acca p3 tuition mock june 2012 - answers version 4 final at 2nd april 2012

5/25/2018 ACCA P3 Tuition Mock June 2012 - ANSWERS Version 4 FINAL at 2nd April 2012 - slidepd...

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ACCAPaper P3

Business Analysis

Tuition Mock Examination

June 2012

Answer Guide

Health Warning!

How to pass Attempt the examination under examconditions BEFORE looking at these suggestedanswers. Then constructively compare youranswer, identifying the points you made welland identifying those not so well made.

How to fail Simply read or audit the answerscongratulating yourself that you would haveanswered the questions as per the suggested

answers.



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Interactive World Wide Ltd, March 2012

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Question 1

Tutorial help and key points

Part (a) of this question requires you to use models to support your arguments

in analysing PITs three product groupings, together with the position of the

organisation as a whole. Other models could have been used here, such as

SWOT analysis and the product life-cycle, for example.

Part (b) required a discussion of possible strategic options, and a

recommendation as to how PIT should proceed. Several strategic options

models exist, but as a minimum you ought to consider a generic competitive

strategy, and possible directions and methods of growth. Lots of clues are given

in the scenario as to areas PIT should withdraw from; it is unrealistic to expectPIT to try to grow in any area without the resources released from withdrawal

elsewhere.

Part (c) was looking for some suggestions as to how the culture of PIT could be

changed. Be careful to talk about the existing culture so as to show how your

suggestions for change would work. Any sensible suggestions related to the

scenario will score well here. Culture and cultural change are a favourite topic

of the examiner, and are likely to be recurring themes for this paper.

(a) 1 mark for each relevant point:

up to 6 marks for the evaluation of each product group up to 6 marks for evaluation of position of overall company 2 marks per relevant model correctly used, up to 4 marks...up to a maximum of 25 marks.

Evaluation of the performance of the three product groups and their

contribution to overall company results:

Cable Jointing Tapes (CJT) products:

13% increase year-on-year in sales. Clearly exceeding the increase in the cost of sales with a consequent

improvement of the gross margin.

Little gems referred to by the Marketing Manager are probably to befound here (as evidenced by future expansion of product range).

Significant R & D spend and the development of products are meetingthe exacting demands of the cable manufacturers.

CJT seems to be catering for the needs of a clearly identified customerbase.

Despite the threat of strong US competition, increasing sales and astable market share are good signs for PIT.




PVC Industrial Tapes (PVC) products:

Seems very stable with sales and costs increasing in line with oneanother.

Gross margin predicted to stay a healthy 45%. This is the best margin achieved out of the three tape groups. Wide spread of customers is having some impact on transport costs. Decline in market share, perhaps reflecting the impact of low cost tapes

from Europe and the Far East.

PVCs inability to reduce its manufacturing costs may leave it exposed tofurther market share erosion.

Little likelihood of new products stemming the tide of foreigncompetition.

Paper Masking Tapes (PMT) products:

Sales are slipping while at the same time costs are increasing. Market share is being maintained, but at a price. Overcapacity leading to high operational gearing. Increase in logistics costs is significantly outstripping the increases in

sales volume.

Loss of control over manufacturing and selling costs despite theinvestment in a modern factory.

Moderate levels of R & D spend seem to be generating little, if any,benefit in competing against their main rival.

Possible models to use to evaluate the overall position of PIT:

BCG matrix:

Questionable whether PIT has the strategic know-how and informationsystems needed to turn CJT into a future cash cow.

Cash cow PVC?

Star - CJT

Dog PVC?FMT

Problemchild

Low marketgrowth

High marketgrowth

High marketshare

Low marketshare




Doubt over PVCs true position in the matrix, particularly as littlemanagement information is provided about their product lines and

market share of small customer accounts.

Is PIT willing to treat PMT as the dog it is, considering the high levels ofinvestment made in its warehousing and production facilities?

GE matrix:

Questionable whether PIT has the access to finance and informationsystems needed to develop CJT in the way it might wish to.

Is PIT willing to divest of PMT as the matrix suggests it should,considering the high levels of investment made in its warehousing and

production facilities?

