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EXAM TOPICS
Note: click the hyperlinks below for easy navigation. Click or Home to come back.
EXAM TOPICS ........................................................................................................................................ 1
KEY TERMS ............................................................................................................................................ 2
INTENDED BENEFITS OF THE E-BOOK ................................................................................................... 7
AUTHORS PROFILE ............................................................................................................................. 13
IMPORTANT! ....................................................................................................................................... 14
USERS GUIDE ...................................................................................................................................... 16
INTRODUCTION TO P3 BUSINESS ANALYSIS ....................................................................................... 17
EXAMINER'S GUIDANCE ...................................................................................................................... 20
AUTHORS GUIDANCE ......................................................................................................................... 21
SOLVING SCENARIO BASED QUESTIONS ............................................................................................ 22
STUDY PLANNER ................................................................................................................................. 23
PAST PAPER ANALYSIS ........................................................................................................................ 24
STRATEGIC PLANNING & DEVELOPMENT ........................................................................................... 27
MACRO ENVIRONMENT ANALYSIS ..................................................................................................... 33
E-BUSINESS & MARKETING ................................................................................................................. 44
MANAGING STRATEGIC PORTFOLIO ................................................................................................... 64
STRATEGIC CHOICE ............................................................................................................................. 73
MANAGING PEOPLE & ORGANIZATIONAL STRUCTURE ..................................................................... 81
STRATEGIC ACTION & MANAGING CHANGE ...................................................................................... 83
BUSINESS PROCESS CHANGE .............................................................................................................. 90
PROJECT MANAGEMENT .................................................................................................................... 99
FINANCE ............................................................................................................................................ 101
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KEY TERMS
5
5 Rights ......................................................... 68
6
6 Is ................................................................ 65
7
7Ps ................................................................. 54
8
8 contextual factors .................................... 115
9
9Ms ............................................................. 101
A
Acceptability ................................................. 94
Acid Test Ratio ............................................ 175
Acquisition or Merger ................................... 74
Adaptation .................................................. 113
After Sales Service ...................................... 124
Alien Businesses ............................................ 78
Ansoffs Matrix .............................................. 79
Apollo .......................................................... 120
Ashridge Portfolio Matrix ............................. 77
Athena ......................................................... 121
B
Balance Score Card ..................................... 105
Ballast Businesses ......................................... 79
Balogun and Hope Hailey............................ 115
BCG ................................................................ 82
Benefits Realisation .................................... 154
Big bang change .......................................... 112
Bluetooth ...................................................... 62
Boston Consulting Group (BCG) Matrix ........ 82
Budget ........................................................... 26
Bundle Product Pricing ................................. 59
Business Analyst ........................................... 96
Business Case .............................................. 152
Business Level ............................................... 94
Business Process Improvement.................. 132
Business Process Redesign ......................... 132
Business Process Re-Engineering ............... 132
Business To Business (B2B) .......................... 63
Business to Customer (B2C) ......................... 63
C
Capability .................................................... 116
Captive Product Pricing ................................ 59
Cash Cow ...................................................... 83
Coefficient Of Correlation .......................... 194
Coefficient of Determination ..................... 196
Competency ................................................ 100
Competency Frameworks ........................... 103
Competitive Pricing ...................................... 60
Control Systems .......................................... 119
Corporate Level ............................................ 94
Corporate Parenting ..................................... 76
Cost Benefit Analysis .................................. 154
Cost Leadership ............................................ 89
Critical Success Factors (CSF) ..................... 105
Cultural Web Paradigm .............................. 117
Current Asset Ratio..................................... 174
Customer Satisfaction Perspective ............. 106
Customer to Business (C2B) ......................... 64
Customer To Customer (C2C) ....................... 64
Cyclical Variations ....................................... 200
D
Decline .......................................................... 86
Design or Development ................................ 85
Design Requirements ................................. 142
Differentiation ........................................ 89, 92
Dionysus ..................................................... 121
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Discounted-Pricing ........................................ 58
Diversification ............................................... 81
Diversity ...................................................... 116
Dividend Cover ............................................ 184
Dividends Yield ............................................ 184
Divisional Structures ..................................... 97
Dog ................................................................ 84
Downstream Supply Chain ......................... 128
E
Earnings per Share (EPS) ............................. 181
Earnings Yield .............................................. 183
E-Business ..................................................... 61
E-Commerce ................................................. 61
EDI ................................................................. 69
Entrepreneurial Structure ............................. 98
Evolution ..................................................... 114
External Benchmarking ............................... 155
External Growth ............................................ 74
F
Failure Strategies .......................................... 92
Feasibility ...................................................... 94
Financial Benefits ........................................ 156
Financial Gearing ........................................ 176
Financial Perspective .................................. 106
Firm Infrastructure...................................... 124
Flexibility ..................................................... 134
Focus ............................................................. 90
Focus-Differentiation .................................... 92
Focused- Differentiation ............................... 90
Forward Auction ........................................... 64
Franchise ....................................................... 76
Full Cost Plus Pricing ..................................... 60
Functional Requirements ........................... 141
Functional Structures .................................... 97
G
Gaps & Disconnects .................................... 130
Gearing ratios. ............................................ 163
Generic Strategies ........................................ 89
Goal ............................................................... 26
Gross Profit Margin .................................... 163
Growth .......................................................... 85
H
Heartland Businesses ................................... 79
Human Resource ........................................ 125
Hybrid Strategy ............................................. 92
I
Inbound Logistics ........................................ 123
Incremental change .................................... 112
Independence of Location ............................ 67
Individualism ................................................ 66
Industry Restructuring .................................. 66
Information System Software ...................... 62
Innovation & Learning Perspective ............ 107
Integration .................................................... 66
Intelligence ................................................... 66
Interactivity .................................................. 65
Interest Cover ............................................. 180
Internal Business Perspective ..................... 106
Internal Development .................................. 73
Internet ......................................................... 69
Introduction .................................................. 85
Inventory Turnover ..................................... 170
Investor ratios. ........................................... 163
J
Japanese Management .............................. 108
Job Design ................................................... 107
Job Enlargement ......................................... 108
Job Enrichment ........................................... 108
Job Rotation ................................................ 108
K
Key Performance Indicators (KPI) ............... 106
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L
Low Price ....................................................... 92
M
Machine Bureaucracy ................................... 99
Machinery ................................................... 101
Make Up ...................................................... 102
Management .............................................. 102
Management Information .......................... 102
Marginal Cost Plus Pricing ............................ 60
Market Growth ............................................. 82
Market Share ................................................ 82
Marketing ...................................................... 53
Marketing & Sales ....................................... 124
Marketing Mix (7 Ps) ..................................... 54
Markets ....................................................... 102
Materials ..................................................... 102
Matrix Structure............................................ 97
Maturity ........................................................ 86
Measureable Benefits ................................. 155
Mendelow matrix ......................................... 49
Methods ...................................................... 102
Michael Porters Diamond Model ................ 44
Michael Porters Five Forces Model ............. 39
Michael Porters Value Chain Analysis ....... 123
Mission .......................................................... 26
Modelling & Simulation .............................. 155
Modem .......................................................... 62
Money ......................................................... 102
N
Nature of Change ........................................ 112
Net profit margin ........................................ 164
No Frills Strategy ........................................... 92
No-Frills Pricing ............................................. 57
Non Functional Requirements .................... 142
O
Objective ....................................................... 26
Operating Profit Margin ............................. 164
Operational Gearing ................................... 179
Operational Level ......................................... 94
Operations .................................................. 123
Optional Product Pricing .............................. 59
Organization Structure ............................... 119
Outbound Logistics ..................................... 124
Outline Planning ......................................... 151
Outsourcing ................................................ 133
Oversees Acquisition .................................... 74
P
Parental Developer ....................................... 77
Paul Harmons Process Strategy Matrix ..... 136
Payout Ratio ............................................... 185
People ........................................................... 56
Person Culture ............................................ 121
PESTEL Analysis ............................................. 34
Physical Evidence .......................................... 56
Pilot Operations .......................................... 155
Place.............................................................. 55
Portfolio Manager ........................................ 76
Position Based Strategies ............................. 93
Post Implementation Review ..................... 156
Power .......................................................... 115
Power Culture ............................................. 120
Premium Pricing ........................................... 58
Preservation ............................................... 117
Price .............................................................. 55
Price Earnings (P/E) Ratio ........................... 182
Price Penetration .......................................... 57
Price Segmentation ...................................... 59
Price Skimming ............................................. 58
Primary Activities (Core Activities) ............. 123
Problem Child ............................................... 83
Process .......................................................... 56
Procurement ............................................... 124
Product ......................................................... 54
Product Life Cycle ......................................... 84
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Product Line Pricing ...................................... 61
Profitability ratios ....................................... 163
Profitability ratios. ..................................... 163
Project ................................................. 147, 148
Project Charter ............................................ 157
Project Initiation Document ....................... 157
Project Management .................................. 152
Promotion ..................................................... 55
Psychological Pricing ..................................... 61
Pull Marketing ............................................... 53
Purchasing Mix .............................................. 68
Push Marketing ............................................. 53
Q
Qualitative Benefits .................................... 155
Quantifiable Benefits .................................. 156
Question Market ........................................... 83
Quick Ratio .................................................. 175
R
Random Variations ..................................... 200
Ratio Analysis .............................................. 160
Readiness .................................................... 116
Realignment ................................................ 113
Reconstruction ............................................ 113
Reengineering ............................................. 131
Reference Sites ........................................... 155
Related Diversification .................................. 81
Residual Income (RI) ................................... 191
Resource Audit ............................................ 101
Resource Based Strategies............................ 93
Resources ............................................ 101, 116
Return on Capital Employed (ROCE) ........... 187
Return on Equity (ROE) ............................... 189
Return on Investment (ROI) ........................ 187
Reverse Auction ............................................ 64
Revolution ................................................... 114
Risk Analysis ................................................ 153
Role Culture ................................................ 120
Routines & Rituals ...................................... 118
S
SAF ................................................................ 93
Scientific Management ............................... 107
Scope .......................................................... 115
scope of change .......................................... 113
Seasonal Variations .................................... 200
Simplification .............................................. 130
Star ................................................................ 83
Stories ......................................................... 118
Strategic Alliance .......................................... 75
Strategic Capability ..................................... 100
Strategic Clock .............................................. 91
Strategic Success Criteria ............................. 93
Strategy ......................................................... 26
Suitability ...................................................... 93
Supply Chain ............................................... 125
Supporting Activities .................................. 124
SWOT Analysis .............................................. 48
Symbols....................................................... 118
Synergy Manager .......................................... 76
System Implementation ............................. 143
T
Task Culture ................................................ 121
Technical Requirements ............................. 142
Technology Development .......................... 125
Time Series Analysis ................................... 199
Trade Payable Turnover ............................. 172
Trade Receivable Turnover ........................ 168
Transformation ........................................... 113
Trend ........................................................... 200
U
Unrelated Diversification ............................. 81
Upstream Supply Chain .............................. 126
V
Value Added Analysis ................................. 131
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Value Trap Businesses .................................. 79
W
Web Server Software .................................... 62
Working capital & liquidity ratios. ............ 163
Z
Zeus ............................................................. 120


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INTENDED BENEFITS OF THE E-BOOK

Features &
Description for ACCA P3 Business Analysis Exam Focused Study Text
Book
1) Exam Focused
Study Text Book

These Exam focused study text books are aimed to help you passing
exam with least efforts and time.
These study materials aim to educate you in the way you are expected
to apply your knowledge in the exam.
Length of syllabus areas is adjusted to reflect the importance of each
syllabus area for your exam session.
Therefore, you will automatically spend time and efforts on different
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These study materials takes account of examiners comments and
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tutors, syllabus areas examined by other professional accountancy
bodies, publications in business magazines etc.
2) Examiner's
Guidance
Examiner's Guidance are tips given by the examiner in student
accountant, examiner's interview and other documents.
3) Author's Guidance Author's guidance are applicable to all syllabus areas.
It also includes tips to enable you to perform effectively during exams.
4) Exam Awareness Exam Awareness shows the frequency and magnitude (marks) of each
syllabus area.
It also shows the relationship between various syllabus areas and how
each syllabus area contributes toward passing exams.
5) Exam Support Exam Support provides guidance on application of knowledge in exam
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context.
Just knowledge is not enough for passing exams rather you have to use
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Past paper analysis gives an idea about the length and complexity of
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It also enables you to practice past exam questions relevant to each
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7) Illustrations (if any) Illustrations are simple numerical examples given to prepare students
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Illustrations depend on the type of ACCA paper. Discussion based ACCA
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8) Explanations (if
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Explanations are given to explain the rationale behind steps involved in
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Explanations depend on illustrations provided in the e-book.
9) Examples Examples are given to explain technical theoretical knowledge of P3
Business Analysis in understandable way.
It also shows how the application of knowledge into practice.
It is especially useful when you are expected to apply your knowledge
to answer scenario based questions.
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It will also motivate you to learn harder, as you will understand the
benefit of technical knowledge in your career as chartered accountant.
10) Diagrams Diagrams are given to explain complex concepts and procedures which
are difficult to understand in words.
Diagrams also lead to better memorization of knowledge.
11) Practice Questions Practice questions are exam standard questions to provide a clue about
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Exam topics are to table of exam topics and sub exam topics are
to table of sub exam topics given at the beginning of each exam
topic.
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It allows you to reach to the place inside an e-book; where you can
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It will enable you to find required text easily.
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time available.
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AUTHORS PROFILE
Name: Murtaza Lanewala
Career Status:
Freelance writer & tutor for professional accountancy
qualifications. Professional bodies include ACCA, CIMA
and ICAEW.
Author & CEO of accasupport.com
E-mail:
kabuli_52@hotmail.com or murtaza@accasupport.com




