ACCA P3 Revision Mock - Answers J12

ACCA

Paper P3

Business Analysis

June 2012

Revision Mock – Answers

To gain maximum benefit, do not refer to these answers until you have completed the revision mock questions and submitted them for marking.

ACCA P3: BUSINESS ANALYSIS

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REVIS ION MOCK: ANSWERS

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ANSWER 1

(a) Strategy Evaluation

Johnson, Scholes and Whittington suggest that there are “three key success criteria which can be used to assess the viability strategic options”:

Feasibility

This assesses whether a strategy would work in practice; therefore whether Disbit has the capabilities to deliver the new bespoke products. This would consider finances, access to supplies, staff and expertise.

For Disbit, its past successful performance appears to have built up enough finance for the new project – Nigel suggests that the finance is in place. A supplier appears to be initiating the change so this should give access to the units that are required to satisfy these types of orders. However, it should be noted that Logic Units only make up 14% of Disbit’s current supplies. Disbit needs to consider whether, if demand for bespoke units shows high growth, whether Logic Units have the capabilities to satisfy this growth or whether alternative suppliers can be found with such flexible terms. This might become particularly pertinent of the TDT were to switch to bespoke orders.

There are some gaps in staffing and expertise with respect to website and graphics design. But plans are in place to recruit these staff and it would appear that some staff may already have been targeted. These will hopefully fill the gaps in knowledge that Disbit has as it moves into an area that is significantly different from its traditional core activities.

So, overall, this does appear to be a strategy that would work in practice.

Suitability

This is concerned with whether the “strategy addresses the key issues that have been identified in understanding the strategic position” of Disbit. The key issues with Disbit’s position is the falling market share, falling margins and the gradual switch towards online sourcing for products. There is also a longer term threat of core customers such as the TDT switching to online sourcing.

The aim of the new strategy is to differentiate Disbit from its rivals in the online market. Disbit can differentiate through its expertise and flexibility when it comes to offline sales, but it is hard to accentuate these advantages in online sales. So the introduction of a bespoke service should allow Disbit to offer something different from its rivals and make it stand out. This differentiation should provide a competitive advantage that will regain market share.

Exhibitors are likely to be willing to pay more for a product that they can design and which can make their exhibits stand out from standardised displays at exhibits. So, although there will be some adverse impacts on Disbit’s costs, they should be able to build these into selling prices and increase margins. There should also be savings in areas such as stockholding costs and perhaps space could be sublet or used for alternative sources of revenue in order to further enhance margins.

Disbit will be attempting to adapt to the changes in the market environment. As the switch to online sourcing continues, Disbit will find it harder and harder to rely on its traditional differentiation methods – especially in the current economic climate where buyers have become more sensitive. Longer term, Disbit would also be in a position to protect itself if the TDT made the switch to online sourcing and wanted bespoke products.

Overall, the strategy does appear to be a suitable one given Disbit’s current strategic position.


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Acceptability

This concerns the expected performance outcomes of a strategy. This will examine whether the strategy meets the company’s objectives, the risk of the strategy, and it’s acceptability to other stakeholders such as staff and customers.

As an owner-manager Nigel Chapman will be in control of Disbit’s objectives. He wants to regain market share and return the business to a position of strength. It has already been argued that this strategy has a strong chance of achieving this and therefore it can be seen why he sees it as acceptable.

There are risks involved in the strategy. There is a lack of skills in the organisation, it needs to be investigated whether suppliers can adapt, and the current economic climate might mean that exhibitors are more likely to focus on pricing rather than achieving bespoke services. Nigel needs to be aware of these risks and factor these in to his decisions. But it appears that he finds the risk acceptable and, in the long run, the economy is likely to pick up and Disbit will be in a good position when it does.

Staff may need more training on installing and dealing with bespoke products and there may be some resistance to change. It will therefore be up to Nigel to ensure there is communication with staff and that he works to overcome any barriers to the new strategy. Likewise, existing customers may be concerned about the company losing focus on its core business area of standardised products and it will be important for Nigel and his sales staff to ensure that this doesn’t happen.

But overall, this would appear to be a strategy that is feasible, suitable and acceptable for the business.

(b) Business Process Redesign

Harmon recommends a five stage generic business process redesign methodology:

Plan

Nigel needs to create a team that will steer the change in the business process and it is likely that he will form part of this team. The goals of the project need to clearly understood – to gain a competitive advantage from online sales and to regain market share.

