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CIMA PAPER E3 STRATEGIC LEVEL Enterprise Strategy

SMART Notes Prepared by Darren Sparkes Email: darrensparkesnotes@sky.com

CIMA E3 Enterprise Strategy

These notes are not intended to cover the whole of the E3 syllabus

Darren Sparkes, 2010

Contents

Page No.

An important message from Darren..3 Dealing with the pre-seen case-study material4 A message from the Examiners.5 Examiners comments November 2009.6 The scope for numbers in the examination..7 Examination Technique...8 Background to Paper...9 Syllabus Overview......11 Strategic Planning...12 Mission and Objectives......13 Internal Analysis..14 External Analysis.15 Filling the Gap.16 Strategic Options17 Method of Growth...18 Strategic Choice and Implementation..19 Change Management and other Implementation Issues..20 Developing an IT Strategy.22 Organisational Structure.23 Marketing..24 Profitable customers or products?....................................25 Business and Professional Ethics.26 The International Market Place..27 Review and Control.28

CIMA E3 Enterprise Strategy

These notes are not intended to cover the whole of the E3 syllabus

Darren Sparkes, 2010

Thank you for requesting a copy of my SMART Notes. The notes act as a learning and memory aid for the core models, theories and academic tools included in the syllabus. However, in order to pass your examination the academic knowledge must be combined with extensive question practice leading up to the examination. Your examiner is not interested in the regurgitation of your knowledge but how you APPLY that knowledge to the scenarios provided in order to answer the requirement set. The examiner feedback from every exam sitting confirms this. I suggest that you should practice as many exam standard questions as possible before the examination. Your practice answers can be a mixture of answer plans and full written answers to get through as many questions as possible. In particular, you must practice the new pilot paper for the new E3 examination. However, I would also suggest that it is essential for you to practice at least one full examination to time before entering the exam room. It is only by replicating the time pressure in the exam that you can appreciate the importance of time planning on the day. Keep a look out for relevant articles appearing in your professional magazine or on the Institutes website prior to the examination, particularly if they are written by the examiner. I would welcome feedback on the notes. And remember. Whether you believe you can or you cant, youre right. (Henry Ford) Regards, Darren Sparkes

CIMA E3 Enterprise Strategy

These notes are not intended to cover the whole of the E3 syllabus

Darren Sparkes, 2010

Dealing with the pre-seen material


The most significant change in the new E3 paper is the addition of pre-seen case study material for Section A (scenario common to all three strategic papers). This will be available for students to download from www.CIMAglobal.com around 6 weeks prior to the examination. The pilot paper pre-seen material has five pages. Once in the examination there will be additional un-seen case study material and the requirements. The pilot paper contains two pages of un-seen material. Once the real examination pre-seen material has been released by CIMA you should do the following in preparation for the exam: ! Complete a thorough analysis of the pre-seen material. As a start point you could conduct a corporate appraisal (SWOT) of the organisation in question, that is, a full internal and external analysis (see pages 14 and 15 of these notes). This should help you to recognise the major issues affecting the organisation. Pay particular attention to any numbers and what they may tell you about the organisations performance and position. ! You should avoid too much emphasis on the research of industry information. Leave that for your T4 TOPCIMA examination! ! From your analysis, identify the related syllabus areas and learn/review them in light of the position and problems of the organisation. ! You can now conduct some scenario planning. Think of the different scenarios that could appear in the un-seen material and the requirements that could be asked by the examiner. Remember that there is likely to be at least four separate requirements. ! Practice your approaches to answering the scenarios that you have identified. ! Be warned, identifying likely requirements is a dangerous occupation. It is done here for you to start thinking more widely about the pre-seen material. Once in the exam room you must FOCUS ON THE ACTUAL REQUIREMENT IN THE QUESTION and avoid replicating an answer to a different requirement that you had prepared for. ! Purchase a revision kit from one of the big tuition providers that contain a number of mock exams (probably around 6 different un-seen scenarios) based upon the actual pre-seen material and practise as many as you can to time. It is essential that you familiarise yourself well with the pre-seen material before entering the exam room. However, this must not be to the detriment of your wider studies. Remember, the Section A of the exam only accounts for 50% of the marks. You will still have to complete two Section B questions that will be completely un-seen.

