1.

THE NATURE OF BUSINESS VALUE

a. Societal value
QUESTION
Explain how a company might add to its perceived value among the society in which
it operates.
ANSWER
You may think of a different answer, but a company may seek to improve both its
reputation with society and also add to employee value by creating a workplace
environment that is free from pollution and safe to work in.
One global company producing soaps and detergents is working in countries in Asia
and Africa to develop the use of soaps that improve health and also use less water,
where water is a scarce and valuable commodity.
b. Buying department
QUESTION
Explain how a buying department provides support to the primary activities in the
value chain and how else the department might add value.
ANSWER
The buying department should ensure that the raw materials needed for operations
are available, to the correct specification and quality standard, when they are
needed.
The department may also add value by negotiating lower prices for materials from
suppliers.
It may also add value by saving costs in the stores department, by avoiding
overbuying and excessive inventory levels.
c. Restaurant value chain
QUESTION
Explain how the value chain for a restaurant might differ from the value chain for a
manufacturing company. How might the owner and manager of a restaurant seek to
add value for the business?
ANSWER
Unlike a manufacturing company, a restaurant will hold only small amounts of food.
Its 'inward logistics' activities will therefore be limited.
Unless it delivers 'take-away' food to customers' premises, it will have no outward
logistics activities at all.
A restaurant is a small business, and its firm infrastructure and technology
infrastructure will also be limited in scope.
A restaurant manager may try to add value in any of the following ways:
Buy food products from its suppliers at lower prices
Improve the decoration and atmosphere in the restaurant, and improve the quality of
service, so that customers enjoy their meals and are more likely to return in the
future
Increase the range of dishes served, in order to attract more customers

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 Offer reduced prices on certain days of the week when business is quiet, in order to
attract more customers
Open a new restaurant, in a different part of the town or in another town, in order
to sell more meals
Improve the quality of the food produced, and so have an opportunity to raise
prices
Eliminate items from the menu that are creating negative value where sales of
the menu item are less than the costs of having the item on the menu
The value chain is a useful model because it helps management to see the business
as a whole, and to:
Compare value activities with those of its competitors
Identify potential sources of creating competitive advantage by improving aspects
of the value chain
Find new or better ways to do activities
Combine value activities in better ways
Improve the linkages between activities in the value chain

d. Value chain
QUESTION
Explain the meaning of the value chain and how an understanding of the value
chain can be helpful for management.
ANSWER
A value chain refers to interconnected activities within an organisation that create
value.
Porter suggested that activities within an organisation can be analysed into different
categories.
Value can be created by any of these activities.
Management should analyse these value-creating activities, and identify where the
organisation is most effective at creating value, and where it is least effective.
Management can identify which activities give them a competitive advantage over
rivals.
By analysing value-creating activities, decisions can be made about:
How the creation of value can be improved and more value created
How to improve competitive advantage over rivals
Whether some activities should be stopped because they cost more than the value
they create, and so destroy value

CASE STUDY
The power of stakeholders
Nike, producer of sports goods and sportswear, has been accused of using
subcontractors who employ people in countries such as Pakistan, Indonesia and
Bangladesh for very low rates of pay and in poor working conditions.
The accusations were first publicised in the early 1990s.
In 2011 it was reported that sub-contractors of Nike used child labour for making
footballs in Pakistan and running shoes in Indonesia.
Eventually, the general public in the US and Europe reacted to the adverse publicity
created by these reports, and people were encouraged to avoid buying Nike products.
The influence of the general public had spread to customers.
Nike responded by insisting that its suppliers in Asia should provide minimum
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standards of working conditions for their employees.
Public pressure and customer pressure persuaded the management of Nike to act to
improve their supply chain.

e. Resources
QUESTION
State some examples of a rare resource that can provide competitive advantage.
ANSWER
Ownership of extraction rights to a deposit of a scarce and valuable mineral
A worldwide patent giving rights to a valuable product or process

PROGRESS TEST
1. The main objective of a commercial company is often seen as the objective of
maximising _________________ value.
2. Value = __________________ minus _________________________.
3. Return = added value minus _______________________________.
4. The provision of training to employees is one way in which the
_____________________ function can add value for a business organization.
5. A retailing company has a database of the buying preferences and buying
habits of a very large number of customers. Rival retailing companies do not
have databases that are as large or as sophisticated. This database is an
example of:
A. A threshold resource
B. A unique resource
C. A threshold competence
D. A core competence
6. In Mendelow's stakeholder map, in which part of the matrix would you put a
small supplier that sells a large part of its output to a company but the goods
that it sells are easily obtainable from other suppliers if necessary?
A. Low interest, low power
B. High interest, high power
C. Low interest, high power
D. High interest, low power
7. According to Porter, when a company uses a valuable resource to create a
competitive advantage, it has a ____________________________ that rival
companies do not have.

