ICAEW Business Strategy and Technology

For 2023 exams

Table of Contents

Strategies and Business ............................................................................................................................... 2

The Purpose of a Business ......................................................................................................................... 4
The Macro Environment ............................................................................................................................. 7
Industry and Market Environment.................................................................................................... 11
Strategic Capability ..................................................................................................................................... 16
Strategic Options........................................................................................................................................... 24
Strategies for Products and Markets ................................................................................................ 31
Strategy and Structure .............................................................................................................................. 43
Risk Management ......................................................................................................................................... 49
Statistical Tools ............................................................................................................................................51
Methods of Development......................................................................................................................... 60
Evaluation of Strategy and Performance Measurement ...................................................... 65
Business Planning and Functional Strategies ............................................................................. 82
Strategies for Information ...................................................................................................................... 91
Digital Strategies..........................................................................................................................................95
Strategies for Change .............................................................................................................................. 110
Corporate Governance, Ethics, Sustainability and Corporate Responsibility ...... 115
Index.................................................................................................................................................................. 131

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Strategies and Business

Strategy Strategy is the direction and scope of an organisation over the long term, which
Definition achieves advantage for the organisation through its configuration of resources
within a changing environment, to meet the needs of markets and to fulfil
stakeholder expectations.

Level of 1. Corporate – Conglomerates managing SBUs (Strategic Business Units)

Strategy 2. Business - SBUs
3. Functional – Marketing, Operations, Finance, HR, Procurement, R&D

Rational Setting goals first and then designing strategies to reach them
Approach • Top down approach
• Formal Approach
• Traditional Approach

Four Steps
1. Strategic Analysis
2. Strategic Options/Choice
3. Strategic Implementation
4. Review and Control

Emergent Empowerment of mangers to develop and adapt strategies as circumstances change

Approach and opportunities and threats arise Strategic Choice and Implementation happens
concurrently

Three Steps
1. Strategic Analysis
2. Strategic Options/Choice + Strategic Implementation
3. Review and Control

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 Position
Based vs
Resource
Based

For competences to be capable of leading to superior competitive performance

they must fit the present environment, stretch the firm to innovate and able to
admit leverage to gain extra value in new lines of business.

Five types Mintzberg (The Strategy Process) identified the following.

of Strategy 1. Intended: The result of a deliberate planning process
2. Deliberate: Where the intended plans have been put into action
3. Unrealised: Not all planned strategies are implemented
4. Emergent: Strategies are created by force of circumstances
5. Realised: The final realised strategy results from a balance of forces of the
other types of strategies

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The Purpose of a Business

Missions The values and expectations of those who most strongly influence
strategy about the scope and posture of the organisation.

Elements of Mission:
1. Purpose Why does the organisation exist? Who does it exist for?
2. Values: What the company believes in which is replicated in
employees’ personal values.
3. Policies and standards of behaviour: The policies and behavioural
patterns underpinning its work.
4. Strategy: The competitive position and distinctive competence of the
organisation.

Goals, Objectives Goals – Quantitative or Qualitative

and Targets Objectives – Quantitative and should be SMART
Targets – KPIs

Profit seeking The primary goal of these is assumed to be to deliver economic value to
organisations their owners i.e. to increase shareholder wealth.

Goals such as satisfying customers, building market share, cutting costs,

and demonstrating corporate social responsibility are secondary goals
which enable economic value to be delivered.

Shareholder value maximization

The concept of shareholder wealth maximisation is relied on in several
ways:
1. As a decision-making criterion (NPV and IRR)
2. As a criterion to evaluate divisional managers: (ROCE, ROI)
3. As the basis for financial incentives for managers. Bonuses may be
based on improvements in the ROCE, earnings per share (EPS) or
share price from year to year.
4. As a benchmark against which to evaluate the board.

Limitations
1. Corporate governance is weak
2. Ignores non-financial goals of shareholders
3. Impossible to verify
4. Ignores the nature of financial return required
5. Overlooks the power of stakeholders other than shareholders
6. Ignores corporate responsibility.

Not-for-profit The primary goals of NFPs vary enormously and include meeting
(NFP) members’ needs, contributing to social well-being, pressing for political
and social change.

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 Secondary goals will include the economic goal of not going bankrupt
and, in some cases, generating a financial surplus to invest in research or
give to the needy. Often the goals of NFP organisations will reflect the
need to maximise the benefit derived from limited resources, such as
funds. Their objectives may be more heavily influenced by external
stakeholders such as the government.

NFPs include:
1. Volunteer organisations
2. Charitable trusts
3. Governmental bodies
4. Mutually-owned public benefit corporations

Objectives
Possible objectives for a NFP:
1. Surplus maximisation (equivalent to profit maximisation)
2. Revenue maximisation (as for a commercial business)
3. Usage maximisation (as in leisure centre swimming pool usage)
4. Usage targeting (matching the capacity available, as in the National
Health Service (NHS) in the UK)
5. Full/partial cost recovery (minimising subsidy)
6. Budget maximisation (maximising what is offered)
7. Producer satisfaction maximisation (satisfying the wants of staff and
volunteers)
8. Client satisfaction maximisation (the police generating the support of
the public)

NFP Audiences
1. Target public: Those who have an interest or concern about the
charity.
2. Client Public: Those benefiting from the organisation’s activities
3. Donors and Volunteers
4. Local and national government and businesses for support

Profit vs NFP Key points to differentiate profit and non-profit organisations

1. Primary Objectives
2. Stakeholders
3. Time-frame
4. Governance
5. Sustainability focus

Stakeholder Groups or persons with an interest in what the organisation does.

Three categories
1. Internal – Employees and Managers
2. Connected
a. Those with financial link
b. Shareholders, Bankers, Suppliers, Customers
3. External – the government, local authorities, pressure groups, the
community at large, professional bodies

Dependency
The degree of dependence or reliance can be analysed according to these
criteria:
1. Disruption: Can the stakeholder disrupt the organisation's plans
2. Replacement: Can the firm replace the relationship?
3. Uncertainty: Does the stakeholder cause uncertainty in the firm's
plans?

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 The way in which the relationship between company and stakeholders is
conducted is a function of the parties' relative bargaining strength and
the philosophy underlying each party's objectives.

This can be shown by means of a spectrum:

Mendelow’s Mendelow suggests that stakeholders may be positioned on a matrix

Matrix whose axes are power held and the likelihood of showing an interest in
the organisation's activities.

These factors will help define the type of relationship the organisation
should seek with its stakeholders.

Stakeholder mapping is used to assess the significance of stakeholder

groups. This in turn has implications for the organisation.
1. The framework of corporate governance should recognise
stakeholders' levels of interest and power.
2. It may be appropriate to seek to reposition certain stakeholders and
discourage others from repositioning themselves, depending on their
attitudes.
3. Key blockers and backers of change must be identified.
4. Stakeholder mapping can also be used to establish political
priorities.

Questions relating to stakeholders

1. Identification of type of stakeholders
2. Analysis of power and interest
3. Recommendation on how to manage
4. Change management
5. Corporate governance
6. Conflicts of interest

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The Macro Environment

Environmental Steps
Analysis 1. Define the Industry and Market
2. Analyse the macro factors or remote environment that determine the
potential growth of the industry and market
– PESTEL analysis
3. Analyse the factors affecting the potential profitability of the industry
– Porter’s Five Forces
4. Analyse the Competitors and Markets
– Market Analysis: Definition, Size, Growth and Share
– Competitor Analysis: Strategic Groups, Industry Success Factors
5. Determine the stage of the Industry Lifecycle

Static vs Dynamic • Static • Dynamic

• Single • Diverse
• Simple • Difficult
• Safe • Dangerous

Scenario Planning • Development of pictures of potential futures

• Facilitates
o Managerial learning
o Development of strategic response
• Sensitivity analysis (What if analysis)

Steps
1. Identify key environmental forces
2. Understand the historic trends of the forces
3. Build future scenarios (Contingency plans)

Advantages
• Forces managers to plan
• Improves innovation of products and processes
• Allows the company to be more responsive to changes
• Taking a proactive approach instead of a reactive approach

Disadvantages
• Most of the planning is redundant
• Waste of resources – manpower, time and money
• Futile if not supported by top management

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 PESTEL A Macro Environment analysis is used in analysing the growth potential of
an Industry.

Political
Political factors relate to the distribution of power locally, nationally and
internationally.

Risks
• Ownership risk
• Operating risk (domestications)
• Transfer risk
• Political risk.

Managing Political Risks

• Detailed risks assessment prior to investment in the country
• Partnering with local businesses
• Avoid total reliance on one country.

Economic
A country's economy will affect overall wealth, financial stability and
patterns of demand.

Considerations
• Exchange rates
• Interest rates
• Economic infrastructure.

Social/cultural
Social factors include:
• Make-up of population
• Family structure
• Attitudes to diversity
• Social mobility.

Considerations:
• The market for products
• Promotion strategies
• Methods of conducting business
• Methods of managing staff
• Expectations of business conduct.

Technology
Considerations:
• Customer and staff familiarity with technology
• Challenges to industry structure and competitive advantages
• Obsolescence of products
• Innovation of products and services
• Uncertainty
• Disruptions
• New channels to promote and distribute
• Automation and intelligent systems.

Ecological
Considerations:
• Climate change and pollution
• Energy gap
• Waste recycling

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 • Bio-diversity
• Genetically Modified Organisms (GMO)
• Natural capital

Main government policies

• 1992 Kyoto and 2015 Paris agreement to reduce carbon
emissions
• Penalisation of carbon creating industries
• Investment in non-carbon creating technologies
• Aid dependent on acceptance of environmental policies
• Regulations covering harzardous wastes
• Green Finance Strategy launched in July 2019 to:
o align investment and cashflows generated by the private
sector with sustainable growth, and
o ensure that any green initiatives lead to a strengthening of
UK financial sector competitiveness. (pgs. 87 of textbook).
Three key pillars:
▪ Greening Finance
▪ Financing Green
▪ Capturing the opportunity

Implications on business strategy

• Need to accept 'polluter pays' costs
• Increased emphasis on businesses acceptance of corporate
responsibility (CR) and principles of sustainable development.
• Potential for economic gain
• Potential competitive advantage
• Need to monitor ecology-related geo-political and legislative
developments closely.

Legal
Legal factors relate to the role of law in society and its role in business
relationships.

Assessed in terms of
• Systemic factors: Effectiveness and efficiency of legal systems
• Cultural factors: Formal vs informal business relationships
• Context and regulatory factors: Civil, criminal, consumer protection,
health and safety, employment laws and Intellectual property rights.

Using PESTEL
• All questions would require a quick assessment of the organisation’s
macro environment.
• BUT not all factors will be present or balanced.
• Always remember the main objective of this model.
• Opportunities
• Threats.
• Link it to how it will affect the Industry by asking, how will the change in
the factor affect competition?
• Link to the businesses’ primary objectives
• Revenue
• Cost
• Leads to Profit
• May not be confined to what is learnt in the syllabus. Read widely and
link it to PESTEL
• Conclude by summarising the key factors.

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 Ohmae’s 5Cs Ohmae’s 'five C's' framework identified 5 reasons which might encourage a
firm to act globally.
1. Customers
2. Countries
3. Currency
4. Company
5. Competitors

Porter’s Diamond Isolates the national attributes that foster competitive advantage in an
industry.

Interrelated factors
• Factor Conditions
o Basic: HR, Physical Resources, Climate
o Advanced
▪ Highly skilled HR
▪ Technologies
▪ There has been investment
• Demand Conditions
o Home market determines how businesses
▪ Interpret, Perceive, Respond
o Pressures firms to innovate
o Provides launch pad of global operations
o Look at quantity and quality of demand
• Related and Supporting Industries
o Local suppliers
o Proximity of managerial and technical personnel
o Generates clusters of companies in the same industry
▪ Vertical
▪ Horizontal
• Firm Strategy, Structure and Rivalry
o Strategy
▪ National Capital Markets
▪ Norms
▪ National attitudes to wealth
o Structure
▪ National cultural factors
o Domestic Rivalry

Using Porter's Diamond

• Home diamond gives a comparative cost advantage
o Cost Leadership
• Home diamond gives a differentiation advantage
o Differentiation
• No advantage
o Focus

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Industry and Market Environment

Industry A group of organisations supplying a market offering similar products using

similar technologies to provide customer benefits.

Strategic Strategic groups are organisations within an industry or sector with similar
Groups strategic characteristics, following similar strategies or competing on similar
bases.

Benefits of identifying strategic groups:

• Better tailoring of products and marketing mix to the wants of customers
within a group
• Closer definition of competitors
• Identification of mobility barriers, ie, factors preventing potential rivals
entering the segment or preventing management from taking firm into
new segments.

Mobility barriers
Factors that make it hard for a firm in one strategic group to develop or
migrate to another

• Characteristics, such as branding.

• Industry characteristics: to move into a mass volume end of the
market might require economies of scale and large production
facilities. To move to the quality end might require greater
investment in research and development.
• The organisation may lack the distinctive skills and competences in
the new market area.
• Legal barriers.

Porter’s 5 Determines the profit potential of the industry as a whole. Influences the
Forces state of competition in an industry.

The ideal market, in which profits are easiest to make, is one where there is:
• Low supplier power
• Low customer power
• Little prospect of substitutes emerging
• Low threat of new entrants (High barriers to entry)
• Weak inter-firm competition

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 Bargaining Power of Suppliers
Where suppliers are powerful, then the prices of inputs can be forced
upwards, thereby squeezing industry profits.

Factors affecting power of suppliers

• The number and size of suppliers
• The threat of new entrants or substitute products to the supplier's
industry.
• Whether the suppliers have other customers outside the industry,
and do not rely on the industry for the majority of their sales
• The importance of the supplier's product to the customer's business.
• The extent to which the supplier has a differentiated product.
• The level of switching costs for their customers.

Bargaining Power of Customers

The greater the power of customers the more they can put downward
pressure on prices.

Buyer power is increased by:

• The customer buying a large proportion of total industry output.
• The product not being critical to the customer's own business.
• A lack of proprietary product differences.
• Low switching costs for customers to switch to other suppliers.
• The size of the purchase relative to the size of the supplier.
• High degrees of price transparency and supplier information
available in the market.

Considerations when dealing with Buyers in the public sector

• Public accountability
• Governments are rarely monolithic
• Political considerations
• Purchasing by tender.

Threat of Substitutes
A Substitute Product is a product or service produced by another industry
which satisfies the same customer needs.

Threat from substitutes is determined by:

• relative price/performance
• switching costs from current industry to another industry for
customers.

Substitutes affect profitability of an industry through:

• putting a ceiling on prices
• affecting volumes of demand
• forcing expensive investments and service improvements.

Threat of new entrants

A new entrant into an industry will bring extra capacity and more
competition. The strength of this threat is likely to vary from industry to
industry, depending on the strength of the barriers to entry.

Barriers of entry
• economies of scale and scope
• product differentiation
• capital requirements
• switching costs

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 • access to distribution channels
• cost advantages of existing producers, independent of economies of
scale
• response of incumbents.

Entry barriers might be lowered by:

• changes in the environment
• technological changes
• new distribution channels for products or services

Competitive Rivalry
The Intensity of Competition amongst existing rival firms in the industry will
compete away the collective profitability of participants in the industry.

Factors affecting competitive rivalry

• Rate of market growth
• Level of fixed costs
• Ease and cost of switching for buyers
• Importance of capacity utilisation/economies of scale
• Degree of uncertainty regarding the actions of rival firms
• Strategic importance
• Exit barriers.

Limitations of Porter’s Five Forces

1. Ignores the role of state
2. Not helpful for non-for-profit organisations
3. Positioning view instead of resource view
4. Assumes management are required to maximize shareholders’ wealth
5. Dynamic industries are difficult to predict
6. Ignores potential for collaboration to raise profitability.
7. Some industries may include additional forces. (sixth force:
complementors)

Industry Introduction
Lifecyle
characteristics • Industry is new and there are few competitors,
of each stage • No threat of substitutes.
• Power of buyers is low because there are few alternatives
• Power of suppliers, is relatively high as the industry is yet to have a
significant impact.
• Many different approaches to the industry, in terms of product type,
features, performance and target markets.

Growth

• Industry becomes established and grows rapidly.

• A surge in new competitors.
• As they are yet to gain market share, however, rivalry is low.
• Power of buyers is still relatively low as there is a supply shortfall —that
is, demand still exceeds supply.
• High growth rates enable most organisations to survive.
• Cash, is short as funds are needed for investment to cater for the high-
growth rates and expansion plans. Organisations will be primarily
concerned with keeping up with current demand, not looking towards the
future.

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 • Because the industry is growing quickly, competitive differentiation is not
of critical importance at this stage and there is ‘enough room for
everyone’ in the industry.

Maturity

• As growth rates reduce towards more normal rates, the industry enters
the maturity stage.
• Rivalry is intensified, and some companies may consolidate through
mergers.
• During the maturity phase, supply will start to match demand (supply
reaches the level of demand). As such, buyers will start to have greater
power than before.
• This is the stage in which a majority of industries stay for most of their
lives.
• Customers become more knowledgeable and demanding and not all of the
original products, organisations or strategies will survive.
• The organisational focus is on efficiency, cost control and market
segmentation.

Shake Out

• This stage is characterised by a plateau and a possible decline of growth

and profitability in the industry.
• Many organisations in this stage will leave the industry due to their low
returns, thereby reducing rivalry and competitiveness.
• The remaining, small group of organisations then dominates the industry,
through mergers, acquisitions and takeovers, dominating with their own
products.
• It becomes imperative that organisations in this stage protect their
positions and maintain profitable operations.
• This stage could also be before the maturity as well where the market
growth slows and weaker players are forced to leave the industry.

Decline or Renewal

• The industry enters the decline stage once growth and profitability are in
clear decline.
• The threat of substitutes at this stage is not only high but can also be a
catalyst for an industry’s decline.
• At this time, a large number of organisations may leave the industry as
the return on investment
• (ROI) is unsatisfactory.
• Domination of the industry by a few large competitors no longer yields
sufficient returns and even these companies leave the industry.
• The industry’s products or services may no longer be useful to consumers
as they have been replaced by newer technology.

Source: CPA Australia

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 Industry Introduction Stage
Lifecycle: • Attract trend setters
Strategies of • Price strategy to use
organisations o Skimming
o Penetration
o To gain high market share and adoption
• Question mark
o High investment
o Despite low returns
• Review investment periodically
• Build channels of distribution
• Monitor rival technologies

Growth Stage
• Ensure sufficient capacity to meet firm's target market share
• Penetrate market by reducing prices
• Maintain barriers of entry
o Build brand
o High levels of promotion
• Investors should be aware to encourage investments
• Market and product development
• Cost reduction to increase margins

Shakeout Stage
• Monitor industry for mergers and rationalisation
• Seek potential merger candidates
• Periodic review of production and financial forecasts
• Customer extension activities
• Find new markets with new technologies

Maturity Stage
• Maximise current financial returns
• Milk the cash cow
• Defend market position
▪ Match pricing
▪ Match promotion
• Modify markets by positioning product targeted at non-customers
• Modify products
▪ Cheaper
▪ Higher value
• Leverage the existing customer database
• Engage in integration activities with rivals
• Ensure successor industries are ready to launch

Decline Stage
• Harvest cash by minimising spending
• Simplify range by weeding out variations
• Narrow distribution to target loyal customers
• Reduce stock holding
• Evaluate exit barriers and identify optimum time to leave the industry
• Seek potential exit strategy
• The response of competitors

International Phase 1. The product is developed in the high-income country.

Trade Life Phase 2. Overseas production starts.
Cycle Phase 3. Overseas producers compete in export markets.
Phase 4. Overseas producers compete in the firm's domestic market.

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Strategic Capability

Critical Success Definition

Factors o Product features
o valued by a group of customers
o organisation must excel
o to outperform the competition.

Five areas in which CSFs should be identified and monitored

1. The structure of a particular industry
2. Competitive strategy and position
3. Environmental factors
4. Temporal factors changing that may affect organisation
5. Functional managerial position and performance.

Strategic Strategic capability is the adequacy and suitability of the resources and
Capability competences of an organisation for it to survive and prosper to gain a
competitive advantage.

Strategic Capabilities should be

1. Valuable to buyers
2. Rare
3. Robust
4. Non-substitutable

Stems from Unique Resources and Core Competencies.

Threshold resources
The basic resources needed by all firms in the market.

Unique resources
Those resources which give the firm a sustainable competitive advantage
over its competitors, enabling it to meet the CSFs. They are resources which
are better than those of the competition and difficult to replicate.

Threshold competences
The activities and processes involved in using and linking the firm's
resources necessary to stay in business.

Core competences
The critical activities and processes which enable the firm to meet the CSFs
and therefore, achieve a sustainable competitive advantage. The core
competences must be better than those of competitors and difficult to
replicate.

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 Kay’s 3 sources Core competences – Kay’s three sources
of core Kay (1993) argues that there are three distinct capabilities a company can
competence develop that add value.

Sources:
1. Competitive Architecture: The knowledge, routines and information
exchanges created by these relationships (particularly those which are
long term) can produce core competences which other businesses
cannot replicate.
a. Internal architecture – relationship with employees.
b. External architecture –relationships with suppliers,
intermediaries, customers.
c. Network architecture – relationships between collaborating
businesses.

2. Reputation: the reason why customers come back, investors invest,

potential employees apply for jobs and suppliers supply.

3. Innovative ability: the ability to develop new products and services

and maintain a competitive advantage

Core competences must have the following qualities

1. Must be competitively unique
2. Must be extendable
3. Must make a disproportionate contribution to the value the
customers perceive, or to the efficiency with the value is delivered.

