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ACCA P3 Workbook Questions!
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ACCA P3 - Business Analysis Workbook
Lecture 1 - Strategy Formation
Illustration 1 F is a leading manufacturer of plastics. Its major products are beer crates and small containers for food sold in supermarkets. Together these two product ranges constitute 90% of Fs business, the remainder coming from selling more technologically sophisticated products. The company is faced with a number of difculties and may have to issue a prots warning in the coming year. Although the prot levels have been uneven for the past ve years, this is the rst time that F will have to report signicantly reduced prots. F has been adversely affected by the aggressive marketing of foreign companies importing beer crates into the market, such that Fs market share has fallen from 80% to 60% in the past three years. Consolidation in the brewery industry has meant that prot margins for crate manufacturers have been squeezed. The company is heavily dependent upon the home market, which accounts for 75% of its total sales. Exports have been mainly of food containers for supermarkets in neighbouring countries. F has invested heavily in research and development (R&D) and, although there is one exciting proposition in electro-plastics, most expenditure has been on projects selected by R&D managers who have little commercial awareness. There is the possibility that some new products may be developed from the electro-plastics research. F is highly centralised, with many decisions taken by the 20 members of the board of directors. The workforce is highly unionised, with a number of different unions represented. Each factory has several negotiating committees set up to agree pay and conditions. Negotiations are often time consuming and confrontational. This has resulted in very precise job denitions, which are strictly adhered to. This has further resulted in considerable inexibility, together with a complicated system of labour grades. The directors have had little communication with stock market analysts and investors, who have little knowledge of the company other than what is shown in the published accounts. An informal group of institutional shareholders has asked for a strategic review and has suggested that F should withdraw from the beer crate market. Required: (i) Discuss the main difculties faced by F. ! ! ! ! ! ! !
(5 marks)
(ii) Identify and evaluate alternative strategies that F could adopt to address its difculties and recommend those that are most appropriate ! ! ! ! ! ! ! ! ! ! ! (12 marks)
Lecture 2 - External Factors
Illustration 1 D is an international logging company, which cuts down timber and supplies sawmills where the timber is seasoned and then cut to appropriate sizes for use in a range of industries. D will work with any timber, ranging from softwoods used in construction or paper manufacture to exotic hardwoods used in expensive furniture. Its usual approach is to secure the rights from a landowner, or in some cases a national government, to cut timber. This can often involve the payment of large initial cash deposits to these suppliers, money which D usually borrows. A logging team then cuts down the trees as quickly as possible and hauls the timber to a convenient river where it is oated to a sawmill. Moving on rapidly to the next site, the loggers usually leave considerable surface damage behind them. Since an increasing proportion of the companys work has been in the tropical rainforest, it has recently come under pressure from environmental groups that have protested that it is not socially responsible to act in this way. Whilst the softwood forests can be regenerated in a couple of decades by replanting, hardwoods in tropical forests take far longer to mature. The Chief Executive of the company has argued that he is not concerned about these protests since, as far as he is concerned, the company always acts ethically, as it has the agreement of the national government in any country in which the company operates. A recent development in the timber industry has been the harvesting of timber from the bottom of reservoirs which have been created by ooding valleys. Although the capital equipment required for this approach is signicantly more expensive than that used in conventional logging, the operating costs are lower. Waterlogged trees in reservoirs have balloons attached, are cut, oat to the surface and are towed to a sawmill. The underwater process is quieter and less disruptive to wildlife and the environment. It has been estimated that there are over half a billion trees, or 20 years supply, submerged in reservoirs across the world, but it can take considerable research and expense to nd them. As long as the timber has remained submerged deeply enough, it is of the same quality as timber harvested from the land. There is currently only one company conducting underwater logging, although a number of other companies are also considering this development. Some of the board of directors feel that D should pursue this underwater approach and abandon land based logging. The Chief Executive and one other director feel that the underwater approach carries too high a risk. Required: (i) Briey explain the differences between business ethics and corporate social responsibility (CSR). " " " " " " " " " " (5 marks) (ii) Discuss the CSR issues relating to Ds business and how the company might improve its CSR position. " " " " " " " " " " (8 marks)
Illustration 2 E is a multinational organisation and is one of the largest global producers of chocolate, coffee and other foodstuffs. E categorises the countries in which it operates as follows: Less developed countries, from which E sources raw materials, but where there is no established local market for the nished products. Fully developed countries, into which E imports raw materials, manufactures, and serves the local and export markets. In every country in which E operates, it follows the OECD (Organisation for Economic Cooperation and Development) guidelines for multinationals. In the particular case of country F, a less developed country, E has helped the local farmers to organise themselves into cooperatives to produce their crops. E has also funded schooling for the children of both the farmers and their workers, built and staffed a hospital and has provided other welfare benets. E considers itself to be a good corporate citizen and is used as an example of good practice on the OECD website. Although the farmers cooperatives are free to sell to Es two main competitors, they tend not to do so because of the close and friendly working relationship that they have with E. Both of Es main competitors are multinationals, but both are smaller than E. E has recently been receiving some bad publicity in country F. The management of E feels that this is being organised by the government and the national labour union of country F. The government of F is reasonably supportive of business, but won the last election with a narrow majority. The government is now under pressure to raise the standard of living of the population. An election is due within the next fteen months. The national labour union, which is increasingly being supported by the main opposition party in country F, is extremely anti- business. It would like to see all foreign companies removed from country F and all foreign- owned assets, and co-operatives nationalised. The government of country F has stated that the prices paid for cocoa beans are too low, and that country F is not gaining sufcient tax revenue from the exports. The government of country F has threatened to impose an export tariff on cocoa beans, unless prices are increased, and unless E opens a manufacturing facility in the country F. The management of E feels that it has been targeted by the government because it is the largest of the three multinationals operating in the country. The national labour union of country F has argued that the farm workers are being victimised by the farmers, who have become too powerful because of the cooperatives. It states that the government of F should not allow the farmers to operate in this way. The management of E does not want to build a factory because the transport costs from such a factory to the nearest market for nished products would force the company to operate the factory at a loss. The Chief Executive of E is due to meet with government ministers from country F to discuss Es future operations and involvement in the country.
Required (a) Explain the advantages to E of conducting a stakeholder analysis of its operations in country F. " " " " " " " " " " " (4 marks) (b) Produce a stakeholder analysis for Es operations in country F. " " " " " " " " " " " (14 marks)
Lecture 3 - Environmental Analysis
Lecture 4 - External Environment I
Illustration 1 B is a media company, publishing lifestyle magazines for the consumer market. These lifestyle magazines contain articles and advertisements about fashion, health and beauty products, homes, furniture, and hobbies and are bought by people aspiring to a high standard of living. Increasingly, consumers are turning to other media for the information and entertainment traditionally provided by this type of magazine. Traditionally, 60% of Bs revenue has been derived from selling advertising, the balance being provided by the cover price of each magazine. Over the last four years both the revenue and prots have declined as there has been a steady reduction in the sale of both advertising space and the number of magazines sold. The industry is very dependent upon the level of discretionary disposable income. If this income is at a low level, fewer luxury goods are advertised. However, people still buy the magazines to read about these goods. The company has tried to expand abroad but has failed, expensively, to achieve this. Similarly, attempts to enter other segments of the home market, particularly teenage magazines, have failed. Both of these failures have come as a surprise to the Board of Directors who thought that they understood the respective markets well enough to make the appropriate decisions. New technology, in the form of digital media, has also affected the magazines industry. These changes have been felt in both production methods, such as broadband distribution of proof copies, and the choice of media, such as the Internet, available to consumers. To a large extent, the speed of these developments was a surprise to the directors of B. Required: Evaluate the benets to B of implementing a process of systematic environmental analysis.
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Illustration 2 Based in a European country, BBB is a charity which raises funds to provide portable equipment to remove the poison arsenic from drinking water in villages, in less developed countries. Run by a Board of Trustees, the organisation operates on laissez faire management principles. There are few full-time paid employees and BBB is heavily dependent upon the work of volunteers. Although these volunteers are dedicated, many have said that they do not feel the organisation knows where it is going and have said that they are not condent about the future of BBB. Funding comes from appeals to the general population, which are made through newspaper advertisements. BBB does not use the Internet to promote or raise donations and, generally, does not use available technology to any extent in its organisation. Additionally, BBB receives corporate donations, most of which come from old school friends of the trustees. There is no government funding. Recently BBB has had difculty in attracting donations and is at risk of not being able to carry on its work. The charity industry has become more competitive and many other organisations within it have become more aggressive in their marketing and promotion. None of the Board of Trustees has a commercial background. The Chairman of Trustees has recently been to a number of conferences where the value of foresight and the need to conduct a frequent and thorough environmental analysis have been discussed. The Chairman has accepted that there is a serious gap in the knowledge that the trustees have about the environment in which BBB operates. Recognising that BBB needs a more proactive approach to the environment in which it operates, your help as a management accountant has been sought. Required Using appropriate models, discuss how conducting a frequent and thorough environmental analysis would help the Board of Trustees of BBB.
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Illustration 3 D is a printing company that was founded by three people 20 years ago. At that time, the company used a new technology which had been developed by one of the founders. Another founder member was a nance professional. The third person is Mr Z, who has a strong, dynamic, personality. Mr Z has been the driving force behind the development and growth of the business to its present size of 350 employees. With a charismatic leadership style, Mr Z was very proud of the fact that he knew all employees by their rst names and considered everyone to be part of one big team. Everyone understood exactly what the company stood for and how things should be done. As the company has grown, Mr Z feels he is not in touch with newer members of staff and that they do not understand his, and the companys, values. In addition, the technology used by D is no longer considered innovative and there are a number of other competitors operating in exactly the same way. D is still market leader within the industry, but only by a few percentage points. Mr Z feels that the industry has reached the maturity stage of its lifecycle. An acquaintance of Mr Z, a management consultant, has suggested that the company should have a published mission statement and a clear set of strategic objectives. Required Explain the characteristics of the maturity stage of the industry lifecycle.
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Illustration 4 B is an established publisher of training manuals and other training material for members of professional bodies and for personal development. The products are sold all over the world by major bookshops and online book vendors. Although the company has a website, it does not sell directly to colleges or private individuals. Currently, all stages of the production and distribution processes are conducted within mainland Europe. All stages of these processes are conducted in-house by B. Over the past ve years, sales of Bs training manuals have declined and the company is expecting to make little, if any, prot in the coming year. Bs manuals are of the traditional style, that is, an extensive amount of printed material bound in a single volume. An initial market study has shown that Bs training manuals do not appeal to readers, because they are under heavy time pressure and are unable to devote sufcient time to reading these manuals. The manuals, because of their bulk, are also considered to be difcult to work with. There are three other direct competitors in the market, which is highly competitive. In this market the products are difcult to differentiate and prot margins are low. Although B has no rm evidence, the directors believe that all three of their competitors are more protable than B. However, the directors are not aware that any of the competitors are operating in a different way to B, and their training manuals are virtually identical to those offered by B. The directors of B believe that there are product development and market development opportunities that could be pursued. They also believe that the cost structure of the products could be improved. However, they are prepared to consider any reasonable alternative strategy that will improve the competitive position of the company. Required Explain how more detailed knowledge about Bs competitors would help the directors of B.
