2012 Paper P3 Mnemonics and Charts Sample Download v1
-
Upload
jackey-raj -
Category
Documents
-
view
148 -
download
16
Transcript of 2012 Paper P3 Mnemonics and Charts Sample Download v1
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
1 © Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
ACCA Paper P3: BUSINESS ANALYSIS
Mnemonics and Charts
Published by Tony Surridge Online Limited in 2012
Copyright © Tony Surridge Online Limited
Part of the Tony Surridge +AddVance study materials range
Tony Surridge Online Limited [email protected]
www.tonysurridge.co.uk
Tony Surridge Online Limited is grateful to the Association of Chartered Certified Accountants (ACCA) and the Chartered Institute of Management Accountants (CIMA) for permission to reproduce past examination
questions. The suggested solutions in the exam answer bank have been prepared by Tony Surridge Online Ltd, unless otherwise stated.
This E-book is sold subject to the condition that no part of it shall be reproduced, transmitted, or freely distributed, in any form by any means, electronic, photocopying, recording or otherwise, without the prior permission in writing of
Tony Surridge Online Limited. This book is not to be used for commercial use. It is sold on the understanding that a private individual has bought it for individual personal use, and prohibits purchase by any company or organisation entity (limited or otherwise) or sole trader or partnership. Such entities must contact [email protected]
separately to purchase a multi-user license.
2 © Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
DOWNLOAD SAMPLE Welcome to our download sample of the Tony Surridge +AddVance E-book publication: ACCA Paper P3 – Business Analysis – Mnemonics and Charts Thanks for taking time to review a download extract of this Mnemonics and Charts publication which we have developed specially for the ACCA Paper P3: Business Analysis. We hope you like our electronic study material and recognise that at our affordable prices the complete purchased and downloaded version represents true value for money. This is only a small sample, taken directly from the full version, and as such not all hyperlinks will be active. For illustrative purposes, the active hyperlinks within the Main Page will be shaded pink. All hyperlinks are fully functional only in the full downloaded version when purchased. You may like to learn some details about the full version: (please note these details may vary slightly depending on which updated version you have purchased) This Tony Surridge +AddVance e-publication consists of:
Total number of screens 848 Diagrams/Tables/Charts 191 Mnemonics 283 Review Questions and Answers 17 Revision topics 170 screens
It is important for you to know that each Tony Surridge +AddVance E-book can only be used on the computer it is initially downloaded to. The data cannot be transferred to any portable memory or any other computer or electronic device. This condition is enforced to protect our digital rights. If you wish to use the full version of this +AddVance Exam Study Text on two separate computers (such as a desktop and laptop), then you will need to purchase an additional license. For more details visit: www.tonysurridge.co.uk/exam-material/how-to-buy Good luck with your studies.
3 © Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
4 © Tony Surridge Online Limited, 2012
“No snowflake in an avalanche ever feels responsible.” Voltaire
Thank you for helping to save our environment.
Studying ONLINE protects trees! LEARN ONLINE
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
Main page Copyright statement For the ladies only Why study from a computer screen? Memorising: Tips and techniques Writing or saying things over and over again … Vocalising Initial letters and making phrases The use of mnemonics The use of jingles Word association Visualising Link/story technique Do I need to memorise all your mnemonics? Disguise your use of mnemonics in the exam Charts Colour codes Electronic links within the database
Syllabus Study Guide The structure of the syllabus A Strategic position Intellectual levels B Strategic choices Learning hours C Strategic action Guide to exam structure D Business process change Guide to examination assessment E Information technology Aim F Project management Main capabilities G Financial analysis Rationale H People Detailed syllabus Approach to examining the syllabus
Contents Main Topics Click here Review Questions Click here
ACCA Paper P3 Business Analysis
+AddVance
Mnemonics 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 Carroll Through the Looking-Glass
5
These two items
are ‘live’ for this Free Sample
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
ACCA Paper P3 Business Analysis
Overview of Mnemonics and Charts
Main Contents Title 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 modules Contents
557 559
Indicative contents 728
Review Questions and Answers 767
6
Only the first section
is hyperlinked for this Free
Sample
These two items
are ‘live’ for this Free Sample
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
‘Position Audit’
7
“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
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
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
Continuous appraisal
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
8 © Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
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
2 of 2
There are other models
PESTEL analysis Various writers
Gap analysis Ansoff
7-S analysis McKinsey 10-M analysis Various writers Financial analysis Vertical, horizontal and
ratio analysis Life-cycle analysis Kotler, et al Product portfolio analysis BCG and Shell models Competitive analysis Various models 5-Forces analysis Porter Diamond analysis Porter Value-chain analysis Porter Stakeholder analysis Mendelow, et al SWOT analysis Ansoff, Mintzberg, et al
1
2
3
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
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
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
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 factors P
Economic factors E
Social factors S
Technological factors T
Ecological (natural, ‘green) factors E
Legal factors L
PESTEL factors
11
PESTEL analysis
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
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/ regulation controlling 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
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
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.
