01. THE NATURE OF BUSINESS VALUE

a. Societal value

QUESTION

Explain how a company might add to its perceived value among the society in which it operates.

ANSWER

You may think of a different answer, but a company may seek to improve both its reputation with society and also add to employee value by creating a workplace environment that is free from pollution and safe to work in. One global company producing soaps and detergents is working in countries in Asia and Africa to develop the use of soaps that improve health and also use less water, where water is a scarce and valuable commodity.

b. Buying department

QUESTION

Explain how a buying department provides support to the primary activities in the value chain and how else the department might add value.

ANSWER

The buying department should ensure that the raw materials needed for operations are available, to the correct specification and quality standard, when they are needed. The department may also add value by negotiating lower prices for materials from suppliers. It may also add value by saving costs in the stores department, by avoiding overbuying and excessive inventory levels.

c. Restaurant value chain

QUESTION

Explain how the value chain for a restaurant might differ from the value chain for a manufacturing company. How might the owner and manager of a restaurant seek to add value for the business?

ANSWER

Unlike a manufacturing company, a restaurant will hold only small amounts of food. Its 'inward logistics' activities will therefore be limited. Unless it delivers 'take-away' food to customers' premises, it will have no outward logistics activities at all. A restaurant is a small business, and its firm infrastructure and technology infrastructure will also be limited in scope.

A restaurant manager may try to add value in any of the following ways:

• Buy food products from its suppliers at lower prices Improve the decoration and atmosphere in the restaurant, and improve the quality of service, so

that customers enjoy their meals and are more likely to return in the future• Increase the range of dishes served, in order to attract more customers• Offer reduced prices on certain days of the week when business is quiet, in order to attract more

customers• Open a new restaurant, in a different part of the town or in another town, in order to sell more

meals

• Improve the quality of the food produced, and so have an opportunity to raise prices

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• Eliminate items from the menu that are creating negative value – where sales of the menu item are less than the costs of having the item on the menu

The value chain is a useful model because it helps management to see the business as a whole, and to:

• Compare value activities with those of its competitors• Identify potential sources of creating competitive advantage by improving aspects of the value

chain

– Find new or better ways to do activities– Combine value activities in better ways– Improve the linkages between activities in the value chain

d. Value chain

QUESTION

Explain the meaning of the value chain and how an understanding of the value chain can be helpful for management.

ANSWER

A value chain refers to interconnected activities within an organisation that create value. Porter suggested that activities within an organisation can be analysed into different categories.

• Value can be created by any of these activities.• Management should analyse these value-creating activities, and identify where the organisation is

most effective at creating value, and where it is least effective.• Management can identify which activities give them a competitive advantage over rivals.

By analysing value-creating activities, decisions can be made about:

• How the creation of value can be improved and more value created• How to improve competitive advantage over rivals• Whether some activities should be stopped because they cost more than the value they create, and

so destroy value

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CASE STUDY

The power of stakeholders

Nike, producer of sports goods and sportswear, has been accused of using subcontractors who employ people in countries such as Pakistan, Indonesia and Bangladesh for very low rates of pay and in poor working conditions. The accusations were first publicised in the early 1990s. In 2011 it was reported that sub-contractors of Nike used child labour for making footballs in Pakistan and running shoes in Indonesia. Eventually, the general public in the US and Europe reacted to the adverse publicity created by these reports, and people were encouraged to avoid buying Nike products. The influence of the general public had spread to customers. Nike responded by insisting that its suppliers in Asia should provide minimum standards of working conditions for their employees. Public pressure and customer pressure persuaded the management of Nike to act to improve their supply chain.

e. Resources

QUESTION

State some examples of a rare resource that can provide competitive advantage.

ANSWER

• Ownership of extraction rights to a deposit of a scarce and valuable mineral• A worldwide patent giving rights to a valuable product or process

PROGRESS TEST

1. The main objective of a commercial company is often seen as the objective of maximising _________________ value.

2. Value = __________________ minus _________________________.

3. Return = added value minus _______________________________.

4. The provision of training to employees is one way in which the _____________________ function can add value for a business organization.

