatisation and deregulation
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PRACTICE QUESTIONS

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It is based in Asia, but distributes and sells
its products world-wide
...
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In common with other pharmaceutical companies, 3C has a large number of products in its
portfolio, though most of these are still being developed
...

However, the rewards to be gained from a successful new drug are so great that it is only
necessary to have a few successful drugs on the market to be very profitable
...
3C has only three
products that are actually ‘on the market’:

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Epsilon is a drug used in the treatment of heart disease
...
Sales of this drug are not expected
to increase from their current level
...
It was launched more than ten years ago, and has become one
of the leading drugs in its class
...
Alpha is
expected to survive a further twelve months after it loses its patent, and will then be
withdrawn
...
It is a very specialised
drug, and cannot be obtained from a doctor or pharmacist for use outside the
hospital environment
...

The directors of 3C meet every month to review the product portfolio and to discuss
possible investment opportunities
...
Due to a limited investment budget, the three investments are mutually
exclusive
...
This will allow 3C to apply for a new patent for Alpha2, and maintain
the level of sales achieved by Alpha for an additional five years
...

•
The directors can invest in a major marketing campaign to promote the use of Beta
to specialist hospital staff
...

•
The directors can invest in the final stage of clinical trials for Gamma
...
Gamma is used in the
treatment of HIV, and offers significantly better success rates than any treatment
currently available
...
The team
also believes that Gamma should be sold at the lowest price possible, to maximise
the benefits of Gamma to society
...

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(8 marks)

(b)

Evaluate the potential impact of each of the three investment options on the
product portfolio of 3C, referring to your answer to part (a) above
...

(8 marks)


...

When the company was originally started, the surrounding area was mainly used as
agricultural land but, over time, a residential area has developed around the factory
...


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The chemical engineers at EEE have recently developed, and patented, a new process which
would allow EEE to extract onion oil and garlic oil at far better yields than those obtained by
existing processes
...


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Unfortunately, as with all extraction processes, there will be some leakage and, although
perfectly safe and compliant with all safety legislation, the smell of the oils offends some of
the more affluent residents who have complained to local government officers
...
One of the trade union representatives working in EEE is also an elected council
member serving in the local government
...

(5 marks)

KA PL AN P U BLI SH IN G

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...
com

EEE is an established chemical company extracting flavours and oils from plant materials
and supplying them to the flavours and fragrances industries
...

The remainder of the shares are in public ownership
...


To download more visit http://freeaccastudymaterial
...
co
m

ial

ter

tud

ym
a

10 years ago the northern political bloc split up and nine new independent states were
formed
...
The people of Ecuria (known as Ecurians)
traditionally have a strong work ethic and a passion for precision and promptness
...
Since the formation of the state, the government of Ecuria has
pursued a policy of privatisation
...


cc

as

The state haulage operator (EVM) was sold off to two Ecurian investors who raised the
finance to buy it from a foreign bank
...
EVM now has
700 modern trucks and holds all the major logistics contracts in the country
...
Problems in raising finance have made it difficult for
significant competitors to emerge
...


ea

These two investors now wish to realise their investment in EVM and have announced that
it is for sale
...
Swift’s management perceive that their capabilities in logistics will
greatly enhance the profitability of EVM
...
Swift has acquired a number of smaller Ambion companies in the last decade, but
has no experience of acquiring foreign companies, or indeed, working in Ecuria
...
He is becoming progressively
disillusioned with Ambion
...
The government is more interested in over regulating enterprise than
stimulating growth’
...


4

KA PL AN P U BLI SH IN G

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...
com

Ambion is the third largest industrial country in the world
...
Joe Swift Transport (known as Swift) is the largest logistics company
in Ambion, owning 1500 trucks
...
It has significant haulage and storage contracts with retail and supermarket
chains in Ambion
...
However, the profitability of the sector is under
increased pressure from a recently elected government that is committed to heavily taxing
fuel and reducing expenditure on roads in favour of alternative forms of transport
...
The company is perceived as a good performer in its sector
...
15%
...
55 and an acid test ratio of 1
...
The gearing ratio is currently 60% with an interest cover
ratio of 8
...
com
PR AC T ICE Q UE S T ION S : S EC TI ON 1

Figure 1 – Extract from financial results: EVM 20X9
Extract from the statement of financial position
$million

Assets
Non-current assets
Intangible assets
Property, plant, equipment


...
com

100
900
200
––––––
1,200
––––––

ym
a

Total assets

Equity and liabilities

Total equity

cc

as

Non-current liabilities
Long-term borrowings
Current liabilities
Trade payables
Current tax payable

tud

Equity
Share capital
Retained earnings

Total liabilities

5,700
50
––––––
5,750
––––––
2,500
1,000
50
––––––
1,050
––––––
3,550
––––––
9,300
––––––

fre

ea

Total equity and liabilities

––––––
9,300
––––––

KA PL AN P U BLI SH IN G

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...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

Extract from the statement of comprehensive income
Revenue
Cost of sales

Profit before tax
Income tax expense

ial

Profit for the year
Required:

Assess, using both financial and non-financial measures, the attractiveness, from
Swift’s perspective, of EVM as an acquisition target
...


ym
a

ter

(a)

Examine using Porter’s Diamond (or an appropriate alternative model/framework)
the factors which could influence Swift’s decision to move a large part of its
logistics business to Ecuria
...
The company was taken
over by its present parent company, Universal Carpet Inc
...
Universal Carpet is a
giant, vertically integrated carpet manufacturing and retailing business, based within the
USA but with interests all over the world
...
– and in the
domestic (household) market
...
Industrial and contract carpets contribute
25% of Bowland Carpets’ total annual turnover which is currently $80 million
...


6

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...
com


...
com
PR AC T ICE Q UE S T ION S : S EC TI ON 1

Bowland Carpets has traditionally been known as a producer of high quality carpets, but at
competitive prices
...
It has also
maintained a good relationship with the many carpet distributors throughout the UK,
particularly the mainstream retail organisations
...
co
m

ial

ter

Required:

ym
a

Acting in the capacity of Jeremy Smiles you are required to outline the various issues
which might be of significance for the management of the parent company
...
It has many manufacturing and sales facilities
throughout the world
...
However this product spread has not only resulted in increased sales
volume but production, marketing and distribution costs have also increased
disproportionately
...
In such a competitive market it is difficult to pass on these extra costs to the
customer
...
com/freeaccastudymaterial

7

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...
It has recognised that the increasing concentration within the
European carpet manufacturing sector has led to aggressive competition within a low
growth industry
...
It
does, however, consider that vertical integration into retailing (as already practised within
the USA) is a serious option
...
The president of the parent company has
asked Jeremy Smiles, managing director of Bowland Carpets, to address this issue and
provide guidance to the US board of directors
...


To download more visit http://freeaccastudymaterial
...

(12 marks)

ter

7

Using appropriate analytical models discuss how Adrian Reed might select the
products to be removed from the portfolio as part of his product divestment
strategy
...
Its
stores offer ambient goods (goods that require no cold storage and can be kept at room
temperature, such as cleaning products, stationery, biscuits and plastic storage units) at a
fixed price of one dollar
...
Fixed-price discount
chains focus on unbranded commodity goods which they buy from a number of small
suppliers, for which the dollar shops are the most significant customers
...
The target price is
fixed
...


ea

cc

as

NESTA has observed the long-term economic decline in the neighbouring country of
Eurobia, where a prolonged economic recession has led to the growth of so-called ‘dollar
shops’
...
The shops of these three chains are particularly found on the
high streets of towns and cities where there is significant financial hardship
...
Furthermore,
landlords who once required high rents and long leases are increasingly willing to rent these
stores for a relatively short fixed-term lease
...
Few weeks go by without
one of the chains announcing plans for a significant number of new shops throughout the
country
...


fre

NESTA recently commissioned a brand awareness survey in Eurobia
...
Most of these respondents correctly identified the company as a
discount fixed-price company with a significant presence in Eyanke
...
In contrast, the three
current fixed-price dollar shop discounters in Eurobia were recognised by more than 90% of
the respondents
...
com/freeaccastudymaterial

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...
co
m

In order to regain a competitive position Adrian Reed, the Managing Director of
McGeorge Holdings, has been advised to reduce the range of products and the product
lines
...
Reed is keen to implement such a product divestment
strategy but he fears that this cutting back could alienate customers
...
He is unhappy about the overall performance of his company’s activities
...


To download more visit http://freeaccastudymaterial
...
It has cash reserves which could allow it to
lease a significant number of shops in Eurobia and establish a credible market presence
...
Its logistics systems and methods are core strengths of the
company
...
co
m

ial

ItzaDollar
DAIAD*
DollaFellas
Total

20X1 ($million)
300
290
235
825

ym
a

20X2 ($million)
330
310
290
930

ter

Table One shows the relative revenue of the three main discount fixed-price chains in
Eurobia
...

(10 marks)

ISD

cc

8

Use Porter’s five forces framework to assess the attractiveness, to NESTA, of
entering the discount fixed-price retail market in Eurobia
...
ATL is one of many training
companies certified by the ISD to offer training courses to prepare candidates for these
three certificates
...
It has differentiated itself in the marketplace by offering
high quality training in well-equipped training centres
...
ATL also provides
training courses through sales intermediaries known as training brokers
...
All ATL courses are run in Eothen, an established industrial
nation with a high standard of living
...
com/freeaccastudymaterial

9

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...
The largest of
these has annual revenue of $42,500 million
...
Customer car parking is plentiful and it is relatively easy for supplying vehicles to
access such sites
...
However, prices
for such goods vary and no supermarkets have yet adopted the discount fixed-price sales
approach
...
Many supermarkets also have
internet-based home ordering systems, offering (usually for a fee of $10) deliveries to
customers who are unable or unwilling to visit the supermarket
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

Analysis
The regression line for the two variables
is defined by y = 616
...
939x

tud

ym
a

Average annual
training spend per
employee ($) (y)
900
1,050
1,500
750
600
1,500
850
400
500
1,500

And correlation by
r = 0
...
Figure 1 shows the results
of research from MidShire University into the relationship between average training spend
per employee and companies’ gross profit
...
Statistics produced by the Eothen government suggest that the
average gross profit of the top 500 companies in Eothen will fall to $50m next year
...


Figure 1: Training spend analysed against gross profit

ea

cc

The e-learning product has been specified by an experienced lecturer and developed by a
business analyst
...
ATL is the first company to produce an e-learning product for
the ISD market
...


fre

Each certificate examination costs $125 and is available on demand in test centres all over
the world
...
The
managing director of ATL has also discovered the following analysis of nationwide elearning sales published by Training Trends, a respected Eothen-based publication
...


10

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...
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...
There are three main reasons for this development
...
Currently, courses are only run in Eothen and each
certified course takes five days
...
The second reason is to provide a cheaper route to the qualification
...
Finally, ATL wishes to exploit a global market
...
It feels that overseas customers
will be sensitive to price, but they have no estimate of this sensitivity
...
com
PR AC T ICE Q UE S T ION S : S EC TI ON 1

20W9

3
4
1
2
3
4
1
2
3
4

20X0

e-learning sales
($m) (y)
2
...
66
2
...
84
2
...
97
3
...
25
3
...
75

Analysis
The regression line for the two
variables is defined by
y = 2
...
12x
And correlation by
r = 0
...
co
m

Quarter

Figure 2: E-learning sales in Eothen analysed by quarter (source: Training Trends)
...


ter

Required:

ATL needs to determine the price (or prices) of its e-learning product:
Identify and discuss the factors that need to be taken into consideration when
pricing the e-learning product
...

(10 marks)

MOOR FARM

(Total: 25 marks)

ea

cc

as

Moor Farm is a large estate in the rural district of Cornaille
...
It also includes two villages, and although many of the
properties in these villages have been sold off to private homeowners, the estate still owns
properties which it rents out
...
The garden, although now
overgrown and neglected, is the only surviving example of his work in the district
...
The trust is based at the estate
...


fre

The estate has a manager, four full-time staff and 45 volunteers
...
They are happy, well-motivated and fully support the current
manager who is due to retire in the very near future
...

Government grants for initiatives such as tree planting, protected pasture land and rural
employment have been received by the estate in the past
...
This will also affect funding for
the maintenance of the mansion
...
Recent warm wet winters have caused the fabric of the
building to decay and increased the cost of maintaining it
...
com/freeaccastudymaterial

11

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...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

Here are some extracts from the survey:

ial

‘I live in one of the villages and I am angry about visitors crowding around the village
attractions – the tearooms, the craft shops, the souvenir stalls
...
’ Homeowner, from a village on the
estate

ter

‘We had a good day, but the weather was awful
...
It spoilt a family day
out
...
’
Visitor who had travelled 100 kms with two small children to visit a special event

ym
a

‘We all love it here, but we didn’t know you had a website!! We almost had to type in the
complete website address before we found it! I am sure more people would come if they
could only find the website!’ Visitor aged mid-20s
‘As usual, we had a great time here and took great photos
...
We would recommend it to anyone who loves
the outdoors
...
They
were so helpful and knowledgeable
...
’ Visitor – elderly couple

as

‘I was disappointed that I was not allowed into the farmland with my dog
...
It is a basic human right
...
We need more than
just occasional questionnaires
...
Next time we will go
somewhere where they are not welcome
...
Last week, I lost
two sheep, ravaged by dogs that should not have been off their leads
...
We are a happy, social group of people
...
’ Volunteer

12

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...
She is working alongside the current manager so that she
understands her responsibilities and how the estate works
...
The website is
generally thought to be well structured and presented, but it receives fewer visitors than
might reasonably be expected
...


To download more visit http://freeaccastudymaterial
...

(15 marks)

(b)

Discuss how the website could be further developed to address some of the issues
highlighted in the survey
...
co
m

(a)

(Total: 25 marks)

10

ATD

ial

ter

tud

Figure 1: Least squares analysis

Quarter sales ($000)
x
y
1
110
2
160
3
155
4
96
5
116
6
160
7
153
8
100
9
128
10
180
11
169
12
99
13
137
14
180
––––––
1,943
––––––

fre

ea

cc

as

Year/quarter
20X0 quarter 1
20X0 quarter 2
20X0 quarter 3
20X0 quarter 4
20X1 quarter 1
20X1 quarter 2
20X1 quarter 3
20X1 quarter 4
20X2 quarter 1
20X2 quarter 2
20X2 quarter 3
20X2 quarter 4
2013 quarter 1
2013 quarter 2

ym
a

Consequently, he has asked a business analyst to investigate more rigorous, appropriate
ways of forecasting
...
The first
(summarised in Figure 1) is least squares regression
...
The actual sales figures in both of these examples are for ATD, so the
company is currently in quarter 3 – 2013
...


x2

1
4
9
16
25
36
49
64
81
100
121
144
169
196
––––––
1,015
––––––
b
a
r

xy
110
320
465
384
580
960
1,071
800
1,152
1,800
1,859
1,188
1,781
2,520
––––––
14,990
––––––
1
...
022
0
...
com/freeaccastudymaterial

13

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...
The sales manager is currently under pressure from the other
departmental managers to explain why his sales revenue forecasts are becoming
increasingly unreliable
...
He uses a ‘combination of experience, intuition and guesswork’ to
produce his sales forecast, but even he accepts that his forecasts are increasingly
inaccurate
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

Figure 2: Time series analysis
Deviation

Svar (1)

Residual

131
...
75
131
...
75
133
...
75
142
...
13
145
...
25

24
...
75
–15
...
25
19
...
75
–14
...
88
23
...
25

22
...
08
–14
...
23
22
...
08
–14
...
23
22
...
08

1
...
33
–0
...
98
–3
...
33
0
...
64
1
...
17

1

2

ial

ter

ym
a

Analysis of seasonal variation

3
24
...
25
23
...
13
22
...
17
22
...
50
–14
...
75
–14
...
17
–14
...
25
35
...
13
32
...
17
32
...
70
127
...
45
136
...
70
127
...
45
140
...
70
147
...
45
139
...
70
147
...
co
m

Trend

4
–35
...
75
–47
...
75
–40
...
17
–40
...
69

Note 1: Svar: seasonal variation

Note 2: Sadj: seasonally adjusted figures

cc

as

The failure of the company to meet sales targets for quarters 1 and 2 of 2013 has prompted
the Chief Executive Officer (CEO) to put into place a broad cost-cutting policy
...
He claims that ‘our failure to meet sales targets means we must
ruthlessly cut costs’
...


fre

ea

This cost-cutting has particularly demotivated the production manager and the inventory
manager, who both blame the sales director for setting unrealistic targets
...
In general, departmental managers at the company feel ‘powerless and
undervalued’
...
com/freeaccastudymaterial

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...
com
PR AC T ICE Q UE S T ION S : S EC TI ON 1

The company currently does not have a formal budgeting process in place
...



...

(10 marks)

ial

(b)

ONE ENERGY PLC

(Total: 25 marks)

Walk in the footsteps of a top tutor

ter

11

Explain and analyse the data in the least squares regression and time series analysis
spreadsheets (Figure 1 and 2) left by the business analyst and evaluate the
appropriateness of both techniques to sales forecasting at ATD
...
It is an expanding,
aggressive company which has recently acquired two smaller, but significant, competitors
...
The recently appointed Human Resources (HR) director of OneEnergy
recommended the package because he had used it successfully at his previous employer – a
major charity
...
The purchase of the
RitePay payroll system appeared to offer the opportunity to quickly consolidate the three
separate payroll systems into one improved solution
...
It was felt that payroll rules and
processes were relatively standard and so there was no need to look further than a package
recommended by the HR director
...


fre

ea

cc

However, it soon became apparent that there were problems with the suitability of the
RitePay software package
...
Not all of these variations could be handled by the
package
...

This led to unplanned costs and also to delays in implementation
...
Users had
problems understanding some of the terminology and structure of the software
...
Consequently users made more
errors than expected and training costs exceeded their budget
...
Despite repeated requests, the amendments were not received
...
Just before this was announced the HR director of OneEnergy left the company
to take up a similar post in the public sector
...
com/freeaccastudymaterial

15

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...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

W&P also reports that:

•

The procurement department at OneEnergy had requested two years of accounts
from RiteSoftware
...
W&P concluded ‘that there were clear signs that
the company was in difficulty and this should have led to further investigation’
...


ial

•

Figure 1: RiteSoftware Accounts

tud

Current assets
Inventories
Trade receivables

cc

as

Total assets
Liabilities
Current liabilities
Trade payables
Current tax payable
Bank overdraft

ea

Non-current liabilities
Long-term borrowings
Total liabilities

fre

Equity
Share capital

Total equity and liabilities

16

ym
a

Assets
Non-current assets
Property, plant and equipment
Goodwill

ter

Extract from the statement of financial position

$000

20X8
30
215
––––
245

20X7
25
133
––––
158

3
205
––––
208
––––
453
––––

2
185
––––
187
––––
345
––––

257
1
10
––––
268

178
2
25
––––
205

80
––––
348
––––

35
––––
240
––––

105
––––
453
––––

105
––––
345
––––

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com


...
An interim
report from W&P suggests that OneEnergy should abandon the RitePay package
...
’ They also commented that this could have
been avoided if the project had followed the competitive procurement policy defined in
company operating procedures
...
com
PR AC T ICE Q UE S T ION S : S EC TI ON 1

Extract from the statement of comprehensive income
Revenue
Cost of sales

Other costs
Finance costs
Profit before tax
Income tax expense

ial

Profit for the year
Extract from the annual report
Number of staff

90

70

ter

Required:
(a)

2,350
(2,300)
––––
50
––––
(20)
(4)
––––
26
(2)
––––
24


...


12

Examine FOUR ways in which OneEnergy failed to follow a proper evaluation
procedure in the selection of the RitePay software package
...

(12 marks)

INDEPENDENT LIVING
Introduction

(Total: 25 marks)

tud

(b)

ym
a

Assess, using the financial information available, the validity of W&P’s conclusion
...
These aids include walkers, wheelchairs,
walking frames, crutches, mobility scooters, bath lifts and bathroom and bedroom
accessories
...
IL’s charitable aim is to provide the opportunity for severely disabled
people to ‘work with dignity and achieve financial independence’
...
The former aircraft hangars have been turned into either production or storage
facilities, all of which have been adapted for severely disabled people
...
These are
relatively unsophisticated products, manufactured from scrap metal bought from local
scrap metal dealers and stored on-site
...
IL uses its own lorry to make
collections of scrap metal but the lorry is old, unreliable and will soon need replacing
...
com/freeaccastudymaterial

17

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...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

Larger and more complex items (such as mobility scooters and bath lifts) are bought in bulk
from suppliers and stored in the hangars
...
These products are stored until they are ordered
...
co
m

When an order is received for such products, the product is unpacked and tested
...
It is then dispatched to the customer
...

All goods are sold at cost plus a margin to cover wages and administrative costs
...
Customers
can also make a further voluntary donation to help support IL if they wish to
...


ym
a

ter

ial

IL markets its products by placing single-sided promotional leaflets in hospitals, doctors’
surgeries and local social welfare departments
...
Customers may purchase products by
ringing IL directly or by ordering over their website
...
It also has a secure
payment facility
...
Each sales discussion
takes, on average, ten minutes and only one in two contacts results in a sale
...
Goods are delivered to customers
by a national courier service
...

Commercial competitors

as

tud

IL is finding it increasingly difficult to compete with commercial firms offering independent
living aids
...
Many of the commercial firms it is competing with have
sophisticated sales and marketing operations and then arrange delivery to customers
directly from manufacturers based in low labour cost countries
...

Analyse the primary activities of the value chain for the product range at IL
...

(15 marks)

fre

ea

(a)

18

(Total: 25 marks)

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...
com

Ordering and marketing

To download more visit http://freeaccastudymaterial
...
co
m

ial

tud

ym
a

ter

The Milton plant is solely concerned with the production of moist pet food
...
Many of these distribution centres, like Noble Pets’ competitors, are
now located on or near the motorway network
...
This
quality has been promoted ever since the company’s formation by clever marketing
campaigns which stress the importance of giving your pet good food, and the superior
nature of Noble Pets’ products to its competitors
...
The
company now has a website dedicated to giving advice and guidance
...


as

Noble Pets is currently reviewing its operations and has asked external consultants to
assess the Milton plant from a value chain perspective
...
Average figures for its competitors are also provided
...
10
0
...
25
0
...
15
0
...
25

0
...
10
0
...
25
0
...
05
1
...
09
0
...
30
0
...
10
0
...
10

0
...
05
0
...
26
0
...
08
1
...
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19

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...
Between them, these four companies share 90% of the market
...
Its factory (plant) was updated in 1970
with new canning and labelling technology
...
The factory,
which was once on the edge of the town, is now surrounded by modern housing
development
...
Trucks transporting goods in and out of the plant
have to negotiate relatively minor rural roads and also have to pass through the town
centre of Milton, which is often very congested
...
Thus distribution out of the Milton plant is undertaken with smaller 36 tonne trucks,
which are less cost-effective
...


To download more visit http://freeaccastudymaterial
...
co
m

Dry pet food is an alternative to moist pet food
...
Many people who buy pet food prefer the dry food because it does not smell
and can be left in the pet’s bowl for longer
...
It would like to reduce costs at Milton but it is concerned that the
demand for moist pet food will not justify such investment
...
It is aware that new technology is
available (and is already being used by its competitors) which offers more efficient and
reliable canning, but it is not sure that it is worth investing in
...


ial

1
2
3
4
5
6
7

Dry pet food
(000s tonnes)
292
307
321
329
341
351
359

ter

20X0
20X1
20X2
20X3
20X4
20X5
20X6

Moist pet food
(000s tonnes) (y)
370
350
331
325
315
310
310

ym
a

Year (x)

Table Two: Production of pet food (20X0–20X6)

tud

A linear regression analysis has been conducted for the moist food production
...
The linear
regression analysis has identified the following values of a, b and r for the relationship
between time and moist pet food production
...
5714

b
–9
...
94432

cc

Required:

as

Noble Pets currently has a market share of 30% of the moist food market, a share which has
remained unchanged since 20X0
...
As well as the Milton plant it has two
other plants
...


(a)

Evaluate the strengths and weaknesses of the Milton plant from the perspective of
the primary activities of a value chain analysis
...

(5 marks)

fre

(ii)

20

(5 marks)

ea

Analyse trends in the pet food industry

(Total: 25 marks)

KA PL AN P U BLI SH IN G

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...
com

Years

To download more visit http://freeaccastudymaterial
...
He formed a limited liability company, Graffoff, with initial share capital
funded by his savings, his family’s savings and a legacy from a wealthy relative
...
The company
has filed two years of results (see Figure 1 for extracted information from year (2), and it is
expected to return similar net profit figures in its third trading year
...
He also wishes to
remain the sole owner of the company
...
In Pablos, patents are
protected for ten years and so Emile has six further years before his formula becomes
available to his competitors
...
He needs $500,000 to finance this
organic growth of his company
...
Despite the apparent
success of his company, he prefers working in the laboratory to managing people
...
He is aware that he lacks business experience
and, despite the technical excellence of the product, he has failed to build a highly visible
brand
...
Emile
dislikes conflict with customers and so he often offers them extended payment terms to
the dismay of the accounts receivables section, who feel that their debt collecting
effectiveness is being constantly undermined by his concessions
...
Emile is sanguine about this
...
’

fre

In Pablos, all goods are supplied to customers on 30 days credit
...
One supplier commented that ‘Graffoff is unique in its punctuality of payment
...
He is unwilling to
take on any further external debt and consequently he has also recently considered
franchising as an alternative to organic growth
...
The franchise would have exclusive rights to the Graffoff product in a
defined geographical region
...
com/freeaccastudymaterial

21

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...
co
m

Emile Gonzalez is an industrial chemist who worked for the government of Pablos for more
than 20 years
...
Graffiti is a particular problem in Pablos and all
previous removal methods were expensive, dangerous to apply and did not work on all
surfaces
...
His product can be applied safely without protective clothing, it removes
graffiti from all surfaces and it can be produced economically in small, as well as large,
volumes
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S


...
It is a wellrecognised brand with a strong marketing presence
...
It has approached Graffoff to ask whether it can sell the
Graffoff product through its superstores
...
He
sees Graffoff as offering a complete service (graffiti removal), not just a product (graffiti
removal equipment) and so selling through The Equipment Emporium would be
inappropriate
...
com/freeaccastudymaterial

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...
com
PR AC T ICE Q UE S T ION S : S EC TI ON 1

Required:
Evaluate the franchising option being considered by Graffoff, highlighting the
advantages and disadvantages of this approach from Emile’s perspective
...



...

(7 marks)
(c)

ENVIRONMENT MANAGEMENT SOCIETY

(8 marks)

(Total: 25 marks)

ter

15

ial

Evaluate this claim
...
EMS has its own Board who report to a Council of eight members
...
EMS is registered as a private limited entity
...

The qualification began as one certificate, developed by the original founding members of
the Society
...
EMS employs a full-time chief examiner who is
responsible for setting the certificate examinations which take place monthly in training
centres throughout the country
...


as

If candidates pass all four papers they can undertake an oral Diploma examination
...
All examinations are open-book one
hour examinations, preceded by 15 minutes reading time
...
They felt that competence in this area
was best assessed by written examination answers
...
The
Board of EMS has concluded that this drop reflects the maturing marketplace in the
country
...
The stream of new
candidates and hence members is relatively small
...
It is now formulating a strategy to launch the
qualification in India, China and Russia
...
EMS is only confident about its technical capability within
a restricted definition of environmental management and audit
...


KA PL AN P U BLI SH IN G

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...
com

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
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

Required:
Internal development, acquisitions and strategic alliances are three development
methods by which an organisation’s strategic direction can be pursued
...

(8 marks)

(b)

Explain the principles of acquisitions and discuss how appropriate this development
method is to EMS
...

(9 marks)


...

Established in 1952, MMI specialised in mineral quarrying and opencast mining and in 20X2
it owned fifteen quarries and mines throughout the country
...
Increased costs and falling
reserves meant that there was little chance of finding new sites in the country which were
economically viable
...


tud

Consequently the Chief Executive Officer (CEO) of MMI suggested that the company should
pursue a corporate-level strategy of diversification, building up a portfolio of acquisitions
that would ‘maintain returns to shareholders over the next fifty years’
...
These leisure parks
provided a range of accommodation where guests could stay while they enjoyed sports and
leisure activities
...


fre

ea

cc

as

The acquisition was initially criticised by certain financial analysts who questioned what a
quarrying company could possibly contribute to a profitable leisure group
...

However, in 20X4 a First Leisure manager commented on the difficulty of developing new
leisure parks due to increasingly restrictive government planning legislation
...
Because these were developments of ‘brown field’ sites they were exempted
from the government’s planning legislation
...
The company is still run by the
managers who were in place when MMI acquired the company in 20X2 and MMI plays very
little role in the day-to-day running of the company
...
MMI introduced its own managers into these
companies resulting in a spectacular rise in revenues and profits that caused the CEO of
MMI to claim that corporate management capabilities were now an important asset of
MMI
...
com/freeaccastudymaterial

To download more visit http://freeaccastudymaterial
...
com
PR AC T ICE Q UE S T ION S : S EC TI ON 1


...
The failure of certain contracts has led to
falling revenues and profits and the company needs new investment
...
However, after its experience with Boatland, the CEO of
MMI is cautious about any further diversification of the group
...
10

2
...
40

2
...
30

0
...
50

0
...
09

0
...
30

0
...
com/freeaccastudymaterial

25

To download more visit http://freeaccastudymaterial
...

The primary rationale behind the acquisition was the potential synergies with First Leisure
...
Cost savings for First Leisure were also expected and it was felt that income
from the First Leisure contract would also allow Boatland to expand its production of boats
for other customers
...
However, by 20X8 Boatland was
reporting poorer results (see table 1)
...

In contrast, the boats required by First Leisure were for the casual use of holiday makers
who often ill-treated them and certainly had no long-term investment in their ownership
...
This increase in
maintenance also put Boatland under strain and its other customers complained about
poor quality workmanship and delays in completing work
...
Since
the company was acquired almost half of the skilled boat builders employed by the
company have left to take up jobs elsewhere in the industry
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

20X8

20X6

20X4

20X2

Revenue

21

24

26

25

Gross profit

0
...
2

2

3

3

*Estimated Market Revenue

560

540

475

450


...

Required:

Assess the extent to which the proposed acquisition of InfoTech represents an
appropriate addition to the MMI portfolio
...

(15 marks)

BLUESKY

(Total: 25 marks)

cc

as

tud

ym
a

Dr John Clarkson is currently Managing Director of BlueSky Analysis Ltd, a research
company which obtains data gathered from satellite observations, analyses this data and
then sells the information to client organisations
...
He set up BlueSky Analysis Ltd to utilise the technology which he
understood, and to adapt it for peaceful applications
...
These five scientists were the only shareholders
...
It was now possible to buy from both military and civil satellite
owners data obtained from a variety of sources
...
The potential customers for such
information were mainly governmental agencies, operating both nationally and
internationally, including organisations such as the United Nations Food and Agricultural
Organisation
...


fre

ea

The initial growth was rapid
...

It was an attractive company for the scientists to work for
...
Each analyst worked on an individual client’s project, specialising on either a
geographical area or on a specific industry such as mining, helping to identify the location of
mineral deposits
...

Staff turnover was very low
...
Otherwise they usually worked alone
...
They did employ some junior staff

26

KA PL AN P U BLI SH IN G

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...
com

(a)

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...

Even recruitment was contracted out to an agency
...
However they, like most of
the scientists, were at their happiest when they were focusing on the analytical work for
clients and not being managers
...
co
m

ym
a

ter

ial

However by late 20X7 it was apparent that this loose management structure was inhibiting
the growth of the company
...
Its projects were
frequently going over budget and many were taking too long to complete
...
Furthermore,
as the senior managers acted as intermediaries between the client and the scientist
responsible for their particular research contract, any negotiations for changes in
requirements tended to be lengthy and confusing
...


ea

cc

as

tud

In early 20X8 the senior management, now facing declining orders, decided that they could
not continue in such as undisciplined manner
...
These
contracts were with both public and private sector clients ranging from automobile
manufacturers to governmental tax agencies
...
The company employed in excess of
3,000 employees worldwide, with almost half being in support but non-operational roles,
compared with a total of 90 employees at BlueSky in 20X8
...
Although technically UDS now
own BlueSky it was not seeking to absorb it
...
They did not wish to destroy the research-centred culture
of BlueSky because the company’s success depended upon the scientists’ continued
goodwill and commitment
...

However UDS would now require that all new contracts be investigated by themselves for
financial attractiveness
...
This meant
that all contracts, regardless of size were now sent to the headquarters in the USA
...


KA PL AN P U BLI SH IN G

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...
com

Unfortunately this informal style and structure did not run smoothly
...
There was inadequate integration and teamwork within the
company, with most of the scientists working independently on their own projects
...
Fortunately the company was still a leader in this small
specialist field and so did not lose much business to emerging competitors
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S


...

Table 1: Financial Data ($000)

1,300
85
750
45
37

750
93
600
90
45

ter

20X9
4,350
3,250
1,100
480
80
400
620

as

tud

ym
a

Sales revenue
Cost of sales
Gross profit
Expenses
Of which
– marketing
– administration
Operating profit
Value of contracts in progress or on order book
(31 December)
Employees
Non-current assets
Average value of contracts
% of contracts overrunning on cost or time

20X8
4,400
3,400
1,000
300
100
200
700

Required:

cc

Note: 20X8 was the last full year as an independent company and 20X9 was the first year
as a subsidiary of UDS
...

(15 marks)

(b)

If BlueSky is integrated fully into UDS it is probable that there will be a clash of
cultures
using the cultural web, or a similar model, comment on the current
differences in culture, explaining the main factors which cause these
differences
(5 marks)

fre

(i)

ea

(a)

(ii)

explain the ways in which the management at UDS might minimise the
conflict which may arise from the cultural differences
...
com/freeaccastudymaterial

To download more visit http://freeaccastudymaterial
...
BlueSky had been
accustomed to managing smaller contracts with lower margins but now UDS was seeking to
impose financial criteria on them which were more suitable for a larger company with a
bigger infrastructure to support
...
There was dissatisfaction in both BlueSky and UDS as
BlueSky’s scientists were seeing contracts being lost and the parent company was not
seeing the growth it had expected when it acquired the subsidiary
...
Clarkson was summoned to the USA
headquarters to discuss the future of BlueSky
...


To download more visit http://freeaccastudymaterial
...
co
m

ial

tud

ym
a

ter

Hudson is convinced that a significant cause of the problem is the way that the company is
organised
...
Hudson’s organisation is currently structured on a
functional basis, which does not seem to work well with complex technologies when
operating in dynamic markets
...
Hudson has
contemplated moving towards a divisionalised structure, either by product or by market so
as to provide some element of focus, but his experience has suggested that such a structure
might create internal rivalries and competition which could adversely affect the
performance of the company
...
He is seeking a
structure which encourages both integration and efficiency
...


as

The company is already relatively lean and so any move towards delayering, resulting in a
flatter organisation is likely to be resisted
...

Required:

Provide an alternative organisational structure for ALG Technology, discussing both
the benefits and problems which such a structure might bring
...

(12 marks)
(Total: 25 marks)

fre

ea

cc

(a)

KA PL AN P U BLI SH IN G

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...
com

John Hudson is the Managing Director of ALG Technology, a medium-sized high tech
company operating in several geographic markets
...

It currently has four key projects – (1) a command, communication and control system for
the army’s gunnery regiments, (2) avionics for the fighter aircraft within the airforce, (3) an
air traffic control system for a regional airport and (4) radar installations for harbour
authorities in the Middle East
...
However, Hudson was worried because each of these
projects was increasingly falling behind schedule and the contracts which he had negotiated
had late delivery penalties
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

19

ICC ORGANISATION

ym
a

ter

ial

Within each country however S&M and SES are organised as independent divisions
...
S&M product specialisation is seen as essential if sales staff are to
develop the level of product technical expertise deemed necessary to sell advanced
technologies to computing professionals
...
The intention being that the customer has only one
SES contact for any hardware or software problem and the SES teams are equipped to deal
with any aspect of technical support
...
Recently there have been a growing number of country based problems in coordination between S&M and SES
...
Another has been instances of hardware being sold by
S&M which later proved unsuitable in performance terms
...


(a)

tud

Required:

The ‘international to country’ functional management at ICC provides an example
of the matrix form of organisational structure
...

(8 marks)
Suggest how the adoption of a country-based matrix structure combining S&M and
SES could assist in resolving the apparent co-ordination problems between the two
divisions
...


cc

(b)

(Total: 25 marks)

fre

ea

Examine the issues which organisation design must address if the matrix form is to
function effectively
...
com/freeaccastudymaterial

To download more visit http://freeaccastudymaterial
...
co
m

International Computer Corporation (ICC) has two major world-wide customer functions
...
Within each country functional management (S&M, SES and other
functions such as Finance) report to the country Vice President (Operations) and also to the
functional Vice President located at the Head Office in the USA
...


To download more visit http://freeaccastudymaterial
...
It imports electrical components from
other countries and distributes them throughout the domestic market
...
A further 10% of
the company is owned by his wife and 5% each by his two daughters
...
co
m

ial

ter

Employees, customers and suppliers

ym
a

Frigate currently has 25 employees primarily undertaking sales, warehousing, accounts and
administration
...
They are also expected to help Ron
in personal tasks, such as booking holidays for his family, filling in his personal tax returns
and organising social events
...
All employees at Frigate Ltd are
only given the minimum holiday allocation
...
Ron is particularly inflexible about holidays and work
hours
...
In contrast, Ron is often away
from work for long periods, sailing in various parts of the world
...
He has also been in
dispute with the tax authority who he accused of squandering his ‘hard-earned’ money
...

Company accountant

fre

ea

It was this action by the tax authority that prompted Ron to appoint Ann Li as company
accountant
...
Ron
felt that ‘recruiting someone like Ann should help keep the tax authorities happy
...


KA PL AN P U BLI SH IN G

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...
com

Although he has never been in the navy, Ron is obsessed by ships, sailing and naval history
...
He increasingly spends time on his own boat, an expensive motor cruiser,
which is moored in the local harbour twenty minutes drive away
...
00 am in the morning to make sure that employees
arrive on time and he is also there at 5
...

However, he spends large parts of the working day on his boat, although he can be
contacted by mobile telephone
...
If he feels that the explanation is unacceptable then he
makes an appropriate deduction from their wages
...


To download more visit http://freeaccastudymaterial
...
co
m

Ann was used to working in organisations which had formal organisational hierarchies,
specialised roles and formal controls and systems
...
As she said to Ron ‘we cannot have everyone working as if
they were just your personal assistants
...
Ron resisted her plans, at first through delaying tactics and then through
explicit opposition, tearing up her proposed organisational chart and budget in front of
other employees
...
After six months
he terminated her contract
...

Required:

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

(10 marks)

BUSINESS PROCESS CHANGE
21

COUNTRY CAR CLUB
Introduction

(Total: 25 marks)

ym
a

ter

ial

Analyse Frigate Ltd using the cultural web or any other appropriate framework for
understanding organisational culture
...
In return for an annual membership fee, members of 3C are able to phone for
immediate assistance if their vehicle breaks down anywhere in the country
...
If they cannot fix the problem immediately
then the vehicle (and its occupants) are transported by a 3C recovery vehicle back to the
member’s home address free of charge
...
It now offers vehicle
insurance, vehicle history checks (to check for previous accident damage or theft) as well as
offering a comprehensive advice centre where trained staff answer a wide range of vehiclerelated queries
...
All of these services are provided by permanent 3C employees and all
growth has been organic culminating in a listing on the country’s stock exchange three
years ago
...

A Business Architecture Committee (BAC) made up of senior managers has been charged
with reviewing the scope of the company’s business activities
...
The BAC has also been asked to identify technological
implications or opportunities for the activities that they recommend should remain inhouse
...
com/freeaccastudymaterial

To download more visit http://freeaccastudymaterial
...
com
PR AC T ICE Q UE S T ION S : S EC TI ON 1

First review

ym
a

ter

ial

The BAC concluded that the garage was of low strategic importance to the company and,
although most of the processes it involved were straightforward, its remoteness from the
home base of some vehicles made undertaking such processes unnecessarily complicated
...
Two months ago 3C’s existing vehicle fleet was acquired by
AutoDirect, a company with service and repair centres nationwide, which currently supplies
45,000 vehicles to companies throughout the country
...
In the next ten years (the duration of the contract) all vehicles will be
leased from AutoDirect on a full maintenance basis that includes the replacement of tyres
and exhausts
...

Second review

The BAC has now been asked to look at the following activities and their supporting
processes
...


•
•

tud

fre

ea

•

as

•

Attendance of repair staff at breakdowns – currently undertaken by permanent
‘service patrol engineers’ employed at locations throughout the country from where
they attend local breakdowns
...
Currently renewals are sent
out by staff using a bespoke computer system
...

Vehicle insurance services providing accident insurance which every motorist legally
requires
...
Members can use the service for a
wide range of vehicle-related problems and issues
...
These are primarily used to provide ‘peace of mind’ to a
potential purchaser of a vehicle
...
The check also makes sure that the car is not
currently part of a loan agreement
...
com/freeaccastudymaterial

33

To download more visit http://freeaccastudymaterial
...
co
m

The BAC’s first review included an assessment of the supply and maintenance of 3C’s
company vehicles
...
When a vehicle needed servicing or maintenance it was returned
to this central garage
...
A further three permanent employees
were employed at the garage site with responsibility for the purchasing and disposal of
vehicles
...


To download more visit http://freeaccastudymaterial
...
The BAC
has also been asked to identify technological implications or opportunities for the
activities that they recommend should remain in-house
...
co
m

22

Analyse the advantages that 3C will gain from the decision to outsource the
purchase and maintenance of their own vehicles
...
The company sells to the general public through its stores and website
...
They handle, on behalf of SE, the following calls:
Customers requesting service contracts
...


tud

Customers with technical queries about the products they have bought
...


as

SE is currently reviewing the renewal of the TCG contract in the light of customer
complaints about:
The time taken to complete a query

The frustration caused by the need to provide a reference number and password

cc

The problem of understanding the accents of the people in the call centre
...
SE is aware of the growing hostility of
customers to such arrangements
...
com/freeaccastudymaterial

To download more visit http://freeaccastudymaterial
...

(15 marks)

To download more visit http://freeaccastudymaterial
...


2

TCG offers call centre services to a number of companies
...
Calls for SE are routed to Stella
support
...


3

The TCG support operator asks the customer what their call is about
...


4

Callers who wish to discuss a service contract are passed immediately to the
contracts section
...


cc

ea

Raise service contract and details are emailed to the customer
...


fre

5

as

1

6

For all other transaction types, Stella support asks the customer for their payment
reference number or service contract reference number
...
If the reference number is
provided, then the support team member enters it into the computer system
...
com/freeaccastudymaterial

35

To download more visit http://freeaccastudymaterial
...
co
m

TCG
c
o

Receive
r
e

t
e

I
C

Stella

Receive

Call

1 Phone

To download more visit http://freeaccastudymaterial
...
These details include a password which
the customer has to give
...


8

If the password is correct and the customer requires a purchase refund, then the
refund is processed and details emailed to the customer and the call is terminated
...


Further information:

•
•
•

ial

•
•

ter

•

TCG provides a 24 hour/7 days per week service
...

60% are technical queries, 25% are requests for refunds and 15% are for service
contracts
...

5% of customers who do know their payment/service reference number are unable
to remember their password
...

TCG has ten staff dedicated to SE: six in technical support, one in the contracts
section and three in SE support
...


ym
a

•

Required:

(b)

Discuss whether SE should continue outsourcing its customer call handling process
to TCG or should it bring the process in-house
...

(15 marks)

tud

(a)

TMP

(Total: 25 marks)

fre

ea

cc

TMP (The Management Press) is a specialist business publisher; commissioning, printing
and distributing books on financial and business management
...

60% of the company’s sales are made through bookshops in Arcadia
...

30% of TMP’s sales are through mail order generated by full-page display advertisements in
magazines and journals
...
The
final 10% of sales are made through a newly established website which offers a restricted
range of books
...
The books available on the website are
selected to avoid conflict with established supply channels
...
High selling prices and high distribution costs makes TMP’s
books expensive to buy outside Arcadia
...
com/freeaccastudymaterial

To download more visit http://freeaccastudymaterial
...
co
m

7

To download more visit http://freeaccastudymaterial
...
One of them, the son of the founder of the company, has stated that
‘bookshops need all the help they can get and management journals are the heart of our
industry’
...
He
increasingly believes that TMP’s conventional approach to book production, distribution
and marketing is not sustainable
...


tud

A young marketing graduate has been appointed by the marketing director to develop and
maintain the website
...
Other directors have given two main reasons for blocking further
development of this site
...
It is solely dependent on
the marketing graduate
...


cc

Required:

as

However, the marketing director is convinced that investing in e-business is essential for
the survival of TMP
...
Finally, we might even re-define the product itself’
...

Determine the main drivers for the adoption of e-business at TMP and identify
potential barriers to its adoption
...

(20 marks)

fre

ea

(a)

KA PL AN P U BLI SH IN G

join us on facebook @ fb
...
com


...
Paper is extremely expensive in Arcadia and the
trees used to produce it are becoming scarcer
...
In Arcadia, it is estimated that three bookshops go out of business every week
...
TMP itself has suffered three years
of declining sales and profits
...
Overall, there is increasing pressure on the company to
increase profit margins and sales
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

24

INSTITUTE OF ANALYTICAL ACCOUNTANTS

ial

Select
reviewer

[revise]
Record first
review
outcome

[accept]
Indicate
question
accepted

Indicate
question
rejected

tud

Raise
payment
notification
Review
question
(First)

Select
reviewer

ym
a

Enter question
into Question
Bank

Finance
Reviewer

[reject]

ter

Author

Revise
question

Submit
question

Administration Education

Question Handling Process

Update
question

Raise reject
notification

Receive
notification

Record
second
review
[reject]
[accept]

Raise
cheque

Review
question
(Second)

as

Figure 1: Question handling process at IAA

fre

ea

cc

The author (the question originator) submits the question to the IAA as a password
protected document attached to an email
...
At no point in the process does the author know the identity of the reviewer
...
These administrators
are not subject matter experts and sometimes make mistakes when entering the questions
and answers
...

Furthermore, there is a significant delay in entering questions
...
Administrators are paid less than education staff
...
This first review outcome is recorded by the
education department before the administration department updates the database with
whether the question was accepted or rejected
...
This causes further delay and frustration
...
com/freeaccastudymaterial

To download more visit http://freeaccastudymaterial
...
co
m

The Institute of Analytical Accountants (IAA) offers three certification programmes which
are assessed through examinations using multiple choice questions
...
The handling process for these questions is
documented in Figure 1 and described in detail below
...
It is considering
commissioning a bespoke computer system to support any agreed re-design of the business
processes
...


To download more visit http://freeaccastudymaterial
...

The amended question is returned by the author to the education department who forward
this onto the reviewer
...



...
Rejected questions
(irrespective of when they are rejected) are notified to the finance department who raise a
reject notification and send it back to the author
...
Of these, 30% are rejected on the second review
...


ial

(a)

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
...
It is already used by several significant examination boards in
the country
...
Evaluate the benefits of each option
...

(10 marks)

FLEXIPIPE

as

Introduction

(Total: 25 marks)

ea

cc

Flexipipe is a successful company supplying flexible pipes to a wide range of industries
...
This has given
Flexipipe a significant competitive edge over most of its competitors whose batch set-up
costs are higher and whose lead times are longer
...
These managers efficiently schedule jobs from different customers to achieve
economies of scale and throughput times that profitably deliver high quality products and
service to Flexipipe’s customers
...
He had seen this
package at a software exhibition and was so impressed that he placed an order
immediately
...


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Required:

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...
There is a small
procurement section with two full-time administrators, but they only become involved
once purchasing decisions have been made
...
This approach to
procurement has caused problems in the past
...
This caused shortterm production problems, although the CEO has now found an acceptable alternative
supplier
...
The business
analyst found that some of the decisions made in the current production process were
difficult to define and it was often hard for managers to explain how they had taken
effective action
...
One commented that ‘what we do today, we
might not do tomorrow; requirements are constantly evolving’
...
However, after some difficulties, it was possible
to hold trials with experienced users
...
However, in reality,
they found the software very difficult to use and they reported that certain key functions
were missing
...
Yet we had this in the old automated system’
...
Overall, it was impossible to replicate the success of the old production
process and early results showed that costs had increased and lead times had become
longer
...
Eventually, the supplier notified Flexipipe that it had gone into
administration and that it was withdrawing support for its product
...
The CEO commissioned a
post-project review which showed that the supplier, prior to the purchase of the software
package, had been very highly geared and had very poor liquidity
...
The CEO now accepts that using a software package to
automate the production process was an inappropriate approach and that a bespoke inhouse solution should have been commissioned
...
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...
co
m

This was the first time that the company had bought a software package for something that
was not to be used in a standard application, such as payroll or accounts
...
The CEO
felt that there was, on this occasion, insufficient time and money to develop a bespoke inhouse solution
...


To download more visit http://freeaccastudymaterial
...

(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
...
co
m

(a)

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
...
However, three years ago, the Perfect Shopper franchise group was
launched that allowed these neighbourhood shops to join the group and achieve cost
savings on tinned and packaged goods, particularly groceries
...
When Perfect Shopper was
established it decided that deliveries to these warehouses should be made by the food
suppliers or by haulage contractors working on behalf of these suppliers
...

These arrangements are still in place
...


cc

as

Facilities are available in each warehouse to re-package goods into smaller units, more
suitable for the requirements of the neighbourhood shop
...
Perfect Shopper delivers these to its neighbourhood shops using specialist
haulage contractors local to the regional warehouse
...
A recent
survey in a national grocery magazine showed that franchisees saved an average of 10% on
the prices they would have paid if they had purchased the products directly from the
manufacturer or from an intermediary – such as cash and carry wholesalers
...
This usually covers specific promotions and is
distributed locally, either using specialist leaflet distributors or loosely inserted into
local free papers or magazines
...
The signs
include the Perfect Shopper slogan ‘the nation’s local’
...


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(Total: 25 marks)

To download more visit http://freeaccastudymaterial
...
co
m

Perfect Shopper does not provide all of the goods required by a neighbourhood shop
...
Franchisees agree to purchase specific
products through Perfect Shopper, but other goods, such as vegetables, fruit, stationery
and newspapers they source from elsewhere
...
Variations
to this order can be made by telephone, but only if the order is increased
...
Franchisees cannot reduce their standing order requirements
until the next meeting with their representative
...
The
following issues were documented
...


(iii)

Inflexible ordering and delivery system based around forecasts and restricted ability
to vary orders (see above)
...


ym
a

As a result of this survey, Perfect Shopper has decided to review its business model
...

Required:
(b)

Explain how Perfect Shopper might re-structure its upstream supply chain to
address the problems identified in the scenario
...

(10 marks)

JAYNE COX DIRECT

(5 marks)

(Total: 25 marks)

as

27

Describe the primary activities of the value chain of Perfect Shopper
...
Its products are advertised in most quality lifestyle magazines
...
It grew out of a desire to provide customers with the chance to
specify their own bespoke furniture at a cost that compared favourably with standard
products available from high street retailers
...

Its website allows customers to select the style of furniture, the wood it is to be made from,
the type of upholstery used in cushion and seat fillings and the textile composition and
pattern of the covering
...
Once the customer has finished specifying the kind of furniture
they want, a price is given
...
Most delivery dates are ten weeks after the
order has been placed
...


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(i)

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...
Relatively high inventory levels
and a relaxed production process means that production is rarely disrupted
...
Consequently, a member
of the sales team has to telephone the customer and discuss an alternative delivery date
...

Firstly, contacting the customer by telephone can be difficult and costly
...

Finally, customers often have to agree a delivery date much later than the new delivery
date suggested by Jayne Cox Direct
...
This means
that the goods have to remain in the warehouse for longer
...
Jayne Cox Direct requires someone to be available at the delivery address to sign
for its safe receipt and to put the goods somewhere secure and dry
...

Consequently, furniture has to be returned and stored at the factory
...


as

Delivery of furniture is made using the company’s own vans
...


fre

ea

cc

The company’s original growth was primarily due to the innovative business idea behind
specifying competitively priced bespoke furniture
...
In the face of this competition the managing director of Jayne Cox
Direct has urged a thorough review of the supply chain
...
Furthermore,
in a recent customer satisfaction survey there was major criticism about the lack of
information about the progress of the order after it was placed
...
For
ten weeks I heard nothing
...
I had already taken a day off work for 10 June, my original
delivery date
...


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...

About 95% of its wood is currently supplied by three timber suppliers, all of whom supplied
the company in its first year of operation
...
Until last year, they faxed purchase orders through to suppliers
...
Recently, an expected order was not delivered because the
supplier claimed that no email was received
...
Although
suppliers like working with Jayne Cox Direct, they are often critical of payment processing
...


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...
One commented ‘I accidently stained my
sofa
...
Another said ‘organising the return of a faulty chair was very difficult’
...



...

(12 marks)

(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
...
The city itself has many social problems and a recent report from the local
government auditor criticised the Chief Executive Officer (CEO) for not spending enough
time and money addressing the pressing housing problems of the city
...

However, there has been increasing criticism of the cost and performance of this
department
...
Some employees are lost through
natural wastage, but there have never been any redundancies in IT and the labour laws of
the nation, and strong trade unions within the authority, make it difficult to make staff
redundant
...
The dispute started due to claims
about the falsification of expenses but has since escalated into a personal battle between
the director of IT and the finance director
...
However, issues still
remain and there is still tension between the managers of the two departments
...

The main complaints were about poor management, the ingratitude of user departments,
(‘we are always being told that we are overheads, and are not core to the business of the
authority’) and the absence of promotion opportunities within the department
...
There is no cross-charging for IT services provided and changes to
user requirements are accommodated right up to the release of the software
...
He has recently tried to
recruit specialists in web services and ‘cloud computing’ without any success
...

The CEO has been approached by a large established IT service company, ProTech, to form
a new company ProTech-Public that combines the public sector IT expertise of the authority
with the commercial and IT knowledge of ProTech
...
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PR AC T ICE Q UE S T ION S : S EC TI ON 1

limited company, owned 51% by ProTech and 49% by the city authority
...
The CEO is very keen on the idea and he sees many other authorities
following this route
...
They need to be ‘outward looking and not
constrained by current processes and technology’
...


ter

In principle, the creation of the new company and the outsourcing deal has been agreed
...
The current IT department has been
recently assessed as CMMI level 2
...

Required:

Evaluate the potential benefits to the city authority and its IT employees, of
outsourcing IT to ProTech-Public
...


ym
a

(a)

Analyse what new or enhanced competencies the business analysts will require to
undertake their proposed new role in the city authority
...


tud

(c)

cc

Timed question with Online tutor debrief

fre

ea

Good Sports Limited is an independent sports goods retailer owned and operated by two
partners, Alan and Bob
...
First of all the supply side has been transformed by the
emergence of a few global manufacturers of the core sports products, such as training
shoes and football shirts
...
These independent retailers can stock popular global brands, but have to
order using the Internet and have no opportunity to meet the manufacturer’s sales
representatives
...
These retail chains stock a limited
range of high volume branded products and charge low prices the independent retailer
cannot hope to match
...
com/freeaccastudymaterial

45

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...
co
m

The only exception to this transfer of resources concerns the business analysts who are
currently in the IT department
...


To download more visit http://freeaccastudymaterial
...
He has
been encouraged by the growing interest of customers in other countries to the service and
product range they offer
...
Above all, he wants
to avoid head-on competition with the national retailers and their emphasis on popular
branded sportswear sold at retail prices that are below the cost price at which Good Sports
can buy the goods
...

(15 marks)

(b)

Good Sports Limited has successfully followed a niche strategy to date
...

(10 marks)

tud

ym
a

(a)

(Total: 25 marks)

30

as

Calculate your allowed time, allocate the time to the separate parts……………

CRONIN AUTO RETAIL

fre

ea

cc

Cronin Auto Retail (CAR) is a car dealer that sells used cars bought at auctions by its
experienced team of buyers
...
The company concentrates on small family cars and, at any one time, there
are about 120 on display at its purpose-built premises
...
All vehicles are selected by one of five experienced buyers who attend auctions
throughout the country
...
On average, each car costs
CAR $10,000 and is sold to the customer for $12,000
...
Recently, I wonder if we have been
buying cars that our team of buyers would like to drive, not what our customers want to
buy?’ However, the personal selection of quality cars has been an important part of CAR’s
business model and it is stressed in their marketing literature and website
...
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...
co
m

Good Sports has survived by becoming a specialist niche retailer catering for less popular
sports such as cricket and hockey
...
Increasingly since 2000 Good Sports has become aware of
the growing impact of e-business in general, and e-retailing in particular
...

The results were less than impressive, with the Internet search engines not picking up the
company website
...


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...
It would
particularly like customers who have purchased cars from them to bring them back for
servicing or for any mechanical repairs that are subsequently required
...
Mechanics have to
raise paper requisitions which are passed to the procurement manager for reviewing,
agreeing and sourcing
...
Customers are increasingly frustrated and annoyed by
repairs taking much longer than they were led to expect
...
00 to 16
...
The mechanics work on
shifts and so the garage is staffed from 07
...
00
...
The backlog of requisitions is
placing increased strain on the procurement manager who has recently made a number of
clerical mistakes when raising a purchase order
...

Finding this deal can be time consuming and so employees are increasingly submitting
requisitions earlier so that they can be sure that new supplies will be received in time
...

(9 marks)

fre

(b)

Evaluate how the principles of interactivity, intelligence, individualisation and
independence of location might be applied in the e-marketing of the products and
services of CAR
...
He is keen to address ‘more fundamental
issues in the marketing and procurement processes’
...


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...
This is to be expected as there are many competitors and most customers
want to buy from a garage that they can easily return the car to if it needs inspection, a
service or repair
...
It also has a customer database containing the records of people
who have bought cars in the last three years
...
The company has
a website where all the cars are listed with a series of photographs showing each car from a
variety of angles
...


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...
It maintains a fleet of
approximately 350 aircraft, and its core activity is to provide passenger and freight services
to over 200 destinations worldwide
...
co
m

ARG maintains offices in each country to which its aircraft fly
...
Access to ARG's passenger and freight booking system for
customers who wish to book either passenger or freight carriage services with ARG
...
The latter
includes salary details as well as staff locations
...
This system enabled ARG to transfer large volumes of data
relating to its operations between its 200 offices world-wide with a minimum of delay
...

The WAN system specification included the following requirements:

•

as

•

ym
a

•

The basic infrastructure of the WAN, including such items as the cabling and
communication hardware, had to have an expected life of ten years
...

The entire system had to be easily upgradeable, with a fixed capital amount being
allocated for this upgrade each year
...

ARG also assumed that its WAN infrastructure and its core business as an
international airline operator would remain unchanged for the next ten years
...
Finally, a small but financially stable company called Alex Porter Associates
(AP) successfully tendered for the contract, even though some of AP's systems were
not industry standard
...

Staff at ARG were able to use the new system efficiently within one week of
implementation
...
This strategy is seen as being essential to produce a sustainable
competitive advantage in the airline industry
...
The investment has therefore been judged to
be a success
...
ARG's initial forecast
showed that it would use only one third of the capacity of the network in its first two years
48

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...
Even optimistic forecasts of network traffic growth indicate that this excess
capacity would not be used by ARG for at least another seven years
...

Use of excess capacity

ter

•

ym
a

The IT Director considers that ARG could provide this service, whilst at the same time
making a positive contribution to profits
...
This decision was made against the advice of a minority of Board members
who saw potential conflicts between the core business strategy and the IT strategy of ARG
...
Advise how ARG can provide adequate data security to
the companies which are paying to use its WAN
...
You should make
reference to ARG's situation in your explanation
(10 marks)

tud

(a)

BRIDGE CO
Introduction

ea

cc

The following is an interview with Mick Kazinski, a senior marketing executive with Bridge
Co, a Deeland-based construction company
...
The interview was originally published in the Management Experiences magazine
...
Can you tell us how Bridge Co came to
choose the Custcare software package?
Mick: Well, we didn’t choose it really
...
She had recently implemented the Custcare package at her previous
company and she was very enthusiastic about it
...
We
told her that any purchase would have to go through our capex (capital expenditure)
system as the package cost over $20,000
...
com/freeaccastudymaterial

49

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...

internet access to transfer data to customers and receive information back from
customers
...


ial

•


...
The
main proposal was to make this excess capacity available to other companies which
required a WAN but either did not have the money, or the strategy, to build a WAN for
themselves
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S


...
However, Teri is a very clever lady
...
Teri had to cut a few things out
...
Overall, we were happy
...

Interviewer: So, did you have a demonstration of the software before you bought it?

ial

ter

Interviewer: When did things begin to go wrong?

ym
a

Mick: Well, the implementation was not straightforward
...
We tried to
recruit some local technical experts, but Custcare pointed out that we had signed their
standard contract which only permitted Custcare consultants to work on such tasks
...
In the end, we had to give
in and it cost us $10,000 in fees to migrate the data from some of our internal systems to
the new package
...


tud

We then tried to share data between the Custcare software and our existing order
processing system
...
Thus we have to enter customer information into two systems and we are
unable to exploit the customer order analysis facility of the Custcare CRM
...
This is really very disappointing
...
The software worked very
quickly in the demonstration, but it is painfully slow now that it is installed on our IT
platform
...
The software seems
reasonable enough, but its poor performance and our inability to interface it to the order
processing system have reduced users’ confidence in the system
...
However, as I said before, we took the cheapest option
...
00 hrs to 17
...
As you know, Solland is in a completely
different time zone and so we have had to stay behind at work and contact them in the late
evening
...
We have taken legal
advice, but we have also found that, for dispute resolution, the contract uses the
commercial contract laws of Solland
...
I just wish we had chosen a product produced by a company here in
Deeland
...

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Mick: Oh yes, and everyone was very impressed
...
Also, by then, it was clear that our internal IT department could not
provide us with a bespoke solution
...
In contrast, we could be
up and running with the Custcare package within three months
...
This was almost as much as we
were paying for the whole software solution!

To download more visit http://freeaccastudymaterial
...
The
board did ask her to justify her purchase of the Custcare CRM package, but I don’t think she
ever did
...
co
m

Required:
Suggest a process for evaluating, selecting and implementing a software package
solution and explain how this process would have prevented the problems
experienced at Bridge Co in the Custcare CRM application
...
He wonders
whether they should have commissioned a bespoke software system instead
...

(10 marks)

33

AEC

ym
a

MARKETING

(Total: 25 marks)

Walk in the footsteps of a top tutor

Introduction

as

tud

The Accounting Education Consortium (AEC) offers professional accountancy education and
training courses
...
Three of these centres are also
used for delivering continuing professional development (CPD) courses to qualified
accountants
...
The rest are cancelled through not having enough participants to make them
economically viable
...
There is a course manual for every examination
paper in the professional examination scheme
...
The
complete set of manuals for a professional examinations scheme costs $180
...
Once
purchased, the manuals may be downloaded or they may be sent on a CD to the home
address of the purchaser
...
To help the student decide if
he or she wishes to buy the complete manual set, the web site has extracts from a sample
course manual
...

AEC has recently won a contract to supply professional accountancy training to a global
accounting company
...


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(a)

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...



...
This schedule of courses is printable
...
This schedule is also printable
...


ter

ial

Purchase study material: Secure purchase of a complete manual set for the professional
scheme
...
On completion of successful payment, the visitor is able
to download the manuals or to request them to be shipped to a certain address on a CD
...

Who to contact: Who to contact for booking professional training courses or CPD courses
and seminars
...


ym
a

Marketing strategy

tud

The marketing manager of AEC has traditionally used magazines, newspapers and direct
mail to promote its courses and products
...
However, she is
now keen to develop the potential of the Internet and to increase investment in this
medium at the expense of the traditional marketing media
...
The actual budget has only been
increased by 3% in 20X8
...

(10 marks)

fre

(a)

(b)

52

20X7
40%
30%
10%
20%

ea

Required:

20X8
30%
10%
10%
50%

cc

Advertising
Direct mail
Sponsorship
Internet

as

Percentage allocation of marketing budget (20X7–20X8)

Evaluate how the marketing manager might use electronic marketing (including the
Internet) to vary the marketing mix at AEC
...
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...
Visitors to the site
wishing to access this material must register their email address, name and address
...


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...

It is estimated that fixed costs are currently $60,000 per annum
...
At present, there are approximately 1,000 visits per month and the
garden is open for eight months a year
...
HGT feels that few people would wish to visit the
garden and so they have always closed it for the four ‘cold’ months
...
However, each purchase is relatively modest
...
25 per visitor using the café
...
It revealed that the average
consumer would be willing to pay an entry fee of $3
...


tud

HGT currently advertises the garden in the monthly magazine ‘Heritage Gardens’
...
Adverts have been booked for the next six
months, but it is possible to cancel the last three of these without incurring cancellation
charges
...
However, these were not factors that figured highly in a recent visitor
survey
...

Two hundred visitors were surveyed and they were only allowed to choose one reason for
visiting Housham Gardens

as

Table 1: Primary reasons for visiting the gardens: one day survey on 13 March 2012

ea

cc

Reason for visiting Housham Garden
To walk in a peaceful, beautiful, safe environment
To enjoy the plants and flowers of the garden
To see the restoration work carried out by the trust
To visit the café and shop
To observe the work of William Wessex

Number of respondents
100
70
20
5
5

fre

Respondents were critical of the food offered by the café
...
Really, there is very little
choice, and I could not find anything substantial enough for lunch’
...
At this time, many people just visited Housham to use the café
and did not pay for admission into the garden
...
However, this has not
occurred
...
The gatehouse area where the café was
originally situated is still empty
...
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...
co
m

Housham Garden is a large garden in the country of Euphorbia, where gardeningand visiting
gardens is a popular pastime
...
The garden is now owned and operated by a charitable trust set up by the Popper
family – the Housham Garden Trust (HGT) – with initial funding provided by a legacy from
the late Clive Popper
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

In the recent consumer survey, 20% of the respondents said that they would buy an annual
(calendar year) ticket giving access to the garden for eight months if it were offered for $9
...
Table 2
summarises their responses
...

Number of respondents
110
50
10
10
20

ial

How did you hear of Housham Gardens?
Personal recommendation from a friend
Recent articles in the local newspaper
Internet
Heritage Gardens magazine
Other

ter

The reference in Table 2 to recent articles in the local newspaper concerns a series of
articles written by the HGT administrator outlining the problems of the trust and the fact
that short-term cash flow problems might cause the garden’s temporary closure
...


ym
a

HGT also has a simple informative web site showing the location of the garden, giving
opening times, showing pictures of the restoration and providing a biography of William
Wessex
...
You have been
asked to suggest immediate short-term changes as well as long-term marketing initiatives
for the trust
...
Longterm marketing initiatives are proposals which will take longer than three months to
implement
...

(15 marks)

(b)

Recommend, with justifications, longer-term marketing strategies (longer than
three months) for HGT
...
com/freeaccastudymaterial

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...
co
m

Table 2: How visitors heard about the gardens: one day survey on 13 March 2012

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...
The magazine is edited and printed in offices and an adjoining factory
in Ambosium
...
It is the only independent magazine in the
sector
...
Victor was the editor of the ABC magazine (Business
Analysis Today) for 16 years before establishing the BA Times nine years ago
...


tud

ym
a

However, despite such recognition, the magazine is currently unprofitable due to increased
production, distribution and office costs, falling subscriptions and reduced advertising
...
All of the traditional media providers are experiencing financial problems
...
Furthermore, advertisers are increasingly unconvinced about the
effectiveness of advertising in printed magazines and so the advertising revenues of these
magazines are also falling
...
The website offers extracts of news and articles, often with provocative
headlines, which may only be read in full in the printed magazine
...
I quite enjoy reading the news parts, but not
the in-depth analysis of examinations that I am not taking
...
I do not want to read articles
about the stages I have already passed
...

ABC Final Stage student

fre

Some of the readers’ letters are really irritating or just plain wrong, but the editor
seldom makes a comment! It really annoys me!
ICFC student

I became a business analyst to get a job, not just to sit examinations and read about
examining bodies
...
com/freeaccastudymaterial

55

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...
co
m

The country of Umboria has two professional business analysis associations, both running
certification examination schemes for business analysts worldwide
...
Many private and public sector learning providers run accredited training
courses to prepare candidates for the examinations
...
Umboria itself is a
wealthy country with high labour costs and property prices, particularly in the capital city of
Ambosium
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

The examinations are getting more demanding and Victor is under pressure to increase the
number of technical examination articles in the magazine, despite the fact that this will
make the magazine longer and heavier and so increase print and distribution costs
...

(10 marks)

ter

ym
a

36

Analyse how the principles of interactivity, individualisation, intelligence and
independence of location offered by the internet and other new media could be
exploited by Victor in his development of a new business model for the BA Times
...
The scheme consists of six examinations (three
foundation and three advanced) all of which are currently assessed using conventional
paper-based, written examinations
...


ea

cc

as

There are two examination sittings per year and these sittings are held in 320 centres all
over the world
...
Invigilators are also responsible for validating the identity of candidates who
must bring along appropriate identification documents
...
However, the IAA strives to be a world-wide examination body
and so continues to run examinations at these centres, even though they make a financial
loss at these centres by doing so
...
However, the
principles of equality and access are important to the IAA and the IAA would like to increase
the availability of their examinations, not reduce it
...
The twice-yearly examination schedule creates peaks and troughs in
cash flow which the Institute finds increasingly hard to manage
...

Examinations

All examinations are set in English by contracted examiners who are paid for each
examination they write
...
Invigilators send completed scripts directly to
56

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...
However, he likes the
physical, tactile feel of printed magazines and he feels that some of his subscribers do as
well
...
He is also concerned about how his
subscribers and advertisers will react to technological change
...


To download more visit http://freeaccastudymaterial
...
co
m

markers by courier
...
Any
marking errors are resolved by the examiner
...
This usually takes place 16 weeks after the examination
date and candidates are critical of this long delay
...
The IAA also employs
a significant number of temporary staff during the results processing period
...


ial

ym
a

ter

Advanced-level examinations will continue to be held twice-yearly at designated
examination centres
...
These answers will then be electronically sent to
markers who will use online marking software to mark these answers on the screen
...
‘100% arithmetic accuracy of marking is guaranteed
...
‘It’s justification is so self-evident that defining a business
case, managing benefits and undertaking benefits realisation would just be a pointless
exercise
...
’

tud

Required:

Evaluate the perceived benefits and costs of adopting e-assessment at the IAA
...

(10 marks)

37

(Total: 25 marks)

cc

as

(a)

CHEMICAL TRANSPORT

fre

ea

Chemical Transport (CT) is a specialist haulage company providing transport services for
several chemical wholesalers
...
This
legislation is at both national and international level and concerns the transportation and
handling of chemicals, as well as the maintenance of trucks and trailers and the health,
competencies, safety and driving hours of drivers
...

CT handles the distribution of chemicals from either the port of importation or point of
production to the wholesaler’s depots or directly to the end customers of the wholesaler
...
com/freeaccastudymaterial

57

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...
They can be sat anytime, anyday,
anywhere
...
Anywhere where
there is a personal computer and a reliable broadband connection
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

so many of CT’s deliveries are now directly from the point of production (or port of
importation) to the end customer
...


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
...
CT does currently have a website, but it only
contains information about the company: its structures, history, key contacts and case
studies
...
CT does have an internal
IT capability with some expertise in building web-based systems
...
Drivers at CT are rewarded with basic pay,
together with a complex set of bonuses and deductions which have been developed and
enhanced over the last few years
...
The drivers themselves find the
pay arrangements very confusing
...
Indeed,
recent changes in legislation led to the IT team being fully occupied for three months,
developing and testing the required modifications to the payroll system
...

(15 marks)

Required:

(Total: 25 marks)

fre

ea

Evaluate how CT could use a CRM system to acquire and retain customers
...
com/freeaccastudymaterial

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...
co
m

The complex and changing nature of legislation has led to CT engaging a specialist legal
consultancy to provide it with advice
...
The consultancy has identified the potential effect of employment, tax and
health and safety legislation in advance and has notified CT of its likely implications
...


To download more visit http://freeaccastudymaterial
...
During that time, AQT became the most successful and dominant training provider
in the market
...
co
m

ial

ter

Marco has scheduled 40 courses next year, as he is limited by the availability of lecturers
...
Each course is three days long
...
He currently estimates that
fixed annual costs will be $65,000 (which includes his own salary) and he would like the
company to return a modest profit in its first year of operation as it establishes itself in the
market
...
AQT charges
$900 per delegate for a three-day course, but he knows that it discounts this by up to 10%
and a similar discount is also offered to training brokers or intermediaries who advertise
AQT courses on their own websites
...
There are also a number of cheaper
training providers who offer the same courses for as little as $550 per delegate
...
These courses
are often given in poor quality training premises by poorly motivated lecturers
...
He wants to target the corporate business market,
where quality is as important as price and the course fee is paid by the delegate’s
employer
...

During his employment at AQT, Marco collected statistics about courses and delegates
...


fre

ea

Number of delegates attending the course
3
4
5
6
7
8
9
Total

Number of courses
150
210
250
190
70
80
50
1,000

Figure 1: Analysis of attendance at 1,000 AQT courses
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Marco has now left AQT and established his own training company, iTTrain, aimed at the
same IT certification market as his former employers
...
He has selected a number
of self-employed lecturers and he has agreed a daily lecturing fee of $450 per day with
them
...
It
has a number of training rooms which hold up to nine delegates
...
There is also a $10 per day per delegate charge for lunch and other
refreshments
...
He sees this as a sunk cost and
is not concerned about recovering it
...


To download more visit http://freeaccastudymaterial
...
Your strategy should include both financial
and non-financial considerations
...



...

(9 marks)
(Total: 25 marks)

ial

39

HOMEDELIVER

tud

ym
a

ter

HomeDeliver is a nationwide company that sells small household goods to consumers
...
There are 150 of these supervisors in the country
...
Agents subsequently collect the catalogue and any completed
order forms and forward these forms to their supervisor
...
Payment is by cash or cheque and these payments are also forwarded to
the supervisor by the agent
...
Order details are then entered into a computer
system by order entry administrators at HomeDeliver and this starts an order fulfilment
process that ends with goods being delivered directly to the customer
...
HomeDeliver rewards supervisors on the basis of how
many agents they manage
...


cc

as

In August 2010 HomeDeliver decided to replace the physical ordering system with a new
electronic ordering system
...
Payments would also be paid directly into a
HomeDeliver bank account by agents at the end of each day
...
The software was tested internally by the
order entry administrators
...
However, as project delays became more significant,
selected order administrators were seconded to the project full-time
...


60

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PROJECT MANAGEMENT

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The software was
claimed to be easy to use, so no formal training was given
...
This gave detailed instructions on how to set up and use the software
...
co
m

ial

ym
a

ter

Most of the agents were reluctant to print off the manual (preferring to read it on screen)
and a significant number claimed that they did not receive the email with the manual
attachment
...
At certain points the software did not perform in the way the manual stated that it
would
...

Required:

Explain the purpose of each of the following: a post-project review, a postimplementation review and a benefits realisation review
...

(12 marks)

(c)

HomeDeliver does not have a benefits management process and so a benefits
realisation review is inappropriate
...


as

tud

(a)

ASW

(Total: 25 marks)

Walk in the footsteps of a top tutor

ea

40

cc

Identify and discuss the potential benefits to HomeDeliver of the new electronic
ordering system
...
ASW has a basic software package for the insurance industry that can be used
immediately out of the box
...
In a typical ASW project, ASW’s business
analysts define the gap between the customer’s requirements and the basic package
...

This specification is used by its programmers to produce a customised version of the
software
...


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Unfortunately, problems began to appear as soon as the agents tried to load and use the
software
...
Agents also criticised the functionality of the software because it did not allow
for the amendment of orders once they had been submitted
...
This was no longer possible with the new system
...
However, HomeDeliver
confirmed that entering multiple orders was possible; it was just not clear from the
software, or from the instructions provided, how this could be achieved
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S


...
Initially CaetInsure sent ASW a set of
requirements for their proposed new system
...
ASW do not begin any development until this system specification is signed
off
...

Since sign-off, ASW developers have been working on tailoring the product to obtain an
appropriate software solution
...
The remaining activities in the project are shown in figure 1
...
It also shows who has responsibility for
undertaking the activities shown on the plan
...
As part of securing
the deal, the ASW sales account manager responsible for the CaetInsure contract agreed
that penalty clauses could be inserted into the contract
...
CaetInsure had insisted on these
clauses as they have tied the delivery of the software in with the launch of a new product
...
When the delay was discussed with the
customer and ASW’s project manager, the sales account manager assured CaetInsure that
the ‘time could be made up in programming’
...
The project
manager is now under intense pressure to come up with solutions which address the
project slippage
...
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The
original plan was for implementation in week 23
...
Key CaetInsure employees were
unavailable to make decisions about requirements, particularly in the re-insurance part of
the system
...
There have also been two further weeks of
slippage since the sign-off of the system specification
...
com
PR AC T ICE Q UE S T ION S : S EC TI ON 1

fre

ea

cc

as

tud

ym
a

ter

ial

To download more visit http://freeaccastudymaterial
...
co
m

The project plan is presented in Figure 1:

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P AP ER P 3 : BU SIN E S S A N AL Y SI S

Required:
This requirement is no longer examinable
...

(10 marks)

(c)

As a result of your evaluation, recommend and justify your preferred solution to
the slippage problem in the CaetInsure project
...
co
m

(a)

(Total: 16 marks)

41

LDB

Online question assistance

ial

ter

ym
a

Project issues and conclusion

tud

LDB appointed its operations director, Len Peters as the sponsor of the project
...
The project team consisted of six
employees who formerly worked for Lowlands Bank and six employees who formerly
worked for Doe Bank
...


cc

as

During the project there were two major issues
...
The terms of the offer were quickly specified by
Len Peters
...
The original project estimates had
underestimated how long it would take to sell property the bank owned or to re-assign or
terminate the leases for branches it rented
...


ea

The project team completed the required changes one week before the rearranged
deadline
...
Six months later, in a benefits realisation review, she was also able to confirm that
branch employment costs had been reduced by 12%
...


fre

Potential process initiatives
LDB is now ready to undertake three process initiatives in the Information Technology area
...
The three process
initiatives under consideration are:
(1)

64

The integration of the two bespoke payroll systems currently operated by the two
banks into one consolidated payroll system
...

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Four years ago Lowlands Bank acquired Doe Bank, one of its smaller rivals
...
One year after the takeover was
finalised, LDB set up a project to review the branch bank network and carry out a
rationalisation that aimed to cut the number of branches by at least 20% and branch
employment costs by at least 10%
...
There were to be no compulsory staff redundancies
...


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...
This
will allow the desktop to be standardised and bring staff efficiency savings
...
Processes, systems and software have to be developed to
support this new service
...



...
These are outsourcing or
software package solution or bespoke development
...


The bank has identified three further desirable process initiatives (see above)
...

(12 marks)
Explain, using Harmon’s process-strategy matrix, how the complexity and
strategic importance of process initiatives can be classified
...

