m freeaccastudymaterial.blogspot.com co ot sp ACCA l.b log ate ria Paper P3 ym Business Analysis fre ea cc as tud Essential Text freeaccastudymaterial.blogspot.com l.b log sp ot co m freeaccastudymaterial.blogspot.com British library cataloguinginpublication data A catalogue record for this book is available from the British Library. ym © Kaplan Financial Limited, 2014 ate ria Published by: Kaplan Publishing UK Unit 2 The Business Centre Molly Millars Lane Wokingham Berkshire RG41 2QZ as tud 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. No reliance should be placed on the content as the basis for any investment or other decision or in connection with any advice given to third parties. Please consult your appropriate professional adviser as necessary. Kaplan Publishing Limited and all other Kaplan group companies expressly disclaim all liability to any person in respect of any losses or other claims, whether direct, indirect, incidental, consequential or otherwise arising in relation to the use of such materials. Printed and bound in Great Britain Acknowledgements cc We are grateful to the Association of Chartered Certified Accountants and the Chartered Institute of Management Accountants for permission to reproduce past examination questions. The answers have been prepared by Kaplan Publishing. fre ea All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of Kaplan Publishing. ii KAPLAN PUBLISHING freeaccastudymaterial.blogspot.com Contents Page The nature of strategic business analysis Chapter The environment and competitive forces Chapter Internal resources, capabilities and competences Chapter Stakeholders, governance and ethics Chapter Strategies for competitive advantage 75 Chapter Other elements of strategic choice 97 Chapter Methods of strategic development 109 Chapter Organisational structure 125 Chapter Business process change 141 Chapter 10 The role of information technology 159 Chapter 11 Marketing 197 Chapter 12 Project management I – The business case Chapter 13 Project management II – Managing the project to 239 its conclusion Chapter 14 Financial analysis 253 Chapter 15 Strategy and people 299 Chapter 16 Strategic development and managing strategic 321 change Chapter 17 Questions & Answers ot Chapter 1 sp 17 ym ate ria l.b log 43 63 219 339 fre ea cc as tud co m freeaccastudymaterial.blogspot.com iii KAPLAN PUBLISHING freeaccastudymaterial.blogspot.com fre ea cc as tud ym ate ria l.b log sp ot co m freeaccastudymaterial.blogspot.com iv KAPLAN PUBLISHING freeaccastudymaterial.blogspot.com freeaccastudymaterial.blogspot.com chapter m Introduction l.b log sp Paper Introduction ot co fre ea cc as tud ym ate ria v freeaccastudymaterial.blogspot.com freeaccastudymaterial.blogspot.com How to Use the Materials ot co m Introduction sp These Kaplan Publishing learning materials have been carefully designed to make your learning experience as easy as possible and to give you the best chances of success in your examinations. l.b log The product range contains a number of features to help you in the study process. They include: (1) Detailed study guide and syllabus objectives (2) Description of the examination (3) Study skills and revision guidance (5) Question practice ria (4) Complete text or essential text ate The sections on the study guide, the syllabus objectives, the examination and study skills should all be read before you commence your studies. They are designed to familiarise you with the nature and content of the examination and give you tips on how to best to approach your learning. fre ea cc as tud ym The complete text or essential text comprises the main learning materials and gives guidance as to the importance of topics and where other related resources can be found. Each chapter includes: • The learning objectives contained in each chapter, which have been carefully mapped to the examining body's own syllabus learning objectives or outcomes. You should use these to check you have a clear understanding of all the topics on which you might be assessed in the examination • The chapter diagram provides a visual reference for the content in the chapter, giving an overview of the topics and how they link together • The content for each topic area commences with a brief explanation or definition to put the topic into context before covering the topic in detail. You should follow your studying of the content with a review of the illustration/s. These are worked examples which will help you to understand better how to apply the content for the topic vi KAPLAN PUBLISHING freeaccastudymaterial.blogspot.com m freeaccastudymaterial.blogspot.com Test your understanding sections provide an opportunity to assess your understanding of the key topics by applying what you have learned to short questions. Answers can be found at the back of each chapter • Summary diagrams complete each chapter to show the important links between topics and the overall content of the paper. These diagrams should be used to check that you have covered and understood the core topics before moving on • Question practice is provided at the back of each text