Nigel should also set the scope for the change perhaps by suggesting how much can be spent on the redesign (some of which will need to be allocated to recruitment costs, for example), how long the project can take (Nigel is hoping to achieve this within nine weeks) and which areas cannot be changed (for example, Nigel might suggest that the redesign should have minimal impact on the TDT contract as the loss of this customer could be fatal for the company).

Analysis

A lot of thB2is work seems to have already been performed. The first stage is to document the existing process and this has been laid out in appendix 1.

The next stage is to identify the problems within this existing process. The first problem appears to come from the start of the process. The product list appears to be very supplier-led, and Disbit appears to be subject to the plans of suppliers. This might mean that if a particular type of product that a customer wanted was not contained in the suppliers list then the sale could be lost or the customer dissatisfied.


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There is also the issue of stockholding. In order to achieve the bulk discounts from suppliers, Disbit have to order and store the products from the start of the year. This possibly reflects the imbalance of power between Disbit and its suppliers – especially for Arcan Displays. If Disbit can reduce the amount of supplies coming from Arcan it may be able to manage its stockholding better.

Further along in the process graphic design is currently outsourced. This has left a skills gap within the organisation that may be a potential differentiator.

Redesign

At this stage of the change process Disbit must explore alternatives and choose the best redesign which will achieve the organisation’s goals. The revised process might look as follows:

Customer Order (& Uploaded Graphics if

needed)

Graphics Design

Place Order with Supplier

Send Graphics for Production

Units and Graphics Assembled

Delivery & Installation

Exhibition Days

Removal & Retrieval

Return re-usable units to stock

Key answer tips

There would be no need to draw the revised process in the exam. The examiner has stated that students will not have to draw diagrams in their answers. This diagram is presented to illustrate the process, but students could have used words just as well – as illustrated by the following notes.


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The changes to the process are likely to occur at the points of dealing with customers and suppliers. Rather than the process being supplier-led, it will become customer-led. Customers will determine what products they want and will even be able to upload desired graphics and logos if they choose. These graphics can then be improved or created by an in-house graphics design department who are likely to be more in touch with customer needs as well as the needs of Disbit.

Suppliers will only become involved at this point and the suppliers would be expected to supply the units needed by Disbit in the correct specification and within a reasonable time of order. This would remove the need for Disbit to hold these items in stock. This may rebalance some power between suppliers and Disbit. On the one hand, Disbit will become very reliant on suppliers to meet delivery times and client specifications within the required time frames – thus giving more power to suppliers. On the other hand, Disbit might see a switch of suppliers so that they become less reliant on Arcan Displays, whilst Logic Units provide a higher proportion of units going forward. This might allow Disbit to renegotiate deals on standard units or seek out alternative sources of supply.

From assembly and installation etc. the process is unlikely to vary much so that customers at exhibition centres will still provide the high levels of service and flexibility that they expect. However there is likely to be an adverse affect on the re-usability of units as they will be made to measure and ay have a single, unique purpose. So Disbit may find an increase in disposal or recycling costs in order to remove these items.

Development

This will involve redeveloping jobs, systems, performance measures and the working environment.

From staff perspective there will be an impact on both existing and new staff. Existing installation staff will have to be retrained to deal with bespoke units which may cause some initial disruption. Staff expertise and excellence is a critical success factor for the business so it will be important to get this development right. New staff will be needed for the website and graphics design department and this is explored more in the next section. It will be important for all staff, both new and old, to understand the reasons for change, the goals of the change and the overall impact on processes, job roles and targets. It will therefore be important to implement a structured change management programme alongside the business process redesign and development.

New systems will be needed from both an information technology perspective and performance management perspective. The web designer and graphics designers will need to of the range computers as well as an investment in IT systems which allow them to perform their tasks as effectively as possible. Different information than that provided by the existing management information systems will be necessary such as customer preferences on design and re-usability. New performance measures will be needed to ensure that the new process is working effectively and also to assess its contribution towards Disbit’s goals. There will also need to be new targets and rewards for existing staff that is linked to performance within the new system and their ability to adapt to it.

