ACCA paper p3 business analysis EXAM KIT

CONTENTS Page Section Key features in this edition In addition to providing a wide ranging bank of real past exam questions, we have also included in this edition: • An analysis of all

Professional Examinations

Paper P3

Business Analysis

EXAM KIT

British Library Cataloguing-in-Publication Data

A catalogue record for this book is available from the British Library

Published by:

Kaplan Publishing UK

Unit 2 The Business Centre

Molly Millar’s Lane

Wokingham

Berkshire

RG41 2QZ

ISBN: 978-1-78415-234-5

© Kaplan Financial Limited, 2015

Printed and bound in Great Britain

The text in this material and any others made available by any Kaplan Group company does not amount to advice on a particular matter and should not be taken as such No reliance should be placed on the content as the basis for any investment or other decision or in connection with any advice given to third parties Please consult your appropriate professional adviser as necessary Kaplan Publishing Limited and all other Kaplan group companies expressly disclaim all liability to any person in respect of any losses or other claims, whether direct, indirect, incidental, consequential or otherwise arising in relation to the use of such materials

All rights reserved No part of this examination may be reproduced or transmitted in any form or

by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without prior permission from Kaplan Publishing

Acknowledgements

The past ACCA examination questions are the copyright of the Association of Chartered Certified Accountants The original answers to the questions from June 1994 onwards were produced by the examiners themselves and have been adapted by Kaplan Publishing

We are grateful to the Chartered Institute of Management Accountants and the Institute of Chartered Accountants in England and Wales for permission to reproduce past examination questions The answers have been prepared by Kaplan Publishing

CONTENTS

Page

Section

Key features in this edition

In addition to providing a wide ranging bank of real past exam questions, we have also included

in this edition:

• An analysis of all of the recent new syllabus examination papers

• Paper specific information and advice on exam technique

• Our recommended approach to make your revision for this particular subject as effective

Quality and accuracy are of the utmost importance to us so if you spot an error in any of our products, please send an email to mykaplanreporting@kaplan.com with full details, or follow the link to the feedback form in MyKaplan

Our Quality Co-ordinator will work with our technical team to verify the error and take action to ensure it is corrected in future editions

INDEX TO QUESTIONS AND ANSWERS

INTRODUCTION

The P3 examination starts with a strategic case study (see the scenario based questions) and strategic implementation has formed the majority of the option questions However there has been a slight change in the way that the syllabus has been examined – strategic implementation has begun to feature as one part of the scenario question, whilst strategic analysis (such as the value chain) has begun to appear in the option questions The exam kit tries to reflect this by having all three strategic planning areas (analysis, choice and action/implementation) reflected in both the scenario based questions section and the option question section

Note that the majority of the questions within the kit are past ACCA exam questions – though, since the change of the examiner in 2007 and the change in syllabus this year, some new topics have been introduced to the syllabus and there are fewer past exam questions in these areas

KEY TO THE INDEX

PAPER ENHANCEMENTS

We have added the following enhancements to the answers in this exam kit:

Key answer tips

Most answers include key answer tips to help your understanding of each question

Tutorial note

Most answers include more tutorial notes to explain some of the technical points in detail

Top tutor tips

For selected questions, we “walk through the answer” giving guidance on how to approach the questions with helpful ‘tips from a top tutor’, together with technical tutor notes

These answers are indicated with the “footsteps” icon in the index

ONLINE ENHANCEMENTS

Timed question with Online tutor debrief

For selected questions, we recommend that they are to be completed in full exam conditions (i.e properly timed in a closed book environment)

In addition to the examiner’s technical answer, enhanced with key answer tips and tutorial notes

in this exam kit, online you can find an answer debrief by a top tutor that:

• works through the question in full

• points out how to approach the question

• how to ensure that the easy marks are obtained as quickly as possible, and

• emphasises how to tackle exam questions and exam technique

These questions are indicated with the “clock” icon in the index

Online question assistance

Have you ever looked at a question and not known where to start, or got stuck part way through? For selected questions, we have produced “Online question assistance” offering different levels of guidance, such as:

• ensuring that you understand the question requirements fully, highlighting key terms and the meaning of the verbs used

• how to read the question proactively, with knowledge of the requirements, to identify the topic areas covered

• assessing the detail content of the question body, pointing out key information and explaining why it is important

• help in devising a plan of attack

With this assistance, you should then be able to attempt your answer confident that you know what is expected of you

These questions are indicated with the “signpost” icon in the index

Online question enhancements and answer debriefs will be available on MyKaplan

www.mykaplan.co.uk

PRACTICE QUESTIONS

Question Answer Past exam

BUSINESS PROCESS CHANGE

24 Institute of Analytical Accountants 38 238 Jun 11

INFORMATION TECHNOLOGY Page number

Question Answer Past exam

43 Institute of Independent Analysts 67 313 Jun 14

STRATEGY AND PEOPLE Page number

Question Answer Past exam

MANAGING STRATEGIC CHANGE

64 Oceania National Airline (ONA) 99 381 Dec 07

ANALYSIS OF PAST PAPERS

The table below summarises the key topics that have been tested in the new syllabus examinations to date