(9 marks)

42

8-HATS PROMOTIONS

(Total: 25 marks)

tud

Online question assistance

ym
a

(i)

cc

as

8-Hats Promotions was formed twenty years ago by Barry Gorkov to plan, organise and run
folk festivals in Arcadia
...
For example, for many
years it has organised launch events, staff reward days and customer experiences for
Kuizan, the car manufacturer
...
Recently, it purchased a travel agent
(now operated as the travel department of 8-Hats) to provide travel to and from the events
that it organised
...
He calls all the events
‘jobs’, a terminology used throughout the company
...
The company is organised on
functional lines
...
Sales managers receive turnover-related bonuses and 8-Hats is known
in the industry for its aggressive pricing policies
...
It is known
for its creativity and passion
...
The
travel department is responsible for any travel arrangements associated with the job
...


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(a)

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...
The company does not have sufficient
money and resources to carry out all the internal jobs that need doing
...
Figure 1 shows an example comparison of two computer
system applications that had been under consideration
...


tud

ym
a

ter

‘I don’t want to tell you about the specific details of the two applications, so I have called
them Job One and Job Two’ said Barry
...

Looking back, we should have gone with Job Two, not Job One
...
That approach would have suited our mentality at the time – quick wins
...
We should have used 3% or 4%
...
Intangible benefits are just as important as tangible benefits
...
Leaving it to after the project had ended was a ridiculous idea
...
000
Discounted CF
–110
...
926
46
...
857
12
...
794
31
...
735
44
...
015

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...
The operations department
is often unable to deliver the features and functionality defined by the events department
within the budget agreed by the sales manager
...
Recently, an event was in jeopardy because suppliers had not been
paid
...
Eventually, Barry Blunt
had to resolve friction between finance and other departments by acquiring further funding
from the bank
...
The sales and marketing department has also complained about the margins expected
by the travel department, claiming that they are making the company uncompetitive
...
com
PR AC T ICE Q UE S T ION S : S EC TI ON 1

Required:
(a)

Year 4
0
0
10
––––
10
––––
0
15
10
10
––––
35
––––
25
0
...
375

ial


...
794
23
...
090

ym
a

Benefits

Year 1
0
10
10
––––
20
––––
30
30
0
0
––––
60
––––
40
0
...
040

Barry Blunt has criticised the investment appraisal approach used at 8-Hats to
evaluate internal jobs
...


43

Discuss the principles, benefits and problems of introducing a matrix management
structure at 8-Hats
...

(15 marks)

INSTITUTE OF INDEPENDENT ANALYSTS

ea

cc

The Institute of Independent Analysts (IIA), an examining body, is considering replacing its
conventional assessment process with computer-based assessment which produces instant
results to the candidate
...
Figure 1, extracted from the business case, shows the financial
appraisal of the project
...
The NPV of the project is $10,925
...
com/freeaccastudymaterial

67

To download more visit http://freeaccastudymaterial
...
000
Discounted CF
–90
...
857
12
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

20
–––––––
20
–––––––
(245)
0
...
870)

Total benefits
––––
(250)
1
(250)

Benefits – costs
Discount factor
Present value

125
30
10
––––––
165
––––––
85
0
...
845

125
30
20
––––––
175
––––––
110
0
...
340

125
30
30
––––––
185
––––––
120
0
...
200

125
30
30
––––––
185
––––––
120
0
...
720

125
30
40
––––––
195
––––––
130
0
...
900
NPV

125
30
40
––––––
195
––––––
130
0
...
790
10
...
co
m

Income/Savings
Marker fees
Admin saving
Extra income

ter

Initial software – refers to the cost of buying the computer-based assessment software
package from the vendor
...
These changes are not yet
agreed, or defined in detail
...


ym
a

Software maintenance – This will be priced at 10% of the final cost of the delivered
software
...


tud

Question bank – refers to the cost of developing a question bank for the project
...
Questions will be set by external consultants at
$50 for each question they successfully deliver to the question bank
...

Security – refers to security provided at computer-based assessment centres
...


as

Disruption – refers to an expected temporary decline in IIA examinations staff productivity
and staff morale during the implementation of the computer-based assessment solution
...
There will no longer be any requirement for markers to undertake this manual
marking
...


ea

Admin saving – concerns reduction in examinations staff at IIA headquarters
...
It is still unclear how this will affect the administrative process
...
Other competing institutions do not offer this service
...

The IIA is also putting in place a benefits management process for all projects
...


68

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An explanation of the costs and benefits is given below
...
com
PR AC T ICE Q UE S T ION S : S EC TI ON 1

Required:
Critically evaluate the financial case (cost/benefit) of the computer-based
assessment project
...



...

(10 marks)
(Total: 25 marks)

44

TKP

ial

ter

Project One

tud

ym
a

In this project, one of our clients was just about to place a contract for a time recording
system to help them monitor and estimate construction contracts when we were called in
by the Finance Director
...
‘They only have an annual revenue of $5m’, he said, ‘and that worries me
...
It found that 200 software companies
were registered in Zeeland with annual revenues of between $3m and $10m
...
This compared to a 1% failure rate for software companies
with revenues of more than $100m per year
...
The client immediately
re-opened the procurement process
...
It is a popular software solution, used in many larger
companies
...
A budget for
the project has been agreed and has been documented in an agreed, signed-off, business
case
...
We are currently working with
the primary users of the software – account managers (using time and cost data to monitor
contracts) and the project support office (using time and cost data to improve contract
estimating) – to ensure that they can use the software effectively when it is implemented
...
They already record this information on a
legacy system and so all they will see is a bright new user interface, but we need to keep
them informed about our implementation
...
We think some of the current data might be of poor quality, so we
have established a strategy for data cleansing (through offshore data input) if this problem
materialises
...

Project Two

In this project, the client is the developer of the iProjector, a tiny phone-size projector
which is portable, easy to use and offers high definition projection
...
They asked TKP to
investigate this company
...
The company has been trading for less

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This information was taken from an internal newsletter of The Knowledge Partnership LLP
(TKP), a company which offers project and software consultancy work for clients based in
Zeeland
...


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...
The launch has been heavily publicised, a prestigious
venue booked and over 400 attendees are expected
...
The product is not quite finished, so although orders will
be taken at the launch, the product is not expected to ship until June 20X2
...
Consequently, it does not undertake assignments outside Zeeland
...


ym
a

Required:
(a)
(b)

Describe the principle of the triple constraint (scope, time and cost) on projects and
discuss its implications in the two projects described in the scenario
...

(15 marks)

cc

as

A clothing company sells 40% of its goods directly to customers through its website
...
MM feels that the site looks ‘amateur and oldfashioned and does not project the right image’
...
The following notes summarise the
outcomes of the meetings on the website re-design
...


ea

Meeting 1: 9 July attended by MM, RP, IC and TD

fre

The need for a re-designed website to increase sales volume through the website and to
‘improve our market visibility’ was explained by MM
...

Meeting 2: 16 August attended by MM, RP, IC and TD
IC presented a draft design
...
‘We expected it to do much more’ was
their view
...
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...
co
m

than three years and it has a very inexperienced management team
...
We also suggested that significant stocks of the
chip should be maintained
...
Again, using our customer contacts, we put them in touch
with a company which specialises in this
...


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...
This overall design was agreed and the go-ahead was given
for TD to produce a prototype of the design to show to the board
...
MM was unhappy with the re-design as
it was ‘moving too far away from the original objective and lacked functionality that should
be there’
...

Meeting 6: 9 November attended by MM, IC and TD

ter

It was agreed to return to the 4 September design with slight alterations to make it
technically feasible
...


ym
a

At the board meeting of 9 December the board expressed concern about the time taken to
produce the re-design and the finance director highlighted the rising costs (currently
$25,000) of the project
...

The board were also concerned that the scope of the project, which they had felt to be
about re-design, had somehow been interpreted as including development and
implementation
...

Year 1
$50,000
0

Year 2
$10,000
$15,000

Year 3
$10,000
$25,000

Year 4
$10,000
$35,000

Year 5
$10,000
$35,000

as

Costs
Benefits*

*These benefits are extra sales volumes created by the website’s extra functionality and the
company’s increased visibility in the market place
...
TD expressed
concern that he did not have enough developers to deliver the re-designed website on
time
...
RP felt that the functionality of the redesign was too limited and that the software was not robust enough
...
He suggested that the company delay the introduction of the redesigned website until it was complete and robust
...


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...
Changes to the design were agreed at
the meeting to overcome these issues and signed off by RP
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

Conclusion

Required:

ial

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
...
Defining the business case is also an important part of the initiation or definition
stage of the project
...

(10 marks)
(Total: 25 marks)

ym
a

46

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 redesign project
...
In an attempt to stimulate the
economy the government has launched a Private/Public investment policy where the
government invests in capital projects with the aim of stimulating the involvement of
private sector firms
...
Community centres are central to the culture of Mahem
...
The
centres are seen as contributing to a vibrant community life
...
The
current community centre is also relatively energy inefficient
...
The costs and benefits of the business case are shown in
Figure 1
...


fre

All figures in $
Costs: Initial
Costs: Recurring
Benefits: Rental savings
Benefits: Energy savings
Benefits: Increased income
Benefits: Better staff morale
Cumulative net benefits

Year 1
600,000
60,000
144,000
30,000
20,000
25,000
(441,000)

Year 2

Year 3

60,000
144,000
30,000
20,000
25,000
(282,000)

60,000
144,000
30,000
70,000
25,000
(73,000)

Year 4

Year 5

60,000
144,000
30,000
90,000
25,000
156,000

60,000
144,000
30,000
90,000
25,000
385,000

Figure 1: Costs and benefits of the business case for the community centre at Tillo
72

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...
MM declared the re-design a success
that ‘had come in on time and under budget’
...
The website was unreliable and did not work with a
particular popular web browser
...
On 5 March, MM resigned
...
com
PR AC T ICE Q UE S T ION S : S EC TI ON 1

Construction of the centre 2010–2011

ea

cc

as

tud

ym
a

ter

ial

In October 2010 the centre was commissioned with a planned delivery date of June 2011 at
a cost of $600,000 (as per Figure 1)
...
Progress
was monitored and issues resolved in monthly meetings between the company
constructing the centre and representatives of the local authority
...
Most of these
issues were relatively minor because requirements were well specified in standard
architectural drawings originally agreed between the project sponsor and the company
constructing the centre
...
The new project sponsor (again an employee of the local authority) was
less enthusiastic about the project and began to raise a number of objections
...
She
pointed out the contractual terms of supply for the Private/Public policy investment
initiatives mandated that sub-contracting was not allowed without the local authority’s
permission and that at least 80% of the timber used must come from sustainable forests
...
However, they would try to comply with these requirements for the rest of the
contract
...
The construction company explained that this was
the intended finish quality of the centre and had been agreed with the previous sponsor
...
However, the letter was not counter-signed by the
sponsor and so its validity was questioned
...
The new sponsor felt that she had delivered
‘value for money’ by challenging the construction company
...
The centre also
included disability access built at the initiative of the construction company
...
Fortunately, their
interpretation was correct and the new centre was deemed, by an independent assessor, to
meet accessibility requirements
...
The project sponsor began to be increasingly critical
of the builders of the centre and questioned the whole value of the project
...
She suggested that the
project to build a cost-effective centre had failed and called for an inquiry into the
performance of the project manager of the construction company who was responsible for
building the centre
...


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...
It is expected
that the new centre will attract more customers who will pay for the centre’s use as well as
increasing the use of facilities such as the cafeteria, shop and business centre
...
Finally, it is felt that staff will be
happier in the new building and their motivation and morale will increase
...

All employees were transferred from the old to the new centre
...


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...
The PAA
believes that a formal ‘terms of reference’ or ‘project initiation document’ would
have resolved or clarified some of the problems and issues encountered in the
project
...



...

(13 marks)

ter

Draft an analysis for the PAA that formally categorises and critically evaluates each
of the four sets of proposed benefits defined in the original business case
...
WEI is a large education establishment which has traditionally focused
on providing academic qualifications for under-graduates
...


as

The objective, or mission statement, of this Institution is shown in its publicity material as:
‘to achieve recognised standards of excellence in the provision of teaching and research
...
The cash allocation each year is determined by
a range of non-financial measures such as the number of research publications the
Institution’s staff have achieved and official ratings for teaching quality
...
These customers are aiming to improve their
skills base rather than achieve academic qualifications
...
Courses can often be facilitated in WEI’s own buildings, but some clients
prefer for courses to be provided in their own offices
...


74

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The PAA also believes that the four sets of benefits identified in the original
business case (rental savings, energy savings, increased income and better staff
morale) should have been justified more explicitly
...
com
PR AC T ICE Q UE S T ION S : S EC TI ON 1

Required:
Evaluate whether a financial objective, or objectives, could or should be
determined by WEI
(5 marks)

(b)

The following is a list of financial and non-financial performance measures that were
in use in your previous company:
FINANCIAL

NON-FINANCIAL

Value added

Customer satisfaction

Profitability

Competitive position

Return on investment

Market share

ial

Required:

48

Explain the role of integrated reporting in communicating strategy and strategic
performance
...

(16 marks)

POTATO-TO-GO INC

Potato-to-go Inc (‘PTG’), a quoted company, owns and operates a chain of fast food outlets
in Europe selling baked potatoes with a range of healthy fillings
...
The expansion was originally financed
from retained profits but the company was floated in 1994 to enable larger sums to be
raised
...


cc

The company’s five-year record can be summarised as follows:
20X2
370
120
690

20X3
440
150
740

20X4
450
110
770

20X5
420
66
790

20X6
400
42
800

fre

ea

Years to 31 December
Turnover ($m)
Profit before tax ($m)
Number of outlets

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...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

Summary income statement for 20X6
$m

Turnover
Operating costs
Interest paid
Profit before tax
Taxation
Dividends
Retained profit

ial

Summary statement of financial position (balance sheet) at 31 December 20X6

ym
a

ter

Non-current assets
Net current assets
Less 10% loan stock 20X7

Ordinary $1 shares
Reserves

$m
180
60
(80)
––––
160
––––
24
136
––––
160
––––

Current issues facing the firm
(1)

tud

Note: PTG’s P/E ratio at the end of 20X6 was 9 compared to an industry average of 10
...
Further finance is
thus required
...


ea

The directors of PTG believe that their current markets have reached saturation and
that there is a potential new market in North America
...
The total investment
required is estimated to be $130m
...


(7 marks)

(b)

The proposed expansion in the USA
...


(10 marks)
(Total: 25 marks)

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(358)
––––
42
(14)
20
––––
8
––––


...
com
PR AC T ICE Q UE S T ION S : S EC TI ON 1

49

DAVID SILVESTER
Timed question with Online tutor debrief


...
The key question is how quickly the company should grow and the types of
funding needed to support its growth and development
...
He understands that business risk
and financial risk are not the same thing and is looking for advice on how he should
organise the funding of the business
...
Clearly
the funding required would also be affected by the activities David decides to carry out
himself and those activities better provided by external suppliers
...

(15 marks)

(b)

Using models where appropriate, what are likely to be the critical success factors
(CSFs) as the business grows and develops?
(10 marks)
(Total: 25 marks)

ea

cc

(a)

fre

Calculate your allowed time, allocate the time to the separate parts……………

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com

David Silvester is the founder and owner of a recently formed gift packaging company, Gift
Designs Ltd
...
This uses a
new process to make waterproof cardboard and then shapes and cuts the card in such a
way to produce a container or vase for holding cut flowers
...
The potential market for the product is huge
...
David’s
innovative product does away with the need for hospitals to provide and store glass vases
...
He has also identified two other potential
markets
...
The vase can be
printed using a customer’s design and logo, and creates an opportunity for real
differentiation and impact at sales conferences and other high profile PR events
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

50

SATELLITE NAVIGATION SYSTEMS

Standard cost of installation of one navigation system

$
Quantity
Price ($)
400
1 unit
400
320
20 hours
16
140
20 hours
7
300
20 hours
15
–––––
Total standard cost
1,160
–––––
The Operations Department has gathered the following information over the last few
months
...
Many have left for similar
but better paid jobs and as a result there is a high labour turnover
...
Some of the fitters have complained
that one large batch of systems did not have the correct adapters and would not fit certain
cars, but this was not apparent until fitting was attempted
...


ym
a

ter

ial

Materials
Labour
Variable overheads
Fixed overheads

tud

The senior management team of SNS want the finance department to lend more support
for the business and provide information that will help them to understand why costs
appear to be spiralling out of control in the last few months and what the organisation can
do to improve its position in the future
...

Operating statement for SNS for September to December

fre

ea

cc

September
$
Standard cost of actual 1,276,000
output
Variances materials
Price
5,505 F
Usage
400 A
Labour rate
4,200 A
Efficiency
16,000 F
Variable overheads
Expenditure
7,000 A
Efficiency
7,000 F
Fixed overheads
Expenditure
5,000 A
Volume
30,000 F
Actual costs
1,234,095
A = adverse variance
78

October
$
1,276,000

November
$
1,102,000

December
$
1,044,000

4 months
$
4,698,000

3,354 F
7,200 A
5,500 A
0

9,520 A
800 A
23,100 A
32,000 A

10,340 A
16,000 A
24,000 A
32,000 A

11,001 A
24,400 A
56,800 A
48,000 A

2,000 A
0

2,000 F
14,000 A

0
14,000 A

7,000 A
21,000 A

10,000 A
30,000 F
1,267,346

20,000 A
15,000 A
1,214,420

20,000 A
55,000 A
30,000 A
15,000 F
1,190,340
4,906,201
F = favourable variance
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...
The standard cost of an installation is shown below
...
The operations manager is
responsible for three departments, namely: purchasing, fitting and quality control
...
The fitting of different systems takes
differing amounts of time, but the differences are not more than 25% from the average, so
a standard labour time is applied
...
com
PR AC T ICE Q UE S T ION S : S EC TI ON 1

Required:
Assess the performance of SNS for the period from September to December and
suggest probable causes for the key variances
...

(10 marks)


...

Fixed overheads are absorbed on a unit basis
...
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79

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...
One of the products, Product W, is made using two different raw
materials and two types of labour
...
The following
information has been identified for Product W:

To download more visit http://freeaccastudymaterial
...
co
m

The management team is concerned that X plc has recently faced increasing competition in
the marketplace for Product W
...


(i)
(ii)
(b)

Production budget in units

Raw material purchases budget in kgs and value for Material B
...

(12 marks)

Marketing campaign

J

Standard deviation of net present value
Explain

K

L

$400,000

Expected net present value

(c)

ym
a

ter

The same company is also considering investing in one of three marketing campaigns to
increase its profitability
...
The company has already evaluated the
marketing campaigns taking into consideration the range of possible outcomes that could
result from the investment
...

(5 marks)

WORLD ENGINES

as

52

the meaning of the data shown above

tud

(i)

(Total: 25 marks)

ea

cc

World Engines (WE) is one of the largest producers of aircraft and ship engines in the world
...
It is currently considering improvements to its marine
engine production facilities
...
Two companies have been shortlisted
for supplying this technology
...
The software that supports the product is written in a conventional
programming language
...
Amethyst has been trading profitably for 20 years and
currently has an annual turnover of $960m
...
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...


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...
It was a small, 12 seat commuter aircraft that was flying the WE team on a short
100 km flight from the international airport to a small rural airport close to Amethyst’s
base
...


ym
a

ter

Later that year, one of the divisional directors of WE was given responsibility for picking up
and running the testing technology evaluation project
...
The divisional director recalls that these returns were based on ‘tangible benefits
resulting from the two options
...

Topaz produces better returns if demand for testing is high, but is less effective in low
demand circumstances
...

Figure 1: expected returns for three demand and supplier combinations
...
5m per annum
$0
...


cc

High demand for six years: probability p = 0
...
4
High demand for three years, followed by low demand for three years:
probability p = 0
...
I remember that we were also asked to estimate
demand for our marine products for the next six years
...


fre

These figures are confirmed by a document also recovered from the air crash site
...
However, there is no
evidence that he ever constructed it, which is a pity because we could have taken the
procurement decision on the basis of that decision tree’
...

Ignore the time value of money in your analysis
...
com/freeaccastudymaterial

(9 marks)
81

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...
co
m

Topaz is a relatively new company (formed three years ago) whose product is more
expensive ($8m) but it offers significant advantages in high volume performance and stress
testing
...
It is written in a relatively new powerful programming language and it also has
an attractive and contemporary user interface
...
Some WE executives are concerned about purchasing from such a young, relatively
small company, although externally commissioned credit reports show that Topaz is a
profitable, liquid and lightly geared company
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

(b)

The divisional director suggests that the procurement decision could have been
taken on the evidence of the decision tree
...

(6 marks)
WE executives are concerned about the risk of Topaz, as a relatively new company,
going out of business
...



...

(10 marks)

COOLFREEZE

ter

CoolFreeze construct refrigeration systems for supermarkets, food processing plants,
warehouses and other industrial premises
...
The committee produces annual sales forecasts for the company which
they review quarterly
...


Figure one: Sales forecast 2009–2010

2010

Quarter
3
4
1
2

Predicted sales
81
69
62
83

Predicted sales price
$1,000
$1,000
$1,000
$1,000

tud

Year
2009

ym
a

In the second quarter of 2009 they revised/produced their estimates for the next four
quarters
...

Revenue
$81,000
$69,000
$62,000
$83,000

as

At the meeting that agreed this forecast the sales manager expressed some doubts about
the figures
...
Companies are not
replacing old equipment or constructing new plants
...
Despite these
reservations, the sales manager agreed the sales forecasts produced by the committee
...

Year
2009

Quarter
3
4
1
2

fre

2010

ea

Figure two: Actual sales 2009–2010
Predicted sales
81
69
62
83

Actual sales
82
68
61
50

The sudden drop in quarter 2 sales caused consternation in the boardroom, particularly as
it was a quarter when high demand and profits were anticipated
...


82

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53

ial

(Total: 25 marks)

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...
“It must be very flawed to go so badly wrong
...
He has obtained a copy
of the spreadsheet used by the sales forecasting team (see figure four) to help you in your
analysis
...
00
($29,050
...
00)
($18,000
...
00
––––––––––

50
$45,000
...
00)
($15,750
...
00)
––––––––––
($3,750
...
com

Quarter 2 – 2010


...
“I think everyone here has made mistakes – the sales manager,
procurement manager, production manager, administration manager
...
We are in this together and now we must pull together to get out of this
mess”
...
50
67
...
25
71
...
75
73
...
50
73
...
25
73
...
75
73
...
50
–7
...
25
8
...
25
–3
...
50
8
...
75
–3
...
75
–10
...
35
–4
...
65
9
...
35
–4
...
65
9
...
35
–4
...
65
9
...
15
–2
...
40
–0
...
10
1
...
15
–0
...
60
1
...
10
1
...
00
60
...
00
80
...
00
70
...
00
82
...
00
70
...
00
84
...
com/freeaccastudymaterial

83

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...
50
7
...
75

4
–7
...
25
–3
...
75
–4
...
15
–4
...
75
8
...
25
27
...
17
–0
...
02

22
...
50
–0
...
35

3
4
1
2

73
...
50
73
...
00

7
...
73
–11
...
02

0
...
00

Forecast

2010

81
69
62
83

ter

Required:

ial

2009

Write a briefing paper for the managing director that:

(b)

54

Explains and evaluates the spreadsheet used by the sales forecasting team
...


ym
a

(a)

PES

(13 marks)
(Total: 25 marks)

Sales and direct costs

as

tud

PES is a subsidiary of a large, international manufacturer
...
Its Standard model consistently
returns a profit, but over the last year the company has become concerned about potential
losses occurring on its Deluxe model
...


fre

ea

cc

The company uses a Just-In-Time inventory control method as all products are made to
order
...
The company’s production costs are made up of
direct materials, direct labour, and fixed production overhead
...
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...
25
–11
...
75
–34
...
50
–0
...
65


...
com
PR AC T ICE Q UE S T ION S : S EC TI ON 1

Costing system
The company operates a standard absorption costing system
...
The total budgeted
fixed production overhead is $2,400,000 and is absorbed using a labour hour rate
...
co
m

Administration costs
Fixed administration costs total $540,000 for Standard speakers and $600,000 for deluxe
speakers
...

Required:

ter

PES’s holding company is considering changing to an activity based costing system for all
business unites
...
This analysis found that the costs for various
activities in PES for the last year were as follows:

tud

ym
a

Machining costs
Set up costs
Quality inspections
Stores receiving
Stores issues

$000
600
900
180
420
300
––––––
2,400
––––––

The analysis also revealed the following information:

Required:

Deluxe
0
...

(10 marks)

ea

(b)

cc

as

Machine running time (hours)
Speakers per production run
Inspections per production run
Number of component deliveries during the year
Number of issues from stores

Standard
0
...


(c)

Explain to the Production Director of PES the impact of the change in accounting
system and explain two other potential benefits of using activity based costing in
the organisation
...
com/freeaccastudymaterial

85

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...

(7 marks)

ial

(a)

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...
However, in that year, a recent university graduate, Rick Hein,
established his first shop specialising solely in the sale of electrical goods
...
Rick Hein quickly established a chain of shops, staffed by young people who
understood the capabilities of the products they were selling
...

He branded his shops as ‘Rock Bottom’, a name which specifically referred to his cheap
prices, but also alluded to the growing importance of rock music and its influence on
product sales
...
Rock Bottom began increasingly to specialise
in selling audio equipment
...
He dressed unconventionally and performed a
number of outrageous stunts that publicised his company
...
He rewarded their individuality with high
salaries, generous bonus schemes and autonomy
...


cc

as

However, by 1980 the profitability of the Rock Bottom shops began to decline significantly
...

The buying public now expected its electrical products to be cheap and reliable
...

Phase 2 (1989–20X2)

fre

ea

In 1988 Hein considered changing the Rock Bottom shops into a franchise, inviting
managers to buy their own shops (which at this time were still profitable) and pursuing
expansion though opening new shops with franchisees from outside the company
...
He used some
of the capital raised to expand the business
...
Hein
became Chairman and Chief Executive Officer (CEO) of the newly quoted company, but
over the next thirteen years his relationship with his board and shareholders became
increasingly difficult
...
Most of the established managers left as controls became more centralised and
formal
...
Hein complained that

86

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...


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...
The company was legally required to publish directors’
salaries in its annual report and the generous salary package enjoyed by the Chairman and
CEO increasingly became an issue and it dominated the 20X2 Annual General Meeting
(AGM)
...
He felt that it was an infringement of his privacy and civil liberties
...
He also used all of his personal fortune to help re-acquire the
company from the shareholders
...
Celebrities were flown in from all over the world to
attend
...
He became rude and angry about their lack of entrepreneurial
spirit
...
The reliability of these
products now meant that they were replaced relatively infrequently
...
Turnover and profitability plummeted
...
In early 20X8 the company ceased trading and Hein himself, now
increasingly vilified and attacked by the press, filed for personal bankruptcy
...
Explain the key factors that would have made franchising Rock
Bottom feasible in 1988, but would have made it ‘unlikely to be successful’ in 20X7
...
Evaluate how Rick Hein’s leadership style contributed to
the success or failure of each phase
...
The company has been very
successful and has expanded rapidly
...
This administrative
procedure is undertaken by the Contracts Office, who track that collections have been
made by the field recycling teams
...
He has closely defined
what needs to be done for each contract and how this should be monitored
...
I have
found that if you don’t tell them exactly what to do and how to do it, then it won’t get done
properly
...

Some of ARC’s employees have complained about his autocratic style of leadership, but
most of these have now left the company to work for other organisations
...
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87

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...
co
m

Phase 3 (20X3–20X8)

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...
Sully, in turn, was to focus on
gaining more contracts and setting them up
...
Fearful of making mistakes and unsure about what they
were doing led to employees discussing issues amongst themselves at length before coming
to a tentative decision
...
One commented that ‘before, we got a clear decision very quickly
...
’ The new approach also
caused tensions and stress within the Contracts Office and absenteeism increased
...
‘We prefer the old Sully Truin’, they said, ‘the
training course has spoilt you
...
However, he is unhappy with this return to the
previous way of working
...
Also,
he realises that he has little time for obtaining and planning contracts and this is severely
restricting the capacity of the company to expand
...

(10 marks)

cc

GRUMIT

(Total: 25 marks)

ea

57

Analyse Sully Truin’s leadership style before and immediately after the training
course and explain why the change of leadership style at ARC was unsuccessful
...
Grumit not only
manufactures water filters but imports a wide range of filters and associated products from
its overseas parent company
...
The numbers employed by Grumit are:
Management and associated administrative and support staff
Manufacturing facility

45
220

Marketing, sales and distribution
Installation and after-sales service engineers
88

75
65
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...
The course caused Sully to question his
previous approach to leadership
...
However, each
night, while he was attending the course, he had to deal with emails from the Contracts
Office listing problems with contracts and asking him what action they should take
...

He discussed this problem with his course tutors
...


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...
There is no recognised union in any other part
of Grumit, although the majority of field service engineers are thought to be members of an
unrecognised union
...
co
m

ial

ym
a

ter

Grumit’s managing director has not told any other employees of the directive from the
parent company and is very anxious that the prospective changes are managed so as to
minimise loss of morale and keep staff motivated
...

Required:

(b)

Examine the lessons which are available to Grumit from other organisations’
experiences in the successful management of change
...

(15 marks)

tud

(a)

fre

ea

cc

Judy Sodhi is in her first teaching year at the National College, a private college offering
short courses in accounting, auditing and management
...
This is a three-day short course which ends in
an externally set examination, marked and invigilated by staff employed by the Institute of
Managerial Finance (IMF)
...
There are no pre-conditions for candidates who wish
to attend the course
...
At the end of each course every student has to
complete a post-course evaluation questionnaire
...

As the college is a virtual organisation using serviced training rooms, Judy rarely sees her
manager Blake Jones
...
Blake explained that ‘it would
be just a general chat looking at how the year had gone
...
The time of the appraisal was set for 3
...
00 pm
...
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Grumit’s managing director has just returned from a visit to the parent company and
informs David that the manufacturing facility is to be closed as it has not been possible to
reach the required levels of quality and productivity
...

Management has been given 12 months to produce significant improvements
...
There will be a need to restructure marketing and also
for the retraining of most service engineers to equip them to deal with the new product
range
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S


...
Blake outlined the plans of the
organisation and his own promotion hopes
...
She
told him that one of her main problems was the numeracy level of some of the candidates
...

After listening to Judy for a while Blake produced a statistical summary of the feedback
questionnaires from the courses she had run in the last year
...
An acceptable result ‘is that 90% of all candidates said that they were
‘satisfied or very satisfied’ with key aspects of the course’
...


ial

•

ter

•

Percentage of candidates who felt that the course was relevant to their current job –
only 65% of your candidates felt that the course was relevant to their current job
...
88% of your
candidates passed the examination
...


ym
a

After expressing her surprise that she had not been given this information before, she
immediately returned to the problem of numeracy skills
...
That’s not my fault, it is yours – you
should not have let them on the course in the first place
...


as

tud

After a heated discussion, Blake then turned to the ‘last thing on my agenda’
...
However, he also needed to
discuss her workload for next year
...
‘I am
sorry, Judy, I have to collect the children from school – I must go
...
I think that was a very useful
discussion
...
See you at the end-of-year party, and of
course at next year’s appraisal
...
30 pm
...


(15 marks)

(b)

Explain the concept and purpose of competency frameworks for organisations,
assessing their potential use at the National College and the Institute of Managerial
Finance
...
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...
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PR AC T ICE Q UE S T ION S : S EC TI ON 1

59

GLOBAL IMAGING
Global Imaging is a fast growing high tech company with some 100 employees which aims
to double in size over the next three years
...
They are likely to leave the company once the growth objective is achieved
...
co
m

ial

ym
a

ter

Paul Simpson, HR manager at Global Imaging is annoyed
...
He feels trapped in a role traditionally given to
HR specialists, that of simply reacting to the staffing needs brought about by strategic
decisions taken by other parts of the business
...
Even worse, Paul has become aware of the
increasing number of companies looking to outsource some or all of their HR activities
...


tud

Required:

Paul has asked you to prepare a short report to present to Global Imaging’s board of
directors:
Write a short report for Paul Simpson on the way a Human Resource Plan could link
effectively with Global Imaging’s growth strategy
...
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91

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...
These two markets are very different in terms of
customer requirements, but share a related technology
...
Current management positions are largely
filled by staff who joined in the early years of the company and reflect the heavy reliance
on research and development to generate the products to grow the business
...


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...
co
m

ial

Pharmacy Systems International (PSI)

Figure 1: PSI Financial information

20X7
11,700
975
26%
120

tud

Turnover ($000)
Profits ($000) (pre-tax)
Estimated market share
Number of employees

ym
a

ter

Pharmacy Systems International (PSI) is a privately owned software company which has
successfully developed and sold a specialised software package meeting the specific needs
of retail pharmacies
...
Over the last
three years PSI has experienced gradual growth in turnover, profitability and market share
(see Figure 1)
...
The
chief executive is a natural entrepreneur with a past record of identifying opportunities and
taking the necessary risks to exploit them
...
However, he
now feels the time is right to expand the business to a size and profitability that makes
PSI an attractive acquisition target and enables the directors to realise their investment in
the company
...
The software
development director, however, does not share the chief executive’s enthusiasm for this
expansion
...
His plan is for the
company to take the current software package and take out any specific references to the
pharmaceutical industry
...
The pharmaceutical package would be retained but it would be
perceived and marketed as a specialised implementation of the new generic package
...
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...
Customers expect both types of product to be
immediately available and so this demands efficient purchasing and stock control in each
pharmacy
...
The
pharmacy chains are increasingly encouraging their customers to order medicinal products
online and the doctors are being encouraged to electronically send their prescriptions to
the pharmacy so that they can be prepared ready for the patient to collect
...
com
PR AC T ICE Q UE S T ION S : S EC TI ON 1

ial

Ideally, the software development director would like to acquire further resources to
develop a more standardised software package for their current customers
...
Frequently, the software contains faults that
require expensive and time consuming maintenance
...
A recent user group conference expressed considerable
dissatisfaction with the quality of the PSI package and doubted the company’s ability to
meet the published deadline for a new release of the software
...
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
...
Analyse the nature, scope and type of
this proposed strategic change for PSI
...

It initially specialised in building bespoke computer software for the financial services
industry
...
It still specialises in bespoke
software, although 20% of its income now comes from the sales of a software package
designed specifically for car insurance
...

Employees are expected to work long hours and to take part in social activities after work
...
Approximately one-third of all employees leave within their
first year of employment at the company
...
Only about 20% of the employees are female and they
work mainly in marketing and human resources
...
iCompute currently outsources all its legal
advice problems to a law firm that specialises in computer contracts and legislation
...


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...
He and his team of software developers are under constant pressure
to meet the demands of the existing retail pharmacy customers
...


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...
One manager
commented that ‘we have often adopted, or are about to adopt, a technology or solution
when one of our software developers will ask if we have considered some newly released
technology
...
We
seem to be in a state of constant technical paralysis
...
Some of these have become operational managers,
employed to manage teams of software developers on internal and external projects
...
‘I moved into management because I needed to earn more money
...
However, I still keep up to date
with programming though, and I am a goalkeeper for one of the company’s five-a-side
football teams
...
’

as

tud

However, many of the software developers are sceptical about their managers
...
Some will insist on writing
programs and producing code, but we take it out again as soon as we can and replace it
with something we have written
...
’ Although revenues have increased,
profits have fallen
...
‘There is always an element of
ambiguity in specifying customers’ requirements
...
However, we now seem to do
all amendments for free
...
No wonder
margins are falling
...
’

ea

cc

The software developers are also angry that an in-house project has been initiated to
produce a system for recording time spent on tasks and projects
...
However, the other justification for
the project is that it will improve the estimation of ‘fixed-price’ contracts
...


fre

Vikram Soleski, one of the current software developers, commented that ‘managers do not
even have up-to-date mobile phones, probably because they don’t know how to use them
...
But I like working here, we have a good social scene and after working long
hours we socialise together, often playing computer games well into the early hours of the
morning
...
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m

The support of bespoke solutions and the car insurance software package was also
outsourced a year ago to a third party
...
One of the senior managers responsible for the
outsourcing decision claimed that support calls were ‘increasingly varied and complex,
reflecting incompetent end users, too lazy to read user guides
...
The company is currently
reviewing whether the software support process should be brought back in-house
...
com
PR AC T ICE Q UE S T ION S : S EC TI ON 1

Required:
(a)

Analyse the culture of iCompute, and assess the implications of your analysis for
the company’s future performance
...



...

(12 marks)

ial

62

ZOOMBA

ym
a

ter

Zoomba is a national chain of restaurants
...
It has 100 permanent locations spread across the country
...
However, these
profits have levelled off in the last two years and the first quarter of this year saw the first
year-on-year, like-for-like drop in sales that the company has experienced in its ten year
life
...
She also feels that the company hasn’t taken advantage of the
growing trend for pop-up restaurants
...
The aim is to
maximise sales during a small time frame whilst minimising costs
...


cc

Grace Grove therefore put together a team of staff to manage a project aimed at exploiting
this growth opportunity
...
The project launched in the second quarter of the year and
the new pop-up restaurants opened in the third quarter of the year
...

Processes were designed for venue location, asset management, food production, material
supplies, marketing and sales
...
Elise was able to ensure that adequate IT systems
and controls were in place for elements such as e-procurement, social media marketing,
sales recording, staff monitoring and inventory management
...


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(Total: 25 marks)

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...
These teams would be managed by a member of the project team who would
ensure that the new processes were followed and applied
...



...
Many customers were happy that
they could now access Zoomba at a point that would not be available to them
...
Some regular Zoomba visitors complained
that the pop ups were disorganised with slower than usual service, whilst first time visitors
had comments such as ‘surly staff’, ‘lack of co-ordination’ and ‘messy premises’
...
The following are samples
of comments gathered as part of a lessons learnt review:
I turned up at my normal location one day but was told I’d be spending the weekend
working on the van at the music festival
...


tud

I volunteered for the tourist resort pop up thinking it would be good for my career
...


as

I enjoyed my time at the pop up but we seemed to spend most of it learning the new
processes which were very different to what we were used to
...


Required:

cc

Grace Grove is committed to make the pop ups a success and wants to learn from the
mistakes of these initial trials
...


Explain the type of strategic change that Zoomba appear to be going through with
the new pop up venture
...

(10 marks)

fre

ea

(a)

(c)

96

Using a suitable model, assess the reasons for the failures in the pop up venture
...
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...
But having run the first two pop ventures (one to coincide
with a large weekend music festival and the other situated at a major tourist resort for
three months) profits and feedback have not been as good as expected
...
The
IT system worked well, premises were sourced and furbished to expectations, all food and
service materials were at the venues, and social marketing was a particular success
...


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...
The company is credited with identifying
and targeting an untapped market for small 50cc bikes in the US, enabling it to expand,
overwhelm European competition and severely damage US bike manufacturers
...
But this occurred by accident
...
co
m

ial

ym
a

ter

The faults in Honda’s larger machines meant that reluctantly, Honda had to sell the small
50cc bikes just to raise money
...
Eventually the company adopted this new market with
enthusiasm with the slogan: ‘You meet the nicest people on a Honda’
...

Required:

Explain why the actual strategy pursued by a company over a three- to five-year
period may diverge from the deliberate strategy that the company initiated at the
outset of that period
...

(12 marks)
(Total: 25 marks)

fre

ea

cc

as

tud

(a)

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On entering this market, Honda had wanted to compete with the larger European and
American bikes of 250ccs and over
...
Disaster struck when Honda’s larger machines
developed faults – they had not been designed for the hard wear and tear imposed by
US motorcyclists
...
Up until then Honda had made little effort to
sell their small 50cc motorbikes – their staff rode them on errands around Los Angeles
...


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...
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co
m

P AP ER P 3 : BU SIN E S S A N AL Y SI S

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...
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m

SCENARIO-BASED QUESTIONS

Walk in the footsteps of a top tutor

ial

ter

ym
a

Market sectors

as

tud

ONA serves two main sectors
...
ONA management refer to this as the regional sector
...
Twenty five major cities are served in the regional sector with, on average, three
return flights per day
...
The second sector is what ONA management refer to as the
international sector
...
The average flight
time in this sector is four hours
...

The leisure travellers are primarily holiday-makers from the continent
...


cc

Image, service and employment

ea

ONA is the airline of choice for most of the citizens of Oceania
...
85% of the respondents were proud of their airline and
felt that it projected a positive image of Oceania
...


fre

The customer service of ONA has also been recognised by the airline industry itself
...


The courtesy and motivation of its employees (mainly Oceanic residents) is recognised
throughout the region
...
ONA is
perceived as an excellent employer
...
In
20X4 ONA employed 5400 people, rising to 5600 in 20X5 and 5800 in 20X6
...
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99

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...
They come to enjoy the
beaches, the climate and to explore the architecture and history of this ancient island
...
Oceania has four main airports and until ten years ago had
two airlines, one based in the west (OceaniaAir) and one based in the east (Transport
Oceania) of the island
...


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...
Nineteen of the Boeing 737s were originally in the fleet of
OceaniaAir
...
Twenty-three of the
Airbus A320s were originally part of the Transport Oceania fleet
...
ONA also used three Embraer RJ145 jets in the regional sector
...
co
m

Table 1: Fleet details

Embraer RJ145

21
21
20
147
October 1991
12
...
70

27
27
26
149
November 1988
12
...
41

3
3
2
50
January 1999
6
...
50

ter

Performance

ial

Airbus A320

ym
a

Since 20X4 ONA has begun to experience significant competition from ‘no frills’ low-cost
budget airlines, particularly in the international sector
...
‘No frills’ low-cost
budget airlines are also having some impact on the regional sector
...
A recent survey for ONA showed that
its average international fare was double that of its low-cost competitors
...


tud

Table 2: Key operational statistics for ONA in 20X6
Regional

Low-cost
competitor
average

400
35

280
15

Not applicable
Not applicable

73%
90%
$106,700

67%
74%
$112,500

87%
75%
$96,500

40%
10%
50%
See Table 1
See Table 1

60%
5%
35%

84%
12%
4%
4
...
10

fre

ea

cc

as

Contribution to revenue ($m)
Passenger
Cargo
Passenger load factor
Standard class
Business class
Average annual pilot salary
Source of revenue
On-line sales
Direct sales
Commission sales
Average age of aircraft
Utilisation (hrs per day)

International

ONA have made a number of operational changes in the last few years
...
Special promotional
fares are also available for customers who book on-line
...


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Boeing 737

Total aircraft in service
20X6
20X5
20X4
Capacity (passengers)
Introduced
Average age
Utilisation (hrs per day)

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...
Direct sales are those sales made over the telephone or at the
airport itself
...
co
m

Most leisure travellers pay standard or economy fares and travel in the standard class
section of the plane
...

In the last three years, the financial performance of ONA has not matched its operational
success
...

In a period (20X4–20X6) when world-wide passenger air travel revenue increased by 12%
(and revenue from air travel to Oceania by 15%) and cargo revenue by 10%, ONA only
recorded a 4
...


Total shareholders’ equity

ea

cc

as

Non-current liabilities
Interest bearing long-term loans
Employee benefit obligations
Other provisions
Total non-current liabilities
Current liabilities
Trade payables
Current tax payable
Other current liabilities
Total current liabilities

20X4

785
56
841

775
64
839

8
68
289
365
1,213

7
71
291
369
1,210

7
69
299
375
1,214

250

259

264

310
180
126
616

325
178
145
648

335
170
143
648

282
9
56
347

265
12
26
303

255
12
35
302

1,213

1,210

1,214

fre

Total equity and liabilities

Total

tud

Total assets

Total

20X5

788
60
848

ter

Current assets
Inventories
Trade receivables
Cash and cash equivalents

20X6

ym
a

Non-current assets
Property, plant and equipment
Other non-current assets

ial

Extracted from the Statement of Financial Position (Balance Sheet)

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Table 3: Extracted Financial Information (All figures in $m)

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...
One suggestion has been to re-position ONA itself as
a ‘no frills’ low-cost budget airline
...

Required:

Using the information provided in the scenario, evaluate the strengths and
weaknesses of ONA and their impact on its performance
...

(20 marks)

(b)

The CEO of Oceania National Airways (ONA) has already strongly rejected the repositioning of ONA as a ‘no frills’ low-cost budget airline
...


(4 marks)

(ii)

Analyse why moving to a ‘no frills’ low-cost strategy would be inappropriate
for ONA
...


ea

(c)

(16 marks)

cc

Note: Requirement (b) (ii) includes 3 professional marks

Note: Requirement (c) includes 2 professional marks

(10 marks)

fre

(Total: 50 marks)

10 2

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20X5
675
48
112
835


...
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SCE N A RI O- B ASE D Q UE S T ION S : S E CT I ON 2

65

THE NATIONAL MUSEUM

Walk in the footsteps of a top tutor

Introduction


...
These are collections that are deemed to be very significant to the country
...

Funding and structure

fre

Number of
Heritage Collections
2
2
1

as

ea

cc

Collection
Sections
Architecture
Art
Metalwork
Glass
Textiles
Ceramics
Furniture
Print and books
Photography
Fashion
Jewellery
Sculpture
Administration
Total

tud

The NM is currently 90% funded by direct grants from government
...
The
direct funding from the government is based on a number of factors, but the number of
Heritage Collections held by the museum is a significant funding influence
...
The division of money
between departments is heavily influenced by the Heritage Collections
...
The budgets for 20X8 and 20X9
are shown in Figure 1
...
00
135
...
50
23
...
00
35
...
00
35
...
00
10
...
00
25
...
50
621
...
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Budget ($000s)
20X9
125
...
00
39
...
00
47
...
00
31
...
50
15
...
50
52
...
00
63
...
00
10 3

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...
It remains in its original building which is itself of architectural
importance
...
Alterations
have also been made to ensure that the building complies with the disability access and
health and safety laws of the country
...
The building is in a
previously affluent area of the capital city
...
The area also suffers from an increasing crime
rate
...
The assault was reported in both local and national newspapers
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

The head of each collection section is an important position and enjoys many privileges,
including a large office, a special section heads’ dining room and a dedicated personal
assistant (PA)
...


Director of
Art and Architecture

Director of
Industrial Art

Director of Media and
Contemporary Art

Head of Metalwork

Director of
Administration

Head of Print and Book

Finance

Head of Glass

Head of Photography

Purchasing

Head of Textiles

Head of Fashion

Marketing

Head of Ceramics

Head of Jewellery

Property Services

Head of Furniture

Head of Sculpture

Visitor Services

tud

Head of Architecture

ym
a

Director
General

ter

Board of Directors

ial

Board of Trustees

as

Head of Art

Personnel

Figure 2: Current organisational structure

cc

Government change

fre

ea

One year ago, a new national government was elected
...
The minister has declared that in five year’s time the museum must
cover 60% of its own costs and only 40% will be directly funded by government
...
The 40% government grant
will be linked to the museum achieving specified targets for disability access, social
inclusion and electronic commerce and access
...
Furthermore, it also wishes to give increasing access to
museum exhibits to disabled people who cannot physically visit the museum site
...
The government’s
opposition has, since the election, also agreed that the reliance of museums on government
funding should be reduced
...
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...
co
m

The departmental structure of the NM (see Figure 2) is largely built around the twelve main
sections of the collection
...
The Board of Directors is made up of the three directors of these
departments, together with the Director of Administration and the Director General
...
There are currently eight trustees, two of
whom have been recently appointed by the government
...


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...
co
m

Traditionally, the NM has provided administrative support for sections and departments,
grouped together beneath a Director of Administration
...
However, the funding changes introduced by the government
and the need to produce a strategy document, has spurred the Board of Trustees to
appoint a full-time Director General from the private sector
...
The new Director General was previously the CEO of a major
chain of supermarkets
...
Proposals in this document include:

20X6
12
8
15
20
35
35
125

ter

20X7
10
5
10
20
35
40
120

ym
a

Visitor numbers (000s)
Age 17 or less
Age 18–22
Age 23–30
Age 31–45
Age 46–59
Age 60 or more
Total

ial

Allocating budgets (from 20Y0) to sections based on visitor popularity
...
The idea is to stimulate sections to
come up with innovative ideas that will attract more visitors to the museum
...

20X5
15
12
20
18
30
35
130

20X4
15
10
20
25
30
30
130

Figure 3: Visitor numbers 20X4–20X7

Increasing entrance charges to increase income, but to make entry free to
pensioners, students, children and people receiving government benefit payments
...
An increase in income from catering is also proposed in the document
...


(5)

Increasing the display of exhibits
...
The rest is held in storage
...


fre

ea

cc

as

tud

(2)

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(1)

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...
The idea of linking
budgets to visitor numbers has been greeted with dismay by the Director of Art and
Architecture
...
As
previous governments have realised, what is important is the value of the collection
...
As far as I am concerned, if they want to see fashion, they
can look in the high street shops
...
’ The
Director of Art and Architecture and the two professors who hold the Head of Architecture
and Head of Art posts have also lobbied individual members of the Board of Trustees with
their concerns about the Director General’s proposals
...
A recent
television programme called ‘Strife at the NM’ also featured interviews with various heads
of collections criticising the proposed changes
...
They
have been handed down from on high by an ex-grocer’, said one anonymous contributor
...
However, only the two trustees
appointed by the government were prepared to do so
...
This has prompted an angry response from the government which has now
threatened to cut the museum’s funding dramatically next year and to change the
composition of the Board of Trustees so that the majority of trustees are appointed directly
by the government
...


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SCE N A RI O- B ASE D Q UE S T ION S : S E CT I ON 2

Required:
Analyse the macro-environment of the National Museum using a PESTEL analysis
...



...

Note: requirement (b) includes 2 professional marks
...


66

ter

Note: requirement (c) includes 2 professional marks
...
It owns 14 companies
concerned with fishing and related industries
...


tud

•
•
•

Shoal plc is also finalising the purchase of the Captain Haddock chain of fish restaurants
...
The primary objective of the acquisition was to secure
supplies for ShoalPro
...
The rest are sold in wholesale fish markets
...
The
western oceans where it operates have suffered from many years of over-fishing and the
government has recently introduced quotas in an attempt to conserve fish stocks
...

Almost half of the total number of boats operating in the western oceans are individually
owned and independently operated by the boat’s captain
...


fre

ShoalPro

ShoalPro was acquired in 20W2 when Shoal plc bought the assets of the Trevarez Canning
and Processing Company
...
Grants were made
available to develop industry in an attempt to address the economic decline and high
unemployment of the area
...
However, despite this initiative and
investment, unemployment in the area still remains above the average for the country as a
whole
...
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The fish received from ShoalFish now accounts for a declining percentage of the
total amount of fish processed and canned in its factories in the Trevarez area
...

ShoalFarm

ShoalPro
Turnover of market sector
Turnover of ShoalPro
Gross profit

20X7
40
...
00
1
...
00
1
...
14

tud

ShoalFarm
Turnover of market sector
Turnover of ShoalFarm
Gross profit

20X8
198
...
50
1
...
00
21
...
05

20X8
40
...
20
1
...
80
16
...
75

20X8
11
...
10
0
...
00
1
...
15

ter

20X7
200
...
00
1
...
Recent
information for ShoalFarm is given in Figure 1
...
It currently
operates one hundred and thirty restaurants in the country serving high quality fish meals
...

Captain Haddock has a tradition of recruiting staff directly from schools and universities and
providing them with excellent training in the Captain Haddock academy
...
All management posts are filled by recruiting from within the company,
and all members of the Captain Haddock board originally joined the company as trainees
...
In 20X0, Captain Haddock became one of the
thirty best regarded brands in the country
...
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...
co
m

ShoalFarm was acquired in 20X4 as a response by Shoal plc to the declining fish stocks in
the western oceans
...
These are in areas of the
ocean close to land where fish are protected from both fishermen and natural prey, such as
sea birds
...

Shoal plc originally saw this acquisition as a way of maintaining supply to ShoalPro
...
com
SCE N A RI O- B ASE D Q UE S T ION S : S E CT I ON 2

ter

ial

Shoal plc is currently finalising their takeover of the Captain Haddock business
...

Shoal plc’s assessment is that there is nothing fundamentally wrong with the company and
that the current financial situation is caused by the failed diversification policy and the cost
of financing this
...


tud

ym
a

Captain Haddock currently buys its fish and fish products from wholesalers
...
Once the takeover is complete
(and this should be within the next month), Shoal plc intends to implement significant
strategic change at Captain Haddock so that it can return to profitability as soon as possible
...
The company
explicitly recognises that there is no ‘one right way’ to manage change
...

Captain Haddock (all figures in $m)
Turnover
Gross profit (loss)

20X7
115
...
20

20X8
114
...
10)

20X9
114
...
20)

as

Figure 2: Financial information for Captain Haddock 20X7–20X9
Required:

In the context of Shoal plc’s corporate-level strategy, assess the contribution and
performance of ShoalFish, ShoalPro and ShoalFarm
...

(15 marks)

cc

(a)

(i)

Identify and analyse, using an appropriate model, the contextual factors that
will influence how strategic change should be managed at Captain Haddock
...
It believes
that the success of any planned change programme will depend on a clear understanding of
the context within which change will take place
...

(2 marks)

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...
This decline is partly due to economic recession in the country and partly due to
a disastrous diversification into commercial real estate and currency dealing
...
Some of the real estate bought during this period is still owned by the
company
...
At restaurant level, employee performance still
remains relatively good and the public still highly rate the brand
...


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...

(ii)

Identify and analyse the main elements of strategic change required to
achieve this goal
...
co
m

Professional marks will be awarded in part (b) (ii) for the cogency of the
analysis and for the overall relevance of the answer to the case study
scenario
...

(c)

Explain each of these separate rationales for adding value and their relevance to
understanding the overall corporate rationale of Shoal plc
...
It was formed by a dynamic Chief Executive Officer (CEO) who still
remains a major shareholder of the company
...
Firstly, it established retail shops
where customers could go and handle the products and discuss mobile phone options with
trained sales people
...
Secondly,
AutoFone sold products and services from all the four major network providers licensed by
the government to provide telecommunications services in the country
...
AutoFone allowed customers to choose products and services across the range of
the four providers and reflected this in the company’s motto ‘ethical advice: the customer’s
choice’
...
Although, in
retrospect, these deals were on commercially favourable terms for AutoFone, the network
providers were happy to agree these deals because none of them believed that mobile
telephones could be successfully sold through retail shops
...
The four network providers
themselves had re-signed twenty-five year licence deals with the government in 1995
...

Retail shops division

fre

AutoFone currently has 415 shops around the country
...
It is usual for
AutoFone to sign a fifty-year shop lease in return for low initial annual rental and a rentfree period at the start of the lease while the company fits out the shop to reflect
AutoFone’s corporate image
...
The national
coverage of its shops, the publicity generated by its CEO and a successful television
advertising campaign culminated, in 20X5, with it being rated by consumers as one of the
top 20 brands in the country
...
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SCE N A RI O- B ASE D Q UE S T ION S : S E CT I ON 2

ial

In recent years the CEO has been increasingly involved in television, sports promotion and
charity work
...
This
committee includes the two longest serving board directors
...


ter

Marketplace trends

Since AutoFone’s arrival into the market, two significant trends have emerged:
The licensed network providers have opened their own retail stores, usually in city
centres
...
Only at AutoFone can impartial advice be received on
all four competing networks and their supporting services
...


(ii)

Mobile phones have become more sophisticated
...
AutoFone offers these
products in both its shops and through its Internet operation
...
The minimum contract
period with the network provider is usually twelve months
...
It has also established an insurance division (AFInsure) offering insurance
to cover loss or damage to mobile phones purchased from the company
...


cc

Table 1: Analysis of AutoFone Sales: 20X7 (all figures in $m)

fre

ea

Division
AutoFone retail shops
AFDirect
Total sales of mobile phones
AFInsure
Group total

Under 15 15–25
5
90
0
15
0

1

Age of customer
26–40
41–60
60
120
20
8
3

7

Over 60
65
2
3

Total
340
45
385
14
399

Analysts agree that growth in the mobile phone business is slowing down and this is
supported by the figures given in table 2 showing revenue from sales (both retail and
Internet) for AutoFone and its competitors, the four licensed network providers, for the
period 20X3–20X7
...
com/freeaccastudymaterial

11 1

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...
co
m

The CEO of AutoFone established the retail shops along, in his words, ‘entrepreneurial
lines’
...
He believes that the company is
‘about providing opportunity to its employees, providing them with autonomy and
responsibility to achieve their goals
...
’ To support this approach, sales staff are given a
relatively low basic salary with a substantial element of profit-related pay linked to the
profit targets of the shop
...
Each shop is relatively small, usually employing three or
four people
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

Table 2: Market analysis (all figures in $m) of sales of mobile phones
20X7
385
350
390
315
295
1,735

20X6
377
348
388
315
295
1,723

20X5
367
345
380
315
294
1,701

20X4
340
340
365
305
290
1,640

20X3
320
305
350
300
285
1,560

AutoFone’s central city branch

ym
a

ter

ial

However, while the AFDirect and AFInsure divisions are prospering, there are increasing
problems in the retail shops division
...
One shop manager
commented, in his exit interview, that the profit targets were unattainable in the current
market
...
’ Staff are
particularly demoralised by spending time explaining a particular product to a customer
who then leaves the shop and buys the product cheaper on the Internet
...
It is also
increasingly common for customers who have bought from AFDirect to take their phones to
AutoFone’s retail shops for support and service
...


tud

Despite the overall decline in the profitability of the shops, one branch has continually met
or exceeded its profitability targets and is held up by the CEO as an example of best practice
– proof that the company’s approach to mobile phone selling can still be profitably applied
...


ea

Future strategy

cc

as

The CEO arranged for three members of the strategic planning committee to visit the shop,
posing as customers, to investigate the reasons for the shop’s success
...
However, they also found that they were guided towards
products and services which had higher profit margins
...
On receiving this information,
AutoFone’s board concluded that this was unethical as it compromised their central
business idea which stressed impartial advice to guide the ‘customer’s choice’
...
He resigned
soon afterwards, followed by his two assistants
...


fre

The two longest serving directors on the strategic planning committee are increasingly
concerned about the company’s decline in profitability (see table 3)
...
They believe that the retail shops
business model is no longer appropriate
...
The CEO is strongly opposed to this suggestion because it was the shop-based
approach to selling mobile phones that formed the original business model of the company
...
The two directors claim that
this attachment is clouding his judgement and hence he is unable to see the logic of an
‘economically justifiable exit from the retail business’
...
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co
m

Company
AutoFone
NetAG
09Net
PhoneLine
NetConnex
Total

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...
Note: requirement (a) includes 2 professional
marks
...
co
m

20X7
143

AutoFone’s CEO is anxious to develop a rational and well argued case for retaining
the retail shops division
...


Note: Requirement (b) includes 3 professional marks
...


(15 marks)
(Total: 50 marks)

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Total non-current assets
Current assets:
Inventories
Trade receivables
Cash and cash equivalents
Total current assets
Total assets
Total shareholder’s equity
Non-current liabilities:
Interest bearing long-term loans
Other provisions
Total non-current liabilities
Total current liabilities
Total equity and liabilities

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...
co
m

ial

The climate of the country is also changing, becoming drier and windier
...


ter

The formation of WET

ym
a

In 20X2, the environmental campaigner Zohail Abbas published a book on the Wetlands of
Arcadia
...
Dr Abbas’ book chronicled the
systematic destruction of the wetlands due to population growth, increased economic
development and climate change
...
Wetlands also provide an important habitat for wildlife
...
Some species had become extinct
...
Since its formation, the Trust has acquired the four
remaining wetland sites left in the country
...
Donations are one-off contributions
...
Each wetland site
is managed by volunteers who provide access and guidance to members
...
Dr Abbas’ work on the wetlands has brought him
to the attention of the Arcadian public and he is now a popular television presenter
...


fre

ea

WET is a registered charity
...
The number of
charities has increased significantly in the last few years leading to widespread criticism
from established charities, politicians and the public, who believe that many of these
charities have been formed to exploit taxation advantages
...
WWTFT promised to create new wetlands artificially in Arcadia
...
Dr Abbas was part
of a group that lobbied the government for the reform of the Commission of Charities, but
the government has rejected their advice
...
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...
It has recently enjoyed sustained economic growth generated by the expansion
of its manufacturing industry
...
However, after 10 years of sustained economic
growth the country, in 20X9, began to experience economic problems
...
Surveys have shown that wages are stagnant and retail sales are falling
...


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...
co
m

Donors
$100,000
$50,000
$50,000
$200,000

ter

Members
$650,000
$100,000
$50,000
$800,000

ial

Figure 1 – WET’s income sources; year 20X8

ym
a

Figure 2 – Income for all Arcadian charities; year 20X8 (in $millions)

tud

Health charities
Social Care charities
International charities
Environmental charities (including WET)
WET 20X3–20X9

Amount donated to charity
775
...
5
149
...
6

cc

Administrative costs rose at a faster rate than subscriptions and donations
...
However, despite
an increase in staff numbers, there is a substantial backlog of cleared applications in
the Membership Department which have not yet been entered into the membership
computer system
...
However, the functionality of this software is relatively
restricted and cumbersome and there have been complaints about its accuracy
...
As a result ‘we seem to be wasting money and losing
members’
...
Volunteers
were recruited to manage and administer the wetland sites and the number of members
gradually increased (see Figure 3)
...
However,
as the charity expanded a number of issues emerged
...
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Previously,
once the charity’s accounts had been audited, the government paid the charity a sum of
20% of the total value of donations and membership fees
...
However, the
government has now declared that this is unfair as not all donations or membership fees
are from Arcadian taxpayers or from people in Arcadia who actually pay tax
...
Only donations or fees supported by this proof will receive the 20%, so
called GiftHelp, refund
...
An analysis of WET’s income for 20X8 is given in Figure 1
and an analysis of income for all charities is given in Figure 2
...


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...

They feel that the wetland sites should also have better facilities, such as toilets and
concealed positions for bird watching
...
Membership is currently
falling and very little money is spent on sales and marketing to arrest this fall
...
They
feel patronised and undervalued
...
A recent decision
not to pay travelling expenses to volunteers led to further resignations
...
co
m

2

Figure 3 – Membership and volunteer statistics WET 20X2–20X9
20X5
20,000
45

20X6
22,000
50

20X7
20X8
25,000 23,000
52
50

ial

20X4
15,000
35

20X9
20,000
40

ym
a

ter

At the 20X9 Annual General Meeting (AGM) Dr Abbas stood down and announced
the appointment of a new Chief Executive Officer (CEO)
...
‘It is a matter of deep regret that I spent
more time focusing on wetlands rather than people’
...

The new CEO, Sheila Jenkins, wishes to pursue a more inclusive strategy, and
immediately set about consulting the membership and voluntary staff about what
they expected from WET
...
This was not a view shared by Dr Abbas who
wanted the wetlands preserved for their own sake
...


System review

as

•

ea

cc

Sheila Jenkins is particularly keen to improve the technology that supports WET
...
WET’s current website is very rudimentary,
but she sees ‘e-mail and website technology as facilitating the acquisition, retention
and satisfaction of our customers’ needs
...
’ She also wishes to gain
increased revenue from each member and donor
...
A narrative to support this
diagram is given below
...
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...
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SCE N A RI O- B ASE D Q UE S T ION S : S E CT I ON 2

Membership renewal process

ter

ial

Finance now submits payments to the bank
...
Once cleared, Finance notifies the
Membership Department by e-mail and they update the Membership System to
record that the payment has been made
...


ym
a

Some cheques do not clear, often because they are filled in incorrectly (for example,
they are unsigned or wrongly dated)
...
Once the member re-submits
a replacement cheque, it again goes through the clearing process
...
For example, incorrect numbers and incorrect expiry dates will lead to the
transaction not being authorised and so, in these circumstances, Finance again raises
a payment request
...
The finance
manager has described this as scandalous and ‘an unethical response from
supposedly ethical people’
...
Some members pay as
a result of this reminder
...


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...
A copy of this invoice is sent to
the Membership Department who file it away
...
The Membership Department matches the
payment with the renewal invoice copy
...
The Membership Department
passes the payment to the Finance Department
...
co
m

Receive
renewal
invoice

Member

join us on facebook @ fb
...
com

fre

Renew membership

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...
com
SCE N A RI O- B ASE D Q UE S T ION S : S E CT I ON 2

Required:
(a)

The new CEO, Sheila Jenkins, recognises that she should understand the strategic
position of WET before considering strategic options and changes
...



...

(21 marks)
Professional marks will be awarded in part (a) for the scope, structure and tone of
the answer
...


Sheila Jenkins sees customers as ‘both prospective and existing members,
volunteers and donors of WET’
...


ym
a

(c)

ter

Analyse faults in the current membership renewal process that cause the problems
identified above
...

(15 marks)

Evaluate how email and website technology might facilitate the acquisition and
retention of WET’s customers and support WET’s aim to gain increased revenues
from members and donors
...
Most commercial and
domestic consumers have computers and printers
...
The economic problems of the country have led to a
significant decline in tax revenues and so the government has asked its own departments
(and the public sector as a whole) to demonstrate value-for-money in their purchases
...
The
Department of Revenue Collections (DoRC), which is responsible for collecting tax
payments in the country, has been identified as a possible candidate for future
privatisation
...
There has
been a notable rise in the number of green consumers
...


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•
•
•

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...
They have brought legal actions against the independents in an attempt to make
refilling their branded products illegal
...
The government
in Eland has ruled this to be anti-competitive
...
They also regularly
issue statements which worry consumers, claiming that printers may be harmed by using
ink which is not from the OEM
...
It
continues to pursue legal claims against the independents and has also issued a statement
which makes clear that if one of their printers is found to be faulty whilst using non-Landy
ink, then the printer’s warranty will be void
...
There is little brand loyalty amongst consumers, who regularly
change their choice of brand
...
Used
print cartridges can be reused for their material alone (recycled), or reused by being refilled
with ink
...

ReInk Co

cc

as

ReInk Co (ReInk) was formed five years ago by Dexter Black, a technology entrepreneur
with expertise in printer technologies
...
He set up
ReInk to produce and market his designs for reusable ink systems
...
Key
technical elements of ReInk’s innovative process for refilling cartridges have been patented,
but in Eland, such patents only last for eight years
...


fre

ea

The company was established in a declining industrial town in Eland with high
unemployment
...

Although the company now pays rent for its factory and offices, the annual rent is relatively
low
...
ReInk’s location is also close to an attractive area of countryside, which Dexter
felt would appeal to the technology experts needed to help him exploit and develop his
printer technology ideas
...
His assumption
proved correct
...
As one of them
commented, ‘I took a pay cut to come here
...
’

12 0

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...
Many of these are household names such as Landy, IPD and BellTech
...
However, there are also independent companies who only supply the printer
consumables (printer cartridges and toner cartridges) market, offering prices which
significantly undercut the OEMs
...


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...
co
m

ReInk is an attractive company to work for and the team of technologists are enthusiastic
about working with such an acknowledged industry expert, where technical innovation is
recognised and rewarded
...
Dexter recognised this as a
weakness and it was the prime driver behind his decision to recruit two new directors to
the company
...
Although the company has made a small operating
profit for the last three years, interest repayments have meant that it has recorded a loss
every year
...
ReInk is not one of the independent companies currently
being sued by Landy
...
The technologists within the company are
particularly scathing about the two new appointments
...
There has been no evidence so far that he has been
able to generate more sales revenue
...
The technologists believe that the HR director ‘clearly has no experience of dealing
with professional staff’
...
No
significant marketing is undertaken outside of the development and promotion of ReInk’s
website
...


cc

as

ReInk continues to struggle financially, and its bank, Firmsure, in response to its own
financial difficulties, has recently reduced ReInk’s overdraft facility, creating a cash flow
crisis which threatens the company’s very existence
...


fre

ea

The employees of the company are well aware of the company’s financial position and
although they are proud of the company’s technical achievements, they believe that the
company may soon go into administration and so many are actively looking for other jobs in
the industry or in the area
...

Vi Ventures (VV)
Vi Ventures are venture capitalists who inject money and management expertise into
struggling companies, in exchange for a certain degree of control, ownership and dividend
reward
...
They are experienced change
managers
...
com/freeaccastudymaterial

12 1

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...
Together with the
financial director and Dexter himself, they make up the board of ReInk
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

VV have been introduced to ReInk by Firmsure and they are considering some form of
involvement
...
This standard
assessment report contains three elements:
•

ter
ym
a
tud

Figure 1: Contextual features in strategic change

as

Required:

You have been asked to write the standard assessment report of the strategic position of
ReInk required by Vi Ventures
...


(20 marks)

(b)

Evaluates the effect of contextual features on the introduction of strategic change
at ReInk Co
...

(12 marks)

ea

cc

(a)

fre

Professional marks will be awarded for the overall quality, construction, fluency and
professionalism of the complete standard assessment report required by Vi Ventures
...
com/freeaccastudymaterial

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...
They need to
understand what factors will affect the change which they may need to bring to the
company
...

A TOWS matrix analysis to identify strategic options which might be pursued if VV
invest in the company
...
co
m

•

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...
co
m

ial

ter

The Roam Group, like all the operating companies in the Group, has the majority of its
shares owned by the Roam family
...
The Roam Group and its operating companies are all based in the
country of Meeland
...
It has grown
to be the largest road freight company in Meeland, with over 2,000 trucks
...
There are no toll roads in Meeland
...
The managing director of SRRT is Stuart
Roam junior, who was originally employed by his father as a driver
...
SRRT’s distinctive
red and white trucks are seen all over the country, and all carry the company’s catchphrase
‘All roads lead to Roam’
...
These so-called ‘NewRoamantics’ have themselves become famous and, partly as a result of this, Stuart Roam
has become a household name and is the most recognisable brand in the road transport
industry
...
It wants to
ensure that they are reliable, efficient and that they project a modern image which is
attractive to their customers
...
The
Roam Group acquired a number of warehouses from its customers who wished to divest
themselves of this part of their operations
...
The 20X2 figures shown in Table One represent the first year
that the company traded in its current form
...
The warehouses are efficient and highly automated
...
The average price for warehouse development land in Meeland
is now $20,000 per hectare
...


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Roam Group Co (The Roam Group) was formed in 20X1 when the owners of Stuart Roam
Road Transport decided to create a group structure to facilitate the acquisition of
companies
...
The objectives of
The Roam Group is to acquire companies which fit well with its existing companies, which
would benefit from being part of the Group and which would also bring benefits to
companies already in the Group
...
Besides the
three full-time directors, it only has two full-time administrative employees
...
The managing directors of all three operating
companies also sit on the board of The Roam Group
...


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...



...
Furthermore, most of the supermarkets, attracted by a green
image, are very supportive of the rail initiative and wish to be associated with it
...
75% 9
...
80% 9
...
45% 9
...
25% 9
...
15% 11
...
05% 11
...
95% 11
...
95% 11
...
80% 9
...
25% 11
...
55% 14
...
50% 14
...
75% 12
...
50% 8
...
25% 14
...
20% 14
...
00% 14
...
85% 14
...
25% 14
...
15% 14
...
95% 13
...
95% 13
...
50% 12
...
65% 8
...
85% 12
...
75% 8
...
95% 12
...
85% 8
...
15% 12
...
85% 8
...


fre

The performance of the company is shown under the columns headed Roam
...
Operating profit and ROCE figures are averages for the industry while revenue
figures are totals
...


12 4

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In 20X2 The Roam Group purchased the Freight Direct Rail Company (FDRC)
...
FDRC
had struggled to survive in a business dominated by two large companies who shared the
lucrative bulk freight contracts (coal, iron ore and oil) between them
...
However, despite
experienced managers being transferred into the company from other companies in the
Group, Stuart Roam Rail (like FDRC) has struggled to make a significant impact in the rail
freight sector
...
Furthermore, the lucrative bulk rail freight contracts (coal, iron ore and oil) are in
products which companies within The Roam Group have no experience in
...
Furthermore, it has also been difficult for
The Roam Group’s senior management to understand the culture and economics of the rail
freight business
...

There has also been a failure to recognise that train driving requires far greater skills and
training than truck driving
...
com
SCE N A RI O- B ASE D Q UE S T ION S : S E CT I ON 2

Note 1: Stuart Roam Warehousing first traded in 20X2
...

Note 2: Stuart Roam Rail was formed after the takeover of FDRC
...
The 20X1 and 20X2 figures are for FDRC
...
The airport occupies a site of 450 hectares and it has
two tarmac runways, four hangers and a small terminal/flying club facility
...
The airport is adjacent to the
motorway which connects North and South Meeland
...


ial

All figures in $000s
Assets

ym
a

Total non-current assets

Total current assets
Total assets

as

Equity and liabilities
Share capital
Retained earnings

tud

Current assets
Inventory
Trade receivables
Cash

cc

Total equity

6,000
250
––––––
6,250
––––––

ter

Non-current assets
Property, plant and equipment
Goodwill

ea

Non-current liabilities
Long-term borrowings

fre

Current liabilities
Trade payables
Short-term borrowings
Current tax payable
Total current liabilities
Total liabilities
Total equity and liabilities

550
80
370
––––––
1,000
––––––
7,250
––––––
2,550
250
––––––
2,800
––––––
4,050
––––––
120
250
30
––––––
400
––––––
4,450
––––––
7,250
––––––

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...
Godiva airport

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co
m

Gross profit
Administrative expenses
Finance costs

Table Two: Godiva airport – extracts from financial statements – 20X5

ter

The Roam Group has recently issued the following press release from Sir John Watt:

ym
a

'The Roam Group is pleased to announce that it has signed an initial agreement to purchase
Godiva airport from the Godiva Airport Company for the sum of $7m, funded from retained
profits from within the Group
...
Road, rail and air have long been complementary forms of transport and we
are pleased to be able to offer our customers all three, using our innovative mini-container
system as an effective transhipment method between transport modes
...
Godiva Airport Company will
become an operating company within The Roam Group, and renamed Stuart Roam Air
...
5%

as

Operating profit
margin
17
...

Current
ratio
2
...
50

40%

cc

Table Three: Average national performance figures for medium-sized light aviation
airports: 20X5

fre

ea

He has also cast doubt on Sir John Watt’s statement about attracting a no-frills airline to the
airport
...
He believes that the population of the Boleyn area is much
too small to make passenger services economical
...
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SCE N A RI O- B ASE D Q UE S T ION S : S E CT I ON 2

Required:
(a)

Write an independent report which:
Evaluates the current performance and contribution of each of the three
current operating companies in The Roam Group portfolio and assesses their
relative significance in its future strategy
...



...

(4 marks)

Required:

HAMMOND SHOES

(Total: 50 marks)

ym
a

71

ter

Discuss how both elements of this route to competitive advantage (price and
differentiation) might be achieved by Stuart Roam Road Transport
...
At this time, Arnland was
undergoing a period of rapid industrial growth and many companies were established that
paid low wages and expected employees to work long hours in dangerous and dirty
conditions
...


ea

cc

as

The Hammond brothers held a set of beliefs that stressed the social obligations of
employers
...
Hammond Shoes expanded quickly,
but it still retained its principles
...
Hammond Shoes still produce footwear
in Petatown, but they now also own almost one hundred retail shops throughout Arnland
selling their shoes and boots
...
In many respects this policy reflects the principles of the family
...
They believe that all
stakeholders should be treated fairly
...
These are the standard terms of supply in Arnland,
although many companies do, in reality, take much longer to pay their creditors
...

Recent history
Although the Hammond family still own the company, it is now totally run by professional
managers
...
In the
past five years the Hammond family has taken substantial dividends from the company,
whilst leaving the running of the company to the professional managers that they had

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A Business Analysis research student has suggested that Stuart Roam Road Transport
(SRRT) pursues a hybrid strategy of offering a price lower than its competitors, whilst
simultaneously attempting to achieve differentiation
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

appointed
...
The financial performance of the company has declined rapidly and as a result the
Hammond family has recently commissioned a firm of business analysts to undertake a
SWOT analysis to help them understand the strategic position of the company
...
co
m

SWOT analysis: Here is the summary SWOT analysis from the business analysts’ report
...


ial

ter

ym
a

Significant property portfolio: The factory in Petatown is owned by the company and so is
a significant amount of the surrounding land
...
The company also owns a disused factory in the north of Arnland
...
The Petatown factory site incorporates a retail shop, but none of
the remaining retail shops are near to this factory, or indeed to the disused factory site in
the north of the country
...

Out-dated production facilities: The actual production facilities were last updated in 1991
...


as

Restricted internet site: Software development has focused on internal systems, rather
than internet development
...

Opportunities

ea

cc

Increased consumer spending and consumerism: Despite the decline of its manufacturing
industries, Arnland remains a prosperous country with high consumer spending
...
Parents spend a lot of
money on their children, with the aim of ‘making sure that they get a good start in life’
...
These shopping villages are increasingly popular
...

They are conscious of the energy used in the production and distribution of the products
they buy
...
A recent
television programme on the use of cheap and exploited labour in Orietaria was greeted
with a call for a boycott of goods from that country
...
It suggests that
‘shorter shipping distances reduce energy use and pollution
...

12 8

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Excellent computer systems/software expertise: Some of the success of Hammond Shoes
as a retailer is due to its innovative computer systems developed in-house by the
company’s information systems department
...
Hammond is acknowledged,
by the rest of the industry, as a leader in computer-aided footwear design and distribution
...
com
SCE N A RI O- B ASE D Q UE S T ION S : S E CT I ON 2

Threats
Cheap imports: The lower production costs of overseas countries provide a constant threat
...


Recent strategies

ter

ial

Senior management at Hammond Shoes have recently suggested that the company should
consider closing its Petatown production plant and move production overseas, perhaps
outsourcing to established suppliers in Orietaria and elsewhere
...
The family issued a press release with the aim of re-affirming the core values
which underpinned their business
...
Consequently,
the senior management team was asked to propose an alternative strategic direction
...
The cost of this proposal is $37
...
At a
recent scenario planning workshop the management team developed what they considered
to be two realistic scenarios
...
However, increased productivity and lower
labour costs would bring net benefits of $5m in each of these years
...
The first scenario predicts a continued low demand for the next three
years with net benefits still running at $5m per year
...
7
...
3) predicts a higher
demand for Hammond’s products due to changes in the external environment
...
All estimated net benefits
are based on the discounted future cash flows
...

Figure 1: Extracts from the financial statements of Hammond Shoes (20X1–20X5)

fre

ea

cc

Extracted from the income statements (all figures in $m)
Revenue
Cost of sales
Gross profit
Administration expenses
Other expenses
Finance costs
Profit before tax
Income tax expense
Profit for the year

20X5
700
(575)
125
(95)
(10)
(15)
5
(3)
2

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...
The government is likely to extend its employment legislation programme
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

Extracted from statements of financial position (all figures in $m)
70
100
140
70

80
100
160
50

90
100
170
20


...
In 20X3 this had risen to 43 days and in 20X5, the average time to pay a supplier
invoice stood at 63 days
...

(20 marks)

ter

ial

Analyse the financial position of Hammond Shoes and evaluate the proposed
investment of $37
...

(14 marks)

Professional marks will be awarded in part (b) for the clarity, structure and style of
the answer
...

