P3 smart revision notes

ACCA P3 – PROFESSIONAL LEVEL Business Analysis

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

ACCA P3 - Business analysis

These notes are not intended to cover the whole of the ACCA P3 syllabus

© Darren Sparkes, 2009

1

Contents

Page no.

A message from Darren…………………………3 Paper 3 Examiners Approach…………….….... 4 Extracts from the Examiners report Dec 08…...5 Examination Technique……………….…..……..7 Background and examination format..…..........10 Syllabus Overview………………………...........11 Strategic Planning………………………...….....12 Mission and Objectives…………………………13 Business & Professional Ethics..………….…...14 Internal Analysis……………….……………..…15 External Analysis……………..………………....16 Strategic Options……………………….……….18 Method of Growth………………………............19 Portfolio Analysis…………………………….….20 Strategic Choice & Change Management…....21 Marketing………………………………………...22 Organisational Structure…………………….….23 International Market Place.…………….……....24 Business Process Change…….…..…………..25 Information Technology……..…….……..........26 Quality………………………………….……......27 Project Management………………………...…28 Role of Finance………………………………...29 Review and Control………………………..…..30 Strategy and People……………………………31

ACCA P3 – Business Analysis

These notes are not intended to cover the whole of the ACCA P3 syllabus

© Darren Sparkes, 2009

2

Thank you for requesting a copy of my ‘SMART Revision 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.

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.

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 Institute’s 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 can’t, you’re right.’ (Henry Ford) Regards, Darren Sparkes

ACCA P3 – Business Analysis

These notes are not intended to cover the whole of the ACCA P3 syllabus

© Darren Sparkes, 2009

3

Approach Required ‘Differentiation is important to individuals seeking to pass a management and strategy examination.

It is the ability to link strategic and financial analysis; it is the confidence to use creative thinking in the way you answer a particular problem…with alternative ways of viewing and solving a problem’ Ralph Bedrock (Paper 3 Assessor)

There is no absolutely correct answer – candidates who provided coherent justification… awarded appropriate marks Steve Skidmore (P3 Examiner)

ACCA P3 – Business Analysis

These notes are not intended to cover the whole of the ACCA P3 syllabus

© Darren Sparkes, 2009

4

Extracts from the Examiners comments December 2008 In • • • • • • • • •

general: Performance showed an improvement on the previous sitting Answers much more within the context of scenarios than previous sittings Financial and quantitative data figured more prominently in answers The three optional questions were equally popular Q1b was biggest problem for candidates where many answers did not address the question Q1a (PESTEL) so popular it lead to some candidates over-answering it, leading to time problems As a result, answers to the final optional question often appeared rushed Vast majority of papers were well written and well presented Hand writing still remains a problem for some – it is no use having great ideas if no-one can read them

Section A - Question 1  Q1a – there were plenty of clues in the case study, most of which featured in candidates answers, with the exception of legal responsibilities  Some candidates strayed onto internal issues (strengths and weaknesses) which were not given marks  Q1b – The case study is rich in material to support the cultural web approach • Asked to explain the three strategy lenses – Some candidates very well prepared – showed great understanding and gained full marks - Others showed very little knowledge and only scored two or three marks.

• Overall many candidates provided good answers to question 1 • Reference to the case study context was much better than on previous papers

ACCA P3 – Business Analysis

These notes are not intended to cover the whole of the ACCA P3 syllabus

© Darren Sparkes, 2009

5

Section B  Many more candidates than before supporting their argument with financial analysis  Many who used financial data in part a failed to do so in part b  The model answer suggests that MMI should not acquire the company – many candidates approved the acquisition with justification through IT synergies – credit was given for this approach  Candidates do not always have to agree with the examiner’s analysis to gain the marks on offer!

• Question combined the themes of project management, quality and the systems development life-cycle • Part a relatively straight forward which candidates either knew or did not • Consequently, some candidates scored very few marks whilst others gained full marks • Part b answered relatively well – many candidates giving a wide range of options.