ANSWERS TO
1. Shareholder
2. Revenue from sale of products and services minus cost of bought-in materials
3. Cost of activities (costs excluding bought-in materials)
4. Human resource management
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5. The answer is B. The database is a unique resource (which competitors may

be able to copy in time). To create a core competence, the company needs to
put the database to effective use.
6. The answer is D.
The supplier has a strong interest in what its major customer does, but has
little influence over the customer's decisions, because it does not supply a
critically important product. The company's management should try to keep
the supplier informed about its decisions that have relevance to the supplier.
7. Core competence
2. ROLE OF SUPPLY CHAIN IN VALUE CREATION (SUPPLY CHAIN
MANAGEMENT)
CASE STUDY
Amazon
Amazon's business was based on an ability to respond quickly to online purchases
by customers. The company was a reliable source of supply for goods that
customers wanted to buy, and it was able to deliver goods to the customers address
within a short time, often the next day.
For a while, this created a competitive advantage, because other sellers of goods
either did not sell online or could not respond to orders as quickly.
Over time, however, this competitive advantage has been eroded.
More companies sell their products online and deliver goods quickly.
Some companies allow customers to check online the progress of their order and
delivery.
However, Amazon has retained competitive advantage for the online sales of many
items because of the relationship that has developed with customers over time.
Customers trust Amazon to deliver.
The original core competence may have eroded as competitors improved their
supply chain, but the core competence has transformed into a unique resource
a. Quality improvement
QUESTION
Explain how the handling of customer orders can help to improve the quality of the
dispatch service to customers, so as to provide value to customers.
ANSWER
Customer orders should be handled with speed and accuracy.
Value can be provided for customers by making a promise about despatch: for
example, all orders received by midday will be despatched the same day for delivery
the following day.
(Another possible answer is the use of containers for shipping goods. Containers can
be packed at a warehouse, and then easily loaded on to vehicles for dispatch and
unloaded at the customer's premises.)
b. Drones
QUESTION
Some major companies are experimenting with the use of drones (robot vehicles) for
inland delivery of goods to customers.
Explain the potential competitive advantages to be obtained from the use of drones.
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ANSWER
Using drones for delivery may eventually be cheaper than traditional delivery
methods, because humans are not involved, so there is no labour cost.
Customers may get value from quicker delivery, as drones can operate at any time
of the day and any time of the week.
For some customers, at least initially, there may be status value in having items
delivered by robot.

c. Performance measurement
QUESTION
Using the balanced scorecard model, state one performance measurement or target
for each of the four perspectives, for application to supply chain management
performance.
ANSWER
Here are some suggestions:
(1) Financial perspective. Set a target for a reduction in warehouse management
operating costs.
(2) Customer perspective. Set a target for the number of new customers placing
orders through an e-procurement method.
(3) Business operations perspective. Set a target for reducing the maximum time
between receiving an order and delivering goods to the customer.
(4) Learning and innovation perspective. Set a time target for the implementation of
a new warehouse management system.
Suitable performance measurements will vary according to the nature of the
business and its operations.

PROGRESS TEST
1. Minimising inventory levels may be inconsistent with which of the following:
A. Reliability of supply
B. High financial returns
C. Physical security of inventory
D. Inventory control
2. Using RFID to tag individual manufactured items for tracking purposes is not
common practice. This is because RFID tagging of individual items is not
usually _________________________ .
3. A shorter supply lead time for deliveries of material from suppliers can add
value because it:
A. Improves the reliability of supply
B. Reduces the amount of inventory required
C. Speeds up processing of customer orders
D. Reduces the cost of materials purchased
4. A manufacturing company weaves cotton into cloth that is used to make
clothing. Identify two organisations that are 'upstream' in the supply chain to
this company and two organisations that are 'downstream'.
5. A company is able to create a monopoly for production of an electronic device
by obtaining a five-year patent. In terms of competitive business strategy, the
patent is a ____________________ (unique resource; core competence), providing

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competitive advantage. However this competitive advantage is not

