T4 Case study - TOPCIMA Strategic Analysis BeeZed Nick Best

Welcome

Welcome to Nick Bests TOPCIMA strategic analysis For those of you who dont know me, Im one of the TOPCIMA tutors at Reed Business School, and the author of the official CIMA learning system, on which I work together with one of the TOPCIMA examiners. In this presentation youll find my views on the latest TOPCIMA case study For details of courses at Reed Business School and to learn more about the exam and how to approach it please see www.topcima.biz

Introduction to the case

Remember that this is my view, not a definitive view of the company. You should review this in the context of your own analysis of the company, and make your own conclusions. If would like to hear more of my views on this and the exam do consider attending one of the courses at Reed Business School, or look out for posts on www.casestudyaide.com and cimasphere.

Introduction to the case

So this is our shortest pre-seen in many years. Does that mean weve got little analysis to get our teeth into. Well no. Theres still plenty here, although there is also a lot of missing information too. No doubt all will be revealed in the unseen! Its the construction industry this time around! This is an industry which has been hit very hard over recent years by the recession, although BeeZeds focus on public sector projects, and the long term nature of many projects has ensured they have remained profitable. Recent cuts in government spending throughout Europe may make for a difficult few years ahead, and they may need to shift their business more towards the private sector and the growth economies of India and China. For a very similar real life example take a look at the website (and financial statements) of Kier where you will find a range of useful industry information.

Strategic analysis the rational model

This analysis uses the rational planning model of strategic analysis, summarised in the following diagram

Business Environment PEST 5 Forces S W NOW O T Internal analysis Business Strategy Generic strategies Ansoffs matrix Method of growth FUTURE Mission & Objectives

Governance & Ethics

Product analysis -Product life cycle -BCG matrix

Stakeholder Mapping

Strategic analysis the rational model

Governance & Ethics

The first stage of analysis is to ensure we fully understand where the organisation is heading, along with its approach to meeting stakeholder needs.

FUTURE Mission & Objectives

Stakeholder Mapping

Mission

The mission statement sets the direction and tone of the organisation, and guides strategic decision making. For the first time in many case studies we are given the companys mission statement which is:

To be the preferred supplier for quality construction projects and to strive to implement a long term relationship with our customers based on safety, quality and a timely service
BeeZed have a good record in the three elements of safety, quality and timely service, and you need to look out for anything in the unseen which may mean that these critical success factors may be compromised. Specific threats from the pre-seen might arise from problems with the new procurement function. The lack of local decision making may threaten both quality and on-time delivery, whilst using lower cost suppliers could threaten any of the three factors.

Objectives and performance measurement

The objectives provide a focused target to move towards to direct planning, motivate staff and enable accurate performance measurement We are given few specific targets in the case study. The two we are told about relate to CSR and they are: Recycle 60% of site waste (actual = 62%) Falling accident rates

They are likely to have more specific strategic targets we are not told about. If the unseen suggests they do not, then this is a weakness in the companys planning approach. We are also told very little about how director and staff performance is measured and rewarded. Again you would assume they do have motivating performance targets but look out for evidence in the unseen for a weakness in this area.

Governance

The case study is based on the Construction Services division of BeeZed, and as such they do not themselves have to abide by corporate governance legislation or deal with external shareholders, which is the responsibility of the holding company. The lack of non-executive directors, an independent Chairman and the like in this subsidiary is therefore not a surprise. I doubt that governance will be a great issue in this exam for this reason, although it must always be borne in mind that this division has to: (a) satisfy the holding company and its shareholders (b) not take decisions which will be detrimental to the other divisions in the group.

Ethics and CSR

Ethics is 10 marks in the exam and hence is a very important area They have a range of CSR initiatives across a number of headings: Use of natural resources Environmental issues Social issues Economic growth (includes investing in communities, and employee welfare) Heath and safety is also critical, and they aim to comply with an EU programme to reduce waste

Any evidence of poor CSR under any of these heading should appear in your ethics section. Use the fact that they have these initiatives to justify doing the right thing and investing in a solution Ethics should be good for this company, but admission of collusion on bidding with impending legal action shows that there have been issues in the past A clear ethical code with disciplinary procedures for not abiding by this might help to avoid this in the future there is no evidence of this in the case

Stakeholder mapping

Doing a stakeholder map as an appendix in the exam is almost always something which is useful to do. An appendix and done well will usually gain 2 marks possibly more. You must update the map for changes in the unseen, and add all new stakeholders which are in your top 4 issues Refer to your map in the main body of your text, adding a comment to say what the position of that stakeholder on the map means in relation to this specific issue (e.g. a key player should be involved fully through regular meetings, and incorporating their views into the final decision)

Stakeholder Analysis Mendelows Matrix

Low Interest
Minimal interest Employees of subcontractors Minor suppliers e.g. stationary

