acca p3

ACCA P3 - Business analysis These notes are not intended to cover the whole of the ACCA P3 syllabus ©Darren Sparkes, 2010

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ACCA P3 – PROFESSIONAL LEVEL

Business Analysis

SMART Notes

Prepared by Darren Sparkes

Email: [email protected]

ACCA P3 – Business Analysis These notes are not intended to cover the whole of the ACCA P3 syllabus © Darren Sparkes, 2010

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Contents Page no. Paper 3 Examiners Approach…………….….... 3 Extracts from the Examiners report ……….…...4 Examination Technique……………….…..……..7 Background and examination format..…............9 Syllabus Overview………………………...........10 Strategic Planning………………………...….....11 Mission and Objectives…………………………12 Business & Professional Ethics..………….…...13 Internal Analysis……………….……………..…14 External Analysis……………..………………....15 Strategic Options……………………….……….17 Method of Growth………………………............18 Portfolio Analysis…………………………….….19 Strategic Choice & Change Management…....20 Marketing………………………………………...21 Organisational Structure…………………….….22 International Market Place.…………….……....23 Business Process Change…….…..…………..24 Information Technology……..…….……..........25 Quality………………………………….……......26 Project Management………………………...…27 Role of Finance………………………………...28 Review and Control………………………..…..29 Strategy and People……………………………30


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Approach Required

‘Differentiation is important to individuals seeking to pass a management and strategy examination. It is the ability to link strategic and financial analysis; it is the confidence to use creative thinking in the way you answer a particular problem…with alternative ways of viewing and solving a problem’ Ralph Bedrock (Paper 3 Assessor)

There is no absolutely correct answer – candidates who provided coherent justification… awarded appropriate marks Steve Skidmore (P3 Examiner)


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Extracts from the Examiners comments In general: • ‘Candidates were stronger in strategic concepts (strategic position, Porter’s Diamond) and less comfortable

with business process modelling and customer relationship management.’ • ‘Part questions on specific factual areas (competency frameworks and CMMI) were either answered well

(because the candidate was familiar with them) or poorly (because the area was not studied or revised).’ • ‘There was some evidence of poor time management, apparently caused by over-answering question 1.’ Section A - Question 1 • In general the first part of the question was answered well, using a wide range of appropriate models and

frameworks. • However, candidates must be careful in the future to stick to external issues if a PESTEL analysis is

specified in the question. • …some candidates did not restrict themselves to assessing the strategic position. They began to suggest

strategic solutions and options which were not required by the question and so no credit was given. This reinforces the need for the candidate to carefully read the question and to answer within its scope.

• …many answers well written and well-structured, so gaining most of the professional marks on offer. • Part b…Candidates failed to spot glaring errors in the process. • Part c…In many cases, candidates provided good answers to a very different question.


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Section B • Question 2 – part a…Candidates answered this…relatively well, using appropriate calculations • Question 2 – part b…candidates answered this part question very well, not only showing knowledge of the

model but were also confident in applying it to a case study scenario • Question 3 – part b…asked candidates to analyse these competencies. Some of these were clearly signposted

in the scenario. Many candidates failed to identify any relevant competencies…falling back on generalisations such as ‘good communication skills’ and hence did not score well on this part of the question.

• Question 4 – part a…In general, this part of the question was answered well by most candidates • Question 4 – part b…This was not particularly well answered by most candidates. Most candidates seemed to

be unfamiliar with the concept of competency frameworks or their potential application. This was despite an article in Student Accountant magazine.


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Therefore, to pass P3 learn from the examiners comments: • Analyse the requirements – verbs and keywords • Planning – think before you write the answer • Application, application, application • Theoretical answers score few marks • You can only apply what you know – learn it! • Use and interpret the numbers (they are usually

easy calculations so it’s the interpretation that gets the marks) • Time management – the marks are your guide


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Examination Technique to give the Examiner what he wants PADI – Plan, Analyse, Design, Implement

PLAN 1. USE 15 MINUTES READING TIME WISELY

• Examine section B questions and choose the two on which you can MAXIMISE MARKS (not necessarily those on your ‘favourite’ topics)

• If you have some time left then analyse Question 1 requirements and skim read the Q1 scenario to get a feel for the relevant issues and identify where the information is for each part of the requirements.

2. WORK OUT TIMINGS

• Q1 = 90 minutes. Planning = 20-25 minutes, Writing answer = 65-70 minutes • Section B Questions = 45 minutes each. Planning up to 10 minutes, Writing answer 35 minutes. • Break down the time required for each part of the requirements using the marks as a guide. 1.8 minutes per

mark in total, 1.4 minutes per mark after planning. • I suggest you start with Question 1 as you know you have 90 minutes to complete it.

