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Notes ACCA Paper P3 Business Analysis For exams in June 2010

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ExPress Notes

ACCA P3 Business Analysis

Contents

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About ExPress Notes

3

1.

The strategic position of an organization

7

2.

The environment and competitive forces

11

3.

Marketing and the value of goods and services

16

4.

Internal resources and stakeholders

20

5.

Strategic choice

23

6.

Strategic action

31

7.

Information technology

35

8.

Quality

38

9.

Project management

41

10.

Financial analysis & people

43

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ExPress Notes

ACCA P3 Business Analysis

START About ExPress Notes We are very pleased that you have downloaded a copy of our ExPress notes for this paper. We expect that you are keen to get on with the job in hand, so we will keep the introduction brief. First, we would like to draw your attention to the terms and conditions of usage. It’s a condition of printing these notes that you agree to the terms and conditions of usage. These are available to view at www.theexpgroup.com. Essentially, we want to help people get through their exams. If you are a student for the ACCA exams and you are using these notes for yourself only, you will have no problems complying with our fair use policy. You will however need to get our written permission in advance if you want to use these notes as part of a training programme that you are delivering. WARNING! These notes are not designed to cover everything in the syllabus! They are designed to help you assimilate and understand the most important areas for the exam as quickly as possible. If you study from these notes only, you will not have covered everything that is in the ACCA syllabus and study guide for this paper. Components of an effective study system On ExP classroom courses, we provide people with the following learning materials:    

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ExPress Notes

ACCA P3 Business Analysis

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ACCA P3 Business Analysis

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This is your most important tool at this stage. You should aim to have worked through and understood at least two or three questions on each major area of the syllabus. You pass real exams by passing mock exams. Don’t be tempted to fall into “passive” revision at this stage (e.g. reading notes or listening to CDs). Passive revision tends to be a waste of time.

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ExPress Notes

ACCA P3 Business Analysis

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ExPress Notes

ACCA P3 Business Analysis

Chapter 1

The Strategic Position of an Organization

START The Big Picture This chapter provides us with a number of key definitions as well as an introduction to some of the main strategic models.

KEY KNOWLEDGE Definitions & strategic models Key definitions: Strategy: Various definitions are present but a straightforward view is “Strategy is a plan of action designed to achieve a particular goal”

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ExPress Notes

ACCA P3 Business Analysis

Strategic planning: An organisation’s process for ascertaining the strategy it should adopt, taking into account what they want to do, how they are going to do it and what resources they will need. Strategic planning covers where the organisation is planning on going, impacts on the whole organisation and involves the long term view. Note the distinction in what is meant by “long term” (for example the “long term” is different when comparing the airline industry with the fashion industry.)

Strategy Hierarchy:

Corporate Business Functional

Corporate strategy: covers the “big view” of the organisation. It answers the question “What business or businesses should we be in? Business strategy: the strategy of a single business organisation or the strategies of strategic business units (SBUs) Functional (or operational) strategy: the functional strategies involving items such as marketing, IT and HRM that support the business strategy.

It is important that the strategies support each other. For example, if the Business Strategy of a SBU revolves around providing high quality consultancy advice on certain areas, a functional strategy for HRM of minimising labour costs would cause problems. Different strategic models: 1. Johnson, Scholes and Whittington (JSW): The “Rational Model” which shows the strategic planning process in 3 categories of analysis – choice – implementation.

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ExPress Notes

ACCA P3 Business Analysis

Analysis

Choice

Implementaion

2. Mintzberg’s Emergent strategy: Very few strategies will result in outcomes exactly as planned. Instead, strategy will “emerge” and develop over time as the strategy evolves. It will result in intended, realised and emergent strategies. 3. Lindblom’s incrementalism: Supports the view that strategy delivery should be based on small (incremental) changes over time rather than a limited number of extensive planned strategies. 4. Freewheeling opportunism: No planned strategy approach. Grab opportunities as and when they are identified. 5. JSW “strategic lenses”: design - experience - ideas Strategic planners should look at strategy through all 3 lenses.

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ExPress Notes

ACCA P3 Business Analysis

Strategy as design • Strategy is a process of “design” with logical thought out processes (in effect, a rational model).