The website itself will need to be redesigned. It needs to be clear that both services (standard and bespoke) are available and it needs to illustrate Disbit’s differentiation. The designer could also attempt to make the site more interactive so that perhaps, when a client enters their measurements, a virtual model of how the display might look could be presented on the screen. This should help differentiate the website from low cost rivals and help achieve Disbit’s goals.


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The working environment will also have to change such as the need for less storage space and finding space for new staff. It may well be that these can go together so that the space freed up by holding less stock can be used by the web and graphics designers.

Transition

The new processes will then have to be implemented and tested. There are various ways to do this such as by parallel running, direct changeover and phased implementation. It would appear that it would be best to go for a parallel running as there will continue to be clients who prefer the old method of operations. As clients switch to the new process then the old process can be phased out.

For this to be successful it will be important that it is thoroughly tested before implementation. This might mean having “dummy” jobs to test the process. An idea might be for Disbit to run a stand at a range of exhibits across the country that runs alongside other exhibits. Disbit could display and illustrate its new bespoke package and it would give the business the chance to try out different designs, delivery times, staffing etc. I will be important to properly market the new process properly so that these exhibits could satisfy both purposes at the same time.

Sales staff need to be informed of the new process and its benefits. They should also be allowed to feedback any suggestions that they or clients might have for further enhancements or changes.

The process should have ongoing monitoring and modifications until Disbit’s goals are achieved or a new process is developed.

(c) Pricing

There are three steps that Disbit can apply in determining a pricing policy:

1 Determine the pricing objectives

It can be assumed that the long term pricing objective will be twofold: to maintain its differentiated product position, and to improve the financial position of the company. This may be supported by shorter tem objectives such as improving the retention rate and regaining market share from rivals. It would therefore appear desirable to charge a high price of these products relative to existing products in the long term. In the short term, however, it may be that the company decides to start with lower prices in order to build awareness of the product and win new customers. This might be achieved by introductory offers or first-time discounts.

2 Establish a pricing structure

In establishing a pricing structure it will be important to consider the other influences on pricing (other than the pricing objectives. These are:

• Customers. Disbit should consider the price elasticity for its products. This will consider how any change in price will affect demand. It will be important to consider whether customers are willing to pay more for a bespoke service and what their expectations of price might be. It may be that some customers are unwilling to pay more if they see bespoke products as becoming the standard rather than the exception. Customers might even expect to receive a discounted price as they are now performing some of the graphics work.

• Competitors. Competitors have already established a better online presence and may therefore have created sustainable cost advantages over Disbit. However, if Disbit establishes a first-mover advantage into online bespoke orders it may be able to differentiate itself and subsequently charge higher prices.


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• Costs. There will be a loss of bulk discounts on bespoke orders which will automatically increase costs. There will also be a reduced opportunity to re-use products in the future. Disbit need to estimate the financial impact of these changes. It will also be important to communicate these impacts to customers. It may however have less of an impact on the TDT as they are more likely to re-use the products and this could be built in as a discount to this client (though it may well be that the TDT remain content with the existing standard displays for this reason).

3 Choose a pricing strategy

Disbit then needs to choose from a wide selection of pricing policies. Some policies such as going-rate and captive product pricing are clearly inappropriate. It would appear that Disbit’s plans are to attempt to follow a policy of negotiated pricing with quotes being delivered within 24 hours of a client enquiry. Presumably the client will then have a chance to negotiate a price at that point. But there still needs to be some pricing structure in place in creating the original quote.

Cost plus pricing could be considered with a high mark-up used in order to reflect a high perceived quality in the company’s service, uniqueness and reputation. But this might only come after a time when the bespoke service has established itself, so that in the short-term introductory offers might be used to attract customers to the service.

Overall the pricing decision for Disbit is a complicated one which will need careful consideration. The success or failure of the new process is likely to rely as much on this as it is on the process redesign itself.

Marking scheme

(a) Strategy Evaluation

Up to 5 marks for the application of each of the three J,S & W criteria

Professional skills: these marks should only be awarded if the answer has the correct ‘slant’ i.e. is written in a way that supports the strategic decision

(b) Business Process Redesign

Up to 4 marks for each stage in the process

Professional skills: Up to 2 professional marks are available for the overall clarity and coherence of the analysis.