13
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 Page Words spoken by Tony Handcock, 1960 BBC television programme
Tony Handcock, 1924-1968 English actor and comedian
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
Gap Analysis
Fo
Ft
2008 2009 2010 2011 2012 2013 2014 2015 2016
Historical period Current Planning period Target Year
Strategic Drift
Planned strategic outcome
Current
Actual results
The organisation has ‘drifted’ from its strategic objectives
Profit $m
Profit $m
Strategic Gap
14
2010 2011 2012 2013 2014 2015
Ft: Forecast target Fo: Forecast with no strategic change
Gap analysis and strategic drift
Also click here
Also click here
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
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 -1980 American actress, playwright, screenwriter and sex symbol. Known for her bawdy double entendres Letter to the RAF, early 1940s on having an inflatable life jacket named after her
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
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?’.
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
17
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 - 70 Nicholas 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
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
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
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 - 98 Alice’s Adventures in Wonderland (1865)
By Lewis Carroll, Tove Jansson - Tate Publishing, Limited (2011) - Hardback - ISBN 1854379577
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
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 applied stage, 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)
19 © Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
Competitive Position
Competitive analysis
Competitive strategy
- Entry barriers - Cost leadership - Differentiation - Focus
PESTEL analysis Indirect environment
Market Position
Market analysis
Marketing strategy
- Product strategy - Price strategy - Place (distribution) strategy - Promotion (communication) strategy - People - Process - Physical evidence
PESTEL analysis Indirect environment
- 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
For a Review Question which makes reference to environmental analysis
click here
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
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.
21
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
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
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 mass and 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’.
22 © Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
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 of New 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
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
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.
1
2
3
4
5
6
7
24
Click to the next screen
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
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
Expenditure rises to meet income. C. Northcote Parkinson, 1909-93 The Law and the Profits (1960)
C. Northcote Parkinson's Parkinson's Law
Leo Gough
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
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
Extent of threat of substitute products
Memory jog: Often, the threat of substitutes becomes a ’PRIME’ concern of the strategic analyst.
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
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
Click to next two screens
I evidently knew more about economics than my examiners. John Maynard Keynes, 1883 - 1946 explaining 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
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
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
If at first you don’t succeed, try, try again. Then quit. No use being a damn fool about it. W. C. Fields, 1880-1946 attributed
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
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
A see nothing wrong with giving Robert some legal experience as Attorney General before he goes out to practice law. John F. Kennedy, 1917 - 63 America’s 35th president of the appointment of his brother Robert.
Bill Adler - More Kennedy Wit
1st Ed 1965 h/b d/j / JFK
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
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
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
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
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
Please, sir, I want some more, Charles Dickens, 1812 - 70 Oliver Twist (1838)
Oxford University Press (2010)
- Hardback - 517 pages - ISBN 0192729667
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
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
Click to the next screen
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)
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
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
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.