l.b log sp ot co • Quality and accuracy are of the upmost importance to us so if you spot an error in any of our products, please send an email to mykaplanreporting@kaplan.com with full details, or follow the link to the feedback form in MyKaplan. ria Our Quality Coordinator will work with our technical team to verify the error and take action to ensure it is corrected in future editions. ate Icon Explanations Definition – Key definitions that you will need to learn from the core content ym Key Point – Identifies topics which are key to success and are often examined. as tud New – Identifies topics that are brand new in papers that build on, and therefore also contain, learning covered in earlier papers. Expandable Text – Expandable text provides you with additional information about a topic area and may help you gain a better understanding of the core content. Essential text users can access this additional content online (read it where you need further guidance or skip over when you are happy with the topic) cc Test Your Understanding – Exercises for you to complete to ensure that you have understood the topics just learned fre ea Illustration – Worked examples help you understand the core content better Tricky topic – When reviewing these areas care should be taken and all illustrations and test your understanding exercises should be completed to ensure that the topic is understood vii KAPLAN PUBLISHING freeaccastudymaterial.blogspot.com freeaccastudymaterial.blogspot.com m Introduction co Tutorial note – Included to explain some of the technical points in more detail ot Footsteps – Helpful tutor tips. sp For more details about the syllabus and the format of your exam, please see your Complete Text or go online. Online subscribers Objectives of the syllabus Core areas of the syllabus l.b log Paper background Syllabus objectives and chapter references ria The examination Paperbased examination tips ate Study skills and revision guidance Preparing to study ym Effective studying Three ways of taking notes Revision as tud Further reading fre ea cc You can find further reading and technical articles under the student section of ACCA's website. viii KAPLAN PUBLISHING freeaccastudymaterial.blogspot.com freeaccastudymaterial.blogspot.com m chapter ot co l.b log sp The nature of strategic business analysis Chapter learning objectives Upon completion of this chapter you will be able to: describe the common vocabulary of strategic management and why strategic management is important • describe the different levels of strategic planning for a profit seeking and a notforprofit organisation • describe the JSW model for both profitseeking and notfor profitseeking organisations • • describe the JS lenses (strategy as design, experience, ideas) ate ym explore the scope of business analysis and its relationship to strategic management fre ea cc as tud ria • freeaccastudymaterial.blogspot.com freeaccastudymaterial.blogspot.com sp ot co m The nature of strategic business analysis l.b log 1 The nature of strategic decisions This chapter explains what is meant by strategic planning and some of the different approaches that are taken to achieve strategic goals. By the end of the chapter you should be familiar with many of the common terms in the strategic vocabulary. ria Strategic planning ate ‘Strategic planning’ can also be known as ‘longterm planning’ or ‘corporate planning’. Those alternative names give some insight into the nature of strategic planning. It: considers the longer term (think of a timehorizon of about five years or beyond) • considers the whole organisation ym • as tud Other characteristics of strategic planning are that: • • • • it gives direction to the whole organisation, and integrates its activities it considers all stakeholders it looks at how to gain a sustainable competitive advantage it relates the organisation, its resources and competences to its environment ‘Strategy is a pattern of activities that seeks to achieve the objectives of the organisation and adapt its scope, resources and operations to environmental changes in the long term.’ fre ea cc There is no universally accepted definition of strategy, and the word is used in different contexts to mean different things. The following definition is as useful as any. KAPLAN PUBLISHING freeaccastudymaterial.blogspot.com freeaccastudymaterial.blogspot.com m Questions & Answers co Tutorial note sp (b) The manager’s rewards can be summarised as follows: ot Only relevant cash flows should be taken into consideration when making this decision, i.e. the future incremental cash flows that occur as a result of Sunday opening. Prepare a summary of the relevant cash flows and reference in workings, where required. l.b log Time off This appears far from generous. The other staff are being paid time and a half and yet the manager does not appear to have this option and also is only being given time off in lieu (TOIL) at normal rates. Some managers may want their time back as TOIL so as to spend time with family or social friends; others may want the cash to spend. One would have thought some flexibility