CIMA E3 Enterprise Strategy

These notes are not intended to cover the whole of the E3 syllabus

Darren Sparkes, 2010

Approach Required
Overall this paper is a balanced test of the key syllabus areas and covers a number of well used strategic tools and models. Candidates should not find any surprises in this paper and a well prepared candidate should have no difficulty in both demonstration of syllabus knowledge and in the application of this to the various examination scenarios. Its easy to get carried away with all the models covered in the (P6) syllabus and forget why its there in the first place. The syllabus is at the top of the business management pillar, but its title is very clear. It isnt a business strategy exam; its an exam in business strategy in the context of management accounting. candidates should recognise that depth of argument is desirable in answers to this paper, and a series of brief points will never be rewarded highly. (Co-examiners for CIMA P6)

CIMA E3 Enterprise Strategy

These notes are not intended to cover the whole of the E3 syllabus

Darren Sparkes, 2010

Extracts from the Examiners comments November 2009


Section A - Question 1 ! Knowledge Management question very poorly answered as candidates had no clear understanding of Knowledge Management ! with no reference to the scenario information. ! Only generic benefits of knowledge management given with no reference to the scenario ! Insufficient depth of discussion use of short form answers such as bullet points ! Provision of calculations good but limited critical analysis or discussion plus poor use of the scenario information ! Basic description of the Five Forces model with limited application to the scenario Section B ! Limited application ! General discussion of the process of competitor analysis ! Unjustified recommendations in terms of why they were appropriate to the short or long term ! Not answering the question set ! Insufficient application ! Description rather than evaluation of the proposed strategies ! Limited/no application ! Recommendations with no/limited justification ! Including a range of stakeholders not included in the scenario information ! Some repetition of points made between each suggestion ! Imbalanced discussions of suggestions ! Limited/no justification of recommended course of action ! Part c a repeat of answer to part b

CIMA E3 Enterprise Strategy

These notes are not intended to cover the whole of the E3 syllabus

Darren Sparkes, 2010

Cost of Capital (debt / equity / WACC) Company Valuations Discounted Cash flow (NPV / IRR / ARR)

Enterprise Strategy
Expected Values

The scope for numbers/calculations in the examination

Costing (DPP / CVP / CAP / Absorption / marginal)

Variances including planning variances Ratio Analysis

Pricing / transfer pricing

CIMA E3 Enterprise Strategy

These notes are not intended to cover the whole of the E3 syllabus

Darren Sparkes, 2010

Examination Technique to give the Examiners what they want PADI Plan, Analyse, Design, Implement
PLAN
1. USE 20 MINUTES READING TIME WISELY Examine section B questions and choose the two on which you can MAXIMISE MARKS (not necessarily those on your favourite topics) If you have some time left then analyse Question 1 requirements and skim read the Q1 un-seen material to get a feel for the relevant issues and identify where the information is for each part of the requirements. 2. WORK OUT TIMINGS Q1 = 90 minutes. Planning = 20-25 minutes, Writing answer = 65-70 minutes Section B Questions = 45 minutes each. Planning up to 10 minutes, Writing answer 35 minutes. Break down the time required for each part of the requirements using the marks as a guide. 1.8 minutes per mark in total, 1.4 minutes per mark after planning. I suggest you start with Question 1 as you know you have 90 minutes to complete it. START PLANNING IN YOUR ANSWER BOOK 3. ANALYSE THE REQUIREMENTS Identify the verb, or verbs, and make it stand out. The verb tells you what the examiner wants you to do, e.g. evaluate, recommend, analyse, calculate. Be sure to identify all the verbs in the requirement just in case there is more than one thing to do, e.g. analyse and discuss, evaluate and recommend. Identify key words. These tell you what to do it on or about, e.g. evaluate what?, recommend what? 4. ALLOCATE MARKS TO EACH VERB IN THE REQUIREMENT This can now determine how much to write for each verb in the requirement 5. IDENTIFY RELEVANT MODELS, TOOLS, THEORIES FROM YOUR KNOWLEDGE BANK

CIMA E3 Enterprise Strategy

These notes are not intended to cover the whole of the E3 syllabus

Darren Sparkes, 2010

6. DEVELOP HEADINGS AND NUMBERS LAYOUT Put key elements of model in plan as headings, e.g. Porters 5 Forces analysis = 5 headings. Headings will give your answer a framework and structure. Use requirements to develop headings to show marker that you are answering the question asked 7. DISTRIBUTE MARKS ACROSS HEADINGS This can now determine how much you write under each heading

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

DESIGN
9. THINK BEFORE YOU WRITE Decide which points you are going to put in your answer (trying to put in everything usually leads to going over time) and start with your strongest points Decide how you are going to layout your answer to make life easy for the marker and maximise marks

IMPLEMENT
10. WRITE UP YOUR ANSWER TO MAXIMISE MARKS Layout calculations in a logical and easy to mark format - Add value to calculations by asking SO WHAT? Use as many headings as possible to give the answer structure Short sentences in short paragraphs - Paragraphs of 3/4 sentences maximum - Looking for 2 marks for each paragraph PEE for 2 marks Point, Evidence, Explain (So what?) Leave a blank line between paragraphs to make your answer easy on the eye Be strict with timings. When time is up on a question, or part of a question, move on. Stick to answering the requirement use your plan to keep you on track REMEMBER THE THREE GOLDEN RULES 1)APPLICATION 2) APPLICATION and 3)APPLICATION

CIMA E3 Enterprise Strategy

These notes are not intended to cover the whole of the E3 syllabus

Darren Sparkes, 2010

Exercise professional judgement Select relevant data Determine appropriate techniques

