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Contents Page Introduction Helping you to pass Studying P3 The exam paper Syllabus and study guide iv vi xi xii Part A Strategic position Business strategy Environmental issues Competitors and customers Strategic capability Stakeholders, ethics, culture and integrated reporting 23 63 89 125 Part B Strategic choices Strategic choices 163 Part C Organising and enabling success Organising for success Managing strategic change 223 259 Part D Business process change 10 Business process change Improving processes 279 305 Part E Information technology 11 12 E-business E-marketing 331 383 Part F Project management 13 Project management 429 Part G Finance 14 Finance 491 Part H People 15 Human resource management 547 Part I Strategic development 16 Strategic development 569 Practice question bank Practice answer bank Index Review form 585 599 631 Contents iii Helping you to pass BPP Learning Media – ACCA Approved Content Provider As an ACCA Approved Content Provider, BPP Learning Media gives you the opportunity to use study materials reviewed by the ACCA examination team By incorporating the examination team's comments and suggestions regarding the depth and breadth of syllabus coverage, the BPP Learning Media Study Text provides excellent, ACCA-approved support for your studies The PER alert Before you can qualify as an ACCA member, you not only have to pass all your exams but also fulfil a three year practical experience requirement (PER) To help you to recognise areas of the syllabus that you might be able to apply in the workplace to achieve different performance objectives, we have introduced the 'PER alert' feature You will find this feature throughout the Study Text to remind you that what you are learning to pass your ACCA exams is equally useful to the fulfilment of the PER requirement Your achievement of the PER should now be recorded in your on-line My Experience record Tackling studying Studying can be a daunting prospect, particularly when you have lots of other commitments The different features of the Study Text, the purposes of which are explained fully on the Chapter features page, will help you whilst studying and improve your chances of exam success Developing exam awareness Our Texts are completely focused on helping you pass your exam Our advice on Studying P3 outlines the content of the paper, the necessary skills you are expected to be able to demonstrate and any brought forward knowledge you are expected to have Exam focus points are included within the chapters to highlight when and how specific topics were examined, or how they might be examined in the future Using the Syllabus and Study Guide You can find the syllabus and study guide on page xii–xxiii of this Study Text Testing what you can Testing yourself helps you develop the skills you need to pass the exam and also confirms that you can recall what you have learnt We include Questions – lots of them – both within chapters and in the Practice Question Bank, as well as Quick Quizzes at the end of each chapter to test your knowledge of the chapter content iv Introduction Chapter features Each chapter contains a number of helpful features to guide you through each topic Topic list Topic list Syllabus reference What you will be studying in this chapter and the relevant section numbers, together with ACCA syllabus references Introduction Puts the chapter content in the context of the syllabus as a whole Study Guide Links the chapter content with ACCA guidance Exam Guide Highlights how examinable the chapter content is likely to be and the ways in which it could be examined Knowledge brought forward from earlier studies What you are assumed to know from previous studies/exams FAST FORWARD Summarises the content of main chapter headings, allowing you to preview and review each section easily Examples Demonstrate how to apply key knowledge and techniques Key terms Definitions of important concepts that can often earn you easy marks in exams Exam focus points When and how specific topics were examined, or how they may be examined in the future Formula to learn Formulae that are not given in the exam but which have to be learnt Gives you a useful indication of syllabus areas that closely relate to performance objectives in your Practical Experience Requirement (PER) Question Gives you essential practice of techniques covered in the chapter Case Study Real world examples of theories and techniques Chapter Roundup A full list of the Fast Forwards included in the chapter, providing an easy source of review Quick Quiz A quick test of your knowledge of the main topics in the chapter Practice Question Bank Found at the back of the Study Text with more comprehensive chapter questions Cross referenced for easy navigation Introduction v Studying P3 Much of the P3 exam is concerned with business strategy As a Chartered Certified Accountant you are likely to find yourself dealing with matters that are of strategic importance to your organisation It is important, therefore, that you have an understanding of the way business strategy is conducted so that your input is appropriate and properly considered However, the name of P3 is Business Analysis, not Business Strategy Business Analysis is wider than simply strategy and this paper will also draw from your financial and business skills gained during your studies so far It brings these concepts together and encourages you to take a wider view of the organisations you are presented with in order to give your analysis of those organisations as a whole What P3 is about The aim of the syllabus is to develop students' ability to apply relevant knowledge and skills, and exercise the professional judgement in assessing strategic position, determining strategic choice, and implementing strategic action through beneficial business process and structural change that involve people, finance and information technology This is an advanced level paper which builds on a number of the topics covered in Paper F1 Accountant in Business as well as topics you will have seen in Paper F5 Performance Management However, as an advanced paper it tests much more than just your ability to recall models and theories You must be able to evaluate data, assess the strategic consequences of decisions and advise on alternative courses of action The syllabus is divided into eight main sections, (although the examining team are keen that you view them as an integrated whole, rather than as a series of unrelated sections) (a) Strategic position The syllabus begins by considering the impact of the external environment on an organisation, and looks at the competitive forces organisations face It then also looks at an organisation's internal capabilities and expectations, to see how an organisation can position itself to get the most value out of its resources However, an organisation also needs to consider its responsibilities to differing stakeholder groups, and how the expectations of stakeholders, alongside ethics and culture, help shape organisational purpose (b) Strategic choice Once an organisation has established its current strategic position it can start thinking about the direction it wants to take in the future This section looks at the decisions which have to be made about an organisation's future and the way an organisation can respond to the influences and pressures which it identified while assessing its strategic position (c) Strategic action This section deals with the implementation of strategic choices, and the transformation