(c) Pricing

Steps in the pricing process

Explanation and application of each step (up to 4 marks each)

Total

Marks

Up to 15 marks

3 marks

Max of 18 marks

Up to 20 marks

2 marks

Max of 22 marks

1 mark

Up to 9 marks

Max of 10 marks

––––

50

––––


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ANSWER 2

(a) The project sponsor

The project sponsor is the backbone for the entire project. He or. she will normally be a senior member of the management team – for Bluesky it is therefore likely to be one of the 5 senior scientists/shareholders. Ideally the project sponsor should have most to gain from the project. For example, it could be within an area of their expertise, linked to their financial rewards, or a project that they have a particular scientific interest in. For major project, it may be that more than one project sponsor exists. Also, a project sponsor might sponsor more than one project. Dr Clarkson might find that he becomes the project sponsor on more than one project.

The project sponsor’s job is to direct the project. He or she will often determine the project constraints (for example, they may set the budget or timescale for the project). The sponsor leads the project through the engagement/ selection process until it is formally authorized, and therefore plays a dominant role in the development of the initial scope and business case approval. It will be the project sponsors job to act as project gatekeeper. This means that he or she will have to ensure that the project meets Bluesky’s strategic goals. These goals may be in areas such as improving market share, meeting the financial goals set by UDS, or furthering the company’s growth into new areas. Projects which do not meet this goal should be rejected by the project sponsor.

On some projects, the sponsor may also be part of the project team. As sponsors have a major share in the project’s success, and therefore, at times, may take an active role on the project team. He or she may coach the project manager or project team and provide decision making support.

The sponsor will monitor the project and determine project gateways. This should serve as an early warning mechanism for potential over-spends or delays. The problems that have been experienced previously in Bluesky’s should be reduced in this way.

The sponsor may also be involved in other important issues such as authorizing changes in scope, phase-end reviews, and go/no-go decisions when risks are particularly high. The sponsor might improve co-ordination and communication between projects (something that is absent at present) – especially if the sponsor is sponsoring more than one project.

In some instances, the sponsor might decide that the project should be abandoned if it is deemed to be too far out of control. This would reduce the overall adverse impact on both Bluesky and UDS.

The project sponsor will also act as a resource negotiator with UDS. If more time or money is needed the project sponsor could lobby for this.

The project manager

The project manager is the person chosen to lead the team, and manage it on a day-to-day basis. Primarily the project manager’s responsibility is to deliver the project and to ensure that effectiveness and efficiency are achieved across the entire project. It is more likely to be an analyst working in the project or someone who has past experience in project management. The project manager will report directly to the project sponsor. The expectations of the project sponsor is an important component which is to be reviewed by the project manager throughout the project life cycle.


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For issues that are beyond the control of the project manager, the sponsor serves as an escalation path. This is likely to be the reason for most contact between the sponsor and the manager once the project has begun. It should free up sponsor time and allow them to be involved in more than one project at a time. A project manager, however, is only likely to be working on one project at a time. This should allow them to get better focus and ensure that the project remains within its constraints and meets its targets.

The project manager will interact more closely with the project team. It will be his or her role to translate strategies and goals for scientists and to motivate them to achieve these goals. They will be change managers and team leaders. In Bluesky, for example, new project managers may have to oversee a change in culture towards more goal focused projects and away from more personal interest projects. However, the barriers to change may be reduced if, for example, the managers are promoted from within or can make a personal connection with the scientists to gain their trust and understanding.

The project manager will have to act as a problem solver. Getting project sponsors involved should be seen as a last resort and the project manager should try to overcome problems whilst working within the project constraints.

The project initiation document will set out the manager’s responsibilities. It will be the project manager’s responsibility to ensure that the project constraints are adhered to and that the overall business drivers of the project are achieved.

(b) Project constraints

Given that BlueSky is going to introduce project managers into the company structure in order to attempt to correct some fundamental weaknesses in communication and control, it would be useful to ascertain what these managers might see as their key objectives. It must be assumed that the organisation is willing to provide the resources which are necessary for the projects to be successfully managed and completed, i.e. the materials, the money the technical know-how and the manpower resources. Having been assured that these are available, a key objective for the project manager must now be to define the scope of the project. He/she must identify and limit the dimensions of the work. Ultimately the purpose for carrying out the project must be achieved. There is no point in carrying out the work if it does not meet the client’s requirements. The project manager should be able to specify those areas of work or investigation to be covered and exclude work which will add little or nothing to the project.