Strategy as experience • Strategy develops based on previous experiences (in effect, an emergent strategy).

Strategy as ideas •Strategy comes from within the organisation as opposed to the senior management. Ideas are created at all levels of an organisation.

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ExPress Notes

ACCA P3 Business Analysis

Chapter 2

The Environment and Competitive Forces

START The Big Picture In order to design suitable strategic plans, an organisation needs to be aware of the external issues facing it. It cannot plan in isolation. This chapter looks at a number of methods of reviewing the environment surrounding an organisation. This area is examined on a regular basis.

KEY KNOWLEDGE PESTEL (or PEST or SLEPT) Analysis An analysis of the external macro environment. The organisation is unlikely to be able to influence these factors but it should have an awareness of the issues. Political - global, national and local changes and trends. Taxation policies. Relationships between certain countries.

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ExPress Notes

ACCA P3 Business Analysis

Economic - global, regional and local issues. Exchange rates. Link to topical issues such as global recession, current interest rates for funding. Social - changes in behavior and expectations in society. Demographics, lifestyle. Technological - changes including hardware, software, e-issues, materials and services. Global communications. Legal - changes and predicted changes to regional (e.g. EU) and national legislation. Regulatory bodies. Changes to employment law. Environmental – what are the environmental considerations such as recycling, pollution, attitude of the media, customers, etc.

KEY KNOWLEDGE Porter’s Diamond This is a model outlining the theory why certain industries are competitive in particular locations. There are 4 broad factors within the diamond. Factor Conditions

Firm Strategy & Structure

Demand Conditions

Related & Supporting

Factor conditions include physical resources, human resources and specialised resources. Demand conditions. A country with sophisticated home buyers who “demand” quality, advanced and innovative products can create international competitiveness Related and supporting industries can produce inputs for a company which feed into the success of the business. Firm strategy, structure and rivalry. Competition in the home market drives innovation and quality. Protectionism can weaken a market.

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ExPress Notes

ACCA P3 Business Analysis

KEY KNOWLEDGE Porter’s 5 Forces This model examines the role of 5 forces close to an organisation that impact on its ability to make a profit and hence how attractive a particular market or industry is. There are 5 forces as follows: 1. Threat of substitute products If there are similar products, a customer will be more likely to switch rather than stay with a product when there are price rises (elastic demand). 2. Competitive rivalry The rivalry will depend on the number and strength of competitors, economies of scale and exit barriers. 3. Threat of new entrants Markets generating high returns will attract new entrants which in turn could reduce industry profits. Barriers to entry such as government licenses (mobile phone operators) are important in reducing the threat of new entrants. 4. Power of customers The stronger the power of the customer the more pressure it can place on the company. Issues to consider include the size of the customer relative to the firm’s customer base, switching costs and availability of substitute products. 5. Power of suppliers Suppliers of materials and services can exercise power over an organisation. This depends on the level of differentiation of the product, presence of substitute products, etc. Compare the power of Intel supplying computer chips to the computer industry vs. a sugar producer supplying sugar to a soft drinks manufacturer.

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ExPress Notes

ACCA P3 Business Analysis

Entrants

Suppliers

Competition

Customers

Substitute

KEY KNOWLEDGE Product life cycle The conditions in which a product is sold change over its life.

Introduction

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Growth

Maturity

Decline

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ExPress Notes

ACCA P3 Business Analysis

Characteristics of each stage Introduction

Growth

Maturity

Decline

Product

Potentially unique product. Quality still being “tested”.

New entrants arrive. Design improvements.

Products start to become similar with few differences.

Product may have minor enhancements to try to “extend the tail” of the lifecycle.

Price

Could be high for “skim pricing” or low for penetration pricing.

Price can be maintained but pressure on pricing arising due to increased competition

Possibly reduced prices due to increased competition.

Possible further reductions to stimulate sales.

Place

Limited, specialist locations.

Distribution channels increase as demand rises.

Widespread distribution channels.

Reduced number of distribution channels.

Promotion

Aimed at the “early adopters”.

Expands to the larger market.

Focus on any differentiating products.

Limited amount of promotion.