___________________________ .

ANSWERS TO
1. The answer is A.
When inventory levels are kept low, there will be some risk of 'stock-outs' not
having items of inventory available when required.
2. Cost-effective/worth the cost (or similar wording)
3. The answer is B.
With shorter supply lead times, there is less requirement to hold inventory.
4. Upstream. A cotton grower; a business that spins cotton, ready for weaving.
Downstream. A company that dyes (colours) cotton cloth; a clothing
manufacturer; a distributor of clothing products; a retailer of clothing products.
5. In terms of competitive business strategy, the patent is a unique resource,
providing competitive advantage. However this competitive advantage is not
sustainable (or long-lasting, or permanent). It has a life of just five years.
3. CREATING VALUE THROUGH OPERATIONS
a. Competitive advantage
QUESTION
Explain how a company with a 'follower' strategy for innovation can succeed in
acquiring a competitive advantage from this strategy.
ANSWER
It must be able to develop a core competence at:
Recognising new products that other companies are bringing to the market
Recognising the commercial/profit potential of these products
Identifying ways of bringing a similar product to the market, but offering more
value to customers
Designing and developing selected new products, and bringing them to market
quickly
b. Lean manufacturing
QUESTION
Explain why lean manufacturing is associated with just-in-time production methods.
ANSWER
Lean production is based on a 'pull' system, whereby items are only produced when
there is demand from a customer.
A 'pull' system differs from a 'push' system in that the organisation tries to avoid
holding inventories, which customers may never want to buy.
Holding zero inventories and producing to meet demand as it arises is a feature of
both lean manufacturing and just-in-time production.
c. Kaizen
QUESTION
Explain the implications of continuous improvement or kaizen for change
management.
ANSWER
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Major changes are more difficult to implement than small changes, because major
changes affect many people within the organisation, often significantly.
Small changes do not disrupt operation and can be introduced easily and with little or
no resistance from employees, who have probably been involved in recommending
the change anyway.
Kaizen therefore creates far fewer problems for change, while still achieving
improvements in processes.
d. Tidiness
QUESTION
Explain why it is considered important to keep the workplace clean and tidy.
ANSWER
When employees work in a dirty and untidy environment, it is much more likely that
items of work or tools will be lost or damaged, or that work will also be done in an
untidy fashion.

e. Project management
QUESTION
A project to automate a production process is running into difficulty, because it is
nearing its required completion date and the project team has not yet found a way of
automating the final part of the process.
Discuss what the project manager might do to deal with this problem.
ANSWER
Some possible ways forward are:
To ask the project committee for more time to complete the project, and an
additional spending allowance to pay for the overrun on time.
To ask the project committee to agree that the final part of the production process
need not be automated.
To look for an expert outside the project team who may be able to suggest a
solution to the process design problem.

PROGRESS TEST
1. Statistical measurements are an essential feature of the Six Sigma method of
quality management. True or false?
2. Give three examples of a project that may require project management.
3. Kanban is a method used in total quality management to ensure that items are
not produced in one stage of production until they are needed for the next
stage of production, in order to minimise inventory levels. Kanban is therefore
an example of a _______________ system of manufacturing.
4. The main concern of the kaizen approach in a programme of total quality
management is best described as:
A. Getting things right first time
B. Achieving continuous small improvements
C. Keeping the workplace clean
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D. Eliminating waste

ANSWERS TO
1. True. The basic principle is that no more than 3.4 units in one million should
fall outside the accepted tolerance range for production.
2. Here are four examples:
Producing a new product, service or object
Changing the structure of an organisation
Developing or modifying a new information system
Implementing a new business procedure or process
3. Pull
4. The answer is B.

4. VALUE CREATION THROUGH MARKETING

a. Segmentation
QUESTION
Discuss how the market for motor cars might be segmented.
ANSWER
The market for motor cars can be segmented in a variety of different ways.
It can be segmented according to the type of car. People often buy a type of car for a
specific purpose

Saloon car, hatchback, sports car, 44 car, people carrier

Diesel or petrol-powered
Engine size
Price: luxury cars, middle-price, cheaper price cars

It can be segmented according to the target customer

Commercial buyers, wealthy individual buyers, middle income individual buyers
Age (young, middle aged, older)
These are possible methods of segmentation. There will no doubt be others.

b. Segmentation strategy
QUESTION
A firm of accountants is considering how to develop its businesses and whether to
focus on a particular segment of the client market.
Discuss ways in which the market may be segmented, for the purpose of developing
a strategy for the business.
ANSWER

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Possible basis for segmentation

Type of client
Business customer, private individuals
Size of client
Large, small, medium-size business clients
Geographical focus
Focus on customers located in the region
Services required
Tax, book-keeping etc
Occupation of client (private
For example, specialisation in services to
clients)
dentistsor doctors
Religion
For example, specialising in banking
requirements for certain religions
c. Strategic positioning
QUESTION
Discuss what issues should be considered by a company that operates a chain of
hotels in making its strategic decisions about the positioning of its hotels in the
hotels market.