Note that the references are to the number of the question in this edition of the exam kit, but the Pilot Paper is produced in its original form at the end of the kit and therefore these questions have retained their original numbering in the paper itself

C Appeared in the compulsory question (section A) in the exam

O Appeared as an option question in the exam

APPROACH TO EXAMINING THE SYLLABUS

The syllabus is assessed by a three-hour paper-based examination

EXAM TECHNIQUE

• Use the allocated 15 minutes reading and planning time at the beginning of the exam:

– read the questions and examination requirements carefully, and

– begin planning your answers

See the Paper Specific Information for advice on how to use this time for this paper

• Divide the time you spend on questions in proportion to the marks on offer:

– there are 1.8 minutes available per mark in the examination

– within that, try to allow time for reading the long scenarios, and at the end of each question to review your answer and address any obvious issues

Whatever happens, always keep your eye on the clock and do not over run on any part of any question!

• Spend the last five minutes of the examination:

– reading through your answers, and

– making any additions or corrections

• If you get completely stuck with a question:

– leave space in your answer book, and

– return to it later

• Stick to the question and tailor your answer to what you are asked

– pay particular attention to the verbs in the question

• If you do not understand what a question is asking, state your assumptions

Even if you do not answer in precisely the way the examiner hoped, you should be given some credit, if your assumptions are reasonable

• You should do everything you can to make things easy for the marker

The marker will find it easier to identify the points you have made if your answers are legible

• Reports, memos and other documents:

Some questions ask you to present your answer in the form of a report, a memo, a letter or other document

Make sure that you use the correct format – there could be easy marks to gain here

PAPER SPECIFIC INFORMATION

THE EXAM

FORMAT OF THE EXAM

Number of marks

A choice of 2 from 3 option questions worth 25 marks each 50

Total time allowed: 3 hours plus 15 minutes reading and planning time

Note that:

• All syllabus areas will be examined

• The exam may contain one question from each syllabus area However, some exam questions have examined more than one syllabus area in the same question

• Questions will be based around a long scenario It is important to refer back to this scenario when answering the question

PASS MARK

The pass mark for all ACCA Qualification examination papers is 50%

READING AND PLANNING TIME

Remember that all three hour paper based examinations have an additional 15 minutes reading and planning time

ACCA GUIDANCE

ACCA guidance on the use of this time is as follows:

This additional time is allowed at the beginning of the examination to allow candidates to read the questions and to begin planning their answers before they start to write in their answer books

This time should be used to ensure that all the information and, in particular, the exam requirements are properly read and understood

During this time, candidates may only annotate their question paper They may not write anything

in their answer booklets until told to do so by the invigilator

• Skim through the whole paper, assessing the level of difficulty of each question

• Write down on the question paper next to the mark allocation the amount of time you should spend on each part Do this for each part of every question

• Decide the order in which you think you will attempt each question:

This is a personal choice and you have time on the revision phase to try out different approaches, for example, if you sit mock exams

A common approach is to tackle the question you think is the easiest and you are most comfortable with first

Psychologists believe that you usually perform at your best on the second and third question you attempt, once you have settled into the exam, so not tackling the most difficult question first may be advisable

It is usual however that students tackle their least favourite topic and/or the most difficult question in their opinion last

Whatever you approach, you must make sure that you leave enough time to attempt all questions fully and be very strict with yourself in timing each question

• For each question in turn, read the requirements and then the detail of the question

For written questions:

Take notice of the format required (e.g letter, memo, notes) and identify the recipient of the answer You need to do this to judge the level of financial sophistication required in your answer and whether the use of a formal reply or informal bullet points would be satisfactory

Plan your beginning, middle and end and the key areas to be addressed and your use of titles and sub-titles to enhance your answer

For all questions:

Spot the easy marks to be gained in a question and parts which can be performed independently of the rest of the question For example, discussing the problems with a numerical technique might be easier than actually performing the calculations

Make sure that you do these parts first when you tackle the question

Don’t go overboard in terms of planning time on any one question – you need a good

measure of the whole paper and a plan for all of the questions at the end of the

15 minutes

By covering all questions you can often help yourself as you may find that facts in one question may remind you of things you should put into your answer relating to a different question

• With your plan of attack in mind, start answering your chosen question with your plan to

hand, as soon as you are allowed to start

Always keep your eye on the clock and do not over run on any part of any question!

