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Mnemonics and Charts Paper P3: Business Analysis
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1Copyright: Tony Surridge Online Limited, 2011
Mnemonics and Charts Paper P3: Business Analysis
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ACCA Paper P3: BUSINESS ANALYSIS Mnemonics and Charts
Published by Tony Surridge Online Limited in 2011
Copyright © Tony Surridge Online Limited
Part of the Tony Surridge +AddVance study materials range
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No snowflake in an avalanche ever feels responsible.
Voltaire
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Main pageCopyright statementFor the ladies onlyWhy study from a computer screen?Memorising: Tips and techniquesWriting or saying things over and over again …VocalisingInitial letters and making phrasesThe use of mnemonicsThe use of jinglesWord associationVisualisingLink/story techniqueDo I need to memorise all your mnemonics?Disguise your use of mnemonics in the examChartsColour codesElectronic links within the database
Syllabus Study Guide
The structure of the syllabus A Strategic positionIntellectual levels B Strategic choices Learning hours C Strategic actionGuide to exam structure D Business process changeGuide to examination assessment E Information technology Aim F Project management Main capabilities G Financial analysisRationale H PeopleDetailed syllabus Approach to examining the syllabus
Contents Page 30
ACCA Paper P3Business Analysis
+AddVanceMnemonics and Charts
“Where shall I begin, please your majesty?” he asked. “Begin at the beginning,” the king said gravely, “and go on till you come to the end: then stop.”
Lewis CarrollThrough the Looking-Glass
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ACCA Paper P3 Business Analysis
Overview of Mnemonics and Charts
Main ContentsTitle Page
Position audit: Where are we now? 31
Choices and evaluation: Where do we want to be? 160
Implementation and action: How do we get where we want to be?
264
Business process change 338
Information technology 396
Project management 462
Financial analysis 530
People 551
Revision modulesContents
557559
Indicative contents 728
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‘Position Audit’
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“Anjin-san, forget the village. A thousand things can happen before those six months occur. .... Leave the problems of God to God and karma to karma. Today you’re here and nothing you can do will change that. Today you’re alive and here and honoured, and blessed with good fortune. Look at the sunset, it’s beautiful neh? This sunset exists. Tomorrow does not exist. There is only now. Please look. It is so beautiful and it will never happen again, never, not this sunset, never in all infinity. Lose yourself in it, make yourself with nature and do not worry about karma ....”
James Clavell, Shōgun, Coronet Books/Hodder and Stoughton
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Strategic Review (Position audit)- Overview of what might be involved: 1 of 2
Ad hoc review
‘One off’
Continuous review
To evaluate a strategic proposal made independent of strategic review
Reactive management
Trouble-shooting Unexpected event Overlooked eventuality
Proactive management
Structured analysis on a continuous basis:
Conditioned and directed research
Cybernetic feedback systems
reasons for ….
Trigger point for strategy
Continuousappraisal
On-going reviews and special investigations Performance appraisal systems Audits:
- system audit- operating audit- organisation structure audit
Cybernetic control systems- feedback- feedforward
Competitive analysis
Examples: change in legislation merger of competitors
Examples: technological break-through move by competitor outbreak of conflict between countries
From: research and development market(ing) research associated companies
Expected event
Sudden unexpected
event
Ideas from within the
firm
Often there is some happening or event that ‘triggers’ the need for strategic change. The need is then uncovered by a strategic review, which itself can take several forms. Common trigger-points are shown below:
Type of review
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Data gathering
External sources(environmental
review)
Internal sources(resource audit)
Secondary data
Primary data
Data that has been made available for another purpose and is therefore used in a second-hand way
Data that is created especially for this purpose and is therefore unique
Data analysis
Use made of analytical models
Reporting system
Strategic review work often involves accountants and other consultants, and findings (usually with recommendations) are reported to managers with responsibility for strategic decisions. The system reports in three ways:
full and detailed report, including statistics briefing paper (brief and to the point) oral presentation (use of Microsoft PowerPoint, etc.)
Aspects reported
A formal strategic review will uncover useful information for strategic management, and in the main will report on the following aspects:
SWOTs core competencies and uses currently made the momentum line of existing strategy (expected
results of the current strategy) present product-market sphere significant problems
- now- looming
recommended strategic change/direction
Conclusion
It is not possible to provide a definite list of the aspects that should be analysed in a strategic review. This must depend upon the particular situation, trigger signs, circumstances and forces at work in the operational environment of a given organisation at a particular time. However the strategic review is usually a vital need in the early stages of strategy formulation.
9© Tony Surridge Online Ltd
2 of 2
There are other models
PESTEL analysis Various writers
Gap analysis Ansoff
7-S analysis McKinsey10-M analysis Various writersFinancial analysis Vertical, horizontal and
ratio analysisLife-cycle analysis Kotler, et alProduct portfolio analysis BCG and Shell modelsCompetitive analysis Various models5-Forces analysis PorterDiamond analysis PorterValue-chain analysis PorterStakeholder analysis Mendelow, et alSWOT analysis Ansoff, Mintzberg, et al
1
2
3
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MICRO-ENVIRONMENT
Micro-environment
That part of the business environment that is directly relevant to an industry or market and is therefore relevant for the organisation is achieving its goals.
It usually contains:
customers competitors stakeholders
but depending on the organisation’s domain can include other factors.
Macro-environment
Those components of the environment that affect many businesses in the economy as a whole and may potentially affect a particular organisation but whose relevance is not specific at a particular time. They are broad forces (PESTEL) which we cover later. The effect of macro factors is usually less immediate than direct ones.
Domain
What an organisation stakes out for itself with respect to the range of products or services offered and markets served. An organisation’s domain determines those parts of the business environment that are ‘micro’ or ‘macro’.
Example:The UK ‘Sun’
newspaper has a different business domain than the (London) ‘Times’
newspaper.
Divisions of the business environment
MACRO-ENVIRONMENT
10
Macro- and micro- environments
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1. The macro-environment of an organisation using PESTEL
(a) PESTEL Analysis
PESTEL Analysis is a framework that strategy consultants use to scan the external macro-environment in which an organisation operates.
PESTEL is an acronym for the factors shown in the below.
In the table on the next screen are examples of each of the PESTEL factors. Remember, macro-environmental factors can differ per continent, country or even region, so normally a PESTEL Analysis should be performed on a geographical basis.
(b) Conducting a PESTEL Analysis
Completing a PESTEL Analysis is relatively simple, and can be done by:
- workshops- using brain-storming techniques- conditioned and directed research.
(c) Using a PESTEL Analysis
The usage of PESTEL analysis can vary depending on the industry, business, strategic development approach or market planning method. In general terms, PESTEL Analysis aids the following important stages of strategic development:
- 'current position' auditing- future position projection- formulation of strategic proposals- evaluation of strategic proposals
Political factorsP
Economic factorsE
Social factorsS
Technological factorsT
Ecological (natural, ‘green) factorsE
Legal factorsL
PESTEL factors
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PESTEL analysis
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In this table are examples of each of the PESTEL factors. Remember, macro-environmental factors can differ per continent, country or even region, so normally a PESTEL Analysis should be performed on a geographical basis.
12
Political Economic Social Technological Ecological Legal
International trade regulations and restrictions
Interest rates & monetary policies
Labour/social mobility
New inventions and development
Environmental regulations and protection
Contract enforcement law
Tax policies Stages of the business cycle
Lifestyle changes
Government research spending
Energy use Customer protection law
Government organisation/attitude
Economic growth
Income distribution
Industry focus on technological effort
Social attitude (including influence of ‘pressure groups’)
Employment law
Political stability
Government spending
Demographics, population growth rates, age distribution
Life cycle and speed of technological obsolescence
Legislation/regulation enforcing pollution (effluent) controls
Trading block directives (such as European directives)
Destabilising factors (war, etc.)
Taxation Education Rate of technology transfer
Legislation/regulationcontrolling traffic movement and its cost
Competition regulation
Inflation rates Fashion, hypes Energy costs
Safety regulation
Exchange rates Work/career and leisure attitudes
Entrepreneurial spirit
(Changes in) information technology
Unemployment policy
Living conditions
(Changes in) mobile technology
Consumer confidence
Health consciousness & welfare, feelings on safety
(Changes in) Internet
Examples of PESTEL factors
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Using a PESTEL analysis
Completing a PESTEL Analysis is relatively simple, and can be done by:
- workshops- using brain-storming techniques- conditioned and directed research.