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USERS GUIDE
E book features Details
Past Papers Past papers provide a clue about the verbs (Explain, Evaluate etc.) and
marks available in the exams.
Sub Exam Topics It provides list of main headings at the beginning of each exam topic. You
have to click relevant heading in a list to reach there.
Exam Topic
Awareness
It provides broad information on composition (theoretical v
computational) and importance of each paper in exam context.
Exam Support Exam Support provides detailed information on application of theory and
calculations in exam context.
Example Example provides practical application of technical theoretical knowledge.
Illustration
(if any)
Illustration provides numerical applications of theoretical knowledge.
Explanation
(if any)
Explanation provides the reasons for correctness or un correctness of
particular statements and calculation.
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Diagram Diagrams are visual (Graph, Charts, Tree formats etc.) presentations of
theoretical knowledge.
Cross reference Cross-referencing are hyperlinks to other exam topics. Click previous view
button to go back or ALT + Left Arrow key.
Highlighting Highlighting is used show the relationship between words and figures.
Bookmarks
Click bookmark icon in the side bar (see below) to jump to specific exam
topic in the e-book.
Screen Shot:

If you not currently using adobe reader, then I recommend you to download adobe reader, to get
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INTRODUCTION TO P3 BUSINESS ANALYSIS
1 Examiner
Steve Skidmore is examiner for Paper P3.
2 Aim
To apply relevant knowledge, skills and exercise professional judgement in assessing strategic
position, determining strategic choice, and implementing strategic action through beneficial
business process and structural change; coordinating knowledge systems and information
technology and by effectively managing processes, projects, and people within financial and other
resource constraints.
3 Assumed Knowledge from Previous Papers
You are expected to have knowledge from following papers for the purpose of this exam.
F1 Accountant in Business.
F7 Financial Reporting.
4 Position of P3 Business Analysis in ACCA

Exam Support:
Syllabus areas that are not included in the study guide of previous papers are more likely to be
examined in P3 Business Analysis than those that are already included in pervious papers.


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5 Main Capabilities & Relationships

6 Exam Paper Format
Section A contains 1 compulsory question for 50 marks, inclusive of 4 professional marks for
rewarding communication and presentation skills.
Section B contains 3 questions for 25 marks, out of which you can choose any 2 questions.
Questions could be comprised of many requirements (a, b, c, d etc).
P3 Business Analysis is 80% discussion and 20% calculation based paper. However, memorizing
text will not help you passing the exam rather you should be able to apply your knowledge to
scenario-based questions. Information provided in the scenarios are taken from real world.
7 Duration of Exam
Total time: 3 hours 15 minutes
3 hours are writing and reading time.
Additional 15 minutes are reading and planning time. However, you can annotate question paper
only during that time.
8 Resources:
http://www2.accaglobal.com/students/acca/exams/p3/
http://www2.accaglobal.com/students/pass/
http://updates.accasupport.com
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EXAMINER'S GUIDANCE



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AUTHORS GUIDANCE
1 Preparing for Exams
2 Exam Day Guidance

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SOLVING SCENARIO BASED QUESTIONS

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STUDY PLANNER
Determine number of days available
Formula:

Idle time can be incurred due to sickness, computer crash, social events etc. It depends on your
daily activities and environment.
I recommend you to make a printed copy to read when computer is not available.
Allocation of number of days available till exams
Formula:








Number of pages will include allowance for solving past paper questions, student accountant
articles etc.
Please note that different syllabus areas will take different amount of time. Calculations will take
more time than theoretical areas. Therefore, it will give you only rough idea of your progress.
Tracking progress
Formula:




If revised number of page per day is > than originally planned, then you are lagging behind and
now you have to do more study per day.
Troubleshooting
Study at time of day when you are fresh. This will enable you to learn more in available time.
Consider skip reading examples, if you understood theory by reading main text.
Study in the end sub exam topics, which is less likely to be examined in your exam session. You can
see past paper analysis given below each sub exam topic.
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PAST PAPER ANALYSIS
Key Exam Topics P/P 12/11 06/11 12/10 06/10 12/09 06/09 12/08 06/08 12/07










































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Key Exam Topics P/P 12/11 06/11 12/10 06/10 12/09 06/09 12/08 06/08 12/07















































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Key Exam Topics P/P 12/11 06/11 12/10 06/10 12/09 06/09 12/08 06/08 12/07


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Exam Topic 1: STRATEGIC PLANNING & DEVELOPMENT
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Exam Topic 1
STRATEGIC PLANNING & DEVELOPMENT
Sub Exam Topics
S.no Headings (click the cross reference below for easy navigation)
1 Organizational Mission, Goal, Objective, Strategy & Budget
28

2 Strategic Planning
29

3 Download Full Version to Read More
Exam Awareness
Download Full Version to Read More


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1 Organizational Mission, Goal, Objective, Strategy & Budget
Planning Purpose Duration Nature Origin Examples
Mission or
vision
statement
Sets purpose,
stakeholders,
culture and
ethical values.
Frame work for
other
documents as
below.
Long term never
ending.
However, it can
be revised.
Narrative Top level such as
owner or board
of directors.
Mission of ACCA is
to promote
Accountancy
profession and safe
guard its members
interest and society
at large.
Goal Sets direction.
Motivational.
Long term, never
ending.
However, it can
be revised.
Narrative

Dream of
organizational
leader or
founder, CEO or
chairman.
Goal is the dream
comes in the mind
of the entrepreneur
like "I want to be the
best accountant in
the world"
Objective Sets future
position &
Practicable as it
is based on
organization
position in the
macro
environment.
Long term
normally 1 to 5
yrs.
Specific
Measureable
Attainable
Relevant
Timely
Top level
managers as they
are aware of
external forces
affecting the
organization.
Objectives are
financial & non-
financial targets
"Profitability should
be increased two by
20% in 3 years" and
number of services
provided should be
increased by 30% in
2 years
respectively.
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Planning Purpose Duration Nature Origin Examples
Strategy Way to achieve
future position.
Strategy is the
thoroughly
considered plan
among various
alternatives
options.
Short term.
However, it may
be revised to
account for
changing
circumstances.
Narrative. Organizational
level depends on
the corporate,
business or
operational
strategy being
considered.
There can be
following options
available from which
any course of action
can be selected as
strategy. However,
organization may
pursue more than
one strategy at
same time.
Option 1. Sell
existing products
Option 2. Design
new products
Option 3. Sell others
products.
Budget Breaks strategy
into short term
targets. It
allocates
resources to
implement the
strategy.
Normally 1 yr.
However, it can
be reviewed
quarterly.
Forecasted
Quantitative
& financial
data.
Tactical
managers. It can
also involve
participation of
operational
managers.
Budget can contain
either revenues or
expenditure or both.
Example:
Sales budget,
production budget
and master budget.
2 Strategic Planning
Exam Support:
See student accountant article 07 Feb 2008 Strategic planning
Strategic planning is the step by step formal and documented planning to translate organizational
objectives in actionable components.
It is short term planning takes account all relevant factors like resources, competencies, macro-
environment and expected future changes.
It forms the basis on which operational planning can be made.
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Strategic planning focuses on wider areas such as in which market to sell products or develop new
products or continue with existing products.
Strategic planning can be best done at top management level. Strategic level managers are sitting
at top of organizational hierarchy can take wider view of organizational performance. They are not
involved in day to day management; therefore, they can focus their attention on external
environment affecting organization performance.
Rational Approach to Strategic Planning 1.1
There commonly three processes involved in strategic planning.
Strategic position analysis.
Strategic choice.
Strategic action or implementation.


Criticism on Rational Approach to Strategic Planning 1.2

Traditionally, it was suggested that rational planning is the only best approach for strategic
planning. However, subsequent writers on strategic planning have proposed different approaches.
These are effectively variations of the rational approach.
Mintzberg argued that performing accurate strategic analysis in advance is impossible. It is not
possible to anticipate all the factors affecting organization. He believed that strategies emerge
while performing organization activities.
Experience enables senior manager to understand the macro-environment in which organization
operates and competencies & resources required by the organization. In the light of experience
Position Choice Action

Choice

Action


Position
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obtained, they can step by step improve and amend their ways of doing things. Trying to
identifying every possible factor affecting the organization in advance is waste of time and money.
In addition, macro-environment is subject to frequent change and uncertainty. Circumstances may
change any time which can render existing strategy unfeasible. Therefore, it will require extra time
and money to revise existing strategy.
Example:
Change in foreign exchange rates can decrease demand for exports. As a result, production
schedule may need to be changed.
Mintzberg argued that strategic planning should be performed on concurrent basis rather than
pre-planned basis.


Lindblom argued that managers may not have sufficient time and energy to consider every
possible course of action. Managers usually prefer to start with good strategy rather than perfect
strategy.
He believed that best strategy is the extension of past practices. Organizations should adopt
strategy in light of previous experiences rather than from 0.
In addition, strategies decided by top level management without facing challenges from lower
levels (tactical and operational) of organization are unlikely to happen in practice.
Example:
Sales manager at operational level may believe that resource available for achieving particular
level of sales are insufficient.
Managers should negotiate strategies with lower levels of management and employees.
For strategy to be successful, they should be at least acceptable to employees expected to carry
out that strategy.
Feedback from lower level managers can help deciding feasible strategies as they are better aware
of technicalities involved in implementing strategies and day to day operations.
Lindblom argued that strategic planning should be performed on incremental basis. It means
taking account of previous strategies and their effect on organizational performance.
Plan
Action
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Others argued that strategic planning is not necessary. Opportunities can be exploited whenever it
comes. Rigidly following strategy may lead to loss of opportunities which would be uncovered if
organization is actively looking for improvement. Strategic planning as periodic exercise will not
help uncover new opportunities.
They consider strategic planning as the time consuming process and against the entrepreneurs
attitudes that means enjoying risk taking and problem solving as the business grows.
Particularly, small and medium size organizations may not have enough time and resources to
devote to strategic planning.
Newly established organizations may not have enough resources, experience and information
available to implement strategic planning process. Strategic planning will waste lot of managerial
time and resource that can be used to promote growth.
According to them, no strategic planning should be performed at all.
However, it represents extremely opposite viewpoint to rational approach to strategic planning.
Organization select can approach to strategic planning somewhere in between those two end
points. Organization should consider its external environment, resources, knowledge, skills and
experience in reaching a decision.





Intended strategy Realised strategy
Unrealised strategy Emergent strategy
Past strategy
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Exam Topic 2: MACRO ENVIRONMENT ANALYSIS
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Exam Topic 2
MACRO ENVIRONMENT ANALYSIS
Sub Exam Topics
S.no Headings (click the cross reference below for easy navigation)
1 Download Full Version to Read More
2 Michael Porters Five Forces Model
34

3 Michael Porters Diamond Model
39

4 Download Full Version to Read More
5 Download Full Version to Read More
6 Download Full Version to Read More
7 Download Full Version to Read More
Exam Awareness
Strategic position and choices can be examined in combination with other exam topics such as
process, project and information technology etc.
See past paper analysis
24
to explore relationships between exam topics. You can use this
relationship to gather relevant points across the exam topics that can be used to answer
questions.

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2 Michael Porters Five Forces Model
Past paper Q.no Requirement Marks
P/P Q1:b
Analyse the industry or marketplace environment that NMS is
competing in.
16
12/09 Q1:a
Xenon usually analyses an industry using Porters five forces
framework.
Using Porters framework, analyse the business analysis
certification industry (BACTI) in Erewhon and assess whether it is
an attractive market for ABCL to enter.
20
06/08 Q1:a
Using an appropriate model or models, analyse the competitive
environment of AutoFones retail shops division.
Note: requirement (a) includes 2 professional marks.
20
Exam Support:
Five forces model can be used alone or in combination with PESTEL framework to analyse
organizations strategic position in the macro-environment.
Exam question can also use market, external environment instead of macro-environment.
You should be familiar with different technical jargons used to address the same situation.
Porters five forces model can be used to determine competitive position or strategic position in
market or macro environment.
Forces given below are inter-related. Therefore, information used to assess one force can be used
to assess other forces as well.