5. A retailing company has a database of the buying preferences and buying habits of a very large number of customers. Rival retailing companies do not have databases that are as large or as sophisticated. This database is an example of:A. A threshold resourceB. A unique resourceC. A threshold competenceD. A core competence

6. In Mendelow's stakeholder map, in which part of the matrix would you put a small supplier that sells a large part of its output to a company but the goods that it sells are easily obtainable from other suppliers if necessary?A. Low interest, low powerB. High interest, high powerC. Low interest, high powerD. High interest, low power

7. According to Porter, when a company uses a valuable resource to create a competitive advantage, it has a ____________________________ that rival companies do not have.

ANSWERS TO

1. Shareholder

2. Revenue from sale of products and services minus cost of bought-in materials

3. Cost of activities (costs excluding bought-in materials)

4. Human resource management

5. The answer is B. The database is a unique resource (which competitors may be able to copy in time). To create a core competence, the company needs to put the database to effective use.

6. The answer is D. The supplier has a strong interest in what its major customer does, but has little influence over the customer's decisions, because it does not supply a critically important product. The company's management should try to keep the supplier informed about its decisions that have relevance to the supplier.

7. Core competence

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02. ROLE OF SUPPLY CHAIN IN VALUE CREATION (SUPPLY CHAIN MANAGEMENT)

a. Quality improvement

QUESTION

Explain how the handling of customer orders can help to improve the quality of the dispatch service to customers, so as to provide value to customers.

ANSWER

Customer orders should be handled with speed and accuracy. Value can be provided for customers by making a promise about despatch: for example, all orders received by midday will be despatched the same day for delivery the following day. (Another possible answer is the use of containers for shipping goods. Containers can be packed at a warehouse, and then easily loaded on to vehicles for dispatch and unloaded at the customer's premises.)

b. Drones

QUESTION

Some major companies are experimenting with the use of drones (robot vehicles) for inland delivery of goods to customers. Explain the potential competitive advantages to be obtained from the use of drones.

ANSWER

• Using drones for delivery may eventually be cheaper than traditional delivery methods, because humans are not involved, so there is no labour cost.

• Customers may get value from quicker delivery, as drones can operate at any time of the day and any time of the week.

• For some customers, at least initially, there may be status value in having items delivered by robot.

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CASE STUDY

Amazon

Amazon's business was based on an ability to respond quickly to online purchases by customers. The company was a reliable source of supply for goods that customers wanted to buy, and it was able to deliver goods to the customers address within a short time, often the next day. For a while, this created a competitive advantage, because other sellers of goods either did not sell online or could not respond to orders as quickly. Over time, however, this competitive advantage has been eroded. More companies sell their products online and deliver goods quickly. Some companies allow customers to check online the progress of their order and delivery. However, Amazon has retained competitive advantage for the online sales of many items because of the relationship that has developed with customers over time. Customers trust Amazon to deliver. The original core competence may have eroded as competitors improved their supply chain, but the core competence has transformed into a unique resource – trust.

c. Performance measurement

QUESTION Using the balanced scorecard model, state one performance measurement or target for each of the four perspectives, for application to supply chain management performance.

ANSWER

Here are some suggestions:

(1) Financial perspective. Set a target for a reduction in warehouse management operating costs.(2) Customer perspective. Set a target for the number of new customers placing orders through an e-

procurement method.(3) Business operations perspective. Set a target for reducing the maximum time between receiving

an order and delivering goods to the customer.(4) Learning and innovation perspective. Set a time target for the implementation of a new

warehouse management system.

Suitable performance measurements will vary according to the nature of the business and its operations.

PROGRESS TEST

1. Minimising inventory levels may be inconsistent with which of the following:A. Reliability of supplyB. High financial returnsC. Physical security of inventoryD. Inventory control

2. Using RFID to tag individual manufactured items for tracking purposes is not common practice. This is because RFID tagging of individual items is not usually _________________________ .

3. A shorter supply lead time for deliveries of material from suppliers can add value because it:A. Improves the reliability of supplyB. Reduces the amount of inventory requiredC. Speeds up processing of customer ordersD. Reduces the cost of materials purchased

4. A manufacturing company weaves cotton into cloth that is used to make clothing. Identify two organisations that are 'upstream' in the supply chain to this company and two organisations that are 'downstream'.

5. A company is able to create a monopoly for production of an electronic device by obtaining a five-year patent. In terms of competitive business strategy, the patent is a ____________________ (unique resource; core competence), providing competitive advantage. However this competitive advantage is not ___________________________ .

ANSWERS TO

1. The answer is A. When inventory levels are kept low, there will be some risk of 'stock-outs' – not having items of inventory available when required.