DETAILED SYLLABUS

The detailed syllabus and study guide written by the ACCA can be found at:

www.accaglobal.com/students/

KAPLAN’S RECOMMENDED REVISION APPROACH

QUESTION PRACTICE IS THE KEY TO SUCCESS

Success in professional examinations relies upon you acquiring a firm grasp of the required knowledge at the tuition phase In order to be able to do the questions, knowledge is essential However, the difference between success and failure often hinges on your exam technique on the day and making the most of the revision phase of your studies

The Kaplan complete text is the starting point, designed to provide the underpinning knowledge

to tackle all questions However, in the revision phase, pouring over text books is not the answer

Kaplan Online fixed tests help you consolidate your knowledge and understanding and are a

useful tool to check whether you can remember key topic areas

Kaplan pocket notes are designed to help you quickly revise a topic area, however you then need

to practice questions There is a need to progress to full exam standard questions as soon as possible, and to tie your exam technique and technical knowledge together

The importance of question practice cannot be over-emphasised

The recommended approach below is designed by expert tutors in the field, in conjunction with their knowledge of the examiner and their recent real exams

The approach taken for the fundamental papers is to revise by topic area However, with the professional stage papers, a multi topic approach is required to answer the scenario based questions

You need to practice as many questions as possible in the time you have left

OUR AIM

Our aim is to get you to the stage where you can attempt exam standard questions confidently, to time, in a closed book environment, with no supplementary help (i.e to simulate the real examination experience)

Practising your exam technique on real past examination questions, in timed conditions, is also vitally important for you to assess your progress and identify areas of weakness that may need more attention in the final run up to the examination

In order to achieve this we recognise that initially you may feel the need to practice some questions with open book help and exceed the required time

The approach below shows you which questions you should use to build up to coping with exam standard question practice, and references to the sources of information available should you need to revisit a topic area in more detail

Remember that in the real examination, all you have to do is:

• attempt all questions required by the exam

• only spend the allotted time on each question, and

• get them at least 50% right!

Try and practice this approach on every question you attempt from now to the real exam

EXAMINER COMMENTS

We have included the examiners comments to the specific new syllabus examination questions in this kit for you to see the main pitfalls that students fall into with regard to technical content However, too many times in the general section of the report, the examiner comments that students had failed due to:

• “not answering the question”

• “a poor understanding of why something is done, not just how it is done”

• “simply writing out numbers from the question Candidates must understand what the numbers tell them about business performance”

• “a lack of common business sense” and

• “ignoring clues in the question”

Good exam technique is vital

THE KAPLAN PAPER P3 REVISION PLAN

Stage 1: Assess areas of strengths and weaknesses

Stage 2: Practice questions

Follow the order of revision of topics as recommended in the revision table plan below and attempt the questions in the order suggested

Try to avoid referring to text books and notes and the model answer until you have completed your attempt

Try to answer the question in the allotted time

Review your attempt with the model answer and assess how much of the answer you achieved in the allocated exam time

Comfortable

with the technical content with the technical content Not comfortable

Read the relevant chapter(s) in Kaplan’s Complete Text Attempt the Test your understanding examples if unsure of an area Attempt appropriate Online Fixed

Fill in the self-assessment box below and decide on your best course of action

Stage 3: Final pre-exam revision

We recommend that you attempt at least one three hour mock examination containing a set of

previously unseen exam standard questions

It is important that you get a feel for the breadth of coverage of a real exam without advanced knowledge of the topic areas covered – just as you will expect to see on the real exam day

Ideally this mock should be sat in timed, closed book, real exam conditions and could be:

• a mock examination offered by your tuition provider, and/or

• the pilot paper in the back of this exam kit, and/or

• the last real examination paper (available shortly afterwards on MyKaplan with “enhanced walk through answers” and a full “tutor debrief”)

Comfortable with question attempt Not comfortable with question attempts

Only revisit when comfortable with

questions on all topic areas

Focus on these areas by:

• Reworking test your understanding examples in Kaplan’s Complete Text

• Revisiting the technical content from Kaplan’s pocket notes

• Working any remaining questions on that area in the exam kit

• Reattempting an exam standard question in that area, on a timed, closed book basis

KAPLAN’S DETAILED REVISION PLAN

Text Chapter

Pocket note Chapter

Questions

to attempt

Tutor guidance Date

attempted Self assessment

Strategic position

− strategic planning 1 1 This chapter pulls all the other chapters

together It means that strategic planning could be combined with a question on almost any other topic It is important that you understand the two key models: J,S & W, and the strategy lenses

− external analysis 2 2 7, 10,78 Key models are the PESTEL and 5 Forces

Q67 will test the 5 Forces model, whilst Q78 will test the PESTEL You may want

to leave parts (b) and (c) of Q78for now and return to them when you have revised these elements Forecasting also forms part of this chapter and Q10 should illustrate the nature of the question that you could face on this topic

− internal analysis 3 3 11, 64 A key skill in this chapter will be the

ability to perform good quantitative analysis These questions will ensure you can do this well

Mendelow’s matrix In any question on stakeholders you should aim to apply this model to the scenario