• Part c – often overlap with part b • Many candidates did not clearly justify their answer • In some cases not enough points made to get the marks on offer • Part b – relatively difficult in the time-constrained pressurised environment of the examination • Well answered – many scoring eight or more out of ten.

• This was very heartening!!!

ACCA P3 – Business Analysis

These notes are not intended to cover the whole of the ACCA P3 syllabus

© Darren Sparkes, 2009

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Therefore, to pass P3 learn from the examiners comments: • Analyse the requirements – verbs and keywords • Planning – think before you write the answer • Application, application, application • Theoretical answers score few marks • You can only apply what you know – learn it!

• Use and interpret the numbers (they are usually easy calculations so it’s the interpretation that gets the marks) • Time management – the marks are your guide

ACCA P3 – Business Analysis

These notes are not intended to cover the whole of the ACCA P3 syllabus

© Darren Sparkes, 2009

7

Examination Technique to give the Examiner what he wants 1. USE 15 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 scenario 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

ACCA P3 – Business Analysis

These notes are not intended to cover the whole of the ACCA P3 syllabus

© Darren Sparkes, 2009

8

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 8. ANALYSE THE SCENARIO  Make brief notes in your plan under relevant headings from models/tools/theories and requirement  Find relevant numbers for calculations 9. WRITE UP YOUR ANSWER TO MAXIMISE MARKS  Layout calculations in a logical and easy to mark format – put them in an appendix in your answer plan  Add value to calculations by asking ‘SO WHAT?’  Use as many headings as possible to give the answer structure  Short sentences in short paragraphs  Work on 2 sentences for each mark – 1 sentence making your point/answering the question + 1 sentence for application  A third sentence giving some ‘SO WHAT?’ could get you another mark  Leave a blank line between points/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

ACCA P3 – Business Analysis

These notes are not intended to cover the whole of the ACCA P3 syllabus

© Darren Sparkes, 2009

9

    Exercise professional judgement



Select relevant data

 

Determine appropriate techniques

Candidate Requirements

 

Apply knowledge and skills

Assess the strategic position of the organisation Evaluate strategic choices available to an organisation Discuss how an organisation might go about its strategic implementation Model and redesign business processes and structures to implement and support the organisation’s strategy taking account of customer and other major stakeholder requirements Integrate appropriate information technology solutions to support the organisation’s strategy Apply appropriate quality initiatives to implement and support the organisation’s strategy Advise on the principles of project management to enable the implementation of aspects of the organisation’s strategy with the twin objectives of managing risk and ensuring benefits realisation Analyse and evaluate the effectiveness of a company’s strategy and the financial consequences of implementing strategic decisions The role of leadership and people management in formulating and implementing business strategy

Paper Background

Objectives of the paper

Format of paper

Section A 50%    

Compulsory Major case study Usually four parts Case will include numbers

 

Choice of two from three Each question likely to include two parts Will include short scenario May include numbers

Section B 50%

  ACCA P3 – Business Analysis

These notes are not intended to cover the whole of the ACCA P3 syllabus

© Darren Sparkes, 2009

10

Governance and Corporate Social Responsibility

Syllabus Overview

Cultural Web

SMART

Mission and objectives Purpose, Strategy, Policies, Values

Mendelow's power-interest matrix

Stakeholder Analysis

PEST

Resource audit

External Analysis

Porters 5 Forces

Internal Analysis Core competences

Corporate Appraisal

Porters Diamond Product Life Cycle

Benchmarking

SWOT

Porter’s Generic Strategies

Porters Value Chain CSF’S BCG, PSPM, DPM, APD, Mkt attract/SBU strength

Portfolio analysis

The Strategy Clock

Strategic Options

TOWS Matrix

Withdraw

Ansoff’s productmarket matrix

Risk Acquisition vs organic vs joint development

Suitability, Acceptability, Feasibility

Strategic Choice

Cost/Benefit Change Management

International Trading

HRM

IT

Structure

Project Management

Implementation Sources of Finance

Marketing

Quality Software Quality

Review and Control Business Process Change

Not for Profit Organisations

Software Solutions Financial Measures

Investment Appraisal

Non-financial Measures BSC

ACCA P3 – Business Analysis

These notes are not intended to cover the whole of the ACCA P3 syllabus

© Darren Sparkes, 2009

11

Integrates activities

Competitive advantage

Position Analysis

Corporate = Strategic level

Relationship with environment

Whole organisation

Business = Tactical level

Interdependant

Functional = Operational level

All stakeholders Long-term

Choice

Strategy 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      

    × ×

‘… a course of action, including the specification of resources, to achieve a specific objective