(12 marks)

ym
a

(c)

HAIR CARE LTD

(Total: 50 marks)

tud

Timed question with Online tutor debrief
Assume that ‘now’ is June 20X7
...
The firm was formed in 20X2 when Sam and his wife re-mortgaged their house
and borrowed heavily from the bank to buy out the company from a conglomerate
organisation who were disposing of non-core businesses
...
This subsidiary bought hair care
products, mainly small value items and consumables – scissors, brushes, combs, hair nets,
curlers and hair driers, from manufacturers and resold them to wholesalers and large retail
chemist chains within the United Kingdom, mainly for use in hairdressing salons
...


fre

Purchases from the Far East
(mainly Hong Kong, China and Malaysia)
Purchases from mainland Europe
(mainly Italy and Germany)
Purchases from UK

13 0

Main
currency
US $

20X7

19W7

66%

93%

Euro

29%

3%

GP £

5%

4%

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...
co
m

ial

ter

ym
a

tud

ea

cc

as

Sam has also developed strong links with his suppliers and he has, until recently, attempted
to trade with only a few so that his lines of communication and control are kept as simple
as possible
...
This has provided the company with reliable and good quality products
...
For example it has the
sole rights to distribute an Italian hair-dryer which is generally recognised to be the best on
the market
...
However, it is inevitable that as demand has increased, existing suppliers have not
been able to keep up with the necessary volumes and Sam has had to look for, and buy
from new manufacturers
...
Furthermore Hair Care Ltd has currently no near competitors
...
Additionally quite a
number of the small firms have even left the market
...
There are some major international companies who

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The company has met with success very quickly and the initial loans have already been
repaid ahead of schedule
...
Sales revenue, now in excess of
$5 million, has increased by more than 50% each year and shows little signs of slowing
down
...
The company is run cost effectively,
with minimum staffing
...
He spends most of his time in the selling role and in customer care,
which he rates as a major contributor to the company’s success
...
The company started with
six employees, in addition to Sam and Annabelle, and now has 15
...
The staff is almost entirely employed in the distribution and packaging function,
although there are two other sales people apart from Sam, but they only deal with the
smaller buyers
...
It is expected that there will have to be a total of about
30 staff, all non managerial, in two years if sales continue to increase at the current rate
...
Sam is a very
good salesman who is responsible for looking after all the major accounts
...
There is a
considerable amount of customer loyalty which is mainly attributable to Sam, and both he
and his wife are always accessible to customers and they go out of their way to provide a
first class service
...
The
company has been able to manage its purchases wisely
...
Hair Care has been able to
benefit from the relative weakness of the euro as against sterling for its European supplies
...
However, it is questionable as to how long this situation
concerning foreign exchange can be held
...


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...
They then sell these mainly to
the retail trade for domestic use by consumers and not directly to the hairdressing salons as
does Hair Care Ltd
...


ter

ial

Sam believes that part of the company’s success stems from the fact that he has an
organisation with minimal administrative overheads
...
He believes
that strategy is not mainly about beating the competition but in serving the real needs of
the customer
...
Although the
margins are inevitably small, the volumes involved more than compensate for this
...
The building of the warehouse, the increased inventory-holding costs, capital
expenditure on items such as computing systems, fork-lift trucks and automated inventory
control and retrieval systems could not be financed out of current earnings, but the
company’s bank was only too ready to lend the company the necessary money considering
that the original loan had been repaid ahead of schedule
...
He now seems to be driven more by seeking power and influence than acquiring
wealth
...
He has asked his accountant to provide some options for him to consider
...
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co
m

The company has registered a brand name for its main products, which it re-packages,
rather than using the individual brands of the original manufacturers
...


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...

(15 marks)

(c)

Sam seems pre-occupied with growth
...

(10 marks)

(d)

Sam currently appears to have a successful formula for growth
...

(10 marks)
(Total: 50 marks)

ter

ial


...

(15 marks)

Calculate your allowed time, allocate the time to the separate parts……………

ABC LEARNING

ym
a

73

Introduction

cc

as

tud

ABC Learning plc (ABCL) is a large training company based in Arcadia
...
ABCL delivers training through face-to-face courses and e-learning, mainly
using full-time lecturing staff
...
It is
constantly seeking new markets and acquisitions to improve shareholder value
...
ABCL has commissioned Xenon, a market intelligence
company to undertake an analysis of the BACTI market in Erewhon with the aim of
assessing its attractiveness and profitability before deciding whether or not to expand into
Erewhon
...
Established providers in the BACTI industry in
Erewhon responded by price cutting and strengthened promotional campaigns
...
Within six months Megatrain had withdrawn from the market in Erewhon
...
CATalyst is a wholly owned subsidiary of the
Tuition Group, a public limited company quoted on the Erewhon stock market
...
Batrain is a private limited company, with the shares equally divided
between the eight founding directors
...
Ecoba is also a
private limited company with 95% of the shares owned by Gillian Vari
...
Gillian is approaching retirement age
...
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P AP ER P 3 : BU SIN E S S A N AL Y SI S

Delivery model


...
Although the ‘big
three’ are competitors there does appear to be a degree of mutual tolerance of each other
...
Three of the directors of Batrain used to work as lecturers for
CATalyst and Gillian Vari (the MD of Ecoba) was a director of the company that spawned
CATalyst
...
However, there are
also, approximately, twenty other providers in the industry in Erewhon (accounting for
20% of the total industry revenue)
...
There are around 15 major
corporate clients who place significant contracts for certification training with providers
...
CATalyst is particularly strong in
managing these contracts, setting up dedicated training sessions and a personalised
website to support each contract
...
One of the large insurance companies recently moved all of its training to
Ecoba after several years of using CATalyst as its sole provider
...
Interestingly, in a new move for the industry, WAC,
a major supplier of business analysis consultancy services, recently bought one of the
smaller business analysis training providers and thus is now able to deliver all of its business
analysis training in-house for its own staff
...
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They employ mainly full-time
lecturing staff who are offered attractive salary packages, share options and generous
benefits; such as ten weeks paid holiday
...
Teaching vacancies are advertised on both of their websites
...
On their websites there is no specific
reference to the lecturers who will present each module
...
All the lecturers are
‘high profile’ names in the business analysis training community
...
They are all on fixed-term contracts and are paid a premium daily rate
for lecturing and assignment marking
...
He said that he felt relatively
secure about it
...
I suppose I could be substituted by a cheaper lecturer but the students
would soon complain that they had been misled
...
‘Gillian Vari (the MD of Ecoba) is much more
transparent and straightforward in her treatment of sub-contract staff
...
We are always complaining about that
...
com
SCE N A RI O- B ASE D Q UE S T ION S : S E CT I ON 2

EIoBA runs a certification scheme for providers of training
...
The ‘big three’ all have the highest level of certification (gold)
...


ial

Ecoba Ltd: Background

ym
a

ter

Ecoba is a private limited company
...
Mike Wilson told Xenon that Gillian is
averse to employing full-time lecturing staff because ‘they have to be paid if courses do not
run and also during the long vacations’
...
This may contribute to the slow payment of lecturers
...

Figure 1 provides comparative data for CATalyst and Batrain
...

Figure 1: Financial Analysis (all 20X8)

Batrain
$25,000,000
63%
60 days
35 days
3
...
93
25%
4
...
36
35%
6%
0
...
25

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...
There is no requirement for students to
attend a certified training course
...
One of the smaller BACTI providers has gained some success
by offering a blended learning solution that combines tutor support with e-learning
modules
...
All three have invested money in specially designed training
venues and so they seem committed, at least in the short term, to their classroom-based
model
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

Figure 2: Financial Analysis: Ecoba Ltd (All figures in $000)
Extract from the statement of financial position
20X7

5,800
500
––––––
6,300

5,200
520
––––––
5,720

70
4,300
2,100
––––––
6,470

90
3,000
1,500
––––––
4,590

12,770

10,310

6,900
20
––––––
6,920

4,920
15
––––––
4,935

200
––––––
7,120

225
––––––
5,160

5,100
550
––––––
12,770
––––––

5,100
50
––––––
10,310
––––––

22,000
(17,500)
4,500
(3,500)
1,000
(20)
980
(30)
950

17,000
(13,750)
3,250
(2,500)
750
(20)
730
(25)
705


...
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SCE N A RI O- B ASE D Q UE S T ION S : S E CT I ON 2

Required:
Xenon usually analyses an industry using Porter’s five forces framework
...

(20 marks)


...
In March 20X9 they asked Xenon to write a short report to evaluate
Ecoba Ltd and to analyse whether it was the most appropriate and attractive of the three
possible acquisition targets
...


ial

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
...

(10 marks)
(Total: 50 marks)

tud

(c)

ym
a

In November 20X9 ABCL acquired Ecoba Ltd
...
However, her business partner became
seriously ill and ABCL have agreed, on compassionate terms, for her to leave the company
immediately
...


GREENTECH

Walk in the footsteps of a top tutor

cc

as

greenTech was established in 1990
...
Its
components are used in the control systems of lifts, cars and kitchen appliances
...
Recent market research
showed that 70% of the global electronics industry used greenTech components
somewhere in its products
...
Most of these customers were building their own
computers and they required such components on either environmental grounds or
because they wanted their computers to be extremely quiet and energy efficient
...
All greenTech’s components are purchased from specialist
suppliers
...
The management team that formed the company in 1990 still
runs the company
...
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P AP ER P 3 : BU SIN E S S A N AL Y SI S

Finance and revenue
The company has traded profitably since its foundation and has grown steadily in size and
revenues
...
The
spread across the three revenue streams is shown in Figure 1:
20X8
40
20
4
64

Figure 1: Turnover by revenue stream 20X6–20X8

20X7
36
18
3
57

20X6
34
16
2
52

20X7
70,000
40,000
15,000
20,000
5,000
150,000

ter

20X8
100,000
50,000
20,000
30,000
10,000
210,000

ym
a

All figures in $
Internet development and marketing
Display advertising (manufacturers)
Display advertising (domestic customers)
Exhibitions and conferences
Marketing literature
Total

ial

The company has gradually accumulated a sizeable cash surplus
...
One beneficiary has been the marketing budget (see
Figure 2), but the overall spend on marketing still remains relatively modest and, by April
20X8, the cash surplus stood at $17 million
...
In this programme three teams of
consultants spend a week at a chosen company working on a solution to a problem
identified by the company
...
A panel of experts, including representatives from the
company, pick the winner and, in theory, implement the winning proposal
...
Their cash surplus would then be used to fund the preferred
option
...
A
brief summary of the conclusions of each team of consultants is given below
...
They believed that the company should
invest in marketing the fully assembled ‘green’ computers to both commercial and home
customers
...
‘This
segment of the market is rapidly expanding and is completely under-exploited by
greenTech at the moment’, Lewis-Read concluded
...
They
suggested that the company should expand its product range as well as being able to
manufacture components to respond to special requirements
...
‘You need to secure the supply chain, to protect
your future position
...

13 8

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SCE N A RI O- B ASE D Q UE S T ION S : S E CT I ON 2


...
Their main
recommendation was that greenTech should not see itself as a supplier of components and
computers but as a supplier of green technology
...
‘The company needs to exploit its capabilities, not
its products
...
To compete in the future you need to
develop your markets, not your products’, concluded the professor
...

Products
Existing

New

New

Market development with
new uses and capabilities
Professor Ag Wan (option 3)

ial

Product development
with new capabilities
Fenix (option 2)

ter

Markets

Protect/Build
Lewis-Read (option 1)

No team chose this
option
Diversification

ym
a

Figure 3: Adapted Ansoff matrix showing the position of the three solutions

tud

In the television programme, the panel chose option 3 (as suggested by Professor Ag Wan’s
team) as being the most appropriate strategic direction and, much to everyone’s surprise,
the company began to pursue this direction with much vigour
...
These processes allow customers, by using
computer-aided design software, to view the specification of products available, to
assemble them and to integrate their own components into the design
...
This process
design, delivered through a web service, is still under development
...
One of these is the ordering of fully
assembled green computers
...
A swim-lane diagram (flowchart) showing
the process is also included as Figure 4
...
These details are fed through to the sales department at greenTech which
then e-mails Xsys – greenTech’s Korean manufacturer – to ask for a delivery date for the
requested computer
...
The customer then decides whether they wish to
proceed with their order
...

For those enquiries that do proceed, customers are invited to enter their payment details
(credit card only)
...
About 20% of orders are rejected at this point because the potential customer has
a poor credit rating
...


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Existing

Payment
Payment
confirmed
confirmed

tud

as

cc

ter

ym
a

Enter payment
Enter payment
details

Place confirmed
Place confirmed
order

Agree delivery
date

ial


...
com

[place
order]

[not place
[not place
order]

Test computer
Test computer

ea

Consider
details

Email delivery
and cost details
and cost details

Construct
computer

[accept]

Deliver
computer
computer

Receive
computer

Arrange
delivery
delivery

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...
After
acceptance testing the machine, greenTech e-mails the customer, agrees a delivery date
and arranges for delivery by courier
...
co
m

Recent feedback from customers suggests that missing promised delivery dates is their
biggest complaint
...

Figure 4 shows the process involved
...


ial

Evaluate the current strategic position of greenTech using a SWOT analysis
...

Note: requirement (b) includes 2 professional marks
...
Recommend a new process,
together with its implications, for remedying these deficiencies
...


ym
a

(c)

(20 marks)

Analyse the relationship between process design and strategic planning using
the context of greenTech to illustrate your analysis
...


GET

(Total: 50 marks)

as

Introduction

(8 marks)

fre

ea

cc

Rudos is a densely populated, industrialised country with an extensive railway network
developed in the nineteenth century
...
By 2004, RudosRail, the government-owned rail company, was
one of the ten largest employers in the country
...
The
PNR argued that there had been a lack of investment in the railway under public ownership
and that the absence of competition had meant that ticket prices and costs (particularly
labour costs) were too high for the taxpayer to continue subsidising it
...
As a result the government
split the railway network into eight sections (or franchises) and invited private sector bids
for each of these eight franchises
...
Each franchise would be awarded to the highest
bidder
...
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P AP ER P 3 : BU SIN E S S A N AL Y SI S

GET – the early years

ter

ial

The first three years of the GET franchise were extremely successful, both in terms of
profits and passenger satisfaction
...
However, it was also due to
the skill and knowledge of the management team
...
GET was the most profitable of the new franchises and it was held up as an
example of successful privatisation
...
GET uses a series of
television advertisements to promote its services
...


tud

ym
a

In the newly privatised rail system many passenger journeys crossed franchise boundaries,
so that a journey often involved the use of two or more franchise operators
...
It also allowed Internet booking and gave discounts
for early booking
...
GET is paid on a transaction basis for
the bookings that it processes on behalf of these other franchisees
...
No government
subsidies were paid in those years and economic problems in the country led to a fall in
passenger numbers
...
Figure 2
provides data for the rail industry as a whole in Rudos
...
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co
m

The East Rudos franchise, one of the eight franchises, was awarded to Great Eastern Trains
(GET), a company specifically set up to bid for the franchise by former members of
RudosRail’s management
...
The
other seven franchises were awarded to companies who were subsidiaries of global
transport groups and, initially, were largely financed through investment from the parent
companies
...
The ten-year franchise started in 2006
...


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...
co
m

Total equity
Non-current liabilities
Long-term borrowings

2,000
––––––
2,000

199
1
––––––
200
2,200
––––––
2,860
––––––

ial

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...
50%
10
...
00%
2
...
2
48%
$85,000
4
...
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The leader of the
main opposition party originally suggested that the railways might be re-nationalised if he
were to gain power
...
Road transport
has also suffered under the PNR government, with many of the roads in the country heavily
congested
...
For the first time in the country’s history, an
ecology (green) party has won seats in government, capitalising on the growth of the ‘green
consumer’, particularly in urban areas
...
Recently, the Republic of Raziackstan announced that it
intended to privatise its railway network
...
It is a country where there
is currently very little health and safety legislation
...
At present the railway network, which is 1,500 kilometres
long, employs 8,000 employees generating revenues of $180,000,000
...
However, all political parties are united in
their desire to privatise the railways so that money can be invested elsewhere in the
country, for example, for providing better health care
...
However, the trains and infrastructure, such as stations, will
be privatised
...


fre

ea

A stipulation of the contract is that the bidder should have a significant industrial presence
in the country
...
This company SOFR
(SOciety Fabrication de Raziackstan) was established in 1919 and has a long tradition of
engineering
...

The board of GET now senses a great opportunity
...
In fact, early informal
indications from the Raziackstan government suggest that the bid will be successful if SOFR
has been acquired by GET as no other prospective bidders for the network have yet come
forward
...
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co
m

Despite the apparent success of GET, there has been considerable criticism of the overall
privatisation of the railway
...
The government has appointed auditors who are reviewing the operation
of these two franchises and a government minister has stated that ‘terminating the
franchise and opening it up to re-bidding has not been ruled out as an option’
...
Further safety legislation is expected concerning the relaying
of track and all franchisees will be expected to implement the requirements immediately
...
com
SCE N A RI O- B ASE D Q UE S T ION S : S E CT I ON 2

Required:
Using appropriate models and frameworks, analyse GET’s current strategic position
from both an internal and external perspective
...
You have been asked to provide an independent
assessment of this proposed strategy
...



...

(4 marks)
(c)

76

(Total: 50 marks)

ter

ial

Explain and discuss these concepts in the context of GET and the rail industry
...
Like all health services in Etopia,
MidShire Health is funded out of general taxation and is delivered free of charge
...
He had successfully held a number of similar executive positions in
companies producing consumer products and goods for the consumer market
...

Etopia had experienced a prolonged economic recession and such appointments were
encouraged by the government of Etopia who were faced with funding increased health
care costs
...
One of the government ministers
publicly commented on the apparent ‘anarchy of the health service’ and its tendency to
consume a disproportionate amount of the money collected through general taxation
...

Vision and strategic planning

fre

ea

Terry Nagov believed that all organisations need to be firmly focused on a visionary
objective
...
’

He believed that this vision could only be achieved through a comprehensive strategic
planning process which set objectives, policies and standards at a number of levels in the
organisation
...
Terry Nagov had successfully implemented such strategic planning systems
at previous organisations he had worked for
...
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This approach had worked well in the
heavily automated industries he had worked in, with semiskilled employees closely
following standards and procedures defined by senior managers in the organisation
...
co
m

ial

ter

Initial meeting of the steering group (meeting 1)

cc

as

tud

ym
a

The initial meeting of the steering group was not attended by the two senior hospital
doctors
...
This right
was negotiated by their professional body, the Institute of Hospital Doctors (IOHD), many
years ago
...
The initial meeting of the steering group coincided
with a day when both doctors were undertaking private work
...
The exact nature and contents of this information system would be determined by a
small multi-disciplinary team reporting to the steering group and referred to as the
‘implementation team’
...
The composition of the implementation team and steering
group is shown in Figure 1
...
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...
He immediately engaged the commercial IT consultants, Eurotek, to develop
and implement this information system using a standard software package that they had
originally developed for the banking sector
...
Health service
support employees provide health services to the wider community in the form of health
education and public health information and initiatives
...
‘Collectively’, Terry declared, ‘the steering group has responsibility for
delivering health to the Midshire community’
...
com
SCE N A RI O- B ASE D Q UE S T ION S : S E CT I ON 2

Second meeting of the steering group (meeting 2)


...
A great deal of discussion took place
on the targets that could be set for measuring health efficiency
...
It was suggested that similar measures should be
discussed and developed for health service support services, such as health education
...
The CEO agreed that the health service
support workers could establish their own measures before the next meeting
...
Their problems are due to poor diet and unhealthy habits
...
Both the hospital doctors and nursing managers suggested that this did
not come under the revised definition of health used by the steering group, and the CEO
quickly agreed
...
A local newspaper had run the headline ‘spending money on
computers – not patients’ and it included a number of quotes attributed to one of the
hospital doctors on the strategic steering group where he criticised the appointment of
Eurotek and the attitude of the MidShire Health CEO
...
‘We are motivated by service, not
products and profit
...
The hospital doctors
and the nursing managers fiercely defended their right to do so
...
We must act in the public
interest
...
At this point, the senior hospital doctors and the nursing managers left the

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The second meeting was attended by the two senior hospital doctors, but one of the health
service support sector workers could not attend
...

One of the hospital doctors suggested that delivering health in this wider context was
completely beyond the resources and capabilities of MidShire Health
...

You cannot expect MidShire Health to solve such problems
...
’ The
nursing managers, who had previously approved the wider definition of health, now voiced
their support for a narrower definition of health and sided with the hospital doctors
...
The
CEO, outnumbered and outmanoeuvred in the meeting, had to agree to a modification of
his initial vision, narrowing the overall objective to ‘effectively and efficiently treating
disease’
...
This is the very first step we should take
...


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...
The health service support workers stayed and pledged their support to the CEO
...
One commented, ‘We have little professional
autonomy, we feel controlled by the agenda of the hospital doctors
...
co
m

ial

Meeting six of the steering group (meeting 6)

ym
a

ter

This meeting received a report from the implementation team working on the specification
of the information system for MidShire Health
...
‘I suspected this all along’, said one of
the hospital doctors
...
The strategic planning exercise is really about cost reduction
...
‘I realise’, the CEO said, ‘this will affect the viability of the whole
strategic planning project but I ask you all to pull together for the good of MidShire Health
and its image within the community
...
This was additional to the $450,000 it was charging for the basic
software package
...
He stated that ‘from now on,
I will personally specify and develop the targets required to bring health to the people of
Midshire
...
Emails were
sent to the steering committee members informing them of the dissolution of the steering
group, stating that no further meetings would be held and no comments were invited
...
The Institute of Hospital Doctors (IOHD) took the opportunity to
issue the following press release:

fre

‘Once again, the government has failed to realise that managing public sector services is not
the same as managing a private sector profit making company
...
Doctors and nurses, people at the cutting
edge of the service, know what needs to be done
...
The public deserve better and we, the IOHD, remain committed to
delivering services in the public interest
...
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...
Faced with pressure from within the hospital
sector, Terry Nagov was forced to retract his threat of disciplinary action and to issue a
public apology, but meeting five was boycotted by the hospital doctors and nursing
manager representatives due to ‘the lack of respect shown by the CEO’
...


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...

(18 marks)

(ii)

Explain how an understanding of organisational culture and organisational
configuration would have helped the CEO anticipate the problems
encountered in introducing a strategic planning system, and an associated
information system, at MidShire Health
...
co
m

(a)

Professional marks will be allocated in part (a) for the clarity, structure and logical
flow of your answer
...


MACHINESHOP

(Total: 50 marks)

ym
a

77

ter

Evaluate the strategic planning project at MidShire Health through each of these
three strategy lenses
...
Many companies find it difficult to
compete successfully in the country but MachineShop is a notable exception
...
For
example, it sells a range of paint strippers retailing from $100 to $3,500
...
It is estimated that 65% of sales are
to domestic customers
...
On average, a further two stores are opened every month
...
Most firms offering similar machines only sell them to
tradesmen
...


fre

ea

cc

MachineShop is a private company still wholly owned by its directors
...
He likes
the excitement of business and is determined to rapidly grow MachineShop – an ambition
shared by his fellow directors
...
It delivered a Return on Capital
Employed (ROCE) of 17
...
It currently has a gearing ratio (defined as long-term
loans/capital employed) of 15% and an interest cover ratio of 3
...


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(b)

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...
The government
has also installed a fast digital communication network, providing broadband internet
access to all of the population
...

The government has also lifted certain restrictions which had been in place under its
predecessor
...
Until
recently, there were restrictions on what machines could be used by domestic customers
...
Indeed, one brand of
products already stocked by MachineShop is made by a company based in Ceeland
...
FRG currently has 30 depots in Ceeland supplying large machine tools
solely to trade customers
...
It has an
effective distribution network and a sales team which is experienced in selling to Ceeland
businesses
...
Dave Deen has not yet opened up
negotiations with FRG, but he has extracted some financial information from the company’s
most recently filed accounts (see Figure 1)
...
Dave Deen sees the
potential acquisition of FRG as an opportunity to introduce the MachineShop business
model into Ceeland
...

‘Achieving quick, substantial growth through acquisition will give us a powerful bargaining
position
...
This will help us erect barriers to potential competition’,
he said
...
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co
m

Dave Deen has an ambitious growth plan, which he intends to achieve through a
combination of internal growth, acquisition and, possibly, strategic alliances
...
Much of this drive for
growth is fuelled by a desire to exploit MachineShop’s unique competencies before the
idea is copied, both within Arboria and elsewhere in the world
...
Although MachineShop has never
traded outside Arboria, the search for acquisitions is worldwide, with Dave Deen
particularly keen to explore international markets in his desire to build a worldwide brand
...


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...
co
m

Gross profit
Other expenses
Finance costs
Profit before tax
Income tax expense

ial

Profit for the year

ter

Non-current liabilities
Share capital
Retained profit
Long-term loans

ym
a

MachineShop acquisitions

9,500
400
2,500

fre

ea

cc

as

tud

MachineShop does have some experience in acquisitions
...
The purchase of
LogTrans was prompted by the need for MachineShop to have a dedicated and reliable
logistics supplier
...
This was due to a personality
clash, caused by a different way of doing business
...
EngSup was also acquired in 2010 to provide an enhanced service facility to
people who had purchased machines from MachineShop
...
EngSup already
provided support for many domestic electrical products and so MachineShop bought the
company with the intention of using it to provide support for MachineShop’s customers
...
A retraining scheme,
together with selected redundancies, has now addressed these problems
...


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2012
9,000
(7,500)
––––––
1,500
(700)
(300)
––––––
500
(100)
––––––
400
––––––

All figures in $000
Revenue
Cost of sales

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...
co
m
250
40
30

100
170
20

ym
a

500
80
100

ter

ial

Gross profit
Other expenses
Finance costs
Profit before tax
Income tax expense

EngSup
2012
2009
350
325
(275)
(250)
–––––
–––––
75
75
(35)
(30)
(10)
(8)
30
37
(7)
(10)
–––––
–––––
23
27
–––––
–––––

Internal growth, acquisition and strategic alliances are three methods of pursuing
growth
...

(18 marks)
MachineShop is considering the acquisition of FRG
...


as

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
...


ea

(c)

cc

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
...

(10 marks)

15 2

(Total: 50 marks)

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LogTrans
2012
2009
700
650
(575)
(510)
–––––
–––––
125
140
(60)
(70)
(30)
(15)
35
55
(15)
(10)
–––––
–––––
20
45
–––––
–––––

All figures in $000
Extracted data
Revenue
Cost of sales

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...

This area was centred on the former Lags Lane factory of Leopard Cars, which had recently
been shut down by its parent company, bringing to an end 60 years of continuous vehicle
manufacture on that site
...
Grants from the regional council
and interest-free loans from the government allowed EcoCar to purchase and re-furbish
part of the Lags Lane site and take on a hundred of the skilled workers made redundant by
Leopard Cars
...
The EcoPlus is a luxury version of the Eco and shares 95% of the same components
...

The rest of the components are unique to the EcoLite
...
This table also gives a comparison with a
hybrid car (Xdos-HybridC) where the petrol engine is supplemented by power from an
electric motor
...

Petrol currently costs $5 per litre in Erewhon
...

Kyutia 215
Petrol

$7,999
180 gram/kilometre
8 litres/100km

Xdos-HybridC
Petrol with assistance
from an electric motor
$9,500
95 gram/kilometre
5 litres/100km

0–100kph: 10 seconds
Max speed: 180kph

0–100kph: 12 seconds
Max speed: 170kph

550 kilometres on a
tank full of petrol

1,200 kilometres on a
tank full of petrol

ea

Figure 1 Comparison of the Eco with comparable conventional and hybrid cars

fre

The Eco model range can be re-charged from a domestic electricity supply
...
It has also given businesses tax
incentives to switch to electric cars and is heavily taxing cars with high CO2 emissions
because of the detrimental effect of excess CO2 on the environment
...
Erewhon itself remains a
prosperous, developed country with a well-educated population
...

EcoCar still receives significant government grants to help keep the company financially
viable
...
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co
m

The EcoCar Company was formed six years ago to commercially exploit the pioneering work
of Professor Jacques of Midshire University, a university in the country of Erewhon
...
Together with two colleagues from the university, he set up EcoCar to put the
car into commercial production
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

The EcoCar model range is largely bought by ‘green’ consumers in Erewhon, who are
prepared to pay a price premium for such a car
...

Only 5% of EcoCar’s production is exported
...
Professor Jacques and his two colleagues remain as senior managers and
board members of the company
...
They believe that Lithiumion batteries (the power source for the EcoCar range) will eventually become lighter,
cheaper and give better performance and range
...

(1)

ter

Their internal analysis identified four main areas of weakness
...
Although unemployment remains high in the area, applicants for jobs
appear to lack the skills and motivation of the older workers
...
The urban location of the Lags Lane site
also causes a problem
...

Finally, there is insufficient production capacity at the Lags Lane site to meet the
current demand for EcoCar’s products
...
However, it is unable to
completely satisfy market demand
...

Although budgets are agreed annually, they are not properly co-ordinated or
monitored
...
Components for this sub-assembly had to be purchased quickly at a cost
10% above the normal purchase price
...
A similar lack of co-ordination
appears to exist within bought-in inventory items
...
The seats were
delivered and stored, but the finance department was unable to pay for them within
the supplier’s agreed payment terms
...
Eventually short-term
financing (at a premium interest rate) was agreed with one of the banks and the seat
manufacturer was paid
...
com/freeaccastudymaterial

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...
co
m

Universal Motors

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...
co
m

ial

(4)

The understanding of risk

ym
a

ter

Universal Motors is concerned that decisions are taken by the senior managers of
EcoCar without a proper analysis of the associated risks
...
At a recent meeting to discuss entering a car in an economy car rally
(accompanied by a mobile charging system) various risks were discussed at length
but not documented or analysed
...
They all voted in favour
...
Furthermore, the risk of
an employee leaving to join a competitor and taking valuable information with them
is discussed at every board meeting
...

There just seems to be a general expectation that it will not occur
...
Information relevant to this
decision is presented in Figure 2
...
The manufacturing plant is approximately 300 miles
from Erewhon, which includes crossing the 40 mile wide Gulf of Berang
...


ea

The weekly overhead costs are $35,000 per week at Lags Lane
...

The transportation cost is estimated at $250 for each outsourced EcoLite produced
...
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15 5

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...
However, these three managers are now aged 50 or
over
...
To some extent the senior managers recognised this themselves two
years ago and instigated a graduate training scheme with the aim of ‘bringing new
thinking into the company and ensuring its future’
...
However, it was cut within a year because
‘training costs got out of control’ and all four graduates have subsequently left the
firm
...
Universal Motors is concerned that the research and
management culture is inappropriate and outdated
...


To download more visit http://freeaccastudymaterial
...

Required:


...

(16 marks)
Professional marks will be awarded in part (a) for the inclusion of appropriate
model(s) and the overall structure and clarity of the analysis
...


Three weaknesses identified by Universal Motors are (1) lack of control and coordination, (2) research and development – succession and learning and (3) the
understanding of risk
...

(15 marks)

Required:

79

ym
a

Analyse how each of these three weaknesses might be addressed at EcoCar
...
It is situated in the country of
Elsidor, a prosperous developed nation with a stable well established political system
...
Tax credits are also provided to offset company investment in research and
development
...
However, in 2010 the country suffered an
economic downturn that led many companies to postpone technological investment
...
These employees were a mixture of technically qualified engineers, working in
research and development (R&D), factory staff manufacturing and assembling products and
a small sales and service support team
...

NMS sells data communication components to original equipment manufacturers (OEMs),
who use these components in their hardware
...
NMS has established a good reputation for
the quality and performance of its components, which are competitively priced
...
Furthermore, one of the
15 6

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Required:

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...
NMS originally supplied fault
detection systems to a small number of large end-users such as banks, public utility
providers and global manufacturers
...
They
pioneered a modular design which allowed customers to adapt standard system modules to
fit their exact networking requirements
...
This further enhanced the company’s reputation and enabled it to
become a successful niche player in a relatively low volume market with gross margins in
excess of 40%
...
Unlike
component manufacture, there is no requirement to seek government approval for new
network products
...
It has an excellent reputation for this support
...
All technical support is
provided from its headquarters
...

Current issues

as

NMS currently manufacture 40% of the components used in its products
...
Serious production problems have resulted from periodic
component shortages, creating significant delays in manufacturing, assembly and customer
deliveries
...
There are small functional departments for
sales and marketing, technical research and development, manufacturing and
procurement
...

He is finding the recruitment of high calibre staff a problem, with NMS’ small size and
geographical location making it difficult to attract the key personnel necessary for future
growth
...
His first formal cost-benefit analysis helped him select a new
machine for producing certain components in his factory
...
The cost of the machine was $90,000, with annual maintenance fees
of $5,000
...
These savings are shown as reduced staff costs
...
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15 7

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co
m

company’s OEM customers accounts for 40% of its sales in this area
...
Forecasts for 2011 and beyond predict growth from increased sales to
currently installed networks rather than from the installation of new networks
...
Success
comes from producing high volumes of reliable components at relatively low prices
...
All new components
have to be approved by an appropriate government approval body in each country that
NMS supplies
...


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...


(15 marks)

(b)

Analyse the industry or marketplace environment that NMS is competing in
...

(4 marks)

(c)

Figures one and two summarise two financial aspects of NMS
(i)

Analyse the financial position of NMS
...

(6 marks)
(Total: 50 marks)

15 8

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Year
Cost of the machine
Maintenance costs
Reduced staff costs
Reduced wastage
Energy savings


...
NMS have detailed measures of the wastage of the current
machine and Ray has used this to estimate wastage savings
...
Finally, the manufacturer claims ‘energy
savings’
...
However, Ray thinks that his estimates for energy savings are realistic
...
Overall summary financial data for NMS is presented in figure two
...
com
SCE N A RI O- B ASE D Q UE S T ION S : S E CT I ON 2

80

POTS
Introduction

Power of the Sun (POTS) Co

Figure 1: Selected data for POTS Co

2009
356
...
10
22
...
70

ter

2010
357
...
00
21
...
00

2008
355
...
80
22
...
80

ym
a

2011
357
...
10
22
...
50

All figures in $m
Sector turnover
POTS sales revenue
Gross profit
Net profit

ial

POTS Co was one of the first companies to realise the potential of solar powered energy
solutions and it pioneered the use of the technology, particularly in government and city
council (public sector) buildings
...

Recent results for the company are shown in Figure 1
...


as

tud

Although POTS was the main source of the profits which drove the expansion of the
EA Group, many employees within POTS feel that it is now relatively neglected
...
Many of its most gifted managers have
been promoted into the EA Group headquarters or other companies within the Group
...
However, despite this loss of valuable resources, POTS still has
recognised expertise and many valuable contacts and contracts in the public sector which
the EA Group has been able to exploit
...

Neach Glass

fre

ea

cc

The EA Group acquired Neach Glass in 2005
...
These were used in the original solar panels developed
by POTS and a close relationship was built up between Kevin Neach and the managing
director of POTS, Ken Nyg
...

The glass panels continue to be used in POTS products
...
As a result, the
EA Group acquired the company to help secure the supply of a vital component in the POTS
product
...
Some of POTS’s best
managers have been transferred to the company
...

Again, the estimated size of the total market is shown as sector turnover
...
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m

The EA Group has a portfolio of companies that currently specialise in alternative energy
supply and associated products and services
...
The profits generated by POTS funded the initial development of the Group, which
now comprises 12 companies
...


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...
20
7
...
45
0
...
00
7
...
28
0
...
00
6
...
07
0
...
Council managers were increasingly requesting a
combination of power sources with control systems that could be used to switch the power
source to reflect the most economic combination of sources
...
ENCOS was acknowledged as a technical leader, but had little marketing
expertise and few contracts in the public sector
...
It has an excellent record in profitable delivery, with each contract carefully
estimated and a detailed analysis of gross profit reported per contract
...
The market sector turnover is again given
...
00
21
...
00
3
...
50
14
...
75
1
...
00
13
...
55
1
...
00
17
...
00
3
...
Two years ago,
responding to government initiatives to outsource non-core activities, it decided to
outsource its information technology department to the private sector
...
Trade unions in the council mounted a
vigorous campaign against the plan and employees were overwhelmingly against it
...
However, this opposition hardened the council’s resolve and they
forced through the plan, citing the union’s restricted working practices as a major problem
...


fre

The EA Group were keen to broaden their technological services to the public sector and
saw this as an opportunity to acquire an organisation that could spearhead its growth
...
We started out in solar energy,
before broadening out into other energy sources and services
...
We see clear
technology synergies with ENCOS who are technical leaders in control software design and
development
...
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...
co
m

Figure 2: Selected data for Neach Glass

2009
89
...
16
1
...
57

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...
The contract price is based on current costs, plus inflation, plus a 5% gross profit
margin
...



...


ym
a

As part of preparing for strategic change at Steeltown Information Technology, the
EA Group wishes to benchmark its performance
...

2011
2010
2009
2008
User satisfaction (1)
48%
46%
45%
44%
Faults reported (2)
200
250
375
425
User satisfaction (nationwide) (3)
45%
44%
44%
43%
Figure 4: Data for Steeltown City Council information technology department
measured by internally constructed and analysed user surveys at Steeltown City Council

(2)

measured by reported faults in software at Steeltown City Council

(3)

reported by city councils throughout the country

tud

(1)

Analyse the performance of each of the four companies described in the scenario
and assess each company’s potential future contribution to the EA Group portfolio
of businesses
...
They want to explore these factors before they firm up their proposed
strategy for the newly acquired company
...

(4 marks)

Time, scope, capability and readiness for change are four contextual factors that
affect strategic change
...

(12 marks)

(c)

Discuss the principles, together with the advantages and the disadvantages, of
benchmarking in the context of Steeltown Information Technology
...
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They both took voluntary redundancy from the council
...
One manager commented that although ‘he was against outsourcing in principle, now
the sale has been agreed, let’s get on with it’
...
There is now a
backlog of applications to develop for a number of council departments
...


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...
com/freeaccastudymaterial

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...
co
m

P AP ER P 3 : BU SIN E S S A N AL Y SI S

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...
The key is to apply as much
as possible to the specific circumstances of CTC
...

Shareholder wealth

tud

Before privatisation CTC’s main stakeholder was the government of C with the main
objective of providing the best service the nation could afford
...


Competition

as

Now the key stakeholders are shareholders and CTC’s primary focus should be to
maximise shareholder wealth and be profitable
...


cc

Before privatisation CTC had the luxury of being a monopolist with the government
setting service and price levels
...


ea

This will force CTC into ensuring that it adopts a marketing orientation and offers a
quality service with value for money, or customers will switch to the competition
...


fre

Customer preferences
Before privatisation CTC had to deliver the best service the country could afford
...
Some
may be prepared to pay higher amounts for additional services, so CTC will need to
develop a range of new services and tariffs to meet demand and set corresponding
objectives
...


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...
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P AP ER P 3 : BU SIN E S S A N AL Y SI S

Efficiency

Resources

Prior to privatisation the level of resources was determined by the government
...
As a consequence the directors need to consider the key issues for
such investors – e
...
risk, growth prospects and so on – and set corporate objectives
accordingly
...

Market share

e
...
‘CTC aims to retain 60% of its domestic market over the next 5 years’
...

e
...
‘CTC aims to develop other markets so 25% of its revenue is derived from outside
C within five years’
...
This involves the following steps:

ea

(c)

as

This is a suitable objective, as CTC must look to other markets to ensure future
growth and to reduce its risk exposure
...


Tutorial note

fre

You should frame your answer around Johnson, Scholes and Whittington’s rational
model
...
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...
co
m

Many state monopolies are inefficient
...
Firms which
have already made such a transition have usually found that radical changes are
needed to improve cost control and change the culture of the organisation
...


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...
The latter seems less
likely so a detailed strategy focusing on costs needs to be formulated
...
This stage will involve identifying
the most attractive markets and deciding whether they are worth
investing in
...


ym
a

•

Strategy implementation involves the following:

•

cc

•

Translating long-term strategic objectives into detailed tactical and
operational targets
...

Ongoing assessment as to whether the plans are on track and, if not,
what action needs to be taken to rectify the situation
...
This
effectively blurs the distinction between steps 2 and 3 above, as they
happen simultaneously
...
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co
m

•

CTC should perform external analysis to identify opportunities and
threats
...

CTC should also perform internal analysis to determine its own strengths
and weaknesses
...

and assessing their expectations and power
...


ial

•

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m

Key answer tips

Part (a) asks for application of the product life cycle to 3C (many students completed a
BCG analysis, which was not required!)
...

In part (b) it is again vital that your comments concerning each option are put in the context
of the impact on the portfolio as a whole
...
g
...

Cash flow – e
...
positive cash flows from some products can help finance those
that are currently cash negative
...

Risk – e
...
having some stable low risk products to compensate for other high
risk ones
...
While being a significant drain on company
resources, they are an essential part of the portfolio as they are needed to
ensure the firm’s future profitability by replacing older drugs that have come
to the end of their life cycles
...
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As such it should be a net cash
generator to help finance other products in the portfolio that are currently
cash negative
...

Beta is at the latter stages of the ‘development and launch’ phase as significant
growth in sales revenue has yet to occur
...

Alpha is coming to the end of the ‘maturity’ phase and will be entering
‘decline’ in 12 months’ time when patent protection expires and generic copies
flood the market
...


•

•

The three options will affect the portfolio as follows:

ter

(b)

ial

Overall the portfolio is reasonably balanced in terms of future growth potential and
cash flow
...

Alpha2

ym
a

Alpha2 has already completed clinical trials so is ready to launch
...

This should prevent the portfolio from becoming unbalanced with respect to cash
flow as the revised Alpha2 will generate cash to finance other products in the
portfolio
...


tud

Beta

Investing in a marketing campaign for Beta would move it into the growth phase and
improve the immediate growth prospects of the portfolio
...
In
the short term Beta may place greater demands on the portfolio cash flow rather
than helping it
...
Even if prices are set at a high level,
expected demand should result in very high growth, improving the overall growth
balance of the portfolio
...

The impact on overall portfolio cash flow will depend, to some extent, on the price
set and the sales volumes generated
...


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P AP ER P 3 : BU SIN E S S A N AL Y SI S

Recommendation
On balance, investing in Alpha2 appears to offer the safest way to balance the
portfolio in terms of cash flow whereas Gamma offers the highest growth and profit
potential
...

Social responsibility is the idea that an organisation should behave responsibly in the
interests of the society in which it operates
...
co
m

(c)

The social responsibility implications of the three options given are as follows:
Alpha2

ial

ter

However, there are many alternative pain killers on the market, including generic
drugs, so the comparison is really between cheap pain relief and more expensive but
better pain relief
...
However, if 3C does not invest in Beta, then there are equivalent
drugs on the market for patients and hospitals are likely to prioritise such treatments
anyway
...
It could be argued that this should allow health trusts’
funds to go further, thus treating more patients
...
Millions of people around the world are
infected with HIV/AIDS and, although progress is being made with anti-retroviral
drugs, Gamma would be a major step forward in treatment
...
Selling Gamma
at the lowest price possible would ensure greater access to sufferers, particularly in
poorer countries in Africa where the situation is at its worst
...


ea

cc

There is thus a major ethical conflict between the higher profits that 3C could earn
for its shareholders verses increased treatment for people in the developing world
...

Conclusion

fre

On ethical grounds further investment should be put into Gamma
...
The pricing issue is more complex
...
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The ethical argument here is that, if 3C invests, then customers would
not have access to cheaper pain killers so, in effect, 3C is increasing the pain of many
sufferers
...
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AN S WE R S T O P RA C TI CE QUE S TI ON S : S E CT IO N 3

3

EEE FLAVOURINGS


...
Mendelow’s powerinterest matrix is the obvious model to use for part (b) and has the advantage of generating
action plans for part (c)
...
For example, institutional shareholders will
want to see shareholder value increased, so EEE should assess projects on the
basis of their NPV
...

Identifying and winning over powerful stakeholders will make raising and using
resources easier
...

Anticipating stakeholder responses will allow proactive management and avoid
conflicts
...
For example, by
identifying the fact that some residents will complain about the smell, EEE
could spend extra to reduce leakages
...
For
example, which groups need to be included in detailed discussions and which
simply need to be kept informed
...
This person will also be very interested in their
role as a local council member as the project will affect the local community in terms
of jobs and also pollution
...


fre

Overall one would expect that they will be for the project due to the job implications,
although they may feel some conflict of interest as they will not want to see pollution
in the community they represent
...

They probably have low power to influence the company’s decisions, although their
wealth may give them powerful friends
...

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•

ym
a

(a)

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...

These residents also have low power to influence the company’s decisions
...
co
m

Most of these residents will be in favour of the project because of its impact on the
local economy
...

Institutional investors will take high interest in all of their main investments,
especially focusing on share price and future prospects
...

Customers – low interest, potentially high power

ter

As long as supplies are of suitable quality at reasonable prices, then it is unlikely
customers will take much interest in events
...


ym
a

Major customers will be able to exert some power by threatening to switch suppliers
...

(c)

In the light of the above analysis, EEE should take the following action:

tud

The trade union representative should be invited to participate in discussions and
decision making to represent the views of both workers and local government
...


cc

as

Local residents and institutional shareholders need to be kept informed
...
For example,
a report detailing the impact on future jobs and profitability should be
communicated to shareholders and in local papers
...


fre

ea

Customers need to be kept satisfied
...


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With a collective shareholding of 20%, however, they have little power to influence
decisions
...
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AN S WE R S T O P RA C TI CE QUE S TI ON S : S E CT IO N 3

SWIFT

Online question assistance

Key answer tips

In part (a), when performing the analysis you should ensure that you include both financial
measures and non-financial measures
...


(a)

ter

ial

In part (b) you need to have knowledge of Porter’s diamond and be able to apply it to the
scenario
...

The acquisition of EVM can be analysed using the success criteria of suitability,
acceptability and feasibility
...
In general terms the acquisition
appears to make sense
...
These margins are further eroded by a government that is hostile to
road transport resulting in high taxation on fuel, road taxes linked to carbon emission
and restricted working practices
...
The increased size of the group will further allow Swift to
exploit economies of scale when purchasing trucks and other equipment
...
Swift has no experience of acquiring or running foreign companies
...
Furthermore, although EVM is now in private
hands, it may be possible that the work practices and expectations of employees may
still reflect the time when they were working for the central government
...
Swift wishes to
acquire this company and adopt the practices, principles and technology of the
Ambion operation
...

Acceptability is concerned with the expected performance of a strategy in terms of
return, risk and stakeholder reactions
...
This appears to be a strong performance for the sector, and should
certainly be acceptable to the Swift shareholders
...
5%) is lower
...
The company may still be carrying high costs
from its days as a nationalised company
...


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P AP ER P 3 : BU SIN E S S A N AL Y SI S


...
14%) and the acid test ratio (1
...
The introduction of
Swift’s practices may help reduce trade payables
...

However, the interest cover ratio (5) is half that of Swift, perhaps reflecting lower
profitability and higher business taxation
...
It is unlikely that there will be any opposition to
the acquisition from shareholders
...
For example, by imposing taxation on foreign investment
...
He suggests
that the national home base of the organisation plays an important role in creating
international advantage, something that will be very important to Joe Swift
...
Two further determinants, chance and government, are discussed outside of
the diamond in terms of how they influence and interact with the determinants
inside the diamond
...
However,
credit will also be given to candidates who use an alternative appropriate framework
or model
...
The acknowledged work ethic of
the people and the investment in transport infrastructure by the government are
significant factor conditions in Ecuria
...

Home demand influences economies of scale, but it also shapes the rate and
character of improvement and innovation
...
The Ecurian people are
traditionally demanding in their standards
...


fre

The presence or absence of related and supporting industries that are internationally
competitive
...
Porter suggests that the ‘Swiss success in
pharmaceuticals was closely connected to previous international success in the dye
industry’
...
Hence, it is the absence of these that is
significant when considering this determinant
...
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It appears that Swift does, as funds are in place and the
competences are what are partly driving the acquisition
...
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AN S WE R S T O P RA C TI CE QUE S TI ON S : S E CT IO N 3

ter

ial

Porter also recognises the influence of chance and government
...
Wars,
external political developments and a reduction in foreign demand are all examples
of chance factors
...
In Ecuria, the government’s
approach to infrastructure investment and policies towards capital markets has
affected factor conditions and impacted on firm structure and rivalry
...

1 mark for each relevant point up to a maximum of 10 marks
...
Candidates answered this part
question relatively well, using appropriate calculations as well as describing the pull factors
of Ecuria (for example, absence of restrictive employment legislation) and the push factors
of Ambion (for example, government taxes and a mature market place)
...


ea

cc

The second part of the question asked candidates to examine, using Porter’s Diamond (or
an alternative model/framework), the factors which would influence the company’s
decision to move a large part of its logistics business to Ecuria
...
Despite
this, candidates answered this part question very well, not only showing knowledge of the
model but were also confident in applying it to a case study scenario
...


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...
This concerns the
conditions in the nation governing how companies are created, organised and
managed
...
EVM was created by
nationalising the state-run haulage system
...
The nature of the capital markets makes it very difficult to raise
finance in Ecuria
...
Porter suggests that there is a strong
relationship between vigorous domestic rivalry and the creation and persistence of
competitive advantage in an industry
...


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...
co
m

Key answer tips

Part (a) of the question can be split into three parts – what are Bowland’s existing
competencies, what are the key success factors needed in retailing, and do these two
things match up
...


ial

An organisation’s distinctive competences are those things which an organisation
does particularly well
...
These
competences can include aspects such as budgetary control, a strong technology
base, a culture conducive to change and marketing skills
...
These can include areas such
as good service networks, up-to-date marketing intelligence and tight cost controls
where margins are small
...
A company moving into the retail sector may have an excellent
product research and development capability, but this alone will not help if it has no
concept of service or poorly sited retail outlets
...


ea

cc

as

The strengths of Bowland Carpets include strong brand names which maintain
integrity within the different market segments where the company operates
...
Other strengths which the company currently has include a good
relationship with distributors and strong support from a powerful parent company
...
However there are some aspects which are cause for
concern in the proposed new business environment
...
The strong
relationship with distributors will however be jeopardised by the opening up of
retail outlets
...
Unless
Bowland Carpets can obtain wide retail market coverage to compensate for this
potential problem, sales revenue will be adversely affected
...
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So if, for example, you can’t
determine any relevant ‘Technological’ issues then just leave this factor out
...
com
AN S WE R S T O P RA C TI CE QUE S TI ON S : S E CT IO N 3

or specialist out-of-town centres the investment may be greater than the parent
company has budgeted for
...
Although the newly-structured value chain will generate greater control
there is an associated lack of flexibility along with an increase in the fixed cost base
of the business
...
Does Bowland Carpets have one? It is unlikely that the competitive
carpet manufacturers will provide such a supply to one of their rivals
...
It enables the company to identify and understand the key external
and uncontrollable influences which will have an impact upon the company’s
strategy
...
Without this
knowledge and appreciation the strategist will be operating in a mine-field
...
The external scan should be structured around a SLEPT framework
covering the following environments – social, legal, economic, political and
technological
...


tud

ym
a

(b)

ial

It would, therefore, appear that there is no close conformity between the distinctive
competences of Bowland Carpets and the key success factors required in the carpet
retailing sector
...
Possible factors are as follows:

as

Social issues: Trends towards increasing car-centred shopping (superstores
and out-of-town sites) or movements back to city centre shopping: trends in
fashion and furnishing – will carpets become a fashion item and result in
greater replacement sales? Other factors of importance to Bowland include
the rate of growth or decline in populations and changes in the age distribution
of the population
...
In developing countries there are
very large numbers of young people
...
This is why developing countries
are attractive to markets
...
They come from common law,
parliamentary legislation and government regulations derived from it, and
obligations under EU membership and other treaties Legal factors that can
influence decisions include aspects of employment law, e
...
minimum wage,
laws to protect consumers and tax legislation
...


ea

cc

•

fre

•

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...
It may be that the
UK company can import this from the USA but the culture of marketing household
durables may not be transferable internationally
...


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...
It is required that a more rational approach should be taken so as to
rationalise the product portfolio
...
Two of the
most widely used models refer to the product life cycle and the Boston Consulting Group
(BCG) growth-share matrix
...


fre

ea

The product life cycle can be used to assess where each of the products is located
...
Those in the growth
stage should already be profit providers
...
In the maturity/saturation stages it may
be prudent to assess whether there is any long-term future in the products
...
One has to decide if
withdrawing these products might be wise
...
It is also important to assess how these products contribute to the
overall performance of the company
...
The products may also provide a complementary range and

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ial

•

Economic issues: An increased concentration for Bowland Carpets within the
UK economy will depend upon future economic prospects, taxation policy
(sales tax) and interest rates, income distribution and unemployment
(influencing site location), trade barriers (cheap imports from Third World
suppliers, or even low-cost tufted carpets from countries such as Belgium)
...
The quality of government policy is important in
providing physical infrastructure, e
...
transport, social infrastructure, e
...

education and market infrastructure, e
...
planning and site development –
town centre or out-of-town developments
...
It can increase total
output with gains in productivity, reduced costs and new types of product
...
Information technology encourages
de-layering of organisational hierarchies and better communications
...
Will the reactions be benign or will they be aggressive?


...
com
AN S WE R S T O P RA C TI CE QUE S TI ON S : S E CT IO N 3

The BCG growth-share matrix examines the inter-relationships between market
share and market growth of given products
...
The ‘cash-cow’ is described as such because products in
this category (low growth and high market share) are usually very profitable and
generate surplus funds, and so are often used to finance other developments
...


ter

ial

The ‘stars’ generate high revenues because the products have high market shares,
but because the market is growing fast such products need to be invested in heavily
to maintain their position
...
It is likely that such products
will become more profitable as market growth stabilises
...


tud

ym
a

The ‘problem child’ or ‘question mark’ product is probably currently losing money
...
Can the product achieve a
significant share of the market? If the answer is ‘Yes’ then the product may proceed
to become a ‘star’ and later a ‘cash cow’
...
It is often assumed that ‘dogs’ – those
products with low market share and low growth potential should be withdrawn from
the market place
...
They occupy a
niche position and are still capable of returning a profit
...
However true
‘dogs’ need to be eradicated
...
These need to be focused on present and future winners
...


cc

(b)

as

Adrian Reed needs to be careful which products to remove from the portfolio
...


fre

ea

There are several ways in which benchmarking can be carried out
...
Some centres
may be more proficient than others and a transfer of knowledge and skills could be
beneficial to the group as a whole
...
The difficulty here is accessing confidential data of
competitors
...
Customer benchmarking attempts to compare corporate
performance with the performance expected by customers
...
For example
how do financial results – gearing, liquidity, etc
...
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withdrawal from one area may adversely affect other product sales
...
The withdrawal
of certain products could result in others having to share and carry higher costs, so
making them price uncompetitive
...


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Then this best practice
can be imported into the McGeorge organisation, assuming compatibility
...
co
m

ial

NESTA

ym
a

7

ter

Reed could use benchmarking to assess the performance of the company, but this
needs to be implemented carefully and results must be analysed critically without
snap judgements being made
...
The long economic recession in Eurobia has
led to the increased popularity of these so-called ‘dollar shops’, where all goods and
products are priced at $1
...
Most of these shops are on the high streets of towns
and cities where there is particular financial hardship
...
The company is well-known within the retail trade of Eurobia,
but it is largely unknown to the domestic consumers of the country
...


ea

cc

(a)

tud

Based on recent exam history, this is an area that students should perform well in
...
The key to success is to identify the key influences in possible future scenarios
(such as potential competitor responses to a new market entrant) and consider how this
might impact on market attractiveness
...


The bargaining power of NESTA appears to be very strong
...
Low profits provide a great incentive to buyers to pursue lower
purchasing costs
...
The buyer should find it relatively easy to switch supplier
...
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Can relevant data
be obtained to make any comparison meaningful? Some of the comparisons may be
meaningless
...
The process can
appear to be an historical exercise
...
Furthermore there is an implicit assumption
that there is an optimum solution
...
Is this solution useful? If benchmarking concentrates on
efficiency, ignoring effectiveness, then it is missing its purpose
...
com
AN S WE R S T O P RA C TI CE QUE S TI ON S : S E CT IO N 3

•

•

The purchased products are standard and undifferentiated
...

The products purchased from suppliers represent a significant fraction of the
buyer’s cost
...

Purchasing companies are fewer and larger than potential suppliers
...
In contrast, the
buying companies have many smaller supplying companies competing for their
business
...
None of the suppliers appears to offer a credible threat
of forward integration whereby they might become competitors of their current
customers
...
Furthermore, effective
purchasing systems, supplier selection and excellent logistics are perceived as core
strengths of NESTA
...


cc

as

tud

ym
a

Within Eurobia there are currently three dominant competitors
...
The intensity of the
rivalry amongst existing competitors is largely caused by their ambitious expansion
plans
...
It is likely that a new arrival into the market will be
resisted, particularly when it is a potential entrant as well-known (in the retail
market) as NESTA
...
However, evidence from Table One also suggests that the market
sector is continuing to grow
...
In such circumstances, companies
competing in the market can continue to improve their results simply by keeping up
with industry performance
...

Furthermore, perhaps the arrival of NESTA in the market may help grow the market
(by giving it greater legitimacy) and by NESTA exploiting geographical areas not yet
comprehensively served by existing competitors
...
It appears that NESTA has both the
capital and expertise, particularly as the economic recession has led to reduced shop
rents and greater shop availability
...
NESTA’s
main problem could be quickly establishing a brand name in a country where it is
relatively unknown (5% awareness), and competing with three incumbents who are
very well known
...
Finally, there may also be
barriers to entry erected by the government to prevent foreign companies opening
...
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Thus it might be useful for managers to envisage a number of alternative
futures
...


ym
a

(b)

ter

ial

The supply of ambient goods is also well-suited to the internet and the growth of
internet-based competitors has to be considered
...
The internet might be a substitute channel, and indeed
might be considered by NESTA as a way of differentiating itself on its entry into the
market
...
It is clearly aimed at a different market segment
...
It is helpful if
the number of influencing factors is limited to a few significant ones, so that the
analysis does not become too complex
...
The organisation can influence its
own behaviour and expertise
...
It can react to changes, but not influence
them
...
Johnson, Scholes and Whittington have
also suggested that ‘sharing and debating these scenarios improves organisational
learning by making managers more perceptive about the forces in the business
environment and what is really important’
...
The growth of discount fixedprice shops appears to depend upon continued economic problems
...
Scenarios might consider the
economic situation remaining the same, improving and getting worse
...

The response of the incumbents is very difficult to predict
...
The current companies are, after all, relatively
small (in retail terms) and inexperienced
...


ea

•

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...
The scenario notes that the large supermarkets do supply
ambient goods, but have so far resisted competing on price
...
Their sheer scale may mean that they have been willing to overlook the
discount fixed-price market niche up to now
...
However, the arrival of NESTA, an established global player, in the
market may change the dynamic and cause the established supermarkets to take
another look
...
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AN S WE R S T O P RA C TI CE QUE S TI ON S : S E CT IO N 3

•

The attitude of the established supermarkets to the discount, fixed-price
market
...
They may continue to do this or they
may wish to compete, perhaps by setting up specialised branded outlets or by
acquiring one or more of the current significant players, and they have the
relative size and economic power to do so
...
This has been a significant factor in many retail markets
...
For example: economic
recovery combined with a muted response from incumbents, together with
established supermarkets continuing to ignore the discount, fixed-price niche
...


ym
a

ter

Statistical information might be used to define and evaluate scenarios
...
Consumer data might help establish a statistical
relationship between spending in the market sector and defined economic indicators
...
NESTA is
experienced in the sector (although not in Eurobia) and so managers should have
some understanding of the costs and margins of running such shops
...

Scenarios may be underpinned by models which predict the outcome of different
scenarios
...


(a)
(b)

tud

ACCA marking scheme

1 mark for each relevant point up to a maximum of
1 mark for each relevant point up to a maximum of

fre

ea

cc

as

Total

Marks
15
10
–––
25
–––

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P AP ER P 3 : BU SIN E S S A N AL Y SI S

Examiner’s comments


...
For
example; terms such as ‘best-case’ scenario and ‘worst case scenario’ are quite often used
in television interviews and newspaper articles
...
Porter’s diamond, the suitability, feasibility and acceptability
criteria and SWOT analysis were just three of the inappropriate approaches used, and all
usually resulted in candidates scoring no marks for this part question
...
It can be answered from a number of perspectives and credit
will be given as appropriate
...
Firstly,
the pricing objectives of the company, the overall goals that describe what ATL wants
to achieve through its pricing efforts
...
The
third area is the costing approach used and finally, different pricing strategies are
considered
...


fre

ea

(a)

cc

as

This question involves dealing with lots of numbers and therefore should suited students
who prefer numerical questions
...
But
this may be an area that many students have avoided in their studies (particularly if they
are weaker at calculations)
...


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Candidates scored well in part (a), with some getting full marks
...
This data was important because it revealed two things
...
Both these factors are important when
considering the competitive rivalry that exists within the industry and how incumbents are
likely to react to the threat of new entrants
...
NESTA is much larger than any
of the companies operating in the market place (indeed it is bigger than the combined
revenue of the companies)
...
Again this relative size of NESTA and
its potential competitors is important to the assessment of the market place and this
misinterpretation led candidates astray
...
com
AN S WE R S T O P RA C TI CE QUE S TI ON S : S E CT IO N 3

Pricing objectives

Determining customer demand and the ability to buy

ym
a

ter

ial

ATL has at least three distinct customers in mind
...
The first is an individual consumer (B–C)
purchasing over the Internet from anywhere in the world
...
It is
sure that these customers will be very sensitive to price, but has no feel for this
demand elasticity or for total demand except that they believe it to be ‘very large’
...
It has targeted
the e-learning product at the top 500 companies and has obtained data on current
training spend (Figure 1)
...

Depending on price elasticity over a particular range of prices, it may be worth either
increasing or reducing prices to increase revenues and profitability
...
So the transaction is business to business (B–B) and it is the price that
the business is willing to pay that is relevant here
...
However, it is also
likely that businesses will expect discounted prices for multiple purchases
...
This is the
third-party reseller who has traditionally brokered course places and now wishes to
offer e-learning services
...

Costing assumptions and policy

fre

ea

cc

Costs need to be understood, not only continuing costs, but the company’s attitude
to recovering the costs it has already incurred in the development of the product
...
This should give ATL greater price flexibility, with the implication that
ATL could set its prices to maximise its revenues as most of its costs are fixed in the
short term
...
However, it is difficult to predict these costs
as not only are they related to demand for the product, but they will also be
determined by the product experience
...
It is
likely that such support costs will be stepped, with volumes reaching threshold values
that require another member of staff to be added
...


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ATL positions itself as a premium quality training provider, where
conventional courses with above average prices still sell because of high quality
training delivery
...
However, other objectives must be borne in mind and may be
more appropriate in the context of the e-learning product; for example, targeting
market share or creating cash flow to develop products for the intermediate and
advanced levels qualifications
...


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...
It might also be expected to
contribute to the overheads of ATL as a whole; finance, human resources,
administration etc
...
co
m

The costs of product development have already been incurred and can be considered
as a sunk cost
...

Selection of a pricing strategy

A pricing strategy is, according to Dibb et al, an ‘approach designed to influence and
determine pricing decisions’
...
At ATL the most relevant are summarised below
...

It is a flexible and convenient way of adjusting the marketing mix
...


tud

The two analyses (Figures 1 and 2) both use linear least squares regression and
correlation to express the relationship between two variables
...
The hypothesis is that the average training budget per employee depends,
to some extent, on the profitability of the organisation
...
This is an important part of the pricing process
...
In this
instance time is the independent variable and e-learning sales the dependent
variable
...


ea

cc

as

(b)

fre

Least squares regression fits a line of best fit through the data
...
The
strength of the linear relationship between the two variables is measured by the
correlation coefficient (r)
...


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Negotiated pricing is an accepted convention in the company’s traditional market
and so may also be relevant in pricing the e-learning package
...
One of the reasons for the
development of the e-learning package was to target overseas candidates who had
considerably less disposable income
...
Negotiated and secondary market pricing are both examples of a
differential pricing policy
...
For example, reference pricing might be used to compare the
price of the e-learning product with the conventional classroom alternative
...


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...
For example, it suggests that demand in the fourth
quarter of 2011 (period 14) will be about $4
...
Extrapolation of data is
problematic because it concerns predicting values outside the scope of the sample
...
The limitations of the
technique itself have to be recognised
...
This is particularly noticeable in Figure 2, where sales appear to be
disproportionately increasing in the last four quarters of the data
...

Furthermore, the correlation between the variables is a statistical measure; it does
not imply meaning or proof of a causal link
...
Conventionally, the
coefficient of determination has been calculated for expressing the strength of a
relationship
...
64; which suggests that 64% of variability in average training spend per employee is
due to gross profit
...


as

The representative nature of the sample used in Figure 1 also needs consideration
...

This is a relatively small sample and so a significance test would have to be
undertaken on the results
...


cc

ACCA marking scheme

1 mark for each appropriate point up to a maximum of
1 mark for each appropriate point up to a maximum of

(a)
(b)

fre

ea

Total

Marks
15
10
–––
25
–––

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...
Entering this value into the equation for Figure 1 suggests an
average training budget spend of $813 per employee
...
In the sample data set the
ten companies recorded an average annual gross profit of $86m, giving a predicted
average spend of $955
...
The data provides useful input into understanding the price
corporate customers will be willing to pay to fulfil their training needs
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

Examiner’s comments


...
For example, few candidates explored different pricing models for different
sectors (Individual consumers, large commercial companies, training intermediaries) or
recognised that the product itself had not yet been launched
...
Finally, many candidates strayed into
a discussion about the benefits of e-learning to the learner, making points which were
irrelevant to the pricing of the product
...
However, in the context of the scenario, special attention will have to be paid
to the expectations of stakeholders, to external environmental factors beyond the
control of the estate and to the strategic capabilities of the estate itself
...


as

(a)

tud

ym
a

This is an unusual question in that it seems to cover a lot of ground such as external
analysis, stakeholders, strategic capabilities and marketing
...
The areas themselves are
relatively straightforward, but good, strong exam technique is needed to manage the
requirements in this question
...


Expectations of stakeholders

fre

ea

cc

Any proposed strategy will have to take into account the expectations of many
stakeholders, some of which have conflicting objectives
...
Any strategy that alienates volunteers may leave the
charity unable to maintain the estate or meet its basic operational obligations
...
Replacing volunteers is not as straightforward as replacing a paid
workforce, where scarce labour can be attracted through improved pay and
conditions
...
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...

This was very, very disappointing
...


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...

Attractions have been created, causing traffic problems
...
Again, residents need to be
considered in the definition of the estate’s strategy
...
Strategy may have to be developed to either exploit or
reflect these external changes, most of which are outside the control of the estate
...


tud

In the scenario, mention is made of a changed political landscape where government
funding is to be reduced on initiatives such as tree planting, protected pasture land
and rural employment
...
Changes in weather
patterns are also causing problems for the mansion that is situated in the estate
...
This is
causing long-term maintenance issues as the fabric of the mansion deteriorates
...
The survey suggests that individuals believe that they have a ‘right to
roam’ on private land, even when this violates the ‘rights’ of others, such as farmers
and other land users
...


cc

Strategic capability

fre

ea

Finally, the strategy has to take into account the internal resources and competencies
of the estate
...
It also has a unique resource, the only landscape garden developed by
James Kent in the district
...
There are also other internal capabilities that should be recognised
...
Amongst these are volunteers with exceptional skills in land management
which could be used to exploit other opportunities on similar estates in the country
...
The previous manager was well-liked
and successful
...

The new leader has to be sensitive to her predecessor’s leadership style, whilst
building on the success of the previous leader by improving the visitor experience
...
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co
m

Most organisations have relatively straightforward relationships with their
customers
...
Where it does conflict, for example in
providing audit and consultancy services, a supplier can usually elect not to supply
the customer, who then looks elsewhere for a similar service
...
There are documented examples of cyclists
clashing with walkers and dog walkers with farmers
...
Consequently, a strategy has to be developed that is sensitive to the
conflicting needs of customers, within the constraints of the charitable bequest
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

ym
a

ter

Although the website is well regarded and well presented, it does not appear to have
weather feeds that would avoid people coming on days when the weather was so
poor that it might be dangerous, or, as in the quote, when it might spoil a family’s
enjoyment
...

Of course, these feeds and webcams will also show good weather conditions as well,
perhaps enticing people to the estate who were prevaricating about their visit
...
The interactivity of the site has to be improved,
allowing customers to book and pay in advance, so that they can be sure that they
will be able to attend the event and avoid the disappointment of the family who
travelled 100 km only to find the event fully booked
...
For example, it has some feel about the popularity of the
event before it is run, so that the scale of the event can be altered to reflect the likely
demand
...


ea

cc

as

Feedback from satisfied customers can be an important factor in attracting new
customers
...
This means that an effective marketing tool,
unsolicited recommendations, do not appear on the site
...
This could be
harnessed on the site by asking volunteers to write blogs, explaining what they are
doing and what is going on
...


fre

Finally, there is obviously a group of regular visitors to Moor Farm who wish to
become more involved
...
The website can be used to develop a community that supports and
promotes the estate
...
They will then receive newsletters, special offers and information
about forthcoming events
...
Not only will this
provide the estate with valuable resource, it will also allow them to build up a
marketing profile of likely visitors and, through surveys and questionnaires, continue
to understand what different types of visitor want from the estate
...
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...
The role
of search engines is significant here
...
The estate needs to
discuss what these terms might be
...
There is conflicting advice on how to structure a website to achieve a high
position in a search engine listing
...
Some commercial organisations
are dubious about the value of such links, but they seem completely appropriate in
the context of a charitable estate
...
co
m

The estate has valuable and, in some cases, unique resources, which it needs to
exploit with a varied set of stakeholders who sometimes come into conflict with each
other
...
One of these stakeholders, the government,
needs to be particularly monitored, as their policies threaten the funding of the trust
...
com
AN S WE R S T O P RA C TI CE QUE S TI ON S : S E CT IO N 3

ACCA marking scheme

Marks
15
10
–––
25
–––

1 mark for each appropriate point up to a maximum of
1 mark for each relevant point up to a maximum of


...
Technology was usually considered
in the perspective of the website, which of course is an internal resource
...


•

Attempting a SWOT analysis for which there was just insufficient information
...


ym
a

ter

ial

Too much use of the Mendelow power/interest grid; leading to a consideration of
stakeholder management, rather than the conflict caused by the different
stakeholder perspectives and expectations
...


tud

Part (b) should have been relatively straightforward, and indeed many candidates did score
well in this part question, cross-referencing their points to the comments made in the
stakeholder survey
...


ATD

cc

10

as

Overall, although the question was popular, it was not answered as well as it should have
been
...
This type of question can throw
many students who get bogged down in the numbers and in checking calculations rather
than explaining them
...
Part (b) is much more straightforward and will probably be attempted first by
students with better exam technique
...


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•

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...
The company is now evaluating more formal techniques of
estimating and a business analyst has produced initial spreadsheets using linear
regression and time series analysis
...


ial

This equation can be used to predict a value for the next quarter (2013 quarter 3):

ter

y = 125
...
84(15)
y = 152
...


ym
a

The correlation coefficient ‘r’ shows the strength of the statistical relationship
between the two variables
...
253, which suggests that the
two variables are weakly connected
...
4% of the variation in sales (y) is due to the passage of time (x)
...
Both these factors might be
applicable here, particularly due to the pattern caused by large seasonal variations
...
The predicted value for
2013 quarter 3 appears too low (it is lower than all actual quarter 3 figures to date
and much lower than the previous quarter 3 figure of 169)
...


ea

cc

as

Time series analysis uses a moving average to define a trend
...
The trend line is calculated from the average of
the first two quarters (for example, quarters 1–4 and quarters 2–5) to allow the trend
to be centralised against an actual sales value
...
Any
difference left between the actual sales value and the seasonally adjusted trend is
defined as a residual variation
...


fre

Forecasting future values is achieved by extrapolating the trend line and then adding
or subtracting the seasonal variation
...
A scatter graph could be drawn and a trend line drawn by hand
...
Using a ‘best guess’ approach, a trend value of 149 might be hypothesised
for quarter 1 of 2013, giving a predicted value of 134
...
7), just below the
actual recorded value of 137
...
For example, based on a (hand drawn) trend value of 151, the
predicted value for quarter 3 of 2013 would be 173
...
55), which
subjectively seems much more realistic than the 152
...


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...
In least squares analysis, one set of data is defined as the
independent variable (x –— in this case, time) and the other set of data, sales, is
defined as y – the dependent variable
...
022 + 1
...
com
AN S WE R S T O P RA C TI CE QUE S TI ON S : S E CT IO N 3


...
The high residual variation in 20X2 quarter 4
probably needs some investigation
...

One of the problems of both techniques is that forecasts are based on past data
...

Thus there may still be a role for the sales manager to use his experience, intuition
and judgement to amend the forecasts produced by the statistical analysis
...
It is usually expressed in financial
terms and it serves as a mechanism for converting the long-term plan and objectives
of the company into an actionable blueprint for the near future, usually the next
year
...
At ATD, like in many organisations, the ability to sell sufficient
products is the main problem
...
In such circumstances, the sales
budget is the first budget to be prepared as it determines the overall business activity
for the forthcoming period
...
At ATD, the sales
forecast not only determines the level of activity but also the pattern of that activity,
with seasonal variations that will have to be taken into account in other activities
...


tud

ym
a

ter

(b)

fre

ea

cc

as

Budgets should allow proper, realistic targets to be set not only for sales but also for
functions where there is clear accountability (such as production management and
inventory management)
...
They also need
to be connected to clear organisational demarcation where targets are under the
control of a manager who has responsibility for that target
...
Flexing the budget would allow the performance of parts of the organisation
to be assessed in the context of missed sales targets
...
At
present, the production manager is frustrated because he feels that he is working
‘tirelessly to keep costs down, but my only reward is that I cannot replace one of my
best purchasing administrators who left last month’
...
With a flexed budget, the business can
actually see if he has effectively controlled costs
...


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Finally, of the two approaches presented here, time series analysis seems the most
appropriate technique for sales forecasting at ATD
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

ym
a

ter

ial

Because budgets include planning, feedback and control elements, they offer
important insights into how an organisation should react to failed sales targets
...
Such indiscriminate
measures as a ban on business travel, cancelled marketing initiatives and a complete
freeze on recruitment may be legitimate responses, but without a budget, it is not
really possible to assess their effectiveness
...
The organisation needs to
respond to variances and exercise proper controls, revising plans (and budgets) if
necessary
...
For example,
banning business travel might prevent the production manager from travelling to a
supplier where he would be able to negotiate reduced material costs
...


tud

Thus a formal budgeting process would allow ATD to address three particular areas
of concern
...


Marks

1 mark for each relevant point up to a maximum of 5 marks for an
explanation of the least squares regression data
...
022 + 1
...
This may include:
– A predicted value using a reasonable assumption
– Explanation of residual variation
– Explanation of seasonally adjusted values
1 mark for each relevant point up to a maximum of 5 marks for relevance
of the approaches to ATD
...


fre

ea

cc

(a)

as

ACCA marking scheme

(b)

15
10
–––
25
–––

Total

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...
This would help address
the managers’ feelings of powerlessness and the sense that they are undervalued
...

Benefits should also accrue for the organisation as a whole
...


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...
co
m

In part (a) candidates did not score
...
For example; most candidates did not explain
the meaning of the correlation coefficient, calculate the coefficient of determination or
explain the resulting value
...
Overall, this was poorly answered
...

Answers tended to be general and lacking in detail and again marks for this part question
were relatively poor
...
)
Give an overall opinion which is consistent with the requirement
Key dangers:

Calculating too many ratios

as

Too much detail in calculations
Only doing ratios
Lack of focus

Software package evaluation

cc

(b)

Key to success:

Solid knowledge

ea

Relate answers to the scenario
Key dangers:

fre

Lack of structure and knowledge

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...
It would have been very helpful to identify typical financial ratios in the sector
that RiteSoftware is operating in
...



...


ial

ter

Secondly, although trade receivables year on year have increased, in percentage
terms, about the same as revenue, trade payables have increased significantly more
...
This hunch might be supported by
the fact that the bank overdraft was actually reduced in 20X8
...
It seems reasonable to assume
that labour costs largely contributed to this cost of sales increase
...

Finally, the extract from the accounts shows no retained profit, suggesting that this is
being distributed to shareholders
...


tud

Profitability

Two profitability ratios can be calculated from the extracted financial information
...
Although the actual profit
remained the same, it was achieved with significantly higher borrowing
...
The absolute figures are also very low
(less than 1% in 20X8) and this needs further investigation to see if such a figure is
viable, or representative of the industry sector
...
The average receivables settlement remains the same, suggesting good
credit management in an expanding business
...


fre

Sales revenue per employee has dropped from $33,500 in 20X7 to under $29,500 in
20X8
...
Also, the values are rather low (approximately 0
...
Perhaps liquidity is traditionally low in this
industry sector
...
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If the company is in the
position that it needs further funding, then the extract suggests that there is little to
secure this funding against
...
The value of goodwill has also increased substantially since 20X7,
suggesting an acquisition
...


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...
The gearing ratio itself has jumped from 25% to above 43%
...
5
...



...
The figures suggest rising debt, cash flow
problems, lowering efficiency and very poor profitability
...
However, it might have
also identified the problems that led to the company’s eventual demise
...

Organisational structure and ownership

as

tud

The evaluation should have included an investigation into the structure of
RiteSoftware, its shareholders and directors
...
The HR director could then have
been asked directly if he was related to the managing director of RiteSoftware
...
Many organisations will either not
procure from companies where directors and senior managers have relatives or will
ask for that information to be disclosed by the supplier in order that it can be
weighted in the evaluation of alternative suppliers
...
The scenario mentions that three months ago, another set of
amendments was requested from RiteSoftware to allow one of the divisions in
OneEnergy to pay bonuses to lorry drivers in a certain way
...
The gap between
requirement and package could then be evaluated in advance
...

Firstly, the match of functionality and package will form part of the evaluation
...
Secondly, an understanding
of the gap allows the compromise to be managed in advance
...


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The lack of a formal evaluation of the financial figures of RiteSoftware is the subject
of the first part of the question
...
The question requires FOUR further ways
in which OneEnergy failed to follow a proper evaluation procedure
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

Non-functional requirements of the software


...
It was felt that payroll
rules and processes were relatively standard and so there was no need to look
further than a package recommended by the HR director
...
Furthermore, subsequent requested amendments to the
functionality of the package suggest that OneEnergy’s payroll rules were not as
standard as expected
...
At best this looks amateurish; at worst it might cause
concern to the non-executive member of the board and its internal auditors
...
The scenario suggests that the company does have a policy on
competitive procurement
...


(b)

Marks
5
5
13
12
–––
25
–––

fre

ea

Total

Up to 1 mark for each non-ratio based observation up to a maximum of
Up to 1 mark for each ratio based observation up to a maximum of
Up to 3 marks for summary and integration of answer, giving a maximum
of
Up to 1 mark for each relevant point up to a maximum of 3 marks for each
failing
...
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...
However, how they deliver that functionality is very important and usability
can be a great differentiator between competing packages
...
If they had been then it would be unlikely that
users would have problems understanding some of the terminology and structure of
the software
...
Understanding user competencies and
expectations would allow the gap between users’ ability and the requirements of the
package to be properly assessed
...

