Please note that these are not fully-worked model answers, but they are intended as a guide to the

type of answer expected.

The Association of Business Executives QCF

Corporate Strategy and Planning

Suggested Answers June 2012

STRUCTURE OF PAPER: Answer ALL FOUR sections SECTION A: Answer BOTH questions Q1 Q2 Either Q3 or Q4 Either Q5 or Q6 Either Q7 or Q8 20 marks 20 marks 20 marks 20 marks 20 marks 100 marks

SECTION B: Answer ONE question SECTION C: Answer ONE question SECTION D: Answer ONE question

TOTAL MARKS AVAILABLE FOR THE PAPER

Please note that these are not fully-worked model answers, but they are intended as a guide to the type of answer expected.
SECTION A Candidates must answer BOTH questions in this section. Each question carries 20 marks. Section A is worth 40% of the total marks available for the paper.

Question 1 Discuss how and why strategic planning issues might differ in each of the following organisational contexts: Q1 (i) The small business Here the issues primarily stem from the lack of resources and planning expertise. As a result strategic planning in the small business will often make use of outside consultancy help and may have shorter-term planning horizons and effective use of resources is essential. Planning is likely to be less formal. Competitive strategies are likely to be based on personal service and flexibility. Access to finance may be limited and hence growth strategies are often difficult. 5 marks The multinational Here resources and strategic planning expertise are likely to be substantial. Planning horizons in the multinational are likely to be longer and involve more complex decisions. Effective co-ordination and control of strategies is often more difficult and cultural and political elements of the environment are of particular importance. Issues such as standardisation vs. adaptation are likely to be important in competitive success. Service organisations Service organisations do not produce physical products, which means that customers often find it difficult to assess and choose between different service offerings. As a result competitive strategies often derive from the people element of the business. Effective human resource planning and staff training are particularly important in the service organisation as is protecting and enhancing corporate image. Controlling the quality of the service product is often difficult and requires effective systems of customer analysis and control. 5 marks Public sector organisations These organisations exist to serve the public and are generally not profitmaking. They include, for example, government departments and agencies, local authorities, hospitals and the police service. Strategic planning in such organisations is substantially influenced by political and regulatory issues. Planning is often very bureaucratic and inflexible and substantial attention needs to be paid to stakeholder issues. Strategic plans can be difficult to evaluate and control.

Q1 (ii)

5 marks

Q1 (iii)

Q1 (iv)

5 marks

Please note that these are not fully-worked model answers, but they are intended as a guide to the type of answer expected.

Q1

Total Maximum Marks for Question

20 marks

Please note that these are not fully-worked model answers, but they are intended as a guide to the type of answer expected.
Question 2 Q2 (a) Discuss each of the four elements of Porters Diamond in the context of competitive advantage in international markets, using examples to support your answer. Candidates should discuss each of the following elements, using examples to show how and why each element can form the basis of competitive advantage: Factor conditions Home market demand conditions Related and supporting industries Firm strategy, industry structure and local rivalry Q2 (b) Identify and explain any two key drivers of globalisation. Any key drivers which are relevant and justified are acceptable but examples include: Cost advantages: there is the potential for lower costs due to things like economies of scale, access to raw materials and lower labour costs. Global customers and market convergence: customer needs are now global due to improved communication and travel. Also, there is some degree of cultural convergence with respect to purchasing behaviour. Governmental and trade policies: governments increasingly support and welcome incoming investment and exporting. There has been a liberalisation of international trade through, for example, GATT conventions and trading blocs. Global competition: increased global competition means that organisations must become increasingly global in their own competitive strategies. Technology: developments in technology, such as the Internet and social networking, have facilitated global purchasing and communication. Even small companies can now market their products on a global basis. Q2 Total Maximum Marks for Question 12 marks

8 marks 20 marks

END OF SECTION A MAXIMUM MARKS FOR SECTION A: 40

Please note that these are not fully-worked model answers, but they are intended as a guide to the type of answer expected.
SECTION B Candidates must answer ONE question in this section. Each question carries 20 marks. Section B is worth 20% of the total marks available for the paper. EITHER Question 3 Many companies objectives are expressed in terms of some measure of profit. Q3 (a) Explain why profit maximisation is the dominant performance objective in many companies. A range of reasons may be given, but these examples are amongst the ones most frequently used to support the pre-eminence of the profit objective: Ensures effective use of scarce resources Profits necessary for continued survival/existence Necessary to satisfy existing investors/shareholders and attract new ones Necessary for funding future growth Payment of creditors /staff/tax authorities