Resource Audit Resources

1. Physical Resources
2. Intangibles
3. Human Resources and labour markets
4. Financial resources
5. Technological resources
6. Big Data and Data Analytics

9Ms checklists of Resources

1. Men and women
a. Human Resources
2. Machinery
a. Capability, capacity of machinery
3. Money
a. Profitability
i. Margins
ii. ROCE/RI
b. Liquidity
c. Gearing
i. Financial
ii. Operating
4. Material
a. Relationship with Supplier
5. Markets
a. Relationship with Customers
b. Market share
6. Make-up
a. Culture
b. Structure
7. Management
a. Quality of Strategic Apex
8. Methods

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 a. Techniques
9. Management information
a. Information that is ACCURATE

The need for integration

Resources are of no value unless they are organised into systems, and so a
resource audit should go on to consider how well or how badly resources
have been utilised, and whether the organisation's systems are effective and
efficient.

Porter’s Value • Sequence of business activities by which value is added to its

Chain products/services by an entity.
o The primary activities and functions are those that create
value and are directly concerned with providing the
product/service.
o The support activities do not create value themselves, but
they enable the primary activities to take place with maximum
efficiency.

• Activities that add value:

o Cost drivers influence the cost of a given activity
o Value drivers help an organisation to differentiate itself from
competitors.

• This influences the margin a customer is prepared to pay over the

costs the organisation incurs in delivering the service.

• The value chain can be used to examine linkages between activities.

The linkages:
o Optimise activities by enabling trade-offs. For example, costlier
product design or better-quality production might reduce the
need for after sales service.
o Reflect the need to co-ordinate activities. For example, Just In
Time (JIT) requires smooth functioning of operations,
outbound logistics and service activities such as installation.

Primary Activities
• Inbound logistics:
Receiving, handling and storing inputs to the production system
(ie, warehousing, transport, stock control etc).
• Operations:
Convert resource inputs into a final product or service. Resource
inputs are not only materials. 'People' are a 'resource', especially in,

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 service industries.
• Outbound logistics:
Storing the product and its distribution to customers: packaging,
warehousing etc.
• Marketing and sales:
Informing customers about the product, persuading them to buy it,
and enabling them to do so: advertising, promotion etc.
• After sales service:
Installing products, repairing them, upgrading them, providing
spare parts, advice (eg, helplines for software support).

Supporting Activities
• Procurement:
Acquire the resource inputs to the primary activities (eg, purchase
of materials, subcomponents, equipment).
• Technology development:
Product design, improving processes and/or resource utilisation.
• Human resource management:
Recruiting, training, developing and rewarding people.
• Management planning and firm infrastructure:
Planning, finance, and quality control: these are crucially important
to an organisation's strategic capability in all primary activities.

Supply Chain Supply chain management (SCM) is the management of all supply activities
Management from the suppliers to a business through to delivery to customers.

This may also be called demand chain management reflecting the idea that
the customers’ requirements and downstream orders should drive activity,
based on the concept of end-to-end business (e2e). It refers to managing the
value system.

Themes:
1. Relationships – the use of single sourcing and long-term contracts to
better integrate the buyer and supplier.

2. Responsiveness – the ability to supply customers quickly. This has led

to the development of Just in Time (JIT) systems to keep raw materials
acquisition, production and distribution as flexible as possible.

3. Reliability – the ability to supply customers reliably. Service level

agreements about the reliability of supplies should be made to enforce
reliability.

Technology and SCM

Facilitated by
• Web-based ordering and tracking
• Electronic Data Interchange (EDI)
• Enterprise resource planning (ERP) systems
• Radio frequency identification (RFID)
• Satellite systems for tracking
• Blockchain

Leading to:
• Reduction in costs
• Better outsourcing opportunities
• Increased product and service innovation
• Mass-customisation of product.

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 Supply chain networks involves the following:
1. Closer partnerships and reduced number of suppliers
2. Reduction in customers served, focusing on higher value customers
3. Price and stock coordination
4. Linked computer systems
5. Early supplier involvement
6. Logistics design
7. Joint problem solving
8. Supplier representative on site.

SCM and Cyber Security

1. Selection of suppliers should focus on access to critical data or
systems instead of mainly the value of the supplier spend.
2. Focus should be given to ongoing assurance processes through the
life cycle of contacts.
3. The supplier’s focus on cyber security processes should be verified.

Networks, Network architecture:

relationships The network of relational contracts, within or around, the firm.
and 1. Internal Networks
architecture 2. External Networks
• Outsourcing – purchase of goods/services
• Partnership – co-ordinated/integrated activities
• Alliance – joint ventures: shared ownership
• Ownership – for example, vertical integration

Type of Networks
1. Collaborative
2. Transactional

Virtual Firms:
It is created out of a network of alliances and subcontracting
arrangements. It is as if most of the activities in a particular value chain
are conducted by different firms, even though the process is loosely co-
ordinated.

Outsourcing The strategic use of outside resources to perform activities traditionally

handled by internal staff and resources.

Consideration whether outsource:

• The firm's competence in carrying out the activity itself. Low
competence implies high cost and risk of poor performance.
• Whether risk can be managed better by outsourcing,
• Whether the activity can be assured and controlled by the framework
of a contract and performance measures.
• Whether organisational learning and intellectual property is being
transferred.

Consider in deciding whom to outsource:

• The track record of the provider and its experience of similar
partnerships.
• The quality of relationship on offer.
• The strategic goals of the provider.
• The economic cost of using them.
• Their financial stability.

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 Harmon’s Is used in the analysis of business processes. It assesses the strategic
process- importance of a process as well as its complexity and dynamics to
strategy matrix determine how that process should be managed.

Shared service A number of internal transaction processing activities which had previously
centres been conducted in a number of different departments, or business units, are
brought together into one site within an organisation.

Advantages
• Cost savings
• Knowledge sharing
• Standard processes ensure consistency.

Disadvantages
• Department or business specific knowledge may be lost
• Staff in share-service centres are removed from the day-to-day
realities faced by the business units that they serve
• Geographical distance may weaken the relationships.

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 BCG Matrix A framework that considers and forecasts potential market growth and to
evaluate the competitive dimension through an evaluation of market share.

Two dimensions
• % market growth
o >10% is high
• Relative market share
o Your sales/ Largest competitor's sales
o >1 is high

Investment strategies
• Question marks: Build or Harvest or Divest
• Stars: Build
• Cash Cow: Hold or Harvest if weak
• Dogs: Hold or Divest

The strategies
• Build: Forgoes short-term earnings and profits in order to increase
market share. By organic growth, or through external growth
(acquisition; strategic alliances etc).

• Hold. Maintain the current position, defending it from the threat of

would-be 'attackers' as and where necessary.

• Harvest. Seeks short-term earnings and profits at the expense of long-

term development.

• Divest. Disposal of a poorly performing business unit or product.

Divestment stems the flow of cash to a poorly performing area of the
business and releases resources for use elsewhere.

Product Life The product life cycle (PLC) describes the phases of development that a
Cycle product goes through.

• Introduction – a new product or service is made available for purchase

and organisations attempt to develop buyer interest.

• Growth – a period of rapid expansion of demand or activity as the product

finds a market and the product demonstrates its potential.

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 • Maturity – a relatively stable period where there is little change in sales
volumes year to year but competition between firms intensifies as growth
slows down.

• Decline – a falling off in sales levels as the product becomes less

competitive in the face of competition from newer products.

• Ought to have
o A balanced portfolio
o Mix of
▪ Yesterday's products
▪ Today's products
▪ Tomorrow's products
o Range of products with different length cycles
o Lots of products in development/ introductory stage
o Lots of products in maturity to support others

Questions in Strategic Analysis

• The stage of life cycle of the product
• Remaining life of the product
• Urgency of developing new or improved products
• Can the life of the product be extended?

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Strategic Options

SWOT Strengths and weaknesses are diagnosed by the internal analysis; and
Analysis opportunities and threats by the environmental analysis.

Corporate
Appraisal

TOWS To generate strategic options by matching the internal with external factors, post
Analysis SWOT analysis.

Strategies:
• SO - employ strengths to seize opportunities.
• ST - employ strengths to counter or avoid threats.
• WO - address weaknesses so as to be able to exploit opportunities.
• WT – defensive strategies, aiming to avoid threats and the impact of
weaknesses.

SO strategies may be expected to produce good short-term results, while

WO strategies are likely to take much longer to show results.
ST and WT strategies are more probably relevant to the medium term.

Gap The comparison between an entity’s ultimate objective and the expected
Analysis performance from projects both planned and under way, identifying means by
which any identified difference, or gap, might be filled.

Gap analysis compares two things:

1. The organisation's targets for achievement over the planning period.
2. What the organisation would be expected to achieve if it carried on in the
current way with the same products and selling to the same markets, with no
major changes to operations. This is called an F0 forecast, by Argenti.

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 The gap could be filled by new product-market growth strategies.
• Efficiency strategies: reduce the costs of present products and
economise on the assets used.
• Expansion strategies: develop new products and/or new markets.
• Diversification strategies: enter new industries which have better
profit and growth prospects.

Strategic Johnson, Scholes and Whittington identify three distinct groups of strategic
choices options. Strategic choice requires that management makes choices under each of
the following:

1. Competitive strategy
The way that the firm will seek to win customers and secure profitability
against rivals.

2. Product/market strategy
The decision on what products to offer over the coming years and the
markets to be served.

3. Development strategy
The decision on how to gain access to the chosen products and markets.

Porter’s Competitive strategy means 'taking offensive or defensive actions to create a

Generic defendable position in an industry, to cope successfully with competitive forces
Strategies and thereby yield a superior return on investment for the firm. Firms have
discovered many different approaches to this end, and the best strategy for a
given firm is ultimately a unique construction reflecting its particular
circumstances.' (Porter)

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 Cost Leadership
Seeks to achieve the position of lowest-cost producer in the industry. A firm
following this strategy will withstand the shrinking margins better and so, as
rivals fall away, may be left as a major player with enhanced power against the
power of suppliers and buyers.
• Possible methods:
o No-frills products
o Simple product features
o Process innovation
o Use of technology
o Economies of scale
o Exploit the learning curve effect
o Minimise overhead costs
o Get favourable access to sources of supply
o Produce standardised products
o Relocate to cheaper locations.

Problems with using cost leadership

1. Internal focus away from market share acquisition.
2. Only one firm can be the leader.
3. Sustainability of competitive advantage when technology advances.
4. Higher margin can be used for differentiation.
5. Low cost is not the same as low price.
6. Exchange rates and inflation may destroy cost advantages.

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 Differentiation
Assumes that competitive advantage can be gained through particular
characteristics of a firm's products. A firm presenting itself as a superior
provider may escape price pressure by avoiding straight-forward price
comparisons with rivals.
• Possible methods:
o Build brand image
o Give products special features
o Exploit other activities in the value chain
o Use IT to create new service or product features.
• Basis of differentiation
o Product quality
o Product reliability
o Product innovation
o Product range
o Service levels
o Features
o Brand name
o Image
o Distribution channels.

Problems when using differentiation

1. Differentiated products can still be sold at competitive prices to gain
market share.
2. Choice of competitor to differentiate from?
3. Source of differentiation may not be only based on the product or
service.
4. If cost leader products prices are much lower than the differentiating
products, consumers may opt for the lower prices.
5. Differentiating factors become less valued and consumers may choose
generic products instead.

Focus
A firm concentrates its attention on one or more particular segments or niches of
the market and does not try to serve the entire market with a single product.
Within the niche, the firm can either aim to be a cost leader or pursue
differentiation
• Cost-focus strategy: cost leader in a chosen market segment
• Differentiation-focus strategy: differentiation in a chosen market
segment

Advantages
• A niche is more secure and a firm can insulate itself from competition.
• The firm does not spread itself too thinly.
• Both cost leadership and differentiation require superior performance –
life is easier in a niche, where there may be little or no competition.

Drawbacks of a focus strategy

• The firm sacrifices economies of scale which would be gained by serving
a wider market.
• Competitors can move into the segment, with increased resources
• The segment's needs may eventually become less distinct from the main
market.
o The distinctions between market segments may narrow.
o Segments may totally collapse.

Compiled by Jack Wong 27

 Stuck in the middle
Never Stuck in the Middle: A stuck in the middle strategy is one where the firm
has sought to attract many segments at different price points and so is not being
as differentiated as the market leader but, perhaps because of the costs of
serving the differentiated segment, not able to make good profits at the cost
leader's prices.

Porter’s Five Forces and Generic Strategies

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 Bowman’s
Strategic
Clock

Ansoff The Ansoff model is a two-by-two matrix of Products (new and existing) and
Markets (new and existing).

Consider the levels of risks for each quadrant.

Lynch Lynch expansion matrix is a two by two matrix of company growth (internal and
Model external development) and geographic location (home/domestic and
international).

Compiled by Jack Wong 29

Compiled by Jack Wong 30
Strategies for Products and Markets

Ansoff The Ansoff model is a two-by-two matrix of Products (new and existing) and
Markets (new and existing).

Marketing The management process responsible for identifying, anticipating and

satisfying customer requirements profitably.

Kotler identified four key concepts in marketing:

1. Identifying target markets
2. Determining the needs and wants of those markets
3. Delivering a product offering which meets the needs and wants of those
markets
4. Meeting the needs of the market profitably – more efficiently and
effectively than the competition

Marketing A marketing strategy specifies which markets an organisation intends to

Strategy compete in, what customer needs it will meet, and how it intends to meet
them.

A marketing strategy can be broken down into 6 elements:

1. Who the organisation will serve – the customers and market segments?
2. What needs the organisation's products or services will meet?
3. When it will serve those customers and their needs?
4. Where the organisation will do business?
5. How the organisation will serve its target customers and their needs?
What resources and competences does the organisation have to serve
those customers and their needs better than its competitors can?
6. Why the organisation will do these things? Revenues > Costs by an
acceptable rate of ROCE.

Value Proposition A firm's value proposition is the set of benefits or values it promises to deliver
to consumers to satisfy their needs.

How a firm will differentiate itself from its competitors and position itself in
the marketplace?

Based on the customers’ perception on:

1. Relative performance: What the customers get, relative to what they
would get from a competitor.
2. Price: payments made to acquire the product or service, relative to
the competitor products.

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 Market Research Marketing research is the systematic gathering, recording and analysing of
information about problems relating to the marketing of goods and services.

Types of Research

1. Market research involves looking at specific markets, their size, market

trends, information regarding segmentation, customer characteristics,
customer needs and wants, demand curves, competitors' products, etc.

2. Product research could include laboratory testing to analyse product

safety, durability and shelf-life.

3. Pricing research could include attempts to generate more accurate

figures to facilitate cost-plus pricing.

4. Promotional ('market communications') research might include

contacting social media sites or the websites of online newspapers to
determine how much they would charge for advertising.

5. Distribution research could include contacting potential retail outlets to

determine what margins they would expect to make.

Steps

A research programme will involve the following steps:

1. Defining (and locating) problems, setting objectives
2. Developing hypotheses
3. Research – desk and field research􀀀
4. Data collection
5. Analysis and interpretation
6. Conclusions and recommendations

1. Desk Research
• Gathering and analysis of secondary data
o Internal sources
o External sources

2. Field Research
• Collection of primary data
• Directly from respondents
• Three basic types
o Opinion research
o Motivation research
o Measurement research
• Specific techniques
o In-depth interviews.
o Group interviews.
o Trial testing.
o Observation.
o Questionnaires.
o Online – internet surveys and focus groups.

3. Test-marketing
• Trial-run of the product
• Preceding to the official launch

4. Experimentation
• Investigate only one variable at a time,
• keeping all other factors constant.
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 Segmentation The division of the market into homogeneous groups of potential customers
who may be treated similarly for marketing purposes.

Bases of segmentation:

Consumer segmentation bases:

• Geographic: e.g., as by country, region, city etc.
• Psychological: groups sharing common psychological characteristics, e.g.,
old people may be security-oriented.
• Purchasing characteristics: e.g., heavy user, medium user, low user.
• Benefit sought: e.g., soap powders – smell, whiteness, economy, stain
removal.
• Demographic: Grouping customers based on age, income level, gender,
family size, religion, race, nationality and language.
• Distribution: Grouping customers based on the distribution channel
through which they purchase products, such as online or at a
supermarket.

Industrial segmentation bases:

• Geographic: e.g., as basis for sales force, distribution or because industries
cluster.
• Purchasing characteristics: e.g., order size, frequency of order.
• Benefit, e.g., reliability, economy, durability, versatility, safety, value
• Company type: e.g., type of business, sole trader, partnership, limited
company.
• Company size: e.g., number of employees, profits, revenue.
• Internet: e.g., capable of/willing to buy online.

Socio-economic Grouping
A: Upper middle class
B: Middle class
C1: Lower middle class
C2: Skilled working class
D: Working class
E: Subsistence

Consumer adoption model

• Innovators
• Laggards

Behavioural segmentation seeks to classify people and their purchases

according to the
• benefits sought;
• the purchase occasion;
• purchase behaviour;
• usage; and
• perception, beliefs and values.

Market Segment
Analysis Definition What makes up the market?
Needs What does this market need?
Preferences What extras would be appreciated?
Current solutions What currently meets those needs?
Market size What is 100% of this market worth?
Market growth What is the growth history of this market?

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 Targeting Selecting the best market segment.

The attractiveness of a market segment depends on it being:

1. Measurable: Can the segment be measured?
2. Substantial: Is the segment big enough?
3. Accessible: Can the segment be reached?
4. Distinguishable: from the rest of the market?
5. Stable: Do segments respond differently?
6. Defensible: Can be barriers of entry be raised?
7. Profitable: Can the segment be reached profitably?

Marketing Strategies
1. Undifferentiated marketing (Mass marketing) – This policy is to
produce a single product and hope to get as many customers as
possible to buy it; segmentation is ignored entirely.
2. Differentiated Marketing: The company attempts to introduce
several product versions, each aimed at a different market segment
3. Focused Marketing (concentrated): The company attempts to
produce the ideal product for a single segment (niche) of the market.
4. Micro marketing: Complete segmentation, tailoring products and
services to individual needs e.g., Dell offering customers the
opportunity to customise PCs to meet their own needs.

Positioning The 'act of designing the company's offer and image so that it occupies a
distinct and valued place in the target customers' mind'.

Positioning:
• Overall location of a product,
• in the buyer's mind,
• in relation to other competing products/brands.

Steps
1. Identifying differentiating factors that gives the organisation a
competitive advantage.
2. Select most important differences.
3. Communicate, and deliver to the target market.

Re-positioning: Changing the identity of a product, relative to the identity of

competing products, in the collective minds of the target market.

Perceptual Map

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 Branding Three essential features
1. Name
2. Livery
3. Associations and personality

Branding policy
1. Single company name (Virgin Air, Virgin Music)
2. Different brand names for each product (Pantene, Rejoice)
3. Own branding (Private labels: Tesco tissues, sugar etc)

Brand Positioning

Brand Equity An intangible asset that adds value to a business through positive associations
made by the consumer between the brand and benefits to themselves.

Benefits of a strong brand equity include:

• A more predictable income stream.
• Increased cash flow by increasing market share, reducing promotional
costs and allowing premium pricing.
• Having an asset that can be sold or leased.
• Reduced marketing costs because of high brand awareness and loyalty.
• More power in bargaining with distributors and retailers.
• Higher prices accepted by the market because the brand has higher
perceived quality.
• Potential for launching extensions.
• Defence against price competition.

Brand Awareness Smith (2018) notes the following methods used for measuring customer
awareness of a brand:

• Surveys
• Monitoring web traffic
• Monitoring search volumes
• Social listening which involves tracking conversations and posts left on
social media about a brand.

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 Marketing Mix A set of
• controllable marketing variables
• that a firm blend
• to produce the response
• it wants in the target market.

Products: 4Ps (Products, Price, Place, Promotion)

Services: 4Ps + 3Ps (People, Process, Physical Evidence)

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 Product Package of Benefits that satisfy a variety of customer needs

May include:
• Goods
• Services
• Ideas

Three main elements:

• Basic/Core
• Actual
• Augmented

Services characteristics:
• Intangibility
• Inseparability
• Heterogeneity
• Perishability
• Ownership

New product development

The product development strategy of the company can:

• Develop new product features through adapting existing features
• Create different quality versions of the product
• Develop additional models and sizes

Reasons for product development

• The firm has high relative share of the market, strong brand presence
and enjoys distinctive competitive advantages in the market.
• There is growth potential in the market. (The Boston Consulting
Group recommends companies invest in growth markets.)
• The changing needs of its customers demand new products.
• Prevent product obsolescence.
• It needs to react to or incorporate technological developments.
• It needs to respond to competitive innovations in the market.

Global products

Products can be classified according to their degree of potential for global

marketing:
• Local products – seen as only suitable in one single market.
• International products – seen as having extension potential into other
markets.
• Multinational products – products adapted to the perceived unique
characteristics of national markets.
• Global products – products designed to meet global segments.

Options
• Introduce the product without any changes
• Alter the product to meet local conditions or preferences
• Create brand new products to meet the needs and exclusive
conditions of the market

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 Price Considerations for Pricing (5 Cs):
1. Corporate Objectives
2. Cost
3. Competitors
4. Customers
5. Controls

Cost Customers

Price Elasticity of Demand (PED)

Measures how far demand for a good will change in response to a change in
price.

Change in quantity demanded, as a percentage of original price

PED = Change in price, as a percentage of original price

PED <1 >1

Inelastic Demand Elastic Demand

Main influences making demand price inelastic (i.e., demand insensitive to

price) are:
• The product is regarded as a necessity by buyers (e.g., cigarettes).
• There are few close alternatives available from competitors (i.e., a lack
of substitutes).
• The product is highly differentiated and so the customer is brand loyal
and will not switch even if prices rises.
• The time since the price changed is short. Therefore, customers have
not had a chance to notice the price change or to source alternatives.
• The price of the product is insignificant as a proportion of total
spending.