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Lecture 5 - External Environment II
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Illustration 1 G supplies electronic components to the automobile industry by exporting from the home country in which it is currently based. The company has recently set up a research facility in the home country to develop hydrogen fuel cells. The concept of hydrogen fuel cells has attracted a great deal of interest from the environmental lobby since it offers the prospect of very environmentally friendly vehicles. The market for these vehicles is in the development stage and there have been relatively few sales so far for this new technology. G hopes that the current pressure from environmental groups and governments will lead to large volume sales. Increasingly, electronic component manufacturers are under pressure to manufacture close to the locations of their customers, the automobile manufacturers. The research and development (R&D) director has decided that there is a need to open a research facility abroad, to work in partnership with the facility in the home country and capitalise on the benets that a foreign base could offer. If this venture were successful, G would open a manufacturing facility next to the proposed overseas R&D base. The board of directors recognises that different countries will offer different potential advantages and disadvantages. It has been decided that the ideal characteristics and factors for the chosen country should be determined, so that potential choices can be screened effectively before a nal decision is made. Required Advise what ideal characteristics and factors should be present in the chosen country.
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Lecture 6 - Internal Environment
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Illustration 1 C is a manufacturer of test equipment for electronic circuits. In the past, C was a dominant player in the international market. However, over the past three years, the company has found that its prots have declined as it has lost market share to other companies in the market. Cs business model consists of the following stages: 1.Cs highly skilled engineers rst visit client sites and, after discussions with the clients engineers, identify and design the appropriate testing equipment to meet the clients requirements. Cs engineers are still recognised as the best in the industry, and customers agree that they produce the most effective solutions to the increasingly complex problems presented by Cs clients. This stage of the process is seen as a very collaborative process between the engineers employed by C and the engineers employed by its clients. 2.In the laboratories at C, the equipment design goes through a fairly complicated process. Prototypes are developed, based on the discussions in stage. These prototypes are then tested. Once a nal design is agreed, the plans are passed to the manufacturing department for production. 3.The manufacturing department of C then produces the appropriate equipment to the desired specication and installs it at the clients site. 4.After the equipment has been installed, C conducts maintenance on an annual basis. It is standard practice within the industry for clients to pay a total price for design, manufacture and initial installation of the equipment and an annual maintenance charge after that. Total prices are quoted before design work commences. It is unusual for companies in the industry to maintain other manufacturers equipment. Although clients recognise the high quality of the solutions provided, they are increasingly complaining that the overall prices are too high. Clients have said that although other suppliers do not solve their problems as well as C, they do charge less. As a result, C has reduced its prices to compete with other companies. There is a suspicion that the manufacturing and installation stages of the business are not contributing sufciently to the business because the costs may be too high. Some of the Board of Directors of C have recognised that this situation cannot continue and have recommended that a value chain analysis be conducted, to identify the way forward for C. The Board feels that it is important that it identies which activities in the current business model actually add value and whether all of them should be continued. One of the directors has suggested that C should actually be a solutions provider and not a manufacturer. Although most directors are in agreement with the proposed value chain analysis, the managing director has argued that value chain analysis is a bad idea. He says that he has heard a number of criticisms of the value chain model. Explain the benets that C might gain from conducting a value chain analysis.
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Lecture 7 - Position Analysis
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Illustration 1 Briey explain what is meant by gap analysis in the context of strategic analysis.
Illustration 2 B is a media company, publishing lifestyle magazines for the consumer market. These lifestyle magazines contain articles and advertisements about fashion, health and beauty products, homes, furniture, and hobbies and are bought by people aspiring to a high standard of living. Increasingly, consumers are turning to other media for the information and entertainment traditionally provided by this type of magazine. Traditionally, 60% of Bs revenue has been derived from selling advertising, the balance being provided by the cover price of each magazine. Over the last four years both the revenue and prots have declined as there has been a steady reduction in the sale of both advertising space and the number of magazines sold. The industry is very dependent upon the level of discretionary disposable income. If this income is at a low level, fewer luxury goods are advertised. However, people still buy the magazines to read about these goods. The company has tried to expand abroad but has failed, expensively, to achieve this. Similarly, attempts to enter other segments of the home market, particularly teenage magazines, have failed. Both of these failures have come as a surprise to the Board of Directors who thought that they understood the respective markets well enough to make the appropriate decisions. New technology, in the form of digital media, has also affected the magazines industry. These changes have been felt in both production methods, such as broadband distribution of proof copies, and the choice of media, such as the Internet, available to consumers. To a large extent, the speed of these developments was a surprise to the directors of B. Describe the essential stages that should be included in a scenario planning process that could be introduced by B.
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Lecture 8 - Strategic Choice I
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Illustration 1 GHK is a restaurant chain consisting of eight restaurants in an attractive part of a European country which is popular with tourists. GHK has been owned by the same family for the previous15 years and has always traded at a prot. However, a number of factors have meant that GHK is now in danger of making a trading loss. There has been a substantial drop in the number of tourists visiting the region whilst, at the same time, the prices of many of the foodstuffs and drinks used in its restaurants has increased. Added to this, the local economy has shrunk with several large employers reducing the size of their workforce. The owners of GHK commissioned a restaurant consultant to give them an independent view of their business. The consultant observed that the eight restaurants were all very different in appearance. They also served menus that were very different, for example, one restaurant which was located on a barge in a coastal town specialised in sh dishes, whereas another restaurant 20 miles away had a good reputation as a steak house. The prices varied greatly amongst the restaurants; one restaurant in a historic country house offered ne dining and was extremely expensive; yet another located near a busy railway station served mainly fast food and claimed that its prices were the cheapest in town. Three of GHKs restaurants offered a middle of the road dining experience with conventional menus and average prices. Some of the restaurants had licences which enabled them to serve alcohol with their meals but three restaurants did not have such licences. One restaurant had a good trade in childrens birthday parties whereas the restaurant in the historic country house did not admit diners under the age of 18. The consultant recommended that GHK should examine these differences but did not suggest how. The owners responded that the chain had grown organically over a number of years and that the location, style and pricing decisions made in each restaurant had all been made at different times and depended on trends current at that time. Advise the owners of GHK how the application of Porters Three Generic Strategies Model could assist them in maintaining or improving the protability of their restaurants.
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Illustration 2 XZY, a publicly quoted company has expanded rapidly since its formation in 2005. Its rapid growth rate, based on a broad range of well-regarded products manufactured and sold exclusively within Asia, has led to high prots and an ever increasing share price. However, in the last year, XZY has found its growth rate difcult to sustain. XZYs core strategy has been described by its CEO as selling what we know to who we know. However, this view has been criticised by a number of nancial analysts and journalists who have warned that if XZYs growth rate is not maintained its share price will fall and the value of the company will reduce. XZY has a functional organisational structure and currently employs around 800 employees. The number of employees has grown by 20% since 2008. Evaluate, using Ansoffs product market scope matrix, the alternative strategies XZY could follow to maintain its growth rate in prots and share price.
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Lecture 9 - Strategic Choice II
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Illustration 1 JKL is a small European company based in the south of the UK which employs 35 people. It has an annual revenue of 9 million. One aspect of its recently formulated strategy is an aspiration to expand into a neighbouring country, France, by means of organic growth. The reason that JKLs strategy for expansion is based on organic growth is due to JKLs past experience. Two years ago, the directors of JKL negotiated the purchase of a UK business, LMN, located in the west of the UK. At the time of this acquisition, LMN was regarded by JKL as having complementary capabilities and competences. However, within a short time after the acquisition, JKL judged it to have been a failure and LMN was sold back to its original owner at a loss for JKL. JKL employed consultants to analyse the reasons for the failure of the acquisition. The consultants concluded that the failure had happened because: 1. JKL and LMN had very different accounting and control systems and these had not been satisfactorily combined; 2. JKL and LMN had very different corporate cultures and this had posed many difculties which were not resolved; 3. JKL had used an autocratic management style to manage the acquisition and this had been resented by the employees of both companies. The consultants recommended that JKL should consider the use of change agents to assist in any future acquisitions. JKL has learnt that a French competitor company, XYZ, may shortly be up for sale at a price which would be very attractive to JKL. XYZ has a very good reputation in its domestic market for all aspects of its operations and its acquisition would offer JKL the opportunity to widen its skill set. None of JKLs staff speaks uent French or is able to correspond in French. A small number of XYZs staff speak English uently but none of its staff are able to correspond in English. Discuss how JKL could grow their business by: (i) Organic Growth (ii)Acquisition
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Illustration 2 DDD is a biotechnology company which develops drugs. It was founded seven years ago by three scientists when they left the university medical school, where they had been senior researchers. The Company employs 10 other scientists who joined from different universities. All of these employees are receiving relatively low salaries but participate in a share option scheme. This means that when DDD is successfully oated on the stock exchange they will receive shares in the company. DDD currently has a number of new, innovative drugs in development, but the earliest any of these drugs might come to market is two years from now. It is expected that there would be one successful drug launched in most years after that for at least six years. However, successful drug launches are never guaranteed, due to the speculative nature of biotechnology and the long period of clinical trials through which any new drug must pass. DDD has to invest a signicant amount of resources into the development of each potential drug, whether they are successfully launched or not. Currently, it has 12 drugs in development, a number of which may not be successfully launched. Due to the speculative nature of the industry, companies such as DDD are unable to obtain bank loans on commercial terms. DDD is funded by an exclusive arrangement with a venture capital company. However, there is only sufcient cash in place to maintain the present level of activity for a further nine months. The venture capital company owns 15% of the equity of the company. The rest is owned by the three founders. It has always been the intention of the venture capital company and the founders that, once the company has a sufcient number of drugs in production and on the market, the company would be oated on the stock exchange. This is expected to happen in ve years time. Recently there have been a number of approaches to DDD which might solve its cash ow problems. The three founders have identied the following options: 1. The venture capital company has suggested that it will guarantee the cash ow until the rst drug is successfully launched in commercial quantities. However, it would expect its equity holding to rise to 60% once this offer is accepted. 2. A large pharmaceutical company has offered to buy DDD outright and retain the services of the three founders (in research roles) and a few of the staff. 3. Another biotechnology company has offered to enter into a merger with DDD. This company has also been established for seven years and has one drug which will be launched in six months. However, of the four other potential drugs it has in development, none are likely to be commercially viable for 5 years. This company would expect the three founders to stay with the newly merged company but feels a rationalisation of the combined staff would be needed. Describe the Suitability, Feasibility and Acceptability (SFA) framework as used for evaluating strategic options. Evaluate the option to take up the venture capital using the framework.
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Lecture 12 Pricing Strategy
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Test Your Knowledge

