Areas to be covered under the revision program - CA Sri … · Areas to be covered under the revision program ... CSF and KPI’s 2) ... cannot be obtained from a doctor or pharmacist

KB5 with Trevin Hannibal (ACMA-UK,CGMA, BSc.(Hons), MBA) 1

Areas to be covered under the revision program

1. Introduction to business value creation (8%)

1) Porters value chain

2) Mendelow Matrix

2. Role of supply chain in value creations (12%)

1) Balance scorecard

3. Value creations through operations (12%)

1) TQM

2) Kaizen

3) 5S

4. Value creation through marketing (20%)

1) Segmentation, Targeting and Positioning

2) Marketing mix

3) Product life cycle

4) BCG matrix

5) Service marketing mix

6) CRM

5. Human resource aspects of value creation (20%)

1) HR process

2) Performance appraisals

3) Change management

4) Leadership strategies

6. Value creation through technology and innovation (12%)

1) E- business

2) E- commerce

7. Strategy for value creation (16%)

1) CSF and KPI’s

2) Generic strategy

3) PEST analysis


Exam Focus Questions Question 1

3C is a medium-sized pharmaceutical company. It is based in Sri Lanka, but distributes and sells

its products world-wide.

In common with other pharmaceutical companies, 3C has a large number of products in its

portfolio, though most of these are still being developed. The success rate of new drugs is very

low, as most fail to complete clinical trials or are believed to be uneconomic to launch. However,

the rewards to be gained from a successful new drug are so great that it is only necessary to

have a few successful drugs on the market to be very profitable.

At present 3C has 240 drugs at various stages of development; being tested or undergoing

clinical trials prior to a decision being made whether to launch the drug. 3C has only three

products that are actually ‘on the market’:

� Epsilon is a drug used in the treatment of heart disease. It has been available for eight

months and has achieved significant success. Sales of this drug are not expected to

increase from their current level.

� Alpha is a painkiller. It was launched more than ten years ago, and has become one of the

leading drugs in its class. In a few months the patent on this drug will expire, and other

manufacturers will be allowed to produce generic copies of it. Alpha is expected to survive a

further twelve months after it loses its patent, and will then be withdrawn.

� Beta is used in the hospital treatment of serious infections. It is a very specialised drug, and

cannot be obtained from a doctor or pharmacist for use outside the hospital environment. It

was launched only three months ago, and has yet to generate a significant sales volume.

The directors of 3C meet every month to review the product portfolio and to discuss possible

investment opportunities. At their next meeting, they are to be asked to consider three

investments. Due to a limited investment budget, the three investments are mutually exclusive

(that is, they will only be able to invest in ONE of the options). The options are as follows:

� The directors can invest in a new version of Alpha, Alpha2, which offers improved

performance. This will allow 3C to apply for a new patent for Alpha2, and maintain the level

of sales achieved by Alpha for an additional five years. Alpha2 has successfully completed

all its clinical trials, and can be launched immediately.

� The directors can invest in a major marketing campaign, to promote the use of Beta to

specialist hospital staff. While this investment should lead to a significant growth in the sales

of Beta, 3C is aware that one of its competitors is actively promoting a rival product with

similar performance to that of Beta.

� The directors can invest in the final stage of clinical trials for Gamma. This is a

‘breakthrough’ drug, as it has no near rivals on the market. Gamma is used in the treatment

of HIV, and offers significantly better success rates than any treatment currently available.

The team of 3C specialists managing the development of Gamma is confident it can

successfully complete clinical trials within six months. The team also believes that Gamma


should be sold at the lowest price possible, to maximise the benefits of Gamma to society.

However, the marketing department of 3C believes that it would be possible to earn very

large profits from Gamma, due to its success rate and breakthrough status.

Requirement

(a) Briefly explain how the product life cycle model can be used to analyse the current

product portfolio of 3C (that is, BEFORE the planned investment).

(10 marks)

(b) Evaluate the potential impact of each of the three investment options (Alpha2, Beta

and Gamma) on the product portfolio of 3C, referring to your answer to part (a) above.

(15 marks)

Question 2

BC4 is a manufacturer of bedroom furniture with four factories in the south of the country. As a

result of declining company financial performance, the Managing Director (MD) engaged a

management consultant to conduct an overall review of BC4’s activities and highlight the issues

of greatest concern. The management consultant’s main findings are as follows: • No systematic

Quality Control exists and differing operating efficiencies exist both within and between BC4’s

factories;

• There is an increasing incidence of furniture being returned which requires replacement or

reworking. There are also a substantial number of items returned as part of extended guarantee

arrangements;

• Currently BC4 tries to sell its full product range to all potential customers, even though it is

geographically difficult to fulfill obligations to customers in the north of the country. BC4 needs

to rethink this marketing approach and should undertake careful market segmentation.

Having considered the consultant’s report, the MD has decided that BC4 will conduct a detailed

exercise in market segmentation and, furthermore, will put in place measures to improve product

quality. He thinks that obtaining certification under international quality standard ISO 9000

should deliver significant benefits to BC4, even though the company has no immediate plans to

sell globally. The Production Manager has, however, previously suggested to him that the way

forward is to employ dedicated Quality Control (QC) inspectors as part of a Quality Control

(QC) system.


Required:

(a) Describe the advantages of market segmentation to BC4. (10 marks)

(b) Describe the advantages of quality standard ISO 9000 certification to BC4. (10 marks)

(c) Discuss briefly how the Production Manager's suggestion could benefit BC4 as part of an

alternative Quality Control (QC) system. (5 marks)

Question 3

CB is a recently qualified CA accountant. He has just started a job as a Marketing Accountant for

a newly built hotel, the Futurist. Currently, the Futurist has no marketing staff. The hotel, which

has not yet opened for business, intends to generate profit from its rooms and its restaurants.