Having determined the scope of the project the manager must now concentrate on the objectives of cost, quality and time. It is obvious that there will have to be trade-offs between these areas. The achievement of quality incurs an investment of both money and time, whereas saving money often results in a reduction in quality and slower delivery.

Cost is an obvious key objective of a project manager. Projects are intended to be profitable and many contracts are negotiated at a fixed price. Any over-run in costs will have to be carried by the provider and this will inevitably affect profitability. Where projects are priced on a cost-plus basis clients are soon alienated if costs are not rigorously controlled, and will show their dissatisfaction by moving to competitors. BlueSky had been guilty of allowing costs to escalate, probably because the analysts who were driving the projects were not aware or knowledgeable of financial control systems.

Time is another key factor to be controlled. Delays in completion of projects affect both client and provider. Clients agree a time for a project completion because they need the outcomes to fit in with their own schedules. Any delays can throw out their own timetables. The delays cost them both money and the ability to respond to markets quickly with the information obtained from the projects. The providers also need good timekeeping because there may be financial penalties for delays.


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Even if this is not the case payments will be delayed so affecting the cash flow of the company. It is also important to minimise time delays because they disrupt the allocation of the scarce resources available within the company.

This was another issue which had harmed the reputation of BlueSky. Projects had been allowed to over-run. This was inevitable with the structure of the company. Resources were not flexible and if delays occurred there was little ability to transfer additional resources to the project in question. Information sharing and co-operation appeared to be non-existent.

Finally, quality is a key objective of any project manager. A company operating in this field needs to have a strong reputation for delivering suitably researched projects. Much of the provider’s work will be obtained through repeat business or by word-of-mouth. Without a reputation for quality the firm will struggle to obtain contracts. Simply put, the firm must deliver a project fit for the client’s purpose and which provides satisfaction. There is no evidence that the quality at BlueSky was poor but there is little doubt that a project manager who maintains close communication with the client will be able to drive projects more closely towards customer needs.

The role of the project manager is to optimise in these three areas of cost, time and quality – often in conflict with each other – adjusting the emphasis on them to suit the circumstances and the client.

Marking scheme

(a) 2 marks for each well explained point

(b) 2 marks for each well explained point

Total

Marks

11

14

––––

50

––––

ANSWER 3

(a) Alan has a difficult, if not altogether unusual, job at ASG in trying to reconcile the attitudes and ambitions of two, or rather three groups if including the personnel department, with very different views of the training and development process the graduates should undergo. These three groups are important stakeholders in ASG, which they see as the means for achieving significant personal and career goals. In Schein’s terms we are looking at a complex situation with individuals and groups motivated by a number of goals and objectives which are likely to change over time and requiring the partners concerned to change their attitudes and relationship to the graduates. The partners may feel their job security and professional status are threatened by a shorter training programme. This, and the dangers to partner cohesion threatened by the speedier movement of graduate trainees through the programme and more rapid progression towards their ultimate aim of becoming partners in the firm.

In ASG the disparate groups are in danger of pursuing conflicting goals with detrimental effects on the company’s performance. Each group will perceive the issue differently and reconciling these perceptions lies at the heart of Alan’s problems.

There are two elements of change involved here: the students are having to change from an academic background to a professional background where there is more of a top down leadership and autocratic approach; whilst the partners are resistant to change a process that has been well established within the firm.



There are a number of reasons put forward for resisting these changes:

Social Factors

On the one hand the students do not like the induction programme because they may feel that the constant disruption of moving departments may not allow them to settle into the firm. They may also feel that they are constantly moving away from their friends, or that when they make new friends in new departments they have to constantly leave them behind.

On the other hand, the partners may believe that this is the ideal way for students to understand the organisations culture and develop good habits. It may also develop the social skills required for dealing with clients.

Job Factors

Students may feel that the job and their career lacks focus as they are constantly moving between departments and there is no clear idea about what the goals of the process are or how they would be assessed. This appears to be contributing to a high turnover rate for students.

But partners believe that the process provides the best way to achieve an understanding of the critical success factors and pressures that each department is under. As a qualified accountant in the future, it is likely that all departments will work together to satisfy a client’s needs. Perhaps the partners also believe that when the process is finished and a student settles in a department, the student will be more motivated by the future lack of disruption. The process should also cement in a student’s mind which department is likely to become their preferred option in the future.