The usage of PESTEL analysis can vary depending on the industry, business, strategic development approach or market planning method. In general terms, PESTEL Analysis aids the following important stages of strategic development:
S Scenario building – provides a framework of possible positive or negative future events.
C Current position of the organisation is analysed by use of the PESTEL framework.
R Research focus – requires appropriate data to be uncovered, using both conditioned and unconditioned research. (Conditioned research is subject to or dependent on a condition or conditions, whereas unconditional research means unrestricted.)
I Idea generation – PESTEL aids in the formulation of strategic proposals.
P Proposal evaluation – PESTEL analysis can aid in the evaluation of ideas.
T Takes into account the main macro-environmental factors and ensures a near complete coverage.
Memory jog: PESTEL analysis provides a useful ’SCRIPT’ (an
‘original document’) of the macro-environment of an organisation.
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It’s red hot, mate. I hate to think of this sort of book getting into the wrong hands. As soon as I’ve finished this, I shall recommend they ban it.
Ray Galton and Alan Simpson - The Missing PageWords spoken by Tony Handcock, 1960 BBC television programme
Tony Handcock, 1924-1968English actor and comedian
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Gap Analysis
Fo
Ft
2007 2008 2009 2010 2011 2012 2013 2014 2015
Historical period Current Planning period Target Year
Strategic Drift
Planned strategicoutcome
Current
Actual results
The organisation has ‘drifted’ from itsstrategic objectives
Profit$m
Profit$m
Strategic Gap
14© Tony Surridge Online Limited, 2011
2009 2010 2011 2012 2013 2014
Ft: Forecast targetFo: Forecast with no strategic change
Gap analysis and strategic drift
Also click here
Also click here
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© Tony Surridge Online Limited, 2011 15
Culture relates to the sharing of behaviour patterns by groups of people. There are different cultures, or sub-groupings, and people can relate to move than one of them. The factors which influence culture are:
B Background and social class.
E Ethnic background. Ethnic membership affect cultural attitude and behaviour.
H Habits and traditions.
A Age (contrast the differences in behaviour between teenagers and old-age pensioners).
V Values and beliefs, which are often influenced by the other factors.
I Interests and education levels.
O Occupations and work. Different organisations use different structures and working practices.
U Usual ways of doing things – ‘norms’.
R Religion, which will influence behaviour.
S Sex (gender), i.e. the different behaviours of males and females.
Factors influencing social and culture
Memory jog: Remember culture affects ‘BEHAVIOURS’.
I’ve been in Who’s Who, and I know what’s what, but it’ll be the first time I ever made the dictionary.
Mae West, 1892 -1980American actress, playwright, screenwriter and sex symbol. Known for her bawdy double entendres
Letter to the RAF, early 1940son having an inflatable life jacket named after her
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© Tony Surridge Online Limited, 2011 16
Laws are the result of common law, parliamentary statutes, government regulations and directives of supranational bodies (such as the European Union) and can be grouped as follows:
T Tax law.
H Health and Safety law.
E Employment law.
R Regulation and protection of data law.
E Environment protection law.
B Business law.
C Consumer protection law.
C Company law.
C Competition law.
C Criminal law.
Economic dynamics are important influences for decisions made by business organisations and relate to the following indicators:
I Inflation rates.
S Spending by government, both national and local.
G Growth or reduction of the Gross Domestic Product (GNP), and causes of.
N National economic trends – factor prices such as materials, labour and rents.
P Productivity levels in the national economy.
F Foreign exchange rates.
I Interest rates.
T Tax rates.
Legal factors
Memory jog: Remember ‘THERE B’ 4 ‘Cs’.
Economic factors
Memory jog: When trying to recollect economic factors remember ‘IS GNP FIT?’.
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Political change can affect a business organisation in a number of ways and involves forecasting and analysis of:
P Possibility of a ‘muted’ regulation or change of Government policy.
I Indications of the reasons for the change.
N Nature and scope of the change.
O Outcome and consequences forecast for the organisation by the change.
N Nature of the strategic response required.
P Prevention (of the change) possibilities.
M Mitigation strategy (in the case when prevention is not possible).
Political forecasting and analysis
Memory jog: Remember when discussing political aspects to‘PIN’ it ‘ON’ the ‘PM’ (prime minister).
Education
At Mr Wackford Squeer’s Academy, Dotheboys Hall, at the delightful village of Dotheboys, near Greta Bridge in Yorkshire, Youth are boarded, clothed, booked, furnished with pocket-money, provided with all necessaries, instructed in all languages living and dead, mathematics, orthography, geometry, astronomy, trigonometry, the use of the globes, algebra, single stick (if required), writing, arithmetic, fortification, and every other branch of classical literature. Terms, twenty guineas per annum. No extras, no vacations, and diet unparalleled.
Charles Dickens, 1812 - 70Nicholas Nickleby (1839)
Charles Dickens's gripping story about a boy's struggle to survive and find happiness in a hostile and unfeeling world. Wordsworth (1995.09.06) -
paperback - 731 pages
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Technological change can affect a business organisation in a number of ways:
T Types of products or services that are made and marketed.
W Ways in which the product is made (new materials, automation, etc.)
O Organisational implications – for example organisation delayering and re-structuring due to IT change.
P Processing systems – machine routing and loading, etc.
I Information systems and the information available for market research, etc.
P Processing costs which are often reduced by technological change.
E Extent of geographical decentralising – such as taking information processing operations (such as call-centres) overseas to low cost countries.
S Scope to improve services and communication with customers by using e-mail and e-business systems, etc.
18© Tony Surridge Online Limited, 2011
Technological change
Memory jog: when discussing how technological change can affect an organisation to mention the ‘TWO PIPES’.
“Take some more tea,’ the March Hare said to Alice, very earnestly. ‘I’ve had nothing yet,’ Alice replied in an offended tone, ‘so I can’t take more.’ ‘You mean you can’t take less.’ said the Hatter: ‘it’s very easy to take more than nothing.’
Lewis Carroll, 1832 - 98Alice’s Adventures in Wonderland (1865)
By Lewis Carroll, Tove Jansson -Tate Publishing, Limited (2011) -Hardback - ISBN 1854379577
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Risk and threat
A company faces risk because of its lack of knowledge of the future. When planners evaluate a strategy they will at best be able to forecast that 'if event A happens we shall have such and such a return, but if event B happens we shall lose $m.' The extent of the risk a firm faces can be revealed by the use of performance-risk gap analysis, where forecasts of the outcome in n years' time take into account not only the likely returns but also the risk - i.e., the probability of achieving various returns less than the likely level. Using this concept of risk - event A being favourable to the company and event B unfavourable, there would seem to be four basic ways in which a company can reduce its risk:
C Contingency plans. If event B seemed a fairly remote possibility, but its happening would have serious consequences for the company, contingency plans should be prepared. For instance, there might be plans to cope with such events as the sudden deaths of key personnel; the merger of two competitors into one large unit; a breakthrough in technology by the company's competitors. Because of the speed of events these days and the magnitude of the effect which events such as technological breakthrough can have, no corporate strategy is complete without contingency plans. Nevertheless, they are only one part of the risk-reducing strategy.
A Adopting a flexible strategic profile. Whatever the company does to prepare for particular unfavourable events it must be recognised that the whole future is uncertain and the company needs to put itself in a position where it can take advantage of new (unforeseen) opportunities and avoid unforeseen threats. Contingency plans can only be prepared against events which have been predicted, even though they may be thought unlikely to happen. To avoid being taken totally by surprise, a company must have a constant 'ear to the ground' to catch hints of potentially threatening or promising developments at an early stage. (It is equally bad to miss an opportunity as to fail to forecast a threat - an opportunity rapidly becomes a threat if a company fails to take advantage of it and its competitors are quicker off the mark!) This is probably best achieved by both formal and informal information collection methods. Thus the company will keep abreast (as far as it can) of what its competitors are doing and possible planning to do, and experts within the company will have an eye on general economic trends, the opinions of political commentators and the progress of scientific research at the pure as well as the appliedstage, in addition to any more specific research work the company may itself be engaged in.
M Mitigation of possible damage arising because of the event. If it seemed fairly likely that event B was going to happen, the company could attempt to mitigate the effect of the occurrence. The firm could aim for internal flexibility - the building up of funds to help it through the difficulty -or external flexibility - the 'not putting all one's eggs in one basket' approach. External flexibility could be achieved by operating in different markets (with negatively correlated demand forces) and/or by using different technologies. If event B was 'a decline in demand at home' a possible strategy to mitigate the effect of that threat would be to expand export efforts. If event B was 'a general downturn in the world economy' a possible strategy would be to stockpile cash to see the company through the crisis until the next upswing.