START PLANNING IN YOUR ANSWER BOOK

3. ANALYSE THE REQUIREMENTS • Identify the verb, or verbs, and make it stand out. The verb tells you what the examiner wants you to do, e.g.

evaluate, recommend, analyse, calculate. Be sure to identify all the verbs in the requirement just in case there is more than one thing to do, e.g. analyse and discuss, evaluate and recommend.

• Identify key words. These tell you what to do it on or about, e.g. evaluate what?, recommend what?

4. ALLOCATE MARKS TO EACH VERB IN THE REQUIREMENT • This can now determine how much to write for each verb in the requirement

5. IDENTIFY RELEVANT MODELS, TOOLS, THEORIES FROM YOUR KNOWLEDGE BANK


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6. DEVELOP HEADINGS AND NUMBERS LAYOUT

• Put key elements of model in plan as headings, e.g. Porters 5 Forces analysis = 5 headings. Headings will give your answer a framework and structure.

• Use requirements to develop headings to show marker that you are answering the question asked

7. DISTRIBUTE MARKS ACROSS HEADINGS • This can now determine how much you write under each heading

ANALYSE

8. ANALYSE THE SCENARIO • Make brief notes in your plan under relevant headings from models/tools/theories and requirement • Find relevant numbers for calculations

DESIGN

9. THINK BEFORE YOU WRITE • Decide which points you are going to put in your answer (trying to put in everything usually leads to going

over time) and start with your strongest points • Decide how you are going to layout your answer to make life easy for the marker and maximise marks

IMPLEMENT

10. WRITE UP YOUR ANSWER TO MAXIMISE MARKS • Layout calculations in a logical and easy to mark format - Add value to calculations by asking ‘SO WHAT?’ • Use as many headings as possible to give the answer structure • Work on 2 sentences for 1 mark – 1) Make your point, 2) Give evidence from the scenario • PEE for 2 marks – Point, Evidence, Explain (So what?) • Leave a blank line between paragraphs to make your answer ‘easy on the eye’ • Be strict with timings. When time is up on a question, or part of a question, move on. • Stick to answering the requirement – use your plan to keep you on track • REMEMBER THE THREE GOLDEN RULES – 1) APPLICATION 2) APPLICATION and 3)APPLICATION


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Paper Background

Candidate Requirements

Apply knowledge and skills

Determine appropriate techniques

Select relevant data

Exercise professional judgement

Objectives of the paper

• Assess the strategic position of the organisation • Evaluate strategic choices available to an organisation • Discuss how an organisation might go about its strategic implementation • Model and redesign business processes and structures to implement and

support the organisation’s strategy taking account of customer and other major stakeholder requirements

• Integrate appropriate information technology solutions to support the organisation’s strategy

• Apply appropriate quality initiatives to implement and support the organisation’s strategy

• Advise on the principles of project management to enable the implementation of aspects of the organisation’s strategy with the twin objectives of managing risk and ensuring benefits realisation

• Analyse and evaluate the effectiveness of a company’s strategy and the financial consequences of implementing strategic decisions

• The role of leadership and people management in formulating and implementing business strategy

Format of paper

Section A 50% • Compulsory • Major case study • Usually four parts • Case will include numbers

Section B 50% • Choice of two from three • Each question likely to include

two parts • Will include short scenario • May include numbers


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Syllabus Overview Mission and objectives

Stakeholder Analysis

External Analysis Internal Analysis

Corporate Appraisal

SWOT

Strategic Options

Strategic Choice

Implementation

Review and Control

Cultural Web SMART

Resource audit

Mendelow's power-interest matrix

Core competences

Porters Value Chain

Product Life Cycle

Benchmarking

PEST

Porters 5 Forces

Porter’s Generic Strategies

The Strategy Clock Ansoff’s product-

market matrix

Acquisition vs organic vs joint development

Suitability, Acceptability, Feasibility

Change Management Project Management

Quality

IT Structure

Marketing

Business Process Change

International Trading

Financial Measures Investment Appraisal

Withdraw

Purpose, Strategy, Policies, Values

Governance and Corporate Social Responsibility

Cost/Benefit

Risk

Non-financial Measures

Not for Profit Organisations

Porters Diamond

CSF’S

TOWS Matrix

Portfolio analysis BCG, PSPM, DPM, APD, Mkt attract/SBU strength

Software Solutions

HRM

Software Quality Sources of Finance

BSC


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Alternative Strategic Planning

Strategy ‘… a course of action, including the specification of resources, to

achieve a specific objective

Long-term

Whole organisation

Integrates activities

All stakeholders

Competitive advantage

Relationship with environment

Corporate = Strategic level

Business = Tactical level

Functional = Operational level

Purpose

• Respond and fit to environment • Utilise scarce resources • Provide direction • Ensure consistent objectives • Monitor progress