of these choices into organisational action This action takes place in a context of operational processes and relationships, which need to be managed in line with the intended strategy, and involves the effective coordination of business processes, information technology, people and finance You will be expected to identify problems and issues in an organisation which prevent it from achieving its strategies, and make recommendations about how these problems can be resolved vi Introduction (d) Business and process change This section is the first considering how organisational elements support business strategy, and it highlights that business process redesign can lead to significant organisational improvements Again, you will be expected to identify problems or inefficiencies with existing processes and make recommendations as to how they can be made more effective (e) Information technology The application of information technology is often one of the ways that business processes can be redesigned This reflects the fact that many existing processes are less efficient than they could be, and that new technology and the application of e-business models make it possible to design those processes more efficiently (f) Project management In (c) above we noted that effective strategic action requires the coordination of a number of operational processes This coordination can be facilitated through effective project management (g) Financial analysis Strategic planning and strategic implementation should be subject to financial benchmarks Financial analysis explicitly recognises this, reminding you of the importance of focusing on key ratios and measures that can be used to assess the viability of a strategy and to monitor or measure its success (h) People Human resource management plays a vital role in underpinning strategy Successful strategic planning and implementation require the effective recruitment, training, and organisation of people, coupled with strong leadership As with so many other areas of the syllabus, it is crucial that an organisation's personnel resources are appropriate for the strategy it is pursuing Skills you have to demonstrate • An ability to integrate knowledge and understanding from across the syllabus • Application of your knowledge to the specific circumstances described by the question • An ability to make reasoned judgements and give practical, commercial advice based on the facts presented in the question scenario • Careful reading and analysis of the question scenarios, and the question requirements • If you read the main capabilities listed by ACCA that students are expected to have on completion of P3, you will find continued reference to the verbs 'evaluate', 'assess', 'advise' and 'explain' – make sure you can all of these in relation to the different aspects of the syllabus How to pass Study the entire syllabus – questions may span a number of syllabus areas and you must be prepared for anything! Practise as many questions as you can under timed conditions This is the best way of developing good exam technique Make use of the Question Bank at the back of this Study Text, and, more importantly, BPP's Practice & Revision Kit The Kit contains numerous exam standard questions (many of them taken from past exam papers) as well as three mock exams for you to try P3 questions will be scenario-based and all the information given in the scenarios will be relevant to the questions set Make sure you relate your answers to the scenario rather than letting them become generic Answers that are simply regurgitated from texts are unlikely to score well Introduction vii Present your answers in a professional manner – there are marks available for coherent, well structured arguments and for making recommendations when required You should be aiming to achieve all of these marks Manage your time in the exam hall carefully Answer plans will help you to focus on the requirements of the question and enable you to manage your time effectively Also, not waffle Make your answers complete, but brief Answer the question that you are most comfortable with first – it will help to settle you down if you feel you have answered the first question well Answer all parts of the question – leaving out a five mark discursive element for example may mean the difference between a pass and a fail Read the financial press and relevant web sites (for example, the BBC business website) for real life examples The examination team is specifically looking for evidence of wider reading They have repeatedly stressed the importance of reading the finance section of a good quality newspaper so that you can draw on real-life situations to help inform your answers This does not, of course, mean you should simply quote real life examples in your exam just to show you have read widely Instead you should use the real life examples to help inform your answers to the questions set Check the P3 section of the ACCA website regularly – it often contains technical articles written either by, or on the recommendation of, the examination team which can be invaluable for future exams Brought forward knowledge As mentioned previously, this paper builds on knowledge brought forward from Paper F1, Accountant in Business and F5 Performance Management If you have not studied F1 or F5, or were exempt, you should spend some time considering the syllabus and study guide to identify any gaps in your knowledge You must ensure you cover any areas you are unsure of before your exam, so that you would be comfortable referring to them as necessary The syllabus information is available on the ACCA website, www.accaglobal.com viii Introduction 584 Bartok Fuel 20 mins Bartok Fuel is a private company run by two brothers, David and Sean Bartok The company was founded fifty years ago by their father, Gerald, who started life with a petrol station and car repair workshop After some years, Gerald expanded by buying a tanker and starting to distribute household fuel to customers This part of the business has grown successfully and now has some 15 tankers and an annual turnover of $30m Fifty years ago the car repair business included the manufacture of car windscreens From this grew an element of the business, called Bartok Glass, which now makes sealed glass window units for the construction industry and has a turnover of about $8m Over the years Gerald had purchased a number of sites from which petrol was sold These sites are still owned by the company but are now leased to other companies and used for a variety of purposes The original garage no longer exists, but the company still operates a car dealership and repair workshop in the centre of Erewhon, a large town in the country Oceania This part of the business started fifteen years ago and for some time was fairly profitable, particularly when it was a luxury car dealership run by Gerald's younger son, Sean However, due to changes in the market place, the luxury car franchise had to be sold and the business now sells budget cars The fuel distribution and glass businesses continue to be fairly profitable under the management of the older brother David, but the car business is facing hard times The car retail business is notoriously cutthroat, with margins as low as 2–3% and very high targets set by the manufacturers The car dealership also deals in second hand cars and this area is slightly more profitable This division now employs about 50 people David is the managing director of the company and at a recent board meeting he put forward a number of proposals