2013 Paper P3 Mnemonics and Charts Sample Download v1

Mnemonics and Charts Paper P3: Business Analysis

www.tonysurridge.co.uk

CONTENTS MAIN PAGE

1 © Tony Surridge Online Limited, 2013

http://www.tonysurridge.co.uk/�



CONTENTS MAIN PAGE

ACCA Paper P3: BUSINESS ANALYSIS

Mnemonics and Charts

Published by Tony Surridge Online Limited in 2013

Copyright © Tony Surridge Online Limited

Part of the Tony Surridge +AddVance study materials range

Tony Surridge Online Limited www.tonysurridge.co.uk

Tony Surridge Online Limited is grateful to the Association of Chartered Certified Accountants (ACCA) and the Chartered Institute of Management Accountants (CIMA) for permission to reproduce past examination

questions. The suggested solutions in the exam answer bank have been prepared by Tony Surridge Online Ltd, unless otherwise stated.

This E-book is sold subject to the condition that no part of it shall be reproduced, transmitted, or freely distributed, in any form by any means, electronic, photocopying, recording or otherwise, without the prior permission in writing of

Tony Surridge Online Limited. This book is not to be used for commercial use. It is sold on the understanding that a private individual has bought it for individual personal use, and prohibits purchase by any company or organisation entity (limited or otherwise) or sole trader or partnership. Such entities must contact [email protected]

separately to purchase a multi-user license.




mailto:[email protected]�



CONTENTS MAIN PAGE

DOWNLOAD SAMPLE Welcome to our download sample of the Tony Surridge +AddVance E-book publication: ACCA Paper P3 – Business Analysis – Mnemonics and Charts Thanks for taking time to review a download extract of this Mnemonics and Charts publication which we have developed specially for the ACCA Paper P3: Business Analysis. We hope you like our electronic study material and recognise that at our affordable prices the complete purchased and downloaded version represents true value for money. This is only a small sample, taken directly from the full version, and as such not all hyperlinks will be active. For illustrative purposes, the active hyperlinks within the Main Page will be shaded pink. All hyperlinks are fully functional only in the full downloaded version when purchased. You may like to learn some details about the full version: (please note these details may vary slightly depending on which updated version you have purchased) This Tony Surridge +AddVance e-publication consists of:

Total number of screens 848 Diagrams/Tables/Charts 191 Mnemonics 283 Review Questions and Answers 17 Revision topics 170 screens

It is important for you to know that each Tony Surridge +AddVance E-book can only be used on the computer it is initially downloaded to. The data cannot be transferred to any portable memory or any other computer or electronic device. This condition is enforced to protect our digital rights. If you wish to use the full version of this +AddVance Exam Study Text on two separate computers (such as a desktop and laptop), then you will need to purchase an additional license. For more details visit: www.tonysurridge.co.uk/exam-material/how-to-buy Good luck with your studies.



http://www.tonysurridge.co.uk/exam-material/how-to-buy�



CONTENTS MAIN PAGE

4

“No snowflake in an avalanche ever feels responsible.” Voltaire

Thank you for helping to save our environment.

Studying ONLINE protects trees! LEARN ONLINE

© Tony Surridge Online Limited, 2013




CONTENTS MAIN PAGE

Main page Copyright statement For the ladies only Why study from a computer screen? Memorising: Tips and techniques Writing or saying things over and over again … Vocalising Initial letters and making phrases The use of mnemonics The use of jingles Word association Visualising Link/story technique Do I need to memorise all your mnemonics? Disguise your use of mnemonics in the exam Charts Colour codes Electronic links within the database

Syllabus Study Guide The structure of the syllabus A Strategic position Intellectual levels B Strategic choices Learning hours C Strategic action Guide to exam structure D Business process change Guide to examination assessment E Information technology Aim F Project management Main capabilities G Financial analysis Rationale H People Detailed syllabus Approach to examining the syllabus

Contents Main Topics Click here Review Questions Click here

ACCA Paper P3 Business Analysis

+AddVance

Mnemonics and Charts

“Where shall I begin, please your majesty?” he asked. “Begin at the beginning,” the king said gravely, “and go on till you come to the end: then stop.” Lewis Carroll Through the Looking-Glass

5

These two items

are ‘live’ for this Free Sample





CONTENTS MAIN PAGE


Overview of Mnemonics and Charts

Main Contents Title Page

Position audit: Where are we now? 31

Choices and evaluation: Where do we want to be? 160

Implementation and action: How do we get where we want to be?

264

Business process change 338

Information technology 396

Project management 462

Financial analysis 530

People 551

Revision modules Contents

557 559

Indicative contents 728

Review Questions and Answers 767

6

Only the first section

is hyperlinked for this Free

Sample

These two items

are ‘live’ for this Free Sample





CONTENTS MAIN PAGE

‘Position Audit’

7

“Anjin-san, forget the village. A thousand things can happen before those six months occur. .... Leave the problems of God to God and karma to karma. Today you’re here and nothing you can do will change that. Today you’re alive and here and honoured, and blessed with good fortune. Look at the sunset, it’s beautiful neh? This sunset exists. Tomorrow does not exist. There is only now. Please look. It is so beautiful and it will never happen again, never, not this sunset, never in all infinity. Lose yourself in it, make yourself with nature and do not worry about karma ....” James Clavell, Shōgun, Coronet Books/Hodder and Stoughton





CONTENTS MAIN PAGE

Strategic Review (Position audit) - Overview of what might be involved: 1 of 2

Ad hoc review

‘One off’

Continuous review

To evaluate a strategic proposal made independent of strategic review

Reactive management

Trouble-shooting Unexpected event Overlooked eventuality

Proactive management

Structured analysis on a continuous basis: Conditioned and directed research Cybernetic feedback systems

reasons for ….

Trigger point for strategy

Continuous appraisal

On-going reviews and special investigations Performance appraisal systems Audits: - system audit - operating audit - organisation structure audit Cybernetic control systems - feedback - feedforward Competitive analysis

Examples: change in legislation merger of competitors

Examples: technological break-through move by competitor outbreak of conflict between countries

From: research and development market(ing) research associated companies

Expected event

Sudden unexpected

event

Ideas from within the

firm

Often there is some happening or event that ‘triggers’ the need for strategic change. The need is then uncovered by a strategic review, which itself can take several forms. Common trigger-points are shown below:

Type of review





CONTENTS MAIN PAGE

Data gathering

External sources (environmental

review)

Internal sources (resource audit)

Secondary data

Primary data

Data that has been made available for another purpose and is therefore used in a second-hand way Data that is created especially for this purpose and is therefore unique

Data analysis

Use made of analytical models

Reporting system

Strategic review work often involves accountants and other consultants, and findings (usually with recommendations) are reported to managers with responsibility for strategic decisions. The system reports in three ways: full and detailed report, including statistics briefing paper (brief and to the point) oral presentation (use of Microsoft PowerPoint, etc.)

Aspects reported

A formal strategic review will uncover useful information for strategic management, and in the main will report on the following aspects: SWOTs core competencies and uses currently made the momentum line of existing strategy (expected results of the current strategy) present product-market sphere significant problems - now - looming recommended strategic change/direction Conclusion

It is not possible to provide a definite list of the aspects that should be analysed in a strategic review. This must depend upon the particular situation, trigger signs, circumstances and forces at work in the operational environment of a given organisation at a particular time. However the strategic review is usually a vital need in the early stages of strategy formulation.

9

2 of 2

There are other models

PESTEL analysis Various writers

Gap analysis Ansoff

7-S analysis McKinsey 10-M analysis Various writers Financial analysis Vertical, horizontal and

ratio analysis Life-cycle analysis Kotler, et al Product portfolio analysis BCG and Shell models Competitive analysis Various models 5-Forces analysis Porter Diamond analysis Porter Value-chain analysis Porter Stakeholder analysis Mendelow, et al SWOT analysis Ansoff, Mintzberg, et al

1

2

3





CONTENTS MAIN PAGE

MICRO- ENVIRONMENT

Micro-environment That part of the business environment that is directly relevant to an industry or market and is therefore relevant for the organisation is achieving its goals. It usually contains: customers competitors stakeholders

but depending on the organisation’s domain can include other factors.

Macro-environment Those components of the environment that affect many businesses in the economy as a whole and may potentially affect a particular organisation but whose relevance is not specific at a particular time. They are broad forces (PESTEL) which we cover later. The effect of macro factors is usually less immediate than direct ones.

Domain What an organisation stakes out for itself with respect to the range of products or services offered and markets served. An organisation’s domain determines those parts of the business environment that are ‘micro’ or ‘macro’.

Example: The UK ‘Sun’

newspaper has a different business domain than the (London) ‘Times’

newspaper.

Divisions of the business environment

MACRO- ENVIRONMENT

10

Macro- and micro- environments





CONTENTS MAIN PAGE

1. The macro-environment of an organisation using PESTEL (a) PESTEL Analysis PESTEL Analysis is a framework that strategy consultants use to scan the external macroenvironment in which an organisation operates. PESTEL is an acronym for the factors shown in the below. In the table on the next screen are examples of each of the PESTEL factors. Remember, macro-environmental factors can differ per continent, country or even region, so normally a PESTEL Analysis should be performed on a geographical basis. (b) Conducting a PESTEL Analysis Completing a PESTEL Analysis is relatively simple, and can be done by: - workshops - using brain-storming techniques - conditioned and directed research. (c) Using a PESTEL Analysis The usage of PESTEL analysis can vary depending on the industry, business, strategic development approach or market planning method. In general terms, PESTEL Analysis aids the following important stages of strategic development: - 'current position' auditing - future position projection - formulation of strategic proposals - evaluation of strategic proposals

Political factors P

Economic factors E

Social factors S

Technological factors T

Ecological (natural, ‘green) factors E

Legal factors L

PESTEL factors

11

PESTEL analysis





CONTENTS MAIN PAGE

In this table are examples of each of the PESTEL factors. Remember, macro-environmental factors can differ per continent, country or even region, so normally a PESTEL Analysis should be performed on a geographical basis.

12

Political Economic Social Technological Ecological

Legal

International trade regulations and restrictions

Interest rates & monetary policies

Labour/social mobility

New inventions and development

Environmental regulations and protection

Contract enforcement law

Tax policies Stages of the business cycle

Lifestyle changes

Government research spending

Energy use Customer protection law

Government organisation/ attitude

Economic growth

Income distribution

Industry focus on technological effort

Social attitude (including influence of ‘pressure groups’)

Employment law

Political stability

Government spending

Demographics, population growth rates, age distribution

Life cycle and speed of technological obsolescence

Legislation/ regulation enforcing pollution (effluent) controls

Trading block directives (such as European directives)

Destabilising factors (war, etc.)

