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ACCA P3 - Business analysis These notes are not intended to cover the whole of the ACCA P3 syllabus ©Darren Sparkes, 2010
1
ACCA P3 – PROFESSIONAL LEVEL
Business Analysis
SMART Notes
Prepared by Darren Sparkes
Email: [email protected]
ACCA P3 – Business Analysis These notes are not intended to cover the whole of the ACCA P3 syllabus © Darren Sparkes, 2010
2
Contents Page no. Paper 3 Examiners Approach…………….….... 3 Extracts from the Examiners report ……….…...4 Examination Technique……………….…..……..7 Background and examination format..…............9 Syllabus Overview………………………...........10 Strategic Planning………………………...….....11 Mission and Objectives…………………………12 Business & Professional Ethics..………….…...13 Internal Analysis……………….……………..…14 External Analysis……………..………………....15 Strategic Options……………………….……….17 Method of Growth………………………............18 Portfolio Analysis…………………………….….19 Strategic Choice & Change Management…....20 Marketing………………………………………...21 Organisational Structure…………………….….22 International Market Place.…………….……....23 Business Process Change…….…..…………..24 Information Technology……..…….……..........25 Quality………………………………….……......26 Project Management………………………...…27 Role of Finance………………………………...28 Review and Control………………………..…..29 Strategy and People……………………………30
ACCA P3 – Business Analysis These notes are not intended to cover the whole of the ACCA P3 syllabus © Darren Sparkes, 2010
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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, 2010
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Extracts from the Examiners comments In general: • ‘Candidates were stronger in strategic concepts (strategic position, Porter’s Diamond) and less comfortable
with business process modelling and customer relationship management.’ • ‘Part questions on specific factual areas (competency frameworks and CMMI) were either answered well
(because the candidate was familiar with them) or poorly (because the area was not studied or revised).’ • ‘There was some evidence of poor time management, apparently caused by over-answering question 1.’ Section A - Question 1 • In general the first part of the question was answered well, using a wide range of appropriate models and
frameworks. • However, candidates must be careful in the future to stick to external issues if a PESTEL analysis is
specified in the question. • …some candidates did not restrict themselves to assessing the strategic position. They began to suggest
strategic solutions and options which were not required by the question and so no credit was given. This reinforces the need for the candidate to carefully read the question and to answer within its scope.
• …many answers well written and well-structured, so gaining most of the professional marks on offer. • Part b…Candidates failed to spot glaring errors in the process. • Part c…In many cases, candidates provided good answers to a very different question.
ACCA P3 – Business Analysis These notes are not intended to cover the whole of the ACCA P3 syllabus © Darren Sparkes, 2010
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Section B • Question 2 – part a…Candidates answered this…relatively well, using appropriate calculations • Question 2 – part b…candidates answered this part question very well, not only showing knowledge of the
model but were also confident in applying it to a case study scenario • Question 3 – part b…asked candidates to analyse these competencies. Some of these were clearly signposted
in the scenario. Many candidates failed to identify any relevant competencies…falling back on generalisations such as ‘good communication skills’ and hence did not score well on this part of the question.
• Question 4 – part a…In general, this part of the question was answered well by most candidates • Question 4 – part b…This was not particularly well answered by most candidates. Most candidates seemed to
be unfamiliar with the concept of competency frameworks or their potential application. This was despite an article in Student Accountant magazine.