Porters generic competitive strategies:

PIT is stuck in the middle:- no signs of cost leadership

- only CJT have products with positive signs of differentiation.

In CJT a focused differentiation strategy meeting the particular needs ofthe cable manufacturers seems to be yielding positive results.

PITs competitive scope seems to be fairly broad, covering a wide rangeof customers, such channel complexity has to be managed.

Porters five forces model:

Key forces are:- power of large industrial customers

- increasing competition for PIT in its key industrial and consumermarkets.

Invest forgrowth

Investselectively and

build

Developselectively forincome PVC

Market attractiveness

Investselectively forgrowth - CJT

Harvest orDivest

Develop forincome

Developselectively,

build onstrengths

Harvest Divest - PMT

High LowAverage

High

Low

AverageCompetitivestrength




Some large customers may be sensitive to any price increases in theirown markets and use their bargaining power to PITs disadvantage.

Porters Value Chain:

The modern PMT factory cannot generate the low product costs achievedby its North American rivals.

Costs incurred by the new warehouse and PITs own in-house transportoperation are generating few, if any, benefits to the customer.

Lack of integration between primary and support activities:- Lack of product profitability information of products offered by PIT.

- Links between sales and marketing and the R & D teams are ad

hoc and underdeveloped.

- Little co-ordination of the overall R & D effort.

- Factories and functional departments are operating independently

of one another and, as a consequence, vital information not beingshared.

Porters Value System:

PIT clearly has access to some large and influential manufacturers. There is no real attempt to influence the key decision makers in these

firms.

Lack of an effective cost control system means that again the firm maybe losing money on the small wholesale and retail customers.

Overall:

The firm is passively accepting the fact that many of its products aremature and suffering from severe price competition in these commodity

products.

This relates to the usefulness of the product life cycle in shapingcompany strategy. - Managers who see products as mature and

commodities may create a self-fulfilling prophecy and ignore

opportunities for innovation at their peril.

25 marks maximum

(b) 1 mark for each relevant point:

up to 3 marks for a discussion of the best generic competitive strategyto follow

up to 6 marks for a discussion of possible directions of strategic growth up to 4 marks for a discussion of possible methods of strategic growth up to 4 marks for justifying the recommended strategy that PIT should

follow

...up to a maximum of 15 marks.

The main strategic options open to PIT:

Generic competitive strategy

Cost leadership seems very unlikely to be attainable for PIT:




- increasing competition makes economies of scale through volume

growth unlikely

- increasingly out-of-date production plant and equipment

- overcapacity in at least one division causing high fixed cost base.

Focused differentiation in CJT is working well. Focused differentiation might work well for the other two divisions if PIT

can produce the information needed to work out which products are

favoured by the highest value customer groups.

Possible directions of strategic growth

Ansoffs Growth Matrix is best to use here. Better access to information would allow phased withdrawal:

- from poorly performing products

- from poorly performing markets

- freed up resources can thus be better used elsewhere

...and expansion elsewhere

- PVC product innovation

- CJT product innovation (such as Retardon).

Possible methods of strategic growth

Mature markets mean organic growth would be difficult. PITs weakening financial position means acquisitive growth would be

difficult to finance.

Therefore, a strategic alliance with another tape manufacturer mightyield rewards:

- shared product innovation

- shared distribution networks

- more focused marketing strategies.

Recommended strategy for PIT to follow:

Divestment from PMT seems a sensible option, despite the attractivemarket share high cost base:

- dominant American competitor

- restrictive technology licensing agreement.

This would allow for freed-up resources (high-tech warehouse,production equipment) to be better used elsewhere, particularly in the

CJT and PVC divisions.

15 marks maximum




(c) 1 mark for each relevant point:

up to 5 marks for discussing implications of cultural change up to 5 marks for discussing methods of implementing cultural change...up to a maximum of 10 marks.

How PIT might change from a technology-driven culture to a

marketing-led culture:

Current culture is currently very much production or technology led:- significant use of graduate chemists

- organisational structure of the company defined by the product

range of the factories

- separate R & D programmes

- recent conversion to the relevance of marketing.