would have been sensible if the manager is to be motivated properly. ria Bonus ym ate The bonus can be calculated at $8,000 per annum (W6); on a day worked basis, this is $160 per day. This is less than that being paid to normal staff; at time and a half they earn 6 hours × $20 × 1.5 = $180 per day. It is very unlikely to be enough to keep the presumably better qualified manager happy. Indeed the bonus is dependent on the level of new sales and so there is an element of risk involved for the manager. Generally speaking higher risk for lower returns is far from motivating. as tud The level of sales could of course be much bigger than is currently predicted. However, given the uplift on normal average daily sales is already +60%, this is unlikely to be significant. (c) When new products or in this case opening times are launched then some form of market stimulant is often necessary. B&P has chosen to offer substantial discounts and promotions. There are various issues here: Changing buying patterns: It is possible that customers might delay a purchase a day or two in order to buy on a Sunday. This would cost the business since the margin earned on Sunday is predicted to be 20% points lower than on other days fre ea cc – 506 KAPLAN PUBLISHING freeaccastudymaterial.blogspot.com freeaccastudymaterial.blogspot.com – Quality: The price of an item can say something about its quality. Low prices tend to suggest poor quality and vice versa. B&P should be careful so as not to suggest that lower prices do not damage the reputation of the business as regards quality. co Complaints: Customers that have already bought an item on another day might complain when they see the same product on sale for much less when they come back in for something else on a Sunday. Businesses need to be strong in this regard in that they have to retain control over their pricing policy. Studies have shown that only a small proportion of people will actually complain in this situation. More might not, though, be caught out twice and hence will change the timing of purchases (as above). Question 31 Teemo REPORT l.b log sp ot – m chapter 17 ym Original planned profit ate ria To: The Managing Director of Teemo From: Management Accountant Date: Subject: Month 6 Variance Report This report aims to explain and interpret the Month 6 variance report. as tud As can be seen from the original standard cost card, the original plan was to sell the product for £250. With a cost per unit of £160 (made up of material, labour and overhead costs), a contribution of £90 was planned for each unit. Teemo budgeted to produce and sell 1,000 units so total contribution was expected to be £90,000. Budgeted fixed overheads (which could include items such as rent and insurance) were expected to be £70,000 so that a profit of £20,000 was the company’s original target. fre ea cc As actual profit was only £11,140 there must have been some deviation (or ‘variance’) away from the original plan. The variance report aims to explain why and where this has occurred. 507 KAPLAN PUBLISHING freeaccastudymaterial.blogspot.com freeaccastudymaterial.blogspot.com m Questions & Answers co Variances ot There have been a number of deviations away from the original plan and each one is split into a different variance on the variance report. Volume variance l.b log sp Teemo sold 200 units more than was budgeted. So at a contribution of £90 per unit this should have created an extra £18,000 of profit. This is the ‘volume variance’ so that the expected profit on actual sales of 1,200 units was £38,000. This may have been caused by the fall in selling price (see next variance). Sales price variance ria The sales price variance is negative as it has been deducted from the expected profit – it has had an ‘adverse’ affect on profit. This tells us that the actual selling price of the product must have been below the original budgeted price of £250. ate As 1,200 units were sold and the variance totals £12,000, the reduction in price must have been £10 per unit. So the actual selling price must have been reduced to £240 per unit. Without further investigation we do not know why the price was lowered, it could have been a deliberate marketing strategy or a reaction to similar moves by rivals. ym Materials price variance as tud This is another adverse variance – in order to have an adverse affect on profit the price per kg of material (budgeted to be £20/kg) must have increased. The company spent £132,300 on 6,300kg of material which gives an actual price of £21/kg. This £1/kg increase for the 6,300kg purchased has caused the £6,300 adverse variance. This might have been caused by an uncontrollable change in market price or a switch of supplier. Materials usage variance fre ea cc Teemo originally planned to use 5kg of material on each unit of production. As 1,200 units were produced, 6,000kg should have been used. 6,300kg were actually used which gives an adverse variance of 300kg. At a standard cost of £20/kg, this caused the adverse usage variance of £6,000. This might have been caused by a change in the materials used causing unfamiliarity to staff. 