Syllabus
A
Strategic position
Strategic choices
Strategic action
Information technology
Project management
Financial analysis
People
50
50
2 questions from 4
Up to 5 separate requirements
Quantitative data will be included
25 marks each
Can come from any part of syllabus but a
maximum of 1 question from strategy
(Sections A-C);
What P3 covers
Business
process change
(D)
Project
management
(F)
Information
technology (E)
Financial
analysis
G
People
Mission
Stakeholder
appraisal
Objectives
Strategic
options
Strategic
choice
Strategic
implementation
External
appraisal
Position
Choice
Action
Strategic position/analysis
Strategic choices
Intended
strategy
Deliberate strategy
Unrealised
strategy
Realised
strategy
Emergent
strategy
10
Strategic lenses
Three ways of viewing strategy
Strategy as
design
Strategy as
experience
Strategy as
ideas
11
12
13
Mission
Stakeholder
appraisal
Objectives
Strategic
options
Strategic
choice
Strategic
implementation
External
appraisal
Position
Choice
Action
14
Mission
Mission = the purpose of the organisation
Mission statement:
Purpose
Position
Values
Culture
Ethics
15
Stakeholders
Anyone affected by the organisation
Shareholders
Employees
Managers
Suppliers
Customers
Local people
Government
Lenders
16
Mendelow s Matrix
Interest
Low
High
Low
Minimal Effort
Keep Informed
Keep Satisfied
Key Players
Power
High
17
Competition
Firm
T
Market
18
Industry convergence
Convergence can be categorised as:
Supplier-led (for example, airlines sites offering car hire)
Market-led (for example, books and DVDs)
Convergence in substitutes (land-line, mobiles, VOIP)
Convergence in complements (printers, cameras)
19
International dimension
Global strategies driven by:
Global market convergence
Cost advantages
Global competition
Government influences
20
Porter s Diamond
Factor conditions
Demand conditions
21
Suppliers
Competition/
rivalry
Buyers
Substitutes
22
Strategic capability
Capability = resources + competences
Strategic capability: threshold capabilities, and capabilities
for competitive advantage.
Threshold capabilities = minimum capabilities needed for
the organisation to be able to compete
To do really well you need capabilities for competitive
advantage:
unique resources
core competencies: ways in which an organisation uses
its resources better than its competitors, and in ways
that others cannot imitate or obtain. !
23
24
25
Value Chain
Firm Infrastructure
Support/
secondary
activities
Support Activities
Technology Development
Human Resource Management
Procurement
Inbound
Logistics
Operations
Outbound
Logistics
Marketing
& Sales
Service
Profit, or margin
Primary activities
26
Intro
Growth
Mature
Decline
Sales
Cashflows
Time
27
Star
Cash cow
Dog
28
Resources
Money
Manpower
Management
Manufacturing
Markets
Marketing
Material
29
Weaknesses
Opportunities
Threats
30
10
SMART objectives
Stated/specific
Measurable
Achievable/agreed/accepted
Relevant
Time-limited
31
Vertical consistency
Operational
Individual
Time consistency
2005, 2006, 2007
Horizontal consistency
32
33
11
34
35
36
12
Benchmarking
Internal compare to internally generated target
External compare to other similar organisations
Best practice compare to operational practices which
produce best results
Comparability compare to different businesses
37
38
Low Price
High Profit
Low Profit
High Profit
Low Cost
Cost leader
High Cost
Stuck in the
middle
High Cost
Differentiator
39
13
3 Hybrid
5 Focused
differentiation
Perceived
product/service
benefits
2 Low price
Strategies
that will fail
1 No frills
Low
Low
High
Price
40
Ansoff s Matrix
Present
Present
MARKET
PRODUCT
Withdrawal
Consolidation
Penetration
Efficiency gains
Market
development
New
New
Product
development
Diversification
Related
Unrelated
41
Diversification
Backward vertical integration
Conglomerates
Firm
Horizontal
42
14
A plc
B plc
A plc
43
Organic growth
A plc
A plc
44
Joint ventures
Licensing
Franchises
Strategic alliances
45
15
Portfolio management
Johnson, Scholes and Whittington
Portfolio managers.
Synergy managers.