Taxation Education Rate of technology transfer

Legislation/ regulation controlling traffic movement and its cost

Competition regulation

Inflation rates Fashion, hypes Energy costs

Safety regulation

Exchange rates Work/career and leisure attitudes Entrepreneurial spirit

(Changes in) information technology

Unemployment policy

Living conditions

(Changes in) mobile technology

Consumer confidence

Health consciousness & welfare, feelings on safety

(Changes in) Internet

Examples of PESTEL factors





CONTENTS MAIN PAGE

Using a PESTEL analysis

Completing a PESTEL Analysis is relatively simple, and can be done by: - workshops - using brain-storming techniques - conditioned and directed research. The usage of PESTEL analysis can vary depending on the industry, business, strategic development approach or market planning method. In general terms, PESTEL Analysis aids the following important stages of strategic development:

S Scenario building – provides a framework of possible positive or negative future events.

C Current position of the organisation is analysed by use of the PESTEL framework.

R Research focus – requires appropriate data to be uncovered, using both conditioned and unconditioned research. (Conditioned research is subject to or dependent on a condition or conditions, whereas unconditional research means unrestricted.)

I Idea generation – PESTEL aids in the formulation of strategic proposals.

P Proposal evaluation – PESTEL analysis can aid in the evaluation of ideas.

T Takes into account the main macro-environmental factors and ensures a near complete coverage.

Memory jog: PESTEL analysis provides a useful ’SCRIPT’ (an

‘original document’) of the macro-environment of an organisation.

13

It’s red hot, mate. I hate to think of this sort of book getting into the wrong hands. As soon as I’ve finished this, I shall recommend they ban it. Ray Galton and Alan Simpson - The Missing Page Words spoken by Tony Handcock, 1960 BBC television programme

Tony Handcock, 1924-1968 English actor and comedian



http://www.google.co.uk/imgres?imgurl=http://newsimg.bbc.co.uk/media/images/42401000/jpg/_42401234_hancock_bbc_203b.jpg&imgrefurl=http://news.bbc.co.uk/2/hi/uk_news/6220684.stm&h=200&w=203&sz=13&tbnid=Oq41tQ5nuPi4hM:&tbnh=103&tbnw=105&prev=/search?q=tony+hancock&tbm=isch&tbo=u&zoom=1&q=tony+hancock&hl=en&usg=__wompiLWzgw-gnNQfbcIwZvvVNRA=&sa=X&ei=n3URTpKYOoLAhAeuyfHuDQ&ved=0CD8Q9QEwBA�



CONTENTS MAIN PAGE

Gap Analysis

Fo

Ft

2009 2010 2011 2012 2013 2014 2015 2016 2017

Historical period Current Planning period Target Year

Strategic Drift

Planned strategic outcome

Current

Actual results

The organisation has ‘drifted’ from its strategic objectives

Profit $m

Profit $m

Strategic Gap

14

2011 2012 2013 2014 2015 2016

Ft: Forecast target Fo: Forecast with no strategic change

Gap analysis and strategic drift

Also click here

Also click here





CONTENTS MAIN PAGE

15

Culture relates to the sharing of behaviour patterns by groups of people. There are different cultures, or sub-groupings, and people can relate to move than one of them. The factors which influence culture are:

B Background and social class.

E Ethnic background. Ethnic membership affect cultural attitude and behaviour.

H Habits and traditions.

A Age (contrast the differences in behaviour between teenagers and old-age pensioners).

V Values and beliefs, which are often influenced by the other factors.

I Interests and education levels.

O Occupations and work. Different organisations use different structures and working practices.

U Usual ways of doing things – ‘norms’.

R Religion, which will influence behaviour.

S Sex (gender), i.e. the different behaviours of males and females.

Factors influencing social and culture

Memory jog: Remember culture affects ‘BEHAVIOURS’.

I’ve been in Who’s Who, and I know what’s what, but it’ll be the first time I ever made the dictionary. Mae West, 1892 -1980 American actress, playwright, screenwriter and sex symbol. Known for her bawdy double entendres Letter to the RAF, early 1940s on having an inflatable life jacket named after her





CONTENTS MAIN PAGE

16

Laws are the result of common law, parliamentary statutes, government regulations and directives of supranational bodies (such as the European Union) and can be grouped as follows:

T Tax law.

H Health and Safety law.

E Employment law.

R Regulation and protection of data law.

E Environment protection law.

B Business law.

C Consumer protection law.

C Company law.

C Competition law.

C Criminal law. Economic dynamics are important influences for decisions made by business organisations and relate to the following indicators:

I Inflation rates.

S Spending by government, both national and local.

G Growth or reduction of the Gross Domestic Product (GNP), and causes of.

N National economic trends – factor prices such as materials, labour and rents.

P Productivity levels in the national economy.

F Foreign exchange rates.

I Interest rates.

T Tax rates.

Legal factors

Memory jog: Remember ‘THERE B’ 4 ‘Cs’.

Economic factors

Memory jog: When trying to recollect economic factors remember ‘IS GNP FIT?’.





CONTENTS MAIN PAGE

17

Political change can affect a business organisation in a number of ways and involves forecasting and analysis of:

P Possibility of a ‘muted’ regulation or change of Government policy.

I Indications of the reasons for the change.

N Nature and scope of the change.

O Outcome and consequences forecast for the organisation by the change.

N Nature of the strategic response required.

P Prevention (of the change) possibilities.

M Mitigation strategy (in the case when prevention is not possible).

Political forecasting and analysis

Memory jog: Remember when discussing political aspects to ‘PIN’ it ‘ON’ the ‘PM’ (prime minister).

Education At Mr Wackford Squeer’s Academy, Dotheboys Hall, at the delightful village of Dotheboys, near Greta Bridge in Yorkshire, Youth are boarded, clothed, booked, furnished with pocket-money, provided with all necessaries, instructed in all languages living and dead, mathematics, orthography, geometry, astronomy, trigonometry, the use of the globes, algebra, single stick (if required), writing, arithmetic, fortification, and every other branch of classical literature. Terms, twenty guineas per annum. No extras, no vacations, and diet unparalleled. Charles Dickens, 1812 - 70 Nicholas Nickleby (1839) Charles Dickens's gripping story about a boy's struggle to survive and find happiness in a hostile and unfeeling world. Wordsworth (1995.09.06) -

paperback - 731 pages





CONTENTS MAIN PAGE

Technological change can affect a business organisation in a number of ways:

T Types of products or services that are made and marketed.

W Ways in which the product is made (new materials, automation, etc.)

O Organisational implications – for example organisation delayering and re-structuring due to IT change.

P Processing systems – machine routing and loading, etc.

I Information systems and the information available for market research, etc.

P Processing costs which are often reduced by technological change.

E Extent of geographical decentralising – such as taking information processing operations (such as call-centres) overseas to low cost countries.

S Scope to improve services and communication with customers by using e-mail and e-business systems, etc.

18

Technological change

Memory jog: when discussing how technological change can affect an organisation to mention the ‘TWO PIPES’.

“Take some more tea,’ the March Hare said to Alice, very earnestly. ‘I’ve had nothing yet,’ Alice replied in an offended tone, ‘so I can’t take more.’ ‘You mean you can’t take less.’ said the Hatter: ‘it’s very easy to take more than nothing.’ Lewis Carroll, 1832 - 98 Alice’s Adventures in Wonderland (1865)

By Lewis Carroll, Tove Jansson - Tate Publishing, Limited (2011) - Hardback - ISBN 1854379577





CONTENTS MAIN PAGE

Risk and threat

A company faces risk because of its lack of knowledge of the future. When planners evaluate a strategy they will at best be able to forecast that 'if event A happens we shall have such and such a return, but if event B happens we shall lose $m.' The extent of the risk a firm faces can be revealed by the use of performance-risk gap analysis, where forecasts of the outcome in n years' time take into account not only the likely returns but also the risk - i.e., the probability of achieving various returns less than the likely level. Using this concept of risk - event A being favourable to the company and event B unfavourable, there would seem to be four basic ways in which a company can reduce its risk:

C Contingency plans. If event B seemed a fairly remote possibility, but its happening would have serious consequences for the company, contingency plans should be prepared. For instance, there might be plans to cope with such events as the sudden deaths of key personnel; the merger of two competitors into one large unit; a breakthrough in technology by the company's competitors. Because of the speed of events these days and the magnitude of the effect which events such as technological breakthrough can have, no corporate strategy is complete without contingency plans. Nevertheless, they are only one part of the risk-reducing strategy.

A Adopting a flexible strategic profile. Whatever the company does to prepare for particular unfavourable events it must be recognised that the whole future is uncertain and the company needs to put itself in a position where it can take advantage of new (unforeseen) opportunities and avoid unforeseen threats. Contingency plans can only be prepared against events which have been predicted, even though they may be thought unlikely to happen. To avoid being taken totally by surprise, a company must have a constant 'ear to the ground' to catch hints of potentially threatening or promising developments at an early stage. (It is equally bad to miss an opportunity as to fail to forecast a threat - an opportunity rapidly becomes a threat if a company fails to take advantage of it and its competitors are quicker off the mark!) This is probably best achieved by both formal and informal information collection methods. Thus the company will keep abreast (as far as it can) of what its competitors are doing and possible planning to do, and experts within the company will have an eye on general economic trends, the opinions of political commentators and the progress of scientific research at the pure as well as the applied stage, in addition to any more specific research work the company may itself be engaged in.

M Mitigation of possible damage arising because of the event. If it seemed fairly likely that event B was going to happen, the company could attempt to mitigate the effect of the occurrence. The firm could aim for internal flexibility - the building up of funds to help it through the difficulty - or external flexibility - the 'not putting all one's eggs in one basket' approach. External flexibility could be achieved by operating in different markets (with negatively correlated demand forces) and/or by using different technologies. If event B was 'a decline in demand at home' a possible strategy to mitigate the effect of that threat would be to expand export efforts. If event B was 'a general downturn in the world economy' a possible strategy would be to stockpile cash to see the company through the crisis until the next upswing.

E Event prevention. Management can attempt to influence events so that event A happens and event B does not. For instance if the company thought that a Conservative government was likely to be more favourable to it than a Labour government it could give money to the Conservative party to back their campaign. If it anticipated legislation that would seriously affect some aspect of its operations it could lobby Members of Parliament to try and avert the threat. Additionally, it could try and influence public opinion on the matter through the use of the press, trade unions, non-executive directors' influence, influential institutional shareholders and pressure groups.

Memory jog: Techniques ’CAME’ in to identify and manage risk (or threat)





CONTENTS MAIN PAGE

Competitive Position

Competitive analysis

Competitive strategy

- Entry barriers - Cost leadership - Differentiation - Focus

PESTEL analysis Indirect environment

Market Position

Market analysis

Marketing strategy

- Product strategy - Price strategy - Place (distribution) strategy - Promotion (communication) strategy - People - Process - Physical evidence

PESTEL analysis Indirect environment

- 5-Forces analysis - Value-chain analysis - Competitors’ SWOT analysis

- Market research techniques

For some organisations part of PESTEL can be micro-environment, such as a company that develops a technological-based strategy

20

Influences of the main micro-environmental factors

For a Review Question which makes reference to environmental analysis

click here





CONTENTS MAIN PAGE

Classes of marketing strategy

Ward identifies four classes of market strategy:

E Entry. The strategy to enter a particular market.