For a Review Question which makes reference to Porters ‘5-Forces’
model click here
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE ‘Position Audit’
Contents Title 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
Continued on the next screen
34
Only the items shown in red are hyperlinked for this free sample
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
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
Continued on the next screen
‘Position Audit’
35
Only the items shown in red are hyperlinked for this free sample
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
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
Continued on the next screen
‘Position Audit’
36 © Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
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
Continued on the next screen
‘Position Audit’
37 © Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
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
Continued on the next screen
‘Position Audit’
38 © Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
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
Continued on the next screen
‘Position Audit’
39
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
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
ACCA Paper P3 Business Analysis
‘Choices and Evaluation’
40 © Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
Continued on the next screen
‘Choices and Evaluation’
41
Contents Title 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
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
Continued on the next screen
‘Choices and Evaluation’
42
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
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
Continued on the next screen
‘Choices and Evaluation’
43
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
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
Continued on the next screen
‘Choices and Evaluation’
44
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
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
Continued on the next screen
‘Choices and Evaluation’
45
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
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
Continued on the next screen
‘Choices and Evaluation’
46
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
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
‘Implementation and action’
47
ACCA Paper P3 Business Analysis
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
Continued on the next screen
‘Implementation and action’
48
Contents Title 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
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
Continued on the next screen
‘Implementation and action’
49
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
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
Continued on the next screen
‘Implementation and action’
50
Contents (continued) Title Page
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
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
Continued on the next screen
‘Implementation and action’
51
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
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
ACCA Paper P3 Business Analysis
Business process change
52 © Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
Continued on the next screen
Business process change
53
Contents Title 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
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
Continued on the next screen
Business process change
54
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
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
Continued on the next screen
Business process change
55
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
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
ACCA Paper P3 Business Analysis
Information technology
56 © Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
Continued on the next screen
Information technology
57
Contents Title 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
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
Continued on the next screen
Information technology
58
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
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
Continued on the next screen
Information technology
59
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
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
Continued on the next screen
Information technology
60
Contents (continued) Title Page
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
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
ACCA Paper P3 Business Analysis
Project management
61 © Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
Continued on the next screen
Project management
62
Contents Title 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
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
Continued on the next screen
Project management
63
Contents (continued) Title Page
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
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
Continued on the next screen
Project management
64
Contents (continued) Title Page
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
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
Continued on the next screen
Project management
65
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
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
ACCA Paper P3 Business Analysis
Financial analysis
66 © Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
Continued on the next screen
Financial analysis
67
Contents Title 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
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
Continued on the next screen
Financial analysis
68
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).
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
ACCA Paper P3 Business Analysis
People
69 © Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
People
70
Contents Title 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
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
ACCA Paper P3 Business Analysis
Review Questions and Answers
Click to the next screen for contents
71 © Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
Title of Question
Question Screen
Answer Screen
1 Specialist Clothing Company (SCC) BCG, Portfolio strategies
770 772
2 Diverse Holdings Company Formal system of planning, SWOT analysis, competitive analysis, strategic proposals
774 776
3 VisionZ Company Profit gap, Ansoff’s product-market mix, analysis of product-market position (involves spreadsheet analysis)
779 782
4 Blaina Packaging Co (BPC) Porter’s 5-Forces, performance indicators suggesting possible corporate failure
785 786
5 The Motherhelp Company (TMC) Planning gap, problems with acquisition, dealing with government, government as aid to business
788 789
6 Global Hotel Group (GHG) Strategic economic factors concerning building a hotel, cultural differences
792 793
7 AmpacBios Company Suitability, feasibility and acceptability, recommendation based on appraisal
796 797
8 SM Conglomerate Company BCG and portfolio strategy
800 802
9 ZeemcoChemicals Product life cycle model, evaluation of options, social responsibility
804 806
Contents Page: Review Questions and Answers - 1 of 2
Please turn to the next screen
72
This item is ‘live’ for this Free Sample
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
Title of Question
Question Screen
Answer Screen
10 SAC Diversified Inc. Conglomerate diversification, parent board destroying value
810 812
11 Indland Diamond Model, attracting investors
816 817
12 U-Theme Speakers Diamond Model and implications, mode of entry into overseas’ market
821 823
13 Tartan Clothing Supply Company (TCSC) Diamond Model and its implications, brand strategy
826 827
14 ElectroLink Telecommunications Inc. Joint venture, benefits and risks of a joint venture
830 831
15 Bed-4-U Hotels International Strategic implementation, critical success factors, key performance indicators
834 835
16 StrikeHot (SH) Media Company Benefits of implementing a process of systematic environmental analysis, scenario planning
838 839
17 Globmat Teaching Hospital Business Process Re-design versus Business Process Re-engineering
842 843
List of verbs used in question requirements 845
He who learns but does not think, is lost. He who thinks but does not learn is in great danger. Confucius 500 B.C.