Since demand usually increases when the price falls, and decreases when the
price rises, elasticity usually has a negative value. It is usual to ignore the
minus sign, therefore, but note that there are types of goods where elasticity is
actually positive and the demand curve is upward sloping.

These are known as:

• Giffen goods
A Giffen good is one that is consumed more as the price increases,
effectively reversing the law of demand. Giffen goods are generally inferior
goods without any clear substitute.

• Veblen goods
Demand for the good rises as price increases due to consumer perception
that a higher price reflects better quality. It is also argued that a higher
price may make a product desirable as a status symbol. Veblen goods are
generally luxury or designer products.

Compiled by Jack Wong 38

 PED is used in pricing decisions to:
Forecast the impact on sales volumes of a change in selling price:
Management need to forecast the effects of changes in price on sales
volume in two situations:
• Production planning: the level of production will need to be
changed to avoid shortages, if the price is cut, or unsold stocks
and slack capacity, if the price is raised.
• Rationing demand: where capacity is fixed and in excess demand
the price can be raised to reduce the demand.

Forecast the impact on revenues of a change in the selling price.

When demand is elastic, a change in price will lead to a change in total
revenue in the opposite direction.
• If the price is lowered, total sales revenue would rise, because of
the large increase in the volume demanded.
• If the price is raised, total sales revenue would fall because of the
large fall the volume in demanded.

When demand is inelastic, total revenue moves in the same direction as

the change in price.
• If the price is lowered, total sales revenue would fall, because the
increase in sales volume would be too small to compensate for the
price reduction.
• If the price is raised, total sales revenue would go up in spite of
the small drop in sales quantities.

PED Price Lowered Price Raised

Elastic (>1) Sales Revenue Rises Sales Revenue Falls

Inelastic (<1) Sales Revenue Falls Sales Revenue Rises

Pricing Strategies
Price Discrimination/ Differential Pricing
• Two Separate Markets with difference price elasticity
• No Leakages
• Methods
o Market Segment
o Product Version
o Place
o Time
o Dynamic Pricing

New Product Pricing

• Market Penetration Pricing
• Market Skimming Pricing

Based on Costs
• Marginal cost based
• Full cost based
• Target Return based

Based on Customer Perceptions

• Going rate approach
• Product comparison approach
• Factor pricing approach
• Economic value to customer approach

Compiled by Jack Wong 39

 Other Pricing Strategies
• Promotional Prices
• Everyday low prices
• Product Line Pricing
• Captive Product Pricing
• Predatory Pricing

Place • Deciding on the best way to get your product to your customer to give
them the best value
• Direct or Indirect Distribution
• Points in the chain of distribution: Retailers, Wholesalers, Distributors,
Agents, Franchisees, direct selling.
• Location considerations

Considerations in developing efficient channels of distribution

• The reach of the distributor. Can they access the target markets?
• The degree of exclusivity that the channel will offer. Will the firm's goods
be sold side by side with rivals?
• The amount of support given by the channel. It may be necessary for the
channel to provide an efficient after-sales and repair service, or to agree to
an immediate exchange of faulty products, advertising or sales promotion
support.
• The economic costs of supplying such as number of delivery drops, the
average order size and whether they can return unsold goods.
• Support for combined promotions.

Promotion Promotion is about communication – informing consumers about the product

and enhancing their perception of the product in a manner that persuades
them to buy it.

Promotion Mix:
• Advertising: Informative, Persuasive, Reminding
• Sales promotion (such as 'buy one, get one free' offers)
• Public relations
• Personal selling
• Digital marketing (such as display advertising on websites)
• Direct marketing (such as mailshots); and

Is to Attract, raise Interest, create Desire, stimulate Action to purchase.

Uses either PUSH or PULL method.

People The people involved in providing the service to the customer. The level of
competence that the people have, in giving confidence to the customer that
this service is of good quality.

Processes The processes that the customers have to go through to purchase the products.
The moments of truth where customers decide to or not to buy.

Physical Evidence Physical refers to items that give physical substance surrounding the delivery
of a service, such as logos, staff uniforms, carrier bags and packaging, and s tore
layout/design.

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 Relationship Transactions marketing: A management approach that focuses on the
Marketing product, and develops marketing mixes for a product according to the needs
customers satisfy when they buy it.

Relationship marketing: Management process that seeks to attract, maintain

and enhance customer relationships by focusing on the whole satisfaction
experienced by the customer when dealing with the firm.

Building up customer relationships requires a change of focus from the

‘transaction-based approach’ to a relationship approach.

The key characteristics of relationship marketing are:

• Every customer is considered an individual person or unit.
• Activities of the company or organisation are predominantly directed
towards existing customers.
• It is based on interactions and dialogues.
• The company or organisation is trying to achieve profitability through the
decrease of customer turnover and the strengthening of customer
relationships.

Increased need for Relationship marketing because:

• Increasing cost of attracting new customers
• Marketing based on product development creates high association
between brands
• Increased capabilities of IT (CRM)

Build loyalty by:

1. Loyalty schemes
2. Personalised programmes
3. Structural ties.

Progress of building a relationship with a customer:

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Impact of the Internet on the 7Ps of Marketing Mix
Product Impactof the Internet:
• More interactivity offers greater ‘augmented’ product offering.
• Customers have greater transparency in product knowledge
• Buying process is customised for greater customer retention and
extension.
• Personalised customisation of products
• Products have better value propositions as companies have greater
empathy for customers’ needs through big data analytics.

Price Impact of the Internet:

• Pricing becomes very competitive as costs are reduced on online
stores
• Increased price transparency
• Dynamic pricing strategies become more effective
• More creative pricing strategies to suit different target markets
• Online auctions allow for a free market
• Better customer retention and extension using customer loyalty points
as discounts
• Payment is easier.

Place Impact of the Internet:

• Global reach
• 24/7
• New marketplaces and channel structures
• Better customer experiences with better logistics transparency
• Improved supply chain.

Promotion Impact of the Internet:

• Greater interactivity
• Better Customer Relationship Management
• Targeted communication.

People Impact of the Internet:

• People can be replaced by using:
o Autoresponders
o Email-notifications
o Call-back facility
o FAQs
o On-site search engines
o Virtual assistants: Chatbots and Voice-enabled assistants.
• Customer satisfaction ratings improves quality and satisfaction levels.

Processes Impact of the Internet:

• Improved customer experience online through data analytics to track
customer abandonment rates and bounce rates.
• Cyber security measures improve customers’ trust on sites.

Physical Impact of the Internet:

Evidence • Testimonials in the form of videos and comments.

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Strategy and Structure

Organisation An organisation's configuration consists of the structures,

Configuration processes and relationships through which it operates.
• Structure has its conventional meaning of organisation
structure (that is, the formal roles, responsibilities and
lines of reporting in an organisation).
• Processes drive and support people: they define how
strategies are made and controlled; and how the
organisation's people interact and implement strategy.
• Relationships are the connections between people
within the organisation; and between those inside it and
those on the outside. Relationships outside the
organisation are becoming increasingly important in the
context of outsourcing, supply chain management and
strategic alliances.

Johnson, Scholes and Whittington identify three major groups of

challenges for 21st century organisational structures:
• Flexibility of organisational design to meet the needs of the
rapid changing environment.
• Effective systems to link the people who have knowledge
with the applications that need it.
• Internationalisation that creates the complexity and scale of
communication across different cultures.

Contingency Approach The contingency approach takes the view that there is no one best
structure and emphasises the need for flexibility.

The most appropriate structure depends on

• Type and size of organisation and purpose

• Culture
• Preferences of top management/power/control
• History
• Abilities, skills, needs, motivation of employees
• Technology (eg, production systems)
• Environment

Burns and Stalker identified two (extreme) types of structure

(and management style).

1. Mechanistic – rigid structure, bureaucratic management

structure/style, applicable in stable environments.

2. Organic – more fluid. appropriate to changing circumstances

(ie, dynamic environments).

Centralisation vs Centralised structures: upper levels retain authority to make

Decentralisation decisions.

Decentralised structures: ability to make decisions (i.e. commit

people, money and resources) is passed down to lower levels of
the hierarchy.

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 Mintzberg Mintzberg suggests that each component (Blocks) of the
organisation has its own dynamic. The precise shape
(configuration) of the organisation will be determined by the
degree of influence each exerts.

The different Building Blocks:

The different structures by Mintzberg

• Simple Structure
• Machine Bureaucracy
• Professional Bureaucracy
• Divisionalised
• Adhocracy

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 Shamrock Organisations Handy defines the shamrock organisation as a ‘core of
essential executives and workers supported by outside
contractors and part-time help’.
• This structure permits the buying-in of services as needed,
with consequent reductions in overhead costs.
• It is also known as the flexible firm.
• Components:
1. Core (Professional Core)
2. Contract (Contractual Fringe)
3. Contingent (Flexible Labour Force)
4. Customers

Compiled by Jack Wong 45

 Boundary-less Focuses on collaboration beyond the boundaries of the organisation.
organisations Pooling resources from connected and external stakeholders to reap
benefits towards shared goals.

Hollow Organisations

• Managers identifies the core competences of the organisation.

• Retains core competence in organisation
• Outsources the non-core activities or processes.
• Focuses on what the organisation does best.
Advantages:
– Cost savings
– Lower operating gearing as less fixed costs are maintained.
– More resilient in economic difficulties.
– Harnesses the technological capabilities and economies of scale
of outsourcees.
– Takes advantage of market forces to drive internal discipline.
Disadvantages:
– Likely to lose in-house capability and overall control.
– Potentially losing the skills to innovate.
– Risk of higher bargaining of suppliers.
– Challenging to write a contract that aligns the organization’s
and the supplier’s goals and incentives.

Modular Organisations

• Uses outsourcing like Hollow organisations but instead of

outsourcing processes it outsources parts or components of its
product.
• Needs the ability to be able to manage the quality of the parts
outsourced, and ensuring that the parts arrive on time and can be
integrated.

Advantages:
– Takes advantage of competencies beyond the organization.
– Fast and efficient.
– Uses market forces to improve each piece.
Disadvantages:
– Not all products can be divided into modules.
– Getting the interface wrong can hamper assembly.
– Module producers that fall behind can hinder innovation of the
final product.
– Dangers of product commoditization leading to organisation
losing ability to differentiate its products.

Virtual Organisations

• Use of electronic communications which have been facilitated by

advancements in IT systems.
• Allows employees within an organisation to communicate with one
another and with their superiors using email, extranets, intranets
and e-conferencing
• Removes the need to physically bring individuals together to a
single work location.
• E.g: work from home, telecommuting.

Compiled by Jack Wong 46

 Advantages:
– More responsive to the market.
– Stretches the organisation to provide an extended product
and/or service range.
– Leverage people, assets and ideas that fall outside their own
boundaries.
– More innovative.
Disadvantages:
– Requires intensive communication to avoid duplicating effort.
– Lack of trust among the various parties could decrease the
benefits.
– Employees working in this type of environment may need
additional motivation.

Offshoring
Relocation, by a company, of a business process from one country to
another typically an operational process, such as manufacturing, or
supporting processes.

Outsourcing
Contracting work to an external organisation.

Multinational
Business Structures

International Division (In home country)

• Stand-alone division on the domestic structure
• Uses home-based products and technology
• Initial phase of internationalisation

Local Subsidiary (In another country)

• Geographically based
• Operate independently
• Autonomy given to local management
• Appropriate for multi-domestic strategy

Global Product Division

• Appropriate for Global Strategy
• Separate world division

Transnational
• Builds strategic and organisational flexibility
• Matrix like
• Dispersed and independent subsidiaries
• Integrated into worldwide operations
• Different parts specialising in different areas.
• Coordinates various stages of the productions chain in different
countries
• Takes advantages of different geographical distribution factors
and government policies
• Has geographical flexibility
Compiled by Jack Wong 47
 Agile organisations Agile organisations respond quickly to changes in the marketplace and
trends in the workplace. They react swiftly to competitor actions. They
also review processes and working practices to encourage high levels of
employee engagement and morale.

Characteristics
• Shared purpose and vision
• Flat company structure
• Role mobility and entrepreneur drive
• Effective, user-friendly technology

Compiled by Jack Wong 48

Risk Management

Definitions Risk: The possible variation in outcome from what is expected to happen

Uncertainty: The inability to predict the outcome from an activity due to a

lack of information

Risk management: The process of identifying and assessing (analysing and

evaluating) risks and the development, implementation and monitoring of a
strategy to respond to those risks.

The risk management cycle:

Risk 1. Defenders. Risk Averse. Firms with this culture like low risks, secure
Appetite markets, and tried and trusted solutions

2. Prospectors are organisations where the dominant beliefs are more to do

with results (doing the right things, that is, effectiveness), and therefore
prospectors take risks. Risk Seeking

3. Analysers try to balance risk and profits. Risk Neutral

4. Reactors, unlike the three above, do not have viable strategies.

Types of 1. Business Risk – the variability of returns due to how a business operates,
Risks its markets, competitors etc.

2. Strategic Risk – Risks associated with the long-term strategic objectives

of the business, potential variability of business returns arising as a result
of the company's strategy and its strategic position with respect to
competitors, customers, reputation, legal or regulatory change, political
change. Strategic risk also encompasses knowledge management, ie, the
effective management and control of the knowledge resources including
key personnel, intellectual property and production technology.

3. Operational Risk – Variability arising from the effectiveness of how the

business is managed and controlled on a day to day basis, the accuracy and
effectiveness of its information/accounting systems, its reporting systems

Compiled by Jack Wong 49

 and its management and control structures. Operational risk also
encompasses compliance with issues such as health and
safety, consumer protection etc.

4. Financial Risk – risk associated with how the business is financed. Issues
cover the entity's choice of finance structure including the level of gearing
or leverage, its exposure to credit risk and liquidity risks. The
uncontrollable factors of financial risks are interest and exchange rates,
taxes and the state of economy.

5. Hazard Risk – risk arising from accidents or natural events.

6. Compliance Risk - risk arising from non-compliance with laws or

regulations.

7. Cyber Risk - any risk of financial loss, disruption or damage to the

reputation of an organisation from some sort of failure of its information
technology systems.

Risk Risk assessment is establishing the financial consequences of each risk event
Assessment (severity/impact) and its likelihood (frequency) of occurrence.

Risk Risk evaluation: The process by which a business determines the significance
Evaluation of any risk and whether those risks need to be addressed.

Business Business continuity planning: A process through which a business details

Continuity how and when it will recover and restore any operations interrupted by the
Planning occurrence of a rare, but massive, risk event.

Factors that must be considered include:

• Securing interim management and staff
• Inventory replacement
• Restoration of data and other IT systems
• Securing interim premises
• Management of the PR issues

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Statistical Tools

Probability Probability is a measure of likelihood and can be stated as a percentage, a

ratio, or more usually as a number from 0 to 1. It is a measure of the likelihood
of an event happening in the long run, or over a large number of times.

Mutually exclusive: Outcomes where the occurrence of one of the outcomes

excludes the possibility of another (e.g. if a score of six is achieved when a dice
is rolled once, it is not possible to score any other value from the same roll )

Independent events: Two events are independent if the probability of one

event occurring is not affected by the second event occurring (e.g. if a dice is
rolled twice, the probability of scoring a six the second time is independent of
the number scored on the first roll)

Independent not mutually exclusive events

The general rule of addition for two events, A and B, which are not mutually
exclusive, is as follows:
Probability of (A or B) = P (AUB) = P(A) + P(B) – P (A and B)

Dependent events
Dependent events are where the probability of one event is affected by the
other, for example, the probability that sales exceed budget on a particular day
may depend on the weather. Conditional probabilities are calculated as
follows, where A and B are two dependent events:

P (A and B) = P(A) × P(B|A)

Where P(B|A) means the probability of B occurring given that A has occurred.

Expected An expected value is a weighted average value that you might expect to get if
Values you take some action where the possible outcomes are variable, but you can
estimate the probability of each outcome occurring.

The expected values for single events can offer a helpful guide for management
decisions.
• A project with a positive EV should be accepted.
• A project with a negative EV should be rejected.
• When choosing between options the alternative which has the highest
EV of profit (or the lowest EV of cost) should be selected.

Limitations of expected values

• The probabilities are likely to be estimates, therefore be unreliable or
inaccurate.
• Expected values are long-term averages and may not be suitable for
use in situations involving one-off decisions.
• Attitudes to risk of the people involved in the decision-making process
not considered.
• The time value of money may not be considered: ￡1000 now is worth
more than ￡1000 in 10 years’ time.

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 Decision Decision trees are diagrams which illustrate the choices and possible outcomes
Trees of a decision.

Evaluating decisions by using a decision tree has a number of limitations:

• Probabilities are estimates: it may be wrong.
• All impacts/outcomes (Returns, Costs) are also estimates.
• Even if the probabilities are low, it does not mean that it will not
materialise.
• Expected Value is never the materialised value.
• Qualitative issues not considered.
• Not suitable for complex
• Highest EV may have highest risk
• Managers may be risk averse.
• If NPVs are not used the decision tree would not consider the time
value of money.

Statistics Descriptive statistics: Descriptive statistics describes the properties of

sample and population data

Inferential statistics: Inferential statistics uses properties from descriptive

statistics to test hypotheses and draw conclusions

Where outcomes associated with a risk can be predicted reliably, and the
probabilities of those outcomes can be estimated, statistical techniques can be
used to analyse the risks. The statistical methods covered here are:
• Mean
• Standard Deviation
• Co-efficient of variation

Mean The mean (or average) of a set of data is calculated by taking the sum of all the
values and dividing by the number of values in the distribution.

Expected values
The expected value of a risk is the average (mean) value that the
outcome can take over time (for example the average profits per
year).
The expected value is: E (X) = Σ (probability x outcome)

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 Standard A measure of the amount of variability or dispersion in a data set, showing
deviation how far, on average, each result lies from the mean (or expected value).

Risk means the variability of outcomes. Two risks that both have the same
mean or expected value, but may have very different risk profiles.

If the potential outcomes of an event are all close to the expected value, there
is less risk than if the potential outcomes are very different.

Standard deviation in probability distributions

The formula for the standard deviations of a probability distribution
is:

The relevance of standard deviation to risk is that a higher standard

deviation means a greater level of risk.

Chart 1 with small standard deviation = Lower Risk

Chart 2 with bigger standard deviation = Higher Risk

Compiled by Jack Wong 53

 Co-efficient Co-efficient of variation allows for meaningful comparisons between data sets
of variation when they have different mean values or different scales of measurement.

Co-efficient of variation = (standard deviation ÷ mean) x 100

Example:

Product A B

Std Deviation 4,830 4,830

Expected return (mean) 5,850 22,850

Co-efficient of variation 4830/5,850 = 4830/22850

0.8256 = 0.2114
= 82.56% = 21.1%
Higher Lower

Risk Return trade-off Better

Since the Std Deviation is the same, you would want to choose a higher return
i.e. 22,859 vs 5,850.

Co-efficient of variation that is lower is a better option from the perspective of

a Risk and Return trade-off.

Making choices
1. If risk averse then choose the one with the lower Standard Deviation
2. If Standard Deviation is the same choose the one with the Coefficient
of variation = Std deviation/Mean that is lower for a better risk return
trade-off

Probability Probability Distribution is the statistical function that describes the possible
Distributions values and associated probabilities that a variable may take.

Two forms of probability distribution:

• Discrete distributions, where the possible values that a variable can
take are discrete (i.e. specific, exact values) and the probability of each
value occurring can be stated.
• Continuous distributions, where the set of outcomes are values within
a continuous range (e.g. the age of a population would be defined by
different bands, such as 20 - 30 years, 30 - 40 years etc).

Normal A frequency distribution which is important because it arises frequently in

Distribution ‘real-life’.

The normal distribution is a bell-shaped curve, and the probabilities of

variables taking particular values is represented as the area under the curve
between the two values.

It is any distribution that is symmetrical around the mean and the standard
deviation is calculated by squaring values so this ignores positive/negative
values.

Compiled by Jack Wong 54

 Properties of the normal distribution:
• The normal distribution has the following consistent properties:
• The mean of the distribution = the median = the mode
• The distribution is symmetrical - the probability of identifying a value
as equal to or below the mean is 50% and the probability of it being
equal to or above the mean is also 50%.
• The probability of being within particular ranges of the mean depends
on the standard deviation:
1. The probability of a value being between the mean, and one
standard deviation above the mean is 34.1%
2. 68.2% of values lie between one standard deviation below
and one standard deviation above the mean
3. 95.4 % of values lie between two standard deviations below
and two standard deviations above the mean
4. 99.7% of values lie between three standard deviations below
and three standard deviations above the mean.

Some other useful values are:

• 90% of values lie within 1.645 standard deviations above and 1.645
standard deviations below the mean.
• 95% of values lie with 1.96 standard deviations above and 1.96
standard deviations below the mean.
• 99% of values lie within 2.58 standard deviations above and 2.58
standard deviations below the mean.

Skewness The normal distribution is not skewed, and the mean = the median = the
mode at the highest point of the distribution.

Left Skewed

The mode typically occurs at the highest point in the distribution, and typically
the median is to the left of the mode (so it has a lower value than the mode)

Compiled by Jack Wong 55

 and the mean is to the left of the median (so it has a lower value than both the
mode and the median).

Right Skewed

The mode typically occurs at the highest point in the distribution, and typically
the median is to the right of the mode (so it has a higher value than the mode)
and the mean is to the right of the median (so it has a higher value than both
the mode and the median).

Data Population: The entire set of data from which a sample is selected for
Sampling analysis.

Sample: A subset of a larger population of data, facilitating more timely

analysis of the data.

If sample data is used to make inferences about the population then it is

important that the sample is representative of the population, and free from
bias. If not, wrong conclusions may be reached.

One important factor is the size of the sample. The larger the sample is, the
more likely it is to be representative of the population. However, increasing
sample sizes can increase the costs of collecting data significantly, so a balance
needs to be struck between the size of the sample and the costs. Users of data
should question the size of the samples used.