2. Cost-effective/worth the cost (or similar wording)3. The answer is B.

With shorter supply lead times, there is less requirement to hold inventory.4. Upstream. A cotton grower; a business that spins cotton, ready for weaving.

Downstream. A company that dyes (colours) cotton cloth; a clothing manufacturer; a distributor of clothing products; a retailer of clothing products.

5. In terms of competitive business strategy, the patent is a unique resource, providing competitive advantage. However this competitive advantage is not sustainable (or long-lasting, or permanent). It has a life of just five years.

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03. CREATING VALUE THROUGH OPERATIONS

a. Competitive advantage

QUESTION

Explain how a company with a 'follower' strategy for innovation can succeed in acquiring a competitive advantage from this strategy.

ANSWER

It must be able to develop a core competence at:

• Recognising new products that other companies are bringing to the market• Recognising the commercial/profit potential of these products• Identifying ways of bringing a similar product to the market, but offering more value to customers• Designing and developing selected new products, and bringing them to market quickly

b. Lean manufacturing

QUESTION

Explain why lean manufacturing is associated with just-in-time production methods.

ANSWER

Lean production is based on a 'pull' system, whereby items are only produced when there is demand from a customer. A 'pull' system differs from a 'push' system in that the organisation tries to avoid holding inventories, which customers may never want to buy. Holding zero inventories and producing to meet demand as it arises is a feature of both lean manufacturing and just-in-time production.

c. Kaizen

QUESTION

Explain the implications of continuous improvement or kaizen for change management.

ANSWER

Major changes are more difficult to implement than small changes, because major changes affect many people within the organisation, often significantly. Small changes do not disrupt operation and can be introduced easily and with little or no resistance from employees, who have probably been involved in recommending the change anyway. Kaizen therefore creates far fewer problems for change, while still achieving improvements in processes.

d. Tidiness

QUESTION

Explain why it is considered important to keep the workplace clean and tidy.

ANSWER

When employees work in a dirty and untidy environment, it is much more likely that items of work or tools will be lost or damaged, or that work will also be done in an untidy fashion.

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e. Project management

QUESTIONA project to automate a production process is running into difficulty, because it is nearing its required completion date and the project team has not yet found a way of automating the final part of the process.Discuss what the project manager might do to deal with this problem.

ANSWER

Some possible ways forward are:• To ask the project committee for more time to complete the project, and an additional spending

allowance to pay for the overrun on time.• To ask the project committee to agree that the final part of the production process need not be

automated.• To look for an expert outside the project team who may be able to suggest a solution to the process

design problem.

PROGRESS TEST

1. Statistical measurements are an essential feature of the Six Sigma method of quality management. True or false?

2. Give three examples of a project that may require project management.

3. Kanban is a method used in total quality management to ensure that items are not produced in one stage of production until they are needed for the next stage of production, in order to minimise inventory levels. Kanban is therefore an example of a _______________ system of manufacturing.

4. The main concern of the kaizen approach in a programme of total quality management is best described as:A. Getting things right first timeB. Achieving continuous small improvementsC. Keeping the workplace cleanD. Eliminating waste

ANSWERS TO

1. True. The basic principle is that no more than 3.4 units in one million should fall outside the accepted tolerance range for production.

2. Here are four examples:• Producing a new product, service or object• Changing the structure of an organisation• Developing or modifying a new information system• Implementing a new business procedure or process

3. Pull

4. The answer is B.

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04. VALUE CREATION THROUGH MARKETING

a. Segmentation

QUESTION

Discuss how the market for motor cars might be segmented.

ANSWER

The market for motor cars can be segmented in a variety of different ways. It can be segmented according to the type of car. People often buy a type of car for a specific purpose

• Saloon car, hatchback, sports car, 4×4 car, people carrier• Diesel or petrol-powered• Engine size• Price: luxury cars, middle-price, cheaper price cars

It can be segmented according to the target customer

• Commercial buyers, wealthy individual buyers, middle income individual buyers• Age (young, middle aged, older)

These are possible methods of segmentation. There will no doubt be others.

b. Segmentation strategy

QUESTION A firm of accountants is considering how to develop its businesses and whether to focus on a particular segment of the client market. Discuss ways in which the market may be segmented, for the purpose of developing a strategy for the business.

