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CIMA E3 Enterprise Strategy These notes are not intended to cover the whole of the E3 syllabus
1
Email: darrensparkesnotes@sky.com
Prepared by Iton Chicheke
Notes
SMART
Stratey
Enterprise
!E"E!
PAPER E# $ STRATE%IC
CIMA
Darren Sparkes, 2010
CIMA E3 Enterprise Strategy These notes are not intended to cover the whole of the E3 syllabus
Co!plete a thorough analysis of the pre%seen !aterial$ As a start point you could conduct a
corporate appraisal
=S;3T? of the organisation in .uestion9 that is9 a full internal and e'ternal analysis =see pages 1& and
1( of these notes?$ This should help you to recognise the !a4or issues affecting the organisation$ 2ay
particular attention to any
nu!bers and what they !ay tell you about the organisations perfor!ance and position$
Bou should avoid too !uch e!phasis on the research of industry infor!ation$ Ceave that for your T&
T32CIMA
e'a!inationD
5ro! your analysis9 identify the related syllabus areas and learnEreview the! in light of the position and
proble!s of the organisation$
Bou can now conduct so!e scenario planning$ Thin1 of the different scenarios that could appear in
the un%seen !aterial and the re.uire!ents that could be as1ed by the e'a!iner$ 8e!e!ber that there is
li1ely to be at least four
separate re.uire!ents$
2ractice your approaches to answering the scenarios that you have identified$
0e warned9 identifying li1ely re.uire!ents is a dangerous occupation$ It is done here for you to start
thin1ing !ore widely about the pre%seen !aterial$ 3nce in the e'a! roo! you !ust %&'(S &) *H+
A'*(A, R+-(.R+/+)* .)
*H+ -(+S*.&) and avoid re!licatin0 an answer to a different re#uirement that you had !re!ared
for.
2urchase a revision 1it fro! one of the big tuition providers that contain a nu!ber of !oc1 e'a!s
=probably around , different un%seen scenario<s? based upon the actual pre%seen !aterial and practise as
!any as you can to ti!e$
3nce the real e'a!ination pre%seen !aterial has been released by CIMA you should do the following in
preparation for
the e'a!F
1ealin0 with the !re$seen material
The !ost significant change in the new E3 paper is the addition of :pre%seen< case study !aterial for
Section A =scenario co!!on to all three strategic papers?$ This will be available for students to download
fro! www$CIMAglobal$co! around , wee1s prior to the e'a!ination$ The pilot paper pre%seen !aterial
has five pages$ 3nce in the e'a!ination there will be additional :un%seen< case study !aterial and the
re.uire!ents$ The pilot paper contains two pages of :un%seen< !aterial$
Darren Sparkes, 2010
These notes are not intended to cover the whole of the E3 syllabus
CIMA E3 Enterprise Strategy
(
P6)
CIMA
for
(Co-examiners
be reware
poin!s wi"" ne#er
paper, an a series of brief
answers !o !$is
$i%$"&'(
in
esirab"e
is
ar%)men!
of
ep!$
!$a!
re*o%nise
s$o)"
+,*ania!es
mana%emen! a**o)n!in%'(
in !$e *on!ex! of
s!ra!e%&
b)siness
in
exam
an
i!(s
exam-
s!ra!e%&
#er& *"ear' I! isn(! a b)siness
b)siness mana%emen! pi""ar, b)! i!s !i!"e is
+I!(s eas& !o %e! *arrie awa& wi!$ a"" !$e moe"s *o#ere in !$e
(P6) s&""ab)s
an for%e! w$& i!(s !$ere in !$e firs! p"a*e' .$e s&""ab)s is a! !$e
!op of !$e
Approach
8e.uired
+/#era"" !$is paper is a ba"an*e !es! of !$e ke& s&""ab)s areas an
*o#ers a n)mber of we"" )se s!ra!e%i* !oo"s an moe"s'
Cania!es s$o)" no! fin an& s)rprises in !$is paper an a we""
prepare *ania!e s$o)" $a#e no iffi*)"!& in bo!$
emons!ra!ion of s&""ab)s know"e%e an in !$e app"i*a!ion of !$is
!o !$e #ario)s examina!ion s*enarios'(
Darren Sparkes, 2010
CIMA E3 Enterprise Strategy These notes are not intended to cover the whole of the E3 syllabus
,
0imi!e app"i*a!ion
1enera" is*)ssion of !$e pro*ess of *ompe!i!or ana"&sis
2n3)s!ifie re*ommena!ions in !erms of w$& !$e& were appropria!e !o !$e s$or! or "on% !erm
4o! answerin% !$e 5)es!ion se!