ANSWER
The company should first identify segments of the market and select the segments of
the market that it intends to target.
It may decide that its hotels will be located in particular countries or regions, and
that the hotel group should not be 'global'. Within its selected geographical markets,
it should identify different market segments: these may include the market for
business guests or the market for tourists; the market for short-stay guests or longterm guests.
The company may decide that it wants to attract customers in one or more of the
identified segments.
For each targeted market segment, it should analyse the position of rival hotel
companies in the market segment.
These may be positioned in the market according to the number of stars awarded to
the hotels (three-star, four-star, fivestar) or the size of the hotel.
Hotels may also be positioned in the market according to where they are located
within the area a city centre location or a location closer to tourist attractions.
The price of rooms will also be a factor in positioning.
Another aspect of positioning may be whether hotels offer conference facilities to
businesses; or the quality of food and service provided by the hotel restaurant.
Having considered different potential ways of differentiating the company's hotels,
management should decide how the company's hotels should be positioned and how
its hotels will appeal to the targeted market segment more successfully than other
hotel companies.

PROGRESS TEST
1. Match the following products with the category of consumer product
Product
Category of consumer goods
A. Rolex watch
1. Shopping goods
B. Jars of instant coffee 2. Specialty goods
C. Kitchen equipment
3. Convenience goods
2. Fill in the missing word:

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____________________ is the process of breaking down large target markets into

smaller, sub markets of consumers with common needs or interests.
3. Fill in the missing words:
The most important concept in STP marketing is to have all three stages mesh
together to form one fluid plan. Segmentation leads to the right ___________
markets, which leads to the right _______________ strategy.
4. A Sri Lankan company in the apparel industry sells nearly all its output (items
of clothing) to major retailers in the US and Europe, which sell the items under
their own retailer brand name. Which of the following best describes the type
of market in which this company operates?
A. Specialty goods
B. B2C
C. Export
D. Geographical
5. A policy of charging high prices for new products when they are first
introduced to the market is known as a price _______________________ policy.
6. Associate each of the following aspects of marketing consumer goods with one
of the 4 Ps of the marketing mix.

Aspect of marketing

Product, price, place or

promotion?

A two-for-the-price-of-one offer for a tinned

food item in a supermarket
Available to purchase online
Packaging for the product
Three-year guarantee
Made from 21-carat gold

ANSWERS TO
1. A and 2; B and 3; C and 1
2. Segmentation
3. Target; positioning
4. The answer is C.
The company's customers are retailers, so it is a B2B market. Although
customers are abroad, it is not a geographical market. The company operates
in an export market. Clothing products are shopping items (or possibly
convenience goods): they are only specialty goods if they are high fashion
items: this does not seem to be the case here.
5. Skimming
6.
Aspect of marketing
A two-for-the-price-of-one offer for a
tinned food item in a supermarket
Available to purchase online
Packaging for the product
Three-year guarantee
Made from 21-carat gold

Product, price, place or

promotion?
Promotion
(A short-term offer, so more a
promotion than a price strategy)
Place
Either product or promotion,10
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both
Product
Product