Data Bias Reliability of data analysis could be compromised because of:

1. Bias inherent in the data being analysed (intentional or unintentional)
2. Data may have been intentionally manipulated during the analysis process
3. Data analysed accurately but presentation of data of conclusions made
may have been designed to mislead users.

Data Bias: Where the data in the sample is not representative of the
population for reasons other than the size of the sample.

Types of Data Bias

Selection bias: The method used to select a sample result in

data with certain characteristics being less likely, or having no chance of being
selected. As a result, the sample would not be representative of the population.
May be caused by a lack of random data selection so that the sample of data is
not representative of the population.

Self-selection bias: This occurs when individuals have the chance to

select themselves to appear in a population of data. For example, a
customer satisfaction survey is most likely to be answered by individuals
who are either extremely happy or extremely unhappy with the service
received. The majority of customers will simply not reply so the results are
not representative of all customers.

Compiled by Jack Wong 56

 Survivorship bias: This is the tendency towards studying successful
outcomes while excluding unsuccessful outcomes.

Observer bias: This relates to interpretation and occurs when observing

and recording results. The researcher allows their assumptions (which
may be unconscious) to influence their observations.

Omitted variable bias: This occurs when a variable is excluded from the
data model and therefore the cause of a change in one variable is
incorrectly attributed to another variable in the model. For example,
analysis of sales incorrectly attributes an increase to a new advertising
campaign when it is in fact, caused by a fall in interest rates that has
encouraged consumer expenditure.

Cognitive bias: Cognitive bias relates to human perception and describes

the way individuals interpret and understand information differently
based on their own background, experiences and beliefs.

Confirmation bias: This occurs when people see data that confirms
their beliefs and they ignore (consciously or sub-consciously) data
that disagrees with their beliefs.

Reaching wrong conclusions:

1. Spurious correlation: Strong correlation but does not mean one causes the
other.
2. Type I and Type II errors

In hypothesis testing, (e.g. Hypothesis: 95% of our customers are happy) a

sample is taken and if the results of the sample are not significantly
different from the hypothesis, then the hypothesis is accepted.
• However, it is understood that not every sample mean = population
mean.
• It is also often assumed that sample mean is normally distributed with
a mean of the population.
• Therefore, a confidence interval is set, and if sample mean lies within
the range, we will accept the hypothesis.

However, being professional skeptical we need to be aware that there are two
types of errors:
• Type I error: hypothesis is correct but sample mean is outside the
confidence interval. A false positive.
• Type II error: Hypothesis is incorrect, but sample mean is inside the
confidence interval. A false negative.

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 Regression Regression analysis aims to identify the relationship between two or more
Analysis variables.

Correlation Correlation is a measure of the extent to which changes in the dependent

variable are explained by changes in the independent variable.

The line of best fit has an equation of the form Y = AX + B, where:

• Y is the predicted value of the dependent variable, given the value of
the independent variable, X;

• A shows how much the dependent variable changes for a unit change
in the independent variable (how much blood pressure would
decrease for each extra class attended);

• B shows what the value would be if the value of the independent

variable were zero (blood pressure reading if no exercise classes were
attended)

• Positive - variables move in the same direction as each other, for

example as hours worked increase, wage costs rise.
• Negative - variables move in the opposite direction to each other, for
example as exercise increases blood pressure falls.
• No correlation - variables behave very differently and there is no
obvious linear relationship, for example there is no correlation
between sales revenue and depreciation charge.

Correlation A statistical measure of the strength of the relationship between the relative
coefficient movements of two variables. It shows what portion of the change in the
dependent variable can be explained by changes in the independent variable.

If all the points in the data lie exactly on the line of best fit, this indicates that
100% of the change in the dependent variable are due to changes in the
independent variable. The correlation coefficient can take a value between -1
and +1

Example:

Ticket Price Tickets Sold

6.99 287

5.99 141

6.99 187

7.99 201

8.99 266

9.99 304

10.99 324

11.99 340

5.99 140

12.99 307

5.99 75

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 Calculate the correlation coefficient using spreadsheet functionality and
explain its meaning in the context of ticket prices and cinema visitors.

To calculate the correlation coefficient the instruction would be

=CORREL(A2:A12,B2:B12).

A correlation coefficient of 0.85 indicates strong positive correlation,

indicating that as ticket prices rise demand for cinema tickets increases. This is
not in line with the micro-economic law of demand that the cinema manager is
aware of, which suggests that as prices rise demand decreases

Professional Scepticism

Even though correlation may be strong, however, questions to consider might

include:
• Does the relationship seem plausible? E.g.: Smart phone = diabetic
• Has the data been accurately collected and who collected it? Consider
any potential for bias.
• Could the relationship be because of coincidence or could a third
variable be involved?
Y = AX + b, but it could be Y = A1X1 + A2X2 + A3X3 + B
• Is the sample of data large enough to allow conclusions to be drawn?

Trend Trend analysis aims to uncover patterns in a company’s data in order to

Analysis predict future trends and support strategic decision making. Trend analysis
involves collecting information from multiple time periods and plotting the
information on a graph to assess whether the data points to an upward or
downward trend.

Examples of trend analysis include:

• Reviewing monthly revenue and cost information from the income
statement to identify inconsistencies or fraud eg a spike in revenue in
one period should be investigated to understand the cause.
• Forecasting future revenues and costs, by extrapolating the trend line,
for the purpose of budgeting.
• Analysing and extrapolating historical data to support future strategic
decisions such as investment in a new product or expansion into a
new market.

Limitations of Trends
1. It is based on past data that may not be relevant now
2. Assumes that the trend will continue without any internal or external
interferences.
3. There could be more than two variables
4. Assumes relationship is linear

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Methods of Development

Methods of Growth Considerations:

1. Resources
2. Skills
3. Speed
4. Control
5. Cultural Fit
6. Risks

Lynch Model Lynch expansion matrix is a two by two matrix of company growth
(internal and external development) and geographic location
(home/domestic and international).

Organic Growth Expansion of a firm’s size, profits, activities achieved without taking over
other firms.

Advantages
1. Learning develops core competences
2. Better understanding of the market and product
3. Genuine technology innovation
4. The same style of management and corporate culture can be
maintained
5. Adaptation is less costly compared to revolutionary changes
6. More convenient as there will be less resistance to change
7. Less risky.

Disadvantages
1. Speed of development is slow
2. Difficult to get into markets that have high barriers of entry
3. Does not gain access to knowledge and systems of potential
partners who may be more established
4. Initially will lack economies of scale.
5. Slow in dynamic markets and will lose out to more dynamic
competitors.

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 International Reasons for international expansion
expansion • Chance
• Life cycle
• Competition
• Reduce dependency and spread risk
• Economies of scale
• Variable quality
• Seasonality
• Excess production
• Obsolescent products
• Finance
– Development in emerging markets
– Depreciation in domestic currencies
– Corporate tax benefits
– Lowering of import barriers
• Familial: Family or cultural connections
• Aid agencies

Considerations
Strategic issues
• Is the venture likely to yield an acceptable financial return?
• Does it fit with the company's overall mission and objectives?
• Does the organisation have (or can it raise) the resources necessary
to exploit effectively international opportunities?
• What is the impact on the firm's risk profile?
• What method of entry is most suitable?

Tactical issues
• How can the company get to understand customers' needs and
preferences in foreign markets?
• Does the company know how to conduct business abroad, and deal
effectively with potential partners there?
• Are there foreign regulations and associated hidden costs?
• Does the company have the necessary management skills and
experience?

Ohmae’s 'five C's' framework identified 5 consideration when firms what

to go global.
1. Customers
2. Countries
3. Currency
4. Company
5. Competitors
International Global Marketing: a firm’s commitment to coordinating its marketing
marketing activities across boundaries to find and satisfy global customer needs
better than the competition.

Complexities
1. Coordination
2. Meeting needs of global customers
3. Being better than the competition.

Methods:
1. Standardisation: Global product
2. Adaptation: Localisation
3. Glocalisation: Development and selling of products or services
intended for the global market, but adapted to suit local culture
and behaviours.

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 Acquisitions and A merger is the joining of two separate companies to form a single
Mergers company.

An acquisition is the purchase of a controlling interest in another

company.

The acquirer should attempt an evaluation of the following:

• The amount of synergy obtainable from the merger or acquisition
• The cultural fit between predator and target
• The size and strength of competitors
• The reaction of competitors to an acquisition
• The prospects of technological change in the industry
• The likelihood of government intervention and legislation
• The state of the industry and its long-term prospects
• The prospects of technological change in the industry

Porter’s Better Off Tests

1. Cost of entry test: Future cash flow > cost of acquisition?
2. Better off test: Target company better off after acquisition?
3. Attractiveness Test: Target company structurally attractive?
4. Parenting Test: Parent company has the competence to get the
best out of the target company?

Advantages
1. Marketing Synergies
2. Production and operational synergies
3. Financial Synergies
4. Management Synergies
5. Spreads risks
6. Retain Independence
7. Overcome barriers of entry
8. Outplay rivals.

Problems
1. Cost: Acquisition, post-acquisition, rationalisation
2. Valuation issues
3. Customers may resent
4. Incompatibility
5. Lack of information
6. Cultural differences
7. Driven by personal goals
8. Public opinion and reaction.

Joint Ventures Consortia: Organisations that co-operate on specific business prospects.

Airbus is an example, a consortium including British Aerospace, Dasa,
Aerospatiale and Casa.
Joint ventures: Two or more organisations set up a third organisation or
co-operate in some other structured manner to share control.

Advantages
1. Shares costs
2. Larger coverage of a number of countries
3. Reduces risk of government intervention
4. Reduces risks
5. Close control
6. Advantage of local knowledge
7. Synergies
8. Quick access
9. Gains core competences of join venturer.
Compiled by Jack Wong 62
 Disadvantages
1. Conflicts of interests
2. Disagreements
3. Withdrawal issues
4. No creation of new core competences
5. Intellectual property.

Strategic Alliance A strategic alliance is an informal or weak contractual agreement between

parties or a minority cross-shareholding arrangement (a cross-
shareholding is where each party takes a small number of shares in the
other parties).

Information systems-based alliances

The cost of major Information system (IS) based methods of working,
combined with their inherent communications capability have made
alliances based on IS a natural development. There are four common
types:
• Single industry partnerships: Everyone shares the same system
• Multi-industry joint marketing partnerships: holiday bookings of
hotels, transport and food.
• Supply chain partnerships
• IT supplier partnerships

Advantages
1. Shares development costs
2. Overcomes or circumvents regulatory prohibitions
3. Learning
4. Technology.

Limitations
1. Core competence: new ones not created
2. Lack of integration: loses out on economies of scale and
commitment
3. Strategic priorities different

Choosing alliance partners

1. Synergies?
2. Who?
3. Control?
4. Commitment?
5. Competences?
6. Environment?

Licensing A licensing agreement is a permission to another company to manufacture

or sell a product, or to use a brand name.

Licensees will pay an agreed proportion of the sales revenue to the

licensor for the right to exploit the license in a given geographical area or
for a given range of products.

Licenses can be granted over:

• The use of brands and recipes
• A patent or technology
• A particular asset

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 Franchising Franchising is a form of licensing, and along with the exchange of
intellectual property, it involves an ongoing relationship in which the
franchisor offers operational assistance to the franchisee in the form of
sales promotion, training and business advice.

The franchiser provides:

• Name, and any goodwill associated with it
• Systems and business methods, business strategy and managerial
know-how
• Support services, such as advertising, training, research and
development (R&D) and help with site decoration

The franchisee provides:

• Capital, personal involvement and local market knowledge
• Payment to the franchiser for rights and support services
• Responsibility for the day to day running, and the ultimate
profitability of the franchise

The mechanism
• The franchiser grants a licence to the franchisee allowing the
franchisee to use the franchiser's name, goodwill, systems.
• The franchisee pays the franchiser for these rights and also for
subsequent support services which the franchiser may supply.
• The franchisee is responsible for the day-to-day running of the
franchise. The franchiser may impose quality control measures on the
franchisee to ensure that the goodwill of the franchiser is not
damaged.
• Capital for setting up the franchise is normally supplied by both
parties. The franchiser may help the franchisee in presenting
proposals to suppliers of capital; presenting a business plan based on
a successful trading formula will make it easier to obtain finance.
Thus far,
• the franchiser needs less equity capital than other business
structures.
• The franchiser will typically provide support services, including
national advertising, market research, research and development,
technical expertise, and management support.

Advantages
1. Reduces capital requirement
2. Reduces managerial resources required
3. Speed of growth higher
4. Benefits of specialisation
5. Low head office costs

Disadvantages
1. Profits are shared
2. Difficult to find a competent franchisee
3. Control lost
4. Risk to reputation
5. Potential conflict.

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Evaluation of Strategy and Performance Measurement

Evaluation of Strategy

Strategic Fit Possible areas to examine: Suitability and Feasibility

• Generic Strategies
• Target Market
• Core Competencies
• Core Values/Mission
• Sustainability

Suitability Suitability: is this option appropriate considering the organisation's

strategic position and outlook?

Will the strategy:

• exploit company strengths and distinctive competences?
• rectify company weaknesses?
• neutralise or deflect environmental threats?
• help the firm to seize opportunities?
• satisfy the goals of the organisation? (And, at a more general level,
does it fit with the company's mission and objectives?)
• fill the gap identified by gap analysis?
• generate/maintai n competitive advantage?
• involve an acceptable level of risk?
• suit the politics and corporate culture?

Key question:
• Does it fit with any existing strategies that the company is already
employing, and which it wants to continue to employ?
• How well will the option actually address the company's strategic
issues and priorities?

Feasibility Feasibility: does the organisation have the resources and competences
required to carry the strategy out? Are the assumptions of the strategy
realistic?

Areas of Concern:
• Organisational Feasibility
• Technical Feasibility
• Financial Feasibility
• Social Feasibility
• Environmental Feasibility

Questions to ask:
• Is there enough money?
• Is there the ability to deliver the goods/services specified in the
strategy?
• Can we deal with the likely responses that competitors will make?
• Do we have access to technology, materials and resources?
• Do we have enough time to implement the strategy?
• Is it Practical?
• Is it Ethical?

Compiled by Jack Wong 65

 Acceptability Acceptability:
Will this option gain the support of the stakeholders essential for the success
of the strategy and the organisation as a whole?
Will the option antagonise significant powerful stakeholders that could
thwart its success or that of management as a whole?

• Acceptable to key stakeholders?

o Shareholders
o Customers
o Management
o Staff
o Suppliers
o Banks
o Government
o The public

• Risks vs Returns Analysis

• Cost vs Benefits Analysis

Sustainability The ability to meet the needs of the present without compromising the
ability of future generations to meet their own needs.

Is the business model economically, socially and environmentally

sustainable?

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Performance Appraisal

Strategic Control: Formal System

Formal vs • Step 1: Strategy Review
Informal • Step 2: Identify Milestones
o After CSFs are outlined
o Short-term steps towards long-term goals
o Enables monitoring of actions
o Quantitative
o Qualitative
• Step 3: Set quantitative target achievement levels
o Reasonably precise
o Suggests strategies and targets
o Competitive benchmarks
• Step 4: Formal monitoring of the strategic progress
• Step 5: Reward

Informal System
• Does not limit to only one objective
• Encourages flexibility
• Openness in communication
• Takes into consideration non-quantifiable CSFs

Budgeting A budget is a plan expressed in monetary terms. It is prepared and

approved prior to the budget period and may show income, expenditure and
capital to be employed.

Benefits of budgets
• To compel planning
• Promotes forward-thinking
• Helps to co-ordinate the various aspects of the organisation
• To communicate ideas
• Motivates performance of employees and management
• To provide a framework for responsibility accounting
• To evaluate performance
• Provides a basis for system of control
• Provides a system of authorisation.

Negative effects of budgets include

• Limited incentives if the budget is unrealistic
• A manager may add a percentage to their expenditure budget to ensure
that they can meet the figure
• Manager achieves target but does no more
• A manager may go on a 'spending spree'
• Draws attention away from the longer-term consequences

Problems with budgetary control

• The managers who set the budgets are often not responsible for
attaining them.
• The goals of the organisation as a whole, expressed in the budget, may
not coincide with the personal aspirations of the individual managers.
• Control is applied at different stages by different people.

Features of successful budgetary control systems

• Senior management take the system seriously
• Clear responsibility, and there is accountability
• Targets are challenging but achievable
• Established data collection, analysis and reporting routines
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 • Targeted reporting
• Short reporting periods
• Timely reporting
• Provokes action.

How to improve behavioural aspects of budgetary control

• Develop a working relationship with operational managers
• Keep accounting jargon to a minimum
• Make reports clear and to the point
• Provide control and information with minimum delay
• Ensure actual costs are recorded accurately
• Allow for participation in the budgetary process

Purposes Traditional Budgets Beyond Budgets

Goals Short-term focus Longer-term focus
Rewards Individual based Team based
Plans Predict and control Continuously updated
Focus Company led Customer led
Resources Centrally allocated Available on demand
Co-ordination Slow Fast
Controls Financial indicators Multi-faceted, Multi-level

Measuring Performance can be measured in different ways:

performance 1. Financial performance can be measured in terms of growth,
profitability, liquidity and gearing.

2. Resource use can be measured in terms of effectiveness, economy and

efficiency.

3. Competitive advantage can be measured by identifying critical success

factors (CSFs) and then measuring achievement via appropriate key
performance indicators (KPIs).

Strategic Desirable features of strategic performance measures

performance • Focus attention on what matters in the long term
measures • Identify and communicate drivers of success
• Support organisational learning
• Provide a basis for reward

Characteristics of strategic performance measures:

• Measurable
• Meaningful
• Defined by the strategy and relevant to it
• Consistently measured
• Re-evaluated regularly
• Acceptable

Financial Advantages of Financial Measures

Performance • Easier to manage
measures • Easier than cost-benefit analysis
• Enables delegation
• Broad measure that incorporates all other measures.

Limitations of Financial Measures

• Encourages short-termist behaviour
• Ignores Strategic Growth
• Persons without budget responsibilities are not controlled
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 • Only lagging indicators
• Can be distorted by creative accounting.

Examples of Financial Measures

Growth
• Sales revenue (a growth in the number of markets served)
• Market share
• Profitability

Profitability
• Changes in gross profit
• Gross profit margin
• Net profit margin
• Return on capital employed.

Disadvantages of profit measure

• Risks ignored
• Short-termism
• Not just shareholders should be satisfied
• Liquidity not considered
• Volatile when environment is dynamic
• Cost centres not measured
• Easily manipulated
• Capital not considered.
• Profit may not create long term value.

Liquidity: Availability of short-term cash and working capital

• Current ratio
• Inventory turnover
• Receivable days
• Payable days

Solvency
• Financial Gearing ratio
• Interest cover

3 Es The use of the 3Es to measure resource use:

• Economy
• Efficiency
• Effectiveness

Key Performing KPIs are metrics in relation to a target that will deliver the organisation’s
Index (KPI) objectives in the area to which they relate. KPIs should therefore be related
to the relevant critical success factor.

Marketing
• Sales volume
• Market share
• Gross margins

Production
• Capacity utilisation
• Quality standards

Logistics
• Capacity utilisation

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 • Level of service

New product development

• Proportion of revenue from new products or services
• Patents registered

Sales programme
• Contribution by region, salesperson
• Controllable margin as percentage of sales
• Number of new accounts
• Travel costs

Advertising programmes
• Awareness levels
• Attribute ratings
• Cost levels

Pricing programmes
• Price relative to industry average
• Price elasticity of demand

Management information
• Timeliness of reports
• Accuracy of information

Non-financial Marketing Effectiveness

measures • Trend in market share
(examples) • Sales volume growth
o Number of goods/services sold
o Number of outlets/sites
o Number of countries in which the business operates (sales
and/or production)
• Customer visits per salesperson
• Client contact hours per salesperson
• Sales volume forecast versus actual
• Number of customers
• Customer survey response information
• Websites
o Visits
o Unique visitors
o Page views
o Bounce rates
o Abandonment rate
o Transaction value
o Purchases per transaction

Service quality
• Number of complaints
• Proportion of repeat bookings
• Customer waiting time
• On-time deliveries

Production Performance
• Set-up times
• Number of suppliers
• Days' inventory in hand
• Output per employee

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 • Material yield percentage
• Schedule adherence
• Proportion of output requiring rework
• Manufacturing lead times
• Back orders
• Perfect order rate
• Items out of stock

Personnel
• Number of employees
• Number of complaints received
• Staff turnover
• Days lost through absenteeism
• Days lost through accidents/sickness
• Training time per employee

Compiled by Jack Wong 71

 Balance Scorecard The balanced scorecard (BSC) indicators may be viewed as a vertical
hierarchy, with the quality of the skills and processes measured by
innovation and learning metrics, leading to improved internal business
processes (quality, efficiency and timeliness) and hence customer
satisfaction and loyalty; which, in turn, lead to favourable financial outcomes
such as profit and ROCE.

The 4 Perspectives

• Financial
o How do we create value for our shareholders?
o Primary Objective
Measures/KPIs
▪ ROI
▪ Profitability
▪ Revenue Growth/Revenue Mix
▪ Cost Reduction
▪ Cash Flow

• Customer
o What do current and new customers value from us?
o How do customers see us?
o Revenue generation
o Builds Relationships and Loyalty
Measures/KPIs
▪ Market Share
▪ Customer acquisition
▪ Customer retention
▪ Customer profitability
▪ Customer satisfaction
▪ On-time delivery

• Internal Business
o What processes must we excel at to achieve our financial and
customer objectives?
o Cost management and Value generation
o Focus on Quality, efficiency and timeliness
Measures/KPIs
▪ Quality and rework rates
▪ Cycle-time/production rate
▪ Capacity utilisation

• Innovation and Learning

o Can we continue to improve and create value?
o Sustainability
o Improves Skills and Processes
Measures/KPIs
▪ Employee satisfaction
▪ Employee retention
▪ Employee productivity
▪ Revenue per employee
▪ % of revenue from new services
▪ Time taken to develop new products

Compiled by Jack Wong 72

 Controllability and Responsibility centres in an organisation are usually divided into four
responsibility categories:
accounting • Cost centres – Where managers are accountable for the costs that are
under their control. Cost centre managers are not accountable for sales
revenues.