ANSWER

c. Strategic positioning

QUESTION Discuss what issues should be considered by a company that operates a chain of hotels in making its strategic decisions about the positioning of its hotels in the hotels market.

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Possible basis for segmentationType of client Business customer, private individualsSize of client Large, small, medium-size business clientsGeographical focus Focus on customers located in the regionServices required Tax, book-keeping etcOccupation of client (private clients) For example, specialisation in services to dentistsor

doctorsReligion For example, specialising in banking requirements

for certain religions

ANSWER

The company should first identify segments of the market and select the segments of the market that it intends to target. It may decide that its hotels will be located in particular countries or regions, and that the hotel group should not be 'global'. Within its selected geographical markets, it should identify different market segments: these may include the market for business guests or the market for tourists; the market for short-stay guests or long-term guests. The company may decide that it wants to attract customers in one or more of the identified segments. For each targeted market segment, it should analyse the position of rival hotel companies in the market segment. These may be positioned in the market according to the number of stars awarded to the hotels (three-star, four-star, fivestar) or the size of the hotel. Hotels may also be positioned in the market according to where they are located within the area – a city centre location or a location closer to tourist attractions. The price of rooms will also be a factor in positioning. Another aspect of positioning may be whether hotels offer conference facilities to businesses; or the quality of food and service provided by the hotel restaurant. Having considered different potential ways of differentiating the company's hotels, management should decide how the company's hotels should be positioned and how its hotels will appeal to the targeted market segment more successfully than other hotel companies.

PROGRESS TEST

1. Match the following products with the category of consumer productProduct Category of consumer goods

A. Rolex watch 1. Shopping goodsB. Jars of instant coffee 2. Specialty goodsC. Kitchen equipment 3. Convenience goods

2. Fill in the missing word:____________________ is the process of breaking down large target markets into smaller, sub markets of consumers with common needs or interests.

3. Fill in the missing words:The most important concept in STP marketing is to have all three stages mesh together to form one fluid plan. Segmentation leads to the right ___________ markets, which leads to the right _______________ strategy.

4. A Sri Lankan company in the apparel industry sells nearly all its output (items of clothing) to major retailers in the US and Europe, which sell the items under their own retailer brand name. Which of the following best describes the type of market in which this company operates?A. Specialty goodsB. B2CC. ExportD. Geographical

5. A policy of charging high prices for new products when they are first introduced to the market is known as a price _______________________ policy.

6. Associate each of the following aspects of marketing consumer goods with one of the 4 Ps of the marketing mix.

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ANSWERS TO

1. A and 2; B and 3; C and 1

2. Segmentation

3. Target; positioning

4. The answer is C. The company's customers are retailers, so it is a B2B market. Although customers are abroad, it is not a geographical market. The company operates in an export market. Clothing products are shopping items (or possibly convenience goods): they are only specialty goods if they are high fashion items: this does not seem to be the case here.

5. Skimming

6.

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Aspect of marketing Product, price, place or promotion?

A two-for-the-price-of-one offer for a tinned food item in a supermarketAvailable to purchase onlinePackaging for the productThree-year guaranteeMade from 21-carat gold

Aspect of marketing Product, price, place or promotion?A two-for-the-price-of-one offer for a tinned food item in a supermarket

Promotion(A short-term offer, so more apromotion than a price strategy)

Available to purchase online PlacePackaging for the product Either product or promotion, or bothThree-year guarantee ProductMade from 21-carat gold Product

05. VALUE CREATION THROUGH MARKETING

a. Life cycle

QUESTION

Discuss how accountants might provide assistance with marketing decisions during the life cycle of a product.

ANSWER

Accountants can provide information about the expected effect on the organisation's financial position of a change in marketing policy or a change in the marketing mix. Accountants can provide estimates of the likely effect of pricing decisions on sales revenue, profits, cash flows and also the need for additional capital investment. When a new product is introduced to the market, estimates of sales, profits and cash flows by an accountant could help management to decide on the initial pricing for the product, and whether a penetration or skimming policy might be preferable to price the product. As a product goes into its growth and then maturity stages, accountants can provide estimates about the likely effect on sales, profits and cash flows of price changes. Accountants should also be able to provide information eventually to assist with decisions about whether, and when, to stop producing a product as it nears the end of its expected life cycle.

b. Stars and question marks

QUESTION A company has used the BCG matrix to assess its product portfolio, and has identified the fact that most of its products are either stars or question marks.Explain the possible implication for the company of this discovery.