for improving the profitability of the car dealership and garage One suggestion is that the site should be sold for its development potential and the car dealership brought to an end A further option brought up by David is the potential for entering the emerging market for fuel distribution in the distant country of Arcadia He has recently met an Arcadian entrepreneur who was visiting Oceania, who is making considerable profits in this area and is looking for investment from a new partner David is very keen on this option and is trying to push it through Required (a) (b) Describe the approach to strategy that Bartok Fuel has adopted in the past What factors should the Board consider before making any decisions on the proposals to dispose of the Erewhon site for development and to enter the Arcadian fuel distribution market? National advantage 20 mins D4D is a politically stable, developing country enjoying a temperate climate and a young, educated population, many of whom are educated to graduate level Those who have studied at this level have tended to so abroad, since there are limited opportunities to so in D4D The economy is mixed, based on agriculture and some light manufacturing, but has enjoyed considerable revenue from oil exploration and production which is based offshore in its territorial waters Some of this revenue is generated by providing services for the oil industry, but the majority comes from a tax on every barrel of oil that the foreign oil companies extract The government has used the revenue to keep personal and property taxes low and to support the largely uneconomic local industry It now recognises that, although politically popular, this decision might not have been in the best long-term interests of the country The Finance and Trade Minister of D4D is aware that the oil revenue may only last a further ten years He wishes to build a competitive advantage over the neighbouring countries The Prime Minister is sceptical, and has made the observation that 'companies have competitive advantages not countries' Exam Practice question bank 585 As a management accountant within the Ministry of Finance and Trade, you have been asked to produce a number of documents, for both the Prime Minister and the Finance and Trade Minister, considering how competitive advantage could be achieved for D4D and examining the possibilities of attracting inward investment from foreign companies Required Using any models you consider appropriate, explain the factors that lead to competitive advantage being present in particular countries EMS 16 mins The Environment Management Society (EMS) was established fifteen years ago by environment practitioners who felt that environmental management and audit should have its own qualification EMS has its own Board who report to a Council of eight members Policy is made by the Board and ratified by Council EMS is registered as a private limited entity EMS employs staff to administer its qualification and to provide services to its members The qualification began as one certificate, developed by the original founding members of the Society It has since been developed, by members and officers of the EMS, into a four certificate scheme leading to a Diploma 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 No examinations are currently held in other countries If candidates pass all four papers they can undertake an oral Diploma examination If they pass this oral they are eligible to become members All examinations are open-book one hour examinations, preceded by 15 minutes' reading time At a recent meeting, EMS Council rejected the concept of computer-based assessment They felt that competence in this area was best assessed by written examination answers Candidate numbers for the qualification have fallen dramatically in the last two years The Board of EMS has concluded that this drop reflects the maturing marketplace in the country Many people who were practitioners in environmental management and audit when the qualification was introduced have now gained their Diploma The stream of new candidates and hence members is relatively small Consequently, the EMS Board has suggested that they should now look to attract international candidates and it has targeted countries where environmental management and audit is becoming more important It is now formulating a strategy to launch the qualification in India, China and Russia However, any strategy has to recognise that both the EMS Board and the Council are very cautious and notably risk averse EMS is only confident about its technical capability within a restricted definition of environmental management and audit Attempts to look at complementary qualification areas (such as soil and water conservation) have been swiftly rejected by Council as being non-core areas and therefore outside the scope of their expertise Required Internal development, acquisitions and strategic alliances are three development methods by which an organisation's strategic direction can be pursued Explain the principles of internal development and discuss how appropriate this development method is to EMS (8 marks) Natalia Norman 49 mins Natalia Norman is a designer and manufacturer of knitwear clothing She has based her designs on ethnic patterns, inspired by clothing she has seen in Central Asia She has sourced her products both from these Asian regions – Uzbekistan and Kazakhstan – as well as from small factories in parts of the United Kingdom Her products, though stylish, are relatively cheap, but her marketing strategy is totally passive She has a website and most of her sales are reactive, responding to orders over the internet The resultant sales and, in particular, profits have been disappointing and so she has hired a marketing consultant to give her some advice The following are extracts from the consultant's report 586 Practice question bank 'Your product, although distinctive, is insufficiently unique The designs have no patents nor copyright and because the production technology is so simple and inexpensive there are few barriers to entry Competition is all too prevalent Your promotion is too general It focuses on no specific market By relying on the internet your advertising is rather indiscriminate and you have failed to create a loyal following and your image is diffused with little opportunity for building brand awareness There is a failure within distribution Most consumers wish to see, handle or try on products before making a purchase, particularly if the products not already have a well-established reputation and/or a brand name In your case the only exposure your products have is via the world-wide web Your pricing structure is too costbased You are able to source your products cheaply but your margins are too low to provide you with the necessary capital to reinvest if the business is to develop profitably in the future ‘You have failed to establish yourself in the market place as a dominant player Too many of your business decisions are reactive and often too late to have adequate impact You are following market trends and not attempting to lead them.' Natalia is naturally disturbed by the criticisms which this report has levelled at her company's operations and has decided that she must be more positive in her actions In particular she has decided that her marketing efforts must be more focused and she must pursue more proactively her competitive activities Required In order to focus her company's marketing efforts more precisely Natalia has decided to segment the market for