QP Enterprise Management 1

Answer ALL questions

Course: BBM (Professional)Set No.: 1

Subject: Enterprise Management - ISubject Code: BPR 307

Answer ALL questions. Give suitable examples wherever needed.Q 1. a) List the various stakeholder groups that can influence a companys strategy. [5 Marks] Ans. Stakeholders may include any or all of the following groups:

Shareholders

Directors

Employees

Trade unions

Customers

Suppliers

Government

Pressure groups

General public and local people

There are different classifications of stakeholders:

internal stakeholders (employees and management)

connected stakeholders (shareholders, customer and suppliers)

external stakeholders (governments, community, pressure groups)

primary stakeholders have a formal contractual relationship in a strategy or a project

secondary stakeholders have no formal relationship.

b) State the process for managing stakeholders. [5 Marks]

Ans. A process for managing stakeholders is:

Identify stakeholders and determine each group's objectives

Analyse the level of interest and power each group possesses

Place each stakeholder group in the appropriate quadrant of the Mendelow matrix

Use the matrix to assess how to manage each stakeholder group.

Q 2. How do you assess the power of the stakeholders? [10 Marks]Ans. Factors that may be associated with a particular group having high power are:

Status of the stakeholders, for example:

their place in the organisational hierarchy

their relative pay

their reputation in the firm

their social standing (e.g. ministers of religion may carry considerable power due to their social status).

Claim on resources, for example:

size of their budget

number and level of staff employed

volume of business transacted with them (e.g. suppliers and customers)

percentage of workers they speak for (e.g. a trade union).

Formal representation in decision-making processes:

level of management where they are represented

committees they have representation on

legal rights (e.g. shareholders, planning authorities).

Or

How do you assess the interest of the stakeholder? [10 Marks]Ans. This will be more complex because it involves two factors:

Where their interests rest. We assume that powerful stakeholders will pursue their self-interest. It is important to consider what they wish to achieve. It is possible to make some generalisations, for example:

managers want to further the interests of their departments and functions as well as their own pay and careers;

employees require higher pay, job security, good working conditions and some consultation;

customers want fair prices, reliable supply and reassurance about their purchases;

suppliers want fair prices, reliable orders, prompt payment and advance notification of changes;

local government wants jobs, contribution to local community life, consultation on expansions and so on.

In practice, we would need to interview the powerful stakeholders to find out precisely what they wanted.

How interested they are. Not all stakeholders have the time or inclination to follow managements decisions closely. Again, some generalisations are possible about what will lead to interest, for example:

high personal financial or career investment in what the business does;

absence of alternative (e.g. alternative job, customer, supplier or employer

);

potential to be called to account for failing to monitor (e.g. local councils or government bodies, such as regulators);

high social impact of firm (e.g. well-known, visible product, association with particular issues).

Q 3) Explain the PEST(EL) analysis of the companys external environment. [10 Marks]

Ans. When establishing its strategy, an organisation should look at the various factors within its environment that may represent threats or opportunities and the competition it faces. This area will be developed further in the next chapter.

The analysis requires an external appraisal to be undertaken by scanning the business external environment for factors relevant to the organisations current and future activities.

External analysis can be carried out at different levels, as seen below. There are a number of strategic management tools that can assist in this process. These included the PEST(EL) framework which helps in the analysis of the macro or general environment and Porter's five forces model which can be used to analyse the industry or competitive environment.

PEST(EL) analysis

The external environment consists of factors that cannot be directly influenced by the organisation itself. These include social, legal, economic, political and technological changes that the firm must try to respond to, rather than control. An important aspect of strategy is the way the organisation adapts to its environment. PEST(EL) analysis divides the business environment into four main systems political, economic, social (and cultural), and technical. Other variants include legal and ecological/environmental.

PEST(EL) analysis is an approach to analysing an organisations environment:

political influences and events legislation, government policies, changes to competition policy or import duties, etc.

economic influences a multinational company will be concerned about the international situation, while an organisation trading exclusively in one country might be more concerned with the level and timing of domestic development. Items of information relevant to marketing plans might include: changes in the gross domestic product, changes in consumers income and expenditure, and population growth.

+social influences includes social, cultural or demographic factors (i.e. population shifts, age profiles, etc.) and refers to attitudes, value and beliefs held by people; also changes in lifestyles, education and health and so on.

technological influences changes in material supply, processing methods and new product development.

ecological/environmental influences includes the impact the organisation has on its external environment in terms of pollution etc.

legal influences changes in laws and regulations affecting, for example, competition, patents, sale of goods, pollution, working regulations and industrial standards.