ACCA P3 – Business Analysis These notes are not intended to cover the whole of the ACCA P3 syllabus © Darren Sparkes, 2010
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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, 2010
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Examination Technique to give the Examiner what he wants PADI – Plan, Analyse, Design, Implement
PLAN 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, 2010
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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
ANALYSE
8. ANALYSE THE SCENARIO • Make brief notes in your plan under relevant headings from models/tools/theories and requirement • Find relevant numbers for calculations
DESIGN
9. THINK BEFORE YOU WRITE • Decide which points you are going to put in your answer (trying to put in everything usually leads to going
over time) and start with your strongest points • Decide how you are going to layout your answer to make life easy for the marker and maximise marks
IMPLEMENT
10. WRITE UP YOUR ANSWER TO MAXIMISE MARKS • Layout calculations in a logical and easy to mark format - Add value to calculations by asking ‘SO WHAT?’ • Use as many headings as possible to give the answer structure • Work on 2 sentences for 1 mark – 1) Make your point, 2) Give evidence from the scenario • PEE for 2 marks – Point, Evidence, Explain (So what?) • Leave a blank line between 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, 2010
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Paper Background
Candidate Requirements
Apply knowledge and skills
Determine appropriate techniques
Select relevant data
Exercise professional judgement
Objectives of the paper
• 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
Format of paper
Section A 50% • Compulsory • Major case study • Usually four parts • Case will include numbers
Section B 50% • Choice of two from three • Each question likely to include
two parts • Will include short scenario • May include numbers
ACCA P3 – Business Analysis These notes are not intended to cover the whole of the ACCA P3 syllabus © Darren Sparkes, 2010
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Syllabus Overview Mission and objectives
Stakeholder Analysis
External Analysis Internal Analysis
Corporate Appraisal
SWOT
Strategic Options
Strategic Choice
Implementation
Review and Control
Cultural Web SMART
Resource audit
Mendelow's power-interest matrix
Core competences
Porters Value Chain
Product Life Cycle
Benchmarking
PEST
Porters 5 Forces
Porter’s Generic Strategies
The Strategy Clock Ansoff’s product-
market matrix
Acquisition vs organic vs joint development
Suitability, Acceptability, Feasibility
Change Management Project Management
Quality
IT Structure
Marketing
Business Process Change
International Trading
Financial Measures Investment Appraisal
Withdraw
Purpose, Strategy, Policies, Values
Governance and Corporate Social Responsibility
Cost/Benefit
Risk
Non-financial Measures
Not for Profit Organisations
Porters Diamond
CSF’S
TOWS Matrix
Portfolio analysis BCG, PSPM, DPM, APD, Mkt attract/SBU strength
Software Solutions
HRM
Software Quality Sources of Finance
BSC
ACCA P3 – Business Analysis These notes are not intended to cover the whole of the ACCA P3 syllabus © Darren Sparkes, 2010
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Alternative Strategic Planning
Strategy ‘… a course of action, including the specification of resources, to
achieve a specific objective
Long-term
Whole organisation
Integrates activities
All stakeholders
Competitive advantage
Relationship with environment
Corporate = Strategic level
Business = Tactical level
Functional = Operational level
Purpose
• Respond and fit to environment • Utilise scarce resources • Provide direction • Ensure consistent objectives • Monitor progress
Advantages √ Identification of
strategic issues √ Consistency of goals √ Improve
performance/survival √ Pro-active √ Recognises
environment √ Optimum use of
resources
Disadvantages × Expensive (time
and money) × Bureaucracy × Stifles creativity × Less relevant in
a crisis
Rational ‘Top Down’ Approach
Mission & Objectives
Corporate appraisal
Strategic options
Strategic choice
Implementation
Review
Emergent Strategy - ‘Bottom up’ (Mintzberg)
Intended Strategy
Unrealised Strategy
Deliberate Strategy
Realised Strategy
Emergent strategy
E.G. Honda’s entry into the USA, 3M
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
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
Inter- dependant
Position Analysis
Choice Action
Johnson, Scholes &
Whittington Strategic Lenses
Ideas
Design Experience
ACCA P3 – Business Analysis These notes are not intended to cover the whole of the ACCA P3 syllabus © Darren Sparkes, 2010
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Mission and Objectives
Mission ‘… the most generalised type
of objective which can be thought of as its raison d’etre.’
Purpose
Strategy
Policies and standards
Values
Advantages • Resolve stakeholder conflict • Set direction • Help formulate strategy • Communicates values to
employees • Marketing to customers
Criticisms • Meaningless terms used • Written retrospectively? • Not communicated to
employees • Ignored by managers
Objectives
S Specific M Measurable A Attainable R Relevant T Timebound
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.