E Event prevention. Management can attempt to influence events so that event A happens and event B does not. For instance if the company thought that a Conservative government was likely to be more favourable to it than a Labour government it could give money to the Conservative party to back their campaign. If it anticipated legislation that would seriously affect some aspect of its operations it could lobby Members of Parliament to try and avert the threat. Additionally, it could try and influence public opinion on the matter through the use of the press, trade unions, non-executive directors' influence, influential institutional shareholders and pressure groups.
Memory jog: Techniques ’CAME’ in to identify and manage risk (or threat)
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CompetitivePosition
Competitive analysis
Competitive strategy
- Entry barriers- Cost leadership- Differentiation- Focus
PESTEL analysisIndirectenvironment
MarketPosition
Market analysis
Marketing strategy
- Product strategy- Price strategy- Place (distribution) strategy- Promotion (communication) strategy- People- Process- Physical evidence
PESTEL analysisIndirectenvironment
- 5-Forces analysis- Value-chain analysis- Competitors’ SWOT analysis
- Market research techniques
For some organisations part of PESTEL can be micro-environment, such as a company that develops a technological-based strategy
20
Influences of the main micro-environmental factors
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Classes of marketing strategy
Ward identifies four classes of market strategy:
E Entry. The strategy to enter a particular market.
I Increase of market share. The strategy to increase share of a segment in which the firm already operates.
R Remain in and sustain market share. The strategy to remain operating within a current segment.
E Exit. The strategy to leave the segment.
These are long term investment decisions. When appraising such future capital investment, strategic management attempt to forecast the impact of competitive forces and likely actions and reactions of competitors.
Memory jog: ’EIRE’ is another name for Ireland. It can be used as a mnemonic to describe the four main market strategies.
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He who can, does. He who cannot, teaches.
George Bernard Shaw, 1856-1950
Man and Superman (1903)‘Maxims: Education
Dan H. Laurence- Penguin (2000) - Paperback
- 264 pages - ISBN 0140437886
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Porter’s ‘5 Forces’ framework
The key text dealing with competitive analysis is Professor Michael Porter's work 'Competitive Strategy: Techniques for Analysing Industries and Competitors' Porter states that 'competition in an industry is rooted in its underlying economics and competitive forces exist that go well beyond the established combatants in a particular industry'.
The problem for the strategist is to determine which of these forces are relevant, and to what extent.
Porter's approach to industry analysis is based on the concept of an industry shaped by five forces. They are illustrated in the diagram on the next screen. Porter referred to these forces as the microenvironment, to contrast it with the more general term macroenvironment. They consist of those forces close to a company that affect its ability to serve its customers and make a profit. A change in any of the forces normally requires a company to re-assess the market place. Strategy consultants use Porter's framework often to evaluate a company's strategic position.
P Power of buyers. The power used by the buyers in an industry make it more competitive in three ways: (i) by their power to force down prices; (ii) whilst at the same time bargaining for higher quality or improved services; and (iii) be able to play supplier competitors against each other. All three of these power ploys will be at the expense of the supplying industry's profitability.
R Rivalry within the market. Conflict among existing competitors involves market maneuvering.Tactics include: product innovations and improvements, price competitions, advertising battles and improved customer services.
E Entrants. New competitors to an industry may increase the competitiveness of a market in three ways: (i) The market capacity expands without necessarily achieving a commensurate increase in market demand. (ii) New entrants need market penetration to achieve critical massand to then build market share. They often achieve this by product and marketing initiatives which demand response from present market incumbents. (iii) Supply and demand dynamics may lead to increase costs in the industrial sector as new competitors bid for factors of production.
S Substitutes. In economics, one kind of good (or service) is said to be a substitute good for another kind insofar as the two kinds of goods can be consumed or used in place of one another in at least some of their possible uses.
Classic examples of substitute goods include margarine and butter, or petroleum and natural gas (used for heating or electricity). The fact that one good is substitutable for another has immediate economic consequences: insofar as one good can be substituted for another, the demand for the two kinds of good will be bound together by the fact that customers can trade off one good for the other if it becomes advantageous to do so. Thus, an increase in price for one kind of good (ceteris paribus) will result in an increase in demand for its substitute goods, and a decrease in price (ceteris paribus, again) will result in a decrease in demand for its substitutes. Thus, economists can predict that a hike (increase) in the cost of wood will likely mean increased business for bricklayers, or that falling cellular phone rates will mean a fall-off in business for public pay phones.
S Suppliers’ power. Suppliers can exert bargaining power over companies within an industry in two main ways: (i) By threatening to raise their prices, or actually raising their prices. (ii) By threatening to reduce the quality of their goods and services, or actually reducing quality. The effect of this power influence or power play will be to squeeze profitability out of an industry which is unable to recover cost increases by raising its own prices.
Memory jog: A company faces competitive ’PRESSURES’. These pressures can be analysed by using Porter’s ‘5-Forces Framework’.
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The key text dealing with competitive analysis is Professor Michael Porter's work 'Competitive Strategy: Techniques for Analysing Industries and Competitors' Porter states that 'competition in an industry is rooted in its underlying economics and competitive forces exist that go well beyond the established combatants in a particular industry'.
The problem for the strategist is to determine which of these forces are relevant, and to what extent.
Porter's approach to industry analysis is based on the concept of an industry shaped by five forces. They are illustrated in the diagram below (below). Porter referred to these forces as the microenvironment, to contrast it with the more general term macroenvironment. They consist of those forces close to a company that affect its ability to serve its customers and make a profit. A change in any of the forces normally requires a company to re-assess the market place. Strategy consultants use Porter's framework often to evaluate a company's strategic position.
Threat ofNew Entrants
Threat of Bargaining
Power of Buyers (customers)
Threat of Bargaining Power of Suppliers
Threat of Substitute Products
Threat of Rivalry within an industry
Graphical representation of Porter’s ‘Five Forces Framework’
23
Porter's 'Five Forces' framework
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Fact Sheet: Threat of new entrants
New entrants cause the market capacity to expand usually without an increase in market demand
New entrants require to achieve ‘critical mass’. This is a volume level which allows a company’s fixed costs to be spread over a sufficient output for the company’s total
cost per unit (and thus its selling price) to be competitive.
For new entrants to achieve critical mass they need to penetrate the market and ‘build share’.
Thus, there is a need for new entrants to pursue offensive (‘build’) marketing strategies.
Offensive marketing strategies involve the ‘4 Ps’, i.e. product innovation strategy, pricing strategy (often price reduction),
promotion strategy and distribution strategy.
The marketing strategies of new entrants require innovative responses from companies already
occupying the market. This often increases costs and reduces profitability within the market
In some cases the increased demand for resources in the industry puts an upward
pressure on resource costs (supply and demand dynamics).
Overall, there is a danger that new entrants will reduce the profitability of companies already occupying the industry.
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Extent of threat from new entrants
The extent of threat from new entrants is influenced by the following.
B Barriers to entry.
I Image and brand equity.
G Government regulation.
S Switching costs for the buyer/customer.
C Capital requirements for entry.
A Access to distribution channels (for the new entrant).
L Learning/experience curve disadvantages for new entrants.
E Expected retaliation from market incumbents.
Memory jog: Companies often face ’BIG SCALE’ penetration of their markets by new entrants and must build or use barriers to entry to help protect and defend their market positions.
25© Tony Surridge Online Limited, 2011
Expenditure rises to meet income.
C. Northcote Parkinson, 1909-93The Law and the Profits (1960)
C. Northcote Parkinson's Parkinson's Law
Leo Gough
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Threats posed by substitutes
Substitutes pose the following threats.
P Price-quality trade off. Because of their price-quality trade-off, substitute products may limit the price that a company can charge for it's products.
A Attracted to a transient market growth which eventually levels off and thus becomes very ‘crowded’ and competitive.
I Increase the choice for customers. The main threat posed by substitutes is that they increase the competitiveness of a market.
D Danger that a threat of a substitute may not be realised until it is too late to arrest their entry.
The extent of threat of substitute products depends on;
P Propensity of buyers to substitutes.
R Relative price-quality performance of substitute offerings.
I Imposition of switching costs by companies within the sector.
M Marketing mix tactics employed by the competitors supplying the substitutes.
E Extent, and perceived level of differentiation of the substitute.