Evaluate the Key external factors affecting an organisations strategy Evaluate the impact of information systems on an organisation Advise on important elements in the change process Evaluate tools and methods for successfully implementing a change programme Recommend change management processes in support of strategic information Evaluate the process of strategy development Evaluate tools and techniques used in strategy formulation Evaluate tools and process of strategy implementation

Candidate Requirements
Apply knowledge and skills

Background
Format of paper

Aims of the paper

Study Weighting

Section A 50%
Compulsory Major case study, pre-seen and un-seen Usually four parts Case will include numbers

Interacting with the Competitive Environment Change Management Evaluation of Strategic Position and Strategic Options Implementation of strategic plans and performance evaluation

20% 20% 30% 30%

Section B 50%
Choice of two from three Each question up to three parts Will include short scenario

CIMA E3 Enterprise Strategy

These notes are not intended to cover the whole of the E3 syllabus

Darren Sparkes, 2010

10

Syllabus Overview
CSFs

3 Es Efficiency, Economy, Effectiveness

SMART

Mission and objectives


Purpose,Strategy,Standards,Values Mendelow power-interest matrix

PEST

Stakeholder Analysis
Resource audit Ms

External Analysis
Porters 5 Forces Competitor Analysis (PROSAC) Resource Based vs Positioning

Internal Analysis
Core competences (SARI)

Corporate Appraisal SWOT

Benchmarking PLC / BCG

Value Chain

Withdraw

Porters Generic Strategies Suitability, Acceptability, Feasibility Game theory, Real options HRM / IT Structure

Strategic Options
Risk

Ansoffs productmarket matrix

Acquisition vs organic vs joint development

Strategic Choice

Cost/Benefit Change Management

Implementation
International Trading Quality

Culture

Marketing

Ethics

Review and Control


CSFs Balanced Scorecard

Financial Measures ROI / RI

SVA / EVA

Non-financial Measures

KPIs

CIMA E3 Enterprise Strategy

These notes are not intended to cover the whole of the E3 syllabus

Darren Sparkes, 2010

11

Integrates activities

Competitive advantage

Whole organisation

Relationship with environment

Corporate = Strategic level

All stakeholders Long-term

Strategy
Strategy is the direction and scope of an organisation over the long term: which achieves advantage for the organisation through its configuration of resources within a changing environment, to meet the needs of markets and to fulfil stakeholder expectations.

Business = Tactical level

Functional = Operational level (Johnson & Scholes)

Freewheeling Opportunism Market Driven reactive Hands on management Exploit complacent players Relies on leaders vision No formula for success ! Take advantage of market opportunities ! Stock market problems

Alternative

Strategic Planning
Rational Top Down Approach Mission & Objectives Corporate appraisal ! Strategic options ! ! Strategic choice ! ! Implementation JSW Review Position Analysis Strategic Choice Strategy Implementation !

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

! ! ! !

Incrementalism (Lindblom) Building block approach Build strategy through incremental steps not radical shifts Accepts uncertainty of future Builds commitment May be too slow Ideas often compromised

Emergent Strategy - Bottom up (Mintzberg) Intended Strategy Unrealised Strategy Deliberate Strategy Realised Strategy

Advantages Identification of strategic issues Consistency of goals Improve performance/survival Pro-active Recognises environment Optimum use of resources

Disadvantages Expensive (time and money) ! Bureaucracy ! Stifles creativity ! Less relevant in a crisis !

Emergent strategy

E.G. Hondas entry into the USA, 3M CIMA E3 Enterprise Strategy

These notes are not intended to cover the whole of the E3 syllabus

Darren Sparkes, 2010

12

Purpose Strategy

Advantages Resolve stakeholder conflict Set direction Help formulate strategy Communicates values to employees Marketing to customers

Policies and standards

Criticisms Meaningless terms used Written retrospectively? Not communicated to employees Ignored by managers

S M A R T

Specific Measurable Attainable Relevant Timebound

Mission Statement
Values the most generalised type of objective which can be thought of as its raison detre.

Objectives

Stakeholders

Mission and Objectives


Critical Success Factors
"The limited number of areas in which results, if they are satisfactory, will ensure successful competitive performance for the organization. They are the few key areas where things must go right for the business to flourish. If results in these areas are not adequate, the organization's efforts for the period will be less than desired."

Determinants: Flexibility Innovation Resource utilisation Excellence (Quality of service) Results: Financial performance Competitiveness (Brignall et al)

F I R E

Mendelows Power Interest Matrix


Low Interest High

F C

A
Low Minimal Effort Give Direction Power

B
Keep Informed Education / Communication

Not for Profit Organisations


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

C
High Keep Satisfied Intervention

D
Key Players Keep Close Participation

Economy (Inputs) Efficiency (Process)

Effectiveness (Outputs)

CIMA E3 Enterprise Strategy

These notes are not intended to cover the whole of the E3 syllabus

Darren Sparkes, 2010

13

Manpower Management Money Make-up Machinery Methods Materials Markets Management information

Strategy Structure Systems Staff Style Shared values Skills

Valuable Rare Cant be copied Not substitutable Give access to wide range of markets

S A R I

Strategic Assets Architecture Reputation

Porters Value Chain


identify activities within the firm which contribute to competitive advantage and those which do not.