However, other hotels in the local area get much business by providing a ‘wedding package’. A

wedding package usually includes the provision of a venue for the wedding ceremony, a meal for

the wedding guests, entertainment after the wedding and overnight accommodation for the bride

and groom. These competitor hotels market their weddings in a number of different ways. One

hotel, the ‘De Luxe’, situated in a castle in a beautiful, rural setting, charges a minimum price of

Rs.10 million for its wedding package which includes a meal for 100 guests and rooms for a

bridal party of 10 guests for one night. The De Luxe has won many international awards for its

food and for the high standard of its facilities and bedrooms. In contrast, another competitor

hotel, the ‘Royal Albert’ offers its wedding package for 100 guests for a total cost of Rs.200,000,

with no overnight accommodation provided in the basic price. The Royal Albert is a budget hotel

situated next to a busy transport inter-change in the nearby town. There are another five hotels

which the Futurist regards as competitors: these other hotels charge between Rs.7,000 and

Rs.10,000 for each guest attending a wedding at their hotel. CB has been asked to join a team

consisting of the hotel’s General Manager and the Restaurants Manager to formulate a strategy

for the Futurist to offer a wedding package.


Required

(a) (i) Identify TWO models that the team could use to analyse the external environment. Briefly

explain the models.

(4 marks) (ii) Explain how these models could assist the team in formulating a wedding package strategy

for the Futurist hotel.

(6 marks) (b) (i) Explain how an understanding of Porter's three generic competitive strategies could help

the team design a successful wedding package strategy for the Futurist hotel.

(9 marks) (ii) Advise the team how information systems strategies could support the three generic

competitive strategies.

(6 marks)

Question 4

SAH is a family owned company employing 32 people, which builds and sells medium sized

yachts which normally retail at Rs.20 million. SAH operates in a very competitive market.

SAH’s yachts are usually bought by amateur sailors with high disposable incomes who value

quality, reliability and performance. In 2017 it plans to sell 25 yachts. SAH's Managing Director,

N, has a vision for the company to be 'regarded as the best yacht builder for the private owner'.

SAH has always emphasised the high quality of its yachts and knows that its customers are very

knowledgable. Each yacht is built to a specific order and there is usually a period of at least one

year between an order being placed and the yacht being delivered to the customer. SAH’s

construction process is very traditional: most of its designs are at least 20 years old and much of

the construction work on its yachts is done by hand. SAH regards its workforce as ‘craftspeople’

who have learned their skills through their work experience. SAH employs school-leavers and

provides apprenticeships lasting seven years. However, most of its competitors employ

university graduates who have studied yacht design and construction. SAH designs all its yachts

manually which is very time consuming, although most of its competitors now use CAD/CAM*

suites for their designs. SAH does not have any staff with CAD/CAM experience. SAH uses

natural materials: for example, cotton for the sails. However, recently some natural materials

have become difficult to obtain and the prices of these have risen by as much as 40% in the last

two years. Many of SAH’s competitors have replaced natural materials with synthetic ones as

these are easier to obtain, cheaper and give enhanced performance. In 1985, SAH employed a

consultant who designed a standard costing system for use in its manufacturing operations. This


system is still in use at SAH today. N, relies on the standard costing system which is his only

control system for the company. N knows that the manufacturing cost of a yacht amounts to 60%

of its total cost and believes that if he is in control of 60% he is in control of the majority of cost.

However, N has experienced some difficulty in his role as the control system only reports

financial results. N would like a system that gives him integrated control over all aspects of the

business and has been considering the use of a Balanced Scorecard. SAH’s business comes from

repeat orders and recommendations. However, it has experienced criticism in the last year

because it failed to meet the promised delivery time for 30% of its orders and has lost business

because the potential customers said that SAH’s yachts looked ‘old-fashioned’ and were ‘too

slow’. Cash flow is particularly important for SAH, because of the long lead times for each

yacht, and has been under pressure recently. SAH has had to increase its overdraft facility by

Rs.10 million to Rs.30 million and this is nearly fully used. Every year since its inception SAH

has reported a profit but in 2015 its Return on Capital Employed was 3% which N has stated is

unacceptable.

Required

(a) Evaluate the strengths and weaknesses of SAH's current control system.

(9 marks) (b) Advise N:

(i) How the Balanced Scorecard could be applied and used within SAH. You should also suggest

and justify ONE measure for each of the balanced scorecard's perspectives.

(10 marks) (ii) Of THREE potential problems he might encounter if he introduces the Balanced Scorecard.

(6 marks)

Question 5

JGS is a long-established retailer which specialises in the sale of antiques. JGS is owned by a

married couple who both work in the business. They have no employees. Their premises consist

of a large modern shop and there is an apartment above this in which the owners live. Over the

last five years the local area has become very fashionable and the shop is now surrounded by

smart restaurants, cafes and up-market fashion outlets. This area has also become a very popular

place to live which has meant that property values have increased substantially. The owners

believe that if they disposed of their premises they would make a substantial capital gain. The

owners have noticed that the fixed costs of their property, including insurance, local tax, security


and maintenance have risen very sharply during the last five years. Since establishing the

business the owners have developed their expertise. They now have a national reputation in the

antiques trade and many repeat customers. They traded profitably between 1980 and 2014 but in

the last year have made an operating loss for the first time. The owners are often consulted by

other antique traders and collectors by letter and telephone and they have developed a

considerable income stream by charging for their advice. However, they have found that their

location is becoming increasingly problematic. Although the popularity of their area of town has

increased and led to many more people living and visiting the area, unfortunately for the owners

most of these people are not interested in antiques. They are young people who like the area but

do not have the disposable income to spend on antiques. A further problem is that the shop is not

situated in a large city and it is very inconvenient for many antique traders and collectors to visit.

The owners believe the location has recently restricted the success of their business. The owners

know that a very popular development in the antiques trade has been the establishment of

‘Antiques Fairs’ where antiques are bought and sold. Some of these have established

international reputations and have many thousands of visitors. However, because of JGS’s

location and the need to keep their shop open, the owners do not attend these. The owners

recently set up a website which has basic information about their business on it such as their

address, telephone number and the opening times of their shop. The website has received a large

number of hits but it does not seem to have increased sales.

Required:

(a) Analyse the strengths and weaknesses of JGS using the value chain model. Note: You are not

required to draw a value chain diagram in any part of your answer to this question. (8 marks)

(b) The owners propose to convert their website to facilitate e-commerce in order to increase

turnover and profit. Advise the owners of JGS what they will have to do immediately, and also

on a continuing basis, to carry out this e-commerce solution. (8 marks)

(c) Evaluate how the introduction of e-commerce could affect JGS’s value chain. (9 marks)


Question 6

JALL is an independent retailer of office products selling 2,000 different items such as paper,

stationery, printer cartridges, diaries and planners. JALL has been established for over 50 years

and has successfully served the needs of its customers in the small town in Kandy where it

operates its three shops. The nearest competitor for JALL is ten miles away. JALL employs 50

staff and had revenue of Rs.7,000,000 in the last financial year.