Memory jog: Often, not enough attention is ’PAID’ to the threat that substitute products/services can bring to a market until it is too late.
26© Tony Surridge Online Limited, 2011
Extent of threat of substitute products
Memory jog: Often, the threat of substitutes becomes a ’PRIME’ concern of the strategic analyst.
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Seven situations where buyers are particularly powerful
The power used by the buyers in an industry make it more competitive in three ways:
(i) by their power to force down prices;(ii) whilst at the same time bargaining for higher quality or improved services; and(iii) be able to play supplier competitors against each other.
All three of these power ploys will be at the expense of the supplying industry's profitability.
Michael Porter purports that the power of the industry's buyer depends on the characteristics of its market situation and of the relative importance of a buyer's purchases from the industry compared with its (the buyer's) overall business. He suggests that buyers are particularly powerful in seven situations.
B Buyer’s product is not strongly affected by the quality of the suppliers' product.
I Information. The buyer has full information.
L Large purchases by the buyer relative to its supplier.
L Low profits earned by buyers.
S Significant proportion of the buyer’s costs are purchases.
U Undifferentiated purchases. Purchases are undifferentiated.
P Potential for backward integration. Buyers have the potential for backward integration.
Memory jog: Actually the ’BILLS’ (invoices) are often not going ‘UP’ for a buyer. Buyers often have the power to force prices down!
27© Tony Surridge Online Limited, 2011
Click to next two screens
I evidently knew more about economics than my examiners.
John Maynard Keynes, 1883 - 1946explaining why he performed badly in the Civil Service examinations.
The life of John Maynard Keynes [Book]by Sir Roy Forbes Harrod
- Norton (1982) - paperback - 674 pages
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Extent of threat from the bargaining power of a buyer
The extent of the threat from the bargaining power of buyers is influenced by:
V Volume of purchases from the buyer – the higher they are, the bigger the threat.
I Information the buyer has available about the offerings of its supplier’s competitors.
P Price sensitivity of the buyer.
P Price of the total purchase – including add-ons, such as delivery.
A Amount of bargaining leverage both parties have.
S Switching costs imposed on the buyer by its supplier.
S Substitute products/offerings available to the buyer.
Memory jog: The buyer is a ’VIP’ (‘very important person’) who can ‘PASS’ its purchasing policy in a way that can damage its supplier.
Pass, in this case, means ‘to make one’s way’ (Chambers 20th Century Dictionary).
28© Tony Surridge Online Limited, 2011
If at first you don’t succeed, try, try again. Then quit. No use being a damn fool about it.
W. C. Fields, 1880-1946attributed
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There are ways open by which firms can attempt to reduce the power of the buyers in its market.
S Switching costs. Companies can lock in customer loyalty by the use of ‘switching costs’. An example is a supermarket ‘loyalty card’. A customer would be unable to take advantage of the loyalty card if he/she switched to another supermarket.
M Marketing tactics. The tactics to be employed depend upon the sensitivity of the market. If the market is promotional-sensitive then the company can obtain customer loyalty through its promotion strategy.
I Innovation in the market price. Companies selling ‘unique’ products will possess technological monopoly and customers will be forced to use their products/services.
L Low price. If the market is price sensitive then customers can be locked in by the use of low selling prices, discounts and favourable credit terms.
E Exact need focus. Companies that produce to exact needs (customisation, bespoke offerings, etc.) usually create switching costs which lock in customers.
D Product differentiation. Customer loyalty is often the result of the ‘habitual buying’ of customers who are happy with the quality of the product they purchase. This is particularly so in the case of ‘fast moving consumer group’ (FMCG) products or ‘repeat products’.
Ways to reduce ‘Buyer Power’
Memory jog: use ‘word association’. Fortune has ‘SMILED’ on organisations that increased or sustained their competitive advantages by reducing the power of their buyers to switch to other suppliers.
29© Tony Surridge Online Limited, 2011
A see nothing wrong with giving Robert some legal experience as Attorney General before he goes out to practice law.
John F. Kennedy, 1917 - 63America’s 35th president
of the appointment of his brother Robert.
Bill Adler- More Kennedy Wit
1st Ed 1965 h/b d/j / JFK
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Threat of bargaining power of suppliers
Suppliers can exert bargaining power over companies within an industry in two main ways:
(i) By threatening to raise their prices, or actually raising their prices.
(ii) By threatening to reduce the quality of their goods and services, or actually reducing quality.
The effect of this power influence or power play will be to squeeze profitability out of an industry which is unable to recover cost increases by raising its own prices.
Porter suggests that suppliers are particularly powerful in six situations.
A Availability of substitute products. There are few substitutes for their products.
L Low number of suppliers. There are few suppliers.
L Low importance of the buyer to the supplier. The company supplied is not an important customer.
S Supplier is able or has intention to integrate forward (downstream).
A -
I Importance of the supply to the buyer. The supplier's product is an important component to the buyer's business.
D Differentiated goods/products are supplied. The supplier's product is differentiated.
The extent of the threat of the bargaining power of suppliers depends on:
S Switching costs. The supplier’s switching costs relative to the firm's switching costs
I Input supply costs of the buying firm relative to its other costs and sales. In other words, costs of inputs relative to selling price of the product.
D Degree of differentiation of supplied goods or products.
E Existence of substitute inputs.
Memory jog: ’ALL SAID’ and done, the suppler can present very serious threats to its customer (buyer).
30© Tony Surridge Online Limited, 2011
Extent of threat of the bargaining power of suppliers
Memory jog: Looking at this ’SIDE’ of a supplier’s power base shows that it can exert considerable threat to its buyer.
Click to the next screen
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There are ways open by which firms can attempt to reduce the power of the suppliers in its market.
E Economies of scale: large, experienced firms can generally produce at higher volumes than small, inexperienced firms. The rationale is that it is often better to expand within an existing market and build volume, than diversify into different product-markets and sectors. High volume purchases favour suppliers
S Switching costs. These are one-off costs facing a supplier which switches from one buyer. Switching costs may include contractual obligations, costs of certification, product redesign, costs and time in assessing a new source (if the supply is a non-traded good), or even the cultural problems of severing a relationship. Switching costs help to ‘lock in suppliers’ thus removing -part of their power base.
C Capital investment: especially in industries with economies of scale and/or natural monopolies.Capital investment will increase quality, reduce costs and act as an entry barrier all of which will help to reduce the power of suppliers. It makes companies attractive to other suppliers thus reducing the power position of any one supplier.
A Advertising. Firms can seek to make themselves attractive by building trade loyalty. This would also make it it difficult for new competitors who may not be able, or willing, to spend heavily on trade advertising and promotion.
P Product differentiation. Products can be differentiated in terms of: price, quality, brand image, features, distribution, exclusivity, packaging, value. Patents help to give strength to a differentiated position. Patents and copyright offer inventors some protection against new entrants. This helps to provide the volume of purchases which lock in the supplier.
E Economies and cost advantages independent of size/scale. Established companies may have cost advantages not available to potential entrants, no matter what their size and cost levels. Critical factors include; proprietary product technology, favourable locations, learning or experience curve, favourable access to sources of raw materials and government subsidies. All of these make buyers preferable to suppliers.
Ways to reduce ‘Supplier Power’
Memory jog: use ‘word association’. The use of tactics may enable the firm to ‘ESCAPE’ from the power lock of suppliers.
31© Tony Surridge Online Limited, 2011
Please, sir, I want some more,
Charles Dickens, 1812 - 70Oliver Twist (1838)
Oxford University Press (2010)
- Hardback - 517 pages - ISBN 0192729667
Mnemonics and Charts Paper P3: Business Analysis
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Threat of rivalry within an industry
Conflict among existing competitors involves market maneuvering.
Tactics include: product innovations and improvements, price competitions, advertising battles and improved customer services.
Rivalry occurs because one or more companies feels threatened or sees a market opportunity. Competitive moves usually results in counter-defensive strategies from other companies. This interactive pattern of offensive and defensive strategies is costly and may leave all the competing companies worse off then before.
Porter suggests that there are seven main determinants relating to the strength of internal competition and rivalry within an industry.
L Lack of differentiation in the sector.
C Competition is diverse.
H High fixed costs in the industry.
I Increase of capacity is only possible in large incremental amounts.
M Many equally balanced competitors.
E Exit barriers are high/robust.
S Slow rate of industrial growth.
Memory jog: Remember the different threats of rivalry within an industry as ’L CHIMES’.