Advantages √ Identification of

strategic issues √ Consistency of goals √ Improve

performance/survival √ Pro-active √ Recognises

environment √ Optimum use of

resources

Disadvantages × Expensive (time

and money) × Bureaucracy × Stifles creativity × Less relevant in

a crisis

Rational ‘Top Down’ Approach

Mission & Objectives

Corporate appraisal

Strategic options

Strategic choice

Implementation

Review

Emergent Strategy - ‘Bottom up’ (Mintzberg)

Intended Strategy

Unrealised Strategy

Deliberate Strategy

Realised Strategy

Emergent strategy

E.G. Honda’s entry into the USA, 3M

Incrementalism (Lindblom) • Building block approach • Build strategy through incremental steps not radical

shifts √ Accepts uncertainty of future √ Builds commitment × May be too slow × Ideas often compromised

Freewheeling Opportunism • Market Driven – reactive • Hands on management • Exploit complacent players • Relies on leaders vision • No formula for success √ Take advantage of market

opportunities × Stock market problems

Inter- dependant

Position Analysis

Choice Action

Johnson, Scholes &

Whittington Strategic Lenses

Ideas

Design Experience


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Mission and Objectives

Mission ‘… the most generalised type

of objective which can be thought of as its raison d’etre.’

Purpose

Strategy

Policies and standards

Values

Advantages • Resolve stakeholder conflict • Set direction • Help formulate strategy • Communicates values to

employees • Marketing to customers

Criticisms • Meaningless terms used • Written retrospectively? • Not communicated to

employees • Ignored by managers

Objectives

S Specific M Measurable A Attainable R Relevant T Timebound

Critical Success Factors

"The limited number of areas in which results, if they are

satisfactory, will ensure successful competitive

performance for the organization.

They are the few key areas

where things must go right for the business to flourish.

If results in these areas are

not adequate, the organization's efforts for the

period will be less than desired."

Stakeholders

Mendelow’s Power – Interest Matrix Interest

Low

Power

High

Low A

Minimal Effort

Give Direction

B Keep Informed

Education /

Communication

C Keep Satisfied

Intervention

D Key Players

Participation – Keep

Close


Features of objective setting • Multiple and contradictory objectives • Participation in objective setting • Providers of funding different to beneficiaries of service • Priorities may change frequently • Value for money a requirement not an objective • Increased role of personal objectives

Efficiency

Effectiveness

Economy

Mission Statement Published version of the

Mission

Culture ‘The way we do things around here’

Cultural Web – cultural paradigm

• Routines & Rituals • Stories & Myths • Symbols • Power structure • Organisation structure • Control systems

High


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Business and Professional

Ethics

Professional Ethics ‘Self control, not self interest’

C Competence O Objectivity P Professional due care P Politeness I Integrity T Technical Standards

Corporate Social Responsibility

Issues

Environment

Sustainability

Safety in the workplace

Consumer health and safety

Equal opportunities

Fair Trade

Honesty in Advertising

Views on Business Ethics

‘The business of business is business’ (Shareholder View -

Friedman) Management to concentrate on maximising profits and shareholder wealth. Businesses have no duty to society. Societal benefits will arise as a result of commercial success.

Conflict of CSR with shareholder wealth • Reduced revenues • Increased costs • Diverts funds from shareholders • Distracts management

Long-term Self-Interest / Stakeholder view

Firms should acknowledge their social responsibilities. Benefits to Business

SALSA

Avoid paying damages and fines

Strategic Alliances

Lower Risk

Attract customers and

employees

Save time and money on

investigations

Potential problems

Competitive disadvantage

Deciding what is ethical Bad publicity from monitoring and enforcement

Disclosure of business information

No universal acceptance of morals & ethics

Johnson, Scholes & Whittington – Ethical Stances

Short-term shareholder interest

Long-term shareholder interest

Multiple stakeholder obligation

Shaper of society

Corporate Governance Strategic impact: SCRAPI

• Short-termism • Control the business • Risk assessment • Acquisitions & Mergers • Power of governance bodies • Increasing shareholder power

Bribes


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Internal Analysis (Strengths & Weaknesses)

Strategic Capability – Resource audit

M’s

• Manpower • Management • Money • Make-up • Manufacturing • Material • Markets

Core Competences ‘…the activities or

processes that critically underpin competitive

advantage.’