Topic Complete

Text Chapter

Pocket note Chapter

Questions

to attempt

Tutor guidance Date

attempted Self assessment

Strategic choice

− competitive

strategies and

strategy evaluation

5 – 6 5 – 6 64, 74 Competitive strategies will have already

been tested in Q63 Strategy evaluation appears in almost every compulsory question and it is vital that you can apply the J,S &W technique

− strategic

development 7 7 15, 66, 77 It is important in these types of question that you do not just regurgitate the lists

that are presented in the pocket notes

You need to apply the lists to the scenario and ensure you focus on the actual requirement in the scenario.Q66 provides a good question on portfolio management

Strategy in action

− Organisational

structure 8 8 18 There are few recent exam questions on this area But Q18 should test your

application of the pocket note material

to a question scenario The key in this question is to spot the most appropriate type of structure

− Business process

change 9 9 21, 22 Harmon’s models are the key models in this chapter The first model helps decide

which processes should be redesigned, the second model helps explain how the redesign should happen Q21 is a good test of the first model, whilst the second model (already been covered in Q74 and Q78) is covered again in Q22

Topic Complete

Text Chapter

Pocket note Chapter

Questions

to attempt

Tutor guidance Date

attempted Self assessment

− Information

technology 10 10 27, 30, 31 The examiner is likely to focus on supply chain management – an area covered

well in Q27 (whilst Q30 goes into more details on e-procurement) Q31 covers the POPIT model and IT controls – recent additions to the syllabus

− Marketing 11 11 33, 38 This area is deceptively tough The

knowledge seems straightforward and common sense, and a lot of it is carried forward from paper F1 But you will only score in this area of the syllabus if you use the appropriate models and make your answers as relevant and specific to the scenario as possible

− Project

management 12 & 13 12 & 13 39, 40, 46 Covering two chapters, this is a very important and significant part of the

syllabus Q46 will test the numerical aspects, whilst the other questions will test different elements of the project management process It is strongly advised that you attempt all three questions

Topic Complete

Text Chapter

Pocket note Chapter

Questions

to attempt

Tutor guidance Date

attempted Self assessment

− Financing 14 14 14, 52, 53 This chapter focuses primarily on cost

accounting techniques You should focus

on areas of weakness rather than doing questions on topics that you are comfortable with Questions 52 and 53 are the most exam focused questions in this section Q14 will test your knowledge on raising finance (the other element within this topic)

− Strategy and people 15 15 55 You may benefit in this area if you can

remember some of your brought forward knowledge from paper F1 on leadership and motivation (though you will not lose out in any way if you cannot remember this material) This question will show you how to apply the chapter

to a real world scenario

Topic Complete

Text Chapter

Pocket note Chapter

Questions

to attempt

Tutor guidance Date

attempted Self assessment

− Managing strategic

change 16 16 60, 76 This is another chapter that can be linked to almost any other chapter For

example, launching new strategies, changing organisational structure, redesigning processes etc will all require good change management There are a lot of models in the chapter but the examiner is keen for you to have quite a broad syllabus knowledge so it is important that you are familiar with them all The suggested questions focus

on key models such as the cultural web, types of change, and the contextual features of change

Note that not all of the questions are referred to in the programme above We have recommended a large number of exam standard questions and successful completion of these should reassure you that you have a good grounding of all of the key topics and are well prepared for the exam

The remaining questions are available in the kit for extra practice for those who require more question on some areas

Section 1

PRACTICE QUESTIONS

STRATEGIC ANALYSIS

1 CTC TELECOMMUNICATION

CTC, a telecommunications company, has recently been privatised by the government of

C after legislation was passed which removed the state monopoly and opened up the communications market to competition from both national and overseas companies – a process known as deregulation

Prior to the deregulation, CTC was the sole, protected, supplier of telecommunications and was required to provide ‘the best telecommunications service the nation can afford’ At that time the government dictated the performance levels required for CTC, and the level

of resources it would be able to bring to bear to meet its objectives

The shares were floated on the C Stock Exchange with 80% being made available to the population of C and up to 20% being made available to foreign nationals The government

of C retained a ‘golden share’ to prevent the acquisition of CTC by any foreign company However, the privatisation meant that many of the traditional ways in which the industry had operated would need to change under the new regulations Apart from the money received from the flotation, the government privatised CTC in recognition of both the changing global environment for telecommunications companies, and the overseas expansion opportunities that might exist for a privatised company The government recognises that foreign companies will enter the home market but feels that this increased competition is likely to make CTC more effective in the global market

You have recently been appointed as the management accountant for CTC and have a background in the commercial sector The Board of Directors is unchanged from CTC’s pre-flotation days

Required:

(a) Explain to the Board of Directors why the objectives of CTC will need to change as a result of the privatisation of CTC and the deregulation of the market (10 marks) (b) Produce two examples of suitable strategic objectives for CTC, following its privatisation and the deregulation of the market, and explain why each would be

(c) Advise the Board of Directors on the stages of an appropriate strategic planning process for CTC in the light of the privatisation and deregulation (11 marks)