• Revenue centres – Where managers are only accountable for sales

revenues, and possibly directly related selling expenses (e.g.
salesperson salaries). However, revenue centre managers are not
accountable for the cost of the goods or services they sell.

• Profit centres – Managers are given responsibility for both revenues

and costs.

• Investment centres – Managers are responsible not only for revenues

and costs, but also for working capital and capital investment decisions.

Divisional When assessing divisional performance, the following issues must also be
Performance considered:
Measures • The division manager should only be held accountable for factors within
their control. Performance measurement should focus on traceable
profit.
• Where there is inter-divisional trade, careful consideration should be
given to any transfer pricing mechanism in place.
• Divisions operating in different marketplaces and facing differing levels
of competition cannot be expected to produce similar returns. External
comparisons should be made via benchmarking.
• Wider strategic issues need to be considered such as any
interdependence between divisions eg, shared distribution systems,
shared customers, the impact that a division has on the portfolio of the
business and its brand.
• In assessing the future strategic direction of the business, it is not just
the historic performance of the division but also its future potential that
is relevant.
• Focus on a narrow set of financial measures is unlikely to give a true
picture of performance.

Measurement of performance of SBU

• Traceable Profits

• ROCE = (Profit for the period/Average capital employed during the

period) x 100%

• Residual income = Divisional profit – (Net assets of division  required

rate)

Problems with ROCE and RI

• Short-termist
• Discourage investment in assets
• Lack of strategic control

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 Benchmarking The establishment, through data gathering, of targets and comparators,
through whose use relative levels of performance (and particularly areas of
underperformance) can be identified.

Benchmarking compares the use of assets and activities across the firm, or
across the industry, and indicates where they might be used better or
where they are already a source of superior performance.

Once a business has identified its CSFs and core competences, it must
identify performance standards which need to be achieved to outperform
rivals and achieve sustainable competitive advantage. These standards are
key performance indicators (KPIs).

Benchmarks can therefore provide a means of determining target KPIs

which, if achieved, will match the best standards in the industry.

Such benchmarks not only set targets for existing KPIs, but may suggest
different types of KPIs to measure new CSFs.

Types:

1. Historic or internal benchmarking – Historical comparison looks at

performance over time or between divisions to ascertain
trends/significant changes.

2. Competitive benchmarking – compares performance with other

firms in the same industry or sector.

3. Activity (best in class) benchmarking – compare with best practice

in whatever industry can be found e.g. could compare with a hotel
telephone booking system, or ticket booking or emergency telephone
system, whichever is ‘best in class’ for the function dealing with
telephone calls efficiently.

4. Generic benchmarking – This is benchmarking against a conceptually

similar process e.g. compare an online system of banking compared to
telephone calls which can achieve the same outcome (e.g. simple
transactions online or by telephone).

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 Transfer Pricing A transfer price (TP) is the price at which one division in a group sells its
products or services to another division in the same group.

1. Market prices: transfer prices are set according to market prices to

external customers.
2. Negotiated prices: The transfer price is established by discussions
between the division managers in a bargaining process.
3. Cost-based methods of setting transfer prices
a. Full cost: The variable costs plus an amount to cover the
overheads. There may be some surplus/deficit arising from
efficiencies or overruns if based on budgeted full cost.
b. Variable cost (or marginal cost): This leaves nil contribution
and so enduring losses equal to its fixed costs from internal
sales.
c. Opportunity cost: The revenue forgone by not selling the item
to the highest bidder.
4. Two-part transfer prices: Transfers are charged at a predetermined
standard variable cost. A periodic charge for fixed costs would also be
made by the supplying division to the receiving division.
5. Dual pricing: The buying division records the transfer at the selling
division’s standard variable cost which may aid decision making. The
selling division reports the transfer at a higher value (e.g. cost plus) to
give a profit incentive. This should lead to goal congruence but may
lead to poor cost control as profits are made more easily. The
accounting problem makes this method unpopular.

Implications of the different methods to transfer pricing

1. Prices could affect the quantity ordered and supplied.
2. It can affect the profits earned by respective divisions.
3. It can affect the final prices set for the final consumer.
4. Behavioural Implications
a. Motivated or demotivated
b. Creative accounting may happen

Data Analysis Key skills in data analysis.

1. Choosing analytical tools
2. Carrying out the relevant calculations
3. Interpreting the resulting information: Story behind the numbers
4. Discussing cause and effect relationships
5. Linking different pieces of data to explain trends or outcomes
6. Analysing the wider consequences and implications of the numerical
data
7. Exercising judgement to draw conclusions, but possibly some
reservations
8. Produce sensible recommendations
9. What additional information may be useful to make a firm conclusion
10. Highlighting weaknesses or omissions in the data provided
11. Use the What, How, Why, When, So What method!

Issues with data

• Incomplete
• Bias
• Inaccurate
• Unclear
• Historical
• Not up to date
• Not verifiable
• Source not reliable

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 You are required to
• Consider the materiality and priorities in perspective;
• Question the reliability of estimates;
• Recognise bias, or varying quality in data and evidence;
• Identify gaps in evidence; or
• Identify inconsistences and contradictory information.

Having made a judgement about the reliability of data, the accountant

must:
• reach a conclusion, but possibly with some reservations; or
• consider what additional information can be obtained before making a
firm conclusion.

Compiled by Jack Wong 76

 Performance Evaluation (What, How Why, When So What method)

1. What?
- Looks at WHAT has happened overall
- e.g., revenue has increased by 21%.

2. How?
- 'HOW' seeks to identify the reasons why the 'WHAT' element has occurred
- e.g., sales prices have risen by 10% and monthly sales volumes have risen by 10%
following the price change.
- Looks at the formula that made the WHAT. (Formula of Rev = Price x Quantity)
- Interconnection of the formula is important.

3. Why?
- Look for the underlying causes of the HOW element, which may be part of the
data provided in the question.
- e.g., there have been significant product improvements introduced during the year,
with additional features compared to competitors. This has meant that a higher
price can be charged but has also resulted in an increase in demand, despite this
increased price.
- Internal or External Analysis findings could be linked to the HOW

4. When?
- If you're assessing the impact of changes in strategy over time or in making
comparisons, it is important to know WHEN changes occurred.
- e.g., if the price and volume changes above occurred halfway through the year, then
the increase in sales revenues for the current year may be limited to, say, 10.5%, but
the changes will be more significant in next year's figures.
- Also consider which event happened or which is the catalyst. It could the price
that went up that caused the reaction in Quantity.

5. So What?
- 'So, what are the consequences of our analysis for deciding on the future business
strategy?'
- e.g., what are the consequences for profit of the 10% increases in sales price and
sales volume after considering the variable cost increases arising from the product
improvements and volume increases? How have competitors responded with price
changes and improvements in their own products, which may make the
consequences next year different from those which occurred this year?
- Conclusion and consequences.

6. Other factors to consider

• Completeness: Have you covered all areas of Rev, Costs, and Expenses?
• Comparability: Have you removed significant events for comparability?
• Benchmarking for Objectivity: Have you benchmarked against - Budget, Past,
Industry (Best, Average, Competitor)
• Non-Financials: Must use if given and consider productivity and efficiency ratios
• Efficiency = Effectiveness/Economy (Output/Input)
• Must include calculations of financials/non-financials or non-financials/non-
financials
• Divisional Performance: When comparing performance of divisions, look at the
GP or contribution margin as traceable profits.
• Professional Skepticism: Use the data and assumptions given, then question the
validity of the data and assumptions.
• Other Information needed?
• Must be case specific and indicate why the information is needed
• Consider Non-Financials, Balance Scorecard, Benchmarking
• Conclusion

Compiled by Jack Wong 77

 Possible Reasons for Variances

• Sales Volume
o Poor performance by sales staff
o Deterioration in market conditions
o Lack of goods and services to sell because of production issues
• Sales Price
o Pricing strategy did not consider the 4Cs
o Market conditions deteriorated and a more optimistic price was set
• Direct materials usage
o Performance of production staff, leading to scraps
o Materials used are sub-standard, leading to scraps
o Machinery faulty, leading to scraps
• Direct materials price
o Poor performance by procurement staff
o Higher quality material used than was planned
o Change in market conditions causing prices to go up after budget
• Direct labour efficiency
o Poor supervision
o Staff incompetent
o Low-grade materials and/or labour, leading to scraps and wasted labour time
o Problems with demanding customers
o Dislocation of materials of supply slowing processes
• Direct labour rate
o Poor performance by HR department
o Using higher grade workers than planned
o Change in labour market
• Fixed overhead spending
o Poor supervision of overheads
o General increase in costs of overheads not budgeted

Compiled by Jack Wong 78

 Costs
categories

Costing Absorbtion costing

methods A unit of output is valued at full cost – that is, the prime cost plus an absorbed
share of production overhead costs.

Marginal costing
Anly variable costs are included in the valuation of units. All fixed costs are treated
as period costs and written off against sales revenue in the period in which they
are incurred.

The absorption cost of sales will include some fixed costs from a previous period
(included in opening inventory) while all fixed costs are written off as expenses in
the year of incurrence with marginal costing.

Activity based costing

Cost drivers – that is, those activities that cause costs in the first place – are
identified and overheads are assigned to products or services based on the
number of the cost drivers generated by each.

More than one cost might have the same cost driver, so costs associated with the
same driver are gathered into cost pools and then allocated using the appropriate
driver.

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 CVP Analysis

For investment appraisals

1. Determine Price and Variable Cost

2. Calculate contribution PER UNIT.

3. Then determine the units to get the Total Contribution or Gross Profit.

4. With the above info, you are now able to get the GPM.

5. Next determine the Fixed Costs and calculate the Operating Profit leading to OPM.

6. At this point you would have contribution per unit and fixed costs which will allow you to
calculate the Breakeven Point.
Breakeven Point = Fixed Costs/Contribution per unit

7. Now you will be able to also calculate

Margin of Safety = (Planned Sales - Breakeven Sales)/Planned Sales.
(Note that the Margin of Safety formula may change depending on what they want, such
as Margin of Safety to meet the same level of profit in past years, or industry numbers.)

8. The GPM and the OPM will provide you information on the Returns of the investment and
the Breakeven Point and Margin of Safety will provide you with information on Risk.

9. Once this is done you will now be able to compare the Returns vs Risk of different
investments.

Compiled by Jack Wong 80

 10. Note that such questions will then lead to sensitivity analysis which will vary the
elements of Price, Quantity, VC and FC to re-establish the Risks and Return.

11. Also need to think of the viability of the financial information produced and consider the
non-financials which will also have an impact on the decision.

The key here is to know that the numbers calculated is to help you determine the Risk and Return
of the respective investments, and to take it through further discussions on how to manage
Operations (Outsourcing, Procurement, Logistics, Technology) and Marketing (7Ps especially
Pricing - Costs, Competitor, Customer, Corporate Objective; and Flexible Pricing - Discrimination
Pricing).

Compiled by Jack Wong 81

Business Planning and Functional Strategies

Business Plan • Statutory data: Company name and number, address and other contact
components details.

• Executive Summary: An outline of the business alongside a summary of

the costs and revenues projections for the proposed investment.

• The Business

• Marketing and Competition

• Product and service details

• Operations

• Management Team and Key Personnel

• Business insurance/risk management

• Financial data
o Statement of financial position
o Loan applications
o Capital equipment and supply list
o Break-even analysis
o Pro-forma income projections (forecast income statements)
▪ Three-year summary
▪ Detail by month, first year
▪ Detail by quarters, second and third years
▪ Assumptions upon which projections were based
o Pro-forma cash flow
Cash Inflows
Cash sales
Cash from receivables
Interest receipts
New finance issues

Cash Outflows
Payments to payables
Capital expenditure
Loan repayments
Interest payments
Tax payments
Dividend payments

• Supporting documents
o Tax returns of the business and owners for last three years
o Personal financial statement (all banks have these forms)
o In the case of a franchised business, a copy of franchise contract
and all supporting documents provided by the franchisor
o Copy of proposed lease or purchase agreement for building space
o Copy of licences and other legal documents
o Copy of resumes of all owners and senior managers
o Copies of letters of intent from suppliers, customers, etc

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 Key questions financiers would ask:
• Are the sales and revenue forecasts reasonable/achievable?
• Are the costs understated?
• Are market share projections realistic?

Business Finance business partnering typically includes members of the finance team
Partner becoming more involved in strategy formulation and implementation, and in
Model commercial decision making.

Involves the finance function working alongside other business functions

rather than being a separate function on their own.

Instead of only reporting on organisational performance, the role of the

finance function becomes one of providing advice and support to the
other areas of the business, to help them maximise their performance.

ICAEW’s business partnering guide explains the importance of professional

judgement in business partnering.

Professional judgement:

Is a combination of knowledge, skills and attitudes means that somebody

makes ‘good calls’ when confronted with problems and decisions.

Such calls would be both ethical and improve business performance is

intuitive in nature – often described as ‘nous’, ‘nose for a problem or ‘sixth
sense’

Developing professional judgement may facilitate deeper thought about

personal development and emphasize the need to combine a range of
knowledge, skills and attitudes to achieve success as business partners.

Dilemmas
There is a risk that a finance business partner may get too close to the
business function managers.

This may lead to a compromise of objectivity and independence. This could

potentially lead to:
• subverting governance processes through misreporting
• sidestepping controls with wide-reaching consequences

A second dilemma is that insufficient time is allocated to business partnering

because:
• People who lack the necessary knowledge, skills and attitudes to
perform business partnering may divert their attention to tasks they
feel more comfortable with, instead of prioritising business
partnering work.
• Resistance by operational managers can make business partnering
roles stressful making it preferable to spend time elsewhere.

Compiled by Jack Wong 83

 Marketing
Planning

1. Market Research
2. Market Segmentation
3. Market Targeting
4. Market Positioning
5. Marketing Mix
6. Marketing Control
• Development of objectives and strategies
• Establishment of standards
• Evaluation of performance
• Corrective action

Human A strategic and coherent approach to the management of an organisation's

Resource most valued assets: the people working there who individually and
Management collectively contribute to the achievement of its objectives for sustainable
competitive advantage.

Goals of Strategic HRM

1. Serve the interests of management
2. Suggest a strategic approach to personnel issues
3. Link business mission to HR strategies
4. Enable HR development to add value to products and services
5. Gain employees' commitment to the organisation's values and goals

HRM Planning
HR must keep a balance between the forecast supply of human resources in
the organisation and the organisation's forecast demand for human
resources.

Compiled by Jack Wong 84

 Closing the gap
1. Recruitment plans
2. Training plan
3. Redevelopment plan
4. Productivity plan
5. Redundancy plan
6. Retention plan

The HR Cycle:

Compiled by Jack Wong 85

 Best Fit • HRM strategy needs to be relevant to, and supportive of, the business
(Contingency) strategy.
Approach • HRM strategies need to 'fit' with the internal and external contexts of
the organisation.
• HRM must be flexed to align an organisation with outside factors in
order to deliver effective performance.
Hard and Soft Issues Soft Hard
Approach Goals Develop HR as an asset Meet organisation
Workers are valuable to the Objectives
company Workers are Resources

Assumptions Theory Y Theory X

Human Relations School Scientific Management

Management Consultative, Participative Authoritative, Autocratic

Style

Learning Development of employees Training employees for the

for their careers job

Structure Delegated, autonomy, Centralised

devolved

Rewards An organisation has to make three basic decisions about monetary reward:
Management 1. How much to pay?
Model 2. Whether monetary rewards should be paid on an individual, group or
collective basis.
3. How much emphasis to place on monetary reward as part of the total
employment relationship?

Bratton proposes a model of reward management based on five elements.

1. The strategic perspective
a. Cost Leadership or Differentiation?
b. Contingency Approach or Resource Based?
2. Reward objectives
a. Recruitment
b. Retention
c. Motivate
d. Compliance
3. Reward options
a. Base pay
b. Performance pay
c. Indirect pay
4. Reward techniques
a. To create preception of equity and fairness
b. Achieved through
i. Job Analysis
ii. Job Evaluation
iii. Performance Appraisals
5. Reward competitiveness
a. Labour market
b. Cost efficiencies
c. Legislation

Issues with rewards systems

1. Trade unions
2. Economic conditions
3. Subjectivity and inconsistency.

Compiled by Jack Wong 86

 Succession Not only provides continuity of leadership, it also facilitates management
planning development of all levels

Benefits
• Continuous search for potential replacements
• Taking insurance for loss of key personnel
• Addressing developing needs of employees
• Mentoring and providing training to employees through job rotation
• Periodic reviewing of next lower level to find backups for each senior
position
• Course of action which brings least disruption to work to maintain
effectiveness of administration

Features of successful Succession Planning

• Plan should focus on future requirements in terms of strategy and
culture
• Driven by top management
• Focuses not only on management development but also assessment and
selection
• Assessment should be objective and involves more than one assessor
• Should create a leadership cadre instead of a queue for top positions

HR and • Use of wearable technology to track and measure

Technology • Big data
• Home Working
• Security considerations
• Legal and ethical considerations

Effectiveness of Effectiveness of HRM determined by the 4 Cs

HRM 1. Competence
2. Congruence
3. Commitment
4. Cost Effectiveness

R & D Planning R&D plays a key role in product strategy and several strategic models are
relevant in this context.
• Porter’s generic strategies: Product and process innovation could
be a source of differentiation.
• Porter’s value chain: R&D is included within the support activities
of technology development. It can be harnessed in the service of
lower costs or improved differentiation.
• Ansoff matrix: R&D supports all four strategic quadrants.
• Industry and product life cycles: The obsolescence of existing
products can be affected by R & D.

Innovation Innovation
planning Is concerned with the generation of new ideas of how to do business. It is
primarily a creative activity.

It can be viewed as the application of better solutions, that meet new

requirements, inarticulate needs, or existing market needs.

Types of Innovation

Business Model Innovation

Involves changing the way business is done in terms of capturing value e.g.
HP vs. Dell, AirAsia vs. MAS

Compiled by Jack Wong 87

 Process Innovation
Involves the implementation of a new or significantly improved production
or delivery method e.g. TPS

Product Innovation
Involves the introduction of a new product that is new or substantially
improvement e.g. smartphones

Service Innovation
Similar to product innovation except that the innovation relates to services
rather than to products e.g. Amazon

Created through
1. Leadership
2. Culture
3. People
4. Structure
5. Communication

Purchasing Purchasing is the acquisition of material resources and business services for
use by the organisation.

Purchasing Mix
1. Supplier
2. Quantity
3. Price
4. Delivery (Time)
5. Quality

Sourcing Strategies
1. Single Supplier
2. Multiple Suppliers
3. Delegated

Single Supplier
Advantages
• Stronger relationship with the supplier.
• Possible source of superior quality due to increased
opportunity for a supplier quality assurance programme.
• Facilitates better communication.
• Economies of scale.
• Facilitates confidentiality.
• Possible source of competitive advantage.
Disadvantages
• Vulnerable to any disruption in supply.
• Supplier power may increase if no alternative supplier.
• The supplier is vulnerable to shifts in order levels.

Multiple Suppliers
Advantages
• Access to a wide range of knowledge and expertise.
• Competition among suppliers may drive the price down.
• Supply failure by one supplier will cause minimal disruption.
Disadvantages
• Not easy to develop an effective quality assurance programme.
• Suppliers may display less commitment.
• Neglecting economies of scale.

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 Delegated
Advantages
• Allows the utilisation of specialist external expertise.
• Frees-up internal staff for other tasks.
• The purchasing entity may be able to negotiate economies of
scale.
Disadvantages
• First tier supplier is in a powerful position.
• Competitors may utilise the same external organisation so
unlikely to be a source of competitive advantage.

Strategic Strategic procurement is the development of a true partnership between a

Procurement company and a supplier of strategic value.

The arrangement is usually long term, single-source in nature and

addresses not only the buying of parts, products or services, but also
product design and supplier capacity.

E-procurement Using technology to conduct business-to-business purchasing over the

internet.

Advantages of e-procurement for the buyer:

• Facilitate cost savings
• Easier to compare prices
• Faster purchase cycle
• Reductions in inventory
• Control indirect goods and services
• Reduces off-contract buying
• Data rich management information to help reduce costs and predict
future trends
• Online catalogues
• High accessibility
• Improved service levels
• Control costs by imposing limits on levels of expenditure.

Advantages to suppliers:
• Faster order acquisition
• Immediate payment systems
• Lower operating costs
• Non-ambiguous ordering
• Data rich management information
• 'Lock-in' of buyers to the market
• Automate manufacturing demands.

Operations Operations management is concerned with the design, implementation and

Management control of the processes in an organisation that transform inputs (materials,
labour, other resources, information and customers) into output products
and services.

Six items that should be incorporated into an operations strategy

1. Capability required
2. Range and location of operations
3. Investment in technology
4. Strategic buyer-supplier relationships
5. New products and services (Product life-cycle)
6. Structure of operation

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 4 Vs of Operations Management
1. Volume
2. Variety
3. Variation in demand
4. Visibility

Competitive advantages
1. Reduces costs
2. Increases customer satisfaction
3. Reduces the risk of operations failure
4. Reduces the amount of capital that should be employed
5. Basis for future innovation.