knitwear products (a) Suggest potential bases for segmenting this knitwear market and discuss the benefits which a more focused segmentation could bring to the company (15 marks) (b) Evaluate strategies which Natalia might pursue as a market follower to make her knitwear company more competitive (10 marks) (Total = 25 marks) Firebridge Tyres Ltd 39 mins Firebridge Tyres Ltd (FTL) is a wholly owned UK subsidiary of Gonzales Tyre Corporation (GTC) of the USA FTL manufactures and sells tyres under a number of different brand names (a) (b) (c) Firespeed, offering high product quality, at a price which offers good value for money Freeway, a cheap brand, effectively a standard tyre Tufload, for lorries and commercial vehicles FTL has good relationships with car firms and distributors GTC is rather less focused; not only does it make tyres and some other components, but it also owns a chain of car service centres specialising in minor maintenance matters such as tyre replacement, exhaust fitting, and wheel balancing FTL has experienced a fall in sales revenue, partly as a result of competition from overseas producers, in what is effectively a mature market Moreover, sales of new cars have not been as high as had been hoped, and consumers are more reluctant than before to part with their money FTL's managers have had meetings with GTC's managers as to how to revive the fortunes of the company FTL would like to export to the US and to Asia GTC has vetoed this suggestion, as FTL's tyres would compete with GTC's Instead, GTC suggests that FTL imitate GTC's strategy by running a chain of service stations similar to GTC's service stations in the US GTC feels that vertical integration would offer profits in its own right and provide a distribution network which would reduce the impact of competition from other tyre manufacturers GTC has no shortage of cash You are a strategic consultant to FTL EPractice question bank 587 Required (a) (b) (c) Discuss the principal factors in the external environment that would influence FTL's strategic choice (6 marks) Describe the barriers to entry that FTL might face if it decided to enter the service centre business (6 marks) Assess whether FTL's existing strategic capability gives it a good chance of success in the service centre business (8 marks) (Total = 20 marks) Nadir Products: ethics 39 mins John Staples is the Finance Director of Nadir Products plc, a company which manufactures and sells bathroom products such as baths, sinks and toilets These products are sold through a selection of specialist shops and through larger stores Customers include professional plumbers and also ordinary householders who are renovating their houses themselves The company operates at the lower end of the market and does not have a strong reputation for service Sales have been slowly declining whereas those of competitors have been improving In order to encourage increased sales the Board of Directors have decided to pay senior staff a bonus if certain targets are achieved The two main targets are based on profit levels and annual sales Two months before the end of the financial year the Finance Director asks one of his staff to check through the orders and accounts to assess the current situation He is informed that without a sudden improvement in sales before the year end the important sales targets will not be met and so bonuses will be adversely affected The Finance Director has proposed to other senior staff that this shortfall in sales can be corrected by taking one of the following decisions A significant discount can be offered to any retail outlet which takes delivery of additional products prior to the end of the financial year Scheduled orders due to be delivered at the beginning of the next financial year can be brought forward and billed before the end of this year Distributors can be told that there is a risk of price increases in the future and that it will be advisable to order early so as to circumvent this possibility The Board is not sure of the implications associated with such decisions Required (a) As a consultant, prepare a report for the Board of Nadir Products assessing the commercial and ethical implications associated with each of the proposed options mentioned above (8 marks) (b) Assess the significance of the corporate social responsibility model for Nadir Products (12 marks) (Total = 20 marks) Arragon Antennas 20 mins Arragon Antennas Ltd is a company based in the country of Dragovia It designs and manufactures antennas for airborne navigation and communication systems The industry is characterised by dedication to high technical standards because of the demands of aircraft safety There are three main parts to the business: design and integration of antennas for new aircraft; aftermarket spares for existing systems; and sub-contract manufacture of other firms' designs Design of new installations is highly technical and very time consuming since it depends on extensive tests, including test flying Globally, there are only three other manufacturers capable of this work The aftermarket operation includes spares for Arragon's own products and for antennas the company has designed to replace the other three manufacturers' own proprietary designs Sales of the latter are somewhat price sensitive, but the aircraft spares market generally is characterised by the high prices charged to captive customers for approved spares 588 Practice question bank Demand for subcontracting work tends to be intermittent but forms a profitable supplement to the manufacture of the company's own designs Nobody in the industry thinks it odd that Arragon should both manufacture for and compete with other firms Arragon's market is now being threatened by Wizzomatic Inc, which is a subsidiary of a major armaments group based in the larger country of Erewhon Wizzomatic is offering a family of standardised antennas derived from its work for the Erewhon government The antennas offer a substantial price advantage over most proprietary designs and are being promoted as suitable for most applications Required (a) (b) Assess the strategic options available to Arragon Antennas Suggest an appropriate marketing mix for Arragon Antennas United Products 20 mins United Products (UP) was formed 46 years ago by the merger of two large commercial organisations: Bulk Foods and Rowbotham Enterprises Over the years it has acquired and disposed of several businesses and now has operations in Europe and North America It has wholly owned subsidiaries operating in flour milling; vineyards; grocery retailing; agricultural machinery manufacturing and distribution; chemicals (particularly fertilisers); publishing; film production; and forestry It is also involved via joint ventures and partnerships in quarrying, electronics design and clothes retailing The company is regarded by investors as fairly safe but dull Its growth has not kept pace with its competitors and some of its divisions' performance is distinctly poor UP is organised into divisions, some of which are product based and some geographically based Control is devolved to the CEOs of each division, subject to the compilation and submission of detailed monthly performance reports to the corporate HQ in Fazackerley, near Liverpool in the UK Corporate HQ requires that each division has identifiable managers responsible for production, sales and finance These managers are frequently visited by senior members of the relevant head office staff It is corporate policy to promote from within, and all divisional CEOs must have