ANSWER

Stars and question marks do not provide a positive cash flow and many are not yet profitable. They also need further investment. The main implication of having a large proportion of stars and question marks in the product portfolio is that the company will need a large amount of cash to support it. It may also have one or two cash cows capable of providing the cash required. If not, the company will have to consider either raising new finance to develop its products or to reduce the size of its portfolio, probably by ceasing to develop products that it has identified as dogs and also some products that it has identified as question marks.

c. Customer v consumer

QUESTION

State who might be the differing customer and consumer for:(a). A laptop computer(b). A bicycle

ANSWER

A laptop computer may be purchased by the buying department of a company (the customer) for use by a manager in the company (the consumer). Parents (the customer) may buy a bicycle for use by their child (the consumer). The buying decisions of a customer may be influenced by what they consider to be the needs of the intended consumer, but the consumer's influence on a buying decision may be limited.

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CASE STUDY

Using a CRM database and software

The Ritz-Carlton Hotel Company makes a point of observing the choices that guests make, and recording them in a database. If a guest requests extra pillows, then extra pillows will be provided every time that person visits a Ritz-Carlton hotel anywhere in the world.

PROGRESS TEST

1. During which stage of a product's life cycle should a company expect a successful product to change from being loss-making to profit-making?A. IntroductionB. GrowthC. ShakeoutD. Maturity

2. A company presenting a major entertainment event, for which ticket prices are high, decides to produce and sell expensive programmes for the event to sell to customers. Management believe that the programmes will enhance the sense of value that customers get from the event. Which aspect of the 7 Ps of the service marketing mix is addressed by the sale of the programmes?

3. A company builds a customer database of its customers (consumers) and sends them regular emails containing information about its products and sale offers. This form of marketing is known as ______________________ ________________________ .

4. In the BCG matrix, a product with low market growth but which has a large share of the market is known as a:A. Cash cowB. DogC. Question markD. Star

5. Customer relationship management (CRM) is most likely to be effective when:A. Profitability is lowB. The company has a large number of customersC. The pace of technological change is slowD. Customer loyalty is strong

ANSWERS TO

1. The answer is B. Growth. The product should start to become cash-positive at the end of the growth stage and the beginning of the shakeout phase (or the beginning of the maturity phase, if a shakeout phase is not recognised). The product should become profitable during the growth phase, but cash flow remains negative due to high marketing costs and continued capital investment.

2. Physical evidence

3. Targeted marketing

4. The answer is A. Cash cow

5. The answer is D. The main purpose of CRM is to retain existing customers. When customer loyalty is strong, CRM can be most effective. When customer loyalty is weak, and customers are prepared to buy from any supplier (for example, buy at the lowest price), CRM will be less effective.

06. PEOPLE ASPECTS OF VALUE CREATION

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CASE STUDY

Using a CRM database and software

The Ritz-Carlton Hotel Company makes a point of observing the choices that guests make, and recording them in a database. If a guest requests extra pillows, then extra pillows will be provided every time that person visits a Ritz-Carlton hotel anywhere in the world.

a. Planning

QUESTION

A company's HR managers are planning the requirements for qualified accountants in the finance and accounting department in the next five years.Discuss what factors will need to be considered when making this plan.

ANSWER

A forecast should be made of the number of trained accountants who will be required in each year for the next five years. This forecast should allow for expected changes in the business, such as plans for business growth and expansion.The forecasts should also estimate requirements for accountants in different areas of the business, such as financial records and financial reporting, management accounting, treasury activities, business planning, taxation and so on. A forecast should be prepared of the expected numbers of accountants who will be employed with experience in each area, allowing for resignations and retirements.This forecast may also include estimates for student accountants employed by the business who will be expected to become qualified.The difference between numbers required and numbers available should be identified as a recruitment gap, and plans should be made to fill gaps by promotion, transfers and external recruitment. Plans for re-training staff transferred between accounting and finance functions should also be drafted.The HR plan should be reviewed regularly, at least annually, and updated.

b. PRP

QUESTION Discuss why PRP might fail to motivate employees.

ANSWER

(a) The rewards from PRP are often too small to motivate effectively. Anyhow, some employees may not expect to receive the rewards and hence will not put in the extra effort.