508 KAPLAN PUBLISHING freeaccastudymaterial.blogspot.com freeaccastudymaterial.blogspot.com Labour rate variance sp ot A favourable labour rate variance means that there has been a positive effect on profits by a change in the labour rate per hour. £5,040 was saved on the 5,040 hours worked – a saving of £1 per hour. The budgeted rate per hour was £10 so the company must have paid an average rate of only £9 per hour. Perhaps a lower grade of labour was used – which might also explain the adverse materials usage variance. co m chapter 17 Labour efficiency variance ria Variable overhead expenditure variance l.b log Teemo budgeted for each unit to take 4 hours of labour. The total expected time for the 1,200 units actually produced would therefore be 4,800 units. 5,040 hours were actually worked, giving 240 extra hours of labour that weren’t expected. At a standard cost of £10 per hour this creates a total adverse variance of £2,400. This would be consistent with the use of a lower grade of labour who may take longer to complete the task. ate There was no variance here which means that the planned expenditure on variable overheads per hour (£5) and the actual cost per hour must have been the same. Variable overhead efficiency variance as tud ym Variable overhead efficiency is linked to the labour efficiency variance (and will have an identical cause). Because labour worked 240 hours more than expected, the company’s machines, for example, will have had to have been operated for an extra 240 hours – this gives an extra cost to the company. At a standard cost of £5 per hour for variable overheads, the total extra cost will be £1,200. Fixed overhead variance cc The adverse fixed overhead variance tells us that Teemo spent £4,000 more than the £70,000 originally budgeted on these costs. More detailed analysis is not possible without a detailed breakdown of the individual elements of the fixed overheads, but this could be caused by extra system costs of monitoring new staff, materials wastage etc. ea Overall fre The variance report highlights that the main cause of the downturn in profits was the cost overruns – especially on materials. The next step should be to investigate why these variances occurred. 509 KAPLAN PUBLISHING freeaccastudymaterial.blogspot.com freeaccastudymaterial.blogspot.com m Questions & Answers (a) The net profit for each product is calculated as follows: l.b log Total cost Selling price sp Direct material cost Variable production overhead cost Fixed production overhead [$40 (W1) × hours] Net profit Overall A $ 2 28 10 ––– 40 60 ––– 20 ––– B $ 40 4 6 ––– 50 70 ––– 20 ––– ot co Question 32 Tupik ria On the basis of profits, both products give the same net profit per unit and therefore the company would be indifferent as to which one should be produced. ate (W1) ym Fixed production overhead is absorbed at an average rate per hour: Total hours (120,000 * 0.25) + (45,000 * 0.15) = 36,750 Absorption rate per hour = $1,470,000/36,750 = $40 (b) Production plan Decision making should be based on contribution rather than on net profit. Also, when there is a scarce resource/bottleneck, the contribution per usage of the scarce resource should be used in order to reflect the bottleneck problem. For Tupik this would appear as follows: A B $ $ Selling price 60 70 Less: Direct material cost 2 4 Variable production overhead cost 28 40 ––––– ––––– Contribution 30 26 Bottleneck hours per unit 0.02 0.015 Contribution per bottleneck hour 1,500 1,733 as tud fre ea cc 510 KAPLAN PUBLISHING freeaccastudymaterial.blogspot.com freeaccastudymaterial.blogspot.com The company should then prioritise sales and production of the product with the highest contribution per bottleneck hour. This means that product B should take priority. sp ot Maximum demand of product B = 45,000 * 120% = 54,000 units Bottleneck hours required for B = 54,000 * 0.015 = 810 hours Bottleneck hours available for A = 3,075 – 810 = 2,265 hours Output of product A which is possible = 2,265/0.02 = 113,250 units co m chapter 17 l.b log So the production plan should be to make 54,000 units and prioritise production resources to this product, and then to make 113,250 units of A. This is less of product A than is currently sold, but overall profits should be increased. Existing profits Net profit per unit Production sales Net profit in total A B Total $20 $20 120,000 45,000 units $2,400,000 $900,000 $3,300,000 ria Total net profit A $30 113,250 $3,397,500 ym Contribution per unit Production sales Contribution in total Fixed overheads ate Profits from new production plan B Total $26 54,000 units $1,404,000 $4,801,500 $1,470,000 –––––––– $3,331,500 as tud Other factors to consider The increase in profits is marginal ($31,500) and it may well be that the cost of reorganisation and planning may outweigh this. It should be considered whether this is a oneoff, shortterm problem or a longerterm issue. fre ea cc It may be that the bottleneck can be removed. Product A makes a contribution per unit of $30 and there is a potential unsatisfied demand of 30,750 units (maximum demand is 144,000 and only 113,250 will be produced). So there is a potential gain of almost $1m. If it would cost less than this to remove the bottleneck then that strategy should be pursued. 