5. VALUE CREATION THROUGH MARKETING

a. Life cycle
QUESTION
Discuss how accountants might provide assistance with marketing decisions during
the life cycle of a product.
ANSWER
Accountants can provide information about the expected effect on the organisation's
financial position of a change in marketing policy or a change in the marketing mix.
Accountants can provide estimates of the likely effect of pricing decisions on sales
revenue, profits, cash flows and also the need for additional capital investment.
When a new product is introduced to the market, estimates of sales, profits and cash
flows by an accountant could help management to decide on the initial pricing for the
product, and whether a penetration or skimming policy might be preferable to price
the product.
As a product goes into its growth and then maturity stages, accountants can provide
estimates about the likely effect on sales, profits and cash flows of price changes.
Accountants should also be able to provide information eventually to assist with
decisions about whether, and when, to stop producing a product as it nears the end
of its expected life cycle.
b. Stars and question marks
QUESTION
A company has used the BCG matrix to assess its product portfolio, and has
identified the fact that most of its products are either stars or question marks.
Explain the possible implication for the company of this discovery.
ANSWER
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Stars and question marks do not provide a positive cash flow and many are not yet
profitable. They also need further investment.
The main implication of having a large proportion of stars and question marks in the
product portfolio is that the company will need a large amount of cash to support it.
It may also have one or two cash cows capable of providing the cash required.
If not, the company will have to consider either raising new finance to develop its
products or to reduce the size of its portfolio, probably by ceasing to develop
products that it has identified as dogs and also some products that it has identified
as question marks.
c. Customer v consumer
QUESTION
State who might be the differing customer and consumer for:
(a). A laptop computer
(b). A bicycle
ANSWER
A laptop computer may be purchased by the buying department of a company (the
customer) for use by a manager in the company (the consumer).
Parents (the customer) may buy a bicycle for use by their child (the consumer).
The buying decisions of a customer may be influenced by what they consider to be
the needs of the intended consumer, but the consumer's influence on a buying
decision may be limited.
CASE STUDY
Using a CRM database and software
The Ritz-Carlton Hotel Company makes a point of observing the choices that guests
make, and recording them in a database.
If a guest requests extra pillows, then extra pillows will be provided every time that
person visits a Ritz-Carlton hotel anywhere in the world.
At upmarket retailers, personal shoppers will record customers' preferences in
sizes, styles, brands, colours and price ranges, and notify them when new
merchandise appears or help them choose accessories.

PROGRESS TEST
1. During which stage of a product's life cycle should a company expect a
successful product to change from being loss-making to profit-making?
A. Introduction
B. Growth
C. Shakeout
D. Maturity
2. A company presenting a major entertainment event, for which ticket prices are
high, decides to produce and sell expensive programmes for the event to sell
to customers. Management believe that the programmes will enhance the
sense of value that customers get from the event. Which aspect of the 7 Ps of
the service marketing mix is addressed by the sale of the programmes?
3. A company builds a customer database of its customers (consumers) and
sends them regular emails containing information about its products and sale
offers. This form of marketing is known as ______________________
________________________ .
4. In the BCG matrix, a product with low market growth but which has a large
share of the market is known as a:
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A.
B.
C.
D.

Cash cow
Dog
Question mark
Star

5. Customer relationship management (CRM) is most likely to be effective when:

A. Profitability is low
B. The company has a large number of customers
C. The pace of technological change is slow
D. Customer loyalty is strong

ANSWERS TO
1. The answer is B. Growth.
The product should start to become cash-positive at the end of the growth
stage and the beginning of the shakeout phase (or the beginning of the
maturity phase, if a shakeout phase is not recognised). The product should
become profitable during the growth phase, but cash flow remains negative
due to high marketing costs and continued capital investment.
2. Physical evidence
3. Targeted marketing
4. The answer is A. Cash cow
5. The answer is D.
The main purpose of CRM is to retain existing customers. When customer
loyalty is strong, CRM can be most effective. When customer loyalty is weak,
and customers are prepared to buy from any supplier (for example, buy at the
lowest price), CRM will be less effective.
6. PEOPLE ASPECTS OF VALUE CREATION
a. Planning
QUESTION
A company's HR managers are planning the requirements for qualified accountants in
the finance and accounting department in the next five years.
Discuss what factors will need to be considered when making this plan.
ANSWER
A forecast should be made of the number of trained accountants who will be required
in each year for the next five years.
This forecast should allow for expected changes in the business, such as plans for
business growth and expansion.
The forecasts should also estimate requirements for accountants in different areas of
the business, such as financial records and financial reporting, management
accounting, treasury activities, business planning, taxation and so on.
A forecast should be prepared of the expected numbers of accountants who will be
employed with experience in each area, allowing for resignations and retirements.
This forecast may also include estimates for student accountants employed by the
business who will be expected to become qualified.
The difference between numbers required and numbers available should be identified
as a recruitment gap, and plans should be made to fill gaps by promotion, transfers
and external recruitment.
Plans for re-training staff transferred between accounting and finance functions
should also be drafted.
The HR plan should be reviewed regularly, at least annually, and updated.