JALL has been owned by the same family since it began and many of its staff have worked in the

shops all their lives. Staff turnover has always been very low and staff morale very good. JALL’s

managers know all their staff and major customers personally. JALL’s managers are prepared to

listen to suggestions and complaints and they like to ‘keep a finger on the pulse’ of the business.

Staff appraisals are conducted informally once a year when the profit-sharing bonus is

announced. JALL has paid its staff a bonus every year since it was established. JALL’s

customers benefit from competitive prices and a very high standard of service. JALL’s suppliers

are very pleased to work with JALL because its procurement procedures are very efficient and it

always pays its accounts within the credit period.

Recently there have been a number of changes at JALL. Customers have noticed signs in the

shop window stating ‘Clearance sale: all items must go!’ Suppliers have noticed that they are not

always being paid on time. Within the shops, a manager is not always present and the staff have

been told that JALL is to be sold to LNR, a large national chain of stationery retailers. When the

staff enquired about the safety of their jobs they were told by their manager that there will be a

meeting, at a future date, when they would be told whether or not they would be made redundant.

However, the existing managers will keep their present jobs under the new ownership.

The effects of these changes are:

• Staff are very worried about their future with JALL and morale is at an all time low.

• Suppliers are thinking about changing their credit terms with JALL and are concerned about

their future trading relationship.

• Customers are unsure about the future of JALL and some have switched their business to other

retailers.


• JALL’s revenue has fallen considerably and there is little inventory on display within the

shops.

Required

(a) Advise the management of JALL:

(i) Why it might encounter resistance to the change in ownership.

(6 marks) (ii) How it could overcome this resistance to change.

(7 marks) (b) Advise the management of LNR:

(i) How it could use the Balanced Scorecard to manage its strategic performance.

(6 marks) (ii) How it could construct targets for JALL's staff within an incentive scheme and use these

targets to support the Balanced Scorecard.

Question 7

JIK is a manufacturer, retailer and installer of domestic kitchens. It started business in 1980 and

its market segment has been low to medium income earners. Until recently, its business model

has been based on selling high volumes of a standard kitchen, brand name ‘Value', with a very

limited degree of customer choice, at low profit margins. JIK’s current control system is focused

exclusively on the efficiency of its manufacturing process and it reports weekly on the following

variances: Materials price, Materials usage and Manufacturing labour efficiency. JIK uses

standard costing for its manufacturing operations. In 2011, JIK employs 40 teams, each of which

is required to install one of its ‘Value’ kitchens per week for 50 weeks a year. The average

revenue per Value kitchen installed is Rs.100,000. JIK would like to maintain this side of its

business at the current level. The Value installation teams are paid a basic wage which is

supplemented by a bonus for every kitchen they install over the yearly target of 50. The teams

make their own arrangements for each installation and some teams work seven days a week, and

up to 12 hours a day, to increase their earnings. JIK usually receives one minor complaint each

time a Value kitchen is installed and a major complaint for 10% of the Value kitchen

installations.

In 2014 JIK had launched a new kitchen, brand name ‘Lux-Style’. This kitchen is aimed at high

net-worth customers and it offers a very large degree of choice for the customer and the use of


the highest standards of materials, appliances and installation. JIK would like to grow this side of

its business. A ‘Lux-Style’ kitchen retails for a minimum of Rs.10 million to a maximum of

Rs.50 million. The retail price includes installation. In 2015 the average revenue for each Lux-

Style kitchen installed was Rs.20 million. Currently, JIK has 2 teams of Lux-Style kitchen

installers and they can install up to 10 kitchens a year per team. These teams are paid salaries

without a bonus element. JIK has never received a complaint about a Lux-Style kitchen

installation. JIK’s business is generated from repeat orders, recommendations, and local press

advertising. It employs two sales executives who earn an annual salary of Rs. 800,000 each. It

offers a twelve month money back guarantee and this has to be honoured for 1% of its

installations. JIK has always been profitable but was surprised to see that in its results for 2015 it

only made 0.1% net profit on its turnover.

Required

(a) Evaluate the appropriateness of JIK's current control system.

(7 marks) (b) Recommend TWO Critical Success Factors (CSFs) which could assist JIK achieve future

success. You must justify your recommendations.

(6 marks) (c) Advise JIK of the changes it will need to make:

(i) To its current control system following the introduction of the CSFs recommended in part (b)

of your answer;

(4 marks) (ii) To its standard costing system, reporting frequency and information requirements to achieve

improved control.

Question 8

E is a multinational company operating in a number of different countries around the world. The

company imports and supplies a full range of scientific equipment to both private and public

education systems in the countries in which it operates. In one of these countries, Y, there has

recently been an election and a change of government.

As the global economic situation has worsened and there is currently no economic growth, tax

revenues for most countries have shrunk. Therefore, governments are under pressure from their

electorates to be seen to be effective in their relationships with business.

The government of country Y has announced that it wishes Y to benefit more from the business

conducted by E and other multinationals operating within the country. The government of Y has


given E 12 months to employ at least 50% of its staff from the local population. Additionally, E

is required, in the same period, to find a local partner and to sell to it 25% of the business at a

price to be determined by the government of Y. The government of Y has said that further sale of

company assets to local business will be required in the future, at a time which has not yet been

determined.

Many of the staff of E, based in Y, are already from the indigenous population and do not agree

with the government’s policy. They feel this will damage the performance of E and is likely,

eventually, to put their jobs at risk. The Managing Director of E is concerned that the

government’s policy will damage the economy of Y.

However, the unions in Y, which are very supportive of the new government, are in favour of the

proposals but have said they would prefer the initial local ownership to be set at a larger

percentage.

E’s business in Y is profitable. In response to the government’s proposals, the Board of Directors

of E is considering the following three suggestions:

1. Sell the whole division operating in Y and leave the country.

2. Remain in Y and comply with the wishes of the government.

3. Stay in Y and seek legal advice about resisting the government’s proposals.

Required

(a) Produce a stakeholder analysis for E in country Y.