32© Tony Surridge Online Limited, 2011
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A man may be a fool and not know it, but not if he is married.
H. L. Mencken, 1880-1956
Laurence J. Peter - ‘Quotations of Our Time’ (1977)
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Intensity of competitive rivalry
The intensity of competitive rivalry in an industry is influenced by five main factors:
A Asymmetry (irregularity) of information. now
L Level of marketing effort within the sector.
I Intermittent industry capacity.
C Complexity of information required.
E Equality within brands, i.e. lack of differentiation.
Porter's framework has repeatedly been challenged by other academics and strategists on the arguments that four dubious assumptions underlie the five forces:
C Collusion and interaction is non-existent. That buyers, competitors, and suppliers in a sector are unrelated and do not interact and collude.
U Uncertainty of competitive behaviour. That uncertainty is low, allowing participants in a market to plan for and respond to competitive behaviour.
R Resources a firm brings. That the attractiveness of an industry can be evaluated independent of the resources a firm brings to that industry
E Entry barriers create value. That creating barriers to entry, create value.
Furthermore, an important extension to Porter was found in the work of Brandenburger and Nalebuff in the mid-1990s. Using game theory, they added the concept of complementors (also called "the 6th force"), helping to explain the reasoning behind strategic alliances. The idea that complementors is the sixth force has often been credited to Andrew Grove, former CEO of Intel Corporation, although according to most references, the sixth force is government or the public. (Complementors is a term used to describe businesses that sell a product (or products) or service (or services) that complement the product or service of another company by adding value to them; for example, Intel and Microsoft (Pentium) (processors and Windows), or Microsoft & McAfee (Microsoft Windows & McAfee anti-virus).
Memory jog: The film ’ALICE in Wonderland’ competes with other films!
33© Tony Surridge Online Limited, 2011
Porter’s ‘5-Forces Framework’ challenged
Memory jog: Perhaps Michael Porter’s framework is not a win-all ’CURE’ for identifying the nature of competition within a market sector.
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‘Position Audit’
ContentsTitle Page
Chart Strategic Review (Position audit) - Overview of what might be involved
32
Chart Macro- and micro- environments 34
Chart PESTEL analysis 35
Chart Examples of PESTEL factors 36
Mnemonic Using a PESTEL analysis 37
Chart Gap analysis and strategic drift 38
Mnemonic Factors influencing social and culture 39
Mnemonic Legal factors 40
Mnemonic Economic factors 40
Mnemonic Political forecasting and analysis 41
Mnemonic Technological change 42
Mnemonic Risk and threat 43
Chart Influences of the main micro-environmental factors 44
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Only the items shown in red are hyperlinked for this free sample
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Contents (continued)Title Page
Mnemonic Classes of marketing strategy 45
Mnemonic Porter’s ‘5 Forces’ framework 46
Chart Porter's 'Five Forces' framework 47
Chart Threat of new entrants 48
Mnemonic Extent of threat from new entrants 49
Mnemonic Threats posed by substitutes 50
Mnemonic Extent of threat of substitute products 50
Mnemonic Seven situations where buyers are particularly power 51
Mnemonic Extent of threat from the bargaining power of a buyer 52
Mnemonic Ways to reduce ‘Buyer Power’ 53
Mnemonic Threat of bargaining power of suppliers 54
Mnemonic Extent of threat of the bargaining power of suppliers 54
Mnemonic Ways to reduce ‘Supplier Power’ 55
Mnemonic Threat of rivalry within an industry 56
Mnemonic Intensity of competitive rivalry 57
Mnemonic Porter’s ‘5-Forces Framework’ challenged 57
Chart Entry barriers 58
Mnemonic Main barriers to entry 59
Mnemonic Problems with using entry barriers as defensive strategy 60
Chart Porter's ‘Value-chain analysis’ 61
Mnemonic Value chain analysis: Cost reduction techniques - the approach
64
Mnemonic Value chain analysis: Cost reduction techniques - the use of information technology (IT)
68
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‘Position Audit’
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Contents (continued)Title Page
Mnemonic Value-chain analysis: Ways of reducing costs and improving differentiation within a group of divisions, business units or separate companies
69
Mnemonic Value System: (Value chain linkage with suppliers/ customers)
73
Mnemonic The use of value-chain analysis 74
Chart Porter's ‘Diamond’ and the influence of national competitiveness on the strategic position
75
Mnemonic DIAMOND model: The role of government 76
Mnemonic Related and supporting industries 77
Mnemonic Use of the DIAMOND model by a company 78
Mnemonic The difficulties of developing and using scenarios 79
Mnemonic Types of public sector organisation 80
Mnemonic Issues faced by public sector organisations 81
Mnemonic Issues for service providers 82
Mnemonic Issues faced by manufacturing concerns 83
Chart Examples of service sector and manufacturing activities 84
Chart Product life-cycle analysis 85
Mnemonic Characteristics of the ‘Development stage’ of the product life cycle
89
Mnemonic Characteristics of the ‘Introduction stage’ of the product life cycle
89
Mnemonic Characteristics of the ‘Growth stage’ of the product life cycle 90
Mnemonic Factors that the rate of growth and the length of the growth phase depends upon
90
Mnemonic Characteristics of the ‘Maturity (stability/ consolidation/ competitive)’ stage of the product life cycle
91
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Contents (continued)Title Page
Mnemonic Characteristics of the ‘Decline’ stage of the product life cycle
92
Chart Product life-cycle marketing objectives 92
Chart Summary of product-life-cycle characteristics, objectives and strategies
93
Chart Stages of the competitive cycle 94
Mnemonic Strategic groupings 95
Mnemonic Strategic group analysis 96
Mnemonic Examples of market convergence 97
Mnemonic Commonly used critical success factors 98
Mnemonic Examples of the critical success factors of a retailer 99
Chart Benchmarking 100
Mnemonic Different approaches to benchmarking 103
Mnemonic Strategic benchmarking 104
Chart 10-M Internal Resource Model 105
Chart Internal review 106
Mnemonic Distinctive capabilities (or core competences) 107
Mnemonic Distinctive capabilities: Reputation 107
Mnemonic Core competences: The Prahalad and Hamel ‘Three-test model’
108
Mnemonic Factors considered in a ‘Resource Audit’ prior to the development of strategy
109
Chart 7-S Framework 110
Chart Kaplan and Norton’s ‘Balanced scorecard’: 111
Mnemonic Product-line strategies 114
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‘Position Audit’
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Contents (continued)Title Page
Mnemonic The need for flexible product development 115
Mnemonic Purposes of knowledge work systems (KWS) 116
Mnemonic The ‘Knowledge Environment’ 117
Mnemonic Different types of IT-based knowledge support systems 118
Chart Knowledge Support Systems: Groupware (Collaborative Software)
119
Mnemonic Development of new knowledge or ideas 120
Mnemonic Practical ways of sharing knowledge 120
Mnemonic The challenges for ‘Knowledge Management’ 121
Mnemonic Benefits of a ‘Knowledge Management Framework’ 121
Chart Strengths, Weaknesses, Opportunities and Threats analysis 122
Mnemonic SWOT analysis 127
Chart SWOT as a summary framework of the other analytical models
128
Chart Objectives analysis: The concept of hierarchy 129
Chart Stakeholders of business organisations 130
Mnemonic Making sure that the mission statement remains valid 145
Mnemonic Characteristics of an effective mission statement 146
Mnemonic Benefits of having a strong mission statement 146
Chart Relationship between mission - goals - objectives and critical success factors
147
Mnemonic Key elements of strong corporate governance 150
Mnemonic Issues involving corporate governance 151
Mnemonic Concept of ‘Principal-Agency Theory’ (PAT) applied to shareholders and directors
152
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‘Position Audit’
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Contents (continued)Title Page
Mnemonic General principles of Governance 153
Mnemonic Corporate governance: Best Practice 154
Mnemonic Role of the Board of Directors 155
Mnemonic Role of Non-Executive Directors 156
Mnemonic Problems with non-executive directors 157
Chart Corporate Governance reports which make up the FRC’s ‘Combined Code’ (UK)
158
Chart Committees recommended by Cadbury 159
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‘Position Audit’
39© Tony Surridge Online Limited, 2011
Do you know?
Squaring the circle
“Squaring the circle” relates to the geometrical impossible task of forming a circle from a series of squares.
The expression "squaring the circle" is sometimes used as a metaphor for doing something logically or intuitively impossible.