Strategic Assets

Architecture

Reputation

Innovative Ability

• Valuable • Rare • Can’t be copied • Not substitutable • Give access to wide

range of markets

…identify activities within the firm which add value to customers and those that do not Primary Activities • Inbound Logistics • Operations • Outbound logistics • Marketing and sales • Service Support/secondary activities • Procurement • HRM • Technology development • Firm infrastructure Uses • Streamline linkages • Eliminate non-value added activities • Business Process Re-engineering • Benchmark key processes

Basic

Benchmarking

1. Select processes to be benchmark

2. Assign responsibilities 3. Choose type of benchmarking 4. Choose partner 5. Interaction 6. Collect data 7. Implement changes

Competitive

Functional/Activity

Internal

BEST IN PRACTICE

Porter’s Value Chain

Unique

Core Threshold

Same as competitor / easy

to copy

Different to competitor /

difficult to copy

Resources

Competences

Value Networks

Knowledge Management

Explicit

Tacit

• Uncover Knowledge • Discover Knowledge • Capture Knowledge • Share Knowledge • Distribute Knowledge • Lever Knowledge • Maintain Knowledge

Knowledge Workers • Roving role • Temporary roles • Selection based on skill & competences • Input into own development • Separate & relevant incentive schemes • Remote locations • Flexible working

Product Life-cycle • Introduction: high risk, little

competition, low volume, high advertising = losses + negative cash

• Growth: increased competition, growing volumes, EOS, high advertising = losses to profits + negative to positive cash

• Maturity: steady repeat sales, high volumes, EOS, low level advertising = profits + positive cash

• Decline: falling volumes, falling prices = profits to losses + positive to negative cash, divest Balance the portfolio

Problems: • No common shape • Unpredictable • Self-fulfilling prophecy • Product orientated

S

A

R I


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External Analysis (Opportunities and Threats)

PESTEL analysis (External, Environmental analysis)

Political • Taxation • Government policy • Foreign trade

regulations • Protectionism • Globalisation

Economic • Globalisation • Economic cycle • Interest rates • Inflation • Employment levels • Exchange rates

Social & Demographic • Income distribution • Education levels • Population size • Age profile • Lifestyle changes • Fashions and tastes • Consumerism

Technological • Internet • Government

spending on RnD • Communications • Speed/rate of

change • Processes and

methods of production

Porter’s 5 Forces (Competitive,

Industry analysis)

Competitive Rivalry Greatest where: • Competitors of similar size • Slow market growth rate • High fixed cost industry • Lack of differentiation

Threat from New Market Entrants Barriers to Entry: • Economies of Scale • Other cost advantages • Capital requirements • Access to distribution channels • Patents, Government policy • Reaction of existing firms

Power of Buyers Power greatest where: • Few buyers • High number of suppliers available • Cost is high proportion of buyers total cost • Low switching costs • Buyers have low profits • Buyers have full information • Little product differentiation

Threat from Substitute Technologies

• Can same features be produced cheaper?

• Can new features be provided for same cost?

• Level of danger may be influenced by barriers to entry and/or power of buyers

Power of Suppliers Power greatest where: • Few suppliers • Few substitutes • High switching costs • Threat from forward integration • Customer not significant to supplier • Supplier has differentiated product

Legal • Health And Safety • Employment • Consumer protection • Monopoly legislation • Industry watch dogs

Ecological • Globalisation • Pollution • Energy usage • Disposal of waste • Sustainability of

resources



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Internal + External Analysis = Corporate Appraisal = Position

Appraisal= SWOT Analysis Strengths Weaknesses

Threats

INTERNAL

EXTERNAL Opportunities


Porter’s Diamond

‘National Competitive Advantage’

Firm structure, strategy, rivalry

Demand conditions

Factor conditions

Related and supporting industries

External Analysis Factors open to all in the industry

Internal Analysis Factors specific to the organisation

Corporate Appraisal

TOWS


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Strategic Options

Advantage

Positioning view

Strategically develop organisation in line with environment

challenges

PESTEL

Porters Five Forces

To beat the five forces

Porter’s Generic Strategies • Overall Cost Leadership

(better margin, potential price cuts, entry barrier, reduce supplier power)

• Differentiation (Premium price, better margin, barrier, reduce buyer power)

• Focus (Niche) (Cost or Differentiation, focus on market needs, develop core competencies)

Beware of ‘Stuck in the Middle’ Uses • Analyse rivals • Suggest own strategy • SBU level strategy Limitations • Unclear definition of industry • Defines advantage in terms of position not

resources • Lack of empirical evidence • Ignores middle ground • Restricts firm to position in present

industry • Requires perfect information

Direction

Ansoff’s Matrix Products, existing and new (PEN) Markets, existing and new (MEN) • Market Penetration (cost reductions,

price reductions, advertising, minor product modifications)

• Product Development (exploit existing customers, RnD, buy-in and badge, JV’s, Licensing)