(16 marks)

(b) Evaluate the three suggestions that the Board of Directors is considering in response to

the proposals of the government of Y.

(6 marks)

(c) Based on your evaluation in part (b) recommend, with justification, the most

appropriate course of action for E.

(3 marks)

Question 9

5NX is a growing regional company that has successfully used local radio advertising to raise

awareness of its products. The company supplies fresh 'quality' sandwiches, home baked snacks,

the finest coffee and freshly squeezed fruit juices for sale at relatively high prices in petrol filling

stations. Products are produced by traditional methods from very early morning by a team of


employees at a central depot and are delivered throughout the day by temporary workers in a

fleet of company vehicles. Drivers bring back order sheets at the end of a shift for future

deliveries to be scheduled. Invoicing for payment takes place sometime afterwards.

5NX is, for the first time, undertaking a full strategic marketing planning process in conjunction

with a local business advisor. So far, limited market research, financial projections and a SWOT

(strengths, weaknesses, opportunities, threats) analysis have been prepared. One weakness

already identified as part of the SWOT analysis is that the number of deliveries required is

increasing, while some of the drivers are becoming unreliable. The owner is worried that this

may create a poor image with customers and lead to delays in delivery. She is also interested in

two opportunities that have emerged from the planning process:

• The use of time saving food preparation and packaging equipment. This will mean

considerably fewer people being involved in food preparation but some employees could be

redeployed as drivers on a permanent basis.

• In addition to making deliveries, drivers could get direct feedback from customers, persuade

petrol stations to take new product lines and provide intelligence on competitors' products. If

time allows they could also leave promotional brochures with staff at other petrol stations and

outlets (such as railway stations and newspaper shops) in the hope of future business. The

business advisor has suggested that the owner captures the elements of 5NX's marketing mix for

incorporation into its marketing plan.

Required:

(a) Discuss how 5NX's marketing mix might contribute to its marketing plan. (10 marks)

(b) From the information that is given, illustrate the extent to which 5NX is following the

marketing concept. (10 marks)

(c) Describe other ways in which Information Systems (IS) and Information Technology (IT)

might assist 5NX's marketing operations in the future. Your answer should not include reference

to food preparation and packaging equipment. (5 marks)

Question10

YY has worked for the manufacturing company RU2 all his adult life and is currently

Production Manager. Although he can be uncooperative and single-minded at times, he is

respected for his experience, honesty, direct speaking and the results he achieves. Change is

coming to RU2 and many senior managers have gradually been replaced by younger managers


with different ideas and approaches. A new Managing Director (MD) was appointed six months

ago but YY’s first dealing with him did not go well. YY requested that some of the production

machinery be upgraded but his request was declined until a full written proposal including an

investment appraisal analysis was produced. No proposal has been produced and no machinery

has been upgraded since this time. When RU2’s Senior Sales Manager retired last month he was

replaced by a new Marketing Manager. (The job advertisement referred to RU2 as a company

'undergoing significant change and looking to develop a more customer-led approach'). YY is

irritated to find that the MD has approved the purchase of a Customer Relationship Management

(CRM) system straightaway. YY told colleagues that the CRM system will be 'a waste of money

that could be spent elsewhere'. Now the new Marketing Manager is, for the first time, developing

a comprehensive marketing plan and she has invited a number of senior colleagues across the

organisation to help contribute to the plan including YY. YY immediately declined the invitation

telling the Marketing Manager that she would do well to 'concentrate on the basic job of selling

rather than wasting time drawing up pointless plans'.

Required:

(a) The new Managing Director wants RU2 to have more of a marketing focus and become more

customer-led. Describe the impact on RU2 of such a development. (10 marks)

(b) Explain the benefits of developing a marketing plan for RU2. (10 marks)

(c) Identify the range of possible costs associated with a Customer Relationship Management

(CRM) system. (5 marks)

Question 11

The company 2TW manufactures and sells products throughout Europe and is organised into

dozens of strategic business units (SBUs). SBU managers, who report to regional directors, have

for many years been paid bonuses on total SBU sales generated. This has led to a rapid growth in

overall turnover but 2TW has experienced declining profitability over the past few years, and the

Chief Executive fears a loss of control over SBU operations. As a result, six months ago 2TW's

Chief Executive used management consultants to conduct a complete organisational review. The

management consultants have now reported that:

• Inadequate quality control systems exist within the company, which has led to differing

operating efficiencies between SBUs;


• There are significant numbers of returned goods which require replacement or reworking; •

current incentives for SBU managers are inappropriate given 2TW's declining profitability.

In an open letter to all SBU managers, the Chief Executive announced two new initiatives:

• A company-wide introduction of international quality standard ISO 9000 certification which

should deliver significant organisational benefits;

• 2TW's HR department will redesign the remuneration and reward package for SBU managers

including the existing bonus scheme. Performance related pay for achievement of individual

'performance targets' will replace existing bonuses. Suitable performance-based measures of

profitability and quality will be designed as part of this approach and SBU managers will need to

agree targets as part of the normal appraisal processes.

Informal discussions amongst SBU managers confirm that the Chief Executive was right to take

action over declining profitability but some are doubtful that ISO certification will deliver the

benefits the Chief Executive hopes for. Others are eager to see details of the new reward scheme

and whether it has taken account of all relevant factors.

Required:

(a) Describe the potential benefits of quality standard ISO 9000 certification to 2TW. (10 marks)

(b) Discuss the factors that should be taken into account by the HR department when redesigning

the remuneration and reward package for SBU managers. (10 marks)

(c) Suitable measures of performance for SBU managers will be designed as part of the

redesigned remuneration and rewards package. Describe the desirable features of such measures.

(5 marks)

Question 12

2JN is a large manufacturing organisation which is structured with a number of supervisors each

responsible for their own work production unit. Supervisors report to a team of senior managers

who in turn are accountable to a Managing Director (MD). Operations are supported by 2JN's

own finance, sales, distribution and human resource units. Within the past two years, 2JN has

implemented a series of initiatives aimed at reducing product defects and customer complaints.