73
Contents Page: Review Questions and Answers - 2 of 2
This item is ‘live’ for this Free Sample
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
SH is a media company, publishing lifestyle magazines for the consumer market. These lifestyle magazines contain articles and advertisements about fashion, health and beauty products, homes, furniture and hobbies and are bought by people aspiring to a high standard of living. Increasingly, consumers are turning to other media for the information and entertainment traditionally provided by this type of magazine. Traditionally, 60% of SH’s revenue has been derived from selling advertising, the balance being provided by the cover price of each magazine. Over the last four years, both the revenue and profits have declined as there has been a steady reduction in the sale of both advertising space and the number of magazines sold. The industry is very dependent upon the level of discretionary disposable income. If this income is at a low level, fewer luxury goods are advertised. However, people still buy the magazines to read about these goods. The company has tried to expand abroad but has failed, expensively, to achieve this. Similarly, attempts to enter other segments of the home market, particularly teenage magazines, have failed. Both of these failures have come as a surprise to the Board of Directors who thought that they understood the respective markets well enough to make the appropriate decisions. New technology, in the form of digital media, has also affected the magazine industry. These changes have been felt in both production methods, such as broadband distribution of proof copies, and the choice of media, such as the Internet, available to consumers. To a large extent, the speed of these developments was a surprise to the directors of SH. Required: As a member of the strategic committee, you have been seconded to work with the organisation’s forecasting and planning function, to improve its long-range planning. (a) Evaluate the benefits to SH of implementing a process of systematic environmental analysis. (12 marks) (b) Describe the essential stages that should be included in a scenario planning process that could
be introduced by SH. (13 marks) (25 marks)
StrikeHot (SH) Media Company: Question 1 of 1
Change will not come if we wait for some other person or some other time. We are the ones we've been waiting for. We are the change that we seek. Barack Obama The 44th and current President of the United States. He is the first African American to hold the office.
74
A
A
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
Tutorial Comment Section (a) asks for an evaluation of the benefits of a system of environmental analysis and NOT an explanation or application of the technique. Therefore you were NOT required to undertake a detailed PESTEL analysis or Porter’s five forces analysis. Furthermore, you do need to evaluate benefits rather than simply list them. Part (b) is standard bookwork but needs to be related to SH to get full marks. End of Tutorial Comment (a) Environmental analysis Systematic environmental analysis would benefit SH in the following ways: - More comprehensive information available for decision making. A number of SH’s recent strategic decision, such as overseas ventures have failed due to
insufficient information. A more detailed environmental analysis would have helped SH identify key factors to consider. This is perhaps the most important aspect – systematic environmental scanning will improve the planning and decision-making process.
- Anticipating opportunities and threats sooner SH seems to have been slow to appreciate the growing importance of the Internet for
advertising and, more specifically, as a media type with the development of online magazines. As a consequence, this appears to have become a threat to SH’s business model rather than an opportunity to exploit. A PESTEL-style analysis would have revealed this technological development sooner.
- Be able to evaluate opportunities more thoroughly SH recently failed in an attempt to enter the domestic teenage magazine market. A
PESTEL style analysis would have indicated the extent and drivers of growth in this segment and a Porter’s five forces analysis would have revealed key competitive forces. This information may have resulted in a decision not to enter the market or a different strategy for entry. Either way, the considerable costs of failure would have been avoided.
- Quicker response to changing customer needs The directors of SH are being forced into a reactive style of management as they are
being surprised by the rate of change in some markets. Systematic market analysis would allow them to identify changes sooner and hence change products to more quickly match customer needs.
- Lower risk
The net result of all of the above is that systematic environmental analysis will reduce SH’s downside risk exposure but should increase its ability to exploit opportunities.
StrikeHot (SH) Media Company: Answer 1 of 3
75
Q
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
- More accurate budgeting A greater awareness of forecasts regarding the advertising industry and the mix of paper
versus e-advertising would allow SH to budget its future advertising income more accurately.
(b) Scenario planning Scenarios are detailed and plausible views of how the business environment might develop in
the future based on groupings of key environmental influences and drivers of change about which there is a high degree of uncertainty.
Scenario planning involves the following steps: 1 Identify high-impact, high-uncertainty factors in the environment Relevant factors and driving forces could be identified through a strategic analysis
framework such as PESTEL analysis. Once identified, factors need to be ranked according to importance and uncertainty.
For example, for SH three key factors could be the speed of development of e-
magazines, consumers’ attitudes to e-magazines and the cost of paper. 2 For each factor, identify different possible futures Precision is not possible but developing a view of the future against which to evaluate and
evolve strategies is important. For example: Factor Possible futures Development of e-magazines Rapid Slow Consumer attitudes to e-magazines Good substitute Poor substitute Cost of paper Rising Stable 3 Cluster together different factors to identify various consistent future scenarios This process usually results in between seven and nine mini-scenarios. For example: Scenario 1: Consumers still prefer conventional magazines, partly because of the limited growth in e-
magazines offered to the market. However, the future does not look positive, due to rising paper costs. If these are passed
on to customers, then it might encourage them to consider e-magazines more seriously.