Personal Factors

Partners may feel that any change to the process may imply criticism of the way that they personally were trained and might somehow belittle their positions. As older people, they may also want to cling to the traditional method that has been with the firm for a long time.

Students may however be a little afraid of the process – especially when they see the high turnover rates. A “myth” about the attractiveness or success of the programme may therefore ease its way in to the business’ culture.

Johnson and Scholes’ model of change would help Alan understand the nature of the change proposed and the partners’ response to it. Certainly the partners response to date has been purely reactive and the nature of change incremental affecting only part of the firm’s activities. This implies a process of adaptation needs to occur.

Nature of change

Incremental change

Transformational change

Management rule

Proactive Tuning Planned

transformational

Reactive Adaptation Forced

transformational



(b) Lewin’s three-stage model of the change process could be used in conjunction with force field analysis to identify the forces driving the change and the restraining forces looking to preserve the status quo. The drivers for change come from the graduates and their desire to get into meaningful jobs as soon as possible. There is a need to reduce the wastage rate of graduates leaving the firm before completion of their training and to give the graduates the skills necessary to meet increased client demands. The restraining forces are the threats perceived by the partners and the conviction of the personnel department that no real change is needed or desired.

The differences in perception of the value of the training programme in terms of what the graduates should be able to do on completion needs clarification. Currently the partners seem to justify the process through the dangerous assumption that if the graduates go through exactly the same experience as themselves, the outcome will be graduate accountants able to meet the challenges ASG faces. Clearly we are looking at the ways the situation can be changed with positive results. Stephen Covey in his ‘Seven Habits of Highly Effective People’ points to the need to create win/win situations and sees mere compromise as the lowest form of win/win. The partners require a change in perception and this will need the partners to balance their desire to get the work of the partnership done against their concern for the graduates in the company.

An action plan should contain the following elements, first the desired results – this should clearly specify the skills the graduates should be able to demonstrate on conclusion of the programme rather than the detailed methods needed to achieve these results. The more discretion they can allow the graduates in the way the results are achieved, the more motivated they are likely to be. This will require the partners to work together and, with the personnel department, to specify the skill set needed and the criteria that will be used to assess whether the requisite skills have been achieved. Ideally the graduates, or recently qualified ones, should have an input to the design of the training programme. Once the results of the programme have been clearly identified, guidelines need to be set to show the graduates what is or is not allowed, who they can approach, etc – and the resources the graduates can call on – human, financial, technical, organisational etc on their progression through the programme. Accountability for achieving the required standards of performance on the part of both graduates and partners should be stated and the time of evaluation. Finally the consequences of successful, or lack of, completion of the training programme needs to be clearly spelt out.

The action plan is a strategy for implementing change. Clearly it will need the participation of all parties in resolving the conflict and a process of negotiation through which a win-win solution can be reached and most importantly implemented and monitored.

Marking scheme

(a) Understanding of the conflict

Factors contributing to the need for change and the resistance to change (3 factors – up to 5 marks each)

Use of Johnson & Scholes model

Max marks

(b) 2 marks for each sensible suggestion

Total

Marks

2

15

4

15

10

––––

25

––––



ANSWER 4

(a) To: Susan Grant

From:

Strategic strengths and weaknesses in Marlow Fashion Group

In carrying out a strategic strengths and weaknesses analysis one becomes aware that what were formerly strengths often become weaknesses as the competitive environment changes over time. Strengths and weaknesses analysis is focused on the internal side of the business and is usually linked to an external appraisal of the external opportunities and threats facing the company. Marlow Fashion Group is clearly at a crisis point in its company life and needs a strategic turnaround in order to survive. The business model that has served them so well is no longer appropriate to the fashion world in which they are now competing. Rodney and Betty Marlow have built a highly vertically integrated model, which gave them considerable control over the growth and development of the company. In terms of the value chain the relationship they built up with suppliers was mutually supportive and clearly facilitated the global expansion of the group. Control was even tighter over the design, manufacturing and retailing of the company’s products. Marlow Fashions had successfully developed a niche market for its products based around traditional English values. This enabled it to expand successfully and develop a worldwide reputation for design excellence and quality.