Alternative

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

Emergent strategy

E.G. Honda’s entry into the USA, 3M ACCA P3 – Business Analysis

Johnson, Scholes & Whittington

Design

Strategic Lenses

Action

Experience

Ideas

Strategic Planning

Purpose

 

Rational ‘Top Down’ Approach

  

Mission & Objectives

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

Corporate appraisal Strategic options



Strategic choice

 

Implementation

 

Review



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

These notes are not intended to cover the whole of the ACCA P3 syllabus

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

© Darren Sparkes, 2009

12

Purpose

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

   

Strategy

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 Values

‘… the most generalised type of objective which can be thought of as its raison d’etre.’

Objectives

Mission Statement

Culture

Published version of the Mission

Stakeholders

Mendelow’s Power – Interest Matrix Low

Low

Interest

High

A

B

Minimal Effort

Keep Informed

Give Direction

Education / Communication

High

Mission and Objectives

C

D

Keep Satisfied

Key Players

Intervention

Participation – Keep Close

     

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.

Power

‘The way we do things around here’

If results in these areas are not adequate, the organization's efforts for the period will be less than desired."

Cultural Web – cultural paradigm Routines & Rituals Stories & Myths Symbols Power structure Organisation structure Control systems

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 Efficiency

Economy

Effectiveness ACCA P3 – Business Analysis

These notes are not intended to cover the whole of the ACCA P3 syllabus

© Darren Sparkes, 2009

13

Equal opportunities

Corporate Governance     

C O P P I T

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

Competence

Consumer health and safety

Objectivity Professional due care Politeness

Bribes Safety in the workplace

Integrity Technical Standards

Environment

Professional Ethics

Innovation & ideas from close links to community

Multiple stakeholder obligation

Reputation and branding

Competitive advantage Recruitment

Shaper of society

Views on Business Ethics

Business and Professional Ethics

Small company advantage in the supply chain

Attract ethical investor funds

‘The business of business is business’ (Shareholder View Friedman)

Long-term Self-Interest / Stakeholder view

Avoid future Government policy

Benefits to Business Reduced risk

Honesty in Advertising

Corporate Social Responsibility

Johnson, Scholes & Whittington – Ethical Stances Long-term shareholder interest

Fair Trade

Sustainability

‘Self control, not self interest’

Short-term shareholder interest

Issues

Firms should acknowledge their social responsibilities.

Potential problems

No universal acceptance of morals & ethics

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.

Conflict of CSR with shareholder wealth    

Reduced revenues Increased costs Diverts funds from shareholders Distracts management

These notes are not intended to cover the whole of the ACCA P3 syllabus

© Darren Sparkes, 2009

Competitive disadvantage

Disclosure of business information

Deciding what is ethical ACCA P3 – Business Analysis

Bad publicity from monitoring and enforcement

14

Same as competitor / easy to copy

        

Different to competitor / difficult to copy

Resources

Basic

Unique

Competences

Threshold

Core

Manpower Management Money Make-up Machinery Methods Material Markets Management Info

Strategic Assets     

9 M’s

Strategic Capability – Resource audit

Valuable Rare Can’t be copied Not substitutable Give access to wide range of markets

      

Uncover Knowledge Discover Knowledge Capture Knowledge Share Knowledge Distribute Knowledge Lever Knowledge Maintain Knowledge

Explicit

Porter’s Value Chain

Internal Analysis (Strengths & Weaknesses) Benchmarking 1.