• Market Development (new markets such as foreign markets, new segments such as adult to child or industrial to consumer)

• Diversification (related = vertical integration or unrelated = conglomerate

Do nothing / Withdraw

Risks • Product • Market • Operations and

management • Financial

Vertical Integration Advantages • Economies of combined

ops • Economies of control and

coordination • Avoiding the market • Tap into technology Conglomerates Advantages • Flexibility • Quick growth • Access to capital • Portfolio effect • Avoidance of anti-

monopoly legislation

Disadvantages • Increased operational

gearing • Reduced flexibility to

change partners • Capital investment needs Disadvantages • No additional benefit to

shareholders through synergies

• No operating advantages

Horizontal diversification – competitive products, complementary products, by-products

Limitations • Definition of market • Ignores factors such as competitors • Suggests strategies in isolation

Method (see next page)

Low

Low High

Benefit

Price

High

Fail

Fail

Focused Differentiation

Differentiation Hybrid

Low Price

No Frills Fail

Strategic Clock

Market Facing

Resource Based View


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Method of Growth?

Acquisition versus Organic growth

Acquisition

Advantages • Quick • Lower risk • Overcomes barriers to entry • Same number of competitors • Can block a competitor • Possible synergies • Possible under-valuation of

target

Disadvantages • Purchase premium • Integration issues

o Systems o People o Culture

• Synergies do not materialise

• Reputation of target

Organic Growth

Advantages • No premium for assets • People development • Staged investment • Established culture • Introduction of new

technology and systems easier

• Possibility of grants

Disadvantages • Slow • Increases number of

competitors • Overcoming barriers to

entry • No opportunity for

synergies • Higher risk

Possible synergies • Market • Economies of scale • Shared activities • Surplus assets • Vertical integration • Skills transfer • Dilution of risk • Reduced power of

buyers/suppliers • Tax advantages

Joint Development Methods

Joint Venture Separate business entity with equity form two or more businesses

Strategic Alliance Long-term agreement to share knowledge, competences, technology for mutual benefit

Licensing Giving the right to exploit brand, recipe, process etc for a share of the profits

Franchising Giving the right to exploit a business method/model in return for a capital sum plus a share of the profits. Franchisor usually provides support e.g. marketing, training, technical

√ Quick growth √ Access to competences √ Less financial risk/outlay √ Overcome product, market,

operational risk × May lose competences × Train future competitors × Brand infection × Operational and contractual

disputes × Ownership of assets × Sharing of profits

Withdrawal

Divestment √ Quick √ Higher price due to

strategic value

Demerger √ Gives shareholders

an exit route √ Management can

focus on core areas √ Two companies can

develop separate identities

Management Buyout (MBO)

Consider • On-going involvement of

holding company • Why is holding company

selling? • Loss of Holding company

help, e.g. technical support, finance services

• Quality of management team • Price • Personal risk, e.g. home at

risk?


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Business Sector Prospects

High

Low

Low Opportunities to add value

BCG Matrix

High

Low

High Low Relative market

share

PROBLEM CHILD Build or Divest

Losses, negative cash

CASH COW Hold then Harvest

Profits and positive cash

DOG Harvest then Divest

Profits to losses, positive to negative cash

Problems: • Definition of axes • Definition of market • No account of complimentary goods • Assumes high market share = advantage

Portfolio Analysis

STAR Build then Hold

Losses to profits, negative to positive cash

Directional Policy Matrix

Weak

Unattractive Attractive

Phased withdrawal

Proceed with care

Phased

withdrawal

Proceed with care

Growth

Withdrawal

Cash

Generation

Growth

Leader

Double or quit

Try harder

Leader

Average

Avge

Strong

Company’s Competitiv

e capabilities

Public Sector Portfolio Matrix

Public need & Funding effective

ness

High

Low

High Low Value for money

Political hot box

Golden Fleece

Back drawer issues –

discontinue

Public sector Star

Market Attractiveness/SBU Strength matrix

High

Strong Weak

Business strength/Competitive position

Hold leadership Leverage strengths Use EOS

Avoid ‘me too’ Differentiate

Re-invest

Segment between growth

and harvest

Enhance Lead Diversify Re-invest

Segment focus Seek

advantage

Harvest through sale of business

Maintain leadership In attractive segments

Harvest Price-up Cut costs

Line pruning

Divest/Liquidate

Average

Med

Low

Long-term Industry

attractiveness

Alien Territory

Ballast Edge of

Heartland

Heartland

Ability to Add value

High

Ashridge Portfolio Display – Corporate Parents

Market growth

Value trap


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`

Strategic Choice (SAF)

Suitability Is the proposed strategy suitable for the present situation and circumstances of the organisation? i.e. Is it suitable given the SWOT analysis?