If results in these areas are
not adequate, the organization's efforts for the
period will be less than desired."
Stakeholders
Mendelow’s Power – Interest Matrix Interest
Low
Power
High
Low A
Minimal Effort
Give Direction
B Keep Informed
Education /
Communication
C Keep Satisfied
Intervention
D Key Players
Participation – Keep
Close
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
Effectiveness
Economy
Mission Statement Published version of the
Mission
Culture ‘The way we do things around here’
Cultural Web – cultural paradigm
• Routines & Rituals • Stories & Myths • Symbols • Power structure • Organisation structure • Control systems
High
ACCA P3 – Business Analysis These notes are not intended to cover the whole of the ACCA P3 syllabus © Darren Sparkes, 2010
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Business and Professional
Ethics
Professional Ethics ‘Self control, not self interest’
C Competence O Objectivity P Professional due care P Politeness I Integrity T Technical Standards
Corporate Social Responsibility
Issues
Environment
Sustainability
Safety in the workplace
Consumer health and safety
Equal opportunities
Fair Trade
Honesty in Advertising
Views on Business Ethics
‘The business of business is business’ (Shareholder View -
Friedman) 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
Long-term Self-Interest / Stakeholder view
Firms should acknowledge their social responsibilities. Benefits to Business
SALSA
Avoid paying damages and fines
Strategic Alliances
Lower Risk
Attract customers and
employees
Save time and money on
investigations
Potential problems
Competitive disadvantage
Deciding what is ethical Bad publicity from monitoring and enforcement
Disclosure of business information
No universal acceptance of morals & ethics
Johnson, Scholes & Whittington – Ethical Stances
Short-term shareholder interest
Long-term shareholder interest
Multiple stakeholder obligation
Shaper of society
Corporate Governance Strategic impact: SCRAPI
• Short-termism • Control the business • Risk assessment • Acquisitions & Mergers • Power of governance bodies • Increasing shareholder power
Bribes
ACCA P3 – Business Analysis These notes are not intended to cover the whole of the ACCA P3 syllabus © Darren Sparkes, 2010
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Internal Analysis (Strengths & Weaknesses)
Strategic Capability – Resource audit
M’s
• Manpower • Management • Money • Make-up • Manufacturing • Material • Markets
Core Competences ‘…the activities or
processes that critically underpin competitive
advantage.’
Strategic Assets
Architecture
Reputation
Innovative Ability
• Valuable • Rare • Can’t be copied • Not substitutable • Give access to wide
range of markets
…identify activities within the firm which add value to customers and those that do not Primary Activities • 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
Basic
Benchmarking
1. Select processes to be benchmark
2. Assign responsibilities 3. Choose type of benchmarking 4. Choose partner 5. Interaction 6. Collect data 7. Implement changes
Competitive
Functional/Activity
Internal
BEST IN PRACTICE
Porter’s Value Chain
Unique
Core Threshold
Same as competitor / easy
to copy
Different to competitor /
difficult to copy
Resources
Competences
Value Networks
Knowledge Management
Explicit
Tacit
• Uncover Knowledge • Discover Knowledge • Capture Knowledge • Share Knowledge • Distribute Knowledge • Lever Knowledge • Maintain Knowledge
Knowledge Workers • Roving role • Temporary roles • Selection based on skill & competences • Input into own development • Separate & relevant incentive schemes • Remote locations • Flexible working
Product Life-cycle • 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 Balance the portfolio
Problems: • No common shape • Unpredictable • Self-fulfilling prophecy • Product orientated
S
A
R I
ACCA P3 – Business Analysis These notes are not intended to cover the whole of the ACCA P3 syllabus © Darren Sparkes, 2010
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External Analysis (Opportunities and Threats)
PESTEL analysis (External, Environmental analysis)
Political • Taxation • Government policy • Foreign trade
regulations • Protectionism • Globalisation
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
Porter’s 5 Forces (Competitive,
Industry analysis)
Competitive Rivalry Greatest where: • Competitors of similar size • Slow market growth rate • High fixed cost industry • Lack of differentiation
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
Power of Buyers 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
Threat from Substitute Technologies
• 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
Legal • Health And Safety • Employment • Consumer protection • Monopoly legislation • Industry watch dogs