High Interest
Keep informed Small customers Most Suppliers Most employees BZPS (Professional services) BZBSS (Support services) Communities affected by projects

Low Power

Keep satisfied Future customers new projects

Key Players Managing director Commercial directors Procurement director Customers of large projects Holding company and their major shareholders

High Power

Governments

Strategic analysis the rational model

Business Environment PEST 5 Forces S W NOW O T Internal analysis Product analysis -Product life cycle -BCG matrix

Next we need to analyse the current position of the business This helps us ensure the strategies we decide upon are appropriate to the business current position and issues they face in the industry and more broadly This position is summed up in a SWOT analysis

SWOT

On the following page youll find my SWOT analysis. Remember that you MUST do a SWOT analysis as Appendix 1 in your answer. You will score 1 mark in the technical section for this, and up to 3 further marks in the application section - if done well. You must update this SWOT for unseen issues (underline or bold these in your exam script), and should aim to include ALL your top 5 issues in your SWOT. A recent CIMA student script review I read, also made it clear that 2-3 word points in the SWOT will not score as well as points made in more depth, so it is worth writing 7-8 words for each point in your SWOT AND aim for roughly 5 points per heading. Ive shown my points in priority order as I see it. You dont need to do this in the exam, but it can help at this stage as you can replace the less important points with those from the unseen.

SWOT
Strengths
1) Good reputation for quality, safety and on-time 2) 3) 4) 5) 6)
delivery, CSR facilitates winning new contracts Good control Safety, PM responsibility and reporting, cost management, Good Costing and PM systems including Activity Based Costing Diversified internationally and over 6 product areas reduces risk Stable financial position + listed should facilitate raising finance Strong order book for 2011 Support from Holding company loans + part of wider group

Weaknesses
1) Recent structural changes creates uncertainty (a) staff 2) 3) 4) 5)
morale (b) lack of local procurement could impact quality and on-time delivery Too much focus on key markets of USA and Europe currently in recession = small fall in sales (1%) Only 4 orders for 2012 and nothing thereafter more longer term contracts would reduce risk Low margins in community and energy divisions (little information on reason in pre-seen) Low margins generally profit position may be vulnerable if orders fall further, or if they undertake lots of fixed priced contracts

Opportunities
1) International expansion into emerging 2) 3) 4) 5)
economies China, India, Brazil Further cost reduction Energy efficient construction + energy projects Continue sports construction (e.g. Russia and Qatar World Cups) Buy competitors struggling in recession

Threats
1) Continued recession in major markets 2) Reduced government spending fewer new public 3) 4) 5)
contracts Legal case could effect reputation + losses Competition and stronger buyer power reduces margins Exchange rate fluctuations

PEST analysis

On the following page youll find my PEST analysis. The PEST analysis is always an optional appendix in this exam, although this is one of the best case studies for a long time for this model as there are so many relevant points. Do aim to add one or two additional issues from the unseen into your PEST if you do one in the exam You MUST cross reference your PEST in your script however, and many students do not do this well. Aim to do this 2-3 times in your script

PEST analysis
Less funding from governments for public projects (PFI) (e.g. in UK the Building Schools for Political
Future programme has been cancelled) Political instability could threaten projects in those countries (e.g. Tunisia/Egypt) Bidding process change need to adapt Legal challenge fine/reputation Land availability planning permission Tax incentives/grants in certain countries could facilitate new projects

Economy building industry traditionally does badly during recessions lack of finance for new Economic
projects excess building from boom times Less public money due to spending cuts Opportunity for expansion into growing economies Commodity prices e.g. Steel and copper prices have risen over recent years hard to control Exchange rate fluctuations on purchases and sales Less funding available from banks

Worldwide Population growth long term more building needed grow in areas of largest Social
growth Need to adapt to changing social needs e.g. designs Energy efficient construction and energy projects likely to increase

Technolo gical

New technology can help keep costs down and improve quality and speed of development Varies according to geographical location need to be flexible

5 Forces Analysis

The 5 forces analysis enables the analysis of the industry according to a range of key factors affecting that industry Each force can be given a strength (e.g. High, Medium, Low). Where all the forces are high, the profitability of the industry is low, and divestment may be a good strategy. The lower the forces the more attractive the industry is. Companies may look at the areas where forces are high and develop strategies which may lower these. The 5 forces analysis for this industry is on the next page In this case the average of the forces is medium so the industry would be deemed averagely profitable, although in difficult economic times, the buyer power and competitive forces are higher reducing profitability.