I Increase of market share. The strategy to increase share of a segment in which the firm already operates.

R Remain in and sustain market share. The strategy to remain operating within a current segment.

E Exit. The strategy to leave the segment. These are long term investment decisions. When appraising such future capital investment, strategic management attempt to forecast the impact of competitive forces and likely actions and reactions of competitors.

Memory jog: ’EIRE’ is another name for Ireland. It can be used as a mnemonic to describe the four main market strategies.

21

He who can, does. He who cannot, teaches. George Bernard Shaw, 1856-1950 Man and Superman (1903) ‘Maxims: Education

Dan H. Laurence - Penguin (2000) - Paperback

- 264 pages - ISBN 0140437886





CONTENTS MAIN PAGE

Porter’s ‘5 Forces’ framework

The key text dealing with competitive analysis is Professor Michael Porter's work 'Competitive Strategy: Techniques for Analysing Industries and Competitors' Porter states that 'competition in an industry is rooted in its underlying economics and competitive forces exist that go well beyond the established combatants in a particular industry'. The problem for the strategist is to determine which of these forces are relevant, and to what extent. Porter's approach to industry analysis is based on the concept of an industry shaped by five forces. They are illustrated in the diagram on the next screen. Porter referred to these forces as the microenvironment, to contrast it with the more general term macroenvironment. They consist of those forces close to a company that affect its ability to serve its customers and make a profit. A change in any of the forces normally requires a company to re-assess the market place. Strategy consultants use Porter's framework often to evaluate a company's strategic position.

P Power of buyers. The power used by the buyers in an industry make it more competitive in three ways: (i) by their power to force down prices; (ii) whilst at the same time bargaining for higher quality or improved services; and (iii) be able to play supplier competitors against each other. All three of these power ploys will be at the expense of the supplying industry's profitability.

R Rivalry within the market. Conflict among existing competitors involves market maneuvering. Tactics include: product innovations and improvements, price competitions, advertising battles and improved customer services.

E Entrants. New competitors to an industry may increase the competitiveness of a market in three ways: (i) The market capacity expands without necessarily achieving a commensurate increase in market demand. (ii) New entrants need market penetration to achieve critical mass and to then build market share. They often achieve this by product and marketing initiatives which demand response from present market incumbents. (iii) Supply and demand dynamics may lead to increase costs in the industrial sector as new competitors bid for factors of production.

S Substitutes. In economics, one kind of good (or service) is said to be a substitute good for another kind insofar as the two kinds of goods can be consumed or used in place of one another in at least some of their possible uses. Classic examples of substitute goods include margarine and butter, or petroleum and natural gas (used for heating or electricity). The fact that one good is substitutable for another has immediate economic consequences: insofar as one good can be substituted for another, the demand for the two kinds of good will be bound together by the fact that customers can trade off one good for the other if it becomes advantageous to do so. Thus, an increase in price for one kind of good (ceteris paribus) will result in an increase in demand for its substitute goods, and a decrease in price (ceteris paribus, again) will result in a decrease in demand for its substitutes. Thus, economists can predict that a hike (increase) in the cost of wood will likely mean increased business for bricklayers, or that falling cellular phone rates will mean a fall-off in business for public pay phones.

S Suppliers’ power. Suppliers can exert bargaining power over companies within an industry in two main ways: (i) By threatening to raise their prices, or actually raising their prices. (ii) By threatening to reduce the quality of their goods and services, or actually reducing quality. The effect of this power influence or power play will be to squeeze profitability out of an industry which is unable to recover cost increases by raising its own prices.

Memory jog: A company faces competitive ’PRESSURES’. These pressures can be analysed by using Porter’s ‘5-Forces Framework’.





CONTENTS MAIN PAGE

The key text dealing with competitive analysis is Professor Michael Porter's work 'Competitive Strategy: Techniques for Analysing Industries and Competitors' Porter states that 'competition in an industry is rooted in its underlying economics and competitive forces exist that go well beyond the established combatants in a particular industry'. The problem for the strategist is to determine which of these forces are relevant, and to what extent. Porter's approach to industry analysis is based on the concept of an industry shaped by five forces. They are illustrated in the diagram below (below). Porter referred to these forces as the microenvironment, to contrast it with the more general term macroenvironment. They consist of those forces close to a company that affect its ability to serve its customers and make a profit. A change in any of the forces normally requires a company to re-assess the market place. Strategy consultants use Porter's framework often to evaluate a company's strategic position.

Threat of New Entrants

Threat of

Bargaining Power of Buyers

(customers)

Threat of

Bargaining Power of Suppliers

Threat of Substitute Products

Threat of Rivalry within an industry

Graphical representation of Porter’s ‘Five Forces Framework’

23

Porter's 'Five Forces' framework





CONTENTS MAIN PAGE

Fact Sheet: Threat of new entrants

New entrants cause the market capacity to expand usually without an increase in market demand

New entrants require to achieve ‘critical mass’. This is a volume level which allows a company’s fixed costs to be spread over a sufficient output for the company’s total

cost per unit (and thus its selling price) to be competitive.

For new entrants to achieve critical mass they need to penetrate the market and ‘build share’.

Thus, there is a need for new entrants to pursue offensive (‘build’) marketing strategies.

Offensive marketing strategies involve the ‘4 Ps’, i.e. product innovation strategy, pricing strategy (often price reduction),

promotion strategy and distribution strategy.

The marketing strategies of new entrants require innovative responses from companies already

occupying the market. This often increases costs and reduces profitability within the market

In some cases the increased demand for resources in the industry puts an upward

pressure on resource costs (supply and demand dynamics).

Overall, there is a danger that new entrants will reduce the profitability of companies already occupying the industry.

1

2

3

4

5

6

7

24

Click to the next screen





CONTENTS MAIN PAGE

Extent of threat from new entrants

The extent of threat from new entrants is influenced by the following.

B Barriers to entry.

I Image and brand equity.

G Government regulation.

S Switching costs for the buyer/customer.

C Capital requirements for entry.

A Access to distribution channels (for the new entrant).

L Learning/experience curve disadvantages for new entrants.

E Expected retaliation from market incumbents.

Memory jog: Companies often face ’BIG SCALE’ penetration of their markets by new entrants and must build or use barriers to entry to help protect and defend their market positions.

25

Expenditure rises to meet income. C. Northcote Parkinson, 1909-93 The Law and the Profits (1960)

C. Northcote Parkinson's Parkinson's Law

Leo Gough





CONTENTS MAIN PAGE

Threats posed by substitutes

Substitutes pose the following threats.

P Price-quality trade off. Because of their price-quality trade-off, substitute products may limit the price that a company can charge for it's products.

A Attracted to a transient market growth which eventually levels off and thus becomes very ‘crowded’ and competitive.

I Increase the choice for customers. The main threat posed by substitutes is that they increase the competitiveness of a market.

D Danger that a threat of a substitute may not be realised until it is too late to arrest their entry. The extent of threat of substitute products depends on;

P Propensity of buyers to substitutes.

R Relative price-quality performance of substitute offerings.

I Imposition of switching costs by companies within the sector.

M Marketing mix tactics employed by the competitors supplying the substitutes.

E Extent, and perceived level of differentiation of the substitute.

Memory jog: Often, not enough attention is ’PAID’ to the threat that substitute products/services can bring to a market until it is too late.

26

Extent of threat of substitute products

Memory jog: Often, the threat of substitutes becomes a ’PRIME’ concern of the strategic analyst.





CONTENTS MAIN PAGE

Seven situations where buyers are particularly powerful

The power used by the buyers in an industry make it more competitive in three ways: (i) by their power to force down prices; (ii) whilst at the same time bargaining for higher quality or improved services; and (iii) be able to play supplier competitors against each other. All three of these power ploys will be at the expense of the supplying industry's profitability. Michael Porter purports that the power of the industry's buyer depends on the characteristics of its market situation and of the relative importance of a buyer's purchases from the industry compared with its (the buyer's) overall business. He suggests that buyers are particularly powerful in seven situations.

B Buyer’s product is not strongly affected by the quality of the suppliers' product.

I Information. The buyer has full information.

L Large purchases by the buyer relative to its supplier.

L Low profits earned by buyers.

S Significant proportion of the buyer’s costs are purchases.

U Undifferentiated purchases. Purchases are undifferentiated.

P Potential for backward integration. Buyers have the potential for backward integration.

Memory jog: Actually the ’BILLS’ (invoices) are often not going ‘UP’ for a buyer. Buyers often have the power to force prices down!

27

Click to next two screens

I evidently knew more about economics than my examiners. John Maynard Keynes, 1883 - 1946 explaining why he performed badly in the Civil Service examinations.

The life of John Maynard Keynes [Book] by Sir Roy Forbes Harrod

- Norton (1982) - paperback - 674 pages





CONTENTS MAIN PAGE

Extent of threat from the bargaining power of a buyer

The extent of the threat from the bargaining power of buyers is influenced by:

V Volume of purchases from the buyer – the higher they are, the bigger the threat.

I Information the buyer has available about the offerings of its supplier’s competitors.

P Price sensitivity of the buyer.

P Price of the total purchase – including add-ons, such as delivery.

A Amount of bargaining leverage both parties have.

S Switching costs imposed on the buyer by its supplier.

S Substitute products/offerings available to the buyer.

Memory jog: The buyer is a ’VIP’ (‘very important person’) who can ‘PASS’ its purchasing policy in a way that can damage its supplier. Pass, in this case, means ‘to make one’s way’ (Chambers 20th Century Dictionary).

28

If at first you don’t succeed, try, try again. Then quit. No use being a damn fool about it. W. C. Fields, 1880-1946 attributed





CONTENTS MAIN PAGE

There are ways open by which firms can attempt to reduce the power of the buyers in its market.

S Switching costs. Companies can lock in customer loyalty by the use of ‘switching costs’. An example is a supermarket ‘loyalty card’. A customer would be unable to take advantage of the loyalty card if he/she switched to another supermarket.

M Marketing tactics. The tactics to be employed depend upon the sensitivity of the market. If the market is promotional-sensitive then the company can obtain customer loyalty through its promotion strategy.

I Innovation in the market price. Companies selling ‘unique’ products will possess technological monopoly and customers will be forced to use their products/services.

L Low price. If the market is price sensitive then customers can be locked in by the use of low selling prices, discounts and favourable credit terms.

E Exact need focus. Companies that produce to exact needs (customisation, bespoke offerings, etc.) usually create switching costs which lock in customers.