2.

3.

4.

5.

6.

7.

Select processes to be benchmark Assign responsibilities Choose type of benchmarking Choose partner Interaction Collect data Implement changes

Roving role Temporary roles Selection based on skill & competences Input into own development Separate & relevant incentive schemes Remote locations Flexible working ACCA P3 – Business Analysis

Competitive

…identify activities within the firm which add value to customers and those that do not

Primary Activities     

Value Networks

Knowledge Workers       

Reputation

Innovative Ability

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

Knowledge Management Tacit

Architecture

Internal

Inbound Logistics Operations Outbound logistics Marketing and sales Service

Support/secondary activities    

Procurement HRM Technology development Firm infrastructure

Uses    

Streamline linkages Eliminate non-value added activities Business Process Re-engineering Benchmark key processes

Process/Activity BEST IN PRACTICE These notes are not intended to cover the whole of the ACCA P3 syllabus

© Darren Sparkes, 2009

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     

    

Economic Globalisation Economic cycle Interest rates Inflation Employment levels Exchange rates

      

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

    

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

    

PESTEL analysis (External, Environmental analysis)

Political Taxation Government policy Foreign trade regulations Protectionism Globalisation

External Analysis (Opportunities and Threats)

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



Competitive Rivalry



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

Power of Buyers

External Analysis (Opportunities and Threats)

    

Legal Health And Safety Employment Consumer protection Monopoly legislation Industry watch dogs

Threat from Substitute Technologies 

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

ACCA P3 – Business Analysis

Porter’s 5 Forces (Competitive, Industry analysis)

Ecological Globalisation Pollution Energy usage Disposal of waste Sustainability of resources

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

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

These notes are not intended to cover the whole of the ACCA P3 syllabus

© Darren Sparkes, 2009

16

Problems:    

No common shape Unpredictable Self-fulfilling prophecy Product orientated – ignores market

Firm structure, strategy, rivalry

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

Porter’s Diamond

Factor conditions

‘National Competitive Advantage’

Demand conditions

Related and supporting industries

Balance the portfolio

External Analysis (Opportunities and Threats) Corporate Appraisal Internal + External Analysis = Corporate Appraisal = Position Appraisal= SWOT Analysis Strengths

Weaknesses

Internal Analysis

INTERNAL

Factors specific to the organisation

External Analysis Factors open to all in the industry ACCA P3 – Business Analysis

EXTERNAL Opportunities

Threats

TOWS These notes are not intended to cover the whole of the ACCA P3 syllabus

© Darren Sparkes, 2009

17

High

Hybrid

Differentiation

Focused Differentiation

To beat the five forces

Porters Five Forces

PESTEL

Porter’s Generic Strategies Benefit

Low

Strategic Clock

Low Price

No Frills

Fail

Price

Low

Method of Growth? (See next page)

Fail

Differentiation



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

What Basis?

Strategic Options What Direction? competitive products,

Do nothing / Withdraw

complementary products, by-products

Vertical Integration Advantages  Economies of combined ops  Economies of control and coordination  Avoiding the market  Tap into technology

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

Beware of ‘Stuck in the Middle’

Definition of market Ignores factors such as competitors Suggests strategies in isolation

Horizontal diversification –

Overall Cost Leadership

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

Positioning view

Resource Based View

 

Market Facing

High

Limitations   

Strategically develop organisation in line with environment

Fail

Disadvantages  Increased operational gearing  Reduced flexibility to change partners  Capital investment needs

Ansoff’s Matrix Products, existing and new (PEN) Markets, existing and new (MEN) 

Market Penetration (cost reductions,

price reductions, advertising, minor product modifications) Conglomerates  Product Development (exploit Advantages existing customers, RnD, buy-in and badge, Disadvantages  Flexibility JV’s, Licensing)  No additional benefit to  Quick growth shareholders through  Market Development (new markets  Access to capital synergies such as foreign markets, new segments such  Portfolio effect  No operating advantages as adult to child or industrial to consumer)  Avoidance of anti Diversification (related = vertical monopoly legislation integration or unrelated = conglomerate ACCA P3 – Business Analysis These notes are not intended to cover the whole of the ACCA P3 syllabus