PORTERS
FIVE
FORCES
MODEL
BARGAINING POSITION
OF CUSTOMERS
BARGAINING POSITION
OF SUPPLIERS
BARRIERS TO ENTRY
THREAT FROM
SUBSTITUTE PRODUCTS
COMPETITION &
RIVALRY
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1) Bargaining Position of Suppliers
How strong or weak position of organization is in comparison to its suppliers.
Bargaining position of suppliers can be assessed in terms of:
Size of the organization in comparison to its suppliers. If organization is large in comparison with
suppliers, then position of organization is stronger than its suppliers. Organization can take longer
to pay its suppliers and can contract with suppliers on its own terms & conditions.
Example:
Large companies contract with suppliers by inviting tenders. Tender document lists the terms &
conditions which must be agreed by suppliers to supply goods or services.
Availability of goods (raw materials or finished goods) and services used by the organizations,
shortage of raw material and services required by the organization gives strong bargaining position
to suppliers. In times of excess demand for goods or services, suppliers may consider selling first to
their goods or services to their key customers. Therefore, organization has to maintain
relationships with suppliers to be able to ensure continuity of goods or services.
Competition among suppliers also influences bargaining positions of organization. If competition
among suppliers is fierce, then organization has strong bargaining position than suppliers. It will be
easy for the organization to switch to different supplier. Therefore, organization can negotiate bulk
purchase discounts, trade discounts and favourable credit terms etc with suppliers easily.
Area of organizational activity dependent on supplier affects position of organization. If supplier is
providing goods or services to the core activity of the organization such as production, sales &
marketing, then bargaining position of supplier is stronger than the organization. Contrarily, if
supplier is providing goods or services to the supporting (non-core) activity of the organization
such as accounting, information technology etc, then bargaining position of organization is
stronger than suppliers. Organization can discontinue or automate that supporting activity or
switch to different supplier as strategic position of organization will not be affected seriously by
discontinuing or switching to different supplier.
Complexity of goods or services provided by the supplier also affects bargaining position of
organization in comparison with supplier. If goods or services are of complex nature, then
bargaining position of supplier is stronger than organization. Organization may not be able to
provide those goods or services in-house due to lack of resources (man, materials, money, and
machinery), competencies (knowledge, skills & experience), licence etc.
2) Bargaining Position of Customers
Bargaining position of customers is opposite to bargaining position of suppliers.
Customer can be individual person or organization.
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Bargaining position of customers can be assessed in terms of:
Organizations size in comparison with its customers affects bargaining power of customer. If
organization drives majority of its revenue from small number of large customers, then bargaining
position of customers is stronger than organization. Loss of few customers will result in wide
fluctuations in profitability.
In that case, large customers can invite tenders, so that they can purchase from the organization
offering lowest prices and most favourable terms such as credit period and after sale services.
Organization has to provide value for money (economy, efficiency and effectiveness) to its
customers to achieve competitive advantage in the industry.
However, if organization drives majority of its revenue from large number of small customers than
bargaining position of organization is stronger than customers. Organization will not be dependent
on particular customer for its profitability. Loss of a customer will not affect profitability of the
organization significantly.
In that case, organization may choose to charge premium prices to take advantage of its strong
bargaining position.
Availability of goods or services affects the bargaining position of organization. If goods or services
are in scare supply, then bargaining position of organization is stronger than customers.
Organization can charge higher prices for its goods or services.
However, if goods or services are in abundance, then bargaining position of customers is stronger
than organization. Organization has to provide reasonable prices, quality and after sales service to
customer to retain and increase customer base (market share).
Competition among organizations operating in the industry affects bargaining position of
organization. If competition is fierce (cut throat) than bargaining power of customers is stronger
than organization. Customer can easily take their orders elsewhere for higher quality or reduced
prices.
However, if organization has monopoly position in the market, then organization can charge
higher prices and do not have to be very much concerned about quality. It can happen when
customer have no other substitute products to get the same benefit. However, it could be risky in
the long term; if any substitute to product offered by the organization arises, then customer will
show his/her resentment by switching to substitute goods or services offered by competitors.
Importance of goods or services offered by organization to customers affects the bargaining
position of organization. If goods or services are of necessity, then bargaining position of
organization is stronger than customers. Customers cannot abandon the use of goods or services
even in times of economic recession (down turn).
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However, if goods or services offered by the organization are of luxury, then bargaining position of
customers is stronger than organization. Customer can abandon the use of goods or services in
times of economic recession. Organization has to reflect this fact in its selling prices. In times of
recession prices may be lower than normal, while in times of economic boom (up turn)
organization may charge premium prices. Customers spend their residual income on luxuries after
satisfying necessities due lack of importance to customers.
Complexity of the goods or services affects the bargaining position of organization. If organization
is selling very complex (knowledge intensive or technical in nature) goods or services, then
bargaining position of organization is stronger than customers. Customers may not have technical
know-how of the goods or services. Customers may be not able to compare price and quality with
goods or services offered by competitors. Therefore, organization can charge higher prices for
goods or services. However, if an organization is selling simple goods or services, then customer
position is stronger than organization.
3) Competition & Rivalry
Competition and rivalry affects the strategic position of organization in following ways.
Competition and rivalry increases costs to the organization, as more marketing expenditure will be
required to create brand loyalty and reputation of organization among customers to stand out
from competitors.
Prices may have to be decreased to maintain and increase market share (number of customers in
existing market).
Research and development expenditure have to be increased to devised new products to cope
with products offered by competitors.
Competition and rivalry also forces organization to work more efficiently and provide better
quality product to obtain an advantage over competitors. Managers will be forced to reduce
unnecessary costs such as wastage and idle time to increase profit margin, because profit making
through increasing selling prices may not be possible.
Competition and rivalry affects the generic (original) strategy and subsequent strategies followed
by the organization.
Example:
Presence of intense competition in the market may force organization to adopt differentiation
strategy (generic strategy) and may force organization to expand overseas or acquire existing
competitor organization (subsequent strategy).
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4) Barriers to Entry
Barrier to entry is favourable force for organization already operating in particular industry.
However, it is adverse force for organization considering entry in particular industry.
Exam Support:
Look for information in the scenario whether organization is already operating particular industry
or considering entry in particular industry.
Barriers to entry can be assessed in terms of:
Legal environment such as licensing requirement can act as barrier to entry.
Example:
Membership required of a recognized accounting body to act as tax consultant.
Tax rules for organizations considering expanding to foreign market.
Economic environment can act as barrier to entry. Initial capital expenditure required to initiate
the investment project and ability of the organization to raise capital.
Example:
Some industries, such as telecommunication require significant initial capital expenditure to install
communication networks.
Above barriers provides affects more significantly to small & medium sized organizations (SMEs)
which do not have know-how of legal requirement and do not have enough money to invest in
such resources.
Fierce competition can also act as barrier to entry because the potential competitors will finds it
difficult to create market share to achieve enough return of capital employed (ROCE).
Political environment can act as barriers or facilitator to entry.
Example:
Government trying to develop particular industries can attract organizations by providing grants
and loans.
Technological environment such as complex/knowledge intensive/high-tech goods or services also
act as barriers to entry in particular industry can act as barriers to entry.
Example:
Education industry has barriers to entry because of having qualifications requirements such as
ACCA.
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Social environment such as attitude of people towards new organizations and new products can
also act as barrier or facilitator to entry.
Example:
People may not want to risk their money by buying cloths of new fashion house.
5) Threats from Substitute Products
Threats from substitute products can be judged in terms of
Number of alternative products that customer can use instead of using existing product.
Example:
It can be Glass mugs and steel mugs, if glass mugs are getting higher in prices than customers can
use steel mugs.
Another thing to consider is switching cost of the product to the customer.
Example:
If buses fare increases it will be difficult for travellers to switch to different mode of transport like
purchasing their own vehicle because it will involve substantial invest which everyone cannot
afford.
Some products are like above can be easily switched but some products which require training and
have lack of resale value are difficult to switch.
Example:
If electricity gets expensive, customer normally have no alternative but to reduce electricity
consumption.
3 Michael Porters Diamond Model
Past paper Q.no Requirement Marks
06/10 Q2:b
Examining using Porters Diamond the factors which could
influence organizations decision to move a large part of its logistics
business.
10
Exam Support:
You can use this framework to identify reasons for success or failure of organization in the
scenario.
Porter's diamond is the framework explains the reasons behind the competitiveness of nations in
particular industry.
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Example:
Japan is well-known for consumer electronics, Germany is well-known for Cars and United
Kingdom is well-known for financial service provision.
These elements are inter-related and overlapping in nature.

1) Factor Conditions
It means availability of infra-structure, resources and opportunities such as electricity, natural
resources, atmosphere, geo-locations etc which can be pre-requisite for operating in particular
sector.
Example:
Natural resources such as flowers helped France to become leading quality fragrance supplier in
the world.
Atmosphere such as hot climate helped Saudi Arab to grow quality dates.
FACTOR
CONDITIONS
Resources &
Opportunities
FIRM STRATEGY,
STRUCTURE &
RIVALRY
Competition, Policies
& Work Practices
RELATED &
SUPORTING
INDUSTRIES
Supply chain
effectiveness
MICHAEL
PORTERS
DIAMOND
MODEL

DEMAND
CONDITIONS
Customer Attitudes
& Cleverness
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Geo-locations such as lush green landscapes and mountains helped in development of tourism
industry in Switzerland.
All these factors are beyond the control of the organization. These factors are a source of
competitive advantage to organizations because other organizations and industries situated
elsewhere in the world cannot buy or develop such factors in the short term.
Example:
Organization can relocate itself in particular country ideal for growth of organization in the long
term.
Government can develop infra-structure to help growth of organizations in home country.
Factors such as skilled labours, machinery, investment etc necessary for organizational growth can
be arranged to achieve competitive advantage but these can also be obtained by other
organizations in short term. Therefore, it can no longer be used to achieve competitive advantage.
2) Demand Conditions
Customer having cleverness and knowledge of the industry and products will force organization to
focus on quality and cost reduction.
Customers demand and attitude regarding ability to try new products force organization to
develop innovative products to achieve competitive advantage over local and foreign suppliers.
Early maturity of markets in home country than other countries forces organization to expand in
foreign markets where demand for organizational products is still in growth phase.
Educated and demanding customers motivate organization to research and develop new products,
which can be sold to local and foreign markets.
All these ultimately help to achieve competitive advantage in foreign markets.
Background of the people in a region and education level of the people all influence demand
conditions. Demand conditions cannot be changed in short term but it may be changed in long
term.
Organization cannot do much about changing demand conditions. However, it can be changed by
politicians by raising education and employment level in the long term.
3) Firm Strategy, Structure & Rivalry
It means market condition i.e. monopoly or perfect competition. Having monopoly in the market
gives no incentive to organization to gain efficiency. On the other hand, presence of successful
competitors in the industry encourages organization to improve to efficiency.
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Political and legal environment can influence competition in particular industry
Example:
Giving subsidies and tax relief for organizations operating in underdeveloped industry.
It cannot be controlled by organization. However, government can attract new entrants to
encourage efficiency.
Firm (sound) strategies help organizations to operate effectively and grow without any
interruption.
Example:
Pricing strategy based on marginal cost helped automobile manufacturers in Japan to build largest
market share in US.
Adoption of generic strategies (cost leadership, differentiation and focus) also influences the
success or failure of organizations in international markets.
Example:
Adoption of cost leadership strategy by manufacturers in china helped them to achieve economies
of scale and efficiency which provided competitive advantage and large market share in
international markets.
Ferrari Company is the adopter of focus-differentiation strategy which enabled them to become
leading manufacturer of high quality sports cars in the world.
Sound organizational structure established by considering social and cultural factors leads to fluent
and efficient operations. Some nations have inherent social and cultural advantages, which leads
to sound organizational structures.
Example:
In Japan ability to work in teams, flexible timings, no retirement age limit helped organizations to
become leading consumer electronics supplier by achieving economy and quality as compared to
European organization.
These factors can be changed by organizations through learning from already successful
organizations in that industry.
4) Related & Supporting Industries
Organizations require upside and downside supply chains to operate successfully. Availability of
efficient suppliers helps the organization to focus on core activities while outsourcing its
supporting activities. Efficient suppliers will provide quality service at lower cost than organization.
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Example:
Natural juices manufacturer requires fruit pulp, but they may not have competencies in farming. If
agriculture and farming industry is strong in that country they can buy fruits from farming
organizations and concentrate on its core competencies such as extraction of juices from pulps.
Similarly, availability of efficient distributors helps organizations to offer its products to remote
and foreign markets. Efficient distributors will deliver products at low cost and in timely manner.
Competitors also support organization to acquire necessary knowledge and skills. Employees
changing their employer can transfer knowledge, skills and experience related to industry to other
organizations.
Supporting and related industries can be encouraged and developed by government in the long
term. However, it is beyond the reach of organization.