Strategic groups A strategic group comprises companies within an industry that have similar characteristics or business models. For example, the courier industry can be divided into different strategic groups such as the global courier companies (e.g. DHL, FedEx, TNT and UPS) and national courier companies based on variables such as size, geography served and strategic approach. An analysis of strategic groups is useful as it helps to identify competitors and how they compete as well as identifying potential opportunities.

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ExPress Notes

ACCA P3 Business Analysis

Chapter 3

Marketing and the Value of Goods and Services

START The Big Picture Paper P3 is not a marketing exam but you need to have an understanding of the fundamental principles behind marketing and how they impact on the strategic process.

KEY KNOWLEDGE Market segmentation A market segment is a group of customers that share similar characteristics and as a result have similar needs. Ideally, a market segment should have the following:   

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distinct from all other segments be the same within the segment identifiable and accessible

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ExPress Notes

ACCA P3 Business Analysis

Methods of segmentation There are numerous methods. Two of the most common ones are:  

geographical (e.g. country or region) demographic (e.g. age, gender, occupation)

KEY KNOWLEDGE Marketing mix The 'marketing mix' is a set of controllable marketing tools that organisations can use to achieve its marketing objectives. It is commonly known as “the 4Ps”.

Product      

Features Size, colour, components Brand Packaging Accessories Warranties

Price   

Pricing strategy (e.g. penetration, skim) Discounts (e.g. volume, payment) Payment / credit terms

Place    

Distribution channels Geographic coverage Warehousing and inventory levels Transportation

Promotion   

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Selling strategy Sales promotion Advertising

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ExPress Notes

ACCA P3 Business Analysis

The service marketing mix (extended marketing mix) refers to the 7Ps. Namely, the 4Ps model plus: People   

Customers Employees – recruitment and training Management

Processes 

Methods of providing a service

Physical evidence 

Linked to using a service – e.g. brochure, certificates

KEY KNOWLEDGE Critical success factors (CSF) Within any organisation there are certain factors that will be critical to the success of that organisation. If the organisation fails to achieve the objectives associated with these particular factors the organisation will fail. CSFs will vary from industry to industry. An example of a CSF for an online food delivery company would be prompt and accurate home delivery. Key Performance Indicators (KPIs) measure the performance of the CSFs.

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ExPress Notes

ACCA P3 Business Analysis

Support

KEY KNOWLEDGE Porter’s value chain

Support Activities

Firm Infrastructure Human Resource Management Technological Development

Service

Marketing & Sales

Outbound Logistics

Operations

Inbound Logistics

Primary

Procurement

Primary Activities

The value chain was introduced by Porter and represents an approach to looking at the development of competitive advantage within an organisation. All organisations consist of activities which “link” together to develop the value of a business. Together these activities represent the value chain. The value chain represents a series of activities that both create and build value. Combined they represent the total value delivered by an organisation. The “margin” in the diagram is the added value (the difference between the total value of the activities and the cost of performing them). Primary activities: related with production. Support activities: provide the background for the effectiveness of the organisation (e.g. HRM)

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ExPress Notes

ACCA P3 Business Analysis

Chapter 4

Internal Resources and Stakeholder

START The Big Picture This chapter looks at how organisations utilise resources and competencies to develop competitive advantage.

KEY KNOWLEDGE SWOT analysis

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Strengths (internal)

Weaknesses (internal)

e.g. resources and capabilities

e.g. lack of certain resources or capabilities

Opportunities (external)

Threats

e.g. arrival of new technology

e.g. arrival of substitute product

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ExPress Notes

ACCA P3 Business Analysis

Threshold resources and competencies: These are the minimum required by an organisation to meet customer’s minimum requirements. In effect, this is what is required to stay in business. Core competencies: These are processes and activities undertaken by an organisation which are seen as being central to their success. Core competencies are capabilities which are critical to a business achieving competitive advantage. They provide customer benefits and are difficult for competitors to imitate. A core competency can take many forms such as technical knowhow or customer relationships. Amazon.com has a number of core competencies such as reliable and efficient online ordering and delivery system.

KEY KNOWLEDGE Stakeholder mapping Stakeholders are individuals, groups or organisations that can impact or be impacted by, an organisation. Mendelow’s Matrix allocates stakeholders into quadrants according to their level of power and how likely they are to exercise that power (i.e. their interest).