511 KAPLAN PUBLISHING freeaccastudymaterial.blogspot.com Questions & Answers sp ot co From a strategic point of view the company should consider the longer term impact on customers, rivals and shareholder returns. It a lack of product availability might harm company reputation and provide competitors with greater economies of scale and a better competitive position. It may also be that the products are at different stages of their life cycle and that it may be a better strategy to maximise production and sales of A even if it means lower profits in the shortterm (for example, if this product is in decline the company may want to sell as many as possible before sales completely dry up). m freeaccastudymaterial.blogspot.com l.b log Overall There are many factors to consider in making the production decision. But the use of net profit per unit oversimplifies the situation and could lead to poor decision making. ria Question 33 Jays Recruitment ate (a) There are a number of Human Resource Management (HRM) issues that will be impacted upon by the move from retailer to services as tud ym On a fundamental level, when Jays were retailing shoes they operated 123 outlets; the move into repairs meant trebling the number of outlets to over 300. This expansion will have meant a significant increase in the number of employees within the outlets. As well as this, the skills required between retailing and repair are different and so different types of employee would have been hired. Finally, Jays is expecting that more difficult repairs will be carried out at a national centre. Specialist employees to carry out this work will need to be recruited. fre ea cc In addition, the number of outlets may require an increase in the management positions at head office analysing the data produced. 512 KAPLAN PUBLISHING freeaccastudymaterial.blogspot.com freeaccastudymaterial.blogspot.com Training sp ot There are some overlaps between the retailing and repairs businesses. Retailing is very much geared towards customer service, an area that Jays has identified as important within the repairs business. There will obviously be some training involved for the watch repairers. However, it has already been identified that this can be broken down into ten easy operations. This should make the training progress quicker. co m chapter 17 l.b log Delegation It appears that Jays is already a decentralised organisation since much of the decisionmaking is already carried out at each individual outlet. Jays will need to ensure that there is consistency between outlets particularly over which repairs are passed back to the national centre. ria Culture ym ate The culture within the outlets at Jays may cause the management problems. As the company concentrated less on shoe retailing and more on shoe repair, the culture of the craftsman may have appeared. Under this, knowledge, skill and experience would be respected and passed on to more junior members of staff (almost like apprentices). The watch repair side, as noted above, has been made extremely simple with the result that the status of the ‘expert’ repairer may be diminished. as tud (b) Motivating the workforce at Jays may prove more difficult than it initially appears. A number of methods that might normally work in companies might prove difficult to implement in Jays’ situation fre ea cc For example, the work at Jays might prove to be monotonous and so job rotation might be undertaken. The difficulty with this is that this would mean training all the staff in the skills of shoe repair which might prove costly. Similarly, due to the geographical area being covered, moving staff between branches may not be practical. 513 KAPLAN PUBLISHING freeaccastudymaterial.blogspot.com Questions & Answers ot co Another common motivation technique would be to undertake job enrichment, whereby members of staff add on new skills to their current ones. Again, in the context of Jays’ large number of small (ten employees or fewer) autonomous shops there is a limit to how far this can be developed. m freeaccastudymaterial.blogspot.com l.b log sp One suggestion would be to reward staff on the outcomes of their performance. For example, measuring customer feedback (although how useful this might prove is debatable). A broader reward based on the financial performance of the shop might be introduced. The difficulty with this is that the nature of the business is reactive, if nobody’s shoes need repairing there is nothing the branch can do about it. ate Question 34 Y ria The likelihood is that some kind of competencebased system will be introduced. Under this, the employee would be graded by the branch manager on how well they fulfil certain competencies. These might include technical competencies such as their knowledge and the quality of their repairs and to service competencies such as how well they deal with customers. ym (a) Resistance to change in organisations can be considered according