Primary Activities
Inbound Logistics Operations Outbound logistics Marketing and sales Service

McKinsey 7 S Model

Core Competences the activities or processes that critically underpin competitive advantage.

Innovation

9 Ms Resources Basic OR Unique?

Competences Threshold OR Core? Resource Audit/ Position Audit

Support/secondary activities
Procurement HRM Technology development Firm infrastructure Streamline linkages Eliminate non-value added activities Business Process Re-engineering Benchmark key processes

Uses

Product Life-cycle Stages:


Introduction: high risk, little competition, low volume, high advertising = losses + negative cash Growth: increased competition, growing volumes, EOS, high advertising = losses to profits + negative to positive cash Maturity: steady repeat sales, high volumes, EOS, low level advertising = profits + positive cash Decline: falling volumes, falling prices = profits to losses + positive to negative cash, divest Balance the portfolio

Internal Analysis (Strengths & Weaknesses)


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

Value Networks

Benchmarking
1. 2. 3. 4. 5. 6. 7. Determine processes to be benchmark Choose type of benchmarking Choose partner Determine measures Collect data Learn and improve Implement changes

Balance the portfolio

BCG Matrix
High Relative market share Low

Problems:
No common shape Unpredictable Self-fulfilling prophecy Product orientated ignores market High

STAR Build then Hold Losses to profits, negative to positive cash CASH COW Hold then Harvest Profits and positive cash

PROBLEM CHILD Build or Divest Losses, negative cash DOG Harvest then Divest Profits to losses, positive to negative cash

Competitive Process/Activity

Internal

Low CIMA E3 Enterprise Strategy

BEST IN PRACTICE

These notes are not intended to cover the whole of the E3 syllabus

Darren Sparkes, 2010

14

Economic Globalisation Economic cycle Interest rates Inflation Employment levels Exchange rates

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

Technological Internet Government spending on RnD Communications Speed/rate of change Processes and methods of production Transportation

P R O S A C

Prediction of Reaction Resources Objectives Strategy Assumptions Competences

Political and Legal Taxation Government policy Foreign trade regulations Monopoly legislation Environmental legislation Employment legislation Consumer protection Protectionism

PEST analysis (External, Environmental analysis)

External Analysis (Opportunities and Threats)


Porters 5 Forces (Competitive, Industry analysis)

Competitor Analysis

Threat from New Market Entrants


Barriers to Entry: Economies of Scale Other cost advantages Capital requirements Access to distribution channels Patents, Government policy Reaction of existing firms

Threat from Substitute Technologies


Can same features be produced cheaper? Can new features be provided for same cost? Level of danger may be influenced by barriers to entry and/or power of buyers

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

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

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

Internal + External Analysis = Corporate Appraisal = Position Appraisal= SWOT Analysis


Strengths Weaknesses

INTERNAL EXTERNAL
Opportunities CIMA E3 Enterprise Strategy Threats Darren Sparkes, 2010 These notes are not intended to cover the whole of the E3 syllabus

15

Filling The Gap


Gap Analysis

Target Objective e.g. ROI

GAP
Future Plans Current operations

Diversification New products or new markets Penetration Efficiency

Time

Scenario Planning 1. 2. 3. 4. 5. 6. Define the scope of the scenario Identify the major stakeholders Identify basic trends Identify key uncertainties Construct initial scenario themes Check for consistency and plausibility 7. Develop learning scenarios 8. Identify research needs 9. Develop quantitative models 10. Evolve towards decision scenarios

# Focuses management on future # # # #

possibilities Encourages creative thinking Encourages communication and participation Identifies sources of uncertainty Identifies most important variables
CIMA E3 Enterprise Strategy

" Costly " Often inaccurate " Uses resources on scenarios that will not " "
materialise Tendency for managers to get carried away Risk of self-fulfilling prophecy

These notes are not intended to cover the whole of the E3 syllabus

Darren Sparkes, 2010

16

Strategic Assets Architecture Reputation Innovative ability

PEST

Porters Five Forces

To beat the five forces Porters Generic Strategies

Harness core competences to give sustainable competitive advantage Resource Based Strategy (Inside-out) Method of Growth? (See next page) Limitations
Definition of market Ignores factors such as competitors Suggests strategies in isolation

Strategically develop organisation in line with environment challenges Positioning view (outside-in) What Basis?