(b) It is often unfair, especially in jobs where success is determined by uncontrollable factors.

(c) If people are rewarded individually, they may be less willing to work as a team.

(d) People may concentrate on short-term performance indicators rather than on longer-term goals such as innovation or quality. In other words, people put all their energy into hitting the target rather than doing their job better.

(e) PRP schemes have to be well designed to ensure performance is measured properly, people consider them to be fair and there is consent to the scheme.

PROGRESS TEST

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1. The systematic attraction, identification, development, engagement, retention and deployment of those individuals who are of particular value to an organisation is known as ______________________ ______________________ .

2. Which one of the following aspects of job design is most likely to be motivating for employees?A. Job enlargementB. Job enrichmentC. Job rotation

3. If a company wants to encourage team building and team effort, which one of the following methods of reward is most likely to be effective in creating a motivated work force?A. Benefits in kindB. Increase in basic salaryC. Profit-related annual bonusD. Share options

4. In Herzberg's two-factor theory of motivation, which of the following can be both a hygiene factor and a motivator factor?A. Job securityB. Management styleC. PayD. Working conditions

5. Which of the following may be used as a first screening process in a selection process?1. Application form2. Tests3. Informal interviews4. Formal interviews

A. 1, 2 and 3B. 1, 2 and 4C. 1, 3 and 4D. 2, 3 and 4

6. A form of performance appraisal in which opinions about an individual are obtained from the individual's manager, selected subordinates, colleagues and other individuals who deal with the person, and presented to the individual, is known as a ___________________________ .

ANSWERS TO

1. Talent management

2. The answer is B. Job enrichment

3. The answer is C. Profit-related annual bonuses, probably paid as a percentage of basic salary. To maintain a strong work team and team ethic, a group reward scheme should be more effective as a motivator than reward schemes for individuals.

4. The answer is C. Pay

5. The answer is A. The application form and online tests can be used to eliminate some applicants, to reduce the numbers who are invited to interview. In some cases, for example the appointment of a person to a very senior position in a company, a firm of 'head hunters' may interview potential candidates informally before recommending them for interview by the company.

6. 360 degree appraisal

07. PEOPLE ASPECTS OF VALUE CREATION

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a. Training systems

QUESTION

State what is likely to be the greatest difficulty in establishing a system for measuring the return on investment in training.

ANSWER

Measuring the benefits for the organisation from a training programme. It will be difficult to obtain measurements of benefits that are reliable and 'believable'.

b. Tacit knowledge

QUESTION Explain why it might be difficult to collect the tacit knowledge of experienced individuals within an organisation.

ANSWER

Individuals may think that their value to the organisation consists largely of the unique knowledge and experience they have acquired during their career. They may be concerned that by sharing this knowledge, their value to the organization will fall.

c. Change

QUESTION

State two examples of major change in a business organisation.

ANSWER

A company may negotiate the takeover of another company. Employees in the company taken over will face restructuring of their organisation, possible relocation and possible redundancy. They will also become part of a larger company with a different culture.A company may introduce a major change to its business processes. (This is called business process re-engineering or BPR.) To implement the change, jobs may have to be restructured and employees may have to work in different ways and with different people. Their existing skills may become out of date, and they may need to learn new skills.There are many other examples that you could think of for an answer.

PROGRESS TEST

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1. The purpose of measuring return on investment in training is to assess whether:A. The costs of the training are reasonableB. Employees benefit from the trainingC. The head of the HR department should receive an annual bonusD. The training provides value for the money spent

2. Analysing a database in different ways in order to identify and extract knowledge that has so far been undiscovered is known as _______________ __________________ .

3. According to Johnson and Scholes, how many inter-related elements make up the cultural web?

4. Put the following five stages of grief in the order in which they most often occur.1. Bargaining2. Acceptance3. Denial4. Depression5. Anger

5. According to Lewin, in order to initiate a major change within an organisation, it may be necessary to __________________ the driving forces for change.

6. An approach to leadership theory that states that the most effective leadership style depends on a combination of factors, including leadership style, the work situation and the skills of employees, is known as:

A. Action-centred leadershipB. The managerial gridC. Situational theoryD. Style theory

ANSWERS TO

1. The answer is D. ROI measurements are concerned with both the benefits and the costs (investment), and from the perspective of the organisation rather than individual employees.

