P3 Business Analysis

ACCA Professional Stage

Mr.J.Sathiyaseelan FCCA Pg.Dip Marketing
About the exam
 Formerly known as Paper 3.5 Strategic Business Planning
 The exam format has been changed with the exam having
 3 hours and 15 minute reading time
 1 Compulsory question 50 marks
 3 Optional questions 25 marks each
 All case study based
About the paper (by examiner)
 It builds from Paper F1 / T5
 It is also linked with paper P1 – ethical implications of decisions
 It is linked with paper F7 / 2.5 – analysis and interpretation of financial statements
 The paper supports paper P5, where the similar ideas are brought into question from a
performance aspect
 Examiner: Steve Skidmore previous 3.4 and 2.1 examiner
 Analysing the business
 Where it is currently?
 Where it needs to be in the future?
 How to get there?
 Is not exclusive to business, can include public sector and not-for-profit
 ‘Strategy without implementation is the slowest route to victory.
 Implementation without strategy is the noise before defeat.’
5 themes 9 sections
 Theme 1 is strategy.
 Theme 2 is business process
 Theme 3 is information technology, knowledge management & project management
 Theme 4 is quality
 Theme 5 is resources – HR and Financials
 A, B and C = Strategic planning
 D = Business process change
 E = IT and e-business
 F = Quality
 G = Project management
 H = Financial analysis
 I = Human resource management
Why students failed in DEC 07
 Lack of preparation – not knowing the matter being questioned
 Poor time management – spending too much time on Question 1 – 50 marks, preparing over
comprehensive answers
 Poor use of given data in the question
 Scatter gun approach in using models studied
 Why did the giant loose out to Microsoft?
 How did the leader loose out to the newbie?
 Reasons
 QC
 Technology
 Partners
 Government
 Underestimate Competitors
 How did the small airline manage to challenge the large one?
Reasons
 Cost management
 Segmenting the market effectively
 Good forecasting
 Independence
 Better understanding of market
 Clear strategy
 Branding
 Resourceful
Chapter 1 – Nature of strategic business analysis
 Strategic planning
 Approaches to strategic planning
 Levels of strategic planning
 Johnson, Scholes and Whittington Model
 Contextual application
 Understanding P3 syllabus

Strategic
planning

Strategic planning
 Strategic planning
 Matching organisation, resources and competence to environment
 Sustainable competitive advantage
 Considers stakeholders
 Integrates activities
 Gives direction
 Considers the whole organisation
 Long term planning
Strategic planning - advantages
 Influences future
 Provides direction
 Forces to look ahead
 Maximisation of resource utilisation
 Improves fit with the environment
Strategic planning - disadvantages
 Less relevant in times of crisis
 May ignore opportunities that arises later
 Bureaucracy develops
 Paralysis by analysis
 Cost
Strategic planning - important
 Many stakeholders impacted
 High capital expenditure
 Turn-around required
 Long lead time
Approaches to strategy
 Rational “top-down” approach
 Emergent strategies
 Incrementalism
 Freewheeling opportunism

Level of strategic planning

 Corporate strategy
 What business to be in/out?
 Business strategy
 SBU and mission, competitive advantage, product/market decision
 Functional strategy
 How each function supports the corporate and business strategy
Johnson, Scholes & Whittington
 Strategic position/analysis
 Strategic choice
 Strategic implementation
Strategic position
 Environment
 Capabilities – Resources and competence
 Culture, belief and assumptions
 Stakeholder expectations
Strategic choice
 Generation of options
 Evaluation of options
◦ Suitability to existing condition (SWOT)
◦ Feasibility - resources
◦ Acceptability - stakeholders
 Selection of option
◦ Judgement involved – not purely logical
 Options need to be considered for
◦ Corporate – scope and direction
◦ Business – how to compete
◦ Function – outsource / maintain
Options that are available
 Direction of growth (Ansoff matrix)
 How to compete (Porter)
 Method of growth (Acquisition / Organic)
 Evaluation of options
Strategy in action
 Organising and structuring
 Resources planning
 Managing change
Contextual issue
 Small business
 Multinational
 Public sector
 Not-for-profit sector
Small business
 Single market and limited product range
 Expectation of founder important
 Major problems to be faced
 Pressure from larger players
 Limitations in resource especially finance
Multinational
 Diverse market and products
 Problems and issues
 Relationship with HQ and SBU
 Resource allocation and co-ordination of activities between various SBU
 Control of business
Public sector
 Significant government influence
 Planning horizon driven by politics rather than market conditions
 Problems and issues
 Ideology
 Competition for resources – VFM
 Options limited by funding
 Strategic alliance key factor
Voluntary & not-for-profit
 Key objectives non financial
 Funding not linked to recipient of service
 Problems & Issues
 Values and ideology critical
 Competition for funds
Strategy lenses
 Johnson & Scholes – ways of viewing “strategy”
 Strategy as design
 Strategy as experience
 Strategy as ideas
Strategy as design
 Rational
 Logical process
 All information considered
 Deliberate approach
Strategy as experience
 Incremental
 Based on past
 Emergent approach
Strategy as ideas
 Innovation and new ideas
 Radically different and new development
 Sees strategy as opportunistic
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P3 Syllabus