Overall Cost Leadership


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

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

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

Beware of Stuck in the Middle

Strategic Options
What Direction?
competitive products,

Uses
Analyse rivals Suggest own strategy SBU level strategy

Horizontal diversification
complementary products, by-products

Do nothing / Withdraw Ansoffs Matrix Products, existing and new (PEN) Markets, existing and new (MEN)

Limitations Unclear definition of industry Defines advantage in terms of position not


resources Lack of empirical evidence Ignores middle ground Restricts firm to position in present industry Requires perfect information

Vertical Integration
Advantages Economies of combined ops Economies of control and coordination Avoiding the market Tap into technology Disadvantages Increased operational gearing Reduced flexibility to change partners Capital investment needs Disadvantages No additional benefit to shareholders through synergies No operating advantages

Market Penetration (cost reductions,


price reductions, advertising, minor product modifications) Product Development (exploit existing customers, RnD, buy-in and badge, JVs, Licensing) Market Development (new markets such as foreign markets, new segments such as adult to child or industrial to consumer) Diversification (related = vertical integration or unrelated = conglomerate)

Conglomerates

Advantages Flexibility Quick growth Access to capital Portfolio effect Avoidance of antimonopoly legislation

Risks Product Market Operations and management Financial 17

CIMA E3 Enterprise Strategy

These notes are not intended to cover the whole of the E3 syllabus

Darren Sparkes, 2010

Advantages
Quick Lower risk Overcomes barriers to entry Same number of competitors Possible synergies Possible under-valuation of target

Disadvantages
Purchase premium Integration issues o Systems o People o Culture Synergies do not materialise Reputation of target

Advantages
No premium for assets People development Staged investment Established culture Introduction of new technology and systems easier Possibility of grants

Disadvantages
Slow Increases number of competitors Overcoming barriers to entry No opportunity for synergies Higher risk

Porters 3 Tests for Acquisitions


The attractiveness test The cost of entry test The better off test

Acquisition Acquisition versus Organic growth Possible synergies


Market Economies of scale Shared activities Surplus assets Vertical integration Skills transfer Dilution of risk Reduced power of buyers/suppliers Tax advantages

Organic Growth Divestment


! ! Quick Higher price due to strategic value

Method of Growth?

Withdrawal

Demerger
! ! ! Gives shareholders an exit route Management can focus on core areas Two companies can develop separate identities

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

Joint Development Methods Licensing


Giving the right to exploit brand, recipe, process etc for a share of the profits ! ! ! ! ! ! ! ! ! ! Quick growth Access to competences Less financial risk/outlay Overcome product, market, operational risk May lose competences Train future competitors Brand infection Operational and contractual disputes Ownership of assets Sharing of profits Darren Sparkes, 2010

Management Buyout (MBO)


Consider On-going involvement of holding company Why is holding company selling? Loss of Holding company help, e.g. technical support, finance services Quality of management team Price Personal risk, e.g. home at risk?

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

Franchising
Giving the right to exploit a business method/model in return for a capital sum plus a share of the profits. Franchisor usually provides support e.g. marketing, training, technical CIMA E3 Enterprise Strategy

These notes are not intended to cover the whole of the E3 syllabus

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

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

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

Risk

Strategic Evaluation & Choice

Cost/Benefit

Game Theory
Concerned with the interrelationships between the competitive moves of a set of competitors Can be a useful tool to analyse and understand different scenarios Relies on two key principles: - Strategists take a rational, informed view of potential competitor actions - If a competitors strategy allows them to dominate us then the priority is to eliminate that strategy

Real Options
the net present value rule is not sufficient. To make intelligent investment choices, managers need to consider the value of keeping their options open. (Dixit and Pindyck, 1995) all business decisions are real optionsthey confer the right but not the obligation to take some initiative in the future. (Lewent, 1994) Real options capture the value of managerial flexibility to adapt decisions in response to unexpected market developments.

For example, taking competitor reaction into account, a company may not be any better off by making a particular strategic move as it may be cancelled out by the competitor. This may leave both companies worse off than they were before.

McKinseys 4 stage process for Real Options 1. Use standard NPV approach to produce valuation of investment 2. Use scenario planning to determine the potential futures Model the uncertainties in the project with event trees 3. Identify the decision options at key stages of the project Convert event tree into decision tree 4. Value the portfolio of options using the Black & Scholes portfolio approach

CIMA E3 Enterprise Strategy

These notes are not intended to cover the whole of the E3 syllabus

Darren Sparkes, 2010

19

Unfreeze

Change

Refreeze
Job Factors Cultural Web Stories Rituals Symbols Power structure Organisation structure Control systems

Role
Personal Factors Social Factors

Task Person

Strengthen

Weaken

Power

Driving Forces

Restraining Forces (resistance) Lewins Force Field Analysis

Handys cultural types

Organisational Factors Participation Education & communication Facilitation & support Negotiation Manipulation Coercion

Kanters prescription for creativity: A N I T A Acceptance of change New Ideas Interaction Tolerance of failure Acknowledge creative behaviour