D Product differentiation. Customer loyalty is often the result of the ‘habitual buying’ of customers who are happy with the quality of the product they purchase. This is particularly so in the case of ‘fast moving consumer group’ (FMCG) products or ‘repeat products’.

Ways to reduce ‘Buyer Power’

Memory jog: use ‘word association’. Fortune has ‘SMILED’ on organisations that increased or sustained their competitive advantages by reducing the power of their buyers to switch to other suppliers.

29

A see nothing wrong with giving Robert some legal experience as Attorney General before he goes out to practice law. John F. Kennedy, 1917 - 63 America’s 35th president of the appointment of his brother Robert.

Bill Adler - More Kennedy Wit

1st Ed 1965 h/b d/j / JFK





CONTENTS MAIN PAGE

Threat of bargaining power of suppliers

Suppliers can exert bargaining power over companies within an industry in two main ways: (i) By threatening to raise their prices, or actually raising their prices. (ii) By threatening to reduce the quality of their goods and services, or actually reducing quality. The effect of this power influence or power play will be to squeeze profitability out of an industry which is unable to recover cost increases by raising its own prices. Porter suggests that suppliers are particularly powerful in six situations.

A Availability of substitute products. There are few substitutes for their products.

L Low number of suppliers. There are few suppliers.

L Low importance of the buyer to the supplier. The company supplied is not an important customer.

S Supplier is able or has intention to integrate forward (downstream).

A -

I Importance of the supply to the buyer. The supplier's product is an important component to the buyer's business.

D Differentiated goods/products are supplied. The supplier's product is differentiated. The extent of the threat of the bargaining power of suppliers depends on:

S Switching costs. The supplier’s switching costs relative to the firm's switching costs

I Input supply costs of the buying firm relative to its other costs and sales. In other words, costs of inputs relative to selling price of the product.

D Degree of differentiation of supplied goods or products.

E Existence of substitute inputs.

Memory jog: ’ALL SAID’ and done, the suppler can present very serious threats to its customer (buyer).

30

Extent of threat of the bargaining power of suppliers

Memory jog: Looking at this ’SIDE’ of a supplier’s power base shows that it can exert considerable threat to its buyer.






CONTENTS MAIN PAGE

There are ways open by which firms can attempt to reduce the power of the suppliers in its market.

E Economies of scale: large, experienced firms can generally produce at higher volumes than small, inexperienced firms. The rationale is that it is often better to expand within an existing market and build volume, than diversify into different product-markets and sectors. High volume purchases favour suppliers

S Switching costs. These are one-off costs facing a supplier which switches from one buyer. Switching costs may include contractual obligations, costs of certification, product redesign, costs and time in assessing a new source (if the supply is a non-traded good), or even the cultural problems of severing a relationship. Switching costs help to ‘lock in suppliers’ thus removing -part of their power base.

C Capital investment: especially in industries with economies of scale and/or natural monopolies. Capital investment will increase quality, reduce costs and act as an entry barrier all of which will help to reduce the power of suppliers. It makes companies attractive to other suppliers thus reducing the power position of any one supplier.

A Advertising. Firms can seek to make themselves attractive by building trade loyalty. This would also make it it difficult for new competitors who may not be able, or willing, to spend heavily on trade advertising and promotion.

P Product differentiation. Products can be differentiated in terms of: price, quality, brand image, features, distribution, exclusivity, packaging, value. Patents help to give strength to a differentiated position. Patents and copyright offer inventors some protection against new entrants. This helps to provide the volume of purchases which lock in the supplier.

E Economies and cost advantages independent of size/scale. Established companies may have cost advantages not available to potential entrants, no matter what their size and cost levels. Critical factors include; proprietary product technology, favourable locations, learning or experience curve, favourable access to sources of raw materials and government subsidies. All of these make buyers preferable to suppliers.

Ways to reduce ‘Supplier Power’

Memory jog: use ‘word association’. The use of tactics may enable the firm to ‘ESCAPE’ from the power lock of suppliers.

31

Please, sir, I want some more, Charles Dickens, 1812 - 70 Oliver Twist (1838)

Oxford University Press (2010)

- Hardback - 517 pages - ISBN 0192729667





CONTENTS MAIN PAGE

Threat of rivalry within an industry

Conflict among existing competitors involves market maneuvering. Tactics include: product innovations and improvements, price competitions, advertising battles and improved customer services. Rivalry occurs because one or more companies feels threatened or sees a market opportunity. Competitive moves usually results in counter-defensive strategies from other companies. This interactive pattern of offensive and defensive strategies is costly and may leave all the competing companies worse off then before. Porter suggests that there are seven main determinants relating to the strength of internal competition and rivalry within an industry.

L Lack of differentiation in the sector.

C Competition is diverse.

H High fixed costs in the industry.

I Increase of capacity is only possible in large incremental amounts.

M Many equally balanced competitors.

E Exit barriers are high/robust.

S Slow rate of industrial growth.

Memory jog: Remember the different threats of rivalry within an industry as ’L CHIMES’.

32


A man may be a fool and not know it, but not if he is married. H. L. Mencken, 1880-1956

Laurence J. Peter - ‘Quotations of Our Time’ (1977)





CONTENTS MAIN PAGE

Intensity of competitive rivalry

The intensity of competitive rivalry in an industry is influenced by five main factors:

A Asymmetry (irregularity) of information. now

L Level of marketing effort within the sector.

I Intermittent industry capacity.

C Complexity of information required.

E Equality within brands, i.e. lack of differentiation. Porter's framework has repeatedly been challenged by other academics and strategists on the arguments that four dubious assumptions underlie the five forces:

C Collusion and interaction is non-existent. That buyers, competitors, and suppliers in a sector are unrelated and do not interact and collude.

U Uncertainty of competitive behaviour. That uncertainty is low, allowing participants in a market to plan for and respond to competitive behaviour.

R Resources a firm brings. That the attractiveness of an industry can be evaluated independent of the resources a firm brings to that industry

E Entry barriers create value. That creating barriers to entry, create value. Furthermore, an important extension to Porter was found in the work of Brandenburger and Nalebuff in the mid-1990s. Using game theory, they added the concept of complementors (also called "the 6th force"), helping to explain the reasoning behind strategic alliances. The idea that complementors is the sixth force has often been credited to Andrew Grove, former CEO of Intel Corporation, although according to most references, the sixth force is government or the public. (Complementors is a term used to describe businesses that sell a product (or products) or service (or services) that complement the product or service of another company by adding value to them; for example, Intel and Microsoft (Pentium) (processors and Windows), or Microsoft & McAfee (Microsoft Windows & McAfee anti-virus).

Memory jog: The film ’ALICE in Wonderland’ competes with other films!

33

Porter’s ‘5-Forces Framework’ challenged

Memory jog: Perhaps Michael Porter’s framework is not a win-all ’CURE’ for identifying the nature of competition within a market sector.

For a Review Question which makes reference to Porters ‘5-Forces’

model click here





CONTENTS MAIN PAGE ‘Position Audit’

Contents Title Page

Chart Strategic Review (Position audit) - Overview of what might be involved

32

Chart Macro- and micro- environments 34

Chart PESTEL analysis 35

Chart Examples of PESTEL factors 36

Mnemonic Using a PESTEL analysis 37

Chart Gap analysis and strategic drift 38

Mnemonic Factors influencing social and culture 39

Mnemonic Legal factors 40

Mnemonic Economic factors 40

Mnemonic Political forecasting and analysis 41

Mnemonic Technological change

42

Mnemonic Risk and threat 43

Chart Influences of the main micro-environmental factors 44

Continued on the next screen

34

Only the items shown in red are hyperlinked for this free sample





CONTENTS MAIN PAGE

Contents (continued) Title Page

Mnemonic Classes of marketing strategy 45

Mnemonic Porter’s ‘5 Forces’ framework 46

Chart Porter's 'Five Forces' framework

47

Chart Threat of new entrants 48

Mnemonic Extent of threat from new entrants 49

Mnemonic Threats posed by substitutes 50

Mnemonic Extent of threat of substitute products 50

Mnemonic Seven situations where buyers are particularly power 51

Mnemonic Extent of threat from the bargaining power of a buyer 52

Mnemonic Ways to reduce ‘Buyer Power’ 53

Mnemonic Threat of bargaining power of suppliers 54

Mnemonic Extent of threat of the bargaining power of suppliers 54

Mnemonic Ways to reduce ‘Supplier Power’ 55

Mnemonic Threat of rivalry within an industry 56

Mnemonic Intensity of competitive rivalry 57

Mnemonic Porter’s ‘5-Forces Framework’ challenged 57

Chart Entry barriers 58

Mnemonic Main barriers to entry 59

Mnemonic Problems with using entry barriers as defensive strategy 60

Chart Porter's ‘Value-chain analysis’ 61

Mnemonic Value chain analysis: Cost reduction techniques - the approach

64

Mnemonic Value chain analysis: Cost reduction techniques - the use of information technology (IT)

68



35

Only the items shown in red are hyperlinked for this free sample





CONTENTS MAIN PAGE


Mnemonic Value-chain analysis: Ways of reducing costs and improving differentiation within a group of divisions, business units or separate companies

69

Mnemonic Value System: (Value chain linkage with suppliers/ customers)

73

Mnemonic The use of value-chain analysis 74

Chart Porter's ‘Diamond’ and the influence of national competitiveness on the strategic position

75

Mnemonic DIAMOND model: The role of government 76

Mnemonic Related and supporting industries 77

Mnemonic Use of the DIAMOND model by a company 78

Mnemonic The difficulties of developing and using scenarios 79

Mnemonic Types of public sector organisation 80

Mnemonic Issues faced by public sector organisations 81

Mnemonic Issues for service providers 82

Mnemonic Issues faced by manufacturing concerns 83

Chart Examples of service sector and manufacturing activities 84

Chart Product life-cycle analysis 85

Mnemonic Characteristics of the ‘Development stage’ of the product life cycle

89

Mnemonic Characteristics of the ‘Introduction stage’ of the product life cycle

89

Mnemonic Characteristics of the ‘Growth stage’ of the product life cycle 90

Mnemonic Factors that the rate of growth and the length of the growth phase depends upon

90

Mnemonic Characteristics of the ‘Maturity (stability/ consolidation/ competitive)’ stage of the product life cycle

91







CONTENTS MAIN PAGE


Mnemonic Characteristics of the ‘Decline’ stage of the product life cycle

92

Chart Product life-cycle marketing objectives 92

Chart Summary of product-life-cycle characteristics, objectives and strategies

93

Chart Stages of the competitive cycle 94

Mnemonic Strategic groupings 95

Mnemonic Strategic group analysis 96

Mnemonic Examples of market convergence 97

Mnemonic Commonly used critical success factors 98

Mnemonic Examples of the critical success factors of a retailer 99

Chart Benchmarking 100

Mnemonic Different approaches to benchmarking 103

Mnemonic Strategic benchmarking 104

Chart 10-M Internal Resource Model 105

Chart Internal review 106

Mnemonic Distinctive capabilities (or core competences) 107

Mnemonic Distinctive capabilities: Reputation 107

Mnemonic Core competences: The Prahalad and Hamel ‘Three-test model’