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Exam Topic 3
E-BUSINESS & MARKETING
Sub Exam Topics
S.no Headings (click the cross reference below for easy navigation)
1 Marketing
2 Push Vs Pull Marketing
3 Marketing Mix (7Ps)
4 Pricing Strategies
5 E-Commerce Vs E-Business
6 Infra-Structure for Information Technology
7 Stages of E-Business Implementation
8 E-Commerce Models
9 Benefits of E-Business
10 Characteristics of Internet Marketing (6 Is)
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Exam Awareness
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1 Marketing
Marketing is the process of creating awareness for organizational products, persuading customers
to buy them and maintaining relationships with customers to encourage repeat purchases.
2 Push Vs Pull Marketing
Push Marketing 2.1
Push marketing is the traditional form of marketing in which organization searches for customers
to sell its products by persuading them.
It uses marketing media such as TV, radio, newspapers, magazines, banners etc.
Push marketing is considered a costly method of marketing.
Pull Marketing 2.2
Pull marketing is modern form of marketing in which customers searches for organizations to buy
products of their own wish.
It uses marketing media such as websites, Forums, subscribed e-mails and SMS etc.
Pull marketing results in high quality targeted customers as they already have an awareness of
products related to industry in which organization operates.
Pull marketing is considered as cheap method of marketing.
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3 Marketing Mix (7Ps)
Past paper Q.no Requirement Marks
12/11 Q4:a
ATL needs to determine the price (or prices) of its e-learning
product:
Identify and discuss the factors that need to be taken into
consideration when pricing the e-learning product.
15
12/10 Q2:b
Evaluate how e-business might help TMP exploit each of the
five elements of the marketing mix (price, product, promotion,
place and physical evidence) identified by the marketing
director.
20
06/10 Q1:c
Sheila Jenkins sees customers as both prospective and
existing members, volunteers and donors of WET. She also
wishes to gain increased revenue from each member and
donor.
E v a l u a t e h o w e m a i l a n d
w e b s i t e t e c h n o l o g y m i g h t
f a c i l i t a t e t h e a c q u i s i t i o n a n d
r e t e n t i o n o f W E T s customers and support
WETs aim to gain increased revenues from members and
donors.
10
06/08 Q3:b
AutoFones CEO is anxious to develop a rational and well-
argued case for retaining the retail shops division.
Write a briefing paper for the CEO to submit to the strategy
planning committee explaining why the retail shops division
should continue to form a key part of AutoFones future
strategy.
Note: requirement (b) includes 3 professional marks.
15
Marketing mix includes elements that affect customer perception regarding product quality when
it first becomes aware of the organization or its product.
Sometime customer purchases products with reference to brand name rather than name of the
organization.
Example:
Customers usually purchase washing power with reference to brand name rather than
manufacturer name.
Marketing mix is tool for differentiating products of the organization from products offered by
competitors.
1) Product
Product (good or service) is the package of benefits that customer expects (needs or desires) to
receive from the purchase.
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Product is the whole buying experience associated with the purchase of main product.
Example:
Customer may prefer hair dressing saloon which has air conditioner rather than fan.
The buying experience can be regarded as supporting product which influences customers
decision to buy main product.
Example:
Air conditioning in saloon is the supporting product as it provides comfort to customer.
Product is very strong element in marketing mix. There is little chance to persuade customers if
the product offered by the organization is not according to expectations of the customer towards
satisfying their needs or desires. Even if customer may buy it once, it is very unlikely that they will
buy it again. However, good product requires less promotional expenditure and can be sold till
longer period.
Product should be frequently evaluated for its effectiveness towards customer satisfaction or at
least when indicators of changing customer needs, desires, taste, fashion and behaviours are
available.
2) Price
Price is the most powerful element in marketing mix to influence market share (demand) of the
organization in short term.
Price is major element in marketing mix. There is little chance that customers will buy a product,
which is beyond their budget no matter how much customers value your product.
Price of the product should not be greater than the Quality (benefits) perceived by the customer
from its use.
Pricing strategy adopted by the organization should be take account of market segment to which
organization is trying to sell its goods.
Various pricing strategies might be adopted some of these include; price penetration, price
skimming, market segmentation, captive product pricing, full cost plus pricing, marginal cost plus
pricing, target pricing, product life cycle pricing, premium pricing and discounted pricing.
3) Place
Place is the medium chosen to deliver the product.
It must be compatible product and price as discussed above.
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Example:
If product is intangible in nature such as E-book then internet may be the best option and pricing
must be set to attract customers targeted around the world.
However, if product is perishable in nature.
Example:
Fruits and vegetables are usually delivered directly to retail shops by removing intermediaries and
they are priced by keeping product quality in mind and delivered to place (small shops or
supermarkets) targeted by the organization.
4) Promotion
Promotion refers to the medium chosen to increase public awareness of the product or to increase
brand image of the product.
Promotion can be done through appropriate promotional mix (various combinations of
promotional techniques) such as internet, television, radio, banners and hand-outs.
Promotional mix should be compatible with marketing budget of the organization, product, price
and place.
Below elements of marketing mix are specifically related to service industries.
5) Process
Process is the buying experience (air conditioning, security guards & politeness of salesman or
service provider) of goods or services of the organization. In other words, process is the supporting
product.
Process is particularly important in service industries, as service itself cannot be inspected in
advance before making purchase.
However, quality of service can be determined from process. In service industries, customers are
goes through lengthy process from obtaining information to duration of service provision.
Example:
In insurance industry, customers are exposed to obtaining knowledge on insurance policies,
submitting documents, claiming insurance and receiving proceeds.
Insurance companies managed to increase efficiency of these processes by scanning documents to
quickly store, retrieve and electronically transfer information from one person to another. It has
decreased the time taken in providing service to customer.
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6) Physical Evidence
This is an important element of the marketing mix particularly in the service sector where
customer usually unable to judge the quality of service in advance.
Example:
In Travel industry, passenger cannot judge the safety and comfort of travel in advance.
There some other ways by which quality of service can be estimated. These can be
Packaging.
Office interior decoration.
Quality of advertisement materials (glossy or rough papers).
Websites design and graphics (statics or dynamic).
7) People
People are the most important element of marketing mix for long term performance of the
organization.
This is particularly important in service sector where customer perception regarding the integrity,
knowledge and experience of personnel involved in the provision of services is key factor
determining service quality.
Example:
In health and care industry, patients choose hospital according to perception on competency of
doctors.
4 Pricing Strategies
Exam Support:
Pricing strategies are highly relevant topics for exam purpose. As a management accountant, you
should know the relationship between strategy and pricing. Management accountants are
involved in pricing of products in organizations. Therefore, you should be able to recommend an
appropriate pricing strategy to management.
See student accountant article 09 Feb 2011 Business strategy and pricing
Pricing strategies adopted should be consistent with business objectives. Price strategies are used
to control market share, stakeholders (customer and government) etc. Organization may have
cultural and ethical viewpoints; pricing strategies should be adjusted for such things. Below
strategies do not consider these values and beliefs on their own.
Pricing Strategies are as follows:
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No-Frills Pricing 4.1
This type of pricing is suitable for product having only basis features.
It is suitable for targeting price sensitive customers requiring only satisfaction of needs and no
luxuries.
Selling price is equal to quality perception of customers.
Organizations following no frills strategy can operate at sufficient profitability. It can be adopted
by new organizations trying to compete against well-established organizations to penetrate and
build market share in the industry.
Price Penetration 4.2
Price penetration is about charging very low prices to build market share and discourage
competition.
It involves reduction in profit margin to attract customers while costs and quality remains intact.
Price penetration is long term pricing strategy.
It is suitable for followers of leadership strategy.
Profitability is achieved by cost reduction through economies of scale and operating efficiencies
rather than charging higher selling price.
This pricing strategy can be adopted by risk averse organizations to ensure sufficient demand for
organizational goods or services.
Discounted-Pricing 4.3
Discounted pricing seems similar to price penetration. However, prices are decreased to less
extent in discounted- pricing than price penetration.
Example:
Giving discounts to customers for purchasing in bulk to encourage more purchases.
Price discounting is a short term strategy may be adopted due to seasonal fluctuations in demand
or in order to respond to actions of the competitors.
Example:
Selling of winter goods at discounted prices to empty the stock before season is off.
Reduction in selling price to prevent market share to respond to entry of new competitor in the
market.
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Price Skimming 4.4
Price Skimming is opposite to price penetration. Price skimming is about charging extra ordinary
high prices to customers.
This types of pricing strategy is suitable for innovative and luxury goods or services having short
product life cycle, so that development expenditure can be recovered quickly by obtaining high
cash flows at early stage of product life cycle.
Price skimming is the long term strategy.
It is suitable for followers of differentiation strategy.
Price skimming charges higher prices while keeping the Quality of product same.
It is suitable to target those segments of society willing to pay very high prices to maintain their
status.
Price skimming is also suitable for organization having liquidity (cash flow) problems. Cash flow
problem can be solved by obtaining cash flows earlier through price skimming. However, it may
adversely affect long term profitability of the product.
Price skimming may be adopted by risk taker organizations. It does not ensure sufficient demand
for the organizational product.
Premium Pricing 4.5
Premium pricing seems similar to price skimming. However, premium pricing charges only
marginally higher prices.
It is suitable for product having unique in terms of features and higher in quality than products
offered by competitors.
Premium reflects the difference in product features & quality.
Example:
Blackberry mobile phones are relative expensive than other cell phones because of its unique
features and high quality,
Captive Product Pricing 4.6
Captive product pricing is about selling of main products at low profit margin or sometimes at loss,
with the intention of earning profits by selling other closely related (like spare parts) products at
high profit margin.
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Example:
Selling cars at lower profit margins and selling spare parts such as gear boxes, ring piston etc at
higher profit margins.
Selling desk jet printers at lower profit margins and selling cartridges at higher profit margins.
Once the customer has brought the main product, they have no option except to replace the main
product.
However, replacing the main product would require sufficient investment, which may not be
acceptable to customer as having low resale value, which is true in case of printers.
Or customer may not have enough cash in the short term, which is possible in case of cars.
Optional Product Pricing 4.7
Optional product pricing seems similar to captive product pricing. In optional product pricing
products are not closely related to main product. Customers cannot be forced to buy the
subsequent products from the same supplier.
Example:
Selling CPU to customers at low price in expectation, that customers will buy peripherals such as
monitor, keyword, mouse etc also from same organization.
Price Segmentation 4.8
Price Segmentation is about charging different prices to different market segments.
Organization may classify the market segments by geo-location, age, sex, time, income etc.
It attempts to charge different prices in different market segments, according to purchasing power
and willingness to buy the product offered by organization.
Price segmentation is also called market segmentation.
It is suitable for the followers of focus strategy.
Example:
Bpp and Kaplan charges lower prices for its learning materials in developing countries.
Some restaurants sell food at reduced prices after 12 am.
Bundle Product Pricing 4.9
Various related goods or services are offered as a package.
Example:
Blender and juicer.
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Audit and tax.
This strategy is suitable for organizations selling range of products to obtain cross-selling benefits.
Example:
Combined cost of audit and tax will be lower due to not having to do tax calculations from begin;
work already performed for audit can be used to provide tax service.
Blender & juicer as a package can be sold at reduced price than selling price of sum of individual
products, as components for blender can also be used for juicer. Customer would prefer to buy
blender and juicer in a single deal than individual deals in order to save money.
Full Cost Plus Pricing 4.10
Full cost plus pricing is the traditional form of pricing set by adding mark-up to the full cost
(variable + fixed costs).
It establishes long term product price by ensuring all costs will be recovered.
It is suitable for product where there is no existing market or price of the product must be
recovered from one product or batch.
Example:
Bidding for the contract of building construction based on full cost plus pricing as each
construction contract is different (non-repetitive) from others.
Marginal Cost Plus Pricing 4.11
Marginal or variable cost plus pricing is suitable for short term decision making.
It is suitable for evaluating one off opportunity.
Example:
Customer has made an offer to buy a product in large quantity at reduced price.
It is not suitable for long term pricing as it does not ensures recovery of fixed cost by absorbing
fixed costs into product cost.
Competitive Pricing 4.12
It uses the price offered by competitors to price products. This is applicable where product is
similar in nature to competitors in terms of quality, size and weight.
Example:
Peanut cookies and coconut cookies.
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It is not suitable for pricing services due to characteristics of the services (intangibility,
heterogeneity, simultaneity, perishability). These characteristics make comparison difficult with
competitors.
Product Line Pricing 4.13
Product line pricing strategy takes account of whole product range before prices are set.
It attempts to increase overall revenue range of product. It focuses on maximizing revenue from
total purchase made by a customer rather than attempting to maximize revenue from individual
product. Total purchase includes current and future purchases made by a customer.
Example:
Retailer selling pens recognizes that customer may buy refills too, so retailer might attempt to