The change process

Culture
The way we do things around here

Change Management

Implementation Issues
Quality

Excellence Culture Peters and Waterman


P A S S C A S H Productivity through people A bias for action Stick to the knitting Simple structure Close to the customer Autonomy and entrepreneurship Simultaneous loose-tight properties Hands on, value driven

Context of Change
Triggers Internal External Types of change Planned Emergent Incremental Step Transformational Fitness for use

Organisational Development To increase: Level of trust Likelihood of solving problems Openness of communication Level of individual and group responsibility for problem solving Methods Survey research and feedback Therapy groups (T-Groups) Team Building Change Agents CIMA E3 Enterprise Strategy

TQM
Quality control = reactive Quality Assurance = proactive
Four costs of Quality: Appraisal Preventative Internal failure External failure Get it right first time

Customers Competence

Commitment

6 Cs
Costs

Continuous improvement

Communication

Continued on next page These notes are not intended to cover the whole of the E3 syllabus

Darren Sparkes, 2010

20

Recruitment Appraisals Training Reward Job design Involvement Status and security

Commitment Quality Flexibility

Motivation: Maslow Hierarchy of needs Herzberg Hygiene factors and motivators

HRM Strategy

HRM Practices

HRM Outcomes

Behavioural Outcomes

Performance Outcomes

Financial Outcomes

Staff understand orgn goals & values

Increased ability to compete & add value

Guest model of HRM HRM

Networks

Groupware

Benefits
People encouraged to generate & use knowledge Knowledge = closest we can get to ultimate competitive advantage Motivated workforce

Intranet

Turn tacit into explicit

Organisational Knowledge Management

Implementation Issues (contd)


Information Systems Technology
Reports

Systems
Extranet

Sequences Associations Classification

Organisational Structure Technological barriers

Politics

Issues / Problems

Data Mining Errors in data transfer Support strategic decision making Support integrated value chain

Turning data into information

Forecasting

De-motivation

Social barriers

Format of information Incompatible systems & processes

Data Warehousing

Large relational database Improve quality of data

Clustering

Speed up response times to queries

Predictive models

Descriptive models 21

Implementation Issues (contd)


CIMA E3 Enterprise Strategy These notes are not intended to cover the whole of the E3 syllabus Darren Sparkes, 2010

Beat the five forces Key business areas Cost Generic strategies

Strategic importance in predicted competitive environment Low High


Value chain

Support
Strategic importance in current competitive environment L o w Improve management effectiveness but not critical to the business

High Potential
Innovative with high future potential

Implications

Considerations (PICK)
1. 2. 3.

Strategic Weapon

Performance

Identify business needs Identify IT gap Identify potential opportunities

H i g h

Key Operational
Critical to sustain existing business

Strategic
Critical to future business success

Radical & fundamental change for quantum leaps in performance


1. 2. 3. 4. 5. 6. 4. 5. Work backwards from outcomes not tasks Empower the end user Increase access to databases Link parallel activities Capture information only once Identify IT gap Identify potential opportunities

Business Process Re-engineering Process Innovation


Completely new and radical processes.

Peppard Applications Portfolio

Developing an IT Strategy

McFarlan & McKenneys Strategic Grid


Strategic impact of future systems

IS Strategy Organisation of systems

Earls 3 Levels of IT Strategy IM Strategy


L o w Strategic impact of current systems

Low

High

Support
No strategic value

Turnaround
Expect info system to become strategically important in the future

IT Strategy
Technology infrastructure

Supporting management processes (COPT)


Technology

Control Planning Organisation

H i g h

Factory
See strategic value of info system now but expect value to decrease in the future

Strategic
Depend on info system for competitive advantage

CIMA E3 Enterprise Strategy

These notes are not intended to cover the whole of the E3 syllabus

Darren Sparkes, 2010

22

Functional Entrepreneurial
! ! ! ! ! ! Fast decisions Responsive to market Congruence No career structure No autonomy Single product & market ! ! ! ! ! ! ! Economies of scale Specialists with some autonomy Career structures Frees up entrepreneur Slow decisions (bureaucratic) Functional silos Few products & markets

Implementation Issues contd


! ! ! ! ! Autonomy ! ! !

Divisional
Multiple products & markets Autonomy for SBU managers Training of SBU managers Frees up senior managers Focus on specific products/markets Loss of congruence? Duplication of effort Isolation of SBU managers

Career path Flexibility Employee motivation Motivation of managers Congruence ! ! ! ! ! ! !

Centralised vs Decentralised S T O P T I E S
Strategy Technology Ownership People Tasks Ideology Environment Size

Quality Speed Decisions Features of Organisation

Checklist

Matrix
Breakdown of silos Shared knowledge Skill development Innovation and creativity Dual command Dilution of functional authority Time consuming meetings

Organisational Structure
Span of control Tall/Narrow Mintzbergs Structural Configurations
Promotional opportunities Smooth progression between levels More personal contact

Decentralisation
Advantages: Frees senior management Better local decisions Better motivation Flexibility Training/career path

! ! !