Ins)ffi*ien! app"i*a!ion
Des*rip!ion ra!$er !$an e#a")a!ion of !$e propose s!ra!e%ies
0imi!e6no app"i*a!ion
7e*ommena!ions wi!$ no6"imi!e 3)s!ifi*a!ion
In*")in% a ran%e of s!ake$o"ers no! in*")e in !$e s*enario informa!ion
Some repe!i!ion of poin!s mae be!ween ea*$ s)%%es!ion
Imba"an*e is*)ssions of s)%%es!ions
0imi!e6no 3)s!ifi*a!ion of re*ommene *o)rse of a*!ion
Par! * a repea! of answer !o par! b
Se*!ion 8
Technology
Supporting
3rganisation of
Strate0ic 6rid
"usiness 9rocess
G9.'4=
areas
%unctional
' Econo!ies of scale
' Specialists with so!e autono!y
' Career structures
' 5rees up entrepreneur
M Slow decisions =bureaucratic?
M 5unctional silo<s
M 5ew products N !ar1ets
I!ple!entation Issues cont<d
1ivisional
' Multiple products N
!ar1ets
' Autono!y for S0K
!anagers
' Training of S0K !anagers
' 5rees up senior !anagers
' 5ocus on specific productsE!ar1ets
M Coss of congruence7
M "uplication of effort
M Isolation of S0K
!anagers
+ntre!reneurial
' 8esponsive to !ar1et
M )o career structure
M )o autono!y
M Single product N !ar1et
Career
E!ployee !otivation
"ecisions
Huality
5le'ibility
Autono!y
S Strategy
* Technology
& 3wnership
9
* Tas1s
. Ideology
+ Environ!ent
S SiAe
'entralised vs 1ecentralised
Speed
Motivation of
6reinerFs
6rowth /odel
/intHber0
'onfi
Str
Techno% structure
contact
&r0anisational
Structure
Congruence
'hecklist
5eatures of
3rganisation
/atrix
' Shared 1nowledge
' Innovation and creativity authority
1ecentralisation
S!an of control
Fs Structural
'onfi0urations
AdvantagesF
& 5rees senior !anage!ent
& 0etter local decisions
& 0etter !otivation
& 5le'ibility
& TrainingEcareer path
5latE;ide
' Encourages delegation
' Huic1er9 !ore infor!ed decisions
' Encourages participation
of lower levels
' Cower !anage!ent costs
' 2ro!otions real and !eaningful
' Closer contact between
senior !anage!ent and lower levels
TallE)arrow
' 2ro!otional opportunities
' S!ooth progression between levels
' More personal
aff
& Si!ple structure I
& Machine bureaucracy
I functional
& 2rofessional
decentralised
& "ivisional for!