Richard Johnson should be explicitly encouraging change in systems andstructure to reinforce this change in culture. Increase the technologists exposure to marketing by involving them in

developing a customer database, highlighting the key decision makers

among their industrial customers.

Set up information systems which give timely information aboutcustomers and their buying profile.

Create cross functional teams (particularly for R&D). Demonstrating that company performance without marketing will

continue to decline is a powerful motivator.

Institute a graduate training scheme for chemists, including shortrotations in other functional areas of the business including marketing,

production etc.

Development of a much more proactive communication policy with itskey customers through PR activities such as seminars.

Johnson must recognise that there is likely to be resistance, thereforethe culture shift has to be well thought out and implemented.

10 marks maximum




Question 2


Part (a) of this question specifically requires you to use a model in analysing the

way in which entering dress manufacturing has affected EFs competitiveness.

The obvious method to use is Porters Value Network; though the value chain

might also have been used to good effect.

Part (b) requires you to talk about both the consequences and the change in

competencies required of a move into retailing. Make sure you address both

parts of the question. For 13 marks, you are going to have to make a lot of

sensible points; therefore, think as widely as you can for both headings. If you

are having difficulty thinking about changes in competencies, imagine you

suddenly became the manager of a shop - what would you need to learn how to

do quickly to make a success of it? This will give you a few ideas to work with.

(a) 2 marks for relevant model, 1 mark for each relevant point, up to a maximum

of 12 marks:

How the EF strategy of integrating forward into dress manufacturing

has affected its ability to compete:

Model to use: Value network Originally, EF was a member of a three-step value network:

- EF (manufactures fabric) - Clothing manufacturers - Clothes

retailers.

Forward integration has reduced this to a two-step value network:- EF (manufactures both fabric and clothing) - Clothes retailers.

This will improve EFs competitiveness in some ways:- access to manufacturers profit pools

- better control over the uses the finished fabrics are put to(targeting particular consumer segments)

- closer to retailers means EF better understand needs of retailers

and consumers

- a guaranteed internal customer for the fabrics EF produces

- possible reduction in stock holdings across group

- reduced distribution cost and time for finished fabric

- better control over the particular retailers that are allowed to stock

EF products

- increased turnover and profits suggest competitiveness hasimproved.


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However, this move may have reduced EFs competitiveness in otherways:

- reduced organisational flexibility through increased requirements

for internal control

- possible loss of focus from original fabric manufacturing core

competencies

- loss of previous customers - ie the other clothing manufacturers

that were customers but are now competitors

- possible reduction in competitiveness of fabric manufacturing arm

due to presence of guaranteed internal customer

- possible reduction in competitiveness of fabric manufacturing arm

due to lack of access to cheaper fabric suppliers (these are now

competitors).

NB: Other models, such as the value chain model, could have been used.

12 marks max

(b) 1 mark for each relevant point, up to a maximum of 10 marks:

The consequences of a move into retailing for EF:

Typical benefitsof this move would be:

guaranteed outlets for the clothing EF is manufacturing improved marketing of EF brand by being even closer to end consumers improved information flow across the value network, improving quality

control and design

a base for expansion of the chain of retail stores to be purchased reduced reliance on low-margin business from the large multiple stores.However, such a move would also have its drawbacks:

large increase in debt financing present on EFs statement of financialposition, increasing financial gearing considerably

large increase in fixed cost base, increasing operational gearing further reduction in organisational flexibility adverse reaction of existing independent-stores customers - they are

now competitors need to source complementary products (belts, shoes etc) from EFs

competitors may reduce competitiveness of retail stores.

1 mark for each relevant point, up to a maximum of 5 marks:

The change in competences which would be required by the newly

expanded business:

Lots of new competences would be required by EF:

managing multiple retail sites IT to link stores information systems to EF merchandising skills


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internal controls to handle increased fraud risk (shoplifting, handlingcash in tills etc)

further marketing and branding skills inventory management skills (to ensure completeness of range in sizes,

etc).

