Acca p3 2012 Notes

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ACCA Paper P3 Business Analysis For exams in 2012

Notes

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ExPress NotesACCA P3 Business Analysis

Page | 2 © 2012 The ExP Group. Individuals may reproduce this material if it is for their own private study use only. Reproduction by any means for any other purpose is prohibited. These course materials are for educational purposes only and so are necessarily simplified and summarised. Always obtain expert advice on any specific issue. Refer to our full terms and conditions of use. No liability for damage arising from use of these notes will be accepted by the ExP Group.

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Contents

About ExPress Notes 3

1. The strategic position of an organization 7

2. The environment and competitive forces 10

3. Marketing and the value of goods and services 16

4. Internal resources and stakeholders 19

5. Strategic choice 22

6. Strategic action 29

7. Information technology 33

8. Project management 38

9. Financial analysis & people 41

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START About ExPress Notes

We are very pleased that you have downloaded a copy of our ExPress notes for this paper. We expect that you are keen to get on with the job in hand, so we will keep the introduction brief.

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WARNING! These notes are not designed to cover everything in the syllabus!

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Your stage in study for each paper

These ExPress notes

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Practice phase Work through the ExPress notes again, this time annotating to explain bits that you think are easy and be brave enough to cross out the bits that you are confident you’ll remember without reviewing them.

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Chapter 1 The Strategic Position of an Organization

START The Big Picture

This chapter provides us with a number of key definitions as well as an introduction to some of the main strategic models.

KEY KNOWLEDGEDefinitions & strategic models

Key definitions:

Strategy: Various definitions are present but a straightforward view is “Strategy is a plan of action designed to achieve a particular goal”

Strategic planning: An organisation’s process for ascertaining the strategy it should adopt, taking into account what they want to do, how they are going to do it and what resources they will need. Strategic planning covers where the organisation is planning on going, impacts on the whole organisation and involves the long term view. Note the distinction in

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what is meant by “long term” (for example the “long term” is different when comparing the airline industry with the fashion industry.)

Strategy Hierarchy:

Corporate strategy: covers the “big view” of the organisation. It answers the question “What business or businesses should we be in?

Business strategy: the strategy of a single business organisation or the strategies of strategic business units (SBUs)

Functional (or operational) strategy: the functional strategies involving items such as marketing, IT and HRM that support the business strategy.

It is important that the strategies support each other. For example, if the Business Strategy of a SBU revolves around providing high quality consultancy advice on certain areas, a functional strategy for HRM of minimising labour costs would cause problems.

Different strategic models:

1. Johnson, Scholes and Whittington (JSW): The “Rational Model” which shows the strategic planning process in 3 categories of analysis – choice – implementation.

2. Mintzberg’s Emergent strategy: Very few strategies will result in outcomes exactly as planned. Instead, strategy will “emerge” and develop over time as the strategy evolves. It will result in intended, realised and emergent strategies.

3. Lindblom’s incrementalism: Supports the view that strategy delivery should be based on small (incremental) changes over time rather than a limited number of extensive planned strategies.

4. Freewheeling opportunism: No planned strategy approach. Grab opportunities as and when they are identified.

5. JSW “strategic lenses”: design - experience - ideas

Strategic planners should look at strategy through all 3 lenses.

Corporate

Business

Functional

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Analysis

ImplementaionChoice

• Strategy is a process of “design” with logical thought out processes (in effect, a rational model).

Strategy as design

• Strategy develops based on previous experiences (in effect, an emergent strategy).

Strategy as experience

•Strategy comes from within the organisation as opposed to the senior management. Ideas are created at all levels of an organisation.

Strategy as ideas

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Chapter 2

The Environment and Competitive Forces


In order to design suitable strategic plans, an organisation needs to be aware of the external issues facing it. It cannot plan in isolation. This chapter looks at a number of methods of reviewing the environment surrounding an organisation. This area is examined on a regular basis.

KEY KNOWLEDGEPESTEL (or PEST or SLEPT) Analysis

An analysis of the external macro environment. The organisation is unlikely to be able to influence these factors but it should have an awareness of the issues.

Political - global, national and local changes and trends. Taxation policies. Relationships between certain countries.

Economic - global, regional and local issues. Exchange rates. Link to topical issues such as global recession, current interest rates for funding.

Social - changes in behaviour and expectations in society. Demographics, lifestyle.

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Technological - changes including hardware, software, e-issues, materials and services. Global communications.

Environmental – what are the environmental considerations such as recycling, pollution, attitude of the media, customers, etc.

Legal - changes and predicted changes to regional (e.g. EU) and national legislation. Regulatory bodies. Changes to employment law.

KEY KNOWLEDGEPorter’s Diamond

This is a model outlining the theory why certain industries are competitive in particular locations.

There are 4 broad factors within the diamond.

Factor conditions include physical resources, human resources and specialised resources.

Demand conditions. A country with sophisticated home buyers who “demand” quality, advanced and innovative products can create international competitiveness

Related and supporting industries can produce inputs for a company which feed into the success of the business.

Firm strategy, structure and rivalry. Competition in the home market drives innovation and quality. Protectionism can weaken a market.

Factor Conditions

Demand Conditions

Related & Supporting

Firm Strategy & Structure

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KEY KNOWLEDGEQuantitative Techniques

In addition to the qualitative methods of forecasting mentioned above, there are quantitative techniques where businesses attempt to quantify these forecasts.

Techniques include:

1. Linear regression

This can be used to make forecasts whenever a linear relationship is assumed or predicted. It models the dependence of one variable (e.g. costs) on one or more explanatory variables (e.g. output).