StrikeHot (SH) Media Company: Answer 2 of 3
76
Q
Q
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
Scenario 2: There is rapid growth in the availability of e-magazines and associated marketing costs. Together with increasing acceptance of e-magazines as an alternative to paper-based
products, this has resulted in many potential customers switching to electronic media. 4 ‘Writing the scenario’
For the most important scenarios (usually limited to three), build a detailed analysis to
identify and assess future implications. As part of this, planners typically develop a set of optimistic, pessimistic and most likely
assumptions about the impact of key variables on the company’s future strategy. The result of this detailed scenario construction should include: - financial implications – anticipated net profits, cash flow and net working capital
for each of three versions of the future - strategic implications – possible opportunities and risks - the probability of occurrence, usually based on past experience. 5 For each scenario identify and assess possible courses of action for the firm. For example, possible strategies for the two alternative scenarios outlined above: Scenario 1: A possible strategy would be to cut paper costs by the increased use of
recycled products. Scenario 2: A possible strategy would be to develop ranges of titles aimed at older
customers, who will (presumably) be slower to accept e-magazines. Some strategies make sense whether the outcome, usually because they capitalise on or
develop key strengths of the firm. For example, SH could look to strengthen its relationship with key advertisers.
However, in many cases, new resources and competencies may be required for existing
strategies to succeed. Alternatively, entirely new strategies may be required. For SH this could be the development of on-line versions of its magazines, accessible by subscription.
6 Monitor reality to see which scenario is unfolding
7 Revise scenarios and strategic options as appropriate
StrikeHot (SH) Media Company: Answer 3 of 3
77
Q
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
The directors of Blaina Packaging Co (BPC), a well-established manufacturer of cardboard boxes, are currently considering whether to enter the cardboard tube market. Cardboard tubes are purchased by customers whose products are wound around tubes of various sizes ranging from large tubes on which carpets are wound, to small tubes around which films and paper products are wound. The cardboard tubes are usually purchased in very large quantities by customers. On average, the cardboard tubes comprise between 1% and 2% of the total cost of the customers’ finished product. The directors have gathered the following information: (1) The cardboard tubes are manufactured on machines which vary in size and speed. The lowest cost machine is priced at $30,000 and requires only one operative for its operation. A one-day training course is required in order that an unskilled person can then operate such a machine in an efficient and effective manner. (2) The cardboard tubes are made from specially formulated paper which, at times during recent years, has been in short supply. (3) At present, four major manufacturers of cardboard tubes have an aggregate market share of 80%. The current market leader has a 26% market share. The market shares of the other three major manufacturers, one of which is JOL Co, are equal in size. The product ranges offered by the four major manufacturers are similar in terms of size and quality. The market has grown by 2% per annum during recent years. JOL Co was the market leader with a share of 30% three years ago. The managing director of JOL Co stated at a recent meeting of the board of directors that: ‘our loss of market share during the last three years might lead to the end of JOL Co as an organisation and therefore we must address this issue immediately’. (4) A recent report on the activities of a foreign-based multinational company revealed that consideration was being given to expanding operations in their packaging division overseas. The division possesses large-scale automated machinery for the manufacture of cardboard tubes of any size. (5) Another company, Plastic Tubes Co (PTC) produces a narrow, but increasing, range of plastic tubes which are capable of housing small products such as film and paper-based products. At present, these tubes are on average 30% more expensive than the equivalent sized cardboard tubes sold in the marketplace. Required: (a) Using Porter’s five forces model, assess the attractiveness of the option to enter the market for cardboard tubes as a performance improvement strategy for BPC. (12 marks) (b) Discuss the statement of the managing director of JOL Co and discuss six performance indicators, other than decreasing market share, which might indicate that JOL Co might fail as a corporate entity. (13 marks) (25 marks)
Blaina Packaging Co (BPC): Question - 1 of 1
78
A
A
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
(a) In order to assess the attractiveness of the option to enter the market for spirally-wound paper tubes, the directors of BPC could make use of Michael Porter’s ‘five forces model’. In applying this model to the given scenario one might conclude that the relatively low cost of the machine together with the fact that an unskilled person would only require one day’s training in order to be able to operate a machine, constitute relatively low costs of entry to the market. Therefore one might reasonably conclude that the threat of new entrants might be high. This is especially the case where the market is highly fragmented. The fact that products are usually purchased in very large quantities by customers together with the fact that there is little real difference between the products of alternative suppliers suggests that customer (buyer) power might well be very high. The fact that the paper tubes on average only