The initiatives have included the appointment of a few quality control inspectors to support

supervisors. Despite these efforts, 2JN has lost some of its major customers to its competitors

and its profits are declining. After discussions with customers and suppliers, the MD has

discovered that other companies within the same industry have successfully adopted a Total

Quality Management (TQM) approach. At a recent senior management meeting he announced

that a TQM programme would be introduced within 2JN as a matter of priority. To support this,

a Quality Committee will be established to oversee the programme's introduction and operation.


He has tasked the human resource unit to establish Quality Circles to meet on a regular basis and

arrange training in TQM for all staff. The MD concluded by saying that TQM was vital to 2JN

and that high quality 'will both put costs down and revenue up'.

Required:

(a) Explain the requirements for achieving a Total Quality Management (TQM) approach within

2JN. (10 marks)

(b) Identify the important issues and work groups that need to be considered when organising

the TQM training in 2JN. (10 marks)

(c) Discuss the claim that high quality 'will both put costs down and revenue up'. (5 marks)

Question 13

CXC is a long established company supplying a variety of general, wholesale and personal

insurances. CXC’s headquarters occupies a large traditional building in the country’s capital city

where the activities of the company are monitored and company policies and procedures

formulated. CXC has a traditional organisational structure of a General Manager and six

Regional Managers, who are responsible for all the activities in their region. There are also

Assistant Managers, Supervisors, and Team Leaders but it is the Sales Associates who deal

directly with the customers. Although the Sales Associates receive referrals from CXC’s

headquarters, most business is generated by them working independently and using their own

initiative, (for instance by getting further business from existing customers and developing links

with local private medical companies, automobile traders, and travel companies, etc.). The Sales

Associates are paid a flat-rate monthly salary but the General Manager is looking into the idea of

implementing a bonus scheme to increase sales. CXC’s most popular line is annual life insurance

policies but a growing part of its business is mortgage protection and other mortgage linked

insurances. The company does not feel that online trading is the way forward but, following a

successful pilot scheme, a direct selling service by telephone was introduced for a number of its

key products. First feedback is that whilst customers felt that the service was initially excellent in

dealing with their enquiries, after the purchase had been made there was a generally poor service.

Two years ago the company enjoyed 12% of the home market for all insurances but this has

since declined to 10%. The company is now facing a new challenge in that it has lost a lucrative

business with a pension fund. By way of compensation, it has some very profitable business in


neighbouring countries A, B and C. The General Manager knows that CXC faces some difficult

challenges and that strategic weaknesses and threats must be addressed. As a result, a working

party has been formed from CXC’s Regional and Assistant Managers to examine CXC’s current

situation in order to develop a new strategic marketing plan. It is also tasked with giving some

guidance to the General Manager before any bonus scheme for Sales Associates is implemented.

Required:

(a) Discuss the strategic weaknesses and threats in marketing that CXC currently faces. (10

marks)

(b) Describe how the working party should go about developing a new strategic marketing plan.

(10 marks)

(c) Explain the factors that CXC should take account of when devising a bonus scheme for its

Sales Associates. (5 marks)

Question 14

A professional management body is funding a major research project into the relationship

between certain HR systems and workplace motivation. As part of this project the University of

S2013 has been engaged to investigate the use of staff performance appraisal systems in large

organisations. The University's work involves a number of stages:

• Stage 1: questionnaires issued to all large organisations to understand the range of performance

appraisal systems operating.

• Stage 2: initial results from stage 1 discussed with a group of senior managers (such as HR

directors and chief executives).

• Stage 3: focus group meetings with employees at all levels within the organisations surveyed to

understand employee motivations, attitudes and experiences.

• Stage 4: final report to the professional body and subsequent dissemination of findings.

Stage 3 has now been completed and a number of interesting issues have emerged:

• The use of formal performance appraisal systems varies significantly between sectors from

80% of financial service organisations to only 50% in the retail sector.


• Organisations not using an appraisal system do not feel that the potential benefits of a formal

system justify the time and cost involved in operating it.

• Of the systems in operation, 90% involved an annual meeting between employees and their

appraiser, normally their line manager.

• 15% of organisations used the outcomes from the system to help determine pay.

• There was little relationship between levels of motivation and the existence of a staff

performance appraisal system. (Motivation was more closely related to issues such as

organisational reputation and the operation of environmental action and sustainability

programmes.)

• Employees were generally critical of their own organisation's system of formal staff

performance appraisal

Required:

(a) Describe the potential benefits of a formal staff performance appraisal system for a large

organisation. (10 marks)

(b) Explain the possible reasons for employees being critical of their own organisation's system

of formal staff performance appraisal. (10 marks)

(c) According to the research findings, environmental action by organisations and sustainability

programmes are highly regarded by employees. Explain why this might be the case (5 Marks)

Question 15

TR has recently been promoted to his first management position. In the past, he very much

enjoyed working as part of a team, but is having some difficulty in adapting to his new role as

leader of a team. In his recent appraisal he has acknowledged that his style of management is

not effective in all instances. In particular, he feels that he has not been very flexible in dealing

with some of the issues that he has faced. He has identified that he would benefit from

leadership training to help him better understand the alternative styles of management that he

could adopt to help him develop to become more effective in his role.

Required:

Explain to TR, with reference to theory, the different management / leadership styles he

could adopt to help him to become more effective in his role.

(10 arks)


Question 16

Introduction

Maratec is a bespoke furniture company, making unique pieces of furniture to clients’

specifications. The products are manufactured using a combination of highly technical

machinery and skilled craftsmen. Maratec’s current clients are wealthy individuals who want

a custom-built piece of furniture for their own homes. The company has one showroom where

samples of bespoke pieces of furniture are displayed. These sample pieces are not for sale.

The company wishes to implement a planned growth strategy. To enable this, the company

has increased its manufacturing capacity with the aim of selling to corporate clients such as

hotels. Producing a greater number of bespoke pieces for the same client would deliver some

economies of scale. The production manager claims this strategy would reduce set up times

and increase procurement discounts, as raw materials would be bought in bulk.

Procurement

High quality materials are used in bespoke furniture manufacture and Maratec uses a specialist

procurement company to source specific materials, such as high quality pieces of oak wood of

given dimensions. This is an expensive method of procurement and can also delay production,

as Maratec cannot confirm an order with the procurement company until a design is agreed

with a client. As order to delivery time is already high, Maratec is keen to reduce this

procurement time.