Capacity Capacity planning is the process of determining the capacity needed by an

Planning organisation to satisfy changing demands for its products or services.
1. Level capacity plan is a plan to maintain activity at a constant level
over the planning period, and to ignore fluctuations in forecast demand.
2. Chase demand plan aims to match capacity as closely as possible to
the forecast fluctuations in demand.
3. Demand management planning: reduce peak demand by switching it
to the off-peak periods such as by offering off-peak prices.
4. Mixed plans: capacity planning involving a mixture of level capacity
planning, chase demand planning and demand management planning.

In capacity management, considerations should be given to both Demand

and Supply management.

Capacity 1. Materials requirements planning (MRP I): Converts estimates of demand

Control into a materials requirements schedule.
2. Manufacturing resource planning (MRP II): A computerised system for
planning and monitoring all the resources of a manufacturing company.
3. ERP software: Encompasses several integrated modules designed to
support all the key activities of an enterprise.

JIT Systems Just-in-time: An approach to planning and control based on the idea that
goods or services should be produced only when they are ordered or
needed. Also, called lean manufacturing.

Three key elements

1. Elimination of wastes
2. The involvement of all staff in the operation
3. Continuous improvement

Quality Quality – Fitness for Purpose

Management
Quality assurance focuses on the way a product or service is produced.
Procedures and standards are devised with the aim of ensuring defects are
eliminated (or at least minimised) during the development and production
process).

Quality control is concerned with checking and reviewing work that has
been done. Quality control therefore has a narrower focus than quality
assurance.

Total Quality Management (TQM)

1. Internal customers and internal suppliers
2. Service level agreements
3. Quality culture within the firm
4. Empowerment

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Strategies for Information

Strategic Information Tactical information Operation Information

• Derived from internal • Primarily generated • Derived from internal
and external sources internally with limited sources
• Highly summarised external component • Detailed, being the
• Relevant to the long • Moderately summarised processing of raw data
term • Relevant to the short and • Relevant to the immediate
• Concerned with the medium term term
whole organisation • Concerned with activities or • Task-specific
• Often prepared ad hoc departments • Prepared very frequently
• Both quantitative and • Prepared routinely and • Largely quantitative
qualitative regularly • Helps make structured
• High uncertainty, as the • Based on quantitative decisions
future cannot be measures
accurately predicted • Helps make semi-structured
• Helps make decisions
unstructured decisions

Qualities of Qualities of good information

Good Info • Accurate
• Complete
• Cost-beneficial
• User-targeted
• Relevant
• Authoritative
• Timely
• Easy to use

Completeness, Cause of poor quality

accuracy and • Business dynamics changes
credibility of • System design changes
data and • Weak control over application changes
information • Lack of common data standards or metadata
• Legacy systems
• Time decay
• Data entry issues.

Earl’s System Earl's systems audit grid

Audit Grid

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 Divest
o No use as there is no value to the organisation
Reassess
o Good quality so there should be use for it but no value?
o So need to reassess if we need it
Renew
o If high value but bad quality
o Need to improve else will be a business risk
Maintain, Enhance
o To gain competitive advantage
o Preserve high quality

IS and the Value Firm infrastructure

Chain • Enterprise Resource Planning (ERP)
• Accounting system
• Corporate intranet
• Extranet

Human resource management

• Skills databases
• Manpower scheduling
• Computer based training
• Performance monitoring

Technology development
• Computer aided design (CAD)
• Automated software testing
• Electronic market research

Procurement
• E-procurement
• Electronic Data Interchange (EDI)
• Ordering process
• Supplier databases

Inbound logistics
• Material requirements planning (MRPI)
• Manufacturing resource planning (MRPII)
• Just-in-time inventory management
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 Operations
• Process control
• Machine tool control
• Robots
• Computer Aided Manufacturing (CAM)
• Computer Integrated Manufacturing (CIM)
• Automated production lines
• Robotics
• 3D printing

Outbound Logistics
• Automated order processing
• Order tracking

Marketing and sales

• E-commerce
• E-Marketing
• Internet advertising
• Electronic Point of Sale (EPOS)
• Social media

Service
• Customer relationship management (CRM)
• Fault monitoring
• Quality control systems
• Computer aided design.

CRM The use of database technology and ICT systems to help an organisation develop,
maintain and optimise long-term, mutually valuable relationships between the
organisation and its customers.

To develop mutually valuable relationships.

Chaffey’s three phases of CRM

Knowledge Knowledge is the potential for action based on data, information, intuition and
Management experience.

Explicit knowledge is knowledge that the company knows that it has. This
includes facts, transactions and events that can be clearly stated and stored in
management information systems.

Tacit knowledge is personal knowledge and expertise held by people within the
organisation that has not been formally documented.

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 Knowledge management
1. Captures all explicit and tacit knowledge valuable to organisation
2. Delivered to people to be acted upon
3. To gain competitive advantage
a. Knowledge is a strategic asset
b. Knowledge is difficult to imitate
c. Fast and efficient exchange of information
d. Helps improve processes, products and performance
e. Identifies opportunities to meet customer needs
f. Promotes creativity and innovation

Key Steps
1. Support from senior management.
2. Installing the IT infrastructure.
3. Developing the databases.
4. Develop a sharing culture.
5. Capturing and using the knowledge.
6. Ensure that key strategic knowledge is kept secure and confidential

ERP Enterprise Resource Planning Systems

A software system designed to support and automate the business processes of
medium-sized and large enterprises.

It is an accounting-orientated information system which aid in identifying and

planning the enterprise-wide resources needed to schedule, make, account for
and deliver customer orders.

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Digital Strategies

Digital Strategy The use of digital technology and digital assets to challenge existing ways of
doing things and to restructure accordingly, in particular in relation to the way
businesses interact with their customers.

Impact of Digital Digitisation enables new entrants, using disruptive models, to penetrate
existing industries, and to change the competitive landscape in those
industries.
1. Technology can affect products or services
2. Technology can also transform the way a product or service is
delivered to the customer
3. Digitisation also encompasses the automation of a business's
operations and processes and can extend across an organisation's
supply chain.
4. Digitisation can extend across the wider business environment

Issues with digital A number of ways companies get digital transformation wrong (and
strategies accordingly could fail to implement a digital strategy successfully):
implementation • Failing to adapt to new technologies
• Failing to identify changes in customer behaviour
• Failing to understand the significance of paradigm shifts in the market
places
• Poor planning
• Lack of employee and stakeholder engagement
• Failing to anticipate the true costs of change

Implementation of 1. Understand current position

digital strategies – Assess ability
– Assess readiness
2. Have a vision of where you want your company to be
3. Look for ideas
4. Build a framework for change
– Methodology
– Change team
5. Think about culture change and communicate effectively
6. Anticipate costs
7. Measure success

Development and Stages of digital development where issues could arise

implementation • Analysis
issues • Design
• Programming
• Testing
• Conversion
• Implementation

User resistance issues and mitigation

1. People-oriented: User-resistance is caused by factors internal to users as

individuals or as a group.

Mitigation
• User training.
• Organisation policies.
• Persuasion.
• User involvement in system development.
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 2. System-oriented: User-resistance is caused by factors inherent in the new
system design relating to ease of use and functionality.

Mitigation
• User training and education.
• Improve user-interface.
• Ensure users contribute to the system design process.
• Ensure the system 'fits' with the organisation.

3. Interaction: User-resistance is caused by the interaction of people and the

system.

Mitigation
• Re-organise the organisation before implementing the system.
• Redesign any affected incentive schemes to incorporate the new
system.
• Promote user participation and encourage organisation-wide
teamwork.
• Emphasise the benefits the system brings.

Digital Assets Assets which are held in digital form, that is to say assets which are not
available in physical form. Common examples of digital assets include:
electronic documents (eg, PDFs; 'Word' documents), presentations, images,
logos, audio and video files.

Digital Asset Management (DAM) software: A business process

management solution which enables organisations to create, manage, share,
track and find digital assets.

Common features of DAM:

• Digital assets are saved centrally to avoid the need for multiple
network locations.
• Access rights can be set so that only individuals with appropriate
authorisation can access and amend digital content.
• Digital assets can be saved according to their file type which is
designed to support ease of use.
• A search function which allows users to search for digital assets in the
event that the asset name cannot be recalled (ie, the file name).
• Many digital asset management systems are integrated with cloud-
based technologies so that the organisation's digital assets can be
securely stored and can be accessed around the world.

Implementing a DAM requires:

• Infrastructure capabilities and storage needs
• Management support
• Selection of supplier
• Dedicated project team

Five step approach for protecting their critical digital assets:

1. Identify and map digital assets, including data, systems and
applications across the business value chain
2. Assess the risks for each asset, and its importance to the business (in
order to identify the business' key assets – its 'crown jewel' assets)
3. Identify potential attackers, the availability of assets to users, and
current controls and security measures protecting the systems
through which access can be gained to the assets

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 4. Locate where security is weakest around crown jewel assets and
identify controls that should be in place to protect them
5. Create, and implement, a set of initiatives to address the high-priority
risks and control gaps. (This list of initiatives should be regularly
refreshed to reflect new data, systems, applications and risks.)

Data Warehouses A data warehouse consists of a database containing data from various
operational systems and reporting and query tools which allow the data to be
analysed.

It is a single point for storing a coherent set of information for

management analysis and decision-making.

Features of data warehouses

• subject-oriented e.g customers, suppliers
• integrated – data must be consistent
• time-variant – trends
• non-volatile – cannot be changed

Advantages
1. Enhances strategic decision making
2. Data quality and consistency
3. Saves time

Big Data High-volume, high velocity and high-variety information assets that demand
cost-effective, innovative forms of information processes for enhanced insight
and decision making.

Extremely large collections of data (data sets) that may be analysed to reveal
patterns, trends, and associations, especially relating to human behaviour and
interactions.

Types of data:
• Structured data is data which is obtained with a particular purpose in
mind, so has an inherent structure derived from the way in which it is
collected, typically from website clicks or other particular actions.

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 • Unstructured data is obtained without a particular objective so has no
inherent structure within itself
o Captured data – data which is created passively from unrelated
activity and captured without a specific purpose, for example from
a smartphone which allows data to be captured about a person's
location, or from a search engine which captures which websites
have been accessed by which computers
o User-generated data – data which internet users create and
voluntarily place online, such as tweets, photos etc

Advantages:
ICAEW IT faculty point out big data and data analytics are being used to:
• gain insights;
• predict the future and
• automate non-routine decision making.

A report by the management consultants McKinsey highlights the following

ways in which big data and data analytics can be used by a business to create
value:
• Enhancing transparency: Data analytics of big data create insights
into issues affecting the business that may not have previously been
fully understood, such as customer buying patterns or market price
fluctuations.
• Performance improvement: Real-time, analysed information allows
managers to make better decisions which result in better profitability.
• Market segmentation and customisation: Insights into customer
needs from analysed big data allow the business to tailor product
designs and prices to particular customers or groups of customers.
• Decision-making: Real-time information allows managers to make
better day-to-day decisions, for instance about pricing or stocking of
goods.
• Innovation: Analysed big data can reveal completely new ideas which
result in new products and services. Big data also underlie the growth
of virtual – or 'borderless'
• Risk management: Data analytics can use big data to assist with the
identification, quantification and management of risk.

Barriers to introducing Big Data

1. The unknown destination
2. The underlying technology challenges
3. The lack of holistic approach
4. The short of talent
5. The fear of cyber attack
6. The difficulty of building the business case
7. The need for legal and regulatory compliance
8. The need for customer data.

Misconceptions of application of BigData

1. Big data is only for big companies:
As a small organization, the data you have may not be as large as some
others, but the approach to analyzing and utilizing that data remains
the same.
2. Big budget, big teams and big platforms:
The ability to spin up cloud-based systems today makes this extremely
easy and cost-effective for any organization.
3. More data is better:
More data isn’t always better but good, clean data is.

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 4. Machines are better than humans:
Machines can only do what a human tells them to do.
Source: https://enterpriserspro ject.com/article/2019/4/4-big-data-myths-
busted

Video Link on Big Data and Data Analytics:

Analytics and Analytics relates to the use of

business • data and evidence,
intelligence • statistical, quantitative and qualitative analysis,
• explanatory and predictive models, and
• fact-based management to drive decision-making.

10 key business analytic tools

1. Web analytics
2. Customer analytics
3. Predictive business analytics
4. HR analytics
5. Project analytics
6. Process analytics
7. Supply chain analytics
8. Procurement analytics
9. Marketing and brand analytics
10. Big data analytics

Data mining:
• analysing data to identify patterns and establish relationships such as
o associations (where several events are connected),
o sequences (where one event leads to another) and
o correlations.
Predictive analytics:
• predict future events.
Text analytics:
• scanning text such as emails and word processing documents to extract
useful information simply by looking for key-words that indicate an
interest in a product or place.
Voice analytics:
• as above but with audio.
Statistical analytics:
used to identify trends, correlations and changes in behaviour.

Risks of big data, Risks

data science and 1. Storage
data analytics 2. Workforce skills
3. Data dependency
4. Information overload
5. Data privacy
6. Data security

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 Internet of Things The internet of things is made up of devices connected together. It is situation
in which everyday objects have network connectivity, allowing them to send
and receive data over the internet.

At the heart of the internet of things are sensors collecting and transmitting
data.

By combining connected devices with automated systems, it is possible to

gather information, analyse it and create an action to perform a task, or to
learn from a process.

The general benefit for businesses of the internet of things is that it gives them
more access to data about their own products, or their own internal systems,
thereby improving their ability to make changes.

Applications
1. Monitoring behaviour
2. Situational awareness
3. Decision analytics
4. Process optimisation
5. Resource consumption.

Video Link on Internet of Things:

Video Link on Internet of Things and the Supply Chain:

Intelligent Systems A computer-based system that can

• represent,
• reason about, and
• interpret data.

In doing so it can
• learn about the structure of the data,
• analyse the data to extract patterns and meaning,
• derive new information, and
• identify strategies and behaviours to act on the results of its analysis.
(University College London, 2018)

Technologically advanced machines that perceive and respond to the world

around them." (University of Nevada, 2018)

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 Artificial Artificial Intelligence (AI), sometimes called machine intelligence, relates to
Intelligence any device that perceives its environment and takes actions that maximize its
chance of successfully achieving its goals. Artificial intelligence is applied when
a machine mimics "cognitive” functions such as learning and problem solving.

The ability of a machine or system to perform cognitive functions we associate

with human minds, such as
• perceiving,
• reasoning,
• learning and
• problem solving, and
• acting in a way that we would consider to be 'smart'.

Most advances in artificial intelligence have been achieved by applying

machine learning to very large data sets.

Artificial intelligence (AI) is commonly broken down into three types:

1. The analytical type of AI has cognitive intelligence (it uses cognition to
create a representation of the world) based on past experience that it uses
to inform future decisions.
2. The human-inspired type of AI has a degree of emotional intelligence (an
understanding of human emotions) as well as cognitive elements, that it
draws on in decision making.
3. The humanised type of AI has several types of human intelligence
characteristics (such as cognition, emotional, and social intelligence). This
is the highest form of AI and allows the system to be self-conscious and
self-aware when interacting with humans.

Evolution of AI:
1. Assisted Intelligence: e.g. Cruise control automatically maintains vehicle’s
speed
2. Augmented intelligence: e.g. Lane detection systems use sensors to aid
drivers
3. Autonomous intelligence: e.g. Self-driving cars operate with sensors and
software

Source: Deloitte

Machine Learning Machine learning is a subset of AI that applies algorithms or other statistical
techniques to data to give computers the ability to "learn" (i.e. progressively
improve performance on a specific task) without being explicitly programmed
or reprogrammed to do so

It is an application of AI based around the idea that we should really just be

able to give machines access to data and let them learn for themselves.

Machine learning algorithms detect patterns and learn how to make

predictions and recommendations by processing data and experiences, rather
than by receiving explicit instructions. The algorithms also adapt in response
to new data and experiences to improve efficacy over time. (McKinsey & Co).

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 It is iterative: as models are exposed to new data they are able to adapt
independently. In this way, models learn from previous computations to
produce reliable, repeatable decisions and results.

Machine learning decisions are based on two important aspects of analytics:

• Predictive analytics: anticipating what will happen, based on the data
and patterns in the data.
• Prescriptive analytics: providing recommendations for what to do in
order to achieve goals or objectives.

Key issue:
Machine learns based on what data is fed in. Therefore, there could be an issue
of “garbage in garbage out”.

Applications in Financial Services

• Fraud detection: detecting anomalies in patterns of payments or
receipts and flagging these for security teams
• Loan applications: helping to identify the risk profile of potential
clients (eg, through advanced analytics for credit scoring)
• Portfolio management: 'robo-advisors' (such as Betterment or
Wealthfront) use algorithms to calibrate a financial portfolio to the
goals and risk tolerance of the investor, and adjust to changes in
investors' goals and real-time changes in the market, to ensure the
best fit between investors' portfolios and their investment goals.

Applications in Marketing and Sales:

• Websites recommending items a customer might want to buy, based
on analysis of previous purchases and buying history
• Algorithms used to help encourage shoppers to complete a purchase.

Video link on Machine Learning:

Benefits of AI and 1. Predictive maintenance: Machine learning can use data from sensors
ML throughout an operating system to identify performance issues in the
system.

2. Real-time forecasts: e.g. real-time optimisation of delivery routes for

logistics companies.

3. Product recommendations: Combining customer demographic and past

transaction data with social media monitoring can help generate
individualised product recommendations (as used by Amazon and Netflix)
which help to increase the conversion rate between the number of 'hits' on
a website and the number of sales generated.

4. Personalised marketing: Individual drivers' driving patterns and

distances driven can be used by insurance companies to customise
premiums.

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 5. Supply chain: Forecasting inventory requirements based on causal
drivers of demand, rather than relying on prior outcomes or historic
trends, can improve forecasting accuracy.

6. Anomaly detection: As well as contributing to predictive and prescriptive

analytics, machine learning can also be valuable in analysing current (real
time) data sets to highlight unexpected patterns and outliers (anomalies)
in them.

Issues with AI and Key Issues

ML • Data Accuracy: The training data needs to be free from bias and
systematic error – for example, arising from an unfair sampling of a
population.
• Interpretability: AI applications are a 'black box' where not even
engineers can decipher why a machine made a certain decision.
• Accountability: Who is responsible for the decision-making process of a
machine?

Consideration in application of AI:

1. Strategic/financial:
• Will a new AI-based product or business model pay off?
• Should we turn a multimillion-dollar decision over to an AI system?
2. Reputational:
• How much automation do we want in our customer processes?
• What’s the impact if things go wrong?

3. Legal/regulatory:
• Does our AI comply to legislations, and can we prove how decisions
and actions happened?
4. Ethical:
• Have we defined our standards, and are we building our AI in a way
that will align with them?
• How are we managing bias?
5. Societal:
• When do we reach a tipping point in automation and the resultant
impact on jobs?
• What could or should we do about that?
Source: https://enterprisersprojec t.com/article/2019/5/ai-5-biggest-risks

Video link on Artificial intelligence:

Chatbots A service, powered by rules and artificial intelligence that people interact with
via a chat interface. This chat interface can either be written or verbal.

Example: Amazon's Alexa, Apple's Siri and Google Assistant

Two levels:
1. Uses only Rule based, e.g AVA at Airasia

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 2. Uses Artificial Intelligence as well: e.g Amazon's Alexa, Apple's Siri and
Google Assistant

Benefits
1. Always accessible
2. Scalability
3. Cost effective
4. Customer satisfaction
5. Application of Machine Learning.

Automation The creation of technology and its application in order to control and monitor
the production and delivery of goods and services, performing tasks that were
previously decided on and performed by humans.

The automation of business processes is not solely restricted to traditional

manufacturing type businesses, and is now in widespread use in many service
industries.

Robotic process automation (RPA) is a way to automate repetitive and

rules-based processes; the sort of transactional processes which might
typically be located in a shared service centre or another part of the back
office.

Software, acting as a 'robot', is used to capture and interpret existing IT

applications to enable transaction processing and data manipulation. As such
multiple 'robots' can act as a virtual workforce – in effect, a back office
processing centre, but without the human resources.

Automated rules-based processes provide an alternative to offshoring, and the

cost savings that can be achieved through robotic process automation are
greater than those achieved by relocating processes off-shore.

Humans can focus on more complex processes; once rules-based ones have
been automated.

Key benefits of RPA:

• Faster handling time.
• Reduced errors.
• Improved customer service.
• Reduced costs.
• Improved productivity.

Robots do not get tired or 'creative' in the way people do; they simply carry on
applying the rules set for a process.

Key in application is to ask: Are there any low value, rules-based, repetitive
processes which are currently performed by people, but which could be
automated instead?

Blockchain Blockchain
• is a type of distributed ledger.
• is a technology that allows people who do not know each other to trust
a shared record of events. (Bank of England)
• provides an effective control mechanism, which addresses some of the
fundamental cyber risks associated with using IT systems and the
internet.

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 It is transforming the notions of centralisation and decentralisation in many
business areas. Replicated and synchronised digital data is shared across the
organisation's network, however geographically spread, so there is no concept
of centralised data storage, and no question of certain parts of the organisation
having less or more information than others.

Blockchains can also be used by multiple organisations which have a shared

interest in ensuring that the record of data that they are relying on is accurate.

The three key features of blockchain are that:

1. Propagation: There are many copies of a blockchain ledger, and no

‘master’ copy. All participants have access to a full copy of the ledger
and all copies are identical and equivalent. No one party has control of
the ledger. New transactions can be posted quickly and will propagate
to all participants’ copies.
2. Permanence: With each user having their own copy of the ledger,
truth is determined by consensus. Past transactions cannot be edited
without the consent of the majority, meaning that blockchain records
are permanent. The entire ledger is stored by each participant and can
be inspected and verified.
3. Programmability: Some blockchains allow for program code to be
stored on them, as well as ledger entries – creating automatic journal
entries that execute automatically when triggered. These are the so-
called ‘smart contracts’.