Or

Q 3) Explain the Porters Five Forces Model that can be used top understand the companys external environment. [10 Marks]Ans. New entrants

How easy it is for companies to enter a market depends on the barriers to entry:

Economies of scale, where the industry is one where unit costs decline significantly as volume increases, such that a new entrant will be unable to start on a comparable cost basis.

Product differentiation, where established firms have good brand image and customer loyalty. The costs of overcoming this can be prohibitive.

Capital requirements, where the industry requires a heavy initial investment (e.g. steel industry, rail transport).

Switching costs, i.e. one-off costs in moving from one supplier to another (e.g. a garage chain switching car dealership).

Restricted access to distribution channels (e.g. for some major toiletry brands 90% of sales go through 12 buying points, i.e. chemist multiples and major retailers). Therefore it is difficult for a new toiletry product to gain shelf space.

Cost advantages of existing producers, independent of economies of scale, e.g. patents, special knowledge, favourable access to suppliers, government subsidies.

Government policy; the government can limit or even foreclose entry to industries with such controls as licence requirements and limits on access to raw materials.

Rivalry amongst competitors

The intensity of the rivalry amongst the existing competition will depend on the following factors:

Number and relative strength of competitors where an industry is dominated by a few large companies rivalry is less intense (e.g. petrol industry, CD manufacture).

Rate of growth where the market is expanding, competition is low key.

Where high fixed costs are involved, companies will cut prices to marginal cost levels to protect volume, and drive weaker competitors out of the market.

If buyers can switch easily between suppliers the competition is keen.

If the exit barrier (i.e. the cost incurred in leaving the market) is high, companies will hang on until forced out, thereby increasing competition and depressing profit.

An organisation will be highly competitive if its presence in the market is the result of a strategic need.

Substitutes

Porter explains that, 'substitutes limit the potential returns by placing a ceiling on the price which firms in the industry can profitably charge'. The better the price-performance alternative offered by substitutes, the more readily customers will switch.

Power of buyers

The bargaining power of buyers is affected by factors such as:

Where a buyer's purchases are a high proportion of the supplier's total business or represent a high proportion of total trade in that market.

Where a buyer makes low profit.

Where the quality of purchases is unimportant or delivery timing is irrelevant, prices will be forced down.

Where products have been strongly differentiated with good brand image, a retailer would have to stock the range to meet customer demands.

Power of suppliers

The bargaining power of suppliers is affected by factors such as:

The degree to which switching costs apply and substitutes are available.

The presence of one or two dominant suppliers controlling prices.

The extent to which products offered have a uniqueness of brand, technical performance or design not available elsewhere.

Q 4 a) Why is competitor analysis important?

[4 Marks]Ans. CIMA defines competitor analysis as: Identification and quantification of the relative strengths and weaknesses (compared with competitors or potential competitors), which could be of significance in the development of a successful competitive strategy.The actions of competitors will impact on the profits of a business. This may include:

price cuts

launching of a rival product

aggressive expansion of production which reduces the firms market sales

inclusion of costly modifications to the product which the firm must also undertake.

This will have implications for managements choice of strategy. A suitable strategy is one which yields satisfactory financial returns after taking into account the potential responses of competitors.

Q 4 b) Explain how High Uncertainty can affect business strategy? [6 marks]Ans. Written in the notes.. Assignment 6

Q 5. Describe the Boston Consulting Group Model and what are the strategies recommended by the BCG Model.

[5 + 5 Marks]Ans. Boston Consulting Group (BCG)

A model which can be used in competitor analysis when considering market share and market growth is the Boston Consulting Group Model (BCG). This model can look at the position of individual SBUs in relation to the market sector they compete in. Each SBU is assessed in terms of its market share, relative to that of the market leader in their sector. This is mapped against the growth rate of the sector.

By plotting each of its SBUs on the grid (shown below), the organisation is able to assess whether it has a balanced portfolio in terms of products and market sectors. It can also help in the development of strategic options for each SBU, depending on the potential growth in the market sector and the relative strength of the SBU compared to its competitors in that sector.

Strategies recommended by the BCG model:Cash cow cash flows to be used to support stars and develop question marks

Cash cows to be defended

Weak uncertain question marks should be divested to reduce demands on cash

Dogs should be divested, harvested or niched

If portfolio is unbalanced, consider acquisitions and divestments

Harvesting reduces damage of sudden divestment but reduces the value at eventual disposal. A quick sale now may produce larger proceeds

SBUs to have different growth targets and objectives and not be subject to the same strategic control systems.

Q 6. Briefly outline the rational approach to strategy formulation. [10 Marks]Ans. The rational approach is also referred to as the traditional, formal or top-down approach.

The rational strategic planning process model is based on rational behaviour, whereby planners, management and organisations are expected to behave logically. First defining the mission and objectives of the organisation and then selecting the means to achieve this. Cause and effect are viewed as naturally linked and a strong element of predictability is expected.