Ecological • Globalisation • Pollution • Energy usage • Disposal of waste • Sustainability of
resources
External Analysis (Opportunities and Threats)
ACCA P3 – Business Analysis These notes are not intended to cover the whole of the ACCA P3 syllabus © Darren Sparkes, 2010
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Internal + External Analysis = Corporate Appraisal = Position
Appraisal= SWOT Analysis Strengths Weaknesses
Threats
INTERNAL
EXTERNAL Opportunities
External Analysis (Opportunities and Threats)
Porter’s Diamond
‘National Competitive Advantage’
Firm structure, strategy, rivalry
Demand conditions
Factor conditions
Related and supporting industries
External Analysis Factors open to all in the industry
Internal Analysis Factors specific to the organisation
Corporate Appraisal
TOWS
ACCA P3 – Business Analysis These notes are not intended to cover the whole of the ACCA P3 syllabus © Darren Sparkes, 2010
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Strategic Options
Advantage
Positioning view
Strategically develop organisation in line with environment
challenges
PESTEL
Porters Five Forces
To beat the five forces
Porter’s Generic Strategies • Overall Cost Leadership
(better margin, potential price cuts, entry barrier, reduce supplier power)
• Differentiation (Premium price, better margin, barrier, reduce buyer power)
• Focus (Niche) (Cost or Differentiation, focus on market needs, develop core competencies)
Beware of ‘Stuck in the Middle’ 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
Direction
Ansoff’s Matrix Products, existing and new (PEN) Markets, existing and new (MEN) • Market Penetration (cost reductions,
price reductions, advertising, minor product modifications)
• Product Development (exploit existing customers, RnD, buy-in and badge, JV’s, Licensing)
• Market Development (new markets such as foreign markets, new segments such as adult to child or industrial to consumer)
• Diversification (related = vertical integration or unrelated = conglomerate
Do nothing / Withdraw
Risks • Product • Market • Operations and
management • Financial
Vertical Integration Advantages • Economies of combined
ops • Economies of control and
coordination • Avoiding the market • Tap into technology Conglomerates Advantages • Flexibility • Quick growth • Access to capital • Portfolio effect • Avoidance of anti-
monopoly legislation
Disadvantages • Increased operational
gearing • Reduced flexibility to
change partners • Capital investment needs Disadvantages • No additional benefit to
shareholders through synergies
• No operating advantages
Horizontal diversification – competitive products, complementary products, by-products
Limitations • Definition of market • Ignores factors such as competitors • Suggests strategies in isolation
Method (see next page)
Low
Low High
Benefit
Price
High
Fail
Fail
Focused Differentiation
Differentiation Hybrid
Low Price
No Frills Fail
Strategic Clock
Market Facing
Resource Based View
ACCA P3 – Business Analysis These notes are not intended to cover the whole of the ACCA P3 syllabus © Darren Sparkes, 2010
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Method of Growth?
Acquisition versus Organic growth
Acquisition
Advantages • Quick • Lower risk • Overcomes barriers to entry • Same number of competitors • Can block a competitor • Possible synergies • Possible under-valuation of
target
Disadvantages • Purchase premium • Integration issues
o Systems o People o Culture
• Synergies do not materialise
• Reputation of target
Organic Growth
Advantages • No premium for assets • People development • Staged investment • Established culture • Introduction of new
technology and systems easier
• Possibility of grants
Disadvantages • Slow • Increases number of
competitors • Overcoming barriers to
entry • No opportunity for
synergies • Higher risk
Possible synergies • Market • Economies of scale • Shared activities • Surplus assets • Vertical integration • Skills transfer • Dilution of risk • Reduced power of
buyers/suppliers • Tax advantages
Joint Development Methods
Joint Venture Separate business entity with equity form two or more businesses
Strategic Alliance Long-term agreement to share knowledge, competences, technology for mutual benefit
Licensing Giving the right to exploit brand, recipe, process etc for a share of the profits
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
√ 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
Withdrawal
Divestment √ Quick √ Higher price due to
strategic value
Demerger √ Gives shareholders
an exit route √ Management can
focus on core areas √ Two companies can
develop separate identities
Management Buyout (MBO)
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?