Again, if the package is selected, the gap can be planned for in advance so that the
extra training costs, alluded to in the scenario, are budgeted for at the outset
...
com
AN S WE R S T O P RA C TI CE QUE S TI ON S : S E CT IO N 3

Examiner’s comments

INDEPENDENT LIVING

ym
a

12

ter

ial

Part (b) should have resulted in answers that gave a relatively straightforward description
of a rigorous evaluation process, comparing it to a company which had not used a process
at all! The implication of each failing was signposted in the scenario
...
Too many answers to this part question were disappointing and disorganised,
failing to structure the answer in such a way to gain the marks on offer
...


Key answer tips

IL supplies both manufactured products (crutches, walking frames) and bought-in
products (mobility scooters, bath lifts)
...


as

(a)

tud

In part (a) the key to success will be to combine knowledge with application
...
Be careful to
focus on primary activities and avoid the secondary/support activities
...
In this part there are 15 marks available spread over the 5 primary
activities
...


cc

The primary activities of the value chain are:
Inbound logistics

ea

These are activities associated with receiving, storing and disseminating inputs to the
product
...


fre

For manufactured products this concerns collection of material from scrap merchants
and the storage of that material prior to use
...
Products are stored in the
warehouse
...
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m

In part (a) the data allowed candidates to calculate popular profitability, efficiency, liquidity
and gearing ratios
...
It was clear that RiteSoftware
was a company in trouble, run by directors that could see its imminent demise
...
However there was a wealth of information in the
scenario that many candidates just did not use
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

Operations


...
This includes
machining, assembly, testing and packaging
...
For bought-in products, operations is concerned with the
careful opening of packaging, the addition of an IL transfer logo, the testing of the
equipment and the re-packaging of the product into its original packaging
...
Finished goods warehousing, order processing and delivery is
considered here
...
It includes advertising, promotion, sales and pricing
...

Service

The value chain is used as a basis for answering the question
...
However, it must be
acknowledged that the charity also has the objective of providing jobs for severely
disabled people
...
It is also clear from
the scenario that some customers are prepared to pay price premiums for the goods
by making donations to the charity as part of their purchase of these goods
...
It includes installation, repair, training, parts supply and product
adjustment
...
For bought-in product, service is undertaken by the original
manufacturer
...

Furthermore, dealers may also be able to offer competitive delivery costs
...
For bought in products, IL could explore the cost of using a
specialist logistics company to carry out both its inbound and outbound logistics
...
Many of these logistics
companies also offer storage facilities
...


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At IL, both manufactured and bought-in products need to be stored prior to delivery
...
Orders are placed by
telephone or through the website
...
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AN S WE R S T O P RA C TI CE QUE S TI ON S : S E CT IO N 3

Operations


...
It could probably gain cost
savings by outsourcing manufacture to cheaper countries (like its commercial
competitors) but this would not meet its core objective
...
Customers might then
perceive it as an ethical choice
...


(2)

Reducing inventory by arranging for bought in goods to be supplied to the
customer directly by the manufacturer
...


ter

ial

Asking manufacturers to affix the IL logo and label prior to despatch to IL
...


Employees in the warehouse could be reallocated to order processing and other
administrative tasks
...
The
site includes a product catalogue and a secure payment facility
...
IL might
consider ways of encouraging further use of the website, for example by offering
discounts, cheaper prices and a wider range of products
...


as

The telephone ordering process is currently too complex because sales staff have to
describe the products available and also provide purchasing advice and guidance
...

Marketing and sales

fre

ea

cc

Relatively little sales and marketing takes place at IL which is probably due its
charitable status
...

Traditional marketing appears to be very limited, restricted to leaflets in hospitals
and surgeries
...
This should help improve the efficiency of the telephone
ordering service
...


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IL should explore the potential of this
...


Service


...
This effectively differentiates it from commercial competitors
...


Marks

Up to 1 mark for identifying each primary activity (for example, inbound
logistics) and up to 2 marks for discussing its application to IL in both
contexts (metal scrap collection, supplier delivery) up to a maximum of
10 marks
...


ym
a

ter

(a)

Total

Examiner’s comments

10

15
––––
25
––––

as

tud

The first part of the question requested candidates to analyse the primary activities of the
value chain for the product range at IL
...
However, it was also clear that a significant
number of candidates were not familiar with the terminology and structure of the value
chain
...


ea

cc

The second part of the question asked candidates to evaluate what changes IL might
consider to the primary activities in the value chain to improve their competitiveness,
whilst continuing to meet their charitable objectives
...
Charities are an important part of the 'not-forprofit' sector of the economy and their structure and objectives should be understood by
candidates
...


fre

However, overall the question was answered relatively well
...
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However, IL
could expand its website to give general support and advice on mobility problems
and independent living
...
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AN S WE R S T O P RA C TI CE QUE S TI ON S : S E CT IO N 3

13

NOBLE PETS

(a)

ial

This question mixed together two very different topics
...
When discussing each activity students must bring in relevant
information from the scenario rather than describe simple, generic activities
...
This is an area that candidates have struggled with in the past but a
review of the answer should highlight that the numbers were straightforward and involve
nothing more than plugging numbers into a formula
...
Each of these is now considered
in turn
...
In terms of the costs identified in the scenario, inbound logistics
are concerned with raw foodstuff costs, the costs of cans and the transport costs
(goods inward)
...
However, goods inward costs are higher than any of its
competitors
...

What seems more likely is that the location of the factory makes transport costs
higher
...
This will place Noble Pets at a disadvantage
compared with competitors who may be located adjacent to major motorways
...


fre

ea

cc

Operations are concerned with the production activities associated with turning
inputs into their final form, outputs
...
In the context of the scenario, these are
represented by production costs and direct labour costs
...
However, production costs are higher
...
Although it was
innovative when it was installed 40 years ago, technology changes have meant that
there are more reliable and efficient alternatives available
...

Thus the original plant could not be expanded to obtain any further economies of
scale
...
This area is
represented by transport costs (goods outward) included in the table given in the
scenario
...
This is again partly due to the nature of the roads which lead to the

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P AP ER P 3 : BU SIN E S S A N AL Y SI S

ym
a

ter

ial

Sales and marketing is concerned with the activities which make the buyer aware of
the product (marketing) and also provide a means by which the buyer can purchase
the product (sales)
...
However, marketing is an acknowledged strength of the firm and has allowed
the company to command a premium price for its products
...
This is significant, because the firm is
targeting the buyers of a product who are, in this case, not the consumers of that
product
...
So advertising campaigns which stress the need for
people to give their pets the best and that the best is provided by Noble Pets are very
effective
...


tud

Service activities are designed to support or enhance the product
...
In the context of
Noble Pets, this can be perceived as the factual information sheets and website
designed to promote responsible and appropriate pet ownership
...
The
apparently unbiased advice which Noble Pets gives to the community is again an
acknowledged strength of the company
...
These have led to
high transport costs and uncompetitive production costs
...
However, it is difficult
to see how the company can reduce its transport costs if it remains at the current
site
...

(i)

20 2

It is immediately clear from Table Two that the sales of moist pet foods are
decreasing and the sales of dry pet foods are increasing
...
Since then, the
downward curve has flattened out
...
This change in pattern is due to the buyers of product requiring
something which does not smell and can be left for longer in the pet’s bowl
...
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m

factory and to the congestion in Milton
...

Wholesaler and supermarket distribution centres are relatively flexible and footloose
and most locate to easily accessible locations
...
The
larger 44 tonne vehicles are banned from Milton town centre, so the company has to
continue using the less cost-effective 36 tonne trucks
...


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...

Year


...
Thus
Noble Pets has been competing in, at best, a stagnant market dominated by
four companies
...
It is
probably these strains within the industry which has prompted Noble Pets
management to ask the Milton plant to review its value chain
...
In 20X0,
moist pet foods accounted for 55
...
In 20X6, this figure had reduced to
46
...
Although Noble Pets’ share of this market remains the same (30%),
this is a reduction in real terms of 18,000 tonnes of production (from 111,000
to 93,000 tonnes)
...

Y = a + bx

tud

(ii)

Y = 369
...
86x

as

The negative value of b shows that the slope of the curve is downwards
...


cc

20X7: 291

20X8: 281

20X9: 271

ea

These values do appear to be too low, given the flattening out of demand in
20X4, 20X5 and 20X6
...
Thus these forecasts appear too pessimistic
when extrapolating the linear line of best fit
...
94432), which is what would be
expected given the production decline
...
89174 (r2), suggests that 89% of the variation can be explained by the
passage of time or, more sensibly, by some factor or factors which have
changed over this time – such as buyer behaviour
...


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Moist food
Dry food
Total
Production Percentage Production Percentage Production
(000s tonnes)
(000s tonnes)
(000s tonnes)
370
55
...
11%
662
350
53
...
73%
657
331
50
...
23%
652
325
49
...
31%
654
315
48
...
98%
656
310
46
...
10%
661
310
46
...
66%
669

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(i)
1 mark for each relevant point up to a maximum of 5 marks
...
This
may include 1 mark for arithmetically correct forecasts and 1 mark
for explaining the coefficient of determination
...
In this approach, franchises are
independently run businesses that would enter into a licence agreement with
Graffoff to purchase training, equipment and materials in return for an exclusive
geographical franchise area
...
Most
franchises are required to make a large up-front payment, which would provide Emile
with significant funds for investment or, indeed, for further dividend payments
...


fre

ea

(a)

cc

as

Although students are very comfortable with the areas covered in the question from a
knowledge point of view, only very relevant and specific answers will score well here
...
Students need to apply their knowledge to the scenario and consider the problems
that the company in the scenario are likely to experience
...
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m

Although the market for moist food has declined rapidly in the last few years,
this decline appears to have been arrested
...
A free-hand extension of the
curve joining the actual data points is likely to give estimates of over 300,000
tonnes for the next three years
...
If Noble Pets retains its
30% share of the market, it still has a demand for 90,000 tonnes of moist pet
foods
...
Thus a detailed financial analysis can
reasonably be based on a demand of at least 50,000 tonnes in the period
20X7–20X9, even if the other plants work at full capacity
...
com
AN S WE R S T O P RA C TI CE QUE S TI ON S : S E CT IO N 3

ter

ial

However, it is possible (but not inevitable) that the long-term returns to Graffoff
might be lower than through directly owned or leased depots
...
There are also important issues to consider in the
appropriate selection and control of franchises
...
Graffoff has no
experience in selecting appropriate franchisees, neither is there any evidence that it
has systems in place to control quality and audit performance
...
Such systems will need investment and
development and need to be in place before the franchise scheme is launched
...
Emile himself recognises that Graffoff has a very low profile and he
acknowledges that he has very little expertise in this area
...
Thus, there may be problems in attracting franchisees,
particularly those willing to invest a significant amount for a product which, they may
consider, has a relatively short lifetime and whose brand awareness is low
...
He might also address the patent issue by looking at
improving the product
...


ea

(b)

cc

as

Although franchising appears to reduce financial risk, it is unlikely to produce the
financial returns as quickly as the internal growth option
...
He must also accept that
some franchises are likely to fail and that returns will be low in the early years of
operation as the fledgling franchises seek to establish themselves as viable
independent companies
...
Two are explicitly
evaluated in the model answer
...


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...
Emile has already
acknowledged that he is not a people person and so franchising neatly sub-contracts
this issue
...


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...

Graffoff specialises in product design and product development
...

Franchising has already been considered as a type of alliance
...
It is often used by companies to enter a new
geographical market where one of the companies provides the expertise and the
other local knowledge and labour
...
Furthermore, there is no obvious candidate for a joint venture
and, even if a partner could be found, it would take time to establish a contractual
relationship
...


The consultant has suggested to Emile, that the company has internal sources of
finance it can exploit to fully meet its required funding for organic growth
...
Given that Emile is committed to high
dividend payments and that no information is given about inventory, two of these
are relevant here
...
The Equipment Emporium already has 57 superstores in the
country selling tools and machines
...

However, he might return to them and offer to set up small in-store outlets where his
product could be demonstrated and its services sold
...

Furthermore, the locations already exist and are backed up by significant marketing
expertise and high brand awareness
...
There is a concern in such a loose arrangement that one partner might
steal the other’s ideas or products, but that seems unlikely here
...
From Emile’s perspective, this
opportunistic alliance provides a potential way of piloting his proposed organic
growth expansion strategy before moving into dedicated premises or, indeed,
offering the outlets to franchisees
...
The
average settlement period for receivables can be calculated as (trade
receivables/sales revenue) × 365
...
31) days
...


20 6

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...
Many organisations recognise that they need to
acquire materials, skills, innovation, finance or access to markets, and increasingly
recognise that these may be more readily obtained through cooperation rather than
ownership
...


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Reducing it to 40 days (the sector-wide standard)
would realise approximately $84,500
...
Given the limited
information, a crude estimate of the average settlement period for payables
(creditors) can be calculated by (trade payables/cost of sales) × 365
...
91) days
...
Bringing the company in line with
this practice would realise up to a further $75,500 which again could be used for
investment
...
The current fast
payment of invoices seems to reflect the zeal of the administrator in accounts
payable, rather than any policy of the company
...

This means that up to approximately $204,000 could be raised by Graffoff if
customers adhered to payment terms and suppliers accepted sector-wide practice
...


as

tud

Finally, the acknowledged problems with credit control might also cause Emile to
consider factoring the company invoices
...
Most factoring companies are willing to pay 80%
of approved trade receivables in advance
...
It might also address the problems of
motivation and staffing in the accounts receivables section
...


ACCA marking scheme

1 mark for each appropriate point up to a maximum of
1 mark for each relevant point up to a maximum of
1 mark for each relevant point up to a maximum of
The evaluation of the claim may include:
Receivables calculation:
Value of reducing receivables to norm:
Creditors calculation:
Value of increasing this to norm:

fre

(a)
(b)
(c)

ea

cc

Whichever options are chosen, internal finance resources cannot completely raise
the $500,000 required for the organic growth plan and so the consultant is incorrect
in his assertion
...
However, the amount raised through internal sources may be sufficient to
effectively finance either the franchising option or the building of an opportunistic
alliance with The Equipment Emporium
...
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Marks
10
7
8
1
1
1
1
––––
25
––––

20 7

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m

However, these gains would only be achieved through implementing better
procedures in accounts receivable
...
Thus some of the proposed savings may be offset by increased
staffing costs
...
He will have to refrain, in future, from intervening in the debt collection
process, and not offer the generous terms of payment that currently undermine the
debt collection efforts of the accounts receivable department
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

Examiner’s comments

ial

In part (b) many candidates were aware of joint ventures and licensing but really failed to
suggest why these might be more appropriate or different to franchising
...
Some
candidates suggested mergers, acquisitions and even selling the company
...

Part (c) was poorly answered on three counts:

•

ter

•

Many answers were too general (reduce creditor days) and included no calculation at
all, so the consultant’s claim could not be properly evaluated
...
There were some good answers to a totally
different question
...

Finally, too many answers focused on external finance (share issues, more loans) and
this was specifically excluded from the question
...


tud

ENVIRONMENT MANAGEMENT SOCIETY

as

15

Key answer tips

Context

cc

Try not to focus on simply regurgitating the pocket notes
...


fre

ea

The decline in the number of people taking the qualification appears to be a reflection of
the maturity of the marketplace
...
There
are now fewer candidates taking the examinations and fewer members joining the EMS
...
It hopes to find large pools of unqualified
environmental managers and auditors in these markets
...
There is
no evidence that EMS plans to develop new qualifications outside its current portfolio
...
Hence, expansion into new strategic business
markets does not appear to be an option
...
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m

Part (a) was relatively well answered, using a structure suggested by the question;
description, advantages, disadvantages, evaluation
...
Some candidates were
confused about franchising, restricting their discussion to a franchise just offered to one
company; the Equipment Emporium
...
com
AN S WE R S T O P RA C TI CE QUE S TI ON S : S E CT IO N 3

Strategy development
(a)

Internal development

ym
a

ter

ial

In many ways this type of organic growth is particularly suited to the configuration of
the organisation, one where there is a risk-averse and cautious culture
...
However, growth can be slow and indeed, as in the case of EMS, may have
ceased altogether
...
For example, EMS has not been able to develop (or indeed even consider
developing) any products outside of its fairly restricted product range
...
This is particularly true when, as it appears in the case of the EMS,
internal resources have no previous experience of developing products in overseas
markets
...

There is no evidence that EMS is considering developing new products to arrest the
fall in qualification numbers
...
It seems unlikely that internal development will be an
appropriate method of pursuing this strategic direction
...
One of the most
compelling reasons for acquisition is the speed it allows an organisation to enter a
new product or market area
...
These organisations would then become
the mechanism for launching EMS qualifications into these markets
...
These qualifications could then be offered, if appropriate, in EMS’s
home market
...


fre

However, acquisitions usually require considerable expenditure at some point in time
and evidence suggests that there is a high risk that they will not deliver the returns
that they promised
...
Any acquisitions will have to be funded from
its cash reserves or from private equity investment groups
...
Under achievement in mergers and acquisitions often
results from problems of cultural fit
...
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m

Internal development takes place when strategies are developed by building on or
developing the organisation’s own capabilities
...

This is how EMS has operated up to now
...
Since then, additional certificates have been added and
the Diploma programme developed at the instigation of members and officers of the
Society
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

consideration here
...
There is no evidence that EMS has any expertise in
acquiring organisations in its home market and so such acquisitions overseas would
be extremely risky
...
This approach has become increasingly
popular for a number of reasons
...
Furthermore, it would avoid the cultural dislocation of
either acquiring or merging with another organisation
...
Johnson, Scholes and Whittington suggest that cospecialisation alliances ‘are used to enter new geographic markets where an
organisation needs local knowledge and expertise’
...


cc

as

tud

ym
a

The exact nature of the alliance would require much thought and indeed different
types of alliance might be forged in the three markets targeted by EMS
...
This is a
formal alliance and will obviously take some time to establish
...
However, joint
ventures take time to establish and it may be not be an option if EMS wants to
quickly move into a target marketplace to speedily arrest its falling numbers
...
This could be organised in a number of ways
...
Alternatively, the qualification may
be marketed by the local organisation as an EMS qualification and EMS pays this
organisation a licence fee for every certificate and diploma it issues in that country
...
Furthermore, if the
qualification is successful, there is the risk that the local organisation will develop its
own alternative so that it gains all the income from the transaction, not just a
percentage of the transaction fee
...
The licensing approach is particularly attractive because it seems to offer
very quick access to new markets without any great financial commitment and
without any cultural upheaval within EMS itself
...
EMS may find this difficult to accept
...
Finally, there is often a paradox in organisations where
internal development has been the strategic method adopted so far
...
Yet trust and cooperation is probably the most important ingredient of
making such strategic alliances work
...
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m

(c)

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There is a maximum of 4 marks for points relating to principles
...

There is a maximum of 5 marks for points relating to principles
...
This
is the second time that the examiner has had strategic elements in the option questions and
we can expect to see more of this in the future
...
But
the same technique points apply as would have applied if this was part of the compulsory
question
...


as

Key to success:

cc

Use a recognised model to assess why the acquisitions had taken place
...
But models such as Porter’s acquisition tests
could be used equally as well
...


ea

As is usual with financial analysis the key to getting the arks will be to explain why a ratio
has changed and what the implications of such a change might be
...

Dangers:

Not using the financial analysis

fre

Not recognizing that the requirement had two elements (explain why the acquisitions had
happened, and assessing their performance)
...
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m

1 mark for each relevant point up to a maximum of 8 marks for acquisitions
...


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...

Key to success:


...
So use the same model and include
financial analysis
...
It
doesn’t matter whether you think the acquisition should go ahead or not, as long as you
have an opinion one way or the other and can back it up with sensible analysis
...
This
would have been a major error given the amount of financial information included in the
question and the approach taken to part (a)
...
The cash generated by the
quarrying company was used to purchase a profitable, well-run company in an
expanding market
...

Increased costs and falling reserves meant that there was little chance of finding new
sites in its core market
...

However, buying a company concerned with leisure appeared to be an example of
unrelated diversification and there were some negative comments about the
financial wisdom of this acquisition
...
These came from the conversion of disused or
unprofitable quarry sites into leisure parks
...
In the first instance it reduced the operating costs of MMI, allowing it
to shed costs associated with running unprofitable mines and maintaining security
and safety at disused sites
...
Johnson, Scholes and
Whittington discuss the principles of economies of scope where an organisation has
underutilised resources that it cannot effectively use or dispose of
...


fre

The turnover of First Leisure has doubled in six years
...
Furthermore, gross
profit margins have remained fairly constant but recent increases in the net profit
margin suggests that costs appear to be under control, despite the recent issues
concerning the supply of boats from Boatland
...
However, the discovery of unexpected synergies has led to it adopting
(and perhaps claiming in hindsight) a synergy manager role
...
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AN S WE R S T O P RA C TI CE QUE S TI ON S : S E CT IO N 3

matrix, First Leisure exhibits all the characteristics of a star business unit and so it
should be retained in the portfolio
...

Boatland


...
Boatland seemed to offer a way out of this
problem
...
MMI also perceived that cost savings could be
found by bringing boat manufacture and maintenance into the Group
...

Secondly, Boatland itself appeared to be undervalued
...
It was felt that the production of boats for First Leisure
would help the company expand, allowing it to increase market share partly
based on guaranteed orders from First Leisure
...
However, the acquisition has not brought the expected benefits
...
Furthermore, the status of First
Leisure as a preferred customer has led to delays in boat manufacture and
maintenance for established customers
...
This is reflected in the data provided in table 1
...
More worrying is the significant fall in gross
and net profit margins
...
04% in 2002 to just
4
...
Furthermore, difficulties also have been created for First Leisure,
which are also disturbing its relationship with MMI
...
When the company was bought it
concentrated on building a small number of high quality boats to discerning
customers who valued and cherished their boats
...
The products and markets are different and the perceived synergy was an
illusion
...
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However, the acquisition of Boatland in 20X6 was largely justified on the
grounds of synergy
...

By this time the directors felt that they had built up significant managerial
competencies that could be successfully applied to acquired companies
...
In the case of Boatland the
expected synergies with First Leisure were as follows:

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...
It has consolidated in its own market by shedding unprofitable or
closed quarries and purchasing smaller competitors
...
During a period when the marketplace has declined by 5%, MMI has
increased its market share from 20% to 28%
...
The increase in market share is probably due to the acquisition, in 2004, of two
smaller competitors
...
MMI’s attempts
at diversification have had mixed success
...
However, the expected synergies from the Boatland purchase have not
materialised and MMI appear to have destroyed rather than created value in this
acquisition
...
MMI introduced its own managers into these companies
resulting in a spectacular rise in revenues and profits that caused the CEO of MMI to
claim that corporate management capabilities were now an important asset of MMI
...
However, Boatland is in a significantly different
industry to these earlier acquisitions
...
In contrast, at
Boatland the sought after synergy was with First Leisure, not MMI, and so the MMI
managers entered an industry and an environment they were unfamiliar with
...
The incumbent
management team are left to get on with the job with minimal interference from
MMI
...
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m

In BCG terms Boatland has a very small share of a static market
...
In terms of the Ashridge Portfolio Display,
Boatland appeared as a heartland business but it soon turned into a value trap
business
...
However, the
supply implications of this to First Leisure will have to be investigated and so
divestment may have to wait until First Leisure has built up a relationship with an
alternative supplier
...
com
AN S WE R S T O P RA C TI CE QUE S TI ON S : S E CT IO N 3

InfoTech


...
Boatland and
First Leisure were both successful, profitable companies when they were acquired
...
This is a controversial reason for acquisition and in
this context MMI is playing the role of a portfolio manager, one it has never played
for a failing company
...
It would be defined as a question mark
or problem child
...
An approach which evaluates whether the acquisition
addresses the situation in which MMI and InfoTech are operating would be a
perfectly valid approach to answering this question
...

Up to 2 marks for issues concerning economies of scope
Up to 3 marks for interpreting the financial and market data
...

Boatland
Up to 2 marks for recognising the synergies expected from Boatland
...

Up to 3 marks for explaining the failure of the acquisition
...

Up to 3 marks for interpreting the financial performance of MMI and
summarising its acquisition strategy
...
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10
–––
25
–––

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Market share and gross and net profit
margins have fallen over the recorded period
...
If
MMI acquires InfoTech then the preferred ‘hands-off’ approach will be very risky,
particularly considering the financial investment the company requires
...
The first is to learn from
its experience at Boatland and install managers who are more sensitive to the culture
of the organisation and the industry as a whole
...
MMI could recruit managers with established
track records in the information technology industry
...


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...
This part of the
question was not answered so well
...
The analysis of InfoTech in the mod el answer is not very positive,
and would probably lead to a recommendation that MMI should not acquire the company
...
Credit was given for this approach,
illustrating again that candidates do not have to always agree with the examiner’s analysis
to gain the marks on offer!

Key answer tips

tud

For part (a), the answer takes an approach of splitting up the strategic and quantitative
analysis
...


BlueSky Analysis Ltd is now facing a new set of problems operating as a subsidiary of
United Data Systems (UDS)
...
In order to maintain the goodwill of the analysts/scientists at BlueSky, the
subsidiary still permits the loose organisational structure to prevail
...
Working in isolation has been preferred to
teamwork
...
This situation has deteriorated since the acquisition
...
There is an
increase of about 20% in the number of projects not meeting the stated performance
criteria it would also appear that the interface between clients and providers has also
worsened
...


fre

ea

cc

(a)

as

For part (b), the use of a model should provide a structure to answers
...


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...
Financial and market data was provided which allowed the
candidates to calculate some key financial ratios and also (if they wished to) analyse the
companies using appropriate portfolio analysis frameworks
...


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...
Previously, BlueSky had
innovation and project development as key objectives, but since the takeover the
emphasis is focused more on efficiency
...
This switch
in emphasis would inevitably affect the behavioural attitudes of the workforce
...


tud

ym
a

ter

With increasing competition the company cannot afford to lose its staff, but neither
can it afford to lose contracts
...
Senior managers who
had pursued and negotiated new business before the acquisition, understood the
problems and issues
...
Even so, their
preference to be involved in the research themselves meant that they did not always
pay due attention to their supervisory role
...
Although this might help to prevent contracts
being accepted which could be unprofitable and/or have unacceptable lead times, it
does mean that the ability to negotiate a contract quickly is lost, thus losing the
BlueSky subsidiary the necessary speed of response which might be critical in these
days when competition is becoming more threatening
...


as

This could prevent the company from getting follow-up contracts which may be
bigger and more profitable, it is foolhardy to judge the viability of a contract solely in
terms of the immediate profit on the one contract
...
Quality and service
are said to have deteriorated
...
It could be that they feel neglected by knowing that
key contract issues were being decided within the USA but it is likely that speed of
response and flexibility have worsened
...
This will not endear them to clients if their
requests for information or help are being ignored or given low priority
...
Sales revenue has fallen
slightly since the acquisition although the cost of sales has fallen by more
...

However, expenses rose disproportionately
...
This was contrary to expectations
...
The charges from
the centre have risen by a substantial amount, whereas marketing, now so critical
with increasing competition, is being neglected
...
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m

Prior to the acquisition there was an implied criticism that the analysts were rarely in
direct communication with the projects clients
...
It now is likely that the requirement
to send contracts for vetting to the UDS financial centre will result in an even further
separation of the analyst from the client
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

(i)

The cultural web is a useful framework for discussing the cultural aspects of
organisations
...
This appears to have been an
objective of UDS – ‘big is beautiful’
...
It is possible that UDS has
not recognised that this market segment is totally different to that in which it is
accustomed to operate in
...
This could also explain
why the order book level seems to be very low
...
It is also important to recognise that with the
increased size of contract, there are now too few contracts for most of the analysts
to work alone
...
Most of the
analysts have previously enjoyed working in isolation
...
It needs to be questioned whether the
staff now have the appropriate skills to deal with this new mode of working
...
Finally, there appears to be a reduction in noncurrent assets employed
...
It could be that no
investment in the subsidiary is now occurring, or even that the parent company is
transferring assets to other parts of the company
...
Whatever the reason is it does not suggest that UDS is
currently prepared to invest heavily in the subsidiary
...


•

ea

•

power structure
...
, now work had to be approved centrally
...
Previously scientists could concentrate solely on
scientific work, whereas now financial criteria was imposed upon them
...
Previously work was often carried out slowly with
little management, now more interactivity and responsibility was
expected
...
Responsibilities were confused previously, but
UDS now tried to impose more roles, responsibilities and a wider span of
control
...
The symbols are likely to change
...

stories and myths
...


cc

•

fre

•

•

•

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...
UDS has little experience in the fields of satellite
surveillance, and data collection and interpretation
...
It also seems that
order levels are falling
...
Currently the figure is only 17%
...
The reality is that the order book
is probably very low – another reason for more marketing
...
com
AN S WE R S T O P RA C TI CE QUE S TI ON S : S E CT IO N 3

(ii)

If BlueSky is to be incorporated within UDS as a division this will have to be
carried out with care
...
Kotter
and Schlesinger identified five generally acceptable strategies for managing
change – those that might be relevant to BlueSky are explored below
...
co
m

ial

tud

ym
a

ter

Education and communication is another recommended strategy and this is
essential if staff are not to be ‘left in the dark’
...
There
is also the risk that the staff may not like the proposals and no amount of
communication or education can alter that
...
The staff are
too intelligent and too mobile to accept this
...
A logical strategy is that negotiation should be attempted
...
Although it is a time-consuming process, it is better to get it
right than to risk future upheaval
...
Its current organisational structure
based upon a functional division of work is not providing the necessary integration of
activities, nor is it responding sufficiently to market needs
...
The basis of such a structure is a
multi-functional project team
...
It is
often set up when management do not wish to set up separate divisions but are
looking for increased co-operation among all their staff
...


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The first is participation
...
This
is particularly relevant with the type of intelligent staff employed by BlueSky
...

However, the danger with this process is that if the employees require certain
features within the change and the company cannot deliver them then they
become even more de-motivated
...
Furthermore, participation often is time
consuming and BlueSky may not have the luxury to delay the process
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

reporting lines – one to functional departments and one devoted to specialist
products or teams
...

The advantages of a matrix or project team structure are as follows:

•

•

•


...

The two reporting lines can lead to confusion for members of the team
...

Decision making can be slower and not be more responsive if every participant
insists on full participation
...

Because of dual reporting, there is a problem of allocating responsibilities
...


ea

•

As a guideline for organising innovative project teams it is essential that structures
should be flexible so as to encourage experts to break through conventional
boundaries into new areas
...


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•

ter

•

ym
a

•

The teams do not lose sight of their long-term objectives
...

There is more integration between the differing functional specialists – they
become inter-disciplinary, resulting in greater co-operation and understand
opposing or alternative opinions
...
Because the team is now less
bureaucratic and more focused, outcomes are much quicker as the
bureaucracy is now replaced by a direct interplay between specialists – the
interested parties
...
In a company such as ALG
there is a danger that the views of scientists and engineers may triumph at the
expense of prudent financial advice and market needs may also be ignored
...

Because staff are more directly involved in planning, control and decision
making they become more motivated and committed – a key benefit for any
company
...

They lose their specialised isolation and become more valuable and ‘rounded’
employees
...

Experiences from one project team can easily and quickly be transmitted to
other teams
...
com
AN S WE R S T O P RA C TI CE QUE S TI ON S : S E CT IO N 3

(b)

Organisational design can be influenced by many factors which can generally be
divided into two categories – internal and external influences
...
co
m

ial

•

The external factors that might influence organisational design are as follows:

ea

•

cc

as

•

A change in knowledge available to a company
...

Economic opportunities may change: the globalisation of markets will
necessitate a change in organisational structure to reflect and respond to
these changes
...
Organisations
must build into their structures recognition of this ‘problem’
...

Socio-demographic changes: as organisations now operate in different parts of
the world, each with different demographic and social regimes then
differences such as attitudes to older people working, women in management,
educational abilities matching requirements and labour force availability can
all influence the design of organisational structures, resulting in more flexible
and responsive organisations suiting local needs and cultures
...
Decisions on purchasing and distribution will be influenced by this
and these, in turn, may affect the organisational structure
...


tud

•

fre

•

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•

ter

•

Poor performance in the past
...

If a company is now heavily influenced by entrepreneurs and innovators, a
more flexible structure would be welcome
...
An adhocracy or an entrepreneurial structure might be
more appropriate
...
Design
will be more influenced by their management philosophy
...
If quality of delivery is
now given greater priority than product performance, as in the case of ALG, a
structure more oriented to marketing might now be encouraged
...

If the company intends to compete with low prices then costs will now become
critical
...
However with a differentiation
strategy there is a potential for more informality, with more decision making
being devoted to junior managers
...


ym
a

•

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...

In some countries planning may still be more dominant than a market culture
...
There has
been much discussion on the differences between Japanese and Westernbased companies
...
However it is also true to say that with the
recent increased tendency towards globalisation these ideological differences
are being reduced
...
Probably the
most pressing reason for the change is its current poor performance
...
Although the
environmental factors may have limited relevance here, the fact that ALG is now
operating in a dynamic and global market place means that it has to be more
responsive to market needs
...
It can do so with a relatively flat
organisation without the need for an extensive supportive infrastructure
...
The question was not popular in
the examination, but when answered it attracted good marks
...


as

Part (a) is relatively straightforward provided you avoid irrelevant generalisations and keep
to the facts of the company in question
...


ea

Complex organisations such as ICC contain multiple structural interdependencies
such as geographic locations, product groups, market segments and functional
specialisms (such as finance and R&D)
...
For example, a product-based structure focuses on product
design and development but loses out on market responsiveness while a market or
customer driven structure risks the failure to achieve product technical synergies
...


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...
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AN S WE R S T O P RA C TI CE QUE S TI ON S : S E CT IO N 3

•

ym
a

fre

ea

•

tud

•

Improved decision-making where there is potential conflict of interests such
as ‘product against market’ or ‘finance against sales’
...
The nature of
the problem can be illustrated by reference to ICC, where SES and S&M
operate as separate (non-matrix) divisions within each country
...

Within the matrix, direct contact replaces the formalised reporting
procedures which may take place between independent divisions
...

Improved motivation, due to closer involvement in the wider aspect of
business strategy
...

Improved management skills with the ability to manage both customer/
market and product decisions
...


as

•

ter

Successfully adopted, designed, developed and operated, matrix forms can provide
substantial advantages
...
The
potential gains from the matrix form and how they could deal with the co-ordination
problems can be summarised (Johnson and Scholes) under four main areas
...
In seeking to operate in this way, the
organisation abandons the principle of unity of command in favour of the
management of multiple interdependencies
...
In other words functional managers based
within a country report both to the country manager for local operational matters,
but to their functional specialist at head office for technical direction
...
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co
m

Matrix structures have evolved from divisional structures as a response to this
dilemma and as a means of meeting the structural needs of managing complex
multinational organisations
...
A matrix structure can be stable (i
...
a
permanent aspect of the structure, as is the case at ICC) or transient, i
...
a temporary
multi-disciplinary team based structure as is frequently used to manage projects in
high technology industries
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

The matrix form demands a great deal of the manager who must have the capability
to deal with the tension that can arise between apparent conflicting objectives
...
in
practice, as could be expected, managers appear to need considerable time and
support to evolve skills in managing in matrix organisational forms (Kanter)
...
co
m

(c)

There are a number of specific challenges which organisational design must confront
and solve if the matrix form is to work effectively
...
There are
7 elements so there are roughly two marks available for each one
...


fre

For part (b) it will be important to use Mintzberg’s terminology as this is flagged clearly in
the question
...
The new company accountant appears to have come from a machine bureaucracy
and this structure should be explained
...


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•

Management of conflict resulting from the removal of typical departmental
boundaries and the introduction of conflicting objectives and accountability
...

Management of stress arising from role conflict and role ambiguity leading to
the potential for role overload
...
Care should be taken to ensure an
even balance of workloads across the matrix, appropriate management
development training and the use of mentoring systems by which a manager is
given a clear point of access generally within a functional line (e
...
finance,
marketing, personnel) to seek advice and assistance
...

If the balance is upset and one authority line dominates then in effect the
matrix breaks down and the organisation reverts to a hierarchical form
...

The cost of management arising from more time spent in meetings,
discussions, information exchange and administrative support and potentially
more managers to operate the organisation
...
com
AN S WE R S T O P RA C TI CE QUE S TI ON S : S E CT IO N 3

(a)

The cultural web is a representation of the taken-for-granted assumptions, or
paradigm, of an organisation
...


ter

ial

Power structures are also likely to influence the key assumptions of an organisation
...
At Frigate, power is centred on one
person
...


ym
a

The organisational structure is likely to reflect power and show important roles and
relationships
...


tud

Control systems, measurements and reward systems emphasise what is important to
monitor in the organisation
...
Emphasis
is on punishment (making deductions from wages for late arrival), rather than
reward, which fits his naval stereotype
...

Ann Li’s attempt to install formal controls throughout the organisation was resisted
by Frew
...
For Frew there is a
distinction between the routines of staff (must arrive on time, minimum holidays
with no flexibility) and the rules that apply to himself – flexible working, long
holidays, the expectation that employees will help him with his personal life
...
It appears that Frew is the hero, seeing off
lazy staff, unscrupulous suppliers (trying to sell me inferior quality goods for higher
prices), problematic customers (moaning about prices and paying later and later) and
bureaucratic officials (squandering my hard-earned money)
...
He even extends his stories to society as a whole, believing that a period
working in the navy would do everyone good
...
Underpinning all of this is Frew’s belief that the company is run for his
own gratification and that of his immediate family
...
He appears to see expenditure on his family (such as
share gifts and holidays) as perfectly acceptable
...


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...
At Frigate, the adoption of the term
‘Commander’ by its managing director, Ron Frew, and his use of naval terminology is
indicative of how he wishes to be perceived and the way he wants the company to
run
...
The main
symbol of his success is the motor cruiser that Frew owns and moors at the local
port
...
He is acting out a
stereotype of how he perceives naval life to be
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

Power
– Centred on one
person
...


ial

Paradigm
– Company run for
gratification of primary risk
taker
...

– Hostile environment where
he is the possible victim
...

one resisted
...

– Few formal controls
...


Figure 1: The cultural web at Frigate Limited

An organisation’s configuration considers how the structure, processes and
relationships of an organisation work together
...
Each configuration is idealised, a simplification
...
Some
come close to a specific stereotype, others reflect combinations and yet others are in
transition from one form to another
...


fre

ea

cc

Structure
•
Simple, informal and flexible with few staff and no significant middle-line
hierarchy
...

Context
•
Simple and dynamic environment
•
Strong leadership, autocratic
•
Small organisation
...
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...

– In contrast commander
has long holidays and
flexible hours
...


Symbols
– Self-styled commander
...

– Boats as status symbol
...
co
m

Stories
– Commander as hero
...


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...
co
m

Power is focused on the chief executive, who personally exercises it
...
The typical owner
(such as Ron Frew) exercises control through informal, direct (face-to-face)
supervision
...
In Mintzberg’s
words they may not feel ‘like the participants in an exciting journey, but like cattle
being led to market for someone else’s benefit’
...


Structure
•
•

Formal procedures
Sharp division of labour
Strict hierarchy
...


ter

•

ym
a

In such organisations some operations are routine, many are rather simple and
repetitive and as a result work processes are highly standardised
...


tud

An understanding of organisational configurations would have helped identify the
likely failure of Ann Li’s proposal
...
The
key factor here is the mismatch between structure, processes and context
...


as

ACCA marking scheme

1 mark for each relevant point up to a maximum of 15 marks for this part
1 mark for each relevant point up to a maximum of 10 marks for this part
question
...
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In structural terms these organisations are characterised by:

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co
m

21

Key answer tips

Although the question does not explicitly ask for it, the process-strategy matrix suggested
by Paul Harmon would provide an appropriate context for the answer to this question
...


ea

cc

as

The process-strategy matrix has two axes
...
At the base of the vertical axis are simple processes often
with simple procedures while at the top are complex processes which may require
negotiation, discussion and complicated design
...
Their importance increases from left to right with low value
processes concerned with things that must be done but which add little value to
products or services
...
From
these two axes, Harmon categorises four quadrants and makes suggestions about
how processes should be tackled in each quadrant
...
They are processes that must be carried out by the company but add
nothing to the company’s value proposition
...
They are often called ‘commodity processes’ and
are suitable for standard software package solutions or outsourcing to organisations
that specialise in that area
...
Many standard software
packages are available in the market place
...


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(a)

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...
They are not at the heart of
the company’s core competencies
...



...
They tend to be
relatively straightforward processes which, nevertheless, have a significant role in the
organisation’s activities
...
The aim is to
automate these, if possible, to gain cost reduction and improve quality and
efficiency
...

Harmon suggests that these might be the focus of major process redesign initiatives
focusing on business process improvement through the improved performance of
the people undertaking those processes
...
Clearly these are
value judgements and credit will be given for coherently argued answers which do
not match the examiner’s conclusions
...
Consequently, it appears to be a
candidate for the upper right quadrant of the process-strategy matrix
...

Information technology should be harnessed to seek improvements in
response time to breakdowns by improving the organisation and distribution
of these engineers
...

Membership renewal

fre

ea

cc

This should be a relatively straightforward process, so it sits in one of the two
lower quadrants
...

It appears to be a candidate for the lower right quadrant
...
The organisation already has a
bespoke system operated by in-house permanent employees
...
However, it might benefit from
revisiting the way the bespoke system works
...
The system might benefit from being built around a
presumption of renewal, so that the member only contacts the organisation if
he or she does not wish to renew
...
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P AP ER P 3 : BU SIN E S S A N AL Y SI S

(iii)

Vehicle insurance services

(iv)

Membership queries

(v)

Vehicle history checks

ym
a

ter

ial

Membership queries are of unpredictable complexity
...
Failure to
handle queries courteously and correctly could have important consequences
for membership renewal
...
Investment is required in people supported by innovative and
speedy IT systems that allow the 3C staff to respond quickly and accurately to
a wide range of questions
...


cc

as

tud

Vehicle history checks appear to be of relatively low strategic importance to
3C
...
Furthermore, the
consequences of providing inaccurate or incomplete information may be quite
severe
...
These damages might be extensive if someone died in the vehicle as
a result of a botched repair
...

Table 2
...


ea

Table 2
...
Improve competency of repair staff
...
Improve competency of call centre staff
...
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co
m

These appear to be a relatively complex process which is of little strategic
importance to 3C
...
Insurance is not only technically complex, it carries large risks and
substantial regulatory requirements
...
It would appear attractive to 3C
to outsource this service to a specialist provider who would then badge it
under 3C’s name
...
Outsourcing provides it with
opportunities for providing a wider service with reduced in-house costs
...
com
AN S WE R S T O P RA C TI CE QUE S TI ON S : S E CT IO N 3

In the question scenario the decision to outsource the purchase and maintenance of
3C vehicles is justified by its low strategic importance and its low to medium
complexity
...
This part of the question asks candidates to analyse the advantages
of outsourcing the process of the purchase and maintenance of 3C vehicles
...
co
m

(b)

AutoDirect purchase thousands of cars and vans for their customers each year
...


ter

ial

The vehicle lease payments with AutoDirect are monthly and they include full
maintenance of the car, including tyres and exhausts
...
Previously, costs would have been variable and
unpredictable, depending upon the reliability of the vehicles
...
There may also be an opportunity for realising income
from the sale of the garage site
...
It may be possible to sell the
garage for residential development
...
Vehicles have to be driven or transported to
this garage from all parts of the country and left there while they are serviced or
repaired
...
AutoDirect has
repair and servicing centres throughout the country and so it will be possible for
vehicles to be taken locally for services and repairs – thus reducing vehicle downtime
...
Switching to leasing will release this cash for
investment elsewhere in the company
...
This, together with the increasing technical complexity of
vehicles, will mean that vehicles will become increasingly difficult to maintain
without specialist monitoring and repair equipment
...
AutoDirect will have to monitor legislation, advise on its implications and
implement its requirements for its large customer base
...
The management of the garage does not appear to be a
core strategic requirement
...
Outsourcing frees up that time so it can be used to focus on issues directly
relevant to the customer and the business as a whole
...
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P AP ER P 3 : BU SIN E S S A N AL Y SI S

ACCA marking scheme
Up to 3 marks for the recommendation and its justification in each of the
process areas required by the question
Five process areas required giving a maximum of 15 marks
Up to 2 marks for each appropriate advantage identified by the candidate
up to a maximum of 10 marks

(b)

15
10
–––
25
–––

Total

Examiner’s comments

ter

ial

The scenario for this question concerned a car club that was reviewing its processes
...
The
advantage this outsourcing offered the car club was the subject of the second part of this
question
...
Other candidates failed to make
their points relevant to the scenario, using Information Technology examples instead
...
Many candidates provided excellent answers, often using Paul Harmon’s framework
as a reference point
...
However, there is no absolutely correct answer
and so candidates who provided coherent justification for retaining such services in-house
were also awarded appropriate marks
...
It seems likely that bottlenecks
will form around these handoffs
...
Enquiries for other companies should not be part of
their process and, from their perspective, the supervisor adds no value
...
The need to have these available could
have been flagged earlier in the process, perhaps at first contact with the
supervisor
...
In part (b), weaker candidates might focus on the textbook
advantages and disadvantages of outsourcing rather than the make points that are relevant
to this scenario (such as using some of the financial data that was provided)
...
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co
m

(a)

Marks

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...
Some ideas are presented below, but other
legitimate answers will be given credit
...

Different phone numbers could be given to SE customers for the three
different types of query
...

Staffing levels could be changed to reflect the frequency of calls
...

The role of routing calls could be performed by an automated telephone
system
...
This would also provide a mechanism for
handling other types of queries (option 4), which could be the responsibility of
the supervisor if his or her role is retained
...
This could be given in the automated reply (see
point above) to the initial phone call or menu choice selected or it could be
requested by the supervisor, if this role is retained
...

Multi-skilling staff so that they could effectively handle any part of the process
would reduce handoffs
...
Reducing the number of swim lanes is an effective way
of improving a business process
...
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co
m

•

On average, 153 people per day (600 calls × 0
...
This means that SE is billed $153
...
It also wastes the end customer’s time and money and is a
potential source of complaint and dissatisfaction
...
85) per day ((600 – 90 – 153) × 5%) do not know
their password
...
It also wastes the end customer’s time and money and is, again, a
potential source of dissatisfaction and complaint
...
Firstly, the contracts section is
disproportionately understaffed (it should have 1
...
This must be a bottleneck, and is likely to be the main reason
for the poor service experienced by the end customer
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

The financial case for outsourcing still remains very strong
...
SE has
calculated that it will cost $50 to employ a person with similar competencies in
Arborium for an eight hour shift
...
If SE continues
to employ 10 staff, then the total cost will be $1,500 per day
...
There will also be
operational costs, such as electricity and office rent and property charges
...
However, SE could consider alternative ways of dealing with calls
...
Email support could also be offered
...
This seems
particularly suited to refund processing
...

Improvements in query handling might also allow SE to reduce the number of people
working in the centre to a level where the cost of the service would be roughly the
same as the outsourced equivalent
...
Outsourcing, and
particularly offshoring, appears to have a negative impact on customers who, as well
as having difficulty in understanding the call centre staff based in different countries,
increasingly view offshoring as a way of exporting employment
...
SE might be able to make some marketing or
public relations capital out of bringing support back in-house and into the country
...
It is a key point where customers
interact with an organisation and form their opinions about it
...
Queries take too long to process and there are problems in understanding the
call centre staff
...
Perhaps the support activities (information technology,
procurement) of the value chain are better candidates for outsourcing
...
It is
primarily an electronics retailer
...


fre

ea

In the short term, it would seem sensible to introduce improvements at the TCG call
centre
...
In the longer
term, SE might wish to re-consider the wisdom of outsourcing a customer-facing
service and they may, on ethical grounds, wish to invest in jobs in the country where
most of their customers are
...


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AN S WE R S T O P RA C TI CE QUE S TI ON S : S E CT IO N 3

ACCA marking scheme
(a)

1 mark for each relevant point up to a maximum of 8 marks for evaluation
of the problem
...
A maximum of 15 marks for this
part question
...
1 mark will
be allocated for the correct calculation of the daily cost of delivering the
service in-house
...
There is no need to evaluate or discuss them so a simple list should be
sufficient
...


The main drivers for the adoption of e-business at TMP are:

•
•

ea

•

Cost reduction, specifically raw material costs (the cost of paper) and
distribution costs to bookshops
...

Increased revenue, increasing sales (as well as profit margins) is an important
objective
...

Increased ecological concern about the use of timber for paper manufacture
...

People, in the shape of the marketing director and the graduate recruited to
develop the website
...
Therefore, you should limit your answer to
these issues and not cover other elements of the 7P’s model as no marks will be available
for areas such as processes
...

Try to have a couple of specific recommendations in each area, explain them and justify
them
...


•

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•

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ial

23

15


...
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P AP ER P 3 : BU SIN E S S A N AL Y SI S

The main barriers to the adoption of e-business at TMP are:
•

•
•

•
(b)

ial


...
E-business may provide
opportunities for either replacing or augmenting this product
...
This may allow the range of products to be increased, introducing
books that would be uneconomic to produce conventionally
...

For example, many text books now have an associated website that includes
further case studies, exercises, solutions, simulations etc
...


tud

•

as

Using e-business to change the nature of the product should help reinforce two of
the drivers identified in the first part of this question
...

Augmenting the product should help deliver a better quality product to customers
...


fre

ea

At present TMP largely sells through bookshops and so the TMP price has to reflect a
profit margin for the bookshop
...
E-business may also be an
opportunity to experiment with differential pricing
...
TMP may be able to
combine differential pricing (in local currencies) with electronic alternatives to find a
product that is saleable in these markets
...
They also have to be aware of large
established channels, such as Amazon
...


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Concerns about the cost of developing the website, particularly when revenue
and profits are decreasing
...

Concerns that it will destroy the relationship with bookshops and those sales
will decrease overall as a result
...

Lack of technical ability within the company to develop and maintain the
website and the impact this may have on its long-term viability
...
This may be within the context of the financial
transactions of e-commerce
...

Other directors could be perceived as a barrier to the adoption of e-business
...
com
AN S WE R S T O P RA C TI CE QUE S TI ON S : S E CT IO N 3

Finally, TMP might seek an alternative price strategy, based for example on
subscribing to the site, rather than selling books
...
There is no need for them to actually own the book themselves
...


Promotion

ter

ial

At present, promotion is restricted to a custom-built display case at bookshops and
full-page display advertisements in magazines and journals
...
If the website records the details of visitors, then the company can
identify potential customers for its products and target them in mail-shots and online suggestions
...
Many sites also make buying
suggestions based on the behaviour of other customers, for example displaying
‘other titles which have been bought by customers who have bought this book’
...
TMP may be able to reduce its offline expenditure, cutting back on
advertising
...
Links to other sites should also be
considered, allowing promotion of TMP books on related sites
...
TMP pays commission to the site on sales made through such links
...
A similar approach might be used
with academic websites where a TMP book is recommended reading for a course
...
The display advertising has
unpredictable reach
...
The scenario suggests that both bookshops and
journals appear to have declining reach, based on statistics about their closure
...
The relatively small percentage of books currently sold
outside Arcadia is attributed to the cost of those books
...

The printing works were established 50 years ago and it seems likely that cost-savings
could be gained by printing and distributing the books in lower labour cost
economies
...
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m

Direct pricing to customers also provides the opportunities for special offers, prepublication prices and other deals
...


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...
This so-called ‘look
inside’ facility allows them to base their buying decision on some (but not all)
physical evidence
...
Feedback, comments and
rating systems are typical features on a website
...
The bookshop employees have rarely read all the books they sell and,
if they have read the book, are probably biased towards a sale
...
However,
these are only the ones sanctioned by the publisher
...


ym
a

The problem of physical evidence can also be addressed by seeing the book as a
website resource rather than a physical entity
...

ACCA marking scheme

(b)

1 mark for each relevant point up to a maximum of 5 for this part
question
...
There are five elements in the marketing
mix specified in the question
...
The process itself had more
elements than in previous exams but this should have provided students with plenty of
elements to discuss in their answer
...
It is likely to
have been an easy question for those students who had revised this area
...


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...
Often titles are insufficient to make a purchasing decision
...
In
contrast, physical evidence is not possible at all through display advertising in a
journal
...
com
AN S WE R S T O P RA C TI CE QUE S TI ON S : S E CT IO N 3

There is an acknowledged bottleneck in the task ‘Enter question into Question Bank’
(administration)
...
This often means that
questions received back from reviewers cannot be found on the database to have
their outcome noted because they have not yet been entered into the system
...
The simplification pattern assumes that most
established processes have redundancies and duplication
...


ial

The backlog of question entering also seems to have had an effect on the quality of
data entry
...
The problem is accentuated by the fact that the
administrators are not subject experts and so do not understand the content and
context of the questions and answers they are inputting
...
This is potentially very serious, with students receiving questions
which have spelling mistakes or answers where none of the solutions is correct
...
However, this will be costly and the quality problems are
likely to remain
...
Currently, 20% of questions are immediately
rejected by the reviewer and a further 15% are sent back to the author for revision
...
This approach would also mean
that the administrators would not have to enter the suggested amendments (Update
Question), where further errors are almost certainly made
...
It is a central tenant of the gaps and disconnects redesign pattern
...
One
possibility is to move the tasks currently performed in the administration department
into the education department where the employees have a greater understanding
of the question subject matter and so are unlikely to make as many errors in data
entry
...
However, it seems unlikely that the education department would
welcome the suggestion and there seems likely to be staff issues and changes,
reducing the number of people in administration and employing higher-cost
employees in education
...
For example, the Select
Reviewer process (Education) could be performed before the questions are
submitted
...
The need for anonymity would seem to preclude the direct
despatch of questions from the author to the reviewer and this could reduce the
efficiency of the proposal
...


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P AP ER P 3 : BU SIN E S S A N AL Y SI S


...
This may be due to some agreed separation of duties between
administration/education and the processing of payments
...
It is essentially an
administrative process (as it has no apparent financial implications) and so should be
performed by either administration or education
...

The re-engineering pattern essentially starts with a blank sheet of paper and the
process is re-designed from the beginning focusing on its goals
...


ial

ter

ym
a

The indication of the acceptability of the question is now the responsibility of the
reviewer
...
Rejection would lead to the automatic raising of
a reject notification which is sent electronically to the author
...


tud

This re-engineered solution potentially removes IAA departments from the process
completely, except for payment by Finance and even this could be automated
...
There may also have to be fewer employees in
Education, although they could perhaps be redeployed on more strategic issues
...


fre

ea

Speed of implementation: The software package is already available in the market
...
The IAA only has to configure it for its environment
and populate it with data
...
Thus, as
speed to market is an important issue for IAA, the software package solution has
significant implementation advantages over the bespoke build
...
Faults will be
found that will need fixing and this will delay the availability of the package
...
The
software package is already implemented at a number of sites and it can reasonably
be assumed that most faults will have been found and fixed
...


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Whether or not it qualifies for the term ‘re-engineering’, a radical solution is to
implement a workflow-type system where the author enters the question into a
computer system and the question is routed automatically (through anonymously
preassigning reviewers to authors) to the specified reviewer
...
Furthermore, if
they do, these can be corrected by the reviewer
...


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...
Much will depend upon future requirements and the
design quality of the software
...
Such fees will include further fault fixes (which would be an
unpredictable cost in a bespoke build) and new features requested by the user
community and with costs shared across all users
...
Furthermore,
although less appropriate in the IAA scenario, the software supplier will also build in
legislative changes or requirements
...


tud

Access to expertise: It might also be expected that the software provider will have
built up a considerable amount of domain expertise in implementing software at a
number of examination boards
...
It is difficult for many companies to frame requirements outside
their normal ways of business and hence many bespoke systems are restricted to the
requirements envisaged by people whose horizons are restricted by their experience
of the organisation they are currently working in
...


ea

cc

as

Initial cost: No information is provided about the price of the software package
solution
...

Because the software is already built, its contribution to overheads (or profit) of the
software producer is likely to be very significant
...
It is also increasingly popular to pay for
packages on a ‘fee-for-use’ basis with the software provided through a browser
application
...
In contrast, most bespoke
builds have to be paid for in full as soon as the software is delivered
...
Although it is possible to tailor packages to fit requirements, this is not
good practice
...
The users must be
advised that they may not be getting the system they required in the initial
requirements gathering stage
...
Users
may have to change the way they work, re-assess how they want to work and adjust
to how the software package actually allows them to work
...
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Try before buy: The requirements for a bespoke build are specified in text and in
appropriate models
...
At this stage it is usual to find misunderstandings
that need to be rectified
...
Any failure to fulfil requirements can
be identified prior to the package being purchased and presumably this was part of
the evaluation of competing software solutions undertaken by IAA
...


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They applied themselves to the
scenario and generally came up with solutions that addressed the problem
...
They
described general re-design principles and patterns and made, at best, fleeting reference to
how these could be applied to the scenario
...
What is the point of the examiner developing a
scenario, if the question can be answered with abstract textbook descriptions?

25

ym
a

ter

In part (b) too many candidates answered this part of the question with long answers giving
the general disadvantages of a package solution (erosion of competitive edge, problem of
long-term lock-in) which were irrelevant to the actual question asked
...


FLEXIPIPE

tud

Key answer tips

A critical evaluation of using the software package approach at Flexipipe could be
structured around three factors
...
The second factor focuses on the difficulties of selecting an appropriate
package in an environment where requirements are difficult to define and are still
subject to change
...
Each of
these factors is now considered in turn
...


fre

ea

cc

(a)

as

This is an area that is regularly examined but which really tests a student’s breadth of
knowledge across the syllabus
...
Students who are familiar with
the material should find that they can score quite well on this question, but others who lack
the required the knowledge are unlikely to be able to rely solely on business sense and
could score very poorly
...
By definition such packages are available to all companies in
a sector or market and so any commercial advantages offered by the package are
available to all organisations competing in that market
...
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m

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The process is strategically important
and relatively complex
...
Thus, in the context of
Flexipipe, a bespoke software solution would, from the outset, appear to have been
more appropriate
...
It
was often difficult for them to explain why they had taken certain effective decisions
...
If significant requirements are missed or misunderstood then it is
difficult to address the problems this might cause
...
The first
approach is to ask the software vendor to integrate these requirements into the next
release of the package
...
The second approach is to ask the software vendor to build a tailored
version of the application to fulfil specific requirements
...
The final approach is to seek a
manual work-around for the missing requirements
...

Whichever approach is taken, it is likely to either reduce the benefits or increase the
costs of adopting a software package solution
...
There
is no guarantee that the software vendor will develop the package to fit newly
emerging requirements and so the issues of tailoring and work-around will again
have to be considered
...

Payroll and integrated accounts applications are typical of this
...


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...
It provided the company with significant competitive edge over their
competitors
...
Indeed, this is what happened, with the new
system unable to replicate the flexibility and efficiency of the existing one
...
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P AP ER P 3 : BU SIN E S S A N AL Y SI S

Absence of mature procurement process and management expertise

In the context of the Flexipipe project, here are some of the issues that could have
been addressed by a formal software package evaluation process
...

A generic evaluation process is insufficient
...
In general, there are significant risks
associated with the long-term viability of software suppliers and the maintenance of
software applications that are critical to the company
...
It is feasible that a software
supplier might be bought by a competitor of Flexipipe, threatening long-term supply
...
The software program code belongs to the
company (not the supplier) and its long-term development is under its control
...
In some instances a bespoke IT development may
be better suited
...
If it had been used at Flexipipe then it seems likely that the
software package approach would have been abandoned at an early stage of the
project
...
Difficulties with specifying requirements may again lead
to a re-consideration of the bespoke approach
...
The inference is that these requirements were either
not specified or were incorrectly specified in advance and so were not part of the
package assessment
...


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...
This was a very risky project in
which to try and establish a process and select an appropriate package
...
This caused
short-term production problems, although an alternative supplier had eventually
been found
...
The company appears to have a very immature
procurement process
...
com
AN S WE R S T O P RA C TI CE QUE S TI ON S : S E CT IO N 3

ym
a

ter

ial

Suppliers who submit tenders must be evaluated against criteria agreed in advance
...

In the context of Flexipipe this would involve setting standard measures and
minimum values for liquidity, gearing and profitability
...
That is,
how a package with limited functionality from a well-established, financially sound
supplier is evaluated against a more functional, usable package from a newly
established company with high financial gearing and low turnover
...
In the context of the scenario, appropriate financial checks should
have identified the high gearing and poor liquidity of the supplier that eventually led
to its collapse
...
It is important to establish the ‘fit’ between the
requirements and the potential solution and to use this ‘fit’ in the final selection
...
However, if the ‘fit’ is known and understood in advance then
negotiation with users may lead to them dropping, modifying or finding workaround
for these gaps
...


(a)
(b)

ACCA marking scheme

ea

cc

as

Finally, a planned implementation is an important part of the process
...
This is a risky approach,
even in circumstances even with experienced users and in a situation where the
software product is a good fit with their requirements
...
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Marks
12
13
––––
25
––––

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m

The tendering method has to be made more formal and competitive
...
A more formal process would have had a
mechanism for finding these potential suppliers
...
This
is an important step because it allows a transparency in the process, and avoids
selecting a supplier purely on the recommendation of one internal employee: as in
the case of Flexipipe
...


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...
However, as in question three
(see later notes), too much focus was on describing a process for software package
procurement as opposed to how it would address the problems experienced by the
company
...

Now look at the requirements before reading the rest of the question
...


fre

ea

cc

as

•
•

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...
It was agreed that credit
should be given for this alternative interpretation of the question, but it must be stressed
that candidates must carefully read the whole of the question and determine what is
required in the context of the scenario
...


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g
...
e
...


Answering the question

Part (a) Primary activities of the value chain

tud

As the examiner’s comments point out, the key issue to remember here is that there are only
five marks available for describing the five primary activities
...


as

Part (b) Upstream supply chain management
This may be the toughest part of the question as we are told very little about PS’s upstream
chain after the first paragraph in the question
...
The examiner suggests that there are 3 marks available
for each valid point made
...
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(b) restructuring the upstream supply chain
They key here will be to focus on suppliers (and even the suppliers of suppliers)
...
A
lot of the key points needed have already been read in the first paragraph of the
question
...

Reading the question


...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

Part (c) Downstream supply chain management

Inbound logistics: Handling and storing bulk orders delivered by suppliers and stored
on large pallets in regional warehouses
...


ter

(a)

ial

So there are many areas to consider for improvement
...


ym
a

Operations: Splitting bulk pallets into smaller packages, packing, sealing and storing
these packages
...

Marketing and Sales: Specially commissioned signs and personalised sales literature
...


Perfect Shopper currently has a relatively short upstream supply chain
...
Their main strength at the
moment is to offer these branded goods at discounted prices to neighbourhood
shops that would normally have to pay premium prices for these goods
...


Examining the arrangements for the delivery of products from suppliers to the
regional warehouses
...
It appears that when Perfect Shopper was
established it decided not to contract its own distribution
...
It is likely that competitors have established contractual
arrangements with logistics companies to collect products from suppliers
...
A significant distribution contract would probably
include the branding of lorries and vans and this would provide an opportunity
to increase brand visibility and so tackle this issue at the same time
...
At present,
Perfect Shopper only provides branded goods from established names to its
customers
...
Perfect Shopper might look at the following
restructuring opportunities within this context:

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AN S WE R S T O P RA C TI CE QUE S TI ON S : S E CT IO N 3

•

ter

ial

The suggestions listed above assume that Perfect Shopper continues to only supply
branded goods
...
This will raise a number of
significant issues about the franchise itself
...
It has
not really had to understand how these goods sell in specific locations because it has
not been able to offer alternatives
...
However, if Perfect
Shopper decides to commission its own brand then the breadth of products is
increased
...
It would also
increase the visibility of the brand
...
It could easily produce an own brand that
reduces the overall image of the company and hence devalues the franchise
...

A number of opportunities appear to exist in the downstream supply chain
...
At present, distribution to neighbourhood shops is in the hands of
locally appointed contract distributors
...


fre

ea

cc

One of the problems identified in the independent report was the inflexibility of the
ordering and delivering system
...
Variations can be made to this standard order, but only increases – not
decreases
...
However, this may cause at least two problems
...
This causes problems for Perfect Shopper
...
This potentially creates problems for the shop owner,
who may also begin to question the value of the franchise
...
This would also remove the
requirement for a three monthly meeting between the franchisee and the sales

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Contracting the supply and distribution of goods also offers other
opportunities
...
Essentially, distribution, warehousing and packaging could
be outsourced to an integrated logistics company and Perfect Shopper could
re-position itself as a primarily sales and marketing operation
...
Their reliance on supplier deliveries suggests
that the relationship is a relatively straightforward one
...
There are many examples where organisations have
allowed suppliers access to their information to reduce costs and to improve
the efficiency of the supply chain as a whole
...
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Investments in IT systems will be required to
support this, with participating shops placing orders over the Internet to reflect their
requirements
...



...
It seems
unlikely that individual shopkeepers would be able to establish and maintain their
own Internet-based service
...
Again there are issues about scope, because Perfect Shopper does not offer a
whole-shop service
...
In his electronic shopping
potential test any product scoring over 20 has good potential
...


(a)
(b)

tud

ACCA marking scheme

Marks
5
10
10
–––
25
–––

Up to 1 mark for each part of the value chain up
Up to 3 marks for each relevant point relating to the scenario
Up to 3 marks for each relevant point relating to the scenario

as

Total

cc

Examiner’s comments

ea

This question began by asking the candidate to identify the primary activities of the
company’s value chain
...
The next two
parts of the question asked candidates to explain how the company might re-structure its
upstream and downstream supply chain to address the problems identified in the case
study scenario
...
In contrast to question two, most candidates explicitly referenced the
case study scenario and some excellent answers were produced
...
Some candidates wrote two or three pages on this, to gain the five
marks on offer, when perhaps ten lines might have been sufficient
...


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Perfect Shopper may also wish to investigate whether they can also provide value
added services to customers, which not only simplify the ordering system but also
allow the shop managers to better understand their customers and fulfil their
requirements
...
This is already acknowledged because Perfect Shopper
produces tailored marketing material aimed at the end-consumer
...
However, this may be
culturally difficult for independent neighbourhood shopkeepers to accept
...

However, a whole shop sales analysis might be a useful service to offer existing and
potential franchisees
...
com
AN S WE R S T O P RA C TI CE QUE S TI ON S : S E CT IO N 3

27

JAYNE COX DIRECT


...
The examiner has made the point that
students 'will only be given credit for suggestions that use technology (rather than
organisational changes) and that are clearly relevant to the case study scenario and the
products it concerns'
...


ter

ial

The value chain was introduced by Michael Porter as a way of examining all the
activities a firm performs and how these activities interact
...
The value chain of the organisation is concerned with
creating value for customers
...


ym
a

The primary activities of the value chain are the activities required to physically
produce the product, get it to the customer and provide that customer with aftersales service and assistance
...
In general,
they support the whole value chain
...
This includes warehousing, inventory control and raw materials
...
It
concerns the storage of these raw materials before they are used in production
...
High inventory levels
are also commented on in the scenario and these need further investigation
...
At Jayne Cox Direct this is the
production process of furniture manufacture
...
The reasons for this again need further investigation
...
Alternatively, there may be
inefficiencies in the production process which need addressing
...

Outbound logistics – activities associated with storing finished goods and physically
distributing these to the customer
...
The
cost of storing of finished goods is exacerbated by the need to store them longer
than is necessary
...
The first is concerned with
customers not being able to meet revised delivery dates and so deferring delivery
...
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The second reason is the return and storage of goods where delivery cannot be made
because the customer is not at home to sign for them
...
Failed deliveries increase administrative costs
(a member of the sales team has to telephone customers to re-arrange the delivery)
and distribution costs (the delivery has to be made again)
...
co
m

ter

ial

Servicing – activities that enhance or maintain the value of the product, including
repair, parts supply and product adjustment
...
Customers are critical of after-sales service at Jayne Cox Direct and the
managing director believes that this contributes to low customer retention
...
Only one
of these is specifically relevant in the context of the Jayne Cox Direct scenario
...

Clearly there are many possibilities
...


cc

as

(b)

tud

Procurement refers to the function of purchasing inputs used in the organisation’s
value chain
...
The cost of the
procurement function may be relatively small, but their practices greatly affect the
quality and cost of the final product
...
The
long-term arrangement with suppliers needs investigating
...
Such arrangements may lead to suppliers becoming
comfortable and progressively uncompetitive
...


fre

•
•
•

ea

The upstream activities concern selecting suppliers (procurement), placing orders
(procurement) and storing raw material inventory (inbound logistics)
...
Three of these six are relevant to
Jayne Cox Direct
...
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At Jayne Cox Direct this is achieved largely by display advertising in quality
magazines and through a web-based ordering system
...
The estimated
delivery time is given after the order has been placed and this causes some
customers to immediately cancel their orders
...


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...
The payment system (operated by accounts) sometimes fails to match
purchase orders with supplier invoices, leading to delayed supplier payment and
discontent
...
This may require the company to continue to
trade with a selected number of small suppliers, but it should help avoid nondelivery, reduce administrative costs and improve supplier relationships
...
This would require further investigation and it seems likely that it
would work better for certain raw materials than others
...
This should lead to Jayne Cox Direct achieving a higher
percentage of planned customer order dates, as well as reducing delivery lead time
...
Closer integration
of customer and supplier systems also provides the opportunity for ‘just in time’
manufacture where raw materials arrive just before they are needed in the
production process
...
Reduced inventory costs for the supplier might also be passed on to
Jayne Cox Direct, resulting in lower input costs
...

Downstream supply chain solutions

fre

Downstream supply to customers is relatively simple as there are no intermediaries,
as the company supplies directly to the consumer
...
A further challenge cited by Dave Chaffey
is relevant here, the need to improve aftersales/post-sales operations (service on the
value chain)
...
Furthermore,
although processing orders is relatively effective, customers feel uninformed in the
period between order placement and order fulfilment
...
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m

As mentioned in the answer to the first part of this question, procurement
continually uses the same long-established suppliers (for example, 95% of timber
comes from three established suppliers)
...
The company might consider using e-procurement
websites to identify a wider range of suppliers and then select between these
suppliers on the basis of cost and quality when placing individual orders
...


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The processing and payment for the goods appears
to go quite smoothly and an estimated delivery date is given to the customer at the
time of order
...
Many actual delivery dates are not the same as the original estimated
delivery date because of procurement issues
...
An IT system that allows the customer
to track their orders; updates likely delivery dates as they become available and gives
the customer some feeling of progress and involvement would increase customer
satisfaction and, by increasing the chance of achieving target delivery dates, reduce
inventory cost and other expenses
...
Using
technology to provide answers to frequently asked questions (how do I get stains out
of the upholstery), make and handle complaints and order replacement materials
(particularly textiles) would appear to be beneficial
...
Newsletters, special offers for established customers and targeted emails
should also boost customer retention
...

1 mark for each appropriate point up to a maximum of

cc

(a)
(b)

Marks
12
13
––––
25
––––

Examiner’s comments

fre

Part (a) was relatively well done, although many candidates started to suggest ways of
overcoming these weaknesses, which was the really the focus of the second part of the
question
...

Part (b) was relatively well answered, although too many candidates forgot to focus their
answer on technology and strayed into organisational responses (outsourcing,
restructuring) which were not part of the requirement
...
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m

To introduce technology to support the planning and co-ordinating of deliveries so
that delivery vans are used more efficiently and effectively
...
The products being delivered are bulky and valuable and so it is vital that
someone is available at the delivery address to receive them
...
Technology could be
used to improve van utilisation (route planning software) as well as increasing the
chance of a customer being at home (automated emails to the customer, automated
text messages confirming delivery that day, perhaps confirming likely delivery time)
...
com
AN S WE R S T O P RA C TI CE QUE S TI ON S : S E CT IO N 3

28

PROTECH-PUBLIC

The scenario suggests a number of reasons why outsourcing should be beneficial to
the city authority
...
However, the issue
is not necessarily when to start trading using this medium, but whether or not to start
trading
...

Many of the points that are relevant to the IT strategy of an organisation such as cost and
support of core business will also be relevant in this situation
...
As a rough guide, you should have about six topics to discuss in order to achieve a good
pass standard
...
The
authority has recruited to meet short-term demand but, because of the problems of
shedding labour, the IT department has not proportionally contracted once that
demand has passed
...
The outsourcing model provides a way of matching supply to
demand
...


as

tud

There has been a history of conflict between managers in the IT department and
managers in the Finance Department
...
Employee surveys by the HR
department have reported that morale is low in the IT department, despite above
average pay and relatively secure employment
...


cc

The chief executive and his team would be able to focus on delivering services to the
city, rather than spending time and energy on resolving internal problems
...
Outsourcing IT would give him more time to address external issues and
services, which are the primary objectives and responsibilities of the authority
...
This is reflected in the ingratitude of users towards IT staff (‘we are
always being told that we are overhead, not core to the business of the authority’)
...

Finally, the dispute between IT managers and finance managers has still not been
resolved
...
In reality, the inability to resolve internal
political problems is often given as an important reason for outsourcing
...
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m

Key answer tips

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...
It is
proposed that these analysts will now move to a new BA department reporting
directly to the chief executive
...
They will be responsible for liaising between users
and the new, outsourced IT company
...
The question focuses on new or enhanced competencies they
will need, rather than generic skills such as ‘good communication skills’ and ‘team
working’ which they would have needed when they were sited in the IT department
...
The formation of a separate company in which the city
authority has a significant stake might provide an appropriate vehicle for gaining
contracts with other authorities
...
Profits made
by the company may be distributed by dividend to the authority, bringing in income
that can be used to reduce taxes or improve services
...
The CEO expects them
to be ‘outward looking and unconstrained by current process and technology’
...


ea

cc

as

Business case development The absence of cross-charging suggests that business
cases were relatively simple in the authority and it appears that business analysts
were not involved in the process
...
If the solution requires an IT element then there
are now very tangible costs which will be charged by an external supplier
...
The supplier will need well specified
requirements to estimate from
...
The business analyst will also have to participate in benefits
realisation, assessing whether the promised benefits had actually been delivered at
the cost envisaged in the original proposal
...
For example, they might
suggest a small change to a clerical business process that delivers significant benefits
...
Business process modelling and redesign skills will be needed to
facilitate this
...
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The director of IT is keen to exploit the opportunities of web services and cloud
computing but has not been able to recruit someone of sufficient calibre
...
An outsourced IT supplier should have a much greater
range of knowledge and skills that it can then make available to its customers
...


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...

1 mark for each relevant point up to a maximum of 7 marks
...
The business analysts will have to gain supplier and
contract management skills, allowing them to successfully manage this relationship
...
Most candidates answered this
relatively well, although many did not recognise that the formation of a joint company
might itself bring significant advantages to the city authority
...
They might be particularly
attracted to working with a company which has significant public sector expertise and
ownership
...


fre

ea

cc

The scenario acknowledged that business analysts within the city authority will need to
gain new or enhanced competencies
...
Some of these were clearly signposted in the scenario; for
example, strategy analysis and business case development
...
Thus it should have been
relatively easy to identify competencies around strategy, business cases, requirement
definition and procurement
...
However, in practice, this was not the case
...


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...
However, the
scenario suggests a relatively flexible relationship with users, with changes to
requirements being accommodated right up until software release
...

Hence in the outsourced arrangement there will be a need for business analysts to
define requirements more completely and also to manage changes to those
requirements
...
The business analyst may also be involved in testing the solution
received from the supplier
...
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P AP ER P 3 : BU SIN E S S A N AL Y SI S

29

GOOD SPORTS


...
Part (a) wants
you to discuss fairly generic advantages and disadvantages of e-business (the resource audit
model would be a useful one to use here)
...
A key issue to pick up on in part (b) will be the loss
of competitive advantage that Good Sports gets from its personal contact with customers
...

In many ways the advantages and disadvantages of e-business are best related to the
benefit the customer gets from the activity
...

Second, there are new business opportunities for information-based products
and services
...

Fourth, there is far greater ability for interaction with the customer, which
enables customisation and a dialogue to be developed
...


ym
a

•
•
•

tud

•
•

Good Sports has pursued a conscious niche or focus differentiation strategy, seeking
to serve a local market in a way that isolates it from the competition of the large
national sports good retailers competing on the basis of supplying famous brands at
highly competitive prices
...
The
key to Good Sport’s survival is customer service – in strategic terms they are very
much niche marketers supplying specialist service and advice to a small section of the
local market
...
There are therefore limits to the ability of e-business to replace such contact
...
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CRONIN AUTO RETAIL

tud

30

ym
a

ter

ial

However the personal advice and performance side of the business could be linked to
new ways of promoting the product and communicating with the customer
...
The partners are anxious to avoid head-on competition
with the national retailers
...
There is considerable scope for innovation that enhances the
service offered to their customers
...
The Internet can provide a relatively cost effective way of
providing greater service to their customers
...
Overall there is a
need for Good Sports to decide what and where its market is and how this can be
improved by the use of e-business
...
Candidate answers do not have
to be strictly classified within each of the factors identified below
...


cc

(a)

as

The requirements were very clear, but, to score well in this area, students would have had
to make their points as relevant as possible to the scenario
...


fre

ea

Interactivity concerns the development of a two-way relationship between the
customer and the supplier
...
Their current website continues this approach, with
the stock listing essentially representing a continually updated, but widely accessible,
display advertisement
...
However, it still
remains a ‘push technique’ with little dialogue with the customer
...
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In terms of price, e-business is bringing much greater price transparency – the
problem for companies like Good Sports is that customers may use their expertise to
research into a particular type and brand of sports equipment and then simply search
the Internet for the cheapest supply
...
The Internet has tended to weaken industry profitability and made it
more difficult to hold onto operational advantages
...


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Other legitimate suggestions will also be given credit
...
Both questions and answers are published
...
It also
creates a great enthusiasm around the car
...



...


(3)

Once a purchase had been complete, CAR might encourage feedback which
could be published on the website
...
This may be in the
form of testimonials, or in the form of more structured feedback that e-bay
encourages
...


ter

ial

Many buyers would like to test drive a car before they purchase it
...


as

tud

ym
a

Intelligence is about identifying and understanding the needs of potential customers
and how they wish to be communicated with
...
Currently CAR does very little research
...
Collecting email addresses through promotions and interactivity initiatives
(see above) provides a much greater pool of potential customers who can be kept
up-to-date through email
...
At present, the buyers for CAR
use their experience when buying cars at auction and there is some concern that
they buy what they would like to drive, not what the customers want to drive
...
This may lead to a change in
buying policy
...

Personalisation is a key element in building an effective relationship with the
customer
...
This approach may also be used for current customers
...
For individualisation to be
successful, sufficient details must be collected through the intelligence and
interactive facets of the ‘6 Is’
...
This may
concern inviting customers to return their cars for servicing at the correct dates or
offering services only appropriate to that type of car
...