If you cant answer all of the questions below without looking at the answer then you need to do some more work on this area!
1. What are the downsides of full-cost plus pricing? 2. What are the benefits of marginal-cost plus pricing? 3. What are the downsides of marginal-cost plus pricing? 4. When is it appropriate to undertake a strategy of Price Skimming? 5. When is it appropriate to undertake a strategy of Penetration Pricing? 6. What are complementary products? 7. What is price discrimination? 8. What conditions must exist for price discrimination?
If youve successfully answered all of the above questions then youre ready to do the exam questions below: None yet - New syllabus area!
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Lecture 13 - Measuring Performance
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Illustration 1 DD is a research company operating in the computer hardware industry. It has been established for three years. The company employs 30 scientists and engineers working in three research teams. One of those teams has invented an innovative processor which is signicantly faster than any processor that is currently available commercially. It is likely that the new processor will be usable in computers used for industrial and, possibly, gaming purposes. The other teams are working in similar areas, developing processors. Although all of the researchers have done new and innovative work, which has led to a number of published academic papers, no patents have been led since the company started. Therefore, none of DDs innovative products has ever become commercially available. The company is privately funded by an entrepreneur (Mr X), who made $350m from the sale of his previous computer business. Mr X has, to date, allowed his research staff to conduct research which is focused on creativity rather than commercial viability. He does not want to lose any of the current research staff but now wants to encourage them to be more commercially aware. Mr X has decided that the company must now capitalise upon the innovative computer processor that one of the DD teams has invented. He intends that some of the focus should shift to the development of commercially available products rather than purely research activities. Mr X recognises that this will be a signicant change in strategy and culture for the company and that the change will require signicant planning and management. Mr X intends to hire marketing staff and ve additional engineers to bring the processor, and any other potential products, to market as soon as possible. Currently there is no performance measurement system in place within the company. Mr X believes that the Balanced Scorecard might be the best performance measurement system for DD. (i) Explain the components of the Balanced Scorecard model. (ii)Recommend, with reasons, two measures that DD should use in each of the components of the Balanced Scorecard model.
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Lecture 14 - Performance I
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Illustration 1 Background Aybe, located in Country C, was formed by the merger of two companies in 2001. It is a listed company which manufactures, markets and distributes a large range of components throughout Europe and the United States of America. Aybe employs approximately 700 people at its three factories in Eastern Europe and supplies products to over 05 million customers in 20 countries. Aybe holds stocks of about 100,000 different electronic components. Aybe is regarded within its industry as being a well-established business. Company Ay had operated successfully for nearly 17 years before its merger with Company Be. Company Ay can therefore trace its history back for 25 years which is a long time in the fast moving electronic component business. The company is organised into three divisions, the Domestic Electronic Components division (DEC), the Industrial Electronic Components division (IEC) and the Specialist Components division (SC). The Domestic and Industrial Electronic Components divisions supply standard electronic components for domestic and industrial use whereas the Specialist Components division supplies components which are often unique and made to specic customer requirements. Each of the three divisions has its own factory in Country C. Organisational structure Aybe is organised along traditional functional/unitary lines. The Board considers continuity to be a very important value. The present structure was established by Company Ay in 1990 and continued after the merger with Company Be. Many of Aybes competitors have carried out structural reorganisations since then. In 2008, Aybe commissioned a review of its organisational structure from a human resource consultancy. The consultants suggested alternative structures which they thought Aybe could employ to its advantage. However, Aybes Board felt that continuity was more important and no change to the organisational structure took place. The business environment in Asia Aybe has taken advice from a number of expert sources about market prospects in Asia. The research concluded Asian markets have excellent potential for growth and protability, because of increasing industrialisation, for one of Aybes divisions, IEC. The markets are fast- moving and highly adaptive. Some countries in Asia are highly entrepreneurial whilst in others there is much involvement of the State in business. In some countries there is a mixed economy. In general, Asia encourages free markets but this is also allied to a requirement in some countries for local involvement in any business enterprise. Most Asian countries make extensive use of sophisticated information systems and information technology. A considerable amount of outsourcing from Western countries has taken place to Asias benet. Although this had originally been in areas of manufacturing, outsourcing has now developed extensively and many service and administrative functions have also been outsourced to Asia. All of these inuences have led to a variety of organisational structures in Asian business.
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Director of Operations Aybe is organised along traditional functional lines and one of the most important departments is Operations. The director with responsibility for this department is the Director of Operations. The Director of Operations had recently joined Aybe and one of the reasons for his appointment was his experience in managing the electronics division of a multinational company in China. He is very energetic and ambitious and had been supported in his appointment at Aybe by the Non-Executive Director (NED) who chairs the Nominations Committee. This NED considers that the Director of Operations has the potential to become the Chief Executive Ofcer (CEO) of Aybe within the next ve years. Expansion of electronic components business into Asia Prior to 2010, the IEC division of Aybe had carried out a limited amount of business in Asia. The results of this business are shown in the column Actual 2009. Aybes Management Accountant has prepared a forecast for the period 31 December 2010 to 2014 which shows the incremental effects of expansion into Asia of products from the IEC division. Aybe has been fortunate in that the Asian government in the country where it intends to trade has granted a tax holiday for eight years to new overseas businesses. This means that Aybes operations will not be liable to tax. Country C has a double taxation treaty with the Asian country.
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Lecture 15 - Performance II
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Illustration 1 EEE is a divisionalised company, based in F, where it is quoted on the stock exchange. EEE manufactures and sells small electrical equipment products. As a country, F is more highly developed than the neighbouring countries. EEE has enjoyed a strong home market and has exported to the neighbouring countries. EEE has had a reputation for producing high quality products. Recently, it has come under increasing competitive pressure from new, privately held, companies based in the neighbouring countries. It appears that competitors based in these neighbouring countries have been selling lower quality products than EEE and have been undercutting it quite signicantly in terms of price. Sales in both EEEs home and export markets have been badly affected by the actions of these competitors in the neighbouring countries. EEE has looked at a number of possible solutions to this situation and has decided to acquire a manufacturing company in one of the neighbouring countries and move all of its production there, completely closing the manufacturing division in F. This would mean that EEE would purchase one of the companies that has recently become a competitor. EEE would maintain its present divisionalised structure within its home country F and treat the acquired company as a new division. The Board of Directors recognises the need to carefully select a suitable acquisition target company. The Board also recognises that careful consideration will need to be given to the most suitable approach to performance management once the acquisition has been made. The Board is considering an approach based on either Return On Investment (ROI) or Residual Income (RI). (i) Discuss the difculties that EEE may experience with the performance measurement of its divisions, post acquisition. (ii)Discuss the disadvantages that EEE may experience if it chooses to use ROI as its primary performance measure.
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Lecture 16 - IT & Strategy
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Illustration 1 GHK is a restaurant chain consisting of eight restaurants in an attractive part of a European country which is popular with tourists. GHK has been owned by the same family for the previous15 years and has always traded at a prot. However, a number of factors have meant that GHK is now in danger of making a trading loss. There has been a substantial drop in the number of tourists visiting the region whilst, at the same time, the prices of many of the foodstuffs and drinks used in its restaurants has increased. Added to this, the local economy has shrunk with several large employers reducing the size of their workforce. The owners of GHK commissioned a restaurant consultant to give them an independent view of their business. The consultant observed that the eight restaurants were all very different in appearance. They also served menus that were very different, for example, one restaurant which was located on a barge in a coastal town specialised in sh dishes, whereas another restaurant 20 miles away had a good reputation as a steak house. The prices varied greatly amongst the restaurants; one restaurant in a historic country house offered ne dining and was extremely expensive; yet another located near a busy railway station served mainly fast food and claimed that its prices were the cheapest in town. Three of GHKs restaurants offered a middle of the road dining experience with conventional menus and average prices. Some of the restaurants had licences which enabled them to serve alcohol with their meals but three restaurants did not have such licences. One restaurant had a good trade in childrens birthday parties whereas the restaurant in the historic country house did not admit diners under the age of 18. The consultant recommended that GHK should examine these differences but did not suggest how. The owners responded that the chain had grown organically over a number of years and that the location, style and pricing decisions made in each restaurant had all been made at different times and depended on trends current at that time. (i) Advise the owners of GHK how the application of Porters Three Generic Strategies Model could assist them in maintaining or improving the protability of their restaurants. (ii)Advise how GHK could employ a range of organisational information systems to support whichever generic strategy it chooses to adopt.
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Lecture 17 - E-Business
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Illustration 1 Introduction AAA is a small manufacturer of replacement machine components for machinery used in the mining and oil exploration industries. It is based in an African country. It was formed in 1952, as a partnership between two engineers, and incorporated in 1977. AAA now employs 120 staff, and has an annual turnover equivalent to one million US dollars. AAA is proud to offer the very highest levels of customer service. Much of the machinery used by AAAs customers is quite old and, as a result, components are no longer available from the original equipment manufacturers (OEMs), most of which are large multinational companies. AAA mostly supplies parts directly to the end-users but also receives a small but signicant proportion of its business from OEMs, who then supply the components to their customers. The current business model AAA has always run its business in a very traditional way. The sales manager receives most orders by telephone or fax. The order species the OEM part number that the component is to replace. If AAA has previously supplied that component, the sales manager checks the price list and tells the customer the price. AAA holds very low levels of nished goods inventory, and then only of the most commonly ordered components. Where AAA needs to make a component for the rst time, an AAA estimator (a qualied engineer, responsible for producing an estimate of the material and labour involved in manufacturing the item) obtains the original drawings of the component, either from AAAs extensive archives or from the OEM. The estimator then produces detailed engineering drawings, a list of materials and parts required, and an estimate of the labour hours likely to be used at each stage of the manufacturing process. The estimate is passed to a costing clerk in the accounts department who calculates the likely product cost (labour, materials and overheads), adds a mark-up of 50%, and advises the sales manager of the price. If the customer accepts the price, an order is passed to the production department, which schedules and completes the work. If the actual cost of production is signicantly different from that estimated, the price list is amended to reect the actual manufacturing cost. Very occasionally, a customer sends (or brings in) an old component, which cannot be traced back to an OEM. The sales manager gives the component to an estimator, who dismantles the component and produces the necessary engineering drawings and estimate. This process is called reverse engineering, and is common in the component manufacturing industry. Reverse engineering currently accounts for about 5% of AAAs business. When an order is fullled, the component is delivered to the customer, together with an invoice. Most customers pay within 30 days, by cash or cheque. AAA does not have a problem with bad debts. An increasing proportion of AAAs business is now transacted in US dollars, as African currencies tend to be unstable. AAA prides itself on the personal service it provides. The close contact it has with its customers means that AAA receives a signicant amount of repeat business. AAA has never advertised its services, but grew signicantly until 2005 as a result of word of mouth recommendations by satised customers. AAA, however, has not experienced growth for the last two years, although turnover and prot have remained stable.