increase the combine revenue from each separate sale of products.
Psychological Pricing 4.14
Psychological pricing attempts to take advantage of the human psychology.
In the absence of other information about product quality, people tend to judge quality with price.
In case of highly innovative products customers may not be able to judge the product quality.
Therefore, organizations may try to make an impression of quality through attractive packaging
and pricing.
Example:
Cosmetics have more packaging cost than the cost of ingredients (chemicals).
Educational institutes such as LBSF charge high prices for its services to make an impression of
quality.
5 E-Commerce Vs E-Business
E stands for electronic.
E-commerce involves carrying out organizational activities through the use of electronic
communication media such as EDP (electronic data processing), hypertext transfer protocol (http),
e-mail, file transfer protocol (FTP), SMS, internet telephony, instant messaging etc.
Organizational activities include promotion, after sales service, sending & receiving other
information such as policy manuals, financial statements etc from inside & outside the
organization.
E-business involves buying and selling goods or service through the use of electronic
communication media.
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E-business involves all those organizational activities performed in e-commerce. In addition, it also
includes buying and selling, transfer of funds in electronic form.
Difference between e-commerce and e-business is of scope of activities. E-business has wider
scope than e-commerce.
6 Basics Terminologies
Exam Support:
Below terminologies are unlikely to be examined directly. However, it is useful for understanding
information given in the scenario and for effective discussion.
Internet is the major enabler of E-business and E-commerce.
Internet is collective term used for http, ftp, email, SMS, internet telephony, instant messaging etc
Hypertext transfer protocol is used by websites and blogs. Each website and blog has unique URL
(universal resource locator). By default URL starts with server name www (World Wide Web).
However, organization may choose different server name.
Example:
ACCA official website has server name www2.accaglobal.com
Server name is host computer name from which client computers connected to internet can
retrieve information.
Example:
If you are downloading past papers from ACCA official website then your computer is client.
If website is secured via encryption, then it uses https extension before URL where s denotes
secured.
FTP is used for transferring data in large memory size.
If FTP is secured via encryption, then it uses ftps extension before URL.
7 Infra-Structure for Information Technology
At minimum application of information technology requires are following resources.
Computer 7.1
At least one computer should have high performance and storage capabilities to use it as server.
Other computer(s) may contain regular performance and storage capabilities. These computers
are referred to as work station.
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Web Server Software 7.2
Server software enables two or more computers communicate with each other. It helps controlling
permissions and restrictions of each work station (computer) connected to network.
Interest is the largest of all networks. All the networks ultimately connects to internet.
Computer on which server software installed is referred to as webserver.
Modem 7.3
Modem converts analogue signals into digital data. Computers can only process data in digital
form.
Information System Software 7.4
It enables capturing and retrieval of information from the computer.
It usually uses database software such Ms access, my sql etc. to store large amount of information.
Modern information system software such as Enterprise Resource Planning (ERP) integrates
various activities such as sales, purchase, accounts, marketing etc.
They use single database for storing and retrieval information rather than separate data base for
each activity. Therefore, it saves information processing cost and time by removing the need to
input same information more than once.
It has implications for the way organization performs its activities.
Example:
Modern information system has enable management accountants to implement ABC costing due
to reduction in information capturing cost. ABC requires detailed information on each activity
performed by the organization.
Internet Connection 7.5
It enables to send and receive information around the world.
Connectivity Tools 7.6
Connectivity tools are communication cables, infrared, Bluetooth, Wi-Fi, Wi-Max etc. cables are
usually connected through serial port and USB port.
Security 7.7
Anti-spy and anti-virus software are used for reducing threat of information being accessed,
modified, deleted and copied in unauthorized manner.
Storage devices, such as data traveller (flash drive) and external hard drive with encryption facility.
Encryption is scrambling information into format which cannot be processed by computers.
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Password is required to assemble the encrypted information; therefore, it can be processed by
computers.
Example:
The e-book you are reading currently is encrypted.
8 Stages of E-Business Implementation
See student accountant article 20 Oct 2010 Strategic use of IT
Exam Support:
Use below stages to identify the current and proposed stage of e-business for the organization in
the scenario.
If you are running lack of time you may postpone this topic.
Communication 8.1
Organization uses e-business as a means to communicate with shareholders and communicate
their product related to customers.
It can involve the use of emails and organizational website. Or
Organization may consider using CMS (content management system) to manage its contents over
the website. See http://www.joomla.org for demo.
Conversation 8.2
Organization allows customers to make inquiries through e-mail or on their website and receive
replies for inquiries and also allows customers to give their feedback.
It can be the use of blogs and forums (notice board or discussion groups) in addition to email and
websites.
Transaction 8.3
Organization sells its goods or services and receives payments online.
It can involve the use of its own shopping cart software (os commerce), internet merchant
accounts and payment gateways (authorized.net) for credit card possessing. Or
Outsource its payment processing function to external supplier that offers complete solution for
selling goods or services and receiving payments online such as www.clickbank.com .
Integration 8.4
Information system in organization is linked to suppliers and customers in the supply chain (value
network). Value network is different from value chain. Value network includes all the suppliers till
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end user of the product. Value chain includes all activities such as production, sales, marketing,
distribution etc performed by the organization.
It can involve the use customer relationship management (CRM) and supply chain management
software. These softwares provide advanced communication tools such as support tickets, live
chat etc and task scheduling tools such as calendars, diaries, appointments, customer/supplier
specific information etc.
9 E-Commerce Models
Business To Business (B2B) 9.1
Under this model, one organization purchases from other organization.
It is applicable in organization selling goods or services of capital nature.
Capital goods or services are used as input to the buyer organization rather than brought for
satisfaction of needs.
Example:
Alibaba.com
Business to Customer (B2C) 9.2
Under this model, one organization offers its goods or services at their own website to final
customer.
It is applicable when organization is selling consumer goods or services.
Example:
www.accasupport.com
Customer to Business (C2B) 9.3
Under this model, organization invites suppliers at their own website to bid for goods or services
required by customer.
Example:
Priceline.com
Customer To Customer (C2C) 9.4
Under this models, customers bids to buy goods or services from other customers. In this model,
website owner acts as intermediary (middle man) and receives certain percentage of commission
per transaction.
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Example:
Online auction sites such as ebay.com (intermediary) allow customers to interact with each other.
It gets a commission whenever transaction takes place between customers.
People selling their mp3 players to other people for money.
Forward Auction 9.5
It allows sellers to quote their minimum selling price for goods or services. It is beneficial for seller
because each customer will quote higher prices than others to buy the goods or services.
Reverse Auction 9.6
It allows buyers to quote their maximum price for goods or services. It is beneficial for buyer
because each supplier will quote lower prices than others to win the order.
10 Benefits of E-Business
Past paper Q.no Requirement Marks
12/11 Q4:a
HomeDeliver does not have a benefits management process
and so a benefits realisation review is inappropriate.
However, it does feel that it would be useful to retrospectively
define the benefits to HomeDeliver of the new electronic
ordering system.
Identify and discuss the potential benefits to HomeDeliver of
the new electronic ordering system.
7
Improved cash flows as payment is immediately transferred to internet merchant account of
organization (Bank account) through payment gateway rather than receiving payments by posts.
Security of cash receipt also increases as it is directly credited to the bank account of organization.
Reduction in information processing cost for various processes (activities) such as accounting,
human resource, purchases, sales, marketing etc.
Increase in revenue by selling directly to customers by removing intermediaries (distributors,
whole sellers and retailers).
Increased customer care and after sales service by the use of CRM (customer relationship
management) software. CRM softwares are available free of cost on the internet. These are called
open source softwares. However, organization may use paid software or design its own software
to meet its organization specific needs.
Detailed information is available for planning and control by using web analytics tools such as
Google analytics and keyword tools.
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E-business gives increased appearance to organization through official website, social bookmarking
and social networking websites etc, in addition to physical means.
E-business also gives perception of large organization through careful website design and search
engine optimization (SEO) strategies such as link exchange, careful keyword selection etc.
Wide spread reach to markets around the world at lower cost than traditional marketing such as
newspaper and TV.
Internet marketing attracts high quality targeted audience which have already awareness of
organizational activities, goods or services.
Example:
Website for ACCA study materials such as www.accasupport.com only attracts those students that
are searching for study materials on search engine, forums, social networking sites etc.
E-business allows getting real time information on demand and prices. It enables organization to
implement pricing differentiation strategy according to different timings and market segments etc.
Example:
Airline Company may charge less on earlier booking and more on late booking.
Charging less to customers situated in developing countries using country specific web pages.
E-business can enable organization to choose from wide range suppliers around the world.
11 Characteristics of Internet Marketing (6 Is)
Past paper Q.no Requirement Marks
06/11 Q4:a
Evaluate how the principles of interactivity, intelligence,
individualisation and independence of location might be applied
in the e-marketing of the products and services of CAR.
16
06/08 Q3:a
Explain, in the context of AEC, how the marketing
characteristics of electronic media (such as the Internet) differ
from those of traditional marketing media such as advertising
and direct mail.
10
Exam Support:
You can use these characteristics as an advantage of internet marketing over traditional marketing
media.
1) Interactivity
As opposed to traditional communication media such as TV, radio, banners etc which provide only
one way communication; internet marketing provides two-way communication.
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It enables existing customers to get after sales service and potential customers to get knowledge
of organizational goods or service through sending inquiry tickets directly from the website.
It facilitates customers to compare product prices and features with different products offered by
organization itself and competitors.
E-mail can be sent from suppliers website free of charge, comments can be posted below blog
posts and discussion board can be helpful to share information with other visitors (customers) of
the website.
Social networking sites e.g. Facebook, Orkut, Twitter etc may be helpful for viral marketing. Viral
marketing means promoting goods or services through the voice of customer.
2) Intelligence
Internet based marketing provides opportunity to gather relevant information free of cost by using
webmaster tools (many of them available for free) which is unlikely to possible with traditional
approach to marketing.
Information may be about number of new visitors and re-visitors, how often they visit, how long
they stay on each product page, what are the most popular product pages.
Information gathered from these sources can also be used for traditional marketing as well.
3) Integration
E-business using e-commerce software enables automatic updating of customer database. In
addition accounts are updated automatically each time new transaction takes place.
Visitors can get real time information on inventory available in stock and expected delivery time of
product.
Most e-commerce softwares allow more login to more than one user at a time. Therefore,
production team can use the real time customer database to obtain information on demand of
goods or services.
4) Individualism
Websites can have additional functionality to allow visitors to customize website according to their
needs such as changing font size, language etc.
It can save the time and effort of visitors to navigate through goods or services offered by the
organization. Thus, it will help to attract new customers and retain existing customers.
It may require initial input of some details, which is used to setup their account with the
organization. Each visitor is recognized by details such as username and password, address and e-
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mail etc. These details can also be used to contact customers to promote subsequent products,
off-course with their prior permission.
5) Industry Restructuring
E-marketing resulted in removal of intermediaries from the supply chain.
Whole sellers & retailers are of decreased importance in the supply chain and can be removed
easily from the supply chain.
Example:
It is very common for informational products such as e-books, CDs and DVDs etc to remove
publisher from the supply chain. Author directly sells to end user or through resellers such as
amazon, scribd etc.
While at same time some intermediaries such as courier companies are of increased importance in
the supply chain and cannot be removed easily.
Example:
It is very common for selling tangible products which delivery is outsourced to shipping company.
Online marketplaces such as Clickbank.com have become an integral part of the supply chain.
These marketplaces bring buyer and selling together and administers buying and selling process
for commission.
6) Independence of Location
E-business can operate from any geo-location and around the clock (24/7).
It can give organization an impression of large entity depending on the design of the website. As
customers rarely look for profile of the organization, unless large sum of money is involved.
It gives flexibility to the organization to re-locate its office to any part of the world. Ideally where
administration cost is low, knowledge, skills and resources are easily available.
Organization can work flexibly at any time of the day while pursuing other commitments to due
reduced physical interaction with suppliers & customers.
Organization has access to wider knowledge, skills and experience. Working at home is common
for e-business. Organization can attract talent across the whole world. In addition, organizations
situated in high wage rate jurisdiction can hire employees from low wage rate jurisdiction to
reduce remuneration expense. It also leads to overhead savings such as power, rent, depreciation
of equipment etc.