to whether the resistance comes from individuals, groups or the organisations themselves Individual level fre ea cc as tud At the individual level, the following reasons/causes have been noted as factors involved in resistance: fear of the unknown, well formed habits, threats to economic interest/status and the threat of inconvenience. In the case of Y, there is much for employees to fear. Several will be afraid that, in the longer term, they may lose their jobs. Some will fear that they may have to move from one job to another or from one department to another. For some, this will be quite an upheaval, although others may welcome the change. Some will fear that the change may bring a loss of status in the organisation, especially those in middle management whose jobs are to go. Redeployment to another job may include a protected salary, but delayering will inevitably result in a loss of status for some employees. Then there are the problems with learning new skills. Some employees will fear that they might not make the grade and be reluctant to take on retraining. 514 KAPLAN PUBLISHING freeaccastudymaterial.blogspot.com freeaccastudymaterial.blogspot.com Group level sp ot At group level there will be collections of individuals who see their position threatened and who will combine to resist any threats to their position. The middle management groups in Y in particular will feel threatened and will be looking to their trade union to protect their interests. There may well be calls for industrial action to attempt to prevent delayering from taking place, or at least to win for the managers affected the highest possible severance pay or redeployment terms. co m chapter 17 l.b log Even where individuals are not members of a trade union, it is possible for groups of employees, including managers, to collude informally to resist change. This may be achieved by such measures as withholding information or by not being wholly cooperative with those seeking to implement change. Organisational level ym ate ria At the level of the organisation, a number of factors will operate to make the change process difficult. These included the existing structure and culture of the organisation, the existing investment in resources, and past contracts and agreements with various stakeholders within the organisation. For example, many state industries that have been privatised in recent years have required flatter, more organic, organisational structures; it is hard to change from a ‘role’ culture to a ‘task’ culture to cope with competition in the open market and hard to renegotiate the terms of the contracts with stakeholders, such as the trade unions. as tud (b) A useful way of looking at the problem of resistance to change is via the simple framework formulated by American social psychologist, Lewin Any attempt to bring about change, therefore, requires ways and means of overcoming resistance to change. This may be achieved in a variety of ways, but it is apparent that what is required is either a further strengthening of the forces for change or a reduction in the power of restraining forces. fre ea cc Lewin’s framework suggests that change, or lack of it, is the result of disequilibrium or equilibrium between two sets of opposing forces. One set he refers to as ‘driving’ forces, because they act to encourage and facilitate change, and the other as ‘restraining forces’ because they act in the opposite direction and seek to maintain the status quo. 515 KAPLAN PUBLISHING freeaccastudymaterial.blogspot.com Questions & Answers sp ot co Using this framework we can see that the major driving force for change is the increasing competition brought about by changes in the industry environment. There is little that Y can do about this except to respond to it by becoming leaner and more effective. The reduction in management levels should help to cut costs, and the strengthening of the telephone banking division should help the bank’s competitiveness, as should the investment in IT and training. m freeaccastudymaterial.blogspot.com ria l.b log The spur to change is the threat of the new competition, and management should seek to communicate the message to managers and other employees more effectively. We cannot tell from the scenario just what attempts have been made to communicate to the workforce either the seriousness of the bank’s situation, or the rationale behind senior management’s plans to combat this situation. To the extent that the need for the planned action has not been properly communicated it follows that this must be an early priority for the senior management team. Communication, along with other means such as education, participation, consultation, manipulation and coercion are part of typology of methods advocated by theorists such as Kotter and Schlesinger for assisting in the management of change process. ym ate It may be that communication is not sufficient and that a process of education is required. In this day and age the senior managers should tread carefully. Bank employees generally have a high level of education and it would not help the case for