Low

Stakeholder Interest

High

High Keep satisfied

Key players

Minimum effort

Keep informed

Stakeholder Power Low Low

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High

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ExPress Notes

ACCA P3 Business Analysis

KEY KNOWLEDGE Culture The Cultural Web (Johnson) provides an approach for analysing or influencing an organisation’s culture. There are 6 inter-related elements which together help to create the “paradigm” (pattern) of the work environment.

Stories Power Structures

Rituals

The Paradigm Control Systems

Symbols Organ. Structures

1. Stories and myths – The previous events and people talked about. Creates a message about what is valued. 2. Rituals and Routines – The daily behavior of people within the organisation that signals what is acceptable. 3. Symbols – Logos and design, dress codes. 4. Organisational Structure – Both the formal and informal reporting structures. 5. Control Systems – Processes in place to control the organisation. 6. Power Structures – who makes the decisions, who influences the strategic direction?

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Chapter 5

Strategic Choice

START The Big Picture This chapter covers a number of important issues. The focus is on the choices available to an organisation as well as methods for making appropriate decisions.

KEY KNOWLEDGE Parenting style theory (Gould & Campbell) This is a framework for the role of the corporate headquarters and how it gets involved in the strategic development of the businesses within the group. They identified 3 styles which companies tend to follow:

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Financial Control Head office sets financial targets but limited role in setting strategy of SBU.

Strategic Control A middle ground between financial control and strategic planning. Head office coordinates and reviews strategy.

Strategic Planning Head office plays a central role in setting the strategy of the SBU.

KEY KNOWLEDGE Boston Consulting Group (BCG) Matrix This matrix helps organisations analyse their product lines or business units. It helps identifies priorities and where resources should be allocated. Items are allocated to the various quadrants according to how attractive the market is (measured as the growth rate) and how strong a position they hold within the market (their market share)

Growth Rate

Market Share High

Low

High

Stars

Question Marks

Low

Cash Cows

Dogs

A balanced portfolio would have: 1. Stars to ensure the future. 2. Question marks to convert to Stars. 3. Cash Cows to provide funding to develop the Stars and Question Marks.

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General Electric matrix An organisation’s SBUs are entered onto the matrix based on industry attractiveness and business strength. The appropriate action for each segment is shown in the table below.

Business Position

GE Matrix: High

Selective Investment

Invest / Grow

Invest / Grow

Medium

Harvest / Divest

Selective Investment

Invest / Grow

Low

Harvest / Divest

Harvest / Divest

Selective Investment

Low

Medium

High

Industry Attractiveness

Business strength determined by for example, financial position, competencies and supplier relationships. Industry attractiveness determined by for example, competitors within the industry, growth rate of industry. The three cells in the top right hand corner of the matrix are the most attractive in which to be. These require a policy of investment for growth. The three cells running diagonally are of medium attractiveness. Management should review these carefully to determine which ones to invest in and retain. The three cells in the bottom left hand corner are less attractive. Management should consider a policy of harvesting or divesting these items.

KEY KNOWLEDGE Porter’s Generic Strategy Porter identified 3 generic strategies that are commonly used by businesses to create and maintain competitive advantage:  

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Differentiation Cost leadership

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Focus Selling price

Higher profit due to higher selling price

Profit

Selling price

Selling price

Profit Profit

Cost

Cost

Cost

Differentiation

"In the middle"

Cost leadership

Higher profit due to lower cost

1. Differentiation This involves a product or service that is considered to be “different” or unique within its industry. Due to these unique characteristics the organisation can charge a premium. The uniqueness of the item could be based on a variety of things such as the design, technical features, support service, branding, etc. Examples of companies that have used the differentiation strategy include:  

Apple computers, iphones and ipod. Land Rover off-road cars.

2. Cost leadership This is where an organisation can produce goods or services at a lower cost than the industry average. Importantly, note that this does not mean lower quality.

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Low cost production can be obtained by way of economies of scale, preferential access to raw materials or labour, access to extensive distribution channels, etc. The “cost leadership product” is often a basic good or service which is made available to a large customer base. Examples of companies that have used cost leadership strategies include: 

Dell computers

Wall mart stores

3. Focus This is where an organisation concentrates on a small number of niche markets. Differentiation focus – an example would be a specialist holiday or tour operator (e.g. specialising in Skiing holidays). Cost focus – an example would be a small chain of retailers that create their own label range of products.