2. Time Series Analysis

This involves analysing historical data to make forecasts about the future. The relationship doesn’t have to be linear and can for example take account of seasonality.

KEY KNOWLEDGEPorter’s 5 Forces

This model examines the role of 5 forces close to an organisation that impact on its ability to make a profit and hence how attractive a particular market or industry is.

There are 5 forces as follows:

1. Threat of substitute products

If there are similar products, a customer will be more likely to switch rather than stay with a product when there are price rises (elastic demand).

2. Competitive rivalry

The rivalry will depend on the number and strength of competitors, economies of scale and exit barriers.

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3. Threat of new entrants

Markets generating high returns will attract new entrants which in turn could reduce industry profits. Barriers to entry such as government licenses (mobile phone operators) are important in reducing the threat of new entrants.

4. Power of customers

The stronger the power of the customer the more pressure it can place on the company. Issues to consider include the size of the customer relative to the firm’s customer base, switching costs and availability of substitute products.

5. Power of suppliers

Suppliers of materials and services can exercise power over an organisation. This depends on the level of differentiation of the product, presence of substitute products, etc. Compare the power of Intel supplying computer chips to the computer industry vs. a sugar producer supplying sugar to a soft drinks manufacturer.

Competition

Entrants

Customers

Substitute

Suppliers

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KEY KNOWLEDGEProduct life cycle

The conditions in which a product is sold change over its life.

Introduction Growth Maturity Decline

Characteristics of each stage

Introduction Growth Maturity Decline

Product

Potentially unique product. Quality still being “tested”.

New entrants arrive. Design improvements.

Products start to become similar with few differences.

Product may have minor enhancements to try to “extend the tail” of the lifecycle.

Price

Could be high for “skim pricing” or low for penetration pricing.

Price can be maintained but pressure on pricing arising due to increased competition

Possibly reduced prices due to increased competition.

Possible further reductions to stimulate sales.

Place Limited, specialist locations.

Distribution channels increase as demand rises.

Widespread distribution channels.

Reduced number of distribution channels.

Promotion Aimed at the “early adopters”.

Expands to the larger market.

Focus on any differentiating products.

Limited amount of promotion.

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Strategic groups

A strategic group comprises companies within an industry that have similar characteristics or business models. For example, the courier industry can be divided into different strategic groups such as the global courier companies (e.g. DHL, FedEx, TNT and UPS) and national courier companies based on variables such as size, geography served and strategic approach.

An analysis of strategic groups is useful as it helps to identify competitors and how they compete as well as identifying potential opportunities.

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Chapter 3

Marketing and the Value of Goods and Services


Paper P3 is not a marketing exam but you need to have an understanding of the fundamental principles behind marketing and how they impact on the strategic process.

KEY KNOWLEDGEMarket segmentation

A market segment is a group of customers that share similar characteristics and as a result have similar needs. Ideally, a market segment should have the following:

distinct from all other segments be the same within the segment identifiable and accessible

Methods of segmentation

There are numerous methods. Two of the most common ones are:

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geographical (e.g. country or region) demographic (e.g. age, gender, occupation)

KEY KNOWLEDGEMarketing mix

The 'marketing mix' is a set of controllable marketing tools that organisations can use to achieve its marketing objectives. It is commonly known as “the 4Ps”.

Product Features Size, colour, components Brand Packaging Accessories

Price Pricing strategy (e.g. penetration,

skim) Discounts (e.g. volume, payment) Payment / credit terms

Place Distribution channels Geographic coverage Warehousing and inventory levels Transportation

Promotion Selling strategy Sales promotion Advertising

The service marketing mix (extended marketing mix) refers to the 7Ps. Namely, the 4Ps model plus:

People

Customers Employees – recruitment and training Management

Processes

Methods of providing a service

Physical evidence

Linked to using a service – e.g. brochure, certificates

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KEY KNOWLEDGECritical success factors (CSF)

Within any organisation there are certain factors that will be critical to the success of that organisation. If the organisation fails to achieve the objectives associated with these particular factors the organisation will fail.

CSFs will vary from industry to industry. An example of a CSF for an online food delivery company would be prompt and accurate home delivery.

Key Performance Indicators (KPIs) measure the performance of the CSFs.

KEY KNOWLEDGEPorter’s value chain

SupportActivities

Primary Activities

Technological Development

Human Resource Management

Firm Infrastructure

Procurement

Inbo

und

Logi

stics

Oper

atio

ns

Outb

ound

Logi

stics

Mar

ketin

g &

Sales Serv

ice

Supp

ort

Prim

ary

The value chain was introduced by Porter and represents an approach to looking at the development of competitive advantage within an organisation. All organisations consist of activities which “link” together to develop the value of a business. Together these activities represent the value chain.

The value chain represents a series of activities that both create and build value. Combined they represent the total value delivered by an organisation. The “margin” in the diagram is the added value (the difference between the total value of the activities and the cost of performing them).

Primary activities: related with production. Support activities: provide the background for the effectiveness of the organisation (e.g. HRM)

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Chapter 4

Internal Resources and Stakeholder

STARTThe Big Picture

This chapter looks at how organisations utilise resources and competencies to develop competitive advantage.

KEY KNOWLEDGESWOT analysis

Strengths (internal) e.g. resources and capabilities

Weaknesses (internal) e.g. lack of certain resources or capabilities

Opportunities (external) e.g. arrival of new technology

Threats e.g. arrival of substitute product

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Acca p3 2012 Notes