Parental developers. As a parent with a child,
holding company
46
Ballast
businesses
Heartland
businesses
Feel
Alien
businesses
Low
Value trap
businesses
Benefit
High
47
48
16
What P3 covers
Business
process change
(D)
Project
management
(F)
Information
technology (E)
Financial
analysis
G
People
49
Structure
Strategy
Systems
Shared
values
Skills
Style
Staff
50
Cultural web
Culture the way we do things round here (Handy)
Symbols
and titles
Myths and
stories
Rituals
and
routines
Power
relations
Organisational
assumptions
(paradigm)
Organisational
structure
Control
systems
51
17
Types of culture
(Charles Handy)
Power
Role
Task
Person
52
Functional structure
MD
Finance
Manufacturing
R&D
Sales
53
Divisional structure
MD
Division A
Finance
Manufacturing
R&D
Division B
Sales
Finance
Manufacturing
R&D
Sales
54
18
Matrix structure
R&D
department
Marketing
department
Production
department
Sales
department
Project A
Project B
Project C
Finance
department
Quality control
department
55
56
Wide/flat
Delayering/
flattening
Task specialisation
Formal
Slow to react
Many middle managers
Flexible working
Relatively informal
Faster to react
Fewer managers greater
personal responsibility
57
19
Centralisation/decentralisation
Decentralisation is good because:
Top managers have more time for strategic decisions.
Better decisions: fast, functional experts, geographical
experts.
Motivation of staff.
Training and assessment of staff
But
A risk of poor coordination dysfunctional decision
making.
Some duplication of effort/services
58
Virtual organisations
Specialist
services
Bought in as
needed
Links to
customers
Core company
(management,
key employees)
Specialist
services
Links to
suppliers
59
Professional core
Contractual fringe
Customers
60
20
Marketing Concept
Product led
Production led
Sales led
Marketing led
Establish needs (market
research)
Develop appropriate
product (R&D)
Stress ability
of product to
satisfy
Profit through
customer
Feedback
61
Market segmentation
How can a market be split-up?
Age
Sex
Life-style
Wealth
Geography
62
Market targeting
Undifferentiated
Firm
Market
63
21
Market targeting
Differentiated
Market
Firm
Market
Market
64
Market targeting
Concentrated
Market
Firm
Market
Market
65
Positioning - 1
Target specific segments, then position the
product using McCarthy s marketing mix/4Ps
Product
Price
Promotion
Place
People
Process
Physical evidence
66
22
Product
Features
Quality
Design
Brand
Packaging
67
Price
Price level
Discounts
Terms
Strategic pricing: skimming, penetration,
related product pricing
68
Promotion
Advertising
Sales promotion
Personal selling
Public relations
69
23
Place
70
Market(ing) research
Marketing
What do customers want/need/appreciate/respond to?
Information is needed, not guess-work, on all of the
marketing mix
Desk research
Field research
Test markets
71
Desk research
Internal accounting department
Internal - data warehousing and data mining
Government national and local
Market research consultancies
72
24
Field research
Questionnaires individual/panel
Product testing
Observation
73
Test markets
Small
Representative
Stable
Suitable facilities
74
Pricing
In the P3 exam you can now be required to describe a process for
establishing a pricing strategy that recognises both economic and noneconomic factors.
The influences on prices are:
Mission and marketing objectives
Pricing objectives
Costs
Competition
Customers
Controls
75
25
Influences on prices
Mission and marketing objectives
Pricing cannot be separated from mission, because mission sets out
the purpose and market position of the organisation.
Pricing objectives
In the shorter term there can be a variety of pricing objectives, such as
generating as much cash as possible, or putting competitors under
pressure.
76
Influences on prices
Costs
Any positive contribution helps to cover fixed costs. To make a profit,
revenue has to exceed all costs.
Competition
Perfect competition
Oligopoly
Monopoly
Monopolistic competition
77
Influences on prices
Consumers
Segment markets according to wealth
Perceived value of goods (non-price competition).
Necessities or luxuries?
oHigh elasticity of demand = price sensitive.
oLow elasticity of demand = relatively unaffected by price changes
Controls
Some industries are closely regulated by statute and regulation, and
they have little power to choose their own prices.
78
26
Setting prices
Setting prices to maximise profits
Marginal cost = Marginal revenue
Setting prices to break-even
Cost based pricing
Competition-based pricing
Marketing-orientated pricing
Strategic approaches
79
Process change
Automation
(of existing
processes)
Rationalisation
(eg removing
bottlenecks)
Business process
re-engineering
(radical changes)
80
81
27
Swim-lane diagrams
Sales
Order from
customer
Warehouse
Accounts
Goods
verified
Despatch
prepared
Goods despatched /
accounts informed
Credit
check
Invoice raised
and sent to
customer
82
Strategic alignment
Strategic alignment is the process of linking an
organisations structure, resources and competences
with its strategy and its business environment.