Strategy clock (Bowman) The strategic clock is a method of analysing an organisation’s competitive position in contrast with its competitors’ ways of competitive positioning. The clock is classified into 8 parts. Namely: 1. 2. 3. 4. 5. 6. 7. 8.

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Low added value Low price Hybrid Differentiation Focused differentiation High price / standard value High price / low value Standard price / low value

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High

4. Differentiation

Perceived added value

3. Hybrid

5. Focussed differentiation

2. Low price

6

7 1. Low price, low added value Low

8

Low

Price

High

KEY KNOWLEDGE Ansoff’s matrix (the Product – Market Mix) This allows companies to identify a number of options to grow the business via existing and / or new products in existing and / or new markets.

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Existing Products

Existing Markets

New Markets

New Products

1. Consolidation 2. Penetration 3. Withdrawal

4. Product development

5. Market development

6. Diversification

1. Consolidation. This is not “doing nothing”. It is doing enough to maintain the existing position. 2. Penetration. Actively trying to increase the share of the market through techniques such as advertising and PR. 3. Withdrawal. Pulling out of a particular market. Reasons could include it’s loss making or a company wants to utilise resources elsewhere. 4. Product development. Developing new products to sell to existing markets. An example would be a soft drinks manufacturer launching a new healthy range of drinks. 5. Market development. Existing products are sold in new markets. This can either be for example geographical (McDonalds establishing restaurants in new geographical areas) or can be repositioning the market (e.g. Land Rover developing from an agricultural market vehicle to mainstream car producer). 6. Diversification. Generally considered to be the most risky. There are a number of types of diversification: a. Backwards vertical integration whereby an organisation takes on the role of its supplier. An example would be an oil refining company taking on the role of its supplier of oil exploration – i.e. it would now be in a position to supply itself with its raw materials. b. Forwards vertical integration whereby an organisation takes on the role of its customer. For example, a farmer sets up a farm shop to sell direct to the public rather than to shops.

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c. Unrelated diversification refers to a new product or service in a completely new market.

Methods of expansion. Internal Development. “Organic” growth using an organisations own resources. Mergers & Acquisition. Often treated as being the same thing, these are in fact different. A true merger is a “joining of equals” where organisations of approximately the same size and strength come together (e.g. when Glaxo Wellcome and SmithKline Beecham merged to form GlaxoSmithKline). An acquisition (or takeover) is usually the purchase of a smaller target company by a larger one. The acquisition may be friendly (the company being acquired is in favour of the takeover) or hostile (the company does not want to be taken over). Strategic Alliance. A formal relationship between parties which aims to achieve certain strategic objectives whilst enabling them both to remain independent. An example of a strategic alliance would be when a hotel chain and a restaurant chain work together. Franchise. The Franchisor gives the right to the Franchisee to use its brand in exchange for a capital sum and /or a royalty payment. Examples of a franchise include certain McDonald’s restaurants around the world.

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Chapter 6

Strategic Action

START The Big Picture This chapter covers a number of techniques involved in the implementation of strategic plans. Structures Corporate structure was studied at paper F1. Paper P3 is not so much about explaining the structures but rather matching the appropriate structure with the chosen strategy. Types of structure  Functional: based around functions such as production, R&D, sales, etc  Divisional: based around divisions which could be geographic divisions or product divisions.  Matrix: this combines functional and divisional

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KEY KNOWLEDGE The Change Kaleidoscope (Balogun and Hope Hailey) This helps management design approaches to change within a company. It contains 3 rings:   

An outer ring which relates to the wider strategic change. A middle ring which looks at the more specific change features. An inner ring which provides a range of choices for management to use. Organisational Change Context

Power

Time

Design Choice - change path

Readiness

Capacity

Scope

- change start - change target - change roles

Capability

Preservation

Diversity

The kaleidoscope does not create prescriptive choices for management to use. Instead, just like a real kaleidoscope changes the image so the change design mechanisms will change.

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KEY KNOWLEDGE Lewin’s change models 1. Unfreezing, Moving, Refreezing Unfreezing Shows the need for change and gets people “ready” for change.