The production manager has suggested the implementation of e-procurement, to support

planned business growth. He is considering moving to e-procurement, but is keen to ensure

that such a move will not lead to a lower quality of raw materials. If e-procurement is adopted,

the company will recruit a full-time procurement manager and cancel its agreement with the

specialist procurement company.

Marketing

Until now, Maratec has relied predominantly on word-of-mouth marketing. Most new clients

have commissioned pieces of furniture after seeing a bespoke piece in an existing client’s

home. High quality brochures are produced annually and are available on request. They are

also placed on display at exhibitions and in the showroom. A new marketing manager has been

recruited and has been tasked with analysing whether e-marketing could enhance the current

marketing mix. The marketing manager has also identified the following issues:


Visualisation of the product – Because the products are bespoke, it is difficult for a client to

visualise what the finished product will look like. This can sometimes lead to a failure to make

a sale, as the customer is not sure what they are getting.

Pricing – As materials are not sourced until a design is agreed, it is difficult to provide accurate

up-front prices. Maratec currently uses cost plus pricing, but the marketing manager

understands that this may deter some clients.

Showroom – There is only one showroom and it is not considered worthwhile opening more

as more pieces of furniture would have to be created especially to furnish it. Therefore it is not

possible for many potential clients to see the quality of the furniture.

After-sale support

As there is no guaranteed delivery time for the products, Maratec provides production progress

updates to their clients on request. When the client phones or emails, the production team

photograph the work-in-progress and send the pictures to the client. The client can also visit

the manufacturing plant to check on progress, but this requires prior arrangement due to legal

health and safety requirements.

Maratec intends to remain a producer of bespoke furniture items. It does not wish to produce

standard products or produce to inventory. The only non-commissioned pieces of furniture it

produces are for display in the showroom.

Required:

(a) Evaluate the use of e-marketing at Maratec to enhance each of following five elements of

the marketing mix:

price, promotion, place, processes and physical evidence. (15 marks)

(b) Describe the principles of e-procurement and explain the benefits and risks to

Maratec. (10 marks)

(25 marks)


Question 17

Ten years ago Sully Truin formed the Academic Recycling Company (ARC) to offer a

specialised waste recycling service to schools and colleges. The company has been very

successful and has expanded rapidly. To cope with this expansion, Sully has implemented a

tight administrative process for operating and monitoring contracts. This administrative

procedure is undertaken by the Contracts Office, who track that collections have been made

by the field recycling teams. Sully has sole responsibility for obtaining and establishing

recycling contracts, but he leaves the day-to-day responsibility for administering and

monitoring the contracts to the Contracts Office. He has closely defined what needs to be done

for each contract and how this should be monitored. ‘I needed to do this’, he said, ‘because

workers in this country are naturally lazy and lack initiative. I have found that if you don’t tell

them exactly what to do and how to do it, then it won’t get done properly.’ Most of the

employees working in the Contracts Office like and respect Sully for his business success and

ability to take instant decisions when they refer a problem to him. Some of ARC’s employees

have complained about his autocratic style of leadership, but most of these have now left the

company to work for other organisations.

A few months ago, conscious that he was a self-taught manager, Sully enrolled himself on a

week’s course with Gapminding, a training consultancy which actively advocates and

promotes a democratic style of management. The course caused Sully to question his previous

approach to leadership. It was also the first time, for three years, that Sully had been out of the

office during working hours for a prolonged period of time. However, each night, while he

was attending the course, he had to deal with emails from the Contracts Office listing problems

with contracts and asking him what action they should take. He became exasperated by his

employees’ inability to take actions to resolve these issues. He discussed this problem with his

course tutors. They suggested that his employees would be more effective and motivated if

their jobs were enriched and that they were empowered to make decisions themselves.

On his return from the course, Sully called a staff meeting with the Contracts Office where he

announced that, from now on, employees would have responsibility for taking control actions

themselves, rather than referring the problem to him. Sully, in turn, was to focus on gaining

more contracts and setting them up. However, problems with the new arrangements arose very

quickly. Fearful of making mistakes and unsure about what they were doing led to employees

discussing issues amongst themselves at length before coming to a tentative decision. The

operational (field) recycling teams were particularly critical of the new approach. One

commented that ‘before, we got a clear decision very quickly. Now decisions can take several

days and appear to lack authority.’ The new approach also caused tensions and stress within

the Contracts Office and absenteeism increased.

At the next staff meeting, employees in the Contracts Office asked Sully to return to his old


management style and job responsibilities. ‘We prefer the old Sully Truin’, they said, ‘the

training course has spoilt you.’ Reluctantly, Sully agreed to their requests and so all problems

are again referred up to him. However, he is unhappy with this return to the previous way of

working. He is working long hours and is concerned about his health. Also, he realises that he

has little time for obtaining and planning contracts and this is severely restricting the capacity

of the company to expand.

Required:

(a) Analyse Sully Truin’s leadership style before and immediately after the training course

and explain why the change of leadership style at ARC was unsuccessful. (15 marks)

(b) Describe the principles of job enrichment and evaluate its potential application in the

Contracts Office at ARC. (10 marks)

Question 18 MMM is a university whose mission is 'to be the best'. It has a wide range of educational

activities and is organised into six departments: 1. Arts

2. Medicine

3. Law

4. Engineering

5. Natural Sciences

6. Theology Each of the six departments above is controlled by a senior manager, known as a Head who

has operational responsibility for their department’s activities throughout the university. On the advice of management consultants, it has now been decided to reorganise the

University and establish the following three new departments which will replace the current

six departments listed above: 1. Student experience: this includes teaching, welfare, progression, pass rates and quality for

both undergraduates and postgraduates.

2. Research: this includes academic research and commercial research.

3. All profit-making activities other than commercial research. Each of the new departments will be managed by one of the existing Heads. MMM wants to

introduce a control system for its Heads and departments that will measure their performance

against strategic and operational targets using quantitative and qualitative criteria. MMM’s

executive board has the following objectives for the new control system:


• To develop the Heads' motivation • To encourage the Heads to accept responsibility for achieving strategic and

operational targets • To encourage activities that generate income from external activities

MMM's executive board believes that the departmental reorganisation and the introduction of

the new control measures will require cultural change within the university.

Required

Advise MMM's executive board:

(a) how it could use the 'SMART' model to achieve the new control system's objectives.