ACCA P3 – Business Analysis These notes are not intended to cover the whole of the ACCA P3 syllabus © Darren Sparkes, 2010
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Business Sector Prospects
High
Low
Low Opportunities to add value
BCG Matrix
High
Low
High Low Relative market
share
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
Problems: • Definition of axes • Definition of market • No account of complimentary goods • Assumes high market share = advantage
Portfolio Analysis
STAR Build then Hold
Losses to profits, negative to positive cash
Directional Policy Matrix
Weak
Unattractive Attractive
Phased withdrawal
Proceed with care
Phased
withdrawal
Proceed with care
Growth
Withdrawal
Cash
Generation
Growth
Leader
Double or quit
Try harder
Leader
Average
Avge
Strong
Company’s Competitiv
e capabilities
Public Sector Portfolio Matrix
Public need & Funding effective
ness
High
Low
High Low Value for money
Political hot box
Golden Fleece
Back drawer issues –
discontinue
Public sector Star
Market Attractiveness/SBU Strength matrix
High
Strong Weak
Business strength/Competitive position
Hold leadership Leverage strengths Use EOS
Avoid ‘me too’ Differentiate
Re-invest
Segment between growth
and harvest
Enhance Lead Diversify Re-invest
Segment focus Seek
advantage
Harvest through sale of business
Maintain leadership In attractive segments
Harvest Price-up Cut costs
Line pruning
Divest/Liquidate
Average
Med
Low
Long-term Industry
attractiveness
Alien Territory
Ballast Edge of
Heartland
Heartland
Ability to Add value
High
Ashridge Portfolio Display – Corporate Parents
Market growth
Value trap
ACCA P3 – Business Analysis These notes are not intended to cover the whole of the ACCA P3 syllabus © Darren Sparkes, 2010
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`
Strategic Choice (SAF)
Suitability Is the proposed strategy suitable for the present situation and circumstances of the organisation? i.e. Is it suitable given the SWOT analysis?
Acceptability Will the proposed strategy meet the objectives of the organisation and, therefore, be acceptable to the major stakeholders?
Feasibility Has the organisation got, or can it get, the necessary resources to carry out the strategy?
Strategic Drift
Risk Cost/Benefit
Strategy Environment
Types of Change
Incremental
Big Bang
Transformation Realignment Extent of change
Adaptation
Revolution
Reconstruction
Evolution
Speed of
Change
Lewin’s Force Field Analysis
Driving Forces Restraining Forces
Job Factors
Personal Factors
Organisational Factors
Strengthen Weaken
Unfreeze Change Refreeze
Social Factors
Change Management
Time
Scope
Preservation Diversity Capability
Capacity
Readiness
Power Change
Kaleidoscope
• Participation • Education & communication • Facilitation & support • Negotiation • Manipulation • Coercion
Supporting Mechanisms
ACCA P3 – Business Analysis These notes are not intended to cover the whole of the ACCA P3 syllabus © Darren Sparkes, 2010
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Marketing
Firm’s orientation
Product to meet needs
Production Sales
Marketing …identify, anticipate and satisfy
customer requirements
Marketing Strategy
Kotler’s Four Pillars
Target Markets
Customer needs
Coordinated marketing
Profitability Analyse environment and competitors – PEST
/ Porter’s five forces
Market Segmentation and Target Market
…division of the market into homogenous groups of potential customers who may be treated similarly for marketing purposes
• Geographic • Demographic
o Age o Gender o Income o Family life-cycle
• Social class • Psychological • Education • Hobbies
Undifferentiated
Differentiated
Concentrated
Marketing Research …systematic gathering,
recording and analysing of data about problems relating to the
marketing of goods and services
Desk research (secondary data)
Internal Accounts, Sales reports, Customer complaints
External CSO reports, Business monitors, Trade journals, newspapers
Field Research (Primary data)
Interviews, focus groups,
questionnaires, experiments, Test
marketing
Marketing Mix – 4P’s …set of controllable
marketing variables used to produce desired response in
the target market
Product