The rational approach is seen as having four main steps:

(1)Analysis of current position

(2)Formulation of strategic options and choice

(3)Implementation of strategies

(4)Monitor, review and evaluation

The model below shows a framework of the rational approach and clearly shows the various stages which management may take to develop a strategy for their organisation.

The rational approach follows a logical step-by-step approach:

Determine the mission of the organisation.

Set corporate objectives.

Carry out corporate appraisal involving analysis of internal and external environments.

Identifying and evaluating strategic options select strategies to achieve competitive advantage by exploiting strengths and opportunities or minimising threats and weaknesses.

Evaluate each option in detail for its fit with the mission and circumstances of the business and choose the most appropriate option.

Implementing the chosen strategy.

Review and control reviewing the performance of the organisation to determine whether goals have been achieved. This is a continuous process and involves taking corrective action if changes occur internally or externally.

Each of the different stages in the model above will be looked at in more detail in this, and the following chapter.

Ensure you are comfortable with this model as you will refer back to it throughout this syllabus area.Q 7. Explain the Emergent approach to Business Strategy and list the skills a manager should have to adopt such an approach.

[4 + 6 marks]ANS. Q 8 a). What are the difficulties with Porters Diamond Model? [6 Marks]

Although not as popular as his models of five forces, value chain and generic strategies, this model has still achieved a lot of recognition for Porter. It is not, however, without its difficulties:

Companies not countries. The industries that must succeed globally have their own management and strategies. By focusing on their country of origin Porter does not explain why a given country produces both stars and duds in the same industry. For example, Toyota and Honda are both Japanese car makers which are a success. Nissan and Mazda are less successful and have been rescued by Renault and Ford, respectively.

Ignore multinational or global corporations. The idea that Microsoft is an American company seems outdated when we consider that their staff, shareholders and customers are from all over the world. Porters model seems to apply better to firms that are exporting and less well to ones who are actually setting up outside of their home country.

Ignores the target country. Commercial success or failure will depend more on the environment in the target country than it will on the environment in the home country. Therefore it is necessary to analyse the target country too.

Less applicable to services. Porters examples are restricted to manufacturing and closely allied industries such as banks and management consultancies. It is hard to see how his model would apply to say Starbucks where so much of the product and staffing depends on the local economy.

Q 8 b). What are two actor conditions in the Port diamond Model? [4 marks]Ans. Natural factor conditions: Scotland has ready availability of the raw materials required for whisky production. This includes a plentiful water supply and a climate suited to growing the crops required in the production process.

Advanced factor conditions: Over the years, knowledge and a skilled workforce has developed in Scotland. In addition the name Scotch can only be applied to whisky which has been produced in Scotland and Scotch is known throughout the world and recognised for its quality.

Q 9 a) What is Critical Path Analysis (CPA)?

[7 Marks]Ans. One of the component parts of network analysis is critical path analysis or CPA (this is often called network analysis). It is the most commonly used technique for managing projects.

The process of CPA.

(1)Analyse the project. The project is broken down into its constituent tasks or activities. The way in which these activities relate to each other is examined: which activities cannot be undertaken until some previous activity or activities are complete?

(2)Draw the network. The sequence of activities is shown in a diagrammatic form called the network diagram.

(3)Estimate the time and costs of each activity. The amount of time that each activity will take is estimated, and where appropriate the associated costs are estimated.

(4)Locate the critical path. This is the chain of events that determines how long the overall project will take. Any delay to an activity on the critical path will delay the project as a whole; delays to other activities may not affect the overall timetable for completion. That is the distinction between critical and non-critical activities.

(5)Schedule the project. Determine the chain of events that leads to the most efficient and cost effective schedule.

(6)Monitor and control the progress of the project. This implies careful attention to the schedule and any other progress charts that have been drawn up, to monitor actual progress in the light of planned achievement.

(7)Revise the plan. The plan may need to be modified to take account of problems that occur during the progress of the project.

Q 9 b) What are the limitations of Critical Path Analysis?

[3 marks]Ans.

Limitations of CPA

It may be too time consuming to produce and monitor for large projects.

Difficult to use for less routine projects with lots of uncertainty.

Overly complex for some smaller short-term projects.

Q 10. List the contents of the Final Project report. Also list the documentation to which the reference will be made to produce the final report. [6 + 4 =10 Marks]Ans. The contents of the final project report will include:

Brief overview of project.

Customer original requirements and original project deliverables.

List of deliverables which the customer received.

Actual achievements re costs, schedules and scope.

Degree to which the original objective was achieved.

Future considerations.

To produce this report reference will be made to the following documentation:

feasibility study & report

PID

project planning reports

milestones& gates.

Set by_____________ Scrutinized by_______________

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