E3 March 2012 answers

The Examiner's Answers – March 2012 E3 - Enterprise Strategy SECTION A Answer to Question One Requirement (a)(i) Final projections for FREE newspaper year ending 31 March 2013

Revenue Circulation Advertising Total revenue

Daily Informer £000s

FREE newspaper £000s

23,400 7,020 30,420

0 26,224 26,224

8,400 4,810

3,150 2,210

3,180 5,180 1,000 4,680 4,000 3,000 34,250 (3,830)

3,180 9,360 1,500 2,574 2,000 2,250 26,224 0

Comment

No sales revenue from FREE

Costs Journalists Other staff Production costs: Fixed Variable Advertising costs Distribution costs IT Third party pictures/photos Total costs Loss

Reduction of 125 jobs Savings of £2,600,000 No change £0.03 x 1,000,000 x 312 Increase of £500,000 Saving of 45% Saving of 50% Saving of 25% Break even

In order to break-even the FREE ‘Daily Informer’ (hereafter FREE) must generate sufficient advertising revenue to pay for £26,224,000 of costs.

The managing director of the Newspaper division, S, has stated that FREE should sell its advertising space at £7,000 per page.

Therefore, the number of pages of advertising required to be sold in order for FREE to break even is £26,224,000/£7,000 is 3,746 pages per year or 12 pages per day (3,746/312 days).

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Requirement (a)(ii) The requirement to sell 12 pages of advertising per day is a significant increase from the Daily Informer’s current total of three pages. FREE will be a different newspaper and it will target a different market segment. It will no longer have a broad focus and its content will be very different. FREE will not necessarily be a successful newspaper especially as it has to compete with ‘Opinion’ However, the factors which could enable FREE to sell 12 pages of advertising a day are: Circulation: this is projected to rise from the current level of 150,000 copies to 1,000,000 copies per day. This is a very significant increase which should be attractive to advertisers.

Further, FREE is offering its advertising for £500 a page cheaper than the Daily Informer which is another attraction.

As FREE is aimed at a different market segment this could also be attractive to advertisers if, for example, the readers in this segment have high spending power.

It is in the balance whether FREE will be able to sell enough pages to breakeven.

Requirement (a)(iii) M plc established the following strategic objectives in 2005: 1. Meet the needs of readers for reliable and well informed news.

If the Daily Informer is changed to FREE its character will change from one with a small circulation of 150,000 copies to a much greater circulation of 1,000,000 per day. The nature of the content will also change. However, these changes do not preclude FREE from providing reliable and well informed news: albeit for a different segment of newspaper readers.

The change to FREE is capable of fitting well with this objective.

2. Expand the geographical spread of M plc's output to reach as many potential newspaper and website readers as possible.

The increase in circulation implies that FREE fits very well with this objective.

3. Publish some newspapers which help meet the needs of native English speakers who live in countries which do not have English as their first language.

The proposed change to FREE does not address this objective.

4. Increase advertising income so that the group moves towards offering as many news titles as possible, free of charge to the public.

The change to FREE will increase advertising income from £7,020,000 to £26,250,000: a significant amount. The change fits very well with this objective.

In addition to these strategic objectives M plc has also developed the following financial objectives: (i) To ensure that revenue and operating profit grow by an average of 4% per year. st

The Daily Informer is forecast to lose £3,830,000 in the year to 31 March 2013. If the change to FREE is made and the required level of advertising sold it will contribute to this objective.

Although the outcome of the change to FREE is unknown the proposal fits with this objective.

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(ii) To achieve steady growth in dividend per share.

The proposed change to FREE does not directly address this objective. (iii) To maintain gearing below 40%, where gearing is calculated as debt/(debt plus equity) based on the market value of equity and the book value of debt.

The proposed change to FREE does not directly address this objective but may have a marginal favourable effect.

Summary The proposal to change to FREE does not contradict any of M plc’s objectives and broadly fits with four of them.

Requirement (a)(iv) Corporate Social Responsibility has been described as the firm’s obligation to maximise its positive impacts upon stakeholders whilst minimising the negative effects.

There will be a number of social consequences if the move to FREE takes place: Employment A number of people will lose their job against a background of poor economic prospects and unemployment amongst newspaper workers: (i)

125 journalists - although some journalists may find work on other newspapers, their general job prospects are not good.

(ii)

Other staff - the Daily Informer has forecast a £2.6 million saving in this area which equates to 70 jobs. The employment prospects for these people are not good.