2. Data mining

3. The answer is 6. Together these make up the 'paradigm'.

4. Denial, anger, bargaining, depression, acceptance

5. Strengthen. It may also be necessary to weaken the restraining forces.

6. The answer is C. Situational theory. This term was first used by Hersey and Blanchard, although it applies to similar theories, such as Fiedler's contingency theory of leadership.

08. VALUE CREATION THROUGH TECHNOLOGY AND INNOVATION

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a. Business model

QUESTION A small software company has developed a software application that customers can download on to their computer, tablet or smartphone, but it is aware that customers will expect to obtain this 'app' without having to pay for it.Identify what business model is likely to be the most appropriate for the company if it wishes to make a profit from its software application.

ANSWER

If customers will not pay, someone else must. An advertising model is likely to be the one that is most likely to make the software application commercially viable.An alternative approach would be to persuade manufacturers of computers, tablets and smartphones to pay the company to make the 'app' available on their products.

PROGRESS TEST

1. Which element in the value chain is enhanced by the use of an intranet or extranet?A. Firm infrastructureB. Marketing and salesC. ProcurementD. Technology development

2. The transformation of key business processes through the use of internet technologies is known as _______________________ .

3. A company that does not have a physical existence, but consists of a small group of individuals linked to each other, suppliers and customers through the internet, is known as a ______________ ______________________ .

4. Which aspect of research and development is most likely to be funded by the state (government)?A. Applied researchB. DevelopmentC. Pure research

5. E-procurement arrangements may be established between two companies, in which their two separate computer systems are able to exchange information and documentation using a common language. This is made possible by:A. EDIB. E-procurement websiteC. ExtranetD. Intranet

ANSWER

1. The answer is A. Firm infrastructure

2. E-business

3. Virtual company

4. The answer is A. Applied research. This is research at an early stage, and it is least likely to provide commercial returns for companies.

5. The answer is A. Electronic data interchange

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09. STRATEGY FOR VALUE CREATION

a. Objectives

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CASE STUDY

Mission statementsHere are mission statements of a few major global companies.

Mission statementsMcDonald's 'To be the world's best quick service restaurant experience. Being the best

means providing outstanding quality, service, cleanliness, and value, so that we make every customer in every restaurant smile.'

Google 'To organize the world's information and make it universally accessible and useful.'

Coca-Cola's website has set out its mission and vision in some detail:

'Our Roadmap starts with our mission, which is enduring. It declares our purpose as a company and sets the standard against which we weigh our actions and decisions.

• To refresh the world …• To inspire moments of optimism and happiness …• To create value and make a difference …

'Our vision serves as the framework for our Roadmap and guides every aspect of our business by describing what we need to accomplish in order to continue achieving sustainable, quality growth.

• People: Be a great place to work where people are inspired to be the best they can be

• Portfolio: Bring to the world a portfolio of quality beverage brands that anticipate and satisfy people's desires and needs

• Partners: Nurture a winning network of customers and suppliers; together we create mutual, enduring value

• Planet: Be a responsible citizen that makes a difference by helping build and support sustainable communities

• Profit: Maximise long-term return to shareholders while being mindful of our overall responsibilities

• Productivity: Be a highly effective, lean and fast-moving organization.'

QUESTION

Identify possible objectives for a marketing department within a strategic plan.

ANSWER

Goals for markets will involve the following type of decisions.

(a) Market leadership. Whether the organisation wants to be the market leader, or number two in the market, what rate of growth it desires and so on

(b) Coverage. Whether the product range needs to be expanded

(c) Market positioning. Whether there should be an objective to shift position in the market – for example, from producing low-cost for the mass market to higher-cost specialist products

(d) Product/market expansion. Whether there should be an objective of broadening the product range or extending the organisation's markets

b. Strategic gaps

QUESTION

Strategic opportunities may take the form of strategic gaps. These are potentially profitable aspects of the competitive environment that are not currently being exploited by rivals. State three examples of how strategic opportunities may arise.

ANSWER

Here are four suggestions.

(a) Potential substitutes for existing products might be created. This is largely a technology-based opportunity.

(b) It may be possible to target different strategic customers. In the case of consumer goods, for example, the growth in online selling via the internet means that producers are able to target a different types of customer – the end consumer, rather than retailers or other distributors of their products.