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Exam Topic 4: MANAGING STRATEGIC PORTFOLIO
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Exam Topic 4
MANAGING STRATEGIC PORTFOLIO
Sub Exam Topics
S.no Headings (click the cross reference below for easy navigation)
1 Download Full Version to Read More
2 Download Full Version to Read More
3 Ashridge Portfolio Matrix
4
SBU is inside the industry of the parent. Therefore, the parent knows the critical success
factors of the SBU operating in particular industry in which improvement can be made to
add value to SBU. It can be said that it has high feel.
Ansoffs Matrix
5 Boston Consulting Group (BCG) Matrix
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Exam Awareness
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3 Ashridge Portfolio Matrix
Some businesses acts as 'parental developer' acquires SBUs with a view to add value to them by
using its resources and capabilities.
Ashridge portfolio matrix is used to evaluate the attractiveness of potential acquisition target or
existing SBUs to the parent.

This matrix has following two variables according to which the attractiveness of each SBU can be
judged.
Benefit
Feel
In practice, other variables, such as previous experience, management attitudes and culture,
stakeholders expectations, may also influence the decision regarding potential acquisitions to be
included in the portfolio of the group.
All the relevant factors need to be considered while taking the investment/divestment decision.
Let discuss each of the above variables.
Benefits 3.1
It is the value, which business can add to existing or potential SBUs (acquisition target) by utilizing
their resources and competencies.
Parent may have many resources and capabilities. However, only those resources and
competencies are considered as benefits which the SBU needs to grow and add value.
In other words, benefits are the opportunities (competences and resources) of the parent to help
SBU. More the parent can help, more it can add value.
F
e
e
l

(
c
a
p
a
b
i
l
i
t
y

t
o

h
e
l
p
)

High
Low
Benefit (opportunity to help)
Alien Business
Heartland
Business
Ballast
Business
Value Trap
Business
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Example:
If parent has strong finance department then it can add value by help SBU having weakness in
finance department.
Feel 3.2
Feel is the similarity (overlap) between critical success factors (CSFs) of the Parent and the existing
or potential SBU.
Example:
Parent ability to provide better financial service to SBU will be considered as high feel, if financial
services are CSF for SBU in particular industry.
CSFs depend on the industry in which SBU operates.
In addition, feel is capability to achieve CSFs of the SBU by the parent.
If the parent knows the CSFs of the SBU in particular industry and has capability, then it can use its
capabilities more effectively toward CSF achievement of CSFs of SBU.
Example (continued):
Parent needs to know what financial services are critical to the success of SBU in particular
industry and have capability to provide those financial services.
However, parent having strong financial department will be considered as low feel, if financial
department is not a critical success factor for SBU.
Combinations of Benefits and Feels give the following types of strategic positions to the SBUs in
parent portfolio of investments.
Alien Businesses (Low Benefit/ Low Feel) 3.3
Parent cannot help SBU to add value, as parent does not have the capabilities (competences and
resources) in the areas of weakness in SBU. It can be said that parent has low benefits.
SBU is outside the industry of the parent. Therefore, the parent does not know the critical success
factors of the SBU operating in particular industry, which are needed to add value to SBU. It can be
said that it has low feel.
Value Trap Businesses (High Benefit/ Low Feel) 3.4
Parent can help SBU to add value, as parent has capability to help the SBUs in the areas of
weakness in SBU. It can be said that it has high benefits.
SBU is outside the industry of the parent. Therefore, the parent does not know the critical success
factors of the SBU operating in particular industry, in which improvement can be made to add
value to SBU. It can be said that it has low feel.
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Ballast Businesses (Low Benefit/ High Feel) 3.5
Parent cannot help SBU to add value, as parent does not have the capabilities (competences and
resources) in the areas of weakness in SBU. It can be said that parent has low benefits.
SBU is inside the industry of the parent. Therefore, the parent knows the critical success factors of
the SBU operating in particular industry in which improvement can be made to add value to SBU. It
can be said that it has high feel.
Heartland Businesses (High Benefit/ High Feel) 3.6
Parent can help SBU to add value, as parent has capability to help the SBUs in the areas of
weakness in SBU. It can be said that it has high benefits.
SBU is inside the industry of the parent. Therefore, the parent knows the critical success factors of
the SBU operating in particular industry in which improvement can be made to add value to SBU. It
can be said that it has high feel.
4 Ansoffs Matrix
Exam Support:
Use this frame work to determine organizational strategy, so that relevant comments can be made
regarding its pros and cons. See student accountant article 07 Apr 2010 takeover, mergers and
managing business units

Ansoffs matrix describes various possible combinations of product and market strategies.
Penetration (Existing Product/Existing Market) 4.1
Penetration is expansion by selling existing products into existing markets.
Penetration can bring economies of scale due to production in higher volumes.
Markets
P
r
o
d
u
c
t
s

New
Existing
Penetration
Diversification
Product
Development
Market
development
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Example:
Supplier may provide discount for purchasing materials above certain quantity.
Penetration does not change organization risk and culture.
Penetration is usually considered as low risk strategy.
Penetration is suitable for:
Small organizations;
Organizations still in growth stage;
Risk-averse organization.
Product Development (New Product/Existing Market) 4.2
Product development is expansion by selling new products in existing markets.
New product development can bring cross selling benefits (benefits of selling more products to
same customer).
Product development does not significantly change market risk and culture.
However, organization may face some product risk such as not having enough demands, quality
concerns etc.
Product development is usually considered as medium risk strategy.
It is suitable for organizations which are at maturity or decline stage in product life cycle.
Market Development (Existing Product & New Market) 4.3
Market development is expansion by selling existing product in new markets.
New market can be developed in different geo-location or different market segment in existing
geo-location.
Organization can attract customers in new markets or market segments which are still in growth
stage to increase revenue from existing product without exposing itself to product risk.
However, market development can significantly change market risk and culture.
Market development is usually considered as medium risk strategy.
Market development is suitable for organizations which are at maturity or decline stage of market
life cycle.
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Diversification (New Product & New Market) 4.4
Diversification is selling new products to new markets.
Diversification may be pursued to create value by entering new industry taking benefit of
organizational reputation. Customer may prefer to buy additional products from organization they
already know.
It can significantly change product and market risk.
Diversification requires significant change in organizational structure, culture, capabilities etc. It
requires significant change management skills.
Therefore, diversification is usually considered as high risk strategy as having low probability of
achieving expected outcome from potential investment.
Diversification is suitable for large organizations try to diversify (scatter) their business risk.
However, diversification in industry having same business risk may not reduce overall business risk
of the organization.
Exam Support:
Recall business risk definition from F9 Financial Management which you have probably calculated
as beta asset (
a
).
Diversification is suitable for organizations operating industry having maturity or decline stage of
its life cycle.
Diversification can be related or unrelated.
Related Diversification 4.5
Related diversification is pursued in expectation to create synergy. Synergy is the value created
through joint efforts of complementary activities than the value created through performing each
activity individually.
In related diversification organization is entering into related industry. It is pursued in the
expectation of achieving economies of scope.
Example:
Organization selling cement is diversifying paint into industry; in expectation that customer who
will buy cement will also buy the paint from the same organization.
Organization diversifying into complementary industry such as in above example is called
horizontal integration of supply chain.
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Organization can also diversify into industry which supplies raw materials for existing products.
This will ensure continued supply of raw material to organization and ensure guaranteed customer
demand for raw materials. This kind of diversification is called vertical integration of supply chain.
Unrelated Diversification 4.6
In unrelated diversification organization is entering into unrelated industry.
Example:
Organization selling ice creams is diversifying into winter goods industry.
Unrelated diversification may not achieve economies of scale or scope.
5 Boston Consulting Group (BCG) Matrix
Past paper Q.no Requirement Marks
12/10 Q1:a
In the context of Shoal plcs corporate-level strategy, assess the
contribution and performance of ShoalFish, ShoalPro and
ShoalFarm. Your assessment should include an analysis of the
position of each company in the Shoal plc portfolio.
15
12/08 Q2:b
Assess the extent to which the proposed acquisition of InfoTech
represents an appropriate addition to the MMI portfolio.
10
Exam Support:
BCG can be used in combination with product life cycle, PESTEL and five forces model.
BCG matrix is used for assessing the portfolio of investments (SBUs and products).
BCG considers two variables:
Market share
M
a
r
k
e
t

g
r
o
w
t
h

High
Low

DOG

STAR
PROBLEM
CHILD OR
QUESTION
MARK

CASH COW
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1) Market Share (X)
Market share is percentage of customer demand satisfied by organization for the original goods or
services.
2) Market Growth (Y)
Market growth is growth in customer demand for the goods or services offered by the
organization.
Above two variables gives four quadrants (strategic positions) of investments (SBUs and products).
Organization can use BCG matrix to maintain a balance between short term liquidity (cash flows)
and long term continuity and growth.
Let discuss each of these four quadrants.
Star (High Market Growth/High Market Share) 5.1
Star is useful for future continuity and growth of organization.
Star is product or SBU operating in industry which are in introduction or growth phase of it life
cycle.
Star can require investments to satisfy increasing market demand and maintain its market share at
high level.
If star failed to maintain its market share, then they can become problem child (see below).
However, star becomes cash cow in the long term when product or industry reaches at maturity
stage and ultimately becomes dog when product or industry reaches at decline stage of life cycle.
Organization having many star at once may find difficult to finance investment needs.
Problem Child or Question Market (High Market Growth/Low Market Share) 5.2
Problem child is the product or SBU operating in industry having growth potential but cannot
compete for gaining new customers in the market.
Problem child can require turnaround strategies, process re-engineering and change management
skills.
All above activities can require sufficient investment and managerial time to make problem child a
star (high market growth/high market share).
Problem child is unlikely to provide sufficient cash flows to finance above activities due to having
low market share (low sales volume). Therefore, these activities must be financed from cash
inflows generated by cash cow.
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Cash Cow (Low Market Growth/High Market Share) 5.3
Cash cow is product or SBU operating in industry having maturity stage of its life cycle. It means
there is no further market growth possible. However, it may be possible to move to different
market segment (middle class society) or market (developing countries) where products or
industry is still at growth stage of life cycle.
High market share can enable organization to achieve economies of scale due to high volume sales
and production.
Cash cow can generate sufficient cash flows to meet operational needs of the organization i.e.
workers salaries, factory rent and utility bills.
In addition, surplus cash left can be spent on star and problem child to make them cash cows to
ensure stability of organization.
If cash cows lose their market share, then they can become dog. However, cash cow ultimately
becomes dog when product or industry at decline stage of life cycle.
Organization must achieve a balance between cash cows and stars to ensure short term liquidity
and long term growth.
Dog (Low Market Growth/Low Market Share) 5.4
Dog is the product or industry having decline stage of its life cycle.
Dogs have neither sufficient customer demand nor market share.
Dogs should be discontinued if they are resulting in cash outflows (losses). It is because spending
money on dog to make dog a cash cow may not contribute towards long term stability of the
organization.
Dog can also give cash inflows. In that case, they are called as cash dogs. It is possible because
competitors are discontinuing product or existing from industry in favour of other newly devised
products or growing industries. Organization can enjoy monopoly position with few customers.
In that case, dog should not be discontinued unless resources can be moved towards more
profitable products or industries.



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Exam Topic 5: STRATEGIC CHOICE
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Exam Topic 5
STRATEGIC CHOICE
Sub Exam Topics
S.no Headings (click the cross reference below for easy navigation)
1 Generic Strategies
2 Strategic Clock
3 Position & Resource Based Strategies
4 Strategic Success Criteria (SAF)
Exam Awareness
Strategic choice can be examined with portfolio management requiring evaluation of various
strategic options or plans available to an organization in the scenario.
See past paper analysis
24
to explore relationships between exam topics. You can use this
relationship to gather relevant points across the exam topics that can be used to answer
questions.

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1 Generic Strategies
Exam Support:
It can be used to determine reasons for organizational success or failure.
It can also be used to evaluate subsequent strategies for consistency with generic strategies as
inferred from the case.
Michael Porter has identified three generic (original) strategies that organizations can adopt for
entering a market. It gives the initial strategic direction to the organization.
Adoption of generic strategies leads organization to strategic position which gives them
competitive advantage in the industry.
Generic strategies should be adopted taking account of size of investment, competition, market
size and life cycle, resources, knowledge, skills and experience, macro-economic factors.
All subsequent strategies to be successful should be consistent with the generic strategies.
Cost Leadership 1.1
Cost leadership strategy aims at becoming lowest cost producers in the market. Unfortunately only
one organization can become lowest cost producer among various competitors that are following
the same strategy.
This is suitable for large organizations that have sufficient resources to produce goods or services
at large volume to achieve economies of scale.
This strategy is suitable for selling basic product, similar in features with competitors.
Charging high price to customers is not possible, so the only way to increase profit is to lower
product cost, perhaps efficiencies gain through economies of scale.
Organization needs to maintain its operating costs at lowest. For this, they should design and
organize their activities in a manner to save costs.
Differentiation 1.2
Differentiation strategy aims to distinguish their goods or services from competitors on the basis
of product quality, price, place and promotion.
Fortunately, this strategy can be adopted by every organization with success.
This strategy is suitable for selling product having different features than competitors. High selling
price can be charged, as the product is of unique nature that customers cannot find elsewhere.
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Limitation of this strategy is high to research and development cost associated with the product. In
addition, the product is different and innovative labours may not be fully experienced; therefore,
material wastage cost will be also high.
Follower of differentiation can gain an upper hand in the long term because of taking an initiative
of making a product. At subsequent stages in product life cycle organization will have large
number of customers (market share) and experience of operating in the market. However,
competitors are trying to develop products similar or even better to this product.
Such strategies are usually suitable for innovative industries such as telecommunication and
fashion industries.
Focus 1.3
Focus means concentrating on a particular market segment (niche) or customer group rather than
market in general.
Example:
Organization (Ferrari) trading in automobile industry manufacturing sports cars.
Focus defines human beings while differentiation defines product and other elements of
marketing mix (place, price, promotion).
Firstly, organization should decide which areas they want to focus (target) on, and then it has to
decide whether to follow cost-leadership or differentiation strategy.
It is unlikely to achieve economies of scale in focus strategy by following it in combination with
cost leadership strategy due to small size of the market segment.
This strategy is suitable for small organizations which do not sell range of products and cannot
operate in multiple market segments at once. Therefore, they have to strategically position (focus)
themselves to particular market segment. That, market segment may not be attractive to large
organizations, because of not having enough demand (market size) to make suitable use of their
resources.