Independence of location concerns the geographical location of the company
...
For many
companies this gives opportunities to sell into international markets which had
previously been inaccessible to them
...
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ter

E-procurement looks at the opportunities presented by automating aspects of
procurement to improve the performance of the five ‘rights’ identified above
...
Solutions may vary
from the simple automation of part of the system, to re-thinking the way the
company does business
...
The first is
production-related procurement and is directly related to the core activities of the
organisation
...
The second is non-production
procurement
...
On average this attendance costs the company $500 per day, leading to the
purchase (on average) of five cars
...
This cost could be eliminated if cars were
purchased through e-auctions, with bids made on-line
...
CAR prides itself in the personal selection of its
cars
...


fre

ea

cc

The parts needed for servicing and mechanical repairs are ordered from motor
factors or manufacturers
...
This is known as systematic sourcing
...
The first problem is the delay in the purchasing cycle
...
This is particularly problematic when a customer’s car is in
the garage awaiting a part
...
The second problem is the cost of the paperwork and the
processing time of the procurement manager associated with the purchase
...
00 and 16
...
Mechanics work 07
...
00 and are frustrated
that they cannot make orders outside the times the procurement manager is at work
...
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It
is concerned with sourcing items at the right price, delivered at the right time, to the
right quality, in the right quantity and from the right source
...


ial

(b)


...
Most sales are to
customers who are within two hours’ drive of the CAR premises
...

Independence of location would be more significant if CAR was selling collectors or
classic cars where each car is relatively rare and people are prepared to travel long
distances to view the car they are interested in
...


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...
Christa Degnan (quoted in Chaffney, EBusiness and E-Commerce Management) suggested that for ‘every dollar a company
earns in revenue, 50 cents to 55 cents is spent on indirect goods and services – things
like office supplies and computer equipment
...
By driving costs out of the purchasing process, companies can increase
profits without having to sell more goods’
...
It uses the same
process for office supplies as it does for car parts
...
With little differentiation between products, it is the
availability and cost of the product that become the most significant aspects in the
procurement process
...

Overall, e-procurement should reduce the administrative burden on the
procurement manager, giving him or her the opportunity to concentrate on
negotiating terms, agreements and product standardisation; more strategic tasks in
the procurement process
...
Up to 1 mark for appropriate point that applies them to the
scenario up to a maximum of
Up to 1 mark for each appropriate point up to a maximum of

Marks
16
9
–––
25
–––

as

(a)

tud

ACCA marking scheme

cc

Total

Examiner’s comments

fre

ea

Part (b)(worth nine marks) was particularly well answered although many candidates
focussed on the problems of procuring stationery and motor parts, rather than the actual
cars themselves – the company’s primary procurement activity
...
The first part
of the question was also relatively well answered, although the independence of location
was something of a red herring
...
The better answers identified that the principle of independence of location was
NOT particularly relevant to the case study organisation
...
Just as
you must not assume that case study characters are correct or virtuous, you must also not
assume that all academic assertions and principles are always relevant to the case study
environment
...

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...
A direct ordering system should also reduce
administrative errors and enhance customer goodwill
...
Parts could be
sourced from a number of suppliers, taking advantage of the lowest prices for each
part
...


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There is heavy capital expenditure – for example, on new equipment
...


ter

•

Here are three examples of how ARG could make strategic use of IT
...
If a flight is well booked early on,
few seats need to be released for cheap fares
...

Code sharing with other airlines can give passengers a better, more
comprehensive service
...


ym
a

•

(b)

tud

IT will be so fundamental to the success of ARG that without a successful IT strategy
its success will be at risk
...
These problems can range from
inadvertent mistakes to malicious damage or corruption of information and
files
...
This is potentially an extremely
dangerous situation and the entire operation of ARG could be put at risk if
these accesses are not properly controlled
...
ARG WAN users could access such
material by accident or design
...

Internet security is not as comprehensive as it could be and it is possible to
download virus-contaminated material
...


ea

cc

•

fre

•

•

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...
In part (b) you need to identify that there are two parts to the
requirement; firstly, the risks involved, and secondly the controls that can be put in place to
reduce these risks
...
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The security aspects of the internet are continually being improved and many of the
dangers should disappear over time
...

Security controls

Passwords

ial

Passwords would be used to verify a user on the system
...
When anyone logged into the
system their user code and password would have to be verified before admission to
the system
...
Data would be
encrypted before transmission to ensure that if the transmission was intercepted it
would be difficult for anyone to read the data
...
ARG employees should not have access
through the network to the other WAN customers' systems and vice versa
...
The product, stock or booking
systems that would be available for viewing and booking by customers should be
completely separate to the management information systems of ARG and its WAN
customers
...


fre

Software selection is a common exam area and one that relies as much on knowledge as it
does on application
...
But if these
problems are avoided, and students have the requisite knowledge, this is a question where
some students can score very highly
...
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It would be essential that security controls are put into place in order to minimise the
risk of virus or hacking
...
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AN S WE R S T O P RA C TI CE QUE S TI ON S : S E CT IO N 3

(a)


...
Other answers with an appropriate approach
will be given credit
...
This was avoided by negotiating the price
down to below the capex threshold at Bridge Co
...
The failure to produce a business case has
two consequences
...
These were either avoided (such as the
training costs) or had to be funded out of the operational budget (the cost of data
migration)
...
These could have been
financial benefits (so could be compared with costs using an appropriate investment
appraisal technique) or they could have been intangible benefits (such as improved
customer satisfaction)
...
The failure to document the anticipated
benefits in advance means that although the software is being used, there is an air of
disappointment and deflation about the project outcome
...
No formal requirements definition was performed at Bridge
Co
...
She felt that the requirements would be very similar at Bridge Co
...
The
sales and marketing staff appear to be quite happy with the features of the software
and, indeed, it has provided valuable functionality which they did not anticipate
...
These
concerned the technical interface with the order processing system and the overall
slow performance of the software
...
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A
framework such as the Harmon process – strategy matrix could be used
...
Generally, CRM
applications are likely to be relatively complex and of medium strategic importance
...


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Even just following
the capex requirements at Bridge Co would have forced the sales and marketing
department to consider three competitive responses to their requirements
...
It may have been possible to find a
solution which did fulfil the technical interface requirements and achieved the
required performance
...
It would have introduced an element of due diligence and transparency
which is missing from the project
...

Contracts are usually framed in favour of the software supplier
...

First, the legal jurisdiction of the contract; this could have been changed, through
negotiation, from Solland to Deeland
...
Again, this would probably have
been removed after negotiation (or a preferential contract rate agreed)
...
They need to be reviewed
before the purchase is completed
...

Stage 6: Implementation

The Custcare solution did provide a quick solution to the CRM requirement at Bridge
Co
...
It would be at least 18 months
before the IT department could even start to look at the sales and marketing
department’s requirement
...


fre

(b)

ea

cc

Effective training, appropriate documentation and successful data migration are
central to the success of the project
...
Omitting training has been a false economy at Bridge
Co, leading to too much use of an inadequate support agreement
...


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...
More thought could also have been given to supplier requirements: what
Bridge Co would like from the supplying company
...
At the end of the interview Mick says, ‘I just wish we had chosen a product
produced by a company here in Deeland
...


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In general, software packages, where the cost of
development and maintenance is shared amongst many customers, are usually much
cheaper than bespoke alternatives
...
The internal IT department has quoted a price of $18,000 just for
requirements analysis
...


ym
a

ter

There have been no complaints about the robustness of the Custcare solution
...
In general, software packages are of better quality than
bespoke alternatives
...
It is impossible to exhaustively test bespoke solutions, so they are often beset
with robustness and reliability problems, particularly in the period just after
implementation
...
A piece of bespoke
software could be developed as a bridge between the CRM and the order processing
system
...
The performance of the software could be addressed by improving the
specification of hardware at Bridge Co, or by scheduling jobs so that complex reports
and queries are run when the system is not busy, for example, overnight
...
Overall, the software
package approach still seems a reasonable way forward
...

1 mark for each relevant point made for discussing the relative advantages of
a software package over a bespoke solution up to a maximum of 10 marks
...
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The Custcare solution did provide comprehensive functionality
...
It did all the things they
wanted it to do and it also gave them ideas and possibilities which they would never
have thought of
...
Custcare allows an
organisation without a CRM, such as Bridge Co, to quickly get up to speed and to
offer services as least as good as some of its competitors
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

Examiner’s comments

ter

ial

Part (b) should have been a relatively straightforward part question
...
Many candidates did get good marks on this part question, but far too
many quickly gave the advantages and then, at similar length, described the disadvantages
of the software package solution, which was not required
...
Some
candidates wasted a lot of time by inappropriately answering this question
...


AEC

Walk in the footsteps of a top tutor

Tutor’s top tips
Approach to the question

tud

33

ym
a

MARKETING

If, as always, you start by reading the first paragraph only the following can be determined:

as

the business runs accountancy courses
it is a worldwide business

cc

it also targets the CPD market (though this is underperforming)

ea

Now look at the requirements before reading the rest of the question
...

Requirement
(a)

The characteristics of electronic marketing

fre

The key to most requirements is to choose the most appropriate model – in this case
the best model is McDonald and Wilson’s 6I’s model (as suggested in the official exam
text)
...
The 6I’s model best achieves this
...


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...
Too many answers identified a problem in the scenario and
then suggested how this might have been avoided
...


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m

In this part of the question you are asked to use e-marketing
...
The most appropriate model will be the 7P’s model and you could approach this
in the same way as part a) – set could set up a planning page with the 7P’s listed out
and then add points to this plan as you read the question
...
e
...


ial

AEC provide three products – training for professional examinations, material for
these courses, and CPD courses
...


•

AEC have recently won a large, new customer
...


•

The company are planning to switch from traditional marketing to e-marketing but
won’t do both – there is only a 3% overall increase in marketing forecasted
...


ym
a

ter

•

Answering the question
Part (a) 6I’s

tud

As stated, if you have fully understood the impact of the final paragraph of the question,
then there will be a mark or two for explaining that the e-marketing benefits will have to
outweigh the loss of the traditional marketing channels
...


as

There are 10 marks available and if you work to the normal rule of 2 marks per well
explained point then you only have to cover 4 or 5 of the 6I’s
...


fre

ea

cc

For example, using independence of location, traditional marketing can be used to target
customers in all parts of the world
...
So e-marketing should make it easier and therefore more attractive to
customers to choose AEC as their training provider
...


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The key issues to pick out from the question as are as follows:

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As this is e-marketing it will probably be best to extend the traditional 4P’s of the marketing
mix to the 7P’s i
...
we should include a discussion of processes, physical evidence and
people
...

Using physical evidence for example, the website could stand out if it had useful links to
other websites
...
For CPD courses, these could be links to relevant legislative bodies,
standards, tax authorities etc
...


ym
a

ter

ial

A key characteristic of traditional marketing media such as advertising and direct mail
is that it is predominantly a ‘push’ technology where the media is distributed to
customers and potential customers
...
In contrast, the
new media, particularly the Internet, is predominantly a ‘pull’ technology – the
customer having initiated the visit to the web site
...
The marketing manager must be
careful that, by switching so much of her budget to pull technologies, she does not
forego opportunities to find new customers – or reinforce her message – through
established push technologies
...


tud

Dave Chaffey examines the difference between traditional and new marketing media
in the context of six ‘I’s; interactivity, intelligence, individualisation, integration,
industry restructuring and independence of location
...


ea

cc

as

Interactivity is a significant feature of the new media, allowing a long-term dialogue
to develop between the customer and the supplier
...
To initiate this dialogue the web site
must capture information such as e-mail address, name, age, gender and areas of
interest
...
This is too restrictive and it will probably exclude all
the potential CPD customers
...
There is no evidence of AEC
contemplating the potential use of interactive digital TV or mobile phones to
establish long-term dialogues with their customers
...
This is
routinely available from web logs and these logs need to be viewed and analysed
using appropriate software
...
For example, AEC does not know how often their training course catalogue is
accessed and which pages are looked at
...
With the new media the company is able to see which services
and products are accessed and also to measure how many of these are turned into

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(a)

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In the context of AEC this
individualisation could be achieved in at least two ways to reflect clear market
segmentation
...
All students working for this company will
now be trained by AEC in one of its worldwide centres
...
However, the flexibility of the
new media means that a site could be developed specifically for this requirement
...
Information that is irrelevant to that customer, such as
CPD, would not appear on the site
...
Similarly, individuals may have their own access
customised as a result of the profile that they have entered
...
This is an example of the principle of mass customisation
that was only available in a limited form in the traditional media
...


The marketing mix has traditionally consisted of four major components: product,
place (distribution), promotion and price
...
Some authors, however, contend that these new elements are really only
sub-sets of the original four components
...
The
Internet effectively provides a worldwide market that is open 24 hours per day,
seven days per week
...
Furthermore, the web site might also omit the
actual physical location of the company because there is no requirement for
information to be physically sent to an address
...
AEC has exploited
this to some extent as it serves a world-wide market from no clear geographical
centre
...


fre

In the context of this question, the Ps, whether there are 4 or 7, provide a good
framework for the answer, although such a framework is not mandated
...


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...
This conversion rate may be an important source of information – for
example, why are certain web pages often visited but few sales result – is it a
problem with the web page? – is it a problem with the product? An understanding of
visit patterns allows the organisation to focus on particular products and services
...


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...
The
course training manual is a tangible physical product that can be handled before
purchase
...
This is an admirable policy
...
In contrast, the training courses are
services, bought on the promise of satisfaction
...
Such courses might be fully on-line or the
new technologies might be integrated with older ones, such as workshops and offline
assignments, to provide a blended approach to learning
...
AEC is already distributing course
catalogues and course schedules through the Internet
...
AEC might consider
having sample videoed sessions available on the web so that prospective customers
can assess the content and approach to training
...
At present students pay a fixed fee which gives them access
to the whole set of manuals
...
Lack of
confidence may deter the student from committing to the whole manual set at the
beginning of his or her studies
...
Consequently, it would appear more sensible to
allow candidates to select the manuals they require and pay a fee per manual, with a
discounted fee for buying the whole set
...
For example, travel booking,
accommodation services and entertainment bookings might be offered to qualified
accountants attending CPD courses
...
For example, new training manuals may need releasing every year
...
They can easily visit the sites of competing companies and compare
prices for similar products and services
...
The Internet makes products available
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If the product is not
‘right’ it is unlikely that the marketers will be able to persuade customers to buy the
product or, if they do buy it, to convince them to become repeat buyers
...
These opportunities emerge from re-considering
the core product or identifying options for extending it
...
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AN S WE R S T O P RA C TI CE QUE S TI ON S : S E CT IO N 3

ter

ial

The ability to continually update information on the Internet makes the dynamic
pricing of products and services attractive
...
It appears that AEC should also consider differential pricing, particularly using
early booking discounts to get the CPD courses up and running
...

However, there is the possibility that this will alienate people who have already
booked and paid the standard fee
...


tud

ym
a

AEC might also wish to consider an alternative pricing structure for the
documentation
...
However,
there may be large areas of the manual that the student is familiar with
...

Hence, students pay for a web service on demand – rather than through purchased
download
...

Finally, because off-line booking incurs administrative costs and overheads it is usual
to offer on-line customers a significant discount
...
People booking through an on-line channel now expect to get a
discounted price
...
AEC is already exploiting this global reach,
although it has to ensure that its products make sense in a global perspective
...
The dates and locations of training courses,
in their current format, is also globally accessible but is only really relevant to people
living in the geographical regions near to the eight training centres
...
The global reach
of the Internet can only be exploited in the context of the courses if they use the
technology discussed in the product section of this answer, perhaps exploiting the
price differentials discussed in the previous section
...
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worldwide but candidates in poorer countries are often unable to afford prices set in
richer parts of the world
...
There is a
risk of alienating people in richer countries but it may be a risk worth taking and it is
possible that candidates in these richer countries may perceive differential pricing as
ethical practice
...
However, there is still
a risk that customers buying at a lower price will then sell to buyers in the segments
that are charged a higher price – so AEC will have to monitor this
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

Promotion
Although AEC has an established web site it has not actively promoted it
...
From the technology perspective, AEC might consider the following to
increase its web site visibility
...
This remains the primary method of users finding
products and services
...
There are five main parameters on which search
engines base the order of their ranking
...

AEC must ensure that their web site is constructed in such a way that it has a
good chance of appearing on the first page of search engine listings
...
The current AEC site does not appear to link
(or be linked) to any other sites
...
It enables a customer browsing the
site to forward a page to a colleague
...


4

On-line advertising includes banner advertising
...
AEC must consider
this
...
Key issues to communicate are the
URL and the online value proposition
...
50% of the marketing manager’s
budget is being spent on off-line marketing media
...


fre

ea

This concerns the processes used to support the customer’s interaction with AEC
...

It provides information about the product and the location and cost of the product
...
Hence if a student
or a qualified accountant wishes to book on a course they have to physically contact
a person who then takes booking and payment details
...
It would be useful for AEC to
consider whether training purchase and post-sales processes could be integrated into
its web site
...
The automation of routine processes and answers to
common questions might help free up the company’s administrative resources as
well as providing a better service to customers and exploiting the Internet’s
independence of location
...
com/freeaccastudymaterial

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...
co
m

1

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...
co
m

2
2
2
2
2

ter

Total

–––
25
–––

ym
a

Examiner’s comments

4
3
2
4
2

as

tud

Part (a) asked candidates how such e-media differed in characteristics from that of
traditional marketing media such as advertising and direct mail
...
For example, electronic media allows
communication to be tailored to the individual or defined group of individuals
...
Within the
context of the AEC case study, AEC could provide tailored service and support to the
employees of the global accounting company whose training contract they have just won
...
This part of the question was relatively
well answered by candidates, many scoring seven marks or more out of the ten marks on
offer
...
The best answers adopted the marketing mix
as the basis of the answer; using the Ps (price, place etc
...
Unfortunately, many answers did not use the context of AEC at all,
despite it being a context which all the candidates taking this examination should have
been familiar with
...
This was a relatively straightforward question which, although answered
quite well, should often have been answered better
...
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P AP ER P 3 : BU SIN E S S A N AL Y SI S

34

HGT

ial

Part (a) of this question asks students to quantify the cost savings and revenue increases
...
The bulk of the marks
where for these calculations and the fact the business was making a loss and that a
contribution figure was given should have been the trigger that pointed students towards
break even calculations
...
Part (b) required the use of the marketing mix and was very broad in scope
...


Short term changes

tud

(a)

ym
a

ter

This question is more straightforward than it will have appeared to students
...

Hopefully, the use of the word ‘marketing’ in part (b) will point students towards the
marketing mix, but students then may struggle for time as they try to cover as many of the
7 elements of the marketing mix as possible
...


Tutorial note

as

Any short-term strategy which produces reasonably justifiable income increases or cost
savings (in the context of the scenario) is acceptable
...


fre

ea

cc

The annual fixed costs are $60,000
...
The
gardens are only open for eight months per year
...
The contribution from café sales is estimated at $1
...
Only 60% of visitors use the café, generating an annual contribution of
$6,000
...


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...
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AN S WE R S T O P RA C TI CE QUE S TI ON S : S E CT IO N 3

Immediate actions that might be considered include:

0
...
25 + 3
...
75n + 3
...
6 × 1
...
If visitor numbers do not increase
as significantly as a result of reducing the price to $3
...
In fact, reducing the price to $3
...


as

tud

Introduce a season’s membership card
...
This would
have the advantage of providing a short-term boost to cash flow
...
There are 8,000 visits per year, but the scenario
does not specify how many individual visitors there are
...
However, if an estimate of
6,000 individual visitors is used, then this would give a relatively immediate income
of 6,000 × 0
...
Obviously, income from future visits will be lost, but it could be argued
that the promise of subsequent free admission will encourage people to visit more,
leading to more use of, and income from, the café
...
The café was much more popular when it was located in the
gatehouse, where café users were not required to pay an admission fee for the
garden
...
It should be relatively easy to relocate
the café to the gatehouse because the site it previously occupied is still empty
...
25 contribution), or $5,000 over the eight-month season (8 × $625)
...
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25 = $48,750 admittance revenue


...
Surveys have
suggested that the price that consumers are willing to pay is $3
...
Reducing the
admission price to this level would mean that a breakeven visitor volume would be
15,000, assuming that 60% of these visitors still use the café and the contribution
from café sales remains $1
...
This assumes that the contribution from each
admission would be $3
...
Here are the workings, where n is the required number of
visitors:

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...


ial

Note: Although the savings from cancelling the subscription is long term (greater
than three months), the action to cancel has to be implemented immediately
...


Long term changes

as

(b)

tud

ym
a

ter

There is always concern that reducing advertising expenditure is an inappropriate
instinctive response to financial problems
...
The survey suggests that 5% of visitors heard about the garden
through the Heritage Gardens magazine
...
05), producing an
income of $287
...
00 (admittance fee: 50 × $5) and $37
...
6 × 1
...
So, the monthly cost of $500 per advert is only generating
$287
...
Furthermore, it has to be recalled that the survey only asked
respondents for one choice about how they heard about the gardens
...


Tutorial note

fre

ea

cc

There is considerable scope around all the ‘p’s of the marketing mix in the question and
candidates may well interpret the applicability of some of these as either short or long-term
strategies
...
Furthermore, the effect of cancelling the subscriptions might also be included
in this section as its effect will not be felt until three months’ time This model answer
focuses on product and promotion
...


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...
There have been some criticisms that the café menu
is limited in scope and does not offer substantial lunches
...
There may also be scope for
reducing supply costs
...
Currently, only 60% of garden visitors actually use the café
...
75 per visit and an increase to a 75%
take up of customers would lead to an increase of $4,500 in revenue ((8,000 × 0
...
75) – 6,000) over the eight-month season, based on current visitor numbers
...
com
AN S WE R S T O P RA C TI CE QUE S TI ON S : S E CT IO N 3


...
Most of the marketing is currently focused on the historical importance of
the garden and the efforts that have been made to restore it
...
This is
very much the trust’s perception of what is important, with a focus on history and
restoration
...
To them, the
garden offers an experience, and HGT needs to understand what that experience is
...
Certainly, the consumer survey
suggests that this is the motivation of 85% of visitors
...


ial

ter

ym
a

HGT has also just focused on the private visitor
...
The definition of the customer may also require redefinition
...
HGT has
assumed that there will be fewer visitors in the four months when the weather is
colder
...
Indeed, the reason given by 65% of the respondents for visiting the garden
arguably remains relevant in the colder period
...

The effect of extending the opening season on fixed costs will also have to be
evaluated
...
Perhaps these display advertisements
have the wrong message (heritage and restoration) and are placed in the wrong
magazine (Heritage Gardens)
...
Only 5% of
visits were prompted by the expensive advertisements in the Heritage Gardens
magazine
...
HGT needs to reconsider its message and how
it can be effectively communicated
...
The work in the garden has
not been recorded in the local press
...
HGT needs to actively engage with local
newspapers, local radio and tourist agencies to raise its profile
...
However, it has taken a crisis within the trust to prompt it to use
this relatively simple form of promotion
...
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For example, more
visitors with young children might be attracted if a supervised play area were
provided well away from the garden
...
HGT needs to think more widely about the product:
what it is from a customer’s perspective and what can be done to improve their
experience of the product
...


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m

The internet also has many possibilities
...
There is no interaction with the user
...
Again it needs to ensure that the message about the
experience is relevant
...
The internet also provides an opportunity to:
Reconsider the pricing structure
...

Pricing may also be differentiated by age
...

However, lower prices could be offered to the elderly, children and those on state
support benefits
...

ACCA marking scheme

ym
a

tud

(b)

Marks

1 mark for each relevant point up to a maximum of 15 marks
...
5
0
...
A number of expected values could be calculated from the
scenario (based on percentage take up) but very, very few candidates used this
information
...

In part (b) many candidates seem to quickly run out of ideas, yet the five other facets of
the marketing mix; promotion, place, process, physical evidence and product could all
have provided the basis for potential strategies and helped candidates easily gain most of
the ten marks on offer for this part question
...
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...
The BA Times does have a
website, but it is designed to provide tempting tasters for the magazine, running
extracts of stories that can only be read in full by people who subsequently buy a
printed copy of the magazine
...
Emerging technology provides Victor with the opportunity to revisit this
business model in the context of four of the ‘6Is’ of e-marketing: individualisation,
interactivity, intelligence and independence of location
...
One respondent commented that, ‘I am studying the ABC syllabus
and so in-depth articles on ICFC topics and examinations are not relevant to me
...
’ One ABC candidate remarked that, ‘I have reached the final
stage of my examinations
...
I reckon only about 15% of BA Times is relevant to me now
...
So, for example, if all the resources are made
available on a website, the customer only needs to access those resources that he or
she wants
...
Furthermore, through registering
interests either directly on the website, or through linked social and business
networking sites, the candidate can be kept informed of articles, news, comments
and blogs relevant to their interests, institute and examination stage
...
He can also supplement conventional text articles with
webcasts and podcasts
...

The website should be considered as a comprehensive knowledge centre where all
relevant resources are stored
...
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Revenues from his current business
are falling due to reduced advertising spend and fewer subscribers
...
These problems are not
unique to the BA Times
...


ial

(a)


...
Part (b) is very open
ended
...


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m

ial

ym
a

ter

Communities of interest are important features of the internet
...
It could provide writers with an opportunity for controversy and
speculation, generating feedback which would unlikely to be acceptable to the
official websites of the professional associations
...
Feedback can also be
provided on written articles, asking for clarification or providing extra information
...
Reference has already been made to the time gap between issues
...
The website can be updated
immediately to report on emerging issues and concerns
...

Intelligence

cc

as

The Internet can be used as a relatively low cost method of collecting information
from and about customers
...
Website analytics can be used to identify which pages are looked at and
what browsers and search terms are used to arrive at such pages
...


fre

ea

By exploiting editorial independence and interactivity, the site can become the onestop resource for all aspiring business analysts
...


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A key characteristic of the internet is the opportunity it provides for interactivity
...
There is limited
interaction with the customer
...
The only person who can immediately comment on topics raised in a
reader’s letter is the editor of the magazine
...
‘Some of the readers’ letters are really irritating or just plain wrong, but the
editor seldom makes a comment! It really annoys me!’ A key characteristic of the
internet is interactivity
...
In general, the internet is a pull media where
the customer initiates contact and is seeking information on a website
...
com
AN S WE R S T O P RA C TI CE QUE S TI ON S : S E CT IO N 3

Independence of location

ter

tud

ym
a

A simple option is to just employ new technology to reduce costs
...
Alternatively, he could consider an option to embrace the new
technology more extensively and re-position the printed BA Times as just one
channel to his target market
...
However, this would have to be researched
...

If a more radical shift to new technology and new media is to be justified, then Victor
would have to be convinced of the possibility of generating income from at least
three sources
...


ea

cc

as

Increased advertising: The very breadth of the BA Times (news, articles, three
associations, many examinations) probably makes display advertising only attractive
to the larger learning providers which provide courses at all levels across all
qualifications
...
An
extended product range (for example, recruitment resources) made available on the
website should also bring in new advertisers from different sectors
...


fre

Subscription services within the website: Many websites contain both free and
subscription resources
...
This is an
established approach in web-based services and is particularly relevant in a
competitive environment like examinations
...


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Victor himself is a potential barrier to the extensive use of new technology and
media
...
He likes the physical, tactile feel of magazines and evidence
suggests that his product is well liked and respected in the industry
...
However, even if Victor can overcome his preference for printed
media, he has a further problem in understanding how new technology is going to
turn round the fortunes of the BA Times and return it to profit
...
co
m

Finally, a further clear benefit of contemporary technology is its ability to provide an
organisation with independence of location
...
Production
currently takes place in an expensive area of Umboria, a country where wage rates
are also high
...
Similarly,
the Head Office could be moved to a cheaper area, offering the company potential
savings on overhead costs
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

Income from selling intelligence: The facility of websites to capture information about
visitors and their interests has already been discussed in the answer to the first part
of this question
...



...
At this stage,
there is no reason why a smaller run of the printed version cannot be maintained by
exploiting technology to reduce printing, distribution and office costs
...
Some advertisers may also wish to continue advertising in the
printed edition to supplement their web-based marketing
...

1 mark for each relevant point up to a maximum of 10 marks
...
At present the magazine is focused on news and preparing
candidates for examinations
...
Victor might consider moving into related business areas
that would appeal to his readership
...
One of the respondents to the survey commented
that, ‘I became a business analyst to get a job, not just to sit examinations and read
about examining bodies
...
For many candidates,
taking examinations is a means to an end, not an end in itself, and job opportunities
and careers do not seem to be considered in the BA Times at present
...


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Victor is also concerned about the reaction of advertisers to any proposal to adopt
new technology within the BA Times
...
At present, advertising revenue is falling
...

Advertising on a comprehensive website has many of the advantages that have
already been discussed
...


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Part (a) was fairly well answered by candidates, although very few developed their answer
to get the marks on offer
...
The independence of location was particularly poorly answered,
with relatively few candidates recognising the fact that the company was based in a high
cost area
...
Most candidates did score some
marks, but few really got to the heart of this question and score significant marks (eight or
more) for this part question
...


ter

ial

IAA

Key answer tips

ym
a

This question was set before chapter 12 in the text was extended (from June 2011)
...
So, for example, benefits could be classed as ‘strategic’,
‘operational’, ‘management’ etc
...
Costs
could be classified under normal cost headings
...
But to score
high marks students will have to relate this bookwork to the scenario as much as possible
...

Benefits

as

Reduction in venue and invigilation costs

ea

cc

Approximately 70% of these costs are associated with the foundation level
examinations
...
This is
particularly significant for smaller centres which only offer foundation level
examinations
...

Reduction in financing costs

fre

The accessibility of foundation level examinations throughout the year should help
address the cash flow problems associated with two large diets of examinations
...


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The candidate’s
answers are automatically marked and the result presented within seconds of the
paper being completed
...
co
m

Elimination of checking costs

These are eliminated completely at both foundation and advanced levels
...
At
the advanced level, on-line marking software accurately totals the marks allocated to
each question, so no manual checking process is required
...


ym
a

The benefits identified above have all been concerned with cost reduction and
should be relatively easy to quantify
...

Increased fee income

The anytime, anyday, anywhere principle of the foundation examinations may lead to
more students registering all over the world
...
This may again lead to increased income
...
At present, the
invigilator checks the validity of the identification presented
...

Ensuring that the candidate does not consult books and texts during the
examination
...

Ensuring that all centres used for on-demand examinations can be trusted not
to assist candidates, many of whom may be students who are being taught at
the venue, or employees whose employers want them to pass so that they
qualify sooner
...
It is not clear if the head of education has yet recognised these issues
and it may not be technically feasible to address them
...
Three immediate problems
to overcome are:

•

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In the current system, temporary administrative employees are employed in peak
periods to help with processing results
...


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It
is likely that these will be rented
...
Support will have to be provided during the
examination
...
co
m

Software licence costs

Software licence costs will be associated with the software for delivering the
multiple-choice examinations and for the on-line marking of the advanced
examinations
...

Increased setting costs

ial

tud

fre

ea

cc

as

(b)

ym
a

ter

On-line support costs
Anything relying on technology requires back-up and support teams that can react
when that technology fails, particularly during an assessment session
...

Redundancy costs
There may be redundancy costs associated with reducing the number of internal IAA
staff required for checking
...
The IAA is not cash rich and so the launch of eassessment will incur significant initial financing costs
...
The requirement to define a formal business case will mean
that the head of education will have to quantify the amount and timing of costs and
benefits
...
Such quantification will be particularly valuable where costs
and benefits are difficult to define because of the intangible nature of the benefit or
issue
...
The need for a formal business case will force the
head of education to define the features of the project more accurately and with that
precision will come a realistic assessment of costs and benefits
...

Managing the benefit through the progress of the project ensures that it remains on
track to deliver value to the organisation
...
Without proper benefits management the initial
business case might not be re-visited and so costs may soar and the proposed
benefits may not materialise
...


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There is likely to be a significant one-off cost in producing a large enough bank of
multiple-choice questions for the foundation examinations
...


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m

ial

ter

ACCA marking scheme

(b)

CHEMICAL TRANSPORT

10
–––
25
–––

as

Key answer tips

15

tud

Total

37

Marks

1 mark for each relevant point up to a maximum of 15 marks for this part
question
...


ym
a

(a)

Paul Harmon has proposed a process-strategy matrix that considers the strategic
importance of the process on one axis and the complexity of the process on the
other
...
For example, for relatively simple processes of low strategic
importance he suggests standard software package solutions or outsourcing
...


fre

(a)

ea

cc

This question has a very reasonable part (a) that students should be well prepared for, but
part (b) chooses a small element of the syllabus that students are likely to be less familiar
with
...
Part (b) covers some elements of CRM which is an area that the
examiner has stated in the past that students tend to struggle with
...


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Finally, a formal benefits realisation review should take place sometime after the
project has been completed and the product (in this case e-assessment) has been
implemented
...
One of the primary advantages of benefits
realisation is that it forces the sponsor to carefully define the nature, timing and
value of each benefit that is being claimed
...

The business sponsor at IIA is extremely enthusiastic about e-assessment and this
could easily lead to it being adopted without careful consideration of the costs and
benefits
...
Organisations where such a
process is missing often adopt projects based on enthusiasm and political will, usually
to the long-term detriment of the organisation
...
It
should discourage the development of business cases based on spurious benefits
which are unlikely to be delivered
...
com
AN S WE R S T O P RA C TI CE QUE S TI ON S : S E CT IO N 3


...
CT is operating in an environment that is continually subject to
legislation
...
Drivers and driving hours and the maintenance of trucks and trailers are
also likely to be subject to both national and international legislation
...
It
could result in substantial damages or fines
...
It seems unlikely that it will be easy to find a fulltime expert with such a wide range of knowledge, so employment is risky and also
likely to be relatively expensive
...
In Paul Harmon’s terms, the legal advice process appears to be a
complex process with little strategic significance
...


fre

ea

The extension of the website to allow the chemical wholesalers to place and track
orders is strategically very important to CT
...
The chemical wholesalers may begin
to look for an alternative distributor
...
Whether the process is complex or not is a matter of
judgement
...
It is also likely
that requirements are not yet extensively defined and will change as the details of
the wholesalers’ requirements become clear
...
If a commercial off-the-shelf software solution
is used to fulfil the payroll requirements, then this IT team is potentially freed up to
work on the enhanced website system
...


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Payroll is usually of relatively low complexity and low strategic importance
...
At CT the payroll
requirements are relatively complex because of the combination of bonuses and
deductions which have been developed and enhanced over the last few years
...
However, there is no evidence that the pay arrangements are effective
...
It could
be suggested that CT should simplify its pay arrangements and adopt a commercial
off-the-shelf package solution
...
Payroll is subject to continual and unpredictable legislative
changes
...

Bespoke changes are unpredictable in both occurrence and duration and so are
potentially time-consuming and expensive
...
There is also the chance that the IT
team could make a mistake or miss something important in the legislation
...
A simplified payment system could
lead to drivers being offered better pay deals without costing the company any more
overall
...


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...
However, in a wider sense the company’s website
has to be reviewed to see if it can be harnessed to acquire further customers, to
enhance the service it offers (above and beyond placing and tracking deliveries) and
also to assist in the long-term retention of customers
...
It only contains information
about the company: its structures, history, key contacts and case studies
...
In
B2B applications there tends to be far fewer but larger buyers (Chaffey, 2007)
...
The site
should be constructed with their interests and requirements in mind
...
The website needs to provide examples of this and also
constant updates which tempt people to return to the site to view the latest
information
...
However, regular,
selected updates on new legislative requirements and new chemical distribution
challenges may prompt return visits and so increasingly suggest to potential
customers that this is a business avenue that is worth exploring
...
Testimonials from established customers will help support this
message
...
It is about building up
confidence and information that may lead to contact being made between CT and a
potential customer
...
Existing customers may not wish certain information to
be given out and CT itself must not give too much valuable information to
competitors about its pricing or its range of current customers
...
Although it is less important than in
a B2C website, it is still helpful if CT ensures that the website is optimised so that it
appears high up in website searches
...
The website address also has to
be promoted in any offline marketing undertaken by the company
...
These should
be relatively easy to target with marketing information and sales calls that will
include the website details
...

This may again be achieved through offering selected information only to visitors
who leave their email address
...

These email details may just be used as part of an analysis (which companies are
looking at us) or they might be used to target future promotional campaign
...
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m

(b)

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co
m

ial

ter

ym
a

Tutorial note

tud

It is likely that candidates’ answers will vary in scope and credit will be given as appropriate
...
The website will
just be the potential start of a selling process
...
Three process areas required, giving a maximum of
1 mark for each relevant point up to a maximum of 5 marks for principles
and 1 mark for each relevant point up to a maximum of 5 marks for the
evaluation
...
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The scenario has already identified the placement and tracking of
orders
...
This is potentially even more valuable if it can assist
in distributing chemicals directly to the end customer, hence avoiding wholesaler
storage costs
...
Customer retention is improved by
integrating the systems of the supplier and the customer
...
Thus, as well as extending its web
service, CT should consider establishing links to the front end of the process
(ordering, planning) and to the back end (payment and reconciliation)
...
CT needs to identify what information
it can offer its customers to help them run their company more effectively or keep
down costs
...


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...
There was too much reliance in the answers on emarketing and the 6Is, which were only partly relevant to the situation described in the
scenario
...
Candidates are reminded of the importance of targeting their
answer to the scenario and avoiding inappropriate theoretical considerations
...


Key answer tips

cc

as

tud

This question concerns pricing and the marketing mix – areas where students have
traditionally performed poorly in past examinations
...
In terms of format for the discussion elements, an article on
pricing on the ACCA website will have helped greatly and those students who had read this
article will have scored well here
...
These are syllabus areas that are always popular with students but is one in
which they typically perform less well than they have expected
...


Tutorial note

fre

ea

A number of different legitimate approaches could be used to answer this question
...

However, alternative frameworks are acceptable as long as appropriate points are
made
...
It should reflect the
organisation’s self-perception and its feeling about its position in the market
...
Does his
suggested price of $750 per delegate reflect this? It could be argued that this is a
reasonable price as long as other factors support it
...
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co
m

In general part (a) was very well answered, with a significant number of candidates
scoring thirteen marks or more
...


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...
His main benchmark is AQT, and he is suggesting a price which undercuts
their list price ($900), and their discounted price ($810), so his company theoretically
offers the same (or better) quality at a more competitive price
...
In the following analysis, Marco’s suggested price of
$750 per delegate is used as a basis of the analysis
...

Figure 1 shows the contribution for class sizes of three to nine delegates on a course
...


tud

The expected contribution per course has been calculated using the probabilities
derived from courses at AQT
...

Course length: 3 days
...

Lecturer
450
450
450
450
450
450
450

Room
250
250
250
250
250
250
250

Manual*
60
80
100
120
140
160
180

as

Delegates
3
4
5
6
7
8
9

cc

Probability
0
...
21
0
...
19
0
...
08
0
...


fre

Thus the breakeven on a course basis is $65,000/1,582 = 41
...

The company plans to offer 40 courses per year
...


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...
Sometimes,
irrespective of long-term objectives, the need to survive and increase short-term
cash flows will dictate price cuts
...
He wishes
to establish iTTrain in the market place, and he is looking for short-term modest
profitability
...


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...
For example, assuming
the same attendance pattern as above, increasing the price towards that of
their nearest competitor (AQT), at just under $800 per delegate, would
maintain their competitive price advantage while potentially increasing the
expected value, realising a modest profit
...
)
Decreasing costs: The lecturer and training room rates are standard rates
...
A 5% discount on lecturing
and room booking rates increases the expected contribution per course to
$1,687
...
On 40 courses, this gives an
expected income of $67,480, producing an operating profit $2,480, returning a
modest operating margin of 3
...

An exploration of other scenarios which combine increasing the price and
decreasing the costs
...
Marco might be prepared to take less income from the firm in its
formative years
...
It also has to be
recalled that the analysis is based on statistical probabilities which are from a wellestablished training company
...


Importantly, he has also assumed that all 40 scheduled courses will run
...
Consideration might also be given
to the likely proportion of under-subscribed courses at the price actually set
...
However, there may be
cancellation costs associated with the training venue and the freelance lecturer
...
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co
m

A consideration of the profitability at different delegate volume levels is also
instructive, showing that an average attendance of six delegates per course is
required to achieve operating profitability assuming that 40 courses a year actually
do run
...


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...
Evidence
from AQT suggests that corporate customers (iTTrain’s target market) are able to pay
the price which Marco has suggested
...
The
existence of training brokers as intermediaries in the supply chain does complicate
the situation
...

Controls

ym
a

The market is not subject to any legislative pricing controls
...

Strategic approaches (tactics or ploys)

Summary

as

tud

A number of tactics or ploys can be used within the pricing strategy, for example:
price skimming, penetration pricing, product-line pricing, etc
...
However, many training companies (like
airlines) provide ‘early-bird’ (early booking) discounts in an attempt to quickly reach a
critical mass
...
iTTrain might also wish to
consider ‘late booking’ discounts, perhaps through training brokers, to provide extra
contribution in courses which they are already committed to run
...
He should consider raising the price to just under $800 per
delegate, which gives him some margin of safety, particularly if costs can be reduced
through bulk discounts
...
To some extent, Marco can experiment with the price
level
...
In business nothing will remain
constant
...
In reality most companies are
price-takers, rather than price makers and Marco’s pricing approach will have to
reflect this
...
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co
m

It appears that price is not the only determinant of consumer selection, otherwise
the cheaper training providers would dominate the market
...
Consequently, Marco can price the training at
the price he has suggested because there is considerable evidence that consumers
(particularly corporate buyers) are willing to pay that price (or more) to get a service
which they are satisfied or delighted with
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

The physical environment in which the service is offered is often central to the
consumer’s understanding of the service and to their satisfaction or enjoyment of the
service
...

Marco has taken this into consideration in the selection of the CityCentre training
centre as his course venue
...

Marco also has the opportunity to give prospective buyers a feel for the physical
environment by providing a virtual tour of the location on iTTrain’s website
...
In the niche which Marco is
trying to position iTTrain, physical evidence of the quality of the company is very
important
...
In conventional terms, employee
selection, training and motivation are significant considerations
...
In the
context of iTTrain, this is particularly significant
...
Marco must ensure that lecturers are properly briefed, conduct
themselves correctly and act in such a way that is consistent with the quality
branding
...
Marco
also has to recognise that although he might make the initial sale, many subsequent
sales may be down to the customer’s enjoyment of the course and pass rates, and
central to this will be the performance of the lecturers
...
There is a significant difference between purchasing a product and a
service
...
The service often requires
direct interaction between the person ordering and consuming the service and the
service provider (the lecturer)
...
Service is often abstract and transitory and this can accentuate the
consumer’s expectations and their reflections on the success of the experience
...
Thus
Marco must ensure that all the processes which precede and follow the actual
teaching process are effective and customer focused
...
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m

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m

(b)

9
–––
25
–––

ter

Total

16

Examiner’s comments

tud

ym
a

Most candidates elected to attempt this question, but it was not answered particularly
well
...
The nonfinancial analysis was often very poorly structured and was not well integrated with the
financial analysis
...
Such an analysis would have shown that
the proposed $750 delegate fee was slightly too low
...
Very few candidates
commented on the likelihood of the start-up IT training company achieving the course
sizes of an established training provider, thus undermining the legitimacy of the expected
values
...
Candidates could have used their own experience of
education providers in the ACCA market to help them answer this part question
...
Candidates should not be afraid to using relevant practical
experience when answering such questions
...
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For the financial analysis, up to a maximum of
10 marks
...

– Table of figures showing values for different class sizes (2 marks)
– Expected contribution per course (2 marks)
– Breakeven analysis (2 marks)
– Course running value and implication (1 mark)
– Options for flexing (2 marks)
– Assumptions (2 marks)
1 mark for each appropriate point up to a maximum of 3 marks for each
part of the marketing mix
...


ial

(a)

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In fact, it can
often be the last stage of the project, with the review culminating in the sign-off of
the project and the formal dissolution of the project team
...

The aim is to identify and understand what went well and what went badly in the
project and to feed lessons learned back into the project management standards
with the aim of improving subsequent project management in the organisation
...
With the other
elements, it is important to remember that application will be worth more marks than
knowledge
...
It
usually takes place a specified time after the product has been delivered
...
The postimplementation review will focus on the product’s fitness for purpose
...
In this instance
these lessons learned are fed back into the product production process
...
It
is primarily concerned with revisiting the business case to see if the costs predicted at
the initiation of the project were accurate and that the predicted benefits have
actually accrued
...
It may
be part of a post-implementation review, although the long-term nature of most
benefits means that the post-implementation review is often held too soon to
properly conduct benefits realisation
...
Again, one of the objectives is to identify
lessons learned and in this case to feed these back into the benefits management
process of the organisation
...

They are presented here with lessons learned that should be fed back into the
project management process
...
Initially, employees were allocated part-time to the project
...
Consequently, the project began to
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AN S WE R S T O P RA C TI CE QUE S TI ON S : S E CT IO N 3

ial

ter

ym
a

•

tud

Post implementation review at HomeDeliver

The following issues could have been raised at the HomeDeliver post-implementation
review
...

Faults and omissions in the computer software
...
However, the failure of the
software to work with a popular browser needs investigating
...
The post-implementation review should also
consider why these faults were not found before the software was released
...
It was not acceptance tested
by the part-time, home-based agents who were actually going to use the
software
...

Lessons learned: acceptance testing should be undertaken by real business
users in the hardware and software environment they are actually working in
...


fre

ea

cc

as

•

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...
Even though selected order administrators were added fulltime to the project it was too late and the software was delivered two months
behind schedule
...

The failure to consult catalogue supervisors and agents
...
However, external stakeholders, such as the catalogue
supervisors and agents, were not consulted at all
...
It also meant
that their requirements were not taken into consideration when developing
the software
...

Lessons learned: ensure that stakeholder analysis includes both external and
internal stakeholders and make sure that external stakeholders are included in
the requirements gathering process where appropriate
...
In retrospect, implementing all supervisors (and their agents) was
too ambitious and risky
...
Experience
from this pilot could have been used to modify the software and fix faults and
omissions before rolling out to the rest of the organisation
...

Lessons learned: the risk assessment of the scope of projects is important and
project managers should look to mitigate risk by reducing scope
...
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P AP ER P 3 : BU SIN E S S A N AL Y SI S

ial

The potential benefits to HomeDeliver of the new electronic ordering system might
include:

•

fre

ea

•

tud

•

Staff savings from the reduction or elimination of order administrators at
HomeDeliver
...

Staff savings from reduced catalogue supervisor costs
...
However, supervisors are currently
rewarded on the basis of how many agents they administer
...

Improved cash flow, because money is now sent daily rather than at the end of
the week
...
This benefit should be relatively easy to quantify
...

Orders are entered at the end of the day, not in the week after the order has
been placed
...
However, it
could be argued that improved customer service may lead to more customers
and, because there is less elapsed time between order and delivery, to fewer
cancelled orders
...


as

•

cc

(c)

ym
a

ter

•

30 0

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Faults in the documentation
...

Distributing the user manual as a PDF file raises at least two issues
...
A significant number of them claim that they did not receive the email
...
A failure to print out and study the
manual probably contributed to agents being unable to use the software to
enter multiple orders for one household
...

Lessons learned: documentation must be carefully inspected before software
release and its physical distribution should be carefully considered
...

Training of employees
...
However, this missed the
opportunity to find early faults (for example, not running under a certain
browser)
...

Lessons learned: As well as imparting skills, training provides an opportunity to
build rapport with users and to identify possible issues and faults with the
software at an earlier stage
...
co
m

•

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It
covered project management, quality and systems development
...

Part (b)

Students were asked to suggest some options for solving project slippage that was occurring
in the question
...

Key to success:

fre

Justifying your suggestions
Avoid repetition of the points made in the previous part of the question
Dangers:

Not spotting the link to the previous part of the requirement
...
' making it quite clear that your answer
to part (c) must be based on what you argued in part (b)

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40

6


...

1 mark for each relevant point up to a maximum of 6 marks for each type
of review
...

1 mark for each relevant point up to a maximum of 7 marks
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

ial

ter

ym
a

However, there are at least three problems associated with this suggestion
...
Consequently, the project manager will have to explain that there have been
further delays to the project
...
The project plan does not explicitly contain
any time for programmers fixing faults found in system and acceptance testing and it
seems very likely that faults will be found in this testing
...
If some (or all) of these clauses are enacted
then the profitability of the project will be significantly affected
...
There may also be unresolved issues in other parts of the
software
...
Therefore it is likely that there
are large areas of the software that can be successfully delivered to the customer
...
If it
does then the delivery of a partial solution does not have a significant business
impact and the product launch can go ahead as planned
...
He has to be sure that the
reduced scope does indeed fulfil these requirements and, if it does, to focus testing,
migration and document production on these parts of the software
...


There are three elements of this suggestion that the project manager should bear in
mind
...
It
would appear harsh to deliver a part solution but to still be fully penalised for not
delivering the total solution
...

Secondly, there will be an unexpected overhead associated with delivering a second
phase which contains the full product
...
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The case study
scenario suggests that early delays in the project were caused by the absence of key
CaetInsure staff and changes in user requirements in the re-insurance module
...
Unfortunately, the delivery date of the whole project was not renegotiated at this point as it was suggested that ‘time could be made up’ during the
programming stage
...
However, the project
manager could now return to CaetInsure and inform them that it had not been
possible to catch up with the proposed schedule and to remind them that the initial
slippage had been caused by them
...
It is not a matter of life and death
...
There are many significant successful
products which have been released long after their intended release date
...



...
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AN S WE R S T O P RA C TI CE QUE S TI ON S : S E CT IO N 3

making sure that changes made to the product in the second release do not
unintentionally affect the software solution that has already been delivered
...
Any changes will affect
data migration programs which are currently being written or tested
...
One
option is to considerably reduce system testing and hand over the software to
acceptance testing ahead of the proposed schedule
...
Consequently, large areas of the software have been tested before, much
of it by actual users out in the businesses that are using this solution
...
Another option is to
reduce the scope of system testing, focusing it on testing functionality rather than
usability (which will be one focus of acceptance testing) and performance (which can
be difficult to perform effectively in a software house environment where the user’s
actual hardware configuration cannot be easily mimicked)
...


tud

There are a number of issues with this approach which the project manager needs to
consider
...
This
can lead to a reduction in customer confidence which could jeopardise the whole
project
...
Configuration management becomes a very significant issue
and appropriate version control of the software is an essential overhead
...


as

The project manager might consider requesting more resources

fre

ea

cc

Finally the project manager may request further resources for the project
...
It does not show how many system
testers are actually working on the system or how many technical authors are writing
the documentation
...
Resources might also be asked to work smarter or work
longer
...
It may also be possible to
automate certain areas of testing or to outsource it to specialist testing companies
...

However, the project manager must be aware that adding resources to a late running
project often slows the project down as established members of the project team
explain requirements, standards and procedures to any newcomers
...
If these are well specified then it
should be possible to add testing staff reasonably effectively, or indeed to outsource
testing to countries where it can be conducted relatively cheaply
...
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m

The project manager could consider taking steps which might reduce the quality of
the product

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...
Programming is more of an issue
...
However, it may be possible to transfer
resources from other projects and to support the established programmers by
providing appropriate hardware and software
...
Effective
testing will depend upon the quality of the specifications but it may be possible to
add more resources and back this up with reduced test coverage
...
There has to be a balance between the cost and
time of more testing and the consequences of failure
...


as

It would also appear that more resources could be added to writing the user manual
...


ea

cc

ASW might also consider starting writing the data migration programs before week
22
...
It may be possible to start beforehand,
writing migration routines for the parts of the system that have already passed
system testing
...
It is being performed by
CaetInsure
...


On balance, it might be suggested that further resources are quickly added to the
project and that the test coverage is reduced
...
If the customer is happy to
slightly reduce the scope of the initial release to reflect past delays then this is a
bonus
...
Relaxing this is not an appropriate strategy in this instance
...
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However, it is suggested that
a combination of the above strategies would be appropriate
...
However the deadline is significant to the customer and a failure to meet
this deadline may cause internal problems and a ‘loss of face’
...
It might have been
easier to negotiate an extended deadline if the software were being supplied by an
internal IT department
...
However, it may be
possible to negotiate the scope of this release, making sure that the key functions are
in place and tested when the software is delivered
...


ial

(c)


...
The project estimate will have assumed a certain commitment of
resources
...


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(c)

6
–––
16
–––


...


ial

Online question assistance

ter

LDB

ym
a

41

Key answer tips

The elements of good project management that helped make the branch
rationalisation project successful might include:

as

(a)

tud

The key to success in this question is to be as relevant and specific as possible
...
Instead only include areas of the project management
syllabus area that are relevant to the question being asked, and add as much detail as
possible to your suggestions
...
A sponsor is required
to make important and decisive decisions about project scope, conduct and
approach
...
Without a sponsor projects
tend to drift and to stall when important decisions have to be made
...
The target was to cut the
number of branch banks by at least 20% and branch employment costs by at
least 10%
...
It should
be clear at the end of the project if the project has successfully met its
objectives
...


fre

ea

cc

(1)

(3)

Constraints were specified at the outset of the project
...
This latter restriction meant that the
project team was clear at the onset about the scope of the changes they could
implement
...


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For part (c) there was often some overlap in answers between this and the previous part
question
...
Many candidates did not adequately justify
their answer in the context of the scenario
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

(5)

Potential slippage in the project and its cause was identified and dealt with
relatively early in the project’s life
...
It helps the
management of expectations and helps avoid unexpected last-minute changes
in scope
...
This confirmed that the original objectives
had been met
...
This led to a change in estimating assumptions which had
led to the original optimistic values
...
Consequently, another
team commits the same mistake or operates under the same false assumption
...
The matrix has two axes
...
At the base of the vertical
axis are simple procedures often with simple algorithms while at the top are
complex processes which may require negotiation, discussion and complicated
design
...
Their
importance increases from left to right with low value processes concerned
with things that must be done but which add little value to products or
services
...

From these two axes, Harmon categorises four quadrants and makes
suggestions about how processes should be tackled in each quadrant
...
co
m

An experienced full-time project manager was appointed
...
This meant that
they could focus completely on the project and not be distracted by their usual
jobs
...


Low strategic importance, low process complexity and dynamics

cc

as

This quadrant contains relatively straightforward stable processes which add
little business value
...
These processes need to be
automated in the most efficient way possible
...

Low strategic importance, high process complexity and dynamics

fre

ea

This quadrant is for relatively complex processes that need to be done but do
not add significant value to the company’s products or services
...
Harmon suggests that these
should be outsourced to organisations which have them as their core business
...
They tend to be
relatively straightforward processes which, nevertheless, have a significant role
on the organisation’s activities
...

The aim is to automate these, if possible, to gain cost reduction and improve
quality and efficiency
...
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AN S WE R S T O P RA C TI CE QUE S TI ON S : S E CT IO N 3

High strategic importance, high process complexity and dynamics

(ii)


...
Harmon suggests that these might be the focus of major process
redesign initiatives focusing on business process improvement through the
improved performance of the people undertaking those processes
...
Clearly these are value
judgements and credit will be given for coherently argued answers which do
not match the examiner’s conclusions
...
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Payroll has to be
produced but does not add significant value to the end-customer
...
The bank is considering redeveloping this process because of the high cost of updating and
maintaining two separate systems
...
From the case study it is not clear how complex the payroll
requirements are or how difficult it will be to transfer data from the
current systems to a new solution
...
It appears sensible to undertake this work
using the in-house IT departments who will be familiar with the current
systems and so should be able to undertake accurate data mapping and
successful data transfer to the new system
...

The updating of all personal computer hardware and software to reflect
contemporary technologies and the subsequent maintenance of that
hardware
...
Again, this does not appear to directly
give value to the bank’s customers
...
However, it could be of relatively high
complexity, particularly when considering the maintenance of hardware
...

The development of processes, systems and software to support private
banking
...
It delivers services to end-customers who the bank has
identified as a source of business growth
...
The
fulfilment of personal requirements for the wealthy customer will bring
variety, risk and reward
...
The success of such an operation should
deliver handsome profits to LDB
...


ial

•

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...
Up to 2 marks for describing the
significance of each of these elements within the context of the scenario
up to a total of 12 marks
...


4

(ii)

Up to 1 mark for each recommendation and up to 2 marks for the
justification of each recommendation up to a maximum of 3 marks
for each process initiative
...


9

–––
25
–––

ial

Total

Examiner’s comments

ym
a

ter

This first part question was poorly answered in two ways
...
Unsuccessful
candidates are encouraged to read the model answer to see how this part question
should have been structured
...
Such answers seemed to be answering a different question – identify the
principles of good project management – to the one set in the examination
...

Candidates need to understand the principles of project management and, more
importantly, apply them to a case study scenario
...


cc

as

The second part of the question was answered slightly better, although the suggested
solutions were often unjustified and many marks could not be given for very brief
answers
...
Answers such as 'buy a
software package' or 'outsource to a specialist' are clearly insufficient to gain such marks
...


fre

ea

Overall, answers were poor and insufficient for the marks on offer
...
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co
m

(i)

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co
m

Key answer tips

Part (a) is on investment appraisal is a key management accounting area that all students
should be comfortable with
...
Part (b) is on matrix structures, which has not been a
common exam area
...


ter

ial

In the scenario, Barry Blunt commented on simple payback (and its supposed
advantage over discounted cash flow), the selection of the discount rate, the role of
the IRR, the importance of intangible benefits and the realisation of benefits
...
If payback (time to payback) had been used, Job One would
probably still have been selected because it pays back more in Year 4 than Job 2
...
It ignores all cash
flows beyond the payback period, which in longer projects can be very significant
...


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(a)

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In fact it is likely to have
made Job 1 even more attractive than Job 2, as the cash flows in year 3 and 4 would
have been discounted less
...

The Internal Rate of return (IRR)

tud

ym
a

The IRR is basically the discount rate that produces an NPV of zero for net project
cash flows
...

The project with the greatest NPV will usually produce the higher IRR
...
This is not the case at 8-Hats
...
For both jobs there
seems to be an inclusion of specific monetary values for what appear to be intangible
benefits – better information and improved staff morale
...
Estimating for later time periods in
the project is also very difficult and it is significant that these benefits increase as the
project progresses
...
If these intangible benefits are deducted from the analysis then,
in fact, Job Two has a higher NPV than Job One
...

Benefits realisation

fre

Finally, Barry has a fundamental misunderstanding of benefits realisation
...
Benefits realisation is concerned with
establishing whether the predicted benefits in the business case have been realised
once the product or service delivered by the project has been in place for some time
...
It
cannot take place after the feasibility study of the project because at that point the
project has not been completed and so any predicted benefits could not, at that
stage, have been realised
...
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co
m

Inflation is taken into account in setting the discount rate
...
Interest forgone is concerned with the opportunity cost of
investing the money in a bank deposit account and earning interest
...
A risk
premium would reflect the perceived risk associated with these two internal projects
...
Information about risk-free interest rates during the period, the risk profile of
the company and the company’s cost of capital (using the Capital Asset Pricing
Model) would also have been of relevance
...
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AN S WE R S T O P RA C TI CE QUE S TI ON S : S E CT IO N 3

ial

ym
a

ter

The problems described above are typical of a functional structure and the ‘silo
effect’ caused by departments sub-optimising based on their own objectives and
interests
...
Conflicts between two silos can often only be dealt with by
managers who are above the silos
...


tud

The matrix structure is an attempt to manage key elements of the company across
the functional departments
...
In the context of 8-Hats it is jobs, which are effectively projects, and
potentially, key accounts (such as Kuizan) that need to be managed across the
functional silos
...
It has an established start, it runs for a
few months, and then has a specified finish which is often the event itself (such as
the folk festival or a Kuizan customer experience event)
...
Because much of the company is
project-based, a set of profitable projects should lead to a profitable company
...
The sales manager responsible for agreeing the deal would still be
involved at event realisation and would also contribute to the management of cash
flow through the complete project
...
The need to keep clients satisfied is another
potential element to the matrix, with account managers being appointed to key
accounts with the responsibility of managing clients across both silos and projects
...
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Each job is passed between functions, with
each function focusing on optimising its part of the transaction
...
The events department focuses
on providing the most rewarding client experience and the travel department on
selling travel options with the best profit margin
...
The finance department has responsibility for managing the cash flow of
the job and the payment of invoices and collection of money owing
...



...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

ial


...
Perhaps
its unpopularity was due to the second part of the question which asked candidates to
discuss the principles, benefits and problems of introducing a matrix management
structure into the company (8-Hats) described in the scenario
...
However, many candidates seemed
unfamiliar with the term often claiming that the approach currently used at 8-Hats
(functional, distinct organisational silos) with all its attendant problems was, in fact, an
example of matrix management
...

The point has been made before; case study scenario characters are not always correct or
virtuous
...
In general, the first part of this question was not
well answered, with many candidates only offering definitions of the terms on offer, with
a review of their general advantages and disadvantages
...


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The need for project teams to reflect a consensus view often means that decisions
may take longer in a matrix structure and tension within the multi-disciplinary team
may lead to a large amount of conflict
...
At 8-Hats, the
practice of rewarding sales managers on a turnover basis will have to be reviewed,
otherwise there will be significant tension between the line (function) and the
project
...
Johnson, Scholes and
Whittington make the point that ‘one arm of the matrix has to lead in the sense that
it dictates some key parameters within which the other arm must work’
...

The line manager becomes primarily responsible for the person and the project
manager for the project
...


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Key answer tips

In part (a) weaker students may spend time checking or performing unnecessary
calculations
...


ial

Overview

ter

(a)

ym
a

The table presented in the scenario suggests that the project is currently financially
viable
...
However, the basis of the discount
rate selection could be questioned
...
Also, the duration of the investment appraisal is quite long (seven
years)
...
So again, the basis of this
could be questioned
...


Costs
Software costs

tud

It would also be beneficial to perform a sensitivity analysis on the data
...


fre

ea

cc

as

Although the software package has a fixed cost, the IIA wishes to make a number of
significant bespoke amendments
...
They are currently estimated at $25,000 and this cost is part of the
year 1 payment
...
The IIA must keep bespoke requirements under review to
ensure that costs do not rise substantially, invalidating the financial business case for
the investment
...
The final delivered cost of the project will also
determine the maintenance cost, as it is calculated at 10% of the final delivered
software cost
...


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Part (b) requires a mixture of knowledge and application, but, as a key exam area, these
should be areas that students have spent time on during their studies and should not cause
too many issues (assuming that students do not become too bogged down in part (a) of the
question and leave enough time for this part of the question)
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

Question bank costs

Security costs

ial

This is a definite cost; a fixed price has been agreed with a security firm who have
guaranteed it for the duration of the project
...
They have estimated that this will cost them $15,000 in year 1 and 2 of
the project
...

Benefits
Reduced marker costs

tud

The reduction in marker costs can be accurately predicted
...
In Ward and Daniel’s terms
this is a financial benefit, and it can be accurately predicted in advance
...

Reduced administrative costs

cc

as

The reduction in administrative costs is difficult to predict accurately in advance
because the undefined bespoke software amendments will affect the administration
of the assessment process
...
Thus, using Ward and Daniel’s classification, this is either a financial (at best) or
quantifiable (at worst) benefit
...


ea

Increased student numbers

fre

The final benefit is extra income from increased student numbers attracted by the
convenience of computer-based assessment
...
At best, using Ward and Daniel’s classification, this is a
measurable benefit
...
It may be possible to get credible evidence from other professional
bodies which have implemented computer-based assessment to support this, but
there is no evidence that this has been done
...


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...
The current estimate is for the initial delivery of 2,000
questions (with payments spread over year 0 and year 1) and then the subsequent
update and amendment of 100 questions per year
...
However, it is unclear why a question
bank cost of $50,000 would be incurred immediately (year 0) as question setters are
only paid on the acceptance of their question
...
If
it is incorrect and the costs are actually incurred in years 1 and 2, then the NPV of the
project will be increased
...
com
AN S WE R S T O P RA C TI CE QUE S TI ON S : S E CT IO N 3

Summary

Tutorial note

ial

The answer provides a revised NPV calculation but this is there to aid the
understanding of some of the points made in the answer
...

All figures in $000s

Income/Savings
Marker fees
Admin saving

50

50

––––
250
––––

–––––––
250
–––––––
0
20
–––––––
20
–––––––
(230)
0
...
98)

3

40
5
20
––––––
65
––––––

40
5
20
––––––
65
––––––

125
30
––––––
155
––––––
90
0
...
13

125
30
––––––
155
––––––
90
0
...
46

4

5

6

7

40
5
20
––––––
65
––––––

40
5
20
––––––
65
––––––

40
5
20
––––––
65
––––––

40
5
20
––––––
65
––––––

125
30
––––––
155
––––––
90
0
...
15

125
125
30
30
–––––– ––––––
155
155
–––––– ––––––
90
90
0
...
630
61
...
70
Net present value

125
30
––––––
155
––––––
90
0
...
47
(77
...
Without benefit owners, benefits
are unlikely to happen
...
Their
responsibility is to deliver the project, not to operationally run the outcome of the
project
...
Many projects which have promised cost savings have not delivered
them because no-one had responsibility for making those savings
...
First,
because the extent of those savings cannot be reliably estimated due to problems in
requirements definition and, second, because someone has to actually make these
staff cuts when the new system is in place to deliver the benefits promised in the
initial business case
...
However, this does not mean that the project should not go ahead
...


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...
It is difficult to put credible
values on these in advance of the project
...


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m

tud

ym
a

ter

ial

Benefits realisation is a post-implementation activity which actually compares the
delivered benefits with the promised benefits (and costs) forecast in the business
case
...
Also, because of the nature of the
financial case (where benefits are delivered annually), it is useful if benefits
realisation is a series of reviews
...
Undelivered benefits are investigated and
remedial action may be taken
...
Lessons learnt are fed back into the benefits
management process
...

For example; an increase in student numbers may be due as much to the
improvement of marketing, to the decline of competing institutes or to demographic
change, as it is to computer-based assessment
...

ACCA Marking Scheme

as

15

10
–––
25
–––

fre

Total

cc

(b)

1 mark for each appropriate point up to a maximum of 6 marks for issues
concerning costs
...

1 mark for each appropriate point in the overall evaluation, up to a maximum
of 3 marks
...
Up to a maximum
of 10 marks
...
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The map can also be used to show how the benefits
relate to the objectives of the organisation
...
Benefits may require
business changes and enabling changes which have to be put in place to deliver the
benefit
...
A process will
have to be put in place to define how questions will be commissioned, how they will
be evaluated and how they will be entered and maintained in the question bank
...
They form the link between the IT enabler (the
software solution) and actually delivering the benefit
...


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m

A significant number of candidates were unable to critically evaluate the numbers, with too
many candidates just repeating the information in words…’the figures show that the initial
software costs are $200,000’, or passing some subjective assessment unsupported by
information given in the scenario; for example, ‘the security figures look a bit high’
...
Others could only be quantified post-implementation
and yet others (such as disruption costs) could not really be quantified at all
...


ial

TKP

ym
a

44

ter

In the second part of this question candidates knew little about benefit maps
...
Benefits realisation has been the subject of a previous part question
and candidates understood this concept relatively well
...
This assessment is primarily concerned with the likelihood of
them occurring and the severity of impact on the organisation or project should they
occur
...
On other occasions, there is some
statistical evidence on which to base the assessment
...
This represented 10% of the total number of
software companies reporting such revenues
...
This compared to a business failure rate of 1% for software companies
with an annual revenue exceeding $100m
...
In this case, the likelihood of the risk led the
client to changing its procurement decision
...


fre

ea

cc

(a)

as

tud

Project management is a key exam area that candidates should expect to see in most P3
examinations
...
Candidates then need to apply their knowledge to the scenario
...


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Some candidates did get good marks, but too many produced inappropriate or sketchy
answers that showed little understanding of costs, benefits, investment appraisal and the
construction of a business case
...
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The avoidance (or prevention) of a risk is a legitimate risk response
...
Similarly, TKP itself avoids the risks associated with trading in
different cultures, by restricting its projects to clients based in Zeeland
...



...
This can be done in a number of ways
...
TKP has
identified this as a risk, but is unlikely to be able to assess either the probability of
that risk occurring or establishing meaningful mitigation measures to minimise the
effect of that risk
...
They establish the risk, through a series of questions, and
compute a premium which reflects the risk and the compensation maximum which
will have to be paid if that risk occurs
...
TKP itself
also transfers risks in project 2
...
Transferring avoids the risk associated with
‘establishing the patent incorrectly’ and the financial consequences of this
...
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Mitigation actions are designed to lessen
the impact on the organisation of the risk occurring
...
It was agreed that design details of this chip should be lodged with a third
party who would make them available to the producers of the iProjector should the
company which owned the enhanced image technology cease trading
...
The supplier is relatively high
risk (less than three years of trading, inexperienced management team), and the
product (the iProjector) is completely dependent upon the supply of the image
enhancing chip
...
If the escrow agreement had to be enacted, then it
would take the producers of the iProjector some time to establish alternative
production
...
In such circumstances,
the need to mitigate risk is more important than implementing contemporary just-intime supply practices
...
In other instances risk mitigation actions are only enacted should the
risk occur
...
For example, in project 1, TKP has identified ‘poor quality of
current data’ as a risk associated with the migration of data from the current systems
to the proposed software package solution
...
Importantly, the client knows in advance
how to respond to a risk
...


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Finally, risk may be identified but just accepted as part of doing business
...
Risks may also be accepted when there
are no realistic mitigation or transfer actions
...
This is a risk, but
there is little that can be done about it
...

The discussion above is primarily concerned with deciding what action to take for
each risk
...
For example, establishing an escrow agreement will require certain
activities to be done
...
These
limitations are often called the triple constraint
...

Quality is also an important feature of projects
...
How a particular project is managed
depends greatly on the pressures in the triple constraint
...
The implementation date might be
desirable, but it does not seem to be business critical
...
It will also be a relatively
seamless transition for most employees in the company
...
Only the direct users of the output (account managers and
the project office) will be affected by any delay
...
If it fails to meet requirements, then the users will have to adjust
their expectations or business methods
...
The quality
of the software, in terms of its reliability and robustness, should also be good, as it is
a popular software solution used in many large companies
...
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For example, in project 2, the risk of supplier failure
can be monitored through a company checking agency
...
Reports are produced, highlighting factors
which may be of particular concern
...
Many organisations use a risk register or risk
log to document and monitor risks and such logs often specify a risk owner, a person
responsible for adequate management of the risk
...
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P AP ER P 3 : BU SIN E S S A N AL Y SI S


...

1 mark for each relevant point up to 2 marks for principles
...

Maximum of 10 marks in total
...
These are the business
objectives that have been defined in the business case to justify the project
...

Constraints and targets that apply to the project
...
It is useful if this part of the document
specifies the level up to which named individuals (or roles) can authorise:
The commitment of resources

fre

•

cc

The production of initial documentation concerning the business case and initiation
of the project would have addressed many of the issues that subsequently arose in
the website re-design
...
Don’t mix the parts up and
ensure that you put the right elements in the right part (your pocket notes should help
here)
...


•

•

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In project 2, the launch date is fixed
...
Thus
the time of the project is fixed
...
Thus the scope of the
product shown at the launch date might be restricted and inherent quality problems
might not yet be solved
...
The project manager must ensure
that key functionality of the product is available on launch date (such as producing an
image of a certain quality), but other functionality, not central to the presentation
(for example, promised support for all image file formats) could be delayed until after
the presentation
...


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These are considered below
in the context of the clothing company’s website re-design project
...
A formal cost-benefit analysis undertaken at the start of
the project would have forced the MM to quantify how much sales would increase
and by when
...
The other suggested objective, improve market
visibility, also requires further specification and quantification
...
Some research is needed to quantify market visibility
and to set realistic targets for its improvement
...
It is
suggested that these benefits are kept constantly under review to ensure that the
project has not strayed from its original justification
...
Because the MM has not specified measurable objectives in advance, the
success of the project is impossible to assess
...


cc

as

On at least two occasions there appears to be confusion about the scope of the
project
...
However, the most significant
misunderstanding about scope is between the board and the MM
...
The board appears to perceive
that re-design does not include the development and implementation of the
software, while the MM holds the opposite view
...

Constraints that apply to the project

fre

ea

Constraints are often defined in terms of cost and time
...
There is also no evidence that a
projected delivery time for the project was agreed at the start of the project
...
It also appears that the TD had
technical constraints in mind which were also not articulated
...
Again, technical
constraints should have been documented in the project initiation document
...
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Problems only begin to emerge late in
the project when the Board’s decision to launch on 1 March prompts the TD to
express concern that there are not enough developers to deliver the system on time
...
Each risk is identified and its potential effect quantified
...
Mitigation actions are also defined for each
risk
...

Again there is no evidence to show that this has been done
...
A consideration of risk at the
outset of the project can lead to changes in how the project is conducted
...

Initial project structure and arrangements for management control

Effective project management could have improved the conduct of the website redesign project in the following ways:

ea

(b)

cc

as

This is an initial project structure describing how the project will be broken down into
stages with an associated list of project milestones
...
There is no evidence of such
a structure in the website re-design project and so the absence of detailed planning
(see below) goes unnoticed
...
If these had been defined in advance then their absence
(see below) would have been clear in the actual project
...
The absence of monitoring progress against
that plan is also very evident
...
Effective project management would
have mandated the production of a detailed plan
...


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...

However, at one critical point of the project the RP makes a decision to accept a
design (meeting 4) which is subsequently overturned by the MM
...
If project roles and responsibilities had
been properly defined, then it would have been recognised that the RP did not have
sufficient authority to sign-off deliverables
...
In the scenario there is never any
clear indication of who is playing the role of project manager and this is a major flaw
...
com
AN S WE R S T O P RA C TI CE QUE S TI ON S : S E CT IO N 3

Effective monitoring and control

Mandating of substitutes

ym
a

Standards for cost-benefit analysis

ter

ial

Initial progress is hampered by the absence of key personnel at meetings 3 and 4 and
the inappropriate sign-off by the RP (already discussed above) of the technical
design
...

These problems could have been addressed by ensuring that substitutes were
available for these meetings who understood their role and the scope of their
authority
...


tud

The cost-benefit analysis provided by the MM is flawed in two ways
...
There is no supporting
documentation and it appears, at face value, that year four and five benefits have
been greatly inflated to justify the project
...
This has not been done, so
the time value of money has not been taken into account
...

Estimating, risks and quality

ea

cc

as

The reaction of the board to the cost-benefit analysis also appears unrealistic
...
The
estimating part of the project management framework appears to be lacking
...
However, the
MM decides to take the risk and achieve the imposed deadline and take a chance on
the quality of the software
...
Effective project
management would have mandated a framework for considering the balance
between risk and quality
...
The MM, like many project
managers (because the MM now appears to have adopted this role) finds it politically
more acceptable to deliver a poor quality product on time than a better quality
product late
...


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...

This is a failure of monitoring and control, aggravated by the fact that there is no
project plan to monitor against
...
Such monitoring should lead
to project control, where suggested actions are considered and implemented to deal
with project slippage
...


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Some candidates did appear to have a theoretical understanding of this part of
the syllabus, but they failed to apply such knowledge to the circumstances described in
the scenario
...
Such answers gained few marks, because this was not
the focus of the question
...


PAA

tud

46

ym
a

ter

Part (b) was an opportunity to discuss issues of the conduct and conclusion of a project
...
Some candidates also repeated some points from the first part of the
question (concerning project initiation), failing to note that this part of the question
specifically asked for further improvements
...
These
meetings focused on the building of the centre, monitoring progress and resolving
minor issues that arose during construction
...

However, the absence of a wider project initiation document or terms of reference
created problems that could have been resolved or better understood
...


ea

cc

(a)

as

For part (a) it will be important to apply knowledge to the scenario rather than simply
regurgitating the pocket notes
...


fre

There was confusion about the objectives of the project
...
The
business objective of the project was to deliver payback in four years as required by
the Private/Public investment policy
...
By their very nature, the business objectives
are not within the control of the project manager from the construction company
responsible for building the centre
...
They will concern marketing, sales

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AN S WE R S T O P RA C TI CE QUE S TI ON S : S E CT IO N 3

ym
a

ter

ial

The scope of the project was well-defined by the standard architectural drawings
agreed between the construction company and the project sponsor
...
There is no way
(post project) of reconciling this misunderstanding
...
The letter confirming the
intended finish produced by the construction company was not counter-signed by
the project sponsor
...
Changes or clarifications to the specification must be counter-signed
by both parties
...


tud

The constraints of the project were relatively well-defined in terms of time and cost,
as these were defined in the original business case
...
Specifically,
these concerned the use of sub-contracted labour (not to be used without the
commissioning agency’s permission) and sourcing at least 80% of timber on the
project from sustainable forests
...
It is suggested that the
local authority should, in future, integrate such objectives explicitly into the project
terms of reference
...
They should also
promote the project within the local authority and accept the project once it has
been completed
...
She also failed to promote the
project to her fellow employees and tried to blame the builders for the failure
...

Their responsibilities should be clear and failure to adhere to those responsibilities
should be addressed
...
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and the successful operation of the centre
...
He
delivered the building within budget and ahead of schedule
...
It appears that nobody was either aware of, or willing to take
responsibility for these wider objectives
...


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The resources available to the project were relatively well defined, although the lack
of local authority staff able and willing to discuss disability access meant that the
contractors had to use their own initiative in this area
...
However, this is a risky approach and is not recommended
for the future
...
If they are unavailable during the project then
substitutes must be provided
...
It requires the categorisation and critical evaluation of each benefit
...
For
example, it may lead to better customer service, which may, in turn, lead to
customers returning more often or using more facilities whilst they are there
...

However, from a benefits perspective, two issues have to be specifically addressed
...
In terms of increased
benefits it is difficult to disentangle benefits due to this from other factors which
might lead to increased customer use
...
80% of the staff has been
with the centre for over five years and there is an economic recession in the country,
with unprecedented unemployment
...
It is unclear why moving to the new centre would necessarily
improve staff morale and motivation in the first place
...
Similarly, even if a survey found that morale and motivation had
increased it would be hazardous to attribute this to the investment in the centre as it
may be largely due to external factors affecting each individual
...
However, it is not possible to estimate with any
certainty, in advance, how much performance will improve when the changes are
completed
...
It seems reasonable to expect that current income is measured
and that similar measures may be collected in the future
...
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They
suggest that such benefits should be assessed against clear criteria by someone who
is qualified to make such an assessment
...


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In such
circumstances the level of performance prior to the change is known and the
improvement can be specifically attributed to the investment, rather than to other
changes
...
Energy use could be
established for the current building
...

The construction methods and design of the building should reflect the need to meet
this target
...


ym
a

ter

Finally, a financial benefit is one where a financial value can be obtained by applying
a cost, price or any other valid financial formula to a quantifiable benefit
...

There are still important assumptions here, and the real performance can only be
assessed after the building has been used for a while
...
In contrast rental savings on the current properties are
both definite and immediate and are correctly recorded in the payback calculation
...
The other benefits are
important and should have been documented in the business case, but it seems
inappropriate to artificially quantify these benefits to satisfy the need to achieve a
payback target
...
Furthermore, efforts might also be made to better estimate the
likely benefits, perhaps through looking at performance in similar centres, and using
this as a benchmark to elevate the benefits to being, at least, quantifiable
...
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The estimates on the payback calculation need further scrutiny, particularly the large
increases predicted for years three and four
...
However, this growth in customer use is not associated with any
increased costs which would seem unlikely
...


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m

ial

ter

ym
a

Part (b) was not answered particularly well
...
Benefits management is increasingly
important in organisations and candidates would gain from understanding its principles
and the issues it is attempting to address
...

Financial objectives

ea

In its current position, a financial objective is unlikely to be the major objective of the
educational institution
...


fre

The institution should first consider what its mission should be
...
It must decide whether private
sector courses are intended simply to provide profits to finance research and
academic programmes, or whether there is a new objective in the delivery of these
courses
...