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AAA uses only very basic Information Systems (IS), and reports its performance using a simple comparison between budget and actual, which is produced using a spreadsheet package. AAAs accounting system is not automated, and transactions are recorded in traditional ledgers. Project E: Computerised accounting and e-commerce systems The sales manager of AAA has noticed that customers are increasingly mentioning that they would like to be able to order online. He knows that there has been a signicant growth in business-to-business (B2B) e-commerce in recent years. The sales manager has recognised that in order to grow and to make a move into e-commerce possible, AAAs accounting system will have to be updated to a computerised one. Having spoken to a number of potential suppliers, the sales manager has now received a proposal from SSS, a local company, to supply tailored off-the-shelf systems for both accounting and e-commerce. SSS has provided a detailed breakdown of its proposal, to be known as Project E, which is summarised below. The sales manager believes that, following implementation of the new systems (likely to be 12 months from contract agreement) e-commerce should lead to an increase in the companys turnover of 10% in its rst year of operation. Thereafter, the turnover resulting from e- commerce should grow at a rate of 10% each year for the foreseeable future. The sales manager also thinks that any increase in indirect costs as a result of this higher volume of business will be fully offset by a reduction in administration workload as a result of the new computerised accounting system. The gross margin earned from e-commerce business can therefore be used as the effective cash inow for evaluation purposes. The current turnover of AAA is, as stated earlier, $1 million a year. The mark-up on products sold by e-commerce will be the same as at present (that is, 50%). However, the sales manager thinks that a cautious approach should be taken to the evaluation of the proposal, and that any benets after 5 years from implementation should be ignored. AAA has a weighted average cost of capital (WACC) of 15%. Briey explain how e-business has impacted on the way business is conducted. Briey discuss how a new Information Systems (IS) strategy might impact upon corporate, business and functional strategies. Evaluate the strategic and competitive benets to AAA of the proposed ecommerce system. Discuss how AAA might use its e-commerce system to increase the volume of business from reverse engineering projects.
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Lecture 18 - Knowledge Management
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Illustration 1 Distinguish between data mining and data warehousing.
Illustration 2 Introduction AAA is a small management consultancy practice, based in the capital city of an African country. Since 2004, AAA has grown signicantly. In 2008 AAA earned a fee income of US $ 2.8 million (2004: US$ 1.6 million), and prot after tax of US$ 0.6 million (2004: US$ 0.4 million). AAA now employs a total of 14 consultants (including the partners) and 11 support staff. The support staff mainly work in administration, nance, research and marketing roles. AAAs accounts for 2008 showed net assets of US$ 1.1 million (2004: US$ 1.0 million). The business of AAA AAA has a number of clients in nancial services, manufacturing, construction, retail and logistics. Most of AAAs clients can still be regarded as Small and Medium Enterprises (SMEs), but a few of them have now grown to become large and successful organisations. Indeed, AAA now has three clients in the top ten of the country, ranked by turnover. In all projects, AAA ensures that the staff of the client organisation are fully involved in the consultancy process. Client staff are normally included as members of the project team, thus ensuring that the project has greater acceptance from the client organisation. As a result of this approach, AAA has a reputation for successful projects and has achieved some client referral and repeat business. The staff retention problem Until 2007, AAA had never lost a key employee. The partnership was, and still is, viewed as a caring and loyal employer, at least matching the market rate in terms of salaries and benets. The partners were condent that staff loyalty would continue, as AAA was still growing and provided both interesting and challenging projects and opportunities for career progression. The partners were shocked when, in 2007, two consultants resigned to join rival consultancy rms. In 2008, another consultant left, this time to join a client organisation as director of nance. So far this year, a consultant resigned to set up his own business, and another chose not to return to the partnership at the end of an interim management assignment with a client. Although AAA has recruited suitably qualied replacements for the staff who have left, the cumulative effect of all these losses is that about a third of all AAA consultants have been with the rm for less than ve years. Mr Amit Mr Amit is the partner of AAA responsible for administration, marketing and IT. He is keen to use AAA itself as a pilot study, with a view to offering knowledge management
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consultancy services to AAAs clients. Mr Amit has found some information about knowledge management on the internet, part of which is reproduced below.
Definition: Knowledge Management (KM) is the use of an organisations Intranet to allow staff to record their knowledge so it can be accessed by others. It is a modern IT solution to improve communication and facilitate organisational learning.
Project resourcing When AAA begins a new consultancy project, the designated project manager recruits the consultancy team from those consultants who are not engaged in another project. Staff are allocated to projects on a rst come, rst served basis, so it is common for project managers to nd that some of the consultants with the greatest experience in the required specialist areas are already engaged on another project and are thus unavailable. Discuss the denition of Knowledge Management that Mr Amit obtained from the Internet. Discuss the three main potential benets of Knowledge Management to AAA.
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Lecture 19 - Managing Supply Chain
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Illustration 1 B is a public company that operates 100 supermarkets in a European country. There are a number of other supermarkets operating in the country and the market is ercely competitive. All of the supermarkets nd it difcult to generate any customer loyalty and have found that customers are very price sensitive. Like all other supermarkets in the country, B suffers a higher staff turnover than other retail outlets and this is recognised as one of the reasons for relatively low customer satisfaction and retention. The marketing director has suggested that the company would benet from introducing a credit card that its customers could use in its supermarkets and in other retail outlets within the country. At present, although all supermarkets in the country accept credit cards for payment for goods, no other supermarket offers its own credit card. The marketing director claims that, in addition to the appeal to the customers, the credit card would allow B to gather large quantities of data about its customers. He feels this would offer advantages in terms of data mining, data warehousing and relationship marketing. You are the management accountant for B. The nance director has said that she is unfamiliar with these techniques and has asked you to provide some explanations and advice in the context of Bs business. (i) Describe relationship marketing in the context of Bs business applying the six markets model. (ii)Recommend, with reasons, strategies that B can use to develop relationship marketing and improve customer loyalty.
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Lecture 20 - Marketing
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Illustration 1 Introduction The Accounting Education Consortium (AEC) offers professional accountancy education and training courses. It currently runs classroom-based training courses preparing candidates for professional examinations in eight worldwide centres. Three of these centres are also used for delivering continuing professional development (CPD) courses to qualied accountants. However, only about 30% of the advertised CPD courses and seminars actually run. The rest are cancelled through not having enough participants to make them economically viable. AEC has developed a comprehensive set of course manuals to support the preparation of its candidates for professional examinations. There is a course manual for every examination paper in the professional examination scheme. As well as being used on its classroom-based courses, these course manuals are also available for purchase over the Internet. The complete set of manuals for a professional examinations scheme costs $18000 and the web site has a secure payment facility which allows this to be paid by credit card. Once purchased, the manuals may be downloaded or they may be sent on a CD to the home address of the purchaser. It is only possible to purchase the complete set of manuals for the scheme, not individual manuals for particular examinations. To help the student decide if he or she wishes to buy the complete manual set, the web site has extracts from a sample course manual. This sample may be accessed, viewed and printed once a student has registered their email address, name and address on the web site. AEC has recently won a contract to supply professional accountancy training to a global accounting company. All students working for this company will now be trained by AEC at one of its worldwide centres. Web site The AEC web site has the following functionality: Who we are: A short description of the company and its products and services. Professional education courses: Course dates, locations and standard fees for professional examination courses. This schedule of courses is printable. Continuing professional development: Course dates, locations and standard fees for CPD courses and seminars. This schedule is also printable. CPD catalogue: Detailed course and seminar descriptions for CPD courses and seminars. Downloadable study material: Extracts from a sample course manual. Visitors to the site wishing to access this material must register their email address, name and address. 5,500 people registered last year to download study material. Purchase study material: Secure purchase of a complete manual set for the professional scheme. Payment is by credit card. On completion of successful payment, the visitor is able to download the manuals or to request them to be shipped to a certain address on a CD. At present, 10% of the people who view downloadable study material proceed to purchase. Who to contact: Who to contact for booking professional training courses or CPD courses and seminars. It provides the name, email address, fax number, telephone number and address of a contact at each of the eight worldwide centres. Marketing strategy The marketing manager of AEC has traditionally used magazines, newspapers and direct mail to promote its courses and products. Direct mail is primarily used for sending printed course catalogues to potential customers for CPD courses and seminars. However, she is
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now keen to develop the potential of the Internet and to increase investment in this medium at the expense of the traditional marketing media. Table 1 shows the percentage allocation of her budget for 2008, compared with 2007. The actual budget has only been increased by 3% in 2008. Percentage allocation of marketing budget (20072008) ! ! ! Advertising ! ! Direct mail ! ! Sponsorship ! Internet! ! 2007" 30% 10%! 10%! 50%! " ! ! ! 2008 40% 30% 10% 20%
Explain, in the context of AEC, how the marketing characteristics of electronic media (such as the Internet) differ from those of traditional marketing media such as advertising and direct mail.
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Lecture 21 - Roll of Process
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Illustration 1 Explain, using Harmons process-strategy matrix, how the complexity and strategic importance of process initiatives can be classied.
Illustration 2 Branch rationalisation project Four years ago Lowlands Bank acquired Doe Bank, one of its smaller rivals. Both had relatively large local branch bank networks and the newly merged bank (now called LDB) found that it now had duplicated branches in many towns. One year after the takeover was nalised, LDB set up a project to review the branch bank network and carry out a rationalisation that aimed to cut the number of branches by at least 20% and branch employment costs by at least 10%. It was agreed that the project should be completed in two years. There were to be no compulsory staff redundancies. All branch employment savings would have to be realised through voluntary redundancy and natural wastage. LDB appointed its operations director, Len Peters as the sponsor of the project. The designated project manager was Glenys Hopkins, an experienced project manager who had worked for Lowlands Bank for over fteen years. The project team consisted of six employees who formerly worked for Lowlands Bank and six employees who formerly worked for Doe Bank. They were seconded full-time to the project. Project issues and conclusion During the project there were two major issues. The rst concerned the precise terms of the voluntary redundancy arrangements. The terms of the offer were quickly specied by Len Peters. The second issue arose one year into the project and it concerned the amount of time it took to dispose of unwanted branches. The original project estimates had underestimated how long it would take to sell property the bank owned or to re-assign or terminate the leases for branches it rented. The project board overseeing the project agreed to the project managers submission that the estimates had been too optimistic and they extended the project deadline for a further six months. The project team completed the required changes one week before the rearranged deadline. Glenys Hopkins was able to conrm that the branch network had been cut by 23%. Six months later, in a benets realisation review, she was also able to conrm that branch employment costs had been reduced by 12%. At a post-project review the project support ofce of the bank conrmed that they had changed their project estimating assumptions to reect the experience of the project team. Potential process initiatives LDB is now ready to undertake three process initiatives in the Information Technology area. The IT departments and systems of the two banks are still separate. The three process initiatives under consideration are:
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1.