experience of working both at corporate HQ and in at least three divisions There has been a history of disputes between HQ and the divisions Many have complained about the complexity of the monthly reports and the cost of compiling them Some have said that they find HQ requirements and visits to be disruptive and counter-productive However, the Corporate CEO, is very concerned about the tendency of the divisions to go their own way Required (a) (b) Evaluate the way that UP is currently organised Explain the meaning of the term virtual organisation Assess whether such an approach would be suitable for any of UP's operations Auto Direct 23 mins Mark Howe, Managing Director of Auto Direct, is a victim of his own success Mark has created an innovative way of selling cars to the public which takes advantage of the greater freedom given to independent car distributors to market cars more aggressively within the European Union This reduces the traditional control and interference of the automobile manufacturers, some of whom own their distributors He has opened a number of showrooms in the London region and Auto Direct now has 20 outlets in and around London The concept is deceptively simple; Mark buys cars from wherever he can source them most cheaply and has access to all of the leading volume car models He then concentrates on selling the cars to the public, leaving servicing and repair work to other specialist garages He offers a classic high volume/low margin business model Mark now wants to develop this business model onto a national and eventually an international basis His immediate plans are to grow the number of outlets by 50% each year for the next three years Such growth will place considerable strain on the existing organisation and staff Each showroom has its own EPractice question bank 589 management team, sales personnel and administration Currently the 20 showrooms are grouped into a Northern and Southern Sales Division with a small head office team for each division Auto Direct now employs 250 people Required Using appropriate strategies for managing change provide Mark with a brief report on how he should pursue his proposed growth plans (12 marks) 10 BPR and supply chain 20 mins ABC has a chain of 20 supermarkets When inventory items reach their re-order level in a supermarket the in-store computerised inventory system informs the inventory clerk The clerk then raises a request daily to the ABC central warehouse for replenishment of inventory via fax or email If the local warehouse has available inventory, it is forwarded to the supermarket within 24 hours of receiving the request If the local warehouse cannot replenish the items from its inventory holding, it raises a purchase order to one of its suppliers The supplier delivers the inventory to the warehouse and the warehouse then delivers the required inventory to the supermarkets within the area The ABC area warehouse staff conduct all business communication with suppliers ABC recently contracted an IT consultant to analyse and make recommendations concerning their current supply chain briefly described above Following the initial investigation the consultant reported 'To enable an established traditional company like ABC to develop a Virtual Supply Chain system it may be necessary to employ a Business Process Re-engineering (BPR) approach.' Required With reference to the above scenario, describe what is meant by a Business Process Re-engineering approach 11 Fashion retailer 49 mins Paul Singh operates in the fashion clothing industry, owning 20 retail stores selling mainly to the teenage and youth market This industry segment, comprising many small firms, each with a few retail stores, has very few large scale competitors Paul's business has grown at a rapid rate with him acquiring his first store only five years ago Despite this growth in business there has never been any associated integration of activities Paul has been too busy growing his company to pay attention to consolidation and efficiency However, he has now realised that despite this fast expansion his profits have not grown at the same rate as turnover This part of the fashion business operates with very slim margins The products are cheap but with the ever changing demand for fashion garments there are few opportunities for individual stores to hold inventory for long periods of time This has prevented Paul from taking advantage of economies of purchasing Each of his stores has tended to be run in isolation Paul has left his local managers to decide on buying inventory and on merchandising His view has been that these managers are nearer to the customers and therefore they will know the fashion trends better This appears to have worked with regard to turnover but he now needs to operate in a more cost-conscious manner His computing system is being used in a oldfashioned way It focuses on providing store accounts and is really only used by the small financial team (largely unqualified or still studying) located at the Head Office Paul has been talking to friends who are operating in similar but non-competitive environments, and they have told him how useful they have found the up-to-date computer-based information systems Several standard software packages have been recommended However, one person has said that it would be more cost-effective to have a standard package modified to fit Paul's particular business operations Required (a) 590 Using a suitable model to support your arguments explain how the strategic use of information systems could provide Paul with a competitive edge in this currently fragmented industry (12 marks) Practice question bank (b) Acting in the role of a consultant, write a report to Paul discussing packages generally and assessing the two software package options that have been suggested (13 marks) (Total = 25 marks) 12 Good Sports Ltd 49 mins Good Sports Limited is an independent sports goods retailer owned and operated by two partners, Alan and Bob, based in the country of Oceania The sports retailing business in Oceania has undergone a major change over the past ten years 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 This consolidation has made them increasingly unwilling to provide good service to the independent sportswear retailers too small to buy in sufficiently large quantities 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 Secondly, Oceania's sportswear retailing has undergone significant structural change with the rapid growth of a small number of national retail chains with the buying power to offset the power of the global manufacturers These retail chains stock a limited range of high volume branded products and charge low prices the independent retailer cannot hope to match Good Sports has survived by becoming a specialist niche retailer catering for less popular sports such as cricket, hockey and rugby They are able to offer the specialist advice and stock the goods that their customers want In recent years Good Sports has become aware of the growing impact of e-business in general and e-retailing in particular They employed a specialist website designer and created an online purchasing facility for their customers The results were less than impressive, with the Internet search engines not picking up the company website The seasonal nature of Good Sports' business, together with the variations in sizes and colours needed to meet an individual customer's needs, meant that the sales volumes were insufficient to justify the costs of running the site Bob, however, is convinced