change if management underestimated this. Nevertheless, in trying to persuade employees that the plans management have drawn up are in the best interests of all, there may be a place for the education of some staff members to management’s point of view. Another way of reducing resistance to change is that of involving all employees from the start of the change process. By putting the problem the bank is facing to employees in a series of facetoface meetings, and offering the possibility of participation in the decision making and planning process, it may be possible to get more employees to buy into the planned changes. The problem in the case of Y is that senior management may already have made decisions without consultation. This kind of participation exercise is also timeconsuming. fre ea cc as tud A method associated with communication and education is that of facilitation and support. Y management may be able to alleviate fears of some individuals by the use of counselling and group discussion. 516 KAPLAN PUBLISHING freeaccastudymaterial.blogspot.com freeaccastudymaterial.blogspot.com co sp ot Given that the decisions have been made and that resistance has already been encountered it may well be that the best way forward now is through a process of negotiation with representatives of the workforce. In the case of Y it is probable that trade union officials will represent the employees’ side. Through a process of negotiation and bargaining it may be that the union can gain sufficient concessions from management, in terms of builtin safeguards and appropriate compensation for its members. The bank could then be allowed to proceed without further hindrance. m chapter 17 l.b log An alternative approach is the less ethically based use of manipulation and cooptation. Manipulation involves seeking to persuade people by the use of partial and misleading information while cooptation involves ‘buying people off’ by the promise of some kind of reward for going along with the proposed changes. Through these methods are used, they are not the kinds of methods that professional people would involve themselves with. ym Question 35 BHH Clothing ate ria If all else fails, however; senior management may find that the use of explicit and implicit coercion is the only way forward. This may involve mass redundancies without right of appeal. This method would be one of last resort since the image of the bank would suffer and the morale of the remaining workforce would be badly affected. (a) The strategic context as tud The key environmental issues are as follows: – High customer power – The threat from low cost competitors Both of these threats are likely to increase rather than decrease. (1) The main advantages of the current plan are that they should reduce cost without compromising quality. Furthermore BHH keeps the higherskilled valueadded finishing aspects in house. This should help BHH manage the threat from lowcost competitors but does not address the problem of high customer power fre ea cc The options available to BHH include the following: 517 KAPLAN PUBLISHING freeaccastudymaterial.blogspot.com Questions & Answers ot co (2) Keep manufacturing in Europe but focus on improving production efficiency to reduce costs. This could involve implementing TQM, better use of IT, improved throughput, eliminating processes that do not add value and improving employee motivation and output. This could be planned as part of a BPR project but is likely to be just a short term fix. In the longer term the threat from lowercost Chinese manufacturers will still need to be addressed m freeaccastudymaterial.blogspot.com l.b log sp (3) BHH could shift both manufacturing and finishing overseas, focusing mainly on the customer relationship and design aspects. This should reduce costs further but would lose the differentiating factor that comes from high quality finishing (4) BHH could seek to sell goods under its own brand name to reduce customer power. However, this will require substantial investment to develop the BHH brand in the market (5) BHH could seek to vertically integrate forwards and open its own retail outlets. Again, the problem for BHH would be the major investment required ym ate ria (6) BHH could manufacture higher volume garments overseas but seek to make and deliver small batches of more exclusive lines with shorter lead times. This would allow BHH to be more responsive to market trends, thus reducing the risk of "fashion miss" (i.e. producing items that consumers do not want). The offer of reduced lead times may be difficult for Chinese firms to match and so would enhance BHH's strategy of differentiation. This would also reduce the scale of redundancies facing BHH Summary as tud Given its lack of brand strength, BHH has to move at least some of its manufacturing overseas to respond to the serious environmental threats it faces. Major change is thus unavoidable. However, the directors may wish to consider option 6 above as a way of reducing the impact of the change process. (b) Contextual features – Time – Given the recent loss of Forum and the threat from other