Acceptability Will the proposed strategy meet the objectives of the organisation and, therefore, be acceptable to the major stakeholders?

Feasibility Has the organisation got, or can it get, the necessary resources to carry out the strategy?

Strategic Drift

Risk Cost/Benefit

Strategy Environment

Types of Change

Incremental

Big Bang

Transformation Realignment Extent of change

Adaptation

Revolution

Reconstruction

Evolution

Speed of

Change

Lewin’s Force Field Analysis

Driving Forces Restraining Forces

Job Factors

Personal Factors

Organisational Factors

Strengthen Weaken

Unfreeze Change Refreeze

Social Factors

Change Management

Time

Scope

Preservation Diversity Capability

Capacity

Readiness

Power Change

Kaleidoscope

• Participation • Education & communication • Facilitation & support • Negotiation • Manipulation • Coercion

Supporting Mechanisms


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Marketing

Firm’s orientation

Product to meet needs

Production Sales

Marketing …identify, anticipate and satisfy

customer requirements

Marketing Strategy

Kotler’s Four Pillars

Target Markets

Customer needs

Coordinated marketing

Profitability Analyse environment and competitors – PEST

/ Porter’s five forces

Market Segmentation and Target Market

…division of the market into homogenous groups of potential customers who may be treated similarly for marketing purposes

• Geographic • Demographic

o Age o Gender o Income o Family life-cycle

• Social class • Psychological • Education • Hobbies

Undifferentiated

Differentiated

Concentrated

Marketing Research …systematic gathering,

recording and analysing of data about problems relating to the

marketing of goods and services

Desk research (secondary data)

Internal Accounts, Sales reports, Customer complaints

External CSO reports, Business monitors, Trade journals, newspapers

Field Research (Primary data)

Interviews, focus groups,

questionnaires, experiments, Test

marketing

Marketing Mix – 4P’s …set of controllable

marketing variables used to produce desired response in

the target market

Product

Product mix

Product Life Cycle

Product qualities Features, options, range, warranty, branding, packaging

Place

• Distribution channels

• Market coverage • Outlet locations • Warehousing

Promotion

Communications Mix: Advertising Sales promotion Public relations Personal selling

Price

• Price levels • Discounts • Allowances • Payment terms • Delivery options

A Awareness I Interest D Desire A Action Product

Implementation Issues

7 P’s

Physical Evidence

Processes

People


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Organisational Structure

Centralised vs Decentralised

S Strategy T Technology O Objectives P People T Tasks I Ideology E Environment S Size

Entrepreneurial √ Fast decisions √ Responsive to market √ Congruence × No career structure × No autonomy × Single product & market

Functional √ Economies of scale √ Specialists with some autonomy √ Career structures √ Frees up entrepreneur × Slow decisions (bureaucratic) × Functional silo’s × Few products & markets

Divisional √ Multiple products &

markets √ Autonomy for SBU

managers √ Training of SBU managers √ Frees up senior managers √ Focus on specific

products/markets × Loss of congruence? × Duplication of effort × Isolation of SBU

managers


Matrix √ Breakdown of silo’s √ Shared knowledge √ Skill development √ Innovation and creativity × Dual command × Dilution of functional

authority × Time consuming meetings

Mintzberg’s Structural

Configurations Strategic Apex

Middle Line

Operating core

Techno-structure

Support Staff

• Simple structure = entrepreneurial

• Machine bureaucracy = functional

• Professional bureaucracy = decentralised

• Divisional form • Adhocracy = matrix

Planning and control

• Direct supervision • Planning processes • Performance

management • Internal market • Culture • Self-control

Strategic Planning co.s

Financial Control co.s

Strategic Control co.s

Managing Business

Units

Parental Developer

Synergy Manager

Portfolio Manager

Types of Structure

External Relationships

Outsourcing

Network Organisation

Virtual Organisation

√ Reduced cost √ Skill shortages √ Flexibility √ Focus on core business × Loss of control × Supplier dependency × Confidentiality × Loss of in-house skills

Decentralisation

Advantages: • Frees senior

management • Better local decisions • Better motivation • Flexibility • Training/career path

Disadvantages: • Loss of control • Loss of congruence • Duplication of effort • Extra costs of control


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The International Market Place

Reasons for growth in international business

Convergence of Markets

Cost advantages Economies of scale

Country specific costs

Political Influences

Trend to Global products

Objectives of international

growth

Expand sales

Acquire resources

Diversify sources of

sales & supply

General risks

Political Legal

Economic

Social/cultural

Technological

Exporting √ Low capital outlay √ Low risk √ Can learn about market × May not meet customer needs × Perceived lack of commitment × High distribution costs