Unfortunately, its competitive environment has changed considerably, becoming increasingly competitive and hostile. The economics of clothing manufacturing has changed, with most clothing retailers choosing to outsource the manufacture of their clothes. Women’s tastes in clothing have also changed and there is no longer the market for the clothes Marlow Fashion sells. The tight control exercised by the founders has prevented recognition of these changes. Marlow Fashion has continued to pursue outdated designs and expensive manufacturing processes that had served it well in the past. There has been some recognition of the strategic nature of the problems as indicated by the succession of CEOs since 2000 given the task of preventing the fall in sales and cutting costs. Unfortunately, the changes in its environment have led to some uncertainty as to whether Marlow Fashion is a brand, a manufacturer, a retailer or an integrated fashion company.

It is also unclear whether any strategic competitive advantage remains. The company appears to be “stuck in the middle”. On the one hand they do not have the cost controls, economies of scale or access to cheap foreign imports that would be necessary to compete at the bottom end of the market. But on the other hand their clothes are seen as dated, poorly branded and unfitting to the market that would be necessary to compete at the higher end of the market. This is made even worse by the poor marketing techniques and the overall lack of either strategic planning or external analysis. Because the company appear to have been caught unawares by the market changes (or perhaps the Marlow’s controls and “wait and see” attitude have forced the company to ignore these changes) the company have been left behind by rivals.

Overall, Marlow Fashion, from being in a strategically sound position, now requires a swift strategic turnaround. Its products and markets have changed; the relationships it has with key stakeholders are no longer strengths and its value chain and system no longer deliver distinctive value to its customers.



(b) Benchmarking at Marlow Fashion will not be an easy exercise. Marlow Fashion has developed a distinctive way of reaching its markets that means direct comparisons will be hard to make. Certainly, it can carry out historical benchmarking in comparing how its own processes and activities have improved, or otherwise, over a relevant period of time. Unfortunately, this is likely to simply confirm the worsening performance and add little to what Susan Grant has already discovered.

It can compare its own key operations against the ‘best in class’; regardless of which industry the excellent performer comes from. It could and should have been carrying out competitive benchmarking on the retail side of the business where information should be more easily available. There may be an opportunity to benchmark itself against firms that have gone through a similar crisis and achieved a successful turnaround.

The process should begin with an appraisal of the critical success factors that are relevant to the current business environment such as innovation, branding, price and quality. Key Performance Indicators (KPI’s) should then be attached to these critical success factors (this might, for example, be a target for % of purchases made from foreign suppliers). The targets for each KPI can then be set using benchmarking. Using the example given, if the aim for Marlows is to move downmarket, then the % of purchases made could be aimed at similar stores who already follow such as strategy such as Harpers.

Benchmarking can then be further extended beyond rivals so that KPI’s such as sales per employee might be benchmarked against other industries so that Marlow’s aim not only to match and catch up with existing rivals, but they also aim to out-do them and set higher standards for the industry going forward and ensure that the problems experienced over the last few years do not recur.

In terms of the advantages and disadvantages of benchmarking, the willingness of managers responsible for a key area of performance to compare themselves against relevant external performance measures should make them take responsibility for any changes necessary. In Marlow Fashion, the acceptance that things have to be done differently will be the first stage in the turnaround. Getting managers face-to-face with the problems, accepting responsibility for change and recognising that the necessary changes are ‘doable’ is an important stage in creating a willingness to change. The disadvantages are that every organisation and situation is different and there is no one best way. Marlow Fashion thought it had discovered the best way and this created an unwillingness to change. There is also the danger that you are solving today’s problems with yesterday’s solutions. A good competitor will be trying to maintain its competitive advantage through constantly improving its processes. It also has a vested interest in trying to prevent its improvements from being revealed to its competitors. Also, many of the ‘softer’ processes – typically involving people – are difficult if not impossible to replicate in another organisation. These advantages are to do with culture and leadership and not easily transferable to another organisation and the context in which it is operating.

Marking scheme

(a) 2 marks for each area covered as long as the focus is on internal strengths and weaknesses rather than future opportunities and threats

(b) Explanation that historical benchmarking would be of little use

Suggestions for improvements

Potential limitations

Total

Marks

Max 14 marks

3

Max 6 marks Max 4 marks

––––

25

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ACCA P3 Revision Mock - Answers J12

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