(iii)

Newsagents - the new distribution arrangements mean that some low-paid jobs will be lost.

(iv)

FREE distribution staff - jobs will be created when distribution is oursourced to the transport specialist. This will offset, to an extent, the job losses in the newsagents.

(v)

Advertising - as FREE will sell 300% more advertising than the Daily Informer, this implies some increase in advertising jobs.

Generally, the employment effects of the change to FREE are adverse. However, the Daily Informer was losing money, and its circulation had fallen in the last ten years. It is possible that if the newspaper is not restructured it may have to close and many more jobs will be lost.

Environmental The change to FREE could have an environmental consequence of creating litter. On the credit side, FREE will use recycled newsprint instead of new newsprint.

Readership The Daily Informer caters for the ‘the family’ and has a broad focus. With the change in the newspaper’s character FREE will no longer appeal to these readers who may feel some sense of loss.

However, there are other newspapers in the UK which these readers can buy. Further, FREE will be serving the needs of an enhanced circulation, 1,000,000 daily readers as compared to the Daily Informer’s 150,000.

The societal consequences of changing the Daily Informer to FREE are significant. The change will cause adverse consequences as well as favourable ones. As society is made up of diverse opinions some people will judge the change to be a bad one: others will think it is a good one.

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Requirement (b) Porter's generic competitive strategy model suggests that a sustainable competitive advantage can come in the following ways: Cost leadership FREE will be operating in a very competitive industry. Production technology within the industry is mature and most competitors are operating with modernised facilities. So it is unlikely that this area will yield a cost advantage.

The move to FREE will cause an £8 million reduction in its total costs because of employing fewer journalists, and savings in other costs. This implies that FREE could achieve cost leadership but will this be sustainable?

All the innovations implied in the move to FREE can be imitated by its competitors which suggests that achieving a sustainable competitive advantage is doubtful.

Differentiation This strategy depends upon customers believing that FREE is superior to its competitors. In its current form of the Daily Informer it has established itself as ‘the family newspaper with the broad focus' which represents a differentiation strategy. If the change to FREE is implemented this form of differentiation will be lost.

FREE is envisaged as imitating a competitor 'Opinion' with which it will form a new market segment. These will be the only free national newspapers in the UK. This offers FREE the chance of being perceived as superior to its competitors which now fall into two categories:

• •

Opinion Nine other daily newspapers

FREE has the potential to differentiate itself from its competitors. However, it has to deal with two disadvantages:

• •

Opinion has first mover advantage If the move to FREE is successful and takes away business from the nine other daily newspapers, any, or all of them, could follow Opinion and FREE and become free newspapers

The remaining way FREE could persuade its customers that it is superior is by its content. If, for example, it employed some of the Star journalists from other daily newspapers these should help to build a perception of superiority and increase circulation. (This could increase the cost base and so require more advertising to be sold.) This policy is easily imitated by FREE’s competitors.

A differentiation strategy could yield a sustainable advantage for FREE. However, as its competitors could replicate many of the aspects of this strategy FREE will find it difficult.

Focus (Niching) This aspect of Porter’s model relies on FREE addressing the needs of a particular segment of the UK newspaper reading market. S’s insistence that FREE should imitate Opinion has limited its scope in following this strategy. The segment within which FREE will operate will consist of readers interested in: ‘....advertising, no in-depth reporting and .....the activities of footballers and other celebrities’. To be successful with a Focus strategy FREE has to:

• • •

Achieve a good understanding of its customers' needs for which it will need to carry out research Ensure that the market segment is large enough to sustain FREE Thoroughly understand its competitors

FREE has the disadvantage that the market segment within which it will be operating is very different from the one of which it has extensive experience and it cannot be sure at the outset that the segment is big enough to ensure FREE’s continued financial success. Further, there are no significant barriers to entry to stop any of the other nine daily newspapers following Opinion and FREE into this segment.

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A Focus strategy could offer FREE a competitive advantage. However, the paradox which FREE faces is that such an advantage is likely to invite imitation and is unlikely to be sustainable.

Requirement (c) Lewin's model consists of the following stages:

• • •

Unfreezing Change Refreezing

Unfreezing In this stage E will have to make the need for change so obvious that the staff will be able to understand the reasons for the change and accept it.

E should point to the Daily Informer’s decline in circulation over the past ten years and also that it is forecast to make a loss. This should show the staff of the undesirability of the newspaper carrying on as it is.