Squaring the circle: the areas of this square and this circle are equal. In 1882, it was proven that this figure cannot be constructed in a finite number of steps
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ACCA Paper P3 Business Analysis
‘Choices and Evaluation’
40© Tony Surridge Online Limited, 2011
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Continued on the next screen
‘Choices and Evaluation’
41© Tony Surridge Online Limited, 2011
ContentsTitle Page
Chart Porter’s ‘3 Generic competitive strategies’ 161
Mnemonic Differentiation strategy: ways of enhancing uniqueness
163
Mnemonic Sustaining competitive advantage by differentiation 164
Mnemonic Cost leadership: The strategic advantages of low costs 165
Mnemonic Ways to reduce costs 166
Chart Aims, analysis and implementation of a strategy of cost leadership
167
Chart Economies of scale 168
Mnemonic Sustaining a low level of costs 169
Mnemonic Interpreting competitors’ costs 169
Chart Focus strategy 170
Mnemonic Niche Marketing 171
Chart Bowman’s ‘Strategy Clock’ : Competitive strategy options 172
Mnemonic Sustaining competitive advantage: Locking out competitors by ‘Lock In’
173
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‘Choices and Evaluation’
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Contents (continued)Title Page
Mnemonic Keeping ahead by maintaining market sustainability 174
Mnemonic Sustainability: Superior access to resources or customers 174
Mnemonic Sustainability: Maintaining optimum size in the target market 175
Mnemonic Sustainability: Experience effects 176
Mnemonic Sustainability: Restricting competitors’ options 177
Chart Sustaining competitive advantage 178
Mnemonic Hyper-competitive conditions 179
Mnemonic Hyper-competitive conditions: Attack (offensive) strategy 180
Mnemonic Hyper-competitive conditions: Defensive (‘hold’ sustain’) strategy
181
Mnemonic Hyper-competitive conditions: Confusing competitors 182
Mnemonic Hyper-competitive conditions: Guerrilla warfare carried out by small companies
183
Mnemonic Hyper-competitive conditions: Collaboration 184
Chart Competitive strategy in hypercompetitive conditions 185
Chart Competition and collaboration 186
Mnemonic Ansoff’s ‘Components of strategy’ 187
Chart Ansoff’s ‘Components of strategy’ 188
Chart Responding to SWOTs 190
Mnemonic Ansoff’s ‘Components of strategy’: ‘Market penetration’ strategy
192
Mnemonic Ansoff’s ‘Components of strategy’: Appropriateness of ‘Market penetration’ strategy
193
Mnemonic Ansoff’s ‘Components of strategy’: ‘Product development’ strategy
194
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‘Choices and Evaluation’
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Contents (continued)Title Page
Mnemonic Ansoff’s ‘Components of strategy’: Appropriateness of ‘Product development strategy’
195
Chart Ansoff’s ‘Components of strategy’:‘Market penetration’ and ‘Product development’ strategies
196
Mnemonic Ansoff’s ‘Components of strategy’: Appropriateness of ‘Market development strategy’
197
Mnemonic Ansoff’s ‘Components of strategy’: Appropriateness of ‘product-market diversification strategy’
198
Chart Ansoff’s ‘Components of strategy’:‘Market development’ and ‘Product-market diversification’ strategies
199
Mnemonic Ansoff’s ‘Components of strategy’: Classification of synergy 200
Mnemonic Ansoff’s ‘Components of strategy’: Forms of synergy 201
Chart Ansoff’s ‘Components of strategy’: ‘Business synergy’ 202
Mnemonic Ansoff’s ‘Components of strategy’: Consolidation of strategy 207
Chart Ansoff’s ‘Components of strategy’: ‘Product-market gap-closing growth strategies’
208
Chart Ansoff’s Adapted ‘Product/Market Growth Vector Matrix 209
Mnemonic Reasons for a diversification strategy 210
Mnemonic Diversification strategy: Horizontal diversification 211
Mnemonic Diversification strategy: Strengths of horizontal diversification 212
Mnemonic Diversification strategy: Limitations of horizontal diversification
213
Mnemonic Diversification strategy: Potential benefits of ‘buyside’ (‘upstream’ or ‘backward’) integration (or vertical diversification)
214
Mnemonic Diversification strategy: Problems associated with ‘buyside’ (‘upstream’ or ‘backward’) integration
215
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‘Choices and Evaluation’
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Contents (continued)Title Page
Mnemonic Diversification strategy:Advantages of ‘sellside’ (‘downstream’ or ‘forward’) integration)
216
Chart The issues involved with integration strategy 217
Mnemonic Diversification strategy:Disadvantages of conglomerate diversification
218
Chart The issues involved with conglomerate diversification 219
Chart Divisional (SBU) decision structure 220
Chart Two levels of strategic management 221
Mnemonic Styles of managing relationships between parent and business units.
222
Chart Parenting Styles of Management 223
Chart The role of parents (head office) in a diversified group:Portfolio managers, synergy managers and parental developers
224
Mnemonic Diversification strategy: The need for corporate-wide strategic architecture
225
Mnemonic Diversification strategy: The problems associated with a holding company structure
226
Mnemonic Diversification strategy: Porter’s ‘Three essential tests for diversification (or acquisition)’
227
Mnemonic Diversification strategy: Porter’s ‘Attractiveness test’ for diversification or acquisition
228
Mnemonic Diversification strategy: Porter’s ‘Better-off test’ for diversification or acquisition
229
Mnemonic Diversification strategy: Porter’s ‘Cost-of entry test’ for diversification or acquisition
230
Mnemonic Group of companies or divisions: Roles of the corporate board (‘parent’) in a group of companies (or group of divisions)
231
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‘Choices and Evaluation’
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Contents (continued)Title Page
Mnemonic Group of companies or divisions: Head office as parent 232
Mnemonic Group of companies or divisions: Head office intervening within business units
233
Mnemonic Group of companies or divisions: Head office as a synergy manager
234
Mnemonic Group of companies or divisions: Head office as a portfolio manager
235
Mnemonic Porter’s premises of corporate and business unit strategies 236
Mnemonic Group of companies or divisions: Parent (head office):value-destroying activities of the parent
237
Chart Aspects of product-market diversification strategy 238
Mnemonic Group of companies or divisions: Strategic orientation in markets overseas
239
Chart Boston Consulting Group (BCG) ‘Growth Share Matrix’: 240
Mnemonic Portfolio management: The aim of Portfolio Models 244
Mnemonic Reasons for using the BCG product-market growth matrix 245
Mnemonic Portfolio management: The BCG logic - The cash advantages of a holding a high relative market share
245
Mnemonic Portfolio management: The BCG logic - The ‘Cash Cow’ 246
Mnemonic Portfolio management: The BCG logic - The ‘Star’ 247
Mnemonic Portfolio management: The BCG logic - The ‘Problem Child’ 248
Mnemonic Portfolio management: The BCG logic - The ‘Question Mark’ (‘Wildcat’)
249
Mnemonic Portfolio management: The BCG logic - The ‘Dog’ 250
Mnemonic Portfolio management: The BCG logic - Strategic management of the business portfolio
251
Mnemonic Portfolio management: Limitations of the BCG matrix 252
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‘Choices and Evaluation’
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Contents (continued)Title Page
Mnemonic Portfolio management: The benefits of the BCG business portfolio matrix
253
Mnemonic Portfolio management: ‘Directional Policy Business Portfolio Matrix’
254
Mnemonic Portfolio management: ‘Directional Policy Business Portfolio Matrix’: Dimension 1 - Market attractiveness
255
Mnemonic Portfolio management: ‘Directional Policy Business Portfolio Matrix’: Dimension 2 - Competitive strengths of an business
256
Mnemonic Portfolio management: ‘Directional Policy Business Portfolio Matrix’: Its limitations
257
Chart Directional Policy Matrix: The framework 258
Chart Nine strategic vectors of the ‘Directional Policy Matrix’ 258
Chart Presentation of the Directional Policy Matrix 259
Chart Evaluation of strategic proposals 260
Chart Testing a strategic proposal for acceptability, suitability and feasibility.