Moving The actual change occurs here.

Refreezing Stabilising the situation to the new approach.

Change can only happen once people have been “unfrozen” and existing ideas and misconceptions have melted.

2. Force field analysis

Driving forces (pushing for change)

Restraining forces (resisting change)

Current state

Desired state

The length of the arrow represents the time duration of the force and the thickness of the arrow represents the strength of the force. There are driving forces pushing for change and forces resisting change. To encourage change, change agents should strengthen driving forces and reduce restraining forces.

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KEY KNOWLEDGE Business Process Redesign (BPR) BPR is a method aimed at improving the efficiency and effectiveness of business processes within an organisation. The process – strategy matrix (Harmon) is based on:

Simple

Complex

The importance of the process The complexity of the process

Process type

 

Complex process that are not part of core competencies.

Complex processes of high strategic value.

Outsource

Focus on people based process improvements

Simple processes of low value.

Simple processes of high strategic value.

Automate in ERP application or outsource

Automate for efficiency

Low

High Strategic importance of process

Business processing Outsourcing (BPO) is a form of outsourcing that involves contracting 3rd parties to undertake specific functions. Typically, back office functions such as accounting activities are outsourced.

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Chapter 7

Information Technology

START The Big Picture This looks at IT in the context of supporting strategic plans and linking with various models referred to previously such as Porters 5 Forces, Value Chain Analysis, etc. What is e-business? E-commerce is the buying and selling of goods and services over the internet. E-business is broader than e-commerce as it also includes IT issues that support key business processes as well as enabling businesses to work more closely with suppliers and to better satisfy customer needs. It inherently involves fast moving and innovative processes. B2B (Business to business): transactions between business (e.g. a manufacturer to a wholesaler). Could be used to link a VCA of the purchaser to a VCA of a supplier. B2C (Business to Consumer): an individual purchasing from a retailer.

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Stages of eBusiness 1. Web presence – in effect being simply a “brochure on the internet”. The aim is to reach a wider audience and broaden the brand image. 2. Basic e-commerce - undertaking entry level e-commerce to enable the business to conduct transactions on line. Facilities such as PayPal have made this possible for even the smallest of businesses. 3. Building and maintaining relationships – integrating core areas of the business to enable closer and quicker relationships with suppliers and customers. Includes CRM facilities. 4. Creating the future – fully integrated systems with minimal human interaction. Systems update automatically.

McFarlans Grid This is used to assess business and IT alignment and to select projects which need developing. Strategic impact of future systems Low

High

Strategic impact of current systems

Low

High

Support - Uses IT primarily for support activities such as payroll processing.

Turnaround – not overly dependent on IT at the moment but may look to use IT to improve position in the future.

Factory – IT is used heavily for day to day business but not viewed as a competitive advantage.

Strategic – critical for success both now and in the future.

Push / Pull Supply Chain A supply chain is the system of resources, processes and people that move a product or service from the initial supplier to the end customer. The supply chain transfers the raw materials into a finished product that will be delivered to the end customer.

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A push based supply chain is where the products are pushed through the process to the end customer (i.e. from production to retail). Manufacturing levels are often based on historical levels. The majority of businesses comprise a hybrid of some form between push and pull supply chains. Ford is an example of a business at the push end of the scale whilst technology companies such as Dell are at the other end where demand pull is dominant.

E-marketing using the 6 Is. 1. Interactivity – traditional marketing is mainly push whereas e-marketing is predominately pull (i.e. the customer looks for the information) 2. Intelligence – a wide variety of low cost marketing information can be collected. 3. Individualisation – personalization is easier compared to the traditional mass marketing methods. 4. Integration – possible to integrate e-communication into the wider e-buying process. 5. Industry structure – can be radically impacted as a result. 6. Independence of location – e communication creates global possibilities from remote locations.

Customer Relationship Management (CRM) consists of systems and processes that organisations use to organise and develop both current and prospective customers. Typical objectives of a CRM system are to improve customer service, build loyalty and ultimately improve the performance of the organisation. CRM involves such activities as front office (e.g. direct contact with customers), back office (e.g. invoicing procedures) and B2B relationships (e.g. interaction with suppliers).