E can also point out that (s)he has been indirectly instructed by the Chief Executive to bring about the change.

E could also help the staff ‘unfreeze’ by increasing their knowledge about the competitive environment faced by their newspaper.

Change E will need to help the staff through the process of change by identifying for them, or helping them to identify for themselves what their role will be in FREE. E needs to tell the staff what the organisation’s expectations will be so that the staff can, in time, internalise them. E will need to make them aware of the character of FREE and the readership which it will address.

In the new environment FREE will employ fewer journalists than the Daily Informer did. It will also have fewer other staff. Therefore, E will need to establish new internal reporting procedures and relationships and train the staff in these.

E could also introduce new reward and incentive schemes which reinforce the new required patterns of behaviour and so assist the staff adjust to them.

Finally, E could review and possibly replace the management style within FREE. As FREE is a very different sort of newspaper to the Daily Informer it may be appropriate to have a different management style, for example, it will operate 38% less staff and there should be a consequent reduction in management numbers and possibly levels. If a new, possibly more informal style of management is introduced, part of its focus could be to help staff make the transition to their new environment.

Refreezing This part of the change consists of consolidation so that staff do not revert to previous patterns of behaviour. One way of helping the staff in this regard is by way of incentives. It could be made clear to staff that their remuneration is linked to their acceptance of the change: this might be done through a bonus scheme.

Staff could also be made aware that future promotions will be linked to their acceptance of change.

E could also encourage the persistence of the new behaviour by publicising success stories of staff or parts of the organisation that have embraced the change and benefited from it.

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SECTION B Answer to Question Two Requirement (a) JJJ's policy of ethical business consists of the following aspects: All of its products are sourced and made exclusively within Q The chief buyer has identified suppliers in country K which could undercut its existing domestic suppliers by 40%. If JJJ insists on sourcing all its requirements from within its home country this might reduce its profitability. However, the outcome of using imported components would depend on the attitude of its customers towards the policy of ethical business.

Thus, this aspect of JJJ’s ethical business policy could conflict with shareholder wealth maximisation.

Fair trade This is associated with a change in the terms of trade designed to adjust the balance between developed economies and developing ones. Currently, all of JJJ’s inputs are sourced within Q and would not be affected by a Fair Trade policy. However, if JJJ was to become an exporter to developing economies, a Fair Trade policy might imply that JJJ sells exports to these countries on terms which are more advantageous than those it would offer to developed economies.

Thus, this aspect of JJJ’s ethical business policy could conflict with shareholder wealth maximisation.

Legislative requirements JJJ’s policy with regard to this aspect should be one of compliance: that is, it obeys the law.

JJJ is carrying out what is required of it which is the same as any other organisation in Q. Therefore, this aspect of JJJ’s ethical business policy does not conflict with shareholder wealth maximisation.

Employees' working conditions JJJ pays ‘high regard’ to these. However, it would have to observe legislation within Q regarding these. If its policy does not extend beyond compliance it would not conflict with shareholder wealth maximisation.

However, if JJJ supplies employees with working conditions which exceed legal requirements this would conflict with shareholder wealth maximisation.

Summary In addition to the judgements above, the overall effects of JJJ’s ethical business policy should be evaluated. Even if the policy makes JJJ’s products more expensive and/or leads to reduced margins, this may not necessarily reduce shareholder wealth. This is because JJJ may attract customers it would otherwise not have because these customers share the values of the ethical business policy.

Requirement (b) It is obvious that business standards in K are different to those in Q: for example, the employment practices regarding children are very different in the two countries. JJJ could easily find itself in a position, if it decides to import components from K, where it is infringing its own ethical business policy. Thus, although this could reduce its product costs this may be at the cost of alienating some of its customers. If JJJ wants to avoid this it will have to modify

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its behaviour as regards: (i)

Suppliers in K

JJJ needs to point out to the suppliers in K the different business practices in Q. Although these suppliers may be operating entirely lawfully within K if JJJ’s customers became aware of the differing practices this could be very damaging for JJJ’s business. In order to more closely align its ethical business policy with practices in K JJJ could initiate the following: Child labour JJJ could make it a condition of doing business with suppliers in K that these suppliers did not employ anyone under the age of 16 in their factories. However, this could erode the cost advantage associated with K. Alternatively, JJJ could take a position of acceptance of K’s legislation whilst insisting on some minimum standards in K’s factories for the children, perhaps, with the eventual aim of parity between the two countries.