108

Mnemonic Factors considered in a ‘Resource Audit’ prior to the development of strategy

109

Chart 7-S Framework 110

Chart Kaplan and Norton’s ‘Balanced scorecard’: 111

Mnemonic Product-line strategies 114







CONTENTS MAIN PAGE


Mnemonic The need for flexible product development 115

Mnemonic Purposes of knowledge work systems (KWS) 116

Mnemonic The ‘Knowledge Environment’ 117

Mnemonic Different types of IT-based knowledge support systems 118

Chart Knowledge Support Systems: Groupware (Collaborative Software)

119

Mnemonic Development of new knowledge or ideas 120

Mnemonic Practical ways of sharing knowledge 120

Mnemonic The challenges for ‘Knowledge Management’ 121

Mnemonic Benefits of a ‘Knowledge Management Framework’ 121

Chart Strengths, Weaknesses, Opportunities and Threats analysis 122

Mnemonic SWOT analysis 127

Chart SWOT as a summary framework of the other analytical models

128

Chart Objectives analysis: The concept of hierarchy 129

Chart Stakeholders of business organisations 130

Mnemonic Making sure that the mission statement remains valid 145

Mnemonic Characteristics of an effective mission statement 146

Mnemonic Benefits of having a strong mission statement 146

Chart Relationship between mission - goals - objectives and critical success factors

147

Mnemonic Key elements of strong corporate governance 150

Mnemonic Issues involving corporate governance 151

Mnemonic Concept of ‘Principal-Agency Theory’ (PAT) applied to shareholders and directors

152







CONTENTS MAIN PAGE


Mnemonic General principles of Governance 153

Mnemonic Corporate governance: Best Practice 154

Mnemonic Role of the Board of Directors 155

Mnemonic Role of Non-Executive Directors 156

Mnemonic Problems with non-executive directors 157

Chart Corporate Governance reports which make up the FRC’s ‘Combined Code’ (UK)

158

Chart Committees recommended by Cadbury 159



39

Do you know? Squaring the circle “Squaring the circle” relates to the geometrical impossible task of forming a circle from a series of squares. The expression "squaring the circle" is sometimes used as a metaphor for doing something logically or intuitively impossible.

Squaring the circle: the areas of this square and this circle are equal. In 1882, it was proven that this figure cannot be constructed in a finite number of steps



http://upload.wikimedia.org/wikipedia/commons/a/a7/Squaring_the_circle.svg�



CONTENTS MAIN PAGE


‘Choices and Evaluation’





CONTENTS MAIN PAGE



41

Contents Title Page

Chart Porter’s ‘3 Generic competitive strategies’ 161

Mnemonic Differentiation strategy: ways of enhancing uniqueness

163

Mnemonic Sustaining competitive advantage by differentiation 164

Mnemonic Cost leadership: The strategic advantages of low costs 165

Mnemonic Ways to reduce costs 166

Chart Aims, analysis and implementation of a strategy of cost leadership

167

Chart Economies of scale 168

Mnemonic Sustaining a low level of costs 169

Mnemonic Interpreting competitors’ costs 169

Chart Focus strategy 170

Mnemonic

Niche Marketing 171

Chart Bowman’s ‘Strategy Clock’ : Competitive strategy options 172

Mnemonic

Sustaining competitive advantage: Locking out competitors by ‘Lock In’

173





CONTENTS MAIN PAGE



42


Mnemonic Keeping ahead by maintaining market sustainability 174

Mnemonic Sustainability: Superior access to resources or customers 174

Mnemonic Sustainability: Maintaining optimum size in the target market 175

Mnemonic Sustainability: Experience effects 176

Mnemonic Sustainability: Restricting competitors’ options 177

Chart Sustaining competitive advantage 178

Mnemonic Hyper-competitive conditions 179

Mnemonic Hyper-competitive conditions: Attack (offensive) strategy 180

Mnemonic Hyper-competitive conditions: Defensive (‘hold’ sustain’) strategy

181

Mnemonic Hyper-competitive conditions: Confusing competitors 182

Mnemonic Hyper-competitive conditions: Guerrilla warfare carried out by small companies

183

Mnemonic Hyper-competitive conditions: Collaboration 184

Chart Competitive strategy in hypercompetitive conditions 185

Chart Competition and collaboration 186

Mnemonic Ansoff’s ‘Components of strategy’ 187

Chart Ansoff’s ‘Components of strategy’ 188

Chart Responding to SWOTs 190

Mnemonic Ansoff’s ‘Components of strategy’: ‘Market penetration’ strategy

192

Mnemonic Ansoff’s ‘Components of strategy’: Appropriateness of ‘Market penetration’ strategy

193

Mnemonic Ansoff’s ‘Components of strategy’: ‘Product development’ strategy

194





CONTENTS MAIN PAGE



43


Mnemonic Ansoff’s ‘Components of strategy’: Appropriateness of ‘Product development strategy’

195

Chart Ansoff’s ‘Components of strategy’: ‘Market penetration’ and ‘Product development’ strategies

196

Mnemonic Ansoff’s ‘Components of strategy’: Appropriateness of ‘Market development strategy’

197

Mnemonic Ansoff’s ‘Components of strategy’: Appropriateness of ‘product-market diversification strategy’

198

Chart Ansoff’s ‘Components of strategy’: ‘Market development’ and ‘Product-market diversification’ strategies

199

Mnemonic Ansoff’s ‘Components of strategy’: Classification of synergy 200

Mnemonic Ansoff’s ‘Components of strategy’: Forms of synergy 201

Chart Ansoff’s ‘Components of strategy’: ‘Business synergy’ 202

Mnemonic Ansoff’s ‘Components of strategy’: Consolidation of strategy 207

Chart Ansoff’s ‘Components of strategy’: ‘Product-market gap-closing growth strategies’

208

Chart Ansoff’s Adapted ‘Product/Market Growth Vector Matrix 209

Mnemonic Reasons for a diversification strategy 210

Mnemonic Diversification strategy: Horizontal diversification 211

Mnemonic Diversification strategy: Strengths of horizontal diversification 212

Mnemonic Diversification strategy: Limitations of horizontal diversification

213

Mnemonic Diversification strategy: Potential benefits of ‘buyside’ (‘upstream’ or ‘backward’) integration (or vertical diversification)

214

Mnemonic Diversification strategy: Problems associated with ‘buyside’ (‘upstream’ or ‘backward’) integration

215





CONTENTS MAIN PAGE



44


Mnemonic

Diversification strategy: Advantages of ‘sellside’ (‘downstream’ or ‘forward’) integration)

216

Chart The issues involved with integration strategy 217

Mnemonic

Diversification strategy: Disadvantages of conglomerate diversification

218

Chart The issues involved with conglomerate diversification 219

Chart Divisional (SBU) decision structure 220

Chart Two levels of strategic management 221

Mnemonic

Styles of managing relationships between parent and business units.

222

Chart Parenting Styles of Management 223

Chart The role of parents (head office) in a diversified group: Portfolio managers, synergy managers and parental developers

224

Mnemonic Diversification strategy: The need for corporate-wide strategic architecture

225

Mnemonic Diversification strategy: The problems associated with a holding company structure

226

Mnemonic Diversification strategy: Porter’s ‘Three essential tests for diversification (or acquisition)’

227

Mnemonic Diversification strategy: Porter’s ‘Attractiveness test’ for diversification or acquisition

228

Mnemonic Diversification strategy: Porter’s ‘Better-off test’ for diversification or acquisition

229

Mnemonic Diversification strategy: Porter’s ‘Cost-of entry test’ for diversification or acquisition

230

Mnemonic Group of companies or divisions: Roles of the corporate board (‘parent’) in a group of companies (or group of divisions)

231





CONTENTS MAIN PAGE



45


Mnemonic Group of companies or divisions: Head office as parent 232

Mnemonic Group of companies or divisions: Head office intervening within business units

233

Mnemonic Group of companies or divisions: Head office as a synergy manager

234

Mnemonic Group of companies or divisions: Head office as a portfolio manager

235

Mnemonic Porter’s premises of corporate and business unit strategies 236

Mnemonic Group of companies or divisions: Parent (head office): value-destroying activities of the parent

237

Chart Aspects of product-market diversification strategy 238

Mnemonic

Group of companies or divisions: Strategic orientation in markets overseas

239

Chart Boston Consulting Group (BCG) ‘Growth Share Matrix’: 240

Mnemonic Portfolio management: The aim of Portfolio Models 244

Mnemonic Reasons for using the BCG product-market growth matrix 245

Mnemonic Portfolio management: The BCG logic - The cash advantages of a holding a high relative market share

245

Mnemonic Portfolio management: The BCG logic - The ‘Cash Cow’ 246

Mnemonic Portfolio management: The BCG logic - The ‘Star’ 247

Mnemonic Portfolio management: The BCG logic - The ‘Problem Child’ 248

Mnemonic Portfolio management: The BCG logic - The ‘Question Mark’ (‘Wildcat’)

249

Mnemonic Portfolio management: The BCG logic - The ‘Dog’ 250

Mnemonic Portfolio management: The BCG logic - Strategic management of the business portfolio

251

Mnemonic Portfolio management: Limitations of the BCG matrix 252





CONTENTS MAIN PAGE



46


Mnemonic Portfolio management: The benefits of the BCG business portfolio matrix

253

Mnemonic Portfolio management: ‘Directional Policy Business Portfolio Matrix’

254

Mnemonic Portfolio management: ‘Directional Policy Business Portfolio Matrix’: Dimension 1 - Market attractiveness

255

Mnemonic Portfolio management: ‘Directional Policy Business Portfolio Matrix’: Dimension 2 - Competitive strengths of an business

256

Mnemonic Portfolio management: ‘Directional Policy Business Portfolio Matrix’: Its limitations

257

Chart Directional Policy Matrix: The framework 258

Chart Nine strategic vectors of the ‘Directional Policy Matrix’ 258

Chart Presentation of the Directional Policy Matrix 259

Chart Evaluation of strategic proposals 260

Chart Testing a strategic proposal for acceptability, suitability and feasibility.