261
Chart Assessment of the suitability of a strategy 262
Chart Assessment of the feasibility of a strategy 263
Chart Assessment of the acceptability of a strategy 263
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‘Implementation and action’
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ACCA Paper P3 Business Analysis
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‘Implementation and action’
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ContentsTitle Page
Chart A planning framework for the implementation of strategic initiatives
265
Chart The Acquisition versus Start-up decision 265
Mnemonic Implementation of strategy: Resource planning 266
Mnemonic Main purposes of acquisition or merger 267
Mnemonic Marketing objectives behind acquisition 268
Mnemonic Financial objectives of acquisition 269
Mnemonic Start-up versus acquisition merger 270
Mnemonic Business alliances 271
Mnemonic Difficulties associated with joint ventures 272
Mnemonic The benefits of a franchise - for the franchisor 273
Mnemonic Disadvantages of a franchise - for the franchisor 274
Mnemonic Advantages of alliances 275
Mnemonic Disadvantages associated with business alliances 276
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Contents (continued)Title Page
Chart Five basic components of an organisation (Mintzberg) 277
Mnemonic Mintzberg’s ‘Operating core’ 280
Mnemonic Mintzberg’s ‘Strategic apex’ 281
Mnemonic Mintzberg’s ‘Strategic apex’: The role of direct supervision 282
Mnemonic Mintzberg’s ‘Strategic apex’: Environmental (boundary) management
283
Mnemonic Mintzberg’s six bases for organising work 284
Mnemonic Criteria used to select the bases for grouping positions 285
Chart Mintzberg’s five orgnanisational configurations 286
Mnemonic Mintzberg’s structural configurations 287
Mnemonic Mintzberg’s structural configurations: Machine bureaucracy 288
Chart Organisational structures: Functional organisation 289
Mnemonic Mintzberg’s structural configurations: The adhocracy 290
Mnemonic Mintzberg’s structural configurations: Professional bureaucracy
291
Mnemonic Mintzberg’s structural configurations: The simple structure 292
Mnemonic Mintzberg’s view on the ‘Structural dilemma’ 293
Chart Which organisation structure is best? Goold and Campbell’s ‘Structural fit’
294
Chart Which organisation structure is best? Goold and Campbell’s ‘Good Design Principles’
295
Mnemonic Organisational consequences of cross-functional teams 296
Chart Internal relationships 297
Mnemonic External relationships:Related and supporting industries
298
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‘Implementation and action’
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Mnemonic External relationships:Outsourcing
299
Mnemonic External relationships:Issues involved in virtual systems
300
Chart Virtual Supply Chain: Producer/supplier driven 301
Chart Virtual Supply Chain: Integrators-driven 302
Chart Management of change 303
Mnemonic Types of strategic change 306
Chart Contextual features and their influence on strategic change 307
Mnemonic The Cultural Web 308
Chart An organisation’s cultural web 309
Chart The existing paradigm of a hypothetical railway company 310
Chart The required paradigm of a hypothetical railway company 311
Mnemonic Culture: The culture of excellence 312
Mnemonic Culture: The management cultures of Miles and Snow 313
Chart Charles Handy’s ‘Four cultural stereotypes’ 314
Chart Charles Handy’s ‘Shamrock organisation’ 316
Mnemonic Strengths of a culture 317
Mnemonic Possible weaknesses of a culture 318
Mnemonic Main reasons why people resist change 319
Mnemonic Main reasons why people resist change: A person’s own vested interests
320
Mnemonic Main reasons why people resist change: Social Fears 320
Mnemonic Key issues in successful change management 321
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‘Implementation and action’
51© Tony Surridge Online Limited, 2011
Contents (continued)Title Page
Mnemonic Constructive conflict: Views of Mary Parker Follett 322
Mnemonic Where resistance to change may occur 323
Mnemonic The role of the manager in the change process 324
Mnemonic The characteristics of the change agent 325
Chart Intended and Emergent strategies 326
Chart Emergent strategy developed from a learning process 327
Chart Emergent strategy caused by short-term pressures 328
Mnemonic Reasons why a company may adopt the emergent strategy approach
329
Mnemonic Problems with the emergent strategy approach 330
Mnemonic Strategy in the entrepreneurial firm 331
Mnemonic Strategy in the medium-sized organisation 332
Mnemonic Characteristics of a large to very large organisation 333
Mnemonic Advantages of long-term and structured planning systems 334
Mnemonic The rational model of planning 335
Mnemonic Incrementalism 335
Mnemonic Strategic drift 336
Chart Strategic drift 337
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ACCA Paper P3 Business Analysis
Business process change
52© Tony Surridge Online Limited, 2011
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Business process change
53© Tony Surridge Online Limited, 2011
ContentsTitle Page
Chart Constituents of a business process 339
Chart Traditional organisation structure versus Porter’s Value Chain
342
Chart Porter's value chain applied to business processes 343
Chart Levels of business-process analysis 344
Chart The enterprise/strategy alignment cycle 345
Chart Business Process Management (BPM) 346
Chart Relationship between strategy and process redesign 347
Chart The scope of business process change 348
Chart Processes, techniques, tools and methodologies 349
Chart Capability Maturity Model (CMM) 350
Chart Features of the Capability Maturity Model (CMM) 351
Mnemonic Business process change: The extent of change required 352
Chart Business process change from automation through to paradigm shift
353
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Business process change
54© Tony Surridge Online Limited, 2011
Contents (continued)Title Page
Chart Examples of business process change from automation through to paradigm shift
354
Mnemonic The streamlining, rationalising or simplifying pattern of redesign
355
Mnemonic The gaps and disconnects pattern of process re-design 356
Mnemonic Business process change: Business Process Re-Engineering (BPR) - Hammer’s ‘7 Principles’
357
Mnemonic Business process change: Business Process Re-Engineering (BPR) and information technology
358
Chart Features of Business Process Re-engineering (BPR) 359
Chart Hammer’s ‘7 Principles’ of BPR 360
Mnemonic Business process change implications 361
Chart Harmon’s Process-Strategy Matrix 362
Mnemonic Application of Harmon’s ‘Process-Strategy Matrix’ 363
Chart Application of Harmon’s Process-Strategy Matrix Using as an example a medium-size engineering company involved in both home and export marketing of engineered products.
364
Chart Implications of outsourcing 365
Mnemonic Business process change: Methodology for an organisation 366
Mnemonic Harmon’s ‘Business Process Redesign Methodology’ 367
Chart The Process Redesign Process 368
Chart Davenport and Short’s ‘5-Step’ Approach to a Business Process Re-design Project
369
Mnemonic Business process change: Why use a methodology for change?
370
Chart Analysing business processes 371
Evaluating IT outsourcing suppliers’ proposals 372
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Business process change
55© Tony Surridge Online Limited, 2011
Contents (continued)Title Page
Mnemonic Advantages of outsourcing IT work 373
Mnemonic Disadvantages of outsourcing IT work 374
Chart Evaluating and selecting a generic software solution 375
Chart Improving the processes of the organisation 376
Mnemonic Business change: Value-added pattern of process change 379
Chart Improving the processes of the organisation 380
Chart Feasibility of possible redesign options 381
Mnemonic Technical feasibility 382
Mnemonic Operational feasibility 383
Mnemonic Social feasibility 384
Mnemonic Feasibility: One-off capital costs 385
Mnemonic Feasibility: Operating costs 386
Mnemonic Feasibility: Costs of human resources 387
Chart Types of information system 388
Chart Evaluating, selecting and implementing a generic software solution
389
Chart Evaluating and selecting a generic software solution 390
Mnemonic Characteristics of effective information 391
Mnemonic Contents of a generic software package 392
Mnemonic Choosing a generic software package 393
Mnemonic Advantages of using generic packages 394
Mnemonic Disadvantages of using generic software packages 395
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ACCA Paper P3 Business Analysis
Information technology
56© Tony Surridge Online Limited, 2011
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Information technology
57© Tony Surridge Online Limited, 2011
ContentsTitle Page
Chart Applications of e-business 397
Mnemonic E-Business and Human Resources Management (HRM) 398
Chart E-business: Internal business systems 399
Chart E-business: communication and collaboration 400
Chart E-business: e-commerce 401
Chart Tangible and intangible benefits from e-commerce and e-business
402
Chart Barriers to the development of the adoption of e-commerce and e-business
402
Mnemonic E-Business: Advantages of B2C e-commerce 403
Mnemonic E-Business: Advantages of B2B e-commerce 403
Chart The main business and marketplace models for delivering e-business
404
Mnemonic Uses of the Internet 405
Mnemonic Business impact of the Internet:A challenge to conventional management thinking?