Features:
1. Distributed ledger
2. Digital
3. Updated near real-time
4. Chronological and time-stamped
5. Cryptographically sealed (Immutable and secure)
6. Irreversible and auditable
7. Consensus based
8. Fewer third parties
9. Propagate, Permanent, Programmable
(Source: Deloitte)

Key benefits
1. Greater transparency
2. Enhanced security
3. Improved traceability
4. Increased efficiency and speed
5. Reduced costs

(Source: IBM)

Applications
1. Supply chain management
2. Quality assurance
3. Accounting
4. Smart contracts
5. Voting
6. Stock Exchange
7. Energy Supply
8. Peer-to-peer global transactions
9. Cryptocurrency.
(Source: www.entrepreneur.com/article/306420)

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 Video link on Blockchain:

Cryptocurrency A form of decentralised, digital currency, designed to serve as a medium of

exchange, and which uses cryptography to secure and verify transactions.

Potential Benefits
1. Frictionless transactions: Removes the time and cost of making cross-
border payments
2. Removes intermediaries
3. Reduce credit risk
4. Currency management: eliminates need to manage multiple currencies

Potential disadvantages
1. Multiple cryptocurrencies: Will still need to translate to a common
cryptocurrency of multiple cryptocurrency is accepted in transactions.
2. Acceptability: Legality
3. Volatility: Not all business would accept cryptocurrencies, therefore there
is still a need to manage exchanges which could be volatile.
4. Borrowing: Traditional banks would not lend in cryptocurrencies.
5. Reputation: negative connotations related to money laundering activities
using cryptocurrencies.

Cloud accounting It is one application of cloud computing. Accountancy software is provided in

the cloud by a service provider. The user accesses this software to proces s
their accounting transactions and run reports, just as they would if the
software was installed on their own computer.

Xero.com (a provider of cloud accounting software) identifies a number of

risks and problems with traditional accounting software which are solved
by running cloud accounting software:
• The data in the system is not up-to-date, and neither is the software.
• It only works on one computer and data bounces from place to place
(for example, on a USB drive). This is not secure or reliable.
• Only one person has user access. Key people cannot access financial
and customer details.
• It is costly and complicated to keep backups (if this is done at all).
• It is expensive, difficult and time-consuming to upgrade the software.
• Customer support can be expensive and slow.

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 Security Security (in information management): The protection of data from
accidental or deliberate threats which might cause unauthorised modification,
disclosure or destruction of data, and the protection of the information
system from the degradation or non-availability of services.

IS Risks The risks to data and systems are as follows:

• Human error
• Entering incorrect transactions
• Failing to correct errors
• Processing the wrong files
• Technical error such as malfunctioning hardware or software
• Natural disasters such as fire, flooding, explosion, impact, lightning
• Deliberate actions such as fraud
• Commercial espionage
• Malicious damage

IT Security Aspects of security include the following:

• Prevention
• Detection
• Deterrence
• Recovery procedures
• Correction procedures
• Threat avoidance.

IT Controls
• Physical Access
• Logical Access
• Data Input
• Operations
• Data Output
• Backup

Combating IT risks and IT security

• Business continuity planning
• Systems access control
• Systems development and maintenance
• Physical and environmental security
• Compliance
• Personnel security
• Security organisation
• Computer and network management
• Asset classification and control
• Security policy

Cyber Risk Any risk of financial loss, disruption or damage to the reputation of an
organisation from some sort of failure of its information technology systems.
(Institute of Risk Management)

Such a risk could materialise in the following ways:

• deliberate and unauthorised breaches of security to gain access to
information systems for the purposes of espionage, extortion or
embarrassment.
• unintentional or accidental breaches of security, which nevertheless may
still constitute an exposure that needs to be addressed
• operational IT risks due to poor systems integrity or other factors

While systems and technology risks have always been present, the risk of
cyber-attack has now become almost synonymous with cyber risk.

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 Cyber Attack A deliberate action through the Internet against an organisation with the
intention of causing loss, damage or disruption to activities.

Cyber threats and cyber-crimes include:

• Phishing: bogus emails that ask the user for security information and
personal details
• Webcam manager: where the user's webcam is taken over
• File hijacker/ransomware: where the user's files are hijacked and
held to ransom
• Keylogging: where criminals record what the user types onto their
keyboard
• Screenshot manager: where screenshots are taken of the user's
computer screen
• Ad clicker: where a user's computer is directed to click a specific link
• DDoS attacks: designed to disrupt an organisation's online presence
by preventing legitimate users from accessing the organisation's
online services. This is achieved by overwhelming the organisation's
website and communications links with a wave of internet traffic that
the system is unable to handle.

Cyber Security Definition: The protection of systems, networks and data in cyberspace; the
procedures used by a business to protect its information system (hardware,
software and information) from damage, disruption, theft or other loss.

Cyber Security and the Board

ICAEW’s 2018 Audit insights: cyber security report recommended several
measures:
• Greater awareness
• Build a security focused culture
• Reporting
• Reduce the complexity of IT environment
• Talent management

Organisations should consider:

1. Cyber Security is a business risk and it applies to all organisational
activities
2. Businesses should accept that their security will be compromised.
Therefore, should consider, intelligence and monitoring, detection and
response.
3. Businesses should focus on their critical information assets.
4. Most businesses don’t get their basics right.

ICAEW's IT faculty has identified its own '10 steps to cyber security', which –
not surprisingly – reiterate some of the steps identified by CESG:
1. Allocate responsibilities
2. Protect your computers and your network
3. Keep your computers up to date
4. Control employee access to computers and documents
5. Protect against viruses
6. Extend security beyond the office
7. Don't forget disks and drives
8. Plan for the worst
9. Educate your team
10. Keep records – and test your security

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 Cyber Gap ICAEW's 2018 Audit insights: cyber security report highlights that many
organisations suffer from a so-called 'cyber gap', between the organisations'
capabilities to protect their IT infrastructures and the ability of attackers to do
damage.

The report suggests that to combat these risks effectively, organisations need
to make cyber security central to everything they do.

The ICAEW's 2018 report also recommends that:

• Corporate boards should demand that suppliers to the organisation
comply with relevant cyber security laws and standards as this should
help to protect IT assets in the supply chain.
• Organisations should avoid solely relying on point-in-time
assessments regarding occasional checks on the security procedures
associated with IT infrastructures and instead should make this an on-
going activity.

Technology and According to the World Economic Forum there are several key technology
Covid-19 pandemic trends that have been accelerated by Covid-19 and these technologies may
have a long-lasting impact beyond Covid-19.
1. Online shopping and robot deliveries
2. Digital and contactless payments
3. Remote work using virtual meetings, cloud technology, and work
collaboration.
4. Telehealth enabling remote monitoring and diagnosis of patients
using wearable technology
5. Supply chain 4.0 with the use of big data, cloud computing, IOT and
blockchains.
6. Robotic and drones in labour intensive businesses affected by Covid-
19

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Strategies for Change

Types of • Incremental: Small steps, Gradual Process

Change • Transformational: Significant
• Step: Unexpected
• Planned
• Emergent: Continuous open-ended adjustments

JSW Model

Levels of • Individual level

Change o Skills
o Attitude
o Motivation
• Organisation structure and systems level
• Organisation climate and interpersonal style level
o From conflict to trust

Change Steps
processes 1. Determine need or desire for change in a particular area.
2. Prepare a tentative plan. Brainstorming sessions are a good idea,
since alternatives for change should be considered.
3. Analyse probable reactions to the change.
4. Make a final decision from the choice of alternative options. The
decision may be taken either by group problem-solving
(participative) or by a manager on his own (coercive).
5. Establish a timetable for change.
• 'Coerced' changes can probably be implemented faster, without
time for discussions.
• Speed of implementation that is achievable will depend on the
likely reactions of the people affected.
• Identify those in favour of the change, and perhaps set up a pilot
programme involving them. Talk with any others likely to resist
the change.
6. Communicate the plan for change. This is really a continuous
process, beginning at Step 1 and going through to Step 7.
7. Implement the change.
8. Review the change. This requires continuous evaluation.

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 Change Agent A change agent is an individual (sometimes called a Champion of Change), a
group or external consultancy with the responsibility for driving and 'selling'
the change.

The role of the change agent varies depending on the brief they are given. It
may include:
• Defining the problem
• Examining what causes the problem and considering how this can be
overcome
• Suggesting possible solutions
• Selecting an appropriate solution
• Implementing the change
• Communicating information about the change throughout the
organisation
• Gaining support from all involved to deliver the solution.

To be effective a change agent should have the following skills and

attributes:
• Communication skills
• Negotiation and 'selling' skills
• An awareness of organisational 'politics'
• An understanding of the relevant processes
• Financial analysis skills
• Flexibility to be able to respond to changes in project goals
• Adaptable to complexities of modern organisations.

Champion of change model

Step 1: Senior management decide what is to be done.
Step 2: Senior management appoints change agent to
Step 3: Change agent wins support of functional and operational managers,
who will introduce and enforce changes in their own departments.
Step 4: Change agent galvanises managers to action and gives support.

Adaptive vs Adaptive change approach

Coercive • When environment changes slowly
• Implemented in little stages
• Minimises resistance

Forced/Coercive change approach

• Enforced without participation
• Used in crisis
o No time to consult
o Decisions need to be taken quickly
o May induce panic
o Can promote immediate willingness to change
• Problems
o Underestimation of resistance to change
o Failure to muster forces in favour
o Failure to attack root causes of resistance
o Management shifts attention too quickly elsewhere
o Failure to ensure implementation

Force Field • Driving Forces for change

Analysis • Restraining Forces
• Keeping things in equilibrium
• Change management is to
o Weaken the resisting force
o Strengthen the driving force

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 Barriers of • Cultural barriers
Change o Structural inertia
▪ Consistency of structure threatened
o Group inertia
▪ Group norms challenged
▪ Group skills made redundant
o Power structures threatened
▪ Legitimate: Authority
▪ Referent: Charisma
▪ Reward
▪ Coercive
▪ Information
▪ Expert
▪ Negative

• Personal barriers
o Fear of the unknown
o Income/Earnings
o Security
o Habits
o Selective information processing

• The psychological contract

o The deal between the employer and employee
o Match between what
▪ Employers Offer
▪ Employees Want
o Are wants satisfied
o Are offers adequate
o Change will shift wants and offers
o Three types
▪ Coercive
▪ Wants > Offers
▪ Calculative
▪ Wants = Offers
▪ Cooperative
▪ Wants < Offers
Lewin Iceberg Unfreezing involves a trigger, a challenge of existing behaviour, involvement
Model of outsiders, alterations to power structures.
• Selling the change and giving a motive for change
• 4 elements
▪ A trigger
▪ Someone to challenge existing behaviour
▪ The involvement of outsiders
▪ Alterations to power structures.
• Communicate it
• Physically removing individuals from their accustomed routines,
sources of information, social relationships
• Consulting team members about proposed changes
• Confronting team members’ perceptions and emotions about
change
• Positively reinforcing demonstrated willingness to change.

Moving means making the changes which involves learning new concepts
and new meanings for existing concepts. This is the transition stage, by
which an organisation moves from its current state to its future state.
• Identify who are role models or what new behaviour/norm to follow

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 • Internalisation: Placing individuals in situations that they can
develop coping behaviours.
• Encouraging people to own the new behaviour
• Attitudinal change
• Adoption of new cultures
• New ideas must be shown to work

Refreezing means consolidation and reinforcement of the new situation to

stabilise the new state of affairs.
• Positive and/or negative reinforcement
• Developing new habits: practice, application, repetition.

Gemini 4Rs Revitalising

• Securing a good fit with the environment
• Achieve market focus
• Invent new business
• Change the rules of competition by using technology

Reframing
• What the organisation is and for?
• Achieve mobilisation (Unfreeze)
• Create the vision
• Build a measurement system

Restructuring
• Organisational and cultural changes
• Construct an economic model
o How value is created?
o How resources are deployed?
• Align physical infrastructure with overall plan
• Redesign work architecture to allow processes to create value

Renewal
• Ensuring that people have the necessary skills to contribute to it
• Ensuring that people in the organisation support the change process
• Create reward system to motivate
• Build individual learning
• Develop the organisation and its adaptive capability.

Change 1. Communication and Education

Methods 2. Participation and Involvement
3. Negotiation and Agreement
4. Manipulation and Cooptation
5. Explicit/Implicit Coercion and Edict
6. Facilitation and Support
7. Positive and Negative Reinforcement

Kotter’s 8 1. Establish a sense of urgency

steps model to 2. Form a powerful guiding coalition
managing 3. Create a vision
change 4. Communicate the vision
5. Empower others to act on the vision
6. Plan for and create short-term wins
7. Consolidate improvements and produce still more change
8. Institutionalise new approaches.

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 Communicating Change

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Corporate Governance, Ethics, Sustainability and Corporate Responsibility

Directors’ Duties Companies Act 2006

S171: To act within powers

Directors must:
• Act in accordance with the company's constitution.
• Exercise powers only for the purpose for which they were conferred.

S172: To promote the success of the company

Directors must act in the way they consider, in good faith, would be most
likely to promote the success of the company for the benefit of its
members as a whole.

S173: To exercise independent judgement

It does not mean that they are not exercising independent judgment
where they act in accordance with:
• An agreement duly entered into by the company that restricts the
future exercise of discretion by its directors; or
• The company's constitution.

S174: To exercise reasonable care, skill and diligence

The care, skill and diligence that would be exercised by a reasonably
diligent person with:
• The general knowledge, skill and experience that may reasonably be
expected of a person performing their functions as director.
• Actual general knowledge, skill and experience.

S175: To avoid conflicts of interest

A director must avoid a situation in which they have or could have a
direct or indirect interest that conflicts or possibly may conflict with the
interests of the company or another duty.

S176: Not to accept benefits from 3rd parties

A director must not accept a benefit from a third party by reason of their:
• being a director; or
• doing (or not doing) anything as director (unless the acceptance of
the benefit cannot reasonably be regarded as likely to give rise to a
conflict of interest).

S177: To declare interest in proposed transactions or arrangements.

Provided the director is, or ought reasonably to be, aware of the situation,
they must declare the nature and extent of any such interest (direct or
indirect) to the other directors, unless it cannot reasonably be regarded
as likely to give rise to a conflict of interest.

S414: Strategic Report

For listed entities and those in the public interest, directors are to
disclose and report how they have achieved this legal requirement in
promoting the success of the company (S172) via the strategic report.
This communication sits within the company’s annual report and uses
financial and non-financial key performance indicators (KPIs) to present
a fair review of the company’s business and a description of the
company’s principal risks and uncertainties. The strategic report is
considered to be a logical extension of the directors’ assessment of going
concern.

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 Corporate Corporate governance generally refers to the system by which companies
Governance are directed and controlled.

The aim of corporate governance is to facilitate effective, prudent

management to deliver long term success.

The UK Corporate Governance Code helpfully sets out the ‘underlying

principles of all good governance’:
• Accountability (Responsibility)
• Transparency
• Probity (honesty, integrity)
• Focus on the sustainable success of an entity over the longer term

Guidance on The UK Financial Reporting Council (FRC) published a Guidance on Board

Board Effectiveness in 2018, to accompany the updated Corporate Governance.
Effectiveness
The Guidance on Board Effectiveness stresses that an effective board’
defines the company’s purpose and then sets a strategy to deliver it,
underpinned by the values and behaviours that shape its culture and the
way it conducts its business’.

Factors that contribute to effective boards that makes well-informed, and

high-quality decisions include:
• Robust debate in the boardroom, reflecting the diversity of skills
and perspectives of the directors and avoiding ‘group think’
• Allowing sufficient time for debate and discussion of all issues
within the board’s remit
• Obtaining input from key stakeholders
• Obtaining expert opinions when necessary

Factors that can limit effective decision-making (and to try to avoid

them):
• A dominant personality or group of directors on the board,
inhibiting contribution from others
• Insufficient diversity of perspective on the board, contributing to
‘group think’
• Excess focus on risk mitigation, or insufficient attention to risk
• Treating risk as a compliance issue, rather than as part of the
decision-making process
• Insufficient knowledge and ability to test underlying
assumptions
• Failure to listen to, and act upon, concerns that are raised
• Failing to recognise the consequences of running the business on
the basis of self-interest and other poor ethical standards
• A lack of openness by management, reluctance to involve non-
executive directors, or a tendency to bring matters to the board
for sign-off, rather than debate
• Complacent or intransigent attitudes
• Inadequate information or analysis; poor quality board papers
• Lack of time for debate, and truncated debate
• Undue focus on short-term time horizons (rather than longer-
term issues)

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 Corporate 1. Board issues
Governance a. Domination by a single individual
Weaknesses b. Lack of involvement of board
c. Lack of supervision
2. Complaints over director’s remuneration
a. Excessive
b. Not motivating
c. Incentivises risks beyond what deemed acceptable by
shareholders
d. Failure is rewarded
3. Accounts and audit failings
a. Control function inadequate
b. Scrutiny not independent
c. Misleading accounts and information

Corporate Key segments of the UK CG Code (Financial Reporting Council, 2018)

Governance Code • Board Leadership and company purpose
• Division of Responsibility
• Composition, succession and evaluation
• Audit, risk and internal control
• Remuneration

Role of the Board Boards of directors in the UK have five principal roles:
and non- • Accountability – the liability to render account to someone else. A
executives director is accountable to the shareholders, at common law or by
statute, and the company's annual report and accounts, for example,
should be presented to the shareholders for approval.
• Supervision – monitoring and overseeing management
performance.
• Direction – formulating the strategic direction in the long term.
• Executive action – involvement in implementing and controlling
strategy.
• Risk assessment and management – determining the nature and
extent of the risks the company is willing to take to achieve its
objectives and ensuring good practices in risk management.

Non-Executive Directors who have no executive (managerial) responsibilities.

Director
NED responsibilities:
• People: deciding the appropriate levels of remuneration for
executive directors, and have a prime role in succession planning and
in the appointment and (where necessary) removal of executive
directors.
• Strategy: constructively challenge and help develop proposals on
strategy
• Scrutiny: scrutinise the performance of management in meeting
agreed objectives and targets, and should monitor the reporting of
performance by management
• Risk: systems of financial control and risk management are 'robust
and defensible

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 Committees 1. Nomination Committee
a. Recommend new appointments to the board
2. Audit Committee
a. Liaising with the external auditors and monitoring auditor
independence
b. Monitoring the external audit and reviewing the financial
statements
c. Monitoring the effectiveness of the internal control system
and risk management system
d. Supervising the internal audit function
3. Remuneration Committee
a. Advising the board on executive director remuneration
policy
b. Negotiating and agreeing the specific remuneration package
for each executive director
4. Risk Committee
a. Overseeing the organisation’s risk management systems.

Reward The committee has delegated responsibility for setting remuneration for
Structures all executive directors and the Chair.

Issues considered by the committee would include the following:

• Remuneration levels for non-executives
• Length of service contracts for executive directors
• Performance related systems of reward
• Pension contributions
• Compensation for loss of office
• Share option schemes

The remuneration package may consist of:

• Annual compensation (basic salary, pension contributions by the
company for the individual, payments by the company into a
personal pension scheme arrangement for the individual, a bonus
(often a cash bonus) tied perhaps to the annual financial
performance of the company and various perks, such as membership
of the company's health insurance scheme, private use of company
aircraft or boats, and so on).
• Long-term compensation, consisting of share option schemes or
company shares or the award of additional options depending on
long-term performance indicators.
• A severance payment arrangement, whereby the company is
committed to giving the individual a minimum severance payment if
he or she is forced to leave the company.

A combination of fixed and variable elements:

• The fixed elements are the remuneration received by the director
regardless of performance, such as fixed salary and salary-related
pension.
• The variable elements are the performance-related elements (cash
bonuses, awards of share options or shares depending on
performance, etc).
Risk Management Guidance on enhancing board’s risk management capabilities
and the Board 1. Discuss risk management philosophy and risk appetite
2. Understand risk management practices
3. Review portfolio risks in relation to risk appetite
4. Be appraised of the most significant risks and related responses.

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 Turnball 1. Risk assessment
Guidance on 2. Control environment and control activities
internal control 3. Information and communication
4. Monitoring

Workers and the Under the UK Governance Code, boards are required to consider the
Board interests of stakeholders, particularly workers, when making decisions.

Effective engagement procedures are required to achieve this, and the UK

Corporate Code provides that, in order to ensure engagement with the
workforce, companies should do one or more of the following:
• Appoint a director from the workforce
• Establish a formal workforce advisory panel
• Have a non-executive director designated to specialise in workforce
issues

NFP Board Roles Important to manage these issues:

• Accountability
• Stakeholders
• Openness and Transparency
• Governance and Board structures
• Monitoring performance

Boards Roles
• Responsibilities and Mandate
o Strategic Planning
o Risk identification and management
o Management effectiveness and succession
o Communications with stakeholders
o Internal control and management information systems
• Structure and organisation
• Process and information
• Organisation culture
• Performance assessment and accountability
o Board members should be
▪ Acting in good faith, in the best interest of the NFP
▪ Avoid conflict of interest
▪ Be diligent
▪ Obtain a level of confidence regarding
▪ CEO's integrity and ability
▪ Embrace the Nolan Principles

Nolan Principles The Nolan Seven Principles of Public Life include:

1. Selflessness: holders of public office should take decisions solely in

terms of the public interest. They should not do so to gain financial or
other material benefits for themselves, their family or their friends.

2. Integrity: holders of public office should not place themselves under

any financial or other obligation to outside individuals or
organisations that might influence them in the performance of their
duties.

3. Objectivity: in carrying out public business, including making public

appointments, awarding contracts or recommending individuals for
rewards and benefits, holders of public office should make choices on
merit.

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 4. Accountability: holders of public office are accountable for their
decisions and actions to the public and must submit themselves to
whatever scrutiny is appropriate to their office.