Product mix
Product Life Cycle
Product qualities Features, options, range, warranty, branding, packaging
Place
• Distribution channels
• Market coverage • Outlet locations • Warehousing
Promotion
Communications Mix: Advertising Sales promotion Public relations Personal selling
Price
• Price levels • Discounts • Allowances • Payment terms • Delivery options
A Awareness I Interest D Desire A Action Product
Implementation Issues
7 P’s
Physical Evidence
Processes
People
ACCA P3 – Business Analysis These notes are not intended to cover the whole of the ACCA P3 syllabus © Darren Sparkes, 2010
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Organisational Structure
Centralised vs Decentralised
S Strategy T Technology O Objectives P People T Tasks I Ideology E Environment S Size
Entrepreneurial √ Fast decisions √ Responsive to market √ Congruence × No career structure × No autonomy × Single product & market
Functional √ Economies of scale √ Specialists with some autonomy √ Career structures √ Frees up entrepreneur × Slow decisions (bureaucratic) × Functional silo’s × Few products & markets
Divisional √ 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
Implementation Issues
Matrix √ Breakdown of silo’s √ Shared knowledge √ Skill development √ Innovation and creativity × Dual command × Dilution of functional
authority × Time consuming meetings
Mintzberg’s Structural
Configurations Strategic Apex
Middle Line
Operating core
Techno-structure
Support Staff
• Simple structure = entrepreneurial
• Machine bureaucracy = functional
• Professional bureaucracy = decentralised
• Divisional form • Adhocracy = matrix
Planning and control
• Direct supervision • Planning processes • Performance
management • Internal market • Culture • Self-control
Strategic Planning co.s
Financial Control co.s
Strategic Control co.s
Managing Business
Units
Parental Developer
Synergy Manager
Portfolio Manager
Types of Structure
External Relationships
Outsourcing
Network Organisation
Virtual Organisation
√ Reduced cost √ Skill shortages √ Flexibility √ Focus on core business × Loss of control × Supplier dependency × Confidentiality × Loss of in-house skills
Decentralisation
Advantages: • Frees senior
management • Better local decisions • Better motivation • Flexibility • Training/career path
Disadvantages: • Loss of control • Loss of congruence • Duplication of effort • Extra costs of control
ACCA P3 – Business Analysis These notes are not intended to cover the whole of the ACCA P3 syllabus © Darren Sparkes, 2010
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The International Market Place
Reasons for growth in international business
Convergence of Markets
Cost advantages Economies of scale
Country specific costs
Political Influences
Trend to Global products
Objectives of international
growth
Expand sales
Acquire resources
Diversify sources of
sales & supply
General risks
Political Legal
Economic
Social/cultural
Technological
Exporting √ Low capital outlay √ Low risk √ Can learn about market × May not meet customer needs × Perceived lack of commitment × High distribution costs
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
Foreign Direct Investment √ Closer to market √ Retain profits √ More control √ Reduced operational conflicts × High financial risk × Staffing decision × Integration difficulties
Methods of International Expansion
Global Multi-Domestic Hybrid
• Perceives foreign markets as similar to domestic market
• Products & marketing mix constant
• Standardisation to save time and money
• Supply-driven policy
• 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
• 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
√ Efficient use of HR, builds strong culture and management network
× Subject to National immigration policies, expensive
Competitive Forces
ACCA P3 – Business Analysis These notes are not intended to cover the whole of the ACCA P3 syllabus © Darren Sparkes, 2010
24
Improving Processes Harmon’s
Process-Strategy Matrix
Planning
Redesign
Development
Analysing
Business Process Change
Process Improvement
Process Measures
Implementation Issues
High
Low
Low High Strategic
Importance