Joint Venture & Franchising

√ Access to local resources √ Reduced national sentiment √ Shared capital input √ Access to competences and

knowledge × Shared profits × Lose competences × Train competitor × Operational disputes

Foreign Direct Investment √ Closer to market √ Retain profits √ More control √ Reduced operational conflicts × High financial risk × Staffing decision × Integration difficulties

Methods of International Expansion

Global Multi-Domestic Hybrid

• Perceives foreign markets as similar to domestic market

• Products & marketing mix constant

• Standardisation to save time and money

• Supply-driven policy

• See overseas market as distinctive • Customised products and

marketing mix • Increased overseas sales volumes BUT • Fewer EOS giving higher costs, so

volumes not turned into profits

• Standardise wherever possible, e.g. RnD, Branding

• Market convergence may allow standardised product

• BUT • Demand-driven • Customised marketing mix

where necessary = GLOCAL

STAFFING

√ Overcomes lack of host skills, unified culture, Transfers competencies

× Resentment by host, single cultural view

√ Multi-cultural view, inexpensive × Limits career mobility, isolates HQ

from subsidiaries

√ Efficient use of HR, builds strong culture and management network

× Subject to National immigration policies, expensive

Competitive Forces


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Improving Processes Harmon’s

Process-Strategy Matrix

Planning

Redesign

Development

Analysing

Business Process Change

Process Improvement

Process Measures


High

Low

Low High Strategic

Importance

Complex & dynamic High strategic value for

advantage - Process Improvement

Static / commodity - Outsource/Automate - Minimum resources

Static but valuable - automate for efficiency

Complex but not core competence - Outsource

Process Complexity Dynamics

Process Redesign

Process Re-engineering

Transition

Feedback control systems

TARA

Input-Process-Output

Action Targets

Actuals

Review

Software Solutions – Systems Development Life

Cycle

Review

Implementation

Design & Select Software

Establish business needs

• Interviews • Questionnaires • Observation • Documenting tools • Workshops • Protocol Analysis • Prototyping

• Quality of Support • User Friendliness • Ability to meet needs • Compatibility/Integration • Costs • Supplier factors

• Staff training • Installation • File conversion • Testing

Generic Solutions √ Speed √ Cost √ Risk √ Support × Unique needs × Supplier power × Compatibility/Integration × No advantage

• Software • System • Project

Weighting and Scoring

Simplification – Eliminate duplicated

activities

Value -added analysis –

Eliminate non-value added activities

Gaps & disconnects –

Failures in communication


25

Information Technology

Supply Chain Management

Value chain

Strategic Context Web-

Presence

E-commerce

Integrated E-commerce

E-business

Barriers • Technophobia • Security • Set-up costs • Running costs • Limited

opportunities • Limited resource • Disinterested

customers

Push vs Pull

Push = Supplier led

Pull = Customer led

Upstream (Suppliers)

E-procurement

E-sourcing

E-purchasing

E-payment

Risks

Downstream (Customers)

• Technology • Organisational • No cost savings

• Switching costs • Disintermediation • Re-intermediation • Updates • Communication • User community • Tracking

preferences • Customisation

E-marketing

7P’s • 4P’s • People • Processes • Physical evidence

6 I’s • Integration • Industry structure • Independent

locations • Individualisation • Intelligence • Interactivity

Customer Relationship Management

Acquisition

Selection

Customer Life Cycle

Retention

Extension

E-branding

-Recency -Frequency -Monetary value


Generic strategies

Porters Five Forces


26

3.4 defects in 1 million

TQM ‘Get it right first time’

Commitment Communication

Continuous improvement

Competence

6 C’s Customers

Costs (PAF)

Quality

‘Fitness for Use’

Quality Control

Quality Assurance

Proactive

Reactive

Appraisal

Failure

Preventative

Internal

External

Quality Standards

Quality Certification

Six Sigma

Key Requirements

6 C’s Team Roles

Green Belt

Implementation Leader

Master Black belt

Black Belt

6 Sigma Champion

Problem Solving Process (DMAIC)

Control

Improve

Analyse

Measure

Define

Quality Software

The ‘V’’ Model

Acceptance testing

System testing

Integration testing

Unit testing

Coding

Unit Design

System Design

Functional spec

Requirement spec

Capability Maturity Model

Integration (CMMI)

Level 1 Performed process

Level 2 Managed process

Level 3 Defined process

Level 4 Quantitatively Mangd

Level 5 Optimising process


99.99966%

T C’s

I C’s

SS C’s

A C’s

Test Plans


27

Project Management

(IPECC)