Strategic Apex Technostructure Middle Line Operating core Support Staff

Flat/Wide
Disadvantages: Loss of control Loss of congruence Duplication of effort Extra costs of control ! ! ! ! ! ! Encourages delegation Quicker, more informed decisions Encourages participation of lower levels Lower management costs Promotions real and meaningful Closer contact between senior management and lower levels

Greiners Growth Model


Growth through Creativity Direction Delegation Coordination Collaboration

Simple structure = entrepreneurial Machine bureaucracy = functional Professional bureaucracy = decentralised Divisional form Adhocracy = matrix

Revolutionary Crisis Leadership Autonomy Control Red Tape Psychological saturation Darren Sparkes, 2010

CIMA E3 Enterprise Strategy

These notes are not intended to cover the whole of the E3 syllabus

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Market Leader - largest market share Market Challenger - runner-up, fighting to increase share Market Follower - runner-up, aiming to hold share

Supplier Markets

Recruitment Markets

Influence Markets Internal Markets

Referral Markets

Customer Markets

Six Markets Model (Payne)

Marketing Strategy

Analyse environment and competitors PEST / Porters five forces / PROSAC / 4Ps

Market nicher - serve small segment, not pursued by larger firms

Competitive Strategies

Marketing identify, anticipate and satisfy customer requirements


Production Product Sales

Market Segmentation and Target Market


division of the market into homogenous groups of potential customers who may be treated similarly for marketing purposes Geographic Demographic o Age o Gender o Income o Family life-cycle Social class Psychological Education Hobbies Undifferentiated Differentiated Concentrated

Firms orientation A I D A
Awareness Interest Desire Action Communications Mix: Advertising Sales promotion Public relations Personal selling

Marketing
Place
Use of intermediaries: Economic criteria Control criteria

Marketing Research
systematic gathering, recording and analysing of data about problems relating to the marketing of goods and services

Promotion Marketing Mix 4Ps Price


set of controllable marketing variables used to produce desired response in the target market

Cost based Target pricing Discriminatory pricing Psychological pricing Promotional pricing Product line pricing Captive product pricing Market skimming Market penetration

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

Field Research (Primary data) Interviews, focus groups, questionnaires, experiments, Test marketing

Desk research (secondary data) Internal Accounts, Sales reports, Customer complaints External CSO reports, Business monitors, Trade journals, newspapers

Product
Product Life Cycle Product to meet needs

Product mix

Brand Strategies Existing Brand New Brand

Existing Product Line Extension Multi-branding Darren Sparkes, 2010

New Product Brand Extension New Brand

CIMA E3 Enterprise Strategy

These notes are not intended to cover the whole of the E3 syllabus

24

Sales (price x number of units returns) LESS: Costs (unit cost + ordering + inventory + storage + transport + shelf stacking + wastage + breakage)

Calculating DPP

Profits from sales of individual products

Improving DPP: Increase sales price Increase sales volume Reduce costs of stocking Offer incentives

Evaluation of DPP: Too product focussed Easier and cheaper to cut price than conduct DPP exercise Ignores relationships between products

Typical cost drivers: Product size Demand uncertainty Delivery cycle Ordering method

DPP Direct Product Profitability Product View

Drawbacks: Hard to predict future behaviour Hard to factor in competitors Difficult to pinpoint life-cycle stage Uncertainty of environmental factors

Single period view of value of customer

CAP Customer Account Profitability

Profitable Products or Customers?


Customer View

Consider: Present value of existing & future purchases Probability of customer retention Probability of customer purchasing new products Costs of initial attraction

1. Analyse customer base and divide into segments 2. Calculate annual revenues earned from customer segments 3. Calculate annual costs of serving the segment including the hassle factor 4. Identify and retain quality customers 5. Eliminate or re-engineer unprofitable customers Minimum order size Install telesales / EDI Charge service fees Impose flat order charge Discriminatory pricing
CIMA E3 Enterprise Strategy

Life-Cycle customer value Customer Relationship Marketing / Management


Developing Customer Relationships: Develop customer retention schemes for staff Reduce staff turnover Elevate customer retention in corporate thinking Analyse detailed information on customers and their buying habits Monitor customer relationships Engage with customer Develop ideas to increase loyalty

Evaluation of CAP: # Includes non-production costs # Identifies customer groups of value to the firm # Enables assessment of value of marketing expenditure ! Leads to ill-judged product changes ! Calculation difficulties ! Single period view

Focus marketing resources on maintaining & enhancing existing customer base

DREAMED

These notes are not intended to cover the whole of the E3 syllabus

Darren Sparkes, 2010

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C O P P I T

Confidentiality Objectivity Professional due care Professional Competence Integrity Threats

Equal opportunities

Professional Ethics
Self control, not self interest

Consumer health and safety Fair Trade Safety in the workplace Honesty in Advertising Sustainability

Corporate Governance
Divorce of ownership and control Separate roles of CEO and Chairperson Audit Committee / Remuneration Committee Directors re-election at least every 3 years Non-exec Directors o Independent o Role on audit / remuneration committees o Corporate conscience o Mentors to inexperienced execs o Strategic value through expertise

Issues

Environment

Corporate Social Responsibility

Innovation & ideas from close links to community

Reputation and branding

Small company advantage in the supply chain

Business and Professional Ethics


Enlightened Self-Interest

Views on Business Ethics

The business of business is business (Friedman)


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

Competitive advantage

Avoid future Government policy

Recruitment

Benefits to Business
Relieve stress on management Attract ethical investor funds Competitive disadvantage

Firms should acknowledge their social responsibilities.

