ACCA APPROVED CONTENT PROVIDER ACCA Passcards Paper P3 Business Analysis Passcards for exams up to June 2015 ACP3PC14.indd 30/05/2014 10:47 (000)ACP3PC13_FP_Ricoh.qxp 5/28/2014 8:47 PM Page i Professional Paper P3 Business Analysis (000)ACP3PC13_FP_Ricoh.qxp 5/28/2014 8:47 PM First edition 2007, Eighth edition June 2014 ISBN 9781 4727 1131 e ISBN 9781 4727 1187 British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Published by BPP Learning Media Ltd, BPP House, Aldine Place, 142-144 Uxbridge Road, London W12 8AA Printed in the UK by RICOH UK Limited Unit Wells Place Merstham RH1 3LG www.bpp.com/learningmedia Your learning materials, published by BPP Learning Media Ltd, are printed on paper obtained from traceable sustainable sources Page ii All rights reserved No part of this publication may be reproduced, stored in a retrieval system or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of BPP Learning Media © BPP Learning Media Ltd 2014 (000)ACP3PC13_FP_Ricoh.qxp 5/28/2014 8:47 PM Page iii Preface Contents Welcome to BPP Learning Media’s ACCA Passcards for Professional Paper Business Analysis They focus on your exam and save you time They incorporate diagrams to kick start your memory They follow the overall structure of BPP Learning Media’s Study Texts, but BPP Learning Media’s ACCA Passcards are not just a condensed book Each card has been separately designed for clear presentation Topics are self contained and can be grasped visually ACCA Passcards are still just the right size for pockets, briefcases and bags Run through the Passcards as often as you can during your final revision period The day before the exam, try to go through the Passcards again! You will then be well on your way to passing your exams Good luck! Page iii (000)ACP3PC13_FP_Ricoh.qxp 5/28/2014 8:47 PM Page iv Preface Page Contents Page Business strategy 12 E-marketing 129 Environmental issues 13 Project management 145 Competitors and customers 17 14 Finance 161 Strategic capability 27 15 Human resource management 173 Stakeholders, ethics and culture 41 16 Strategic development 179 Strategic choices 53 Organising for success 73 Managing strategic change 89 Business process change 95 10 Improving processes 105 11 E-business 111 (001)ACP3PC13_CH01.qxp 5/28/2014 8:51 PM Page 1: Business strategy Topic List What is strategy? Levels of strategy in an organisation Elements of strategic management The importance of context The strategy lenses This chapter gives you an overview of the fundamentals of strategy and strategy formulation, and how they relate to business analysis (001)ACP3PC13_CH01.qxp What is strategy? 5/28/2014 8:51 PM Levels of strategy in an organisation Page Elements of strategic management The importance of context The strategy lenses STRATEGY: a course of action over the long term, including identifying the competences and resources required, to achieve a specific objective and fulfil stakeholder expectations Areas for decision making Strategic decisions Long term direction Complex Scope of activities Subject to uncertainty Competitive advantage Impact operational decisions Adapting activities to fit business environment Affect whole organisation Exploiting resources/competences Expectations of key stakeholders Four elements of mission Purpose and planning Values Strategy Policies and standards Lead to change GOALS: General aim OBJECTIVES: SMART and PRIME (001)ACP3PC13_CH01.qxp What is strategy? 5/28/2014 8:51 PM Levels of strategy in an organisation Page Elements of strategic management The importance of context The strategy lenses Three main levels of strategy in an organisation Corporate Overall purpose and scope, and how value will be added Prioritisation and management of stakeholder expectations Allocation of corporate resources Business How to compete successfully in particular markets Combines with corporate strategy in a small organisation In larger organisations, strategies for strategic business units must be co-ordinated with corporate strategy, and with each other Operational How the component parts of the organisation deliver the higher-level objectives Largely created and delivered by business functions such as marketing, production, finance, human resources management, and information systems Page 1: Business strategy (001)ACP3PC13_CH01.qxp 5/28/2014 What is strategy? 