5 forces analysis
Factors increasing Force
Fewer contracts more power to customers Buyer who are still building Power Bids must be competitive (low margins) High/Med. Supplier Power Low/Med Commodity prices there is a market prices
e.g. steel Specialist suppliers may have some power

Factors lowering force

Lower where very specific needs and so fewer
bidders

Able to negotiate lower prices due to lack of

demand in industry Most suppliers will be smaller than Bee Zed and greatly value the business

International competitors strong competition Competi- who have wide expertise tors High barriers to exit existing competitors Med/High likely to fight hard for contracts during
recession

New Entrants Low Substitutes Med

Small building companies could expand into

the contract market

Large competitors in established industry Unlikely to get new entrants during a

recession Customer will prefer large contracts to be with established companies with a good reputation

In many industries you can just wait use

existing facilities, rent for a period of time, refurbish or use temporary structures

Need physical buildings and infrastructure and

ultimately there are no alternatives particularly where old facilities are of poor quality.

Strategic analysis the rational model

Next we need to analyse the strategic options, and make a conclusion on the way forward for the business

S W NOW O T

Business Strategy Generic strategies Ansoffs matrix Method of growth

FUTURE Mission & Objectives

The usual approach to defining a business strategy is to begin with a definition of the generic strategies, followed by analysing options in Ansoffs matrix, looking at how these might be implemented with the Methods of Growth and then deciding upon a final strategy

Opportunities and Threats Products/Generic Strategy

Products
Long period of tendering must BCG/ projects will take 1-2 years in the Product Life bidding process alone) Fixed price contracts risky Cycle Cost plus contracts not risky PFI Long term benefits beyond
build (long term revenues) although profits are in BZSS Range of products in different countries spreads risk Office buildings 3.9% margin Infrastructure = 4.6% margin have projects in pipeline (large

Generic Strategies
Not BeeZed it is unlikely that any suggestion to move into this market for BeeZed will be seen favourably in the exam

Cost leadership

Quality Safety On-time delivery

Strengths

Differentiate

Crucial to the company ensure each of these three elements is maintained through your recommendations. Wide product range, across many markets so little focus, but this does spread risk.

Community 0.6% margin Energy 0.4% margin Weaknesses Focus

Ansoffs Matrix and methods of growth

Ansoffs matrix enables the generation of strategic options. Those youll find in my analysis over the page are just options, not my recommendations. You might like to add your own options (1) Based on your own ideas to take the business forward (2) Based on those in practise exams you undertake The final stage is then to decide on the methods which the organisation can use to take the options (as generated in Ansoffs matrix) again these are just possibilities at this stage

Ansoffs Matrix Strategic options

Existing Market New Market

Value chain review remove nonvalue adding activities cost reduction Focus on profit generating divisions Existing Improve bidding process Product New technologies increase efficiencies Continue focus on quality, on-time delivery, safety retaining customers Hotels Residential Housing Demolition New Product

Expand into new overseas markets

South America, Africa

Fabrication of building materials Electrical/plumbing services Build to rent Need to take care not to replicate
services of other divisions (consultancy & maintenance)

Methods of Growth
Cost reduction New products New markets Competitors Small companies Suppliers Companies which are in new markets e.g. Indian
construction company

Internal Development

Acquisition

New markets (e.g. China build connections in new

Joint Venture cultures/political environments) Very large projects (e.g. new city, new rail link)

Divest

and community (Do not just assume that low margins means these should be divested.) Could do this to then reinvestment in other segments

Low profitable products e.g. energy

Defining a business strategy

On the following page you will find my recommended strategy for the company. Remember that this is my view and is not a definitive answer Also remember that in the exam, you are NOT expected to define a way forward like this you MUST deal with the unseen issues and only those issues However, dealing with those issues in light of a strong logical approach to how the business should be taken forward can help you make a strong argument in your recommendations.

Nicks Strategies going forward

Consolidate strengths quality, on-time delivery, safety Continue good controls Monitor problems and deal with them as they arise Do not cut costs in areas which compromise these factors Continued focus on cost management Keep costs down through new central procurement Monitor impact of loss of local procurement to ensure no detrimental impact Should facilitate lower pricing of contracts to win orders Ensure good continued order books Review of bidding process re legal change and to ensure it is effective in the future Continue to bid for major projects, pricing competitively, but profitably Aim for more long term projects for greater long term security Wider expansion into growth markets to balance the portfolio and take advantage of growth areas Aim to bid for more contracts in these areas Look for possible acquisition targets Shift towards private sector Aim to build ongoing relationships with large private sector customers due to reduction in public sector projects

Reed Business School

So thats what I would do. Im sure youll have your own views. Just remember not to hold onto these too tightly in the exam you must primarily deal with the unseen issues! Remember to use www.topcima.biz for more specific guidance towards the exam, and if you dont pass this time, perhaps consider attending the a course at Reed Business School for the next sitting. I also work with individuals one-to-one, usually where people have failed in the past and need more personal guidance to help them get through. Although Im now fully booked for this year, should you not be successful this time and feel this would be useful for the next sitting, please do get in touch at nickbest@live.co.uk.