(Total: 25 marks)

At present 3C has 240 drugs at various stages of development, being tested or undergoing clinical trials prior to a decision being made whether to launch the drug 3C has only three products that are actually ‘on the market’:

• Epsilon is a drug used in the treatment of heart disease It has been available for eight months and has achieved significant success Sales of this drug are not expected

to increase from their current level

• Alpha is a painkiller It was launched more than ten years ago, and has become one

of the leading drugs in its class In a few months the patent on this drug will expire, and other manufacturers will be allowed to produce generic copies of it Alpha is expected to survive a further twelve months after it loses its patent, and will then be withdrawn

• Beta is used in the hospital treatment of serious infections It is a very specialised drug, and cannot be obtained from a doctor or pharmacist for use outside the hospital environment It was launched only three months ago, and has yet to generate a significant sales volume

The directors of 3C meet every month to review the product portfolio and to discuss possible investment opportunities At their next meeting, they are to be asked to consider three investments Due to a limited investment budget, the three investments are mutually exclusive The options are as follows:

• The directors can invest in a new version of Alpha, Alpha2, which offers improved performance This will allow 3C to apply for a new patent for Alpha2, and maintain the level of sales achieved by Alpha for an additional five years Alpha2 has successfully completed all its clinical trials, and can be launched immediately

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

to specialist hospital staff While this investment should lead to a significant growth

in the sales of Beta, 3C is aware that one of its competitors is actively promoting a rival product with similar performance to that of Beta

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

‘breakthrough’ drug, as it has no near rivals on the market Gamma is used in the treatment of HIV, and offers significantly better success rates than any treatment currently available The team of 3C specialists managing the development of Gamma

is confident it can successfully complete clinical trials within six months The team also believes that Gamma should be sold at the lowest price possible, to maximise the benefits of Gamma to society However, the marketing department of 3C believes that it would be possible to earn very large profits from Gamma, due to its success rate and breakthrough status

Required:

(a) Briefly explain how the product life cycle model can be used to analyse the current product portfolio of 3C (that is, BEFORE the planned investment) (8 marks) (b) Evaluate the potential impact of each of the three investment options on the product portfolio of 3C, referring to your answer to part (a) above (9 marks) (c) Discuss the social responsibility implications of each of the three investment

(Total: 25 marks)

3 EEE FLAVOURINGS

EEE is an established chemical company extracting flavours and oils from plant materials and supplying them to the flavours and fragrances industries The shareholders include institutional investors (20%), employees and pensioners of the company (20%) and the descendants of the family (30%) who founded the business approximately 100 years ago The remainder of the shares are in public ownership The company is reasonably successful but, recently, there has been pressure on margins and its future is not guaranteed

The majority of the Board of Directors are members of the founding family who have always taken an active part in the management of the business

When the company was originally started, the surrounding area was mainly used as agricultural land but, over time, a residential area has developed around the factory Although many of the workers in the factory live locally, some of the housing is quite expensive and has attracted affluent residents from the local city

The chemical engineers at EEE have recently developed, and patented, a new process which would allow EEE to extract onion oil and garlic oil at far better yields than those obtained by existing processes The market for these oils is very profitable and presents a significant opportunity for EEE to gain a real competitive advantage in its industry

Unfortunately, as with all extraction processes, there will be some leakage and, although perfectly safe and compliant with all safety legislation, the smell of the oils offends some of the more affluent residents who have complained to local government officers

There is very little other industry in the area and EEE is a large contributor to the local economy One of the trade union representatives working in EEE is also an elected council member serving in the local government

Required:

As management accountant you have been asked to:

(a) Advise the Board of Directors of the advantages to EEE of conducting a stakeholder analysis in the context of the proposed investment decision (5 marks) (b) Analyse the principal stakeholders in EEE in the context of the proposed investment

(c) Recommend an acceptable course of action to the Board of Directors in the light of the stakeholder analysis conducted in (b) (5 marks)

(Total: 25 marks)

4 SWIFT Online question assistance

Ambion is the third largest industrial country in the world It is densely populated with a high standard of living Joe Swift Transport (known as Swift) is the largest logistics company

in Ambion, owning 1500 trucks It is a private limited company with all shares held by the Swift family It has significant haulage and storage contracts with retail and supermarket chains in Ambion The logistics market-place is mature and extremely competitive and Swift has become market leader through a combination of economies of scale, cost efficiencies, innovative IT solutions and clever branding However, the profitability of the sector is under increased pressure from a recently elected government that is committed to heavily taxing fuel and reducing expenditure on roads in favour of alternative forms of transport It has also announced a number of taxes on vehicles which have high carbon emission levels as well as reducing the maximum working hours and increasing the national minimum wage for employees The company is perceived as a good performer in its sector The 20X9 financial results reported a Return on Capital Employed of 18%, a gross profit margin of 17% and a net profit margin of 9.15% The accounts also showed a current liquidity ratio of 1.55 and an acid test ratio of 1.15 The gearing ratio is currently 60% with an interest cover ratio of 8