Uses   

Analyse rivals Suggest own strategy SBU level strategy

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

   

Risks Product Market Operations and management Financial © Darren Sparkes, 2009

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Advantages       

Disadvantages

Quick Lower risk Overcomes barriers to entry Same number of competitors Can block a competitor Possible synergies Possible under-valuation of target

 

 

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



Disadvantages

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

Acquisition versus Organic growth

Porter’s 3 Tests for Acquisitions   

Advantages     

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

    

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

Organic Growth Divestment

Possible synergies         

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

 

Method of Growth?

Withdrawal

Joint Development Methods

Strategic Alliance Licensing

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 ACCA P3 – Business Analysis

Demerger   

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

Quick Higher price due to strategic value

Giving the right to exploit brand, recipe, process etc for a share of the profits

    × × × × × ×

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

Management Buyout (MBO) 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

These notes are not intended to cover the whole of the ACCA P3 syllabus

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? © Darren Sparkes, 2009

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

Business Sector Prospects

Directional Policy Matrix Unattractive

BCG Matrix Relative market share

High High Market growth

Low

STAR Build then Hold Losses to profits, negative to positive cash

PROBLEM CHILD Build or Divest Losses, negative cash

CASH COW Hold then Harvest Profits and positive cash

DOG Harvest then Divest Profits to losses, positive to negative cash

Low

Weak

Withdrawal

Company’s Competitive Avge capabilities

Phased withdrawal

Average Phased withdrawal Proceed with care Proceed with care

Attractive

Double or quit

Try harder

Growth Growth

Strong

Cash Generation

Leader Leader

Public Sector Portfolio Matrix Value for money

High

Low

High Public sector Star

Public need & Funding effective ness

Political hot box

Portfolio Analysis Market Attractiveness/SBU Strength matrix Business strength/Competitive position

Golden Fleece

Back drawer issues – discontinue

Low

Low High

Opportunities to add value

Ballast

Strong

High

High

Heartland Edge of Heartland

Long-term Industry attractiveness

Med

Ability to Add value Low Low

Alien Territory

ACCA P3 – Business Analysis

Average

Weak

Enhance Lead Diversify Re-invest

Hold leadership Leverage strengths Use EOS

Maintain leadership In attractive segments

Avoid ‘me too’ Differentiate Re-invest

Segment between growth and harvest

Harvest Price-up Cut costs Line pruning

Segment focus Seek advantage

Harvest through sale of business

Divest/Liquidate

Value trap These notes are not intended to cover the whole of the ACCA P3 syllabus

Ashridge Portfolio Display – Corporate Parents

© Darren Sparkes, 2009

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Acceptability

Suitability

Feasibility

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

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

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

Strategic Choice

Risk `

Cost/Benefit

Strategic Drift Strategy

Environment

Types of Change Transformation Incremental

Extent of change

Evolution

Realignment

Driving Forces

Change Management Revolution

Strengthen

Unfreeze

Change Kaleidoscope

Diversity

ACCA P3 – Business Analysis

Weaken

Reconstruction

Power

Preservation

Restraining Forces Social Factors

Time Scope

Personal Factors

Adaptation

Speed of Change Big Bang

Job Factors

Lewin’s Force Field Analysis

Readiness

Capability

Capacity

     

Change

Organisational Factors

Refreeze Supporting Mechanisms

Participation Education & communication Facilitation & support Negotiation Manipulation Coercion

These notes are not intended to cover the whole of the ACCA P3 syllabus

© Darren Sparkes, 2009

21

Coordinated marketing

Implementation Issues Customer needs

Profitability

Analyse environment and competitors – PEST / Porter’s five forces

Marketing Strategy

Target Markets

Kotler’s Four Pillars A I D A

Marketing …identify, anticipate and satisfy customer requirements

Awareness Interest

…division of the market into homogenous groups of potential customers who may be treated similarly for marketing purposes