Complex & dynamic High strategic value for
advantage - Process Improvement
Static / commodity - Outsource/Automate - Minimum resources
Static but valuable - automate for efficiency
Complex but not core competence - Outsource
Process Complexity Dynamics
Process Redesign
Process Re-engineering
Transition
Feedback control systems
TARA
Input-Process-Output
Action Targets
Actuals
Review
Software Solutions – Systems Development Life
Cycle
Review
Implementation
Design & Select Software
Establish business needs
• Interviews • Questionnaires • Observation • Documenting tools • Workshops • Protocol Analysis • Prototyping
• Quality of Support • User Friendliness • Ability to meet needs • Compatibility/Integration • Costs • Supplier factors
• Staff training • Installation • File conversion • Testing
Generic Solutions √ Speed √ Cost √ Risk √ Support × Unique needs × Supplier power × Compatibility/Integration × No advantage
• Software • System • Project
Weighting and Scoring
Simplification – Eliminate duplicated
activities
Value -added analysis –
Eliminate non-value added activities
Gaps & disconnects –
Failures in communication
ACCA P3 – Business Analysis These notes are not intended to cover the whole of the ACCA P3 syllabus © Darren Sparkes, 2010
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Information Technology
Supply Chain Management
Value chain
Strategic Context Web-
Presence
E-commerce
Integrated E-commerce
E-business
Barriers • Technophobia • Security • Set-up costs • Running costs • Limited
opportunities • Limited resource • Disinterested
customers
Push vs Pull
Push = Supplier led
Pull = Customer led
Upstream (Suppliers)
E-procurement
E-sourcing
E-purchasing
E-payment
Risks
Downstream (Customers)
• Technology • Organisational • No cost savings
• Switching costs • Disintermediation • Re-intermediation • Updates • Communication • User community • Tracking
preferences • Customisation
E-marketing
7P’s • 4P’s • People • Processes • Physical evidence
6 I’s • Integration • Industry structure • Independent
locations • Individualisation • Intelligence • Interactivity
Customer Relationship Management
Acquisition
Selection
Customer Life Cycle
Retention
Extension
E-branding
-Recency -Frequency -Monetary value
Implementation Issues
Generic strategies
Porters Five Forces
ACCA P3 – Business Analysis These notes are not intended to cover the whole of the ACCA P3 syllabus © Darren Sparkes, 2010
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3.4 defects in 1 million
TQM ‘Get it right first time’
Commitment Communication
Continuous improvement
Competence
6 C’s Customers
Costs (PAF)
Quality
‘Fitness for Use’
Quality Control
Quality Assurance
Proactive
Reactive
Appraisal
Failure
Preventative
Internal
External
Quality Standards
Quality Certification
Six Sigma
Key Requirements
6 C’s Team Roles
Green Belt
Implementation Leader
Master Black belt
Black Belt
6 Sigma Champion
Problem Solving Process (DMAIC)
Control
Improve
Analyse
Measure
Define
Quality Software
The ‘V’’ Model
Acceptance testing
System testing
Integration testing
Unit testing
Coding
Unit Design
System Design
Functional spec
Requirement spec
Capability Maturity Model
Integration (CMMI)
Level 1 Performed process
Level 2 Managed process
Level 3 Defined process
Level 4 Quantitatively Mangd
Level 5 Optimising process
Implementation Issues
99.99966%
T C’s
I C’s
SS C’s
A C’s
Test Plans
ACCA P3 – Business Analysis These notes are not intended to cover the whole of the ACCA P3 syllabus © Darren Sparkes, 2010
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Project Management
(IPECC)
Initiation
Project Initiation
Document
Project Appraisal Feasibility
Stakeholders
Quality
Time
Risk
• Technological • Operational • Economic • Social
Resources
Put plan into action
• Tolerate / Accept • Treat / Reduce • Transfer / Insure • Terminate / Avoid
• Purpose • Scope • Deliverables • Costs • Time • Objectives • Stakeholders • Org structure
• Sponsor • Manager • Team
SWOT
Project Leader
Planning
• Quality • Resources • Evaluation • Dissemination • Exit • Sustainability
Critical Path
Analysis
• Time
Work Breakdown Structure
Execution