3perating core
"isadvantagesF
& Coss of congruence
& "uplication of effort
& E'tra costs of control
6rowth through 8evolutionary Crisis
"irection Autono!y
Coordination 8ed Tape
Darren Sparkes, 2010
These notes are not intended to cover the whole of the E3 syllabus
CIMA E3 Enterprise Strategy
3
2sychological saturation
Collaboration
Control
"elegation
Ceadership
Creativity
&
Coss of control
Adhocracy I !atri'
&
bureaucracy I
St
Middle Cine
structure
Support
Strategic Ape'
entrepreneurial
Ti!e consu!ing !eetings
M
"ual co!!and
"ilution of functional
M
M
'
S1ill develop!ent
'
0rea1down of silo<s
2eople
!anagers
path
'
Congruence
'
5ast decisions
/arket ,eader
% largest !ar1et share
Supplier Mar1ets
8ecruit!ent
Mar1ets
Influence
Mar1ets
Internal
Mar1ets
G9ayne=
Six
/arketin0
Strate0y
Analyse environment and com!etitors 2EST
E 2orter<s five forces E
283SAC E &2<s
8eferral Mar1ets
/arket 'hallen0er
increase share
Custo!er
Mar1ets
/arket %ollower
% runner%up9 ai!ing to hold share
Kndifferentiated
ing to the
/arket Se0mentation and
*ar0et /arket
#division of the !ar1et into ho!ogenous groups of potential custo!ers who !ay be treated si!ilarly for !ar1eting purposes
& 6eographic
& "e!ographic
o Age
o 6ender
o Inco!e
o 5a!ily life%cycle
& Social class
& 2sychological
& Education
& >obbies
2roduct
Sales
%irmFs orientation
Mar1eting
#identify9 anticipate and satisfy custo!er re.uire!ents
/arket nicher
pursued by larger fir!s
'om!etitive
Strate0ies
2roduction
Co!!unications Mi'F
Sales pro!otion 2ublic relations 2ersonal selling
A Awareness
1 "esire
A Action
/arketin0
Kse of inter!ediariesF
& Econo!ic criteria
& Control criteria
/arketin0 Research
#syste!atic gathering9 recording and analysing of data about proble!s relat
!ar1eting of goods and services
9romotion
9lace
"ifferentiated
/arketin0 /ix < 79Fs
#set of controllable !ar1eting variables used to produce desired response in the target !ar1et
Concentrated
9rice
%ield Research =2ri!ary data?
Interviews9 focus groups9 .uestionnaires9 e'peri!ents9 Test !ar1eting
1esk research
=secondary data?
9roduct #ualities
range9 warranty9 pac1aging9 branding
E'ternal CS3 reports9 0usiness !onitors9 Trade 4ournals9 newspapers
Internal Accounts9 Sales reports9 Custo!er co!plaints
& Cost based
& Target pricing
& "iscri!inatory pricing
& 2sychological pricing
& 2ro!otional pricing
& 2roduct line pricing
& Captive product pricing
& Mar1et s1i!!ing
& Mar1et penetration
9roduct
2roduct Cife Cycle
2roduct to !eet needs
Cine E'tension 0rand E't
Multi%branding )ew 0rand
E'isting 2roduct )ew 2roduct
0rand Strategies
E'isting 0rand Cine E'tension 0rand E'tension
)ew 0rand
2roduct
Darren Sparkes, 2010
These notes are not intended to cover the whole of the E3 syllabus
CIMA E3 Enterprise Strategy
&
!i'
5eatures9 options9
Advertising
Interest
.
% serve s!all seg!ent9 not
Six /arkets /odel
% runner%up9 fighting to
2rofits fro! sales o individual products
Calculating "22
Sales =price ' nu!ber of units returns?
,+SSE
'osts =unit cost P ordering
P inventory P storage P transport P shelf stac1ing P wastage P brea1age?
I!proving "22F
& Increase sales price
& Increase sales volu!e
& 8educe costs of stoc1ing
& 3ffer incentives
Evaluation of "22F
& Easier and cheaper to cut price
& Ignores relationships between products
f
"22 "irect 2roduct 2rofitability
ConsiderF
& 2resent value of e'isting N future purchases
& 2robability of custo!er retention
& 2robability of custo!er purchasing new products
& Costs of initial attraction
"rawbac1sF
& >ard to factor in co!petitors
& "ifficult to pinpoint life%cycle stage
& Kncertainty of environ!ental factors
Typical cost driversF
& "e!and uncertainty
& "elivery cycle
& 3rdering !ethod
9roduct 3iew
9rofitable
9roducts or
'ustomersM
Single period view of
Account
2rofitability
'ustomer 3iew
Cife%Cycle custo!er value
& Mini!u! order siAe
& Install telesales E E"I
& Charge service fees
& I!pose flat order charge
& "iscri!inatory pricing
custo!ers
1$ Analyse custo!er base and divide into
$ Calculate annual revenues earned fro! custo!er seg!ents
3$ Calculate annual costs of serving the seg!ent including the :hassle< factor
&$ Identify and retain :.uality< custo!ers
($ Eli!inate or re$en0ineer unprofitable
"eveloping Custo!er 8elationshipsF
& 1evelop custo!er retention sche!es for staff
& Reduce staff turnover
& +levate custo!er retention in corporate thin1ing
& Analyse detailed infor!ation on
custo!ers and their buying habits
& /onitor custo!er relationships
& +ngage with custo!er
& 1evelop ideas to increase loyalty
1R+A/+1
Evaluation of CA2F
Includes non%production costs
Identifies custo!er groups of value to the fir!