For example, if an environmental analysis shows that
many customers enjoy buying over the internet then if
the organisation has no e-selling capability it should
certainly think about developing one.
83
84
28
Organisa(on*
Informa(on*
technology*
People*
Processes*
85
Transformation
Incremental
Adaptation
Evolution
Nature
of change
Big bang
Reconstruction
Revolution
86
BPR and
improvement
Complexity
Low
Automate/outsource
Low
Automate
High
87
29
88
89
Value Chain
Firm infrastructure
Support Activities
Technology development
Human resource management
Procurement
Inbound
logistics
Operations
Outbound
logistics
Marketing
and sales
Service
Primary Activities
90
30
DSS,
MRP II,
robots
GPS,
route
planning,
delivery by
internet
91
Information systems
Transaction processing systems (TPS)
Management information systems (MIS)
structured information and decisions
Decision support systems (DSS) used for
unstructured decisions
Executive support systems (EIS) emphasis on
external links and flexibility
Expert systems tries to capture an experts
skill
Databases a collection of data used for many
purposes
92
IT infrastructures
Stand-alone.
Local area networks (LAN): special cables to connect
computers, so limited in reach.
Wide area networks (WAN): make use of large-scale
communications to link machines and LANs nationally
and internationally
Virtual private networks (VPN): gives the impression of
operating over a dedicated, private communications link.
93
31
94
95
96
32
Hybrid sytems
In these systems some data and processing are local centrally
and some centralised.
For example:
Web-browsing and word-processing might be local.
Critical business applications might be centralised.
99
33
100
101
34
IT risks
Risks include:
Inaccurate processing, data and results
Unauthorized access to data.
Multiple users accessing a common database
IT personnel gaining improper access privileges.
Unauthorized changes to data in master files.
Unauthorized changes to systems or programs.
Failure to make necessary changes to systems or programs
Potential loss of data or inability to access data as required.
103
IT general controls
General controls: policies and procedures that relate to the
computer environment.
Data centre and network operations.
System software acquisition, change and maintenance.
Application system acquisition, development, and
maintenance.
Access security.
104
IT application controls
Application controls: manual or automated procedures tto help
ensure that transactions are authorized, and are completely
and accurately recorded, processed and reported.
Edit checks of input data
Numerical sequence checks
Drop down menus
Batch total checks
105
35
n
ga
r
O
is
io
at
na
Ch
Power
Scope
an
Time
Design choices:
ge
Diversity
Change path
Change start point
Capability
Change style
Capacity
Change interventions
Change roles
Readiness
Preservation
Context
106
107
108
36
Change management
Lewin s force field analysis
Forces for
change
Forces
resisting
change
Aim to weaken
resistance
109
Change management
Lewin s three step process
1 Unfreeze
2 Effect the changes
3 Refreeze
110
Change agent
111
37
112
What is knowledge?
Data raw fact.
Detailed entries in sales ledger accounts
113
Knowledge management
Uncover/discover
Record
Distribute
Lever
Update
114
38
The Internet
Global network connecting millions of computers
URLs = uniform resource locator = location of web site
Marketing, FAQs, sales, information, feedback, e-mail,
links, adverts
Monitor visitors (cookies)
Firewall needed
115
116
6 I s of e-business
Intelligence
Individualisation
Interactivity
Integration
Independence
Industry
117
39
E-business patterns
E-shopping
E-auctions
Reintermediation
Disintermediation
Countermediation
Advertising others goods and services
Advertising own goods and services
E-procurement
Customer relationship management
118
Partner
Advocate
Enthusiast
Client
(repeat purchaser)
Customer
(first time purchaser)
Prospect
119
120
40
Barriers to e-business
Set-up costs
Type of business
Running costs
Time to set up system
No in-house skills
Suppliers/customers not interested
Security worries
121
Acquiring software
Package or bespoke? Package:
Cheaper
Available now
Reliability
Support
Updates
But
Might not perform exactly as required.
122
Choosing software
Software should be assessed according to the following criteria:
Functionality: what does it do?
Response times: normal and peak loads
Reliability: what down-time might we expect?
Compatibility: with existing hardware and software
Scalability: as the organisation grows, can the same software be
used or added to?