261

Chart Assessment of the suitability of a strategy 262

Chart Assessment of the feasibility of a strategy 263

Chart Assessment of the acceptability of a strategy 263





CONTENTS MAIN PAGE

‘Implementation and action’

47






CONTENTS MAIN PAGE



48

Contents Title Page

Chart A planning framework for the implementation of strategic initiatives

265

Chart The Acquisition versus Start-up decision 265

Mnemonic Implementation of strategy: Resource planning 266

Mnemonic Main purposes of acquisition or merger 267

Mnemonic Marketing objectives behind acquisition 268

Mnemonic Financial objectives of acquisition 269

Mnemonic Start-up versus acquisition merger 270

Mnemonic Business alliances 271

Mnemonic Difficulties associated with joint ventures 272

Mnemonic The benefits of a franchise - for the franchisor 273

Mnemonic Disadvantages of a franchise - for the franchisor 274

Mnemonic Advantages of alliances 275

Mnemonic Disadvantages associated with business alliances 276





CONTENTS MAIN PAGE



49


Chart Five basic components of an organisation (Mintzberg) 277

Mnemonic Mintzberg’s ‘Operating core’ 280

Mnemonic Mintzberg’s ‘Strategic apex’ 281

Mnemonic Mintzberg’s ‘Strategic apex’: The role of direct supervision 282

Mnemonic Mintzberg’s ‘Strategic apex’: Environmental (boundary) management

283

Mnemonic Mintzberg’s six bases for organising work 284

Mnemonic Criteria used to select the bases for grouping positions 285

Chart Mintzberg’s five orgnanisational configurations 286

Mnemonic Mintzberg’s structural configurations 287

Mnemonic Mintzberg’s structural configurations: Machine bureaucracy

288

Chart Organisational structures: Functional organisation 289

Mnemonic Mintzberg’s structural configurations: The adhocracy 290

Mnemonic Mintzberg’s structural configurations: Professional bureaucracy

291

Mnemonic Mintzberg’s structural configurations: The simple structure 292

Mnemonic Mintzberg’s view on the ‘Structural dilemma’ 293

Chart Which organisation structure is best? Goold and Campbell’s ‘Structural fit’

294

Chart Which organisation structure is best? Goold and Campbell’s ‘Good Design Principles’

295

Mnemonic Organisational consequences of cross-functional teams 296

Chart Internal relationships 297

Mnemonic

External relationships: Related and supporting industries

298





CONTENTS MAIN PAGE



50


Mnemonic External relationships: Outsourcing

299

Mnemonic External relationships: Issues involved in virtual systems

300

Chart Virtual Supply Chain: Producer/supplier driven 301

Chart Virtual Supply Chain: Integrators-driven 302

Chart Management of change 303

Mnemonic Types of strategic change 306

Chart Contextual features and their influence on strategic change 307

Mnemonic The Cultural Web 308

Chart An organisation’s cultural web 309

Chart The existing paradigm of a hypothetical railway company 310

Chart The required paradigm of a hypothetical railway company 311

Mnemonic Culture: The culture of excellence 312

Mnemonic Culture: The management cultures of Miles and Snow 313

Chart Charles Handy’s ‘Four cultural stereotypes’ 314

Chart Charles Handy’s ‘Shamrock organisation’ 316

Mnemonic Strengths of a culture 317

Mnemonic Possible weaknesses of a culture 318

Mnemonic Main reasons why people resist change 319

Mnemonic Main reasons why people resist change: A person’s own vested interests

320

Mnemonic Main reasons why people resist change: Social Fears

320

Mnemonic Key issues in successful change management 321





CONTENTS MAIN PAGE



51


Mnemonic Constructive conflict: Views of Mary Parker Follett 322

Mnemonic Where resistance to change may occur 323

Mnemonic The role of the manager in the change process 324

Mnemonic The characteristics of the change agent 325

Chart Intended and Emergent strategies 326

Chart Emergent strategy developed from a learning process 327

Chart Emergent strategy caused by short-term pressures 328

Mnemonic Reasons why a company may adopt the emergent strategy approach

329

Mnemonic Problems with the emergent strategy approach 330

Mnemonic Strategy in the entrepreneurial firm 331

Mnemonic Strategy in the medium-sized organisation 332

Mnemonic Characteristics of a large to very large organisation 333

Mnemonic Advantages of long-term and structured planning systems 334

Mnemonic The rational model of planning 335

Mnemonic Incrementalism 335

Mnemonic Strategic drift 336

Chart Strategic drift 337





CONTENTS MAIN PAGE


Business process change





CONTENTS MAIN PAGE



53

Contents Title Page

Chart Constituents of a business process 339

Chart Traditional organisation structure versus Porter’s Value Chain

342

Chart Porter's value chain applied to business processes 343

Chart Levels of business-process analysis 344

Chart The enterprise/strategy alignment cycle 345

Chart Business Process Management (BPM)

346

Chart Relationship between strategy and process redesign 347

Chart The scope of business process change 348

Chart Processes, techniques, tools and methodologies 349

Chart Capability Maturity Model (CMM) 350

Chart Features of the Capability Maturity Model (CMM) 351

Mnemonic Business process change: The extent of change required 352

Chart Business process change from automation through to paradigm shift

353





CONTENTS MAIN PAGE



54


Chart Examples of business process change from automation through to paradigm shift

354

Mnemonic The streamlining, rationalising or simplifying pattern of redesign

355

Mnemonic The gaps and disconnects pattern of process re-design 356

Mnemonic Business process change: Business Process Re-Engineering (BPR) - Hammer’s ‘7 Principles’

357

Mnemonic Business process change: Business Process Re-Engineering (BPR) and information technology

358

Chart Features of Business Process Re-engineering (BPR) 359

Chart Hammer’s ‘7 Principles’ of BPR 360

Mnemonic Business process change implications 361

Chart Harmon’s Process-Strategy Matrix 362

Mnemonic Application of Harmon’s ‘Process-Strategy Matrix’ 363

Chart Application of Harmon’s Process-Strategy Matrix Using as an example a medium-size engineering company involved in both home and export marketing of engineered products.

364

Chart Implications of outsourcing 365

Mnemonic Business process change: Methodology for an organisation 366

Mnemonic Harmon’s ‘Business Process Redesign Methodology’ 367

Chart The Process Redesign Process 368

Chart Davenport and Short’s ‘5-Step’ Approach to a Business Process Re-design Project

369

Mnemonic

Business process change: Why use a methodology for change?

370

Chart Analysing business processes 371

Evaluating IT outsourcing suppliers’ proposals 372





CONTENTS MAIN PAGE



55


Mnemonic Advantages of outsourcing IT work 373

Mnemonic Disadvantages of outsourcing IT work 374

Chart Evaluating and selecting a generic software solution 375

Chart Improving the processes of the organisation 376

Mnemonic Business change: Value-added pattern of process change 379

Chart Improving the processes of the organisation 380

Chart Feasibility of possible redesign options 381

Mnemonic Technical feasibility 382

Mnemonic Operational feasibility 383

Mnemonic Social feasibility 384

Mnemonic Feasibility: One-off capital costs 385

Mnemonic Feasibility: Operating costs 386

Mnemonic Feasibility: Costs of human resources 387

Chart Types of information system 388

Chart Evaluating, selecting and implementing a generic software solution

389

Chart Evaluating and selecting a generic software solution 390

Mnemonic Characteristics of effective information 391

Mnemonic Contents of a generic software package 392

Mnemonic Choosing a generic software package 393

Mnemonic Advantages of using generic packages 394

Mnemonic Disadvantages of using generic software packages 395





CONTENTS MAIN PAGE


Information technology





CONTENTS MAIN PAGE



57

Contents Title Page

Chart Applications of e-business 397

Mnemonic E-Business and Human Resources Management (HRM) 398

Chart E-business: Internal business systems 399

Chart E-business: communication and collaboration 400

Chart E-business: e-commerce 401

Chart Tangible and intangible benefits from e-commerce and e-business

402

Chart Barriers to the development of the adoption of e-commerce and e-business

402

Mnemonic E-Business: Advantages of B2C e-commerce 403

Mnemonic E-Business: Advantages of B2B e-commerce 403

Chart The main business and marketplace models for delivering e-business

404

Mnemonic Uses of the Internet 405

Mnemonic Business impact of the Internet: A challenge to conventional management thinking?

406

Mnemonic Problems with the Internet 407





CONTENTS MAIN PAGE



58


Mnemonic Benefits of an Intranet 409

Mnemonic Uses of an Intranet 410

Mnemonic Business impact of the Internet: Electronic Data Interchange (EDI)

411

Mnemonic Business impact of the Internet: Difficulties with Electronic Data Interchange (EDI)

412

Mnemonic Tasks which a website may automate 413

Mnemonic E-Business: Uses made of extranets 414

Mnemonic E-Business: Problems associated with extranets 414

Chart A five-layer model of e-business infrastructure 415

Chart E-business strategy 416

Chart The supply-chain and its terminology 417

Chart Push and pull approaches to supply chain management 418

Chart Michael Porter’s generic value chain 419

Chart Deise’s revised value chain model 419

Chart Members of the value network (system) of an organisation 420

Chart The supply-chain continuum 421

Chart The methods, benefits and risks of e-procurement 422

Mnemonic Benefits of e-procurement 423

Mnemonic Risks associated with e-procurement 424

Mnemonic Different options and models for implementing e-procurement

425

Chart The “off-line” (‘conventional’) marketing stages involved in the development and launch of a new product

426

Chart The scope of e-marketing 428





CONTENTS MAIN PAGE



59


Chart E-marketing system 429

Mnemonic

Variables used when segmenting a market in order to ‘position’ a marketing mix strategy

430

Chart TOWS analysis for the B2C company 431

Chart McDonald and Wilson’s ‘6 Is’ of e-marketing 432

Chart Interactivity and communication models for (i) traditional media and (ii) new media

433

Chart Individualisation and communication models for (i) traditional media and (ii) new media

434

Chart Integration of channels 435

Chart Industry re-structuring 436

Chart The internet used as a relatively low-cost method of market intelligence

437

Chart The e-marketing targeting strategy 438

Chart Online segmentation and targeting techniques 439

Chart E-marketing mix strategy 440

Chart The extended product 441

Chart A process for establishing a pricing strategy for products and services that recognises both economic and non-economic factors

442

Mnemonic Determinants of price elasticity of demand 448

Mnemonic Cost-based pricing strategies: cost variables 449

Chart Cost-based pricing strategies 450

Chart Demand-based pricing strategies 451

Chart Pricing strategy: Overview

452





CONTENTS MAIN PAGE



60


Mnemonic The virtues of branding from the manufacturer/distributor’s perspective

453

Mnemonic The virtues of branding from the customer/consumer’s perspective

453

Mnemonic Branding policy 454

Mnemonic Success factors for building brand awareness online 455

Chart The four marketing activities that comprise customer relations management (CRM) on the customer lifecycle