Desire Action Production

Physical Evidence Processes

Communications Mix: Advertising Sales promotion Public relations Personal selling



Place

  

Distribution channels Market coverage Outlet locations Warehousing

Marketing Mix – 4P’s Price

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

Price levels Discounts Allowances Payment terms Delivery options

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

Product Product Life Cycle Product to meet needs

ACCA P3 – Business Analysis

Sales

 

   

Marketing

Promotion 7 P’s

Product

Firm’s orientation

People

    

Market Segmentation and Target Market

Marketing Research

Geographic Demographic o Age o Gender o Income o Family life-cycle Social class Psychological Education Hobbies Undifferentiated

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

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

Differentiated Concentrated

Desk research (secondary data) Internal Accounts, Sales reports, Customer complaints

External CSO reports, Business monitors, Trade journals, newspapers

Product mix

These notes are not intended to cover the whole of the ACCA P3 syllabus

© Darren Sparkes, 2009

22

Implementation Issues

Divisional 

Entrepreneurial    × × ×

Functional

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 silo’s Few products & markets

Centralised vs Decentralised S T O P T I E S

    × × ×

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

Matrix     × × ×

Types of Structure

Strategy

Network Organisation

Technology People

Planning and control Tasks Ideology Size

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

Virtual Organisation

Outsourcing

Objectives

Environment

Breakdown of silo’s Shared knowledge Skill development Innovation and creativity Dual command Dilution of functional authority Time consuming meetings

  

Direct supervision

  

Internal market

Organisational Structure

Planning processes

Mintzberg’s Structural

Performance management

Managing Business Units

Culture Self-control

Disadvantages:  Loss of control  Loss of congruence  Duplication of effort  Extra costs of control

ACCA P3 – Business Analysis

External Relationships



Strategic Apex Technostructure

Strategic Planning co.s

Synergy Manager

Financial Control co.s

Portfolio Manager

Strategic Control co.s

Parental Developer

Middle Line Operating core

These notes are not intended to cover the whole of the ACCA P3 syllabus

    × × × ×

Support Staff

   

Reduced cost Skill shortages Flexibility Focus on core business Loss of control Supplier dependency Confidentiality Loss of in-house skills

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

© Darren Sparkes, 2009

23

Country specific costs Economies of scale

Political Influences

Acquire resources

Cost advantages

Convergence of Markets

Political Diversify sources of sales & supply

Expand sales

Legal Economic

Social/cultural

Reasons for growth in international business

Objectives of international growth

Trend to Global products

General risks

Technological

Competitive Forces

Exporting    × × ×

The International Market Place

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

Methods of International Expansion

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

Global    

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

Multi-Domestic  

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

Hybrid     

Foreign Direct Investment     × × ×

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

ACCA P3 – Business Analysis

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

STAFFING  ×

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

 ×

Multi-cultural view, inexpensive Limits career mobility, isolates HQ from subsidiaries

These notes are not intended to cover the whole of the ACCA P3 syllabus

 ×

Efficient use of HR, builds strong culture and management network Subject to National immigration policies, expensive © Darren Sparkes, 2009

24

Transition Implementation Issues Strategic Importance

Low High Process Complexity Dynamics Low

Development

High

Process Re-engineering

Complex but not core competence - Outsource

Complex & dynamic High strategic value for advantage - Process Improvement

Static / commodity Outsource/Automate Minimum resources

Static but valuable - automate for efficiency

Redesign Process Redesign

Analysing Process Improvement

Planning Improving Processes

Harmon’s Process-Strategy Matrix

Business Process Change           

Feasibility Analysis

Software System Project

Process Measures

Value -added analysis – Eliminate non-value added activities

Feedback control systems

   

TARA Action

Technical Operational Economic Social Weighting and Scoring

Design Implementation

  

Simplification – Eliminate duplicated activities

Software Solutions – Systems Development Life Cycle

Interviews Questionnaires Observation Documenting tools Workshops Protocol Analysis Prototyping Staff training Installation File conversion Testing