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Chapter 8

Quality

START The Big Picture Quality by itself is very difficult to define as one person’s measure of quality doesn’t necessarily agree with another’s. An often quoted definition is “quality is fitness for use” (Juran).

KEY KNOWLEDGE Quality approaches Quality control is the traditional approach to quality and involves checking output to previously determined acceptance rates. Total Quality Management (TQM) is a complete business philosophy that encourages employees and management at every stage of the production process to focus on quality. There are a number of theorists who have published on quality issues. These include:

Page | 38

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W Edwards Deming – considered by many to be the father of the modern quality movement. He strongly influenced Japanese industry in the aftermath of WWII utilising statistical process control (SPC) and TQM. Joseph Juran – in a similar vein to Deming, Juran had a strong influence on Japanese manufacturing practices. He developed an approach to cross-functional management that is composed of 3 managerial processes:   

Quality planning Quality control Quality improvement

KEY KNOWLEDGE Software development – the V lifecycle model This model gets its name from fact the flowchart used is often shaped as a V. The development part of the process is on the left hand side, the coding at the bottom and the testing on the right hand side. The activities opposite each other complement each other as they act as the basis for the testing. Review / Test

Requirements

Acceptance testing

Specification

System testing

Architectural Design

Integration testing

Detailed Design

Unit testing

Coding

Page | 39

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KEY KNOWLEDGE Six Sigma Six Sigma is a quality measure and improvement programme that seeks to identify and eliminate causes of errors. It was originally developed by Motorola and its focus is on the control of processes to ensure near elimination of errors – to a level of six sigma (standard deviations) from an agreed point. It is an extension of the TQM doctrine and provides a set of tools to enable an organisation to assess the current level of quality and also to improve the delivery of quality to customers. Key areas of Six Sigma include:   

Customers are key and the success level is determined by how well customer requirements are met. Processes are the major mechanism for ensuring success. Management buy in to the system is essential.

Six Sigma introduces a number of roles throughout the organisation, including:    

Champions (initiates a project) Master Black Belts (coach and trainer to Black Belt) Black Belts (the most critical role within the project) Green Belts (an active role but not a leadership role)

The 5 major steps to Six Sigma are DMAIC. 1. 2. 3. 4. 5.

Page | 40

Define Measure Analyse Improve Control

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Chapter 9

Project Management

Project management is the process of planning and organising resources to achieve a specific goal or objective. A project is a separate task having a defined beginning and ending. Given the temporary nature of the majority of projects there are specific skills that are necessary for managing projects. Typical challenges for project management are:   

Scope (what exactly is required from the project) Time Budget

The major stages of project management revolve around the following:     

Page | 41

Initiation Planning or development Production or execution Monitoring and controlling Closing

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Stages of project management

Monitor Initiate

Page | 42

Plan

Execute

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Complete

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Chapter 10

Financial Analysis and People

START The Big Picture Financial analysis is dealt with in depth elsewhere in the ACCA syllabus. The key thing for the P3 syllabus is using financial information to support or enhance your arguments.

KEY KNOWLEDGE Financial expectations of stakeholders Johnson & Scholes propose that strategic options are evaluated using: 1. Suitable. Would it help? Does it fit in with the strategic position of the organisation. e.g. does it take advantage of an opportunity or reduce a threat (within SWOT analysis) 2. Feasible. Would it work? Use of techniques such as cash flow analysis and working capital reviews.

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ACCA P3 Business Analysis

3. Acceptable. Is it acceptable to the relevant stakeholders? Techniques to use include NPV, ROCE, sensitivity analysis and ratio analysis. Financial implications of strategic choices. 1. 2. 3. 4. 5.

Efficiency ratios (e.g. asset turnover, debtor days and creditor days). Gearing ratios (e.g. debt equity ratio). Liquidity ratios (e.g. current ratio and quick ratio). Profitability ratios (e.g. gross margin, operating margin and ROCE). Interest ratios (e.g. interest coverage).

Leadership There are numerous theories on leadership. Analysing them into two complementary groups results in: 1. Traditional. This group includes the trait theories which state that a person will be a good leader if they have certain characteristics (traits). 2. Contemporary. This group involves transactional leaders (who focus on systems and processes) and transformational leaders who provide vision and inspiration as well as utilise emotional intelligence to improve the situation.

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