Chapter 2 – External Analysis

PESTEL Model – National Museum / EMS
Porter’s National Diamond Model - ?
Convergence - ?
Porter’s Five Forces Model – BACTI / AutoFone
Life Cycle Model - Autofone
Strategic Group Analysis - ?
Market Segmentation - ?
Opportunities and threat (SWOT) – Ona / Greentech
PESTEL Model
Political
Taxation policy
Government stability
Foreign trade regulation
Ideology
Economical
Interest rates
Inflation
Business cycle
Unemployment rate
Disposable income
Energy availability and cost
Social
Population
Demographics
Social mobility
Income distribution
Lifestyle changes
Attitude to work & Leisure
Levels of education
Consumerism
Technological
Government spending on research
New discoveries
Industry focus on technological effort
 Speed of technology transfer
 Rates of obsolescence
 Ecological/Environmental
 Pollution
 Energy usage
 Legal
 Taxation law
 Employment law
 Monopoly legislation
 Environmental protection law
 Data protection law
Porter’s National Diamond

Porter’s National Diamond

 Factor condition
◦ Availability of raw material & suitable infrastructure
 Demand conditions
◦ The type of demand in home country and its levels
 Related and supporting industries
◦ Spatial proximity of upstream or downstream industries facilitates the exchange of
information and promotes a continuous exchange of ideas and innovations
 Firms strategy, structure and rivalry
◦ The push in the local industry that creates WCM
Why Proton Fails to deliver value?
 Factor
◦ Malaysia has the raw materials but lacked in human capital needed for the development
of cars
 Demand
◦ Malaysian demand is insufficient to allow for the establishment of economies of scale,
malaysian have a “tidak apa” attitude, which allowed poor quality to be accepted
 Related industries
◦ Malaysia did not have a ready set of suppliers for the manufacturing of car, each was
established 1st time
 Firms strategy - cheapest due to import duties
Convergence
 Impact of PESTEL on the industry
 Sector – public services
 Industry – group of firms selling the same product
 Supply-led = where producers try to see the connection between separate industries or sectors
 Market-led = where buyers see or want connections between separate industries/sectors
 Convergence in substitute – where one technology replaces another
 Convergence in complements – where 2 technologies from separate industries work better
together
 Porter’s five forces

Threat of new entrant

 the existence of barriers to entry (patents, rights, etc.)
 economies of product differences
 brand equity
 switching costs or sunk costs
 capital requirements
 access to distribution
 absolute cost advantages
 learning curve advantages
 expected retaliation by incumbents
 government policies
Bargaining power of customer
 buyer concentration to firm concentration ratio
 bargaining leverage, particularly in industries with high fixed costs
 buyer volume
 buyer switching cost relative to firm switching costs
 buyer information availability
 ability to backward integration
 availability of existing substitute products
 buyer price sensitivity
 differential advantage (uniqueness) of industry products
 RFM Analysis (Recency, Frequency, Monetary value)
Bargaining power of suppliers
 supplier switching costs relative to firm switching costs
 degree of differentiation of inputs
 presence of substitute inputs
 supplier concentration to firm concentration ratio
 threat of forward integration by suppliers relative to the threat of backward integration by firms
 cost of inputs relative to selling price of the product
 Rivalry
 number of competitors
 rate of industry growth
 intermittent industry overcapacity
 exit barriers
 diversity of competitors
 informational complexity and asymmetry
 fixed cost allocation per value added
 level of advertising expense
 Economies of scale
 Sustainable competitive advantage through improvisation
Subsitute
 buyer propensity to substitute
 relative price performance of substitutes
 buyer switching costs
 perceived level of product differentiation

Stages of lifecycle

Sales and
Profits ($)
Sales

Profits
Time
ProductIntroductionGrowthMaturity Decline
Develop-
ment
Losses/
Investments ($)
 Strategic Group Analysis
 Helps identify who the most direct competitors are and on what basis they compete.
 Raises the question of how likely or possible it is for another organization to move from one
strategic group to another.
 Strategic Group mapping might also be used to identify opportunities.
 Can also help identify strategic problems.
SGA Characteristics
 Extent of product (or service) diversity
 Extent of Geographic coverage
 Number of Market segments served
 Distribution Channels used
 Extent of Branding
 Marketing Effort
 Product (or service) quality
 Pricing policy
 Market segmentation
 Division of market into segements
 Size
 Homogeneous
 Measureable
 Accessible
 Sustainable
 Unique
Basis of segementation
 Geographic – B/C
 Socio-economic C
 Demographic C
 Psychographic C
 Benefit sought C
 DMU B
 Type of buy B
 Size of company B
 Industry B
Prepare segmentation for ACCA market
 Demographic
 AGE – 19-23 / 24 AND ABOVE
 GENDER – MALE/FEMALE
 AUDIT FIRM/CORPORATE/FULLTIME
 DEGREE ROUTE/ACCA ROUTE
 Geographic
◦ KL
 ◦ PJ
◦ DAMANSARA
◦ KLANG
Conclusion of analysis
 Identification of threats
◦ What are the threats
◦ How will it impact the competitors and the company
 Identification of opportunities
◦ What are the opportunities
◦ Profit making potential?
◦ Can it be exploited?
◦ Comparative ability of competition
◦ Analysis
 Item from case + Model + O/T = Answer
 One year period for certification indicates that it will be hard to enter & compete directly. This
makes it harder for new entrants.