406
Mnemonic Problems with the Internet 407
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Information technology
58© Tony Surridge Online Limited, 2011
Contents (continued)Title Page
Mnemonic Benefits of an Intranet 409
Mnemonic Uses of an Intranet 410
Mnemonic Business impact of the Internet: Electronic Data Interchange (EDI)
411
Mnemonic Business impact of the Internet: Difficulties with Electronic Data Interchange (EDI)
412
Mnemonic Tasks which a website may automate 413
Mnemonic E-Business: Uses made of extranets 414
Mnemonic E-Business: Problems associated with extranets 414
Chart A five-layer model of e-business infrastructure 415
Chart E-business strategy 416
Chart The supply-chain and its terminology 417
Chart Push and pull approaches to supply chain management 418
Chart Michael Porter’s generic value chain 419
Chart Deise’s revised value chain model 419
Chart Members of the value network (system) of an organisation 420
Chart The supply-chain continuum 421
Chart The methods, benefits and risks of e-procurement 422
Mnemonic Benefits of e-procurement 423
Mnemonic Risks associated with e-procurement 424
Mnemonic Different options and models for implementing e-procurement
425
Chart The “off-line” (‘conventional’) marketing stages involved in the development and launch of a new product
426
Chart The scope of e-marketing 428
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Information technology
59© Tony Surridge Online Limited, 2011
Contents (continued)Title Page
Chart E-marketing system 429
Mnemonic Variables used when segmenting a market in order to ‘position’ a marketing mix strategy
430
Chart TOWS analysis for the B2C company 431
Chart McDonald and Wilson’s ‘6 Is’ of e-marketing 432
Chart Interactivity and communication models for (i) traditional media and (ii) new media
433
Chart Individualisation and communication models for (i) traditional media and (ii) new media
434
Chart Integration of channels 435
Chart Industry re-structuring 436
Chart The internet used as a relatively low-cost method of market intelligence
437
Chart The e-marketing targeting strategy 438
Chart Online segmentation and targeting techniques 439
Chart E-marketing mix strategy 440
Chart The extended product 441
Chart A process for establishing a pricing strategy for products and services that recognises both economic and non-economic factors
442
Mnemonic Determinants of price elasticity of demand 448
Mnemonic Cost-based pricing strategies: cost variables 449
Chart Cost-based pricing strategies 450
Chart Demand-based pricing strategies 451
Chart Pricing strategy: Overview 452
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Information technology
60© Tony Surridge Online Limited, 2011
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Mnemonic The virtues of branding from the manufacturer/distributor’s perspective
453
Mnemonic The virtues of branding from the customer/consumer’s perspective
453
Mnemonic Branding policy 454
Mnemonic Success factors for building brand awareness online 455
Chart The four marketing activities that comprise customer relations management (CRM) on the customer lifecycle
456
Mnemonic What is e-CRM? 457
Mnemonic Benefits of e-CRM 458
Chart The three key e-marketing activities 459
Chart Methods of acquiring customers through electronic media 460
Chart The software components of CRM technologies 461
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ACCA Paper P3 Business Analysis
Project management
61© Tony Surridge Online Limited, 2011
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Project management
62© Tony Surridge Online Limited, 2011
ContentsTitle Page
Mnemonic Characteristics of a project 463
Mnemonic Challenges presented to the managers of projects 464
Chart Six steps involved in project initiation 465
Chart Different project roles 466
Mnemonic Project Steering Committee 467
Mnemonic Responsibilities of the project sponsor 468
Mnemonic Responsibilities of the project manager 469
Mnemonic Core skills of the project manager 470
Mnemonic Structure and nature of a project team 471
Chart Example of a matrix organisation used for an IS/IT project 472
Mnemonic Advantages attributed to a project matrix team 473
Mnemonic Disadvantages attributed to a matrix project team structure 474
Mnemonic Project stakeholders 475
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Project management
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Mnemonic Project end users 476
Chart The implications of the triple constraint of scope, time and cost
477
Chart The project Business Case 478
Mnemonic Characteristics of a successful business case 479
Mnemonic Purposes of the business case 480
Mnemonic Contents of a project’s business case 481
Chart Analysis, description, assessment and classification of the benefits of a project investment
482
Mnemonic Strategic value of information 483
Mnemonic Possible benefits of developing an enhanced information system in the financial department
484
Mnemonic Possible benefits of developing an enhanced information system in the production department
485
Mnemonic Possible benefits of developing an enhanced information system in the marketing department
486
Chart The role of a benefits realisation plan 487
Chart The costs associated with a project development 488
Chart Investment appraisal techniques 489
Chart Initial stages of a project 490
Mnemonic Project Initiation Document (PID) 491
Mnemonic Setting project objectives 492
Chart Project management: The main management aspects 493
Chart Project management: Main management aspects: SCOPE of the project
494
Chart Project management: Main management aspects: QUALITY 495
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Project management
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Chart Project management: Main management aspects: TIMING of the project
496
Chart Project management: Main management aspects: COST of the project
497
Chart Project management: Main management aspects: HUMAN RESOURCES of the project
498
Chart Project management: Main management aspects: COMMUNICATIONS of the project
499
Chart Project management: Main management aspects: RISK of the project
500
Chart Project risk and its management 501
Mnemonic Types of project risk 502
Mnemonic Managing project risk 503
Chart Project management overview 504
Chart Project documentation (Originated throughout the duration of the project)
505
Mnemonic Contents of the Project Plan 506
Chart Importance of the project plan 507
Chart The Work Breakdown Structure 508
Chart Work Breakdown Structure (WBS) for ‘Customising an off-the-shelf financial analysis software package’
509
Chart The Work Breakdown Structure (from general to specific) 510
Chart Documenting and communicating a project 511
Chart Monitoring the project 512
Mnemonic Common problems with projects 513
Mnemonic Causes for project ‘scope creep’ 514
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Project management
65© Tony Surridge Online Limited, 2011
Contents (continued)Title Page
Mnemonic Dealing with ‘project slippage’ 515
Mnemonic Project ‘change procedure’ 516
Chart Changeover methods 517
Chart Advantages and disadvantages of the various changeover methods
518
Mnemonic Purpose and contents of the ‘Completion Report’ 519
Mnemonic Post-completion audit/review 520
Mnemonic Post-implementation Review (audit) 521
Mnemonic Project Management Software 522
Mnemonic Inputs required by project programme-planning module of a project management software
523
Mnemonic Advantages of using project management software 524
Mnemonic Criticisms of project management software 525
Mnemonic System testing 526
Chart Types of process quality maintenance 527
Mnemonic On-going system maintenance reviews 528
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ACCA Paper P3 Business Analysis
Financial analysis
66© Tony Surridge Online Limited, 2011
Mnemonics and Charts Paper P3: Business Analysis
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Financial analysis
67© Tony Surridge Online Limited, 2011
ContentsTitle Page
Chart The principal ‘value’ objective 530
Chart Financial analysis 531
Chart Financial performance analysis - overview 532
Chart Common-size (vertical) analysis 535
Chart Horizontal analysis 536
Chart Ratio analysis 537
Chart A useful format for ratio analysis 539
Chart Financial performance analysis – categories of ratios 541
Chart The RONA Pyramid 542
Mnemonic Implications/issues of the ROI measure 543
Chart Measuring financial performance - overview 544
Mnemonic The FIVE main groupings for financial performance analysis 545
Mnemonic The implications of the growth measures used by financial managers
546
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Financial analysis
68© Tony Surridge Online Limited, 2011
Contents (continued)Title Page
Mnemonic Reasons/benefits of financial ratio analysis 547
Mnemonic Limitations of ratio analysis 548
Mnemonic Information required for meaningful ratio analysis 549
Did you know?
The Tower of Babel
The Bible (Genesis 11: 1-9) states that humanity originally shared a common language. But people tried to build a tower to reach the heavens and God stopped this presumptuous project by making them speak in many tongues so that they might not understand each other. He then scattered the people abroad, so the tower was left unfinished, a symbol of human folly.
The modern meaning of the word babel is ‘A confused noise, typically that made by a number of voices.‘ The Tower of Babel
by Pieter Bruegel the Elder (1563).
Mnemonics and Charts Paper P3: Business Analysis
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ACCA Paper P3 Business Analysis
People
69© Tony Surridge Online Limited, 2011
Mnemonics and Charts Paper P3: Business Analysis
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People
70© Tony Surridge Online Limited, 2011
ContentsTitle Page
Chart Theories on the origins of leadership 551
Chart Alternative classical and modern theories of management/leadership in the effective implementation of strategic objectives
552
Chart Four approaches to job design 554
Mnemonic The tensions and potential ethical issues related to job design
555
Chart The contribution of competency frameworks to human resource development
556
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