The integration of the two bespoke payroll systems currently operated by the two banks into one consolidated payroll system. This will save the costs of updating and maintaining two separate systems. The updating of all personal desktop computer hardware and software to reect contemporary technologies and the subsequent maintenance of that hardware. This will allow the desktop to be standardised and bring staff efciency savings. The bank has recently identied the need for a private personal banking service for wealthy customers. Processes, systems and software have to be developed to support this new service. High net worth customers have been identied by the bank as an important growth area.
2.
3.
The bank will consider three solution options for each initiative. These are outsourcing or software package solution or bespoke development. The branch rationalisation was a successful project. Recommend and justify a solution option for each of the three process initiatives.
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Lecture 22 - Lean Systems & Innovation
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Illustration 1 C is one of several insurance companies which offer insurance policies covering general risks relating to individuals and families. Cost efciency is a major factor in the success of the companies in this industry. Competition is erce. Over the past three years C has seen the volume of business increase but prots have remained static due to declining margins. Although some of the processes within C are computerised, most of the processes which involve communication with customers are still paper-based. Responses from telephone enquiries involve paper-based communications both with the enquirers and internally within C. Additionally, sales staff visit potential customers in their homes to try to sell them insurance policies for their homes and their possessions. These transactions are again paper-based. This process is often slow and has led to complaints both from customers and from the companys sales staff. C has also been receiving a regular, and increasing, number of complaints from current and potential customers about errors in the paperwork that they receive. The Board of Directors of C has announced that there is a need for a business process reengineering exercise to be conducted with the intention of modernising the business. The intention is to streamline the business model as much as possible and to increase the protability of the company. C intends to computerise almost all of the work done within the company. A number of staff have expressed concern about business process re-engineering and its implications for those who work at C. Explain the stages involved in implementing a BPR exercise that might be undertaken by C.
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Lecture 23 - Change Management
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Illustration 1 WAL is a manufacturer of biscuits which it sells to retailers. Its current years revenue of 120 million represents approximately 3% of the UK market. WAL has a centralised marketing information system based on a software package bought in 2005. This package is nancial accounts orientated: the only management information provided to support the marketing staff consists of reports showing revenue, prot, inventory value, receivables and payables balances. WALs marketing staff and the Marketing Director, M, have complained that they are not provided with information such as customers protability, market share and market growth which would support their strategic decision-making. They consider the inadequacies of the current marketing information system to be so serious that they would like a Big Bang change which would mean moving straightaway to a new marketing information system that would give them the information they need. They feel WAL is being left behind by its competitors and is losing customers. The Company Secretary, R, manages WALs IS/IT staff. R was responsible for buying the existing marketing information software in 2005 and he would also be responsible for the procurement of its replacement. R has identied three possible solutions to meeting the marketing staffs needs: the rst two are evolutionary, the third would be a 'Big Bang'. Solution 1 Modication: the existing marketing information system would be redesigned by WALs inhouse IS/IT staff to meet the needs of the marketing staff. Although WALs IS/IT staff have limited experience of the type of work which would be required, they are condent the redesign could be done within a year. The IS/IT staff are unsure of the cost. Solution 2 Development: WALs in-house IS/IT staff would develop new bespoke software to meet the marketing staffs needs. The IS/IT staff have stated that because WALs needs are unique, costs can only be roughly estimated. However, this solution is likely to be considerably more expensive than the 'Modication' solution. The nal cost would be dependent upon the length of the project. It should take a minimum of six months to develop new software but it might take as long as two years. We have little experience of software development but are very enthusiastic about trying. Solution 3 Purchase: WAL could purchase the biscuit industry standard marketing information system software: this would be an expensive purchase but the product is well proven. Some of WALs marketing staff have experience of using this software in other companies, are very appreciative of its benets and believe it would help them considerably in their jobs. The software supplier claims that 90% of the biscuit industry uses our product and if you buy it we guarantee to have it working inside WAL within three months of you buying it. R believes that he represents the majority of opinion within the IS/IT staff who very much prefer that change should be evolutionary. They would be very resistant to change if it was carried out in any other way. R also pointed out that WAL has experience of 'Big Bang' organisational change in the recent past which failed because WALs culture didnt change to reect this. R stated, It looks straightforward to go out and buy a software package but its a lot more complicated than people think and its my department that would have to do all the work.
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(i) Explain the circumstances in which it would be appropriate to use 1. 2. Evolutionary change. 'Big Bang' change.
(ii) Evaluate each of the three solutions proposed by R. and suggest which should be adopted.
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Illustration 2 Introduction Frigate Limited is based in the country of Egdon. It imports electrical components from other countries and distributes them throughout the domestic market. The company was formed twenty years ago by Ron Frew, who now owns 80% of the shares. A further 10% of the company is owned by his wife and 5% each by his two daughters. Although he has never been in the navy, Ron is obsessed by ships, sailing and naval history. He is known to everyone as The Commander and this is how he expects his employees to address him. He increasingly spends time on his own boat, an expensive motor cruiser, which is moored in the local harbour twenty minutes drive away. When he is not on holiday, Ron is always at work at 8.00 am in the morning to make sure that employees arrive on time and he is also there at 5.30 pm to ensure that they do not leave early. However, he spends large parts of the working day on his boat, although he can be contacted by mobile telephone. Employees who arrive late for work have to immediately explain the circumstances to Ron. If he feels that the explanation is unacceptable then he makes an appropriate deduction from their wages. Wages, like all costs in the company, are closely monitored by Ron. Employees, customers and suppliers Frigate currently has 25 employees primarily undertaking sales, warehousing, accounts and administration. Although employees are nominally allocated to one role, they are required to work anywhere in the company as required by Ron. They are also expected to help Ron in personal tasks, such as booking holidays for his family, lling in his personal tax returns and organising social events. Egdon has laws concerning minimum wages and holidays. All employees at Frigate Ltd are only given the minimum holiday allocation. They have to use this allocation not only for holidays but also for events such as visiting the doctor, attending funerals and dealing with domestic problems and emergencies. Ron is particularly inexible about holidays and work hours. He has even turned down requests for unpaid leave. In contrast, Ron is often away from work for long periods, sailing in various parts of the world. Ron is increasingly critical of suppliers (trying to sell me inferior quality goods for higher prices), customers (moaning about prices and paying later and later) and society in general (a period working in the navy would do everyone good). He has also been in dispute with the tax authority who he accused of squandering his hard-earned money. An investigation by the tax authority led to him being ned for not disclosing the fact that signicant family expenditure (such as a holiday for his daughters overseas) had been declared as company expenditure. Company accountant It was this action by the tax authority that prompted Ron to appoint Ann Li as company accountant. Ann had previously worked as an accountant in a number of public sector organisations, culminating in a role as a compliance ofcer in the tax authority itself. Ron felt that recruiting someone like Ann should help keep the tax authorities happy. After all, she is one of them.
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Ann was used to working in organisations which had formal organisational hierarchies, specialised roles and formal controls and systems. She tried to install such formal arrangements within Frigate. As she said to Ron we cannot have everyone working as if they were just your personal assistants. We need structure, standardised processes and accountability. Ron resisted her plans, at rst through delaying tactics and then through explicit opposition, tearing up her proposed organisational chart and budget in front of other employees. I regret the day I ever made that appointment, he said. After six months he terminated her contract. Ann returned to the tax authority as a tax inspector. Required: The cultural web allows the business analyst to explore the way things are done around here. Analyse Frigate Ltd using the cultural web or any other appropriate framework for understanding organisational culture.
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Lecture 24 - Managing Change
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Illustration 1 WAL is a manufacturer of biscuits which it sells to retailers. Its current years revenue of 120 million represents approximately 3% of the UK market. WAL has a centralised marketing information system based on a software package bought in 2005. This package is nancial accounts orientated: the only management information provided to support the marketing staff consists of reports showing revenue, prot, inventory value, receivables and payables balances. WALs marketing staff and the Marketing Director, M, have complained that they are not provided with information such as customers protability, market share and market growth which would support their strategic decision-making. They consider the inadequacies of the current marketing information system to be so serious that they would like a Big Bang* change which would mean moving straightaway to a new marketing information system that would give them the information they need. They feel WAL is being left behind by its competitors and is losing customers. The Company Secretary, R, manages WALs IS/IT staff. R was responsible for buying the existing marketing information software in 2005 and he would also be responsible for the procurement of its replacement. R has identied three possible solutions to meeting the marketing staffs needs: the rst two are evolutionary, the third would be a 'Big Bang'. Solution 1 Modication: the existing marketing information system would be redesigned by WALs inhouse IS/IT staff to meet the needs of the marketing staff. Although WALs IS/IT staff have limited experience of the type of work which would be required, they are condent the redesign could be done within a year. The IS/IT staff are unsure of the cost. Solution 2 Development: WALs in-house IS/IT staff would develop new bespoke software to meet the marketing staffs needs. The IS/IT staff have stated that because WALs needs are unique, costs can only be roughly estimated. However, this solution is likely to be considerably more expensive than the 'Modication' solution. The nal cost would be dependent upon the length of the project. It should take a minimum of six months to develop new software but it might take as long as two years. We have little experience of software development but are very enthusiastic about trying. Solution 3 Purchase: WAL could purchase the biscuit industry standard marketing information system software: this would be an expensive purchase but the product is well proven. Some of WALs marketing staff have experience of using this software in other companies, are very appreciative of its benets and believe it would help them considerably in their jobs. The software supplier claims that 90% of the biscuit industry uses our product and if you buy it we guarantee to have it working inside WAL within three months of you buying it. R believes that he represents the majority of opinion within the IS/IT staff who very much prefer that change should be evolutionary. They would be very resistant to change if it was carried out in any other way. R also pointed out that WAL has experience of 'Big Bang' organisational change in the recent past which failed because WALs culture didnt change to reect this. R stated, It looks straightforward to go out and buy a software package but its a lot more complicated than people think and its my department that would have to do all the work.
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Advise how WAL could overcome the resistance to change which would arise if Solution 3, the purchase solution, were to be adopted.
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Illustration 2 MMM is a university whose mission is 'to be the best'. It has a wide range of educational activities and is organised into six departments: 1. Arts 2. Medicine 3. Law 4. Engineering 5. Natural Sciences 6. Theology Each of the six departments above is controlled by a senior manager, known as a Head who has operational responsibility for their departments activities throughout the university. On the advice of management consultants, it has now been decided to reorganise the University and establish the following three new departments which will replace the current six departments listed above: 1. Student experience: this includes teaching, welfare, progression, pass rates and quality for both undergraduates and postgraduates. 2. Research: this includes academic research and commercial research. 3. All prot-making activities other than commercial research. Each of the new departments will be managed by one of the existing Heads. MMM wants to introduce a control system for its Heads and departments that will measure their performance against strategic and operational targets using quantitative and qualitative criteria. MMMs executive board has the following objectives for the new control system: To develop the Heads' motivation To encourage the Heads to accept responsibility for achieving strategic and operational targets To encourage activities that generate income from external activities MMM's executive board believes that the departmental reorganisation and the introduction of the new control measures will require cultural change within the university. Discuss the role that a change agent could play in the change process in MMM.