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In part (a) most candidates were able to describe the structure and contents of a project
initiation document, and many did so at length; but this was not the question
requirement
...
Thus many candidates did not score highly in this part of the question,
although they may have written a lot
...
It might be better to start with the problem or issue from the
scenario and then to reflect on how (in this case) a project initiation document would
have addressed this problem
...
The construction
company did not know this at the start of the project
...
It might also be recommended that these general terms
of the private/public investment policy should be explicitly integrated into all future
project initiation documents created by the local authority under this initiative
...


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There are two financial
objectives that could be relevant to the institution with regard to its cash limits
...
Second, on the assumption that government policy on cash
limits will remain consistent, targets could be set for maintaining or increasing the
cash limits each year
...
A target
for cash limits would therefore be a supporting target, subsidiary to the more
important objective of achieving the targeted standards of excellence in research and
teaching
...
The institution appears to want to increase its income, or at least diversify its
sources of income, in order to develop
...


Tutorial note

as

You are asked to choose two from each type of measure
...


cc

The measures considered below could be applied primarily to the private sector
training activities, and not so much to research or academic education
...
Total value added can then be
shared between the various stakeholder beneficiaries, which in the case of the
institution would be staff salaries, non-current asset depreciation, new noncurrent asset purchases and so on
...
)

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•

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...
The objective might be expressed
in terms of achieving sufficient profits from private sector courses to finance a target
percentage of research and academic courses
...
The aim of the Head
of Education that 50% of its income should come from private sector courses within
five years could well be adopted as a strategic financial target
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

•

•

Private sector courses should generate extra value added, which can then be
used to pay for more staff and equipment
...

Targets can be set for the value added to be achieved each year, and actual
value added compared with the target
...
The usefulness of
profit measures will depend on the extent to which costs can be directly
attributed to private sector courses
...

The non-current assets of the institution may have been provided by the
government many years ago, perhaps for free
...

It is important that private sector training does earn extra money for the
institution, and measures of contribution earned from these activities and
directly attributable profit would certainly be useful
...


ym
a

•

Return on investment

•

tud

as

•

cc

•

Return on investment is commonly measured in accounting terms as profit
divided by capital employed
...

Capital employed is measured as the book value of net assets, so again it
would be useful if all the net assets could be revalued to fair value
...

Measuring ROI could be useful in this respect, although the measurement of
profit and the assignment of assets employed to the private sector
programmes is likely to be somewhat arbitrary
...
It would
be useful to introduce some quantitative measures such as ROI
...
Low levels of satisfaction would indicate a need to improve
course content or quality of delivery
...
It is widely accepted that setting targets for
customer satisfaction (and monitoring actual performance against target) can
help with the management of service quality, which in turn should help to
achieve long-term growth
...
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•

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It is likely to rely on the completion of course questionnaires by
delegates at the end of their course
...

In the final analysis, customer satisfaction can be measured indirectly by the
number of delegates returning to the institution
...


Competitive position

Measurements of competitive position are generally qualitative rather than
quantitative
...
In the
case of the educational institution, competitive position could be measured in
terms of being a high-price or low-price training provider, or a provider of
general training programmes or specialist courses, or a provider of business
courses or technical courses
...

It can then plan to move from its current position to its target position, and
monitor progress towards the target over time
...
You will know all the details about your own
business, but you cannot identify your position in the market unless you can
gather information about all the market participants
...
It is usually measured as a quantified percentage,
such as a 25% market share
...

However, the private sector training market is very fragmented, and there are
no reliable measurements
...

Targets for market share might therefore have to be qualitative rather than
quantitative, such as a target of being the main provider of specific types of
course to businesses in a specified geographical area
...
Therefore market share
cannot be pursued as a target in isolation
...


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...
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P AP ER P 3 : BU SIN E S S A N AL Y SI S

(c)

Integrated reporting

For example, it would be sensible to make public a financial objective for increasing
the percentage of total income of the institution from private sector training, to a
target percentage within a stated period of time (e
...
to 50% of total income within
five years)
...
It also provides a vehicle for illustrating progress through relevant measures
of strategic performance
...
An integrated report for WEI could
combine some of its traditional reporting to a review of its progress towards some of
the targets identified in part (b)
...
You should only need to compare this year’s results to last year’s results
...
In part (c), don’t just list out possible sources of finance –
make sure instead that you relate them to the scenario
...

In addition, dividend cover is currently very low
...


ea

•

cc

Recent performance indicators of the company are shown in the appendix
...


•

The relatively low P/E ratio may be the result of poor growth prospects and/or
worries about the company’s viability due to the $80m repayment of loan stock
...
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Integrated reporting provides an opportunity for re-emphasising mission and values
as well as providing an insight into progress made towards strategic goals
...
Private
sector courses will become a major part of its activities, and this will affect the
institution’s staff
...


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...
54

% growth/(decline)
Net profit margin
Turnover per outlet
Overseas expansion

20X4
2%
24%
0
...
53

20X6
(5)%
11%
0
...
co
m

(b)

20X3
19%
34%
0
...
However, it is unclear whether the overseas operation that is
planned will allow great economies of scale
...


ial

ter

Apart from the problem of raising finance (which is discussed below) particular
problems and risks could arise from managing at a distance, misjudging the market
and currency fluctuations
...

Exit from the venture will be made easier if a separate operating subsidiary is set up
with its own management
...

Financing the overseas expansion

tud

(c)

The lack of internally generated funds means that additional finance must first be
raised to redeem the loan stock before considering how to finance the expansion
...


as

Equity

Equity does not appear to be a feasible solution:
•

Rights issue: at the end of 20X6 the market capitalisation of PTG was

cc

PAT × P/E = 28 × 9 = $252 million
...
Furthermore, the Edwards family (51% stake) have
indicated that they would be unwilling to take up rights, in which case their
holding would be diluted
...

Any significant public issue of shares would dilute their stake to below 50%, a
situation they are unlikely to find acceptable
...


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North America shares the closest tastes in fast food to Europe, so the product should
be well-received
...
) are much more established so PTG will face intense competition
...
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P AP ER P 3 : BU SIN E S S A N AL Y SI S

Debt
Debt looks more attractive:

•

Franchising

ial

Franchising has two main advantages in this context:

•

ter

The franchisees themselves inject a substantial amount of capital, so helping to
fund the enterprise
...


•

Joint ventures

The joint venture approach was adopted when Burger King entered the
Japanese market
...


(a)

To:

David Silvester

ea

From:

cc

In part (b) of this question you may find it useful to split the critical success factors between
those that come from the company’s resources and those which come from its
competencies (as is shown in the pocket notes)
...
One possible model you can use
is that of the product life cycle which as a one-product firm is effectively the life cycle
for the company
...

Funding the business is essentially deciding the balance between debt and equity
finance, and equity offers the low risk that you should be looking for
...
A new

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Global fast food firms often operate on a franchise system
...
co
m

If PTG can convince lenders that the decline in profits will not continue, then a
replacement loan for the debentures might be available
...

Mortgages could be taken out to cover the bulk of the cost of acquiring
overseas premises, though this still leaves fitting out the restaurants and
working capital requirements
...
com
AN S WE R S T O P RA C TI CE QUE S TI ON S : S E CT IO N 3

business venture like this could, in Boston Consulting Group analysis terms, be seen
as a problem child with a non-existent market share but high growth potential
...



...
Many of the success factors will be linked to customer needs and
expectations and therefore where David’s business must excel in order to
outperform the competition
...
Being first-to-market will be
critical for success
...


ym
a

ter

(b)

David will need to ensure that he has adequate patent protection for the product and
recognise that it will have a product life cycle
...
Greiner indicates the different stages a growing business goes
through and the different problems associated with each stage
...
From the scenario it
looks as if he is aiming to carry out most of the functions himself and there is a need
to decide what he does and what he gets others to do for him
...
Gift Designs may develop most quickly as a firm that creates new
products and then licences them to larger firms with the skills to penetrate the many
market opportunities that are present
...
Gift Designs
needs to have the flexibility and agility to take advantage of the opportunities that
will emerge over time
...
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This they will seek to realise once the business is
successfully established
...
In maturity the business should be able to generate significant retained
earnings to finance further development
...


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m

Key answer tips

It will important in part (a) to demonstrating an inability to link the variances reported to
the possible causes, many of which were alluded to in the scenario
...

(b)

Report on performance

ial

ym
a

ter

Production and sales were 1,100 units in September and October, 950 units in
November and 900 units in December
...
This good performance in the first two months and poor
performance in the latter two months may be due to a seasonal variation
...


Tutorial note

tud

The output was calculated by taking the standard cost of actual output and dividing
by the standard cost per system, i
...
$1,276,000/$1,160 = 1,100 units,
$1,102,000/$1,160 = 950 units and $1,044,000/$1,160 = 900 units
...
This was possibly due to the exchange rate
movement if the systems are imported
...
Any remaining adverse variances may be due to inefficient
purchasing by the purchasing manager
...


fre

ea

The material usage variance was adverse in every month, but was particularly bad in
October and even worse in December
...
In December, the variance was
$16,000/$400 = 40 extra units on production of 900 units
...


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Production and sales

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...
5% F), zero in October and $32,000 adverse in November and
December ($32,000 A/$320 per unit × 950 units) = 10
...
1% A)
...
This problem
was not apparent until fitting was attempted, thus involving the fitters in extra work
...
We are also told that there is a
fluctuation of ± 25% in the fitting times, so even the substantial variances for
November and December fall within this range and thus might not represent
inefficiency, but simply the fitting of a higher proportion of more labour intensive
systems
...
Overtime is unlikely to be the cause for the labour variances in November
and December as production was lower than budget
...


cc

as

The expenditure variance was $7,000 A in September, improved to $2,000 A in
October and then $2,000 F in November
...
For this variance
to have any meaning it must be sub-analysed into its different components in order
to determine which ones are being overspent and which ones underspent
...

Fixed overheads

fre

The fixed overhead volume variance simply reflects the better than expected
production in the first two months and the worse than expected production in the
latter two months
...


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...
Expressing the variances as percentages, for
September the standard labour cost was $320 × 1,100 units = $352,000 and thus the
variance was $4,200 A/$352,000 = 1
...
In November the variance was $5,500
A/$352,000 = 1
...
These minor variances could be explained by more overtime
than expected being worked, especially as production was high in the first two
months
...
6% A and in December the
variance was $24,000 A/($320 per unit × 900 units) = 8
...
These substantial
variances are almost certainly due to higher wage rates being offered in order to
retain the staff and lower the labour turnover
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

Conclusion

(b)

ial

Overall the actual cost was 4
...
Whilst this variance might not be regarded as significant, the individual
variances in many cases are much bigger and should be investigated
...
It is important that the
individual variances are investigated and their causes understood so that future
performance improves
...
Increasingly the finance function plays a core role in the
support and implementation of strategic decision making
...
For example, the finance department
could attempt to quantify the effect of the exchange rate variations on material
...
This could support a change in purchasing strategy to one that
considers overseas purchasing and this might ultimately lead to a change in
competitive strategy if SNS believes that it could achieve a low cost strategy from
such a position
...
This
could change operational strategies and plans
...
For example, it could investigate whether material
variances are instead due to inefficient purchasing by the purchasing manager
...
The finance function could
perform cost-benefit analysis on each of the opportunities
...

It would be useful to have information on the standard times for different systems
and the numbers of the different systems, instead of treating all systems alike
...
The efficiency of the new workers would
be lower than existing staff and this could be harming the implantation of many of
SNS’s plans
...
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co
m

The fixed overhead expenditure variance is $5,000 A, $10,000 A, $20,000 A and
$20,000 A over the four months and thus shows a worsening pattern, but again in
order to understand where things are going wrong we need to sub-analyse the fixed
overhead into their different components
...
Managers’ attention should be devoted to investigating
the controllable costs and reducing any overspend
...
com
AN S WE R S T O P RA C TI CE QUE S TI ON S : S E CT IO N 3

Performance measurement

Conclusion

X PLC

ter

51

ial

The role of the finance function is expanding and it is playing a much more
fundamental role in the development of the business
...


ym
a

Key answer tips

In part (a), the budget for the next four quarters is required
...

(a)

Q1
2,250
615
(675)
–––––
2,190

Q2
2,050
495
(615)
––––––
1,930

Q3
1,650
615
(495)
––––––
1,770

Q4
2,050
375
(615)
–––––
1,810

Q5
1,250
616
(375)
–––––
1,490

6,570
2,605
...
5)
–––––––
6,219
43,533

5,790
2,389
...
5)
–––––––
5,574
39,018

5,310
2,443
...
5)
–––––––
5,364
37,548

5,430
2,011
...
5)
–––––––
4,998
34,986

4,470

Production budget

as

tud

Units
Sales demand
Add closing inventory (W1)
Less opening inventory (W2)

cc

Raw material usage (× 3 kg)
Closing inventory (W3)
Opening inventory (W4)

ea

Purchases budget for B in kgs
Purchases budget for B in $

Total purchases budget for material B for Quarters 1–4 = $155,085

fre

Workings

(W1) Q1 0
...
The opening inventory for Q1 is 0
...
45 × 5,790
(W4) The opening inventory for any quarter is the same as the closing inventory of
the previous quarter
...
45 × 6,570 = 2,956
...
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m

As can be seen in part (a), the finance function can play a role in the assessment of
performance within an organisation
...
For example, staff morale, SNS’s
competitiveness, levels of innovation etc
...
It should also be noted that many
of these measures will be non-financial in nature and yet the finance function will still
be responsible for their creation and measurement
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

From a budget preparation perspective, if Material A is in short supply then this
becomes the principal budget factor
...
The optimum production plan
can then be determined and the sales budget can be derived from the production
plan
...



...
New strategic decisions may have to be taken on competitive strategy,
the viability of Product W overall, inventory holding strategy and even supply chain
management
...
Preparing the budgets for Product W would
support strategic decisions to change or alter the production plans and sales
strategies of other products, both now and in the future
...
X Plc should continue to carry out
qualitative analysis of its environment to ensure that these changes are long-term
and that market trends and threats are identified and planned for
...


(i)

The net present value of a project is the sum of the present values of the
future cash flows which have been discounted at a rate which takes account of
the time value of money
...
Therefore, budgets can play a useful
part in supporting organisational strategy, but they cannot be used in isolation and
must be supplement by qualitative analysis
...


The expected value alone gives no indication of the range of possible
outcomes
...


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The limit on the level of production may mean that there is spare capacity in the
factory and the fixed overhead absorption rate will increase
...
It appears from the scenario that
rivals will be experiencing similar problems, but X Plc might be able to gain a
competitive advantage if it can somehow negate this problem (for example, by
finding cheaper suppliers, buying the material overseas or changing the product
design)
...


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...
But, equally, it must be discussed – there are as
many marks for this as there are for the calculations
...

A decision tree for the information in the scenario is given below
...
4

Low p = 0
...
2

High p = 0
...
4

High then low p = 0
...
5m

3 × $3m + 3 × $0
...
1m

3 × $4m + 3 × $0
...
4) + ($3m × 0
...
5m × 0
...
5m MINUS cost of $7m = $3
...
4) + ($0
...
4) + ($12
...
2) = $12
...
3m

The analysis suggests that the Topaz option should be chosen
...
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Campaigns J and L have the same expected outcome but L has a
higher standard deviation, indicating a higher risk
...
Campaign K has the same level of risk as L but a
higher expected value
...
Campaign K has a higher
expected value than J but also has a higher standard deviation and is therefore
more risky
...



...
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P AP ER P 3 : BU SIN E S S A N AL Y SI S

As highlighted in the first part of the answer, the decision tree is only one input to
the procurement decision
...
The business case for each option
would also have to state intangible benefits offered by each option
...
Intangible benefits need
to be identified and listed for each option
...
The decision tree will have been just one input into
the procurement decision
...
An element of this is reflected in the scenario
...
The relative supplier risk is not reflected in the decision tree
...


as

It may also be necessary to assess the relative impact on the organisation of each
option
...


The risk assessment for Topaz has documented concerns about the long-term
viability and stability of the supplier
...
However, the company is relatively young and it
has a very small turnover compared to WE
...
Hence the continuing
success and viability of Topaz is important to WE
...
Hence Topaz would
not be considered
...
This is not just financial robustness, but
also factors such as the availability of support, the presence and effectiveness of a
user group, process certification etc
...
We are told that Topaz is modular and up-to-date
and this may be in its favour, but it will not be reflected in the decision tree analysis
...
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m

This decision tree is based on the information available at this point in time
...
As the divisional director recalls in the scenario, ‘it was relatively
hard to get everyone to agree and debate at the workshop became a little heated
...
It is also unlikely that the predicted returns will be completely
accurate
...
The predicted annual return of
Topaz ($4m per annum) under conditions of high demand needs particular attention
...
If the annual returns are overestimated by 10% (say
$3
...
0m), then this ceases to be the best option
...
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AN S WE R S T O P RA C TI CE QUE S TI ON S : S E CT IO N 3

Should this risk actually take place, and Topaz goes out of business, then its impact
may be mitigated by the following:

•

The software used in the product is perceived to be innovative, modular and
up-to-date
...
In such an agreement the source code is stored with an
independent third party
...

WE should also consider establishing in-house expertise in the programming
language used by the Topaz product
...
Access to the source code is particularly appropriate if an inhouse team is able to pick up the software, maintain it and develop it
...
It should be
relatively easy for it to maintain funds which could be used for purchasing
Topaz should it run into difficulties
...


ym
a

•

As a basis for developing a long-term in-house software application that
could be used to replace the software elements of the product offered
by Topaz
...
The software is contemporary
and powerful and so other applications within WE should not be difficult
to find
...
This contingency plan could be linked to monitoring the financial
performance of Topaz
...
This is particularly important when
the supplier’s application is business-critical to the customer and any interruption in
supply would have significant implications
...
Many organisations insist that key employees do not travel
together to conferences and meetings
...
The riskiness of different ways of travelling needs to be
considered
...
Again, this would have to be
investigated
...

Potential actions include:

fre

(2)

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P AP ER P 3 : BU SIN E S S A N AL Y SI S

(4)

Eliminating unnecessary travel – was the journey necessary? Encouraging
employees to work from the home or the office reduces the risk of travel
accidents by avoiding travel in the first place
...

Finally, ensuring that all documentation is up-to-date and self-explanatory, so
that it can be picked up easily by other employees of the organisation, hence
avoiding the situation described in the scenario where the divisional director
has to piece together fragments of documentation left by the unfortunate
team
...
The most
common error was to forget to subtract the cost of the investment
...


ea

In part (b), candidates who knew this topic well, produced good answers, centred on risk,
supplier viability and software functionality
...


fre

In part (c) there were some very good answers
...

Overall, this question was unpopular
...


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(a)


...
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AN S WE R S T O P RA C TI CE QUE S TI ON S : S E CT IO N 3

53

COOLFREEZE


...
These are areas that have
been covered at lower level papers
...

(a)

Spreadsheet analysis

ial

ter

Explanation of the spreadsheet construction

ym
a

The technique is based on averaging figures in the time series
...
This value is than divided
by 8 (the number of values in the total calculation) to give the average value in
column E
...

The figures in column F are the variation of the trend from the actual sales figures
...


tud

This seasonal variation is then subtracted from the total variation of each quarter to
determine the random or residual variation (column H)
...


cc

as

It is difficult to identify where the forecast figures come from
...
The forecasting group probably thought they were being very
realistic
...
It cannot be used to predict sudden
changes in the marketplace
...
His sales staff had already reported that customers were less
optimistic about the future because of a weakening economy and the availability of
cheap foreign imports
...
Perhaps
a number of scenarios should have been considered that took into account changes
in the external marketplace
...
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My analysis
suggests that the forecasting team used moving averages to help them analyse past
sales and forecast the future
...


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These might have suggested
that the external environment was changing and that other factors were beginning to
influence the marketplace
...


Performance analysis

ym
a

(b)

ter

One of the weaknesses of the approach used by the forecasting team is that data
from four years ago is given as much weight as much more recent data
...
This method uses
a series of weights with higher weights given to the most recent data
...
Except for
warnings from the sales manager, there was no evidence that this would not be
achieved
...


tud

Flexing the budget allows us to look at the consequences if the planned level of
output had been 50 (actual sales) rather than 83 (planned sales)
...


cc

as

Output (sales)
Sales revenue
Raw materials
Labour
Fixed overheads
Operating profit (loss)

50 units
$50,000
($17,500)
($16,250)
($18,000)
($1,750)

ea

The table below compares budget, actual and the flexed budget
...
00
$83,000
...
00)
($26,975
...
00)
$8,975
...
00
$45,000
...
00)
($15,750
...
00)
($3,750
...
00
$50,000
...
00)
($16,250
...
00)
($1,750
...


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...
The growth from 2006 to 2007 (based on the quarter 3
trend figure) was about 11%
...
The final two
actual sales figures for 2009 were, in total, exactly the same as the previous year (150
units)
...
However, there appears very little in the statistical data that
suggests that the rapid decline in sales experienced in quarter 2 of 2010 could have
been anticipated from the data alone
...
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AN S WE R S T O P RA C TI CE QUE S TI ON S : S E CT IO N 3

Sales volume
The sales volume variance for quarter 1 is an adverse variance
...


Sales price variance

ial

The sales price variance for quarter 1 is also an adverse variance
...
The sales manager is again accountable for this
...
He warned in
the scenario of cheaper foreign imports undercutting prices by about 10%
...


ter

Materials variance

The materials variance is a favourable variance because actual costs ($15,000) are
less than the flexed budget $17,500
...
On the one hand the production manager
may have been able to reduce the amount of raw material used in the manufacture
of the equipment
...
It is more likely that the procurement manger has been
able to negotiate lower prices for raw materials
...


cc

as

The labour variance is again favourable because actual labour costs were less than
the flexed budget
...
There may, again, be two
possible reasons for this
...
This would be the responsibility of the personnel department
...
Alternatively, perhaps the number of hours required to produce each
unit has been reduced
...

Further information is needed to come to a firm conclusion
...

Summary

fre

Your assertion that 'we have all made mistakes' seems rather sweeping
...
These are the
responsibility of the sales manager
...
Similarly, overheads have been maintained at their
budgeted value
...
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m

However, in fairness to him, he had warned of weakening demand at the meeting of
the planning committee that set the targets for the four quarters
...
Customers are
reluctant to invest in new machines or replace old machinery in times of difficult
trading conditions
...


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...
co
m

Key answer tips

The key trick in part (a) is to calculate the overhead absorption rate
...

The key in part (b) will be to match cost drivers with each activity pool
...


ial

(a)

Standard cost cards

ter

Total labour hours per unit:

Standard = ($5 per unit/$20 per hour) × 40,000 units = 10,000 hours
Deluxe = ($10 per unit/$20 per hour) × 20,000 units = 10,000 hours

ym
a

Total hours = 10,000 + 10,000 = 20,000 hours

Fixed production overhead = $2,400,000

Fixed production overhead absorption rate = $2,400,000/20,000 = $120 per labour
hour
...
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...
To get full marks,
however, you should reference to the numbers you have calculated in parts (b) and (c)
...
com
AN S WE R S T O P RA C TI CE QUE S TI ON S : S E CT IO N 3

(b)

Activity based costing
Firstly calculate the number of activities in each area:
Cost Driver
Machine hours
No
...
of inspections

Stores receiving
Stores issues

No
...
of issues

0
...
00
400
15
...
00
80
6
...
75
150
––––––
––––––
37
...
00
320
––––––
––––––
45
...
00 per inspection
$8
...
com

$000
600
900
180
420
300

50,000
30,000

ial

Then calculate the cost driver per activity:
Activity
Machining costs
Set up costs
Quality inspections
Stores receiving
Stores issues

Drivers
15,000
120
9,000


...
00
15
...
00
8
...
50
––––––
45
...
00
––––––
59
...
However, it will mean that there is a different split of fixed
production overheads between the products
...

This means that $282,000 of fixed overheads have been re-apportioned from the Deluxe
model to the Standard model
...

This means that both products will now show a profit and the company should notice other
benefits from this change in system
...
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This may allow the company to change the selling price of each product
...


ROCK BOTTOM

Walk in the footsteps of a top tutor

ym
a

55

ter

STRATEGY AND PEOPLE

Tutor’s top tips

tud

Part (a) Life cycle and management style
Key to success:

as

Allocate time equally between 3 phases
...
So with 18 marks available in total that gives you around 3 marks per part
...


cc

Answer both elements i
...
the reasons for success and failure, and the contribution of Rick
Hein’s leadership style
...
The examiner suggested some students misunderstood that whilst
franchising was considered, other opportunities were pursued
...
Even something as simple as a SWOT – reasons for
success could come from strengths and opportunities, whilst the reasons for failure could
come from the weaknesses and threats
...

Recognising that each stage was very different – stage 1: mainly successful, stage 2: some
success and some failures, stage 3: mainly failures
...
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m

There is greater transparency with an ABC system due to the level of detail behind
the costs
...
ABC breaks this down into much more
detail and therefore managers are more aware of the total costs of each activity and
the drivers of these costs
...


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...
The first Rock
Bottom phase appears to coincide with the introduction, development and growth
periods of the products offered by the company
...
The life cycle concept also applies to services, and the
innovative way in which Rock Bottom sold and marketed the products distinguished
the company from potential competitors
...


ym
a

ter

(a)

ial

In part (b) it is important that you have the correct focus on the answer requirements rather
than simply explaining franchising
...
So we
focus on the feasibility of franchising rather than its advantages and disadvantages
...
Rock Bottom’s entry into the market-place also
exploited two important changes in the external environment
...
The second
was the growing economic power of young people, who wished to spend their
increasing disposable income on products that allowed them to enjoy popular music
...

This may not only be translated into cost advantages but also into customer loyalty
that helps them through subsequent stages of the product’s life cycle
...


fre

ea

cc

Hein’s leadership style appears to have been consistent with contemporary society
and more than acceptable to his young target market
...
The latter he achieved through appointing
branch managers who reflected, to some degree, his own style and approach
...
The shops were also staffed by young
people who understood the capabilities of the products they were selling
...

In summary, in the first phase Rock Bottom’s organisation and Hein’s leadership style
appear to have been aligned with contemporary society, the customer base,
employees and Rock Bottom’s position in the product/service life cycle
...
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m

•
Lack of structure
•
Mixing stages together
•
Too much time spent on one stage
Simply regurgitating the scenario (not adding value)
...
But to gain marks in the exam you
would have to develop this further, for example, by explaining that this would mean that the
company would need to be more transparent and have strong corporate governance
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

as

tud

ym
a

ter

ial

The first was the need for the company to provide acceptable returns to
shareholders
...
He would have to not
only maintain dividends to external shareholders, but he would also have to monitor
and improve the publicly quoted share price
...
Most of the phase 1 entrepreneur-style managers left
...
However, the new
public limited organisation also demanded managers who were more transactional
leaders, focusing on designing systems and controlling performance
...
The second problem was the need for the
organisation to become more transparent
...
What had once appeared innovative and amusing now
looked like an indulgence
...
However, he ultimately failed to do this
...
The sensible thing would have been to leave
Rock Bottom and start afresh
...
Combining the roles of Chairman and Chief Executive Officer
(CEO) is also controversial and likely to attract criticism concerning corporate
governance
...
He clearly
saw the public limited company as a ‘shackle’ on his ambition and its obligations an
infringement of his personal privacy
...
The product life cycle is a timely
reminder that any product or service has a finite life
...
However, he had now lost touch with the forces
shaping the external environment
...
Music is
increasingly delivered through downloaded files that are then played through
computers (for home use) or MP3s (for portable use)
...
The delivery method, through specialised shops, which once
seemed so innovative is now widely imitated and increasingly, due to the Internet,
less cost-effective
...
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m

The second phase of the Rock Bottom story appears to reflect the shakeout and
maturity phases of the product life cycle
...
However, it is in the shakeout stage that the market
becomes saturated with competitors
...
Hein initially reacted to these new challenges by a growing
maturity, recognising that outrageous behaviour might deter the banks from lending
to him
...
This, eventually, created two problems
...
com
AN S WE R S T O P RA C TI CE QUE S TI ON S : S E CT IO N 3


...
It might have been attractive for them to become franchisees,
particularly as this might be a way of protecting their income through the more
challenging stages of the product and service life cycle that lay ahead
...

These were managers used to meeting targets within the context of centrally
determined policies and budgets within a public limited company
...


as

tud

(b)

ym
a

Finally, in summary, Hein’s approach and leadership style in phase 3 became
increasingly out of step with society’s expectations, customers’ requirements and
employees’ expectations
...
This led him to conspicuous activities that further devalued the brand,
meaning that its demise was inevitable
...
First movers often retain customer loyalty even when their products and
approach have been imitated by new aggressive entrants to the market
...
However, by the time Hein came to look at franchising again in
phase 3, the brand was devalued by his behaviour and incongruent with customer
expectations and sales channels
...
If
Hein had developed Rock Bottom as a franchise it would have given him the
opportunity to focus on building the brand, rather than financing the expansion of
the business through the issue of shares
...
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Hence, Hein is in a situation where he faces more competition to supply
products which are used and replaced less frequently, using a sales channel that is
increasingly uncompetitive
...
This failure was also guaranteed by the continued presence of the managers
appointed in phase 2 of the company
...
To suddenly be let loose was not what
they wanted and Hein appears to have reacted to their inability to act
entrepreneurially with anger and abuse
...
He probably felt that this was possible now that he did not have the
reporting requirements of the public limited company
...
He celebrated the freeing of ‘Rock Bottom
from its shackles’ by throwing a large celebration party
...
It seems inevitable that the cost and carbon
footprint of such an event would now attract criticism
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S


...

Three phases required, giving a maximum of
Up to 1 mark for each relevant point up to a maximum of

Marks

ter

(a)

ial

ACCA marking scheme

ym
a

Total

18
7
–––
25
–––

Examiner’s comments

tud

Most candidates provided a good analysis of phase one (1965 – 1988), but their analyses
of the subsequent phases was less comprehensive
...
Many candidates assumed that he did franchise the
shops at the start of phase two, but actually he did not
...

Consequently, on some scripts, some parts of the analysis were irrelevant
...


cc

as

The second part of question two asked candidates to explain the key factors that would
have made franchising Rock Bottom feasible in 1988 but unlikely to be successful in 20X7
...


fre

ea

Overall, question two was a popular and (overall) well-answered question
...
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If it had
been franchised at this point, then Hein could have realised some of his investment
(through franchise fees) and used some of this to reward himself, and the rest of the
money could have been used to consolidate the brand
...
There would have been no need to
take Rock Bottom public and so suffer the scrutiny associated with a public limited
company
...
He saw franchising as a way of disposing of
the company in what he hoped was a sufficiently well-structured way
...
It seems highly unlikely that franchisees would have been
attracted by investing in something that was actually making a loss
...


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...
co
m

Key answer tips

This question builds on knowledge acquired in Paper F1 and therefore may be more
attractive to students who have sat that paper most recently
...
But it is likely that many students will have
not studied this area recently and therefore may lack enough knowledge to tackle this
question confidently
...
He felt that it was necessary to
closely control and direct staff in order to get them to do what was needed
...
This belief was reflected in work design in the
company where employees were increasingly restricted to relatively simple repetitive
tasks, for which he had defined well-established procedures
...
His
initial diagnosis of this reluctance was that this was due to their personal
inadequacies rather than the result of the work situation that he had created
...
Finally, in
terms of the Blake and Mouton managerial grid, Sully’s style is primarily that of
authority/obedience
...


as

The course questioned Sully’s tough-minded management approach, promoting a
more democratic style where leadership responsibilities are shared with
subordinates, who are also involved in the planning of tasks, not just their execution
...
The course was run by a company who promoted the benefits of a
democratic style of management
...
Within the context of
the case study scenario, the choice of leadership style probably depends on three
factors:
The characteristics of the leader
...
However, his willingness to change style as a result of the
course might suggest that his approach may be due to a lack of confidence in
his subordinates rather than the reflection of deeply held values about
leadership
...
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ter

Contingency or situational theorists would probably be critical of a training course
that appeared to encourage a management style that would be unlikely to be
appropriate for all situations
...


ym
a

From a contingency perspective, it could be argued that before going on the course,
ARC had a relatively good fit between leadership, subordinates and the task
...
As owner of the company he has the power to reward and
punish employees
...


Tutorial note

cc

as

tud

Reversion to Sully’s old style of management might make employees feel more
comfortable but it does not solve the fundamental problems
...
The company could look more
closely at the definition of the task and the competencies required of employees
...
His sudden conversion from Theory X to Theory Y manager was
too much, too soon and left employees anxious and confused
...
The main focus of
the answer should be on Sully Truin’s leadership style both before and after the
management training course and the effect these styles have on his employees
...
The model answer includes reference to
underpinning theories first encountered in F1, The Accountant in Business
...
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It could be argued that Sully’s style has
necessarily led to him employing people who are comfortable with his style,
and demand a work environment which is routine, well-specified and tightly
controlled
...
It is their suggestion
that Sully returns to his old style of leadership
...
In the case study scenario, the task
has been increasingly constrained, so that it can be closely defined and
controlled by Sully
...
This is why they are referred to Sully
...
When subordinates were
asked to take responsibility for these decisions, they felt that they did not have
sufficient authority or experience and so they consulted their colleagues,
which took time, before arriving at a decision
...
co
m

•

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...
In the scenario, employees are primarily responsible
for doing and monitoring
...
This
manifested itself in the emails and phone calls he received whilst he was on the
management training course
...
co
m

(b)

The term job enrichment refers to a number of different processes including job
rotation, enlarging and aggregating tasks
...
It is roughly analogous to
merging the swim-lanes of a current business process model
...


•
•

ial

ter

•

Skill variety: The job requires the use of a range of skills and talents
...

Task significance: the degree to which the job has an impact on other people’s
lives or work
...

Feedback: the degree to which employees possess information of the actual
results of their performance
...

However, Sully’s sudden change of style caused two problems
...
These might be
addressed through coaching from Sully
...

Asking them to take responsibility for decision-making led to anxiety and
procrastination, culminating in their request for Sully to return to his old style of
leadership
...
Such moderators explain why jobs which have considerable potential to
motivate will not automatically generate a high level of motivation and satisfaction
for all employees
...
People who have found the job too restrictive have left the
company
...
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m

If Sully pursues his ideas for job enrichment, then he will have to carefully assess his
current staff to see which, if any, are willing to pursue this wider role
...
Consequently, Sully
may have to bring new people in from outside if he wants to pursue his job
enrichment policy
...
However, such an extension would allow them to assist him finding
and establishing contracts, helping grow the company
...

1 mark for each relevant point up to a maximum of 5 marks for the
principles of job enrichment and up to 5 marks for its application at ARC
...
Many candidates recognised that the manager had moved from a stereotypical
Theory X manager to a stereotypical Theory Y manager
...
Overall, this part of the question was answered relatively well,
with many candidates gaining a pass mark on this part question
...
This part question was answered less well
...
It seems likely that its potential application was reduced
at ARC by the fact that many of the people who it may have attracted have left the
company
...
Remember, although a particular concept may
generally be perceived as a good thing (job enrichment in this question), it may not
necessarily be so within the described case study scenario
...


35 8

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(a)
(b)

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m

Key answer tips

The structure of part (a) is dictated by the question, and this is helpful in structuring your
answer
...

In part (b) you need to produce a fairly general discussion of change in organisations, but
with specific reference to the situation facing Grumit
...
An
agreed approach to people issues acts as a frame of reference against which the
organisation takes specific decisions
...
If not, now is a good time to open up the debate on what it
should be
...
In a service-led organisation employees are the
key resource and the HRM approach must be based on the need to:

tud

(i)
ensure positive commitment from employees
(ii)
encourage flexibility to meet and respond to change
(iii) create a climate of quality and customer care
...
Given the apparently
unexpected closure decision imposed on Grumit by its parent company, the HRM
function can do no more than adopt a reactive role
...


cc

as

Of immediate concern is how employee relations are to be handled – particularly
communications and the role ascribed to the unions, both recognised and
unrecognised
...
If these longer term
issues can be clarified, they can be reflected in the handling of the current situation
...
Given the extent of the changes, there
is a need to consider communication in the short term (to deal with
redundancy situation) and the long term (to fit the culture of the new
organisation)
...
For the longer term, Grumit could add to this list: suggestion box
schemes, quality circles, joint consultation committees, in-house magazine and
notice boards
...


fre

ea

(i)

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(a)

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Closure of the manufacturing facility has been set as a priority
therefore there is a need to have both policy and procedure for managing the
redundancy process
...

Policies and procedure must deal with:


...
There is a need to develop a
positive attitude towards developing staff
...
Specifically for the current situation,
a training plan for sales and service staff covering technical aspects and
product awareness
...
On a
longer term basis Grumit must adopt an overall training and development
policy which reflects short and long term needs:

ym
a

(iii)

ter

Note: In the UK, there are specified legal requirements for days’ notice of
redundancy, notification to recognised trade unions and compensation
payments based on age and length of service
...


•
•

tud

•
•

(i)

as

Change strategies have been studied extensively by management writers, and while
the process can vary considerably from situation to situation there are valuable
lessons to be learned from successful change management
...
Areas to consider include:
•
•
•

ea

•

uncertainty and fear (job loss, security, loss of status)
lack of understanding (poor communication)
lack of trust (past history and culture of the organisation)
self-interest, individual attitudes and personality
...
Some change factors
can make change easier to gain acceptance than others
...


fre

(ii)

(iii)

36 0

The influence of organisational culture, climate, politics and group
cohesiveness on the change process
...
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Johnson and Scholes identify four styles,
each of which may be appropriate in certain circumstances
...
Where
change must be rapid and is in response to a crisis, then coercion and edict
methods may be appropriate
...



...
No one is necessarily
better than the others, and each needs to be adapted to the specific
circumstances:

•

58

ial

ter

•

NATIONAL COLLEGE

tud

Key answer tips

You will need knowledge on competency frameworks
...
The ACCA qualification is built on a competency framework
and you should use that as a foundation for your knowledge
...
They should provide a map of the
behaviours that will be valued, recognised and, in some organisations, rewarded
...
This would have been very useful at National College
because the inappropriateness of some of the performance measures would have
become clearer at a much earlier stage
...
However, competency
frameworks are increasingly becoming more ambitious and including technical
competencies that in many ways are more specific and easier to assess than
behaviours
...
Competencies are normally expressed at a number of levels;
reflecting increasing demands in those competences
...


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com

•

A typical approach is to consider the need to unfreeze the situation first
then change it and refreeze it
...

A four phase integrated model (explore, plan, action, integration) to
change situations
...

Participative models, which draw on the human relations school and the
work of Peters, Kanter and others
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

ym
a

ter

ial

Competency frameworks may be developed internally, usually using HR consultants
...
Alternatively, the organisation can use a framework published by an external
organisation – usually a trade association or a government body
...
This has the added
promise of providing a link between organisational and personal objectives
...


(b)

ACCA marking scheme

Marks
10
–––
10
–––

1 mark for each relevant point up to a maximum of 10 marks

ea

Total

cc

as

tud

Competency frameworks were originally focused on performance management and
development
...
The competency framework might
also be an important element in change management
...
What is new is
their central importance as a means of providing a framework for the learner to take
responsibility for their own learning’
...


fre

Examiner’s comments
Competency frameworks underpin the ACCA qualification
...
This was not particularly well answered by most candidates
...


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...
There are typically ten or less competencies for each role
...
If it is too general then employees are
unsure of what is required and managers will have a problem in assessing staff
against the defined competency
...
In reality, defining the appropriate level of detail is one of
the key challenges of defining an effective competency framework
...
Adopting an appropriate competency
framework should lead to a fairer appraisal system at the National College
...


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...
co
m

Key answer tips

(b)

Rather than comments on outsourcing the whole of HR, it is easier to approach part
(b) by discussing specific HR functions – e
...
payroll
...


(a)

To: Paul Simpson – HR Manager

ial

It is vital that you link a discussion of the different aspects of a HR plan to the growth
objective
...


From:

ter

Human Resource Planning and Global Imaging’s future growth

ym
a

I will use this report to highlight the main phases in HR (human resource) planning
and then deal with the specific HR activities, which will be needed to support the
achievement of the growth strategy
...

Second, the planned growth will require a forecast of both the number and
type of people who will be needed to implement the strategy
...


as

•

The key activities to achieve the growth goals will be:
Recruitment, selection and staffing – here the key issues will be to recruit the
necessary additional staff and mix of suitably qualified workers
...
The rate of growth will also make it necessary to manage significant
internal transfers of people in the company as new positions and promotion
opportunities are created
...
It also may be
necessary to meet or exceed the labour market rates in order to attract the
necessary talent
...

These pressures will normally lead to the creation of a formal compensation
structure
...
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P AP ER P 3 : BU SIN E S S A N AL Y SI S

Employee training and development – here there is a need to create an
effective management team through management development and
organisational development
...


•

•

Yours,

It is important to note that there is nothing in the nature of the activities carried out
by HR staff and departments that prevents outsourcing being looked at as a serious
option
...
Paul, therefore, needs to look at the HR activities
identified above and assess the advantages and disadvantages of outsourcing a
particular HR activity
...
Some HR specialists argue that outsourcing much of the
routine personnel work, including maintaining employees’ records, frees the HR
specialist to make a real contribution to the strategic planning process
...


ym
a

ter

ial

(b)

as

tud

If Paul is able to outsource the routine HR activities this will free him to contribute to
the development of the growth strategy and the critical people needs that strategy
will require
...
In Hamel and Prahalad’s terms this
strategy is likely to ‘stretch’ the people resources of the company and require the
recruitment of additional staff with the relevant capabilities
...


fre

ea

cc

Outsourcing passes on to the provider the heavy investment needed if the company
sets up its own internal HR services with much of this investment now going into
web-based systems
...

The downside is a perceived loss of control and a reduced ability to differentiate the
HR function from that of competitors
...


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...


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This should have been straightforward if students were
aware of the different categories in the text – evolution v revolution, adaptation v
reconstruction
...
The terms used pointed to the Balogun and Hope
Hailey model
...


(a)

The proposal to develop and sell a software package for the general retail industry
represents a major strategic decision for PSI
...
In Michael Porter’s terms it is currently a focused
differentiator
...
The proposal would lead
to significant strategic change and, perhaps not surprisingly, is meeting resistance
from the software development director who is responsible for a key activity in this
change
...
They
believe that most strategies are profoundly influenced by earlier strategies and their
success or failure
...
Rarely is the proposed change so
fundamental that it challenges the existing business model and the processes and
activities that support it
...
It is suggested that
there are two key measures of change
...
It is
therefore likely to meet less resistance than Big Bang or quantum change, which
represents significant change to most or all the organisation
...


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...
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P AP ER P 3 : BU SIN E S S A N AL Y SI S

•

•

ter

ym
a

•

Adaptation is a change that can be made within the current business model
(realignment) and it occurs incrementally
...

Reconstruction represents significant change in the organisation, often
prompted by a crisis, such as an unwelcome takeover bid, but it does not
require a fundamental change to the business model
...

Evolution is a change in strategy, which requires the business model to be
significantly changed over a period of time
...
Alternatively, change may take place through an
emergent process where the scope of change only becomes apparent once it is
completed
...


tud

•

ial

The consideration of the two key measures of change enables the identification of
four types of change
...

Scope of change
Nature of change
Realignment
Transformation
Incremental
Adaptation
Evolution
Big Bang
Reconstruction
Revolution

ea

cc

as

Viewed dispassionately, it appears that PSI’s proposed move into the general retail
market represents an evolutionary change
...
However, it is
transformational because the proposed move away from the current market niche to
a market which requires a generic solution is a fundamental change in strategic
direction
...
In PSI’s
case, the evolution is driven top-down, by the chief executive’s desire to create a
company which is an attractive acquisition, at which point he can realise some or all
of his investment in the company
...

The entrepreneurial chief executive and the sales and marketing director may see the
proposal as adaptive change, realigning the company to take advantage of a business
opportunity which will lead to realising their personal goals
...
In contrast, the software development director is more likely to agree with
our assessment of the change as evolutionary
...
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m

Secondly, the scope of change process is important – how much of the firm’s
activities are to be changed? If the change does not alter the basic business model
(or ‘paradigm’ in JSW’s terms) then it is regarded as ‘a realignment of strategy rather
than a fundamental change in strategic direction’ (JSW)
...


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This context is
made up of a number of factors or contingencies peculiar to the organisation under
consideration
...



...


ial

ter

Contextual features and their influence on strategic change programmes

ym
a

Time
How quickly is
change needed?

Power
What power does
the change leader
have to impose

Strategic change
programmes

tud

Readiness
How ready for
change is the
workforce?

as

Capacity
What is the degree
of change resource
available?

Preservation
What organisational
resources and
characteristics need
to be maintained?

Diversity
How homogenous
are the staff groups
and divisions within
the organisation?

cc

Capability
What is the
managerial and
personal capability to

Scope
What degree of
change is needed?

Source: Johnson, Scholes and Whittington

ea

In the context of PSI, the following observations could be made
...
Figure 1 suggests a
company that is slowly consolidating in its market place
...
It is likely that it will take a
relatively long time to develop the new generic software package, particularly
when the current pressures on the software development team are taken into
account
...
The only urgency is that injected by the impatience of the chief
executive who may want to quickly introduce change to achieve the objectives
of realising his investment in the company
...
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These features are shown in the diagram below and
are used in the model answer
...


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a

fre

ea

cc

•

as

tud

•

•

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•

ial

•

consolidate the current product and to improve its quality
...
This will almost certainly lead to conflict, both within the organisation
and with customers pressurising the software team for fault rectification and
new requirements
...

Scope – the degree of change should not be underestimated in a relatively
small firm like PSI
...
The company
has built up expertise in a niche market
...

Preservation – clearly software development skills are a crucial resource and
capability and must be preserved to enable the proposed strategic change
...
If they
are upset by the proposed change and disturbed by the further pressures it is
likely to create then it is unlikely that they will support it
...
Although the proposed change is largely based
on the competency of current personnel, it is likely that they will be disturbed
by the increased pressure imposed on them and so there is a high probability
that key employees will leave the company
...

However, change may be hampered if the organisation has followed a
particular strategy for a number of years
...
There is also
evidence to suggest that the goals of the sales force and those of the software
developers are already conflicting and there seems even more opportunity for
this to occur in the context of a generic retail software package
...

Capability – The chief executive and sales and marketing director are
entrepreneurial in outlook and want change to fuel growth and their personal
aspirations
...

Furthermore, over the last three years the workforce has been relatively
settled and has not been subject to much significant change
...
The software development
director and his staff control and implement the key activity of the new
strategy
...

Capacity is concerned with resources such as people, finance and information
...
However, evidence from the
scenario is not encouraging
...
The acquisition of necessary resources will take both time and
money
...
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AN S WE R S T O P RA C TI CE QUE S TI ON S : S E CT IO N 3


...
Although the chief executive has the power to impose change,
there are concerns about the scope and capacity for change which may make it very
difficult for the company to preserve its current resources and competencies
...
There is already evidence of
this from the scenario
...
The product is fundamental to the efficient purchasing and stock
control required in contemporary pharmacies
...


cc

The workforce is neither ready for change nor diverse enough to welcome change
...
Finally, there are also grave doubts
about the capacity of the company to deliver the proposed change within the likely
time scale required by the chief executive
...

This is not unusual in small firms where the chief executive also has a large
ownership stake in the business
...
However, PSI does not appear to
be in a crisis situation
...
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It is a private company and so it will not be able
to raise money through the stock market
...
Furthermore, it usually
takes a long time to integrate software developers into a business
...
Hence they are unlikely to be productive until
several months after appointment and this lack of progress might again clash
with the impatience of the chief executive
...
In fact the current pressure on the
software development team suggests that they may not welcome the
proposed new strategy
...

Power – the chief executive has the ultimate power in this organisation,
reinforced by (through combining with the sales and marketing director)
ownership of the majority of the shares
...
The fact
that he has power may lead to him forcing through a strategy which is
essentially wrong for the organisation
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

ACCA marking scheme

Marks
2
2
2
4

15

ter

Total

ym
a

Examiner’s comments

–––
25
–––

as

tud

This question concerned strategic change
...
Candidates who attempted this question seldom scored more than half marks
...
The suggested answer is based
around two models
...
The
suggested answer uses the Balogun and Hope Hailey model which specifically addresses
these issues and uses these terms
...
The second part of the question asked candidates to identify and
analyse the internal contextual features that could influence the success or failure of the
chief executive’s proposed strategic change at PSI
...
The cultural web would also have been
an appropriate basis for answering this question
...

For example:

ea

Issues concerned with moving from supplying a specialist niche market (retail pharmacies)
to a general retail market
...


fre

Issues concerned with the clash between the chief executive and sales director on one
hand and the software development director on the other
...


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(b)

Up to 2 marks for recognising that PSI is pursuing a diversification strategy
Up to 2 marks for explaining the nature of change
Up to 2 marks for explaining the scope of change
Up to 4 marks for exploring the types of change with particular reference
to the situation at PSI
Up to 3 marks for an analysis of each feature that could influence the
success or failure of the proposed strategic change at
PSI up to a maximum of 15 marks
Eight possible features are described in detail in the model answer
A possible mark allocation (1 mark per point up to a maximum of 3 marks)
for one of these features (time) is given below
...



...
com
AN S WE R S T O P RA C TI CE QUE S TI ON S : S E CT IO N 3

Issues concerned with leadership style of the chief executive, particularly in the context of
a relatively small private limited company
...
As a
private company it is unclear how the organisation will finance the software product
development
...
co
m

Issues concerned with the problems currently experienced with the software product and
the demands of existing retail pharmacy customers for new features and facilities
...

Issues concerning the conflicting goals between the sales force and the software
developers
...


ial

ICOMPUTE

ym
a

61

ter

Even if the candidate was unfamiliar with this syllabus area, an answer to this question
(particularly part b) could probably have been crafted out of the general points listed
above, without resorting to any specific published model
...
No specific model or framework is
required by the question so a variety of appropriate approaches are acceptable
...


as

(a)

tud

The models needed were the cultural web and Harmon’s process-strategy matrix
...
Good
knowledge of these models will provide a solid foundation for a pass in this question
...


fre

ea

cc

Stories are told by employees in an organisation
...
In
the context of iCompute, there is evidence of stories that celebrate the earlier years
of the organisation when founder Ron Yeates had an important role
...
’ In contrast
modern management is perceived as weak, giving in too easily in negotiations with
customers
...


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Issues around the need for change
...
The exit strategy of the chief executive appears to be driving the strategy
...
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P AP ER P 3 : BU SIN E S S A N AL Y SI S

ial

The perceived inability of managers to effectively participate in technological
discussions is derided by software developers who suggest that they are technically
out of touch
...


ter

Finally, the language of the manager who suggested that support should be
outsourced is very illuminating
...
Re-focusing managers on
customers appears to be long overdue
...
At iCompute this
involves long working hours and after-work social activities such as football,
socialising and playing computer games
...
The routines and rituals of the
organisation are largely male-oriented (football, computer games) and would
probably exclude most females
...
Furthermore, long
working hours and after-work activities will also alienate employees who have to get
home to undertake family commitments or simply do not wish to be ‘one of the lads’
...
The consequence of this culture is an expensive recruitment
and training process
...

Within iCompute technical expertise is only rewarded to a certain organisational
level
...

Evidence appears to suggest that many are unsuited to management, unable to deal
appropriately with their former peers
...
Consequently, they often try to
demonstrate this expertise (for example, through programming) but are unaware
that this brings derision rather than respect
...
This has led to
the initiation of an in-house project to improve time recording
...


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...
The language and symbols of technology
appear to dominate at iCompute
...
They embrace these technologies and solutions
and, as a result, continually distract the organisation
...
One of the managers claimed that the company was ‘in a state of constant
technical paralysis’
...
Furthermore, technological
objectives can quickly outweigh business and financial objectives, to the detriment of
the company as a whole
...
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AN S WE R S T O P RA C TI CE QUE S TI ON S : S E CT IO N 3

Paradigm and discussion


...
This model answer uses the Harmon process-strategy grid as its reference
point
...


ter

(b)

ym
a

The primary purpose of the Harmon process-strategy matrix is to ensure that
organisations focus their process redesign efforts in the most appropriate areas
...
One is concerned with process complexity and the other with
strategic importance
...
For example, straightforward commodity processes with low
process complexity and low strategic importance should be either outsourced or
automated, using a commercial off-the-shelf software package
...


cc

as

tud

Advice on legal issues Bespoke systems development is risky
...
Contracts have to
be carefully worded and advice taken to head off or manage legal disputes
...
Advice on legal issues could
be classified as a process of high complexity and low strategic importance on the
process/strategy matrix
...
The current supplier employs experts
who keep up-to-date in an increasingly complex field
...


fre

ea

Software support is provided by the company to support both its bespoke and
package solutions
...
Subsequent customer feedback has been poor, but even without this feedback,
it could be argued that outsourcing was a poor decision
...
It directly influences the customer’s perception of
the supplier and the likelihood of a repeat purchase
...
Consequently, not only is support relatively complex (as
acknowledged by the manager who made the outsourcing decision) but it is also of
strategic importance to iCompute
...


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Initially, iCompute was an entrepreneurial organisation with a significant work ethic
based on long hours, technical innovation and competitive management
...
Managers’ reaction to conflict is to avoid it (agreeing with
customers over requirements), outsource it (software support) or put in formal
computer systems to control it (the implementation of a time recording system)
...
The ‘work hard, play hard work ethic’ is only
suitable for employees with certain objectives, characteristics and minimal childcare
responsibilities
...


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ial

1 mark for each appropriate point up to a maximum of 13 marks
...

Up to 4 marks for each high level process
...


Marks
13

ym
a

(a)
(b)

ter

ACCA marking scheme

Total

Examiner’s comments

12
–––
25
–––

ea

cc

as

tud

In part (a) most candidates appeared to be familiar with the cultural web, but they
seemed happier to describe its constituent parts, rather than use it as a basis for analysis
...
For example, many
candidates identified long working hours and certain social activities (computer games,
football) as issues, but did not suggest that these were likely to discriminate against
people with families and other interests and commitments
...

High labour turnover leads to increased recruitment and training costs which affects the
overall profitability of the enterprise
...
The question asked for analysis and implications, not the classification of
information given in the scenario into the constituent parts of the cultural web
...
The only significant issue in some
answers was the unnecessary descriptive detail of the grid itself
...
A brief
introduction to the framework would have sufficed
...
Some
candidates tried to apply the suitability, acceptability and feasibility framework to this
part question but the approach did not really work, leading to long theoretical answers
that scored few points
...
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Some contracts are on a time and materials basis and time recording
data is required for accurate and prompt billing
...
The company has decided to develop software in-house to
support this high level process
...
Firstly, it uses resources which could be employed on external feeearning contracts
...
) and it seems highly likely that a range of offthe-shelf packages would be available to fulfil their needs
...


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Firstly, the nature of
change – how big is it? Incremental or ‘step-by-step’ change does not challenge the
existing way of doing things and may indeed reinforce the organisation’s processes
and culture
...
Often
this Big Bang change is necessary to respond to a crisis facing the firm, such as a
major fall in profitability, and/or the appointment of a new chief executive
...
However, if the proposed
change is a radical challenge to the existing business model or paradigm then it is
regarded as a transformational change
...
Adaptation is a change that can be made within the current business
model (realignment) and it occurs incrementally
...


fre

It is incremental because it will build on the existing skills, routines and beliefs of
those in the organisation
...
Zoomba is seeking to realign itself with the social changes that
are happening in the market and take part in an emerging opportunity
...

There will be no need for a radical redesign of the business model and, ideally, the
pop ups should look and feel exactly like the product and service provided at the
permanent locations
...
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The key in this question will be try to use the models that are contained in this area of the
syllabus rather than relying on common sense which typically results in an answer that lacs
structure and does not have suitable breadth
...
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P AP ER P 3 : BU SIN E S S A N AL Y SI S

(b)

Business change lifecycle
It can be seen that the need for the strategic change is being driven by the need to
align strategy with the changes that are happening in Zoomba’s environment
...
The
business change lifecycle defines five stages in the successful realisation of change:
Alignment


...
Zoomba will also
require some internal alignment and Elise Hazelwood is trying to achieve this
through the creation of new business processes, improved IT systems and the
management of specialist teams of staff to work within the pop ups
...
The project appears to have been
well defined by both Grace Grove and Elise Hazelwood
...
Elise Hazelwood
should have created plans for overcoming staff resistance by considering
contextual features such as the fact that staff seemed to be taken by surprise
by the change, that there is no evidence of previous such changes for staff and
that little support seems to have been in place for staff in coping with the
change
...

Design

–

as

tud

At the design stage, plans for new processes, systems and work methods will
be made
...
It will also have been
important to establish patterns for dealing with the resistance expected at the
definition stage
...

Implementation

cc

The detailed designs will then be put into place
...


fre

ea

Change management will now become vital
...

It can be seen that the change in Zoomba failed because of poor
implementation and this is explored further in the next part of the answer
...
The aim is to ensure that the
alignment has taken place but that does not appear to be the case for Zoomba
...
In
the next part of the answer it will be argued that these changes will be
directed more at staff than at other areas of the business system
...
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(c)

Reasons for the project failure


...
The
POPIT model provides four views of a business system that must be considered for
the successful implementation of business change
...
A failure in one area can
lead to a failure across the entire business system
...
Zoomba
appears to have done this
...
The lessons
learnt review appears to highlight that these areas have worked well in the project
...
Project team staff
were appointed as managers at the pop ups and arrangements were put in place for
the secondment of staff
...
Job roles
were unclear, visitors observed disorganised service and staff appeared to be
unaware of potential secondments to the pop ups
...


tud

People in the organisation need to have the right skills and motivation to carry out
the tasks
...
She has put managers in place at the pop ups but hasn’t really considered
the people that they will be managing
...
Seconding staff into pop ups without prior notice or
explanation needs to be better planned and organised
...


fre

ea

cc

These are problems that can be rectified for future pop ups
...


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Information Technology needs to support the changes that are taking place within
the system
...
Elise Hazelwood’s previous IT experience appears to have helped here
...


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m

Key answer tips

Marks would be available in this question for bringing in the Johnson, Scholes and
Whittington approach to strategic planning
...
Factors affecting the strategy realisation will include changes in the
organisation’s external environment e
...
changes in the market for the goods and
services that the firm produces and in the nature of the competition facing the
company, and also its internal environment
...


cc

Mintzberg argues that strategies can emerge, perhaps as a result of the processes of
negotiation, bargaining and compromise, rather than be due to a deliberate planning
process
...
For example, if a supplier, pursuing modern
ideas on supplier/customer relationships, encouraged a partnership approach to
sourcing
...


Sometimes changes from the intended strategy come about in opportunistic or
entrepreneurial ways, e
...
an enterprise can find a new process or resource that
enables dramatic cost reductions
...
For example,
recession and threat of a takeover may force a strategy of cost cutting and
retrenchment
...


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Strategy formulation is a continuous process of refinement based on past trends,
current conditions and estimates of the future, resulting in a clear expression of
strategic direction, the implementation of which is also planned in terms of resource
allocation and structure
...

This process is shown in the diagram below as the planned intended strategy (also
known as the deliberate strategy)
...
However, the actual strategy
pursued by a company over a three- to five-year period may diverge from the
deliberate strategy for many reasons, as outlined below:

ial

(a)

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Environmental analysis using models such as PESTLE or Porter’s 5 forces
has always been based on a great degree of subjectivity
...
Honda could, for example, examine customer data to
consider changes in demographics or trends towards bikes with better fuel economy
or with larger engines
...
This is likely to create new strategic opportunities for the business and
could help in the development of new products or new markets
...
If a new, say, European bike is gaining lots of
followers on social media or lots of positive reviews on websites, then Honda could
examine ways to use its own strengths to overcome these
...


as

tud

Big data analysis can help with these strategic choices through the use of techniques
such as predictive modelling
...
Again, this might not even have to come from
the behaviour of existing or past customers
...
It might be possible to determine what type of product designs are
popular with different demographics and this will influence what new products or
markets are targeted by the organisation
...
The
analysis can be used to shape the content and channel(s) used for marketing, for
example
...
Big
data will also play a key role and new metrics used to monitor and assess the success
of strategic implementation
...


fre

Analysis of big data is not without its costs and risks
...
This is why many organisations now have deliberate investments aimed at
getting the most from the big data that is out there
...
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Big data is a term that is commonly used to describe the large amount of data that
exists, often in digital form, about human behaviour, tastes and interactions
...
Organisations are now making large IT investments towards managing and
maintain big data with a view to revealing patterns and trends
...
com

ial
ter
ym
a
tud
as
cc
ea
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Section 4

ial

Tutorial note

OCEANIA NATIONAL AIRLINES (ONA)

Tutor’s top tips

as

Approach to the question

Walk in the footsteps of a top tutor

tud

64

ym
a

ter

These model answers are considerably longer and more detailed than would be expected from any
candidate in the examination
...
However, these
answers may not include all valid points mentioned by a candidate – credit will be given to
candidates mentioning such points
...
can be determined
...
This will ensure that
you read the question in the correct manner, do not need to read the question more than
once, save time and can begin planning
...
The examiner
suggests that more than one model can score marks, but that does not mean that you
have to use a lot of models
...


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The examiner clearly states that opportunities and threats are not required, so the
SWOT model would be inappropriate
...
An assessment of strengths
and weaknesses is an internal assessment and therefore an internal tool such as the
resource audit or the value chain would have been most appropriate
...
The
official text for the syllabus suggests that strategies are best evaluated using three
criteria: feasibility, suitability and acceptability
...

Strategic choice

ym
a

The key again will be to determine which model will be most appropriate
...
The first two models will be
important if ONA want to improve their position, the second would be most
appropriate if ONA are looking for new ways to grow
...


tud

Reading the question

Now actively read the question i
...
as you read it you should add all relevant points to your
planning page(s)
...
Therefore, when
choosing strategies in part c), you should choose a strategy for each sector
...
Weaknesses are less apparent and it is therefore very likely that
they will arise from numerical analysis of the three sets of data that have been
provided
...

Sales channels appear to be a critical success factor and it will be important that
answers discuss the issues between using website sales and travel agent sales
...


ea

•

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(b)


...
For the
purpose of this walkthrough the resource audit (sometimes called the ‘M’s model’) is
chosen
...
e
...
This can
be used to record key information in the question as you read it, and also it should
ensure that you do not miss anything important from your answer
...
com
AN S WE R S T O S CE N A RIO - BA SE D Q UE ST ION S : S EC TI ON 4

Answering the question
Part (a) Strengths and weaknesses

ial

For example, there has been a 2
...
g
...


ter

For other strengths and weaknesses, go through as many of the ‘M’s’ in the resource audit
as possible
...
If we take ‘manpower’ as an example; the service provided and motivation of
staff can be seen as a strength of ONA
...


Part (b) Strategy evaluation

ym
a

This is just one part of the resource audit, but all of the elements can be considered in the
same manner in order to create a complete answer to this part of the question when
combined with the quantitative analysis
...

For the second part it is very important to reach the same conclusion as the company – that
this is an inappropriate strategy for ONA
...


(i)

Feasibility

as

If you use the feasibility, suitability and acceptability model suggested by Johnson, Scholes
and Whittington you should achieve a good, well balanced answer
...
Therefore it will be important to link it back to some of the issues
discovered in part a)
...


•

it should be possible to copy the ideas of successful ‘no frills’ airlines and avoid
their past mistakes

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...
There are no marks for illustrating, explaining or calculating ratios so don’t get
bogged down on these
...

Instead, allocate around half of the total marks for quantitative analysis (therefore 10
marks) and work on the basis of around 2 marks for each well explained point
...


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...

The key issues to discuss might be:

these rivals may also react aggressively to any attempt by ONA to enter the
market

•

in order for ONA to achieve this strategy greater economies of scale would be
necessary
...
but it is likely that ONA would still be behind the scale of rivals


...

this is likely to require a reduction in customer service – something that ONA
prides itself on
...


ym
a

•

Part (c) Strategic choice

tud

Overall, there are 13 marks available (excluding the professional marks) which allows
for about 4 marks for each of the three evaluation criteria
...


ea

Overall

cc

as

As already stated it will probably be more relevant in this section to use a competitive
strategy model, such as Porter’s generics or the strategic clock, than to use the Ansoff
matrix
...
There are around 4/5 marks available for each
segment so you should only have to make 2 points for each one
...

The key points to take away from this question and apply to other compulsory, strategic
questions are:
find the requirements before reading the full question

•

for each part of the question, choose one key model and apply it to the scenario

•

include quantitative analysis in all analysis answers

•

allocate your time appropriately between all sections of the requirement
...
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AN S WE R S T O S CE N A RIO - BA SE D Q UE ST ION S : S EC TI ON 4

(a)

Strengths

(2)

ONA have an exemplary safety record
...


(3)

Excellent customer service recognised by the Regional Airline of the Year
award and the Golden Bowl as provider of the best airline food in the world
...
This
appears to suggest that ONA are particularly strong in the business market
...
In the period 20X4–20X6 when passenger
air travel revenue had increased by 12% (and air travel to Oceania by 15%) and
cargo revenue by 10%, ONA increased cargo revenue by 11%, just above the
industry average
...
Hence the cost of sales (excluding
wages, salaries and financing) has moved roughly in line with revenue
...
04% and for 20X6 it is 36
...


(7)

The settlement of debt is an important issue for an organisation
...
This is low at ONA (29 days) and
reducing, suggesting effective credit control and an industry where many
customers pay before they are able to use the service
...


(8)

The gearing ratio measures the contribution of long-term lenders to the longterm capital structure of the business
...
It stood at 71
...
05%
...
Allows
business to be conducted in one day, with a flight out in the morning and a
flight back in the evening
...


cc

as

tud

ym
a

ter

ial


...
A quoted recent
survey suggested that 90% of people preferred to travel ONA for regional
flights and 70% preferred to travel ONA for international flights
...


ea

(10) Highly motivated, courteous employees
...
The most tangible evidence of this is the average pilot salary
given in Table 1
...
The scenario also suggests that ONA pay above industry average
salaries, offer excellent benefits (such as free health care) and have a generous
non-contributory pension scheme
...
High costs are also hinted at in Tables 1 and 2, with ONA having
relatively older aircraft, presumably requiring more maintenance, and lower
utilisation hours than their competitors
...


fre

(1)

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This makes it very difficult for the
airline to gain any operational economies of scale in this sector
...
The airframes for the bulk of the fleet are from two competing
manufacturers (Boeing and Airbus)
...
The need to
service and maintain two aircraft types creates an unnecessary cost
...
Hence overheads still remain in the embarkation process
...
In 20X6 the New Straits Times reported a recent
global survey that showed that air travellers spend an average of four days in a
year in queues at airline check-in counters
...
This is
particularly significant on international sector flights
...
Both of these ratios show a
significant fall in 20X6
...


(8)

The reduction in profitability is also revealed by the net profit margin which
has reduced from 12
...
66% in 20X6
...


(9)

Efficiency ratios are used to examine how well the resources of the business
are managed
...
In
contrast, the average settlement period for payables shows a marginal rise
...
co
m

Poor growth rate
...
However, ONA only recorded a 4
...


ea

cc

Trade payables provide a free source of finance, but extending the average
settlement period too far can lead to loss of goodwill with suppliers
...


(10) Liquidity (both current and acid test ratios) fell significantly in 20X6
...


fre

(11) Finally, the interest cover ratio has declined considerably during the period
covered in Table 1
...
44, but by 20X6 it had declined to 3
...

The lower the level of profit coverage, the greater the risk to lenders that
interest payments will not be met
...
The extent of unionisation and the percentage of sales
made through commission sales might be thought of as strengths or weaknesses
depending upon perspective
...
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AN S WE R S T O S CE N A RIO - BA SE D Q UE ST ION S : S EC TI ON 4

A ‘no frills’ strategy combines low price with low perceived benefits of the
product or service
...
In some circumstances the
customer cannot afford the better quality product or service of a particular
supplier
...
Within the airline sector, the term ‘no frills’ is associated with a low
cost pricing strategy
...
In Asia, AirAsia and Tiger
Airways are examples of ‘no frills’ low-cost budget carriers
...
It is also prevalent in
markets where there are few providers with similar market shares
...
Finally a ‘no frills’ strategy might be
pursued by a company entering the market, using this as a strategy to gain
market share before progressing to alternative strategies
...
Each of these characteristics is considered in the context of
Oceania National Airlines (ONA)
...
In the international sector where
ONA is currently experiencing competition from established ‘no frills’
low-cost budget airlines ONA has, on average, one flight per day to each
city
...
This fleet expansion appears counter to the culture of an
organisation that has expanded very gradually since its formation
...

It is likely that the fleet size would have to double for ONA to become a
serious ‘no frills’ operator in the international sector
...
However, ONA would have to address
the relatively low utilisation of its aircraft (see Tables 1 and 2) and the
cost of maintenance associated with a relatively old fleet of aircraft
...
‘No frills’ low-cost budget airlines
typically achieve over 80% of their sales on-line
...
Clearly a
major change in selling channels would have to take place for ONA to
become a ‘no frills’ low-cost budget airline
...
The low percentage of regional on-line sales
seems to suggest that the citizens of Oceania may be more comfortable
buying through third parties such as travel agents
...
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The first is to try and identify a market segment which is unattractive (or
inaccessible) to competitors and in this way avoid competitive pressures to erode
price
...
It may be a candidate strategy for the regional sector, but the
emergence of small ‘no frills’ low-cost budget airlines in these countries threaten
this
...


fre

•

Many ‘no frills’ low-cost budget airlines fly into airports that offer cheaper
taking off and landing fees
...
This may be acceptable to leisure travellers, but not to
business travellers – ONA’s primary market in the regional sector
...
Although ONA has a relatively
small fleet it is split between three aircraft types
...
The Boeing 737s and Airbus A320s appear to be very similar aircraft
...


ea

•

cc

as

tud

Secondly, a ‘no frills’ strategy depends for its success on margin
...
Evidence from the scenario suggests that ONA does not
have a low cost base
...
More
fundamentally (from Table 2), its flight crew enjoy above average wages and the
whole company is heavily unionised
...
Aircraft utilisation and aircraft age also suggest a relatively high
cost base
...
ONA’s utilisation of its aircraft is also lower than its competitors
...

Other factors serve to reinforce this
...
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Reduced customer service
‘No frills’ low-cost budget airlines usually do not offer customer services
such as free meals, free drinks and the allocation of passengers to
specific seats
...
To move to a ‘no frills’ strategy, ONA would have to
abandon a long held tradition of excellent customer service
...
It would also
probably lead to disbanding the award winning (Golden Bowl) catering
department and the redundancies of catering staff could prove difficult
to implement in a heavily unionised organisation
...
com
AN S WE R S T O S CE N A RIO - BA SE D Q UE ST ION S : S EC TI ON 4


...
A
differentiation strategy seeks to provide products or services that offer different
benefits from those offered by competitors
...
Differentiation is particularly attractive when it provides the opportunity
of providing a price premium
...
Air travellers may be willing to pay more to travel with an airline that
offers seat allocation and free in-flight food and drinks
...
This is
already a perceived strength of the company
...

Providing more space in the aircraft by changing the seating configuration –
and the balance between business and standard class
...

Fewer passengers in the aircraft may also lead to improved throughput times
...

Providing supporting business services – lounges with fax and internet
facilities
...

Providing loyalty schemes that are aimed at the business traveller
...
Consequently,
the potential strategy also has to be considered in the context of the two sectors that
the company perceives that it services
...
Here, the strategy focuses on a
selected niche or market segment
...
This focus on the business traveller
might be achieved through:

•

fre

•

•

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In conclusion, the CEO’s decision to reject a ‘no frills’ strategy for ONA appears to be
justifiable
...
Revolution is the term used by
Balogun and Hope to describe a major rapid strategic change
...

Such an approach is often required when the company is facing a crisis and needs to
quickly change direction
...
This is why the CEO brands the change to a ‘no frills’ low-cost budget
airline as ‘unnecessary’
...
It can be argued that a more
incremental approach to change would be beneficial, building on the strengths of the
organisation and the competencies of its employees
...
If ONA really wanted to
move into this sector then they would be better advised to start afresh with a
separate brand and airline and to concentrate on the regional sector where it has a
head start over many of its competitors
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

Although this focused differentiation is aimed at the business customer it is also likely
that particular aspects of it will be valued by certain leisure travellers
...



...
However, it might also be useful for them to
consider on-line customers and commission customers (travel agents) as different
segments
...


ea

cc

as

tud

Finally, whichever strategy ONA adopts, it must continue to review its operational
efficiency
...
It can be argued that a continual reduction in
costs is necessary for any organisation in a competitive market
...
ONA needs to address some of the
weaknesses identified earlier in the question
...

•
Progressive standardisation of the fleet to produce economies of scale in
maintenance and training
...

•
Careful monitoring of expenditure, particularly on wages and salaries, to
ensure that these do not exceed revenue increases
...
In the model answer
given above, the strategy clock is used – as it uses the term ‘no frills’ in its definition
and so it seems appropriate to look at other options within this structure
...
Furthermore, answers which focus on the suitability,
acceptability and feasibility of certain options are also acceptable
...
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This sector is serving
both the leisure and business market and is also competing with strong ‘no frills’
competitors
...
A strategy of
differentiation could still be pursued, although perhaps general differentiation
(without a price premium) may be more effective with the aim of increasing seat
occupancy rate
...
However, these small changes will not
address the relatively low flight frequency in this sector
...
Simple code share agreements could double ONA’s frequencies overnight
...


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2 marks also available for professional presentation and coherence of the
complete answer
...
co
m

(a)

ial
ter

Examiner’s comments

10
–––
50
–––

ym
a

The first part of this question asked candidates to evaluate the strengths and weaknesses of
ONA and to explore how these impacted on the company’s performance
...
Most candidates answered this part of the question
reasonably well
...
Relatively easy marks were available
for calculating and interpreting standard financial ratios
...
Use of this information
often went no further than extracting superficial data that was immediately obvious
from the tables, for example that net profit after tax had fallen’
...
On one hand this was good to see, but on the other it did mean that many
of the answers were very long
...
This was a particular problem
when inappropriate models were used (such as PESTEL), leading candidates to
discuss opportunities and threats which were explicitly excluded from the question
...
This was a complete waste of time’
...
Credit was given for both generic answers and for answers
which specifically referenced the airline industry
...


fre

The question then asked candidates to explain why moving to a ‘no-frills’ low-cost strategy
would be inappropriate for ONA
...
The question asked candidates to adopt and support a particular position
...
The better answers
actually adopted the suitability, acceptability and feasibility success criteria suggested by
Johnson, Scholes and Whittingham
...
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P AP ER P 3 : BU SIN E S S A N AL Y SI S

ym
a

ter

ial

Finally, candidates were asked to evaluate other strategic options ONA could consider to
address the airline’s current financial and operational weaknesses
...
The word ‘other’, meaning other than ‘no frills’ and so marks could not
be awarded for an option which had been specifically rejected by the organisation
...
Indeed the
better answers adopted the strategy clock, Ansoff’s matrix or further applied the suitability,
acceptability and feasibility success criteria
...
Unfortunately, some candidates did
not pitch their answers at a strategic level, focusing more on piecemeal operational
improvements
...


THE NATIONAL MUSEUM

Walk in the footsteps of a top tutor

ea

cc

65

as

tud

Three further aspects also need stressing;
1
Financial and quantitative information is provided in scenarios for a reason
...
Many candidates ignored this information completely
...
Many answers were too general
and lacked appropriate context
...

3
Do not use theories inappropriately in a scatter-gun approach
...
Candidates must make sure that answers are focussed and contain
enough relevant points to get the marks on offer
...
This should have given
students the correct focus and avoided doubt about which model should be used in answers
...

Try to cover all areas of the PESTEL (the examiner complained that some students failed to
cover the 'legal' issues
...
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m

Not only did this give plenty of scope for a good answer, it also allowed candidates to score
well on the professional marks available for this question
...
Too many answers were neutral in tone and did not carry
sufficient conviction
...
Although some of these ideas were interesting, they were not the intended focus of
the question
...
com
AN S WE R S T O S CE N A RIO - BA SE D Q UE ST ION S : S EC TI ON 4

Dangers:
Using alternative models
...



...
g
...
A PESTEL
model is an examination of the external influences on an organisation (the examiner
highlights this by referring to it in the question as a 'macro-environmental' analysis)
...
The examiner suggested that the majority of students found this to
be a straightforward section of the exam but that weaker students often spent too long on
it at the expense of other parts of the exam
...


ial

This part of the requirement wanted students to assess the organisational cultural issues
that caused the failure of the museums strategy
...
There are a range of cultural models that can be used (Handy,
Peters & Waterman, the cultural web) and generally the examiner expects students to
choose one model and apply it to the scenario
...
The examiner used this model in his
answer
...
Don’t simply explain what the model is
...
to explain why the problems
arose
...
g
...

Dangers:

as

Not focusing on culture
...
The examiner’s opinion was that there was not
enough material given in the case to 20 marks worth of material on change management
...


cc

Part (c)
Key to success:

ea

Note the two parts of this requirement – there will be marks available for explaining the
lenses and then applying the lenses to the scenario
...


fre

Show how each lense would apply to the museum and why/how the one that was used
caused the problems that occurred
...
It is important for the exam
that you cover all the main areas of the syllabus – and Johnson, Scholes and Whittington are
seen by the examiner as being key to the design of the whole syllabus

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There are six main influences in the framework:
political, economic, social, technological, environmental and legal
...

Candidates will be given credit for identifying the main macro-environmental
influences that affect the NM, whether or not they are classified under the same
influences as the examiner’s model answer
...
It is currently very reliant on government funding
and so is significantly affected by the recently elected government’s decision to
gradually reduce that funding
...
Unfortunately,
senior staff at the museum did not share this perception of the significance of the
funding changes
...
The government is
now threatening heavier funding cuts and further political trustee appointments
...
The government has only just been elected and the opposition
also agrees that the reliance of museums on government funding has to be reduced
...
It was significant that it was the two trustees appointed by the
government who supported the Director General and his proposed changes
...

The museum must strive to meet these objectives even if they are not shared by
senior staff
...

Economic

fre

ea

cc

as

Up to now the National Museum has been largely sheltered from the economic
environment
...
Evidence from the scenario and Figure 1, suggests that this
funding is stable, increasing on an annual basis to reflect inflation
...
It will have to set realistic admission charges
...
The Director General included a number of these
ideas in his proposals
...

Social

The social environment is important to the museum from at least two different
perspectives
...
The government is committed to increasing museum
attendance by both lower social classes and by younger people who they feel need to
be made more aware of their heritage
...
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The museum is becoming increasingly isolated in its environment,
with many of its traditional middle-class customers moving away from the area and
reluctant to visit
...
The museum needs to react to these issues by ensuring that good
and safe transport links are maintained to the museum and by improving security
both in the museum and in its immediate vicinity
...
If the museum believes this to be unachievable, then it might consider
moving to a new site
...