• Motivation • Planning • Co-ordination • Communication • Problem solving • Change Mgt • Budgeting • Meetings
Monitor And
Control TARA
Project Initiation
Document
Frequency
• Complexity • Risk • Cost
Corrective Action
Adjust Plan
Motivation Crashing
Fast Track
Increase resource
Completion
Ensure Completed
Final report & audit
Smooth handover
Tie up loose ends
Compare PID to Outcome
Formally terminate project
Evaluate performance
Implementation Issues
ACCA P3 – Business Analysis These notes are not intended to cover the whole of the ACCA P3 syllabus © Darren Sparkes, 2010
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Role of Finance
Strategy
Financial Strategy
Competitive Strategy
Investment Strategy
Not for Profit Organisations
Core Funding Core Costs
• Management • R&D • Support Services
Financing Decisions
• Cost • Gearing • Control • Security • Cash flow • Availability • Exit routes
Considerations
Alternatives
Equity
Debt
• Retained earnings • Ordinary shares
• Debentures • Loans • HP/Leasing • Overdraft • Trade Creditors
Pref shares
Grants
Ratios
Gearing
Liquidity
Efficiency
Profitability • ROCE • Gross/Net Margin • ROE
• Asset turnover • ROCE • Receivables • Payables • Inventory • Revenue/employee
• Current ratio • Quick ratio
• Dividend cover • Interest cover • EPS • PE ratio
Investor ratios
Limitations • Only comparative • Inflation • Definitions • Accounting policies • Availability of info • Historical
Inter-firm comparison Limitations • Accounting policies • Bias by large/small firms • Unrepresentative avge • Industry classifications • Financial periods
Investment Appraisal
Traditional Methods
Discounted cash flow techniques
ROCE Payback
NPV IRR
• Strategic funding • Self generated income • Developmental funding • Cost minimisation • Apportion overheads to projects
ACCA P3 – Business Analysis These notes are not intended to cover the whole of the ACCA P3 syllabus © Darren Sparkes, 2010
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Review and Control
Profit Related Measures
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
Relative Measure %
PBIT (CE x imputed interest rate)
RI
Absolute Measure £’s
Problems: • Sub-optimal
investment decisions
• Deplete capital assets too early
Problems: • Absolute measure
poor for performance comparisons
Joint issues when used in isolation • 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.
The Balanced Scorecard
Financial Perspective
Internal Business Perspective
Learning & Growth Perspective
Customer Perspective
1. Identify CSF’s 2. Identify competences required for CSF’s 3. Develop KPI’s for competences 4. Measure competence 5. Take action – continuous improvement
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
ACCA P3 – Business Analysis These notes are not intended to cover the whole of the ACCA P3 syllabus © Darren Sparkes, 2010
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HR Gap
Current HR position
Current & future HR needs
Labour supply
Strategy and People
Strategic and coherent approach
HR Planning
Reward Management
Job design
Workplace Learning
Competency Frameworks
Assessment & Appraisal
Leadership
Classical
Purpose
Barriers
Likert's Management
Styles
• Trait • Style • Contingency • Situational
• Charismatic • Transformational • Transactional
• Exploitative autocratic • Benevolent authoritative • Participative • Democratic
• Communication • Teamwork • Delegation • Motivation • Trust
• Performance • Potential • Training
• Confrontation • Judgement • Chat • Bureaucracy • Event • Unfinished
business
Performance Measurement
• Employee ranking • Rating scales • Checklists • Critical incident method • Free reporting • Performance contract • BARS • Appraisal interviews
• Categories • Levels • Design Issues • Techniques • Strategic alignment
Considerations: • Fair & consistent • Motivation • Reward performance • Recognise job factors • Control salary costs
• Scientific Mgt • Job enrichment • Japanese Mgt • BPR • Teamwork • Succession
planning
TARA
• Analyse behaviour • Recruitment • Training needs • Manage
performance • Benchmarking
Learning organisation
Knowledge Management
Implementation Issues
Recruitment
Motivation