10 years ago the northern political bloc split up and nine new independent states were formed One of these states was Ecuria The people of Ecuria (known as Ecurians) traditionally have a strong work ethic and a passion for precision and promptness Since the formation of the state, their hard work has been rewarded by strong economic growth, a higher standard of living and an increased demand for goods which were once perceived as unobtainable luxuries Since the formation of the state, the government of Ecuria has pursued a policy of privatisation It has also invested heavily in infrastructure, particularly the road transport system, required to support the increased economic activity in the country

The state haulage operator (EVM) was sold off to two Ecurian investors who raised the finance to buy it from a foreign bank The capital markets in Ecuria are still immature and the government has not wished to interfere with or bolster them EVM now has

700 modern trucks and holds all the major logistics contracts in the country It is praised for its prompt delivery of goods Problems in raising finance have made it difficult for significant competitors to emerge Most are family firms, each of which operates about

20 trucks making local deliveries within one of Ecuria’s 20 regions

These two investors now wish to realise their investment in EVM and have announced that

it is for sale In principle, Swift are keen to buy the company and are currently evaluating its possible acquisition Swift’s management perceive that their capabilities in logistics will greatly enhance the profitability of EVM The financial results for EVM are shown in Figure 1 Swift has acquired a number of smaller Ambion companies in the last decade, but has no experience of acquiring foreign companies, or indeed, working in Ecuria

Joe Swift is also contemplating a more radical change He is becoming progressively disillusioned with Ambion In a recent interview he said that ‘trading here is becoming impossible The government is more interested in over regulating enterprise than stimulating growth’ He is considering moving large parts of his logistics operation to another country and Ecuria is one of the possibilities he is considering

Figure 1 – Extract from financial results: EVM 20X9

Extract from the statement of financial position

$million Assets

––––––

––––––

Extract from the statement of comprehensive income

Examine using Porter’s Diamond (or an appropriate alternative model/framework) the factors which could influence Swift’s decision to move a large part of its

(Total: 25 marks)

Online question assistance

Timed question with Online tutor debrief

Bowland Carpets Ltd is a major producer of carpets within the UK The company was taken over by its present parent company, Universal Carpet Inc., in 20X3 Universal Carpet is a giant, vertically integrated carpet manufacturing and retailing business, based within the USA but with interests all over the world

Bowland Carpets operates within the UK in various market segments, including the high value contract and industrial carpeting area – hotels and office blocks, etc – and in the domestic (household) market Within the latter the choice is reasonably wide, ranging from luxury carpets down to the cheaper products Industrial and contract carpets contribute 25% of Bowland Carpets’ total annual turnover which is currently $80 million Up until

15 years ago the turnover of the company was growing at 8% per annum, but since 20X2 sales revenue has dropped by 5% per annum in real terms

Bowland Carpets has traditionally been known as a producer of high quality carpets, but at competitive prices It has a powerful brand name, and it has been able to protect this by producing the cheaper, lower quality products under a secondary brand name It has also maintained a good relationship with the many carpet distributors throughout the UK, particularly the mainstream retail organisations

The recent decline in carpet sales revenue, partly recession induced, has worried the

US parent company It has recognised that the increasing concentration within the European carpet manufacturing sector has led to aggressive competition within a low growth industry It does not believe that overseas sales growth by Bowland Carpets is an attractive proposition as this would compete with other Universal Carpet companies It does, however, consider that vertical integration into retailing (as already practised within the USA) is a serious option This would give the UK company increased control over its sales and reduce its exposure to competition The president of the parent company has asked Jeremy Smiles, managing director of Bowland Carpets, to address this issue and provide guidance to the US board of directors Funding does not appear to be a major issue

at this time as the parent company has large cash reserves on its balance sheet

Required:

Acting in the capacity of Jeremy Smiles you are required to outline the various issues which might be of significance for the management of the parent company Your answer should cover the following:

(a) To what extent do the distinctive competences of Bowland Carpets conform with the key success factors required for the proposed strategy change? (10 marks) (b) In an external environmental analysis concerning the proposed strategy shift what are likely to be the key external influences which could impact upon the

In order to regain a competitive position Adrian Reed, the Managing Director of McGeorge Holdings, has been advised to reduce the range of products and the product lines Advisors have suggested that a cut back in the product mix by about 20% could increase profits by at least 40% Reed is keen to implement such a product divestment strategy but he fears that this cutting back could alienate customers He needs to know which products need to be removed and which products are important to the survival of the company He is unhappy about the overall performance of his company’s activities Benchmarking has been recommended as a method of assessing how his company’s performance compares with that of his competitors