that developing an e-business strategy suited to the needs of the independent sports retailer such as Good Sports will be key to business survival He has been encouraged by the growing interest of customers in other countries to the service and product range they offer He is also aware of the need to integrate an e-business strategy with their current marketing, which to date has been limited to the sponsorship of local sports teams and advertisements taken in specialist sports magazines 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 Required (a) Provide the partners with a short report on the advantages and disadvantages to Good Sports of developing an e-business strategy and the processes most likely to be affected by such a strategy (15 marks) (b) Good Sports Limited has successfully followed a niche strategy to date Assess the extent to which an appropriate e-business strategy could help support such a niche strategy (10 marks) (Total = 25 marks) 13 DRB 49 mins DRB Electronic Services operates in a high labour cost environment in Western Europe and imports electronic products from the Republic of Korea It re-brands and re-packages them as DRB products and then sells them to business and domestic customers in the local geographical region Its only current source of supply is ISAS electronics based in a factory on the outskirts of Seoul, the capital of the Republic of Korea DRB regularly places orders for ISAS products through the ISAS website and pays for them by credit card As soon as the payment is confirmed ISAS automatically emails DRB a confirmation of order, an order reference number and likely shipping date When the order is actually despatched, ISAS send DRB a notice of despatch email and a container reference number ISAS currently organises all the EPractice question bank 591 shipping of the products The products are sent in containers and then trans-shipped to EIF, the logistics company used by ISAS to distribute its products EIF then delivers the products to the DRB factory Once they arrive, they are quality inspected and products that pass the inspection are re-branded as DRB products (by adding appropriate logos) and packaged in specially fabricated DRB boxes These products are then stored ready for sale All customer sales are from inventory Products that fail the inspection are returned to ISAS Currently 60% of sales are made to domestic customers and 40% to business customers Most domestic customers pick up their products from DRB and set them up themselves In contrast, most business customers ask DRB to set up the electronic equipment at their offices, for which DRB makes a small charge DRB currently advertises its products in local and regional newspapers DRB also has a website which provides product details Potential customers can enquire about the specification and availability of products through an email facility in the website DRB then emails an appropriate response directly to the person making the enquiry Payment for products cannot currently be made through the website Feedback from existing customers suggests that they particularly value the installation and support offered by the company The company employs specialist technicians who (for a fee) will install equipment in both homes and offices They will also come out and troubleshoot problems with equipment that is still under warranty DRB also offer a helpline and a back to base facility for customers whose products are out of warranty Feedback from current customers suggests that this support is highly valued One commented that 'it contrasts favourably with your large customers who offer support through impersonal off-shore call centres and a time-consuming returns policy' Customers can also pay for technicians to come on-site to sort out problems with out-of-warranty equipment DRB now plans to increase their product range and market share It plans to grow from its current turnover of $5m per annum to $12m per annum in two years time Dilip Masood, the owner of DRB, believes that DRB must change its business model if it is to achieve this growth He believes that these changes will also have to tackle problems associated with: Missing, or potentially missing shipments Shipments can only be tracked through contacting the shipment account holder, ISAS, and on occasions they have been reluctant or unable to help The trans-shipment to EIF has also caused problems and this has usually been identified as the point where goods have been lost ISAS does not appear to be able to reliably track the relationship between the container shipment and the Waybills used in the EIF system The likely delivery dates of orders, the progress of orders and the progress of shipments is poorly specified and monitored Hence deliveries are relatively unpredictable and this can cause congestion problems in the delivery bay Dilip also recognises that growth will mean that the company has to sell more products outside its region and the technical installation and support so valued by local customers will be difficult to maintain He is also adamant that DRB will continue to import only fully configured products It is not interested in importing components and assembling them DRB also does not wish to build or invest in assembly plants overseas or to commit to a long-term contract with one supplier Required (a) (b) (c) Draw the primary activities of DRB on a value chain Comment on the significance of each of these activities and the value that they offer to customers (9 marks) Explain how DRB might re-structure its upstream supply chain to achieve the growth required by DRB and to tackle the problems that Dilip Masood has identified (10 marks) Explain how DRB might re-structure its downstream supply chain to achieve the growth required (6 marks) (Total = 25 marks) 592 Practice question bank 14 Project initiation 39 mins Project management in the ABC company Dave is the project manager in-charge of a project team installing new software in the ABC Company The installation is currently three weeks behind schedule, with only seven weeks left before the installation should be complete Due to the time constraints, Dave has cancelled all project meetings to try and focus his team on meeting the project deadlines While this action has had some slight improvement in the amount of work being carried out, members of the team have been complaining that they cannot discuss problems easily Most of the team are professional staff with appropriate project management qualifications Over the last week, both of the systems analysts have left to move onto other assignments due to double bookings by the project management company This did not help the morale of the remaining team members To try and compensate for the lack of staff, the project manager has asked two other team members with a small amount of systems analysis experience to continue their jobs To try and impress upon them the seriousness of the situation, Dave also made these members responsible for any mistakes in the analysis documentation In the last few days, the working situation in the team has become significantly worse, with many minor quarrels and disagreements breaking out Dave has chosen to ignore these problems, and simply asked the team to focus on completing the project Required (a) (b) (10 marks) (10 marks) Identify and explain where the ABC Company project is being poorly managed Explain how the project manager can help resolve these difficulties (Total = 20 marks) 15 Educational Institution 49 mins You are a newly-appointed Finance Manager