Usability: how easy is for staff and customers to use?
How easy to update for different requirements?
Cost.
123
41
Choosing software
The software house should be assessed on the following criteria:
Financial stability
Size will it be able to cope with large clients? Will it give attention
to small ones
Expertise
Reputation
Sometimes location of offices is important for support
Other clients perhaps if it deals with competitors there could be
a conflict of interest.
124
Project management
Project: start/end, non-routine
Novel, unique challenges
Team members from different backgrounds so different:
!
!
!
Priorities
Terminology
Outlooks
125
42
Stages of a project
The stages of a project can be described in a number of ways.
For example:
Initiation/initial screening
Risk assessment
Business case
Project plan
Executing
Monitoring and controlling/project milestones
Closing: delivery/review
127
Project gateways
Develop a business
case
Gateway review 1: Business
justification
Develop delivery
strategy
Gateway review 2: Delivery
strategy
Undertake
competitive
procurement
Gateway review 3: Investment
decision
Gateway review 0:
Strategic
assessment a
continuous process
Establish service
Gateway review 5: Operational
review/benefits realisation
Close project
128
129
43
130
Project risk
Defined?
Well - defined?
Hazy
Size?
Small
Large
Complexity?
Low
High
131
44
Scope
Quality
Time
Cost
134
2
6
1
B
ACDF
17
ACE
18
BDF
15
BE
16
C D
3
E
135
45
Gantt Charts
A
B
C
D
E
F
10
11
12
13 14
15 16 17 18 19 20
136
Benefits realisation
Projects justification: benefits > costs
Benefits not automatic even in a technically successful project.
Therefore, the project manager should carry out tasks such
as:
Demonstrations and presentations
Training
Preparing user guide/procedures manuals
Managing and championing change
Providing guidance
Change management.
137
Completion
The completion report shows the outcome of the project and is used to:
Check that everything promised has been delivered, ensure no outstanding
project issues, deliver the final budget report, arrange for reviews.
Post-project review - This is about the project.
This examines the project: what went well and what not so well? How did
project team members perform? Without such a review, there is little hope of
improving the management of future projects
Post implementation review - This is about what the project achieved.
Has the project delivered anything of sufficient value, at the right cost, by the
right time and which people are prepared to use enthusiastically. In other
words, has the project realised benefits?
138
46
Forecasting techniques
Forecasting is an important part of strategic planning to estimate
future costs, volumes sales revenues and so on.
Linear regression and coefficients of determination
Time series analysis, using moving averages and exponential
smoothing
Decision trees
139
Linear regression
Linear regression is a method of fitting the best straight line
through a set of points.
Cost and volume
Selling price and sales volume
Hours worked and units produced
Linear regression will give constants which fit a line of the type:
y = ax + b
where y is the dependent variable (cost, hours, volume sold)
and x is the independent variable (units made, selling) price.
140
47
Time
143
Moving averages
144
48
Random walk
145
Exponential smoothing
146
Expected values
Note:
Expected value is not expected
Expected values says nothing about risk
147
49
Chance
point
Do not
invest
Cost $5 million
High income
of $3 million
P = 0.6
Upgrade.
Additional cost
= -$2.5 million
C
Dont upgrade:
income = $3 million
Upgrade.
Additional cost =
-$2.5 million
B
Low income
of $2 million
P = 0.4
Dont upgrade:
income = $2 million
Value at C is therefore: 5.1 2.5 = $2.6 million or $3 million. Therefore the decision at C
should be not to upgrade.
Value at D is therefore: 5.1 2.5 = $2.6 million or $2 million. Therefore the decision at D
should be to upgrade.
149
Scenario planning
Scenario planning: take into account all the things that could
happen and from those to build a number of believable, alternative
futures. This greatly helps to reduce the number of universes we
have to consider and allows the organisation to concentrate on the
few most likely ones.
Interest rate = 3%
Interest rate = 7%
Government 1
Implausible
Scenario 1
Government 2
Scenario 2
Implausible
50
151
Types of capital
The main sources of finance are equity and borrowings.
Equity is obtained from the first owners, retention of
earnings, issues to the public (IPO, rights issues)
Borrowings can be:
!Term loans and debentures
!Overdrafts (repayable on demand
!Leasing is also a form of loan finance.
!Convertibles
!Preference shares
152
Mix of capital
Loans and debentures are cheaper than equity:
Less risky for investors
Borrowers enjoy tax relief.