Gaps & disconnects – Failures in communication

Review

ACCA P3 – Business Analysis

     

Review

Input-Process-Output

Targets

Actuals

Quality of Support User Friendliness Ability to meet needs Compatibility/Integration Costs Supplier factors

Generic Solutions  Speed  Cost  Risk  Support × Unique needs × Supplier power × Compatibility/Integration These notes are not intended to cover theadvantage whole of the ACCA P3 syllabus × No

© Darren Sparkes, 2009

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Implementation Issues

McFarlan's Strategic Grid Strategic impact of future systems

Value chain

Low

L o w Strategic impact of current systems

High

Support –

Turnaround –

No strategic value

Expect info system to become strategically important in the future

Generic strategies

H i g h

Factory –

Strategic –

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

Depend on info system for competitive advantage

E-commerce

Strategic Context

     

E-marketing

E-branding

ACCA P3 – Business Analysis

7P’s    

4P’s People Processes Physical evidence

Push vs Pull

Supply Chain Management

Downstream (Customers)

6 I’s Integration Industry structure Independent locations Individualisation Intelligence Interactivity

-Recency -Frequency -Monetary value

WebPresence

Information Technology

Retention

Extension

E-business

Integrated E-commerce

Customer Life Cycle

Acquisition

 

Porters Five Forces

Customer Relationship Management

Selection

Barriers Technophobia Security Set-up costs Running costs Limited opportunities Limited resource Disinterested customers

    

       

Switching costs Disintermediation Re-intermediation Updates Communication User community Tracking preferences Customisation

E-sourcing E-procurement Upstream (Suppliers)

These notes are not intended to cover the whole of the ACCA P3 syllabus

E-purchasing

E-payment

Risks   

Technology Organisational No cost savings

© Darren Sparkes, 2009

26

Internal

Implementation Issues

External

Quality Certification

Failure Commitment

Communication

Appraisal

Quality Standards

Costs (PAF)

Preventative

Competence

6 C’s Customers

Proactive

Continuous improvement

Quality Assurance Reactive Quality Control

TQM

‘Fitness for Use’

Level 1 Performed process

Quality

Capability Maturity Model Integration (CMMI)

Level 2 Managed process

99.99966%

‘Get it right first time’

Six Sigma Quality Software

Level 3 Defined process

Key Requirements Level 4 Quantitatively Mangd Level 5 Optimising process

Problem Solving Process (DMAIC)

The ‘V’’ Model

Team Roles

Define

Test Plans Requirement spec Functional spec System Design Unit Design

A

Acceptance testing

S

System testing

I T Coding

ACCA P3 – Business Analysis

Integration testing

3.4 defects in 1 million

Measure Analyse

6 C’s

6 Sigma Champion

Master Black belt

Implementation Leader Black Belt

Improve

Unit testing

Green Belt Control

These notes are not intended to cover the whole of the ACCA P3 syllabus

© Darren Sparkes, 2009

27

   

Implementation Issues Technological Operational Economic Social

Resources

   

Tolerate / Accept Treat / Reduce Transfer / Insure Terminate / Avoid Project Initiation Document

Risk Quality

Time   

Sponsor Manager Team

Formally terminate project

Gantt Chart

     

Stakeholders

Initiation

Work Breakdown Structure

Quality Resources Evaluation Dissemination Exit Sustainability

Statements of Work

Project Management (IPECC)

Ensure Completed

Critical Path Analysis

Time



Project Appraisal

Feasibility

Planning

Product Breakdown Structure

Cost Breakdown Structure

Execution Put plan into action

Completion Monitor And Control

Final report & audit

Evaluate performance

Project Evaluation & Review Technique (PERT)

Purpose Scope Deliverables Costs Time Objectives Stakeholders Org structure SWOT

Tie up loose ends Compare PID to Outcome

       

Project Leader TARA

Smooth handover Corrective Action

Frequency

Adjust Plan   

Fast Track

Complexity Risk Cost

Project Initiation Document

       