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b. PRP
QUESTION
Discuss why PRP might fail to motivate employees.
ANSWER
(a) The rewards from PRP are often too small to motivate effectively. Anyhow, some
employees may not expect to receive the rewards and hence will not put in the
extra effort.
(b) It is often unfair, especially in jobs where success is determined by uncontrollable
factors.
(c) If people are rewarded individually, they may be less willing to work as a team.
(d) People may concentrate on short-term performance indicators rather than on
longer-term goals such as innovation or quality. In other words, people put all their
energy into hitting the target rather than doing their job better.
(e) PRP schemes have to be well designed to ensure performance is measured
properly, people consider them to be fair and there is consent to the scheme.

PROGRESS TEST
1. The systematic attraction, identification, development, engagement, retention
and deployment of those individuals who are of particular value to an
organisation is known as ______________________ ______________________ .
2. Which one of the following aspects of job design is most likely to be motivating
for employees?
A. Job enlargement
B. Job enrichment
C. Job rotation
3. If a company wants to encourage team building and team effort, which one of
the following methods of reward is most likely to be effective in creating a
motivated work force?
A. Benefits in kind
B. Increase in basic salary
C. Profit-related annual bonus
D. Share options
4. In Herzberg's two-factor theory of motivation, which of the following can be
both a hygiene factor and a motivator factor?
A. Job security
B. Management style
C. Pay
D. Working conditions
5. Which of the following may be used as a first screening process in a selection
process?
1. Application form
2. Tests
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3. Informal interviews
4. Formal interviews
A. 1, 2 and 3
B. 1, 2 and 4
C. 1, 3 and 4
D. 2, 3 and 4
6. A form of performance appraisal in which opinions about an individual are
obtained from the individual's manager, selected subordinates, colleagues and
other individuals who deal with the person, and presented to the individual, is
known as a ___________________________ .

ANSWERS TO
1. Talent management
2. The answer is B. Job enrichment
3. The answer is C. Profit-related annual bonuses, probably paid as a percentage
of basic salary. To maintain a strong work team and team ethic, a group reward
scheme should be more effective as a motivator than reward schemes for
individuals.
4. The answer is C. Pay
5. The answer is A. The application form and online tests can be used to eliminate
some applicants, to reduce the numbers who are invited to interview. In some
cases, for example the appointment of a person to a very senior position in a
company, a firm of 'head hunters' may interview potential candidates
informally before recommending them for interview by the company.
6. 360 degree appraisal
7. PEOPLE ASPECTS OF VALUE CREATION
a. Training systems
QUESTION
State what is likely to be the greatest difficulty in establishing a system for
measuring the return on investment in training.
ANSWER
Measuring the benefits for the organisation from a training programme. It will be
difficult to obtain measurements of benefits that are reliable and 'believable'.
b. Tacit knowledge
QUESTION
Explain why it might be difficult to collect the tacit knowledge of experienced
individuals within an organisation.
ANSWER
Individuals may think that their value to the organisation consists largely of the
unique knowledge and experience they have acquired during their career. They may
be concerned that by sharing this knowledge, their value to the organization will fall.
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c. Change
QUESTION
State two examples of major change in a business organisation.
ANSWER
A company may negotiate the takeover of another company.
Employees in the company taken over will face restructuring of their organisation,
possible relocation and possible redundancy.
They will also become part of a larger company with a different culture.
A company may introduce a major change to its business processes. (This is called
business process re-engineering or BPR.)
To implement the change, jobs may have to be restructured and employees may
have to work in different ways and with different people.
Their existing skills may become out of date, and they may need to learn new skills.
There are many other examples that you could think of for an answer.

PROGRESS TEST
1. The purpose of measuring return on investment in training is to assess
whether:
A. The costs of the training are reasonable
B. Employees benefit from the training
C. The head of the HR department should receive an annual bonus
D. The training provides value for the money spent
2. Analysing a database in different ways in order to identify and extract
knowledge that has so far been undiscovered is known as _______________
__________________ .
3. According to Johnson and Scholes, how many inter-related elements make up
the cultural web?
4. Put the following five stages of grief in the order in which they most often
occur.
1. Bargaining
2. Acceptance
3. Denial
4. Depression
5. Anger
5. According to Lewin, in order to initiate a major change within an organisation,
it may be necessary to __________________ the driving forces for change.

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6. An approach to leadership theory that states that the most effective leadership
style depends on a combination of factors, including leadership style, the work
situation and the skills of employees, is known as:
A. Action-centred leadership
B. The managerial grid
C. Situational theory
D. Style theory

ANSWERS TO
1. The answer is D.
ROI measurements are concerned with both the benefits and the costs
(investment), and from the perspective of the organisation rather than
individual employees.
2. Data mining
3. The answer is 6.
Together these make up the 'paradigm'.
4. Denial, anger, bargaining, depression, acceptance
5. Strengthen. It may also be necessary to weaken the restraining forces.
6. The answer is C. Situational theory. This term was first used by Hersey and
Blanchard, although it applies to similar theories, such as Fiedler's contingency
theory of leadership.