13 marks max



Question 3


Part (a) of this question revolves around the advantages and drawbacks of

outsourcing customer enquiries to an external provider. This has been a

controversial talking-point in the media and in business circles for the past

decade or so, and questions such as this one reinforce the importance of

reading widely as part of your studies. If you are having difficulties, a few

marks can be gained by thinking of your own relationship with your own bank,

and how this might be altered if your bank chose to outsource (or insource!) its

customer enquiries activities.

Part (b) involves applying the resource-based view of competitive advantage,

that it is derived from a thorough understanding of core competencies, to a

bank.

For both parts of this question, some candidates in the exam found it difficult to

produce sufficient volume in their answers for the marks. Remember that our

aim is to pass the exam, not necessarily to score maximum marks for

example, four advantages and five drawbacks in (a), and four sensible

comments about core competencies in (b), would have been sufficient to pass

the question nanything more than this is icing on the cake!

(a) 1 mark for each relevant point, up to a maximum of 8 marks:

Advantages of moving the customer enquiry service to an outside

provider:

If customer service is a non-core competence, outsourcing this activityallows Focus Bank to focus on its core competencies.

Outsourcing will also simplify in-house decision-making processes,potentially simplifying the organisational structure of Focus Bank.

Reduced organisational complexity increases flexibility to respond toenvironmental change, such as actions of competitor banks.

Remaining competencies may therefore be improved through quickerinternal communications and decision-making processes.

Cost savings should also accrue from simplified operations, as theoutsourced provider should enjoy economies of scale to exploit. These

may be passed on to Focus Bank as reduced outsourcing fees.

Another source of cost savings from the outsourced provider might beimproved productivity through staff specialisation in particular tasks.

Legal action may be taken to enforce adherence to the service levelagreement (SLA). This is not possible with an internal process.



If the outsourced company has distinctive capabilities in customerservice, this might enhance the service quality enjoyed by Focus Banks

customers.

1 mark for each relevant point, up to a maximum of 10 marks:

Disadvantages of moving the customer enquiry service to an outside

provider:

If customer service is a core competence, outsourcing means the loss ofthis core competence from Focus Bank.

It could be difficult, or near impossible, for Focus Bank to retrieve thiscore competence if the outsourcing agreement is unsuccessful.

Outsourcing any activity results in a potential loss of control over thatactivity, unless the outsourcing SLA is both well-drafted and enforced.

This is a key source of risk for Focus Bank, in that it must trust a thirdparty to maintain its relationship with its customers.

By outsourcing customer service, Focus Bank may lose the chance touse this competence as a source of competitive advantage over its

rivals. Future competitive options may therefore be limited.

As the loss of customer-service skills from Focus Bank becomeentrenched, the bargaining power that Focus Bank has over the

outsourced provider is reduced. Therefore, upon contract renewal,

Focus may find initial cost savings being reversed.

Possible damage to the morale of remaining staff may be caused byoutsourcing, particularly if customer service staff are made compulsorily

redundant as part of the outsourcing process.

Additionally, redundancies may result in Focus Banks trade union takingindustrial action and causing widespread disruption to the Bank.

Outsourcing to lower-wage economies may be held to be unethical bysome of Focus Banks key stakeholders, including customers and staff.

It is possible that outsourcing may cause reputational risk for Focus

Bank.

The SLA still needs to be monitored and enforced. This may cause someof the initial cost savings from outsourcing to be reversed.

Maximum of 17 marks overall

(b) 1 mark for each relevant point, up to a maximum of 8 marks:

Competitive advantage the bank might gain from a better

understanding of its core competences:

Core competencies are ways of using resources that competitors finddifficult to imitate, and that customers value. By understanding core

competencies, Focus Bank can leverage competitive advantage from

them.

Such leverage could be achieved by drawing attention to Focus Bankscore competencies in marketing communications, improving the

effectiveness of marketing activities.



If it understands its core competencies, Focus Bank will understand whyits customers value Focus Bank more than its rivals. They can therefore

use these competencies as a source of differentiation with its rivals.