Candidates should explain why these reasons can be used to support the pre-eminence of the profit motive. 5 marks Q3 (b) Discuss five other areas in which a company might legitimately set objectives for corporate performance. Examples of other key areas of corporate performance are: Company growth: A major objective in many organisations is growth. Growth helps attract investors; it provides motivation and opportunities for employees; and it helps prevent complacency and stagnation. Market share: Market share is strongly related to profits and is a good benchmark for assessing corporate performance against competitors. Market share performance helps distinguish company performance from any environmental factors affecting performance. Corporate stability/survival: Especially in times of economic recession, stability and survival may be key objectives of corporate performance. Sometimes growth or even profits are simply not realistic, and company survival then becomes a key objective until the economic environment is more conducive to growth and profits. Survival objectives can also become central where a company is threatened by unforeseen events such as a major pollution incident or the threat of nationalisation. Corporate image/reputation: Many companies have objectives with regard to protecting and sometimes enhancing their image and reputation. This can be helped by, for example, strong Corporate Social Responsibility policies and strategies including developing ethical approaches to doing business. Marketing and PR activities are also important in preserving and

15 marks

Please note that these are not fully-worked model answers, but they are intended as a guide to the type of answer expected.

enhancing corporate image and reputation. Technological and innovation leadership: Achieving technological and innovation leadership is the key to success in many markets .An example is Apple, which in recent years has achieved substantial success based on its lead in many areas of computing and communications technology. Q3 Total Maximum Marks for Question 20 marks

Please note that these are not fully-worked model answers, but they are intended as a guide to the type of answer expected.
OR Question 4 A mission statement describes the overriding purpose of an organisation, so it needs to be carefully thought through and written. Q4 (a) Identify and justify five key characteristics of an effective mission statement. The following are five key characteristics of an effective mission statement: It should be general in content and encompass the organisations reason for existence It should be visionary and relatively long term It should state the key values of the organisation It should reflect the interests of all the stakeholders in the organisation It should be such that the organisation has both the intention and the capability of fulfilling the mission Q4 (b)

10 marks

Discuss five key factors which might influence an organisations mission statement. The following are five key factors which might affect an organisations mission statement: The values of senior management Stakeholder values and expectations Legal and regulatory requirements Wider ethical and social responsibility issues Corporate governance arrangements

10 marks 20 marks

Q4

Total Maximum Marks for Question

END OF SECTION B MAXIMUM MARKS FOR SECTION B: 20

Please note that these are not fully-worked model answers, but they are intended as a guide to the type of answer expected.
SECTION C Candidates must answer ONE question in this section. Each question carries 20 marks. Section C is worth 20% of the total marks available for the paper. EITHER Question 5 ABC Engineering recently appointed a new chief executive in an effort to improve the performance of the company. After analysing the company, the new chief executive and his senior management team have developed a new corporate strategic plan. The new plan will involve radical changes to the overall direction and strategies of the company, how it is managed and its operating systems and procedures. Q5 (a) Discuss the likely reasons why the planned changes may be resisted by individuals in the organisation. The following are likely to be the main reasons why the planned changes may be resisted: Protecting the status quo and vested interests Fear of having to learn new skills and expertise Habit/inertia Fear of redundancy/job losses 8 marks Q5 (b) Discuss how this possible resistance to the proposed changes could be reduced. The following are the main ways to reduce resistance to the planned changes: Involvement of, and communication with, those affected by/involved in the changes Explaining the need for/benefits of the changes to those affected/involved Commitment and support of senior management Provision of necessary training resources and incentives to implement changes Use of appropriate change management techniques, e.g. Scheins Unfreeze-Change-Refreeze, Lewins Force Field Analysis Use of internal and/or external change agents Total Maximum Marks for Question

12 marks 20 marks

Q5

Please note that these are not fully-worked model answers, but they are intended as a guide to the type of answer expected.
OR Question 6 Discuss each of the following tools of financial appraisal in the context of evaluating and controlling strategies: Q6 (i) Return on capital employed Candidates should demonstrate that this technique enables the evaluation and control of strategies by calculating the investment required for each strategy and then comparing this with forecast and/or actual profits for the strategy and expressing this as a percentage. This technique enables the relative profitability of different strategies to be evaluated and controlled. Limitations include: difficulties in forecasting costs and profits and no consideration of the time value of money. Q6 (ii) Discounted cash flow analysis Candidates should demonstrate they understand that this technique takes into account the time value of money. Specifically, it recognises that the value of future income flows is normally reduced the further into the future they are received. In assessing the financial return of strategies, this technique uses a discounting factor to reduce the value of future income flows. This enables future projected income flows over the life of a strategy to be progressively discounted and then totalled to arrive at the Net Present Value (NPV) of the strategy. This technique is particularly suited to evaluating and controlling strategies with varied patterns of expenditure and return. The main limitation of this technique is in forecasting future patterns of income flow and in determining the appropriate rate of discount. 5 marks

5 marks

Please note that these are not fully-worked model answers, but they are intended as a guide to the type of answer expected.