(c) There may be potential to market complementary products. For example, capital goods suppliers (such as car sales firms) routinely offer credit services to assist the customer to buy. Some sellers of domestic equipment such as washing machines and cookers may offer after-sales maintenance services for the capital goods item.

(d) New market segments may be identified that have commercial potential, though there may be a need to adapt the product to meet the needs of customers in the new targeted segment.

PROGRESS TEST

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1. A company has announced its intention of becoming one of the country's leading producers of tea for export. This announcement is a statement of the company's:

A. VisionB. MissionC. GoalD. Objective

2. Fill in the blanks.An objective should be:S _____________________________M _____________________________A _____________________________R _____________________________T _____________________________

3. Components of strategy where an organisation must excel in order to outperform its competitors are known as ___________________ __________________ _______________ .

4. There may be more than one key performance indicator for a critical success factor. True or false?

5. Which of the following procedures is used by an organisation to assess what resources it has and what competences it possesses?

A. Five forces analysisB. Resource analysisC. SWOT analysisD. PESTEL analysis

ANSWERS TO

1. The answer is C. Goal. The aim does not have a time frame for achievement, and it is not specific enough to be expressed as a target. It is therefore a goal rather than an objective.

2.S - SpecificM- MeasurableA- AchievableR- RelevantT- Time-related

3. Critical success factors

4. True. Every CSF should have at least one KPI.

5. The answer is B. Resource analysis. PESTEL and five forces analysis are methods of environmental analysis. SWOT analysis is an analysis of strengths and weaknesses that are evident from a resource analysis and opportunities and threats that are identified from environmental analysis.

10. STRATEGY FOR VALUE CREATION

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a. Differentiation strategy

QUESTION

A parcels and packages delivery company is based in Colombo. It collects and delivers packages for customers using in its own vehicles. There are several competitors in the market.Explain how the company might seek to differentiate its service from those of its competitors.

ANSWER

Suggested bases for differentiation are:

• Speed of collection (from time of receiving customer order)• Speed of delivery (from time of collection)• Reliability of service• Brand name recognition• Geographical coverage (for example, specialist in deliveries to China)

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CASE STUDY

Examples of blue ocean strategies

When they first wrote their book in 2005, Kim and Mauborgne identified a number of companies that, in their view, had developed successful blue ocean strategies. They included:

(a) Southwest Airlines in the US. This airline company created a market for low-cost air travel, and broke the trade-off between the speed of travel (attractive to travellers) and the low cost and convenience of travel by car. By offering frequent, reliable and low-cost air travel direct to destinations, the company created new demand from people who had not used or considered using air transport before.

(b) Dyson cleaners. This was originally a UK-based company that created new demand through innovation and the development of cyclonic vacuum cleaners.

Since 2005, further examples of blue ocean strategies may be:

(a) The digital book and e-publishing, which has replaced much paper-based printing and at the same time has created a market for new readers who did not previously purchase books or magazines.

(b) Apple's innovative products such as the iPod, iPad and smartphone, which have created new demand for digital media products.

(c) Companies providing social media sites such as Facebook and Twitter

b. Blue and red ocean strategies

QUESTION

Explain why companies find it more difficult to develop blue ocean strategies than red ocean strategies.

ANSWER

(a) Markets for red ocean strategies are established, known and understood. Blue ocean markets/industries need to be identified because they do not exist.

(b) Radical innovation may be difficult.

(c) Management have experience in developing competitive strategies for red oceans, but do not have skills or experience with methods for developing blue ocean strategies and creating demand where customers do not yet exist.

PROGRESS TEST

1. ________________________ , when used for business applications, is a method of selecting a business strategy, taking into consideration the strategy options that might be selected by competitors.

2. A company specialises in the production of lighting equipment for use in submarines and other under-sea vessels. It markets its product on the basis of being the lowest-cost producer in the market. According to Porter, the generic strategy of this company is a ___________________ strategy.

3. Which one of the following aspects of a proposed strategy should be evaluated first?A. SuitabilityB. AcceptabilityC. FeasibilityD. Any of them

4. Which elements in the 7S model are more difficult to manage and control? a. Hard b. Soft

5. How many of the strategies in the strategy clock could be appropriate for a company in a competitive market?

ANSWER

1. Game theory

2. Cost-focus

3. The answer is A. Suitability

4. Soft. (Especially shared values, which represent the 'paradigm' of the organisation's culture.)

5. Five. These are strategies 1 to 5 on the clock.

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