Technology provides opportunities for displaying and viewing artefacts on-line
...
Indeed, such an approach should also help the museum achieve some of
its technology and accessibility targets set by the government
...
The
appropriate use of technology frees the museum from its physical space constraints
and also overcomes issues associated with its physical location
...
These
are likely to be exacerbated by the museum being located in an old building which
itself requires regular maintenance and upgrading to reflect government
requirements
...
The museum
needs to adopt appropriate policies on recycling and energy conservation, but it may
be difficult to achieve these targets in the context of an old building
...
However, the museum building is also of architectural importance, and so
some acceptable alternative use for the building might also have to be suggested
...
Firstly, there is already evidence
that the museum has had to adapt to legal requirements for disability access and to
reflect health and safety requirements
...
It is likely
that modifications will be expensive and relatively awkward, leading again to

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...
The percentage of visitors aged 22 and under visiting the
NM has decreased from 19% of the total visitors (in 20X4) to just over 12% in 20X7
...
The Director General had suggested free admission
...
It appears that the immediate neighbourhood of
the museum now houses many of the people the government would like as visitors
and so, from this angle, the location of the museum is an advantage
...


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Further
tightening of legislation might be expected from a government with a mandate for
social inclusion
...
Legislation concerning fire safety,
heating, cooking and food preparation might also exist or be expected
...
It can be
used to understand the behaviours of an organisation – the day-to-day way in which
the organisation operates – and the taken-for-granted assumptions that lie at the
core of an organisation’s culture
...
In this suggested answer the cultural web is used as a way of
exploring the failure of the Director General’s strategy from a cultural perspective
...


as

tud

A cultural web for the National Museum is suggested in Figure 1
...
The symbols
explore the logos, offices, titles and terminology of the organisation
...
Furthermore, the language used by
directors in their stories (see below) suggests a certain amount of disdain for both
customers and managers
...
The proposal of the Director General to close the heads’ dining
room and to remove their dedicated personal assistants would take away two
important symbols of status and is likely to be an unpopular suggestion
...
Power can be seen as the
ability of certain groups to persuade or coerce others to follow a certain course of
action
...
Three of the five directors represent
collection sections
...

The power of external stakeholders (such as the government) has, until the election
of the new government, been relatively weak
...
The Director General of the museum has been
a part-time post
...
On his
proposed board, only one of six directors represents the collection sections
...
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m

Secondly, the museum is run by a Board of Trustees
...
The museum must be aware of these and
ensure that their work is properly scoped and monitored
...
The
museum is a charity and it is the responsibility of the trustees to ensure that its
operation complies with the charity law of the country
...
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AN S WE R S T O S CE N A RIO - BA SE D Q UE ST ION S : S EC TI ON 4

tud

ym
a

ter

ial

The controls of the organisation relate to the measurements and reward systems
which emphasise what is important to the organisation
...
These collections help determine how much the museum receives as a
whole and it appears (from the budget figures) that the Board of Trustees also use
this as a guide when allocating the finance internally
...
Once this division has
been established the principle of allocating increases based on last year’s allocation,
plus a percentage, perpetuates the division and indeed accentuates it in real financial
terms
...
Again, this
may suggest a potential conflict between the larger and smaller collection sections of
the museum
...
The
museum was given a budget to maintain the collections, not to attract visitors
...


ea

cc

as

The routines and rituals are the way members of the organisation go about their daily
work and the special events or particular activities that reinforce the ‘way we do
things around here’
...
In many organisations
issues within the boardroom remain confidential and are resolved there
...
The scenario suggests that
there are certain rites of challenge (exemplified by the new Director General’s
proposals) but equally there are strong rites of counter-challenge, resistance to the
new ways of doing things
...


fre

Stories are used by members of the organisation to tell people what is important in
the organisation
...
The Director of Art and Architecture believes that Heritage Collections
have a value that transcends popularity with the ‘undiscerning public’
...
He suggests that fashion may not be
a suitable subject for a collection, unlike art and architecture
...


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...

This appears to be the case at the museum
...
Both the Director of Industrial Art
and the Director of Media and Contemporary Art represent five collection sections
...
This imbalance, reinforced by different symbols (professorships) and
reflected in stories (see later) might suggest a certain amount of disharmony
between the collection heads, which the Director General might have been able to
exploit
...
This is reinforced by the title of the director concerned;
Director of Administration
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

In the centre of the cultural web is the paradigm of the National Museum
...
These might be:
•
•
•

The museum exists for the good of the nation
It is a guardian of the continuity of the nation’s heritage and culture
What constitutes heritage and culture is determined by experts
The government funds the purchase and maintenance of artefacts that
represent this heritage and culture
...
co
m

•

Symbols

–
Stories

–

–

–
–

–

Lobbying of external
organisations
Limited role of Board of Trustees

–

Exists for the good of the nation
Funded by government
Guardians of the continuity of
nation's heritage and culture
What constitutes heritage and
culture is determined by experts

–

–

tud

–
–
–
Routines and Rituals

–

ym
a

Value of National Collections
People are transient, collections
have established worth
Belittle management and
commerce

–
–

Head of section has large office,
special dining room, dedicated
p
...

National Collection confers
status of professor
Disdain for customers, managers
and colleagues

ter

–

as

Controls

–

cc

–

Annual budget decided on last
year's figures and a percentage
for inflation
Budget division heavily
influenced by 'National
Collections'
Traditionally, 90% funded by
government
New government changing
funding basis

–

Department based, largely
reflects the head of section
structure
Board of trustees dominated by
academics relevant to museum's
collections
Traditionally very little influence
from external stakeholders
New government beginning to
exert power

Organisational Structure
–

–

Within collections, art and
architecture appears to have
disproportionate representation
Administrative role of
management reinforced by title:
Director of Administration

fre

ea

–

Power

Figure 1: Possible cultural web for the National Museum

39 8

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ial

There are two important elements of the Director General’s proposals that are
missing from this paradigm; visitors and customers
...


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For example:

ter

ym
a

The design lens views strategy as the deliberate positioning of an organisation as the
result of some ‘rational, analytical, structured and directive process’
...
Lower levels of management carry out the operational actions required
by the strategy
...
In the context of the scenario, the
government is now significantly involved in objective setting and tying funding to
those objectives
...
There is evidence that he has gone about this in a
‘top-down’ way and not sought advice from current employees
...
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m

•

He may have considered deferring one or both of the proposals to remove the
head of collection sections’ dining room and their dedicated personal
assistants
...

He might have considered simply adding directors to the organisational
structure, rather than inviting conflict by removing two of the collection
directors
...
The
actual number of collection related directors remains the same (three), but
their relative power in the board would have been decreased
...
A significant number
of sections are not designated as Heritage Collections and so are not headed
by professors
...
Published stories and
deriding fashion, reinforces this division
...

He also needed to recognise the structure of the Board of Trustees
...

Finally, he would have benefited from understanding the paradigm of the
National Museum and how at odds this paradigm is with his own vision and
with the vision of the incoming government
...
Both the power
and controls elements of the cultural web are undergoing significant change
...
Although
the heads of collection sections have successfully lobbied for the removal of
the Director General, they are very unlikely to change the government’s policy
...
The sacking of the Director General may have been a
pyrrhic victory and a much worse defeat now awaits the heads of collection
sections
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

ym
a

ter

ial

Strategy as experience provides a more adaptive approach to strategy, building on
and changing the existing strategy
...
The experience lens
views strategy development as the combination of individual and collective
experience together with the taken-for-granted assumptions of cultural influences
...
This certainly appears to be true for the heads of collection sections at
the National Museum
...
It seems unlikely that people with a vested interest
in the current arrangement and perpetuating that current arrangement will come up
with the change in strategy that is now required
...
Strategy as experience seems innately conservative
...
However,
this does not appear to be the situation at the National Museum and so developing
strategy as experience may not seem a possible way forward and perhaps this is why
the Director General explicitly rejected this approach
...
It sees strategy as
emerging from the variety and diversity in an organisation
...
Consequently, the organisation
should foster conditions that allow ideas to emerge and to be considered for
inclusion in a ‘mainstream strategy’
...
It could be argued that the
macro-environmental conditions for adopting this lens are present at the National
Museum
...
The museum is undergoing a fundamental
change in priorities and funding and the consequences of these changes is
unpredictable
...
There is no evidence in
the scenario of a group of people generating conflicting ideas and encouraged to
compete with each other in an open and supportive environment
...
Finally, a key factor in the selection of ideas is the marketplace
...

There is plenty of evidence to suggest that it is difficult to change strategies in a
hierarchical or deferential structure
...
In many ways this appeared to be the natural
lens to adopt given the objectives set by the newly elected government that was
beginning to exert its power
...
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co
m

programme, employees were particularly critical of a lack of consultation; ‘these
proposals have been produced with no input from museum staff
...
In many ways, the approach taken at the National
Museum under the new Director General represents the design lens view of strategy
...


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...
This was always unlikely to be forthcoming given its composition
...
However, it may have been possible to exploit strategy as ideas if the
Director General had carefully selected heads of collection sections who were
relative losers under the current system
...
co
m

ACCA marking scheme

Marks

ial

(b)

20

ter

Up to 2 marks for an explanation of how each factor contributed to the
rejection of the Director General’s proposals, up to a maximum of
10 marks
...


20

Up to 2 professional marks are available for the overall clarity and
coherence of the analysis
Up to 8 marks for the insights offered by the lenses into the case study
scenario
...


Examiner’s comments

–––
50
–––

tud

Total

10

as

The first part of this question asked candidates to analyse the macro-environment of the
National Museum
...
There were plenty
of clues in the case study, most of which featured in candidate’s answers
...


cc

PESTEL is concerned with the external environment and so points made about internal
budget allocations could not be given marks
...
In general, it was answered very well
...
Unlike the previous part of the question, no specific model or
framework was suggested for this part of the question
...
This
guidance appeared to be successful as the vast majority of answers did focus on
organisational culture and not cultural forces concerned with nationality, history, arts or
religion
...
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40 1

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A further 8 marks are available for giving credit to candidates who have
extended their argument in selected areas of the framework
...

Up to 2 marks for each significant cultural factor identified by the
candidate up to a maximum of 8 marks
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

cc

SHOAL PLC

ea

66

as

tud

ym
a

ter

ial

Candidates could also have used the cultural web to reflect upon the acceptability of staff
lobbying external organisations (television and press) and publically criticising the Director
General
...
It is clear that the organisation’s current culture
is not compatible with the strategy that the Director General wishes to develop
...
However, despite the explicit reference to cultural
issues, many candidates focussed their answers on the scope and nature of change,
accusing the Director General of proposing big bang change when incremental change
would be more appropriate and pursuing revolution to evolution
...
Without such references such answers were
light on detail, because the case study did not have enough information to support such
an approach to the analysis
...
This
may be a legitimate point, but was insufficient to gain the twenty marks on offer for this
part question
...

Understanding these lenses is not only a defined objective in the study guide, but also
underpins the whole of the Business Analysis syllabus
...

Others showed very little knowledge and so only scored two or three marks
...
There are 3 business
units to discuss for a total of 15 marks (so 5 marks for each SBU)
...

Each of these elements will have to be done succinctly and include an analysis of the
financial data available
...

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...
The case study scenario is rich with material to
support this approach
...
There are important stories in the case study scenario
which demonstrate how certain staff members view the public and management
...
There are important clues in the current and proposed
organisation structure about how the Director General wished to redistribute power in
the organisation
...
com
AN S WE R S T O S CE N A RIO - BA SE D Q UE ST ION S : S EC TI ON 4


...
Contextual features are
part of the Balogun and Hope Hailey model and this is the model that should be suggested
...
Each feature should be explained and made relevant to
the scenario to gain around 2 marks per feature
...
Students should focus on coming up with
specific and relevant ideas on the changes needed within Shoal plc
...


ial

(a)

Portfolio analysis

ym
a

ter

A PESTEL analysis of ShoalFish would focus on the fact that it is fishing in an area
where fish stocks are rapidly declining (environmental) and it is increasingly exposed
to government intervention and restrictions (political)
...
Profits
are declining, although ShoalFish appear to have arrested the decline in the profit
margin
...
9%) shows an increase over the 20X8 figure
(4
...
This may mean that the company has been able to bring operating costs in
line with the declining turnover
...
However, Shoal plc perceives that there are
important synergies between ShoalFish and the other companies in the Shoal plc
portfolio
...
ShoalPro is also ShoalFish’s main customer, accounting for 40%
of the company’s catch
...
Shoal plc would like ShoalFish to directly
supply the Captain Haddock restaurants and so potentially reduce raw material costs
at Captain Haddock
...
They are
operating in an area where owner-skippers are very common (almost half of the
boats in the western oceans are owned and operated by the boat’s captain)
...
Alternatively, they could tolerate declining performance from this
part of the portfolio, in the knowledge that it forms an important part of the supply
chain for other companies in the portfolio
...
A significant percentage of its
raw fish supply is currently provided by ShoalFish, but this percentage is declining as
it increasingly processes fish for other companies
...
Gross profit margins are improving slightly (from 10% in
20X7 to 10
...


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In part (c), the bulk of the marks will be available for simple bookwork
...
Shoal appear to be a synergy
manager, but any justified conclusion is likely to be allowed by the examiner for the final
mark or two
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

Its consistent profitability would classify this business, using Boston Box terminology,
as a cash cow
...


ShoalFarm

ter

ial

ShoalFarm is a relatively new acquisition
...
ShoalFarm is itself growing (+12% from
20X7 to 20X9), but not as fast as its market (+20% in the same period)
...
It seems likely that this will
increase in importance in the future although the difficulty of finding potential sites
(environmental) may be a significant factor
...
7%),
recovering slightly in 20X9 (13
...


ym
a

ShoalFarm may also have a significant role to play in providing raw materials for both
ShoalPro and the potential acquisition – Captain Haddock restaurants
...
It
needs increasing investment to ensure that it becomes a key player in a significant
market-place
...
If they do not – and the potential synergies with
Captain Haddock are not realised – they may wish to divest
...
Conflicting environmental forces are at work, on the one hand reducing
the level of dependency between the companies and, on the other hand, reinforcing
the competitive advantages (synergies) of being in a vertically integrated group
...

Change management
(i)

Contextual features

fre

ea

cc

Shoal plc recognises that there is no ‘one right way’ to manage change
...
Balogun and Hope Hailey
have highlighted a number of important contextual features that need to be
taken into account when designing change programmes
...
However, other frameworks that
recognise the context that changes takes place within could be used by the
candidate and appropriate credit will be given
...
The decline in Captain Haddock’s turnover and profits is
increasing dramatically
...
If Shoal plc does acquire Captain Haddock then strategic change will
have to be implemented quickly
...
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A PESTEL analysis would focus on the fact that ShoalPro factories are in a region
which attracts national grants due to high local unemployment (political and
economic)
...

Analysis suggests that ShoalPro is an important part of the Shoal plc portfolio and
should be retained and maintained
...
com
AN S WE R S T O S CE N A RIO - BA SE D Q UE ST ION S : S EC TI ON 4

ial

Change is usually easier if there is a diversity of experience, views and opinions
within the organisation
...
The
suggestion is that most employees are recruited directly from school or
university and then remain within the Captain Haddock training programme as
they progress through the company
...
In such circumstances it is unlikely that norms and practices will
be challenged
...
Shoal plc will have to be sensitive to this, as well as recognising that it
will need to bring the required diversity of thinking to the company
...
Within Captain Haddock there appears to be little experience
of such change
...
In contrast, Shoal
plc have experience of managing change and this is a major capability that it
should bring to Captain Haddock
...


tud

The capacity of an organisation for change considers the resources available to
support change
...
Captain Haddock has little capacity for change from its own
resources
...

Substantial investment will not only be required to improve Captain Haddock’s
financial position, in terms of fulfilling bank covenants, but also to finance the
change programme necessary within the company
...
Two
senior members of management who could have been the focus for some
resistance to change have left the company and employee representatives are
keen for someone to come in and ‘effectively lead employees who have
become increasingly demoralised by the decline of the company’
...


ea

It is necessary to identify people in the organisation who have the power to
effect change
...
They must give the appointed management sufficient power
to implement the required changes
...
They will need
to provide management with appropriate capability and diversity and then give
them the power and capacity to effect required changes
...


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...
It is
recognised that the employees and the training they receive are first rate
...
Similarly, the Captain Haddock brand is strong and needs to be
re-affirmed
...
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P AP ER P 3 : BU SIN E S S A N AL Y SI S

The final contextual feature that needs consideration is the scope of change
...


Incremental
Big Bang

Transformation
Evolution
Revolution


...


ial

(ii)

Elements of strategic change

ter

Evolution is a change that does require a paradigm change but one that can be
introduced over time Revolution is a change that requires rapid change
associated with a change in paradigm
...


ym
a

This part of the question can be answered in a number of ways and all
legitimate approaches will be given credit
...


ea

cc

as

This model answer uses the structure suggested by Johnson, Scholes and
Whittington for implementing a turnaround strategy
...

There is a need for a realignment of strategy rather than a fundamental change
of strategic direction
...
This is often associated with a
turnaround situation where there is a need for structural changes to deal with
a decline in financial performance and changing market conditions
...
Thus Shoal plc should be aware of some
of the main elements of a turnaround strategy as they will need these if they
acquire Captain Haddock
...


fre

(1)

40 6

The change strategy might commence with crisis stabilisation with a
short-term focus on cost reduction and revenue increase
...
There is evidence that
focusing on reducing operational costs is a significant factor in a
successful turnaround strategy
...
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It is vital that key stakeholders are kept
informed during the change process
...
Evidence from the
scenario suggests that employees are supportive of change
...


(4)

Shoal plc will have to clarify target markets and re-establish the Captain
Haddock brand
...
The
company has to get ‘back to basics’ and re-establish itself in its
traditional market-place
...
It may be possible to dispose of the land bought for
investment
...


(6)

Financial restructuring of Captain Haddock is necessary and is part of the
capability that Shoal plc will bring to the company
...


(7)

Shoal plc will need to prioritise critical improvement areas, delivering
quick and significant improvements
...
co
m

Implementing management changes at the top level
...
Their resignation will also support the reduction of costs
...


(c)

as

Finally, Shoal plc need to be aware that a successful turnaround strategy
should focus on getting the existing business right, rather than quickly
diversifying into new markets and businesses
...
The distinction between the three is
considered here
...

They seek to increase the value of the companies in their portfolio more efficiently
and effectively than financial markets could achieve
...
In many instances, poorly performing parts or
businesses of the acquired company are sold off as part of performance
improvement
...
The nature of that business, the market it is operating in and
its relationship to other businesses in the portfolio is relatively unimportant
...
Instead, they set

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The value-added activities of a portfolio
manager are usually restricted to investment, setting expectations and standards and
for monitoring performance
...



...

For example, guaranteeing a supply of raw material or as a guaranteed customer of a
product
...
The ‘supplying’ company may not control costs or
ensure quality sufficiently because it knows it has a guaranteed customer for some of
its products
...
Business managers are usually rewarded on the
performance of their business unit, but under this strategy they are being asked to
co-operate in something that could compromise the performance of their business
unit
...
There is also a concern that Shoal plc knows a lot about sourcing and
processing fish, but not much about the restaurant industry
...
However, despite these reservations, it is clear that Shoal
plc’s overall corporate philosophy is that of a synergy manager
...
So, in this instance, the parent company is confident
about its resources and capabilities and wishes to use these to enhance the value of
the businesses in the portfolio
...
Such a company needs to identify businesses which are not currently
fulfilling their potential but could if they were associated with a well-known brand
...
For
parental developers, achieving synergies between companies in the portfolio is not a
priority
...
This is not really the approach of Shoal plc
...


40 8

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Johnson, Scholes and Whittington claim that synergy is often seen as the raison
d’etre of the corporate parent, with value being enhanced across the business units
in a number of ways
...
Johnson, Scholes and Whittington particularly
identify the sharing of resources or activities; for example, a common brand name (as
in the case of Shoal plc) may provide value to different products within different
businesses
...
For
example, expertise built up in the politics of fishing is likely to be transferable
throughout the Shoal plc businesses
...
com
AN S WE R S T O S CE N A RIO - BA SE D Q UE ST ION S : S EC TI ON 4

ACCA marking scheme
Marks
(a)

1 mark for each relevant point up to a maximum of 5 marks for each
company
...


(b)

(i)

15


...
However, surprisingly few
candidates actually used portfolio analysis, despite the fact that the financial information
was aligned to the data needed to classify the companies within the Boston Box
...
In reality, there are eleven more companies for which
data is not given
...
However, overall, this was
a popular and well-answered part of the question
...
Performance was very patchy in this part of
the question
...
The best answers used an appropriate model and provided relevant crossreference to the case study scenario for each facet of their selected model
...
However, even those who were
not familiar with this approach, were able to give a sensible answer gaining pass marks,
often using Lewin’s unfreeze- transition (change) – freeze framework as an overall
structure to their answer
...
It asked candidates to explain
three corporate rationales; portfolio managers, synergy managers and parental
developers and to assess their relevance to the overall corporate rationale of Shoal plc
...
This appears to have been due to a lack of knowledge in this
area of the syllabus
...
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In addition there are 2 professional marks allocated as
follows: 1 mark for the identification of an appropriate model,
1 mark for the justification of an appropriate model
...

Maximum
In addition, there are 2 professional marks allocated as follows: 1 mark for
the cogency of the analysis and 1 mark for overall application to the case
study environment
...
There are three corporate rationales giving a
maximum of 9 marks
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

67

AUTOFONE


...
The examiner will be looking for Porter’s Five Forces
analysis
...


ter

ym
a

Potential entrants (the threat of entry)

tud

New entrants into an industry bring new capacity and resources with which they aim
to gain market share
...
Potential entrants may
be deterred by high barriers to entry and by the threat of aggressive retaliation from
existing competitors in the industry
...
At the time, the network providers were sceptical
that mobile phones could be sold through shops
...
It now seems unlikely that the
network providers would sign such deals (because the new entrant will be a
competitor of their own retail business) and, if they did, any deals would be at less
favourable terms
...
Improved supply terms would be attractive to the network provider
and phone manufacturers (who would increase their profitability on each unit sold)
but it would also cause profitability problems for the new entrant
...
It seems unlikely that public policy restricting the number of network
providers allowed to provide services will change in the foreseeable future and so
access to supply channels will remain a very significant barrier to entry
...
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The framework is designed to analyse ‘the
structure of an industry and its competitors’ (Porter, 20X4)
...
Each of these is now considered in turn in the context of AutoFone,
focusing on those factors that have a significant effect on their industry
...


ial

(a)

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Suppliers tend to be powerful when
the industry is dominated by a few companies
...
The
potential role of suppliers restricting the supply channel has already been recognised
as a barrier to entry
...
This is exactly the situation
affecting AutoFone, with network suppliers now running their own retail outlets
...
These are:

•

The supplier group does not have to contend with other substitute products
for sale to the industry
...

The supplier’s product is an important input to the buyer’s business
...


tud

•

cc

as

Hence the bargaining power of suppliers is extremely high in AutoFone’s retail
industry, although this is reduced by AutoFone’s long-term supply contracts
...

Bargaining power of buyers

fre

Buyers attempt to obtain lower prices or seek to get increased or better quality
services or products
...

Under certain conditions a buyer group can have considerable influence
...
For example, Porter suggests that buyer power is high when there is a
credible threat of the buyer integrating backwards into the market place and so
becoming a competitor
...


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In the
context of AutoFone, these economies of scale are associated with purchasing,
service and distribution of products through a large scale retail network of 415 shops
...
Furthermore, evidence suggests that the AutoFone brand is well
known in the market place, with consumers identifying it, in 20X5, as one of the ‘top
20’ brands in the country
...
Capital will also be required for
establishing significant inventories in the large number of retail shops required to
achieve the required economies of scale
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

Threat of substitutes

ial

Substitute products are usually products that can perform the same function as the
product of the industry under consideration
...
However, the trend has been to integrate this technology
into the offerings of the industry
...
Hence
the industry appears to be relatively free of potential substitutes
...
Rivals jockey for position by
reducing prices, launching advertising campaigns and improving customer service or
product warranty
...
The information in Table 2 suggests that the retail
sales market is relatively equally divided between the five main suppliers
...

(Porter, 20X4)

tud

Lack of differentiation or switching costs
...
In such circumstances buyer choice is based on price and
service, and this results in intense pressure for price and service competition
...
They argue that an organisation concentrating solely on Internet
sales and insurance would be a ‘smaller but more profitable’ organisation
...
He has strong
emotional attachment to the retail business
...


fre

ea

cc

(b)

as

Slowing industry growth
...
There was less than 1% growth in 20X7
...
This will
intensify the rivalry between the competitors
...
The
briefing paper should challenge the suggestion of the two directors and provide a
reasoned case for opposing the divestment of the retail sales business
...
The four network providers might pay a
handsome price to remove AutoFone from the market
...
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m

However, some of the circumstances of significant buyer bargaining power do appear
to exist in the industry
...
Buyers are always sure that they can find an alternative supplier
and so they can play one supplier off against another
...
Furthermore, buyers face few
switching costs
...


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...
The
slowdown in market growth documented in table 2 suggests that, in the context of
the product life-cycle model, the mobile phone market appears to be in either the
shake-out or maturity stage
...
Companies in the market will have to fight to gain market share and the
emphasis will increasingly be on efficiency and low cost
...

Like most infant industries the mobile phone industry experienced rapid growth as it
developed
...
Slowing growth in the industry
means that there is more competition for market share as companies seek to
maintain their own growth at the expense of others
...
It is significant
that the idea for divestment has come from the two longest serving directors
...
In many ways the current expansion of AFDirect
recalls the early period of AutoFone and so operating in the growing Internet market
appeals to them
...
The ROCE has steadily
declined from over 18% in 20X3 to just over 5% in 20X7
...
Gross profit margins have not
fallen quite as much as this
...
Gearing has risen during
the period, from just over 21% to just over 32% and this reflects increased
dependence on borrowed money
...


fre

ea

Porter suggests that one of the issues of the transition to a mature market is that
directors have to scale down their expectations of financial performance
...
’ The concern is that the two
directors are pursuing such a policy, giving up too quickly and sacrificing a market
and market share in favour of a course of action that they believe will deliver shortterm profits
...


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...
It then goes on to examine
the exit barriers that AutoFone must consider if they are to seriously consider moving
out of the retail sales market
...
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P AP ER P 3 : BU SIN E S S A N AL Y SI S

Industry structure


...

These are the barriers concerned with preventing the company from leaving the
industry
...

The high cost of terminating shop leases
...
These leases are often in areas just outside the
main shopping areas and so may be difficult to re-let
...
There are
currently 1,400 employees in the retail shops division
...
Research has shown that AutoFone is a well recognised
brand
...

The brand is also being constantly reinforced by consumers seeing and visiting these
shops
...
Indeed if shops lie empty
(because of the difficulty of reletting shops with long leases) it could harm the brand
...


fre

ea

Reduced sell-on into related businesses
...
Hence it seems likely that most insurance sales result from the sales of mobile
phones in the retail sales operation
...
Firstly,
retail sales are mainly to customers in a certain age group
...
Secondly, sales assistants giving this
advice are given commission incentives to sell insurance
...


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Evidence from the analysis of AutoFone’s competitive position (part a) suggests that
AutoFone is in a retail industry dominated by powerful suppliers
...
However, there is little threat from substitutes or
new entrants because of the high entry barriers
...
Furthermore, the company’s
uniqueness is enhanced by the fact that it is the only retail outlet to offer genuinely
independent advice
...
The real challenge for the board is to exploit AutoFone’s unique
market position in this changing landscape
...
com
AN S WE R S T O S CE N A RIO - BA SE D Q UE ST ION S : S EC TI ON 4


...
However, AutoFone remains in good
shape to exploit the opportunities, such as repeat buying, of a maturing market
place
...
Gearing
has increased but it has not risen to a figure which would cause concern
...
The most significant of these is
the loss of a strategic interrelationship with other parts of the company
...

ACCA marking scheme

Up to 5 marks are available for recognising issues concerned with the
difficulties facing potential new entrants into this industry
...

Up to 3 marks for identifying the bargaining power of customers
...

Up to 4 marks for identifying how competitors in the industry compete
with each other
...

Up to 3 marks for recognising the brand recognition implications of
moving out of retail sales
...
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Marks
5
4
3
2
4
2
3
3
2
2
2
3
–––
35
–––

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There is evidence to suggest that some customers visit a
retail branch to physically see the phones and to get advice before ordering on the
Internet
...
Of course not all of these Internet orders are made
through AFDirect because customers may take advantage of better offers from rival
suppliers
...
There is also evidence that Internet customers value the option
of visiting a shop to get after-sales service for a product bought from AFDirect over
the Internet
...


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One of the ways of making it more effective is to read the questions before
reading the case study! This allows the candidate to put the case study into the context of
the questions
...

Candidates must concentrate on linking the scenario information to questions and (where
applicable) to appropriate models
...
This was relevant to part a (as an entry barrier to potential suppliers)
and part b (as a reason for not leaving the retail market)
...
There
were three parts to this question
...
This was worth twenty marks which
included two professional marks
...
The second part of the question asked candidates to write a briefing paper to
the CEO to support the strategy of retaining the retail shops division
...


fre

ea

cc

as

The first part of the question asked candidates to use an appropriate model or models to
analyse the competitive environment
...
The scenario itself was
constructed to encourage this approach
...
Some candidates chose to use PESTEL and SWOT
...
However, candidates who used these two models could gain marks as
they do identify relevant issues in the scenario
...
Unfortunately many candidates penalised themselves by actually
describing and using all three models (five forces, PESTEL and SWOT), leading to long
answers with significant repetition
...
It was also apparent that this repetition led to some candidates
having time problems later on in the examination
...
In general, this part of the
question was answered relatively well with many candidates making appropriate use of the
model they had selected
...
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m

The only general point I wish to make concerns the use of case study scenarios
...
At this level, there are relatively few marks available for describing
a model such as Porter’s five competitive forces
...
Many of the answers seemed to suggest that candidates had very little practice in
the application of models
...


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The first is the long shop leases
that AutoFone have agreed in order to secure low initial rentals
...
The second is the cost of making the employees of the retail shops
redundant
...
Indeed it is has been ‘rated by consumers as one of the top 20 brands in the
country’
...
The visibility of the brand is
reduced as consumers no longer see the retail shops that serve to reinforce the brand
image
...
Many candidates recognised that the
closure of the branches removed the possibility of cross-selling that exists at the moment
...
A further significant point is that
table 1 shows that insurance is sold primarily to the age groups that purchase from the
retail shops
...
71% of insurance
sales are made to this age category
...
The inference is that AFInsure will suffer from closing the
retail shops division
...
This fact
was not explicitly stated in the scenario, but it seems a reasonable assumption and credit
was given for this observation
...
Nothing in the figures suggests that a radical
change in strategic direction is necessary
...
Liquidity has remained fairly constant
since 20X3, and although gearing has increased it is not significantly geared given the type
of retail operation it is running
...
They suggested that the two directors should just recognise that the
product/market has reached a mature stage (table 2 and the financial figures support this)
and so should scale down their expectations and adjust to new circumstances
...
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m

The second part of the question asked candidates to draft a briefing paper to support a
particular strategy
...
The three professional marks associated with this part of the question reflect the
fact that candidates are given extra credit for a well-argued, coherent case for retaining the
retail shops division
...
This part of the question was not
answered well by many candidates
...


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m

ial

ter

ym
a

WET

tud

68

Key answer tips

cc

as

In part (a) it is best to use the guidance given in the requirement as sub-headings
...
The best model to use overall
is probably a SWOT analysis (this is the best/easiest model on ‘strategic position’ analysis),
but lots of other models could have been used as long as you stick to the principle of
keeping them relevant
...
This should keep your answer relevant and specific and avoid the
temptation to discuss unnecessary theoretical aspects of process redesign
...
Therefore it was important not to discuss e-business in general
or get to involved in models such as the 7P’s or 6I’s
...
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Each point (in suitably expanded
form) would be worth one or two marks
...
There is a maximum of twelve
marks for this question (remember the three other marks are for style, format and
approach)
...
Unfortunately many failed to do
so
...
com
AN S WE R S T O S CE N A RIO - BA SE D Q UE ST ION S : S EC TI ON 4

This first part of the question asks the candidate to analyse the strategic position at
WET
...

All three aspects are appropriate in the analysis of the strategic position of WET and
this classification forms the basis of the model answer
...
All such answers will be given credit as long as they are
within the context of WET and consider the external environment, internal resources
and capabilities, and the expectations of various stakeholders
...

The environment

ial

The PESTEL framework can be used to analyse the macro-environment
...


tud

ym
a

ter

90% of WET’s income is from members and donors (see Figure 1) who live in Arcadia,
a country which has had ten years of sustained economic growth but which is now
experiencing economic problems
...
There are also increasing problems with servicing both
personal and business debt leading to business bankruptcy and homelessness
...
WET is 20% funded by
donations (see Figure 1)
...
Furthermore, it could
reasonably be expected that a recession places greater demand on certain charities,
such as those dealing with social care (for example, homelessness)
...
Similarly, current members may not renew their membership for financial
reasons
...

Previously, charities received an income from the government of 20% of the total
value of donations and membership fees to reflect the income tax the donor would
have paid on the amount paid to the charity
...
Consequently, in the
future, charities will have to prove that the donation or membership fee was from an
Arcadian tax payer
...
The changes are also likely
to lead to a fall in income
...
Firstly, some of the
donations were actually from non-Arcadian taxpayers (see Figure 1) and also
research and evidence from elsewhere suggests that 30% of donors will not give the
GiftHelp details required and so the charity will not be able to reclaim tax
...
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(a)

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...
However, the framework could also be useful in a not-forprofit organisation, considering the services provided by a sector (however that
sector is defined)
...
From WET’s perspective, it needs to consider two
overlapping sectors
...
In such circumstances,
WET is competing for the ‘charity dollar’
...


tud

ym
a

ter

If charities as a whole are considered as a sector, then there appears to be a constant
threat to WET of new entrants into this sector
...
The ease with which a charity can be established has been widely
criticised, but suggested reforms to the Commission of Charities have been rejected
by the Government
...
WET already owns all of the significant
wetland sites in Arcadia and, because of climate change, new sites would have to be
artificially created at great expense
...
The amount of money pledged so
far ($90,000) is not only well below their target but also represents money that may
have been donated to WET if this new charity had not been permitted
...
WET competes for disposable income and
so is exposed to generic substitution where donors and members decide to ‘do
without’ or to spend their money elsewhere, including other charitable causes such
as social care, particularly in a recession
...
The point has already been made that certain
charities will experience higher demand during a recession and so WET will be
vulnerable to such competition
...
The competitive rivalry again depends upon the perception of the sector
WET is competing in
...
Figure 2
illustrates that most money is given to health charities, followed by social care and
international causes
...


fre

Strategic capability
The strategic capability of an organisation is made up of resources and competences
...

WET have significant tangible resources in terms of the wetlands that they own
...
They also have a strong brand, associated with a well-known
public figure
...
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Although the recession in Arcadia has brought economic and political issues to the
fore, the wider environment remains very significant to WET
...
This will lead to the loss of the habitat that the charity wishes to protect
...


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...
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important strengths, the way they have been deployed needs examination
...
The wetlands are uninviting to
members, with poor access and poor facilities
...
These significant weaknesses
appear to be contributing to the organisation’s inability to maintain the threshold
capabilities required to retain members
...
It also has, in
Zohail Abbas, a well recognised public figure that potential competitors in the
wetlands sector would find hard to imitate
...


ter

ial

Strengths

ym
a

Summary of strengths and weaknesses

Weaknesses

Ownership of wetlands

Management of volunteers
Wetland access and facilities

Strong brand

Marketing and sales

High profile leader

tud

Experienced volunteer work force

Information systems

Expectations and purposes

fre

ea

cc

as

The two previous sections have considered the influence of the environment and the
resources available to the organisation
...
This is particularly significant in WET because it has undergone
a significant change in what Johnson, Scholes and Whittington term ‘its ethical
stance’
...
However, charities still have to be financially and operationally
viable and WET relies on two important stakeholders; members and volunteers
...
WET now needs to
recognise that ‘stakeholder interests and expectations should be more explicitly
incorporated in the organisation’s purposes and strategies’ (Johnson, Scholes and
Whittington)
...


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A cursory examination of the value chain reinforces some of the weaknesses
identified above and identifies others
...
Marketing and sales is also an
acknowledged weakness of the organisation
...
Technology development (in terms of IT technology) is also a problem with
restricted and cumbersome systems causing problems in the primary activities
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S


...
It might be an appropriate time to revisit this mission statement,
to explicitly recognise stakeholder concerns
...
This could
be explicitly recognised in the mission statement ‘to save wetlands and their wildlife’
or perhaps to ‘preserve, restore and manage wetlands for wildlife and those who
wish to observe them’
...

A number of problems have been explicitly identified in the scenario
...

Firstly, the flowchart clearly shows that sales and marketing receive renewal
confirmations before payment is cleared
...
The receipt of this documentation probably suggests to these
members that payment has cleared, so response to the payment request is not
necessary
...
This would help explain the very low rates of people who pay when
they receive their payment request
...
Perhaps those that do subsequently pay have taken the
trouble of checking whether money has been debited to WET from their bank
or credit card account
...

It may also help explain why a number of members do not receive a renewal
invoice at the end of their membership year
...
If the payment never cleared, then the membership will have
lapsed on the system and a renewal invoice will not be raised the following
year
...
Consequently, renewal reminders will be sent out to
members whose payment is still awaiting clearance
...
There is also a
backlog of cleared notifications in this department, awaiting entry into the
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Understanding stakeholder perspectives and expectations is an important part of
analysing the organisation’s strategic position
...
Volunteers
wish to be valued more, treated professionally and be given the chance to participate
in decision-making
...
The contribution
of volunteers becomes even more significant in a recession, when an organisation
might have to reduce paid staff
...
For example, it appears that the failure to pay
travelling expenses may have caused unnecessary hardship and led to the loss of
volunteers
...


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...
The consequence of this is that a membership card
and booklet will only be sent to members who have paid their subscriptions
...
No changes are required to the membership computer system
or departmental responsibilities
...

This could be achieved by initially updating the membership system when a
payment is received
...
This will reduce waste and improve member’s perception of the
efficiency of the organisation
...
This handoff will introduce the chance of error and delay
...

A suggested generic process improvement is to reduce the number of handoffs
between parts of the organisation by reducing the number of swim lanes
...
A number of options are possible, but perhaps the most obvious is to
merge (for the purpose of this process) the functions of the Finance and the
Membership Departments
...
The case study scenario suggests that there is a backlog
of membership details to enter
...
Merging the swim lanes will require all staff to have access to the
computer system, sufficient competency in using it and sufficient numbers to

ym
a

•

ial

A number of options can be considered for redesigning the membership renewal
process
...
They range from simple changes, remedying the
faults identified in the previous answer, to significant changes in the way WET will
accept payment
...


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...
These members may also receive unwanted renewal
reminders
...
Presumably most members ignore this
letter (after all, they have received the new card and booklet) and believe that
the charity is inefficient and is wasting money on producing renewal reminders
for those who have already renewed their membership
...
It might
be these renewal reminders that led to the accusations about the charity
wasting money
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S


...
She has identified them
all as important customers of WET and she sees e-mail and website technology as
facilitating the acquisition, retention and exploitation of these customers
...
This classification is used in this model answer
...


fre

(c)

ea

cc

as

tud

•

42 4

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•

clear the backlog
...
This will reduce waste and improve members’ perception of the
efficiency of the organisation
...

Another generic process improvement approach is to make sure that
validation takes place as soon as possible
...
This approach is
particularly appropriate in the checking of payment details in the renew
membership process
...

60% of the payments are made through credit cards
...
If a member was able to make a
credit card payment over the internet then all errors should be eliminated, as
the validation of details will be made straight away by the credit card provider
...
This should reduce costs and
perhaps allow a reduction in head count in the Finance Department
...
As well as the initial cost, the provider of the
financial solution will also charge a fee for each transaction
...
The principle is that renewal will happen
automatically unless the member specifically asks for it not to
...
Automatic
renewals could initially charge the credit card used for the previous year’s
membership
...
Renewals to credit card customers would
remind them that the card would be debited on a certain date, but that no
action was necessary to secure another year’s membership
...
WET might also consider
offering payment by direct debit, using similar process logic to that used for
credit cards
...
As well as increasing subscription income from higher member
retention, the solution should lead to improved cash flow and reduced
administrative costs
...


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The first is using the website to
acquire new customers (donors, members and volunteers)
...



...
For example, free
tickets for an open day or discounted prices on selected books
...
They might also be used (if a phone number
is requested) for telephone sales calls
...
A
typical approach is to define a members’ area where members have access to various
resources and offers
...
Existing members would also be encouraged to renew membership online, as discussed in the previous part question
...
WET needs to
understand the needs and interests of individuals and target them accordingly
...
These segments will be communicated to in
different ways and this can be reflected in the website, for example, by establishing
different areas for volunteers and members
...


fre

ea

cc

On-line communities are a key feature of e-business and may be created to reflect
purpose, position, interest or profession
...
The primary one is of interest, creating a community for people who
share the same interest or passion for wetlands and the wildlife they support
...
WET should either sponsor or cobrand such a site
...
They also provide WET with important feedback and ideas for improving
their service to both members and volunteers
...
For example, there are websites
dedicated to providing a one-stop-shop for those wishing to make donation to
charity
...
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For these people, the process of
enrolment or donation must be completely clear and complete
...
The final two options suggested in the answer to question 1(b),
would provide such a complete solution
...


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This includes a professional mark for appropriate tone, a professional
mark for appropriate structure and two professional
marks for the scope of the answer (4 marks in total)
...

1 mark for each relevant point up to a maximum of 10 marks
...
PESTEL analysis was widely used, and although this
was appropriate, there was insufficient information in the case study scenario to
completely answer the question using this framework
...
Consequently, many candidates discussed the
restricted web site technology of WET under this heading, which is strictly an internal
weakness
...
However, candidates must be careful in
the future to stick to external issues if a PESTEL analysis is specified in the question
...
For example, the low barriers to entry were a
particular issue raised by the Commission of Charities reluctance to tighten up on charity
registration
...
A discussion of
low switching costs would also have brought credit
...

They began to suggest strategic solutions and options which were not required by the
question and so no credit was no given
...

However, overall this part question was answered well, if a little narrowly, with many
answers well-written and well-structured, so gaining most of the professional marks on
offer
...
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This has the aim of increasing the lifetime value of the customer by encouraging
cross-sales
...
However, it is also likely to include links and advertising on the WET
site for associated products
...
For example, book purchases
may be handled through a specialist book site (leading to commission payments) or
binoculars purchased from a manufacturer (payment for advertising space)
...


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Too many answers simply suggested that the computer
system was at fault and should be fixed
...
Good answers needed to identify the fault, describe its consequences and
suggest solutions, which could have been quite simple, and did not require any crossreference to theoretical concepts
...
Sheila Jenkins
wishes to use email and website technology to facilitate the acquisition and retention of
WET’s customers and support WET’s aim to gain increased revenues from members and
donors
...
It was not a general question about the
principles and benefits of web site and email technology
...
For example, independence of location (place) may be an
attribute of the new media, but how can this be harnessed (if it can) in the context of
customer relationship management? Many candidates probably thought they had
answered this question relatively well (talking about 7Ps and 6Is) but in reality many
answers did not score well and overall, this part question was disappointedly answered
...


ea

The layout in this question is unusual when compared to other past exam questions (there
are less numbers and a diagram of the change kaleidoscope is included)
...


fre

This question covers core exam areas that are regularly examined and, in the topic of
contextual features, an area that students often have trouble with, the examiner even lists
out the features to consider
...
The key difficulty for students may be in time management as there will
have been a temptation to spend too long on the SWOT analysis
...
This means that only 3 marks per
suggestion is available and students should not over-analyse one in particular
...


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...

This textual description was supported by a swim lane flowchart
...
This part of the question
was worth 15 marks
...
It did not require long theoretical descriptions of process
redesign patterns, although these could have been usefully applied to the scenario
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

(a)

Introduction
This first section of the required report analyses the internal competencies of ReInk
(in terms of its strengths and weaknesses) and the external environment which the
company currently operates in
...


ial

Technological expertise is a significant strength of the company
...

The technical elements of this process have been patented, which gives the company
a further six years protection
...
Many of the senior technical
employees have been attracted to ReInk by the opportunity to work with an
acknowledged expert in the field
...


ym
a

ter

The long-term contract with the government Department of Revenue Collections
(DoRC) is an important asset
...

Selling into other government departments may be a significant opportunity (see
opportunities)

tud

Location: Although ReInk is a high technology company, its operations are in a
declining industrial town and are relatively cheap
...
Although this has
now expired, the rent remains low
...
This means that staff can be
attracted by relatively modest salaries, as one commented, ‘I took a pay cut to come
here
...
’ In a market place where companies primarily compete on price, low production
costs are important
...
Although ReInk is making a small operating profit, it is undermined by
the need to service a considerable debt
...
Capital needs to be injected into the
company so that it can meet next month’s payroll obligations
...
However, he has little commercial expertise or experience and the
directors he has appointed to address this weakness have failed to deliver
...
The overall
competence of the management team can be classified as a company weakness
...
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Strengths

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Demotivated staff: The employees are proud of their achievements and respect the
technological expertise of Dexter
...
A poorly thought out programme of cost cutting and staff
regrading has compounded this attitude, and many are resigned to the company
failing and are actively looking for other jobs
...
Although ReInk is a technological
leader, the public has little knowledge of its services and capabilities
...


ter

ial

The continued decline of the economy provides a significant opportunity for ReInk
...
Indeed, ReInk will have to monitor the
economy to detect any upturn which could adversely affect the demand for its
product
...
The number of ‘green consumers’ is
growing within the country
...

Government contracts: The economic problems in the country have accentuated the
need for government departments to show value-for-money, as well as
demonstrating excellent reuse and recycling practices
...
Original Equipment Manufacturers (OEMs)
have failed in their attempts to make refilling their products illegal
...

The company also has to be aware of threats to their patented process, or indeed to
patents which might threaten their competitive edge
...
These
threats might be to produce reusable ink services at a lower cost, or indeed to
remove the need for ink replacement all together
...


fre

Competitive rivalry: The print consumables industry is very competitive
...
This is
partly why OEMs, with their higher costs, find it difficult to compete in this market
...
Thus it is an extremely competitive
environment, with relatively low brand loyalty
...


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Opportunities

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This could jeopardise the
continuation of the contract to supply this department with reusable ink products
and services, on which ReInk is highly dependent as it contributes 20% of its revenue
...


ym
a

ter

ial

Time: refers to the amount of time available to implement change
...
ReInk has pressing financial problems and so Vi Ventures (VV) will
have to move quickly to make their investment
...
For example, investing in initiatives to increase brand
awareness and increase sales which will increase the company’s operating profit
...
In particular, the change will have to safeguard the
competencies which are vital if the change is to succeed
...
These employees are key to the
success of the company, but have become demotivated and restless, and some are
actively looking for other jobs
...


cc

as

Diversity: Diversity refers to diversity of experience
...
It is hampered by a homogenous view, formed from pursuing the same
strategy for years
...
The focus has been on
technical excellence and innovation
...
If the proposed investment does take place, then VV can expect some
resistance to change as they bring in new ideas and directions
...
Some organisations have experience of effectively managing change and also
have a workforce which has readily accepted and implemented these changes
...
The management team has been unable to
formulate any changes which have improved the financial performance of the
company
...
VV’s experience of
implementing change will be an important capability which they will bring to ReInk
...
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In summary, the company is operating in a very competitive industry where OEMs
also compete aggressively on non-price criteria
...


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...
There may be certain employee groups who are resistant to change and
will hamper the progress of change programmes
...
The
technologists are likely to positively embrace change as they are very disillusioned
with the expertise of the current management team
...
The most difficult group
might be the current management team
...
VV should be aware of this and ensure that the
acquisition takes place in a way which does not alienate this group
...


tud

ym
a

Power: For change to be successful there has to be someone in the organisation who
has the power to effect the desired changes
...
Given the situation, they need to be in a
position in ReInk where they have such power, unencumbered by the current
managing director or current members of the management team
...


cc

as

Scope: A proposed change may just need to realign the organisation within the
current organisational beliefs or assumptions
...
Transformational change is usually associated
with an elemental change in strategic direction
...
Incremental change takes place over a longer
period of time, ‘big bang’ takes place very quickly, and is typically needed when the
organisation is facing crisis or needs to change direction very quickly
...
This type of
change is rapid and usually brings about a great deal of upheaval, but it does not
fundamentally change the paradigm of the organisation
...


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...
Capacity
for change is concerned with whether the organisation has sufficient resources to
effect the required change
...
At ReInk, the current management do not have the capability or the
capacity
...


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Each quadrant of the matrix is used to identify options which address a different
combination of internal factors (strengths and weaknesses) and external factors
(opportunities and threats)
...
The government of the
country is committed to environmental policies and demonstrating value-for-money
...
A strategy of focusing on a market
niche of government and public sector organisations may be very lucrative and
generate good short-term results
...


ea

cc

as

WO – is concerned with options which take advantage of opportunities by
overcoming weaknesses in the organisation
...
In general, individual consumers are increasingly
keen to recycle products, particularly if it also brings economic benefits, as they are
likely to be affected by living in a country which is experiencing continuing economic
decline
...
However, its brand awareness is
low
...
Like many WO options, this is a mediumterm initiative
...
One of the threats which affect ReInk is the continual technology
development from an industry which is committed to deliver better and cheaper
technology
...
It particularly needs to ensure that new patented processes
are in place when its current patent runs out
...


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...
It needs to ensure that it
has the power to speedily implement the required changes and preserve the
competencies of the company
...
In return, it will find a
company which generally is ready for change and should welcome it, although vested
interests in the current management team will have to be carefully considered during
negotiations on the terms of the proposed investment
...


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In
many respects, the investment of money and expertise by VV represents a
reasonable initial strategy in the WT quadrant
...
However, the analysis of the SO quadrant,
focusing sales and marketing on a well-defined business sector (government and
public sector organisations), appears to offer achievable short-term success which
would help address the profitability of the company and offer VV early rewards for its
investment in ReInk
...
Up to 6 marks for each heading under the
SWOT analysis up to a maximum of 20 marks
...

1 mark for each relevant point up to a maximum of 3 marks for each
(c)
quadrant of the matrix, up to a maximum of 12 marks
...


tud

ym
a

(a)

20
14
12

4
–––
50
–––

as

Total

Marks

Examiner’s comments

ea

cc

This first part of the question was worth twenty marks
...
The main problem was misclassification
...
Misclassified answers were given
some credit, but in SWOT analysis classification is important, otherwise the analysis is just
an unstructured list
...
This really is
just copying parts of the scenario into an answer
...


fre

For part (b), candidates did not have to recall the model; but they had to apply it
...
For
example; time is concerned with how much time is available to execute the change
...
Although this model has been used in a number of past examinations, many
candidates still seemed unfamiliar with it
...
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WT – is concerned with generating options which minimise weaknesses or avoid
threats
...
To a large extent, the weaknesses identified in the SWOT analysis are
being addressed by inviting investment and participation from Vi Ventures
...
One of these companies
(Landy) is aggressive in its statements about warranty and is litigious
...


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...
This part question was worth twelve marks
...
Many candidates seemed to be familiar with the
matrix but not with its application
...
Issues considered here
include vocabulary (is it appropriate to a professional report?), tone and approach
(reflecting Vi Ventures as the recipient), fluency of argument and structure; and, finally, are
there appropriate introductions and summaries? Overall, presentation was fairly good
...
It was for Vi Ventures; and this
should have driven the tone and content of report, particularly in part (b), where Vi
Ventures need to be aware of their possible input into the strategic change process at
ReInk
...
Although the model is not
asked for by name (and this is usually the case in the exam), this model is likely to
provide the best framework for the analysis that was required
...


ea

cc

•

In part (a) (ii) the use of the Johnson, Scholes and Whittington strategy evaluation tests was
needed – a examined area that candidates should be expecting to see in the exam
...


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...
Importantly, the model (and the question) is about strategic
change; it is not about the organisation as a whole
...

Many candidates did not focus their answers on strategic change and consequently
candidates did not score too well on this part question
...
com
AN S WE R S T O S CE N A RIO - BA SE D Q UE ST ION S : S EC TI ON 4

(a)

(i)

Introduction

ial

Stuart Roam Road Transport

tud

ym
a

ter

Stuart Roam Road Transport (SRRT) is a central part of The Roam Group
...
It is also the largest revenue generating
part of the Group, contributing 57
...
83% of its operating profit
...
There is
also a clear emotional attachment to the industry, with the managing director
taking time out once a month to return to everyday trucking
...
The
brand image is supported by a clever catch phrase painted on every truck and
by the ownership of a modern, reliable, efficient fleet of trucks
...


cc

as

The road freight market has experienced relatively little growth over the last
four years (2
...
SRRT has increased its market share over this time
(from 25
...
05%), with a 15% increase in revenues
...
These relatively low operating profits appear to be typical for the
industry sector, with SRRT consistently performing slightly better than industry
averages
...
The physical size of these warehouses
provides another opportunity for promoting the brand image and colours of
The Roam Group
...

Indeed, the Group probably had little hesitation in entering this sector of the
market
...


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...
Roam Group
Co (The Roam Group) is a corporate holding company which facilitates the
acquisition of operating companies in the Group
...
The portfolio analysis references two
significant models: the Boston Box (or BCG matrix), suggested by the Boston
Consulting Group, which uses a classification based upon a company’s market
growth and market share, and the parenting matrix of the Ashridge Portfolio
Display which focuses on the fit between the company and its parent
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S


...
There is a 26
...
Perhaps this reflects the
increasing cost of road transport, increasing road congestion and fears about
the environmental impact of road transport
...
It has failed to match growth (only 6
...
20% to 3
...

Its financial performance is relatively poor, reporting lower operating margins
and ROCE than the industry averages
...
In fact, despite an
increase in revenues, overall financial performance appears to be worse
...
95% (4
...
85% (3
...
This decline in performance is important to bear in mind when
considering the possible acquisition of Godiva airport
...
The Group needs to investigate why the company is failing to
grab an increasing market share of a rapidly expanding industry
...
Firstly, the company is
small and will find it difficult to match the economies of scale enjoyed by the
two large rail freight companies
...
Secondly, the company has no expertise in the bulk freight contracts
(coal, iron ore, oil) which dominate the Meeland economy
...
Finally, it is
unclear whether the transport of consumer food and drink is really suitable for
rail transport
...
Road transport is a much
more flexible alternative
...
The company is used
to dealing with a transport method where the medium (roads) is free and
drivers are relatively unskilled
...
Train drivers have to
undergo extensive training and are constrained in their route selection
...
In the context of the Ashridge portfolio model, this cultural

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As a whole, the sector is expanding
...
28%
...
00% growth in this time period, although
their market share is still less than 10% (9
...
Operating margins are slightly
higher than the road transport sector and the ROCE is also higher
...
47%) of the operating profit of the
whole Group
...
However it is classified,
it needs further nurturing and investment
...
The Group
has a good feel for the business and there seems to be a good fit between the
business opportunities and the characteristics and capabilities of the Group as
a whole
...


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...
Also, the supermarkets, aware of the demands of the green
consumer, are attracted to rail alternatives and perhaps see this as the primary
way of distributing in the future, particularly if loads can be quickly transferred
onto road vehicles for the last part of the journey from the railhead to
supermarket
...
However, the similarities between rail transport and distribution
and road transport and distribution may have been misjudged
...
In Boston Box terms, it is also a
problem child (question mark, wildcat) and so their strategy for moving it into
the heartland must also address the underlying reasons why market share is
falling in a rapidly expanding business sector
...


fre

ea

cc

as

The suitability of a strategy addresses the circumstances in which the
organisation is operating –— its strategic position
...
Road, rail and air are all means of
transport with different strengths and weaknesses
...
This is particularly true from a customer
perspective
...
There are still doubts whether rail can be used
as a significant way of distributing consumer food and drink from the
warehouse to the supermarket
...
Even if the minicontainer system can be extended to aircraft, airports are relatively few and
far between, making distance to supermarket sites even more of an issue
...


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...
It is typical
of a company which initially appears attractive because there appears to be
opportunities for the parent to add value
...
This will
probably only be possible if new skills, competencies or resources are gained
by The Roam Group
...
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P AP ER P 3 : BU SIN E S S A N AL Y SI S


...
Returns are the benefits which
stakeholders would expect to get from the strategy, both in financial and nonfinancial terms
...
It would have been useful to have been
given access to data for previous years
...
Unsurprisingly, the primary
asset of the company is the airport site itself which is valued at $6m
...
The gross profit margin is
28
...
38% (compared to a 17
...
Indeed, the operating profit compares favourably with the
companies currently in The Roam Group
...
However, it has taken significant investment to generate
these returns and the Return on Capital Employed (ROCE) is much lower than
the industry average
...
19%, a very low return
...
50 – average 2
...
When
this is excluded, the acid test ratio is only 1
...
50
...
12% compared
to 40%)
...
57
days)
...
It might be due to administrative
incompetence or to cash flow constraints, with suppliers providing free credit
...
The airport is trading quite reasonably,
but its performance is affected by long-term debts which contribute to a high
gearing and a low ROCE
...


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However, this broad consideration of the complementary nature of transport
alternatives hides another, more fundamental issue
...
This is roughly analogous to
buying a station (or set of stations) for Stuart Roam Rail or a portfolio of toll
roads for Stuart Roam Road Transport
...
The Roam Group has no experience in running airports and
although they intend to offer the opportunity to ‘no-frills’ airlines to offer
scheduled passenger services from the airport, there is no evidence that any
airline is currently interested in this option
...
If ‘no-frills’ airlines were to fly out of
Godiva, it seems likely that they would have done so by now
...
com
AN S WE R S T O S CE N A RIO - BA SE D Q UE ST ION S : S EC TI ON 4

The shareholders might also be ambivalent towards the purchase
...
Their hearts appear to be in road
freight, and an investment in an airport might be a step too far
...
The issue of financial resources has
been considered in the previous section
...


tud

Conclusion

ym
a

There seems little doubt that the company has significant competencies in
road transport and it has been able to adapt these to warehousing
...

Indeed, since the acquisition of FDRC, the performance of the company has
deteriorated
...
The appropriate competencies are just not in place
...
The company can clearly afford the purchase price of the
airport, and absorb any subsequent operating losses, but this will be at the
cost of reducing shareholder value and reduced investment and performance
in other companies in the Group
...
From a
suitability perspective, the acquisition does not make sense because it does
not appear to address the requirements of customers
...


fre

ea

However, one final point must be raised
...
In a country
where land for warehousing is getting scarcer and more expensive, Godiva
airport offers 450 hectares of land
...
At the offer price of $7m, The Roam Group is getting a
discount of about 22% on normal land values
...
The declared strategy might
not be the real motive
...


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...
From the perspective of the resources of the Group, the cost of the
acquisition is relatively small and any operating losses could easily be
absorbed
...

However, the case has already been made for further investment in Stuart
Roam Rail and Stuart Roam Warehousing (two potential problem children) and
these may be partially starved of funds due to money being invested in the
airport
...


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...
Elements of all of these might be discerned from
the case study scenario
...
However, this
model answer focuses on possibilities offered by reduced margins and a price war
...
The Roam Group can pursue both these options within the context of
Stuart Roam Road Transport
...
It
is generally accepted that margins are relatively low in road transport, so reducing
operational margins still further might force rivals to exit the business
...
5% over the last five years), so continued growth
requires SRRT to take market share from its rivals
...
The company is financially sound and evidence suggests that it has greater
financial resources than many of its competitors
...


fre

ea

cc

as

tud

With respect to differentiation, Johnson, Scholes and Whittington offer three ways of
sustaining differentiation: creating difficulty of imitation, pursuing imperfect mobility
and the re-investment of margin
...
Imperfect
mobility of resources or competencies can be achieved in a number of ways
...
It can attempt to increase the difficulty and
cost to the customer of switching its supplier
...
Nobody can match this flexibility at present (particularly
with the eco-friendliness of rail travel which is especially attractive to supermarkets)
...
However,
what is virtually impossible to imitate is the contribution of the New-Roamantics
...
It is a unique way of
promoting the brand
...
Subtly encouraging and rewarding this club will
maintain an important differentiator between the Stuart Roam Road Transport
company and its rivals
...
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(b)

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1 mark for each relevant point up to a maximum of 7 marks for each
company in the Group, up to a maximum of 21 marks for the
answer
...

(ii) 1 mark for each relevant point up to a maximum of 15 marks
...
Marks will be allocated for
the correct calculation and interpretation of gross profit margin, net
profit margin, ROCE, liquidity, gearing, payables and receivables, up
to a maximum of 6 marks
...

1 mark for each relevant point up to a maximum of 10 marks
...
Students
were presented with a SWOT as part of the scenario rather than having to create one for
themselves
...
and ensured that everyone was
starting with the same analysis base
...

A TOWS matrix was required for part (b), but other techniques such as the Ansoff matrix
combined with strategy evaluation tests would also have scored well here
...

The following financial analysis focuses on the profitability and gearing of Hammond
Shoes manufacturing division
...
Revenues and gross profit have both fallen significantly in the four
years of data given in Figure 1
...
5% and a net profit margin of 8
...
This has declined steadily over the period
under consideration
...
0% and 4
...
9%
and 2
...
There has been a general failure to keep costs under control
over this period
...

In contrast the cost of sales has decreased by only $75m, a decrease of about 11
...

This probably reflects the problem of reducing labour to react to lower demand,
particularly in a country where generous redundancy payments are enforced by law
and in an organisation which sees the employment of local labour as one of its
objectives
...
14% in 20X1 to 6
...


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(b)

(i)

ial

(a)

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...
In
Arnland, goods are normally supplied on 30 days credit
...
However by 20X3 this value had
risen to 43 days and by 20X5 to 63 days
...
54 days in
20X1 to 44
...
It is difficult to escape the conclusion that Hammond
Shoes is increasingly using suppliers as a source of free credit on top of the loans they
have taken from the banks
...
33

Investment analysis:

tud

The financial analysis essentially supports the descriptive analysis provided by the
business analysts
...
The company is increasingly dependent on external finance which is likely to
cause disquiet amongst the owning family (on ethical grounds) and may concern
suppliers
...
There seems to be universal acceptance that in the next three years
the company will still experience low sales even after the company invests in the new
production facilities
...


cc

For both scenarios, the net benefits of the first three years are $5m per year, giving a
total of $15m
...
7 chance of continuing
low demand, leading to net benefits staying at $5m per year, giving a further benefit
of $15m total, with an expected value of $10
...
7)
...
3)
...
5 ($15m + $10
...
5m
...
This scenario would return $45m
...
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Gearing: The capital structure of the company has changed significantly in the last
four years and this is probably of great concern to the family who are averse to risk
and borrowing
...

Traditionally, the company has been very low geared, reflecting the social values of
the family
...
9% in 20X1, but has risen to over 22
...
During this period, retained profit has fallen and an increasing number of longterm loans have been taken out to finance activities
...
However, the speed of these funding changes is a concern, particularly
when trade receivables and trade payables are considered
...
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AN S WE R S T O S CE N A RIO - BA SE D Q UE ST ION S : S EC TI ON 4

However, it has to be recognised that the projection only covers the first six years of
the new production facilities
...


External
factors

Threats

Internal factors
Strengths
Weaknesses
SO – options that use
WO – options that take
strengths to take
advantage of opportunities
advantage of opportunities by overcoming weaknesses
ST – options that use
WT – options that
minimise weaknesses and
strengths to avoid threats
avoid threats

tud

Taking each quadrant in turn:

ym
a

Opportunities

ter

ial

The TOWS matrix is a way of generating directions from an understanding of the
organisation’s strategic position
...


cc

as

SO – using strengths to take advantage of opportunities
...
Hammond Shoes’ retail expertise is an
acknowledged strength of the company, and it may be possible to use it to take
advantage of the opportunities provided by increased consumer spending and
consumerism in Arnland
...
Firstly, the company
could consider selling competing products or complementary goods in its retail
shops
...
Given the
company’s acknowledged retail expertise, this option should help preserve the longterm future of the shops
...
This option would combine the twin strengths of retail
experience and the availability of land owned by the company, to provide consumers
with an experience they increasingly seek and value
...


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This question does not require the candidate to use a specific framework for
generating strategic options
...
The TOWS matrix, the
strategy clock and the Ansoff matrix all come to mind
...
For the purpose of this answer, the TOWS matrix is used, because it
fits so well with the SWOT analysis produced by the consultants
...



...
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P AP ER P 3 : BU SIN E S S A N AL Y SI S

ial

WO – options that take advantage of opportunities by overcoming weaknesses
...
This is addressing a known weakness (out-dated production
facilities), simultaneously tackling another weakness, the cost of production
...
The Board perceives that
overcoming these weaknesses will allow the company to continue to compete in the
market they are familiar with
...
The business analysts have identified these savings as an
opportunity in their SWOT analysis
...
At the time of
writing, there is an increased interest in measuring product miles or kilometres, a
term used to assess the environmental impact of delivering a product from its point
of production to its point of sale
...


cc

as

tud

Hammond Shoes might also use the negative impact of television programmes
showing the use of cheap and exploited labour in the production of goods in
Orietaria as part of their marketing message
...
This might be supported by political initiatives, for
example, the support of one of the political parties in Arnland for environmentally
responsible purchasing
...
Purchasing locally supports communities and local
jobs’
...
The company is an acknowledged
leader in shoe design and distribution software
...
The company might consider reviewing these to see whether
innovative production and retail systems could not be combined and extended to
provide economies of supply that partly compensate for the relative high cost of
production
...


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...
Up to
now this software expertise has been mainly used to develop in-house production
and retail systems which are acknowledged as being amongst the best in the
industry
...

This, of course, also opens up the possibility of sales outside Arnland, something that
is unlikely at the moment, given that all the retail shops are within the country
...
com
AN S WE R S T O S CE N A RIO - BA SE D Q UE ST ION S : S EC TI ON 4

ym
a

ter

ial

WT – options that minimise weaknesses and avoid threats
...
For
example, focusing on shoes for children, which requires greater precision and less
raw material, might be a possibility
...
The
acknowledged strengths of the retail experience, where employees have extensive
product knowledge and excellent customer care, might also be harnessed to support
this approach
...
Adult shoes may be given a lower marketing
profile, but are available for cross-selling when parents are visiting for measuring and
fitting shoes for their children
...

Some organisations also have vision statements stating what the company aspires to
...
Mission statements have their critics, with many believing that they
are bland and too wide-ranging
...
However, most organisations appear to have settled into an
approach where a short snappy slogan or strap line is supported by a much deeper
description of what the organisation is about, its stakeholders and how it wishes to
interact with those stakeholders
...
At the time of writing Virgin Atlantic has three elements to its mission
statement, all expanded into specific objectives on its website
...
Part of ACCA’s
mission is to provide opportunity and access to people of ability around the world and
to support our members throughout their careers in accounting, business and finance
...
This might demand a certain
amount of exclusivity, reinforced through appropriate marketing
...
Many
consumers wish to renew their shoes each season as a fashion statement, not due to
any desire to keep their feet dry and clean
...
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The extensive property ownership of the organisation is also perceived as a
significant strength
...
Thus, cheaper competition might be seen as a
short-term threat, which will eventually disappear
...
It might do this by
disposing of property, or perhaps more innovatively, by selling all of its property and
leasing it back
...


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Originally, these were provided by
the beliefs of the founding brothers – provision of education and housing for
employees, secure jobs and good working conditions
...

Commercial organisations with important core social values are increasingly rare
...
Their promotion of the potential benefits of
outsourcing of production indicated a failure to understand that this would
effectively remove a significant part of the company’s reason for existence
...

Thus the Hammond family should explicitly state their core values, perhaps as a
detailed expansion of a short, clear mission statement
...


fre

ea

cc

as

tud

A number of writers on organisations use a MOST analysis to help understand the
internal environment of an organisation
...
The aim of this analysis is to see whether the four facets actually
exist (checking for omission) and, if they do, whether they align
...
They are
often expressed in financial terms, such as profit levels, turnover or dividend
distribution to shareholders
...
Johnson, Scholes and
Whittington also believe that general, unquantifiable objectives are acceptable
...

In the context of Hammond Shoes, the company does appear to have certain
objectives, such as keeping production in Petatown and providing educational
opportunities for employees
...
This is when urgent action is
necessary, as at Hammond Shoes, when it becomes important for the management
to focus on a limited number of quantified, priority requirements and not waste their
energies pursuing vaguely stated ones
...
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If there is substantial disagreement within the organisation about its overall mission
then there may be significant problems in determining the strategic direction of the
organisation
...
These may be explicitly
defined within the mission itself or they may be in subsidiary statements, corporate
reports or web resources
...
They represent the core values and principles that
guide the organisations’ actions
...
The ACCA has core values of opportunity, diversity,
innovation, accountability and integrity
...
com
AN S WE R S T O S CE N A RIO - BA SE D Q UE ST ION S : S EC TI ON 4

ter

ial

Hence, Hammond Shoes does not have a clearly defined mission or explicitly stated
values
...
Its strategy is now under
review, although it has made certain tactical decisions such as resisting outsourcing
and commissioning updated production facilities in Petatown
...
This
needs to be addressed
...

1 mark for each appropriate point up to a maximum of
...

1 mark for each appropriate point up to a maximum of

(c)

ym
a

(a)
(b)

Examiner’s comments

12
–––
50
–––

tud

Total

Marks
14
20
4

fre

ea

cc

as

Part (a) provided comprehensive financial information in Figure 1 of the scenario, with
extracts from income and financial position statements
...
Most candidates
recognised this and, as well as calculating appropriate ratios, provided a good textual
analysis of their results
...
Some candidates ignored the returns given in the scenario
completely, confining their analysis to the figures presented in the financial statements
and trying to apply the suitability, acceptability and feasibility criteria to the proposed
investment
...
However, despite this
weakness, candidates still performed reasonably well on the first part of this question
...
However,
the strategy clock, Ansoff matrix and Porter’s generic strategies could all be successfully
applied to the case study situation
...
The examiner’s
advice is to only use more than one framework where a further framework gives an

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...
The company clearly fails to cascade objectives down through
the organisation and, again, at a period of crisis, this may be a significant weakness
...
The absence of this specific
objective and hence the impossibility of cascading it down to those responsible for
cash flow management and payment has meant that this section has imposed its
own objective of extending payment terms as much as possible
...


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m

ial

HAIR CARE LTD

tud

72

ym
a

ter

Part (c) was satisfactorily answered, although a surprising number of candidates failed to
answer this part question at all
...
This was surprising given
the emphasis on business values in the case study
...
For part (b) of the question, when asked for strategic options, the Ansoff
matrix will almost certainly be the best model to use
...
Whilst your financial position is currently sound, there are some worrying
trends which need to be addressed
...
You
need to put in place some contingency plans
...
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People
who describe three or four frameworks in such questions rarely score better than a
candidate who has restricted themselves to a proper analysis based on one appropriate
framework
...
Unfortunately, too many candidates also tried to apply PESTEL and Porter’s
Five Forces to the case study scenario
...
In fact, their PESTEL analysis was often little more than a reiteration of information from the case study scenario and no strategic options were
generated at all
...

As a result, many candidates wrote long answers using inappropriate frameworks that did
not address the requirements of the question
...


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m

ym
a

ter

ial

The one key statistic is the level of loans taken out
...
It is recognized that you need to have access
to increased storage capacity, especially with the forecasted increase in turnover
...

I appreciate that owning the freehold might give you more flexibility and that you will
benefit from any appreciation in the land values
...
This is a prime factor in the worsening of
your return on sales revenue position, forecast to be about 7
...


tud

Another worrying trend is the increase in the number of products which your
company deals in
...
While
recognizing that customers are looking for greater choice, this accelerated increase
must have an adverse effect on the efficiency of your company’s operations
...
Maybe some rationalisation of
this position needs to be considered
...
Goal congruence may be eroded
...
I appreciate that you founded the
company and incurred all the financial risk and that you wish to maintain your control
over the company
...
You need to ensure
that operations can continue in your absence
...
Too many of your staff are currently
concerned with low level operations
...
So far you have been able to maintain direct control over all your staff
...
You will tend to become over-burdened by operational issues
when you should be spending more time on strategic concerns
...
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However the data suggests
that this is becoming less so
...
This could be the result of
higher costs by buying from less efficient suppliers or a squeezing of margins in a
more competitive environment
...
You
have been fortunate because this worsening in the cost of sales figure has been
compensated for by favourable cost movements elsewhere
...
This is to be expected to a certain extent as economies of scale are now
being achieved
...


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ter

However there are also signs that the dollar, currently claiming to be over-valued as a
result of high levels of foreign investment into the USA, may seek a lower level to
make its current adverse balance of trade more acceptable
...
It is important that you continue to watch the movements in foreign
exchange rates and do not get dangerously caught out by any adverse movements
...
This is a myopic
perspective
...
They
will surely react in an aggressive manner at some point
...
You have been fortunate in that your
company has only existed in a period of relative prosperity
...
You are currently selling premium-priced
products to hairdressing salons
...


cc

as

You have argued that a significant contribution to your success is the relationship
developed with your suppliers
...
Your level of debt needs to be addressed and you need
to consider your organisational structure as well as your range of products and your
relationship with suppliers
...
These all need to be monitored to assess their likely impact on
your company
...

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...
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m

It is apparent that you have taken advantage of some favourable foreign exchange
rates in your product purchases
...
It is possible that sterling
will have to depreciate against the euro to prevent problems from entry at too high a
level as occurred with the previous ill-fated exchange rate mechanism (ERM)
...


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1

There are a number of options which will enable Hair Care Ltd to achieve
continued growth in the future
...
Apart from considering different directions of
growth it is useful to assess whether a strategy involving an acquisition or a
strategic alliance might prove to be beneficial
...
Any further
penetration in the current market is likely to bring you up against larger and
more powerful competitors
...
There are other areas for expansion where the
opportunities may be greater and the risks smaller
...
However, as noted in my earlier report, your decision to already
widen your range of products appears to be adversely affecting the efficiency
of your organisation
...
Products such as hair-dressing hardware and
furniture – wash basins, and chairs are high-value items and not the type of
products in which you have experience
...

However, these items are usually well-known brands and such a move will
bring you into direct competition with some of the powerful toiletries and
chemical producers
...


cc

Market development

fre

ea

This can be examined from two perspectives
...
There will need to be
considerable marketing research carried out to assess the similarities and
differences in market conditions
...
Secondly you may wish to focus on a different segment
within the UK
...
This has large potential but it is doubtful whether you have
sufficient resources to effectively operate within this segment
...


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You will need to concentrate both on
your most profitable lines and your key customers
...


ym
a

Acquisition

Strategic alliance

tud

You could achieve growth by means of an acquisition, maybe accessing an
international market in this way
...
I suspect that any domestic acquisition will be irrelevant
...


3

cc

as

Although this strategic approach may enable you to grow much faster, using
another company’s technical or marketing knowledge, I am not sure that you
would be sympathetic to such an approach
...

Sharing power does not come easily to you
...

Conclusion

fre

ea

You appear intent on growing faster as a company
...
However this is
not without risk and any venture into this area should not be contemplated
without carrying out the necessary marketing research
...
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co
m

The concept of you moving into new markets with new products is
unappealing
...
There are also options of related
diversification by means of vertical integration
...
Furthermore the concept of
moving upstream into manufacturing is not really an option
...
You have no expertise in the manufacturing
field and such a move risks more than it promises to deliver
...
com
AN S WE R S T O S CE N A RIO - BA SE D Q UE ST ION S : S EC TI ON 4

ial

ym
a

ter

Complacency is also often a cause of decline
...
However, inadequate management systems and structures
might limit Hair Care Ltd’s capability to grow successfully
...
There is no direct evidence of these features
being prevalent at the moment but Sam should be made aware of the dangers
associated here
...

Sam needs to monitor all these factors so that he may not be taken by surprise and
avoid being led into an attitude of complacency, conditioned by his past success
...
He has built up a
profitable and, until relatively recently, a cost-effective organisation
...
If one examines the five primary value activities, the
inbound and outbound logistics can be assessed together
...

He believes that his success depends upon buying wisely and in keeping his
customers satisfied
...
This is
complemented by efficient and, until recently, relatively cost-effective operations
...


fre

ea

cc

as

(d)

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It is important that Sam is aware of some major causes of corporate failure so that he
does not make the same mistakes
...
He must also be aware
of the danger of falling sales revenue
...
If sales should not materialise as expected then the company will be
incurring high fixed costs on a lower level of sales revenue, resulting in higher
average costs, making the company less competitive
...
Sam’s approach
shows no sign of formalised planning
...
This is acceptable
whilst the company is a small niche player
...
There is an absence of key
management-type staff that can provide an input into the strategy process
...
A balance must be struck
...
co
m

(c)

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...
The firm’s infrastructure is simple to operate and understand
...
This area may show signs of
deteriorating as the number of employees grow and as the debt levels rise, almost an
inevitability given the current growth rates but Sam needs to be aware of the
dangers that can arise from such a rapid expansion
...
Negligible staff turnover is often a
sound indicator of reasonable morale and sound management
...
Everything depends upon Sam and Annabelle, understandable in a
small and entrepreneurial company
...


ym
a

Technology development appears to be satisfactory
...
Sam realises that an efficient distribution facility is critical to the company’s
success and he is prepared to invest to ensure that this area does not fail him
...
The interface between
suppliers and the company is seen as being of critical importance and, as such, is
given high priority
...
Overall the operations are geared towards
accessing good value products as competitively as possible
...

Customer and supplier care are considered to be important, as is the image of the
own-brand products
...

ACCA marking scheme

cc

Marks

Analysis of quantitative data
–
trend in costs
–
level of debt
–
range of products
–
inventory levels
–
non-current assets
Maximum marks available for this section
Future developments
–
exchange rates
–
management succession
–
relationship with competitors
–
supplier rapport
–
relationship with customers/branding
Maximum marks available for this section

3
4
3
3
2
10

fre

ea

(a)

45 4

2
2
2
2
2
5

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...

Sam sees service as one of his critical success factors to the extent that he almost
seems obsessive about it – he feels unable to delegate here
...
The company has been able to generate a premium
pricing strategy by doing this
...


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...
co
m

(c)

Total

ABC LEARNING

ter

73

2
3
3
3
3
3
3
15
3
3
3
3
10
7
...
5
10
–––
50

ym
a

Key answer tips

This question asks candidates to analyse the business analysis certification training
industry (BACTI) in Erewhon using Porter’s five forces framework
...
In
this context it seems a reasonable model to use
...
The framework also helps identify how a
potential new entrant (such as ABCL) might position itself in the industry
...
Looking at
each of these in turn:

ea

cc

as

(a)

tud

It is clear in the scenario and the requirement that the company uses Porter’s Five Forces to
analyse its environment
...
In part (b) the
company has made a decision to enter a new market
...
Instead focus on what the requirement wants – is the particular target
company they are considering the right one to buy? The key to any question on
stakeholders – as was required in part (c) – is to use Mendelow’s matrix
...


The threat of entry

fre

New entrants to an industry bring new capacity
...
In the context of ABCL, the threat of
entry is a particularly significant issue because they are, themselves, threatening to
enter the industry
...
Furthermore, an
understanding of these barriers will give them an understanding of how likely it is
that other companies will consider entering the industry
...