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Lecture 25 - Project Management I
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Illustration 1 A clothing company sells 40% of its goods directly to customers through its website. The marketing manager of the company (MM) has decided that this is insufcient and has put a small team together to re-design the site. MM feels that the site looks amateur and oldfashioned and does not project the right image. The board of the company has given the go-ahead for the MM to re-design the website. The following notes summarise the outcomes of the meetings on the website re-design. The team consists of the marketing manager (MM), a product range manager (RP), a marketing image consultant (IC) and a technical developer (TD). Meeting 1: 9 July attended by MM, RP, IC and TD The need for a re-designed website to increase sales volume through the website and to improve our market visibility was explained by MM. IC was asked to produce a draft design. Meeting 2: 16 August attended by MM, RP, IC and TD IC presented a draft design. MM and RP were happy with its image but not its functionality, suggesting that it was too similar to the current site. We expected it to do much more was their view. Meeting 3: 4 September attended by MM, RP and IC IC produced a re-drafted design. This overall design was agreed and the go-ahead was given for TD to produce a prototype of the design to show to the board. Meeting 4: 11 September attended by RP, IC and TD TD explained that elements of the drafted re-design were not technically feasible to implement in the programming language being used. Changes to the design were agreed at the meeting to overcome these issues and signed off by RP. Meeting 5: 13 October attended by MM, RP, IC and TD The prototype re-design was demonstrated by TD. MM was unhappy with the re-design as it was moving too far away from the original objective and lacked functionality that should be there. TD agreed to write a technical report to explain why the original design (agreed on 4 September) could not be adhered to. Meeting 6: 9 November attended by MM, IC and TD It was agreed to return to the 4 September design with slight alterations to make it technically feasible. TD expressed concerns that the suggested design would not work properly with all web browsers. At the board meeting of 9 December the board expressed concern about the time taken to produce the re-design and the nance director highlighted the rising costs (currently $25,000) of the project. They asked MM to produce a formal cost-benet of the re-design. The board were also concerned that the scope of the project, which they had felt to be about re-design, had somehow been interpreted as including development and implementation. On 22 December MM produced the following cost-benet analysis of the project and conrmed that the word re- design had been interpreted as including the development and implementation of the website.
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Year Costs Benets*
1 50,000 0
2 10,000 15,000
3 10,000 25,000
4 10,000 35,000
5 10,000 35,000
*These benets are extra sales volumes created by the websites extra functionality and the companys increased visibility in the market place. Meeting 7: 24 February attended by MM, RP, IC and TD A partial prototype system was demonstrated by TD. RP felt that the functionality of the re-design was too limited and that the software was not robust enough. It had crashed twice during the demonstration. He suggested that the company delay the introduction of the re-designed website until it was complete and robust. MM declared this to be impossible. Conclusion The re-designed website was launched on 1 March. MM declared the re-design a success that had come in on time and under budget. On 2 and 3 March, numerous complaints were received from customers. The website was unreliable and did not work with a particular popular web browser. On 4 March an emergency board meeting decided to withdraw the site and reinstate the old one. On 5 March, MM resigned. Most project management methods have an initiation or denition stage which includes the production of a document that serves as an agreement between the sponsors and deliverers of the project. This may be called a project initiation document or a project charter. Dening the business case is also an important part of the initiation or denition stage of the project. Explain how a business case and a project initiation document would have helped prevent some of the problems that emerged during the conduct of the website redesign project.
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Lecture 26 - Project Management II
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Illustration 1 HomeDeliver is a nationwide company that sells small household goods to consumers. It produces an attractive, comprehensive catalogue which it distributes to staff known as catalogue supervisors. There are 150 of these supervisors in the country. Each supervisor has approximately 30 part-time home-based agents, who then deliver the catalogue to consumers in their homes. Agents subsequently collect the catalogue and any completed order forms and forward these forms to their supervisor. Payment is also taken when the order is collected. Payment is by cash or cheque and these payments are also forwarded to the supervisor by the agent. At the end of the week the supervisor returns completed order forms (and payments) to HomeDeliver. Order details are then entered into a computer system by order entry administrators at HomeDeliver and this starts an order fullment process that ends with goods being delivered directly to the customer. The supervisors and the agents are all self-employed. HomeDeliver rewards supervisors on the basis of how many agents they manage. Agents reward packages are based on how many catalogues they deliver and a commission based on orders received from the homes they have collected orders from. In August 2010 HomeDeliver decided to replace the physical ordering system with a new electronic ordering system. Agents would be provided with software which would allow them to enter customer orders directly into the computer system using their home personal computer at the end of each day. Payments would also be paid directly into a HomeDeliver bank account by agents at the end of each day. The software to support the new ordering system was developed in-house to requirements provided by the current order entry administrators at HomeDeliver and managers concerned with order fullment and invoicing. The software was tested internally by the order entry administrators. At rst, both the specication of requirements and initial software testing progressed very slowly because order administrators were continuing with their normal operational duties. However, as project delays became more signicant, selected order administrators were seconded to the project full-time. As a result the software was fully acceptance tested by the end of July 2011, two months behind schedule. In August 2011 the software was rolled out to all supervisors and agents. The software was claimed to be easy to use, so no formal training was given. A large comprehensive manual with colour screenshots was attached as a PDF to an email sent to all supervisors and agents. This gave detailed instructions on how to set up and use the software. Unfortunately, problems began to appear as soon as the agents tried to load and use the software. It was found to be incompatible with one particular popular browser, and agents whose computers used that browser were advised to use an alternative browser or computer. Agents also criticised the functionality of the software because it did not allow for the amendment of orders once they had been submitted. It emerged that customers often contacted agents and supervisors to amend their order prior to it being sent to HomeDeliver. This was no longer possible with the new system. Many agents also claimed that it was not possible to enter multiple orders for one household. However, HomeDeliver conrmed that entering multiple orders was possible; it was just not clear from the software, or from the instructions provided, how this could be achieved.
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Most of the agents were reluctant to print off the manual (preferring to read it on screen) and a signicant number claimed that they did not receive the email with the manual attachment. Agents also found quite a number of spelling and functionality errors in the manual. At certain points the software did not perform in the way the manual stated that it would. Internal standards at HomeDeliver require both a post-project and a post-implementation review. HomeDeliver does not have a benets management process and so a benets realisation review is inappropriate. However, it does feel that it would be useful to retrospectively dene the benets to HomeDeliver of the new electronic ordering system. Identify and discuss the potential benets to HomeDeliver of the new electronic ordering system.
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Lecture 27 - Project Management III
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Illustration 1 Explain briey the difference between the project sponsor and the project manager.
Illustration 2 ASW is a software house which specialises in producing software packages for insurance companies. ASW has a basic software package for the insurance industry that can be used immediately out of the box. However, most customers wish ASW to tailor the package to reect their own products and requirements. In a typical ASW project, ASWs business analysts dene the gap between the customers requirements and the basic package. These business analysts then specify the complete software requirement in a system specication. This specication is used by its programmers to produce a customised version of the software. It is also used by the system testers at ASW to perform their system tests before releasing it to the customer for acceptance testing. One of ASWs new customers is CaetInsure. Initially CaetInsure sent ASW a set of requirements for their proposed new system. Business analysts from ASW then worked with CaetInsure staff to produce a full system specication for CaetInsures specic requirements. ASW do not begin any development until this system specication is signed off. After some delay (see below), the system specication was eventually signed off by CaetInsure. Since sign-off, ASW developers have been working on tailoring the product to obtain an appropriate software solution. The project is currently at week 16 and the software is ready for system testing. The remaining activities in the project are shown in gure 1. This simple plan has been put together by the project manager. It also shows who has responsibility for undertaking the activities shown on the plan. The problem that the project manager faces is that the plan now suggests that implementation (parallel running) cannot take place until part way through week 28. The original plan was for implementation in week 23. Three weeks of the delay were due to problems in signing off the system specication. Key CaetInsure employees were unavailable to make decisions about requirements, particularly in the re-insurance part of the system. Too many requirements in this module were either unclear or kept changing as users sought clarication from their managers. There have also been two further weeks of slippage since the sign-off of the system specication. The CaetInsure contract had been won in the face of stiff competition. As part of securing the deal, the ASW sales account manager responsible for the CaetInsure contract agreed that penalty clauses could be inserted into the contract. The nancial penalty for late delivery of the software increases with every weeks delay. CaetInsure had insisted on these clauses as they have tied the delivery of the software in with the launch of a new
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product. Although the delay in signing off the system specication was due to CaetInsure, the penalty clauses still remain in the contract. When the delay was discussed with the customer and ASWs project manager, the sales account manager assured CaetInsure that the time could be made up in programming. The initial planned delivery date (week 23) is now only seven weeks away. The project manager is now under intense pressure to come up with solutions which address the project slippage. Evaluate the alternative strategies available to ASWs project manager to address the slippage problem in the CaetInsure project.
Illustration 3 Explain the purpose of each of the following: a post-project review, a postimplementation review and a benets realisation review.
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Lecture 28 - Forecasting & Analysis
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Illustration 1
The following information applies to a product: Total Cost 26,000 21,000 Level of Activity 20,000 10,000
Calculate the split between fixed costs and variable costs using the high/low method.
Illustration 2
ABC have the following total costs and units of production for the six month period in question. Total Costs $ 13,600 15,800 14,500 16,200 14,900 15,000 Units 2,100 2,800 2,200 3,000 2,600 2,500
January February March April May June
Analyse the data into fixed and variable costs using linear regression analysis
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Illustration 3
Using the information in illustration 2 calculate the correlation coefficient and the percentage change in costs that can be explained by changes in the level of activity.
Illustration 4
A business has had the following costs over the last year: Quarter 1 2 3 4 Calculate the average growth in costs over the year. Costs $000 150 192 206 245
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Illustration 5
A business has had the following sales over the last 5 years: Year 1 2 3 4 5 Calculate the average growth in sales over the year. Sales $000 160 195 220 245 270
Illustration 6
A business has had a 12% increase in sales results each year over the last 5 years. The sales in the current period were $100,000. Predict the sales for the following year.
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Illustration 7
A business has had a trend of sales increases of 5% per quarter over the last 5 years. The seasonal variations for each quarter are shown below Quarter 1 2 3 4 The sales in Q4 of the current year were $100,000. Forecast the sales for each of the 4 quarters of the next year. Seasonal Variation 25,000 -10,000 55,000 -70,000
Illustration 8
A business has had a trend of sales increases shown by the formula Y = 100 + 5X where Y = Sales in thousands and X is the quarter number. X1 was Quarter 1 of 2009 making X5 Quarter 1 of 2010. The seasonal variation is as shown below: Quarter 1 2 3 4 Seasonal Variation 1.10 0.94 1.06 0.90
Forecast the sales for each of the 4 quarters of 2011.
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Test Your Knowledge