Q6 (iii)

Cost-benefit analysis Candidates should demonstrate they understand that this technique of financial appraisal enables the evaluation and control of strategies not just by considering financial profits and costs. This technique takes into account the wider often intangible costs and benefits associated with a particular strategy. For example, a strategy involving the opening of a new factory may benefit a local community by bringing the prospects of employment whilst at the same time bringing costs in the form of increased road congestion. Cost-benefit analysis involves placing a monetary value on all the costs and benefits of a particular strategy. The major problem with cost-benefit analysis is the difficulty of identifying and placing a monetary value on all the different potential costs and benefits of strategies.

5 marks

Q6 (iv)

Funds flow analysis Candidates should demonstrate that they understand that this technique of evaluating and controlling strategies is based on assessing the profile of the funds flow associated with a particular strategy. Funds flow analysis assesses both outgoing and incoming flows of income forecast to be associated with a strategy. The intention is to assess, for example, the net funds flow associated with a strategy and, hence, what funding is likely to be required, when and from what sources. The primary intention is to ensure that a strategy can be funded and that it does not give rise to cash flow problems. The limitations of funds flow analysis are associated with the problems of forecasting future patterns of funds flow and the limited focus on cash flow only.

5 marks 20 marks

Q6

Total Maximum Marks for Question

END OF SECTION C MAXIMUM MARKS FOR SECTION C: 20

Please note that these are not fully-worked model answers, but they are intended as a guide to the type of answer expected.
SECTION D Candidates must answer ONE question in this section. Each question carries 20 marks. Section D is worth 20% of the total marks available for the paper. EITHER Question 7 SWOT analysis is central to the process of corporate strategic planning but is often badly done. Q7 (a) Outline the scope of SWOT analysis and explain its importance in the strategic planning process. Scope Candidates should show they understand that the scope of SWOT analysis includes an assessment of: Internal strengths and weaknesses including the assessment of skills and expertise, products and brands, cash and capital and market position External opportunities and threats deriving mainly from macro environmental forces and factors, e.g. Political, Economic, Social/Cultural, Technological, and Legal, and micro environmental factors, e.g. competitors, customers and suppliers Examples of opportunities and threats from PESTL factors

Importance Overall: Enables the development of sustainable strategies to ensure the long-term survival of the organisation Specifically: Provides a systematic framework for focussing on and analysing complex information regarding an organisations internal strengths and weaknesses and the external opportunities and threats Enables the assessment of strategic fit and the identification of action strategies to achieve/maintain this by matching strengths to opportunities and by converting weaknesses to strengths and threats to opportunities* Examples of the importance of SWOT in identifying and/or missing opportunities and threats and converting weaknesses into strengths or threats into opportunities (* N.B. Some candidates may use a diagram to explain this but this is not obligatory.) 10 marks

Please note that these are not fully-worked model answers, but they are intended as a guide to the type of answer expected.

Q7 (b)

Explain how the planner can improve the effectiveness of the SWOT analysis. SWOT analysis can be made more effective as follows: Be objective/use outside consultants Ensure comparison with competitors Conduct SWOT analysis on a regular/systematic basis Use effective and up-to-date information and intelligence Ensure there is adequate staff training and expertise

10 marks 20 marks

Q7

Total Maximum Marks for Question

Please note that these are not fully-worked model answers, but they are intended as a guide to the type of answer expected.
OR Question 8 Q8 (a) Outline the scope of a PESTEL analysis and explain its importance in the strategic planning process. Scope Candidates should show they understand that the scope of PESTEL analysis includes an assessment of: Political factors Economic factors Social/cultural factors Technological factors Environmental factors Legal factors Importance Overall: This analysis enables the identification of the strategic issues arising from factors outside of the control of the organisation, from trends and changes in the environment Specifically this analysis is important because it helps the planner to: Identify trends and changes which will require the organisation to respond to opportunities and threats Identify the range of possible strategies required to respond to these changes

10 marks

Q8 (b)

Explain how the planner can improve the effectiveness of the PESTEL analysis. PESTEL analysis can be made more effective by: Being objective/using outside consultants Conducting it on a regular/systematic basis Designing effective scanning and forecasting systems Ensuring there is adequate staff training and expertise Ensuring PESTEL analysis is incorporated into strategies and plans

10 marks 20 marks

Q8

Total Maximum Marks for Question

END OF SECTION D MAXIMUM MARKS FOR SECTION D: 20 TOTAL MAXIMUM MARKS: 100