8. VALUE CREATION THROUGH TECHNOLOGY AND INNOVATION

a. Business model
QUESTION
A small software company has developed a software application that customers can
download on to their computer, tablet or smartphone, but it is aware that customers
will expect to obtain this 'app' without having to pay for it.
Identify what business model is likely to be the most appropriate for the company if
it wishes to make a profit from its software application.
ANSWER
If customers will not pay, someone else must. An advertising model is likely to be the
one that is most likely to make the software application commercially viable.
An alternative approach would be to persuade manufacturers of computers, tablets
and smartphones to pay the company to make the 'app' available on their products.

PROGRESS TEST

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1. Which element in the value chain is enhanced by the use of an intranet or

extranet?
A. Firm infrastructure
B. Marketing and sales
C. Procurement
D. Technology development
2. The transformation of key business processes through the use of internet
technologies is known as _______________________ .
3. A company that does not have a physical existence, but consists of a small
group of individuals linked to each other, suppliers and customers through the
internet, is known as a ______________ ______________________ .
4. Which aspect of research and development is most likely to be funded by the
state (government)?
A. Applied research
B. Development
C. Pure research
5. E-procurement arrangements may be established between two companies, in
which their two separate computer systems are able to exchange information
and documentation using a common language. This is made possible by:
A. EDI
B. E-procurement website
C. Extranet
D. Intranet
CASE
STUDY
ANSWER
Mission statements
Here 1.
areThe
mission
statements
a few major global companies.
answer
is A. Firmof
infrastructure
Mission
statements
2. E-business
McDonal
'To be the world's best quick service restaurant experience.
company
d's 3. Virtual
Being
the best means providing outstanding quality, service,
cleanliness, and value, so that we make every customer in every
4. The answer is A.
restaurant smile.'
Applied research. This is research at an early stage, and it is least likely to
Google
'To organize the world's information and make it universally
provide commercial returns for companies.
accessible and useful.'
5. The answer is A.
Electronic data interchange
Coca-Cola's website has set out its mission and vision in some detail:
'Our 9.
Roadmap
starts
withVALUE
our mission,
which is enduring. It declares our purpose as a
STRATEGY
FOR
CREATION
company and sets the standard against which we weigh our actions and decisions.
To refresh the world
To inspire moments of optimism and happiness
To create value and make a difference
'Our vision serves as the framework for our Roadmap and guides every aspect of our
business by describing what we need to accomplish in order to continue achieving
sustainable, quality growth.
People: Be a great place to work where people are inspired to be the best they can
be
Portfolio: Bring to the world a portfolio of quality beverage brands that anticipate
and satisfy people's desires and needs
Partners: Nurture a winning network of customers and suppliers; together we create
mutual, enduring value
Planet: Be a responsible citizen that makes a difference by helping build and support
sustainable communities
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Profit: Maximise long-term return to shareholders while being mindful of our overall
responsibilities

a. Objectives
QUESTION
Identify possible objectives for a marketing department within a strategic plan.
ANSWER
Goals for markets will involve the following type of decisions.
(a) Market leadership. Whether the organisation wants to be the market leader, or
number two in the market, what rate of growth it desires and so on
(b) Coverage. Whether the product range needs to be expanded
(c) Market positioning. Whether there should be an objective to shift position in the
market for example, from producing low-cost for the mass market to higher-cost
specialist products
(d) Product/market expansion. Whether there should be an objective of
broadening the product range or extending the organisation's markets
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b. Strategic gaps
QUESTION
Strategic opportunities may take the form of strategic gaps.
These are potentially profitable aspects of the competitive environment that are not
currently being exploited by rivals.
State three examples of how strategic opportunities may arise.
ANSWER
Here are four suggestions.
(a) Potential substitutes for existing products might be created. This is largely a
technology-based opportunity.
(b) It may be possible to target different strategic customers. In the case of
consumer goods, for example, the growth in online selling via the internet means
that producers are able to target a different types of customer the end
consumer, rather than retailers or other distributors of their products.
(c) There may be potential to market complementary products. For example,
capital goods suppliers (such as car sales firms) routinely offer credit services to
assist the customer to buy. Some sellers of domestic equipment such as washing
machines and cookers may offer after-sales maintenance services for the capital
goods item.
(d) New market segments may be identified that have commercial potential,
though there may be a need to adapt the product to meet the needs of customers
in the new targeted segment.