5. Openness: holders of public office should be as open as possible

about the decisions and actions that they take. They should give
reasons for their decisions and restrict information only when the
wider public interest clearly demands.

6. Honesty: holders of public office have a duty to declare any private

interests relating to their public duties and to take steps to resolve
any conflicts arising in a way that protects the public interest.

7. Leadership: holders of public office should promote and support

these principles by leadership and example.

Inducements and In addition to the ICAEW Code, accountants operating in businesses

bribery linked to the UK should be aware of the Bribery Act 2010.

Bribery is an intention to encourage or induce improper performance by

any person, in breach of a duty or expectation of trust or impartiality.

Bribery may be an offence for the person making a bribe ('active bribery')
and the person accepting a bribe ('passive bribery').

Possible inducements include:

• gifts
• hospitality
• preferential treatment
• inappropriate appeals to friendship or loyalty

Under the Bribery Act 2010, there are four categories of criminal bribery
offences:
• Offering, promising or giving a bribe to another person
(including officials).
• Requesting, agreeing to receive or accepting a bribe from
another person.
• Bribing a foreign official.
• Failing to prevent bribery. This is a corporate offence. If
companies fail to prevent bribes being paid on their behalf, the
company is deemed to have committed an offence which is
punishable by an unlimited fine.

The only defence available for a company against a charge of failing to

prevent bribery is for it to prove it had 'adequate procedures' in place for
the prevention of bribery.

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 Data Protection The EU General Data Protection Regulations (GDPR) or the Data
Protection Act (2018) in the UK controls how personal data is used by
organisations, and requires them to ensure that data is kept secure,
accurate and up to date.

Personal data is any data or information that can be used to identify a

person, including their name, address, date of birth, or email address.

The Act notes that everyone responsible for using personal data has to
follow strict data protection principles, and must ensure the information
is:
• used fairly, lawfully and transparently
• used for specified, explicit purposes
• used in a way that is adequate, relevant and limited to only what
is necessary
• accurate and, where necessary, kept up to date
• kept for no longer than is necessary
• handled in a way that ensures appropriate security, including
protection against unlawful or unauthorised processing, access,
loss, destruction or damage

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 Ethics • System of behaviour
• Deemed acceptable
o In Society
o Context in consideration

In short, it is ‘doing the right thing’

3 Levels of Ethics • Personal Ethical Behaviour

• Business Ethics
o The way a firm behaves
• Corporate Responsibility (CSR)
o Believe that the firm owes a responsibility to society

Company Ethical Ethical stance of company

Stance 1. Meet minimum legal obligation
2. Corporate governance (builds relationship with other
stakeholders for the wealth of the long-term wealth of shareholders)
3. Go beyond legal and corporate governance obligations
4. Public sector organisations

Ethical Tests 1. Establish the facts and what issues are involved.
a. Validity of the source of information?
b. The severity of the impact?

2. Which stakeholders are involved?

Their level of interest and power?
Need to ask ethical issue for WHO?

3. The issue of legality and compliance needs to be considered.

Any laws or codes broken?

4. In deciding as to how to proceed, use the Institute of Business Ethics

three tests
a. Transparency
• Do I mind others doing what I have done?
• Have we been transparent?
• Would we be transparent?
b. Effect
• Whom does my decision affect or hurt?
1. Adverse?
2. Long Term?
3. Reversible?
c. Fairness
• Would my decision be considered fair by those
affected?
• Weigh the pros and cons

5. Honesty and integrity should also be considered.

6. Decide whether it is ethical?

7. Recommend action plans? Be specific to the case.

Things to AVOID in ethical questions:

1. Identifying only one issue
2. Failing to identify the ethical issue (e.g. transparency)
3. Failing to use ethical language
4. Limiting only to Transparency, Effect and Fairness.
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 5. Quoting chunks of ICAEW's ethical code without applying it to the
scenario
6. Failing to identify appropriate safeguards
7. Applying professional accountants' ethical codes to individuals in the
scenario who are not accountants
8. Failing to distinguish between the ethical responsibilities of the
individual and those of the organisation
9. Being biased, taking a one-sided view.
10. Concluding by asserting an opinion that is not supported by clear
justification on ethical grounds – stating 'X should be done because it
is right' is insufficient.

ICAEW Ethical ICAEW Code of Ethics

Code • Principles
o Integrity
o Objectivity
o Professional competence and due care
o Confidentiality
o Professional Behaviour
• Threats
o Self-interest
o Self-review
o Advocacy
o Familiarity
o Intimidation
• Safeguards
o Systems of corporate oversight
o Ethics and conduct programmes
o Recruitment controls
o Internal controls
o Appropriate disciplinary processes
o Leadership
o Policies and procedures to monitor employee performance
o Timely communication of policies
o Encourage upward communication
o Consultation with other professional accountants
• Actions in unethical circumstances
o Seek legal advice
o Disassociate from task
o Resign from company

Ethics and Manufacturing issues

Production • Products should not cause harm
• Environmental issues
• Defective, addictive, dangerous products
• Child labour
• New technologies
• Product testing issues
• Environmental impacts of end of life cycle products

Ethics and Procurement

Procurement • The human rights of workers within supplier firms
• Proper health and safety standards
• Environmental protection
• Fair contracting terms and conditions with suppliers
• Transparency in negotiations with suppliers
• Fraud and corruption
• Gifts and inducements

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 Ethics and Issues
Marketing • Wastes the world's resources
• Making things that people don't really need
• Convincing people that they need more
• Envy created contributes to street crime
Arguments
• Value judgements
o People will not buy if they really don't need
• Creates employment
• Proper target marketing reduces wastes
• Some marketing activities promote ethical behaviour

Ethics and Data • Who actually owns the customer data?

• Privacy
• Cyber risks
• Data Protection Act

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 Corporate Corporate responsibility
Responsibility • The actions, activities, and obligations of business in achieving
sustainability

Corporate responsibility is used to describe the duties which a business

has, to the wider community.

Sustainability Definition:
• The ability to meet the needs of the present,
• without compromising the ability of future generations,
• to meet their own needs.

Issues:

Social
Health and safety, workers' rights (in the business itself and its supply
chain), pay and benefits, diversity and equal opportunities, impacts of
product use, responsible marketing, data protection and privacy,
community investment, and bribery/corruption.

Environmental
Climate change, pollution, emissions levels, waste, use of natural
resources, impacts of product use, compliance with environmental
legislation, air quality.

Economic
Economic stability and growth, job provision, local economic
development, healthy competition, compliance with governance
structures, transparency, long-term viability of businesses, investment in
innovation/new product development.

Board role in Why is are ESG issues important?

Sustainability • Investors and other external stakeholders are recognising the
importance of ESG in delivering long-term business value.
• Employees and management want to work for companies that
are actively addressing ESG issues and giving back to society and
the environment.

The board therefore has a key oversight role in ensuring that the
organisation effectively monitors and manages ESG factors. Some
considerations for the board with regard to managing ESG factors
include:
• Ensuring that the board has the necessary expertise and skills to
manage ESG risks and opportunities
• Ensuring that ESG risks and opportunities are integrated into
the company’s long-term strategy
• Communicating regularly with investors and stakeholders
regarding the company’s approach to managing sustainability,
identifying risks and mitigating actions.
• Ensuring that regulatory ESG reporting requirements are met,
using appropriate reporting frameworks and standards.

Sustainable A sustainable enterprise is one that takes account of social and

Enterprise environmental returns as well as financial ones, to generate continuously
increasing stakeholder value by applying sustainable practices
throughout all its activities.
• To be financially sustainable (i.e. to survive in the long term), a
business needs an understanding of the changing external

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 environment so that it can respond and adapt to the
opportunities and threats presented by it.
• To be environmentally sustainable, an organisation should
only use resources at a rate that allows them to be replenished
to ensure they will continue to be available.
• To be socially sustainable, an organisation makes decisions
which respects people, communities and the environment.

Sustainable Sustainability development

Development • Process by which we achieve sustainability

8 different mechanisms
• Corporate policies
• Supply chain pressure
• Stakeholder engagement
• Voluntary codes
• Rating and benchmarking
• Taxes and subsidies
• Tradable permits

UN Sustainable This 'Agenda' is a 15-year plan, formally adopted by the UN in September

Development 2015, which includes 17 global goals for sustainable development, with
Goals the aims of ending poverty, combatting climate change, and fighting
injustice and inequality.

The goals have been configured so that they are interconnected, meaning that
efforts to address one will also involve addressing those issues associated
with a different goal. Each goal is supported by a series of targets which are
intended for use in measuring its achievement. The UN has set a deadline of
2030 for the achievement of these goals.

The UN's Sustainable Development Goals are aimed at getting people,

organisations and governments around the World to engage in their
achievement by integrating them into their everyday thinking, corporate
strategies and national legislation.

Each goal is supported by a series of targets which are intended for use in
measuring its achievement.

The UN has set a deadline of 2030 for the achievement of these goals. The
UN’s Sustainable Development Goals are aimed at getting people,
organisations and governments around the World to engage in their
achievement by integrating them into their everyday thinking, corporate
strategies and national legislation.

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 https://sustainabledevelopment.un.org/sdgs

SDGs 1. No poverty
2. Zero Hunger
3. Good health and well-being
4. Quality education
5. Gender equality
6. Clean water and sanitation
7. Affordable and clean energy
8. Decent work and economic growth
9. Industry, innovation and infrastructure
10. Reduced inequality
11. Sustainable cities and communities
12. Responsible consumption and production
13. Climate action
14. Life below water
15. Life on land
16. Peace, justice and strong institution
17. Partnership for the goals.

SDG Compass 1. Understanding the SDGs

2. Defining priorities
3. Setting goals
4. Integrating
5. Reporting and communicating

Benefits of SDG 1. Identifying future business opportunities

2. Enhancing the value of the corporate sustainability
3. Strengthening stakeholder relations
4. Stabilising societies and markets
5. Using common language and shared purpose.

Performance KPIs that you can design for sustainability.

Indicators
UN Climate Change Conference of the Parties (COP 26) in 2021 there has
been an increasing emphasis on climate related reporting.

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 From April 2022 Environmental, Social and Governance (ESG) reporting
is mandatory for publicly quoted companies and all private and listed
liability companies with more than 500 employees and turnover greater
than £500million.

ESG factor Performance Indicator example

Environmental - Energy consumption

- taking actions to protect the - Water use
environment - Carbon emissions
- Waste and effluents produced

Social - Staff turnover

- building and maintaining - Employee health and safety
relationships with stakeholders - Fair working and pay conditions
- Child labour
- Supply chain sustainability

Governance - Diversity of board directors

- ensuring leadership are - Board member expertise
transparent and accountable in - Risk identification and
their stewardship of the mitigation
organisation - Bribery and corruption

Global Reporting In October 2016 the GRI launched the first global standards for
Initiative (GRI) sustainability reporting.

Organisations adopting the GRI approach are required to follow three

standards:

GRI 101: The foundation standard details how organisations

should use the standards to produce a sustainability report. It
requires organisations to consider how those activities deemed
to represent 'material' activities impact on stakeholders.

GRI 102: The general disclosure standard details how

organisations should report contextual information relevant to
the organisation. It also outlines the reporting process.

GRI 103: The management approach details how organisations

manage material activities. GRI 103 is used in conjunction with
specific standards.

Performance indicators:
Economic: concerns the organisation's impacts on the economic
conditions of its stakeholders and on economic systems at local, national,
and global levels.
• Revenue and costs
• Wages, pension, other employee benefits
• Retained earnings and payments to providers of capital
• Taxes paid, subsidies and grants received
• Geographical analysis of key markets
• Return in capital employed

Environmental: concerns an organisation's impacts on living and non-

living natural systems, including ecosystems, land, air, and water.
• Materials used
• Energy consumption

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 • Water use
• Greenhouse gas emissions
• Effluents and waste produced
• Significant spillages
• Fines and penalties
• Impact of activities on biodiversity

Social: concerns the impacts an organisation has on the social systems

within which it operates.
• Employee turnover and absenteeism
• Diversity of workforce, incidents of discrimination
• Employee health and safety
• Child labour
• Training undertaken
• Bribery and corruption
• Community relations
• Complaints re breaches of customer privacy
• Standard of product labelling.

Accounting for The Accounting for Sustainability (A4S) project was established to
Sustainability provide organisations with methodologies and tools to enable them to
(A4S) embed sustainability into day-to-day processes and to report more
effectively on their sustainability performance.

It aims to 'inspire action by finance leaders to drive a fundamental shift

towards resilient business models and a sustainable economy.

Three core aims:

1. Inspire finance leaders to adopt sustainable and resilient business
models
2. Transform financial decision-making to enable an integrated
approach, reflective of the opportunities and risks posed by
environmental and social issues
3. Scale up action across the global finance and accounting community.

The accounting profession can help by

• Influencing and informing
• Leading by example
• Drive thought leadership
• Collaboration
• Training and professional education.

CFOs and the accounting profession should take on the role to create
long term sustainable value by integrating economic, environmental and
social matters into their decision-making.

Natural Capital The increased importance of environmental issues highlights the

importance of natural capital.

Natural Capital: The stock of renewable and non-renewable natural

resources that combine to yield a flow of benefits or “services” to people
(eg. Biodiversity as plants and animals, air, water, soils, minerals). The
flows can be ecosystem services or abiotic services; which provide value
to business and to society.

Ecosystem services: The benefits to people from ecosystems, such as

timber, fibre, pollination, water regulation, climate regulation,
recreation, mental health, and others.

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 Abiotic services: The benefits to people that do not depend on
ecological processes but arise from fundamental geological processes
and include the supply of minerals, metal, and oil and gas, as well as
geothermal heat, wind, tides and the annual seasons.

Natural Capital Valuation

‘Natural capital valuation’ monetizes the impacts and dependencies
businesses have on natural resources so that companies can know their
true value for their business. The costs and benefits linked to natural
capital are made clear and the risks and opportunities for business can
be seen.

Three key steps in the valuation process of natural capital:

1. Quantify resource use or environmental emissions in biophysical
units (kilograms, litres, etc.)
2. Understand how the resource use or environmental emissions cause
changes in the natural environment (for example, through water
pollution or changes in air quality)
3. Value the impacts on people associated with these changes in the
natural environment (e.g., impacts on health, or on agriculture or
fisheries)

Importantly, when trying to value and manage natural capital

organisations need to apply a consistent methodology, in order to be able
to make meaningful comparisons between different projects, or in
comparing performance over time. The 'Natural Capital Protocol' –
developed by the Natural Capital Coalition – is one such framework
which can be used for measuring and valuing natural capital.

Role of Accountants and Natural Capital

A report by EY suggests that accountants have a role to play in
developing and supporting the introduction of natural capital accounting
in their organisations:
• raise natural capital as a strategic issue
• measure and value natural capital impacts
• engage with stakeholders, for example suppliers for sustainable
sourcing, customers who want more responsible products and
banks who are concerned by natural capital risks and
opportunities.
• use natural capital valuation in decision making and reporting
• carry out natural capital accounting with the same discipline as
financial reporting

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Index

3 Es..........................................................69 Covid-19.......................................... 109 Internet of Things...................100

4 Vs of Operations......................90 Critical Success Factors.........16 Investment appraisals ........... 80
Abiotic services ........................ 130 CRM.........................................................93 IS Risks .............................................107
Acceptability ...................................66 Cryptocurrency ........................ 106 IT Security .....................................107
Accounting for Sustainability CVP Analysis....................................80 JIT Systems ...................................... 90
(A4S) .......................................... 129 Cyber Gap ...................................... 109 Joint Ventures................................ 62
Acquisitions .....................................62 Cyber Security........................... 108 Kay’s....................................................... 17
Adaptive change ...................... 111 Data Analysis ..................................75 Key Performing Index ............ 69
Adhocracy ............See Mintzberg Data Bias.............................................56 Knowledge Management..... 93
Agile organisations....................48 Data Protection Act............... 121 Lewin Iceberg Model............112
Analytics .............................................99 Data Warehouses........................97 Licensing............................................ 63
Ansoff ...........................................29, 31 Decentralisation ..........................43 Local Subsidiary .......................... 47
Artificial Intelligence ........... 101 Decision Trees...............................52 Lynch............................................ 29, 60
Automation .................................. 104 Desk Research ...............................32 Machine Bureaucracy............ See
Balance Scorecard......................72 Differentiation...............................27 Mintzberg
Barriers of Change ................. 112 Digital Asset Management..96 Machine Learning...................101
BCG Matrix........................................22 Digital Assets ..................................96 Margin of Safety........................... 80
Benchmarking ...............................74 Directors Market Research......................... 32
Best Fit Approach .......................86 NFP .............................................. 119 Marketing.......................................... 31
Big Data ...............................................97 Non-executive.................... 117 International .......................... 61
Blockchain..................................... 104 Divisionalised....See Mintzberg Marketing Mix ............................... 36
Boundary-less organisations Earl ..........................................................91 Mean ...................................................... 52
.............................................................46 Ecosystem services ............... 129 Mendelow’s Matrix .......................6
Bowman’s Strategic Clock...29 Effect....................................See Ethics Methods of Growth ................... 60
Brand Awareness .......................35 Emergent Approach .................... 2 Mintzberg.......................................... 44
Brand Positioning.......................35 Enterprise Resource Mission ....................................................4
Breakeven .........................................80 Planning Systems................94 Mobility barriers......................... 11
Bribery ............................................. 120 E-procurement..............................89 Modular Organisations.......... 46
Budgeting...........................................67 Ethics ................................................. 122 MRP I..................................................... 90
Business Continuity Planning Marketing .............................. 124 MRP II................................................... 90
.............................................................50 Ethics and Procurement... 123 Natural Capital...........................129
Business Partner Model........83 Ethics and Production ........ 123 Natural Capital Valuation.130
Business Plan .................................82 Expected Values...........................51 Networks ........................................... 20
Business Risk.................. See Risks Fairness .See Ethics, See Ethics Nolan ..................................................119
Capacity Planning.......................90 Feasibility ..........................................65 Normal Distribution ................ 54
Centralisation.................................43 Field Research ...............................32 Offshoring......................................... 47
Change Agent.............................. 111 Financial Risk................. See Risks Ohmae.................................................. 10
Chatbots.......................................... 103 Force Field Analysis ............. 111 Operation Information .......... 91
Cloud accounting .................... 106 Franchising.......................................64 Operational Risk ..........See Risks
Cloud computing..................... 106 Gap Analysis....................................24 Operations Management..... 89
Co-efficient of variation ........54 GDPR.................................................. 121 Outsourcing..................................... 20
Coercive change....................... 111 Gemini 4Rs.................................... 113 Perceptual Map ............................ 34
Committee Global Product Division ........47 Perceptual Mapping................. 34
Audit........................................... 118 Global Reporting Initiative Performance Evaluation ...... 77
Nomination .......................... 118 (GRI)........................................... 128 Personal barriers.....................112
Remuneration.................... 118 Green Finance................................... 9 PESTEL ....................................................8
Risk.............................................. 118 Group inertia .............................. 112 Place Strategy................................ 42
Compliance Risk .......... See Risks Harmon’s............................................21 Porter
confidence interval....................57 Hazard Risk...................... See Risks 5 forces........................................ 11
Contingency Approach..43, 86 Hollow Organisations .............46 diamond ..................................... 10
Corporate Governance....... 116 Human Resource generic strategy................... 25
Corporate Governance Code Management...........................84 value chain ............................... 18
2012 ........................................... 117 hypothesis testing......................57 Porter’s Better Off Tests....... 62
Corporate Responsibility . 125 ICAEW Code of Ethics ......... 123 Positioning ....................................... 34
Correlation .......................................58 Inducements............................... 120 Power structures.....................112
Correlation coefficient ...........58 Industry Life Cycle.....................15 Price Discrimination................ 39
Cost Leadership............................26 Innovation.........................................87 Price Elasticity of Demand. 38
Costing Intelligent Systems................ 100 Pricing Strategy ........................... 42
Absorption ................................79 International Trade Life Probability........................................ 51
Activity based.........................79 Cycle ...............................................15 Product Life Cycle...................... 22
Marginal......................................79 International Division ............47 Product Strategy......................... 42
Costs categories ...........................79 International expansion .......61

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Professional Bureaucracy ..See Scenario Planning.......................... 7 Suitability .......................................... 65
Mintzberg Segmentation .................................33 Supply Chain Management 19
Promotion Mix ..............................40 Shamrock Organisations ......45 Sustainability ..............................125
Promotion Strategy...................42 Shared service centres...........21 Sustainable Development
psychological contract ....... 112 Simple Structure.........................See Goals ...........................................126
Purchasing........................................88 Mintzberg SWOT Analysis ............................. 24
Quality Skewness............................................55 Tactical information ................ 91
assurance...................................90 Spurious correlation ................57 Targeting ........................................... 34
control ..........................................90 Stakeholder......................................... 5 Test-marketing............................. 32
Quality Management................90 Standard deviation....................53 Total Quality Management 90
R & D Planning..............................87 Statistics..............................................52 TOWS Analysis ............................. 24
Rational Approach ........................ 2 Strategic Alliance ........................63 Transfer Pricing........................... 75
Regression Analysis..................58 Strategic Capability...................17 Transnational ................................ 47
Relationship Marketing.........41 Strategic Fit......................................65 Transparency............... See Ethics
Rewards Management ...........86 Strategic Groups ..........................11 Turnball Guidance..................119
Risk..........................................................49 Strategic Information..............91 Type I error..................................... 57
Risk Appetite ..................................49 Strategic performance Type II error................................... 57
Risk Assessment ..........................50 measures....................................68 Value Proposition ...................... 31
Risk Evaluation .............................50 Strategic Risk.................. See Risks Virtual Organisations.............. 46
Robotic process automation Structural inertia..................... 112 What, How, Why.......................... 77
......................................................... 104 Stuck in the middle ...................28
Sampling.............................................56 Succession planning.................87

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