8:51 PM Levels of strategy in an organisation Page Elements of strategic management The importance of context The strategy lenses Johnson, Scholes and Whittington’s model of strategy Strategic position Strategic choices Environment opportunities threats complexity Capability resources and competences strengths weaknesses Stakeholder expectations purpose of strategy power/interest governance ethics Made at corporate and business levels Strategy into action How to achieve competitive advantage Scope Direction of development Method of development Structuring processes relationships Enabling management of resources Change change management Position Choice Action is not simply a linear model Need to recognise the interdependencies between position (analysis), choice and action (implementation) (001)ACP3PC13_CH01.qxp What is strategy? 5/28/2014 8:51 PM Levels of strategy in an organisation Page Elements of strategic management The importance of context The strategy lenses The context of strategy The organisational setting in which strategy is developed Possible contexts include: Small business Limited product range, markets and resources (especially financial), but significant pressure from competitors Multinational Diverse products, processes and markets, with significant resources and multiple operations The public sector Constraints on funding, commitment to service provision and the need to demonstrate value Not for profit organisation Diverse sources of funds, strong underlying values and purpose Intangible products Product information, after-sales service, brand values, staff performance (for both manufacturing and service companies) Exam focus Context is very important in the P3 exam Question scenarios will provide context for the question requirements You must always consider the context of the question and make your answer directly relevant to it Page 1: Business strategy (015)ACP3PC13_CH15.qxp 5/28/2014 Strategic leadership 9:06 PM Job design Page 174 HRM and knowledge work An overview of job design Staff development Trait theories Behavioural theories Pre-suppose that some people are inherently suited to leadership positions They have been criticised as rooted in a class-based social structure; it is widely accepted that leadership is about behaviour and can be taught Nevertheless, there is evidence that some personal traits can support leadership effectiveness Range from McGregor’s Theory X and Theory Y through the concept of a spectrum of leadership styles developed by Lewin, Likert, and Tannenbaum and Schmidt, to Blake and Mouton’s axis model Transformational theories Contrast with transactional theories (all others on this page) Transformational theories emphasise teams, change and vision to deal with rapid development in the environment Van Maurick lists expectations of modern leaders: Change organisations from within Empower others Team work and delayering Clarity of purpose and direction Visionary strategies Contingency theories Adair Effective leaders attend to task needs, group needs and individual needs Fiedler Leadership style depends on personality; effectiveness depends on situational variables Position power – authority Task structure – clear, well-defined Leader/subordinate relations Task orientated approach suitable when situation very favourable or very unfavourable – in less extreme cases, a people centred approach is more effective (015)ACP3PC13_CH15.qxp 5/28/2014 Strategic leadership 9:06 PM Job design Page 175 HRM and knowledge work An overview of job design Staff development JOB DESIGN is all about organising work – four approaches are identified Scientific Management The pursuit of productivity via efficient methods – use of 'work study' (one best way to a job); leads to deskilling, alienation and quality problems Japanese model Flexible manufacturing, with emphasis upon quality and the minimisation of waste, via multi-skilled workers Brings problems of control, so depends on social mechanisms that enchance commitment Job enrichment Making work more meaningful – importance of motivation and non-monetary rewards Makes full use of ability, provides task identity and closure, autonomony and feedback Re-engineering Business process re-engineering also affects job design when entire tasks within the process have to be altered to promote efficiency All job design must reconcile the need to exploit specialisation and the division of labour, with the need to integrate and control the fragmented activities that result Page 175 15: Human resource management (015)ACP3PC13_CH15.qxp 5/28/2014 Strategic leadership 9:06 PM Job design Page 176 HRM and knowledge work An overview of job design Staff development Approaches to job design Features Assumptions about motivation Pay – piecework Job design Scientific Management Prescribed standard methods Extreme specialisation Split of planning and doing Human relations/ job