(10 marks)

(b) of the activities it must undertake to manage the process of:

(i) changing the university's culture (5 marks)

(ii) introducing the new departmental structure

(5 marks) You must NOT use Lewin's three-step model of change as the basis of your

answer to requirement (b).

(c) Discuss the role that a change agent could play in the change process in MMM.

(5 marks)

Question 19 T is the Chief Executive Officer of a motor car insurance company, CCC. T, together with the

Board of Directors, developed a mission statement in 2015 following a detailed analysis of the

company's operations and market place. The mission statement states that ‘CCC wants to

continually grow through its commitment to quality and delivering value to its customers’. CCC

has developed a complementary vision statement which aspires to:

• Provide superior returns to our shareholders • Continually improve our business processes • Delight our customers • Learn from our mistakes and work smarter in the future

CCC’s overriding objective, also developed in 2015, is to double the size of its revenue by the

end of 2015. T has identified the following areas of concern:

• Poor customer service has led to CCC losing 15% of its customers in 2015/2016. The

customer sales manager had sponsored an initiative to reward customers with a discount

if they renewed their motor insurance. However, most of the sales executives were not


familiar with the details of this scheme and did not mention it to customers considering

renewing their insurance. The discount scheme had not affected the rate of loss of

customers.

• The average age of CCC’s personal computers (PCs) was five years. There have been

many complaints from CCC’s staff that their PC’s are not adequate for the demands of

2016. The last time an initiative had been undertaken to bring PCs up to date was in

2013.

• CCC’s internal auditors had conducted performance reviews in three departments during

2015. They found a common pattern in all three departments: many of the staff had only

minimal educational qualifications which were inadequate for the jobs they were doing.

This resulted in an unacceptable level of errors being made. No initiatives had been

undertaken to address this problem.

• Investors have been critical of the low dividend yield on their CCC shares. T is worried because, despite the time and effort put into the development of the mission and

vision statements and the overriding objective, CCC is not making sufficient progress towards

achieving its revenue target. Its revenue growth rate in 2015 was 10%. CCC’s shortfall against its revenue target was discussed at a recent Board meeting. The

Corporate Affairs Director stated that "the Board is 100% behind our strategy and vision but it’s

just not happening. I have experience in my previous company of working with an integrated

model, the Balanced Scorecard. Could the Balanced Scorecard help CCC?"

Required

(a) Advise T how a Balanced Scorecard could assist in delivering CCC's vision and

strategy. (5 marks)

(b) Assume that CCC has adopted a Balanced Scorecard approach to help it achieve its

vision. Recommend FOUR perspectives and for each perspective show:

• An objective • A measure • A target • An initiative

(16 marks)

(ii) Discuss briefly TWO drawbacks of the Balanced Scorecard.

(4 marks)


Question 20

VVT has been trading for 12 years. It imports electronic consumer products, such as televisions,

home entertainment systems, computers and printers from one supplier, MMM, which is based in

an Asian country. VVT re-brands and re- packages these products as VVT ‘own brand’ and then

sells them to customers within its own country. Most customers pick up their products directly from VVT’s stores and set them up themselves.

However, for more complex products such as large home entertainment systems, VVT offers a

home set-up service, for which VVT makes a small charge. VVT’s technicians will also visit

customers’ homes to solve technical problems with equipment if it is still within the warranty

period. VVT offers an online helpline and also a warehouse-based repair facility for its

customers if the products VVT sold to them are out of the warranty period. Feedback from

customers suggests that this customer support is highly valued as VVT’s larger competitors

don’t offer such extensive product support. VVT has a website which provides a comprehensive display of its products, product

specifications and prices. However, customers cannot order or pay for products online. Orders

are placed through a dedicated phone number clearly identified on the website. Trained

technicians are on hand to help customers decide on the product which best meets their needs.

Customer feedback indicates that this support is highly valued. As well as using the website to

advertise its products, VVT advertises in the national newspapers and undertakes direct mailing

by post. VVT also maintains a customer and product database, which holds customer details and

records their buying history. VVT uses this database solely to help with its direct mailing

activities. However, the marketing managers of VVT are aware that this database could be more

effective if it employed more sophisticated analysis. VVT places its orders for products through MMM’s website and pays by bank transfer. VVT is

not committed to a long-term contract with MMM and therefore MMM does not offer credit

terms to VVT. When the payment is authorised, MMM sends an automatic e-mail to VVT to

confirm the order, to provide an order reference number and a proposed shipping date. A further

email is sent to VVT once the order has been despatched. A logistics company based in Europe,

but not in VVT’s home country, delivers the order from the shipping port to VVT. MMM

organises the whole supply process, from initial product despatch right through to the delivery of

the order to VVT’s warehouse. This supply process has, in the past, caused a number of problems for VVT. First, missing or

delayed shipments can only be tracked by going through MMM, which has often been slow to

respond to queries. Second, MMM cannot always provide reliable shipping dates and does not

track the progress of shipments carefully. Third, the European logistics company has not always

been reliable which has resulted in delays to deliveries which are quite unpredictable. This can

cause congestion in VVT’s delivery bay or lead to VVT being out of stock of some products. As

a result, VVT tends to order more products than is necessary to ensure that it is not left short, but

this adds to its warehousing and inventory holding costs. On arrival of the order at VVT’s factory, the products are quality inspected. This is a rigorous

process and only those products which are 100% defect free are re-branded and re-packaged with


VVT’s recognised logo. Products which fail VVT’s quality inspection are returned to MMM for

a refund

Required

(a) Evaluate the primary activities of VVT. Your answer should clearly explain

the significance of each of these primary activities in adding value to VVT's

customers.

Note: You should use Porter's Value Chain to structure your answer, but you

are NOT required to draw the value chain as part of your answer.

(10 marks)

(b) Discuss the potential benefits to VVT of carrying out more sophisticated analysis

of its customer database through the use of data warehousing and data mining.

(6 marks)

(c) Recommend, with reasons, THREE ways in which VVT could improve its supply chain activities to remove non value-adding activities.