comprise between 1% and 2% of the total cost of the purchaser’s finished product also suggests that buyer power may well be very high. The threat from suppliers could be high due to the fact that the specially formulated paper from which the tubes are made is sometimes in short supply. Hence suppliers might increase their prices with consequential diminution in gross margin of the firms in the marketplace. The threat from competitive rivals will be strong as the four major players in the market are of similar size and that the market is a slow growing market. The market leader currently has 26% of the market and the three nearest competitors hold approximately 18% of the market. The fact that Plastic Tubes Co (PTC) produces a narrow range of plastic tubes constitutes a threat from a substitute product. This threat will increase if the product range of PTC is extended and the price of plastic tubes is reduced. The fact that a foreign-based multinational company is considering entering this market represents a significant threat from a potential new entrant as it would appear that the multinational company might well be able to derive economies of scale from large scale automated machinery and has manufacturing flexibility. Low capital barriers to entry might appeal to BPC but they would also appeal to other potential entrants. The low growth market, the ease of entry, the existence of established competitors, a credible threat of backward vertical integration by suppliers, the imminent entry by a multi- national, a struggling established competitor and the difficulty of differentiating an industrial commodity should call into question the potential of BPC to achieve any sort of competitive advantage. If BPC can achieve the position of lowest cost producer within the industry then entry into the market might be a good move. In order to assess whether this is possible BPC must consider any potential synergies that would exist between its cardboard business and that of the tubes operation. From the information available, the option to enter the market for cardboard tubes appears to be unattractive. The directors of BPC should seek alternative performance improvement strategies. (b) It would appear that JOL’s market share has declined from 30% to (80 – 26)/3 = 18% during the last three years. A 12% fall in market share is probably very significant with a knock-on effect on profits and resultant cash flows. Obviously such a declining trend needs to be arrested immediately and this will require a detailed investigation to be undertaken by the directors of JOL. Consequently loss of market share can be seen to be an indicator of potential corporate failure. Other indicators of corporate failure are as follows:
Blaina Packaging Co (BPC): Answer - 1 of 2
79
Q
Q
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
Six performance indicators that an organisation might fail are as follows: Poor cash flow Poor cash flow might render an organisation unable to pay its debts as and when they fall due for payment. This might mean, for example, that providers of finance might be able to invoke the terms of a loan covenant and commence legal action against an organisation which might eventually lead to its winding-up. Lack of new production/service introduction Innovation can often be seen to be the difference between ‘life and death’ as new products and services provide continuity of income streams in an ever-changing business environment. A lack of new product/service introduction may arise from a shortage of funds available for re-investment. This can lead to organisations attempting to compete with their competitors with an out of date range of products and services, the consequences of which will invariably turn out to be disastrous. General economic conditions Falling demand and increasing interest rates can precipitate the demise of organisations. Highly geared organisations will suffer as demand falls and the weight of the interest burden increases. Organisations can find themselves in a vicious circle as increasing amounts of interest payable are paid from diminishing gross margins leading to falling profits/increasing losses and negative cash flows. This leads to the need for further loan finance and even higher interest burden, further diminution in margins and so on. Lack of financial controls The absence of sound financial controls has proven costly to many organisations. In extreme circumstances it can lead to outright fraud (e.g. Enron and WorldCom). Internal rivalry The extent of internal rivalry that exists within an organisation can prove to be of critical significance to an organisation as managerial effort is effectively channeled into increasing the amount of internal conflict that exists to the detriment of the organisation as a whole. Unfortunately the adverse consequences of internal rivalry remain latent until it is too late to redress them. Loss of key personnel In certain types of organisation the loss of key personnel can ‘spell the beginning of the end’ for an organisation. This is particularly the case when individuals possess knowledge which can be exploited by direct competitors, e.g. sales contacts, product specifications, product recipes, etc.
Blaina Packaging Co (BPC): Answer - 2 of 2
Chains of habit are too light to be felt until they are too heavy to be broken. Warren Buffett
80
Q
© Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
We hope you enjoyed our free sample, and found it useful. For the FULL WORKING version, buy it NOW, online at...
81 © Tony Surridge Online Limited, 2012
Mnemonics and Charts ACCA Paper P3: Business Analysis
www.tonysurridge.co.uk
CONTENTS MAIN PAGE
Sorry... But that link will not work in this free sample copy.
To buy the full Study Text version, complete with all links, for your ACCA P3 studies, please go to
www.TonySurridge.co.uk
“Dedicated to the Accountancy and Finance Profession”
82 © Tony Surridge Online Limited, 2012