Health and safety Similar arguments apply here as to child labour. JJJ could insist that its suppliers in K work to the same health and safety standards as Q. However, this may be unrealistic and could erode the cost advantage. JJJ could take a position of acceptance of K’s position whilst insisting on some minimum standards in K’s factories for the children.

Fair trade As this is an integral part of JJJ’s ethical business policy it should influence the prices that JJJ (situated in a developed economy) is willing to pay suppliers in K. (ii)

Suppliers in Q

If JJJ sources components from country K this implies that some or all of its suppliers in Q would lose all or some of their business with JJJ. Importing from K is an obvious conflict with JJJ’s existing ethical business policy which prescribes that all of its products are sourced exclusively within Q. This may be a factor that JJJ suppliers will be quick to point out.

However, although suppliers in Q will be damaged by this change, suppliers in K will benefit.

As JJJ is situated in a liberal developed economy it will recognise that its import of components from K is an aspect of international free trade. Therefore, JJJ could justify its actions on this basis.

Although JJJ’s new policy damages suppliers in Q, because of the benefits to suppliers in K and its shareholders it is still an ethical policy albeit a different one. Such a justification is unlikely to be acceptable to JJJ's suppliers in Q. (iii)

Customers in Q

JJJ should point out to its customers that sourcing components from K confers the following advantages: Price: because of K’s cost advantage JJJ is able to keep its prices down for its customers Necessity: JJJ has to find cheaper inputs in order to compete against the imports which have been taking market share from it. Some of its competitors are probably sourcing components from K already so if JJJ follows suit they will be competing on an equal basis.

Employment: if JJJ buys components from K this will create/sustain employment within K. If JJJ does not import from K it may be forced to close which could cause unemployment in Q and JJJ's customers in Q would be deprived of a source of supply.

Child labour: JJJ has the opportunity to improve conditions for these children by imposing some minimum standards on its suppliers in K. Health and safety: JJJ has the opportunity to improve conditions for workers by imposing

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some minimum standards on its suppliers in K. JJJ should acknowledge that there are areas which could compromise its ethical business policy. However, it should be assertive and insist on some minimum standards from its suppliers in K. JJJ should state that, on balance the positive factors outweigh the negative and it is possible to trade with K and maintain its ethical business policy. (iv)

Shareholders

JJJ’s shareholders ‘value its ethical business policy’ although the extent of this feeling is unknown. However, it is likely that some shareholders will be offended if they learn of the revision to the policy. As the sourcing of components is not a transparent activity JJJ must decide whether it will inform its shareholders of the revision. CIMA’s ethical code provides a good guide here: ‘professional accountants....(should be)...straightforward and honest in all business and professional relationships’. Therefore, if JJJ accepts this guidance it should inform its shareholders of the change to its ethical business policy.

JJJ should also point out that its change of policy has been prompted by its decreased profitability and declining competitiveness. JJJ has a duty to act in the best interests of its shareholders and balance the two aspirations: shareholder wealth maximization and its ethical business policy. JJJ is also trying to improve the working conditions of the people working for its suppliers in K. Its new policy is a compromise between the two, in this case, competing aspirations.

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Answer to Question Three Requirement (a) The SMART model is an approach designed to make aspirational objectives explicit.

The objectives which have been set for the new control system are:

• • •

To develop their the Heads' motivation To encourage the Heads to accept responsibility for achieving strategic and operational targets To encourage activities that generates income for external activities

However, as drafted, they are statements of intent which are open to multiple interpretations.

The SMART model could help, for example, as follows: Specific: the objectives should be stated in a clear way so everyone understands them. For example, the first objective is concerned with ‘motivation’: but what does this mean? It could be made specific by attaching criteria to it. For the Head in charge of student experience ‘motivation’ could be defined, for example, as ‘increasing the pass rates on all courses to the national average’.

Measurable: the objectives need to be quantified to enable control to take place. For the Head managing profit-making activities the third objective could be enhanced to state: ‘new activities should be introduced to raise an extra £1 million profit a year’.

Attainable: any objectives which are set should be within the reach of those trying to achieve them. If unachievable objectives are set it will demotivate the managers and be a waste of time and money. This would also cast doubt on the process of objective setting.

For example, an additional £1 million profit a year may be attainable for MMM if it currently makes £10 million from these activities: £100 million is very unlikely to be attainable.