In addition, there can be mix of above strategies such as
Focused- Differentiation 1.4
This strategy is suitable for selling unique product related to particular market segment.
Example:
It can be news channel (focus on news readers) broadcasting business news (differentiation on
product) in the telecommunication (market) industry.
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This strategy is suitable for small businesses having limited resources where they can focus on
their area of specialization because they do not have sufficient resources and competencies to sell
range of products to market as whole.

Broad Market
Scope
Narrow
Market Scope
Cost
Efficiency
Uniqueness
DIFFERENTIATION
FOCUS
COST
LEADERSHI
FOCUSED
DIFFERENTIATION
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2 Strategic Clock
Past paper Q.no Requirement Marks
12/07 Q1:b(i) Explain the key features of a no frills low-cost strategy. 4
12/07 Q1:b(ii) Explain the key features of a no frills low-cost strategy. 16
12/07 Q1:c
Identify and evaluate other strategic options ONA could consider
to address the airlines current financial and operational
weaknesses.
10

Quality 2.1
Quality is the value of product in the eyes of customer.
Price 2.2
Price is the consideration paid by the customer in cash or kind.
No Frills Strategy 2.3
No frills strategy is offering basic product at low price. Quality is also adjusted to take account of
reduced price.
No frills strategy is suitable for penetration in the market.
No frills strategy is suitable for small organizations having fewer resources insufficient to compete
against well-established organization.
No frills strategy uses pricing as a tool to create demand and build market share among existing
organizations. No frills strategy is consistent with No frills pricing strategy.
Q
u
a
l
i
t
y

Price
Failure strategy
Failure strategy
Failure strategy
Focused-differentiation
Differentiation
Hybrid
No frills
Low price
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Low Price 2.4
Same as porters cost leadership strategy.
Differentiation 2.5
It is the same as porters differentiation strategy.
Hybrid Strategy 2.6
Hybrid strategy is offering products of high quality at low price.
It is considered as lowest risk strategy.
It is an ideal strategy. Organization should aim to provide best value for money from their
products.
In doing so, organization processes have to be redesigned to implement information technology to
achieve cost savings and consistency in quantity.
Example:
Dell computers provide quality by enabling customers to be able to order computer of their own
specification from their website and cost savings are achieved through integrating their
information systems with suppliers to save ordering and holding costs.
Suppliers immediately supply spare part and production department is simultaneously notified
each time customer order is received to quickly deliver computers to customers.
Focus-Differentiation 2.7
Same as porters focused differentiation strategy.
Failure Strategies 2.8
All other strategies that offer less quality than price are failure strategies. Customer will not buy
products if they perceive quality is less than the price he/she is paying for the product.
3 Position & Resource Based Strategies
Exam support:
See student accountant article 06 Oct 2010 position and resource based strategies
Position Based Strategies 3.1

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Exam Topic 5: STRATEGIC CHOICE
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Resource Based Strategies 3.2
4 Strategic Success Criteria (SAF)
Past paper Q.no Requirement Marks
12/11 Q1:b
GETs proposed strategy is firstly to acquire SOFR and then the
franchise to run the rail network of Raziackstan. You have been
asked to provide an independent assessment of this proposed
strategy.
Write a report evaluating GETs proposed strategy.
Professional marks will be awarded in part (b) for appropriate
structure, style and fluency of the report. (4 marks)
20
06/10 Q2:a
Assess, using both financial and non-financial measures, the
attractiveness, from Swifts perspective, of EVM as an acquisition
target.
15
06/09 Q1:b
The panel selected the proposal of Professor Ag Wan as the
winning proposal.
W r i t e a b r i e f i n g p a p e r
e v a l u a t i n g t h e t h r e e p r o p o s a l s
a n d j u s t i f y i n g t h e s e l e c t i o n o f
t h e p r o p o s a l o f P r o f e s s o r
A g W a n a s t h e b e s t s t r a t e g i c
o p t i o n f o r greenTech t o p u r s u e .
Note: requirement (b) includes 2 professional marks.
20
Exam Support:
Question Q2: a, 06/10 emphasis the interrelationships between exam topics. You should
relationships between exam topics in practical context.
Strategic success criteria are used to evaluate strategies (existing or potential) for the ability to
achieve organizational objectives.
Strategies are likely to achieve organizational objectives if all the following criteria are met.
Success criteria is interrelated and overlapping in practice.
Suitability 4.1
Suitability is the effectiveness of strategy in fulfilling organizational objectives.
Organizational objectives at following levels.
4.1.1 Corporate or Strategic Level
At corporate level organizational objectives are concerned with risk minimization from overall
portfolio of investment.
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Matters regarding sources and extent of finance to be raised are also included in corporate
objectives. It is to minimize cost of capital and reduce financial risk (gearing) to acceptable level.
Strategic management (directors) are responsible for maximizing shareholders wealth. Therefore,
cost of capital and financial risk is considered at strategic level.
Exam Support:
Recall Source of finance & Cost of capital from F9 Financial Management
4.1.2 Business or Tactical Level
At business level organizational objectives are concerned with development of products and
exploring new markets.
4.1.3 Operational Level
At operational level organizational objectives are concerned with reducing material wastages,
reducing idle time and obtaining value for money (economy, efficiency and effectiveness) from
operations.
Acceptability 4.2
Acceptability is concerned with the effectiveness of strategy in receiving agreement of key
stakeholders.
Key stakeholders depend on the strategy pursued or to be pursued by organization.
Agreement can be achieved if strategy can satisfy stakeholders objectives and ethical viewpoints.
Example:
Shareholders acceptability will be acquired if strategic decision will lead to maximizing profits or
minimizing risks.
Feasibility 4.3
Feasibility is concerned with organizations ability to implement strategy in practice.
Strategy is feasible if organization has strategic capability (resources and competencies).
Legal requirement such as licensing can be included in feasibility as well as acceptability.

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Exam Topic 6: MANAGING PEOPLE & ORGANIZATIONAL STRUCTURE
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Exam Topic 6
MANAGING PEOPLE & ORGANIZATIONAL
STRUCTURE
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Exam Topic 7: STRATEGIC ACTION & MANAGING CHANGE
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Exam Topic 7
STRATEGIC ACTION & MANAGING CHANGE
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4 Cultural Web Paradigm
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5 Organization Cultural Change Management
Past paper Q.no Requirement Marks
12/10 Q1:b(i)
Identify and analyse, using an appropriate model, the contextual
factors that will influence how strategic change should be
managed at Captain Haddock.
Professional marks will be awarded in part (b) (i) for the
identification and justification of an appropriate model.
(2 marks)
15
06/08 Q4:b
The success of any attempt at managing change will be
dependent on the context in which that change takes place.
I d e n t i f y a n d a n a l y s e , u s i n g a n
a p p r o p r i a t e m o d e l , t h e i nternal
contextual features t h a t c o u l d i n f l u e n c e
t h e s u c c e s s o r f a i l u r e o f t h e
c h i e f e x e c u t i v e s p r o p o s e d
s t r a t e g i c c h a n g e f o r P S I .
15
Balogun and Hope Hailey give 8 contextual factors are relevant for the determination of success or
failure of proposed strategic change in the organization.
These contextual factors or features are interrelated improvement/un-improvement in one factor
can lead to improvement/un-improvement in others.
Time 5.1
Time is need for any strategic change to take place. Sufficient time needs to be available to devise
sound strategies. Strategies made under time pressure are venerable to weaknesses that can
ultimately lead to failure.
If change is urgently required it will become more difficult to successfully implement proposed
change.
Scope 5.2
This is defined by the degree of strategic change needed or coverage of organizational areas to be
change.
Clearly defined scope is prerequisite for successful implementation of proposed change.
Vaguely defined and communicated scope can lead to confusion over impact of change on
organization and employees and other stakeholders which can impede change.
Scope should be properly defined and communicated to avoid resistance from inside and outside
the organization.
Scope helps in planning time resources and capabilities needed for proposed change. More radical
(basic) change needs more time, resources, and capabilities.
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Power 5.3
Power means ability to influence others views and judgements.
Power can result from having particular position (Chairman or CEO) and having expert knowledge
or skills (engineers).
Proposed change is likely to be more successful if person proposing the strategic change has
sufficient power or personnel having sufficient power are supporting him/her.
Example:
Strategy proposed by CEO is more influential than strategy proposed by operational manager
which can be disregarded easily on the grounds of lack of authority no matter how feasible it may
be.
For successful implementation of change powerful personnel needs to be tackled or convinced
first.
In addition the person expected to execute the proposed change need to be powerful too.
Resources 5.4
Resources are the economic factors of production (employees, machinery, material, money). To
make proposed change feasible sufficient resources needs to be present.
Capability 5.5
It means knowledge, skill, expertise and experience needed to successfully implement the strategic
change. Having all the resources available without the ability to use them will not lead to
successful implementation of change.
Training can overcome this problem but it takes time and money.
Readiness 5.6
It refers to the state of mind, how motivated your workforce is to accept the strategic change.
Persuading the key personnel can help achieve readiness in the workforce but persuading key
personnel is itself a challenging task and needs exceptional persuasion skills.
Any reservations and fears on the effect of proposed strategic change needs to be overcome
through communication.
Diversity 5.7
How dispersed are your workforce?
Whether, they have different views for the current and future prospects of the organization?
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How different they are with respect to age, gender, race, religion, geo-location and cultural
background?
More diverse they are more alternative views they are likely to have on the strategic change
proposed in the organization.
Example:
It is easier to implement change if workforce is divided into five groups each having different
viewpoints because each have 20% representation than if workforce is divided into two groups
having different viewpoints because each have 50% representation.
Preservation 5.8
What standards, values, attitudes, beliefs, skills and expertise we want to retain or maintain while
implementing change.
It is necessary to retain, motivate and tackle such aspects of culture and personnel with care.
There retention in organization is vital to the success current and proposed strategies and
objectives.
6 Cultural Web Paradigm
Past paper Q.no Requirement Marks
12/11 Q2:a
Analyse the culture of iCompute, and assess the implications of
your analysis for the companys future performance.
13
12/10 Q3:a
Analyse Frigate Ltd using the cultural web or any other appropriate
framework for understanding organisational culture.
15
12/08 Q1:b
Assess the underlying organizational cultural issues that would
explain the failure of the Director Generals strategy at the
National Museum.
Note: requirement (b) includes 2 professional marks.
20
Cultural web paradigm (model) is collection of factors which shapes (defines) organizational
culture.
The following are the six interrelated (like web) factors.
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Exam Support:
Think of possible interrelationship between various components of cultural web paradigm.
Example can be, changing personnel having power to change internal control system.
Power 6.1
Power is ability to change or resist change (cultural, strategic or operational) in the business
organization. Power can be driven from occupying particular position, specialist knowledge etc.
Who is/are powerful depends on the situation to situation.
Example 1:
A decision by board of directors to Change Financial reporting framework from local accounting
standards to international accounting standards. This decision must be acceptable to chief
financial officer (CFO). In this case CFO is more powerful because having technical knowledge of
financial reporting even she/he is lower in position than the board of directors.
Example 2:
A decision by board of directors to buy raw material from different supplier. If the purchase
manager resent this decision he/she is unlikely to resist change due to the board to directors are
senior in position and the decision does not depends on technical knowledge for its
implementation.
Stories 6.2
Facts or fiction about the organization which people inside and outside the organization used to
tell each other.
ROUTINES
&
RITUALS
CULTURAL WEB
PARADIGM
(It is the culture
shaped by
surrounding factors)
POWER
ORGANIZATIONAL
STRUCTURE
STORIES
SYMBOL
S
CONTROL
SYSTEMS
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Example 1:
Co-workers telling a new comer how they are used to help each other in performance of their
duties.
Example 2:
Employee making personal call from companys telephone interrupted by fellow employee by
telling him/her that boss gets annoyed when anyone makes personal calls during working hours
from companys telephone.
Routines & Rituals 6.3
Routines are what we used to do regularly. Rituals are the values, beliefs and behaviours
expressed by doing particular things occasionally.
Example 1:
Daily signature on attendance registers by employees is the routine.
Example 2:
Chairman distributing Easter eggs to employees on religious occasion Easter.
Symbols 6.4
Symbols are the logos, uniforms, internal and external decorations. These are used to define
corporate values.
Example 1:
Uniforms are used to draw distinctions among different grade of workers.
Example 2:
Paintings of successful persons are used to convey message to employee about what kind of
behaviour is expected of them.
Organization Structure 6.5
Organization structure defines the key activities, key personnel, key responsibilities and
communication channels.
Example 1:
Tall organizational structure suggests close control while flat organizational structure suggests
autonomy given to operational managers.
Example 2:
Organization if, arrange it works projects or products wise, it could be deduced that products are
the key to success for the organization.
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Control Systems 6.6
Control systems are the procedures design to detect deviation from standard policies and
procedures so that corporate objectives can be achieved.
Control systems suggest that attitudes of senior management regarding risk and uncertainty.
Exam Support:
For concluding on control systems, observation is essential for determining actual compliance with
internal controls by employee, in addition to inspecting documentations on internal control.
Example 1:
Preparation of budget is an establishment of benchmark against which performance can be
measured and rewarded or penalized.
Example 2:
Segregation of duties for manufacturing and storekeeping process between number of employees.