Process improvement or process re-engineering programmes require acomprehensive understanding of core competencies in order to be

successful.

Core competencies often originate from the staff and managers of theorganisation. By identifying these core competencies, training can be

given to improve staff ability to deliver these competencies.

Additionally, organisational knowledge management systems can be setup to allow expertise in core competencies to be shared around the

organisation, and to reduce the risk posed by a key member of staff

leaving.

An understanding of core competencies enables staff performancemanagement systems to set targets around these activities, so as to

motivate staff to improve in these areas.

Additionally, core competencies can be used to help improve recruitmentand selection processes, reducing future training costs and improving

future delivery of those processes.

Maximum of 8 marks overall



Question 4


Part (a) of this question mentions significance of resources the word

resources ought to have you thinking of the 9 Ms model as a possible in-route

to answering this question. The scenario gives you lots of resources to discuss,

and by the time you reach the end of reading the scenario you ought to be

aware of the apparent tension between what seems like a successful business

and their inability to impress financial backers.

Part (b) required a discussion of the usefulness of the Balanced Scorecard for

Lawson. Lots of the resources discussed in the scenario relate to the three non-

financial perspectives of the BS, and you should have noticed and identified thisin constructing your answer. For a question such as this, however, it is difficult

to see how all ten marks could be gained without discussing some of the

drawbacks of the BS in this case.

(a) 1 mark for each relevant point, up to a maximum of 15 marks:

The significance of the companys resources for its future success:

A good model to use for assessing resources is the 9 Ms model:

Machinery:

Inadequate premises and facilities, hence need for expansion.Make-up:

World-wide reputation for excellence. Positive can-do, customer-centric culture led by Joe Lawson.Management:

Joe Lawson has a good attitude and philosophy.Markets:

Customers are major industrial customers, many are globally-recognised, high-profile.

Lawson has long-term relationships with them, helped by the superiorperformance gained from Lawson supplies.

Products command premium prices.Management information:

Assume this is not present, hence reference in b) to creating a balancedscorecard.



Materials:

Long-term relationships with exotic material suppliers aid R&D projects.Manpower:

Highly skilled engineers have been recruited.Methods:

Prestigious international awards for product and process innovation. Prestigious international awards for quality.Money:

Inadequate sources of internal financing for new factory. A lot of the positive resources identified are intangible in their nature

(reputation, culture, long-term relationships etc).

Although difficult to value intangible resources, it is not impossible - it isup to Lawson to convince the potential investors of the value of theseresources.

This should be done by comparing Lawson with other engineering firmsto identify and highlight sources of competitive advantage.

Overall, if funding can be sourced and new facilities developed, futuresuccess seems likely for Lawson.

15 marks maximum

(b) 2 marks for each relevant point, up to a maximum of 8 marks for advantages

and 4 marks for drawbacks, 10 maximum:

The usefulness of a balanced scorecard for assessing the overallperformance of Lawson Engineering:

Advantages of balanced scorecard approach:

Helps capture performance measures from different perspectives, notsimply financial.

Such information would help Lawson develop a convincing argument forachieving long-term financing for the new factory.

Customer perspective would help Lawson preserve competitive-advantage giving high-focus differentiation competitive strategy

currently being pursued.

Balanced scorecard helps develop understanding of strategic linkages inorganisation, eg between process efficiency and quality and customer

satisfaction.

Customer retention far cheaper in long term than attracting newcustomers.

Internal perspective helps ensure reputation for engineering excellenceis preserved.

Learning perspective helps capture data on staff development andensure success of future research and development.



Drawbacks of balanced scorecard approach:

Takes time and commitment to develop a good-quality and meaningfulset of performance indicators.

Difficult to include indicators for short-, medium- and long-termperformance.

Possible realignment of performance indicators along process, ratherthan functional, lines may cause cultural conflict.

Possible conflict between perspectives can be difficult to reconcile, egbetween investing in R&D to improve learning and growth, and between

short-term profitability.

10 marks maximum

acca p3 tuition mock june 2012 - answers version 4 final at 2nd april 2012

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