456

Mnemonic What is e-CRM? 457

Mnemonic Benefits of e-CRM 458

Chart The three key e-marketing activities 459

Chart Methods of acquiring customers through electronic media 460

Chart The software components of CRM technologies 461





CONTENTS MAIN PAGE


Project management





CONTENTS MAIN PAGE


Project management

62

Contents Title Page

Mnemonic Characteristics of a project 463

Mnemonic Challenges presented to the managers of projects 464

Chart Six steps involved in project initiation 465

Chart Different project roles 466

Mnemonic Project Steering Committee 467

Mnemonic Responsibilities of the project sponsor 468

Mnemonic Responsibilities of the project manager 469

Mnemonic Core skills of the project manager 470

Mnemonic Structure and nature of a project team 471

Chart Example of a matrix organisation used for an IS/IT project 472

Mnemonic Advantages attributed to a project matrix team 473

Mnemonic Disadvantages attributed to a matrix project team structure 474

Mnemonic Project stakeholders 475





CONTENTS MAIN PAGE


Project management

63


Mnemonic Project end users 476

Chart The implications of the triple constraint of scope, time and cost

477

Chart The project Business Case 478

Mnemonic Characteristics of a successful business case 479

Mnemonic Purposes of the business case 480

Mnemonic Contents of a project’s business case 481

Chart Analysis, description, assessment and classification of the benefits of a project investment

482

Mnemonic Strategic value of information 483

Mnemonic Possible benefits of developing an enhanced information system in the financial department

484

Mnemonic Possible benefits of developing an enhanced information system in the production department

485

Mnemonic Possible benefits of developing an enhanced information system in the marketing department

486

Chart The role of a benefits realisation plan 487

Chart The costs associated with a project development 488

Chart Investment appraisal techniques 489

Chart Initial stages of a project 490

Mnemonic Project Initiation Document (PID) 491

Mnemonic Setting project objectives 492

Chart Project management: The main management aspects 493

Chart Project management: Main management aspects: SCOPE of the project

494

Chart Project management: Main management aspects: QUALITY 495





CONTENTS MAIN PAGE


Project management

64


Chart Project management: Main management aspects: TIMING of the project

496

Chart Project management: Main management aspects: COST of the project

497

Chart Project management: Main management aspects: HUMAN RESOURCES of the project

498

Chart Project management: Main management aspects: COMMUNICATIONS of the project

499

Chart Project management: Main management aspects: RISK of the project

500

Chart Project risk and its management 501

Mnemonic Types of project risk 502

Mnemonic Managing project risk 503

Chart Project management overview 504

Chart Project documentation (Originated throughout the duration of the project)

505

Mnemonic Contents of the Project Plan 506

Chart Importance of the project plan 507

Chart The Work Breakdown Structure 508

Chart Work Breakdown Structure (WBS) for ‘Customising an off-the-shelf financial analysis software package’

509

Chart The Work Breakdown Structure (from general to specific)

510

Chart Documenting and communicating a project 511

Chart Monitoring the project 512

Mnemonic Common problems with projects 513

Mnemonic Causes for project ‘scope creep’ 514





CONTENTS MAIN PAGE


Project management

65


Mnemonic Dealing with ‘project slippage’ 515

Mnemonic Project ‘change procedure’ 516

Chart Changeover methods 517

Chart Advantages and disadvantages of the various changeover methods

518

Mnemonic Purpose and contents of the ‘Completion Report’ 519

Mnemonic Post-completion audit/review 520

Mnemonic Post-implementation Review (audit) 521

Mnemonic Project Management Software 522

Mnemonic Inputs required by project programme-planning module of a project management software

523

Mnemonic Advantages of using project management software 524

Mnemonic Criticisms of project management software 525

Mnemonic System testing 526

Chart Types of process quality maintenance 527

Mnemonic On-going system maintenance reviews 528





CONTENTS MAIN PAGE


Financial analysis





CONTENTS MAIN PAGE


Financial analysis

67

Contents Title Page

Chart The principal ‘value’ objective 530

Chart Financial analysis 531

Chart Financial performance analysis - overview 532

Chart Common-size (vertical) analysis 535

Chart Horizontal analysis 536

Chart Ratio analysis 537

Chart A useful format for ratio analysis 539

Chart Financial performance analysis – categories of ratios 541

Chart The RONA Pyramid 542

Mnemonic Implications/issues of the ROI measure 543

Chart Measuring financial performance - overview 544

Mnemonic The FIVE main groupings for financial performance analysis 545

Mnemonic The implications of the growth measures used by financial managers

546





CONTENTS MAIN PAGE


Financial analysis

68


Mnemonic Reasons/benefits of financial ratio analysis 547

Mnemonic Limitations of ratio analysis 548

Mnemonic Information required for meaningful ratio analysis 549

Did you know? The Tower of Babel The Bible (Genesis 11: 1-9) states that humanity originally shared a common language. But people tried to build a tower to reach the heavens and God stopped this presumptuous project by making them speak in many tongues so that they might not understand each other. He then scattered the people abroad, so the tower was left unfinished, a symbol of human folly. The modern meaning of the word babel is ‘A confused noise, typically that made by a number of voices.‘

The Tower of Babel

by Pieter Bruegel the Elder (1563).





CONTENTS MAIN PAGE


People





CONTENTS MAIN PAGE

People

70

Contents Title Page

Chart Theories on the origins of leadership

551

Chart Alternative classical and modern theories of management/leadership in the effective implementation of strategic objectives

552

Chart Four approaches to job design

554

Mnemonic The tensions and potential ethical issues related to job design

555

Chart The contribution of competency frameworks to human resource development

556





CONTENTS MAIN PAGE


Review Questions and Answers

Click to the next screen for contents





CONTENTS MAIN PAGE

Title of Question

Question Screen

Answer Screen

1 Specialist Clothing Company (SCC) BCG, Portfolio strategies

770 772

2 Diverse Holdings Company Formal system of planning, SWOT analysis, competitive analysis, strategic proposals

774 776

3 VisionZ Company Profit gap, Ansoff’s product-market mix, analysis of product-market position (involves spreadsheet analysis)

779 782

4 Blaina Packaging Co (BPC) Porter’s 5-Forces, performance indicators suggesting possible corporate failure

785 786

5 The Motherhelp Company (TMC) Planning gap, problems with acquisition, dealing with government, government as aid to business

788 789

6 Global Hotel Group (GHG) Strategic economic factors concerning building a hotel, cultural differences

792 793

7 AmpacBios Company Suitability, feasibility and acceptability, recommendation based on appraisal

796 797

8 SM Conglomerate Company BCG and portfolio strategy

800 802

9 ZeemcoChemicals Product life cycle model, evaluation of options, social responsibility

804 806

Contents Page: Review Questions and Answers - 1 of 2

Please turn to the next screen

72

This item is ‘live’ for this Free Sample





CONTENTS MAIN PAGE

Title of Question

Question Screen

Answer Screen

10 SAC Diversified Inc. Conglomerate diversification, parent board destroying value

810 812

11 Indland Diamond Model, attracting investors

816 817

12 U-Theme Speakers Diamond Model and implications, mode of entry into overseas’ market

821 823

13 Tartan Clothing Supply Company (TCSC) Diamond Model and its implications, brand strategy

826 827

14 ElectroLink Telecommunications Inc. Joint venture, benefits and risks of a joint venture

830 831

15 Bed-4-U Hotels International Strategic implementation, critical success factors, key performance indicators

834 835

16 StrikeHot (SH) Media Company Benefits of implementing a process of systematic environmental analysis, scenario planning

838 839

17 Globmat Teaching Hospital Business Process Re-design versus Business Process Re-engineering

842 843

List of verbs used in question requirements 845

He who learns but does not think, is lost. He who thinks but does not learn is in great danger. Confucius 500 B.C.

73

Contents Page: Review Questions and Answers - 2 of 2

This item is ‘live’ for this Free Sample





CONTENTS MAIN PAGE

SH is a media company, publishing lifestyle magazines for the consumer market. These lifestyle magazines contain articles and advertisements about fashion, health and beauty products, homes, furniture and hobbies and are bought by people aspiring to a high standard of living. Increasingly, consumers are turning to other media for the information and entertainment traditionally provided by this type of magazine. Traditionally, 60% of SH’s revenue has been derived from selling advertising, the balance being provided by the cover price of each magazine. Over the last four years, both the revenue and profits have declined as there has been a steady reduction in the sale of both advertising space and the number of magazines sold. The industry is very dependent upon the level of discretionary disposable income. If this income is at a low level, fewer luxury goods are advertised. However, people still buy the magazines to read about these goods. The company has tried to expand abroad but has failed, expensively, to achieve this. Similarly, attempts to enter other segments of the home market, particularly teenage magazines, have failed. Both of these failures have come as a surprise to the Board of Directors who thought that they understood the respective markets well enough to make the appropriate decisions. New technology, in the form of digital media, has also affected the magazine industry. These changes have been felt in both production methods, such as broadband distribution of proof copies, and the choice of media, such as the Internet, available to consumers. To a large extent, the speed of these developments was a surprise to the directors of SH. Required: As a member of the strategic committee, you have been seconded to work with the organisation’s forecasting and planning function, to improve its long-range planning. (a) Evaluate the benefits to SH of implementing a process of systematic environmental analysis. (12 marks) (b) Describe the essential stages that should be included in a scenario planning process that could

be introduced by SH. (13 marks) (25 marks)

StrikeHot (SH) Media Company: Question 1 of 1

Change will not come if we wait for some other person or some other time. We are the ones we've been waiting for. We are the change that we seek. Barack Obama The 44th and current President of the United States. He is the first African American to hold the office.

74

A

A



http://www.brainyquote.com/quotes/quotes/b/barackobam409128.html�



CONTENTS MAIN PAGE

Tutorial Comment Section (a) asks for an evaluation of the benefits of a system of environmental analysis and NOT an explanation or application of the technique. Therefore you were NOT required to undertake a detailed PESTEL analysis or Porter’s five forces analysis. Furthermore, you do need to evaluate benefits rather than simply list them. Part (b) is standard bookwork but needs to be related to SH to get full marks. End of Tutorial Comment (a) Environmental analysis Systematic environmental analysis would benefit SH in the following ways: - More comprehensive information available for decision making. A number of SH’s recent strategic decision, such as overseas ventures have failed due to

insufficient information. A more detailed environmental analysis would have helped SH identify key factors to consider. This is perhaps the most important aspect – systematic environmental scanning will improve the planning and decision-making process.

- Anticipating opportunities and threats sooner SH seems to have been slow to appreciate the growing importance of the Internet for

advertising and, more specifically, as a media type with the development of online magazines. As a consequence, this appears to have become a threat to SH’s business model rather than an opportunity to exploit. A PESTEL-style analysis would have revealed this technological development sooner.

- Be able to evaluate opportunities more thoroughly SH recently failed in an attempt to enter the domestic teenage magazine market. A

PESTEL style analysis would have indicated the extent and drivers of growth in this segment and a Porter’s five forces analysis would have revealed key competitive forces. This information may have resulted in a decision not to enter the market or a different strategy for entry. Either way, the considerable costs of failure would have been avoided.

- Quicker response to changing customer needs The directors of SH are being forced into a reactive style of management as they are

being surprised by the rate of change in some markets. Systematic market analysis would allow them to identify changes sooner and hence change products to more quickly match customer needs.