Potential problems

No universal acceptance of morals & ethics Disclosure of business information

Conflict of CSR with shareholder wealth


Reduced revenues Increased costs Diverts funds from shareholders Distracts management

Deciding what is ethical

Bad publicity from monitoring and enforcement CIMA E3 Enterprise Strategy These notes are not intended to cover the whole of the E3 syllabus Darren Sparkes, 2010

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Trade barriers reduced Saturated home market

Opportunities for management Cultural Diversity

Political sponsorship

Political power PEST Economies of scale Reduced risk Market Knowledge Financial

Opportunities for lower costs

Reasons for growth in international business (POST)

PROSAC

Pressure on ROCE

Benefits of international growth (COPPER)

General risks
Demand Conditions

5 Forces

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

The International Market Place


Methods of International Expansion

Strategy, structure, & rivalry

Porters Diamond
National Competitive Advantage

Related & supporting industries

Joint Venture & Franchising


! ! ! ! ! ! ! ! Access to local resources Reduced national sentiment Shared capital input Access to competences and knowledge Shared profits Lose competences Train competitor Operational disputes

Factor Conditions

Ethnocentric
Perceives foreign markets as similar to domestic market Products & marketing mix constant Standardisation to save time and money Supply-driven policy

Multinational - Polycentric
See overseas market as distinctive Customised products and marketing mix Increased overseas sales volumes BUT Fewer EOS giving higher costs, so volumes not turned into profits

Global - Geocentric
Standardise wherever possible, e.g. RnD, Branding Market convergence may allow standardised product BUT Demand-driven Customised marketing mix where necessary = GLOCAL

! ! ! ! ! ! !

Foreign Direct Investment CloserP to market


Retain profits More control Reduced operational conflicts High financial risk Staffing decision Integration difficulties

Exporting

Joint venture, Franchising, Foreign Direct Investment STAFFING

! !

Overcomes lack of host skills, unified culture, Transfers competencies Resentment by host, cultural myopia

! !

Alleviates cultural myopia, inexpensive Limits career mobility, isolates HQ from subsidiaries

! !

Efficient use of HR, builds strong culture and management network Subject to National immigration policies, expensive

CIMA E3 Enterprise Strategy

These notes are not intended to cover the whole of the E3 syllabus

Darren Sparkes, 2010

27

Transfer Prices:
Marginal Cost no incentive for seller & inflated profit for buyer Full Cost (Cost Plus) may be no incentive for the buyer & no incentive for seller to control costs Market price no buyer incentive Opportunity Cost usually best Centrally set uncontrollable Negotiated powerful divisions Problem: no account taken of invested capital used to generate profits Examples Gross margin Net margin Cost % sales Profit

Return On Investment (ROI)

Residual Income (RI)

Aims of performance measures:


Motivation Congruence Accurate reflection of performance Accountability/Controllability Reconcile long and short-term

PBIT X 100 = % CE

PBIT (CE x imputed interest rate) RI

Profit Related Measures

Relative Measure %

Absolute Measure s

Problems:

Problems:
Absolute measure poor for performance comparisons

Benefits
! ! ! ! ! Longer-term measures More difficult to manipulate Measures determinants and results Promotes goal congruence Includes stakeholders

Review and Control


The Balanced Scorecard
Financial Perspective

Sub-optimal investment decisions Deplete capital assets too early

Joint issues when used in isolation


Backwards looking measures Short-termist decisions Open to easy manipulation of discretionary costs and capital employed

Customer Perspective

Internal Business Perspective Innovation and Learning Perspective

Conclusion
Financial measures should not be used in isolation to measure performance but should be combined with non-financial measures.

Potential Drawbacks
! ! ! ! ! Measures conflict with each other Requires cultural change Overload paralysis by analysis Time and cost No obvious relationship with shareholder wealth

1. 2. 3. 4. 5.

Identify CSFs Identify competences required for CSFs Develop KPIs for competences Measure competence Take action continuous improvement

Economic Value Added (EVA)


Adjusted NOPAT (Adjusted CE x imputed interest rate) EVA

Shareholder Value Analysis


The business should be managed to increase shareholder wealth i.e. all activities and processes

CIMA E3 Enterprise Strategy

These notes are not intended to cover the whole of the E3 syllabus

Darren Sparkes, 2010

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