Therefore, some borrowing is good.
But too much borrowing increases everyones risk, so the
average cost of capital increases at high hearing levels.
So, gearing must be kept at reasonable levels.
153
51
154
Typical finance
155
Over-trading
A danger for successful, rapidly expanding businesses.
As the business expands more capital is needed to
fund current assets.
Unless permanent capital is raised, liquidity problems
can arise.
156
52
Care in budget-setting
Care is needed when setting and using budgets
Too easy, performance will probably be pulled down.
Too difficult, employees can become demotivated.
Applied too strictly and data might be misreported and
staff will be demotivated.
158
Standard costing
Standard costs: predetermined costs per unit of output that
should be incurred under normal operating conditions.
Standards are essential for budgeting.
Currently attainable standards = achievable under
normal operating conditions without being too easy.
Variance analysis: to find reasons for discrepancies
between actual and budgeted performance.
No calculation: interpretation and possible causes.
Do not to jump to conclusions when investigating
causes.
159
53
Variance analysis
Compares budget to actual
Interpretation
Possible explanations
Limitations
160
Material variances
The variances
Material price variance:
Quantity of material actually used at
actual price compared to what that
quantity of material would cost if
bought at standard price/unit.
Potential causes
Wrong standard cost/unit of
material
Poor/excellent buying
Price changes since the standard
was set
Exchange rate movements altering
the price of imported material
Wrong standard usage/unit of
production
Poor/excellent use of material
Material of different quality
Poor machine maintenance
Poor staff training
161
Labour variances
The variances
Labour rate variance:
The actual coast of labour paid for
compared to what that amount labour
should have cost if bought at standard
hourly rate.
Potential causes
Poor supervision
Machine breakdown
Lack of material
Poor job scheduling
162
54
Potential causes
163
Potential causes
Wrong budget
Different output to what was
expected.
164
Sales variances
The variances
Potential causes
Wrong budget
Different selling price to what
was expected.
Wrong budget
Different selling price to what
was expected (affects demand)
Change in marketing
Economic changes
165
55
Operating statement
Favourable variances
Adverse variances
x
x
x
_
x
$000
Budgeted profit
Sales price variance
Sales volume variance
x
x
x
x
x
x
x
x
x
x
x
x
x
x
_
x
Actual profit
x
x
166
167
56
169
Closing/continuing operations
Compare costs saved (marginal costs plus any fixed costs
avoided) to revenue lost.
Worth closing if the costs saved > the revenue lost.
Worth continuing if the revenue lost > the costs saved
171
57
Special contracts
The minimum acceptable contract price = the relevant
costs of the contract
1000 kgs of Material X needed, and 700 kgs are in inventory: cost = $10/kg,
selling price = $9/kg (the company has no other use for the material). More
could be bought for $11/kg. What is the relevant cost of the material?
Solution:
Note that the historical cost of $10 is irrelevant: its a sunk cost.
If the contract were not taken up, 700 kgs of material would be sold for $9, so
$9 x 700 = $6,300 is an opportunity cost.
The remaining 300 kgs will have to be bought for $11/kg = $3,300
Total relevant cost is therefore = $3,300 + $6,300 = $9,600
172
173
Revenue
Total long term capital
174
58
Days of inventory
Payables
days
= Payables x 365
Purchases
Inventory x 100
Cost of sales
175
Current ratio
Quick ratio
(acid test)
Current assets
Current liabilities
176
Interest cover =
177
59
P/E ratio
Earnings per share = Earnings after tax and after preference shares
Number of equity shares in issue
178
179
Gap
Future requirements
Strategy
Retirement
Growth
Aspirations
Skills
Problems
Leavers
Environment
Technology
Demography
Higher skill levels
More service industries
More frequent job changes
Changes in work/life balance
180
60
The HR cycle
Planning
HR Dev
Selection
Appraisal
Performance
Rewards
181
182
Competency frameworks
Competency frameworks are a method of describing the values, skills
and abilities that are required to perform given roles.
Target
performance
Actual
performance
80
50
Generic competences
Fire safety
First aid
Ethics
75
75
Excel
100
80
Accounting package
80
80
Specialist skills
Competence)deni-on:)
Skill*descrip(on*
Skill*aims*and*objec(ves*
Competency*levels*and*their*
deni(on
Evidence)of)employee)
competency:)
Date*competency*a?ained*
Trainer/assessor*data*
Assessment*method
183
61