retailers, BHH has to act quickly to develop a response. The time context is close to being a crisis rather than allowing an incremental approach. Time must thus be viewed as a strong driver of change but as a negative aspect in terms of how easy that change will be fre ea cc The key contextual features are as follows: 518 KAPLAN PUBLISHING freeaccastudymaterial.blogspot.com freeaccastudymaterial.blogspot.com – Preservation – It is vital that design, customer service and finishing skills are retained, despite other production staff (presumably) being made redundant. A major threat is that current employee unrest will result in key staff looking for new jobs elsewhere. The existing culture may need to be refocused firmly on high quality and customer responsiveness – Diversity – While there is likely to be a difference in subculture between production and design, only the latter will really be impacted by the change. Furthermore, there is likely to be a strong sense of unity within BHH due to them all being based in the same location and the length of time many employees have worked together. Given that the change will primarily impact production workers, diversity is unlikely to be a problem. (Note: were BHH to switch to short leadtime, smallbatch production, then the change would be more widespread, in which case diversity would be a more major consideration) – Capability – Given that management have so far resisted the industry trend to outsource production, it is likely that BHH does not have staff who are experienced in change and change management – Capacity – Given falling margins it is probable that BHH does not have significant funds to invest in the change process. However, the move to outsourcing will not require significant funds. Instead there will be pressure on management time to locate and screen potential suppliers. There is insufficient information available to determine whether or not this will be a problem co Scope – A significant proportion of manufacturing must be outsourced but design and finishing should continue as before without major changes. On balance the scope aspect is best described as realignment rather than transformational as tud ym ate ria l.b log sp ot – m chapter 17 Readiness – A major problem facing management is that staff have discovered some aspects of the change without being properly informed. The negative implications have thus been blown out of proportion, resulting in threatened strike action. Staff are thus likely to oppose any changes rather than support them – Power – there is insufficient information to determine how much authority and respect change agents have to implement proposed changes. It is clear however, that employee representatives are key players in the change process fre ea cc – 519 KAPLAN PUBLISHING freeaccastudymaterial.blogspot.com freeaccastudymaterial.blogspot.com m Questions & Answers co (c) Design choices Key recommendations are as follows: Change path – The most pressing problem is to avoid strike action and to reassure staff about the actual changes proposed. Only then can management look to address the details of how, when and where production should be outsourced – Change start point – the crisis nature of the problem necessitates a topdown approach initially where senior management need to regain control of event – Change style – once the immediate problem of staff unrest is addressed, management should adopt a participative approach to involve employee representatives in deciding how and where redundancies should be made, whether some staff could be retrained and what support will be offered to staff who lose their jobs – Change interventions – Initially the key mechanism is likely to be communication and education to convince employees that only production staff involved in making the basic garments might lose jobs. As stated above participation will be key to successful change management – Change roles – Given the lack of experience of change, BHH may wish to employ the services of external consultants. Either way it is vital that change action teams are set up, including designers, finishers and production staff. BHH could also consider including representatives from key customers to improve BHH's chances of keeping their accounts. Certainly consultants should be used to investigate potential Chinese suppliers fre ea cc as tud ym ate ria l.b log sp ot – 520 KAPLAN PUBLISHING freeaccastudymaterial.blogspot.com ... co m freeaccastudymaterial.blogspot.com iii KAPLAN PUBLISHING freeaccastudymaterial.blogspot.com fre ea cc as tud ym ate ria l.b log sp ot co m freeaccastudymaterial.blogspot.com iv KAPLAN PUBLISHING... earlier papers. Expandable Text – Expandable text provides you with additional information about a topic area and may help you gain a better understanding of the core content. Essential text users can access this additional content online (read it ... You can find further reading and technical articles under the student section of ACCA' s website. viii KAPLAN PUBLISHING freeaccastudymaterial.blogspot.com freeaccastudymaterial.blogspot.com m chapter ot co l.b log