PROGRESS TEST
1. A company has announced its intention of becoming one of the country's
leading producers of tea for export. This announcement is a statement of the
company's:
A. Vision
B. Mission
C. Goal
D. Objective
2. Fill in the blanks.
An objective should be:
S _____________________________
M _____________________________
A _____________________________
R _____________________________
T _____________________________
3. Components of strategy where an organisation must excel in order to
outperform its competitors are known as ___________________ __________________
_______________ .
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4. There may be more than one key performance indicator for a critical success
factor. True or false?
5. Which of the following procedures is used by an organisation to assess what
resources it has and what competences it possesses?
A. Five forces analysis
B. Resource analysis
C. SWOT analysis
D. PESTEL analysis

ANSWERS TO
1. The answer is C.
Goal. The aim does not have a time frame for achievement, and it is not
specific enough to be expressed as a target. It is therefore a goal rather than
an objective.
2.
S - Specific
M- Measurable
A- Achievable
R- Relevant
T- Time-related
3. Critical success factors
4. True. Every CSF should have at least one KPI.
5. The answer is B.
Resource analysis. PESTEL and five forces analysis are methods of
environmental analysis. SWOT analysis is an analysis of strengths and
weaknesses that are evident from a resource analysis and opportunities and
threats that are identified from environmental analysis.

10. STRATEGY FOR VALUE CREATION

a. Differentiation strategy
QUESTION
A parcels and packages delivery company is based in Colombo. It collects and
delivers packages for customers using in its own vehicles. There are several
competitors in the market.
Explain how the company might seek to differentiate its service from those of its
competitors.
ANSWER
Suggested bases for differentiation are:
Speed of collection (from time of receiving customer order)
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Speed of delivery (from time of collection)

Reliability of service
Brand name recognition
Geographical coverage (for example, specialist in deliveries to China)

CASE STUDY
Examples of blue ocean strategies
When they first wrote their book in 2005, Kim and Mauborgne identified a number of
companies that, in their view, had developed successful blue ocean strategies. They
included:
(a) Southwest Airlines in the US. This airline company created a market for lowcost air travel, and broke the trade-off between the speed of travel (attractive to
travellers) and the low cost and convenience of travel by car. By offering frequent,
reliable and low-cost air travel direct to destinations, the company created new
demand from people who had not used or considered using air transport before.
(b) Dyson cleaners. This was originally a UK-based company that created new
demand through innovation and the development of cyclonic vacuum cleaners.
Since 2005, further examples of blue ocean strategies may be:
(a) The digital book and e-publishing, which has replaced much paper-based printing
and at the same time has created a market for new readers who did not previously
purchase books or magazines.
(b) Apple's innovative products such as the iPod, iPad and smartphone, which have
created new demand for digital media products.
(c) Companies providing social media sites such as Facebook and Twitter

b. Blue and red ocean strategies

QUESTION
Explain why companies find it more difficult to develop blue ocean strategies than
red ocean strategies.
ANSWER
(a) Markets for red ocean strategies are established, known and understood. Blue
ocean markets/industries need to be identified because they do not exist.
(b) Radical innovation may be difficult.

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(c) Management have experience in developing competitive strategies for red

oceans, but do not have skills or experience with methods for developing blue
ocean strategies and creating demand where customers do not yet exist.

PROGRESS TEST
1. ________________________ , when used for business applications, is a method of
selecting a business strategy, taking into consideration the strategy options
that might be selected by competitors.
2. A company specialises in the production of lighting equipment for use in
submarines and other under-sea vessels. It markets its product on the basis of
being the lowest-cost producer in the market. According to Porter, the generic
strategy of this company is a ___________________ strategy.
3. Which one of the following aspects of a proposed strategy should be evaluated
first?
A. Suitability
B. Acceptability
C. Feasibility
D. Any of them
4. Which elements in the 7S model are more difficult to manage and control?
a. Hard
b. Soft
5. How many of the strategies in the strategy clock could be appropriate for a
company in a competitive market?

ANSWER
1. Game theory
2. Cost-focus
3. The answer is A. Suitability
4. Soft.
(Especially shared values, which represent the 'paradigm' of the organisation's
culture.)
5. Five. These are strategies 1 to 5 on the clock.

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