enrichment Work groups Combination Social needs Achievement, of tasks Some control over growth, responsibility planning Less extreme, with some control tasks shifted downwards Japanese style JIT, TQM, consensus, Social processes of clan lifetime employment, loyalty control Multi-skilling to achieve flexibility BPR Strong leadership from the Emphasis on market discipline Process teams Empowerment top Exploitation of IT and serving the needs of the Multidimensional jobs Abandonment of traditional customer structures and methods (015)ACP3PC13_CH15.qxp 5/28/2014 Strategic leadership 9:06 PM Job design Page 177 HRM and knowledge work An overview of job design Staff development Knowledge is a vital strategic asset and must be managed Since it primarily exists in the brains of employees, they must be managed in a way that stimulates learning and creativity The move to knowledge work From To Type of work Individual Project teams Focus Task performance Customers, problems, opportunities Skills and knowledge Narrow Specialist but with wide interest Feedback and results Rapid Slow Employee loyalty Organisation and career within it Peers, profession Contribution to success Individual support to the wider strategy A few major successes Page 177 15: Human resource management (015)ACP3PC13_CH15.qxp Strategic leadership 5/28/2014 9:06 PM Job design Page 178 HRM and knowledge work An overview of job design Staff development Human resource development (HRD) can be viewed as an investment in strategic capability, since it improves both skills and commitment Investment in people is akin to investing in any other type of asset – people become ‘human capital’ This can be either ‘top-down’ (driven by management) or ‘bottom-up’ (empowered employees recognise their own skills gaps) Competences The required outcomes expected from the performance of a task in a work role, expressed as performance standards with criteria Succession planning Succession planning provides for continuity of leadership and facilitates management development at all levels, by focusing it on objectives that support overall strategy The plan should focus on future requirements Top management should drive the plan, not the HR specialists A pool of talent and trained ability is a more useful asset than simple identification of succession candidates Assessment should be objective and not given precedence over development (016)ACP3PC13_CH16.qxp 5/28/2014 9:07 PM Page 179 16: Strategic development Topic List Realised strategy Developing intended strategies Developing emergent strategies Challenges and implications This chapter is devoted to looking at the wider processes by which strategies come into existence (016)ACP3PC13_CH16.qxp 5/28/2014 9:07 PM Realised strategy Page 180 Developing intended strategies Developing emergent strategies Challenges and implications The 'strategy as design' lens sees strategy as an essentially managerial process Understanding of the strategic position informs strategic choice: and this choice creates intention Strategy into action is about how that intention is realised A fully realised strategy can also arise in the ways illustrated by the two other strategy lenses, experience and ideas Such strategies emerge rather than being the result of any kind of complex, top down management process Also, remember that managers’ intentions may not actually be realised: this can happen for a variety of reasons, such as lack of resources, failures of forecasting, lack of control and so on Emergent strategy Realised strategy Intended strategy Unrealised strategy (016)ACP3PC13_CH16.qxp 5/28/2014 9:07 PM Formal strategic planning systems Formal strategic planning systems Strategic position Vision mission PESTEL SWOT Position audit The strategic planning approach is formal, logical, detailed and costly It is thorough because it involves a large planning staff However, it is no longer popular, largely because it is unwieldy and slow to respond to changing circumstances An important aspect of the formal approach is its comprehensiveness Even when strategy is not made in this fashion, the rational model of strategy offers a useful checklist of activities and decision areas that may be of value to strategic planners in avoiding obvious errors Strategic choice Generate options eg generic strategies, market based strategies Graduate options Strategic implementation Projects Resources Change e-business etc Page 181 Feedback control See your Study Text for a more comprehensive version of this diagram Actual performance Page 181 16: Strategic development (016)ACP3PC13_CH16.qxp 5/28/2014 9:07 PM Realised