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Exam Topic 8: BUSINESS PROCESS CHANGE
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Exam Topic 8
BUSINESS PROCESS CHANGE
Sub Exam Topics
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1 Michael Porters Value Chain Analysis
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9 Evaluating New Software Packages
10 Selecting Software Package Solution
Exam Awareness
Process change may be conducted as project. You can apply project management knowledge to
answer requirements on process change.
Information technology is of primary importance in process redesigning. Be prepared to use
knowledge on information technology to suggest process redesign changes.
Strategic planning can be the reason for conducting process redesign. Be prepared to relate
process redesign to strategy.
Process redesign involves cultural and structural change in organization. Be prepared to discuss
issues regarding cultural and structural change.
See past paper analysis
24
to explore relationships between exam topics. You can use this
relationship to gather relevant points across the exam topics that can be used to answer
questions.

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1 Michael Porters Value Chain Analysis
Past paper Q.no Requirement Marks
P/P Q4:a
Draw the primary activities of DRB on a value chain. Comment on
the significance of each of these activities and the value that they
offer to customers.
9
12/09 Q2:a
Analyse the primary activities of the value chain for the product
range at IL.
10
12/07 Q3:a
Describe the primary activities of the value chain of Perfect
Shopper.
5

Porters value chain is the framework used for determining primary and supporting activities of the
organizations.

Primary Activities (Core Activities) 1.1
Primary activities are the processes which add value to the product from customer viewpoint.
There are five primary activities identified by the porter.
1.1.1 Inbound Logistics
Inbound logistics includes all the processes which start from the factory gate to before the
production department.
These processes can include inspection, storing and material handling of raw materials.
Inbound logistics is responsible for checking that materials are as per requirement, stored for use
in production and materials do not spoil in movements.
1.1.2 Operations
Operations include all the processes which are conducted inside the production department.
These processes can include assembling, packaging and inspection.
Operations are responsible for converting materials in finished goods of merchantable quality.
P
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PROCUREMENT
HUMAN RESOURCE
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TECHNOLOGY DEVELOPMENT
FIRM INFRA STRUCTURE
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1.1.3 Outbound Logistics
Outbound logistics includes all the processes which start from outside the production department
to customer acceptance of good or service.
These processes can include material handling, storing of finished goods, delivery to customer and
installation.
Outbound logistics is responsible for storage of finished goods to protect from spoilage, breakage
in movements and installation of goods at customer place.
1.1.4 Marketing & Sales
Marketing & sales include all the processes from initial communication to customer to accepting
customer orders.
These processes can include advertisement, responding to enquires, credit rating and raising sales
order.
Sales & marketing is responsible for ensuring that public knows and can buy the goods or services
offered by the organization.
1.1.5 After Sales Service
Service after sales (after sales service) includes all the processes from responding to information
requests to settlement of warranty claims.
These processes can include responding to information requests, receiving customer complaints,
inspecting validity of complaints and reworking goods or service or refunding cash to settle
warranty claims.
It is after sales service which is responsible for retaining existing customers and discharging
organizations legal and ethical obligations towards customers.
Secondary Activities (Supporting Activities) 1.2
Supporting activities are the processes which enable organization to perform primary activities
economically, efficiently and effectively.
1.2.1 Procurement (purchase)
Procurement includes all the processes from receiving purchase requisitions to bring goods to
factory gate from supplier.
It is needed to ensure that organization has materials and assets available for production and
administration. It is set up to establish control over purchases and to achieve economies of scales.
1.2.2 Firm Infrastructure
Firm infrastructure includes all the processes from capturing information to retrieving information
by the user.
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It is needed to help management administer (procure resources when needed) the organization. It
ensures that managers information needs to satisfy to make informed decisions in timely manner.
1.2.3 Technology Development
Technology development includes all the processes from research of new technologies to devising
new products (goods or services).
It ensures that organization has up to date products to sell. It is needed for long term survival and
competitive advantage of the organization.
1.2.4 Human Resource
Human resource includes all the processes from identification of skills shortage to payment of
salaries to employees.
It is needed to ensure that organization meets its current and future skills needs and employees
are motivated, trained and reasonably rewarded so that they work efficiently and effectively.
Profit 1.3
Profit is reward for adding value to the goods or services by performing above primary and
supporting activities.
Cost of primary activities are charged to customer as cost of sales and cost of supporting activities
are charged to expense for the period as operating expenses.
2 Supply Chain
Supply chain is the sequence of value chain from suppliers of raw materials to end consumers.
In between it may include suppliers of semi-finished goods, manufacturers, distributors, whole
sellers and retailers in most supply chains.
It may also involve industry specific intermediaries such as stock broker between seller and buyer
of securities.
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3 Evaluating New Software Packages
Past paper Q.no Requirement Marks
06/11 Q3:b
Eventually, the IAA decided not to develop a bespoke solution but
to use an established software package to implement its multiple
choice question management and examination requirements. The
selected package, chosen from a shortlist of three, includes the
delivery of tests, question analysis, student invoicing and student
records. It is already used by several significant examination
boards in the country.
Explain the advantages of fulfilling users requirements using a
software package solution and discuss the implications of this
solution for process re-design at IAA.
10
Skidmore & Eva suggest the software packages may be evaluated for the following requirements.
Functional Requirements 3.1
These are the features of the software required by various functions or departments.
Non Functional Requirements 3.2
These are the features other than functional requirements. These can be ability to audit using test
data, making backups, security issues (password and encryption) and legal requirements such as
license agreements.
Technical Requirements 3.3
Checking compatibility with hardware (Processer, RAM and hard disk) and selecting of appropriate
software programming language (visual basic, Java, C++ etc).
Design Requirements 3.4
Design requirements can be user ability to user software package such as accessibility, screen tips
and help menu to assist users using the software.
Software should have an ability to customize to each user requirements without any technical
assistance.
Supplier Stability Requirements 3.5
It is supplier financial position in term of profitability, liquidity and gearing ratios.
Suppliers should be expected to continue till foreseeable future to continue to receiving updates
and technical assistance.
In addition following factors may be considered for ensuring supplier stability.
Size, location and date established of supplier.
Quality control procedures and certification such as ISO certificate.
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Insurance protection obtained against major risks such as ability to reimburse customer claims.
Ability to provide 24/7 service quickly and easily. It may be the user of website knowledgebase or
facility to send inquiry tickets from the website.
Supplier Reputation 3.6
Supplier corporate social responsibility and environment policies and procedures may be
considered as an indication of suppliers reputation.
Initial implementation requirements
Data Migration & File Creation 3.7
Data needs to be transferred from old software to new software. It may involve the use of file
format conversion software to convert existing data into new file format. For this, conversion
software may need to be available; supplier should be able to reliably transfer data to new
software.
Some data may need to be manually input this will require more time and cost. It will also involve
the risk of human error.
Software Installation 3.8
Suppliers should be able to provide complete installation of software and any hardware necessary
to make software compatible with existing system. It is beneficial in the event of dispute so that
only supplier can be held completely responsible for any failures.
Software installation may include running setup, testing and troubleshooting.
Software should be easy to install if subsequently reinstallation is required.
System Implementation 3.9
It is the decision on how new software will be actually put to use in organization.
Software can be implemented all at once. This is cost saving but risky strategy as any errors and
data corruption will affect the whole data.
Both existing and new software can be run side by side. This is costly but less risky strategy as
employees can carry out their work on old software and can see how it looks on new software.
Employees can be trained to get used too with new software. Thus it will reduce the chances of
mistakes while using new software.
New software can be implemented branch wise. New software will be implemented in single
branch and in the light of results obtained it will subsequently be implemented in other branches.
This will limit the risk of error and data corruption to single branch data only.
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Software can be implemented for module wise. Only single module (sales, purchase, finance etc)
new software will be implemented and in the light of results obtained other modules will be
implemented. This will limit the risk of error and data corruption to single module only.
Also various combinations of the above implementation procedures can be used.
User Training 3.10
Users may need training depending on the software chosen. Software should be considered for
ease and cost of training.
Following question can be asked:
Knowledge and experience of users?
Theoretical or practical training to be provided?
In-house training or external tuition provider?
Number of users to be trained?
Operability Requirements 3.11
Documentation of the software should be complete, clear and structured to enable users to get
help when required.
Customer support and after sales service to help users get assistance.
Method, timing, number and cost of subsequent upgrades.
Legal protection such as documentation stating legal owner of the software or leasing terms and
conditions.
Time and cost constraints
The amount of time by which new software is required and the cost budget for the new software.
All the above requirements can vary in importance. Organization should provide weighting to each
factor when choosing between software.
Example:
Organization can provide time and cost constraints 10 points while provide supplier reputation 2
points.
Software scoring higher should be selected.
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4 Selecting Software Package Solution
Past paper Q.no Requirement Marks
06/09 Q3:b
Examine FOUR ways in which OneEnergy failed to follow a
proper evaluation procedure in the selection of the RitePay
software package. Include in your examination a discussion of
the implication of each failing.
12
12/08 Q3:a
The project plan shows a number of planned activities. Explain
how each of the following three activities contribute to the
testing and quality of the software for CaetInsure:
(i) System testing;
(ii) Acceptance testing;
(iii) Data migration.
9
Skidmore and Eva suggest the following procedure for purchasing software.
Obtaining Tenders 4.1
Organization invites suppliers to bid for supplying software.
Mode of inviting tenders can be newspaper, website, courier etc. Selection of appropriate mode of
inviting tender is necessary for attracting required quality and number of suppliers.
Organization can charge nominal fee to discourage substandard suppliers.
Tender documents can include following details
Date, time and location to submit tender documents.
Tender fees.
Portfolio of suppliers works. It is also called reference sites.
Guarantee required from suppliers such as bank guarantee. It is to protect organization from
breach of contract by supplier.
Types of format necessary to bid for tender such as tabular or narrative. It is to facilitate
comparison or allowing supplier to express their strong points respectively.
Expectations from suppliers for fulfilling above ten requirements. Those will cannot fulfil
expectations can be deterred.
Organizations procedure for screening suppliers. It is to create perception of fairness for selecting
among suppliers.
Personnel to contact for inquiries.
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First Pass Selection 4.2
The purpose of first pass selection is to eliminate obviously unwanted suppliers. It may involve the
use of above ten requirements for objective assessment. Weighting is provided to each
requirement. Narrative statement needs to be made comparable by using formula, ranking
systems
Example:
Software having best operability features may be given 8 out of 10.
Software having good operability feature may be given 5 out of 10.
Where 10 is the standard weight for operability requirement.
Second Pass Selection 4.3
Second pass selection is the subjective assessment of suppliers claims after initial short listing.
It is done by practically using trial software and observing while software is being used by users
and identifying difficulties associated with each software.
Users can be required to provide their view and scoring regarding each software.
Organizations can refer to reference sites. Reference sites are the previous customers of the
suppliers. Care should be taken when concluding based on reference sites as suppliers may only
give reference of happy customers.
Implementation 4.4
See implementation requirements above.
Managing the Long-Term Relationship 4.5
Buying a software results in immediate cash outflow but the benefits from software is expected
over the years. To maximize the benefits from software, suppliers should be followed up and
maintained goods relationship.
Evaluating suppliers financial position, legal compliance and reputation at frequent intervals.
Making a backup or contingency plan to shift to different supplier in the event of suppliers failure.
Making suppliers legally bound to provide services to specified period or mentioning penalty
clause in the contract.


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PROJECT MANAGEMENT
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