Motivation Planning Co-ordination Communication Problem solving Change Mgt Budgeting Meetings

Crashing Motivation

ACCA P3 – Business Analysis

Increase resource These notes are not intended to cover the whole of the ACCA P3 syllabus

© Darren Sparkes, 2009

28

  

Economy Efficiency Effectiveness Spend funds effectively

Competitive Strategy

  

Raise maximum funds

Core Costs

Objectives Investment Strategy

      

Management R&D Support Services

Cost Gearing Control Security Cash flow Availability Exit routes

 

Retained earnings Ordinary shares

Considerations

Financial Strategy

Not for Profit Organisations Strategy

Equity

Financing Decisions

Alternatives

Pref shares

Debt

Grants

ROCE Payback

Role of Finance

Traditional Methods

Investment Appraisal

Ratios

Discounted cash flow techniques

     

NPV IRR

Asset turnover ROCE Receivables Payables Inventory Revenue/employee

Profitability

Inter-firm comparison Limitations  Accounting policies  Bias by large/small firms  Unrepresentative avge  Industry classifications  Financial periods

     

Limitations Only comparative Inflation Definitions Accounting policies Availability of info Historical

  

Debentures Loans HP/Leasing Overdraft Trade Creditors

ROCE Gross/Net Margin ROE

Efficiency

Liquidity

ACCA P3 – Business Analysis

    

 

Current ratio Quick ratio

   

Dividend cover Interest cover EPS PE ratio

Gearing

Investor ratios

These notes are not intended to cover the whole of the ACCA P3 syllabus

© Darren Sparkes, 2009

29

   

Examples Gross margin Net margin Cost % sales Profit

Problem: no account taken of invested capital used to generate profits

Return On Investment (ROI)

Residual Income (RI)

PBIT X 100 = % CE

PBIT (CE x imputed interest rate) RI

Relative Measure %

Absolute Measure £’s

Profit Related Measures

Benefits     

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

Potential Drawbacks × × × × ×

Measures conflict with each other Requires cultural change Overload – ‘paralysis by analysis’ Time and cost No obvious relationship with shareholder wealth

Review and Control

Problems:

Problems:







The Balanced Scorecard Financial Perspective

Customer Perspective

ACCA P3 – Business Analysis

Absolute measure poor for performance comparisons

Joint issues when used in isolation Internal Business Perspective

Learning & Growth Perspective

1.

2.

3.

4.

5.

Sub-optimal investment decisions Deplete capital assets too early

Identify CSF’s Identify competences required for CSF’s Develop KPI’s for competences Measure competence Take action – continuous improvement

  

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

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

These notes are not intended to cover the whole of the ACCA P3 syllabus

© Darren Sparkes, 2009

30

Implementation Issues

Current & future HR needs

HR Gap

   

Labour supply

Current HR position

Trait Style Contingency Situational

  

Strategic and coherent approach

TARA

Analyse behaviour Recruitment Training needs Manage performance Benchmarking

ACCA P3 – Business Analysis

  

Purpose

Job design

Assessment & Appraisal Barriers

Performance Measurement

Reward Management Motivation

     

Performance Potential Training

Recruitment

Strategy and People

Competency Frameworks

Communication Teamwork Delegation Motivation Trust

Leadership

Workplace Learning

Knowledge Management

Exploitative autocratic Benevolent authoritative Participative Democratic

Likert's Management Styles

Learning organisation



    

Charismatic Transformational Transactional

Classical

HR Planning

   

   

Scientific Mgt Job enrichment Japanese Mgt BPR Teamwork Succession planning

    

Categories Levels Design Issues Techniques Strategic alignment

Considerations:  Fair & consistent  Motivation  Reward performance  Recognise job factors  Control salary costs

       

These notes are not intended to cover the whole of the ACCA P3 syllabus

     

Confrontation Judgement Chat Bureaucracy Event Unfinished business

Employee ranking Rating scales Checklists Critical incident method Free reporting Performance contract BARS Appraisal interviews

© Darren Sparkes, 2009

31