Enables assess!ent of value of !ar1eting e'penditure
changes
M Calculation difficulties
M Single period view
5ocus !ar1eting
!aintaining N
custo!er base
Custo!er
Mar1eting E
Darren Sparkes, 2010
These notes are not intended to cover the whole of the E3 syllabus
CIMA E3 Enterprise Strategy
(
enhancing e'isting
resources on
Ceads to ill%4udged product
M
Manage!ent
8elationship
seg!ents
value of custo!er
CA2 Custo!er
&
2roduct siAe
&
>ard to predict future behaviour
than conduct "22 e'ercise
&
Too product focussed
' Confidentiality
& 3b4ectivity
9 2rofessional due care
9 2rofessional Co!petence
. Integrity
* Threats
E.ual opportunities
Consu!er health and safety
9rofessional +thics
:Self control9 not self interest<
5air Trade
Safety in the wor1place
>onesty in Advertising
Environ!ent
8eputation
Innovation N and branding
advantage in the
ideas fro!
supply chain
"usiness and
9rofessional
+thics
Sustainability
'or!orate 6overnance
& "ivorce of ownership and control
& Separate roles of CE3 and Chairperson
& Audit Co!!ittee E 8e!uneration Co!!ittee
& )on%e'ec "irectors
o Independent
o 8ole on audit E re!uneration
co!!ittees
o Corporate conscience
o Mentors to ine'perienced e'ecs
o Strategic value through e'pertise
Issues
'or!orate Social
D*he bu business is
Giews on 0usiness Ethics
D*he business of businessF
Manage!ent to concentrate on !a'i!ising profits and shareholder wealth$
0usinesses have no duty to society$
Societal benefits will arise as a result of co!!ercial success$
Co!petitive advantage
S!all co!pany
close lin1s to co!!unity
Avoid future 6overn!ent policy
+nli0htened Self$.nterest
5ir!s should ac1nowledge their social responsibilities$
8ecruit!ent
"enefits to "usiness
8elieve stress on
Attract ethical investor funds
Co!petitive disadvantage
)o universal acceptance of !orals N ethics
Conflict of CS8 with shareholder wealth
& 8educed revenues
& Increased costs
& "iverts funds fro! shareholders
& "istracts !anage!ent
"is
9otential !roblems
"eciding what is ethical
"isclosure of business infor!ation
0ad publicity fro! !onitoring and enforce!ent
Darren Sparkes, 2010
CIMA E3 Enterprise Strategy These notes are not intended to cover the whole of the E3 syllabus
,
!anage!ent
G%riedman=
Res!onsibility
&
"irectors re%election at least every 3 years
9olitical sponsorship
9olitical power
Saturated ho!e !ar1et
&pportunities for lower costs
Reasons for 0rowth in international business G9&S*=
'
"i
&
*rade barriers reduced
pportunities for !anage!ent
2EST
Mar1et @nowledge
+cono!ies of scale
ultural versity
5inancial
Reduced ris1
283SAC
"enefits of international 0rowth G'&99+R=
6eneral
( 5orces
9ressure on
83CE
5actor Conditions
8elated N supporting industries
Strategy9 structure9
N rivalry
9orterFs
1iamond
:)ational Co!petitive Advantage<
"e!and Conditions
+x!ortin0
' Cow capital outlay
' Can learn about !ar1et
M 2erceived lac1 of co!!it!ent
M >igh distribution costs
*he .nternational
/arket 9lace
' Efficient use of >89 builds strong culture and !anage!ent
networ1
M Sub4ect to )ational i!!igration policies9 e'pensive
' Alleviates cultural !yopia9 ine'pensive
M Ci!its career !obility9 isolates >H
fro! subsidiaries
' 3verco!es lac1 of host s1ills9 unified culture9 Transfers co!petencies
M 8esent!ent by host9 cultural !yopia
S*A%%.)6
Ooint venture9 5ranchising9 5oreign "irect Invest!ent
E'porting