7 NESTA

NESTA is a large chain of fixed-price discount stores based in the country of Eyanke Its stores offer ambient goods (goods that require no cold storage and can be kept at room temperature, such as cleaning products, stationery, biscuits and plastic storage units) at a fixed price of one dollar Everything in the store retails at this price Fixed-price discount chains focus on unbranded commodity goods which they buy from a number of small suppliers, for which the dollar shops are the most significant customers Profit margins on the products they sell are low and overheads are kept to a minimum The target price is fixed The products tend to be functional, standardised and undifferentiated

NESTA has observed the long-term economic decline in the neighbouring country of Eurobia, where a prolonged economic recession has led to the growth of so-called ‘dollar shops’ Three significant dollar shop chains have developed: ItzaDollar, DAIAD and DollaFellas (see Table One) The shops of these three chains are particularly found on the high streets of towns and cities where there is significant financial hardship Many of these towns and cities have empty stores which are relatively cheap to rent Furthermore, landlords who once required high rents and long leases are increasingly willing to rent these stores for a relatively short fixed-term lease The fixed-price dollar shop chains in Eurobia advertise extensively and continually stress their expansion plans Few weeks go by without one of the chains announcing plans for a significant number of new shops throughout the country

NESTA has recognised the growth of fixed-price discount retailers in Eurobia and is considering entering this market

NESTA recently commissioned a brand awareness survey in Eurobia The survey results showed that NESTA was relatively well-known to respondents who work in the consumer goods retail market Most of these respondents correctly identified the company as a discount fixed-price company with a significant presence in Eyanke However, amongst general consumers, only 5% of the respondents had heard of NESTA In contrast, the three current fixed-price dollar shop discounters in Eurobia were recognised by more than 90% of the respondents

NESTA itself has revenue of $120,000 million It has cash reserves which could allow it to lease a significant number of shops in Eurobia and establish a credible market presence It has recognised competencies in effective supplier selection and management, supported by effective procurement systems Its logistics systems and methods are core strengths of the company

There are also many conventional supermarket chains operating in Eurobia The largest of these has annual revenue of $42,500 million Supermarkets in Eurobia tend to increasingly favour out-of-town sites which allow the stores to stock a wide range and quantity of products Customer car parking is plentiful and it is relatively easy for supplying vehicles to access such sites As well as stocking non-ambient goods, most supermarkets do also stock

a very wide range of ambient goods, often with competing brands on offer However, prices for such goods vary and no supermarkets have yet adopted the discount fixed-price sales approach In general, the large supermarket chains largely compete with each other and pay little attention to the fixed-price dollar shop discounters Many supermarkets also have internet-based home ordering systems, offering (usually for a fee of $10) deliveries to customers who are unable or unwilling to visit the supermarket

Table One shows the relative revenue of the three main discount fixed-price chains in Eurobia

20X2 ($million) 20X1 ($million) 20X0 ($million)

*Don’t Ask it’s A Dollar

Table One: Revenue of three main discount fixed-price chains in Eurobia

Required:

(a) Use Porter’s five forces framework to assess the attractiveness, to NESTA, of entering the discount fixed-price retail market in Eurobia (15 marks) (b) Discuss the potential use of scenarios by NESTA’s managers as part of their analysis

of NESTA’s possible entry into the discount fixed-price retail market in Eurobia

(10 marks) (Total: 25 marks)

8 ISD

The Institute of Solution Developers (ISD) offers three basic certificates in Information Technology; Software Engineering; and Solutions Architecture ATL is one of many training companies certified by the ISD to offer training courses to prepare candidates for these three certificates ATL has, traditionally, taught these courses over five days culminating in

a multiple choice examination It has differentiated itself in the marketplace by offering high quality training in well-equipped training centres Its prices are slightly higher than its competitors, but it is well regarded by both candidates and employers ATL also provides training courses through sales intermediaries known as training brokers These brokers negotiate a reduced fee with ATL and then add a profit margin to determine the price that they charge the end customer All ATL courses are run in Eothen, an established industrial nation with a high standard of living

In the last six months, ATL has developed an e-learning course for the certificate in Information Technology There are three main reasons for this development The first reason is to allow candidates to prepare for the examination in a flexible way, studying ‘at their own pace in their own place’ Currently, courses are only run in Eothen and each certified course takes five days In contrast the e-learning product will be delivered over the Internet The second reason is to provide a cheaper route to the qualification Course places currently cost $950 per person Finally, ATL wishes to exploit a global market It believes that there is a ‘very large market’ for e-learning for this qualification, particularly in countries where disposable income is less than in Eothen It feels that overseas customers will be sensitive to price, but they have no estimate of this sensitivity

Eothen, itself, is in a period of economic decline and the top 500 companies, which are specifically targeted by ATL, are reducing their training budgets Figure 1 shows the results

of research from MidShire University into the relationship between average training spend per employee and companies’ gross profit Data given below is from 10 of the top 500 companies targeted by ATL Statistics produced by the Eothen government suggest that the average gross profit of the top 500 companies in Eothen will fall to $50m next year In this analysis, the independent variable (gross profit) is x, which is being used to estimate a dependent variable y (average annual training spend per employee)