1. The total costs of production at ABC Co. are $25,000 when 5,000 units are produced and $35,000 when 7,000 units are produced. Calculate the total fixed costs and the variable cost per unit. 2. Why might regression analysis be used by a business? 3. Are there any problems with regression analysis? 4. ABC Co. had sales of $435,000 in 2005 and $500,000 in 2010. Calculate the average growth in sales each year between 2005 and 2010. 5. What are the 4 elements of time series analysis? 6. A business has had a 7% increase in sales results each year over the last 5 years. The sales in the current period were $200,000. Predict the sales for the following year. 7. A business has had a trend of sales increases of 3% per quarter over the last 5 years. The seasonal variations for each quarter are shown below Quarter 1 2 3 4 The sales in Q4 of the current year were $500,000. Forecast the sales for each of the 4 quarters of the next year and the total sales for the year.. 8. Are there any problems with time series analysis? Seasonal Variation 35,000 -20,000 27,000 -42,000
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Test Your Knowledge Answers

1. The total costs of production at ABC Co. are $25,000 when 52,000 units are produced and $35,000 when 79,000 units are produced. Calculate the total fixed costs and the variable cost per unit. High/Low Method Total costs at high level of activity Total costs at low level of activity Difference Total units at high level of activity Total units at low level of activity Difference Variable cost per unit Fixed Costs Difference in Costs Difference in Units $25,000 - (52,000 x 0.37) 35,000 25,000 10,000 79,000 52,000 27,000 10,000 27,000 = $0.37 $5,760
2. Why might regression analysis be used by a business? To separate out fixed and variable costs. To establish relationships between different costs etc. in the business. 3. Are there any problems with regression analysis? The relationship must be linear to use it to predict anything. If results are outside the range of the data tested it will be less reliable. Its based on historic data so using it to predict the future may well not be appropriate. If a small amount of data is used in the analysis it will be less reliable. It assumes that Y can be predicted from X which is not always the case.
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4. ABC Co. had sales of $435,000 in 2005 and $500,000 in 2010. Calculate the average growth in sales each year between 2005 and 2010.
Average Growth [nValue in most recent period / Value in period 1] -1 [5(500,000/435,000)] -1 2.8%
5. What are the 4 elements of time series analysis? Trend - Underlying long term movement. Seasonal variation - Short term movements due to seasonal factors. Cyclical variation - Longer term cycles of movement. Random - Unexpected fluctuations due to unpredictable events. 6. A business has had a 7% increase in sales results each year over the last 5 years. The sales in the current period were $200,000. Predict the sales for the following year. Sales Prediction Sales in current year Trend in sales Forecast sales for following year $200,000 +7% 214,000
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7. A business has had a trend of sales increases of 3% per quarter over the last 5 years. The seasonal variations for each quarter are shown below Quarter 1 2 3 4 The sales in Q4 of the current year were $500,000. Forecast the sales for each of the 4 quarters of the next year and the total sales for the year. Seasonal Variation 35,000 -20,000 27,000 -42,000
Quarter 4 Current Period 1 2 3 4 Total Annual Sales
Trend
Seasonal Variation
Forecast 500,000
515,000 530,450 546,364 562,754 2,154,568
35,000 -20,000 27,000 -42,000 0
550,000 510,450 573,364 520,754 2,154,568
8. Are there any problems with time series analysis? The future is inherently unpredictable. All of the results are based on historic data which is not necessarily a good predictor of future results. Random events are ignored. All forecasting requires the use of judgements which are not necessarily correct.
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Lecture 29 - Interpretation of Financial Statements
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Illustration 1
2011 ASSETS Non Current Assets Inventory Receivables Cash $000 1000 300 200 300 1800 LIABILITIES Ordinary Shares Reserves Long term Liabilities Payables Overdraft 800 200 700 100 1800 $000 Revenue COS Gross Prot Other Costs Net Prot All sales are made on credit. Required: Calculate the Inventory, Receivables and Payables days for Inter Ltd. in each of the 2 years as well as the current and quick ratios. 1000 800 200 100 100 1900 $000 1200 1100 100 90 10 800 100 900 100 2010 $000 1000 400 300 200 1900
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Illustration 2
X1 X2 X3
Non Current Assets Current Assets
500 150 650
700 200 900
1000 300 1300
Ordinary Shares ($1) Reserves Loan Notes Payables
300 100 150 100 650
300 280 200 120 900
300 430 300 270 1300
Revenue COS Gross Prot Admin Costs Distribution Costs PBIT Interest Tax Prot After Tax Dividends Retained Earnings
3000 2000 1000 300 200 500 100 120 280 100 180
3500 2400 1100 350 250 500 150 90 260 110 150
4200 3200 1000 400 300 300 220 50 30 30 0
Share Price
$3.30
$4.00
$2.20
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Using the information on the previous page calculate and comment on the following Ratios: I. Return on Capital Employed II. Return on Equity III. Gross Margin IV. Net Margin V. Operating Margin VI. Revenue Growth VII. Gearing VIII. Interest Cover IX. Dividend Cover X. Dividend Yield XI. P/E Ratio
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Lecture 31 - Decision Trees
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Illustration 1
A student is deciding how to get to class and has 2 choices: 1. Walk to class which is free. 2. Take the bus costing $5. There is a 25% chance that it will rain and if it does the student will have to pay $10 to get their clothes dry cleaned. Draw a decision tree to assess whether the student should walk or take the bus.
Illustration 2
Say that the student in the above illustration could take an umbrella to avoid getting wet when walking but there is a 10% chance that the student will lose the umbrella costing $20 at college.
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Illustration 3
We have 3 choices, we can invest in stocks, bonds or put the money on deposit. The returns of each are sumarised below: Market Direction Up (50% chance) Even (30% chance) Down (20% chance) Return on Stocks $1,500 $300 -$800 Return on Bonds $900 $600 $200 Return on Deposit $500 $500 $500
(i) Calculate the expected value for investing in each of stocks, bonds and deposit. (ii)Select the best investment for each of the 3 possibilities i.e that the market goes up, goes down and is even and calculate the expected value of these best choices. (iii)Based on the above answers, what is the price of perfect information in this instance?
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Test Your Knowledge