& Standardise wherever possible9 e$g$ 8n"9 0randing
& Mar1et convergence !ay allow
standardised product
& "(*
& 1emand$driven
& Custo!ised !ar1eting !i' where necessary I 6C3CAC
& See overseas !ar1et as distinctive
& Custo!ised products and
!ar1eting !i'
& Increased overseas sales volu!es
"(*
& 5ewer E3S giving higher costs9 so volu!es not turned into profits
& 2erceives foreign !ar1ets as si!ilar to do!estic !ar1et
& 2roducts N !ar1eting !i'
constant
& Standardisation to save ti!e and !oney
& Su!!ly$driven !olicy
6lobal $ 6eocentric
/ultinational $ 9olycentric
+thnocentric
/ethods of .nternational +x!ansion
Noint 3enture J %ranchisin0
' Access to local resources
' Shared capital input 1nowledge
M Cose co!petences
M 3perational disputes
%orei0n 1irect .nvestment
' Closer to !ar1et
' More control
M >igh financial ris1
M Integration difficulties
Darren Sparkes, 2010
These notes are not intended to cover the whole of the E3 syllabus
CIMA E3 Enterprise Strategy
-
Staffing decision
M
'
8educed operational conflicts
'
8etain profits
Train co!petitor
M
Shared profits
M
'
Access to co!petences and
'
8educed national senti!ent
May not !eet custo!er needs
M
'
Cow ris1
risks
2
Aims of !erformance measuresE
& Motivation
& Congruence
& Accurate reflection of perfor!ance
& AccountabilityEControllability
& 8econcile long and short%ter!
*ransfer 9ricesE
& /ar0inal 'ost no incentive for seller N inflated profit for buyer
& %ull 'ost G'ost 9lus= !ay be no
incentive for the buyer N no incentive for seller to control costs
& /arket !rice no buyer incentive
& &!!ortunity 'ost usually best
& 'entrally set uncontrollable
& )e0otiated powerful divisions
9roblemE
no account ta1en of invested capital used to generate profits
Return &n
.nvestment
Residual
E'a!ples
& 6ross !argin
& )et !argin
& Cost L sales
20IT J 1** I L CE
20IT
8I
8elative Measure L
Absolute Measure R<s
2rofit 8elated Measures
9roblemsE
& Sub%opti!al invest!ent decisions
& "eplete capital assets too early
9roblemsE
& Absolute !easure poor for perfor!ance co!parisons
Review and 'ontrol
Noint issues when used in isolation
& 0ac1wards loo1ing !easures
& Short%ter!ist decisions
& 3pen to easy !anipulation of discretionary costs and capital e!ployed
5inancial 2erspective
Custo!er
2erspective
Internal 0usiness
2erspective
Innovation and
Cearning 2erspective
1$ Identify CS5<s
$ Identify co!petences re.uired for CS5<s
3$ "evelop @2I<s for co!petences
&$ Measure co!petence
($ Ta1e action continuous i!prove!ent
Ad4usted )32AT
=Ad4usted CE ' i!puted interest rate? EGA
The business should be shareholder wealth i$e$ all
Shareholder
3alue Analysis
+conomic 3alue
Added G+3AC=
9otential
1rawbacks
with each other
M 8e.uires cultural change
M 3verload
analysis<
M Ti!e and cost
M )o obvious relationship with shareholder wealth
'onclusion
!easure perfor!ance but should be co!bined with
*he "alanced Scorecard
"enefits
' Conger%ter! !easures
' More difficult to !anipulate
' Measures deter!inants and
' 2ro!otes goal
' Includes sta1eholders
!anaged to increase activities and processes
Darren Sparkes, 2010
These notes are not intended to cover the whole of the E3 syllabus
CIMA E3 Enterprise Strategy
/
:paralysis by
Measures conflict
M
non%financial !easures$
5inancial !easures should not be used in isolation to
congruence
results
&
2rofit
=CE ' i!puted interest rate?
GR&.=
.ncome GR.=