of an Educational Institution that is mainly governmentfunded, having moved from a similar post in a service company in the private sector 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 only financial performance measure evaluated by the government is that the Institution has to remain within cash limits 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 However, almost 20% of total cash generated by the Institution is now from the provision of courses and seminars to private sector companies, using either its own or its customers' facilities These customers are largely unconcerned about research ratings and teaching quality as they relate more to academic awards such as degrees The Head of the Institution aims to increase the percentage of income coming from the private sector to 50% over the next five years She has asked you to advise on how the management team can evaluate progress towards achieving this aim as well as meeting the objective set by government for the activities it funds Required (a) Discuss the main issues that an Institution such as this has to consider when setting objectives Advise on: (i) (ii) Whether a financial objective, or objectives, could or should be determined Whether such objective(s) should be made public (9 marks) EPractice question bank 593 (b) The following is a list of financial and non-financial performance measures that were in use in your previous company: FINANCIAL Value added Profitability Return on investment NON-FINANCIAL Competitive position Customer satisfaction Market share Required Choose two of each type of measure, explain their purpose and advise on how they could be used by the Educational Institution over the next five years to assess how it is meeting the Head of the Institution's aims (16 marks) Note A report format is not required in answering this question 16 Coxford Doors (Total = 25 marks) 20 mins Coxford Doors is a family owned wood products company, specialising in producing doors and windows to be sold directly to house builders There are currently no sales directly to homeowners who may wish to purchase doors and windows to replace their existing ones In recent years the industry has become much more competitive Most of the customers are now large nationwide builders, the industry having gone through a period of consolidation These customers generally require standardised products in large volume, and they buy on the basis of low prices and guarantees of regular delivery This has put great pressure on companies such as Coxford Doors This company is still operating as if it were dealing with the fragmented market of twenty years ago The family, in seeking uninterrupted growth, has permitted the workforce to have a substantial degree of self-management This has avoided industrial unrest but there have been disadvantages to this approach This delegated decision-making has led to delays in manufacturing and problems with quality There has appeared to be a lack of focus Consequently the company has lost important contracts and is gradually seeing its sales volume and profits decline The family has employed Andrew Smith as the new Managing Director, giving him the responsibility for turning the company around He has decided that power and control must now return to the centre The passive style of management pursued in the earlier years is now giving way to a more centralised and autocratic approach However it is obvious that such a change in management style could create even further problems for the company Required Discuss the benefits and problems which this more centralised style of management might bring to Coxford Doors (10 marks) 17 Shirtmaster Group 98 mins Introduction Tony Masters, chairman and chief executive of the Shirtmaster Group, is worried He has recently responded to his senior management team's concerns over the future of the Group by reluctantly agreeing to appoint an external management consultant The consultant's brief is to fully analyse the performance of the privately owned company, identify key strategic and operational problems and recommend a future strategy for the company Tony is concerned that the consultant's report will seriously question his role in the company and the growth strategy he is proposing Group origins and structure Tony's father, Howard Masters, set up Shirtmaster many years ago in Elmrich, the capital city of the country of Gondour Howard was a skilled tailor and saw the potential for designing and manufacturing a distinctive range of men's shirts and ties marketed under the 'Shirtmaster' brand Howard set up a shirt manufacturing company with good access to the employee skills needed to design and make shirts Howard had recognised the opportunity to make distinctive shirts incorporating innovative design features including the latest man-made fibres For a number of years Elmrich was considered to be a global fashion 594 Practice question bank centre as men became much more fashion conscious, and were willing to pay premium prices for clothes with style and flair Shirtmaster quickly built up a Gondour-wide network of more than 2,000 small independent clothing retailers These retailers sold the full range of men's wear including made-tomeasure suits, shirts and matching ties, shoes and other clothing accessories Extensive and expensive TV and cinema advertising supported the Shirtmaster brand The Shirtmaster Group is made up of two divisions – the Shirtmaster division which concentrates on the retail shirt business and the Corporate Clothing division which supplies workwear to large industrial and commercial customers Corporate Clothing has similar origins to Shirtmaster, also being a family owned and managed business and is located in the same town as Shirtmaster It was set up to supply hardwearing jeans and workwear to the many factory workers in the region The decline of Gondour manufacturing and allied industries led to profitability problems and twenty five years ago the Shirtmaster Group acquired it Tony soon took over executive responsibility for the Group and continues to act as managing director for the Shirtmaster Division Shirtmaster division – operations and market environment By 20X3 the Godour market for men's shirts was very different to that of the past when Shirtmaster was one of the best known premium brands In a mature market most of Shirtmaster's competitors have outsourced the making of their shirts to low cost manufacturers based overseas in Catopia and Europolis Shirtmaster is virtually alone in maintaining a Gondour manufacturing base Once a year Tony and the buyer for the division go to Eurpolis, visiting cloth manufacturers and buying for inventory This inventory is stored in the division's warehouse, and gives the company the ability to create a wide range of shirt designs but creates real problems with excessive holding costs and outdated inventory Shirtmaster prides itself on its ability to respond to the demands of its small retail customers and the long-term relationships built up with these retailers Typically, these retailers order in small quantities and want quick delivery Shirtmaster has to introduce new shirt designs throughout the year, contrasting with the spring and autumn ranges launched by its competitors This creates real pressure on the small design team available The retail side of the shirt business has undergone even more fundamental change Though the market for branded shirts continues to exist, such shirts are increasingly sold through large departmental stores There is increasing competition