- Lower risk

The net result of all of the above is that systematic environmental analysis will reduce SH’s downside risk exposure but should increase its ability to exploit opportunities.

StrikeHot (SH) Media Company: Answer 1 of 3

75

Q





CONTENTS MAIN PAGE

- More accurate budgeting A greater awareness of forecasts regarding the advertising industry and the mix of paper

versus e-advertising would allow SH to budget its future advertising income more accurately.

(b) Scenario planning Scenarios are detailed and plausible views of how the business environment might develop in

the future based on groupings of key environmental influences and drivers of change about which there is a high degree of uncertainty.

Scenario planning involves the following steps: 1 Identify high-impact, high-uncertainty factors in the environment Relevant factors and driving forces could be identified through a strategic analysis

framework such as PESTEL analysis. Once identified, factors need to be ranked according to importance and uncertainty.

For example, for SH three key factors could be the speed of development of e-

magazines, consumers’ attitudes to e-magazines and the cost of paper. 2 For each factor, identify different possible futures Precision is not possible but developing a view of the future against which to evaluate and

evolve strategies is important. For example: Factor Possible futures Development of e-magazines Rapid Slow Consumer attitudes to e-magazines Good substitute Poor substitute Cost of paper Rising Stable 3 Cluster together different factors to identify various consistent future scenarios This process usually results in between seven and nine mini-scenarios. For example: Scenario 1: Consumers still prefer conventional magazines, partly because of the limited growth in e-

magazines offered to the market. However, the future does not look positive, due to rising paper costs. If these are passed

on to customers, then it might encourage them to consider e-magazines more seriously.


76

Q

Q





CONTENTS MAIN PAGE

Scenario 2: There is rapid growth in the availability of e-magazines and associated marketing costs. Together with increasing acceptance of e-magazines as an alternative to paper-based

products, this has resulted in many potential customers switching to electronic media. 4 ‘Writing the scenario’

For the most important scenarios (usually limited to three), build a detailed analysis to

identify and assess future implications. As part of this, planners typically develop a set of optimistic, pessimistic and most likely

assumptions about the impact of key variables on the company’s future strategy. The result of this detailed scenario construction should include: - financial implications – anticipated net profits, cash flow and net working capital

for each of three versions of the future - strategic implications – possible opportunities and risks - the probability of occurrence, usually based on past experience. 5 For each scenario identify and assess possible courses of action for the firm. For example, possible strategies for the two alternative scenarios outlined above: Scenario 1: A possible strategy would be to cut paper costs by the increased use of

recycled products. Scenario 2: A possible strategy would be to develop ranges of titles aimed at older

customers, who will (presumably) be slower to accept e-magazines. Some strategies make sense whether the outcome, usually because they capitalise on or

develop key strengths of the firm. For example, SH could look to strengthen its relationship with key advertisers.

However, in many cases, new resources and competencies may be required for existing

strategies to succeed. Alternatively, entirely new strategies may be required. For SH this could be the development of on-line versions of its magazines, accessible by subscription.

6 Monitor reality to see which scenario is unfolding

7 Revise scenarios and strategic options as appropriate


77

Q





CONTENTS MAIN PAGE

The directors of Blaina Packaging Co (BPC), a well-established manufacturer of cardboard boxes, are currently considering whether to enter the cardboard tube market. Cardboard tubes are purchased by customers whose products are wound around tubes of various sizes ranging from large tubes on which carpets are wound, to small tubes around which films and paper products are wound. The cardboard tubes are usually purchased in very large quantities by customers. On average, the cardboard tubes comprise between 1% and 2% of the total cost of the customers’ finished product. The directors have gathered the following information: (1) The cardboard tubes are manufactured on machines which vary in size and speed. The lowest cost machine is priced at $30,000 and requires only one operative for its operation. A one-day training course is required in order that an unskilled person can then operate such a machine in an efficient and effective manner. (2) The cardboard tubes are made from specially formulated paper which, at times during recent years, has been in short supply. (3) At present, four major manufacturers of cardboard tubes have an aggregate market share of 80%. The current market leader has a 26% market share. The market shares of the other three major manufacturers, one of which is JOL Co, are equal in size. The product ranges offered by the four major manufacturers are similar in terms of size and quality. The market has grown by 2% per annum during recent years. JOL Co was the market leader with a share of 30% three years ago. The managing director of JOL Co stated at a recent meeting of the board of directors that: ‘our loss of market share during the last three years might lead to the end of JOL Co as an organisation and therefore we must address this issue immediately’. (4) A recent report on the activities of a foreign-based multinational company revealed that consideration was being given to expanding operations in their packaging division overseas. The division possesses large-scale automated machinery for the manufacture of cardboard tubes of any size. (5) Another company, Plastic Tubes Co (PTC) produces a narrow, but increasing, range of plastic tubes which are capable of housing small products such as film and paper-based products. At present, these tubes are on average 30% more expensive than the equivalent sized cardboard tubes sold in the marketplace. Required: (a) Using Porter’s five forces model, assess the attractiveness of the option to enter the market for cardboard tubes as a performance improvement strategy for BPC. (12 marks) (b) Discuss the statement of the managing director of JOL Co and discuss six performance indicators, other than decreasing market share, which might indicate that JOL Co might fail as a corporate entity. (13 marks) (25 marks)

Blaina Packaging Co (BPC): Question - 1 of 1

78

A

A





CONTENTS MAIN PAGE

(a) In order to assess the attractiveness of the option to enter the market for spirally-wound paper tubes, the directors of BPC could make use of Michael Porter’s ‘five forces model’. In applying this model to the given scenario one might conclude that the relatively low cost of the machine together with the fact that an unskilled person would only require one day’s training in order to be able to operate a machine, constitute relatively low costs of entry to the market. Therefore one might reasonably conclude that the threat of new entrants might be high. This is especially the case where the market is highly fragmented. The fact that products are usually purchased in very large quantities by customers together with the fact that there is little real difference between the products of alternative suppliers suggests that customer (buyer) power might well be very high. The fact that the paper tubes on average only comprise between 1% and 2% of the total cost of the purchaser’s finished product also suggests that buyer power may well be very high. The threat from suppliers could be high due to the fact that the specially formulated paper from which the tubes are made is sometimes in short supply. Hence suppliers might increase their prices with consequential diminution in gross margin of the firms in the marketplace. The threat from competitive rivals will be strong as the four major players in the market are of similar size and that the market is a slow growing market. The market leader currently has 26% of the market and the three nearest competitors hold approximately 18% of the market. The fact that Plastic Tubes Co (PTC) produces a narrow range of plastic tubes constitutes a threat from a substitute product. This threat will increase if the product range of PTC is extended and the price of plastic tubes is reduced. The fact that a foreign-based multinational company is considering entering this market represents a significant threat from a potential new entrant as it would appear that the multinational company might well be able to derive economies of scale from large scale automated machinery and has manufacturing flexibility. Low capital barriers to entry might appeal to BPC but they would also appeal to other potential entrants. The low growth market, the ease of entry, the existence of established competitors, a credible threat of backward vertical integration by suppliers, the imminent entry by a multinational, a struggling established competitor and the difficulty of differentiating an industrial commodity should call into question the potential of BPC to achieve any sort of competitive advantage. If BPC can achieve the position of lowest cost producer within the industry then entry into the market might be a good move. In order to assess whether this is possible BPC must consider any potential synergies that would exist between its cardboard business and that of the tubes operation. From the information available, the option to enter the market for cardboard tubes appears to be unattractive. The directors of BPC should seek alternative performance improvement strategies. (b) It would appear that JOL’s market share has declined from 30% to (80 – 26)/3 = 18% during the last three years. A 12% fall in market share is probably very significant with a knock-on effect on profits and resultant cash flows. Obviously such a declining trend needs to be arrested immediately and this will require a detailed investigation to be undertaken by the directors of JOL. Consequently loss of market share can be seen to be an indicator of potential corporate failure. Other indicators of corporate failure are as follows:

Blaina Packaging Co (BPC): Answer - 1 of 2

79

Q

Q





CONTENTS MAIN PAGE

Six performance indicators that an organisation might fail are as follows: Poor cash flow Poor cash flow might render an organisation unable to pay its debts as and when they fall due for payment. This might mean, for example, that providers of finance might be able to invoke the terms of a loan covenant and commence legal action against an organisation which might eventually lead to its winding-up. Lack of new production/service introduction Innovation can often be seen to be the difference between ‘life and death’ as new products and services provide continuity of income streams in an ever-changing business environment. A lack of new product/service introduction may arise from a shortage of funds available for re-investment. This can lead to organisations attempting to compete with their competitors with an out of date range of products and services, the consequences of which will invariably turn out to be disastrous. General economic conditions Falling demand and increasing interest rates can precipitate the demise of organisations. Highly geared organisations will suffer as demand falls and the weight of the interest burden increases. Organisations can find themselves in a vicious circle as increasing amounts of interest payable are paid from diminishing gross margins leading to falling profits/increasing losses and negative cash flows. This leads to the need for further loan finance and even higher interest burden, further diminution in margins and so on. Lack of financial controls The absence of sound financial controls has proven costly to many organisations. In extreme circumstances it can lead to outright fraud (e.g. Enron and WorldCom). Internal rivalry The extent of internal rivalry that exists within an organisation can prove to be of critical significance to an organisation as managerial effort is effectively channeled into increasing the amount of internal conflict that exists to the detriment of the organisation as a whole. Unfortunately the adverse consequences of internal rivalry remain latent until it is too late to redress them. Loss of key personnel In certain types of organisation the loss of key personnel can ‘spell the beginning of the end’ for an organisation. This is particularly the case when individuals possess knowledge which can be exploited by direct competitors, e.g. sales contacts, product specifications, product recipes, etc.

Blaina Packaging Co (BPC): Answer - 2 of 2

Chains of habit are too light to be felt until they are too heavy to be broken. Warren Buffett

80

Q





CONTENTS MAIN PAGE

We hope you enjoyed our free sample, and found it useful. For the FULL WORKING version, buy it NOW, online at...






CONTENTS MAIN PAGE

Sorry... But that link will not work in this free sample copy.

To buy the full Revision Mnemonics version, complete with all links, for your ACCA P3 studies, please go to

www.TonySurridge.co.uk

“Dedicated to the Accountancy and Finance Profession”



http://www.tonysurridge.co.uk/ecommerce/Exam+Material�

http://www.tonysurridge.co.uk/ecommerce/Exam+Material/Mnemonics/ACCA+Paper+P3%3A+Business+Analysis+-+Mnemonics+and+Charts/708187601�

2013 Paper P3 Mnemonics and Charts Sample Download v1

Documents

copyright tony surridge

writing of tony surridge

tony surridge addvance

charts paper p3

charts publication

downloaded version

charts thanks

addvance exam study