strategy Advantages Identifies risks Forces managers to think Forces decision-making Formal targets enable control Enforces organisational coherence and co-ordination Disadvantages Not proven to bring advantage May become over formal and reduce initiative Assumes internal politics not exist Assumes managers know everything Divorces planning from doing Cannot cope with shocks and discontinuities Page 182 Developing intended strategies Developing emergent strategies Challenges and implications Large scale planning departments were used in the mid 20th century to operate the formal approach More recently, other more flexible techniques have been used Workshops and project teams Can be set up at any level to consider problems Can work within overall strategic direction from above Can undertake strategic analysis Can generate new ideas and approaches Can work on strategic change Consultants Can lend authority and credibility to top management Can bring fresh approach to confused situations Can bring wide experience and knowledge Can have wide range of roles in change management May assist with strategic decisions Imposed strategy Powerful external stakeholders can constrain decisions about strategy Very obvious in public sector where government policy sets the framework for decisions (016)ACP3PC13_CH16.qxp 5/28/2014 9:07 PM Realised strategy Page 183 Developing intended strategies Developing emergent strategies Challenges and implications Emergent strategies not arise in a random way: they require extensive management Strategies may emerge through a process of logical incrementalism: ‘the deliberate development of strategy by experimentation and learning from partial commitments’ Generalised view of goals Constant environmental scanning rather than firm forecasts Combination of strong core business and experiments with options by project groups Formal and informal processes of development Page 183 Resource allocation routines Strategy can emerge from bids for funds by intermediate level managers: top management set the strategic context and choose from the options presented Political processes within the organisation can have major influence on the negotiation among internal and external interest groups These processes can influence both information flows and strategic analysis They can also lead to innovation 16: Strategic development (016)ACP3PC13_CH16.qxp 5/28/2014 9:07 PM Realised strategy Page 184 Developing intended strategies Developing emergent strategies Challenges and implications Danger! Strategy can emerge from the assumptions and practices of the paradigm This brings experience of past success to the problem However, this process can lead to strategic drift, especially if major organisational change is required Strategic drift Occurs when strategies progressively fail to address the strategic position of the organisation and performance deteriorates Johnson, Scholes and Whittington suggest that strategic drift arises because organisations prefer small adjustments to large ones (016)ACP3PC13_CH16.qxp 5/28/2014 9:07 PM Realised strategy Page 185 Developing intended strategies Developing emergent strategies Challenges and implications You need to remember that there is no single correct way to develop strategy – an effective strategy may result from the simultaneous working of several processes Strategy development is likely to vary at different times and in different contexts As part of strategic management, an organisation’s environment can be analysed in terms of complexity and change: Page 185 16: Strategic development (016)ACP3PC13_CH16.qxp 5/28/2014 9:07 PM Realised strategy Page 186 Developing intended strategies Developing emergent strategies Challenges and implications At the end of the syllabus, review the subject of strategy as a whole, and think how all the components fit together, using the relational diagram of syllabus capabilities for P3 as a guide: Strategic position (A) Business and process change (D) Strategic action (C) Strategic choices (B) Project management (F) Information technology (E) Financial analysis (G) People (H) Remember the importance of having an overall strategic perspective (position, choice, action) Remember also the need for all the components of an organisation (middle and bottom layers) to fit with, and support, that overall strategy; and finally remember that sometimes stategy can emerge from those middle and bottom layers rather than being imposed by the strategic apex (016)ACP3PC13_CH16.qxp 5/28/2014 9:07 PM Page 187 Notes (016)ACP3PC13_CH16.qxp 5/28/2014 9:07 PM Page 188 Notes [...]