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Market penetration
Market development
Product development
Diversification
Focus
Acquisition
Strategic alliance
Maximum marks available for this section
Profit decline
Debt levels
Complacency
Operational inefficiencies, i
...
inventory levels
Maximum marks available for this section
Primary activities: up to 1
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

In the context of the scenario, the main barriers appear to be:

ial

ter

as

fre

ea

•

cc

•

tud

ym
a

•

Threat of substitutes
The threat of substitutes is again important to ABCL because it would not want to
invest in an industry where the product or service is under threat
...


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•

Access to supply channels
...
In two instances, CATalyst
and Batrain, lecturers are full-time employees with attractive salary packages,
share options and generous benefits
...

Although these presenters are on sub-contract, they feel secure about the
arrangement
...
I suppose
I could be substituted by a cheaper resource, but the students would soon
complain that they had been misled
...
The three
established suppliers have good relationships with the major corporate
customers and, in some cases, have set up infrastructure (dedicated training
sessions, personalised websites) to support these contracts
...

Expected retaliation is an accepted barrier to entry
...
The scenario mentions that
ABCL has commissioned the study from Xenon because of the well
documented experience of another Arcadian company, Megatrain
...
This was supported by
a campaign to discredit the CEO of Megatrain and to highlight its foreign
ownership
...
This is supported by evidence from
Ecoba’s balance sheet where goodwill and property are both significant assets
...
All three main providers currently have EIoBA’s
gold standard
...
Evidence from the case study suggests that it takes at least one
year to achieve this certification
...

The three providers dominating the industry have well-established brands,
supported by extensive marketing
...
This will require time, and investment in
building a brand name is particularly risky since, as nPorter explicitly
recognised ‘it has no salvage value if entry fails’
...
ABCL could target these to gain market share
...



...
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AN S WE R S T O S CE N A RIO - BA SE D Q UE ST ION S : S EC TI ON 4

The threat of substitutes appears to be constant in this industry
...
Evidence from the case study suggests that a large proportion of
students do not attend formal classes but prefer to study on their own
...
They do
have expertise in providing e-learning materials and it might be a way of entering the
market place with products that are significantly differentiated from their
competitors
...
In the
scenario it appears that:
(1) The power of the corporate buyers is relatively high
...
There is a history of
these corporate buyers regularly changing providers to gain better prices
...

(2) The cost of switching providers is relatively low
...

(3) In general, the products purchased are standard and undifferentiated
...
Buyers are always sure that they can find alternative providers
...
The case study scenario provides an example where WAC, a major
supplier of business analysis consultancy services, has itself bought one of the
smaller providers and now delivers all of its business analysis training in-house
...


ea

All of the above suggest that the bargaining power of buyers is high in this industry
...
The conditions that make suppliers powerful tend to mirror those
that make a buyer powerful
...
The only
circumstances that might apply are:
•

The supplier (provider) industry is dominated by a few companies and is
certainly more concentrated than the industries it sells to
...


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...
In effect, these students
are substituting face-to-face tuition with e-learning
...
Not only is it profitable, but
it allows the companies to employ their investments in specially-designed
classrooms, buildings and staff
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S
•

Porter also recognises that labour is a supplier
...
This, of
course, poses another problem for the providers
...


ial

The rivalry amongst existing firms needs to be understood
...
They also appear
to tolerate the existence of a relatively large number of smaller providers
...


ter

However, the products are relatively undifferentiated, particularly once gold level
certification has been achieved
...
As already recognised there
is little to stop customers switching between competitors, and this will increase
competitive rivalry
...
Hence ABCL can expect a vigorous response to
their proposed entry into the industry
...
As a result of this report, ABCL asked us to evaluate the attractiveness of
Ecoba Ltd as an acquisition target
...
Ecoba Ltd has a
dominant shareholder who is approaching retirement and so is likely to be amenable
to realising her investment in the company
...
Ecoba’s business model currently
minimises training and administrative overheads and could be retained or, in the
longer term, remodelled to reflect the operating preferences of the acquiring
company
...
It is not as profitable as its
competitors, but it is very lightly geared, while other ratios are roughly in line with
industry competitors
...

Introduction
In January 20X9, Xenon Ltd (referred to from this point as we) produced an interim
report analysing the business analysis certification training industry (BACTI) in
Erewhon
...
This report examines the ownership, business

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AN S WE R S T O S CE N A RIO - BA SE D Q UE ST ION S : S EC TI ON 4

model and performance of the three main suppliers in the industry
...
It also explains why
we believe that Ecoba is, between the three main suppliers in the industry, the most
appropriate target for acquisition
...
co
m

ial

ter

tud

ym
a

Ecoba itself does not employ any full-time teaching staff (except Gillian herself)
...
They also publish
the name of the lecturer on their class timetables
...
It is perhaps this reliance on sub-contract staff that leads to the
cost of sales running at about 80% of revenue
...
We
suspect that the competitors classify full-time staff as overheads (rather than cost of
sales) but we need to investigate this
...
However, they do complain about how long it takes Ecoba
to pay their invoices
...
The average payables
settlement period is 144 days in 20X8, up from 130 days in 20X7
...
It will be important, in
the short-term at least, to retain these lecturers
...


fre

The inefficiency that leads to a high number of settlement days for payables is also
reflected in the average receivables settlement days
...
Again, comparisons suggest that this is not
the norm for the industry
...
However, this suggests that they are finding it increasingly
difficult to manage the payment of suppliers and the chasing of customer payments
...
The sales revenue to capital employed (another efficiency or activity ratio) has
increased from 3
...
76 in the past year
...
36 and 3
...


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Ecoba is a private limited company, almost wholly owned by its founder Gillian Vari
...

CATalyst is a wholly owned subsidiary of the Tuition Group, a training and education
provider quoted on the Erewhon stock market
...

We do not believe that they would be interested in selling CATalyst, except at a
premium price
...
Given this share distribution, and the age
profile of the directors, we feel that it is likely that any proposed acquisition of
Batrain would either be immediately rebuffed or it would lead to a complex and
drawn out negotiation given the number of stakeholders involved
...
She holds 95% of Ecoba’s shares and we feel that she
might be amenable to realising her investment in Ecoba
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

Before considering any further financial ratios, the extracted financial information
suggests the following:
•
•
•
•

Significant increases in trade payables (40%) and trade receivables (43%)
Significant rise in revenue (almost 30% from 20X7 to 20X8)
Significant rise in cash and cash equivalents (40%)
Increase in retained earnings
Increase in valuation of intangible assets
...
Gross profit is much lower (at about
20%, compared with 35% and 37%) although this probably reflects the large scale
employment of sub-contract staff
...
55%, compared with 6% and 8%)
...


ter

Liquidity at Ecoba appears to be relatively stable
...

Although the absolute value of these ratios is relatively low (0
...
93), similar
figures are returned by their competitors and so there does not seem to be any
particular cause for concern
...
In
20X7 the gearing ratio was 4
...
5 times
...
8% and the interest cover ratio had increased to 50
...
This is
reflected in their employment of sub-contract lecturing staff rather than full-time
staff (allowing Gillian to balance supply with demand) and the minimisation of
overhead administrative staffing costs
...
Financial gearing is very low and any buyer of the company has the
opportunity to use the company’s unused borrowing capacity
...


Transfer in ownership of a company creates anxieties amongst customers, suppliers
and employees
...
However, there is
insufficient time to manage everyone to the same degree
...

There may be stakeholders who are indifferent to the change and involving them
may be difficult to achieve, unsettling and time-consuming
...
We suggest that Gillian’s business model should be
retained in the short term, but in the long term it would be possible to change the
model to potentially improve profitability
...


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AN S WE R S T O S CE N A RIO - BA SE D Q UE ST ION S : S EC TI ON 4

Stakeholder analysis usually involves some mapping of power against interest
...
The following represent the
most likely stakeholders that the management of ABCL will need to manage
...



...
It is likely that these
stakeholders will be anxious about the acquisition as they know that the two main
competitors employ full-time lecturers
...
Lecturers will be worried that the business model of Ecoba will
be changed by the new management
...
This group of stakeholders might be
classified as having high power (because they can work for established competitors)
and some interest
...
An early move to prompt invoice payment may help keep them
onside
...
There is evidence in the case study
scenario that administration is under pressure and this will have to be investigated
...
In stakeholder management terms this group can probably be defined
as having high interest but very little power
...
At most, they should be kept onside
...
This is a large, diverse group
...
Individually, they have relatively low power, and, in the
context of the transition, they probably have very little interest
...
There
could be an argument for ignoring this group completely
...
Minimal effort should be put into managing individual
students
...
The EIoBA run the certification scheme
...
The EIoBA is a powerful stakeholder
as it could potentially withdraw accreditation
...
It is difficult
to gauge its interest as the scenario gives little information about it
...


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Corporate customers: the scenario mentions that two corporate customers have
recently switched their training contracts to Ecoba
...
One of the customers specifically changed provider because
they were impressed by the ‘named’ lecturers that Ecoba could provide
...
In
stakeholder mapping terms it could be argued that corporate customers have high
power (because they can move their contracts elsewhere) and high interest
...


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1 mark for each significant point (for example, issue of poor credit control)
and up to 1 mark for each supporting calculation (for example, accounts
receivable – 71 days and rising) up to a maximum of 16 marks
Up to 4 additional professional marks for structure, persuasiveness and a
coherent conclusion supporting the acquisition of Ecoba
...
g
...


20


...


tud

ym
a

The first part of the question asked candidates to use Porter’s framework to analyse the
business analysis certification industry (BACTI) in Erewhon and to assess whether it was an
attractive market for ABCL to enter
...
The scenario explicitly stated that Xenon analyses an industry by using Porter’s
five forces framework
...

However, some candidates elected to use his 'diamond' analysis instead
...


ea

cc

as

The second part of the compulsory question assumed that Xenon had decided to enter the
BACTI market by acquiring one of the three big companies currently dominating the
marketplace
...
Overall,
candidates answered this part question relatively well, calculating and using financial
information that had been signposted in the scenario
...
A straightforward financial evaluation would have been more
appropriate
...
This was not the point of this part question, it had already been
considered in the first part of the question
...


fre

The final part of the compulsory question asked candidates to identify and analyse the
stakeholders in Ecoba Ltd and analyse how ABCL could successfully manage them during
the ownership transition
...
Most candidates
answered this part question relatively well, with appropriate use of the Mendelow matrix
often leading to high marks for this part question
...
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AN S WE R S T O S CE N A RIO - BA SE D Q UE ST ION S : S EC TI ON 4

GREENTECH

Walk in the footsteps of a top tutor


...
There will be no need for other models and
use of other models will achieve nothing except wasting your time
...
8 minutes/mark
...
So you need to allocate 1
...

Cover all 4 areas – in 15 minutes you only have enough time to cover around two
factors in each area of the SWOT
...

Using other models

tud

Key dangers:

Spending too long on this section

Strategy evaluation

cc

(b)

as

Not using full sentences
...
But the better
student will write a more specific answer such as ‘The company has a good financial
position and has built up $17m of surplus cash
...
the strategy options' is a very common
exam requirement
...


fre

Evaluate all three proposals
Link back to part (a)

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...
Don’t take other views and don’t suggest
alternatives
...

That is, all 3 likely to be feasible, but Ang’s is MOST suitable, and only one that’s likely
to be acceptable
...



...
There are 3 strategies and we need to assess 3 criteria for
each (9 things to do), and then provide a justification for the strategy that was
followed
...
This means that each
‘element’ is only worth 2 marks each so you can’t afford to spend too long on any
single element
...

Be comfortable with interpreting diagrams – again, the new examiner likes to
provide diagrams for you to interpret
...


Key dangers:

tud

Link problems and solutions
...


as

Drawing diagrams

Explaining 'process', 'redesign' etc
...
This is a test of how you can apply this knowledge to a scenario
...
For example, the answer uses the strategy
lenses, but you could just as easily have used JSW’s approach, Harmon’s
process strategy matrix (both words are used in the requirement) or compared
the rational approach (strategy leads process redesign) to the incremental/
emergent approach (process redesigns lead strategy)
...
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AN S WE R S T O S CE N A RIO - BA SE D Q UE ST ION S : S EC TI ON 4

(a)

The current strategic position of greenTech could be summarised in a brief SWOT
analysis
...

Strengths


...

The company has explicitly positioned itself as a focused differentiator in a very
competitive market place
...


ial

Weaknesses

ter

Despite recent increases, marketing as a whole is under-funded
...
3% of turnover
...
This was recognized by Lewis-Read, who believed that the
company should invest in marketing these computers to both home and corporate
customers
...
This leads to low conversion of enquiries into accepted orders
...


as

The general public is increasingly conscious of the need to conserve the environment
...

Other industrial sectors are looking for opportunities to provide products that are
quiet, recyclable and have low emissions
...

Threats

ea

Although sales are increasing, the company is still relatively small in global terms and
so it is unlikely to be able to compete with the established global suppliers of fully
assembled computers
...


fre

Lack of manufacturing capability is a threat as it makes the company vulnerable to
problems in the supply chain
...


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The company has important core competencies in the production of green
technology
...


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...
Johnson, Scholes and Whittington
identify two broad options within this approach
...
The second is
market penetration where an organisation gains market share, usually by increasing
marketing activity
...


ym
a

ter

ial

However, their proposal appears to envisage market penetration in only one of the
three specific sectors served by greenTech, the provision of fully assembled green
computers
...
Trends suggest that the
overall market for this type of computer should be growing rapidly
...
The scenario also
states that the government is promoting energy efficient computers with high
recyclable content in their procurement policy
...
On the other hand, greenTech’s marketing spend suggests that not only is
the overall budget relatively small, but that none of it appears to be specifically
aimed at the green consumer
...
This
lack of marketing investment may explain the relatively small growth in sales in the
fully assembled green computer’s revenue stream
...


tud

It is possible that greenTech’s reluctance to market their computers directly to
domestic and commercial companies is due to their perception that they will be seen
to be competing with two of their commercial customers
...
However, withdrawal from some activities is a legitimate tactic within
a ‘protect and build’ strategy
...


fre

ea

cc

as

The second proposal, from the team representing the corporate recovery specialists,
Fenix, is to develop products to offer a more comprehensive service to the
electronics industry
...
Fenix’s
suggestion is primarily focused on adding new products (expanded product range)
and services (special requirements) beyond current capabilities
...
However, there may be scope for supplying more
products and services to these established customers as well as supplying to those
who do not currently use greenTech’s products
...
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m

(b)

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...
Consequently, there is the issue of how these capabilities will be
acquired
...
It would be costly, risky and timeconsuming to develop these capabilities organically
...


tud

ym
a

ter

The final proposal from Professor Ag Wan from MidShire University is for greenTech
to look for opportunities where the company could use its core competencies with
green technology within other industries and products
...
Johnson, Scholes and
Whittington provide an example: ‘manufacturers of stainless steel have progressively
found new applications for existing products, which were originally used for cutlery
and tableware
...
’ For the
company itself, this is probably quite a radical way of looking at itself
...
Professor Ag Wan’s suggestion makes greenTech re-consider what
industry they are in and this reflection should allow them to see a potentially much
bigger market (green technology) in which they have already demonstrated
capabilities in one sector (electronics)
...
All
industries will have to find greener ways of working if they are to satisfy three
important forces
...
The second is governments who
are increasingly likely to pass laws on emissions and responsibility for waste disposal
...
Thus the market for greenTech’s products, know-how and testing
should be large and increasing
...

Professor Ag Wan’s suggestion is that the surplus cash should be spent on finding
these markets using market research
...
This briefing paper suggests why this
option was selected by the company
...


The first suggestion, from Lewis-Read, appears to address the imbalance between a
large potential market (green computers) and an under-promoted and under-sold
product (fully assembled green computers)
...
There are already global brands

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...
greenTech currently has no manufacturing capability of their own and
so they are at the mercy of their suppliers
...
A manufacturing facility
could avoid all of these as well as perhaps providing an opportunity to cut supply
costs
...


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...

Johnson, Scholes and Whittington suggest that an assessment has to be made about
the extent to which the organisation’s current capabilities (resources and
competences) have to change to reach the threshold requirements for a strategy
...
It is unlikely that the cash available would be
sufficient to cope with the global players who already supply fully assembled
computers
...
greenTech is currently
reliant on its suppliers because it lacks a manufacturing capability
...
Flexibility in the
products supplied and reduced costs are also attractive bonuses
...
It has no experience in acquiring companies, integrating them and
running them successfully
...
Furthermore, it is likely for cost reasons that the acquired
company would be in another country, perhaps creating both language and cultural
difficulties
...
In the terms of Johnson, Scholes and Whittington, the
Fenix proposal is not a particularly acceptable strategy to the existing management
because of the risk involved with acquisition
...
The first, central
to his proposal, is that it allows the company to see itself in a new and exciting way
...
Secondly, it has to be recognised that
most of greenTech’s current business activities are with fellow electronics companies
or enthusiasts
...
Transactions
will be business-to-business, often at quite a technical level
...
Professor Ag Wan’s
suggestion appears to be suitable, in that the strategy addresses the situation in
which the company is operating
...
Finally, it appears to be feasible as it
does not require excessive funding and most of this funding is focused in one specific
area: market research
...


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...
It must be recognised that
greenTech’s products could be sold initially at a premium price to reflect its niche
position
...
The product
can easily be imitated
...
These manufacturers might feel uneasy about greenTech becoming a
significant competitor and consequently withdraw their business, so weakening this
revenue stream
...


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...
The scenario suggests that this is of
concern to greenTech because it wastes time and effort
...
The reason for this high wastage rate is
not specified
...
In this case it would be
useful to supply the cost as soon as delivery details have been completed
...


ial

ter

Finally, the delay gives the customer time to reflect and change their mind
...


ym
a

The credit check is performed too late in the ordering cycle
...
Hence greenTech and Xsys have wasted time and money
communicating with the customer
...
This would
remove two processes from the greenTech swim lane: ‘request delivery date’
and ‘e-mail delivery and cost details’
...


as

The problem of delivery time could be addressed by using EIM (or a similar
courier company) to deliver directly to the end customer
...


ea

cc

Making the changes proposed above now only leaves ‘place confirmed order’
and ‘test computer’ in the greenTech swim lane
...
If
responsibility for testing was given to Xsys (and there are good reasons why it
should be), then there would be nothing left in the greenTech swim lane
...

The design of processes can be viewed as an implementation of strategic
planning
...
It views strategy development as the
deliberate positioning of an organisation through some analytical, directive
process
...

In the context of the scenario, the new strategic direction now being followed
will required a set of processes designed to facilitate business-to-business
transactions with potential new customers
...
As a
result process design and associated measures should align with business goals
and objectives
...
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Although it would be tempting to
automatically show the delivery date on the screen alongside cost details, this
might not be commercially sensible
...


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Opportunities discovered while focusing on specific
processes may have very significant repercussions
...
It would eradicate delay, reduce operational costs, reduce delivery
costs and perhaps provide better (but certainly quicker) customer service
...


ym
a

ACCA marking scheme

Marks
12

Up to 1 mark for each significant point up to a maximum of

(b)

Up to 1 mark for each significant point in the evaluation of each proposal
up to a maximum of 4 marks for each proposal
...

Up to 1 mark for each significant point in the justification of the winning
proposal up to a maximum of
2 professional marks for appropriate tone, recognition of context of
scenario, conviction of answer
Maximum
(i)
Up to 1 mark for each identified deficiency, suggestion or
implication up to a maximum of
(ii)
Up to 1 mark for each significant point up to a maximum of
Up to 2 professional marks for clarity of the analysis
Maximum

as

20
10
6
18
–––
50
–––

fre

ea

Total

cc

(c)

tud

(a)

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...
An investigation
of current processes might suggest that process goals and measures may not
be aligned with strategy
...
Consequently, processes are often modified by employees and
managers to make them workable and eventually, strategy is modified to
accept this
...
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AN S WE R S T O S CE N A RIO - BA SE D Q UE ST ION S : S EC TI ON 4

Examiner’s comments

ym
a

ter

ial

Part (b) asked candidates to evaluate the three proposals suggested in the scenario and to
justify the selection of the proposal from Professor Ag Wan as the best strategic option for
greenTech to pursue
...
Although it
was answered quite well, many candidates did not apply sufficient analysis and evaluation
...
However, fewer candidates recognised that greenTech had
grown organically to this point and had no demonstrable capability in acquiring companies
and managing these acquisitions
...
The justification of the Ag Wan selection was also relatively weak
...

Although this analysis might be legitimate it is not answering the question
...


tud

The final part of the compulsory question was split into two parts
...
Despite this, most candidates provided good
answers, showing good business analysis skills within the constraint of a time-constrained
examination
...
Some candidates did answer this question using the framework of the
Harmon process-strategy grid
...


fre

Key answer tips

This question involved external and internal analysis, strategy evaluation and critical
success factors
...
There may be a temptation to include too many models
in answers and it would be vital to be aware of the mark allocation and the number of
points expected to be included in each section
...
But there
should have been enough marks available to students to pass without having to do this
...
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Part (a) was designed as a gentle introduction to the paper, giving candidates an early
opportunity to confidently gain relatively easy marks
...
The P3 examination panel decided to restrict candidates to a SWOT analysis so
that answers did not use too many alternative models, consuming a disproportionate
amount of examination time
...
However, despite
restricting the question to a SWOT analysis, there was evidence that some candidates spent
too long on this part question, writing too much and causing themselves time problems
later in the examination
...
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P AP ER P 3 : BU SIN E S S A N AL Y SI S

(a)

An assessment of GET’s strategic position

External analysis

ter

ial

The political environment is very important to GET as it was the election of the PNR
that effectively brought the company into being with the privatisation of the
country’s rail network
...
There is a chance that these franchises will be terminated and
opened to re-bidding, which should be of interest to GET
...
The
opposition initially suggested a re-nationalisation of the network, but have modified
their view to taking a larger portion of the company’s profits
...


ym
a

The government is also enacting more safety legislation which is adding to GET’s
costs
...
These are
likely to be costs that GET did not predict when they won the contract and so are
almost certain to have an impact on profitability
...
In the fourth year of the franchise no government subsidies were paid
and economic recession led to a fall in passenger numbers
...


cc

as

There is evidence in the scenario that road transport has suffered from a lack of
investment under the PNR, resulting in many of the roads becoming heavily
congested
...
Rail transport offers a
congestion-free alternative to road transport, potentially using power that does not
rely on oil
...


ea

Many industrialised countries have seen the rise of the ‘green consumer’ who makes
ethical choices in the selection of products and services
...
Rail services appeal to this consumer group and GET needs to
emphasise this in its marketing
...
GET needs
to monitor the intentions of other countries, such as Raziackstan, who are keen to
divest themselves of an expensive public service and, at the same time, raise capital
for use elsewhere in the economy
...


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...
The following model answer
uses an external analysis which forms the basis of the opportunities open to GET and
the threats that it faces
...

Appropriate models and frameworks would be PESTEL and Porter’s five forces
(external analysis) and a resource audit (mainly used here in terms of financial terms
and internal competencies)
...
com
AN S WE R S T O S CE N A RIO - BA SE D Q UE ST ION S : S EC TI ON 4

Within the industry itself, the power of customers is relatively weak, particularly as
the potential substitute (road transport) is increasingly expensive and congested
...
All rail users travelling through East Rudos must use GET
...
New entrants are
barred until the opportunity arises for them to bid for the franchise
...
This team already had significant operating experience
(gained with RudosRail) but they have adapted quickly to the new private sector
model
...
These are important internal competences
which GET might wish to exploit elsewhere
...
It is so successful
that it is used by three of the other franchise operators
...
As well
as providing an important internal competence it must also have brought in
unexpected and regular revenue which could not have been foreseen when the
franchise was originally won
...
In 2010 it
returned a gross profit margin of 34% compared with 22% for the industry as a
whole
...
Overheads appear to be well controlled
...
93 (compared
with 2
...
55 which is also greater
than the industry average of 1
...
The company can easily meet its short-term
liabilities
...
Two
potential measures are employee/route kilometre and revenue/employee
...
Revenue/employee is over
$106,000, compared with $85,000 in the industry as a whole
...
27 compared with 4
...


cc

The company has also invested in new trains and its excellent reliability record has
meant that it has quickly built up a well-respected image and brand
...


fre

ea

A clear weakness is the fact that the company is essentially a one-contract (franchise)
company and is vulnerable to external factors that can affect the profitability and
existence of this contract
...
The team would appear unable to bring external
ideas and experience from a different industry or different country
...


The company is highly geared, with a gearing percentage of 75% compared with an
industry norm of 48%
...

This might be of concern to their bank if the country is heading into economic
difficulties
...
63%)
compared with the industry average (4
...

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P AP ER P 3 : BU SIN E S S A N AL Y SI S

Tutorial note

Gross profit margin = Gross profit/sales revenue = 110/320 = 34%

Operating profit margin = Net profit before tax and interest/sales revenue = 70/320 = 22%

ial

Current ratio = Current assets/current liabilities = 585/200 = 2
...
55

ter

Revenue/employee = Sales revenue/number of employees = $106,312

Employees/route kilometre = Number of employees/route kilometres = 3
...
63%
Gearing % = long term liabilities/(share capital + reserves + long term liabilities) =
2000/2660 = 75%
...
Answers that take a different approach
will be given appropriate credit
...
My
evaluation will use an assessment of the suitability, acceptability and feasibility of
this strategic direction
...

However, funding and risk issues may mean that a more conservative strategy might
be preferred, perhaps waiting until the failing franchises in Rudos are offered for sale
...
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A number of financial ratios are calculated above
...
These
alternative values may lead to different conclusions, and again credit will be given for this
...
The
rationale for the ratios given is shown below
...
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AN S WE R S T O S CE N A RIO - BA SE D Q UE ST ION S : S EC TI ON 4

Suitability

ial

There are obvious ways in which the proposed strategy makes sense
...
GET has an experienced and respected
management team, together with a computerised booking system which is
recognised by its peers as effective and successful
...


ter

GET is currently a one-contract company, with a limited life span if it fails to win the
Rudos franchise when it is offered again
...


ym
a

Furthermore, acquiring contracts outside Rudos also appears to make sense
...
In contrast, Raziackstan offers greater political certainty, at least in terms
of its commitment to rail privatisation
...


as

tud

GET might also be relatively confident about increasing profits in Raziackstan by
bringing the rail network up to the efficiency levels it has achieved in the East Rudos
franchise
...
33)
is greater than at GET and revenue per employee significantly less ($22,500
revenue/employee) If GET can cut staffing in Raziackstan to achieve similar levels of
productivity as it currently achieves, then profits will improve without the need to
raise ticket prices
...
GET may also find synergies between SOFR and its
franchise operation in Rudos
...
The software application may
be an important asset of GET, but it is not of great significance in this particular
situation
...
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Suitability is concerned with whether a proposed strategy addresses the
circumstances in which an organisation is operating – its strategic position
...
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P AP ER P 3 : BU SIN E S S A N AL Y SI S

Acceptability
The acceptability of a proposed strategy is concerned with the expected performance
outcomes of a strategy in terms of return, risk and stakeholder reactions
...


ial

Secondly, GET has no experience of managing outside Rudos
...


ym
a

ter

For example, railway employees perceive that a ‘railway job is a job for life’ and it
seems likely that there will be a clash between the management culture of GET and
the organisational culture of both the railway operation and SOFR
...
The risk is even greater at
SOFR because GET has no obvious internal competencies to bring to bear
...
Stakeholders in Rudos may also be
concerned that the management of GET might be distracted from running the East
Rudos franchise, resulting in reduced performance
...
Financial feasibility is considered under this
heading, identifying the funds required and the sources of those funds
...
Although it does have some cash, the company is already highly
geared and this was identified as a potential weakness in the previous analysis
...
The financial infrastructure of Raziackstan is immature and so also seems
unlikely as a source of funding for GET
...
Resource deployment considers
the feasibility of specific strategies by identifying the resources and competences
needed for a particular strategy
...
However, more detailed analysis suggests
that the rationale is not as strong as it could be and there are many risks involved
...
In the long term it may be better for the company to await the outcome of the
audit report on the failing franchises in Rudos
...


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...
Firstly, GET has
experience of operating a rail franchise where it has total control over the track and
the trains
...
Punctuality, safety and
efficiency will depend on both the railway (running the trains) and the state
(maintaining the tracks)
...
GET has no
experience of working under these terms
...
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AN S WE R S T O S CE N A RIO - BA SE D Q UE ST ION S : S EC TI ON 4

(c)


...
Other
interpretations exist and these will also be given credit if used appropriately in the answer
...
These are
targets that the organisation has to achieve
...

A certain amount of latitude is usually allowed – for example, in the United Kingdom
a train is deemed to have arrived on time if it arrives at its planned destination
station within five minutes (i
...
4 minutes 59 seconds or less) of the planned arrival
time
...
e
...
Critics of this approach have also
suggested that it encourages train companies to be conservative in their train
timetabling, so ensuring that they meet the target
...
Cleanliness might be
measured by the number of complaints received about litter and dirtiness
...


ea

cc

The balanced business scorecard was established to help focus companies on nonfinancial, as well as financial measures of performance
...
However, the other three perspectives of the scorecard are a rich source of
KPIs and so many companies have KPIs for financial, internal business processes and
learning and growth
...
Utilisation of assets is
important
targets for increasing qualifications in the workforce

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Johnson, Scholes and Whittington defined critical success factors (CSFs) as ‘those
product features that are particularly valued by a group of customers and, therefore,
where the organisation must excel to outperform competition
...
The
marketing message of GET stresses safety and punctuality
...
The
relative importance of CSFs is likely to vary with the market segment (the group of
customers)
...
Rail companies (such as GET) will have
CSFs concerning financial performance and passenger numbers
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

Although Johnson, Scholes and Whittington focus their definition of a CSF on the
customer, other definitions are much wider
...
They are the few key areas
where things must go right for the business to flourish
...
It is easy to envisage a situation where
safety is compromised by poor track maintenance and track faults lead to poor
punctuality
...

ACCA marking scheme

(c)

ym
a

(a)
(b)

1 mark for each appropriate point up to a maximum of 20 marks
...

1 mark each for report structure, style, and fluency up to a maximum of 4
professional marks
...


4
10
–––
50
–––

tud

Total

Marks
20
16

Examiner’s comments

ea

cc

as

The first part of this question was answered well with some candidates getting full marks
...
However,
some answers, despite scoring well, displayed elements of poor examination technique that
probably led to later time problems in the examination
...
Some answers described
frameworks such as Porter’s Five Forces at great length and this was not needed
...
Secondly, the injudicious selection of
frameworks often led to the same points being needlessly repeated (for example, in the
PESTEL and the SWOT analysis) and marks can only be given once
...
Also,
technology (in PESTEL) refers to external technological change, not to the internal
technological resources of the organisation
...
Many candidates struggled to impose a structure on the answer and, although
many used the suitability, acceptability and feasibility framework, they often repeated
themselves and failed to make enough distinct points to get the marks on offer
...
The proposed strategy concerns an opportunity, and candidates might have
considered this opportunity in the context of the strengths, weaknesses, threats and

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...
The concern, here, is that internal
CSFs will only be valued by internal stakeholders and not by the customers that they
serve
...
com
AN S WE R S T O S CE N A RIO - BA SE D Q UE ST ION S : S EC TI ON 4

MIDSHIRE HEALTH

tud

76

ym
a

ter

ial

The final part of this question asked candidates to explain and discuss the concepts of
Critical Success Factors (CSFs) and Key Performance Indicators (KPIs)
...
Some candidates merely changed the sequence of the
words; stating that ‘critical success factors are the factors that are critical to the success of
the business’, and then listed the strengths of GET
...
Some candidates did not consider the rail industry at all, framing their
answer in the context of a manufacturing company or a university
...
The question
highlights that not every Section A question will focus on strategic decisions
...
The requirements covered project management, culture and the strategy
lenses
...
There is plenty of scope to score marks as long as candidates focus on the
actual problems in the scenario and don't make their answers overly theoretical
...
In the
context of the case study scenario, there appears to be confusion around the
objectives, scope and ownership of the project
...
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indeed, alternative opportunities, identified in the previous part of the question
...
Similarly, candidates might have
dwelt on how the proposed strategy addresses the threats to GET identified in their
position analysis
...
Some candidates also made the mistake of perceiving
GET as the franchisor, not the franchisee, and hence included much irrelevant comment on
its strategy
...

Nowhere does it say that SOFR will be ‘hugely expensive to acquire’
...


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m

ial

ym
a

ter

The immediate employment of consultants with a potential software solution
will inevitably skew the project towards a particular technical solution
designed to support the planning system
...
The CEO confuses the two, a confusion accentuated by the
early selection of a technical solution, before the business requirements have
been defined (see later)
...
Terry Nagov really needed to establish a
proper project objective within a formal Project Initiation Document
...
Ideally, this should be one
person
...
Even if the objectives and scope of the
project can be defined (see previous paragraph), the steering group is
disunited in the context of project sponsorship
...
Projects without a welldefined committed sponsor are likely to be unsuccessful as they lack clear
leadership and support
...
The sponsor (owner) role should have been given more thought
at the start of the project and responsibility should have been documented in
the Project Initiation Document
...
The first concerns
the procurement process
...


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The objectives and scope of the project appear to be at different levels
...
Certainly the implementation team set up to
undertake the detailed work appears to be primarily concerned with the
functionality of the software package and the presence of Eurotek support
consultants would tend to support this focus
...
Although this objective is amended later in
the project, restricting it to ‘effectively and efficiently treating disease’, both of
these objectives really concern the organisation as a whole, not a specific
project within that organisation
...


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m

ial

Group and stakeholder management

as

tud

ym
a

ter

Terry Nagov appears to believe that the three employee sets within the
steering group (senior hospital doctors, hospital nursing managers and health
service support staff) are equally powerful within the project context
...
The hospital doctors resent the inclusion
of the health service support staff in the steering group
...
The objectives of the
health service support staff appear to be aligned with those of Terry Nagov,
but this support is not as effective as it may appear because it comes from the
weakest set within the steering group
...
Differences in power and culture
will make it extremely difficult for the group to move beyond this stage
...
This appears to destroy the possibility of group harmony and
also brings into play a significant actor (Etopia’s health minister) who, although
very powerful, had hitherto had no obvious interest in the project
...
Eurotek might have been flexible on
price, particularly if the developed software could have potentially been used
in other health authorities
...
Perhaps this
was also the point when alternative suppliers could have been sought,
providing solutions which were closer to the requirements of the organisation
...
No post-project review was
conducted, and lessons learned were not fed back into the project
management process
...
As someone once
wrote, the ‘only unforgiveable failure was the failure to learn from failure’
...
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Once these requirements had been
developed, it became clear that the software package was a poor fit and that a
considerable amount of bespoke work was needed to make it fit-for-purpose
...
This
was a poor process
...
The selection process should have involved
more than one company and should have been transparent, so that the
reasons for selecting a particular solution were documented and auditable
...
Most public sector organisations have to
follow strict procurement guidelines and it is surprising that these were not in
place at MidShire Health
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

(ii)

Organisational culture


...


as

tud

The stories told by the hospital doctors are primarily concerned with belittling
the role of the professional administrator
...
This is the first step we should take
...
Secondly, the planning process does not appear to be
perceived as real work
...
It
almost appears that the hospital doctors have agreed to participate in the
planning process as a damage limitation exercise, trying to protect their power
and status, rather than because they have any real interest or belief in the
planning process and its goals
...

When the senior hospital doctors are present, the nursing representatives side
with them and provide a powerful block to any of the initiatives proposed by
the CEO
...
The opinions of the
support staff are clearly not valued by the hospital doctors
...
Their ideas, for
example for preventative care, are quickly dismissed by the powerful coalition
of the hospital doctors and the nursing managers
...
Not only do they enjoy high salaries for fulltime positions, but they also have the right to undertake private practice

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Johnson, Scholes and Whittington suggest that the culture of an organisation
consists of four layers
...
The visionary objective of the CEO
might be an example of a value
...
Beliefs are more
specific and concern issues which people in the organisation can talk about
...
‘You have to realise that poor health is often caused by
poverty, poor housing and social dislocation
...
We can advise and also treat the symptoms,
but prevention and cure for these wider problems are well beyond us
...
Certain
aspects of these become clear in the scenario describing the strategic planning
project
...
In the scenario there is a contrast between
the CEO’s vision of delivering health and the perception of hospital doctors and
nursing staff that the real work is really about treating the ill
...
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AN S WE R S T O S CE N A RIO - BA SE D Q UE ST ION S : S EC TI ON 4

Organisational configuration

ter

ial

The lack of control the organisation has over the powerful hospital doctors is
shown by the fact that one of the doctors perceives that it is perfectly
acceptable to criticise his employer in public, disclosing private information
from meetings to the press
...
The CEO,
although appalled by the behaviour, cannot pursue any disciplinary action
because of threats from nurses and doctors
...
The attributes or building
blocks of the organisation relate to each other in different ways
...

As well as having a profit motive (unlike MidShire Health), the company
developed its business strategy through a centralised management structure,
with line managers given the power and responsibility to achieve defined
objectives and targets
...
In terms of Mintzberg’s
configurations, the company appears to exhibit many aspects of a machine
bureaucracy
...
Within machine bureaucracies much of the power
resides with the managers at the top of the organisation
...
To a
government struggling with rising costs in an economic recession, such
organisations contrast starkly with, as the government minister put it, ‘the
anarchy of the health service’
...
Nagov had an excellent record in the private sector
and bringing such skills to the public sector would seem to have self-evident
benefits
...

Although the work is still relatively standardised, its complexity means that
judgements are usually required
...

Considerable discretion is required in the application of skills that have been
gained over years of training
...
A machine bureaucracy generates its own

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...
This
almost unprecedented degree of freedom is tolerated by the government and
is a parameter that the CEO has to work within
...
Such flexibility does
not seem to stretch to the nursing staff, but long-term loyalties seem to bond
them to the hospital doctors
...
Probably as a result of this, they appear to be the most
receptive group to the changes proposed by the CEO
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

ter

ial

A recognition of MidShire Health as a professional bureaucracy should also
have helped the CEO predict the hospital doctors questioning the value of
having support staff on the working party
...
In fact,
many support staff are managed in a machine, top-down way, and so their
enthusiasm for the formal planning initiative might be expected
...


ym
a

Similarly, the request of the CEO for the doctors to consider the ‘good of
MidShire Health and its image within the community’ is likely to fall on ‘deaf
ears’
...
’

as

tud

The problem of introducing change in professional bureaucracies is explicitly
considered by Mintzberg
...
This, of course, exactly describes the
situation at MidShire Health
...
In the short term, he would probably suggest
that the government would be better off placing pressure on the professional
associations that influence their member (such as the IOHD), rather than
tamper with the professional bureaucracies directly
...
In principle the provider of the funds (government) provides
resource inputs into a service that is competing with other services funded by
general taxation – such as national security
...
Such an approach appears to give the government a
lot of power
...


(b)

48 4

The approach to strategy suggested by the CEO is essentially strategy by design,
based on a logical process whereby senior management devises a clear strategic
direction and a system is then put in place to implement this direction throughout
the organisation
...
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standards internally and enforces them through its line managers
...
However, in contrast, the standards for
a professional bureaucracy originate from self-governing associations that the
professionals belong to
...
In questioning the legitimacy of such advice, the CEO failed to
recognise the central role that professional associations play in such
bureaucracies
...


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This adaptation is a reflection of the
experience of managers and others working within the organisation
...

This is largely the approach of the senior hospital doctors and nursing managers on
the steering committee
...
By participating in the
steering group, these two powerful interest groups were increasingly able to
negotiate a vision of health care and health care delivery that matched their
perceptions
...
Such organisations as the IOHD are clearly willing
to publicly undermine the value of professional managers and administrators in a
public service
...
The CEO is unlikely to
have experienced this in previous posts and so would have been relatively
inexperienced in developing strategy from a coalition of vested interests
...
This strategic lens
emphasises the importance of diversity and variety in and around the organisation
which can be harnessed to produce new ideas
...
Senior management provides the context for strategy, selecting and
promoting ideas originally emanating from lower down in the organisation
...
However, even within the constraints of the steering committee, these
ideas were quickly dismissed by a powerful coalition of the hospital doctors and
nursing managers
...
Ideas would have probably emanated from production
operators for reducing waste and from sales managers suggesting new pricing ideas
and new products
...
Powerful vested interests are in a position to
smother innovations that reflects ‘thinking outside the box’
...


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This is probably the most popular perception of how strategy is developed
...
Perhaps the relatively simple manufacturing environment of the CEO’s
former company made a rational planned approach a feasible way of managing
strategy
...
Politicians
increasingly look for value for money, and a designed strategy appears to be an
orderly and controlled way of delivering such value
...
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P AP ER P 3 : BU SIN E S S A N AL Y SI S

ACCA marking scheme

Marks
18
18
4
10
–––
50
–––

ter

Total

Examiner’s comments

ym
a

Question 1a required candidates to diagnose the problems at MidShire Health in terms of
project management, organisational culture and organisational configuration
...


as

tud

Too many answers followed the sequence of the meetings described in the scenario,
repeating the same information and diagnosis, often accompanied by copying out sections
of text directly from the scenario
...
This repetition of the same points also led to long answers which probably
contributed to time problems later in the examination
...

This was largely because general points made about good project management were
accompanied by appropriate illustrations from the scenario
...


fre

ea

cc

There is an explicit learning objective on the three strategy lenses defined by Johnson,
Scholes and Whittington and a very similar question to the part b) question posed here,
was set in December 2008, concerning another public sector organisation, the National
Museum
...
Many candidates scored less than three marks, with answers that were often very
sketchy and just rearranged the key words of the question
...
Prior to the examination, the examination panel believed that this part
question would be very well answered, as it is a discrete part of the syllabus which has been
asked before
...


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(b)

(i)
1 mark for each relevant point up to a maximum of
(ii)
1 mark for each relevant point up to a maximum of
...

1 mark for each relevant point up to a maximum of
...
co
m

Johnson, Scholes and Whittington see the three strategy lenses as complementary
...

In the context of the case study scenario, the CEO would perhaps be better to
develop strategy through experience, perhaps supplemented by new ideas and
innovation
...
However, despite this, strategy by design is
the approach that the CEO appears to prefer and adopt
...
com
AN S WE R S T O S CE N A RIO - BA SE D Q UE ST ION S : S EC TI ON 4

77

MACHINESHOP

Internal growth, sometimes called organic growth, takes place when the company
grows by building on and developing its own existing competencies
...
The frequent opening of new stores represents its
organic growth
...


ter

(a)

ial

This question has a heavy slant towards the strategic elements of the syllabus
...
Help
is given in the form of direction as to which tests to use and this should help even the less
well prepared students
...
But students have
answered this area well in the past and, with only 10 marks available for this part of the
question, this shouldn’t be the difference between pass or fail on this question
...

First, MachineShop is the only company which really understands the market that it
has positioned itself in
...
This market knowledge is a core competence, creating and reinforcing
competitive advantage
...
Acquisitions
usually require a major expenditure at a certain point in time
...
Acquisition can be a
significant distraction and it could easily prevent the directors from continuing their
successful expansion of the MachineShop stores
...
This may be the case at MachineShop
...
FRG, analysed in depth in the second part of this question, is the
best fit that MachineShop can find, yet it is a business which primarily deals with
trade customers and larger machines and it has no experience of selling to domestic
consumers
...
MachineShop has already experienced such problems with
LogTrans and EngSup
...
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m

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A
compelling reason to develop by acquisition is the speed of entry it apparently
provides into a new product or geographical market
...
MachineShop is considering the purchase of a company which
already has revenues of $9m
...
One of the concerns of Dave Deen is that the MachineShop concept will be
adopted by emerging competitors in countries where it does not have a presence
...
FRG is also familiar with the
organisational and social culture of Ceeland
...
If MachineShop tried to grow organically
in Ceeland, it would be starting from scratch in a country where it had no experience
of trading
...


tud

Rapid growth through acquisition may also offer immediate economies of scale
...
As the company grows larger, it should be
able to reduce product costs, allowing it to raise the barriers to market entry,
reducing the attraction of the market to potential competitors
...


as

Finally, acquisition may provide an opportunity for an organisation to address a lack
of resources or competencies in certain areas
...
LogTrans was bought to provide the company with internal
logistics capacity and EngSup was purchased to assist in post-sales support
...
Both companies seek to gain benefits through
co-operation
...
An alliance would
be used to enter a new geographical market where an organisation needs local
knowledge and expertise
...
Some alliances are very formal, others involve
informal networking between organisations with no shareholding or common
ownership involved
...
In this instance, a new company could be created in Ceeland
with the local company providing labour, local expertise and countrywide knowledge
...
At the
other end of the spectrum, MachineShop could consider a looser network
arrangement where FRG would provide space in their stores for a MachineShop

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...
This can be due to government restrictions
...
Cultural differences also inhibit
organic growth
...


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...
It is not known if the company which is currently being targeted
(FRG) would be interested in a strategic alliance
...
There may also
be a concern, at MachineShop, that once the partner understands the dynamics of
the market, they will steal the idea and promote it as their own
...
It may be too
conservative and not exciting enough
...
This is probably why it believes that growth will be
achieved through a combination of organic growth, acquisition and strategic alliance
...


Report

cc

(b)

as

tud

In the context of risk, a loose strategic alliance with a foreign agent seems an
attractive route
...
An
acquisition is risky, particularly in countries where MachineShop has no experience of
trading
...
Organic growth offers the advantages of being proven and familiar
...

From: Business analyst

ea

To: The Board of MachineShop
Introduction

fre

This brief report looks at the potential acquisition of FRG by MachineShop
...
It concludes with my recommendation
...
In the context of
MachineShop, does an acquisition make sense and, in the narrower context, does the
acquisition of FRG make sense? Johnson, Scholes and Whittington, noted authors on
business strategy, have suggested that an acquisition makes particular sense if speed

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...
In this way, MachineShop would gain depot space which they
could use to build their own market
...
In return, FRG would receive a franchise fee
which would help it improve its financial position, as well as it potentially benefiting
from cross-purchases by customers attracted to the store by the MachineShop
facility
...


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...
These can be
seen in context of stakeholder reactions, risk and return
...
It provides you with the high profile and the business excitement
that you enjoy
...
Any financial ratios calculated for FRG cannot really be
compared with MachineShop, because the nature of the customers is quite different,
with 65% of MachineShop’s sales being made to domestic consumers, and so is the
country and culture that the two companies operate in
...
FRG has gross profit and
operating margins well below that of MachineShop
...
45%, compared to 17
...

The gearing ratio is higher (20
...
67) than
MachineShop
...
00%
17
...
50%
15
...
5

FRG
16
...
89%
6
...
16%
2
...
At present, improving the financial performance of
acquired companies does not appear to be a core competence of MachineShop
...
FRG has a turnover
of $9,000,000, almost nine times the combined revenue of the two Arborian
companies which MachineShop acquired in 2010
...
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...
co
m

to market is vital
...
In terms
of capabilities, the delivery of economies of scale is also important and this has
already been identified as a key benefit of the acquisition, further raising a barrier to
entry to potential competitors
...
Expansion in Ceeland is seen as an opportunity for
rapid growth, exploiting important strengths, in particular the internal competencies
of MachineShop
...


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...
There are
usually problems of integration and cultural fit
...
At LogTrans, the directors had to be
removed post-merger because of personality clashes
...


ym
a

ter

The post-financial performance of the two acquired companies has also been
disappointing
...
The same is true at EngSup
...
MachineShop has to review its competencies in acquisitions, not just its
competencies in its market
...
It
might be reasonable to expect that the acquisition of a foreign company would be
even less successful
...
86%
9
...
56%
14
...
17

as

Gross profit margin
Operating margin
ROCE
Gearing ratio
Interest cover ratio

tud

Table 2: Performance analysis, LogTrans and EngSup (2009–2012)
LogTrans –
2009
21
...
77%
13
...
62%
4
...
43%
11
...
50%
9
...
00

EngSup –
2009
23
...
85%
15
...
90%
5
...
FRG is
experienced in the business market, but has no experience of selling to domestic
customers, a service that accounts for 65% of MachineShop’s sales
...
However, whether the acquisition
of FRG is appropriate is more doubtful
...
Furthermore, MachineShop has no experience of acquiring a company
outside Arboria or, indeed, a company as large as this one
...
Both acquired
companies should have represented relatively good ‘fits’ within the supply chain of
MachineShop
...
MachineShop would have to improve
their competencies in managing acquisitions
...
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co
m

Feasibility is concerned with whether an organisation has the resources and
competencies to deliver a strategy
...
However, no
negotiations have yet been opened with FRG
...
However, the difficulty of
satisfactorily valuing a private company suggests that many months of negotiation
might lie ahead, particularly given the number and composition of the shareholders
of FRG
...
Such protracted negotiations would partly nullify, at least, the
speed of growth that acquisition appears to offer
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

Overall, the proposed purchase of FRG appears to be very risky and MachineShop
might be better looking elsewhere for a more suitable acquisition
...


ym
a

ter

ial

The first of these is factor conditions which are the inputs necessary to compete in
any industry, such as labour, land, natural resources, capital and infrastructure
...
Furthermore, the country has a well-established digital
communications structure, and as MachineShop expects to make extensive use of
internet order placement, this is also important
...
However, both these factors are also generalised factors which do not
provide as decisive and sustainable a basis for competitive advantage as other more
specialised factors
...
This appears particularly significant in the context of
MachineShop
...
One of the reasons
for this is the attention the home market requires
...
Pride and ego focus attention on succeeding in this
market
...


fre

ea

cc

MachineShop has reaped the benefits of supplying a vigorous, growing and
demanding home market in Arboria which, it believes, may allow it to anticipate
buyer needs in other countries
...
MachineShop has to
hope that his perception is correct and that consumers’ needs are not just
idiosyncratic to Arboria
...
If they do, then MachineShop
will have definitely benefited from demands placed on it from the sophisticated and
demanding buyers in Arboria
...
This concerns
the presence in the nation of supplier industries or related industries which are
internationally competitive
...


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Michael Porter developed his diamond to explore the determinants of national
competitive advantage
...
However, it might also be used in this
context to analyse, in a more structured way, the competitive nature of Ceeland, the
country which MachineShop is keen to expand into, and also to understand factors
that might have contributed to MachineShop’s success in Arboria
...



...
com
AN S WE R S T O S CE N A RIO - BA SE D Q UE ST ION S : S EC TI ON 4


...
Porter suggests that
there is a strong association between vigorous domestic rivalry and the creation and
persistence of competitive advantage in an industry
...
A similar situation is likely to occur in
Ceeland and so vigorous domestic rivalry will be lacking
...
The role
of government is particularly significant in this scenario and it influences elements of
the diamond
...


ym
a

So, although Porter’s diamond is probably more relevant to understanding industries
and countries, it does provide a framework for understanding the national
competitive structure that individual firms compete within
...
However,
the stimulus experienced by a company operating in a country where there are
internationally competitive suppliers or related industries, or where there is a great
degree of rivalry between competitors, will be missing
...
It is possible that candidates will include a financial assessment
of the post-acquisition performance of LogTrans and EngSup in this part
and so marks given for financial calculations (see part (b)) for these two
companies may be allocated to this part question
...

1 mark will be allocated for each relevant point and interpretation up to a
maximum of 18 marks
...
This will be marked as follows:
– Gross profit margin
– Operating margin
– ROCE
– Gearing ratio
– Interest cover
Financial calculations may also be included for LogTrans/EngSup (refer to
part (a)) and these will be marked as follows:
– Gross profit margin
– Operating margin
– ROCE
– Gearing ratio
– Interest cover

as

(a)

tud

ACCA marking scheme

Maximum

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5
0
...
5
0
...
5

1
1
1
1
1
–––
18
–––

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ial

•

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1 mark for each appropriate point
up to a maximum of 5 marks for points that specifically reference
conditions in Arboria or Ceeland
...
In fact, in a number of scripts it was over-answered
with candidates quickly achieving the six marks on offer for a selected method
...
This is part of good
examination technique
...

In part (b) candidate were rather average
...
Candidates were clear about what the question required, but they
often failed to provide an answer of sufficient depth to reflect the eighteen marks on offer
...
In many instances the diamond was confused
with the Five Forces model and so assertions were made that were incorrect in the context
of the question
...
However, in the context of the diamond this could be interpreted as a weakness,
because a strong, vigorous rivalry is required to produce and retain a nation’s competitive
advantage in an industry
...
Most
candidates knew enough to get some marks (two or three), but few candidates scored
exceptionally on this part question (worth ten marks)
...
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co
m

(c)

2
1
1
–––
4
–––

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...
A PESTEL model was needed, though it was
not explicitly asked for (which may have thrown some students)
...
Students must be prepared for a cost
accounting calculation so that this part does not cause problems for too many students
...

An external environmental analysis considers political, economic, socio-cultural,
technological, legal and environmental (ecological) forces that affect EcoCar
...
There have to be customers prepared to pay a premium price for
environmentally friendly cars, whose conventional rivals are $2,000 cheaper, and are
faster with better acceleration
...
They are
essentially ‘green’ consumers
...
Thus the economic health and disposable income of the country are
important to EcoCar and should be monitored
...
Any scientific evidence to the contrary could cause problems for the
EcoCar, for example, if scientists discover that excess CO2 is actually necessary for the
planet’s survival
...
EcoCar need to monitor such trends
...


fre

ea

Technological innovation is at the heart of EcoCar and the company needs to monitor
technological trends for at least two reasons
...

Alternatives do exist (hydrogen for example) and so EcoCar is aware that the
potential application of alternative technologies must be monitored
...


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...
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P AP ER P 3 : BU SIN E S S A N AL Y SI S


...
It
has also placed heavy taxes on cars with high CO2 emissions
...
The company needs to monitor the government’s
continued commitment to energy saving and the policies of any political opposition
within the country
...
Further legislation is expected, so the company
must monitor this
...

Deciding the appropriate scope of the industry to be considered is important
...


tud

ym
a

The technological environment is driving the threat of substitute products
...
A number of alternatives and
hybrids are either available or under development
...
Cheap, frequent, reliable, safe public transport
could lead to lower demand for private cars and indeed may be a better choice for
the green consumer
...


cc

as

In theory, the switching costs of the consumer are relatively low if the industry is
perceived as the car industry as a whole
...

However, the EcoCar appeals to a segment of buyers who are prepared to pay a
premium price for the ‘cleaner’ product
...
They know that these
alternatives exist but they do not purchase them because of their green ideals
...


fre

ea

There is an ever-present threat of new entrants into this market
...
These incentives are unlikely to be available in all
countries, or even all regions of Erewhon, given that they are linked to tackling areas
of high unemployment
...
It is interesting to note that Universal Motors (the second largest car
manufacturer in the world) has decided to enter this sector of car production
through acquisition, rather than developing its own product
...


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Thus there are a number of threats that EcoCar has to consider, using its risk
management approach discussed in part (c) of this question
...


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The industry has high fixed costs and the cost of leaving
the industry is high
...
However, in
EcoCar’s sector there are not as many competing firms and they tend to be fairly well
differentiated
...
Whichever perspective is adopted, risks will be identified
that need to be dealt with by the company’s risk management process
...
The proposed outsourcing
supplier has quoted a cost for manufacture of $3,500
...
It is still $750 per car
cheaper even when transport costs are taken into consideration
...


cc

as

Selling price per car ($)
Variable cost per car ($)
Weekly demand (cars)
Production time per car (machine hrs)
Contribution
Contribution/machine hour
Production time (hours)

EcoLite
6,999
4,500
6
8
2,499
312
48

Figure 1: Information relevant to the outsourcing issue

fre

ea

One of the reasons for the high variable cost of the car is the high cost of labour and
inbound logistics
...
The high cost of the
car means that the most profitable combination of products (see below) produces a
relatively small margin
...

Overall, the Lags Lane site is unable to meet the weekly demand for EcoCar’s
products
...
Outsourcing will allow EcoCar to meet the demand for their
products as well as increasing overall profitability
...
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m

The bargaining power of suppliers in the industry is unclear from the case study
...
This is not
a problem for the large car companies who are powerful and much larger than their
supplier companies but it could be a problem for a small manufacturer such as
EcoCar, which has little bargaining power
...
They should be able to negotiate favourable contracts with
suppliers, reflecting a reduction in the bargaining power of these suppliers
...


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...


ial

EcoPlus
12,999
10,000
5
10
2,999
300
50

ter

ym
a

Selling price per car ($)
Variable cost per car ($)
Weekly demand (cars)
Production time per car (machine hrs)
Contribution
Contribution/machine hour
Production time (hours)

Eco
9,999
7,000
6
9
2,999
333
54

EcoLite
6,999
4,500
6
8
2,499
312
48

Figure 2: Further information relevant to the outsourcing issue
At present the following production combination represents the best product mix
with the limited resources
...


•

Six Ecos consuming 54 hours of production contributing $17,994 (6 × $2,999)
Six EcoLites consuming 48 hours of production contributing $14,994 (6 ×
$2,499)
One EcoPlus consuming 10 hours of production contributing $2,999 (1 ×
$2,999)

tud

•
•

as

This total contribution of $35,987 per week exceeds the estimated $35,000 per week
overhead cost
...


fre

There are also eight unused production hours
...


The issue of the capacity of Lags Lane could be addressed by becoming a seven-day
week three-shift operation (pushing capacity up to 168 hours per week) which would
also allow 16 hours for maintenance, given that total demand currently comes to
152 hours
...
There still remains, however, the problem of finding skilled labour in the
Midshire area
...
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m

The EcoLite has fewer parts in common with the two other cars
...
In contrast, the
EcoLite has only 70% of parts in common with the two other cars which suggests that
it is the obvious candidate to switch to a different plant
...
It has been suggested that there will be a $1,250
reduction in weekly overhead costs at Lags Lane if the production of the EcoLite
model is outsourced
...
com
AN S WE R S T O S CE N A RIO - BA SE D Q UE ST ION S : S EC TI ON 4

Answers to the three internal weaknesses are given below
...


ym
a

(c)

ter

ial

The motivation of the buyers really has to be considered in more depth
...
The car uses less energy, has lower emissions and provides
employment in the country where it makes most of its sales
...
However, the realisation that non-renewable energy is being
used to transport these cars back to Erewhon where 95% of all sales are made may
be even more problematic
...
Building the car in a country where labour costs are low and then
transporting it long distances in ships and environmentally unfriendly car
transporters may completely undermine the brand
...

A rudimentary budgeting system appears to exist, focused on planning rather than
co-ordination or monitoring
...
Recently, car production was halted by lack of an important
sub-assembly
...
This raised the cost of
production and would have reduced the profit margin on finished vehicles
...
This led to short-term
financing requirements at a premium interest rate to resolve a public row with a
supplier
...


fre

ea

What the company needs is a plan which co-ordinates all these activities
...
Budgets would be prepared for production, for raw materials and
for bought-in finished goods
...
Budgets facilitate
planned co-ordination between the departments and activities of the organisation
...
These problems can be tackled in a planned
way, for example, putting finance in place, before being prompted to do so by
potential legal action from a supplier
...


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...
Regional and
national grants have been given to the company to help develop and produce the
car
...
The feeling that it is the
region’s car is reflected in its image and sales
...
People who were buying it because it was, in part, some reflection of
regional pride may now buy elsewhere
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

Research and Development succession and learning


...
Deviations from the plan can be spotted early and
appropriate action taken
...
There is evidence of a lack of proper control at EcoCar (for example,
training costs) and budgets would have helped address this
...


ial

ter

ym
a

EcoCar needs to completely re-think its approach to Human Resource Development
(HRD) if it is to retain an intellectual lead in the industry
...
As well as providing an internal pool
of capable employees, proponents of this approach also argue that it engenders
loyalty and commitment to the organisation, reducing staff turnover and all the costs
associated with it
...


as

tud

The strategic implications of such an approach should also not be overlooked
...
Central to the concept of the
learning organisation is the belief that adopting such a concept is one of the best
ways of challenging and moving away from the current culture of the organisation
...
Overall, human resource development has the ‘prospect
of unleashing the potential that lies within all people, allowing employees to
contribute to and indeed transform strategy’ (Jeff Gold)
...
In general, Universal Motors believe that EcoCar often recognise risks but do
little about them except discuss them
...
Although individually the senior managers
are risk averse, as a group they seem to seem to take increasingly riskier decisions as
a way of overcoming their individual fears
...
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However,
Universal Motors have recognised that the senior managers are getting older and
that there is no succession planning or development in this area of expertise
...
There is a concern that new
technological opportunities are not being recognised or exploited because of an
inappropriate culture within R & D
...
com
AN S WE R S T O S CE N A RIO - BA SE D Q UE ST ION S : S EC TI ON 4

ym
a

ter

ial

In general, there are four strategies for dealing with risk
...
In the context of EcoCar, the risk
of adverse publicity due to poor performance in a rally could be avoided by not
running a car in the rally
...
There is a certain element of this in the outsourcing approach being
considered by Universal Motors for the manufacturing of EcoLite
...
Risk
reduction is concerned with reducing the chance of the risk occurring and is usually
associated with a mitigation response which details what the organisation should do
if the relevant event actually takes place
...
The risk would be mitigated by immediate legal action
against the employees and an action plan put in place with company’s lawyers
...
The potential risk is recognised
and accepted as part of doing business in that sector, but the risk is continually
monitored
...
For
example, the risk of consumers losing interest in green issues affects the
attractiveness of the industry to potential competitors
...


(b)
(c)

Marks
16
4
15
15
–––
50
–––

fre

ea

Total

cc

(a)

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...
Once they have been documented, risks need to be assessed, both for
the probability of the risk occurring and for the impact it has if it does occur
...
There is strong evidence to suggest that there
is risk-related motivation for monitoring and improving corporate governance
...
Revised
corporate guidance, building on the Turnbull Report (FRC, 2005), states that
companies ‘should, as a minimum, disclose that there is an ongoing process for
identifying, evaluating and managing the significant risks faced by the company and
that it is regularly reviewed by the board’
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S

Examiner’s comments

PESTEL is about the future and about external influences largely beyond the control
of the organisation (EcoCar)
...

Furthermore, too many answers focused on issues that were relevant in the past
...
The problem now is finding skilled labour (due to
retirement) and so labour pay rates have increased
...
Too many
answers included long, irrelevant social and political observations
...
When those aspects were missing, answers were
simply made up
...
There is no reason why a case study scenario should have all
elements of the model under consideration, or that those elements should be equally
weighted
...


•

Finally, time management for this question appeared to be dreadful
...
It seems likely that time pressures later on in the paper were mainly caused
by over-answering this part of the question
...
However, the answer also contained
a further four pages of discussion of strengths and weaknesses and a repetition of
earlier points, now explored within the context of Porter’s Diamond
...
Time management is particularly important when
answering a question you like and recognise
...


cc

as

tud

ym
a

ter

ial

•

fre

ea

In Part (b) many answers were too general, giving text book answers which were largely
irrelevant in the context of the case study scenario
...
Context is critical here
...
Many candidates also failed to exploit the financial data
that was made available in the question scenario
...
Most also suggested that the Ecolite was the best
candidate for outsourcing as it produced the lowest contribution
...
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co
m

For part (a) many candidates produced excellent answers that helped them pass the
examination as a whole
...
However, despite this praise,
specific comments have to be made about the way that many candidates addressed this
part question
...
com
AN S WE R S T O S CE N A RIO - BA SE D Q UE ST ION S : S EC TI ON 4

NETWORK MANAGEMENT SYSTEMS

ym
a

79

ter

ial

In part (c) many answers were too general and superficial (for example; get everyone
together to have a meeting, improve the effectiveness of the training) and so failed to score
the marks on offer
...
Similarly, human resource development (succession
planning, learning organisation, perceiving training as an investment rather than a cost) was
the key to the second issue under consideration
...
It was
their answer to this issue which lifted many candidates to a pass mark in this part question
...
Do not use any other
models
...

There are no marks for describing/explaining the model, so don’t waste time on this
...
But there is a hint that it is one
of the external tools in that it wants an ‘industry’ or ‘environment’ analysis
...
When you put these factors together you should come to the
conclusion that Porter’s 5 forces is required
...

In part (c), focus as much on what the numbers tell us as you do in performing calculations
...

PESTEL analysis

ea

(a)

fre

The PESTEL framework may be used to explore the macro-environmental influences
that might affect an organisation
...
However,
these influences are inter-linked
...
Candidates
will be given credit for defining the main macro-economic influences that affect NMS,
rather than the strict classification of these in the PESTEL framework
...
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failed to recognise the production time of each car
...
Similarly, many candidates recognised the
extent to which production capacity was a limiting factor
...
Furthermore, when
EcoLite is taken out of the mix, the Lags Lane production plant makes a loss and has unused
production hours, factors that could undermine its long-term future and so could be used in
the argument against outsourcing
...


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Political
parties may encourage or discourage economic activity through taxation policies and
legislative programmes
...
This technology has to be delivered through equipment
that meets certain standards of reliability and compatibility
...
Such a process should ensure
that technically inferior goods do not make it into the market place
...


ym
a

Economic

tud

The stage or phase of the economic or business cycle clearly affects customer buying
decisions
...
Customers may postpone their buying decisions, although if innovative
products bring cost and communication advantages then they will eventually have to
invest in them
...

Socio-cultural

cc

as

It appears that electronic communication and information exchange will continue to
increase with implications for companies supplying products and systems to meet
these growing needs
...
Hence, although demand appears to be currently dropping
off, new social uses for telecommunication networks might spark off a new wave of
investment
...
The technology sector is extremely innovative, with
new and improved technologies constantly emerging
...
NMS must also consider how such emergent technologies
might be used in their own products
...


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...
Tax incentives and grants are given to companies
that invest in technology and in research and development
...
These incentives are
open to NMS, its domestic competitors and its domestic customers
...

NMS is a recent beneficiary of such an award – for 'technological innovation in data
communications'
...
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AN S WE R S T O S CE N A RIO - BA SE D Q UE ST ION S : S EC TI ON 4

Environmental issues
Green issues have an increasing impact on organisations, particularly in prosperous
developed countries
...


Legal

ter

ial

NMS operates in a country where there are laws defining employer responsibilities
and employee rights
...
Some organisations seek to gain competitive advantage by
moving to countries where regulation is more lax and hence avoid the compliance
costs incurred by their competitors
...
It is likely that some of these will be based in
countries where employment and other legislation are less onerous
...
Analysis suggests that the following key factors
are shaping this environment
...


tud

(b)

ym
a

In the context of the case study scenario, it is political, legal and economic factors
that significantly affect NMS
...


Bargaining power of buyers

cc

as

NMS is competing in two discrete market places
...
The customers are OEMs, large industrial buyers
who are likely to demand a testing combination of low prices, high quality and
reliability
...
It appears that
alternative sources of supply are readily available and that switching costs are
relatively low
...
This is particularly true for the OEM who
currently accounts for 40% of NMS’ current sales
...
NMS is catering for
each customer’s specific needs and so each solution is, to some degree, a bespoke
solution
...
Alternative sources of supply are much more difficult to find as there only
two or three companies in this specialist marketplace
...
Reduced bargaining power makes this
product less price sensitive and so provides an opportunity to generate good
margins
...


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...
All these issues combine to increase the
costs of manufacture and affect the competitiveness of the company in its market
place
...
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The bargaining power of suppliers

ial

If labour is seen as a supplier, then evidence again suggests that NMS is in a relatively
weak position
...


ter

Threats from new entrants

ym
a

NMS is operating in an industry where the costs of entry are significant because it is
capital and knowledge intensive
...

Economies of scale compel new entrants to enter at significant output levels or suffer
a cost disadvantage
...


tud

The need for government approval of new data communications components creates
an approval process that is both lengthy and expensive and so creates a significant
barrier to new entrants
...
Furthermore, the need to offer comprehensive
after sales support, although a problem for NMS, does also create a significant
barrier to new entrants
...

Threats from substitutes

fre

ea

cc

High technology industries are, by their very nature, prone to new technologies
emerging that threaten and then eventually replace the established technology
...
There is evidence that
large, successful, high technology companies are particularly vulnerable to ignoring
the challenge from disruptive new technologies
...

Rivalry amongst competitors

Very different levels of competition are being experienced in the two market places
NMS is operating in
...
However, it is clear that the high-volume,
low-margin component business offers intense competition with buyers who are able
to use their size to extract favourable prices
...
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It seems unlikely that NMS will be able to exert much influence on it suppliers
...
NMS, as a small company, will
not have the power to exert buyer pressure on its suppliers, either in terms of price
or delivery
...
Clearly an audit needs to be made of supplier performance and the
opportunity, or otherwise, for NMS to concentrate on suppliers able to deliver on
time
...


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NMS is
dealing with a small number of large end users, designing products specific to their
needs
...
In
these low-volume, high-margin markers the emphasis has to be on increasing the
volume side of the business, but at the same time making sure that they have the
resources to handle new customers
...
During this period the percentage of sales from
international contracts remained fairly constant
...


ial

(i)

ter

(c)

ym
a

Although 2009 was a record year for revenues, increased cost of sales meant
that gross profit declined slightly
...

2010

Gross profit margin
(gross profit/revenue)

2009

2008

2007

30
...
04%

38
...
63%

tud

Unfortunately the financial data does not distinguish revenues and cost of
sales between the three distinct product/service areas
...
If this is so, then the gross profit margin on data
communication components is clearly significantly lower
...
This led to a dramatic fall in the net profit margin
...
In general, this fall has mirrored the decline in the gross
profit margin
...


fre

Net profit margin (net
profit before interest and
tax/revenue)

2010

2009

2008

2007

2
...
52%

10
...
46%

The number of staff employed in 2010 was exactly the same as the previous
year
...


Sales revenue per
employee

2010

2009

2008

2007

90

101

113

107

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...
The ability of NMs to generate better market share and volumes
through product innovation in this market seems highly unlikely
...


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In 2007 it stood at 73% of sales revenue
...


(ii)


...
This appeared to work relatively well whilst
revenues were increasing (the company was profitable in 2007, 2008 and
2009) but it was a problem as soon as revenues dropped
...

Ray Edwards has effectively undertaken an informal time to payback
calculation
...
A more formal representation of the approach is given below
...
The first concerns the
approach to investment appraisal
...
It does not take into account the time value
of money and so future cash flows are not discounted, unlike the Net Present
Value (NPV) approach
...

If time to payback is acceptable, then Ray has to consider whether the payback
time (five years) is acceptable and, more importantly, whether there other
investments within the company which might pay back sooner, given that
projects will be competing for limited resources
...
However,
Ray’s classification of benefits requires further consideration
...
Ray has already calculated that less
labour is needed to use this machine and has estimated a reduction of $15,000
per annum based on observed performance
...
In Ward and Daniel’s term this is a quantifiable
benefit, because sufficient evidence exists to forecast how much benefit
should result from the change
...
It is impossible to predict how much
will be saved in advance in the specific context of NMS
...
In Ward and Daniel’s terms this is a
measurable benefit for which a reliable measure currently exists and the
improvement can be measured once the machine is working
...
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ACCA marking scheme

Marks

(a)

Up to three marks for each element of the PESTEL analysis
...

Professional marks are awarded as follows – up to one mark for
clarity, up to one mark for structure and up to two marks for justifying
and explaining an appropriate framework for the analysis

payback issues
identifying drawbacks and suggesting alternatives
identifying issues about benefit identification and
quantification

Total

Key answer tips


...

Up to one mark for further appropriate points

ym
a

(i)

Up to 3 marks
Up to 2 marks
Up to 2 marks
Up to 3 marks
Up to 3 marks
Up to 3 marks

fre

ea

cc

This is a challenging question for students
...
Part (c) covers
benchmarking which had been the subject of a recent exam article which well prepared
students would have read
...
So the areas should all have been revised by students, though
students may be thrown by the combination of the topics, the lack of further strategy
evaluation and the appearance in the compulsory section of topics which have previously
been the remit of option questions
...
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P AP ER P 3 : BU SIN E S S A N AL Y SI S

(a)

Power of the Sun (POTS) Co


...
The
managing director, Kevin Neach, became a close personal friend of Ken Nyg, the
managing director of POTS (and later the CEO of EA Group)
...
It also allowed Ken Nyg to help out a personal friend
...
Although market share has
increased in the last four years (from 7% to 9%), Neach remains a relatively small
player in a declining market (reduced by 2% in the last year)
...
98% to 18
...
14% to
9
...

Despite using some of the Group’s best managers, net profit has risen less than 2%
since acquisition
...
It seems to
have inherent problems which the EA Group cannot solve
...
But, in retrospect, this
should have been a short-term response whilst POTS found a new supplier and the
company should have then been sold
...
Divesting this company from the
portfolio remains the most appropriate response
...
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It provided the funding for such acquisitions as
ENCOS and Neach Glass
...
Gross profit has fallen in each of the last four reported periods (from 25%
to 21%)
...
04% to 7
...
Market growth has slowed considerably as alternative
forms of energy have become available
...
In the last two years, when the market has grown by only 0
...
In Boston Box terms, POTS
is probably a cash cow, with its high market share and presence meaning that it
should be able to maintain unit costs below that of its competitors
...
The best managers have been taken out of the company
to work in new acquisitions and this has had a demoralising effect within the
company
...
This is probably one of the problems with the cash cow
...


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co
m

ial

ter

Steeltown Information Technology

fre

ea

cc

as

tud

ym
a

If the industry Steeltown Information Technology is competing in is defined as ’public
sector technology’, then it seems reasonable to suggest that the potential market
growth is relatively high
...
It could be argued that
Steeltown Information Technology enjoys a very high market share in this new
sector, so again potentially qualifying (in Boston Box terms) as a star
...
The real question with this acquisition is
whether it makes sense
...
It has no experience of acquiring a public sector organisation and creating
the degree of change required to move its culture to a profit-driven private sector
company
...
Acquisition
is an acknowledged way of entering a new market, but usually the acquired company
is established in that market, which is not the case with the newly formed Steeltown
Information Technology
...
The two companies work in different markets
...
In comparison, Steeltown Information
Technology develops commercial information processing systems in a public sector
environment
...
ENCOS is focused on complex
mathematical algorithms with little user intervention
...


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Acquiring ENCOS appeared to make sense
...
ENCOS had expertise in
energy control systems, but had little marketing expertise and lacked contacts with
the large public sector organisations that were seeking to install such systems
...
The acquisition appears to have been successful
...
93%) in a growing market (15
...
Furthermore, the growth of the company is
outstripping the growth of the market
...
41% to 15
...
17% to 23
...
In absolute terms, these returns are the
highest of the companies considered here and net profitability continues to grow
disproportionately, suggesting that operating costs appear to be falling
...
It has clear synergy with POTS and EA appear to have
brought significant competencies to bear
...


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...
Realignment can usually be accommodated within the current
culture of the organisation, whilst transformational change requires a significant
cultural shift
...
Current work is inwardly focused,
budget rather than profit-driven, run by managers with little experience of the
private sector
...
Fortunately, there is no need to quickly implement these
changes and so an incremental approach to change can be adopted
...


ea

cc

as

tud

Capability refers to what experience there is of managing change in the organisation
...
In fact, established work
practices written into trade union agreements have tended to restrict change and
this is one of the reasons why the city council decided that they wanted to separate
off the information technology department
...
On the
other hand, EA does have experience of implementing change in the organisations
that they have acquired
...
However, it has to be recognised
that this capability has not appeared to be successful at Neach Glass and so some
concern might be expressed about the validity of such a claim
...
Is it likely
to embrace it or is there widespread opposition to change within the organisation or,
indeed, do significant pockets of resistance exist? There is little doubt that, initially,
there is evidence that there was considerable opposition to change
...
Perhaps it is best illustrated by the
manager who stated that ‘he was against outsourcing in principle, but now the sale
has been agreed, let’s get on with it’
...


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Time refers to the amount of time available for EA to implement the changes at
Steeltown Information Technology
...
This was the situation at Neach Glass when it was
acquired by EA
...
Sufficient profitability is guaranteed
for the next five years to maintain present levels of resources at Steeltown
Information Technology and this, potentially, gives EA a long elapsed period to
implement the changes that they envisage
...
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AN S WE R S T O S CE N A RIO - BA SE D Q UE ST ION S : S EC TI ON 4

(c)

Benchmarking is an attempt to assess the relative performance of an organisation
...

Although the contract with the city council is guaranteed for at least the first five
years, it is important for EA to understand the performance of the organisation it has
bought and the opportunity for driving out improvements and, hence, profitability
...
co
m

ial

ter

ym
a

ea

cc

as

tud

Benchmarking against competitors is problematic in the context of Steeltown
Information Technology because of choosing what sector to compare it with
...
However, again these figures have
to be treated with care
...
EA has suggested benchmarking it against the performance of
ENCOS
...
The focus of development has been quite
different
...
In any case, a major concern
with such industry comparisons is that the whole industry might be performing badly
and, in some circumstances, losing out to industries or technologies that can satisfy
customers’ needs in a different way
...


fre

The shortcomings of industry norm comparisons have encouraged organisations to
seek best practice wherever it can be found
...
shaking managers out of the
mindset that improvements in performance will be gradual as a result of incremental
changes in resources or competencies’
...
However, software development is quite specific and it will be difficult to think
of any appropriate, innovative comparisons
...
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However, such historical benchmarking was traditionally
used when Steeltown Information Technology was part of the City Council
...
This evidence suggests that the software produced by the
organisation is becoming more reliable
...
Established software tends
to have fewer faults than recently released software
...
The apparent improvements in user satisfaction
may also reflect the hiatus associated with the transition from public to private
sector
...
In
general, externally measured satisfaction surveys are to be preferred
...
com
P AP ER P 3 : BU SIN E S S A N AL Y SI S


...
Firstly, it can lead
to a situation where you get what you measure, which may not have been the
intended strategic outcome
...
For example, a focus on measuring the certification of staff is only valid if
there is a proven causal link between certification and software quality
...
The benchmark does not
directly compare competencies
...


ial

ter

ACCA marking scheme

Marks

1 mark for each relevant point up to a maximum of 5 marks for analysing
the strategic position of each company and 1 mark for assessing what to
do with each company as part of the portfolio of the EA Group
...
5
0
...
5
0
...
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EA might be better focused, in the
short term, on successfully implementing change and improving employee
motivation and processes rather than trying to establish and measure sensible
benchmarks
...
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AN S WE R S T O S CE N A RIO - BA SE D Q UE ST ION S : S EC TI ON 4

Examiner’s comments


...
This asked candidates to
evaluate the potential influence of time, scope, capability and readiness for change at
Steeltown Information Technology on any strategic change proposed by the EA Group
...
Furthermore, too few candidates commented on the
competencies that the EA Group would bring to the problem, concluding that Steeltown
would not have the ability to implement strategic change itself
...

‘They (the EA Group) want to explore these (contextual) factors before they firm up their
proposed strategy for the newly acquired company
...
It was clear that many
candidates had read the relatively recent Student Accountant article on this and so scored
relatively well
...
Overall, this part question was fairly well answered (5 or 6
marks out of ten was typical) by those who answered it
...
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The provision of market share and
market growth data made the use of the BCG matrix (Boston Box) particularly appropriate
...
However, there was insufficient data to undertake a SWOT analysis for each of the
four firms in the scenario
...
Indeed, in
some respects, some answers were too comprehensive, with candidates making more
points than the marks on offer
...

A few candidates scored very heavily on this part question (over 20 marks) and yet still
failed the examination overall, probably due to poor time management caused by spending
too much time on this part question
...
com

ial
ter
ym
a
tud
as
cc
ea
fre
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...
com

fre

ea

cc

fb
...
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Title: ACCA Kaplan P3(Exam Kit- September 2016)
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