1. What is a decision tree? 2. What is the decision? 3. What is the event? 4. How is each of the items outlined in Q2 & Q3 represented on the decision tree? 5. How is the value of perfect information calculated?
If youve successfully answered all of the above questions then youre ready to do the exam questions below: New area of the syllabus so no questions (yet!)
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Lecture 33 - Strategy & People II
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Illustration 1 Judy Sodhi is in her rst teaching year at the National College, a private college offering short courses in accounting, auditing and management. In her rst year Judy has primarily taught the Certicate in Managerial Finance. This is a three-day short course which ends in an externally set examination, marked and invigilated by staff employed by the Institute of Managerial Finance (IMF). The IMF also denes the syllabus, the length of the course and accredits colleges to run the course. There are no pre-conditions for candidates who wish to attend the course. Last year Judy ran the course 20 times with an average of nine students on each running of the course. At the end of each course every student has to complete a post-course evaluation questionnaire. Judy does not see these questionnaires and has received no feedback about her performance. As the college is a virtual organisation using serviced training rooms, Judy rarely sees her manager Blake Jones. However, he contacted her recently to suggest that they should conduct her rst appraisal and a date and time was agreed. Blake explained that it would be just a general chat looking at how the year had gone. We need to do one to satisfy the college and the IMF. The time of the appraisal was set for 3.00 pm, nishing at 5.00 pm. The appraisal did start with a general discussion. Blake outlined the plans of the organisation and his own promotion hopes. Judy was surprised to see that Blake was not following any standard list of questions or noting down any of the answers she made. She told him that one of her main problems was the numeracy level of some of the candidates. She recognised that the course had no pre-conditions, but it does require some basic mathematical skills that some of our candidates just do not have. After listening to Judy for a while Blake produced a statistical summary of the feedback questionnaires from the courses she had run in the last year. He said that the organisation expected its lecturers to attain an acceptable result in all 10 questions given in the postcourse questionnaire. An acceptable result is that 90% of all candidates said that they were satised or very satised with key aspects of the course. Judy had achieved this on seven of the questions but specically failed on the following performance measures; Percentage of candidates who felt that the course was relevant to their current job only 65% of your candidates felt that the course was relevant to their current job. Percentage of candidates who passed the examination only 8888% of your candidates passed the examination. Percentage of candidates who felt that the course pace was satisfactory only 75% of your candidates felt that the pace of the course was satisfactory. After expressing her surprise that she had not been given this information before, she immediately returned to the problem of numeracy skills. As I told you she said some of these students lack the mathematical skills to pass. Thats not my fault, it is yours you should not have let them on the course in the rst place. You are just lling the places to make money. After a heated discussion, Blake then turned to the last thing on my agenda. He explained that it was only college policy to give pay increases to lecturers who had achieved 90% in all 10 questions, so there would be no increase for Judy next year. However, he also needed to discuss her workload for next year. He produced a spreadsheet and had just begun to discuss course planning and locations in great detail
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when his mobile phone rang. I am sorry, Judy, I have to collect the children from school I must go. I will write down your planned course assignments and e-mail them to you. I think that was a very useful discussion. Overall we are very happy with you. See you at the endof-year party, and of course at next years appraisal. He left at 4.30 pm. Explain the concept and purpose of competency frameworks for organisations, assessing their potential use at the National College and the Institute of Managerial Finance.
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ACCA P3 - Business Analysis Workbook

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Lecture 1 - Strategy Formation

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Lecture 2 - External Factors

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Lecture 3 - Environmental Analysis

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Lecture 4 - External Environment I

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Lecture 5 - External Environment II

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Lecture 6 - Internal Environment

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Lecture 7 - Position Analysis

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Lecture 8 - Strategic Choice I

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Lecture 9 - Strategic Choice II

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Lecture 12 Pricing Strategy

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Test Your Knowledge

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Lecture 13 - Measuring Performance

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Lecture 16 - IT & Strategy

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Lecture 18 - Knowledge Management

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Illustration 1 Distinguish between data mining and data warehousing.

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Lecture 19 - Managing Supply Chain

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