Initiation

Project Initiation

Document

Project Appraisal Feasibility

Stakeholders

Quality

Time

Risk

• Technological • Operational • Economic • Social

Resources

Put plan into action

• Tolerate / Accept • Treat / Reduce • Transfer / Insure • Terminate / Avoid

• Purpose • Scope • Deliverables • Costs • Time • Objectives • Stakeholders • Org structure

• Sponsor • Manager • Team

SWOT

Project Leader

Planning

• Quality • Resources • Evaluation • Dissemination • Exit • Sustainability

Critical Path

Analysis

• Time

Work Breakdown Structure

Execution

• Motivation • Planning • Co-ordination • Communication • Problem solving • Change Mgt • Budgeting • Meetings

Monitor And

Control TARA

Project Initiation

Document

Frequency

• Complexity • Risk • Cost

Corrective Action

Adjust Plan

Motivation Crashing

Fast Track

Increase resource

Completion

Ensure Completed

Final report & audit

Smooth handover

Tie up loose ends

Compare PID to Outcome

Formally terminate project

Evaluate performance



28

Role of Finance

Strategy

Financial Strategy

Competitive Strategy

Investment Strategy


Core Funding Core Costs

• Management • R&D • Support Services

Financing Decisions

• Cost • Gearing • Control • Security • Cash flow • Availability • Exit routes

Considerations

Alternatives

Equity

Debt

• Retained earnings • Ordinary shares

• Debentures • Loans • HP/Leasing • Overdraft • Trade Creditors

Pref shares

Grants

Ratios

Gearing

Liquidity

Efficiency

Profitability • ROCE • Gross/Net Margin • ROE

• Asset turnover • ROCE • Receivables • Payables • Inventory • Revenue/employee

• Current ratio • Quick ratio

• Dividend cover • Interest cover • EPS • PE ratio

Investor ratios

Limitations • Only comparative • Inflation • Definitions • Accounting policies • Availability of info • Historical

Inter-firm comparison Limitations • Accounting policies • Bias by large/small firms • Unrepresentative avge • Industry classifications • Financial periods

Investment Appraisal

Traditional Methods

Discounted cash flow techniques

ROCE Payback

NPV IRR

• Strategic funding • Self generated income • Developmental funding • Cost minimisation • Apportion overheads to projects


29

Review and Control

Profit Related Measures

Examples • Gross margin • Net margin • Cost % sales • Profit

Problem: no account taken of invested capital used to generate profits

Return On Investment

(ROI)

Residual Income (RI)

PBIT X 100 = % CE

Relative Measure %

PBIT (CE x imputed interest rate)

RI

Absolute Measure £’s

Problems: • Sub-optimal

investment decisions

• Deplete capital assets too early

Problems: • Absolute measure

poor for performance comparisons

Joint issues when used in isolation • Backwards looking measures • Short-termist decisions • Open to easy manipulation of discretionary costs and

capital employed

Conclusion Financial measures should not be used in

isolation to measure performance but should be combined with non-financial measures.

The Balanced Scorecard

Financial Perspective

Internal Business Perspective

Learning & Growth Perspective

Customer Perspective

1. Identify CSF’s 2. Identify competences required for CSF’s 3. Develop KPI’s for competences 4. Measure competence 5. Take action – continuous improvement

Benefits √ Longer-term

measures √ More difficult to

manipulate √ Measures

determinants and results

√ Promotes goal congruence

√ Includes stakeholders

Potential Drawbacks

× Measures conflict with each other

× Requires cultural change

× Overload – ‘paralysis by analysis’

× Time and cost × No obvious

relationship with shareholder wealth


30

Strategy and People

Strategic and coherent approach

HR Planning

HR Gap

Current HR position

Current & future HR needs

Labour supply

Reward Management

Job design

Workplace Learning

Competency Frameworks

Assessment & Appraisal

Leadership

Classical

Purpose

Barriers

Likert's Management

Styles

• Trait • Style • Contingency • Situational

• Charismatic • Transformational • Transactional

• Exploitative autocratic • Benevolent authoritative • Participative • Democratic

• Communication • Teamwork • Delegation • Motivation • Trust

• Performance • Potential • Training

• Confrontation • Judgement • Chat • Bureaucracy • Event • Unfinished

business

Performance Measurement

• Employee ranking • Rating scales • Checklists • Critical incident method • Free reporting • Performance contract • BARS • Appraisal interviews

• Categories • Levels • Design Issues • Techniques • Strategic alignment

Considerations: • Fair & consistent • Motivation • Reward performance • Recognise job factors • Control salary costs

• Scientific Mgt • Job enrichment • Japanese Mgt • BPR • Teamwork • Succession

planning

TARA

• Analyse behaviour • Recruitment • Training needs • Manage

performance • Benchmarking

Learning organisation

Knowledge Management


Recruitment

Motivation

Documents

acca p3