Relevant: the objective should be one that is appropriate to the organisation’s mission statement and its stakeholders. As regards MMM, its mission statement is very vague so arguably almost any objective would be relevant for it and the three that have been set for the new control system are relevant. For example, 'to develop the Heads' motivation' in achieving strategic and operational targets would contribute towards the mission 'to be the best'. In this sense the objective is relevant.

However, when the context of its stakeholders is considered some objectives could be seen to be irrelevant. For example, an objective ‘eliminate world poverty’ is outside the scope of a university’s concerns being more properly an objective for governments and international organisations. Such an objective would not be relevant for MMM. Time-bound: the objectives need to have a time boundary; a date should be set for their achievement. For example the objective ‘to encourage activities that generate income from external activities’ and ‘raise an extra £1 million profit a year’ needs to state when this is supposed to happen. Without a boundary the objective is meaningless and control over it cannot be exercised. The objective needs to be modified, for example by adding ‘.......by the end of 2012’.

Requirement (b) The executive board is faced with the complex task of changing the university’s culture and introducing the new department structure. It will have to deal with the following: (i)

Culture

The executive board does not own the university’s culture and there is no simple or quick way of changing culture. However, the executive board does have the ability to influence the culture and it could do this in a number of ways by:

•

Its announcements: for example, communicating with its staff to explain and emphasise the importance of the new control system.

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•

Its reward system: for example, by orientating its staff's personal objectives to those of the university and paying staff for achievement.

•

Its symbols: the university could allocate money for new signage; it could improve some of the buildings that the new departments will occupy.

(ii)

New department structure

The departments are going to reduce in number from six to three. This implies a reorganisation of resources. MMM currently employs six Heads to manage its six departments: in the new structure it only requires three. MMM will have to make a decision about the future of the surplus Heads.

The staffing establishment of all the new departments will have to be reviewed as six departments are decanted into three. This important task will require a separate personnel strategy.

The changes will need to be planned within the context of a budget which delineates both the resources allocated to the tasks and the timescales for their completion. Thus, the budget should state what money is to be spent, how, where and by whom.

Communication As the university is to be organised into three bigger departments, consideration will need to be given as to the internal communications within and between these departments. This theme could be developed within training.

Training As the university is adopting a new organisational structure it will be necessary to inform its staff what this implies for them and how the university will function in future. Therefore, training will need to be organised.

Resistance to change It is likely that the changes proposed by MMM will encounter some resistance. MMM will have to plan for ways of dealing with this. It may wish to use the six-fold approach suggested by Kotter and Schlesinger. However, it should be mindful that two of these approaches, manipulation and coercion are ethically dubious.

Requirement (c) Change agent In order to progress these changes MMM will need to assign the responsibility for implementation to a person or a group of people. The person/people with this responsibility could be assisted by a change agent.The change agent could come from within the university or could be an external person or organisation, for example, a management consultant could be employed. However, the change agent's role, ‘per se’, would not be the implementation of the changes: rather it would be the facilitation of them.

A change agent would normally be able to assist in the change process in MMM by:

•

Defining the problem: for example, what to do with three 'surplus' Heads.

•

Examining the causes of the problem(s): the reduction in the number of departments.

•

Diagnosing how this can be overcome: offering redeployment.

•

Offering alternative solution: severance terms.

•

Devising implementation strategies: when, how, where the surplus Heads will be redeployed.

•

Disseminating what has been learnt from this change process: MMM could use this experience to help it with future changes.

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Answer to Question Four Requirement (a) BBB currently has budgetary control and standard costing information to support planning and decision-making. This is inadequate because the ‘‘management board has stated that it ‘urgently needs additional information to support its planning and decision-making’’’.

The current information has a number of inadequacies: Internal focus The current output concentrates on what is happening within BBB. The budget reporting is very detailed, probably too detailed. The variance analysis may yield some control information but given the nature of BBB and its business much of this reporting may well be not ‘relevant’.

Although the accountant produces a monthly profit figure this is not analysed or compared to historical or forecast performance. This means it is withour context which restricts its usefulness for planning and decision-making.

Deficiencies There are many deficiencies in BBB’s current information and these relate to the absence of an external focus. Thus: •

BBB is unaware of the total size of its market niche

•

It does not know its market share (BBB estimates that 'it is the second or third largest company')

•

BBB is unsure why it wins new business: high quality or price

•

BBB is unaware of market prices: 'sometimes… clients complain they are overcharged'

These deficiencies inhibit BBB's ability to meet the needs of its present and future customers.