... Page 15 Threat from substitute products A substitute is produced by a different industry but satisfies the same needs Customers seek lower prices 2: Environmental issues (002)ACP3PC13_CH02.qxp 5/28/2014 8:53 PM Page 16 Notes (003)ACP3PC13_CH03.qxp 5/28/2014 8:53 PM Page 17 3: Competitors and customers Topic List Competition dynamics The marketing mix Customers and segmentation Understanding the customer... customers (003)ACP3PC13_CH03.qxp 5/28/2014 8:53 PM Competition dynamics Page 22 The Marketing mix Customers and segmentation Understanding the customer The industrial market Influences Quality and reliability Price Problems solved Products Credit offered Budgetary control Raw materials Capital equipment Decision Making Unit User Gatekeeper Influencer Buyer Subcomponents Supplies (003)ACP3PC13_CH03.qxp... Marketing mix (004)ACP3PC13_CH04.qxp 5/28/2014 8:55 PM Page 27 4: Strategic capability Topic List The organisation’s resources Cost efficiency Knowledge The value chain The product portfolio Benchmarking Managing strategic capability SWOT and TOWS A detailed knowledge of the frameworks and models in this chapter is very important in beginning to understand how strategic choices are made (004)ACP3PC13_CH04.qxp... forces (Porter) Cycles of competition Competitors and markets Strategic groups Market segments Critical success factors Macro-environment Industry or sector Competitors and markets The organisation (002)ACP3PC13_CH02.qxp 5/28/2014 The organisation in its environment 8:53 PM The macro environment Page 9 The competitive advantage of nations The environment in the future Competitive forces The PESTEL framework... planning activities of many businesses Page 9 Fiscal policy (taxes, borrowing, spending) Monetary policy (interest rates, exchange rates) Size and scope of the public sector 2: Environmental issues (002)ACP3PC13_CH02.qxp 5/28/2014 The organisation in its environment 8:53 PM The macro environment Page 10 The competitive advantage of nations The environment in the future Competitive forces Social factors... sales and finance New organisation structures to exploit technology New media for communication with customers and within the business (eg Internet and email); facilitates business becoming global (002)ACP3PC13_CH02.qxp 5/28/2014 8:53 PM Page 11 Environmental protection Pressure coming from many quarters: Green pressure groups Employees Corporate Social Responsibility Legislation Environmental risk screening... to develop new environmentally friendly products and technologies Sustainability of operations Businesses may be charged for the external cost of their activities Page 11 2: Environmental issues (002)ACP3PC13_CH02.qxp 5/28/2014 The organisation in its environment 8:53 PM The macro environment Page 12 The competitive advantage of nations The environment in the future Competitive forces Four aspects of... competition The existence of global competitors and global customers in an industry encourages firms which currently only trade in one country to expand to be able to compete more effectively (002)ACP3PC13_CH02.qxp 5/28/2014 The organisation in its environment 8:53 PM The macro environment Page 13 The competitive advantage of nations The environment in the future Competitive forces Porter identifies... support Strong home suppliers make the industry more robust Rivalry creates supplier specialisations Clusters of related industries derive strength from their links Page 13 2: Environmental issues (002)ACP3PC13_CH02.qxp 5/28/2014 The organisation in its environment 8:53 PM The macro environment Forecasting Sound knowledge of the environment requires some element of forecasting The past is not necessarily... in a viable framework 3 Produce 7-9 mini-scenarios 4 Group mini-scenarios into 2-3 comprehensive scenarios 5 Write up the scenarios 6 Identify issues arising, and what they mean to the business (002)ACP3PC13_CH02.qxp 5/28/2014 The organisation in its environment 8:53 PM The macro environment Page 15 The competitive advantage of nations The environment in the future Competitive forces Porter says that ... written permission of BPP Learning Media © BPP Learning Media Ltd 2014 (000)ACP3PC13_FP_Ricoh.qxp 5/28/2014 8:47 PM Page iii Preface Contents Welcome to BPP Learning Media’s ACCA Passcards for Professional... to kick start your memory They follow the overall structure of BPP Learning Media’s Study Texts, but BPP Learning Media’s ACCA Passcards are not just a condensed book Each card has been separately...(000)ACP3PC13_FP_Ricoh.qxp 5/28/2014 8:47 PM Page i Professional Paper P3 Business Analysis (000)ACP3PC13_FP_Ricoh.qxp 5/28/2014 8:47 PM First edition