(9 marks)

(Total for Question = 25 marks) Question 21 G is a multinational company that designs, manufactures and sells consumer electronic

products, such as portable media players (PMP), tablet computers (TAB), smartphones,

personal computers (PC) and computer software packages. G has its own retail outlets and also sells its products in other stores as well as online. The G

brand and logo is recognised internationally and G has successfully applied a brand extension

strategy for a number of years. Every time G launches a new product it publicises this widely to

generate a high degree of enthusiasm amongst the public and its potential customers. G’s product

launches are highly effective: thousands of customers queue outside the stores, some even

camping outside for several days, just to experience a product launch by G. Customers perceive

G’s products to offer higher value than those marketed by its competitors, but they are also more

expensive. This has proved to be a highly profitable strategy to date for G and has been difficult

for competitors to copy. G is organised into four strategic business units (SBU’s), each responsible for a particular

product group. The PC SBU - G was one of the first developers of personal computers in the 1980s and its

unique software and quality design was popular with early PC customers. G’s first product was

the G PC with its own unique software and operating system. Despite G’s early success in the

PC market, it has failed to maintain its market share in recent years. PCs with software

developed and sold by G’s main rivals now dominate the PC market. However, the PC market is

highly profitable and has huge potential for growth but competition is intense.


The PMP SBU - The G PMP products have experienced massive growth in the market but now

sales are stagnant and predicted to decline. The PMP’s can be used as external data storage

devices and through the use of G’s own developed software, can be used to transfer music,

photos and games. G continuously rolls-out extension strategies, updating its PMP products with

more features, colours, larger memory and faster processors. The cumulative effect is that these

updates have increased the life cycle of its PMP products and its long-term sales potential,

beyond that forecast a few years ago. G’s PMP products have a high share of the PMP market

and are popular amongst a wide range of customers. The Smartphone SBU - The G smartphone products include all of the features that the G

PMP products have as well as telephone technology. G’s retail outlets are becoming more and

more focussed on its G smartphone customers and potential new customers. The smartphone

products also have a high market share and are growing in popularity. The TAB SBU - The G TAB has a high share of the rapidly growing tablet computer

market. However, the G TAB is beginning to lose its initial high market share advantage as

other manufacturers have launched their own tablet products with increasingly

sophisticated features. G recognises that the combination of its overall competitive strategy and the strength of its

brand must be maintained across its business portfolio in order to maintain and grow its

market share.

Required

(a) Explain the benefits of a 'brand extension strategy' for G. Your answer should include a definition of the term 'brand extension'.

(5 marks)

(b) Evaluate G's separate product SBUs, using the Boston Consulting Group

Growth/Share matrix.

(10 marks)

(c) Discuss the impact that G's generic competitive strategy has had on the management of its product portfolio.

(10 marks)

(Total for Question = 25 marks)


Question 22

C is an organisation which owns and operates a world famous tourist attraction of historic

interest located in Country A. The tourist attraction is an ancient castle set within

landscaped gardens and a large area of parkland. The grounds contain a large adventure

playground for children, three cafes and a large shop in which visitors can buy a range of

gifts. There is also a large function room, where business conferences and weddings are

regularly held. In the summer of 2015, C intends to open a number of holiday lodges

located within the grounds.

C has over 10,000 season ticket holders, who are customers that buy an annual pass which

allows them to enter the attraction on as many occasions as they wish throughout the year.

Most season ticket holders are local people who enjoy the peace and tranquillity of the

location. Most season tickets are purchased by retired people or by parents with young

children.

C holds large pop music concerts once or twice per year which often attract thousands of

young people. It also regularly runs a variety of children’s events throughout the holiday

and festive periods.

C’s current website was set up 5 years ago. The website is informational, outlining all

of C’s facilities, opening times, contact details and C’s forthcoming events. There are

currently no online booking or contact facilities for customers on the website.

Customers who wish to buy tickets for events and concerts or book conferences must do

so by telephone or through personal visits to C.

C recently appointed a marketing manager, J, who has worked in the travel and tourism

industry for 20 years. J was surprised to find that C does not undertake any analysis of its

customer segments and that its advertising and marketing efforts are largely focused on

very traditional methods. These include advertisements in regional and national

newspapers, in magazines and on radio and through marketing leaflets and brochures.

J wishes to undertake an immediate review of C’s marketing strategy. He believes that

through a better understanding of its customer segments it could target its customers more

effectively. J also believes that C should use the Internet more effectively to engage with its

customer segments, using an e-business approach.


Required

(a) Advise C of the importance of understanding its customer segments. Your answer should include advice to C on the most appropriate ways in which C could segment its customers.

(9 marks)

(b) Discuss the benefits for C of employing an e-business approach to engage with its customer segments.

(10 marks)

(c) Recommend, with reasons, TWO different types of Web 2.0 technologies which could be used by C to engage with its customers more effectively.

(6 marks)

(Total for Question = 25 marks)

Question 23

FP has recently been appointed to be the Finance Manager for GR Company's Finance

Department. Although FP has worked for the company for four years, this is his first role where

he will have line management responsibilities. As part of his new responsibilities FP is aware that he needs to improve his understanding on

how to deal with discipline problems so that he is prepared should any occur. He has contacted

the department's HR advisor to ask her to brief him on the disciplinary process and procedures.

Required:

Explain the points that the HR advisor should include in her briefing for FP on the

disciplinary process and procedures.

(Total for Question One = 10 marks)


Question Grid

1. Introduction to business value creation (8%)

1) Porters value chain -5,20

2) Mendelow Matrix-8

2. Role of supply chain in value creations (12%)

1) Balance scorecard-4,19

3. Value creations through operations (12%)

1) TQM -12

2) Kaizen-12

3) 5S-12

4. Value creation through marketing (20%)

1) Segmentation, Targeting and Positioning-2,22

2) Marketing mix-9,13,16

3) Product life cycle-1,

4) BCG matrix-21

5) Service marketing mix-13

6) CRM-10

5. Human resource aspects of value creation (20%)

1) HR process -11,23

2) Performance appraisals-14

3) Change management-6,18

4) Leadership strategies-15,17

6. Value creation through technology and innovation (12%)

1) E- business-22

2) E- commerce-22

7. Strategy for value creation (16%)

1) CSF and KPI’s-7

2) Generic strategy-3

3) PEST analysis -3

Documents

Areas to be covered under the revision program - CA Sri … · Areas to be covered under the revision program ... CSF and KPI’s 2) ... cannot be obtained from a doctor or pharmacist