Company Gross profit ($m) (x)

Average annual training spend per employee ($) (y) Analysis

A 50 900 The regression line for the two variables

Figure 1: Training spend analysed against gross profit

The e-learning product has been specified by an experienced lecturer and developed by a business analyst The latter will also be responsible for supporting students once the product has been released ATL is the first company to produce an e-learning product for the ISD market It wishes to quickly build on its success and to offer e-learning for the other two certificates – Software Engineering and Solutions Architecture

Each certificate examination costs $125 and is available on demand in test centres all over the world This makes it very accessible to the countries that ATL are targeting The managing director of ATL has also discovered the following analysis of nationwide e-learning sales published by Training Trends, a respected Eothen-based publication Here the independent variable is time (x) and e-learning sales is the dependent variable (y)

Year Quarter Period e-learning sales Analysis

(x) ($m) (y) 20W9 3 1 2.65 The regression line for the two

Figure 2: E-learning sales in Eothen analysed by quarter (source: Training Trends)

The period column has been inserted to facilitate the regression analysis

Required:

ATL needs to determine the price (or prices) of its e-learning product:

(a) Identify and discuss the factors that need to be taken into consideration when

(b) Figures 1 and 2 provide important, independent, statistical data:

Evaluate the potential of each set of statistical data for use in the pricing decision for the e-learning product, particularly highlighting any limitations in using such

(Total: 25 marks)

Moor Farm is a large estate in the rural district of Cornaille The estate covers a large area

of forest, upland and farmland It also includes two villages, and although many of the properties in these villages have been sold off to private homeowners, the estate still owns properties which it rents out The estate also has a large mansion house set inside a landscape garden designed in the 19th century by James Kent The garden, although now overgrown and neglected, is the only surviving example of his work in the district The estate was left as a gift to a charitable trust ten years ago The trust is based at the estate

A condition of the gift to the trust was that the upland and forest should be freely accessible to visitors

The estate has a manager, four full-time staff and 45 volunteers These volunteers undertake most of the work on the estate, including the continuing excavation of Kent’s original garden design They are happy, well-motivated and fully support the current manager who is due to retire in the very near future Three of the volunteers have become acknowledged experts on land management, through their work on the estate Government grants for initiatives such as tree planting, protected pasture land and rural employment have been received by the estate in the past However, a recent change in government means that this funding is unlikely to continue This will also affect funding for the maintenance of the mansion It was built almost 80 years ago when the climate of the area was much colder and drier Recent warm wet winters have caused the fabric of the

The estate has appointed a new manager who is due to take over the estate when the current manager retires She is working alongside the current manager so that she understands her responsibilities and how the estate works As a one-off project, she has commissioned a stakeholder survey which has requested information on the visitor experience to help with a planned re-design of the estate’s website The website is generally thought to be well structured and presented, but it receives fewer visitors than might reasonably be expected It provides mainly static information about the estate and forthcoming events but currently users cannot interact with the site in anyway

Here are some extracts from the survey:

‘I live in one of the villages and I am angry about visitors crowding around the village attractions – the tearooms, the craft shops, the souvenir stalls We feel that we are

prisoners in our own village and the traffic is terrible.’ Homeowner, from a village on the estate

‘We had a good day, but the weather was awful If we had known it was going to rain all day, then we probably would have postponed the visit until a fine day It spoilt a family day

out.’ Visitor with small family

‘We were very disappointed, on arrival, to find that the family fun day was fully booked.’

Visitor who had travelled 100 kms with two small children to visit a special event

‘We all love it here, but we didn’t know you had a website!! We almost had to type in the complete website address before we found it! I am sure more people would come if they

could only find the website!’ Visitor aged mid-20s

‘As usual, we had a great time here and took great photos It would have been nice to be able to share our pleasure with other people We would recommend it to anyone who loves

the outdoors.’ Visitor – family with teenage children

‘We met the volunteers who were excavating the buildings in the landscape garden They were so helpful and knowledgeable They turned something that looked like a series of

small walls into something so much more tangible.’ Visitor – elderly couple

‘I was disappointed that I was not allowed into the farmland with my dog As a human

being, I have the right to roam It is a basic human right.’ Visitor – elderly female walker

dog-‘We are regular visitors and we really want to know what is going on! There are many of us who would like to really be involved with the estate and help it thrive We need more than

just occasional questionnaires.’ Visitor – hiking group

‘We came out for a nice walk and ended up dodging cyclists Next time we will go

somewhere where they are not welcome.’ Visitor – hiking group

‘As a farmer, I am appalled with the reckless attitude of some dog walkers Last week, I lost

two sheep, ravaged by dogs that should not have been off their leads.’ Farmer – estate tenant

‘I’m a volunteer and I love it here We are a happy, social group of people I hope the new

manager is not going to change things.’ Volunteer