Costing/Pricing When pricing work for clients, BBB uses: • • •

A standard uplift Absorption costing A blanket overhead recovery rate

This approach is very introspective and inhibits flexibility, for example, in quoting for marginal work/new products/promotional work/’one-off’ situations. It has led: to complaints of overcharging, possible undercharging.

BBB’s current uniform approach to costing and pricing may not be the best foundation for interacting with its market. It reflects an internal focus rather than an external one: What do our customers want? What are our competitors doing?

Summary The usefulness of BBB’s current information provided to support planning and decision-making is restricted because of: •

Its internal focus

•

A lack of information about its markets, clients and competitors

•

Its approach to costing and pricing

Therefore, additional information addressing these deficiencies is required.

Requirement (b) The information available to the management board would be improved by addressing the drawbacks identified above: the internal focus, the lack of market, client and competitor information and BBB’s costing and pricing strategies.

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Internal focus BBB should adopt the external approach advocated within Strategic Management Accounting. It should critically review its current management accounting output and evaluate whether the resources devoted to it could be better employed seeking information about its external environment. The current budget reports are very detailed and the variance analysis may be of limited value. For example, calculating labour rate variances when BBB only employs 15 staff, who work on creative and support activities and are salaried may not give any information that could not be gleaned by ‘Managing by Walking Around'.

The tenor of BBB’s variance analysis seems more suited to a traditional manufacturing organisation not an advertising agency. There appear to be grounds for abandoning it, i.e. to save management time and money. As an alternative BBB could invest in, from time to time, an analyses such as Five Forces and PEST which could add to their understanding of its external environment. The results of such analysis could be reported within the normal management accounting cycle or on an ‘ad hoc’ basis as necessary.

Markets, clients and competitors Currently BBB is unaware of the size of its market and its relative market share. BBB could commission market research or it may be able to buy research reports which would inform it of both of these: market size and relative market share could form a part of the monthly reporting package.

BBB is unsure of the reasons it wins business: is it because of ‘high quality’ or ‘price’?

This indicates that BBB is unaware of its competitors’ strategies and its customers' preferences.

It could attempt to overcome this first deficiency by carrying out competitor analysis which CIMA defines as the ‘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’. Key findings from competitor analysis could be made available as and when required. Similarly, competitors' costs could be reported on.

BBB could also research and report upon the attributes which customers value. These could assist BBB to understand why it wins business and would help its planning and decision-making.

All these innovations could be reported upon: • • •

Periodically Occasionally A combination of both

BBB's management accounting reporting should be driven by the needs of its users not its provider.

Costing and pricing BBB’s approach to both of these important matters seems stereotyped and may be leading to sub-optimal decisions. Although absorption costing is a suitable method for external reporting it may not be the best method for decision-making. Alternatives which could be used to advantage include Activity Based Costing, Target Costing and Marginal Costing. These methods could underpin alternative pricing policies.

BBB should recognise that pricing (an external orientated decision) should not necessarily be subordinated to costing (an internally orientated decision).

In order to improve the management accounting information available for planning and decisionmaking BBB should recognise that it can use different costs (and prices) for different purposes.

BBB should also be willing to incorporate reporting on qualitative factors, such as Quality, Innovation and Customer Satisfaction which may prove to be more relevant for planning and decision-making purposes than traditional quantitative reporting.

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Requirement (c) CIMA has defined Benchmarking as ‘The establishment, through data gathering of targets and comparators, through whose use relative levels of performance (and particularly under performance) can be identified. By the adoption of identified best practices it is hoped that performance will improve’. There are four ways that BBB could carry out benchmarking: internal, functional, competitive and strategic. The essence of all the approaches is that BBB will have comparative information against which it can judge its performance.

If BBB commits to a benchmarking system its planning and decision-making will be widened to include an external dimension. Post-benchmarking BBB may find that it is able to reduce its costs and, possibly, increase its clients’ satisfaction.

By gathering information from outside itself BBB will increase its awareness of its competitors’ behaviour and strategy. This would give BBB the opportunity of imitating successful strategies and avoiding ones which could be harmful.

Benchmarking could also help BBB overcome any complacency it has about its performance. It could also help the management board better understand its business model and how BBB creates value.

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