between the shirt makers for the limited shelf space available in the departmental stores Shopping centres and malls are increasingly dominated by nationwide chains of specialist clothing retailers They sell to the premium segment of the market and are regarded as the trendsetters for the industry These chains can develop quickly, often using franchising to achieve rapid growth, and are increasingly international in scope All of them require their suppliers to make their clothes under the chain's own label brand Some have moved successfully into selling via catalogues and the Internet Finally, the Gondour supermarket chains have discovered the profitability of selling nonfood goods The shirts they sell are aimed at value for money rather than style, sourced wherever they can be made most cheaply and sold under the supermarket's own label Small independent clothing retailers are declining both in number and market share The Shirtmaster division, with its continued over-reliance for its sales on these small independent retailers, is threatened by each of the retail driven changes, having neither the sales volume to compete on price nor the style to compete on fashion The Shirtmaster division's international strategy Tony's answer to these changes is to make the Shirtmaster brand an international one His initial strategy is to sell to clothing retailers based in the nearby country of Catopolis and, once established, move the brand into the fast growing consumer markets in Europolis He recognises that the division's current Godour focus means that working with a Catopian partner is a necessity He has given the sales and marketing manager the job of finding major retailers, distributors or manufacturers with whom they can make a strategic alliance and so help get the Shirtmaster range onto the shelves of Catopian clothing retailers EPractice question bank 595 Corporate Clothing division – operations and market environment Corporate Clothing has in recent years implemented a major turnaround in its business as the market for corporate clothing began to grow significantly Corporate Clothing designs, manufactures and distributes a comprehensive range of workwear for its corporate customers, sourcing much of its range from low cost foreign suppliers It supplies the corporate clothing requirements of large customers in the private and public sectors Major contracts have been gained with banks, airlines, airports and the police, fire and ambulance services The Corporate Clothing division supplies the whole range of workwear required and in the sizes needed for each individual employee Its designers work closely with the buyers in its large customers and the division's sales benefit from the regular introduction of new styles of uniforms and workwear Corporate employers are increasingly aware of the external image they need to project and the clothes their employees wear are the key to this image Corporate Clothing has invested heavily in manufacturing and IT systems to ensure that it meets the needs of its demanding customers It is particularly proud of its computer-aided design and manufacturing (CAD/CAM) systems, which can be linked to its customers and allows designs to be updated and manufacturing alterations to be introduced with its customers' approval Much of its success can be attributed to the ability to offer a customer service package in which garments are stored by Corporate Clothing and distributed directly to the individual employee in personalised workwear sets as and when required The Gondour market for corporate workwear was worth £500m in 20X0 Evidence suggests that the demand for corporate workwear is likely to continue to grow The Corporate Clothing division also has ambitions to enter the markets for corporate clothing in Catopia and recognises that might be most easily done through using a suitable strategic partner There is friendly rivalry between the two divisions but each operates largely independently of the other Over the past ten years the fortunes of the two divisions have been completely reversed Corporate Clothing now is a modest profit maker for the group – Shirtmaster is consistently losing money Shirtmaster Group – future strategy Tony is determined to re-establish Shirtmaster as a leading shirt brand in Gondour and successfully launch the brand in Catopia He sees a strategic alliance with a Catopian partner as the key to achieving this ambition Though he welcomes the success of the Corporate Clothing division and recognises its potential in Catopia, he remains emotionally and strategically committed to restoring the fortunes of the Shirtmaster division Unfortunately, his autocratic style of leadership tends to undermine the position of the senior management team at Shirtmaster He continues to play an active role in both the operational and strategic sides of the business and is both well known and regarded by workers in the Shirtmaster division's factory The initial feedback meeting with the management consultant has confirmed the concern that he is not delegating sufficiently The consultant commented that Tony's influence could be felt throughout the Shirtmaster division Managers either try to anticipate the decisions they think he would make or, alternatively, not take the decisions until he has given his approval The end result is a division not able to meet the challenges of an increasingly competitive retail marketplace, and losing both money and market share 596 Practice question bank Table – Financial Information on the Shirtmaster Group ($ million) 20X3 20X4 20X5 20X6 Budget 23.5 22.7 0.8 16.3 Total sales Gondour sales Overseas sales Cost of sales 25.0 24.5 0.5 17.7 23.8 23.2 0.6 16.8 21.4 21.0 0.4 15.2 Gross profit Marketing Distribution Administration Net profit 7.3 1.7 1.6 1.8 2.2 7.0 1.5 1.4 1.8 2.3 6.2 1.2 1.2 1.7 2.1 7.2 1.7 1.4 1.9 2.2 7.6 1.9 1.5 1.9 2.3 8.9 2.2 1.9 2.1 2.7 Shirtmaster division Total sales Gondour sales Overseas sales Cost of sales Gross profit Marketing Distribution Administration Net profit Inventory Employees 14.8 14.3 0.5 11.1 3.7 1.5 1.2 1.3 (0.3) 2.0 100 12.6 12.0 0.6 9.8 2.8 1.3 1.0 1.2 (0.7) 2.2 100 10.3 9.9 0.4 8.2 2.1 1.0 0.8 1.1 (0.8) 3.0 98 11.7 10.9 0.8 9.1 2.6 1.5 0.9 1.2 (1.0) 2.7 98 12.0 11.0 1.0 9.4 2.6 1.7 1.0 1.2 (1.3) 2.5 99 13.5 11.5 2.0 10.1 3.4 2.0 1.3 1.3 (1.2) 2.0 100 Corporate Clothing division Total sales Cost of sales Gross profit Marketing Distribution Administration Net profit Inventory Employees 10.2 6.6 3.6 0.2 0.4 0.5 2.5 0.9 84 11.2 7.0 4.2 0.2 0.4 0.6 3.0 1.0 84 11.1 7.0 4.1 0.2 0.4 0.6 2.9 0.8 80 11.8 7.2 4.6 0.2 0.5 0.7 3.2 0.8 79 12.4 7.4 5.0 0.2 0.5 0.7 3.6 0.9 77 13.2 7.7 5.5 0.2 0.6 0.8 3.9 1.0 75 20X7 Forecast 24.4 23.4 1.0 16.8 20X8 Forecast 26.7 24.7 2.0 17.8 Required (a) Assess the strategic position and performance of the Shirtmaster Group and its divisions over the 20X3–20X5 period Your analysis should make use of models where appropriate (20 marks) (b) Both divisions have recognised the need for a strategic alliance to help them achieve a successful entry into Catopian markets Critically evaluate the advantages and disadvantages of the divisions using strategic alliances to develop their respective businesses in Catopia (15 marks) (c) The Shirtmaster division and Corporate Clothing division, though being part of the same group, operate largely independently of one another Assess the costs and benefits of the two divisions continuing to operate independently of one another (15 marks) (Total = 50 marks) EPractice question bank 597 598 Practice question bank